<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1998.
REGISTRATION NO. 333-64513
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
AIRCRAFT SERVICE INTERNATIONAL, INC.
FLORIDA AVIATION FUELING COMPANY, INC.
DISPATCH SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4581 65-0822351
DELAWARE 4581 38-1844890
FLORIDA 4581 59-0785228
FLORIDA 4581 59-0578335
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
8240 N.W. 52ND TERRACE, #200
MIAMI, FLORIDA 33166-7766
TELEPHONE: (305) 599-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
STEPHEN D. TOWNES
8240 N.W. 52ND TERRACE, #200
MIAMI, FLORIDA 33166-7766
TELEPHONE: (305) 599-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
WILLIAM S. KIRSCH, P.C.
KIRKLAND & ELLIS
200 EAST RANDOLPH DRIVE
CHICAGO, ILLINOIS 60601
TELEPHONE: (312) 861-2000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 DECEMBER 10, 1998
PRELIMINARY PROSPECTUS
, 1998
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
OFFER TO EXCHANGE ITS SERIES B 11% SENIOR NOTES DUE 2005 FOR ANY AND ALL OF ITS
OUTSTANDING 11%
SENIOR NOTES DUE 2005.
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Aircraft Service International Group, Inc. (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its Series B
11% Senior Notes due 2005 (the "Exchange Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding 11% Senior Notes due 2005 (the "Old Notes"),
of which $80,000,000 principal amount is outstanding. The form and terms of the
Exchange Notes are the same as the form and term of the Old Notes except that
(i) the Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (ii)
holders of the Exchange Notes will not be entitled to certain rights of holders
of Old Notes under the Exchange Offer Registration Rights Agreement (as
defined). The Old Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes". The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under and be entitled to
the benefits of the Indenture dated as of August 18, 1998 (the "Indenture") by
and among the Company and State Street Bank and Trust Company, as trustee,
governing the Notes. See "The Exchange Offer" and "Description of the Notes."
The proceeds of the Initial Offering (as defined) were used to repay
certain indebtedness of the Company incurred in connection with the Acquisition.
See "The Acquisition" and "Use of Proceeds."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on
, 1998, unless extended by the Company in its sole
discretion (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to
certain customary conditions. See "The Exchange Offer."
Interest on the Notes will accrue from their date of original issuance and
will be payable semiannually in arrears on February 15 and August 15 of each
year, commencing February 15, 1999, at the rate of 11% per annum. The Notes will
mature on August 15, 2005. The Notes are redeemable, in whole or in part, at the
option of the Company on or after August 15, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, the Company, at its option, may redeem in the aggregate
up to 33 1/3% of the original principal amount of the Notes at any time on or
prior to August 15, 2001 at a redemption price equal to 111% of the principal
amount thereof, together with accrued and unpaid interest thereon to the
redemption date, with the Net Proceeds of one or more Public Offerings; provided
that at least $53.3 million aggregate principal amount of the Notes remains
outstanding after any such redemption and that any such redemption occurs within
90 days following the closing of such Public Offering. See "Description of the
Notes--Optional Redemption."
(Cover page continued on following page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN RISKS
TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER AND
INVESTORS IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
(Cover page continued)
The Notes will be general senior unsecured obligations of the Company,
jointly and severally and fully and unconditionally guaranteed, on a senior
unsecured basis (the "Guarantee"), by the Company's Domestic Restricted
Subsidiaries (the "Guarantors"). The Notes will rank pari passu with all
existing and future senior indebtedness of the Company and senior to all
existing and future subordinated indebtedness of the Company. The Notes will be
(i) effectively subordinated to the senior Credit Facility and any other secured
obligations of the Company and the Guarantors to the extent of the value of the
assets securing such obligations and (ii) structurally subordinated to all
obligations of the Company's non-Domestic Restricted Subsidiaries and
Unrestricted Subsidiaries.
As of September 30, 1998, on a pro forma basis after giving effect to the
Offering, the Company and the Guarantors would have had no indebtedness to which
holders of the Notes would have been effectively subordinated and the Company's
non-Domestic Restricted Subsidiaries and Unrestricted Subsidiaries would have
had no indebtedness to which holders of the Notes would have been structurally
subordinated. In addition, the Company would have had $8.7 million of additional
borrowing availability under the Senior Credit Facility. See "Capitalization,"
"Description of Senior Credit Facility" and "Description of the Notes."
The Old Notes were sold by the Company on August 18, 1998 to CIBC
Oppenheimer Corp. (the "Initial Purchaser") in a transaction not registered
under the Securities Act in reliance upon an exemption under the Securities Act
(the "Initial Offering"). The Initial Purchaser subsequently placed the Old
Notes with (i) qualified institutional buyers in reliance upon Rule 144A under
the Securities Act and (ii) qualified buyers outside the United States in
reliance upon Regulation S under the Securities Act. Accordingly, the Old Notes
may not be reoffered, resold or otherwise transferred in the United States
unless registered under the Securities Act or unless an applicable exemption
from the registration requirements of the Securities Act is available. The
Exchange Notes are being offered hereunder in order to satisfy the obligations
of the Company under the Exchange Offer Registration Rights Agreement entered
into by the Company and the Initial Purchasers in connection with the Initial
Offering (the "Exchange Offer Registration Rights Agreement"). See "The Exchange
Offer."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer--Resale of the Exchange Notes."
Holders of Old Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Exchange Offer Registration Rights Agreement, that
such conditions have been met. Each broker-dealer (a "Participating
Broker-Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in connection
with any such resale (provided that the Company receives notice from such
Participating Broker-Dealer of its status as a Participating Broker-Dealer
within 30 days after the consummation of the Exchange Offer). See "Plan of
Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for
<PAGE> 4
(Cover page continued)
quotation through any automated quotation system. There can be no assurance that
an active market for the Exchange Notes will develop. See "Risk Factors--Absence
of a Public Market Could Adversely Affect the Value of Exchange Notes."
Moreover, to the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected.
Market data used throughout this Prospectus was obtained from internal
Company surveys and estimates and industry publications. Industry publications
generally state that the information contained therein has been obtained from
sources believed to be reliable but that the accuracy and completeness of such
information is not guaranteed. The Company has not independently verified any
such market data. Similarly, internal Company surveys and estimates, while
believed by the Company to be reliable, have not been verified by any
independent sources.
The Exchange Notes will be available initially only in book-entry form.
Except as described under "Book-Entry; Delivery and Form," the Company expects
that the Exchange Notes issued pursuant to the Exchange Offer will be
represented by a Global Note (as defined), which will be deposited with, or on
behalf of, the Depository Trust Company ("DTC") and registered in its name or in
the name of Euroclear System and Cedel, Societe Anonyme, its nominees.
Beneficial interests in the Global Notes representing the Exchange Notes will be
shown on, and transfers thereof will be effected through, records maintained by
DTC and its participants. After the initial issuance of the Global Notes, notes
in certificated form will be issued in exchange for the Global Notes only under
limited circumstances as set forth in the indenture. See "Description of the
Notes--Book-Entry; Delivery and Form."
Until , 1999 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the Exchange Notes may be required
to deliver a Prospectus. This in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Offer contemplated hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Company and the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Upon the effectiveness of the Exchange Offer Registration
Statement the Company will become subject to the periodic reporting and other
informational requirements of the Exchange Act, and in accordance therewith will
be required to file periodic reports and other information with the Commission.
The Company has agreed that, whether or not it is required to do so by the rules
and regulations of the Commission, for so long as any Notes remain outstanding,
it will furnish to the holders of the Notes and, to the extent permitted by
applicable law or regulation, file with the Commission (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company was required to file
such Forms, including for each a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereof by the Company's independent certified public
accountants and (ii) all reports that would be required to be filed on Form 8-K
if it were required to file such reports. In addition, for so long as any of the
Notes remain outstanding, the Company has agreed to make available to any
prospective purchaser of the Notes or beneficial owner of the Notes, in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
The Exchange Offer Registration Statement may be inspected at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of the
Exchange Offer Registration Statement may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains a web site at http://www.sec.gov that
contains reports and other information regarding registrants, like the Company,
that file electronically with the Commission.
The Company, a corporation organized under the laws of the state of
Delaware, has its principal executive office located at 8240 N.W. 52nd Terrace,
#200, Miami, Florida 33166-1600; its telephone number is (305) 599-1600.
i
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto which appear
elsewhere in this Prospectus. Unless the context otherwise indicates, the term
the "Company" refers to (i) Aircraft Service International Group, Inc., its
wholly-owned subsidiaries and Omni Aircraft Service GmbH ("Omni Aircraft"), a
joint venture between the Company and a subsidiary of Preussag AG, when used in
reference to periods subsequent to April 1, 1998 and (ii) the Company's
subsidiaries which prior to their acquisition by the Company were operated under
the divisional name of Aircraft Services International Group (the "ASIG
business" or the "Predecessor") by Viad Corp ("Viad"), when used in reference to
periods as of and prior to March 31, 1998. All references to fiscal years in
this Prospectus refer to years ended December 31. Aircraft Service International
Group, Inc. has adopted a fiscal year end of March 31.
THE COMPANY
The Company is one of the largest independent providers of aviation fueling
and aircraft ground services in the United States. The Company has provided
quality service to its customers for 51 years and has a well-established
presence in 31 airports in the United States, Europe and the Bahamas with an
average tenure in excess of 20 years at its current locations. In 1997, the
Company provided service to over 1.8 million commercial flights for over 200
customers, including most of the major domestic and international airlines such
as American Airlines, Inc. ("American"), British Airways plc ("BA"), Continental
Airlines, Inc. ("Continental"), Delta Air Lines, Inc. ("Delta"), Northwest
Airlines Corporation ("Northwest"), United Airlines, Inc. ("United") and US
Airways, Inc. ("US Airways"), as well as regional air carriers, airport
authorities and oil companies such as Esso U.K. ("Esso"). The Company also
operates fuel storage and delivery systems for airline consortia and airport
authorities, including Los Angeles International Airport's LAXFUEL, which the
Company believes is the largest airport fuel consortium in the world. The
Company intends to solidify its position as a leading independent provider of
aviation fueling and aircraft ground services in the United States and Europe by
leveraging its well-established operating history and relationships with major
customers to generate new business, continuing to take advantage of outsourcing
opportunities, pursuing selected acquisitions in its fragmented industry and
capitalizing on international growth opportunities. For the year ended December
31, 1997 and the six months ended September 30, 1998, the Company generated
revenues of $119.3 million and $61.2 million, respectively, and net income
(loss) of $6.0 million and $(3.5) million, respectively. For the year ended
March 31, 1998 and the six months ended September 30, 1998, the Company had a
pro forma net loss of $0.8 million and $1.2 million, respectively.
The Company's business includes aviation fueling services (57% of 1997
revenues), aircraft ground services (39%) and other aviation services (4%).
Aviation fueling services are comprised primarily of into-plane fueling,
maintenance and operation of fuel storage and delivery systems and the retail
sale of fuel products. Generally, the Company has custody over, but not
ownership of, the fuel it manages and delivers. Aircraft ground services consist
primarily of ground handling, aircraft interior grooming, cargo handling,
passenger and traffic services and fixed base operations ("FBOs"). FBOs
generally include the provision of terminal services, pilot facilities,
maintenance, weather service, flight planning and hangar space to private,
executive and corporate aircraft. Within each business line, the services
provided by the Company are complementary and, by expanding the number of
flights served at each location, the Company has the opportunity to leverage its
existing infrastructure to realize higher margins on incremental revenues. The
Company provides its services to customers pursuant to contractual agreements
and currently has approximately 740 contracts, which have been in place,
including extensions, for an average of 5.0 years each. The Company believes it
has established a reputation for providing quality service and that its
incumbency position at its current locations provides a significant competitive
advantage, as evidenced by an average contract renewal rate over the past three
years of approximately 96%. In addition, the Company has been successful in
winning new business, having won approximately 38%, 45%, 52% and 72% of the new
contracts on which it placed competitive bids in 1995, 1996, 1997 and the nine
months ended September 30, 1998, respectively.
1
<PAGE> 7
The Company believes it has a significant market share of into-plane
fueling services (based on gallons pumped) at many of its locations, handling an
estimated 50% or more of the outsourced commercial fueling requirements at 24 of
the 29 locations where it provides such services. In addition, the Company's
strategic position at certain of its locations is enhanced because the Company
owns or operates the only fuel storage and delivery system at the airport. The
Company believes that because it has generally made significant capital
investments and has management infrastructure in place, it has a competitive
advantage in winning new business relative to a competitor with a small or no
presence at such locations.
INDUSTRY OVERVIEW
Independent aviation services include the aviation fueling and aircraft
ground services provided by the Company as well as other aviation services,
including food service, aircraft maintenance and avionics supplies. The demand
for independent aviation services depends on both the amount of airline traffic
and the extent to which airlines outsource the provision of these services.
Based on airport traffic figures, its own market experience and estimates of
revenue received for services rendered per plane, the Company believes that
approximately 90% of the total commercial aviation fueling market and
approximately 30% of the total commercial ground services market are outsourced
by airlines to independent providers such as the Company and that, as a result,
the aggregate independent markets for fueling services and ground services at
the top 100 North American airports are approximately $300 million and $1.9
billion, respectively.
According to the Air Transport Association of America, an independent
airline industry association, domestic commercial airline traffic increased at a
2.8% compound annual growth rate from 771.6 billion available seat miles ("ASM")
in 1993 to 860.6 billion ASM in 1997. Similarly, according to the Boeing 1998
Current Market Outlook, global commercial airline traffic increased at a 8.8%
compound annual growth rate from approximately 3.0 trillion available seat
kilometers ("ASK") in 1993 to approximately 4.2 trillion ASK in 1997. The Boeing
1998 Current Market Outlook projects that global commercial airline traffic will
continue to grow at a 5.0% annual rate over the next ten years, with North
American traffic growing at a 3.5% annual rate. The Boeing 1998 Current Market
Outlook also projects that additional flights and new routes are expected to
account for 82% of this growth, increased average flight lengths for 16% of this
growth and larger airplanes for only 2% of this growth.
Airline deregulation, which occurred in the United States during the late
1970s and early 1980s, not only generated new entrants in the airline market,
but also stimulated demand for aviation services. The increased competition
resulting from deregulation led airlines to outsource many non-core services
that could be provided on a more cost-effective basis by an independent service
provider. Airline deregulation also changed the pattern of air traffic,
resulting in the creation of airport hubs. The creation of airport hubs further
contributed to the increase in outsourcing, as service providers could realize
greater economies of scale and provide more cost-effective service to large
numbers of flights arriving at and departing from an airline's major hub. The
trend towards outsourcing continued in the late 1980s and early 1990s, when as a
result of large financial losses and a series of restructurings, airlines
undertook cost-cutting efforts, which included the continued outsourcing of
non-core aspects of the business. These cost-cutting efforts and outsourcing
measures, along with a growing economy, allowed the airline industry to return
to profitability in the mid-1990s.
The independent aviation services industry is highly fragmented in both the
United States and Europe and is characterized by many operators that provide
services at a single or small number of locations. Small operators are likely to
face significant competitive pressures as large airlines increasingly deal with
fewer and larger suppliers providing a broader range of services at multiple
locations. This trend should encourage the consolidation of the industry and
enable suppliers to capitalize on economies of scale. For these reasons, the
Company believes that industry consolidation will provide opportunities for
growth in addition to the growth resulting from increases in airline traffic and
outsourcing.
2
<PAGE> 8
BUSINESS STRATEGY
The Company's objective is to solidify its position as a leading
independent provider of aviation fueling and aircraft ground services in the
United States and Europe. The Company intends to pursue its objective through
the following business strategies:
LEVERAGE WELL-ESTABLISHED OPERATING HISTORY AND MARKET POSITIONS. In its
51-year operating history, the Company has built a reputation for providing
quality service and has established a long-term presence in its current
airport locations, with an average tenure in its current 31 locations in
excess of 20 years. The Company believes that it can continue to leverage
its operating history and established presence at its current locations to
acquire additional business thereby enhancing economies of scale and cost
savings in such operations. The Company's incumbency position at its
current locations often provides a significant competitive advantage in
winning new business when new contracts can be priced without incorporating
additional fixed costs. The Company also seeks to increase the number of
locations at which it maintains and operates fuel storage and delivery
systems, not only for the steady returns on such contracts, but also
because providing these services creates an opportunity for the Company to
increase its into-plane fueling at that location by building relationships
with the airlines' local managers, who often have influence in determining
their airlines' provider of into-plane fueling services.
LEVERAGE LONG-TERM RELATIONSHIPS WITH MAJOR CUSTOMERS. The Company
maintains relationships with most of the major domestic and international
airlines, including American, BA, Continental, Delta, Northwest, United and
US Airways. The Company believes that these long-term customer
relationships, some of which have existed since the Company's inception,
continue to provide the Company with opportunities to obtain additional
business from these major airline customers both at the locations where the
Company currently provides services to such customers, as well as at other
locations. In addition, the Company expects to benefit from the trend among
large airlines to deal with fewer and larger suppliers that can provide a
broader range of services at multiple locations.
MAINTAIN AND ENHANCE REPUTATION FOR CUSTOMER SERVICE AND QUALITY. The
Company believes that it has one of the best service reputations in the
industry, and as a result, has built a loyal customer base, which is
evidenced by its average contract renewal rate of approximately 96% over
the past three years. The Company provides a high level of customer service
not only by providing a highly trained, efficient and professional work
force, but also by maintaining regular communication with its customers.
Maintaining communication enables the Company to respond to customer
concerns, fosters a strong partnership with the airlines and provides the
Company with information regarding potential business opportunities. As one
of the leading independent providers of aviation fueling and aircraft
ground services in the United States, the Company is invited to participate
in many competitive bidding opportunities for new business and has
generally been successful, having won approximately 38%, 45%, 52% and 72%
of the new contracts on which it placed competitive bids in 1995, 1996,
1997 and the nine months ended September 30, 1998, respectively. The
Company believes that by providing high levels of customer service with an
emphasis on quality, it can continue to retain a large percentage of its
contracts and can be more successful in competitive bids made for new
contracts. In addition, the Company has recently begun to capitalize on
what it perceives as a trend among airlines towards seeking higher quality
outside suppliers, as opposed to simply the lowest priced supplier, by
offering enhanced levels of service in exchange for a premium price. For
example, the Company is reinforcing its reputation for quality through the
implementation of ISO-9002 initiatives at a major airport and expects to
implement ISO-9002 initiatives at other airports. The Company's ISO-9002
initiatives include enhanced employee training and qualifications,
utilizing equipment meeting certain safety, cleanliness and speed criteria
and maintaining complete documentation of all systems and procedures.
PURSUE SELECTIVE CONSOLIDATING ACQUISITIONS. The Company believes that the
independent aviation service industry is highly fragmented in both the
United States and Europe, which affords significant opportunities for
consolidation. The industry includes many small, local or regional
independent aviation service providers that may lack the financial
resources and infrastructure necessary to achieve the efficiencies and
economies of scale to compete effectively for new customers and to make
capital commitments to grow. The Company believes that, through its
established operating history, it is
3
<PAGE> 9
well-positioned to capitalize on this consolidation opportunity and that by
acquiring select competitors and complementary companies it can achieve
further economies of scale and cost savings. In addition, acquisitions are
expected to expand the geographic coverage and range of services provided
by the Company, further solidifying the Company's position as a leading
independent provider of aviation fueling and aircraft ground services.
CAPITALIZE ON INTERNATIONAL GROWTH OPPORTUNITIES. The Company believes it
is well-positioned to capitalize on the liberalization taking place in the
international markets for aviation services, particularly in Europe. The
Company believes it became the first independent aviation fueling service
provider to operate at the London-Heathrow airport when it began providing
into-plane fueling services to BA there in 1990. In addition, the Company
believes that in 1997 it became the first independent aviation fueling
services provider to operate at each of the Munich airport and the
London-Gatwick airport when Omni Aircraft began providing into-plane
fueling services and operating the fuel delivery system at Munich and the
Company entered into an agreement with Esso pursuant to which it began
providing into-plane fueling for BA and other airlines at London-Gatwick.
Alliances with large oil companies such as Esso offer the potential to
accelerate the Company's penetration of the European market by leveraging
the oil companies' existing airport services infrastructure, contracts and
contacts. The Company believes that its quality reputation and current
European operations, particularly its relationship with BA, has positioned
the Company to be a preferred supplier among many potential European
customers. The Company also believes it is well-positioned in the gateway
cities of Miami, Los Angeles, San Francisco, Atlanta and Seattle to take
advantage of growth and market developments in Latin America, Europe and
the Asia-Pacific regions.
INCREASE OPERATING EFFICIENCY. Management has identified several areas
where it believes the Company can achieve immediate cost savings, including
the implementation of a new pension plan and insurance policy and the
reduction of overhead. In addition, the Company believes that it can
improve its operating efficiency through the economies of scale created by
leveraging its existing infrastructure to realize higher margins on
incremental revenue. The Company is also undertaking programs to reduce
costs through the redesign of systems, procedures and measurements to
improve worker efficiency, safety and satisfaction. In addition, the
Company has developed a comprehensive plan to upgrade the quality and
efficiency of its equipment, which is expected to reduce operating costs.
THE ACQUISITION
The Initial Offering was made in conjunction with the Company's $95 million
acquisition of the ASIG business from Viad that was consummated as of April 1,
1998 (the "Acquisition").
An investor group (the "Investor Group") organized by Tioga Capital
Corporation ("Tioga") and including John Hancock Mutual Life Insurance Company
("Hancock") and an affiliate of Canadian Imperial Bank of Commerce ("CIBC," an
affiliate of the Initial Purchaser), capitalized Ranger Aerospace Corporation
("Ranger") with an aggregate investment of $24.1 million. Ranger subsequently
contributed this $24.1 million as equity to the Company (the "Equity
Investment") in return for all of its outstanding common stock. In connection
with the Acquisition, the Company and Viad agreed that they will jointly elect
under the Internal Revenue Code (the "338(h)(10) election") to treat the
Acquisition as a purchase of assets for federal income tax purposes, which will
result in the Company's tax basis in its assets being increased to their fair
market value at the time of the Acquisition. The net proceeds from the Equity
Investment and the Company's issuance of $75 million of senior increasing rate
notes (the "Senior Increasing Rate Notes") under a note purchase agreement among
the Company, Ranger and the Initial Purchaser (the "Note Purchase Agreement")
were used to consummate the Acquisition. Concurrent with the Acquisition, the
Company entered into a senior credit facility consisting of a $10 million
working capital facility (the "Senior Credit Facility"), which was provided by
Key Corporate Capital Inc., an affiliate of Key Bank, as lender and agent. The
net proceeds of the Initial Offering were used to repay the Senior Increasing
Rate Notes.
Ranger owns all of the Company's outstanding common stock. The assets of
the Company consist principally of the stock of its subsidiaries, through which
it conducts substantially all of its operations. The Company's ability to make
payments of principal and interest on the Notes is dependent upon dividends or
4
<PAGE> 10
other distributions of funds from its subsidiaries. The following chart shows
the structure of the Company following the Acquisition:
[LOGO]
The Company's principal executive offices are located at 8240 N.W. 52nd
Terrace, Suite 200, Miami, Florida 33166-7766, and its telephone number is (305)
599-1600. The Company is not required to obtain any additional approvals or meet
any regulatory requirements, other than those under the federal securities laws,
in order to effect the Exchange Offer contemplated hereby.
RECENT DEVELOPMENTS
The Company was recently informed by BA that BA is not renewing its
contract with the Company for the provision of aircraft grooming services at
London-Heathrow airport following the expiration of such contract in January
1999. This contract generated approximately 8.8% of the Company's revenues in
1997 and the anticipated reduction in revenues and EBITDA as a result of the
loss of this contract for the fiscal year ending March 31, 1999 is $2.1 million
and $0.2 million, respectively.
THE INITIAL OFFERING
Old Notes.................. The Old Notes were sold by the Company on August
18, 1998 to CIBC Oppenheimer Corp. (the "Initial
Purchaser") pursuant to a Purchase Agreement dated
August 13, 1998 (the "Purchase Agreement"). The
Initial Purchaser subsequently resold the Old Notes
to (i) qualified institutional buyers pursuant to
Rule 144A under the Securities Act and (ii)
qualified buyers outside the United States in
reliance upon Regulation S under the Securities
Act.
Exchange Offer Registration
Rights Agreement......... Pursuant to the Purchase Agreement, the Company and
the Initial Purchaser entered into an exchange
offer registration rights agreement dated as of
August 18, 1998 (the "Exchange Offer Registration
Rights Agreement"), which grants the holders of the
Old Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
exchange rights which terminate upon the
consummation of the Exchange Offer.
5
<PAGE> 11
THE EXCHANGE OFFER
Securities Offered......... $80,000,000 aggregate principal amount of Series B
11% Senior Notes due 2005.
The Exchange Offer......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $80,000,000 aggregate
principal amount of Old Notes are outstanding. The
Company will issue the Exchange Notes to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange Notes received in exchange for Old Notes
where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-
making activities or other trading activities. The
Company has agreed that, for a period of 180 days
after the Expiration Date, it will make this
Prospectus available to any Participating
Broker-Dealer for use in connection with any such
resale (provided that the Company receives notice
from such Participating Broker-Dealer of its status
as a Participating Broker-Dealer within 30 days
after the consummation of the Exchange Offer). See
"Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
6
<PAGE> 12
Expiration Date............ 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended. The Company will keep the Exchange Offer
open for not less than 30 days (or longer if
required by applicable law) after the date on which
notice of the Exchange Offer is mailed to holders
of the Old Notes. As a result of the requirements
set forth in the Exchange Offer Registration
Statement, the Company believes that it is unlikely
that it would extend the Exchange Offer beyond 45
days after such notice is mailed to the holders of
the Old Notes.
Accrued Interest on the
Exchange Notes and the
Old Notes................ Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the
issuance date of the Exchange Notes. Such interest
will be paid with the first interest payment on the
Exchange Notes on February 15, 1999.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes and any
other required documentation to the Exchange Agent
(as defined) at the address set forth herein. By
executing the Letter of Transmittal, each holder
will represent to the Company that, among other
things, the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such
Exchange Notes, whether or not such person is the
holder, that neither the holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes and that neither the holder nor
any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--Procedures for
Tendering."
Untendered Old Notes....... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for such Old Notes could be adversely affected.
Consequences of Failure to
Exchange................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person
7
<PAGE> 13
pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act.
See "The Exchange Offer--Consequences of Failure to
Exchange."
Shelf Registration
Statement.................. If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has satisfied certain conditions relating to
the provision of information to the Company for use
therein, the Company has agreed to register the Old
Notes on a shelf registration statement (the "Shelf
Registration Statement") and use its best efforts
to cause it to be declared effective by the
Commission as promptly as practical on or after the
consummation of the Exchange Offer. The Company has
agreed to maintain the effectiveness of the Shelf
Registration Statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Notes held by any such holders.
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Use of Proceeds............ There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company is serving as
Exchange Agent in connection with the exchange
offer of Exchange Notes for Old Notes. State Street
Bank and Trust Company is referred to herein as the
"Exchange Agent."
8
<PAGE> 14
THE EXCHANGE NOTES
Maturity Date.............. August 15, 2005
General.................... The form and terms of the Exchange Notes are the
same as the form and terms of the Old Notes (which
they replace) except that (i) the Exchange Notes
have been registered under the Securities Act and,
therefore, will not bear legends restricting the
transfer thereof, and (ii) the holders of Exchange
Notes will not be entitled to certain rights of
holders of Old Notes under the Exchange Offer
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. See "The
Exchange Offer--Purpose and Effect of the Exchange
Offer." The Exchange Notes will evidence the same
debt as the Old Notes and will be entitled to the
benefits of the Indenture. See "Description of the
Notes."
Interest Payment Dates..... Interest will accrue on the Exchange Notes from the
date of issuance and is payable in cash
semiannually on each February 15 and August 15,
commencing February 15, 1999.
Ranking; Guarantees........ The Exchange Notes will be, as the Old Notes (which
they replace) are, general senior unsecured
obligations of the Company, jointly and severally
and fully and unconditionally guaranteed, on a
senior unsecured basis (the "Guarantee"), by the
Company's Domestic Restricted Subsidiaries (the
"Guarantors"). The Exchange Notes will rank pari
passu with all existing and future senior
indebtedness of the Company and senior to all
existing and future subordinated indebtedness of
the Company. The Exchange Notes will be, as the Old
Notes (which they replace) are, (i) effectively
subordinated to the Senior Credit Facility and any
other secured obligations of the Company and the
Guarantors to the extent of the value of the assets
securing such obligations and (ii) structurally
subordinated to all obligations of the Company's
non-Domestic Restricted Subsidiaries and
Unrestricted Subsidiaries. As of September 30,
1998, the Company and the Guarantors would have had
no indebtedness to which holders of the Exchange
Notes would have been effectively subordinated and
the Company's non-Domestic Restricted Subsidiaries
and Unrestricted Subsidiaries would have had no
indebtedness to which holders of the Exchange Notes
would have been structurally subordinated. In
addition, the Company would have had $8.7 million
of additional borrowing availability under the
Senior Credit Facility. See "Capitalization,"
"Description of Senior Credit Facility" and
"Description of the Notes." Separate financial
statements for the Guarantors have not been
presented herein because management believes the
condensed consolidating financial statements
presented in the footnotes to the financial
statements are more meaningful in understanding the
financial position and results of operations of the
Guarantors.
Optional Redemption........ The Exchange Notes will be, as the Old Notes (which
they replace) are, redeemable at the option of the
Company, in whole or in part, at any time on or
after August 15, 2003, at the redemption prices set
forth herein, together with accrued and unpaid
interest thereon to the redemption date. In
addition, the Company, at its option, may redeem in
the aggregate up to 33 1/3% of the original
principal amount of the Notes at
9
<PAGE> 15
any time on or prior to August 15, 2001 at a
redemption price equal to 111.000% of the principal
amount thereof, together with accrued and unpaid
interest thereon to the redemption date, with the
Net Proceeds of one or more Public Offerings;
provided that at least $53.3 million aggregate
principal amount of the Notes remains outstanding
after any such redemption and that any such
redemption occurs within 90 days following the
closing of such Public Offering. See "Description
of the Notes--Optional Redemption."
Change of Control.......... Upon the occurrence of a Change of Control, each
holder of the Notes will be entitled to require the
Company to purchase such holder's Notes at a
purchase price equal to 101% of the principal
amount thereof, together with accrued and unpaid
interest thereon to the purchase date. See
"Description of the Notes--Change of Control
Offer." There can be no assurance that the Company
will have the financial resources necessary to
purchase the Notes upon a Change of Control.
Asset Sale Proceeds........ The Company will be obligated in certain instances
to make an offer to repurchase the Notes at a
purchase price equal to 100% of the principal
amount thereof, together with accrued and unpaid
interest thereon to the repurchase date, with the
net cash proceeds of certain asset sales. See
"Description of the Notes--Certain
Covenants--Limitation on Certain Asset Sales."
Certain Covenants.......... The indenture pursuant to which the Exchange Notes
will be issued (the "Indenture") contains covenants
for the benefit of the holders of the Notes that,
among other things, restrict the ability of the
Company and any of its Restricted Group Members (as
defined herein) to: (i) incur additional
Indebtedness (as defined herein); (ii) issue common
and preferred stock of subsidiaries; (iii) pay
dividends and make other Restricted Payments (as
defined herein); (iv) transfer and sell assets; (v)
enter into transactions with affiliates; (vi)
create liens; (vii) make certain investments;
(viii) enter into sale and leaseback transactions;
(ix) enter into agreements restricting the ability
of Restricted Group Members to declare dividends
and make distributions; and (x) merge or
consolidate the Company or any Guarantors. These
covenants are subject to a number of important
exceptions. See "Description of the Notes--Certain
Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors relating to the
Company, its business, and an investment in the Exchange Notes to be considered
by holders of Old Notes prior to tendering any Old Notes in exchange for
Exchange Notes and by new investors in the Notes.
10
<PAGE> 16
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents summary historical financial data for each of
the three years in the period ended December 31, 1997 which has been derived
from the audited financial statements of the Company and the notes thereto which
appear elsewhere in this Prospectus. The summary historical financial data for
the three months ended March 31, 1997 and March 31, 1998, and the six months
ended September 30, 1997 and September 30, 1998 have been derived from unaudited
financial statements of the Company, which in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results for the unaudited interim periods. Results
for the six months ended September 30, 1998 are not necessarily indicative of
results that may be expected for the entire year.
The following unaudited summary pro forma statement of income data for the
six month period ended September 30, 1998 gives effect to, among other things,
the Initial Offering as if it had occurred at the beginning of the period
presented. Certain management assumptions and adjustments relating to the
Acquisition and the Initial Offering are described in the Notes to Unaudited Pro
Forma Financial Data and should be read in conjunction therewith. The unaudited
summary pro forma financial data do not purport to be indicative of the actual
results of operation of the Company that would have actually been attained had
the Acquisition and the Initial Offering in fact occurred on the date specified,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. See "Unaudited Pro Forma Financial Data," "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of the Company
and notes thereto which appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------------------------------------------------- -------------
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED, SIX MONTHS ENDED,
------------------------------ --------------------- -----------------------------
MARCH 31, MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997 1998 1997 1998
-------- -------- -------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................................... $111,658 $121,574 $119,325 $29,816 $31,035 $58,954 $ 61,243
Costs and expenses:
Operating expenses........................ 93,540 102,935 98,190 23,973 26,320 47,651 49,471
Selling, general and administrative....... 6,467 7,259 6,507 2,064 1,754 3,610 4,035
Depreciation and amortization............. 4,340 4,420 4,604 1,172 1,154 2,295 4,259
-------- -------- -------- ------- ------- ------- --------
Total costs and expenses................ 104,347 114,614 109,301 27,209 29,228 53,556 57,765
-------- -------- -------- ------- ------- ------- --------
Operating income........................... 7,311 6,960 10,024 2,607 1,807 5,398 3,478
Other income (expense), net................ 47 (45) (71) 35 (57) 82 (128)
Interest income............................ 842 343 350 37 77 188 140
Interest and other financial expense....... (620) (606) (669) (165) (170) (330) (6,496)
-------- -------- -------- ------- ------- ------- --------
Income (loss) before income taxes.......... 7,580 6,652 9,634 2,514 1,657 5,338 (3,006)
Income taxes............................... 2,563 2,433 3,602 934 615 2,014 323
-------- -------- -------- ------- ------- ------- --------
Net income (loss) before extraordinary
item...................................... 5,017 4,219 6,032 1,580 1,042 3,324 (3,329)
Extraordinary loss on early extinguishment
of debt................................... -- -- -- -- -- -- (213)
-------- -------- -------- ------- ------- ------- --------
Net income (loss).......................... $ 5,017 $ 4,219 $ 6,032 $ 1,580 $ 1,042 $ 3,324 $ (3,542)
======== ======== ======== ======= ======= ======= ========
Net income (loss) per share -- basic and
diluted:..................................
Before extraordinary item.................. $(33,290)
========
Extraordinary loss......................... $ (2,130)
========
Net income (loss).......................... $(35,420)
========
Weighted average common shares outstanding
-- basic and diluted...................... 100
========
STATEMENT OF CASH FLOW DATA:
Net cash provided by operating
activities................................ $ 5,060 $ 7,161 $ 17,139 $ 5,927 $ 5,321 $ 8,516 $ 3,018
Net cash (used in) investing activities.... (4,402) (9,061) (4,300) (963) (2,702) (2,295) (94,805)
Net cash provided by (used in) financing
activities................................ (806) 2,091 (13,030) (4,380) (2,619) (8,011) 96,538
OTHER DATA:
EBITDA(a).................................. $ 11,651 $ 11,380 $ 14,628 $ 3,779 $ 2,961 $ 7,693 $ 7,737
Capital expenditures....................... 4,402 9,061 3,947 963 2,702 1,904 6,337
Ratio of net debt to EBITDA(b).............
Ratio of EBITDA to cash interest
expense(c)................................
BALANCE SHEET DATA (AT END OF PERIOD):
Cash....................................... $ 4,752
Total assets............................... 124,807
Total debt................................. 80,000
Total stockholder's equity................. 20,706
<CAPTION>
SUCCESSOR
-------------
PRO FORMA
SEPTEMBER 30,
1998
-------------
<S> <C>
STATEMENT OF INCOME DATA:
Revenues................................... $ 61,243
Costs and expenses:
Operating expenses........................ 49,341
Selling, general and administrative....... 3,839
Depreciation and amortization............. 4,259
--------
Total costs and expenses................ 57,439
--------
Operating income........................... 3,804
Other income (expense), net................ (128)
Interest income............................ 140
Interest and other financial expense....... (4,726)
--------
Income (loss) before income taxes.......... (910)
Income taxes............................... 323
--------
Net income (loss) before extraordinary
item...................................... $ (1,233)
Extraordinary loss on early extinguishment
of debt................................... --
--------
Net income (loss).......................... $ (1,233)
========
Net income (loss) per share -- basic and
diluted:..................................
Before extraordinary item.................. $(12,330)
========
Extraordinary loss......................... --
========
Net income (loss).......................... $(12,330)
========
Weighted average common shares outstanding
-- basic and diluted...................... 100
========
STATEMENT OF CASH FLOW DATA:
Net cash provided by operating
activities................................
Net cash (used in) investing activities....
Net cash provided by (used in) financing
activities................................
OTHER DATA:
EBITDA(a).................................. $ 8,063
Capital expenditures.......................
Ratio of net debt to EBITDA(b).............
Ratio of EBITDA to cash interest
expense(c)................................
BALANCE SHEET DATA (AT END OF PERIOD):
Cash.......................................
Total assets...............................
Total debt.................................
Total stockholder's equity.................
</TABLE>
(See footnotes on following page.)
11
<PAGE> 17
NOTES TO SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
(a) EBITDA is defined herein as net income (loss) before interest, income taxes,
depreciation, amortization and other income (expense). Although EBITDA is
not a measure of performance calculated in accordance with generally
accepted accounting principles, the Company has included information
concerning EBITDA in this Prospectus because it is commonly used by certain
investors and analysts as a measure of a company's ability to service its
debt obligations. The Company's calculation of EBITDA may not be comparable
to similarly titled measures reported by other companies and should not be
viewed as a accurate comparative measure since all companies do not
calculate this non-GAAP measure in the same manner. The Company's EBITDA
calculation is not intended to represent cash used in operating activities,
since it does not include interest and taxes and changes in operating assets
and liabilities, nor is it intended to represent the net increase or
decrease in cash, since it does not include cash provided by (used in)
investing and financing activities.
(b) Net debt equals total debt less cash.
(c) Cash interest expense equals interest expense less amortization of deferred
financing costs.
12
<PAGE> 18
RISK FACTORS
This Prospectus contains forward-looking statements. Such forward-looking
statements are based on the beliefs of the Company's management as well as on
assumptions made by and information currently available to the Company at the
time such statements were made. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect," "intends" and similar
expressions, as they relate to the Company, are intended to identify
forward-looking statements. Prior to tendering their Old Notes for Exchange
Notes in the Exchange Offer, holders of Old Notes should carefully consider the
following risk factors in addition to other information contained in this
Prospectus. Such holders of Old Notes should also be aware that actual results
could differ materially from those projected by such forward-looking statements
as a result of the risk factors set forth below or other factors. The Company
cautions the reader, however, that this list of factors may not be exhaustive
and that these or other factors could have an adverse effect on the Company's
ability to service its indebtedness, including principal and interest payments
on the Exchange Notes.
POTENTIAL ADVERSE EFFECTS ON HOLDERS OF THE NOTES AND THE COMPANY'S BUSINESS AS
A RESULT OF THE COMPANY'S SUBSTANTIAL LEVERAGE
The Company incurred significant indebtedness in connection with the
Acquisition. As of September 30, 1998, the Company had outstanding indebtedness
of $80.0 million, which represents a ratio of indebtedness to total
capitalization of 0.79. For the six months ended September 30, 1998, on a pro
forma basis, the Company would have incurred a net loss of $1.2 million and the
Company's earnings would have been inadequate to cover fixed charges by $2.5
million. The Company also has additional borrowing capacity under the Senior
Credit Facility. The lender under the Senior Credit Facility has an exclusive
security interest in the Company's accounts receivable and inventory.
The Company's leveraged financial position poses substantial consequences
to holders of the Notes, including the risks that: (i) a substantial portion of
the Company's cash flow from operations will be dedicated to the payment of
principal and interest on the Notes and the payment of principal and interest
under the Senior Credit Facility and other indebtedness; (ii) the Company's
leveraged position may impede its ability to obtain financing in the future for
working capital, capital expenditures and general corporate purposes; and (iii)
the Company's highly leveraged financial position may make it more vulnerable to
a downturn in the aviation services industry, which may limit its ability to
withstand competitive pressures. The Company believes it will have sufficient
capital to carry on its business and will be able to meet its scheduled debt
service requirements and other obligations. However, there can be no assurance
that the future cash flow of the Company will be sufficient to meet all of the
Company's scheduled debt service requirements and other obligations. See "Use of
Proceeds," "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
RISK THAT THE COMPANY WILL BE UNABLE TO SATISFY ITS DEBT OBLIGATIONS (INCLUDING
THE NOTES) OR COVER ITS FIXED CHARGES
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend on its financial and operating performance, which
is subject to prevailing economic and competitive conditions and to certain
financial, business and other factors beyond its control, including airline
passenger traffic, airline fuel prices, availability and skills of the
workforce, availability and cost of liability insurance and extreme weather
conditions. If the Company is unable to generate sufficient cash flow from
operations in the future to service its indebtedness and to meet its other
obligations, the Company will be required to adopt one or more alternatives,
such as refinancing or restructuring its indebtedness, selling material assets
or operations or seeking to raise additional debt or equity capital. There can
be no assurance that any of these actions could be effected on a timely basis or
on satisfactory terms or that these actions would enable the Company to continue
to satisfy its capital requirements. In addition, the terms of existing or
future indebtedness, including the Indenture and the Senior Credit Facility, may
prohibit the Company from adopting any of these alternatives. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Senior Credit
Facility" and "Description of the Notes."
13
<PAGE> 19
OPERATING AND FINANCIAL RESTRICTIONS IMPOSED ON THE COMPANY BY THE SENIOR CREDIT
FACILITY AND THE INDENTURE
The agreements governing the outstanding indebtedness of the Company impose
certain operating and financial restrictions on the Company. The Senior Credit
Facility requires the Company to comply with financial covenants with respect to
(i) a minimum debt service ratio and (ii) a maximum leverage ratio. In addition,
the Senior Credit Facility restricts, among other things, the Company's ability
to: (i) declare dividends or redeem or repurchase capital stock; (ii) incur
liens; (iii) make loans and investments; (iv) incur additional indebtedness; (v)
engage in mergers, acquisitions and asset sales; and (vi) enter into
transactions with its affiliates. A failure to comply with the restrictions
contained in the Senior Credit Facility could lead to an event of default
thereunder which could result in an acceleration of such indebtedness. Such an
acceleration would also constitute an event of default under the Indenture
relating to the Notes. The Company currently does not have any borrowings
outstanding under the Senior Credit Facility and is currently in compliance with
the covenants and financial tests in the Senior Credit Facility. See
"Description of Senior Credit Facility."
The Indenture contains a number of covenants which restrict, among other
things, the Company's ability to: (i) incur additional Indebtedness; (ii) issue
common and preferred stock of subsidiaries; (iii) pay dividends and make other
Restricted Payments; (iv) transfer and sell assets; (v) enter into transactions
with affiliates; (vi) create liens; (vii) make certain investments; (viii) enter
into sale and leaseback transactions; (ix) enter into agreements restricting the
ability of Restricted Group Members to declare dividends and make distributions;
and (x) merge or consolidate the Company or any Guarantors. A failure to comply
with the restrictions in the Indenture could result in an event of default under
the Indenture. See "Description of the Notes." The Company is currently in
compliance with the covenants contained in the Indenture.
THE COMPANY'S OPERATIONS MAY BE ADVERSELY EFFECTED BY GENERAL ECONOMIC
CONDITIONS
The air transportation industry is highly sensitive to general economic
conditions. The Company's operations may be adversely affected by a sustained
economic recession either in the United States or globally. A substantial
reduction in air traffic, or financial problems incurred by the Company's
customers, could have a material adverse effect on the Company's business,
operating results and financial condition. Furthermore, the Company's business
with foreign customers, and domestic customers that conduct business
internationally, could be adversely affected by political or military disputes
involving the United States and/or certain foreign countries. There can be no
assurance that these factors will not have a material adverse effect on the
Company's business, operating results and financial condition.
AN INCREASE IN THE PRICE OR A DECREASE IN THE AVAILABILITY OF AVIATION FUEL MAY
ADVERSELY EFFECT THE COMPANY'S CUSTOMERS
A material rise in the price or a material decrease in the availability of
aviation fuel would adversely impact the Company's customers. The Company's
customers would likely pass such increased costs on to the ultimate consumers of
air travel, who, as the cost of air travel increases, are likely to use less air
travel, thereby decreasing demand for air travel and hence for the Company's
services. An increase in the price or decrease in the availability of aviation
fuel, and the resulting decrease in air travel, could have a material adverse
effect on the Company's business, operating results and financial condition.
In addition, to the extent that the Company's customers were not able to
immediately adjust their business operations to reflect increased operating
costs, they could take relatively longer to pay the Company's accounts
receivable, thereby increasing the Company's working capital demands. In some
cases, the impact of a fuel price increase could materially impair the financial
stability of an airline customer such that it would be unable to pay amounts
owed to the Company and could result in such airline customer becoming
insolvent. In that event, the Company could incur significant losses related to
the uncollectability of the receivable and could be materially impacted by the
loss of the business associated with such insolvent airline.
14
<PAGE> 20
THE COMPANY MAY BE UNABLE TO COLLECT ALL OF ITS ACCOUNTS RECEIVABLE
The majority of the Company's accounts receivable are due from its airline
customers. Historically, airlines have been highly sensitive to general economic
conditions and a number of airlines have failed in the past. The Company's
airline customers include large, well-established airlines as well as smaller,
less well-established or less well-capitalized customers, including certain
regional, commuter, start-up and foreign airlines, which may be less
creditworthy than larger, well-established and well-capitalized airlines or more
vulnerable to adverse changes in market conditions and to catastrophic
accidents. The Company has incurred in the past, and is likely to continue to
incur, losses as the result of the business failure of one or more customers.
The Company's total losses (not all of which are due to the failure of a
customer) due to uncollectible accounts have been less than one half of one
percent of its revenues in each of the last three years. The failure of a
relatively large customer or a number of smaller customers could have a material
adverse effect on the Company's business, operating results and financial
condition.
THE COMPANY IS SUBJECT TO CERTAIN RISKS IN CONNECTION WITH ITS BUSINESS WITH
FOREIGN CUSTOMERS
Approximately 27% of the Company's revenue for fiscal 1997 was generated
from foreign-based customers headquartered in Europe, the Caribbean, Latin
America and Asia. The Company frequently grants foreign customers extended
credit terms, which may result in proportionately larger receivable balances.
Although invoices are usually denominated in United States dollars, foreign
customers may have difficulty in paying such invoices in the event of the
devaluation of their national currency or as a result of risks related to
exchange rates generally. In addition, if a foreign customer fails to abide by
its contractual commitments, the Company's legal remedies may not be as
effective as they would be in collecting from domestic customers.
THE COMPANY IS DEPENDENT ON MAINTAINING ITS RELATIONSHIPS WITH CERTAIN
SIGNIFICANT CUSTOMERS
The Company derived approximately 17.5% and 14.1% of its revenue from Delta
and BA in fiscal 1997, respectively, and the Company's top ten customers
accounted for approximately 57.4% of revenue in fiscal 1997. There can be no
assurance that the Company will maintain or improve its relationships with its
significant customers or that the Company will continue to service such
customers at current levels. The loss of all of either Delta's or BA's business
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, Delta and BA provide a significant
portion of their own ground services. If Delta and/or BA increase the level of
ground services provided by their own employees, the market for the Company's
services would be reduced, which could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company was recently informed by BA that BA is not renewing its
contract with the Company for the provision of aircraft grooming services at
London-Heathrow airport following the expiration of such contract in January
1999. This contract generated approximately 8.8% of the Company's revenues in
1997. There can be no assurance that the Company will be able to win new
contracts to replace this lost business. See "Prospectus Summary--Recent
Developments."
THE COMPANY MAY HAVE DIFFICULTY COMPETING SUCCESSFULLY IN THE HIGHLY COMPETITIVE
MARKETS IN WHICH IT OPERATES
Each of the markets in which the Company operates is highly competitive.
The Company is in direct competition with major airlines, other aircraft support
companies and oil companies in providing into-plane fuel services and with major
airlines and other aircraft support companies in providing ground handling
services. The Company competes with major airlines, specialized freight
transporters and other cargo service firms in providing cargo services. In
airports where the Company has FBOs, the Company competes against other FBOs and
other entities providing similar services. Competition for customers between the
Company and its competitors is principally on the basis of price and quality of
service, and substantially all of the Company's services are subject to
competitive bidding. Many of the Company's competitors have greater financial,
technical and marketing resources than the Company, and there can be no
assurance that the Company will be able to compete successfully with existing or
new competitors. See "Business--Competition."
15
<PAGE> 21
RISK THAT THE COMPANY MAY LOSE BUSINESS DUE TO IN-SOURCING
The Company has lost customer business to in-sourcing and may continue to
lose customer business to in-sourcing. In 1996, Delta through Delta Staffing
Services ("DSS"), a wholly-owned subsidiary, began providing certain ground
services which had previously been outsourced to third party providers such as
the Company. As a result, the Company has lost contracts with Delta at
approximately 12 of the 14 locations where the Company had provided Delta such
services in 1996 and believes that it may lose the remainder of its ground
services contracts with Delta. The Company's remaining ground services contracts
with Delta accounted for approximately 1.2% of its revenue in 1997. If Delta
increases the amount of such ground services to be provided by DSS or DSS begins
providing other aviation services, it could have a material adverse effect on
the Company's business, operating results and financial condition. Moreover,
there can be no assurance that customers will not take similar action in the
future.
THE COMPANY'S CONTRACTS WITH ITS CUSTOMERS ARE SHORT-TERM AND TERMINABLE UPON
LIMITED NOTICE
Almost all of the Company's business depends on short-term contracts and
other contracts terminable by either party upon limited notice. Many contracts
with customers are based on invoice terms. While the Company believes such terms
are typical in its industry, there can be no assurance that such contracts,
agreements or arrangements will not be terminated. The termination of a large
portion of its contracts could have a material adverse effect on the Company's
business, operating results and financial condition.
THE COMPANY'S RIGHTS TO OPERATE AT AIRPORTS COULD BE TERMINATED BY THE LOCAL
AIRPORT AUTHORITY
In order to be able to provide its services at an airport, the Company
generally must receive permits, licenses or consents to operate at the airport
from the local airport authority. Because airport authorities are local in
nature, and not governed by a uniform set of rules and regulations, the approval
process can be subject to influences outside the Company's control, including
the local political climate. In addition, many of such permits, licenses or
consents to operate may be terminated by the local airport authority at will and
without cause. The loss of one or more of the Company's permits, licenses or
consents to operate could have a material adverse effect on the Company's
business, operating results and financial condition.
THE COMPANY COULD BE ADVERSELY EFFECTED BECAUSE IT OPERATES IN A REGULATED
INDUSTRY
The Company is subject to regulations promulgated by states, counties,
municipalities and airport authorities where it does business. The Company also
is affected by the regulation of its customers, including federal regulation by
the Federal Aviation Administration ("FAA") and the United States Department of
Defense ("DOD"). These and other federal agencies and departments have
considerable discretion in promulgating regulations and policies that can and do
affect the Company's customers. The Company's customers have and may continue to
come under the close scrutiny of such agencies and departments, and such
regulation may have a material adverse effect on the Company's customers, which
in turn could have a material adverse effect on the Company's business,
operating results and financial condition. Moreover, there can be no assurance
that the FAA, DOD or other federal agency or department, or a state or local
regulatory body, will not impose rules and regulations that directly regulate
the Company. Such regulation could have a material adverse effect on the
Company's business, operating results and financial condition.
RISKS RELATED TO THE COMPANY'S HIGH DEGREE OF TURNOVER AMONG ITS EMPLOYEES AND
ITS ABILITY TO MAINTAIN FAVORABLE RELATIONS WITH THE UNIONS REPRESENTING ITS
EMPLOYEES
The Company experiences a high degree of turnover among its employees, with
an average annual turnover rate from 1993 to 1997 of approximately 93% and a
turnover rate in 1997 of approximately 90%, which management believes is
approximately equal to the average turnover rate in its industry. As a result,
the Company expends a significant amount of time and resources on identifying
and training its workforce. There can be no assurance that the Company will be
able to hire or retain a sufficient number of qualified employees to meet its
growth and cost control objectives. An inability to attract or retain qualified
employees could have a material adverse effect on the Company's business,
operating results and financial condition.
16
<PAGE> 22
In addition, approximately two-thirds of the Company's employees are
represented by labor unions. There are currently approximately 30 collective
bargaining contracts in place, almost all of which have terms of three years.
Contract expirations are staggered with approximately one-third coming up for
renewal each year. Although the Company believes that it has had good relations
with the unions representing its employees, adverse changes in those
relationships could result in a work stoppage or an increase in costs which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business--Employees."
THE COMPANY IS DEPENDENT UPON THE CONTINUED SERVICE OF ITS KEY PERSONNEL
The Company's success depends in large part on the services of its senior
management team. The loss of any of its key executives could have a material
adverse effect on the Company. The Company does not maintain key-man life
insurance on any members of its senior management team. The Company's ability to
manage its anticipated growth will depend on its ability to identify, hire and
retain additional qualified management personnel. Competition for such personnel
is intense, and there can be no assurance that the Company will be successful in
attracting and retaining such personnel and such failure could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management."
THE COMPANY MAY BE UNABLE TO COMPLETE ACQUISITIONS AS PART OF ITS BUSINESS
STRATEGY
An important component of the Company's business strategy is to expand its
operations through selected acquisitions of aviation service businesses which
may be integrated into or complement the Company's existing businesses. Failure
to accomplish future acquisitions could limit the Company's revenue and earnings
growth potential. Although the Company regularly reviews possible acquisition
candidates, there can be no assurance that suitable acquisition candidates will
be identified or that acquisitions can be consummated on acceptable terms.
Future acquisitions may be funded through the issuance of additional debt,
borrowings under the Senior Credit Facility, borrowings under new credit
facilities or through additional equity financing, or some combination of the
foregoing. There can be no assurance that such financing will be available on
terms acceptable to the Company, or at all. In addition, the Company's ability
to pursue acquisitions may be limited by its significant indebtedness,
particularly, acquisitions may be prohibited by the terms of the Indenture and
the Senior Credit Facility and the Senior Credit Facility may require the lender
to grant consent for an acquisition. In addition, acquisitions involve a number
of risks that could adversely affect the Company's business, operating results
and financial condition, including the diversion of management's attention, the
assimilation of the operations and personnel of the acquired companies, the
potential loss of key employees and the assumption of an acquired company's
indebtedness and other liabilities. There can be no assurance that any
acquisition by the Company will not have a material adverse effect on the
Company's business, operating results and financial condition or that any such
acquisition will enhance the Company's business, operating results or financial
condition.
RISK THAT THE COMPANY MAY BE ADVERSELY EFFECTED AS A RESULT OF ENVIRONMENTAL AND
SAFETY REGULATIONS TO WHICH IT IS SUBJECT
The Company is subject to compliance obligations and liabilities imposed
pursuant to federal, state, local and foreign environmental and workplace health
and safety requirements, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"). In particular, the Company's
aircraft fuel handling operations are subject to liabilities and obligations
relating to the above ground and underground storage of, and the release and
cleanup of, petroleum products. Although the Company believes it is in material
compliance with environmental, health and safety requirements, the possibility
exists that noncompliance could occur or be identified in the future, and the
penalties or costs of corrective action associated therewith could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, requirements are complex, change frequently
and have tended to become more stringent over time, and there can be no
assurance that these requirements will not change in the future in a manner that
could materially and adversely affect the Company.
17
<PAGE> 23
The Company is currently conducting or funding, or expects to conduct or
fund, environmental investigations, monitoring and cleanups at certain of its
previously or currently operated facilities, including facilities located at the
Memphis, Miami, New Orleans, Portland, Sarasota and Seattle airports, and has
received claims or demands to pay a portion of airport-wide cleanup costs with
respect to its Philadelphia, San Diego and San Francisco airport facilities.
Also, from time to time, the Company receives notices of potential liability for
cleanup costs associated with offsite waste recycling or disposal facilities at
which wastes associated with its operations allegedly have come to be located.
In addition, airport authorities are coming under increasing pressure to clean
up previous contamination at their facilities, and are seeking financial
contribution from airport tenants and companies which operate at their airports.
Although the Company believes that legal arrangements (including operating
agreements, contractual indemnities, insurance policies, allocation agreements
and state funding mechanisms) are in place which significantly mitigate the
foregoing liabilities, should such arrangements fail, the Company could bear
direct liability for the foregoing matters and such liability could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, there can be no assurance that a change in
environmental laws, regulations, or interpretations thereof or a change in the
nature of the Company's operations will not require the Company to incur
additional cleanup costs. Further, there can be no assurance that future
environmental investigations by the Company will not identify other
environmental conditions requiring material expenditures of funds. See
"Business--Environmental."
THE COMPANY IS DEPENDENT ON ITS SUBSIDIARIES FOR FUNDS TO PAY INTEREST ON THE
NOTES AND SATISFY ITS OTHER OBLIGATIONS
The assets of the Company consist principally of the stock of its
subsidiaries, through which it conducts substantially all of its operations. The
Company's ability to pay interest on the Notes and to satisfy its other
obligations will depend upon dividends or other distributions of funds from its
subsidiaries. The future operating performance of the Company's subsidiaries,
including the Guarantors, will be affected by economic conditions, and
financial, business and other factors, many of which are beyond the Company's
control. The Notes will be (i) effectively subordinated to the Senior Credit
Facility and any other secured obligations of the Company and the Guarantors to
the extent of the value of the assets securing such obligations and (ii)
structurally subordinated to all obligations of the Company's non-Domestic
Restricted Subsidiaries and Unrestricted Subsidiaries. As of September 30, 1998,
on a pro forma basis after giving effect to the Initial Offering, the Company
and the Guarantors would have had no indebtedness to which holders of the Notes
would have been effectively subordinated and the Company's non-Domestic
Restricted Subsidiaries and Unrestricted Subsidiaries would have had no
indebtedness to which holders of the Notes would have been structurally
subordinated. The Senior Credit Facility and all obligations thereunder will be
secured by a first priority lien on the Company's accounts receivable and
inventory. There can be no assurance that the operating cash flow of the
Company's subsidiaries will be sufficient to meet the Company's operating
expenses and debt service obligations or to pay principal and interest on the
Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
POTENTIAL CONFLICTS BETWEEN THE INTERESTS OF HOLDERS OF THE NOTES AND THE
STOCKHOLDERS THAT CONTROL THE COMPANY
Following the Acquisition, Hancock and its affiliates and affiliates of
CIBC collectively hold approximately 49% of the voting common stock of Ranger
and all of the nonvoting common stock of Ranger. In addition, Hancock and its
affiliates, affiliates of CIBC and substantially all of the Company's other
stockholders have entered into a Securityholders Agreement regarding, among
other things, the voting of such stock. By virtue of such stock ownership and
the Securityholders Agreement, Hancock and its affiliates and affiliates of CIBC
will have the power to control all matters submitted to stockholders of the
Company, to elect a majority of the directors of the Company and to exercise
control over the business, policies and affairs of the Company. The interests of
Hancock and its affiliates and such affiliates of CIBC as equity holders may
differ from the interests of holders of the Notes. See "Certain
Transactions--Securityholders Agreement."
18
<PAGE> 24
RISK THAT THE COMPANY MAY NOT HAVE THE FINANCIAL RESOURCES TO REPURCHASE THE
NOTES UPON A CHANGE OF CONTROL OF THE COMPANY
In the event of a Change of Control, the Company will be required to make
an offer for cash to repurchase the Notes at 101% of the principal amount
thereof, plus accrued and unpaid interest and Additional Interest, if any,
thereon to the repurchase date. Certain events involving a Change of Control may
result in an event of default under the Senior Credit Facility or other
indebtedness of the Company that may be incurred in the future. Moreover, the
exercise by the holders of the Notes of their right to require the Company to
repurchase the Notes may cause an event of default under the Senior Credit
Facility or such other indebtedness, even if the Change of Control does not. The
Company' obligations under this provision of the Indenture could delay, deter or
prevent a sale of the Company which might otherwise be advantageous to holders
of Notes. Finally, there can be no assurance that the Company will have the
financial resources necessary to repurchase the Notes upon a Change of Control.
See "Description of the Notes--Change of Control Offer."
RISK THAT THE COMPANY'S COMPUTER SYSTEMS MAY FAIL AS A RESULT OF THE YEAR 2000
ISSUE
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company and third parties with which the Company does business rely on numerous
computer programs in their day to day operations. The Company has evaluated and
believes it has addressed the Year 2000 issue as it relates to its internal
computer systems and is also surveying its customers for Year 2000 compliance.
Although based on its investigation to date, the Company does not believe it
will experience any material adverse effects as a result of the Year 2000 issue,
there can be no assurance in this regard, and the Year 2000 issue could have a
material adverse impact on the Company's business, operating results and
financial condition.
CONSEQUENCES TO HOLDERS OF OLD NOTES WHO FAIL TO EXCHANGE THEIR OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes, as set forth in the legend thereon, as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, including Exxon Capital Holdings Corporation, SEC
No-Action letter (available April 13, 1988)(the "Exxon Capital Letter"), Morgan
Stanley & Co. Incorporated, SEC No-Action Letter (available June 5, 1991)(the
"Morgan Stanley Letter"), and similar letters, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act provided that such Exchange
Notes are acquired in the ordinary course of such holder's business and such
Holder has no arrangement with any person to participate in the distribution of
such Exchange Notes. Notwithstanding the foregoing, each broker-dealer that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities (other than
Old Notes acquired directly from the Company). The Company has agreed that, for
a period of 180 days from the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution." Any holder who tenders in the Exchange Offer for the
purpose of
19
<PAGE> 25
participating in a distribution of the Exchange Notes cannot rely on the Morgan
Stanley Letter or similar letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market, if any, for the Old Notes
not so tendered could be adversely affected. See "The Exchange Offer."
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer certain registration rights under the
Exchange Offer Registration Rights Agreement will terminate. In addition, any
holder of Old Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes may be deemed to have
received restricted securities, and if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See "Plan of
Distribution." To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See "The Exchange Offer."
ABSENCE OF A PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in this Exchange Offer. The holders of
Old Notes (other than any such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) who are not eligible to
participate in the Exchange Offer are entitled to certain registration rights
and the Company is required to file a Shelf Registration Statement with respect
to such Old Notes. The Exchange Notes will constitute new issues of securities
with no established trading market. The Company does not intend to list the
Exchange Notes on any national securities exchange or seek the admission thereof
to trading in the National Association of Securities Dealers Automated Quotation
System. The Initial Purchaser has advised the Company that it currently intends
to make a market in the Exchange Notes, but it is not obligated to do so and may
discontinue such market making at any time. In addition, such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer and the pendency of
the Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of the trading market for the Exchange Notes. If a trading market does
not develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at all.
If a market for the Exchange Notes develops, any such market may be discontinued
at any time.
If a public trading market develops for the Exchange Notes, future trading
prices of such securities will depend on many factors including, among other
things, prevailing interest rates, the Company's results of operations and
market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Company, the Exchange Notes may trade at a discount from their
principal amount.
20
<PAGE> 26
RISK OF FRAUDULENT TRANSFER
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance laws, if the
Company or any Guarantor, at the time it issued the Senior Increasing Rate Notes
or issues the Notes, or, as the case may be, its Guarantee: (i) incurred such
indebtedness with intent to hinder, delay or defraud creditors or (ii) received
less than reasonably equivalent value or fair consideration for incurring such
indebtedness and (a) was insolvent at the time of such incurrence, (b) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (c) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company or any Guarantor
constituted unreasonably small capital to carry on its businesses or (d)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they mature, then, in each case, a court of competent
jurisdiction could void, in whole or in part, the Notes or the Guarantees, or,
in the alternative, subordinate the Notes or the Guarantees to existing and
future indebtedness of the Company or any Guarantor, as the case may be. The
measure of insolvency for purposes of the foregoing will vary depending upon the
law applied in such case. Generally, however, the Company or any Guarantor would
be considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would be
required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured. If any Guarantee is
avoided, the holders could lose the benefit of the Guarantee, and the holders
could also be required to return to the Guarantor or its estate the amount of
any payment or other property received in respect of the Notes.
Management believes that the Notes are being issued without the intent to
hinder, delay or defraud creditors and for proper purposes and in good faith and
that the Company, after the issuance of the Notes and the application of the
proceeds thereof, will be solvent, will have sufficient capital for carrying on
its business and will be able to pay its debts as they mature. There can be no
assurance, however, that a court passing on such questions would agree with
management's view.
21
<PAGE> 27
THE ACQUISITION
The Initial Offering was made in conjunction with the Company's $95 million
acquisition of the ASIG business from Viad that was consummated as of April 1,
1998.
The Investor Group capitalized Ranger with an aggregate investment of $24.1
million. Ranger subsequently contributed this $24.1 million as equity to the
Company in return for all of its outstanding common stock. In connection with
the Acquisition, the Company and Viad agreed that they will jointly make the
338(h)(10) election, which will result in the Company's tax basis in its assets
being increased to their fair market value at the time of the Acquisition. The
net proceeds from the Equity Investment and the Company's issuance of $75
million of Senior Increasing Rate Notes under the Note Purchase Agreement were
used to consummate the Acquisition. Concurrent with the Acquisition, the Company
entered into the Senior Credit Facility, which was provided by Key Corporate
Capital Inc., an affiliate of Key Bank, as lender and agent. The net proceeds of
the Initial Offering were used to repay the Senior Increasing Rate Notes.
The following table sets forth the Company's sources and uses of funds in
the Acquisition (dollars in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Senior Increasing Rate Notes.............................. $ 75,000
New equity invested....................................... 24,100
Cash (a).................................................. 6,513
--------
Total sources........................................ $105,613
========
USES OF FUNDS:
ASIG cash purchase price (b).............................. $ 95,000
General corporate purposes................................ 5,929
Transaction costs and fees (c)............................ 4,684
--------
Total uses........................................... $105,613
========
</TABLE>
- ---------------
(a) Reflects cash in the ASIG business on the Acquisition date.
(b) Without giving effect to any post-closing adjustments. See "Certain
Transactions--Share Purchase Agreement."
(c) Unamortized fees related to the issuance of the Senior Increasing Rate Notes
were written off upon the consummation of the Initial Offering.
22
<PAGE> 28
USE OF PROCEEDS
The net proceeds of the Initial Offering, were approximately $76.8 million
(after payment of fees and expenses) and were used to repay the Senior
Increasing Rate Notes incurred in connection with the Acquisition. The Senior
Increasing Rate Notes were held by an affiliate of the Initial Purchaser.
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Exchange Offer Registration
Rights Agreement. The Company will not receive any cash proceeds from the
issuance of the Exchange Notes offered hereby. In consideration for issuing the
Exchange Notes contemplated in this Prospectus, the Company will receive Old
Notes in like principal amount, the form and terms of which are the same as the
form and terms of the Exchange Notes (which replace the Old Notes), except as
otherwise described herein. The Old Notes surrendered in exchange for Exchange
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the Exchange Notes will not result in any increase or decrease in the
indebtedness of the Company. As such, no effect has been given to the Exchange
Offer in the pro forma statements or capitalization table.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1998. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any increase on decrease in
the indebtedness of the Company. As such, no effect has been given to the
Exchange Offer in this Capitalization table. The information in this table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the unaudited interim
financial statements of the Company as of and for the six months ended September
30, 1998 and the notes thereto which appear elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
Cash........................................................ $ 4,752
========
Total debt:
Senior Credit Facility (a)................................ $ --
Old Notes................................................. 80,000
--------
Total debt............................................. 80,000
Stockholder's equity:
Common stock, $0.01 par value, 1,000 shares authorized,
100 shares issued and outstanding...................... --
Paid-in capital........................................... 24,100
Cumulative translation adjustment......................... 148
Retained deficit.......................................... (3,542)
--------
Total stockholder's equity.................................. 20,706
--------
Total capitalization................................... $100,706
========
</TABLE>
- ---------------
(a) The Senior Credit Facility consists of a $10 million revolving credit
facility. As of September 30, 1998, the Company had no amounts outstanding
under the Senior Credit Facility.
23
<PAGE> 29
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data are derived from the
Company's financial statements which appear elsewhere in this Prospectus, as
adjusted to give effect to the Acquisition and the Initial Offering. The
unaudited pro forma statement of income for the fiscal year ended March 31, 1998
gives effect to, among other things, the Acquisition and the Initial Offering as
if they had occurred at the beginning of the period, and the unaudited pro forma
statement of income for the six months ended September 30, 1998 gives effect to,
among other things, the Initial Offering as if it had occurred at the beginning
of the period. The pro forma adjustments are based upon available data and
certain assumptions that the Company believes are reasonable. The unaudited pro
forma financial data do not purport to be indicative of the actual financial
position or results of operations of the Company that would have actually been
attained had the Acquisition and the Initial Offering in fact occurred on the
date specified, nor are they necessarily indicative of the results of operations
that may be achieved in the future. The unaudited pro forma financial data
should be read in conjunction with the financial statements of the Company
including the notes thereto, and the information contained in "The Acquisition,"
"Use of Proceeds," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which appear elsewhere in this Prospectus.
24
<PAGE> 30
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED MARCH 31, 1998(1)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues............................................ $ 119,325 $119,325
Costs and expenses:
Operating expenses................................ 98,190 $(2,219)(a)(b) 95,971
Selling, general and administrative............... 6,507 (355)(b) 6,152
Depreciation and amortization..................... 4,604 4,118(c) 8,722
---------- ------- --------
Total costs and expenses....................... 109,301 1,544 110,845
---------- ------- --------
Operating income.................................... 10,024 (1,544) 8,480
Other income (expense), net......................... (71) (71)
Interest income..................................... 350 (247)(d) 103
Interest and other financial expense................ (669) (8,676)(e) (9,345)
---------- ------- --------
Income (loss) before income taxes................... 9,634 (10,467) (833)
Income taxes........................................ 3,602 (3,602)(f) --
---------- ------- --------
Net income (loss)................................. $ 6,032 $(6,865) $ (833)
========== ======= ========
Net loss per share -- basic and diluted........... $ (8,330)
========
Weighted average common shares outstanding........ 100
========
EBITDA(g)......................................... $ 14,628 $ 2,574 $ 17,202
========== ======= ========
Ratio of earnings to fixed charges(h)............. 7.4x --
</TABLE>
- ---------------
(1) The Company's fiscal year end is March 31. The Pro Forma Statement of Income
for the fiscal year ended March 31, 1998 represents the combination of the
results of the Company for the period from March 24, 1998 (inception) to
March 31, 1998 (the Company had no operations during this period) and the
results of the ASIG business for the year ended December 31, 1997. The
Company has used the results of the ASIG business for the year ended
December 31, 1997 rather than for the twelve months ended March 31, 1998
because the Company believes that the results for the year ended December
31, 1997 are more reflective of the historical results of the ASIG business.
During the three months ended March 31, 1998, the ASIG business was in the
process of being sold by Viad which the Company believes caused the results
of the ASIG business for the three months ended March 31, 1998 to differ
from its historical results for such period. If the Company used the results
of the ASIG business for the twelve months ended March 31, 1998 in this Pro
Forma Statement of Income, the Company's pro forma operating income would
have been $8,055, its pro forma net income (loss) would have been $(1,315)
and its pro forma EBITDA would have been $16,759.
See accompanying Notes to Unaudited Pro Forma Statements of Income.
25
<PAGE> 31
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenues............................................ $ 61,243 $ 61,243
Costs and expenses:
Operating expenses................................ 49,471 $ (130)(b) 49,341
Selling, general and administrative............... 4,035 (196)(b) 3,839
Depreciation and amortization..................... 4,259 4,259
-------- ------ --------
Total costs and expenses....................... 57,765 (326) 57,439
Operating income.................................... 3,478 326 3,804
Other income (expense), net......................... (128) (128)
Interest income..................................... 140 140
Interest and other financial expense................ (6,496) 1,770(e) (4,726)
-------- ------ --------
Loss before income taxes............................ (3,006) 2,096 (910)
Income taxes........................................ 323 323
-------- ------ --------
Net loss before extraordinary item................ $ (3,329) $2,096 $ (1,233)
======== ====== ========
Net loss before extraordinary item per
share--basic and diluted....................... $(33,290) -- $(12,330)
======== ========
Weighted average common shares outstanding--basic
and diluted.................................... 100 100
======== ========
EBITDA(g)......................................... $ 7,737 $ 326 $ 8,063
======== ====== ========
Ratio of earnings to fixed charges(h)............. -- --
</TABLE>
See accompanying Notes to Unaudited Pro Forma Statements of Income.
26
<PAGE> 32
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
1998(1) 1998
----------------- ----------------
<S> <C> <C>
(a) In connection with the Acquisition, the Company was
obligated to obtain new insurance policies separate
from previously existing policies maintained by the
Predecessor and by Viad on behalf of the Predecessor
and to establish a new benefit plan to replace the
Predecessor's defined benefit pension plan and 401(k)
plan.
Decrease in operating expenses:
New insurance policies, net........................ $1,112
Replacement benefit plan, net...................... 493
------
$1,605
======
(b) In connection with the Acquisition, several executive
positions were either eliminated or replaced with new
individuals and the Company underwent a general
reorganization which resulted in the elimination of
certain positions and changes to other positions both
at its operating stations and at its corporate office.
In addition, certain intercompany charges from Viad
for corporate overhead, including legal, audit,
treasury and risk assessment, were eliminated and
replaced with charges appropriate for the new Company
on a stand-alone basis.
Decrease in operating expenses:
General reorganization............................. $ 614 $ 130
====== =======
Decrease in selling, general and administrative
expenses:
Executive positions, net........................... $ (154) $ 130
General reorganization............................. 255 66
Corporate overhead, net............................ 254 --
------ -------
$ 355 $ 196
====== =======
(c) Reflects the following:
Increase in depreciation expense resulting from the
write-up of property, plant and equipment to fair
market value. Such write-up in assets will be
depreciated over the remaining life of the assets.... $1,852
Increase in amortization expense due to additional
goodwill created as a result of the Acquisition which
is amortized over 20 years........................... 2,368
Partial offset to increase in amortization expense
resulting from the reversal of amortization relating
to historical goodwill eliminated in connection with
the Acquisition...................................... (102)
------
$4,118
======
(d) Reflects the reversal of historical interest income
previously allocated from Viad and eliminated upon
consummation of the Acquisition....................... $ 247
======
</TABLE>
27
<PAGE> 33
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
1998(1) 1998
----------------- ----------------
<S> <C> <C>
(e) Reflects the following effects on interest expense
resulting from the Initial Offering:
Interest expense:
Old Notes.......................................... $8,800 $ 4,400
Unused Senior Credit Facility fee.................. 50 24
------ -------
Pro forma cash interest expense...................... 8,850 4,424
Amortization of Initial Offering costs and other
fees............................................... 495 302
------ -------
Total pro forma interest expense..................... 9,345 4,726
Less: historical interest and other financial
expense............................................ (669) (6,496)
------ -------
Total interest expense adjustment.................... $8,676 $(1,770)
====== =======
- ---------------
(1) The Company's fiscal year end is March 31. The Pro Forma Statement of Income for the fiscal
year ended March 31, 1998 represents the combination of the results of the Company for the
period from March 24, 1998 (inception) to March 31, 1998 (the Company had no operations during
this period) and the results of the ASIG business for the year ended December 31, 1997.
(f) Represents the reversal of historical income tax expense.
(g) EBITDA is defined herein as net income (loss) before interest, income taxes, depreciation,
amortization and other income (expense). Although EBITDA is not a measure of performance
calculated in accordance with generally accepted accounting principles, the Company has
included information concerning EBITDA in this Prospectus because it is commonly used by
certain investors and analysts as a measure of a company's ability to service its debt
obligations. The Company's calculation of EBITDA may not be comparable to similarly titled
measures reported by other companies and should not be viewed as an accurate comparative
measure since all companies do not calculate this non-GAAP measure in the same manner. The
Company's EBITDA calculation is not intended to represent cash used in operating activities,
since it does not include interest and taxes and changes in operating assets and liabilities,
nor is it intended to represent the net increase or decrease in cash, since it does not include
cash provided by (used in) investing and financing activities.
(h) Calculated by dividing earnings by total fixed charges. Earnings consist of net income (loss)
plus income taxes and fixed charges excluding capitalized interest. Fixed charges consist of
interest expense, whether expensed or capitalized, amortization of deferred financing costs and
a portion of rental expense representing the interest factor. Earnings were inadequate to cover
fixed charges by $833 for the pro forma year ended March 31, 1998 and $3,006 and $910 for the
six months ended September 30, 1998 and the pro forma six months ended September 30, 1998,
respectively.
</TABLE>
28
<PAGE> 34
SELECTED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents selected historical financial data for each of
the five years in the period ended December 31, 1997 and for each of the three
month periods ended March 31, 1997 and March 31, 1998 and six month periods
ended September 30, 1997 and September 30, 1998. The selected historical
statement of income data for each of the years ended December 31, 1995, 1996 and
1997 and balance sheet data as of December 31, 1996 and 1997 have been derived
from the audited financial statements of the Company and the notes thereto which
appear elsewhere in this Prospectus. The selected historical statement of income
data for each of the years ended December 31, 1993 and 1994 and balance sheet
data as of December 31, 1993, 1994 and 1995 have been derived from the
consolidated financial statements of Viad, which are not included in this
Prospectus. The selected historical statement of income and balance sheet data
as of and for each of the three month periods ended March 31, 1997 and March 31,
1998 and six month periods ended September 30, 1997 and September 30, 1998 have
been derived from unaudited financial statements, which, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for the unaudited
interim periods. Results for the six months ended September 30, 1998 are not
necessarily indicative of results that may be expected for the entire year.
<TABLE>
<CAPTION>
PREDECESSOR
--------------------------------------------------------------------------
SIX MONTHS
THREE MONTHS ENDED ENDED,
YEARS ENDED DECEMBER 31, --------------------- -------------
-------------------------------------------------- MARCH 31, MARCH 31, SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998 1997
------- ------- -------- -------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................. $84,704 $94,308 $111,658 $121,574 $119,325 $29,816 $31,035 $58,954
Costs and expenses:
Operating expenses...... 68,945 76,793 93,540 102,935 98,190 23,973 26,320 47,651
Selling, general and
administrative........ 5,193 5,458 6,467 7,259 6,507 2,064 1,754 3,610
Depreciation and
amortization.......... 4,260 4,165 4,340 4,420 4,604 1,172 1,154 2,295
------- ------- -------- -------- -------- ------- ------- -------
Total costs and
expenses............ 78,398 86,416 104,347 114,614 109,301 27,209 29,228 53,556
------- ------- -------- -------- -------- ------- ------- -------
Operating income.......... 6,306 7,892 7,311 6,960 10,024 2,607 1,807 5,398
Other income (expense),
net..................... (123) (60) 47 (45) (71) 35 (57) 82
Interest income........... 270 483 842 343 350 37 77 188
Interest and other
financial expense....... (151) (158) (620) (606) (669) (165) (170) (330)
------- ------- -------- -------- -------- ------- ------- -------
Income (loss) before
income taxes............ 6,302 8,157 7,580 6,652 9,634 2,514 1,657 5,338
Income taxes.............. 1,872 2,596 2,563 2,433 3,602 934 615 2,014
------- ------- -------- -------- -------- ------- ------- -------
Net income (loss) before
extraordinary item...... 4,430 5,561 5,017 4,219 6,032 1,580 1,042 3,324
Extraordinary loss on
early extinguishment of
debt.................... -- -- -- -- -- -- -- --
------- ------- -------- -------- -------- ------- ------- -------
Net income (loss)......... $ 4,430 $ 5,561 $ 5,017 $ 4,219 $ 6,032 $ 1,580 $ 1,042 $ 3,324
======= ======= ======== ======== ======== ======= ======= =======
Net loss per share--basic
and diluted:
Before extraordinary
item....................
Extraordinary loss........
Net income (loss).........
Weighted average common
shares
outstanding--basic and
diluted................. -- -- -- -- -- -- -- --
STATEMENT OF CASH FLOW
DATA:
Net cash provided by
operating activities.... N/A N/A $ 5,060 $ 7,161 $ 17,139 $ 5,927 $ 5,321 $ 8,516
Net cash (used in)
investing activities.... N/A N/A (4,402) (9,061) (4,300) (963) (2,702) (2,295)
Net cash provided by
(used in) financing
activities.............. N/A N/A (806) 2,091 (13,030) (4,380) (2,619) (8,011)
OTHER DATA:
EBITDA(a)................. $10,566 $12,057 $ 11,651 $ 11,380 $ 14,628 $ 3,779 $ 2,961 $ 7,693
Capital expenditures...... 2,561 4,722 4,402 9,061 3,947 963 2,702 1,904
Ratio of earnings to fixed
charges(b).............. 6.5x 8.3x 6.1x 5.6x 7.4x 7.0x 4.9x 4.4x
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash...................... $ 1,027 $ 148 $ -- $ 191 $ -- $ 775 $ -- $ 400
Total assets.............. 43,063 47,699 43,160 38,602 41,930 37,974 45,597 34,166
Total debt................ 315 315 247 173 91 173 91 91
Total
combined/stockholder's
equity.................. 17,477 19,697 17,692 15,433 14,557 15,472 15,589 15,948
<CAPTION>
SUCCESSOR
-------------
SEPTEMBER 30,
1998
-------------
<S> <C>
STATEMENT OF INCOME DATA:
Revenues.................. $ 61,243
Costs and expenses:
Operating expenses...... 49,471
Selling, general and
administrative........ 4,035
Depreciation and
amortization.......... 4,259
--------
Total costs and
expenses............ 57,765
--------
Operating income.......... 3,478
Other income (expense),
net..................... (128)
Interest income........... 140
Interest and other
financial expense....... (6,496)
--------
Income (loss) before
income taxes............ (3,006)
Income taxes.............. 323
--------
Net income (loss) before
extraordinary item...... (3,329)
Extraordinary loss on
early extinguishment of
debt.................... (213)
--------
Net income (loss)......... $ (3,542)
========
Net loss per share--basic
and diluted:
Before extraordinary
item.................... $(33,290)
========
Extraordinary loss........ $ (2,130)
========
Net income (loss)......... $(35,420)
========
Weighted average common
shares
outstanding--basic and
diluted................. 100
========
STATEMENT OF CASH FLOW
DATA:
Net cash provided by
operating activities.... $ 3,018
Net cash (used in)
investing activities.... (94,805)
Net cash provided by
(used in) financing
activities.............. 96,538
OTHER DATA:
EBITDA(a)................. $ 7,737
Capital expenditures...... 6,337
Ratio of earnings to fixed
charges(b).............. --
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash...................... $ 4,752
Total assets.............. 124,807
Total debt................ 80,000
Total
combined/stockholder's
equity.................. 20,706
</TABLE>
- ---------------
29
<PAGE> 35
(a) EBITDA is defined herein as net income (loss) before interest, income taxes,
depreciation, amortization and other income (expense). Although EBITDA is
not a measure of performance calculated in accordance with generally
accepted accounting principles, the Company has included information
concerning EBITDA in this Prospectus because it is commonly used by certain
investors and analysts as a measure of a company's ability to service its
debt obligations. The Company's calculation of EBITDA may not be comparable
to similarly titled measures reported by other companies since all companies
do not calculate this non-GAAP measure in the same manner. The Company's
EBITDA calculation is not intended to represent cash used in operating
activities, since it does not include interest and taxes and changes in
operating assets and liabilities, nor is it intended to represent the net
increase or decrease in cash, since it does not include cash provided by
(used in) investing and financing activities.
(b) Calculated by dividing earnings by total fixed charges. Earnings consist of
net income (loss) plus income taxes and fixed charges excluding capitalized
interest. Fixed charges consist of interest expense, whether expensed or
capitalized, amortization of deferred financing costs and a portion of
rental expense representing the interest factor. Earnings were inadequate to
cover fixed charges by $1,727 for the six months ended September 30, 1998.
30
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the Company's consolidated historical results
of operations and financial condition should be read in conjunction with the
combined financial statements and the notes thereto which appear elsewhere in
this Prospectus.
OVERVIEW
The Company's business includes aviation fueling services (57% of 1997
revenues), aircraft ground services (39%) and other aviation services (4%).
Aviation fueling services are comprised primarily of into-plane fueling,
maintenance and operation of fuel storage and delivery systems and the retail
sale of fuel products. Generally, the Company has custody over, but not
ownership of, the fuel it manages and delivers. Aircraft ground services consist
primarily of ground handling, aircraft interior grooming, cargo handling,
passenger and traffic services and FBOs.
The Investor Group capitalized Ranger with an aggregate investment of $24.1
million, all of which was contributed as equity to the Company in return for all
of its outstanding common stock. The net proceeds from the Equity Investment and
the Company's issuance of $75 million of Senior Increasing Rate Notes under the
Note Purchase Agreement were used to consummate the Acquisition of the ASIG
business from Viad for $95 million. Concurrent with the Acquisition, the Company
entered into the Senior Credit Facility.
ASIG has adopted a fiscal year end of March 31.
Revenues
Into-plane fueling service consists of providing airplanes with specified
amounts of fuel from fuel storage facilities located at or near the airport. The
Company generally records revenue from its into-plane fueling contracts based on
a fee per gallon of fuel delivered. Fuel system maintenance and operation
consists of the maintenance and operation of the fuel storage and delivery
systems at an airport. These systems are typically composed of storage tanks,
pumps, pipes and filter/separators. The Company generally records revenue from
its maintenance and operation contracts based on reimbursement of costs, plus an
additional monthly fee. In addition, the Company sells aviation fuel to private
aircraft at retail prices at locations where it has FBOs.
Ground handling services consist of the provision of ground handling crews
and all necessary ground support equipment to process airline flights through
the full range of on-the-ground services. Aircraft interior grooming consists of
the cleaning of aircraft cabins between flights and cargo handling consists of
the loading, warehousing and documentation of cargo. Passenger and traffic
services include passenger ticketing, check-in and boarding, security clearance,
special assistance and skycap services. FBOs generally include the provision of
terminal services, pilot facilities, maintenance, weather service, flight
planning and hangar space to private, executive and corporate aircraft. For each
of these aircraft ground services, other than FBOs, the Company is generally
compensated by a fixed fee for each aircraft serviced, based on the size of the
aircraft. For FBOs, the Company is generally compensated by a fixed fee for
specific services rendered.
The Company provides its services to its customers pursuant to contractual
agreements and currently has approximately 740 contracts, which have been in
place, including extensions, for an average of 5.0 years each. In 1997, the
Company's largest contract accounted for 8.8% of revenue, and no other contract
accounted for more than 4.3% of revenue. The majority of the Company's contracts
have an industry standard initial length of one year, although the Company's
larger contracts generally run for initial terms of three to five years.
Costs and Expenses
The Company's principal operating expenses are labor costs and direct
supervision at its stations along with related benefits and payroll taxes, cost
of fuel sold, workers' compensation, property and liability insurance, rent
expense, repairs and maintenance expenses and miscellaneous other direct
station-related expenses. Certain of these expenses are relatively fixed,
regardless of the extent of operations at a particular station, including the
cost of the facility, station management and related administrative expenses.
31
<PAGE> 37
Selling, general and administrative expenses include the costs of marketing
the Company's services, general supervision provided to the stations, and
accounting, finance and personnel related expenses. These costs are generally
comprised of labor costs and related benefits and payroll taxes, legal and other
professional fees and miscellaneous expenses.
RESULTS OF OPERATIONS
The following table summarizes the Company's historical results of
operations for the periods indicated (dollars in millions):
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------------------------------------------
SIX MONTHS
THREE MONTHS ENDED ENDED
YEARS ENDED DECEMBER 31, ----------------------------- -------------
------------------------------------------------ MARCH 31, MARCH 31, SEPTEMBER 30,
1995 1996 1997 1997 1998 1997
-------------- -------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $111.7 100.0% $121.6 100.0% $119.3 100.0% $29.8 100.0% $31.0 100.0% $59.0 100.0%
Costs and expenses:
Operating expenses..... 93.6 83.8 102.9 84.7 98.2 82.3 24.0 80.4 26.3 84.8 47.7 80.8
Selling, general and
administrative....... 6.5 5.8 7.3 6.0 6.5 5.5 2.1 6.9 1.8 5.7 3.6 6.1
Depreciation and
amortization......... 4.3 3.9 4.4 3.6 4.6 3.8 1.1 3.9 1.1 3.7 2.3 3.9
------ ----- ------ ----- ------ ----- ----- ----- ----- ----- ----- -----
Operating income........ $ 7.3 6.5% $ 7.0 5.7% $ 10.0 8.4% $ 2.6 8.7% $ 1.8 5.8% $ 5.4 9.2%
====== ===== ====== ===== ====== ===== ===== ===== ===== ===== ===== =====
Net income (loss)....... $ 5.0 4.5% $ 4.2 3.5% $ 6.0 5.0% $ 1.6 5.4% $ 1.0 1.7% $ 3.3 5.6%
====== ===== ====== ===== ====== ===== ===== ===== ===== ===== ===== =====
EBITDA.................. $ 11.7 10.4% $ 11.4 9.4% $ 14.6 12.3% $ 3.7 12.6% $ 3.0 9.5% $ 7.7 13.0%
====== ===== ====== ===== ====== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
SUCCESSOR
-------------
SEPTEMBER 30,
1998
-------------
<S> <C> <C>
Revenues................ $61.2 100.0%
Costs and expenses:
Operating expenses..... 49.5 80.8
Selling, general and
administrative....... 4.0 6.6
Depreciation and
amortization......... 4.2 6.9
----- -----
Operating income........ $ 3.5 5.7%
===== =====
Net income (loss)....... $(3.5) --
===== =====
EBITDA.................. $ 7.7 12.6%
===== =====
</TABLE>
Six Months Ended September 30, 1998 Compared to Six Months Ended September 30,
1997
Revenues increased $2.3 million, or 3.9%, from $59.0 million for the six
months ended September 30, 1997, to $61.2 million for the six months ended
September 30, 1998. This increase was attributable to, among other things, new
business principally for into-plane fueling and revenue enhancements on existing
contracts and was partially offset by lost business primarily related to lost
Delta ground handling business in certain locations of $1.8 million. The lost
Delta business was primarily due to a strategic decision by the Company either
to increase margins on selected low margin ground services contracts or to
terminate those contracts and Delta's decision to in-source certain ground
services which had previously been outsourced to the Company.
Operating expenses increased $1.8 million, or 3.8%, from $47.7 million for
the six months ended September 30, 1997 to $49.5 million for the six months
ended September 30, 1998. This increase was primarily attributable to increased
labor costs of $2.0 million and higher repair and maintenance expenses of $0.4
million primarily as a result of the increased revenues. These increases were
partially offset by reduced pension and insurance expenses of $.06 million due
to revised benefit plans. Operating expenses as a percentage of revenues were
80.8% in the six months ended September 30, 1997 and 80.9% in the six months
ended September 30, 1998.
Selling, general and administrative expenses increased $0.4 million, or
11.8%, from $3.6 million for the six months ended September 30, 1997 to $4.0
million for the six months ended September 30, 1998, principally due to
temporarily higher corporate office payroll during the transition period
following the Acquisition. As a result, selling, general and administrative
expenses as a percentage of revenues increased from 6.1% in the six months ended
September 30, 1997 to 6.5% in the six months ended September 30, 1998.
Depreciation and amortization expenses increased $1.9 million, or 85.6%,
from $2.3 million for the six months ended September 30, 1997 to $4.2 million
for the six months ended September 30, 1998. This increase reflects the increase
in depreciation expense related to the allocation of the Acquisition purchase
price to the assets acquired based on the underlying fair values of these
assets, which resulted in an increase in fixed assets of $24.3 million. The
increase also reflects $1.2 million of amortization of intangibles resulting
from the Acquisition, which are generally being amortized over 20 years.
As a result of the above factors, operating income decreased $1.9 million,
or 35.6%, from $5.4 million for the six months ended September 30, 1997 to $3.5
million for the six months ended September 30, 1998.
32
<PAGE> 38
Operating income margins decreased from 9.2% in the six months ended September
30, 1997 to 5.7% in the six months ended September 30, 1998.
Interest and other financial expense increased $6.2 million from $0.3
million for the six months ended September 30, 1997 to $6.5 million for the six
months ended September 30, 1998. This increase relates primarily to the interest
accrued on the Senior Increasing Rate Notes of $4.0 million which were incurred
in connection with the Acquisition and related amortization of deferred
financing costs of $2.5 million related to the incurrence of this debt.
As a result of the above factors, income taxes decreased $1.7 million from
$2.0 million for the six months ended September 30, 1997, to $0.3 million for
the six months ended September 30, 1998.
Accordingly, net income decreased $6.8 million from net income of $3.3
million for the six months ended September 30, 1997 to a net loss of $3.5
million for the six months ended September 30, 1998.
The foregoing factors resulting in a consistent level of EBITDA of $7.7
million for each of the six months ended September 30, 1997 and 1998. EBITDA
margins decreased from 13.0% to 12.6% for the respective periods.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Revenues increased $1.2 million, or 4.1%, from $29.8 million for the three
months ended March 31, 1997, to $31.0 million for the three months ended March
31, 1998. This increase was attributable to, among other things new business
principally for into-plane fueling and revenue enhancements on existing
contracts partially offset by lost business primarily related to lost Delta
ground handling business in certain locations of $1.7 million as described
above.
Operating expenses increased $2.3 million, or 9.8%, from $24.0 million for
the three months ended March 31, 1997 to $26.3 million for the three months
ended March 31, 1998. This increase was primarily attributable to increased
labor and related benefits expenses of $1.6 million, workers' compensation
expenses of $0.2 million, damage claims of $.01 million and repairs and
maintenance expenses of $.4 million. As a result, operating expenses as a
percentage of revenues increased from 80.4% in the three months ended March 31,
1997 to 84.8% in the three months ended March 31, 1998.
Selling, general and administrative expenses decreased $0.3 million or
15.0% from $2.1 million for the three months ended March 31, 1997 to $1.8
million for the three months ended March 31, 1998. This decrease was the result
of reduced payroll related to management changes as part of a concerted effort
to reduce overhead expenses.
Depreciation and amortization expenses were $1.1 million for each of the
three months ended March 31, 1997 and 1998. Although the level of expenses was
consistent between periods, depreciation and amortization expenses as a
percentage of revenues decreased from 3.9% in the three months ended March 31,
1997 to 3.7% in the three months ended March 31, 1998 as a result of the
increased revenues.
As a result of the above factors, operating income decreased $0.8 million,
or 30.7%, from $2.6 million for the three months ended March 31, 1997 to $1.8
million for the three months ended March 31, 1998. Operating income margins
decreased from 8.7% in the three months ended March 31, 1997 to 5.8% in the
three months ended March 31, 1998.
As a result of the above factors, income taxes decreased $0.3 million from
$0.9 million for the three months ended March 31, 1997, to $0.6 million for the
three months ended March 31, 1998. The effective tax rates were consistent
between the two periods.
Accordingly, net income decreased $0.5 million from $1.6 million for the
three months ended March 31, 1997, to $1.0 million for the three months ended
March 31, 1998. Net income margins decreased from 5.3% to 3.4% for the
respective periods.
The foregoing factors resulted in a decrease in EBITDA of $0.8 million, or
21.7%, from $3.7 million for the three months ended March 31, 1997 to $3.0
million for the three months ended March 31, 1998. EBITDA margins decreased from
12.6% to 9.5% for the respective periods.
33
<PAGE> 39
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues decreased $2.3 million, or 1.8%, from $121.6 million in 1996 to
$119.3 million in 1997. This decrease was primarily attributable to, among other
things, lost business principally related to ground handling contracts with
Delta lost or terminated of $4.5 million as described above. Partially
offsetting this decrease were new business and other activity, principally
related to into-plane fueling and fuel system maintenance and operation
contracts, and revenue enhancements on existing contracts.
Operating expenses decreased $4.7 million, or 4.6%, from $102.9 million
during 1996 to $98.2 million during 1997. This decrease was primarily
attributable to a decrease in payroll and related benefits of $4.2 million,
which were directly related to the decrease in Delta revenues and a reduction in
damage claims of $0.5 million. Offsetting these decreases were increased
workers' compensation expenses and medical insurance costs of $0.3 million.
Operating expenses as a percentage of revenues decreased from 84.7% in 1996 to
82.3% in 1997.
Selling, general and administrative expenses decreased $0.8 million, or
10.4%, from $7.3 million in 1996 to $6.5 million in 1997. This decrease was the
result of reduced payroll related to management changes along with a concerted
effort on the part of management to reduce overhead expenses. Selling, general
and administrative expenses as a percentage of revenues decreased from 6.0% in
1996 to 5.5% in 1997.
Depreciation and amortization expenses increased $0.2 million, or 4.2%,
from $4.4 million in 1996 to $4.6 million in 1997. This increase was primarily
attributable to the additional depreciation resulting from increased capital
investments in 1996 and 1997 related to the Company's ongoing fleet improvement
program and purchases of equipment to service new contracts signed during 1996
and 1997. Depreciation and amortization expenses as a percentage of revenues
increased from 3.6% in 1996 to 3.9% in 1997, primarily as a result of these
increased expenses despite reduced revenues.
As a result of the above factors, operating income increased $3.0 million,
or 44.0%, from $7.0 million in 1996 to $10.0 million in 1997. The low margin
Delta contracts that were lost or terminated by the Company, together with
improved profit margins on existing and new business and management's concerted
efforts to reduce expenses resulted in the increase of operating income margins
from 5.7% in 1996 to 8.4% in 1997.
As a result of the above factors, income taxes increased $1.2 million from
$2.4 million for the year ended December 31, 1996, to $3.6 million for the year
ended December 31, 1997. The effective tax rates were consistent between the two
periods.
Accordingly, net income increased $1.8 million from $4.2 million for the
year ended December 31, 1996, to $6.0 million for the year ended December 31,
1997. Net income margins increased from 3.5% to 5.1%.
The foregoing factors resulted in an increase in EBITDA of $3.2 million, or
28.5%, from $11.4 million in 1996 to $14.6 million in 1997. EBITDA margin
increased from 9.4% to 12.3% for the respective periods.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues increased $9.9 million, or 8.9%, from $111.7 million in 1995 to
$121.6 million in 1996. This increase was attributable to, among other things,
new business and revenue enhancements on existing contracts, and was partially
offset by lost business. The new business consisted of increased revenues
generated by 14 Delta ground handling contracts won in 1995 of $4.5 million
along with a number of other smaller contracts throughout the Company's
operation. The lost business primarily represents revenues of $0.8 million lost
in Orlando when the international airlines began flying principally to a new
international airport opened in Orlando at which the Company did not provide
services.
Operating expenses increased $9.4 million, or 10.0%, from $93.5 million in
1995 to $102.9 million in 1996. The increase was primarily attributable to
increases in (i) labor and related benefits expenses of $5.6 million, rent
expense of $0.3 million and training costs of $0.3 million resulting primarily
from 14 Delta ground handling and other new contracts won in 1995; (ii) workers'
compensation expenses of $1.6 million; and (iii) property and liability
insurance expenses of $0.5 million. Operating expenses as a percentage of
revenues increased from 83.8% in 1995 to 84.7% in 1996.
34
<PAGE> 40
Selling, general and administrative expenses increased $0.8 million, or
12.2%, from $6.5 million in 1995 to $7.3 million in 1996. This increase was
primarily the result of increases in labor and related benefits related to
additional personnel added because of the new Delta contracts. Selling, general
and administrative expenses as a percentage of revenues increased from 5.8% in
1995 to 6.0% in 1996.
Depreciation and amortization expenses increased $0.1 million, or 1.8%,
from $4.3 million in 1995 to $4.4 million in 1996. This increase was primarily
attributable to the additional depreciation resulting from increased capital
investments in 1995 and 1996 related to ongoing fleet improvement purchases and
purchases of equipment to service new contracts signed during 1995 and 1996.
Depreciation and amortization expenses as a percentage of revenues decreased
from 3.9% in 1995 to 3.6% in 1996 primarily as a result of the increase in
revenue.
As a result of the above factors, operating income decreased $0.3 million,
or 4.8%, from $7.3 million in 1995 to $7.0 million in 1996, and operating income
margin decreased from 6.5% in 1995 to 5.7% in 1996. The low margin Delta
contracts resulted in greater revenues but did not marginally improve operating
income and, combined with the increased selling, general and administrative
expenses incurred to better manage the added business, primarily accounted for
the decrease.
Interest income decreased $0.5 million from $0.8 million for the year ended
December 31, 1995, to $0.3 million for the year ended December 31, 1996, as a
result of higher cash balances being retained in the company during 1995 and
being used in 1996 to fund increased capital expenditures and reduced
profitability.
As a result of the above factors, income taxes decreased $0.1 million from
$2.6 million for the year ended December 31, 1995, to $2.4 million for the year
ended December 31, 1996.
Accordingly, net income decreased $0.8 million from $5.0 million for the
year ended December 31, 1995, to $4.2 million for the year ended December 31,
1996. Net income margins decreased from 4.5% to 3.5% for the respective periods.
The foregoing factors resulted in a decrease in EBITDA of $0.3 million, or
2.3%, from $11.7 million in 1995 to $11.4 million in 1996. EBITDA margin
decreased from 10.4% to 9.4% for the respective periods.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.5 million for the six
months ended September 30, 1997, as compared to $3.0 million for the six months
ended September 30, 1998. The net cash provided by operating activities
decreased primarily due to a decrease in net income, an increase in prepaid
expenses and a decrease in accounts payable partially offset by increased
depreciation and amortization related to the Acquisition. Net cash provided by
operating activities was $5.9 million for the three months ended March 31, 1997,
as compared to $5.3 million for the three months ended March 31, 1998. Net cash
provided by operating activities decreased primarily due to a decrease in net
income of $0.6 million. Net cash provided by operating activities was $5.1
million, $7.2 million and $17.1 million in 1995, 1996 and 1997, respectively.
Net cash provided by operating activities increased primarily due to increases
in net income, accounts payable and accrued liabilities and decreases in
accounts receivable.
Net cash used in investing activities was $2.3 million for the six months
ended September 30, 1997, as compared to $94.8 million for the six months ended
September 30, 1998. The increase was primarily attributable to the Acquisition.
Net cash used in investing activities was $1.0 million for the three months
ended March 31, 1997, as compared to $2.7 million for the three months ended
March 31, 1998. Net cash used in investing activities increased primarily due to
increased capital expenditures. Net cash used in investing activities was $4.4
million, $9.1 million and $4.3 million in 1995, 1996 and 1997, respectively. Net
cash used in investing activities fluctuated primarily due to the Company's
capital expenditure needs for maintaining and upgrading its existing vehicle and
equipment fleet, which generally represent a majority of the Company's capital
expenditures. In addition, the Company frequently makes capital investments
necessary to support new contracts won by the Company. Through March 31, 1999,
the Company plans to invest an additional $2.6 million primarily related to the
ongoing maintenance of its fleet and $8.9 million for additional equipment to
support new contracts it has already won and continued upgrading of its fleet.
35
<PAGE> 41
Net cash provided by (used in) financing activities was $(8.0) million for
the six months ended September 30, 1997 and $96.5 million for the six months
ended September 30, 1998. This increase is due primarily to the issuance of
common stock of the Company and borrowing under the Senior Increasing Rate
Notes. Net cash provided by (used in) financing activities was $(4.4) million
for the three months ended March 31, 1997, as compared to $(2.6) million for the
three months ended March 31, 1998. Net cash provided by (used in) financing
activities decreased primarily due to a decrease in dividends to Viad. Net cash
provided by (used in) financing activities was $(0.8) million, $2.1 million and
$(13.0) million in 1995, 1996 and 1997, respectively. Fluctuations in net cash
provided by (used in) financing activities are due primarily to changes in the
due to/from Parent accounts.
As of September 30, 1998, the Company had long-term indebtedness of $80.0
million in the form of the Notes, cash of approximately $4.8 million and
approximately $8.7 million of availability and no borrowings outstanding under
the Senior Credit Facility. See "Description of Senior Credit Facility."
Concurrent with the consummation of the Initial Offering, the Company expensed
approximately $213,000 million to write off the remaining unamortized deferred
financing costs previously incurred in connection with the Senior Increasing
Rate Notes that were repaid with the net proceeds of the Initial Offering. The
expenses related to the deferred financing costs were accounted for as an
extraordinary loss on the early extinguishment of debt.
Following the Initial Offering, the Company's primary sources of liquidity
will be from cash flow provided by operations and borrowings under its Senior
Credit Facility. Based upon the successful implementation of management's
business and operating strategy, the Company believes that these funds will
provide it with sufficient liquidity and capital resources to meet current and
future financial obligations, including the payment of principal and interest on
the Notes, as well as to provide funds for the Company's working capital,
capital investments and other needs for the next twelve months. The Company's
future operating performance and ability to service or refinance the Notes and
to repay, extend or refinance the Senior Credit Facility will be subject to
future economic conditions and to financial, business and other factors, many of
which are beyond the Company's control. There can be no assurance that such
sources of funds will be adequate and that the Company will not require
additional capital from borrowings or securities offerings to satisfy such
requirements. In addition, there can be no assurance that the Company will have
sufficient available capital resources to realize its acquisition strategy. Such
future acquisitions, depending on their size and the form of consideration, may
require the Company to seek additional debt or equity financing. See "Risk
Factors--The Company may be Unable to Complete Acquisitions as Part of Its
Business Strategy."
RECENT DEVELOPMENTS
The Company was recently informed by BA that BA is not renewing its
contract with the Company for the provision of aircraft grooming services at
London-Heathrow airport following the expiration of such contract in January
1999. This contract generated approximately 8.8% of the Company's revenues in
1997 and the anticipated reduction in revenues and EBITDA as a result of the
loss of this contract for the fiscal year ended March 31, 1999 is $2.1 million
and $0.2 million, respectively.
ENVIRONMENTAL MATTERS
The Company is subject to compliance obligations and liabilities imposed
pursuant to federal, state, local and foreign environmental and workplace health
and safety requirements, including CERCLA. In particular, the Company's aviation
fueling services are subject to liabilities and obligations relating to the
above ground and underground storage of, and the release and cleanup of,
petroleum products. Although the Company believes it is in material compliance
with environmental, health and safety requirements, the possibility exists that
noncompliance could occur or be identified in the future, and the penalties or
costs of corrective action associated therewith could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, requirements are complex, change frequently and have tended to become
more stringent over time, and there can be no assurance that these requirements
will not change in the future in a manner that could materially and adversely
affect the Company.
36
<PAGE> 42
The Company is currently conducting or funding, or expects to conduct or
fund, environmental investigations, monitoring and cleanups at certain of its
previously or currently operated facilities. Also, from time to time, the
Company receives notices of potential liability for cleanup costs associated
with offsite waste recycling or disposal facilities at which wastes associated
with its operations allegedly have come to be located. In addition, airport
authorities are coming under increasing pressure to clean up previous
contamination at their facilities and are seeking financial contribution from
airport tenants and companies which operate at their airports. Although the
Company has taken steps to mitigate or remove the foregoing liabilities, the
Company could bear direct liability for the foregoing matters and such liability
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors--Risk that the Company may be
Adversely Effected as a Result of Environmental and Safety Regulations to Which
It is Subject."
YEAR 2000 ISSUE
Readiness
The Company has evaluated and believes it has addressed the Year 2000 issue
as it relates to its internal information technology systems. The Company's
internal efforts included the upgrading of critical hardware and software
systems to become Year 2000 compliant. The Company is in the process of
surveying its customers with whom it has material relationships for Year 2000
compliance.
Costs
The costs of achieving Year 2000 compliance have not been material to date
and additional costs are not expected to be material.
Risks
Based on its investigation to date, the Company does not believe it will
experience any material adverse effects as a result of the Year 2000 issue.
However, there can be no assurance in this regard, and the Year 2000 issue could
have a material adverse effect on the Company. While the Company has undertaken
its own evaluation and testing of its information technology systems, it is
dependent to some extent on the assurance and guidance provided by suppliers of
hardware, software and programming services as to its Year 2000 readiness.
The Company's Year 2000 evaluation includes an analysis of the possible
effects on, and the state of Year 2000 compliance by, its customers with whom it
has material relationships. However, the Company has limited ability to
independently verify the possible effect of Year 2000 issues on such customers
as this process is limited to such persons' public statements, responses to the
Company's inquiries and information available to the Company from other third
party sources, if any. Therefore, the Company's beliefs about the effects of its
customers' Year 2000 compliance may be inaccurate.
In addition, there can be no assurance that despite the Company's Year 2000
efforts and its belief that its internal systems are Year 2000 compliant. The
most reasonably likely worst case scenario with respect to Year 2000 issues is
that the Company's remediation of its information technology systems proves to
be ineffective and critical systems fail or malfunction as a result of Year 2000
problems and disrupt its operations. The Company is currently unable to quantify
the effect of such a malfunction, however, such an event could have a material
adverse effect on the Company.
Contingency Plans
The Company does not currently have any contingency plans with respect to
Year 2000 issues. If in the future the Company identifies a material problem
with a critical system, the Company will develop an appropriate contingency plan
at that time. However, circumstances may occur for which there are no
satisfactory contingency plans.
37
<PAGE> 43
EURO CONVERSION ISSUE
On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to establish fixed conversion rates between their existing currencies
and the euro and to adopt the euro as their common legal currency. The Company
has begun consideration of the effects of the euro conversion on its operations,
but it is currently unsure of the potential impact that the euro conversion will
have on its business, financial condition and results of operations,
particularly as the euro conversion relates to the Company's European
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, ("SFAS 131") "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. The provisions of SFAS 131 are effective for fiscal
years beginning after December 15, 1997. The Company does not anticipate the
requirements of SFAS 131 will have a significant impact on reporting its
financial statements.
IMPACT OF INFLATION
Although the Company cannot accurately determine the precise effect of
inflation on its operations, it does not believe that inflation has had a
material effect on its revenue or results of operations for the periods
presented herein. However, substantial increases in the Company's costs,
particularly labor or employee benefits costs, would be likely to adversely
affect the Company's revenues and operating results. In addition, because
inflation would likely materially and adversely affect the airline industry as a
whole, and the Company's business depends to a large extent on the economic
health of the airline industry, an increase in inflation would likely have a
material adverse effect on the Company's revenue and operating results.
38
<PAGE> 44
BUSINESS
The Company is one of the largest independent providers of aviation fueling
and aircraft ground services in the United States. The Company has provided
quality service to its customers for 51 years and has a well-established
presence in 31 airports in the United States, Europe and the Bahamas with an
average tenure in excess of 20 years at its current locations. In 1997, the
Company provided service to over 1.8 million commercial flights for over 200
customers, including most of the major domestic and international airlines such
as American, BA, Continental, Delta, Northwest, United and US Airways, as well
as regional air carriers, airport authorities and oil companies such as Esso.
The Company also operates fuel storage and delivery systems for airline
consortia and airport authorities, including Los Angeles International Airport's
LAXFUEL, which the Company believes is the largest airport fuel consortium in
the world. The Company intends to solidify its position as a leading independent
provider of aviation fueling and aircraft ground services in the United States
and Europe by leveraging its well-established operating history and
relationships with major customers to generate new business, continuing to take
advantage of outsourcing opportunities, pursuing selected acquisitions in its
fragmented industry and capitalizing on international growth opportunities. For
the year ended December 31, 1997 and the six months ended September 30, 1998,
the Company generated revenues of $119.3 million and $61.2 million,
respectively, and net income (loss) of $6.0 million and $(3.5) million,
respectively. For the year ended March 31, 1998 and the six months ended
September 30, 1998, the Company had a pro forma net loss of $0.8 million and
$1.2 million, respectively.
The Company's business includes aviation fueling services (57% of 1997
revenues), aircraft ground services (39%) and other aviation services (4%).
Aviation fueling services are comprised primarily of into-plane fueling,
maintenance and operation of fuel storage and delivery systems and the retail
sale of fuel products. Generally, the Company has custody over, but not
ownership of, the fuel it manages and delivers. Aircraft ground services consist
primarily of ground handling, aircraft interior grooming, cargo handling,
passenger and traffic services and FBOs. FBOs generally include the provision of
terminal services, pilot facilities, maintenance, weather service, flight
planning and hangar space to private, executive and corporate aircraft. Within
each business line, the services provided by the Company are complementary and,
by expanding the number of flights served at each location, the Company has the
opportunity to leverage its existing infrastructure to realize higher margins on
incremental revenues. The Company provides its services to customers pursuant to
contractual agreements and currently has approximately 740 contracts, which have
been in place, including extensions, for an average of 5.0 years each. The
Company believes it has established a reputation for providing quality service
and that its incumbency position at its current locations provides a significant
competitive advantage, as evidenced by an average contract renewal rate over the
past three years of approximately 96%. In addition, the Company has been
successful in winning new business, having won approximately 38%, 45%, 52% and
72% of the new contracts on which it placed competitive bids in 1995, 1996, 1997
and the nine months ended September 30, 1998, respectively.
The Company believes it has a significant market share of into-plane
fueling services (based on gallons pumped) at many of its locations, handling an
estimated 50% or more of the outsourced commercial fueling requirements at 24 of
the 29 locations where it provides such services. In addition, the Company's
strategic position at certain of its locations is enhanced because the Company
owns or operates the only fuel storage and delivery system at the airport. The
Company believes that because it has generally made significant capital
investments and has management infrastructure in place, it has a competitive
advantage in winning new business relative to a competitor with a small or no
presence at such locations.
INDUSTRY
Independent aviation services include the aviation fueling and aircraft
ground services provided by the Company as well as other aviation services,
including food service, aircraft maintenance and avionics supplies. The demand
for independent aviation services depends on both the amount of airline traffic
and the extent to which airlines outsource the provision of these services.
Based on airport traffic figures, its own market experience and estimates of
revenue received for services rendered per plane, the Company believes that
39
<PAGE> 45
approximately 90% of the total commercial aviation fueling market and
approximately 30% of the total commercial ground services market are outsourced
by airlines to independent providers such as the Company and that, as a result,
the aggregate independent markets for fueling services and ground services at
the top 100 North American airports are approximately $300 million and $1.9
billion, respectively.
According to the Air Transport Association of America, an independent
airline industry association, domestic commercial airline traffic increased at a
2.8% compound annual growth rate from 771.6 billion ASM in 1993 to 860.6 billion
ASM in 1997. Similarly, according to the Boeing 1998 Current Market Outlook,
global commercial airline traffic increased at a 8.8% compound annual growth
rate from approximately 3.0 trillion ASK in 1993 to approximately 4.2 trillion
ASK in 1997. The Boeing 1998 Current Market Outlook projects that global
commercial airline traffic will continue to grow at a 5.0% annual rate over the
next ten years, with North American traffic growing at a 3.5% annual rate. The
Boeing Current Market Outlook also projects that additional flights and new
routes are expected to account for 82% of this growth, increased average flight
lengths for 16% of this growth and larger airplanes for only 2% of this growth.
Airline deregulation, which occurred in the United States during the late
1970s and early 1980s, not only generated new entrants in the airline market,
but also stimulated demand for aviation services. The increased competition
resulting from deregulation led airlines to outsource many non-core services
that could be provided on a more cost-effective basis by an independent service
provider. Airline deregulation also changed the pattern of air traffic,
resulting in the creation of airport hubs. The creation of airport hubs further
contributed to the increase in outsourcing, as service providers could realize
greater economies of scale and provide more cost-effective service to large
numbers of flights arriving at and departing from an airline's major hub. The
trend towards outsourcing continued in the late 1980s and early 1990s, when as a
result of large financial losses and a series of restructurings, airlines
undertook cost-cutting efforts, which included the continued outsourcing of
non-core aspects of the business. These cost-cutting efforts and outsourcing
measures, along with a growing economy, allowed the airline industry to return
to profitability in the mid-1990s.
The independent aviation services industry is highly fragmented in both the
United States and Europe and is characterized by many operators that provide
services at a single or small number of locations. Small operators are likely to
face significant competitive pressures as large airlines increasingly deal with
fewer and larger suppliers providing a broader range of services at multiple
locations. This trend should encourage the consolidation of the industry and
enable suppliers to capitalize on economies of scale. For these reasons, the
Company believes that industry consolidation will provide opportunities for
growth in addition to the growth resulting from increases in airline traffic and
outsourcing.
Aviation Fueling Services
Aviation fueling services are comprised primarily of into-plane fueling,
maintenance and operation of fuel storage and delivery systems and the retail
sale of fuel products.
Into-plane fueling service consists of providing airplanes with specified
amounts of fuel from fuel storage facilities located at or near the airport.
Depending on the fuel storage system at a particular airport, the service
provider either (i) delivers the fuel to the plane from the fuel storage tanks
using a refueling tanker vehicle or (ii) if the airport is equipped with a
system that delivers fuel from the fuel storage tanks directly to the airline
gates via underground pipes (a "hydrant system"), connects its equipment to the
hydrant at the airline gate to deliver fuel into the aircraft. Generally,
into-plane fueling contracts provide for a fee based upon the volume of fuel
delivered.
Fuel system maintenance and operation consists of the maintenance and
operation of the fuel storage and delivery systems at an airport. These systems
are typically comprised of storage tanks, pumps, pipes and filter/separators. In
the United States, airport fuel storage and delivery systems are generally owned
by the local airport authority and leased collectively by certain of the
airlines operating at such airport (an "airline consortium") and generally
supply fuel to most of the airlines operating at that airport. Independent
service providers that maintain and operate fuel storage and delivery systems
are responsible for managing the fuel inventory by overseeing the receipt and
disbursement of fuel, as well as the physical and administrative
40
<PAGE> 46
maintenance of these systems. Generally, contracts for the maintenance and
operation of fuel storage and delivery systems provide for the reimbursement of
costs, plus an additional monthly fee. There are a limited number of vendors
that provide fuel system maintenance and operation services and, due to the
technical nature of this service, competition is primarily driven by reputation
for quality and reliability, technical competence, safety record and price.
The retail sale of fuel products generally takes place at locations where a
service provider has established FBOs to provide terminal, flight planning and
other aviation services to private, executive and corporate aircraft.
The North American market for fueling services is relatively mature with a
large percentage of fueling contracts having already been outsourced to
independent providers. However, the Company believes that the industry, because
it is characterized by many service providers operating at a single or small
number of locations, offers the potential for growth through consolidation.
Currently, in Europe, the fueling services infrastructure is generally
owned and operated by major oil companies, rather than by airport authorities or
airlines as in the United States, although liberalization is taking place in the
European market. The Company expects that the liberalization of the European
aviation fuel services market will follow the same general trends as in the
United States, when oil companies divested their fuel services operations to, or
entered into joint ventures with, independent providers. However, due to the
technical nature of fueling services and the often large capital investments
involved, the Company expects the growth of independent competition to be
limited to a relatively small number of well-capitalized, experienced companies.
Aircraft Ground Services
Aircraft ground services consist primarily of ground handling, aircraft
interior grooming, cargo handling, passenger and traffic services and FBOs.
Ground handling services consist of the provision of ground handling crews
and all necessary ground support equipment to process airline flights through
the full range of on-the-ground services. Such equipment and services include
loaders to load and unload baggage and cargo, air conditioning units used to
cool aircraft while waiting at a gate, ground power units used to provide
auxiliary power to aircraft and tow vehicles used to move aircraft. Ground
handling service providers are generally compensated through a fixed fee for
each aircraft serviced, based on the size of the aircraft.
Aircraft interior grooming consists of the cleaning of aircraft cabins
between flights and cargo handling consists of the loading, warehousing and
documentation of cargo. Passenger and traffic services include passenger
ticketing, check-in and boarding, security clearance, special assistance and
skycap services. FBOs generally include the provision of terminal services,
pilot facilities, maintenance, weather service, flight planning and hangar space
to private, executive and corporate aircraft. For each of these aircraft ground
services, other than FBOs, the Company is generally compensated by a fixed fee
for each aircraft serviced, based on the size of the aircraft. For FBOs, the
Company is generally compensated by a fixed fee for specific services rendered.
In the North American ground services sector, a majority of airline
operators provide their own ground services. Nonetheless, there are several
large independent ground service providers operating on a national basis as well
as numerous smaller regional or single location operators. Over the past five
years, major trends impacting the growth of the independent ground services
industry in North America include the continuing trend towards greater
consolidation among major airline companies and increased service requirements
at lower costs. Airline operators continue to seek value-added service
solutions, such as the use of a single service provider to supply a broad range
of services at a large number of locations at costs lower than can be
accomplished in-house.
European competition in the airline industry has intensified significantly
in connection with the liberalization of this market. The Company believes that
such liberalization will require European airlines to compete based on price and
quality of service provided. Ground services constitute not only an important
41
<PAGE> 47
component of airlines' operating costs, but also a vitally important element in
the airlines' image as perceived by its customers. As such, airlines have sought
freedom to choose among several suppliers of different ground handling services
or have sought to supply those services themselves.
Unlike the situation in the United States, the European market is still
comprised mainly of local ground services monopolies operated by national
airlines or national airport companies. An active campaign by several major
European airlines, including formal complaints lodged with the European
Commission, led the European Transport Ministers in December 1995 to agree to
phase out these local ground services monopolies by January 1, 2003. Until
recently, few ground services providers operated outside their respective home
markets and only a few of the independent United States domestic ground service
providers, such as ASIG, have established European operations.
COMPANY HISTORY
The Company was formed in March 1998 to facilitate the acquisition of the
ASIG business from Viad. The ASIG business has a long history of providing
quality service in the independent aviation services market with its two main
predecessor companies, Dispatch Services, Inc. ("DSI") and Aircraft Service
International, Inc. ("ASII") operating since 1947 and 1952, respectively. Most
of the companies comprising the ASIG business were acquired by the Greyhound
Corporation (Viad's predecessor) in the late 1960s.
Both DSI and ASII began as ground services operations and expanded into
fueling services when the large oil companies in the United States began to
divest these operations in the 1960s and 1970s. During this period, ASII also
began to expand its operations beyond its traditional home in the Southeast and
followed the expansion of Delta and other large customers to the western region
of the United States. Aircraft Service, Ltd. the Company's first European
operation, was established in the United Kingdom in 1990 to provide fueling and
ground services at the London-Heathrow airport. In 1997, the Company began
providing into-plane fueling services and operating the fuel delivery system at
the Munich airport through Omni Aircraft and also entered into an agreement with
Esso pursuant to which it began providing into-plane fueling for BA and other
airlines at the London-Gatwick airport. Through this expansion into Europe, the
Company believes it became the first independent aviation fueling service
provider to operate at each of the London-Heathrow airport, the Munich airport
and the London-Gatwick airport.
The Company's 51-year operating history has allowed the Company to
establish a reputation for providing consistent, high quality customer service
and long-standing relationships with many of the world's major airlines at some
of the world's busiest airports. The following chart lists the 31 airports in
the United States, Europe and the Bahamas where the Company currently provides
services:
42
<PAGE> 48
<TABLE>
<CAPTION>
OPERATING OPERATING
LOCATION SINCE LOCATION SINCE
- -------- --------- -------- ---------
<S> <C> <C> <C>
Miami, FL........................... 1947 Albuquerque, NM..................... 1987
Tampa, FL........................... 1957 Burbank, CA......................... 1987
Ft. Lauderdale, FL.................. 1958 Portland, OR........................ 1987
Los Angeles, CA..................... 1961 Rochester, NY....................... 1987
Orlando, FL......................... 1961 Seattle, WA......................... 1987
San Francisco, CA................... 1961 San Diego, CA....................... 1988
West Palm Beach, FL................. 1962 London, England-Heathrow............ 1990
Melbourne, FL....................... 1963 Santa Ana, CA....................... 1991
Memphis, TN......................... 1963 Cleveland, OH....................... 1992
Freeport, Bahamas................... 1969 Denver, CO.......................... 1993
Cincinnati, OH...................... 1969 Philadelphia, PA.................... 1993
Nashville, TN....................... 1969 Atlanta, GA......................... 1994
New Orleans, LA..................... 1971 Colorado Springs, CO................ 1995
Sarasota, FL........................ 1973 London, England-Gatwick............. 1997
Pittsburgh, PA...................... 1983 Munich, Germany..................... 1997
Fairbanks, AK....................... 1985
</TABLE>
BUSINESS STRATEGY
The Company's objective is to solidify its position as a leading
independent provider of aviation fueling and aircraft ground services in the
United States and Europe. The Company intends to pursue its objective through
the following business strategies:
LEVERAGE WELL-ESTABLISHED OPERATING HISTORY AND MARKET POSITIONS. In its
51-year operating history, the Company has built a reputation for providing
quality service and has established a long-term presence in its current
airport locations, with an average tenure in its current 31 locations in
excess of 20 years. The Company believes that it can continue to leverage
its operating history and established presence at its current locations to
acquire additional business thereby enhancing economies of scale and cost
savings in such operations. The Company's incumbency position at its
current locations often provides a significant competitive advantage in
winning new business when new contracts can be priced without incorporating
additional fixed costs. The Company also seeks to increase the number of
locations at which it maintains and operates fuel storage and delivery
systems, not only for the steady returns on such contracts, but also
because providing these services creates an opportunity for the Company to
increase its into-plane fueling at that location by building relationships
with the airlines' local managers, who often have influence in determining
their airlines' provider of into-plane fueling services.
LEVERAGE LONG-TERM RELATIONSHIPS WITH MAJOR CUSTOMERS. The Company
maintains relationships with most of the major domestic and international
airlines, including American, BA, Continental, Delta, Northwest, United and
US Airways. The Company believes that these long-term customer
relationships, some of which have existed since the Company's inception,
continue to provide the Company with opportunities to obtain additional
business from these major airline customers both at the locations where the
Company currently provides services to such customers, as well as at other
locations. In addition, the Company expects to benefit from the trend among
large airlines to deal with fewer and larger suppliers that can provide a
broader range of services at multiple locations.
MAINTAIN AND ENHANCE REPUTATION FOR CUSTOMER SERVICE AND QUALITY. The
Company believes that it has one of the best service reputations in the
industry, and as a result, has built a loyal customer base, which is
evidenced by its average contract renewal rate of approximately 96% over
the past three years. The Company provides a high level of customer service
not only by providing a highly trained, efficient and professional work
force, but also by maintaining regular communication with its customers.
Maintaining communication enables the Company to respond to customer
concerns, fosters a strong partnership with
43
<PAGE> 49
the airlines and provides the Company with information regarding potential
business opportunities. As one of the leading independent providers of
aviation fueling and aircraft ground services in the United States, the
Company is invited to participate in many competitive bidding opportunities
for new business and has generally been successful, having won
approximately 38%, 45%, 52% and 72% of the new contracts on which it placed
competitive bids in 1995, 1996, 1997 and the nine months ended September
30, 1998, respectively. The Company believes that by providing high levels
of customer service with an emphasis on quality, it can continue to retain
a large percentage of its contracts and can be more successful in
competitive bids made for new contracts. In addition, the Company has
recently begun to capitalize on what it perceives as a trend among airlines
towards seeking higher quality outside suppliers, as opposed to simply the
lowest priced supplier, by offering enhanced levels of service in exchange
for a premium price. For example, the Company is reinforcing its reputation
for quality through the implementation of ISO-9002 initiatives at a major
airport and expects to implement ISO-9002 initiatives at other airports.
The Company's ISO-9002 initiatives include enhanced employee training and
qualifications, utilizing equipment meeting certain safety, cleanliness and
speed criteria and maintaining complete documentation of all systems and
procedures.
PURSUE SELECTIVE CONSOLIDATING ACQUISITIONS. The Company believes that the
independent aviation service industry is highly fragmented in both the
United States and Europe, which affords significant opportunities for
consolidation. The industry includes many small, local or regional
independent aviation service providers that may lack the financial
resources and infrastructure necessary to achieve the efficiencies and
economies of scale to compete effectively for new customers and to make
capital commitments to grow. The Company believes that, through its
established operating history, it is well-positioned to capitalize on this
consolidation opportunity and that by acquiring select competitors and
complementary companies it can achieve further economies of scale and cost
savings. In addition, acquisitions are expected to expand the geographic
coverage and range of services provided by the Company, further solidifying
the Company's position as a leading independent provider of aviation
fueling and aircraft ground services.
CAPITALIZE ON INTERNATIONAL GROWTH OPPORTUNITIES. The Company believes it
is well-positioned to capitalize on the liberalization taking place in the
international markets for aviation services, particularly in Europe. The
Company believes it became the first independent aviation fueling service
provider to operate at the London-Heathrow airport when it began providing
into-plane fueling services to BA there in 1990. In addition, the Company
believes that in 1997 it became the first independent aviation fueling
services provider to operate at each of the Munich airport and the
London-Gatwick airport when Omni Aircraft began providing into-plane
fueling services and operating the fuel delivery system at Munich and the
Company entered into an agreement with Esso pursuant to which it began
providing into-plane fueling for BA and other airlines at London-Gatwick.
Alliances with large oil companies such as Esso offer the potential to
accelerate the Company's penetration of the European market by leveraging
the oil companies' existing airport services infrastructure, contracts and
contacts. The Company believes that its quality reputation and current
European operations, particularly its relationship with BA, has positioned
the Company to be a preferred supplier among many potential European
customers. The Company also believes it is well-positioned in the gateway
cities of Miami, Los Angeles, San Francisco, Atlanta and Seattle to take
advantage of growth and market developments in Latin America, Europe and
the Asia-Pacific regions.
INCREASE OPERATING EFFICIENCY. Management has identified several areas
where it believes the Company can achieve immediate cost savings, including
the implementation of a new pension plan and insurance policy and the
reduction of overhead. In addition, the Company believes that it can
improve its operating efficiency through the economies of scale created by
leveraging its existing infrastructure to realize higher margins on
incremental revenue. The Company is also undertaking programs to reduce
costs through the redesign of systems, procedures and measurements to
improve worker efficiency, safety and satisfaction. In addition, the
Company has developed a comprehensive plan to upgrade the quality and
efficiency of its equipment, which is expected to reduce operating costs.
44
<PAGE> 50
OPERATIONS
Aviation Fueling Services
The Company provides fueling services at 16 of the top 50 North American
airports (as ranked by Airports Council International in terms of total aircraft
movements), including Atlanta, Los Angeles, Miami, Denver, Philadelphia,
Pittsburgh and San Francisco. Generally, the Company has custody over, but not
ownership of, the fuel it manages and delivers, and thus has limited direct
exposure to fluctuations in fuel prices. In 1997, the Company's aviation fueling
services accounted for 57% of its revenue.
Into-Plane Fueling Services. Into-plane fueling services provided $53.4
million, $50.8 million and $46.7 million of the Company's revenue in 1997, 1996
and 1995, respectively. The Company provides into-plane fueling at 29 locations,
including both major hub airports as well as smaller sites, and in 1997
delivered fuel to more than 1.7 million flights.
Major hub airports where the Company operates include Atlanta, Cincinnati,
London (Heathrow and Gatwick), Los Angeles, Memphis, Miami, Munich, Orlando,
Philadelphia, Pittsburgh, San Francisco and Seattle. At Atlanta Hartsfield
International Airport, the Company operates what it believes is the single
largest into-plane fueling contract in the world which involves servicing
approximately 630 Delta flights daily. At Pittsburgh International Airport, the
Company provides into-plane fueling for approximately 480 US Airways flights
daily. In 1990, the Company won the into-plane fueling contract for BA at the
London-Heathrow airport through a competitive bid process and currently supplies
fuel to more than 250 BA flights daily. In May 1997, Omni Aircraft won the
contract to maintain and operate the Munich airport owned fuel systems as well
as one of two into-plane fuel service licenses. In June 1997, pursuant to an
agreement with Esso, the Company began providing into-plane fueling to BA and
other airlines at the London-Gatwick airport.
The Company and its customers measure its into-plane fueling performance
based on timing, accuracy, staff professionalism, safety and quality of service.
The Company must meet strict criteria in all of these areas. For airlines
operating on tight flight schedules, timely refueling of aircraft is vitally
important to operating performance. The Company utilizes its extensive
scheduling experience and a workforce of cross-trained employees to ensure that
its commitments are met. Company employees are cross-trained in a variety of
functions which better enables the Company to fulfill peak demand requirements
using a flexible number of personnel.
Into-plane fueling requires delivery of exact amounts of fuel and the
maintenance of timely and accurate records. The Company delivers large
quantities of fuel (approximately 4.2 billion gallons in 1997), and at any time
can provide customers with accurate records of the contracted fuel deliveries.
The Company has developed proprietary software and MIS systems to generate these
records for customers.
Safety is of paramount importance to the Company and to its customers. The
critical nature of fuel quality demands that extensive safety protocols be
followed and enforced. All Company personnel undergo a safety training course
upon initial employment followed by refresher courses every year and are
rigorously monitored for adherence to safety procedures.
Fuel System Maintenance and Operations. Fuel system maintenance and
operations generated revenue of $8.0 million, $6.1 million and $6.0 million in
1997, 1996 and 1995, respectively. The combined fuel storage capacity of the
fuel systems that the Company owns and operates or contracts to maintain and
operate exceeds 90 million gallons.
The most prominent example of the Company's fuel system maintenance and
operations is its management of LAXFUEL, which the Company believes is the
largest airport fuel consortium in the world. Currently comprised of 56 domestic
and international airlines, LAXFUEL is operated on a 24-hour basis, receiving
fuel from more than 17 suppliers and processing approximately 1,000 fuel
accounting transactions each day. In 1997, the Company managed monthly volume at
LAXFUEL of approximately 132 million gallons. The Company first won this
contract in 1986 and recently managed a $85 million upgrade of the fuel system.
Since the original contract award, the Company has won two follow-on contracts
from LAXFUEL.
45
<PAGE> 51
The Company also maintains and operates fuel storage and delivery systems for
either airline consortia, oil company consortia, a single airline or the local
airport authority in 15 other locations, including Cincinnati, Denver, Ft.
Lauderdale, Memphis, Miami and Pittsburgh. In addition, the Company owns and
operates six fuel storage and delivery systems in Albuquerque, Melbourne, New
Orleans, Orlando, Sarasota and West Palm Beach.
As a result of its long operating history, the Company has developed
significant expertise in providing efficient systems and processes necessary for
the successful maintenance and operation of fuel storage and delivery systems.
One notable internally developed software program is the Airport Fuel Inventory
Control System ("AFICS"). Developed in 1995, AFICS increases the reporting
efficiency for the large consortium fuel inventories that the Company manages
and has been an instrumental factor in the Company's ability to secure
additional contracts to maintain and operate fuel facilities.
Other Aviation Services. In addition to the other services discussed, at
locations where the Company operates FBOs, namely Albuquerque, Freeport, Bahamas
and Orlando, the Company sells aviation fuel to retail customers.
Aircraft Ground Services
In 1997, the Company's aircraft ground services accounted for 39% of
revenue.
Ground Handling. Ground handling services generated revenue of $23.3
million, $30.9 million and $27.4 million in 1997, 1996 and 1995, respectively.
The Company provides ground handling services to over 100 domestic and
international airlines at 12 locations and is capable of servicing any size
aircraft, from commuter planes to wide-body Boeing 747s. The Company's largest
ground handling operation is at Miami International Airport where the Company
and its predecessors have been providing ground handling services since 1947.
The Company has over 600 employees servicing 54 airlines and approximately 2,400
flights per month at Miami International Airport. The Company also operates and
maintains the computerized baggage system for the entire "B" and "F" concourses
and handles the Federal Inspection Service baggage distribution for all
international carriers at the airport.
The Company measures its ground handling operating performance based on
timing, staff professionalism, safety and quality. Airline customers closely
track the Company's ability to operate within strict timing parameters and
efficiently process such functions as baggage handling, which impact airline
customer satisfaction. Ground handling typically requires a large number of
employees and vehicles to service an aircraft and thus airlines seek suppliers
that are large enough to cost-effectively provide such employees and services.
By providing an outsourced alternative for the ground handling needs of many
airlines, the Company is able to take advantage of economies of scale and offer
customers access to quality and timely ground handling service at a substantial
discount to the cost of in-sourcing such services.
Aircraft Interior Grooming. Aircraft interior grooming generated revenue
of $15.9 million, $16.6 million and $15.3 million in 1997, 1996 and 1995,
respectively. The Company provides aircraft interior grooming services at 13
locations and has the capability to expand these services throughout the
Company's entire network. The Company's largest interior grooming contract is
currently with BA at the London-Heathrow airport, where the Company provides
interior grooming services for BA's fleet of Boeing 747 wide-body aircraft.
However, BA has informed the Company that it intends not to renew this contract
following its expiration in January 1999. The Company is developing a strategy
for responding to BA in regard to this contract. See "Prospectus Summary--Recent
Developments." Timing and quality are key components of this service as the
Company must consistently adhere to tight time schedules and achieve high
performance benchmarks on cleaning quality, an attribute with significant
influence on airline customer satisfaction.
Cargo Handling. The Company provides cargo handling services primarily in
conjunction with its ground handling operations. The Company handles both
domestic and international cargo as well as specialized cargo and hazardous
shipments.
Other Ground Services. The Company regularly provides certain airline
customers at its Ft. Lauderdale, Miami, Orlando and Tampa locations with
passenger handling services, and from time to time provides such
46
<PAGE> 52
services to charter airline customers in Albuquerque and Pittsburgh. The Company
often fulfills its customers' particular needs by providing specialized staff
who may be multilingual or trained for specific tasks.
In addition, the Company provides certain airline customers in Miami and
Orlando with flight operations and load control, including communications,
flight dispatch, weight and balance information, flight planning, weather
service and diplomatic clearances. The Company operates limited FBOs in
Albuquerque, Freeport, Bahamas and Orlando, where it provides terminal services,
pilot facilities, line maintenance, worldwide weather service, flight planning
and hanger space for private, executive and corporate aircraft. The Company also
operates United's VIP lounge at the London-Heathrow airport.
CUSTOMERS
The Company's customer base is comprised of airlines, airport authorities
and oil companies. The Company believes that the Company has established strong
customer relationships with most of the major domestic and international
airlines, including American, BA, Continental, Delta, Northwest, United and US
Airways, as well as many regional and smaller carriers. The Company has also
built strong relationships with many leading airport authorities and oil
companies.
In 1997, the Company's two largest customers, Delta and BA, accounted for
approximately 17.5% and 14.1% of revenue, respectively, and the Company's top
ten customers accounted for approximately 57.4% of revenue. See "Risk
Factors--The Company is Dependent on Maintaining Its Relationships with Certain
Significant Customers."
SALES AND MARKETING
The Company's sales and marketing staff is comprised of seven professionals
who average over 17 years of experience with the Company. All sales personnel
are compensated through salary plus an incentive bonus based on the Company's
overall performance.
The Company formally markets its services through a combination of customer
visits, membership in trade organizations, participation in International Air
Transportation Association and National Air Transportation Association trade
shows and seminars, and sponsorship of events at annual meetings of consortia
that own major fuel storage and delivery systems. Informational marketing also
takes place on a daily basis through interaction with the Company's customers at
all levels of their respective organizations.
These marketing activities lead to bidding opportunities that the Company
receives in the following ways: (i) airlines call and formally request a
proposal from a selected group of service providers; (ii) existing customers
request proposals for add-on services; (iii) non-solicited calls are made to
selected airlines offering services, and (iv) airlines request proposals through
a general solicitation to any interested service provider.
The Company wins the majority of its new business through the competitive
bid process and has established a strong track record in this regard, having won
approximately 38%, 45%, 52% and 72% of the new contracts on which it placed
competitive bids in 1995, 1996, 1997 and the nine months ended September 30,
1998, respectively. The Company currently has approximately 740 contracts, which
have been in place, including extensions, for an average of 5.0 years each, and
over the past three years, the Company's average contract renewal rate has been
approximately 96%. In 1997, the Company's largest contract accounted for 8.8% of
revenue, and no other contract accounted for more than 4.3% of revenue. The
majority of the Company's contracts have an industry standard initial length of
one year, although the Company's larger contracts generally run for initial
terms of three to five years.
COMPETITION
The aircraft services industry is highly fragmented, consisting of a
limited number of well-capitalized companies which offer a broad range of
services, a large number of smaller, specialized companies and subsidiaries
established by major airlines to provide certain services. The Company's major
competitors include Airport Group International Inc., AMR Services Corporation
(a subsidiary of American), DSS, DynAir, Hudson General Corporation, Mercury Air
Group, Inc., Odgen Aviation Services Inc. and
47
<PAGE> 53
Signature Flight Support Corp. The Company believes that the principal
competitive factors in the aviation services industry are quality, safety,
turnaround time, overall customer service, technical capabilities of personnel
and price. The Company believes that it competes favorably on the basis of all
of the foregoing factors.
FACILITIES AND EQUIPMENT
The Company's headquarters are currently located in Miami, Florida near
Miami International Airport and occupy approximately 22,000 square feet pursuant
to a lease which expires in November 1998. As part of a general reorganization
in connection with the Acquisition, the Company's headquarters will be relocated
from its existing facilities to smaller, less expensive facilities in the Miami
area. The Company maintains numerous facilities such as tank farms, hangers,
warehouses and equipment depots, among others, at airports across the United
States, Europe and the Bahamas as part of its service operations.
The Company owns a large fleet of equipment, major components of which
include refueling tankers, hydrant dispensers, jumbo aircraft loaders, aircraft
air conditioner trucks and generators. The Company manages the fleet centrally
and follows standardization guidelines to facilitate worker training, to
strengthen purchasing power and to maintain industry standards.
Through its heavy maintenance support facility in Tampa, Florida, the
Company refurbishes its fleet of vehicles and equipment on an ongoing basis.
Vehicles such as refueling tankers can undergo complete overhauls involving the
replacement of all pumping systems, electrical systems, major operating
components and chassis. The actual fuel tanks themselves do not usually require
refurbishment and their economic lives range between 30 and 40 years.
ENVIRONMENTAL MATTERS
The Company is subject to compliance obligations and liabilities imposed
pursuant to federal, state, local and foreign environmental and workplace health
and safety requirements, including CERCLA. In particular, the Company's aircraft
fuel handling operations are subject to liabilities and obligations relating to
the aboveground and underground storage of, and the release and cleanup of,
petroleum products. The Company rigorously monitors its environmental
responsibilities and believes it was one of the first service providers in the
industry to develop extensive in-house oversight expertise from years of
operating experience. Despite such efforts, the possibility exists that
noncompliance could occur or be identified in the future, the penalties or
corrective action costs associated with which could be material. In addition,
requirements are complex, change frequently, and have tended to become more
stringent over time, and there can be no assurance that these requirements will
not change in the future in a manner that could materially and adversely affect
the Company.
The Company is currently conducting or funding, or expects to conduct or
fund, environmental investigations, monitoring and cleanups at certain of its
previously or currently operated facilities, including facilities located at the
Memphis, Miami, New Orleans, Portland, Sarasota and Seattle airports, and has
received claims or demands to pay a portion of airport-wide costs, including in
some cases under CERCLA or analogous state laws with respect to its
Philadelphia, San Diego and San Francisco airport facilities. At certain
facilities at which the Company provides into-plane fueling services or
maintains and operates a fuel storage and delivery system, environmental
remedial costs have been borne by the owners of airport fueling systems rather
than the Company. In addition, the Company has in place other legal arrangements
(e.g., contractual indemnities, insurance policies, allocation agreements and
state funding mechanisms for cleanup of pollution from storage tanks) which it
believes significantly mitigate the foregoing liabilities. However, the Company
cannot guarantee that the state programs will continue to have funds available
for the cleanup of tank sites. In the event that these or other legal
arrangements fail, the Company could bear direct liability for the foregoing or
any future matters and such liability could be material. In addition, there can
be no assurance that future environmental investigations by the Company will not
identify other environmental conditions requiring material expenditures of
funds.
48
<PAGE> 54
From time to time, the Company receives notices of potential liability,
pursuant to CERCLA or analogous state laws, for cleanup costs associated with
offsite waste recycling or disposal facilities at which wastes associated with
its operations have allegedly come to be located. Liability under CERCLA is
strict, retroactive, and joint and several, although such liability is often
allocated among multiple responsible parties. In the past several years, such
notices have been received for the Peak Oil site in Tampa, Florida; the South
Eighth Street Landfill site in West Memphis, Arkansas; the Wingate Road site in
Ft. Lauderdale, Florida; and the Petroleum Products Corporation site in Pembroke
Pines, Florida. With respect to all such sites, the Company either has settled
its liability (Peak Oil), expects its liability to be de minimis and fully
indemnified by Viad (South Eighth Street), or has denied liability altogether
(Wingate Road and Petroleum Products). The possibility exists that the Company
will receive additional notices of CERCLA-type liability in the future. In light
of the relatively small volume of waste typically contributed by the Company,
the applicability of the CERCLA "petroleum exemption" to certain of its wastes,
the large numbers of parties typically involved in such sites, and the
availability of contractual indemnifications, although there can be no assurance
in this regard, the Company currently expects that its future liabilities for
cleanup of offsite disposal facilities will not be material.
Subject to certain time and dollar limitations, Viad has agreed to
indemnify the Company with respect to certain pre-Acquisition environmental
liabilities, including all known and unknown onsite and offsite contamination
matters. Based upon its environmental due diligence investigation, the Company
believes that such indemnification, coupled with the legal arrangements set
forth above, provide sufficient protection with respect to environmental
liabilities. In the event that Viad fails to honor this indemnification, the
Company could bear direct liability for such matters and such liability could be
material. See "Risk Factors--Risk that the Company may be Adversely Effected as
a Result of Environmental and Safety Regulations to Which It is Subject."
EMPLOYEES
As of September 30, 1998, the Company employed 3,300 people. Of this total,
approximately two-thirds were represented by unions, with the other third
generally employed at airports operating without union representation. The
Company has no nationwide labor contracts and its contract terms differ from
station to station. There are currently approximately 30 collective bargaining
contracts in place, almost all of which have terms of three years. Collective
bargaining contract expirations are staggered with approximately one-third
coming up for renewal each year. Most of the Company's union contracts provide
"ramp agent" as a single rank classification, thereby giving the Company
flexibility to utilize its staff according to ad hoc requirements in fueling,
ground handling, cabin cleaning and baggage handling. The Company believes it
has very good relationships with its employees and various unions. There has
never been a strike or work stoppage at any facility operated by the Company.
LEGAL
The Company and certain of its subsidiaries and affiliates are plaintiffs
or defendants in various actions, proceedings and claims, including
environmental claims. Some of the foregoing involve or may involve compensatory
or other damages. Litigation is subject to many uncertainties and although
liability, if any, is not ascertainable, the Company believes that any resulting
liability will not materially affect the Company's financial position or the
results of its operations.
Subject to certain limitations, Viad has agreed to indemnify the Company
for: (i) liability for medical claims and worker's compensation claims; (ii)
liability for unknown and undisclosed claims existing on or prior to the closing
date of the Acquisition and not reflected in the balance sheet of the ASIG
business or otherwise disclosed in the schedules to the Share Purchase Agreement
(as defined herein); (iii) liability for obligations relating to employee
benefits and employee benefit plans existing on or prior to the closing date of
the Acquisition; and (iv) liability for any claim or matter relating to or
arising with respect to the ASIG business or its assets on or prior to the
closing date of the Acquisition. Based upon its due diligence investigation, the
Company believes that such indemnification provides ample protection with
respect to such pre-Acquisition liabilities, although there can be no assurance
in this regard. In the event that Viad fails to
49
<PAGE> 55
honor this indemnification, the Company could bear direct liability for such
matters and such liability could be material.
INSURANCE
The Company's business activities subject it to risk of significant
potential liability under federal and state statutes, common law and contractual
indemnification agreements. The Company reviews the adequacy of its insurance on
an ongoing basis. The Company believes it follows generally accepted standards
for its lines of business with respect to the purchase of business insurance and
risk management practices. The Company accordingly maintains insurance in
amounts it deems appropriate for its business.
50
<PAGE> 56
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information (ages as of September
30, 1998) with respect to the persons who are members of the Board of Directors
(the "Board") or executive officers of the Company. Hancock and CIBC Ventures
together have the ability to appoint a majority of the members of the Board of
both Ranger and the Company pursuant to the Securityholders Agreement. See
"Certain Transactions--Securityholders Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
---- --- --------------------
<S> <C> <C>
Stephen D. Townes...................... 46 President, Chief Executive Officer and Director
George B. Schwartz..................... 45 Chairman of the Board, Director and Assistant
Secretary
F. Andrew Mitchell..................... 45 Executive Vice President and Chief Financial
Officer
George W. Watts........................ 46 Executive Vice President and Secretary
John W. Gassett........................ 51 Senior Vice President--ASIG North America
Paul Jefferson......................... 43 Senior Vice President and Managing Director--ASIG
Europe
William McLendon....................... 38 Vice President--Eastern Operations
Ronald F. Pattie....................... 50 Vice President--Technical Services
D. Dana Donovan........................ 42 Director
Jay R. Levine.......................... 42 Director
Edward Levy............................ 34 Director
S. Mark Ray............................ 46 Director
</TABLE>
Stephen D. Townes founded Ranger and the Company and became President,
Chief Executive Officer and Director upon the consummation of the Acquisition.
Prior to joining Ranger and the Company, Mr. Townes had been the Vice Chairman
and a Director of Sabreliner Corporation's commercial aircraft services division
since November 1995. From July 1994 to November 1995 Mr. Townes was President
and Partner of Intertrade Ltd., and prior to joining Intertrade, Mr. Townes was
the Executive Vice President & Technical Operations Officer of Stevens Aviation.
Prior to joining Stevens Aviation in March 1990, Mr. Townes held management
positions with the Dee Howard Company and LTV Aerospace & Defense (now Vought
Aircraft). Mr. Townes received an engineering degree from West Point, an MBA
from Long Island University and completed the PMD Program at Harvard Business
School.
George B. Schwartz co-founded Ranger and the Company and became Chairman of
the Board upon the consummation of the Acquisition. Mr. Schwartz is currently
the President of Tioga Capital Corporation, a position he has held since 1991.
From 1987 to 1990, Mr. Schwartz was a Partner of The Airlie Group, L.P., an
investment fund, the general partner of which was an affiliate of Bass Brothers
Enterprises. Prior to joining Airlie, Mr. Schwartz was employed as a Senior Vice
President of Drexel Burnham Lambert, Inc. Mr. Schwartz also serves as a director
of Worldwide Games Corporation and Thompson Hospitality Corporation and as
Chairman of the Board of Engineered Fibres, Inc. Mr. Schwartz received his MBA
from the Amos Tuck School at Dartmouth College and a bachelors degree from
Vanderbilt University.
F. Andrew Mitchell joined Ranger and the Company as Executive Vice
President and Chief Financial Officer upon the consummation of the Acquisition.
Prior to joining Ranger and the Company, Mr. Mitchell had been the Chief
Financial Officer and a Director of Moovies, Inc. since 1995. From 1991 to 1995
Mr. Mitchell was the Managing Partner of the Greenville, South Carolina office
of KPMG Peat Marwick, LLP and held various positions with KPMG Peat Marwick, LLP
since 1975. Mr. Mitchell is a director of Video Update, Inc. and First Savers
Bank. Mr. Mitchell received a bachelors degree in accounting from the University
of Cincinnati and is a Certified Public Accountant.
Dr. George W. Watts joined Ranger and the Company as Executive Vice
President and Secretary upon the consummation of the Acquisition. Prior to
joining Ranger and the Company, Dr. Watts had been the President of Executive
Vision, a management consulting firm specializing in executive and
organizational
51
<PAGE> 57
development from 1985 to 1994 and 1997 to 1998. From 1994 to 1996, Dr. Watts was
the Executive Vice President of PM Realty Group. Dr. Watts has authored several
books regarding corporate change management and executive development and has
consulted with numerous venture capital companies and major corporations in the
areas of executive assessment, management training, business process
re-engineering, corporate restructuring, marketing program development,
post-merger integration and accelerated growth management. Dr. Watts received a
bachelors, master's and Ph.D. degrees in psychology and education from The
College of William and Mary.
John W. Gassett joined the Company in 1967 and until 1980, served as
Station Manager of the West Palm Beach, Miami and Fort Lauderdale facilities. In
1980, Mr. Gassett was appointed a Director of Sales, in 1988 was named Vice
President--Marketing and Sales and, effective July 1998, was promoted to his
current position. Mr. Gassett attended the University of North Florida and
Pensacola Jr. College.
Paul Jefferson joined the Company in 1996 as Vice President--Europe and,
effective July 1998, was promoted to his current position. Mr. Jefferson is
responsible for all aspects of the Company's business in the United Kingdom and
continental Europe. Mr. Jefferson is also a director of Omni Aircraft Service
GmbH, the Company's joint venture in Germany. From 1992 to 1996, Mr. Jefferson
held the position of Retail Services Manager in France with Eurotunnel and prior
to that Mr. Jefferson was employed with Esso U.K. for 14 years. Mr. Jefferson
received a BSc degree (with Honours) in Business Studies from Queens
University--Belfast.
William McLendon joined the Company in July 1998 as Vice President--Eastern
Operations. Mr. McLendon is responsible for all aspects of the Company's
business in the eastern U.S. Prior to joining the Company, Mr. McLendon was a
General Manager with Stevens Aviation from 1994 to 1996, and from 1991 to 1994,
was employed by ATS Aerospace, Inc., most recently as Vice President,
Operations. From 1981 to 1991 Mr. McLendon served in the United States Air
Force. Mr. McLendon received an engineering degree from the United States Air
Force Academy and bachelors and master's degrees from Oxford University where he
was a Rhodes Scholar.
Ronald F. Pattie joined the Company in 1969 as a field operations officer,
has since served as Director of Maintenance, was appointed as Director of
Technical Services and Quality Assurance in 1983 and, effective July 1998, was
promoted to his current position. Mr. Pattie received a bachelors degree in
Business Administration and Accounting from the University of South Florida.
D. Dana Donovan became a Director of Ranger and the Company upon the
consummation of the Acquisition. Mr. Donovan has been a Senior Investment
Officer at John Hancock Mutual Life Insurance Company since 1990. From 1988 to
1990, Mr. Donovan was a principal with Berwick Capital. From 1985 to 1988, Mr.
Donovan was with Signal Capital's Merchant Banking Group. Mr. Donovan is a
director of Learning Curve International L.L.C. and Mobile Information Systems,
Inc. Mr. Donovan received his MBA from the Amos Tuck School at Dartmouth College
and a bachelors degree from Duke University.
Jay R. Levine became a Director of Ranger and the Company upon the
consummation of the Acquisition. Since 1997, Mr. Levine has served as a Managing
Director of CIBC Oppenheimer Corp. and manages the CIBC Oppenheimer High Yield
Merchant Banking Funds. From 1996 to 1997, Mr. Levine was President of PPMJ,
Inc., a private consulting firm that advised its clients on private equity
investments. From 1990 to 1996, Mr. Levine was a senior executive in the
Morningside and Springfield Group, a private investment company. Mr. Levine is a
director of Consolidated Advisors Limited, L.L.C., Global Crossing, Ltd.,
Heating Oil Partners, L.P. and Evercom, Inc. Mr. Levine received a bachelors
degree from Syracuse University, a JD degree from Tulane University and an LLM
in taxation from New York University.
Edward Levy became a Director of Ranger and the Company upon the
consummation of the Acquisition. Mr. Levy has been a Managing Director of CIBC
Oppenheimer Corp. since 1995. Between 1991 and 1995, Mr. Levy held various
positions at The Argosy Group, L.P., culminating in the position of Managing
Director. Mr. Levy has also held positions in the Mergers and Acquisitions Group
of Drexel Burnham Lambert Incorporated and the Corporate Finance Department of
Kidder, Peabody & Co., Incorporated. Mr. Levy is also a director of Heating Oil
Partners, L.P., Norcross Safety Products, L.L.C., DSMax International, Inc. and
High Voltage Engineering Corporation. Mr. Levy is a graduate of Connecticut
College.
52
<PAGE> 58
S. Mark Ray became a Director of Ranger and the Company upon the
consummation of the Acquisition. Mr. Ray has been a Senior Investment Officer at
John Hancock Mutual Life Insurance Company since 1991, where he manages a $2.0
billion transportation portfolio for the Bond and Corporate Finance Group.
Before joining John Hancock Mutual Life Insurance Company in 1978, Mr. Ray was a
United States Air Force pilot candidate, as well as a civilian aviator. Leaving
active duty in 1977, but continuing service with the Air Force Reserves, he
worked on the marketing and operations staff of the Kansas City Southern Railway
Company for a year in Dallas. As an inactive ready-reservist, Mr. Ray achieved
the rank of Captain and in 1987, after completing his service commitment, he
received his Honorable Discharge. Mr. Ray received a bachelors degree from Texas
Tech University in 1975.
COMPENSATION OF DIRECTORS
Generally, the Directors of Ranger and the Company will not be paid for
their services on the Board. Directors are reimbursed for out-of-pocket expenses
incurred in connection with attending Board meetings. The Company has entered
into an agreement with Tioga pursuant to which Tioga will receive a fee during
the period which Mr. Schwartz serves as Chairman of the Board. Mr. Schwartz is
the President of Tioga. See "Certain Transactions--Chairman Agreement."
COMPENSATION OF EXECUTIVE OFFICERS
The compensation of executive officers of the Company will be determined by
the Board of Directors. The following Summary Compensation Table includes
individual compensation information for the former Executive Vice President and
General Manager and each of the four other most highly compensated executive
officers of the Company in fiscal 1997 (collectively, the "Named Executive
Officers") for services rendered in all capacities to the Company during fiscal
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION(A) COMPENSATION($)
--------------------------- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Robert B. Tarman (b)....................... $148,833 $18,200 $ -- $ 21,336(c)
Former Executive Vice President and General
Manager
Lloyd M. Stauffer, Jr...................... 119,477 18,200 -- 112,646(d)
Senior Vice President--Customer Service
Maurice W. Blauch II (e)................... 112,167 76,900 -- 429(f)
Former Chief Financial Officer
John W. Gassett............................ 106,875 11,500 -- 6,643(g)
Senior Vice President--ASIG North America
David R. Pettit, Jr........................ 93,671 10,700 -- 119,516(h)
Vice President--Human Resources
</TABLE>
- ---------------
(a) Excludes perquisites and other personal benefits, securities or property
which aggregate the lesser of $50,000 or 10% of the total annual salary and
bonus.
(b) Following consummation of the Acquisition, Mr. Tarman retired.
(c) Includes payments made on behalf of Mr. Tarman of $2,899 for group term life
insurance, $13,479 for moving expenses and $14,734 for financial planning
services.
(d) Includes payments made on behalf of Mr. Stauffer of $3,492 for group term
life insurance and $12,887 for financial planning services and reflects a
contribution of $27,002 made to Viad's Senior Employee Retirement Plan by
Viad on behalf of Mr. Stauffer. Also includes $68,815 received by Mr.
Stauffer upon the purchase and sale of 7,528 shares of common stock of Viad
pursuant to options to acquire such stock granted to Mr. Stauffer by Viad.
(e) Mr. Blauch resigned as Chief Financial Officer effective April 1997.
(f) Represents payments made on behalf of Mr. Blauch for group term life
insurance.
53
<PAGE> 59
(g) Includes payments made on behalf of Mr. Gassett of $1,251 for group term
life insurance and a contribution of $5,392 made to Viad's Senior Employee
Retirement Plan by Viad on behalf of Mr. Gassett.
(h) Includes payments made on behalf of Mr. Pettit of $1,658 for group term life
insurance and a contribution of $5,512 made to Viad's Senior Employee
Retirement Plan by Viad on behalf of Mr. Pettit. Also includes $112,347
received by Mr. Pettit upon the purchase and sale of 13,739 shares of
common stock of Viad pursuant to options to acquire such stock granted to
Mr. Pettit by Viad.
EMPLOYMENT AGREEMENTS
Messrs. Townes, Mitchell and Watts have each entered into an employment
agreement (each, an "Employment Agreement") with Ranger and the Company. The
Employment Agreements provide for the employment, until March 31, 2001, unless
terminated earlier as provided in the respective Employment Agreement, of (i)
Mr. Townes as the President and Chief Executive Officer; (ii) Mr. Mitchell as
Executive Vice President and Chief Financial Officer and (iii) Mr. Watts as
Executive Vice President. The Employment Agreement of Mr. Townes provides for an
annual base salary of $275,000 and each of the Employment Agreements of Messrs.
Mitchell and Watts provide for an annual base salary of $212,000. In addition,
each Employment Agreement provides: (i) for the base salary to increase based on
the Consumer Price Index; (ii) an annual bonus to be determined by the Board of
Directors of the Company; and (iii) health benefits, life and disability
insurance, participation in the Company's retirement plan(s) and customary
fringe benefits and vacation periods.
Each Employment Agreement may be terminated by the Company at any time with
or without Cause. Each Employment Agreement defines "Cause" to mean any of the
following acts: (i) the commission of a felony or a crime involving moral
turpitude or the commission of any other act or omission involving dishonesty,
disloyalty or fraud with respect to the Company or any of its subsidiaries or
any of their customers or suppliers; (ii) conduct tending to bring the Company
or any of its subsidiaries into substantial public disgrace or disrepute; (iii)
failure to perform duties as reasonably directed by the Board of Directors of
the Company or the Company's president; (iv) gross negligence or willful
misconduct with respect to the Company or any of its subsidiaries; or (v) any
other material breach of the Employment Agreement which is not cured within 15
days after written notice thereof. Messrs. Townes, Mitchell and Watts may also
choose to terminate employment with the Company by reason of a Constructive
Termination. "Constructive Termination" means (i) a reduction of base salary or
(ii) the assigning of any duties inconsistent with duties first described in the
respective Employment Agreement. If the employment of Mr. Townes is terminated
for any reason other than (i) a termination by the Company for Cause or (ii) a
termination by Mr. Townes that is not a Constructive Termination, Mr. Townes
will receive severance compensation equal to 18 months base salary and current
health benefit coverage. If the employment of Messrs. Mitchell or Watts,
respectively, is terminated for any reason other than (i) a termination by the
Company for Cause or (ii) a termination by Mr. Mitchell or Mr. Watts,
respectively, that is not a Constructive Termination, Mr. Mitchell or Mr. Watts,
respectively, will receive 12 months salary if such termination occurs before
December 31, 1998 and will receive 18 months salary if such termination occurs
thereafter, unless such termination is in connection with the refusal by Mr.
Mitchell or Mr. Watts to relocate to the Company's headquarters, in which case
Mr. Mitchell or Mr. Watts will receive nine months salary.
Messrs. Townes and Schwartz have also entered into agreements with Ranger
pursuant to which they, acting directly or indirectly, have purchased Class A
Voting Common Stock of Ranger. See "Certain Transactions--Executive Stock
Agreement" and "--Investor Stock Agreements."
401(K) AND PROFIT SHARING PLAN
The Company has a 401(k) plan (the "401(k) plan") for the benefit of
substantially all of its non-union employees, which is qualified for tax exempt
status by the Internal Revenue Service. Employees can make contributions to the
plan up to the maximum amount allowed by federal tax code regulations.
54
<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 1,000 shares of
common stock, par value $0.01 per share, of which 100 shares are issued and
outstanding and held of record by Ranger.
The authorized capital stock of Ranger consists of: (i) 2,000,000 shares of
common stock, par value $0.01 per share, of which 1,000,000 shares are
designated Class A Voting Common Stock (the "Class A Common") (35,997.8 shares
are issued and outstanding) and 1,000,000 shares are designated Class B
Non-Voting Common Stock (the "Class B Common") (69,030 shares are issued and
outstanding); and (ii) 200,000 shares of 10.5% Payment-in-Kind Redeemable
Preferred Stock, par value $0.01 per share (the "Preferred Stock" and,
collectively with the Class A Common and the Class B Common, the "Securities")
(6,000 shares are issued and outstanding). The holders of Class A Common have
the right to vote on all matters to be voted on by the stockholders of Ranger.
Each holder of Class A Common is entitled to one vote per share. Except as
otherwise required by law a holder of Class B Common or Preferred Stock does not
have any voting rights with respect thereto. Each share of Class A Common is
convertible at any time into one share of Class B Common and each share of Class
B Common is convertible at any time into one share of Class A Common, in each
case at the option of the holder of such share. Except as described above with
respect to voting rights, the Class A Common is identical to the Class B Common.
55
<PAGE> 61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the equity of the Company is owned by Ranger. The following table
sets forth certain information regarding the beneficial ownership of the equity
securities of Ranger by: (i) each of the Directors and executive officers of
Ranger; (ii) all Directors and executive officers of Ranger as a group; and
(iii) each owner of more than 5% of any class of equity securities of Ranger
("5% Owners"). Ranger currently has 39,997.8 shares of Class A Common, 69,030
shares of Class B Common and 6,000 shares of Preferred Stock issued and
outstanding. Unless otherwise noted, the address for each Director and executive
officer of Ranger is c/o Ranger Aerospace Corporation, 1 Caledon Court,
Greenville, South Carolina 29615-3170.
<TABLE>
<CAPTION>
CLASS A COMMON CLASS B COMMON PREFERRED STOCK
------------------ ---------------- ----------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
------------------------------------ -------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
George B. Schwartz (a)...................... 5,964.8 15.91% -- -- -- --
Stephen D. Townes (b)....................... 2,663 7.10 -- -- -- --
Edward Levy (c)............................. 18,370 49.00 12,630 18.30% 4,650 77.50%
D. Dana Donovan (d)......................... -- -- 56,400 81.70 -- --
S. Mark Ray (d)............................. -- -- 56,400 81.70 -- --
Jay R. Levine (c)........................... 18,370 49.00 12,630 18.30 4,650 77.50
All Directors and Officers as a group (6
persons).................................. 26,997.8 72.01 69,030 100.0 4,650 77.50
5% OWNERS:
John Hancock Mutual Life Insurance Company
(e)....................................... -- -- 56,400 81.70 -- --
Canadian Imperial Bank of Commerce (f)...... 18,370 49.00 12,630 18.30 4,650 77.50
Randolph Street Partners II (g)............. 5,000 13.34 -- -- 750 12.50
Gregg L. Engles (h)......................... 4,000 10.67 -- -- 600 10.00
Danielle Schwartz Trust, UAD 10/1/93 (i).... 5,694.8 15.91 -- -- -- --
</TABLE>
- ---------------
(a) Includes 5,964.8 shares of Class A Common owned by the Danielle Schwartz
Trust, UAD 10/1/93. Mr. Schwartz disclaims beneficial ownership of all such
shares.
(b) Includes 2,663 shares of Class A Common currently being transferred from Mr.
Townes to the Townes Family Trust. Mr. Townes does not have beneficial
ownership in, or control over, the Townes Family Trust.
(c) Includes 18,370 shares of Class A Common, 12,630 shares of Class B Common
and 4,650 shares of Preferred Stock beneficially owned by CIBC. Such person
disclaims beneficial ownership of all such shares. Such person's address is
c/o CIBC Oppenheimer Corp., 425 Lexington Avenue, New York, New York 10017.
(d) Includes 56,400 shares of Class B Common beneficially owned by John Hancock
Mutual Life Insurance Company. Such person disclaims beneficial ownership of
all such shares. Such person's address is c/o John Hancock Mutual Life
Insurance Company, John Hancock Place, Box 111, Boston, Massachusetts 02117.
(e) Such person's address is John Hancock Place, Box 111, Boston, Massachusetts
02117.
(f) Such person's address is 161 Bay Street, 8th Floor, BCE Place; PP Box 500
MSJ 258, Toronto, Canada. Each of Messrs. Jay Bloom, Andrew Heyer and Dean
Kehler (each of whom are Managing Directors of CIBC Oppenheimer Corp.) may
be viewed as sharing beneficial ownership of such shares.
(g) Such person's address is 200 East Randolph Drive, Suite 5400, Chicago,
Illinois 60601.
(h) Such person's address is 3811 Turtle Creek Road, Dallas, Texas 75219
(i) Such person's address is c/o Ranger Aerospace Corporation, 1 Caledon Court,
Greenville, South Carolina 29615-3170.
56
<PAGE> 62
CERTAIN TRANSACTIONS
TRANSITION SERVICES AGREEMENT
In connection with the Acquisition, the Company entered into a Transition
Services Agreement (the "Transition Services Agreement") with Viad pursuant to
which (i) Viad agreed to provide certain administrative support and other
services to the Company and (ii) the Company agreed to provide certain
environmental consulting services to Viad. Amounts owed under the Transition
Services Agreement are to be paid monthly in arrears and are determined based
upon the amount of services actually provided thereunder. The Transition
Services Agreement shall terminate December 31, 1998 (or such longer or shorter
period with respect to particular services provided thereunder), unless the
Company or Viad terminate the Transition Services Agreement as of an earlier
date with respect to specific transition services. The Company believes that the
terms of the Transition Services Agreement are at least as favorable to the
Company as those which could be obtained from an unrelated third party.
SECURITYHOLDERS AGREEMENT
Ranger, Hancock and its affiliates, affiliates of CIBC, the Danielle
Schwartz Trust, Mr. Townes, Randolph Street Partners II and Gregg L. Engles have
entered into a Securityholders Agreement (the "Securityholders Agreement"). The
Securityholders Agreement requires that each of the parties thereto vote all of
his or its Ranger voting securities and take all other necessary or desirable
actions to cause the size of the Board of Ranger to be established at six
members and to cause the election to the Board of Ranger of two representatives
designated by Hancock and its affiliates (the "Hancock Designees"), two
representatives designated by such affiliates of CIBC (the "CIBC Designees") and
two executive officers jointly designated by such affiliates of CIBC and Hancock
and its affiliates (the "Executive Directors"). Mr. Schwartz and Mr. Townes will
each serve as an Executive Director, so long as such person is an officer of the
Company and Ranger. Any representative on the Board of Ranger may be removed
from the Board of Ranger only at the request of the party that designated such
representative. The Board of the Company is established by the Board of Ranger,
provided that Mr. Schwartz and Mr. Townes will serve as Directors of the
Company. Mr. Schwartz will serve as Chairman of the Board of Ranger and the
Company. The right of Hancock and its affiliates and such affiliates of CIBC to
designate representatives to the Board of Ranger will terminate at such time as
such party owns less than 50% of the common stock, Preferred Stock and/or PIK
Notes held by such party as of the Acquisition closing date. The right of Mr.
Townes to be elected as a member of the Board of Ranger will terminate at such
time as he owns less than 50% of the shares of common stock purchased under the
Executive Stock Agreement (as defined herein), or earlier in the event he ceases
to be an officer of the Company and Ranger. The right of Mr. Schwartz to be
elected as a member of the Board of Ranger will terminate at such time as the
Danielle Schwartz Trust owns less than 50% of the shares of common stock it
purchased under the Investor Stock Agreement (as defined herein), or earlier in
the event Mr. Schwartz ceases to be Chairman of the Company and Ranger pursuant
to the Chairman Agreement (as defined herein). The provisions of the
Securityholders Agreement relating to the composition of the Board of Ranger
will terminate on the earlier to occur of (i) the tenth anniversary of the
Acquisition unless extended by holders of 75% of the voting securities subject
to the Securityholders Agreement or (ii) upon a Qualified Public Offering (as
defined herein).
In addition to the foregoing, the Securityholders Agreement (i) requires
the holders of securities of Ranger to obtain the prior written consent of
Ranger in some circumstances prior to transferring any securities of Ranger;
(ii) grants in connection with the sale of securities of Ranger certain
preemptive rights with respect to such sale, first to other holders of
securities of Ranger, then to Ranger; (iii) grants the holders of securities of
Ranger certain participation rights in connection with certain transfers made by
other holders of securities of Ranger; and (iv) requires all holders of Ranger
securities who are parties to the Securityholders Agreement to consent to and
participate in a sale of the business of Ranger to an independent third party
(whether by way of a sale of stock, sale of assets, merger, recapitalization or
otherwise) if such sale is approved by such affiliates of CIBC and Hancock and
its affiliates (provided that such affiliates of CIBC and Hancock and its
affiliates each hold not less than 50% of the Ranger securities held by such
party as of the Acquisition closing date) and
57
<PAGE> 63
the Board of Ranger. The agreements set forth in (i) to (iii) above terminate
with respect to each security of Ranger upon the earlier of the date on which
such security has been transferred in a public sale or the consummation of a
public offering of $35 million or more of Ranger's equity securities in which
the per share price of the common stock of Ranger is no less than four times its
price as of the date of the Acquisition (a "Qualified Public Offering"). The
agreement set forth in (iv) above terminates with respect to each interest in
Ranger upon the consummation of a Qualified Public Offering.
The Securityholders Agreement also provides that the Preferred Stock and
PIK Notes (as defined herein) issued under the Securities Purchase Agreement
will rank pari passu in the event of any liquidation, dissolution or winding-up
of Ranger, and that holders of PIK Notes will use their reasonable efforts to
provide the holders of Preferred Stock representation on any creditors'
committee established for the benefit of the holders of PIK Notes. A similar
provision is contained in the Share Purchase Agreement (as defined herein).
In addition, without the consent of both the CIBC Designees and the Hancock
Designees, Ranger may not: (i) issue or authorize the issuance of any equity
securities or any securities convertible into equity securities in excess of
2,500 shares of Ranger common stock; (ii) consolidate or merge with, or sell all
of substantially all of its assets to, any other person; (iii) permit any of its
subsidiaries to issue any equity securities to any person other than Ranger or
one of Ranger's direct or indirect wholly-owned subsidiaries; (iv) acquire any
interest in any business for an aggregate consideration in excess of $1.0
million; or (v) amend any provision of Ranger's certificate of incorporation.
RIGHTS AGREEMENT
Ranger, Hancock and its affiliates, affiliates of CIBC, Randolph Street
Partners II, Gregg L. Engles and the Danielle Schwartz Trust have entered into a
Rights Agreement (the "Rights Agreement"). Under the Rights Agreement, the
holders of shares of Ranger common stock originally issued to Hancock and to
affiliates of CIBC have the right at any time, subject to certain conditions, to
require Ranger to register any or all of their common stock in Ranger under the
Securities Act on Form S-1 or Form S-2 (a "Long-Form Registration") on two
occasions and on Form S-3 (a "Short-Form Registration") on unlimited occasions,
and all holders of registrable securities of Ranger have the right to request
that such securities be included in any such Long-Form or Short-Form
Registration, subject to pro rata reductions if required by the managing
underwriter. In addition, all holders of registrable securities of Ranger are
entitled to request the inclusion of such securities in any registration
statement at Ranger's expense whenever Ranger proposes to register any of its
securities under the Securities Act (a "Piggyback Registration"). Ranger shall
pay all registration expenses in connection with each Long-Form, Short-Form and
Piggyback Registration. Holders of registrable securities of Ranger are
prohibited from effecting a public sale of such securities seven days prior to
and 90 days after the effective date of any Long-Form, Short-Form or
underwritten Piggyback Registration. Ranger is prohibited from effecting a
public sale of its equity securities on its own behalf during the seven days
prior to and 120 days after the effective date of any Long-Form, Short-Form or
underwritten Piggyback Registration. In connection with such registrations,
Ranger has agreed to indemnify all holders of registrable securities against
certain liabilities, including liabilities under the Securities Act.
EXECUTIVE STOCK AGREEMENT
Mr. Townes has entered into an Executive Stock Agreement (the "Executive
Stock Agreement") with Ranger pursuant to which Mr. Townes purchased 2,663
shares of Class A Common at a price of $100 per share and such stock was paid
for with a promissory note. This promissory note is secured by a pledge of all
of shares of Class A Common purchased by Mr. Townes under the Executive Stock
Agreement and is recourse to Mr. Townes for 25% of the original principal amount
of and accrued interest under the promissory note. All of the stock purchased by
Mr. Townes is subject to vesting and becomes fully vested on April 3, 2001,
which vesting accelerates upon: (i) a sale of Ranger; (ii) a Qualified Public
Offering; (iii) the "constructive termination" of Mr. Townes' employment; or
(iv) the termination of Mr. Townes' employment without "Cause." In the event of
a termination of Mr. Townes' employment for any reason, the stock in Ranger held
by Mr. Townes or his successors and assigns shall be subject to repurchase by
Ranger. In the event of the termination of Mr. Townes' employment for a reason
other than: (i) death or disability;
58
<PAGE> 64
(ii) a termination by the Company for "Cause"; or (iii) a termination by Mr.
Townes that is not a "constructive termination," Mr. Townes may require Ranger
to repurchase the interests Mr. Townes holds therein. In addition, Mr. Townes
may not transfer the interests he holds in Ranger without the consent of the
Board of Ranger or pursuant to the Securityholders Agreement. See
"--Securityholders Agreement."
INVESTOR STOCK AGREEMENT
The Danielle Schwartz Trust has entered into an Investor Stock Agreement
(the "Investor Stock Agreement") with Ranger pursuant to which it purchased
Class A Common at a price of $100 per share and such stock was paid for with a
promissory note. This promissory note is secured by a pledge of all of the
shares of Class A Common purchased under the Investor Stock Agreement and is
recourse to the Danielle Schwartz Trust for 25% of the original principal amount
of and accrued interest under the promissory note. Under the Investor Stock
Agreement, in the event that Mr. Schwartz is terminated for "Cause" as Chairman
(as such terms are defined in the Chairman Agreement), Ranger shall have the
option to repurchase all of the interests in Ranger held by the Danielle
Schwartz Trust. In addition, the Danielle Schwartz Trust may not transfer the
interests it holds in Ranger without the consent of the Board of Ranger or
pursuant to the Securityholders Agreement. See "--Securityholders Agreement."
CHAIRMAN AGREEMENT
Tioga, Ranger, the Company and Mr. Schwartz have entered into a Chairman
Agreement (the "Chairman Agreement") pursuant to which Mr. Schwartz will serve
as the Chairman of Ranger and the Company until April 2, 2001 (such period will
be automatically extended for additional terms of one year unless the Board of
Ranger takes action to terminate such extension), unless terminated earlier as
provided in the Chairman Agreement. The Chairman Agreement provides that Tioga
will receive a $150,000 annual base fee (subject to annual increases based on
the consumer price index) and that Mr. Schwartz will receive health benefits and
life and disability insurance. In addition, Tioga will receive a bonus of
$1,350,000 if the Company satisfies certain market value and liquidity
requirements in connection with a sale of the business of Ranger or the Company
or a public offering of equity securities of Ranger. The Company believes that
the terms of the Chairman Agreement are at least as favorable to the Company as
those which could be obtained from an unrelated party.
Noncompetition provisions of the Chairman Agreement prevent Mr. Schwartz
from engaging in any business in competition with the Company for a period of 18
months after any termination or for 12 months after termination as director
without Cause in countries where the Company conducts business as of the date of
such termination.
Mr. Schwartz may be terminated as the Chairman at any time with or without
Cause. The Chairman Agreement defines "Cause" to mean any of the following acts:
(i) the commission of a felony or a crime involving moral turpitude (as
determined by the Board of the Company in its good faith judgment) or any
indictment for a felony or crime involving moral turpitude; (ii) the commission
of any other act or omission involving dishonesty, disloyalty or fraud with
respect to Ranger or any of its subsidiaries or any of their customers or
suppliers; (iii) conduct tending to bring Ranger or any of its subsidiaries into
substantial public disgrace or disrepute; (iv) failure to perform duties as
reasonably directed by the Board of Ranger which failure is not cured within 15
days after written notice thereof; (v) gross negligence or willful misconduct
with respect to Ranger or any of its subsidiaries; or (vi) any other material
breach of the Chairman Agreement which is not cured within 15 days after written
notice thereof. If Mr. Schwartz is terminated as the Chairman for any reason
other than for Cause, Tioga will receive the base fee for one year thereafter.
FEE LETTER
In connection with the Acquisition, the Company paid Tioga the sum of
$850,000 pursuant to a certain fee letter in consideration for services rendered
by Tioga to the Company and Ranger. Mr. Schwartz is the president of Tioga. In
consideration for such payment, the Company and Ranger on one hand, and Tioga
and Mr. Schwartz on the other, along with certain other parties, agreed to
release each other from any claims,
59
<PAGE> 65
liabilities or obligations not arising from gross negligence or willful
misconduct with respect to the consummation of the Acquisition.
SHARE PURCHASE AGREEMENT
Pursuant to a Share Purchase Agreement (the "Share Purchase Agreement"),
Viad and Viad Service Companies, Limited, a United Kingdom limited liability
company (together with Viad, the "Sellers") agreed to sell all of the issued and
outstanding shares of capital stock or other equity interests of the entities
which comprised the ASIG business to Ranger. The purchase price for such equity
interests was $95 million, subject to a post-closing purchase price adjustment
in favor of the Company for any shortfall in the net asset value, net working
capital or required cash (as such terms are defined in the Share Purchase
Agreement) of the ASIG business from the levels represented at the closing of
the Acquisition. The purchase price is also subject to adjustment in favor of
Viad in an amount equal to the amount of cash in the ASIG business at the
closing of the Acquisition in excess of the Required Cash.
The Share Purchase Agreement contained customary representations and
warranties, covenants, agreements and acknowledgments made by the parties
thereto, including a covenant to make the 338(h)(10) election. The Sellers also
agreed to indemnify Ranger with respect to the breach of certain representations
and warranties and covenants. Such indemnification was limited to not more than
a gross aggregate amount of $10.0 million. The indemnification obligations with
respect to breaches of representations and warranties will survive until the
second anniversary of the closing of the Acquisition and may be extended to the
extent that Ranger provides notice to the Sellers of an indemnifiable claim
prior to such time. Under the terms of the Share Purchase Agreement, the
obligations of the Sellers with respect to such indemnification terminate if
Ranger fails to give notice of an indemnifiable claim to the Seller prior to the
fifth anniversary of the closing of the Share Purchase Agreement.
Prior to the closing of the Acquisition, the Share Purchase Agreement was
amended by the Sellers and Ranger (the "Amendment"). In addition to certain
other matters addressed in the Amendment, Ranger assigned all of its rights and
obligations under the Share Purchase Agreement to the Company, with the
exception of its rights to acquire Aircraft Service, Ltd., a United Kingdom
limited liability company, which it assigned to ASIG Europe Ltd., a United
Kingdom limited liability company.
NONCOMPETITION AGREEMENT
The Sellers, Greyhound Dobbs Incorporated, a Delaware corporation
("Dobbs"), Ranger and the Company entered a noncompetition agreement (the
"Noncompetition Agreement"). Under the Noncompetition Agreement, each of the
Sellers and Dobbs covenanted and agreed that it would not, in any geographical
location anywhere in the world, engage directly or indirectly, in any activity
which is competitive with the Company's business as of the date of the
Acquisition. In addition, each of Ranger and the Company covenanted and agreed
that it would not, in any geographical location anywhere in the world, engage
directly or indirectly, in the business of preparing and providing food and
beverage services for airline passengers, airline crews, support personnel and
airport personnel. The noncompetition restrictions above terminate upon the
earlier of: (i) the date three years following the date of the Acquisition and
(ii) for restrictions that apply to Dobbs, Ranger and the Company, upon (a) the
Sellers' sale of any of the capital shares of Dobbs resulting in a divestiture
of control, (b) the sale of Ranger, (c) the sale by Ranger of any of the capital
shares of the entities comprising the ASIG business resulting in a divestiture
of control, or (d) the sale by Ranger or Dobbs of capital shares or
substantially all of the assets of any subsidiary, in which event such
restrictions shall terminate only with respect to the subsidiary being sold.
SECURITIES PURCHASE AGREEMENT
Pursuant to the Securities Purchase Agreement, Ranger authorized the
issuance and sale of the following securities: (i) $8,460,000 in aggregate
principal amount of 10.5% payment-in-kind notes (the "PIK Notes"); (ii) 6,000
shares of Preferred Stock; (iii) 29,862 shares of Class A Common; and (iv)
66,718 shares of Class B Common. Subject to the terms of the Securities Purchase
Agreement, Ranger agreed to sell, and Hancock,
60
<PAGE> 66
affiliates of CIBC, Randolph Street Partners II and Gregg L. Engles
(collectively, the "Purchasers") agreed to purchase, the Securities.
The Securities Purchase Agreement contained customary provisions for such
agreements, including representations and warranties and affirmative covenants.
The Securities Purchase Agreement also granted the Purchasers the right to
purchase their pro rata share of any future issuances of Ranger common equity or
convertible securities other than in connection with certain public offerings.
The Securities Purchase Agreement also provided that the PIK Notes would have a
scheduled repayment date of March 31, 2010, and that Ranger may optionally repay
the PIK Notes before this date provided that Ranger also redeems the Preferred
Stock.
RELATIONSHIP WITH VIAD
In fiscal 1996 and 1997, the Company transferred approximately $10.2
million and $12.8 million, respectively, of accounts receivable to Viad and was
charged a financing charge by Viad of approximately $0.5 million in 1996 and
$0.6 million in 1997 for the transferred receivables. In addition, prior to the
Acquisition, Viad allocated certain income and expenses to the Company. For a
description of such allocations see Note 3 to the Company's audited financial
statements which appear elsewhere in this Prospectus.
61
<PAGE> 67
DESCRIPTION OF SENIOR CREDIT FACILITY
The Company has entered into a Senior Credit Facility (the "Senior Credit
Facility") with Key Corporate Capital, Inc. (the "Lender"), which provides for
Revolving Loans (as defined in the Senior Credit Facility) and Letters of Credit
(as defined in the Senior Credit Facility) in the aggregate amount of up to the
lesser of $10.0 million or the Borrowing Base (the "Revolving Credit
Commitment"). The Borrowing Base is equal to eighty-five percent (85%) of the
amount due and owing on Eligible Accounts Receivable (as defined in the Senior
Credit Facility). The Revolving Loans under the Senior Credit Facility will
mature on August 31, 2002 or sooner as provided in the Senior Credit Facility.
Indebtedness of the Company under the Senior Credit Facility will be
guaranteed by each of the Company's domestic subsidiaries and will generally be
secured by: (i) all of the Company's cash equivalents, accounts receivable,
contract rights, general intangibles, instruments and chattel paper relating
thereto; (ii) all of the Company's inventory; (iii) amounts (if any) held in a
commercial deposit account with the Lender; and (iv) all proceeds from (i) to
(iii) inclusive.
The Company's borrowings under the Revolving Loans will bear interest at a
floating rate and may be maintained as Prime Rate Loans or LIBOR Loans (each as
defined in the Senior Credit Facility). Borrowings made pursuant to the Prime
Rate Loans bear interest rates equal to the prime rate plus the Applicable
Margin (as defined in the Senior Credit Facility) and borrowings made pursuant
to the LIBOR Loans bear interest rates equal to the LIBOR rate plus the
Applicable Margin. The Applicable Margin for Prime Rate loans will be 0% through
June 1999 and thereafter will range from 0% to 0.50% based on the Company's
Leverage Ratio (as defined in the Senior Credit Agreement). The Applicable
Margin for LIBOR Loans will be 1.75% through June 1999 and thereafter will range
from 1.25% to 2.25% based on the Company's Leverage Ratio.
The Lender will issue Letters of Credit as the Company may from time to
time request; provided that the Lender will not be obligated to issue a Letter
of Credit if, after giving effect thereto, the aggregate undrawn face amount of
all issued and outstanding Letters of Credit (i) would exceed $2 million or (ii)
when added to the aggregate outstanding principal amount of Revolving Loans,
would exceed the Revolving Credit Commitment. For each Letter of Credit, the
Company will agree to pay the Lender a non-refundable commission equal to the
face amount of the Letter of Credit multiplied by the Applicable Margin for
LIBOR Loans, payable quarterly in arrears.
Amounts borrowed under the Senior Credit Facility may be prepaid and
reborrowed. Prepayments of Prime Rate Loans shall be without premium or penalty.
Prepayments of LIBOR Loans shall be without premium or penalty if prepaid at the
end of the applicable Interest Period (as defined in the Senior Credit
Facility). Prepayment of LIBOR Loans prior to the end of the applicable Interest
Period obligates the Company to pay a prepayment fee determined as set forth in
the Senior Credit Facility.
The Company is obligated to pay the Lender a commitment fee for providing
the Senior Credit Facility equal to one-half percent (0.50%) per annum
multiplied by $10.0 million less (i) the average daily outstanding principal
amount of the Revolving Loans less (ii) the average daily amount of all issued
and outstanding Letters of Credit, payable monthly in arrears on May 1, 1998 and
on the first day of each month thereafter. In addition, the Company is obligated
to pay the Lender an account administration fee equal to $10,000 per year.
The Senior Credit Facility requires the Company to meet certain financial
tests, including, without limitation, minimum interest coverage and maximum
leverage ratios. The Senior Credit Facility also contains certain covenants,
which among other things, will limit the incurrence of additional indebtedness,
the making of loans or investments, the declaration of dividends, transactions
with affiliates, asset sales, acquisitions, mergers and consolidations, the
incurrence of liens and encumbrances and other matters customarily restricted in
such agreements.
The Senior Credit Facility contains customary events of default, including
without limitation, payment defaults, breaches of representations and
warranties, covenant defaults, cross-defaults to certain other indebtedness,
certain events of bankruptcy and insolvency, judgment defaults, failure of any
guaranty or security document supporting the Senior Credit Facility to be in
full force and effect and a change of control of the Company.
62
<PAGE> 68
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on August 18, 1998 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Old Notes to qualified institutional buyers in reliance
on Rule 144A under the Securities Act and to qualified buyers outside the United
States in Reliance upon Regulation S under the Securities Act. As a condition of
the Purchase Agreement, the Company entered into an Exchange Offer Registration
Rights Agreement with the Initial Purchaser pursuant to which the Company has
agreed, for the benefit of the holders of the Old Notes, at the Company's cost,
to use its reasonable best efforts to (i) file the Exchange Offer Registration
Statement within 60 days after the date of the original issuance of the Old
Notes with the Commission with respect to the Exchange Offer for the Exchange
Notes; (ii) use its best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act within 150 days
after the date of the original issuance of the Old Notes and (iii) use its best
efforts to consummate the Exchange Offer within 180 days after the date of the
original issuance of the Old Notes. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer the Exchange Notes in
exchange for surrender of the Old Notes. The Company will keep the Exchange
Offer open for not less than 30 days (or longer if required by applicable law)
after the date on which notice of the Exchange Offer is mailed to the holders of
the Old Notes. For each Old Note surrendered to the Company pursuant to the
Exchange Offer, the holder of such Old Note will receive an Exchange Note having
a principal amount equal to that of the surrendered Old Note. Interest on each
Old Note will accrue from the last interest payment date on which interest was
paid on the Old Note surrendered in exchange therefor or, if no interest has
been paid on such Old Note, from the date of its original issue. Interest on
each Exchange Note will accrue from the date of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Exchange Notes will in general
be freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is an "affiliate" of
the Company or who intends to participate in the Exchange Offer for the purpose
of distributing the Exchange Notes (i) will not be able to rely on the
interpretation of the staff of the Commission, (ii) will not be able to tender
its Old Notes in the Exchange Offer and (iii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or transfer of the Old Notes, unless such sale or transfer is made
pursuant to an exemption from such requirements.
As contemplated by these no-action letters and the Exchange Offer
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Company in the Letter of Transmittal that (i) the
Exchange Notes are to be acquired by the holder or the person receiving such
Exchange Notes, whether or not such person is the holder, in the ordinary course
of business, (ii) the holder or any such other person (other than a
broker-dealer referred to in the next sentence) is not engaging and does not
intend to engage, in distribution of the Exchange Notes, (iii) the holder or any
such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, and (v) the holder or any such other person
acknowledges that if such holder or any other person participates in the
Exchange Offer for the purpose of distributing the Exchange Notes it must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the Exchange Notes and cannot rely on those
no-action letters. As indicated above, each Participating Broker-Dealer that
receives an Exchange Note for its own account in exchange for Old Notes must
acknowledge that it (i) acquired the Old Notes for its own account as a result
of market-making activities or other trading activities, (ii) has not entered
into any arrangement or understanding with the Company or any "affiliate" of the
Company (within the meaning of Rule 405 under the Securities Act) to distribute
the Exchange Notes to be received in the Exchange Offer and (iii) will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. For a description of the procedures for resales
by Participant Broker-Dealers, see "Plan of Distribution."
63
<PAGE> 69
In the event that changes in the law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect such an Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
180 days of the date of the original issuance of the Old Notes, the Company will
(i) file the Shelf Registration Statement covering resales of the Old Notes;
(ii) use its reasonable best efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act and (iii) use its reasonable
best efforts to keep effective the Shelf Registration Statement until the
earlier of two years after its effective date and such time as all of the
applicable Notes have been sold thereunder. The Company will, in the event of
the filing of the Shelf Registration Statement, provide to each applicable
holder of the Old Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resale of the Old Notes. A holder of the Old Notes that
sells such Old Notes pursuant to the Shelf Registration Statement generally will
be required to be named as a selling security holder in the related prospectus
and to deliver a prospectus to purchasers, will be subject to certain of the
civil liability provisions under the Securities Act in connection with such
sales and will be bound by the provisions of the Exchange Offer Registration
Rights Agreement which are applicable to such a holder (including certain
indemnification obligations). In addition, each holder of the Old Notes will be
required to deliver information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Exchange Offer Registration
Rights Agreement in order to have their Old Notes included in the Shelf
Registration Statement and to benefit from the provisions set forth in the
following paragraph.
Although the Company intends to file one of the registration statements
described above, there can be no assurance that such registration statement will
be filed or, if filed, that it will become effective. If the Company fails to
comply with the above provisions or if such registration statement fails to
become effective, then, as liquidated damages, additional interest shall become
payable in respect of the Notes as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 60 days after the Issue Date;
(ii) an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 150 days after the Issue Date;
and
(iii) either (A) the Company has not exchanged the Exchange Notes for
all Old Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 180 days after the Issue Date or (B) the Exchange
Offer Registration Statement ceases to be effective at any time prior to
the time that the Exchange Offer is consummated or (C) if applicable, the
Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of its effective date;
(each of such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Old Notes
will be the immediate assessment of additional interest ("Additional Interest")
as follows: the per annum interest rate on the Old Notes will increase by 0.5%
during the first 90-day period following the occurrence of a Registration
Default and the per annum interest rate will increase by an additional 0.25% for
each subsequent 90-day period during which the Registration Default remains
uncured, up to a maximum additional interest rate of 2.0% per annum in excess of
the interest rate on the cover of this Prospectus. All Additional Interest will
be payable to holders of the Old Notes in cash on the same original interest
payment dates as the Old Notes, commencing with the first such date occurring
after any such Additional Interest commences to accrue, until such Registration
Default is cured. After the date on which such Registration Default is cured,
the interest rate on the Old Notes will revert to the interest rate originally
borne by the Old Notes (as shown on the cover of this Prospectus).
If the Exchange Offer is made and the Initial Purchaser continues to hold
Old Notes, the Initial Purchaser may exchange Old Notes for other notes
identical to the Exchange Notes except for transfer restrictions ("Private
Exchange Notes"). If it receives Private Exchange Notes, the Initial Purchaser
thereafter will have the right for a period after consummation of the Exchange
Offer to request the Company to file a shelf registration statement covering the
Private Exchange Notes. If such requested shelf registration
64
<PAGE> 70
is not filed or does not become effective by the times provided in the Exchange
Offer Registration Rights Agreement, the interest rate on the Private Exchange
Notes will increase as provided above until such time as it does become
effective.
The summary herein of the Exchange Offer Registration Rights Agreement only
summarizes the material terms thereof and is qualified in its entirety by
reference to all the provisions of the Exchange Offer Registration Rights
Agreement, a copy of which will be available upon request to the Company.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a different CUSIP
Number from the Old Notes, (ii) the Exchange Notes have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (iii) the holders of the Exchange Notes will not be entitled to
certain rights under the Exchange Offer Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Old Notes
in certain circumstances relating to the timing of the Exchange Offer, all of
which rights will terminate when the Exchange Offer is consummated. The Exchange
Notes will evidence the same debt as the Old Notes and will be entitled to the
benefits of the Indenture.
As of the date of this Prospectus, $80,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
, 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "--Fees and Expenses."
65
<PAGE> 71
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. The Company will keep the
Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date on which notice of the Exchange Offer is mailed
to holders of the Old Notes. As a result of the requirements set forth in the
Exchange Offer Registration Statement, the Company believes that it is unlikely
that it would extend the Exchange Offer beyond 45 days after such notice is
mailed to the holders of the Old Notes.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders an announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on February 15, 1999. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each February 15
and August 15 commencing on February 15, 1999.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or submit an Agent's Message
in connection with a book-entry transfer, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Old Notes and any
other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date. To be tendered effectively, the Old Notes,
Letter of Transmittal or Agent's Message and other required documents must be
completed and received by the Exchange Agent at the address set forth below
under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date. Delivery of the Old Notes may be made by book-entry transfer in accordance
with the procedures described below. Confirmation of such book-entry transfer
must be received by the Exchange Agent prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and (iii)
that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Company the representations set forth above in the third paragraph
under the heading "--Purpose and Effect of the Exchange Offer."
66
<PAGE> 72
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of the
Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility unless an Agent's Message is received by the Exchange Agent in
compliance with ATOP, an appropriate Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which
67
<PAGE> 73
determination will be final and binding. The Company reserves the absolute right
to reject any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel for the Company,
be unlawful. The Company also reserves the right in their sole discretion to
waive any defects, irregularities or conditions of tender as to particular Old
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the Expiration
Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) (or, in the case of a book-entry
transfer, an Agent's Message) together with the certificate(s) representing
the Old Notes (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility), and any
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), together with a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and all other documents required by the Letter of Transmittal are
received by the Exchange Agent upon three New York Stock Exchange trading
days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required
68
<PAGE> 74
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such Old
Notes into the name of the person withdrawing the tender and (iv) specify the
name in which any such Old Notes are to be registered, if different from that of
the Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn Old
Notes may be retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
"--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
69
<PAGE> 75
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the exchange of Exchange Notes for Old Notes pursuant to the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed
Delivery should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
P.O. Box 778 Two International Place
Boston, Massachusetts 02110 Boston, Massachusetts 02110
Attention: Kellie Mullen Attention: Kellie Mullen
By Hand in New York (as Drop Agent): By Hand in Boston:
State Street Bank and Trust Company, N.A. State Street Bank and Trust Company
61 Broadway Two International Place
Concourse Level, Corporate Trust Window Fourth Floor, Corporate Trust Department
New York, New York 10006 Boston, Massachusetts 02110
Attention: Kellie Mullen
Facsimile Transmission: Confirm by Telephone:
(For Eligible Institutions Only) (617) 664-5587
(617) 664-5314
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company. The expenses of the Exchange Offer will be
expensed over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
70
<PAGE> 76
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
As contemplated by these no-action letters and the Exchange Offer
Registration Rights Agreement, each holder accepting the Exchange Offer is
required to represent to the Company in the Letter of Transmittal that (i) the
Exchange Notes are to be acquired by the holder or the person receiving such
Exchange Notes, whether or not such person is the holder, in the ordinary course
of business, (ii) the holder or any such other person (other than a
broker-dealer referred to in the next sentence) is not engaging and does not
intend to engage, in the distribution of the Exchange Notes, (iii) the holder or
any such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the holder
nor any such other person is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act, and (v) the holder or any such other person
acknowledges that if such holder or other person participates in the Exchange
Offer for the purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those
no-action letters. As indicated above, each Participating Broker-Dealer that
receives Exchange Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. For a description of the procedures for such resales by
Participating Broker-Dealers, see "Plan of Distribution."
71
<PAGE> 77
DESCRIPTION OF THE NOTES
The Exchange Notes will be issued under an Indenture, dated as of August
18, 1998 (the "Indenture") by and among the Company, the Guarantors and State
Street Bank and Trust Company, as trustee (the "Trustee"). The terms of the
Exchange Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA") as in effect on the date of the Indenture. The Exchange Notes are subject
to all such terms, and holders of the Notes are referred to the Indenture and
the TIA for a statement of them. The following is a summary of the material
terms and provisions of the Exchange Notes. This summary does not purport to be
a complete description of the Exchange Notes and is subject to the detailed
provisions of, and qualified in its entirety by reference to, the Exchange Notes
and the Indenture (including the definitions contained therein). The form and
terms of the Exchange Notes are the same as the form and terms of the Old Notes
(which they replace) except that (i) the Exchange Notes have been registered
under the Securities Act and, therefore, will not bear legends restricting the
transfer thereof and (ii) the holders of Exchange Notes will not be entitled to
certain rights under the Exchange Offer Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Old Notes
in certain circumstances relating to the timing of the Exchange Offer, which
rights will terminate when the Exchange Offer is consummated. A copy of the form
of Indenture is filed as an exhibit to the Exchange Offer Registration Statement
of which this Prospectus forms a part. Definitions relating to certain
capitalized terms are set forth under "--Certain Definitions" and throughout
this description. Capitalized terms that are used but not otherwise defined
herein have the meanings ascribed to them in the Indenture. The Old Notes and
the Exchange Notes are sometimes referred to herein collectively as the "Notes."
For purposes of this "Description of the Notes," the term "Company" means
Aircraft Service International Group, Inc.
GENERAL
The Notes are limited in aggregate principal amount to $80,000,000. The
Notes are general unsecured obligations of the Company, pari passu in right of
payment to senior obligations of the Company and senior in right of payment to
any current or future subordinated obligations of the Company.
The Notes are fully and unconditionally guaranteed, on a senior unsecured
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by the Guarantors (together with each other Domestic Restricted
Subsidiary of the Company which guarantees payment of the Notes pursuant to the
covenant described under "--Certain Covenants--Limitation on Creation of Certain
Subsidiaries").
MATURITY, INTEREST AND PRINCIPAL
The Notes mature on August 15, 2005. The Notes will bear interest at a rate
of 11% per annum from the Issue Date until maturity. Interest is payable
semi-annually in arrears on each February 15 and August 15 commencing February
15, 1999, to holders of record of the Notes at the close of business on the
immediately preceding February 1 and August 1, respectively. The interest rate
on the Notes is subject to increase, and such Additional Interest will be
payable on the payment dates set forth above, in certain circumstances, if the
Notes (or other securities substantially similar to the Notes) are not
registered with the Commission within the prescribed time periods.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole at any
time or in part from time to time on or after August 15, 2003 at the following
redemption prices (expressed as percentages of the principal amount thereof),
together, in each case, with accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period beginning on August
15 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................ 105.500%
2004 and thereafter......................................... 100.000%
</TABLE>
72
<PAGE> 78
Notwithstanding the foregoing, the Company, at its option, may redeem in
the aggregate up to 33 1/3% of the original principal amount of Notes at any
time and from time to time prior to August 15, 2001 at a redemption price equal
to 111.000% of the aggregate principal amount so redeemed, together with accrued
and unpaid interest, if any, to the redemption date out of the Net Proceeds of
one or more Public Offerings; provided that at least $53.3 million of the
principal amount of Notes originally issued remain outstanding immediately after
the occurrence of any such redemption and that any such redemption occurs within
90 days following the closing of such Public Offering and provided, further,
that with respect to any Public Offering by Ranger, the net proceeds thereof are
contributed to the Company as common equity.
In the event of a redemption of fewer than all of the Notes, the Trustee
will select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed,
or if such Notes are not then listed on a national securities exchange, on a pro
rata basis, by lot or in such other manner as the Trustee will deem fair and
equitable. The Notes will be redeemable in whole or in part upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it will appear on the register maintained by the
Registrar of the Notes. On and after any redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption unless the Company
fails to redeem any such Note.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Group Member of
the Company to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness and including Disqualified Capital Stock); provided that
the Company may incur Indebtedness (including Acquired Indebtedness or
Disqualified Capital Stock), including Indebtedness that ranks pari passu with
the Notes or is subordinated to the Notes, if (a) after giving effect to the
incurrence of such Indebtedness and the receipt and application of the proceeds
thereof, the Company's Consolidated Fixed Charge Coverage Ratio is at least 2.0
to 1 if the Indebtedness is incurred prior to December 31, 1999 and 2.25 to 1 if
the Indebtedness is incurred thereafter and (b) no Default or Event of Default
will have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness.
Notwithstanding the foregoing, (a) the Company and its Restricted Group
Members may incur Permitted Indebtedness; (b) nothing in this covenant will
prohibit or restrict the ability of Ranger to incur Indebtedness directly except
to the extent such Indebtedness is guaranteed by the Company or any Restricted
Group Member; and (c) the issuance of Indebtedness representing only PIK
Interest will not constitute an incurrence of Indebtedness for purposes of this
covenant.
The Company will not, and will not permit any of its Restricted Group
Members to, incur any Indebtedness which by its terms (or by the terms of any
agreement governing such Indebtedness) is subordinated in right of payment to
any other Indebtedness of the Company or such Restricted Group Member unless
such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate in right of payment to
the Notes pursuant to subordination provisions that are substantively identical
to the subordination provisions of such Indebtedness (or such agreement) that
are most favorable to the holders of any other Indebtedness of the Company or
such Restricted Group Member, as the case may be.
Any Indebtedness of an Unrestricted Subsidiary or Permitted Joint Venture
that is not incurred by such Unrestricted Subsidiary or Permitted Joint Venture
on a basis that is entirely non-recourse to the Company and its Restricted Group
Members will, for purposes of this covenant and all determinations, hereunder
with respect to both the original incurrence of such Indebtedness and any
subsequent determinations, hereunder relating to any other Indebtedness, be
deemed Indebtedness of a Restricted Group Member to the extent of such recourse.
73
<PAGE> 79
Limitation on Preferred Stock of Restricted Group Members
The Company will not permit (a) any Restricted Subsidiary to issue any
Preferred Stock (other than to the Company or one or more of its Domestic
Wholly-Owned Subsidiaries) or permit any Person (other than the Company or one
or more of its Domestic Wholly-Owned Subsidiaries) to hold any such Preferred
Stock or (b) any Restricted Joint Venture to issue any Preferred Stock (other
than to the partners, owners or other equity holders in such Restricted Joint
Venture) or permit any Person (other than the partners, owners or other equity
holders in such Restricted Joint Venture) to hold any such Preferred Stock.
Limitation on Capital Stock of Restricted Group Members
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any of its Capital Stock of a Restricted Group Member (other than
under the Senior Credit Facility or one or more of the credit facilities
permitted to be secured pursuant to clause (xi) of the definition of "Permitted
Liens") or (ii) permit any of its Restricted Group Members to issue any Capital
Stock, other than to the Company or a Wholly-Owned Subsidiary of the Company or,
in the case of a Restricted Joint Venture, to its partners, owners or other
equity holders. The foregoing restrictions will not apply to (a) an Asset Sale
made in compliance with the "Limitation on Certain Asset Sales" covenant, (b)
the issuance to or ownership by directors of directors' qualifying shares or the
ownership by foreign nationals of Capital Stock of any Restricted Group Member
to the extent mandated by applicable law, (c) the issuance of Capital Stock of a
Subsidiary that becomes a Restricted Joint Venture or Permitted Joint Venture as
a result thereof, (d) the issuance of Preferred Stock in accordance with the
"Limitation on Preferred Stock of Restricted Group Members" covenant or (e) the
issuance of Capital Stock by a Restricted Joint Venture so long as the proceeds
thereof are either distributed proportionately to the other partners, owners or
other equity holders in such Restricted Joint Venture, used to repurchase the
entire equity interests of one or more other partners, owners or other equity
holders or applied in the manner described in clause (iii)(B) of the first
paragraph under the "Limitation on Certain Asset Sales" covenant.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Restricted Group
Members to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default will have occurred and be continuing
at the time of or immediately after giving effect to such Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the "Limitation on Additional Indebtedness"
covenant; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date does
not exceed the sum of (1) 50% of the cumulative Consolidated Net Income of the
Company subsequent to the Issue Date (or minus 100% of any cumulative deficit in
Consolidated Net Income during such period) plus (2) 100% of the aggregate Net
Proceeds and the fair market value of securities or other property received by
the Company from the issue or sale, after the Issue Date, of Capital Stock
(other than Disqualified Capital Stock or Capital Stock of the Company issued to
any Subsidiary of the Company or a Restricted Joint Venture) of the Company or
any Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified Capital
Stock) of the Company which has been so converted or exercised or exchanged, as
the case may be, plus (3) without duplication of any amounts included in clauses
(1) and (2) above, 100% of the aggregate net proceeds of any equity contribution
received by the Company from a holder of the Company's Capital Stock, excluding,
in the case of clauses (2) and (3) above, any Net Proceeds from a Public
Offering to the extent used to redeem the Notes plus (4) $2,500,000. For
purposes of determining under this clause (c) the amount expended for Restricted
Payments, cash distributed will be valued at the face amount thereof and
property other than cash will be valued at its fair market value determined, in
good faith, by the Board of Directors of the Company.
74
<PAGE> 80
The provisions of this covenant will not prohibit: (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of this
Agreement; (ii) the repurchase redemption or other acquisition or retirement of
any shares of Capital Stock of the Company or Indebtedness of the Company
subordinated to the Notes, by conversion into, or by or in exchange for, shares
of Capital Stock (other than Disqualified Capital Stock), or out of, the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company or a Restricted Joint Venture) of other shares of Capital Stock of the
Company (other than Disqualified Capital Stock); (iii) the redemption or
retirement of Indebtedness of the Company subordinated to the Notes in exchange
for, by conversion into, or out of the Net Proceeds of, a substantially
concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed
to a Subsidiary or a Restricted Joint Venture) of the Company that (A) is
contractually subordinated in right of payment to the Notes to at least the same
extent as the subordinated Indebtedness being redeemed or retired, (B) is
scheduled to mature either (I) no earlier than the Indebtedness being redeemed
or retired, or (II) after the maturity date of the Notes, (C) the portion, if
any, of which Indebtedness that is scheduled to mature on or prior to the
maturity date of the Notes has a weighted average life to maturity at the time
such Indebtedness is incurred that is equal to or greater than the weighted
average life to maturity of the portion of the Indebtedness being redeemed or
retired that is scheduled to mature on or prior to the maturity date of the
Notes, and (D) is in an aggregate principal amount that is equal to or less than
the sum of (x) the aggregate principal then outstanding under the Indebtedness
being redeemed or retired, (y) the amount of accrued and unpaid interest, if
any, and premiums owed, if any, not in excess of preexisting prepayment
provisions on such Indebtedness being redeemed or retired and (z) the amount of
customary fees, expenses and costs related to the incurrence of such
Indebtedness; (iv) the retirement of any shares of Disqualified Capital Stock of
the Company by conversion into, or by exchange for, shares of Disqualified
Capital Stock of the Company, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company or a Restricted Joint
Venture) of other shares of Disqualified Capital Stock of the Company that (A)
is subordinated to the Notes to at least the same extent as the Disqualified
Capital Stock being retired, (B) is scheduled to be mandatorily redeemed, if at
all, either (I) no earlier than the Disqualified Capital Stock being retired, or
(II) after the maturity date of the Notes, (C) the portion, if any, of which
Disqualified Capital Stock that is scheduled to be mandatorily redeemed on or
prior to the maturity date of the Notes has a weighted average life to mandatory
redemption at the time such Disqualified Capital Stock is issued that is equal
to or greater than the weighted average life to mandatory redemption of the
portion of the Disqualified Capital Stock being retired that is scheduled to be
mandatorily redeemed on or prior to the maturity date of the Notes, and has an
aggregate liquidation preference that is equal to or less than the sum of (a)
the aggregate liquidation preference then outstanding of the Disqualified
Capital Stock being retired, (b) the amount of accrued and unpaid dividends, if
any, and premiums owed, if any, not in excess of preexisting redemption
provisions on such Disqualified Capital Stock being retired and (c) the amount
of customary fees, expenses and costs related to the issuance of such
Disqualified Capital Stock; (v) payments to the Initial Purchaser, Tioga or
their respective Affiliates representing customary investment banking fees for
services rendered; (vi) payments to Hancock representing insurance premiums not
in excess of prevailing market rates; (vii) payments to Tioga of a chairman's
fee pursuant to the investment agreement in effect on the Issue Date; (viii) the
payment of distributions to Ranger solely for the purpose of enabling Ranger to
pay its reasonable, ordinary course operating and administrative expenses and
taxes, the amount of which in any fiscal year will not exceed $200,000; and (ix)
so long as no Default or Event of Default will have occurred and be continuing
at the time of or immediately after giving effect to such payment, the payment
of distributions to Ranger for the sole purpose of purchasing, redeeming or
otherwise acquiring for value shares of Capital Stock of Ranger (other than
Disqualified Capital Stock) or options on such shares held by Ranger's, the
Company's or its Subsidiaries' officers or employees or former officers or
employees (or their estates or beneficiaries under their estates) upon the
death, disability, retirement or termination of employment of such current or
former officers or employees pursuant to the terms of an employee benefit plan
or any other agreement pursuant to which such shares of Capital Stock or options
were issued or pursuant to a severance, buy-sell or right of first refusal
agreement with such current or former officer or employee; provided that the
aggregate cash consideration paid, or distributions or payments made, pursuant
to this clause (ix) will not exceed $250,000 in any fiscal year; provided,
further, that the Company may carry over and make for one fiscal year, in
addition to the
75
<PAGE> 81
amounts permitted for such fiscal year, the amount of such distributions
permitted to have been made, but not made, in the immediately preceding fiscal
year; provided, further, that such distributions in any fiscal year of the
Company will be deemed made first from the aforementioned permitted amount for
such fiscal year and then from any amount carried over into such fiscal year in
accordance with this proviso. Notwithstanding the foregoing, the amount of any
payments made in reliance on clauses (i) and (ix) above will reduce the amount
otherwise available for Restricted Payments pursuant to subparagraphs (a)-(c)
above.
Not later than the date of making any Restricted Payment, the Company will
deliver to the Purchaser on behalf of the Holders an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this covenant were computed, which
calculations may be based upon the Company's latest available financial
statements, and, to the extent that the absence of a Default or an Event of
Default is a condition to the making of such Restricted Payment, that no Default
or Event of Default exists and is continuing and no Default or Event of Default
will occur immediately after giving effect to any Restricted Payments.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted Group
Members to, consummate an Asset Sale unless (i) the Company or such Restricted
Group Member, as the case may be, receives consideration at the time of such
sale or other disposition at least equal to the fair market value thereof (as
determined in good faith by the Board of Directors of the Company, and evidenced
by a board resolution); (ii) not less than 75% of the consideration received by
the Company or its Subsidiaries, as the case may be, is in the form of cash or
Temporary Cash Investments; and (iii) the Asset Sale Proceeds received by the
Company or such Restricted Group Member are applied (A) first, to the extent the
assets that are the subject of such Asset Sale constitute collateral securing
only the Senior Credit Facility or Purchase Money Indebtedness and the Company
is required to prepay, repay or purchase debt or to reduce an unused commitment
to lend under the Senior Credit Facility or such Purchase Money Indebtedness, as
the case may be, within 180 days following the receipt of the Asset Sale
Proceeds from any Asset Sale, but only to the extent that any such repayment
will result in a permanent reduction of the commitments thereunder in an amount
equal to the principal amount so repaid; (B) second, to the extent the Company
elects, to an investment in assets used or useful in businesses similar or
ancillary to the business of the Company or such Restricted Group Member as
conducted at the time of such Asset Sale, provided that such investment occurs
on or prior to the 365th day following receipt of such Asset Sale Proceeds (the
"Reinvestment Date"); and (C) third, if, on the Reinvestment Date with respect
to any Asset Sale, the Available Asset Sale Proceeds exceed $5,000,000, the
Company will apply an amount equal to such Available Asset Sale Proceeds to an
offer to repurchase the Notes, at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (an "Excess Proceeds Offer").
If the Company is required to make an Excess Proceeds Offer, the Company
will mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date (the "Purchase Date"), which will be no earlier than 30 days
and not later than 60 days from the date such notice is mailed; (3) the
instructions, determined by the Company, that each Holder must follow in order
to have such Notes repurchased; and (4) the calculations used in determining the
amount of Available Asset Sale Proceeds to be applied to the repurchase of such
Notes. The Excess Proceeds Offer will remain open for a period of 20 business
days following its commencement (the "Offer Period"). The notice, which will
govern the terms of the Excess Proceeds Offer, will state:
(1) that the Excess Proceeds Offer is being made pursuant to this
covenant and the length of time the Excess Proceeds Offer will remain open;
(2) the purchase price and the Purchase Date;
(3) that any Note not tendered or accepted for payment will continue to
accrue interest;
76
<PAGE> 82
(4) that any Note accepted for payment pursuant to the Excess Proceeds
Offer will cease to accrue interest on and after the Purchase Date and the
payment of the purchase price to the Holder thereof;
(5) that Holders electing to have a Note purchased pursuant to any
Excess Proceeds Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Company, a depositary, if appointed by the Company, or a
paying agent at the address specified in the notice prior to the close of
business on the business day preceding the Purchase Date;
(6) that Holders will be entitled to withdraw their election if the
Company, depositary or paying agent, as the case may be, receives, not later
than the expiration of the Offer Period, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Note the
Holder delivered for purchase and a statement that such Holder is withdrawing
its election to have the Note purchased;
(7) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Available Asset Sale Proceeds the Company will select the
Notes to be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, will be purchased); and
(8) that Holders whose Notes were purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered.
On or before the Purchase Date, the Company will, to the extent lawful,
accept for payment, on a pro rata basis to the extent necessary, Notes or
portions thereof tendered pursuant to the Excess Proceeds Offer, and will
promptly (but in any case not later than five days after the Purchase Date) mail
or deliver to each tendering Holder an amount equal to the purchase price of the
Note tendered by such Holder and accepted by the Company for purchase, and the
Company will promptly issue a new Note and the Guarantors will endorse the
guarantee thereon and the Company will mail or make available for delivery such
new Note to such Holder equal in principal amount to any unpurchased portion of
the Note surrendered. Any Note not so accepted will be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Excess Proceeds Offer on the Purchase Date by
sending a press release to the Dow Jones News Service or similar business news
service in the United States. If an Excess Proceeds Offer is not fully
subscribed, the Company may retain that portion of the Available Asset Sale
Proceeds not required to repurchase Notes and use such portion for general
corporate purposes, and such retained portion will not be considered in the
calculation of "Available Asset Sale Proceeds" with respect to any subsequent
offer to purchase Notes.
In the event of the transfer of substantially all of the property and
assets of the Company and its Restricted Group Members as an entirety to a
Person in a transaction permitted by the provisions described under "Limitation
on Consolidation, Merger and Sale of Assets," the successor Person will be
deemed to have sold the properties and assets of the Company and its Restricted
Group Members not so transferred for purposes of this covenant and will comply
with the provision of this covenant with respect to such deemed sale as if it
were an Asset Sale.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted Group
Members to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate or holder of 10% or more of the Company's Common Stock (an "Affiliate
Transaction") or extend, renew, waive or otherwise modify the terms of any
Affiliate Transaction entered into prior to the date of the Indenture if such
extension, renewal, waiver or other modification is more disadvantageous to the
Holders in any material respect than the original agreement as in effect on the
date of the Indenture unless (i) such Affiliate Transaction is between or among
the Company and/or its Wholly-Owned Subsidiaries; or (ii) the terms of such
Affiliate Transaction are at least as favorable as the terms which could be
obtained by the Company or such Restricted Group Member, as the case may be, in
a comparable transaction made on an arm's-length basis between unaffiliated
parties. In any Affiliate Transaction involving an amount or having a value in
excess of $1,000,000 which is not permitted
77
<PAGE> 83
under clause (i) above, the Company must obtain a resolution of the Board of
Directors certifying that such Affiliate Transaction complies with clause (ii)
above. In any Affiliate Transaction with a value in excess of $5,000,000 which
is not permitted under clause (i) above the Company must obtain a written
opinion as to the fairness of such a transaction from an independent investment
banking firm.
The limitations set forth in this covenant will not apply to (i) any
Restricted Payment that is not prohibited by the "Limitation on Restricted
Payments" covenant, (ii) any transaction pursuant to an agreement, arrangement
or understanding existing on the date of the Indenture, (iii) any transaction,
approved by the Board of Directors of the Company, with an officer or director
of the Company or of any Subsidiary in his or her capacity as officer or
director entered into in the ordinary course of business or (iv) transactions
permitted by the provisions described under "Limitation on Consolidation, Merger
and Sale of Assets."
Limitations on Liens
The Company will not, and will not permit any of its Restricted Group
Members to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens) upon any property
or asset of the Company or any Restricted Group Member or any shares of stock or
debt of any Restricted Group Member which owns property or assets, now owned or
hereafter acquired, unless (i) if such Lien secures Indebtedness which is pari
passu with the Notes, then the Notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligation is no longer
secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien will be subordinated to the Lien
granted to the Holders of the Notes to the same extent as such subordinated
Indebtedness is subordinated to the Notes.
Limitations on Investments
The Company will not, and will not permit any of its Restricted Group
Members to, make any Investment other than (i) a Permitted Investment or (ii) an
Investment that is made as a Restricted Payment in compliance with the
"Limitation on Restricted Payments" covenant, after the Issue Date.
Limitation on Creation of Certain Subsidiaries
The Company will not create or acquire, nor permit any of its Restricted
Group Members to create or acquire, any Domestic Restricted Subsidiary unless
such Domestic Restricted Subsidiary has executed a guarantee in the form set
forth in the Indenture, pursuant to which such Domestic Restricted Subsidiary
will become a Guarantor. As of the Issue Date, the Company will have no Domestic
Restricted Subsidiaries, other than the Guarantors.
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any Restricted Group Member to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined, in good faith, by the Board of
Directors of the Company and evidenced by a board resolution, (ii) the Company
could incur the Attributable Indebtedness in respect of such Sale and Lease-Back
Transaction in compliance with the "Limitation on Additional Indebtedness"
covenant and (iii) such Sale and Lease-Back Transaction is permitted by, and the
proceeds thereof are applied in compliance with, the "Limitation on Certain
Asset Sales" covenant.
Payments for Consent
Neither the Company nor any of its Restricted Group Members will, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all Holders of the Notes which
78
<PAGE> 84
so consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
Conduct of Business
The Company and its Restricted Group Members will not engage in any
business other than the business of providing aviation services or aerospace
support.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Group Members
The Company will not, and will not permit any of its Restricted Group
Members to, directly or indirectly, create or otherwise cause or suffer to exist
or become effective any encumbrance or restriction on the ability of any
Restricted Group Member to (a)(i) pay dividends or make any other distributions
to the Company or any Restricted Group Member (A) on its Capital Stock or (B)
with respect to any other interest or participation in, or measured by, its
profits or (ii) repay any Indebtedness or any other obligation owed to the
Company or any Restricted Group Member, (b) make loans or advances or capital
contributions to the Company or any of its Restricted Group Members or (c)
transfer any of its properties or assets to the Company or any of its Restricted
Group Members, except for such encumbrances or restrictions existing under or by
reason of (i) encumbrances or restrictions existing on the date of the Indenture
to the extent and in the manner such encumbrances and restrictions are in effect
on the date hereof (including without limitation pursuant to the Senior Credit
Facility), (ii) the Indenture, the Notes and the Guarantees, (iii) applicable
law, (iv) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person
(including any Subsidiary of the Person), so acquired, (v) customary
non-assignment provisions in leases or other agreements entered in the ordinary
course of business and consistent with past practices, (vi) Refinancing
Indebtedness; provided that such payment restrictions are no more restrictive
than those contained in the agreements governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded, (vii) customary
restrictions in security agreements or mortgages securing Indebtedness of the
Company or a Restricted Group Member to the extent such restrictions restrict
the transfer of the property subject to such security agreements and mortgages
or (viii) customary restrictions with respect to a Restricted Group Member
pursuant to an agreement that has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of such Restricted
Group Member.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer to purchase (the "Change of Control Offer") each holder's
outstanding Notes at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the Change of Control Payment Date (as defined below) in accordance
with the procedures set forth below. There can be no assurance that the Company
will have the financial resources necessary to purchase the Notes upon a Change
of Control.
Within 30 days of the occurrence of a Change of Control, the Company will
(i) cause a notice of the Change of Control Offer to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to the Trustee and to each
holder of the Notes, at the address appearing in the register maintained by the
registrar of the Notes, a notice stating:
(1) that a Change of Control Offer is being made and that all Notes
validly tendered prior to the expiration date stated in such notice will be
accepted for payment;
(2) the purchase date, which shall be no earlier than 20 business
days from the date such notice is mailed (the "Change of Control Payment
Date"), and the purchase price, which shall be 101% of outstanding
principal together with accrued interest to the Change of Control Payment
Date;
79
<PAGE> 85
(3) that any Note not timely tendered in accordance with such notice
will remain outstanding and will continue to accrue interest;
(4) that any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date unless the Company shall default in the payment of the
repurchase price of the Notes;
(5) that if the Holders elect to have a Note purchased pursuant to
the Change of Control Offer they will be required to surrender the Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, to the Company prior to 5:00 p.m. New York time on
the Change of Control Payment Date;
(6) that the Holders will be entitled to withdraw their election if
the Company receives, not later than 5:00 p.m. New York time on the
business day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the principal amount
of Notes such Holders delivered for purchase, and a statement that such
Holders are withdrawing their election to have such Note purchased; and
(7) that if Notes are purchased only in part a new Note of the same
type will be issued in principal amount equal to the unpurchased portion of
the Notes surrendered.
On or before the Change of Control Payment Date, the Company will (x)
accept for payment Notes or portions thereof which are to be purchased in
accordance with the above, and (y) deposit at the payment office
established by the Company cash in U.S. dollars sufficient to pay the
purchase price of all Notes to be purchased.
The Indenture provides that (A) if the Company or any Restricted
Group Member thereof has issued any outstanding (1) Indebtedness that is
subordinated in right of payment to the Notes or (2) Preferred Stock, and
the Company or such Restricted Group Member is required to make a change of
control offer or to make a distribution with respect to such subordinated
Indebtedness or Preferred Stock in the event of a change of control, the
Company will not consummate any such offer or distribution with respect to
such subordinated indebtedness or Preferred Stock until such time as the
Company has paid the Change of Control Purchase Price in full to the
holders of Notes that have accepted the Company's Change of Control Offer
and shall otherwise have consummated the Change of Control Offer made to
Holders of the Notes and (B) the Company will not issue Indebtedness that
is subordinated in right of payment to the Notes or Preferred Stock with
change of control provisions requiring the payment of such indebtedness or
Preferred Stock prior to the payment of the Notes in the event of a Change
of Control.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
purchase of Notes pursuant to an offer hereunder. To the extent the
provisions of any securities laws or regulations conflict with the
provisions under this Section, the Company will comply with the applicable
securities laws and regulations and shall not be deemed to have breached
their obligations under this Section by virtue thereof.
LIMITATION ON CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not, nor will it permit any Guarantor to, consolidate
with, merge with or into, or transfer all or substantially all of its assets (as
an entirety or substantially as an entirety in one transaction or a series of
related transactions) to, any Person unless: (i) the Company or such Guarantor,
as the case may be, will be the continuing Person, or the Person (if other than
the Company or such Guarantor) formed by such consolidation or into which the
Company or such Guarantor, as the case may be, is merged or to which the
properties and assets of the Company or such Guarantor, as the case may be, are
transferred will be a corporation (or in the case of such Guarantor, a
corporation, partnership, limited partnership or limited liability company)
organized and existing under the laws of the United States or any State thereof
or the District of Columbia and will expressly assume in writing all of the
obligations of the Company or such Guarantor, as the
80
<PAGE> 86
case may be, under the Notes and the Indenture, and the obligations under the
Indenture will remain in full force and effect; (ii) immediately before and
immediately after giving effect to such transaction, no Default or Event of
Default will have occurred and be continuing; (iii) immediately after giving
effect to such transaction or series of transactions on a pro forma basis the
Consolidated Net Worth of the Company or the surviving entity as the case may be
is at least equal to the Consolidated Net Worth of the Company immediately
before such transaction or series of transactions; and (iv) immediately after
giving effect to such transaction on a pro forma basis the Company or such
Person could incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Additional Indebtedness"
covenant.
In connection with any consolidation, merger or transfer of assets
contemplated by this covenant, the Company will deliver, or cause to be
delivered, to the Holders, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this covenant and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
GUARANTEES
The Notes are jointly and severally and fully and unconditionally
guaranteed on a senior unsecured basis by the Guarantors.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
will be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor will be released from all of its obligations under its
Guarantee if all of its assets or Capital Stock is sold, in each case in a
transaction in compliance with the "Limitation on Certain Asset Sales" covenant,
or the Guarantor merges with or into or consolidates with, or transfers all or
substantially all of its assets in compliance with the "Merger, Consolidation or
Sale of Assets" covenant, and such Guarantor has delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent herein provided for relating to such transaction have been
complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default:"
(1) there is a default in the payment of any principal of, or
premium, if any, on the Notes when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise;
(2) there is a default in the payment of any interest on any Note
when the same becomes due and payable and the Default continues for a
period of 30 days;
(3) there is a default in the observance or performance of the
covenants set forth in the "Change of Control Offer" covenant, the
"Limitation on Additional Indebtedness" covenant, the "Limitation on
Restricted Payments" covenant or the "Limitation on Certain Asset Sales"
covenant;
(4) the Company or any Guarantor defaults in the observance or
performance of any other covenant in the Notes or the Indenture for 60 days
after written notice from the Holders of not less than 25% in the aggregate
principal amount of the Notes then outstanding;
(5) there is a default in the payment at final maturity of principal
in an aggregate amount of $5,000,000 or more with respect to any
Indebtedness of either the Company or any Restricted Group Member, or there
is an acceleration of any such Indebtedness in the aggregate amount of
$5,000,000 or more which default shall not be cured, waived or postponed
pursuant to an agreement with the holders of
81
<PAGE> 87
such Indebtedness within 30 days after written notice by any Holder, or
which acceleration shall not be rescinded or annulled within 10 days after
written notice to the Company of such Default by any Holder;
(6) the entry of a final judgment or judgments which can no longer be
appealed for the payment of money in excess of $5,000,000 against either
the Company or any Restricted Group Member and such judgment remains
undischarged, for a period of 60 consecutive days during which a stay of
enforcement of such judgment shall not be in effect;
(7) certain events of bankruptcy affecting the Company or any of its
Restricted Group Members;
or
(8) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void and unenforceable or
any of the Guarantees is found to be invalid or any of the Guarantors
denies in writing its liability under its Guarantee (other than by reason
of release of a Guarantor in accordance with the terms of the Indenture).
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) will have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration and the same will become immediately due and payable (plus, in the
event of any such declaration following a Default resulting from a willful
action of the Company with the intent to avoid the payment of any premium on the
Notes, which declaration occurs (a) before the fifth anniversary of the Issue
Date, a premium (expressed as a percentage of principal amount) equal to the
interest rate per annum then being paid on the Notes, or (b) on or after the
fifth anniversary of the Issue Date, a premium (expressed as a percentage of
principal amount) equal to the then applicable redemption premium); provided,
however, that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may rescind and annul such acceleration if
(i) all Events of Default, other than nonpayment of principal, premium, if any,
or interest that has become due solely because of the acceleration, have been
cured or waived as provided in the Indenture, (ii) to the extent the payment of
such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iii) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (iv) in the event of the cure or waiver of an
Event of Default of the type described in clause (7) of the above Events of
Default, the Trustee will have received an officers' certificate and an opinion
of counsel that such Event of Default has been cured or waived. No such
rescission will affect any subsequent Default or impair any right consequent
thereto. In case an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization will occur, the principal, premium and
interest amount with respect to all of the Notes will be due and payable
immediately without any declaration or other act on the part of the Trustee or
the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
will have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations provided for in the Indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder will
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes will have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee, and unless the
Trustee will not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and will have
82
<PAGE> 88
failed to institute such proceeding within 60 days. Notwithstanding the
foregoing, such limitations do not apply to a suit instituted on such Note on or
after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Company may elect either (a) to defease and
be discharged from any and all of its and any Guarantor's obligations with
respect to the Notes (except for the obligations to register the transfer or
exchange of such Notes, to replace temporary or mutilated, destroyed, lost or
stolen Notes, to maintain an office or agency in respect of the Notes and to
hold monies for payment in trust) ("defeasance") or (b) to be released from its
obligations with respect to the Notes under certain covenants contained in the
Indenture ("covenant defeasance") upon the deposit with the Trustee (or other
qualifying trustee), in trust for such purpose, of money and/or non-callable
U.S. government obligations which through the payment of principal and interest
in accordance with their terms will provide money, in an amount sufficient to
pay the principal of, premium, if any, and interest on the Notes, on the
scheduled due dates therefor or on a selected date of redemption in accordance
with the terms of the Indenture. Such a trust may only be established if, among
other things, (i) the Company has delivered to the Trustee an opinion of counsel
(as specified in the Indenture) (A) to the effect that neither the trust nor the
Trustee will be required to register as an investment company under the
Investment Company Act of 1940, as amended, and (B) describing either a private
ruling concerning the Notes or a published ruling of the Internal Revenue
Service, to the effect that holders of the Notes or persons in their positions
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred, (ii) no Default or Event of Default will have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy, insolvency or reorganization events are concerned, at any time in
the period ending on the 91st day after the date of deposit; (iii) such
defeasance or covenant defeasance will not result in a breach or violation of,
or constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any or its Subsidiaries is bound; (iv) the Company will
have delivered to the Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring the holders of the
Notes over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
(v) the Company will have delivered to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that all conditions precedent provided for
or relating to the defeasance or the covenant defeasance have been complied
with; (vi) the Company will have delivered to the Trustee an opinion of counsel
to the effect that (A) the trust funds will not be subject to any rights of
holders of Senior Indebtedness, including, without limitation, those arising
under the Indenture and (B) after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (vii) certain other customary conditions precedent are satisfied.
MODIFICATION OF INDENTURE
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend or supplement the Indenture for
certain specified purposes, including providing for uncertificated Notes in
addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not, in the opinion of the
Trustee, materially and adversely affect the rights of any holder. The Indenture
contains provisions permitting the Company, the Guarantors and the Trustee, with
the consent of holders of at least a majority in principal amount of the
outstanding Notes, to modify or supplement the Indenture, except that no such
modification will, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture, (ii) reduce the rate of or change the
time for payment of interest, including defaulted interest, on any Note, (iii)
reduce the principal of or premium on or change the stated maturity of any Note
or change the date on which any Notes may be subject to redemption or repurchase
or reduce the redemption or repurchase price therefor, (iv) make any Note
payable in money other than that stated in the Note or change the place of
payment from New York, New York, (v) waive a default on the payment of the
principal of,
83
<PAGE> 89
interest on, or redemption payment with respect to any Note, (vi) make any
change in provisions of the Indenture protecting the right of each holder of
Notes to receive payment of principal of and interest on such Note on or after
the due date thereof or to bring suit to enforce such payment, or permitting
holders of a majority in principal amount of Notes to waive Defaults or Events
of Default; (vii) amend, change or modify in any material respect the obligation
of the Company to make and consummate a Change of Control Offer in the event of
a Change of Control or make and consummate an Asset Sale Offer with respect to
any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto; (viii) modify or change any provision of the
Indenture or the related definitions affecting the ranking of the Notes or any
Guarantee in a manner which adversely affects the holders of Notes; or (ix)
release any Guarantor from any of its obligations under its Guarantee or the
Indenture otherwise than in accordance with the terms of the Indenture.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, it will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 90 days after the end
of the Company's fiscal year and on or before 45 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default, its status and the intended method of cure, if any.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The holders of a majority in principal amount of the then
outstanding Notes have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain limitations provided for in the Indenture and under the TIA.
During the existence of an Event of Default, the Trustee will exercise such
rights and powers vested in it under the Indenture and use the same degree of
care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs. The Trustee is under
no obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder has offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.
The Notes will be issued in a transaction exempt from registration under
the Act and will be subject to the restrictions on transfer described in "Notice
to Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
84
<PAGE> 90
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary or Permitted Joint Venture) existing at the time such
Person becomes a Restricted Group Member or assumed in connection with the
acquisition of assets from such Person.
"Acquisition" means the transactions described in the Acquisition
Agreement.
"Acquisition Agreement" means the Share Purchase Agreement between Viad
Corp. and Viad Service Companies Limited, as sellers, and Ranger, as buyer,
dated as of March 14, 1998, and the schedules thereto, as amended by Amendment
No. 1 thereto, dated as of April 2, 1998 between Viad Corp. and Viad Service
Companies Limited, as sellers, and Ranger, as buyer, and the Company and ASIG
Europe Limited, as assignees.
"Adjusted Net Assets" of a Guarantor at any date will mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee, of such Guarantor at such date
and (y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities and after giving effect to any collection from any
Subsidiary of such Guarantor in respect of the obligations of such Guarantor
under the Guarantee), excluding Indebtedness in respect of the Guarantee, as
they become absolute and matured.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"ASIG entities" means the "ASIG entities" as defined in the Acquisition
Agreement.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Group Member in any other Person pursuant to which such Person will
become a Restricted Group Member, or will be merged with or into the Company or
any Restricted Group Member or (b) the acquisition by the Company or any
Restricted Group Member of the assets of any Person (other than a Restricted
Group Member) which constitute all or substantially all of the assets of such
Person or comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means the sale, transfer or other disposition (including any
Sale and Lease-Back Transaction), other than to the Company or any of its
Wholly-Owned Subsidiaries, in any single transaction or series of related
transactions having a fair market value in excess of $200,000 of (a) any Capital
Stock of or other equity interest in any Restricted Group Member, or (b) any
other property or assets of the Company or of any Restricted Group Member
thereof (other than sales of inventory in the ordinary course of business);
provided that Asset Sales will not include (i) sales, leases, conveyances,
transfers or other dispositions to the Company or to a Wholly-Owned Subsidiary
or to any other Person if after giving effect to such sale, lease, conveyance,
transfer or other disposition such other Person becomes a Wholly-Owned
Subsidiary; (ii) the contribution or other transfer of any assets or property to
a joint venture, partnership or other Person (which may be a Subsidiary) in
which the Company has a direct or indirect interest to the extent such
contribution or other transfer constitutes a Permitted Investment (other than by
operation of clause (iv) of the definition thereof); or (iii) the sale, transfer
or other disposition of all or substantially all of the assets of the Company or
85
<PAGE> 91
any Guarantor as permitted under the provisions described under "Limitation on
Consolidation, Merger and Sale of Assets."
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Group Member from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income, transfer, value added or other taxes measured by or
resulting from such Asset Sale, (b) payment of all brokerage commissions,
underwriting and other fees and expenses related to such Asset Sale, (c)
provision for minority interest holders in any majority-owned Restricted Group
Member as a result of such Asset Sale and (d) deduction of appropriate amounts
to be provided by the Company or a Restricted Group Member as a reserve, in
accordance with GAAP, against any liabilities associated with the assets sold or
disposed of in such Asset Sale and retained by the Company or a Restricted Group
Member after such Asset Sale, including, without limitation, severance, health
care, pension and other post-employment benefit liabilities and liabilities
related to environmental matters or against any indemnification obligations
associated with the assets sold or disposed of in such Asset Sale, and (ii)
promissory notes and other non-cash consideration received by the Company or any
Restricted Group Member from such Asset Sale or other disposition upon the
liquidation or conversion of such notes or non-cash consideration into cash.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of (i) the fair value of the
property subject to such arrangement (as determined by the Board of Directors)
and (ii) the present value of the total obligations (discounted at a rate of
10%, compounded annually) of the lessee for rental payments during the remaining
term of the lease included in such Sale and Lease-Back Transaction (including
any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clause (iii)(A) or (iii)(B) of the first paragraph under the
"Limitation on Certain Asset Sales" covenant and that have not been the basis
for an Excess Proceeds Offer in accordance with clause (iii)(C) of the first
paragraph under the "Limitation on Certain Asset Sales" covenant.
"Board of Directors" means (i) in the case of a Person that is a
corporation, the board of directors of such Person or any committee authorized
to act therefor, (ii) in the case of a Person that is a limited partnership, the
board of directors of its corporate general partner or any committee authorized
to act therefor (or, if the general partner is itself a limited partnership, the
board of directors of such general partner's corporate general partner or any
committee authorized to act therefor) and (iii) in the case of any other Person,
the board of directors, management committee or similar governing body or any
authorized committee thereof responsible for the management of the business and
affairs of such Person.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated and whether or not voting) of capital
stock, partnership interests or any other participation, right or other interest
in the nature of an equity interest in such Person or any option, warrant or
other security convertible into or exercisable for any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
will be the capitalized amount of such obligations determined in accordance with
GAAP.
"Change of Control" means, at any time after the Issue Date, the occurrence
of one or more of the following events: (i) any Person (including a Person's
Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner (as defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of 50% or more of the total
voting or economic power of the Common Stock of the Company or Ranger, (ii) any
Person (including a Person's Affiliates and associates), other than a Permitted
Holder, becomes the beneficial owner of more than 33 1/3% of the total voting
power of the Common Stock of the Company or Ranger, and the Permitted Holders
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Common Stock of the Company or Ranger, as the case may be, than
such other Person and do not have the right or ability by voting power, contract
or otherwise to
86
<PAGE> 92
elect or designate for election a majority of the Board of Directors of the
Company, (iii) there will be consummated any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation or
pursuant to which the Common Stock of the Company would be converted into cash,
securities or other property, other than a merger or consolidation of the
Company in which the holders of the Common Stock of the Company outstanding
immediately prior to the consolidation or merger hold, directly or indirectly,
at least a majority of the Common Stock of the surviving corporation immediately
after such consolidation or merger, or (iv) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company or Ranger (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
shareholders of the Company or Ranger, as the case may be, has been approved by
a majority of the directors then still in office who either were directors at
the beginning of such period or whose election or recommendation for election
was previously so approved) cease to constitute a majority of the Board of
Directors of the Company or Ranger, as the case may be. For purposes of this
definition, "voting power" will be deemed to include the potential for voting
power upon conversion of outstanding non-voting securities into voting
securities.
"CIBC Ventures" means CIBC Wood Gundy Ventures, Inc.
"Commodity Hedge Agreement" will mean any option, hedge or other similar
agreement or arrangement designed to protect against fluctuations in commodity
or materials prices.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of EBITDA of such Person during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for
the Four Quarter Period. In addition to and without limitation of the foregoing,
for purposes of this definition, "EBITDA" and "Consolidated Fixed Charges" will
be calculated after giving effect on a pro forma basis for the period of such
calculation to (i) the incurrence or repayment of any Indebtedness of such
Person or any of its Restricted Group Members (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period, (ii) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Group Members
(including any Person who becomes a Restricted Group Member as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any EBITDA (provided that such EBITDA will be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income") attributable to the assets which are the subject of
the Asset Acquisition during the Four Quarter Period) occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four Quarter
Period and on or prior to the Transaction Date, as if such Asset Sale or Asset
Acquisition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter Period and
(iii) net cost savings calculated on a basis consistent with Regulation S-X
under the Securities Act (provided that both (A) such cost savings were
identified and quantified in an Officers' Certificate delivered to the Trustee
at the time of the consummation of the Asset Sale or Asset Acquisition and (B)
with respect to each Asset Sale or Asset Acquisition completed prior to the 90th
day preceding such Transaction Date, actions were commenced or initiated by the
Company within 90 days of such Asset Sale or Asset Acquisition to effect such
cost savings identified in such Officers' Certificate). If such Person or any of
its Restricted Group Members directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence will give effect to the incurrence of such
guaranteed Indebtedness as if such
87
<PAGE> 93
Person or any Restricted Group Member of such Person had directly incurred or
otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter will be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding
clause (1) above, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by one or more Interest Rate Agreements,
will be deemed to accrue at the rate per annum resulting after giving effect to
the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person, for any
period, the sum of (i) Consolidated Interest Expense, plus (ii) without
duplication, the product of (x) the amount of all dividend payments on any
series of Preferred Stock of such Person or any Restricted Group Member,
determined on a consolidated basis (other than dividends paid in Capital Stock
(other than Disqualified Capital Stock) of such Person or any of its
Wholly-Owned Subsidiaries) paid, accrued or scheduled to be paid or accrued
during such period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP (without
taking into account interest incurred by Unrestricted Subsidiaries or Permitted
Joint Ventures), would be set forth opposite the caption "interest expense" or
any like caption on an income statement for such Person and its Restricted Group
Members on a consolidated basis (including, but not limited to, (i) imputed
interest included in Capitalized Lease Obligations, (ii) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (iii) the net costs associated with hedging
obligations, (iv) amortization of deferred financing costs, (v) the interest
portion of any deferred payment obligation, (vi) amortization of discount or
premium, if any, and (vii) all other non-cash interest expense (including PIK
Interest) (other than interest amortized to cost of sales)) plus, without
duplication, all net capitalized interest for such period and all interest paid
under any guarantee of Indebtedness (including a guarantee of principal,
interest or any combination thereof) of any Person, plus the amount of all
dividends or distributions paid on Disqualified Capital Stock (other than
dividends paid or payable in shares of Capital Stock of the Company), less the
amortization of deferred financing costs, and excluding, however, any amount of
such interest of any Restricted Group Member if the net income of such
Restricted Group Member is excluded in the calculation of Consolidated Net
Income pursuant to clause (a) or (f) of the definition thereof (but only in the
same proportion as the net income of such Restricted Group Member is excluded
from the calculation of Consolidated Net Income pursuant to clause (a) or (f) of
the definition thereof).
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the Net Income of such Person and its Restricted Group
Members for such period, on a consolidated basis, determined in accordance with
GAAP; provided, however, that (a) the Net Income of (i) any Person (the "other
Person") in which the Person in question or any of its Restricted Group Members
has less than a 100% interest (which interest does not cause the Net Income of
such other Person to be consolidated into the net income of the Person in
question in accordance with GAAP), (ii) any Unrestricted Subsidiary or (iii) any
Permitted Joint Venture will be included only to the extent of the amount of
dividends or distributions paid to the Person in question or the Restricted
Group Member, (b) the Net Income of any Restricted Group Member of the Person in
question that is subject to any restriction or limitation (including without
limitation as a result of the failure of such dividend or distribution to be
irrevocably authorized by other members of a Restricted Joint Venture, where
such other members' authorization is necessary for such dividend or distribution
or such other members otherwise have the ability to restrict or limit such
dividend or distribution) on the payment of dividends or the making of other
distributions (other than pursuant to the Notes, the Indenture or the Senior
Credit Facility) will be excluded to the extent of such restriction or
limitation, (c) (i) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition and
(ii) any net gain or loss resulting from an Asset Sale by the Person in question
or any of its Restricted Group Members other than in the ordinary course of
business will be excluded,
88
<PAGE> 94
(d) extraordinary gains and losses will be excluded, (e) without duplication,
the write-off of fees and expenses arising from the Acquisition will be
excluded, (f) income or loss attributable to discontinued operations (including
without limitation operations disposed of during such period whether or not such
operations were classified as discontinued) will be excluded in an amount not to
exceed $2,000,000 for any four quarter period, (g) to the extent not otherwise
excluded in accordance with GAAP, the Net Income of any Restricted Group Member
in an amount that corresponds to the percentage ownership interest in the income
of such Restricted Group Member not owned on the last day of such period,
directly or indirectly, by such Person will be excluded, (h) dividends or
distributions from Permitted Joint Ventures or Restricted Joint Ventures will in
any event be excluded to the extent used to increase the amount available for
Investment under clause (xii) of the definition of "Permitted Investments" in
accordance with the terms thereof and (i) dividends, distributions and any other
payments constituting return on capital from Investments will in any event be
excluded to the extent used to increase the amount available for Investment
under clause (xiii) of the definition of "Permitted Investments" in accordance
with the terms thereof.
"Consolidated Net Worth" means, with respect to any Person at any date, the
consolidated stockholder's equity of such Person less the amount of such
stockholder's equity attributable to Disqualified Capital Stock of such Person
and its Subsidiaries, as determined in accordance with GAAP.
"Default" means any condition or event that is, or with the passing of time
or giving of any notice expressly required under the Indenture (or both) would
be, an Event of Default.
"Disqualified Capital Stock" means any Capital Stock of a Person which, by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable at the option of the holder), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the maturity date of the Notes, for cash or
securities constituting Indebtedness. Without limitation of the foregoing,
Disqualified Capital Stock will be deemed to include any Preferred Stock of the
Company, with respect to which, under the terms of such Preferred Stock, by
agreement or otherwise, the Company is obligated to pay current dividends or
distributions in cash during the period prior to the maturity date of the Notes;
provided, however, that Preferred Stock of the Company that is issued with the
benefit of provisions requiring a change of control offer to be made for such
Preferred Stock in the event of a change of control of the Company, which
provisions have substantially the same effect as the provisions described under
"Change of Control Offer," will not be deemed to be Disqualified Capital Stock
solely by virtue of such provisions.
"Domestic" with respect to any Person means a Person whose jurisdiction of
incorporation or formation is the United States, any state thereof or the
District of Columbia.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have not been excluded in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items (excluding any such
non-cash item to the extent that it represents an accrual of or reserve for a
cash expense in any future period or amortization of a prepaid cash expense that
was paid in a prior period) reducing Consolidated Net Income for such period,
minus (b) all such non-cash items increasing Consolidated Net Income for such
period, all for such Person and its Subsidiaries determined in accordance with
GAAP, except that with respect to the Company each of the foregoing items will
be determined on a consolidated basis with respect to the Company and its
Restricted Group Members only; provided, however, that, for purposes of
calculating EBITDA during any fiscal quarter, cash income from a particular
Investment (other than in a Subsidiary which under GAAP is consolidated or a
Restricted Joint Venture) of such Person will be included only (x) to the extent
cash income has been received by such Person with respect to such Investment, or
(y) if the cash income derived from such Investment is attributable to Temporary
Cash Investments.
89
<PAGE> 95
"Eligible Receivables" means "Eligible Account Receivable" as that term is
defined in the Senior Credit Facility.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"Guarantee" means, as the context may require, individually, a guarantee,
or collectively, any and all guarantees, of the Obligations of the Company with
respect to the Notes by each Guarantor, if any, pursuant to the terms of the
Indenture.
"Guarantor" means each Domestic Restricted Subsidiary of the Company on the
date of the Indenture or that thereafter becomes a Guarantor pursuant to the
Indenture, and "Guarantors" means such entities, collectively.
"Hancock" means John Hancock Mutual Life Insurance Company.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person (and
"incurrence," "incurred," "incurrable" and "incurring" will have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness will
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables in the ordinary course of business, any obligations to
other members of a "consortium" or similar group of aircraft service providers
arising from the fact that such Person holds cash and manages aircraft fuel
inventories on behalf of such other consortium members in the ordinary course of
business, and other accrued liabilities arising in the ordinary course of
business) if and to the extent any of the foregoing indebtedness would appear as
a liability upon a balance sheet of such Person prepared in accordance with
GAAP, and will also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the
property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby will have been assumed (provided,
however, that if such obligation or obligations will not have been assumed, the
amount of such Indebtedness will be deemed to be the lesser of the principal
amount of the obligation or the fair market value of the pledged property or
assets), (iii) guarantees of items of other Persons which would be included
within this definition for such other Persons (whether or not such items would
appear upon the balance sheet of the guarantor), (iv) all obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (provided that in the case of any such letters of
credit, the items for which such letters of credit provide credit support are
those of other Persons which would be included within this definition for such
other Persons), (v) Disqualified Capital Stock of such Person or any Restricted
Group Member thereof, and (vi) obligations of any such Person under any Interest
Rate Agreement applicable to any of the foregoing (if and to the extent such
Interest Rate Agreement obligations would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP). The amount of
Indebtedness of any Person at any date will be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (i) that the amount
outstanding at any time of any Indebtedness issued with original issue
90
<PAGE> 96
discount is the principal amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP and (ii) that Indebtedness will not
include any liability for United States or foreign, federal, state, local or
other taxes. Notwithstanding any other provision of the foregoing definition,
any trade payable arising from the purchase of goods or materials or for
services obtained in the ordinary course of business will not be deemed to be
"Indebtedness" of the Company or any Restricted Group Member for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount will not also be included.
"Individual Investors" means the Danielle Schwartz Trust, Randolph Street
Partners II, Gregg L. Engles and Stephen D. Townes.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Interest Rate Agreement" will mean any interest or foreign currency rate
swap, cap, collar, option, hedge, forward rate or other similar agreement or
arrangement designed to protect against fluctuations in interest rates or
currency exchange rates.
"Inventory" means "Inventory" as that term is defined in the Senior Credit
Facility.
"Investments" means, directly or indirectly, any advance, account
receivable (other than an account receivable arising in the ordinary course of
business or acquired as part of the assets acquired by the Company or any
Restricted Group Member in connection with an acquisition of assets which is
otherwise permitted by the terms of the Indenture), loan or capital contribution
to (by means of transfers of property to others, payments for property or
services for the account or use of others or otherwise), the purchase of any
stock, bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments will exclude (i) extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices and (ii) the
repurchase of securities of any Person by such Person. For the purposes of the
"Limitation on Restricted Payments" covenant, "Investment" will include the fair
market value of the net assets of any Restricted Group Member (in the case of
any Restricted Joint Venture, to the extent of the Company's or its Restricted
Subsidiary's direct or indirect ownership interest in such net assets) at the
time that such Restricted Group Member is designated an Unrestricted Subsidiary
or Permitted Joint Venture and will exclude the fair market value of the net
assets of any Unrestricted Subsidiary or Permitted Joint Venture at the time
that such Unrestricted Subsidiary or Permitted Joint Venture is designated a
Restricted Group Member. If the Company or any Restricted Group Member of the
Company sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary of the Company such that, after giving effect to
any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company will be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Common Stock
of such Restricted Subsidiary not sold or disposed of.
"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including,
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by or
equity contribution to any Person, the aggregate net proceeds received by such
Person, after payment of expenses, commissions and the
91
<PAGE> 97
like incurred in connection therewith, whether such proceeds are in cash or in
property (valued at the fair market value thereof, as determined in good faith
by the Board of Directors of such Person, at the time of receipt) and (b) in the
case of any exchange, exercise, conversion or surrender of outstanding
securities of any kind for or into shares of Capital Stock of such Person which
is not Disqualified Capital Stock, the net book value of such outstanding
securities on the date of such exchange, exercise, conversion or surrender (plus
any additional amount required to be paid by the holder to such Person upon such
exchange, exercise, conversion or surrender, less any and all payments made to
the holders, e.g., on account of fractional shares and less all expenses
incurred by such Person in connection therewith).
"Obligations" means, with respect to any Indebtedness, any principal,
premium, interest, penalties, fees, indemnifications, reimbursements, damages
and other expenses payable under the documentation governing such Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that will comply
with applicable provisions of the Indenture.
"Permitted Holders" means, collectively, (i) the Company and Ranger, (ii)
Hancock, Tioga, CIBC Ventures, and any Affiliate of the foregoing (other than
any of their portfolio companies) and (iii) the Individual Investors, each of
the spouses, children (adoptive or biological) or other lineal descendants of
the Individual Investors, the probate estate of any such individual and any
trust, so long as one or more of the foregoing individuals retain substantially
all of the controlling or beneficial interest thereunder.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Guarantor arising under or
in connection with the Senior Credit Facility in an amount not to exceed
the greater of (A) $15,000,000 less the aggregate amount of all mandatory
prepayments actually made thereunder to the extent that the corresponding
commitments have been permanently reduced and all scheduled payments
actually made thereunder, or (B) the aggregate of 85% of Eligible
Receivables and 60% of eligible Inventory;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness of non-Domestic Wholly-Owned Subsidiaries and
Restricted Joint Ventures outstanding under one or more working capital
facilities not to exceed the aggregate of 85% of eligible accounts
receivable and 60% of eligible inventory of each such non-Domestic
Wholly-Owned Subsidiary or Restricted Joint Venture;
(iv) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
(v) Indebtedness of the Company to any Wholly-Owned Subsidiary of
the Company and Indebtedness of any Wholly-Owned Subsidiary of the Company
to the Company or another Wholly-Owned Subsidiary of the Company; provided
that (A) if the Company or any Guarantor is the obligor on such
Indebtedness, such Indebtedness is unsecured and expressly subordinated to
the payment in full in cash to all obligations in respect of the Notes and
the Guarantee of such Guarantor and (B)(I) any subsequent issuance or
transfer of equity interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly-Owned Subsidiary of the
Company and (II) any sale or transfer of any such Indebtedness to a Person
other than the Company or a Wholly-Owned Subsidiary of the Company will be
deemed to constitute an incurrence of Indebtedness by the Company or such
Restricted Group Member not permitted by this clause (v);
(vi) Interest Rate Agreements;
(vii) Refinancing Indebtedness;
(viii) Indebtedness under Commodity Hedge Agreements entered into in
the ordinary course of business consistent with reasonable business
requirements and not for speculation;
92
<PAGE> 98
(ix) Indebtedness consisting of guarantees made in the ordinary
course of business by the Company or its Subsidiaries of obligations of the
Company or any of its Wholly-Owned Subsidiaries, which obligations are
otherwise permitted under the Indenture;
(x) contingent obligations of the Company or its Subsidiaries in
respect of customary indemnification and purchase price adjustment
obligations incurred in connection with an Asset Sale; provided that the
maximum assumable liability in respect of all such obligations will at no
time exceed the gross proceeds actually received by the Company and its
Subsidiaries in connection with such Asset Sale;
(xi) Purchase Money Indebtedness and Capitalized Lease Obligations of
the Company and its Subsidiaries incurred to acquire property in the
ordinary course of business and any refinancings, renewals or replacements
of any such Purchase Money Indebtedness or Capitalized Lease Obligation
(subject to the limitations on the principal amount thereof set forth in
this clause (xi)), the principal amount of which Purchase Money
Indebtedness and Capitalized Lease Obligations will not in the aggregate at
any one time outstanding exceed $2,500,000; and
(xii) additional Indebtedness of the Company or any Guarantor (other
than Indebtedness specified in clauses (i) through (xi) above) not to
exceed $5,000,000 in the aggregate at any one time outstanding.
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary
thereof, in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company, (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof or (c) such business or assets are owned by
the Company or a Restricted Subsidiary;
(iv) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to either or both of the Company or a Restricted
Subsidiary solely as partial consideration for the consummation of an Asset
Sale that is otherwise permitted by the "Limitation on Certain Asset Sales"
covenant;
(v) Investments consisting of (a) purchases and acquisitions of
inventory, supplies, materials and equipment, or (b) licenses or leases of
intellectual property and other assets in each case in the ordinary course
of business;
(vi) Investments consisting of (a) loans and advances to employees
for reasonable travel, relocation and business expenses in the ordinary
course of business and loans to directors or employees of Ranger, the
Company or its Subsidiaries for the sole purpose of purchasing equity of
Ranger, the principal amount of which loans and advances permitted by this
clause (vi)(a) will not exceed $1,500,000 in the aggregate at any one time
outstanding (excluding any such loans or advances outstanding on the date
of the Indenture), (b) extensions of trade credit in the ordinary course of
business, and (c) prepaid expenses incurred in the ordinary course of
business;
(vii) without duplication, Investments consisting of Indebtedness
permitted pursuant to clause (v) of the definition of "Permitted
Indebtedness;"
(viii) Investments existing on the date of the Indenture;
(ix) Investments of the Company under Interest Rate Agreements;
93
<PAGE> 99
(x) Investments under Commodity Hedge Agreements entered into in the
ordinary course of business consistent with reasonable business
requirements and not for speculation;
(xi) Investments consisting of endorsements for collection or deposit
in the ordinary course of business;
(xii) Investments in Permitted Joint Ventures and Restricted Joint
Ventures, or in a Person which as a result of such Investment becomes a
Permitted Joint Venture or Restricted Joint Venture; provided that (A) at
the time such Investment is made, no Default or Event of Default will have
occurred and be continuing (or would result therefrom); and (B) after
giving effect to such Investment, the aggregate Investment made by the
Company and its Restricted Group Members in Permitted Joint Ventures and
Restricted Joint Ventures does not exceed 5% of the Company's consolidated
assets (other than goodwill and other intangibles); provided, further, that
the amount available for Investments to be made pursuant to this clause
(xii) will be increased from time to time to the extent any return on
capital is received by the Company or a Wholly-Owned Subsidiary on an
Investment made in reliance on this clause (xii), in each case, up to, but
not exceeding, the amount of the original Investment but only to the extent
such return on capital is excluded from Consolidated Net Income;
(xiii)Investments consisting of stock, obligations or securities
received as part of or in connection with the bankruptcy, winding up,
liquidation or reorganization of a Person that is or was a customer of the
Company or any of its Subsidiaries, unless such stock, obligations or
securities are received in consideration for an Investment made in such
Person in connection with or anticipation of such bankruptcy, winding up or
liquidation;
(xiv)Investments, to the extent that the consideration provided by
the Company or any Restricted Group Member consists solely of Capital Stock
(other than Disqualified Capital Stock) of the Company; and
(xv) Investments (other than Investments specified in clauses (i)
through (xiv) above) in an aggregate amount, as valued at the time each
such Investment is made, not exceeding $1,000,000 for all such Investments
from and after the date of the Indenture; provided that the amount
available for Investments to be made pursuant to this clause (xv) will be
increased from time to time to the extent any return on capital is received
by the Company or a Wholly-Owned Subsidiary on an Investment made in
reliance on this clause (xv), in each case, up to, but not exceeding, the
amount of the original Investment but only to the extent such return on
capital is excluded from Consolidated Net Income.
"Permitted Joint Venture" means any joint venture arrangement (which may be
structured as a corporation, partnership, trust, limited liability company or
any other Person) if (a) no Affiliate (other than a Restricted Subsidiary of the
Company) of the Company or a Restricted Subsidiary has an Investment in such
Person, (b) such Person is engaged in the business of providing aviation
services or aerospace support, (c) the Company, directly or through its
Restricted Subsidiaries, at all times owns at least 25% of the total outstanding
shares of Capital Stock of such Person entitled to participate in distributions
in respect of the earnings, sale or liquidation of such Person, (d) the Company,
directly or through its Restricted Subsidiaries, is entitled to (A) in the case
of an Investment in Capital Stock, receive dividends or other distributions on
its Investment at the same time as or prior to, and on a basis at least pro rata
with, any other holder or holders of Capital Stock of such Person and (B) in the
case of an Investment other than in Capital Stock, receive interest thereon at a
rate per annum not less than the rate on the Notes and, on the liquidation or
dissolution of such Person, receive repayment of the principal thereof prior to
the payment of any dividends or distributions on Capital Stock of such Person,
(e) the Company, directly or through its Restricted Subsidiaries, either (x)
controls, under an operating and management agreement or otherwise, the
day-to-day management and operation of such Person and any facility of the
Person in which the Investment is made or (y) has significant influence over the
management and operation of such Person and any facility of such Person in all
material respects (significant influence to include the right to control or veto
any material act or decision) in connection with such management or operation,
and (f) no default with respect to any Indebtedness of such Person or any
Subsidiary of such Person (including any right which the holders thereof may
have to take enforcement action against such Person) would permit (upon notice,
lapse of time or both) any holder of any
94
<PAGE> 100
material Indebtedness of the Company or its Restricted Subsidiaries to declare a
default on such Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity. If, at any time, a Permitted
Joint Venture fails to comply with clauses (a) through (f) above, such Permitted
Joint Venture will constitute an Investment and must comply with the "Limitation
on Restricted Payments" covenant (but only with respect to the Company's then
net Investment in such Permitted Joint Venture).
"Permitted Liens" means (i) Liens on property or assets of, or any shares
of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; provided that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Company or any of its Restricted Group Members, (iv) Liens
securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness and Capitalized Lease Obligations that are permitted under the
definition of "Permitted Indebtedness" in an aggregate amount at any one time
outstanding not to exceed 5% of the Company's consolidated assets (other than
goodwill and other intangibles); provided that (a) with respect to any Purchase
Money Indebtedness, any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the cost
(including sales and excise taxes, installation and delivery charges and other
direct costs of, and other direct expenses paid or charged in connection with,
such purchase or construction) of such Property, (b) with respect to any
Purchase Money Indebtedness, the principal amount of the Indebtedness secured by
such Lien does not exceed 100% of such costs, and (c) such Lien does not extend
to or cover any Property other than the item of Property that is the subject of
such Purchase Money Indebtedness or Capitalized Lease Obligation, as the case
may be, and any improvements on such item, (vi) statutory liens or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which do not secure
any Indebtedness and with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as will be required in conformity with GAAP will
have been made therefor, (vii) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings,
(viii) Liens on Collateral (as defined in the Senior Credit Facility as in
effect on the Issue Date) securing Permitted Indebtedness under the Senior
Credit Facility, (ix) Liens on accounts receivable and inventory of non-Domestic
Wholly-Owned Subsidiaries or Restricted Joint Ventures securing Permitted
Indebtedness under the working capital facilities described in clause (iii) of
the definition of "Permitted Indebtedness," (x) Liens securing Indebtedness of
the Company or any Guarantor incurred in reliance upon clause (xii) of the
definition of "Permitted Indebtedness"; (xi) Liens (other than Liens specified
in clauses (viii) through (x) above) securing Indebtedness of the company or any
Guarantor in an aggregate amount not to exceed $15,000,000 at any one time
outstanding incurred pursuant to a credit facility otherwise permitted by the
terms of the Indenture; (xii) Liens existing on the date of the Indenture,
(xiii) any extensions, substitutions, replacements or renewals of the foregoing,
(xiv) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or other forms of government
insurance or benefits, or to secure the performance of letters of credit, bids,
tenders, statutory obligations, surety and appeal bonds, leases, government
contracts and other similar obligations (other than obligations for borrowed
money) entered into in the ordinary course of business, (xv) any attachment or
judgment Lien not constituting an Event of Default under the Indenture that is
being contested in good faith by appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP (if so required), (xvi)
Liens arising from the filing, for notice purposes only, of financing statements
in respect of operating leases, (xvii) Liens arising by operation of law in
favor of depositary banks and collecting banks, incurred in the ordinary course
of business, (xviii) Liens consisting of restrictions on the transfer of
securities pursuant to applicable federal and state securities laws, (xix)
interests of lessors and licensors under leases and licenses to which the
Company or any of its Restricted Group Members is a party, (xx) with respect to
any real property occupied by the Company or any of its Restricted Group
Members, all easements, rights of way, licenses and similar encumbrances on or
defects of title that do not materially impair the use of such property for its
intended
95
<PAGE> 101
purposes, and (xxi) Liens securing Indebtedness or other obligations in an
aggregate amount not to exceed $250,000 at any one time outstanding.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government (including any agency or political subdivision
thereof).
"PIK Interest" means, with respect to any Indebtedness, any interest
thereon paid or payable in the form of additional Indebtedness.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Public Offering" means an underwritten public offering and sale by the
Company or Ranger of shares of its common stock (however designated and whether
voting or non-voting) and any and all rights, warrants or options to acquire
such common stock pursuant to a registration statement registered pursuant to
the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness incurred by a Person
to finance (within 90 days from incurrence) the cost (including the cost of
construction) of an item of Property acquired in the ordinary course of
business, the principal amount of which Indebtedness does not exceed the sum of
(i) 100% of such cost and (ii) reasonable fees and expenses of such Person
incurred in connection therewith.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
Company of such Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company outstanding on the Issue Date or other
Indebtedness permitted to be incurred by the Company or its Restricted Group
Members pursuant to the terms of the Indenture, but only to the extent that (i)
the Refinancing Indebtedness is subordinated to the Notes to at least the same
extent as the Indebtedness being refunded, refinanced or extended, if at all,
(ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier
than the Indebtedness being refunded, refinanced or extended, or (b) after the
maturity date of the Notes, (iii) the portion, if any, of the Refinancing
Indebtedness that is scheduled to mature on or prior to the maturity date of the
Notes has a weighted average life to maturity at the time such Refinancing
Indebtedness is incurred that is equal to or greater than the weighted average
life to maturity of the portion of the Indebtedness being refunded, refinanced
or extended that is scheduled to mature on or prior to the maturity date of the
Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of (a) the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended, (b)
the amount of accrued and unpaid interest, if any, and premiums owed, if any,
not in excess of preexisting prepayment provisions on such Indebtedness being
refunded, refinanced or extended and (c) the amount of customary fees, expenses
and costs related to the incurrence of such Refinancing Indebtedness, and (v)
such Refinancing Indebtedness is incurred by the same Person that initially
incurred the Indebtedness being refunded, refinanced or extended.
"Restricted Group Members" means, collectively, each Restricted Subsidiary
of the Company, each Restricted Joint Venture and each Restricted Subsidiary of
a Restricted Joint Venture.
"Restricted Joint Venture" means a Permitted Joint Venture that has been
designated by the Board of Directors of the Company as a Restricted Joint
Venture based on its good faith determination, evidenced by a board resolution,
that the Company has, directly or indirectly, the requisite control over such
Permitted Joint Venture to prevent it from incurring Indebtedness, or taking any
other action at any time, in contravention of
96
<PAGE> 102
any of the provisions of the Indenture that are applicable to Restricted Joint
Ventures; provided that, immediately after giving effect to such designation,
(i) the Indebtedness and Liens of such Permitted Joint Venture outstanding
immediately after such designation would, if incurred at such time, have been
permitted to be incurred for all purposes of the Indenture; and (ii) no Default
or Event of Default will have occurred and be continuing. The Company will
deliver an Officers' Certificate to the Holders upon designating any Permitted
Joint Venture as a Restricted Joint Venture. As of the Issue Date, Omni Aircraft
will not be a Restricted Joint Venture.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Group Member or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Restricted Group Member (other than (x) dividends or distributions
payable solely in Capital Stock (other than Disqualified Capital Stock) or in
options, warrants or other rights to purchase Capital Stock (other than
Disqualified Capital Stock), and (y) in the case of Restricted Group Members,
dividends or distributions payable to the Company or to a Wholly-Owned
Subsidiary of the Company), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Company or any of its
Restricted Group Members (other than Capital Stock owned by the Company or a
Wholly-Owned Subsidiary of the Company, excluding Disqualified Capital Stock) or
any option, warrants or other rights to purchase such Capital Stock, (iii) the
making of any principal payment on, or the purchase, defeasance, repurchase,
redemption or other acquisition or retirement for value, prior to any scheduled
maturity, scheduled repayment or scheduled sinking fund payment, of any
Indebtedness which is subordinated in right of payment to the Notes other than
subordinated Indebtedness acquired in anticipation of satisfying a scheduled
sinking fund obligation, principal installment or final maturity (in each case
within one year of the date of acquisition), (iv) the making of any Investment
or guarantee of any Investment in any Person other than a Permitted Investment,
(v) any designation of a Restricted Group Member as an Unrestricted Subsidiary
or a Permitted Joint Venture on the basis of the Investment by the Company
therein and (vi) forgiveness of any Indebtedness of an Affiliate of the Company
(other than a Restricted Group Member) to the Company or a Restricted Group
Member (other than the cancellation of loans to directors or employees of
Ranger, the Company or its Subsidiaries made in accordance with clause (vi) of
the definition of "Permitted Investments" in connection with the return to
Ranger of the equity of Ranger originally purchased by such director as employee
with the proceeds of such loan). For purposes of determining the amount expended
for Restricted Payments, cash distributed or invested will be valued at the face
amount thereof and property other than cash will be valued at its fair market
value determined in good faith by the Company's Board of Directors.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing in the date of the Indenture. The Board of Directors of the Company may
designate any Unrestricted Subsidiary or any Person that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), (i) the Company could have incurred at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant and (ii) no Default or Event of
Default will have occurred and be continuing. The Company will deliver an
Officers' Certificate to the Holders upon designating any Unrestricted
Subsidiary as a Restricted Subsidiary.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Group Member of any
real or tangible personal Property, which Property has been or is to be sold or
transferred by the Company or such Restricted Group Member to such Person in
contemplation of such leasing.
"S&P" means Standard & Poor's Corporation and its successors.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means the Credit and Security Agreement dated as
of April 2, 1998 between the Company and Key Corporate Capital Inc., together
with the documents related thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
97
<PAGE> 103
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder or adding Subsidiaries
as additional borrowers or guarantors thereunder (provided that such increase in
borrowings or adding Subsidiaries of the Company as additional borrowers or
guarantors is permitted by the "Limitation on Additional Indebtedness"
covenant)) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
first-named Person or any of its Subsidiaries; or (ii) in the case of a
partnership, limited liability company, joint venture, association or other
business entity, with respect to which such first-named Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise or if in accordance with
GAAP such entity is consolidated with the first-named Person for financial
statement purposes.
"Temporary Cash Investments" means (i) Investments in marketable direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit and
eurodollar time deposits issued by a bank organized under the laws of the United
States of America, any state thereof (or the District of Columbia) or any
foreign country recognized by the United States, in each case having capital,
surplus and undivided profits at the time of investment totaling more than
$500,000,000 (or the foreign currency equivalent thereof) and rated at the time
of investment at least A by S&P and A-2 by Moody's (or similar equivalent
foreign ratings), maturing within 365 days of purchase; (iii) Investments not
exceeding 365 days in duration in money market funds that invest substantially
all of such funds' assets in the Investments described in the preceding clauses
(i) and (ii); (iv) Investments in commercial paper with a maturity of 180 days
or less issued by a corporation (except an Affiliate of the Company) organized
under the laws of any state of the United States (or the District of Columbia)
or any foreign country recognized by the United States and at the time of
investment rated at least A-1 by S&P or at least P-1 by Moody's (or similar
equivalent foreign ratings) and (v) Investments in repurchase obligations with a
term of not more than 30 days for underlying securities of the types described
in clause (i) above entered into with a bank meeting the qualifications
described in clause (ii) above.
"Tioga" means Tioga Capital Corporation.
"Tioga Letter" means the letter from Tioga to the Company regarding payment
of advisory fees, dated April 2, 1998.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the "Limitation on Restricted Payments"
covenant. The Purchaser will be given prompt notice by the Company of each
resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"U.S. Government Obligations" means (a) securities that are direct
obligations of the United States of America for the payment of which its full
faith and credit are pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and will also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt;
98
<PAGE> 104
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation or a specific payment of principal or interest on any such
U.S. Government Obligation held by such custodian for the account of the holder
of such depository receipt.
"Wholly-Owned Subsidiary" of a specified Person means any Subsidiary (or,
if such specified Person is the Company, a Restricted Subsidiary), all of the
outstanding voting securities (other than, in respect of non-Domestic
Subsidiaries, directors' qualifying shares or immaterial amounts of shares held
by foreign nationals to the extent mandated by or advantageous under applicable
law) of which are owned, directly or indirectly, by such Person.
BOOK ENTRY; DELIVERY AND FORM
The New Notes will be represented by one or more permanent global notes in
definitive, fully registered form without interest coupons (the "Global Notes"),
and will be deposited with the Trustee as custodian for, and registered in the
name of a nominee of, DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold interest
through participants. Ownership of beneficial interests in a Global Note will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants), qualified institutional buyers may hold their
interests in a Global Note directly through DTC if they are participants in such
system, or indirectly through organizations which are participants in such
system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by such Global Notes for all
purposes under the Indenture and the New Notes. No beneficial owner of an
interest in a Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between the participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of New Notes only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of New Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the New Notes, DTC will exchange the applicable
Global Note for certificated notes, which it will distribute to its
participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of
99
<PAGE> 105
the Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of DTC, it
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discounted at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of its obligations under the rules and
procedures governing its operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue certificated notes, pursuant to the
Indenture.
100
<PAGE> 106
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material U.S. federal income
tax aspects of the acquisition, ownership and disposition of the Notes. This
discussion is a summary for general information purposes only and does not
consider all aspects of U.S. federal income taxation that may be relevant to the
acquisition, ownership and disposition of the Notes by a prospective investor in
light of such investor's personal circumstances. This discussion also does not
address the U.S. federal income tax consequences of the acquisition, ownership
and disposition of Notes not held as capital assets within the meaning of
Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"),
or the U.S. federal income tax consequences to investors subject to special
treatment under the U.S. federal income tax laws, such as dealers in securities
or foreign currency, tax-exempt entities, financial institutions, insurance
companies, persons that hold the Notes as part of a "straddle," "hedge,"
"conversion transaction" or other integrated investment, persons that have a
"functional currency" other than the U.S. dollar, and investors in pass-through
entities. In addition, this discussion does not describe any U.S. federal
alternative minimum tax consequences, and does not describe any tax consequences
arising under U.S. federal gift and estate or other federal tax laws (except to
the limited extent set forth below under "Non-U.S. Holders") or under the tax
laws of any state, local or foreign jurisdiction.
This discussion is based upon the Code, existing regulations thereunder
(the "Treasury Regulations"), and current administrative rulings and court
decisions. All of the foregoing is subject to change, possibly on a retroactive
basis, and any such change could affect the continuing validity of this
discussion.
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not be treated as an "exchange" for federal income tax purposes because the
Exchange Notes will not be considered to differ materially in kind or extent
from the Old Notes. Rather, the Exchange Notes received by a holder will be
treated as a continuation of the Old Notes in the hands of such holder. As a
result, there will be no federal income tax consequences to holders exchanging
Old Notes for Exchange Notes pursuant to the Exchange Offer.
PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME, ESTATE AND OTHER TAX
LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO
THEIR PARTICULAR SITUATIONS.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is (i) a citizen or resident
(as defined in Section 7701(b)(1) of the Code) of the United States, (ii) a
corporation organized under the laws of the United States or any political
subdivision thereof or therein, (iii) an estate, the income of which is subject
to U.S. federal income tax regardless of the source, or (iv) a trust, if a court
within the United States is able to exercise primary supervision over the
trust's administration and one or more United States persons have the authority
to control all its substantial decisions (a "U.S. Holder"). Certain U.S. federal
income tax consequences relevant to a holder other than a U.S. Holder are
discussed separately below.
STATED INTEREST
Interest on a Note will generally be taxable to a U.S. Holder as ordinary
interest income at the time it is received or accrued in accordance with such
Holder's method of accounting for U.S. federal income tax purposes.
In the event of a Change of Control, each holder of a Note will have the
right to require the Company to purchase such Note at a price equal to 101% of
the principal amount thereof. The Treasury Regulations provide that such right
will not affect the yield or maturity date of the Note unless, based on all the
facts and circumstances as of the issue date, it is more likely than not that a
Change of Control giving rise to the redemption right will occur. The Company
has no present intention of treating the redemption provisions of the Notes as
affecting the computation of the yield to maturity of the Notes.
101
<PAGE> 107
The Company may redeem the Notes at any time on or after August 15, 2003,
and in certain circumstances, may redeem a portion of the Notes at any time
prior to August 15, 2001. Under the Treasury Regulations, the Company is deemed
to exercise any option to redeem if the exercise of such option would lower the
yield of the debt instrument. The Company will not be treated as having
exercised an option to redeem under these rules.
MARKET DISCOUNT
If a U.S. Holder acquires a Note at a "market discount," some or all of any
gain recognized upon a sale or other disposition of such Note, or upon receipt
of principal payments at or prior to maturity, may be treated as ordinary
income, as described below. For this purpose, "market discount" is the excess
(if any) of the "stated redemption price at maturity" over the purchase price,
subject to a statutory de minimis exception, and the "stated redemption price at
maturity" is the aggregate of all payments due to the U.S. Holder under such
Note at or before its maturity date, other than "qualified stated interest."
"Qualified stated interest" is generally interest that is actually and
unconditionally payable in cash or property (other than debt instruments of the
issuer) at fixed intervals of one year or less during the entire term of the
Note at certain specified rates. Unless a U.S. Holder has elected to include the
market discount in income as it accrues, any gain recognized on any subsequent
disposition of such Note (other than in connection with certain nonrecognition
transactions), or on receipt of any principal payments with respect to such Note
at or prior to maturity will be treated as ordinary income to the extent of the
market discount that is treated as having accrued during the period such U.S.
Holder held such Note.
The amount of market discount treated as having accrued will be determined
either (i) on a straight-line basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the Note was held by the
U.S. Holder and the denominator of which is the total number of days after the
date such U.S. Holder acquired such Note up to and including the date of its
maturity or (ii) if the U.S. Holder so elects, on a constant interest rate
method. A U.S. Holder may make that election with respect to any Note, but, once
made, such election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary income to the
extent of accrued market discount at the time of disposition, a U.S. Holder of a
Note acquired at a market discount may elect to include market discount in
income currently, through the use of either the straight-line method or the
elective constant interest method. Once made, the election to include market
discount in income currently will apply to all Notes and other obligations held
by the U.S. Holder that are purchased at a market discount during the taxable
year for which the election is made, and all subsequent taxable years of the
U.S. Holder, unless the Internal Revenue Service (the "IRS") consents to a
revocation of the election. If an election is made to include market discount in
income currently, the basis of the Note in the hands of the U.S. Holder will be
increased by the market discount thereon as it is included in income.
Unless a U.S. Holder who acquires a Note at a market discount elects to
include market discount in income currently, such U.S. Holder may be required to
defer deductions for any interest paid on indebtedness allocable to such Notes
in an amount not exceeding the deferred market discount income until such income
is recognized.
BOND PREMIUM
If a U.S. Holder purchases a Note and immediately after the purchase the
adjusted basis of such Note exceeds the sum of all amounts payable on the
instrument after the purchase date (other than qualified stated interest), the
Note has "bond premium." A U.S. Holder may elect to amortize such bond premium
over the remaining term of such Note (or if it results in a smaller amount of
amortizable bond premium, until an earlier call date).
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an interest payment date
or at the stated maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the Note's yield to maturity. If such
an election to amortize bond premium is not made, a U.S. Holder must include the
full amount of each interest
102
<PAGE> 108
payment in income in accordance with its regular method of accounting and will
receive a tax benefit from the premium only in computing such U.S. Holder's gain
or loss upon the sale or other disposition or payment of the principal amount of
the Note.
An election to amortize premium will apply to amortizable bond premium on
all Notes and other bonds, the interest on which is includible in the U.S.
Holder's gross income, held at the beginning of the U.S. Holder's first taxable
year to which the election applies or that are thereafter acquired, and such
election may be revoked only with the consent of the IRS.
SALE, EXCHANGE OR REDEMPTION OF THE NOTES
Upon the disposition of a Note by sale, exchange, redemption or otherwise,
a U.S. Holder will generally recognize gain or loss equal to the difference
between (i) the amount realized on the disposition (other than amounts
attributable to accrued and unpaid interest, which will be taxable as ordinary
income) and (ii) the U.S. Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note generally will equal the cost of the Note
to the U.S. Holder increased by amounts includible in income as market discount
(if the U.S. Holder elects to include market discount on a current basis) and
reduced by any bond premium amortized by the U.S. Holder.
Provided the Note is held as a capital asset, such gain or loss (except to
the extent that the market discount rules otherwise provide) will generally
constitute capital gain or loss and, in the case of individuals, will be
long-term capital gain (subject to a maximum rate of 20%) or loss if the U.S.
Holder has held such Note for more than 18 months and will be mid-term capital
gain (subject to a maximum rate of 28%) or loss if the U.S. Holder has held such
Note for more than one year but not more than 18 months. The deductibility of
capital losses by U.S. Holders is subject to limitation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder may be subject, under certain circumstances,
to information reporting and or backup withholding at a 31% rate with respect to
cash payments in respect of interest on, or the gross proceeds from disposition
of, a Note. This withholding applies only if a U.S. Holder (i) fails to furnish
its taxpayer identification number ("TIN") within a reasonable time after a
request therefor, (ii) furnishes an incorrect TIN, (iii) fails to report
interest or dividends properly, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that it is not subject to backup withholding.
Any amount withheld from a payment to a U.S. Holder under the backup withholding
rules is allowable as a credit (and may entitle such holder to a refund) against
such holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS. Certain persons are exempt from backup
withholding, including corporations and financial institutions. Holders of Notes
should consult their tax advisors as to their qualification for exemption from
withholding and the procedure for obtaining such exemption.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income and estate
tax consequences relevant to a holder of a Note that is not a U.S. Holder (a
"Non-U.S. Holder").
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of a Note will be considered "U.S. trade or
business income" if such income or gain is (i) effectively connected with the
conduct of a trade or business within the U.S. and (ii) in the case of an
applicable income tax treaty between the U.S. and the country of which the
Non-U.S. Holder is a qualified resident, attributable to a permanent
establishment (or to a fixed base) in the United States.
STATED INTEREST
Generally, any interest paid to a Non-U.S. Holder of a Note that is not
U.S. trade or business income will not be subject to U.S. federal income tax if
the interest qualities as "portfolio interest." Interest on the Notes
103
<PAGE> 109
will qualify as portfolio interest if: (i) the Non-U.S. Holder does not actually
or constructively own 10% or more of the total voting power of all classes of
stock of the Company and is not a "controlled foreign corporation" with respect
to which the Company is a "related person" within the meaning of Section
864(d)(4) of the Code; (ii) the Non-U.S. Holder is not a bank for purposes of
Section 881(c)(3)(A) of the Code that is being paid such interest pursuant to an
extension of credit made pursuant to a loan agreement entered into in the
ordinary course of its trade or business; and (iii) the Non-U.S. Holder
satisfies the requirements of Sections 871(h) or 881(c) of the Code, as set
forth below under "Owner Statement Requirement."
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. withholding tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed at regular U.S. federal income tax rates
rather than the 30% gross withholding rate and, if the Non-U.S. Holder is a
foreign corporation, may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable treaty. To claim the
benefit of a tax treaty or to claim exemption from withholding because the
income is U.S. trade or business income, the Non-U.S. Holder must provide a
properly executed Form 1001 or 4224 (or such successor forms as the IRS
designates), as applicable, prior to payment of interest. These forms must be
periodically updated. Under regulations effective as of January 1, 2000, Forms
1001 and 4224 will be replaced by Form W-8. Also under regulations effective as
of January 1, 2000, a Non-U.S. Holder who is claiming the benefits of a tax
treaty may be required to obtain a U.S. taxpayer identification number and to
provide certain documentary evidence issued by foreign governmental authorities
to prove residence in the foreign country. Certain special procedures are
provided in the proposed regulations for payments through qualified
intermediaries.
SALE, EXCHANGE OR REDEMPTION OF NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a Note generally will not be subject to U.S. federal income tax,
unless (i) such gain is U.S. trade or business income or (ii) subject to certain
exceptions, the Non-U.S. Holder is an individual who holds the Note as a capital
asset and is present in the United States for 183 days or more during the
taxable year of the disposition.
FEDERAL ESTATE TAX
Notes held (or treated as held) by an individual who is a Non-U.S. Holder
at the time of his or her death will not be subject to U.S. federal estate tax,
provided that any interest on the Notes would have qualified as portfolio
interest if received by such individual at the time of his or her death.
OWNER STATEMENT REQUIREMENT
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a Note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution") and that holds a Note on behalf of such
owner files a statement with the Company or its agent to the effect that the
beneficial owner is not a U.S. Holder in order to avoid withholding of U.S.
federal income tax. Under current regulations, this requirement will be
satisfied if the Company or its agent receives (i) a statement (an "Owner
Statement") from the beneficial owner of a Note in which such owner certifies,
under penalties of perjury, that such owner is not a United States person and
provides such owner's name and address, or (ii) a statement from the Financial
Institution holding the Note on behalf of the beneficial owner in which the
Financial Institution certifies, under penalties of perjury, that it has
received the Owner Statement together with a copy of the Owner Statement. The
beneficial owner must inform the Company or its agent (or, in the case of a
statement described in clause (ii) of the immediately preceding sentence, the
Financial Institution) within 30 days of any change in information on the Owner
Statement. The Internal Revenue Service has amended the transition period
relating to recently issued Treasury Regulations governing backup withholding
and information reporting requirements. Withholding
104
<PAGE> 110
certificates or statements that are valid on December 31, 1999, may be treated
as valid until the earlier of its expiration or December 31, 2000. All existing
certificates or statements will cease to be effective after December 31, 2000.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest paid on the Notes. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. Holder resides.
The regulations provide that backup withholding and information reporting
will not apply to payments of principal on the Notes by the Company to a
Non-U.S. Holder if the holder certifies as to its non-U.S. status under
penalties of perjury or otherwise establishes an exemption (provided that
neither the Company nor its paying agent has actual knowledge that the holder is
a U.S. Holder or that the conditions of any other exemption are not, in fact,
satisfied).
The payment of the proceeds from the disposition of Notes by or through the
United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
as to its non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. Holder or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a Note
by or through a non-U.S. office of a U.S. broker that is not a "U.S. related
person" will not be subject to information reporting or backup withholding. (For
this purpose, a "U.S. related person" is (i) a "controlled foreign corporation"
for U.S. federal income tax purposes or (ii) a foreign person 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment (or for such part of the period
that the broker has been in existence) is derived from activities that are
effectively connected with the conduct of a U.S. trade or business).
In the case of the payment of proceeds from the disposition of Notes by or
through a non-U.S. office of a broker that is either a U.S. person or a U.S.
related person, the regulations require information reporting on the payment
unless the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that the
payee is a U.S. Holder).
Regulations effective as of January 1, 2000 provide similar rules but, in
the case of payment of proceeds inside the United States, may require an
additional certification that the beneficial owner has not and does not expect
to be present in the United States for a period of 183 days or more during the
year. Each Non-U.S. Holder should consult such holder's own tax advisor to
determine the applicability of these regulations to its particular situation.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
105
<PAGE> 111
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale (provided that the
Company receives notice from any Participating Broker-Dealer of its status as a
Participating Broker-Dealer within 30 days after the consummation of the
Exchange Offer). In addition, until , 1999 (90 days after the
commencement of the Exchange Offer), all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
Exchange Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that has
provided the Company with notice of its status as a Participating Broker-Dealer
within 30 days after the consummation of the Exchange Offer.
106
<PAGE> 112
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
will be passed upon for the Company by Kirkland & Ellis, Chicago, Illinois (a
partnership which includes professional corporations). Certain partners of
Kirkland & Ellis are also partners of Randolph Street Partners II, a partnership
that invested $1.25 million in the Equity Investment to acquire 750 shares of
Preferred Stock and 5,000 shares of Class A Voting Common Stock in the
Acquisition.
EXPERTS
The combined financial statements of Aircraft Service International Group
as of December 31, 1996 and 1997 and for the three years in the period ended
December 31, 1997 appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent certified public accountants, as
set forth in their report appearing herein, which is based in part on the report
of Deloitte & Touche, independent auditors. The balance sheet of Aircraft
Service International Group, Inc. as of March 31, 1998 appearing in this
Prospectus and Registration Statement has been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing herein. The
financial statements referred to above are included herein in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
107
<PAGE> 113
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Unaudited Financial Statements
Consolidated Interim Balance Sheet........................ F-2
Interim Statements of Operations.......................... F-3
Interim Statements of Cash Flows.......................... F-4
Notes to Interim Financial Statements..................... F-5
AIRCRAFT SERVICE INTERNATIONAL GROUP (PREDECESSOR)
Report of Independent Certified Public Accountants........ F-14
Report of Independent Auditors............................ F-15
Audited Financial Statements
Combined Balance Sheets................................... F-16
Combined Statements of Income............................. F-17
Combined Statements of Changes in Combined Equity......... F-18
Combined Statements of Cash Flows......................... F-19
Notes to Combined Financial Statements.................... F-20
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
Audited Financial Statements
Report of Independent Auditors............................ F-42
Balance Sheet............................................. F-43
Note to Balance Sheet..................................... F-44
</TABLE>
F-1
<PAGE> 114
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
CONSOLIDATED INTERIM BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(SUCCESSOR)
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 4,752
Accounts receivable, net of allowance of $535............. 19,011
Prepaid expenses.......................................... 1,063
Spare parts and supplies.................................. 2,203
--------
Total current assets.............................. 27,029
Property, plant and equipment, net.......................... 46,554
Intangibles, net of accumulated amortization of $1,218...... 47,688
Investments in and advances to joint venture................ 92
Deferred financing costs, net of accumulated amortization of
$25....................................................... 2,996
Other assets................................................ 448
--------
Total assets...................................... $124,807
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,538
Accrued expenses.......................................... 17,255
Customer deposits......................................... 3,308
--------
Total current liabilities......................... 24,101
Long-term debt.............................................. 80,000
Commitments
Stockholder's equity:
Common stock; $0.01 par value; 1,000 shares authorized;
100 shares issued and outstanding...................... --
Paid-in capital........................................... 24,100
Cumulative translation adjustment......................... 148
Retained deficit.......................................... (3,542)
--------
Total stockholder's equity........................ 20,706
--------
Total liabilities and stockholder's equity........ $124,807
========
</TABLE>
See accompanying notes.
F-2
<PAGE> 115
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
INTERIM STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1998
---- ----
(COMBINED) (CONSOLIDATED)
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C>
Revenues.................................................... $58,954 $ 61,243
Costs and expenses:
Operating expenses........................................ 47,651 49,471
Selling, general and administrative....................... 3,610 4,035
Depreciation and amortization............................. 2,295 4,259
------- --------
Total costs and expenses.......................... 53,556 57,765
------- --------
Operating income............................................ 5,398 3,478
------- --------
Other income (expense), net................................. 82 (128)
Interest income............................................. 188 140
Interest and other financial expense........................ (330) (6,496)
------- --------
Income (loss) before income taxes........................... 5,338 (3,006)
Income taxes................................................ 2,014 323
------- --------
Net income (loss) before extraordinary item................. 3,324 (3,329)
Extraordinary loss on early extinguishment of debt.......... -- (213)
Net income (loss)........................................... $ 3,324 $ (3,542)
======= ========
Basic and diluted loss per share:
Before extraordinary item................................... $(33,290)
========
Extraordinary loss.......................................... $ (2,130)
========
Net loss.................................................... $(35,420)
========
Weighted average common shares outstanding -- basic and
diluted................................................... 100
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 116
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
INTERIM STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1998
------- --------
(COMBINED) (CONSOLIDATED)
(PREDECESSOR) (SUCCESSOR)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 3,324 $ (3,542)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 2,295 4,259
Amortization of deferred financing costs............... -- 2,338
Extraordinary loss..................................... -- 213
Deferred income taxes.................................. (426) 14
Provision for bad debts................................ (63) --
Loss on sale of property, plant and equipment.......... -- 17
Equity loss in joint venture........................... -- 40
Changes in operating assets and liabilities:
Accounts receivable.................................. 1,038 (1,800)
Prepaid expenses..................................... (650) (945)
Spare parts and supplies............................. (87) (385)
Other assets......................................... 42 357
Accounts payable..................................... (1,144) (904)
Accrued expenses..................................... 4,440 2,481
Customer deposits.................................... (253) 875
------- --------
Net cash provided by operating activities................... 8,516 3,018
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (1,904) (6,337)
Purchase of ASIG business, less cash acquired of $6,513..... -- (88,487)
Advances to joint venture, net.............................. (391) 19
------- --------
Net cash used in investing activities....................... (2,295) (94,805)
FINANCING ACTIVITIES
Issuance of common stock.................................... -- 24,100
Borrowings, net............................................. -- 75,900
Deferred financing costs.................................... -- (3,462)
Payments on notes payable................................... (91) --
Advances to Parent, net..................................... (4,630) --
Dividends................................................... (3,290) --
------- --------
Net cash provided by (used in) financing activities......... (8,011) 96,538
------- --------
Net increase in cash........................................ (1,790) 4,751
Cash at beginning of period................................. 2,190 1
------- --------
Cash at end of period....................................... $ 400 $ 4,752
======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 117
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
Aircraft Service International Group, Inc. (the "Company") was organized in
March 1998 for the purpose of acquiring beneficial ownership and control of all
the outstanding capital stock or other equity interests in Aircraft Services
International, Inc., Dispatch Services, Inc., Florida Aviation Fueling Co.,
Bahamas Airport Service, Inc., Freeport Flight Services, Inc., Aircraft Service,
Ltd., ASII Holding GmbH, and ASII Aircraft Service Canada Ltd. (collectively the
"ASIG business" or "Predecessor") from Viad Corp ("Viad") and Viad Service
Companies, Limited as of April 1, 1998 pursuant to a share purchase agreement
(the "Acquisition"). Prior to the Acquisition by the Company, the ASIG business
was operated under the divisional name of Aircraft Services International Group.
The operations of the ASIG business are included in the accompanying
consolidated interim financial statements beginning on April 1, 1998. The
Company is 100% owned by Ranger Aerospace Corporation. Prior to April 1, 1998,
the Company had no operations.
The purchase price of the Acquisition was $95 million in cash, plus fees
and expenses of $4.1 million. The purchase price is subject to a purchase price
adjustment in favor of the Company for any shortfall in the net asset value, net
working capital or required cash (as such terms are defined in the "Share
Purchase Agreement") of the ASIG business from the levels represented at the
closing of the Acquisition. The purchase price is also subject to adjustment in
favor of Viad in an amount equal to the amount of cash in the ASIG business at
the closing of the Acquisition in excess of the required cash.
The Acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on appraisals and other estimates of their underlying fair values. The
allocation of the purchase price is preliminary pending finalization of
appraisals and other estimates. The excess of the purchase price over the fair
value of net assets acquired of approximately $49.0 million is classified as
goodwill and other intangibles and is generally being amortized over 20 years.
The following is a summary of the purchase price allocation:
<TABLE>
<S> <C>
Net working capital, including cash of $6,513............... $ 3,879
Property, plant and equipment............................... 43,259
Other assets................................................ 3,056
Intangibles................................................. 48,906
-------
$99,100
=======
</TABLE>
The purchase price was funded as follows:
<TABLE>
<S> <C>
Sale of 100 shares of common stock, $0.01 par value, to
Ranger Aerospace Corporation.............................. $24,100
Borrowings under Senior Increasing Rate Notes (see Note
6)........................................................ 75,000
-------
$99,100
=======
</TABLE>
BUSINESS
The Company and its subsidiaries provide aviation fueling services,
aircraft ground services and other aviation services at various airports in the
United States, Europe and the Bahamas.
F-5
<PAGE> 118
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Prior to the Acquisition, the accounts of the ASIG
business were not presented on a combined basis as those of a separate reporting
entity. Accordingly, the accounts included in the accompanying financial
statement of operations and cash flows for the six months ended September 30,
1997 were carved out of Viad's historical accounting records. All significant
intercompany balances and transactions were eliminated.
SPARE PARTS AND SUPPLIES
Spare parts and supplies are valued at the lower of cost or market. Cost is
computed using the first-in first-out cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets,
which ranges from 4 to 20 years for operating equipment, 20 to 30 years for
buildings, and 3 to 10 years for office furniture and equipment. Leasehold
improvements are amortized over the life of the lease or the related asset,
whichever is shorter. Maintenance and repairs are charged to expense when
incurred. Significant expenditures, which extend the useful lives of assets, are
capitalized.
FOREIGN CURRENCY TRANSLATION
For the Company's operations where the functional currency is other than
the U.S. Dollar, balance sheet amounts are translated using the exchange rate in
effect at the balance sheet date. Income statement amounts are translated at the
average exchange rates during the year. Translation adjustments resulting from
the changes in exchange rates from year to year are recorded as a separate
component of stockholders' equity.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURE
The Company accounts for its investment in a 50% owned joint venture under
the equity method of accounting. The joint venture, Omni Aircraft Service GmbH,
located in Munich, Germany, provides aviation fueling and aircraft ground
services at Munich International Airport.
Intangible assets consist of the excess of net assets acquired over
liabilities assumed, which is being amortized on the straight-line basis over 20
years, and other identifiable intangible assets, including covenants not to
compete, which are being amortized on the straight-line basis over their
respective lives.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment of long-lived assets under
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS No. 121). SFAS No. 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company believes no impairment indicators exist at
September 30, 1998.
F-6
<PAGE> 119
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
NET LOSS PER COMMON SHARE
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per share will typically be higher
than primary earnings per share due to the exclusion of any dilutive effects of
options, warrants and convertible securities from the calculation. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. The adoption of SFAS No. 128 had no impact on the Company.
CONCENTRATION OF CREDIT RISK
The Company provides services to domestic and foreign airlines and
continually monitors its exposure for credit losses. The Company limits its
exposure by requiring prepayments or deposits from certain customers.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA
In the opinion of the management of the Company, the accompanying unaudited
interim financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the consolidated financial
position of the Company as of September 30, 1998, the consolidated results of
operations for the six months ended September 30, 1998, and the combined results
of operations of the ASIG business for the six months ended September 30, 1997.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable, and
accrued expenses in the accompanying financial statements approximate their fair
value because of their short maturity.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Operating equipment......................................... $37,303
Buildings and leasehold improvements........................ 6,777
Office furniture and equipment.............................. 1,516
Construction in progress.................................... 3,940
-------
49,536
Accumulated depreciation and amortization................... (2,982)
-------
$46,554
=======
</TABLE>
F-7
<PAGE> 120
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
4. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
Salaries and wages.......................................... $ 4,799
Damage claims............................................... 1,198
Accrued interest............................................ 1,061
Other....................................................... 10,197
-------
$17,255
=======
</TABLE>
5. NOTES PAYABLE
On April 2, 1998, the Company entered into a revolving credit facility with
a bank (the "Senior Credit Facility"). The Senior Credit Facility allows for
borrowings in the aggregate of up to the lesser of $10 million or a borrowing
base, equal to 85% of eligible accounts receivable, as defined. The revolving
loans under the Senior Credit Facility mature on August 31, 2002 or sooner as
provided in the Senior Credit Facility.
Indebtedness of the Company under the Senior Credit Facility will be
guaranteed by each of the Company's domestic subsidiaries and will generally be
secured by: (i) all of the Company's cash equivalents, accounts receivable,
contract rights, general intangibles, instruments and chattel paper relating
thereto; (ii) all of the Company's inventory; (iii) amounts (if any) held in a
commercial deposit account with the lending bank, and (iv) all proceeds from (i)
to (iii) inclusive.
The Company's borrowings under the Senior Credit Facility will bear
interest at a floating rate and may be maintained as Prime Rate Loans or LIBOR
loans. Borrowings made pursuant to the Prime Rate Loans bear interest rates
equal to the prime rate plus the Applicable Margin (as defined in the Senior
Credit Facility) and borrowings made pursuant to the LIBOR Loans bear interest
rates equal to the LIBOR rate plus the Applicable Margin. The Applicable Margin
for Prime Rate Loans will be 0% through June 1999 and thereafter will range from
0% to 0.50% based on the Company's Leverage Ratio (as defined in the Senior
Credit Agreement). The Applicable Margin for LIBOR Loans will be 1.75% through
June 1999 and thereafter will range from 1.25% to 2.25% based on the Company's
Leverage Ratio.
The Senior Credit Facility requires the Company to meet certain financial
tests, including, without limitation, minimum interest coverage and maximum
leverage ratios. The Senior Credit Facility also contains certain covenants,
which among other things, will limit the incurrence of additional indebtedness,
the making of loans or investments, the declaration of dividends, transactions
with affiliates, asset sales, acquisitions, mergers and consolidations, the
incurrence of liens and encumbrances and other matters customarily restricted in
such agreements. There were no amounts outstanding under the facility as of
September 30, 1998.
6. LONG-TERM DEBT
On April 2, 1998, the Company issued $75 million of notes (the "Senior
Increasing Rate Notes"). The proceeds from the Senior Increasing Rate Notes were
used to consummate the Acquisition. On August 18, 1998, the Company issued $80
million of notes (the "Senior Notes"). The proceeds from the Senior Notes were
used to repay the Senior Increasing Rate Notes. The Senior Notes mature in
August, 2005, and bear interest at 11%, payable semiannually on each February 15
and August 15, commencing February 15, 1999. The Senior Notes are redeemable at
the option of the Company, at any time on or after August 15, 2003, at a premium
of 105.5% in 2003 and at 100.0% of the principal amount in 2004 and thereafter.
In addition, the
F-8
<PAGE> 121
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
6. LONG-TERM DEBT -- (CONTINUED)
Company may redeem at its option up to 33 1/3% of the original principal amount
of the Senior Notes at any time on or prior to August 15, 2001, at a redemption
price equal to 111.0% of the principal amount being redeemed, with the net
proceeds of one or more public offerings, provided that at least $53.3 million
aggregate principal amount of the Senior Notes remain outstanding after any such
redemption and that any such redemption occurs within 90 days following the
closing of such public offering. Upon the occurrence of a Change in Control (as
defined in the Indenture covering the Senior Notes), each holder of the Senior
Notes is entitled to require the Company to repurchase such Senior Notes at a
premium of 101%. The Senior Notes are fully and unconditionally guaranteed, on
an unsecured basis, by the Company's domestic subsidiaries (see Note 8).
The Senior Notes contain certain covenants, which among other things limit
the ability of the Company to incur additional indebtedness, issue common and
preferred stock of its subsidiaries, pay dividends, transfer and sell assets and
enter into transactions with affiliates.
7. LITIGATION
The Company is engaged in litigation arising in the normal course of
business. Management believes that the outcome of such litigation will not have
a material adverse effect on the Company's financial position or its results of
operations.
F-9
<PAGE> 122
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL STATEMENTS
The Notes are guaranteed on a senior unsecured basis, jointly and
severally, by each of the Company's domestic operating subsidiaries (the
"Guarantors"). The Guarantors include Aircraft Services International, Inc.,
Dispatch Services, Inc., and Florida Aviation Fueling Co. The condensed
consolidating/combining financial statements of the Guarantors should be read in
connection with the consolidated financial statements of the Company. Separate
financial statements of the Guarantors are not presented because the Guarantors
are jointly, severally and unconditionally liable under the guarantees, and the
Company believes the condensed consolidating/combining financial statements
presented are more meaningful in understanding the financial position and
results of operations of the Guarantors.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 2,620 $2,132 $ $ 4,752
Accounts receivable, net................. 18,271 740 19,011
Prepaid expenses......................... 982 81 1,063
Spare parts and supplies................. 2,163 40 2,203
-------- ------ ------- --------
Total current assets............. 24,036 2,993 27,029
Property, plant and equipment, net......... 43,628 2,926 46,554
Due from (to) affiliates................... 509 2,587 (3,096)
Intangibles, net........................... 47,688 -- 47,688
Deferred income taxes...................... -- 92 92
Investment in consolidated subsidiaries.... 2,079 -- (2,079) --
Investments in and advances to joint
venture.................................. --
Deferred financing costs................... 2,996 -- -- 2,996
Other assets............................... 444 4 448
-------- ------ ------- --------
$121,380 $8,602 $(5,175) $124,807
======== ====== ======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable......................... $ 2,889 $ 649 $ -- $ 3,538
Due from (to) affiliates................. 2,587 509 (3,096) --
Accrued expenses......................... 12,916 4,339 17,255
Customer deposits........................ 3,227 81 3,308
-------- ------ ------- --------
Total current liabilities........ 21,619 5,578 (3,096) 24,101
Long-term debt............................. 80,000 -- 80,000
Stockholder's equity:
Common stock............................. -- 935 (935) --
Paid-in capital.......................... 24,100 1,144 (1,144) 24,100
Cumulative translation adjustment........ -- 148 148
Retained earnings (deficit).............. (4,339) 797 (3,542)
-------- ------ ------- --------
Total stockholder's equity....... 19,761 3,024 (2,079) 20,706
-------- ------ ------- --------
Total liabilities and
stockholder's equity........... $121,380 $8,602 $(5,175) $124,807
======== ====== ======= ========
</TABLE>
F-10
<PAGE> 123
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL STATEMENTS
- -- (CONTINUED)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------
GUARANTOR NON-GUARANTOR CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- ------------
<S> <C> <C> <C>
Revenues................................................. $49,858 $11,385 $ 61,243
Costs and expenses:
Operating expenses..................................... 40,211 9,260 49,471
Selling, general and administrative.................... 3,461 574 4,035
Depreciation and amortization.......................... 3,953 306 4,259
------- ------- --------
Total costs and expenses....................... 47,625 10,140 57,765
------- ------- --------
Operating income......................................... 2,233 1,245 3,478
------- ------- --------
Other income (expense), net.............................. 24 (152) (128)
Interest income.......................................... 113 27 140
Interest and other financial expense..................... (6,709) -- (6,709)
------- ------- --------
Income (loss) before income taxes........................ (4,339) 1,120 (3,219)
Income taxes............................................. -- 323 323
------- ------- --------
Net income (loss)........................................ $(4,339) $ 797 $ (3,542)
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1997
-----------------------------------------
GUARANTOR NON-GUARANTOR COMBINED
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
Revenues................................................... $49,361 $9,593 $58,954
Costs and expenses:
Operating expenses....................................... 39,898 7,753 47,651
Selling, general and administrative...................... 3,099 511 3,610
Depreciation and amortization............................ 2,030 265 2,295
------- ------ -------
Total costs and expenses......................... 45,027 8,529 53,556
------- ------ -------
Operating income........................................... 4,334 1,064 5,398
------- ------ -------
Other income (expense), net................................ 14 68 82
Interest income............................................ 127 61 188
Interest and other financial expense....................... (330) -- (330)
------- ------ -------
Income before income taxes................................. 4,145 1,193 5,338
Income taxes............................................... 1,745 269 2,014
------- ------ -------
Net income................................................. $ 2,400 $ 924 $ 3,324
======= ====== =======
</TABLE>
F-11
<PAGE> 124
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL STATEMENTS
- -- (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1998
------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATION
SUBSIDIARIES SUBSIDIARIES ENTRIES CONSOLIDATED TOTAL
------------ ------------- ----------- ------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................... $ (4,339) $ 797 $ $ (3,542)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization........ 3,953 306 4,259
Amortization of deferred financing
costs.............................. 2,338 -- 2,338
Extraordinary loss................... 213 -- 213
Gain on sale of fixed assets......... 17 -- 17
Deferred income taxes................ -- 14 14
Equity loss in joint venture......... -- 40 40
Changes in operating assets and
liabilities:
Accounts receivable................ 2,068 268 (1,800)
Investment in consolidated
subsidiaries.................... (27) -- 27 --
Due from (to) affiliates........... 541 (541) --
Prepaid expenses................... (887) (58) (945)
Spare parts and supplies........... (386) 1 (385)
Other assets....................... 384 (6) (21) 357
Accounts payable................... (1,168) 264 (904)
Accrued expenses................... 1,379 1,108 (6) 2,481
Customer deposits.................. 851 24 875
-------- ------ --- --------
Net cash provided by operating
activities.............................. 801 2,217 3,018
INVESTING ACTIVITIES
Purchases of property, plant and
equipment............................... (6,233) (104) (6,337)
Purchase of ASIG business................. (88,487) -- (88,487)
Advances to joint venture, net............ -- 19 19
-------- ------ --- --------
Net cash used in investing activities..... (94,720) (85) (94,805)
FINANCING ACTIVITIES
Issuance of common stock.................. 24,100 -- 24,100
Borrowings, net........................... 75,900 -- 75,900
Deferred financing costs.................. (3,462) -- (3,462)
-------- ------ --- --------
Net cash provided by financing
activities.............................. 96,538 -- 96,538
-------- ------ --- --------
Net increase in cash...................... 2,619 2,132 4,751
Cash at beginning of period............... 1 -- 1
-------- ------ --- --------
Cash at end of period..................... $ 2,620 $2,132 $ $ 4,752
======== ====== === ========
</TABLE>
F-12
<PAGE> 125
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING/COMBINING FINANCIAL STATEMENTS
- -- (CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 2,400 $ 924 $ $ 3,324
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 2,030 265 2,295
Deferred income taxes................... (509) 83 (426)
Equity income........................... -- (63) (63)
Changes in operating assets and
liabilities:
Accounts receivable................... 3,567 (2,529) 1,038
Due from (to) affiliates.............. (92) 92 --
Prepaid expenses...................... (581) (69) (650)
Spare parts and supplies.............. (90) 3 (87)
Other assets.......................... 43 (1) 42
Accounts payable...................... (1,596) 452 (1,144)
Accrued expenses...................... 3,413 1,027 4,440
Customer deposits..................... (181) (72) (253)
------- ------ ------- -------
Net cash provided by operating activities.... 8,404 112 8,516
INVESTING ACTIVITIES
Purchases of property, plant and equipment... (907) (997) (1,904)
Advances to joint venture.................... -- (391) (391)
------- ------ ------- -------
Net cash used in investing activities........ (907) (1,388) (2,295)
FINANCING ACTIVITIES
Payments on notes payable.................... (91) -- (91)
Advances from (to) Parent, net............... (4,614) (16) (4,630)
Dividends.................................... (2,792) (498) (3,290)
------- ------ ------- -------
Net cash provided by (used in) financing
activities................................. (7,497) (514) (8,011)
------- ------ ------- -------
Net increase (decrease) in cash.............. -- (1,790) (1,790)
Cash at beginning of period.................. -- 2,190 2,190
------- ------ ------- -------
Cash at end of period........................ $ -- $ 400 $ $ 400
======= ====== ======= =======
</TABLE>
F-13
<PAGE> 126
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders
Aircraft Service International Group
We have audited the accompanying combined balance sheets of Aircraft
Service International Group, a combined group of companies affiliated by common
ownership, as of December 31, 1996 and 1997, and the related combined statements
of income, changes in combined equity and cash flows for each of the three years
in the period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the index at Item 21(b) of this Registration
Statement. These financial statements and schedule are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of Aircraft Service, Ltd. ("ASL"), a company affiliated by
common ownership and included in the accompanying combined financial statements.
ASL's financial statements reflect total assets of $3,852,000 and $5,339,000 as
of December 31, 1996 and 1997, respectively, and total revenues of $14,894,000,
$15,897,000 and $16,792,000 for the years ended December 31, 1995, 1996 and
1997, respectively. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for ASL, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
combined financial statements referred to above present fairly, in all material
respects, the combined financial position of Aircraft Service International
Group at December 31, 1996 and 1997, and the combined results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Miami, Florida
May 1, 1998
F-14
<PAGE> 127
REPORT OF INDEPENDENT AUDITORS
TO THE DIRECTORS AND SHAREHOLDERS OF AIRCRAFT SERVICE LIMITED
We have audited the balance sheets of Aircraft Service Limited as of 31 December
1997 and 1996 and the profit and loss accounts, reconciliation of movements in
shareholders' funds and cash flow statements for each of the three years in the
period ended 31 December 1997 (not presented separately herein), all expressed
in pounds sterling. 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 audits in accordance with auditing standards generally accepted
in the United Kingdom, which are similar to those generally accepted in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from 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 presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Aircraft Service Limited as at 31 December
1997 and 1996 and the results of the operations and their cash flows for each of
the three years in the period ended 31 December 1997, in conformity with
accounting principles generally accepted in the United Kingdom, which differ in
certain significant respects from generally accepted accounting principles in
the United States of America.
Deloitte & Touche
Chartered Accountants and Registered Auditors
Hill House
1 Little New Street
London EC4A 3TR
7 July 1998
F-15
<PAGE> 128
AIRCRAFT SERVICE INTERNATIONAL GROUP
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1998
------------------ -----------
1996 1997
---- ---- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 191 $ -- $ --
Accounts receivable, net of allowance of $1,276, $622 and
$546 in 1996, 1997 and 1998, respectively.............. 9,235 7,141 17,309
Due from Parent........................................... 1,453 7,520 -
Prepaid expenses.......................................... 606 445 285
Spare parts and supplies.................................. 2,079 2,150 2,168
Deferred income taxes..................................... 871 1,108 1,126
------- ------- -------
Total current assets.............................. 14,435 18,364 20,888
Property, plant and equipment, net.......................... 18,894 18,313 19,892
Goodwill, net of accumulated amortization of $1,915, $1,991
and $2,022 in 1996, 1997 and 1998, respectively........... 2,243 2,166 2,135
Deferred income taxes....................................... 2,367 2,267 2,118
Investments in and advances to joint venture................ 15 235 151
Other assets................................................ 648 585 413
------- ------- -------
Total assets...................................... $38,602 $41,930 $45,597
======= ======= =======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,707 $ 4,094 $ 4,566
Accrued expenses.......................................... 17,378 19,816 20,244
Customer deposits......................................... 2,911 3,372 2,433
Due to Parent............................................. -- -- 2,674
Current portion of notes payable.......................... 82 91 91
------- ------- -------
Total current liabilities......................... 23,078 27,373 30,008
Notes payable............................................... 91 -- --
Commitments
Combined equity:
Common stock.............................................. 907 907 907
Paid-in capital........................................... 1,585 1,585 1,585
Cumulative translation adjustment......................... 22 (5) (2)
Retained earnings......................................... 12,919 12,070 13,099
------- ------- -------
Total combined equity............................. 15,433 14,557 15,589
------- ------- -------
Total liabilities and combined equity............. $38,602 $41,930 $45,597
======= ======= =======
</TABLE>
See accompanying notes.
F-16
<PAGE> 129
AIRCRAFT SERVICE INTERNATIONAL GROUP
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $111,658 $121,574 $119,325 $29,816 $31,035
Cost and expenses:
Operating expenses........................ 93,540 102,935 98,190 23,973 26,320
Selling, general and administrative....... 6,467 7,259 6,507 2,064 1,754
Depreciation and amortization............. 4,340 4,420 4,604 1,172 1,154
-------- -------- -------- ------- -------
Total cost and expenses........... 104,347 114,614 109,301 27,209 29,228
-------- -------- -------- ------- -------
Operating income............................ 7,311 6,960 10,024 2,607 1,807
Other income (expense), net................. 47 (45) (71) 35 (57)
Interest income............................. 842 343 350 37 77
Interest and other financial expense........ (620) (606) (669) (165) (170)
-------- -------- -------- ------- -------
Income before income taxes.................. 7,580 6,652 9,634 2,514 1,657
Income taxes................................ 2,563 2,433 3,602 934 615
-------- -------- -------- ------- -------
Net income.................................. $ 5,017 $ 4,219 $ 6,032 $ 1,580 $ 1,042
======== ======== ======== ======= =======
</TABLE>
See accompanying notes.
F-17
<PAGE> 130
AIRCRAFT SERVICE INTERNATIONAL GROUP
COMBINED STATEMENTS OF CHANGES IN COMBINED EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
COMMON PAID-IN TRANSLATION RETAINED COMBINED
STOCK CAPITAL ADJUSTMENT EARNINGS EQUITY
------ ------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995..................... $907 $1,585 $(131) $17,336 $19,697
Net income................................... -- -- -- 5,017 5,017
Dividends.................................... -- -- -- (6,997) (6,997)
Translation loss............................. -- -- (25) -- (25)
---- ------ ----- ------- -------
Balance at December 31, 1995 907 1,585 (156) 15,356 17,692
Net income................................... -- -- -- 4,219 4,219
Dividends.................................... -- -- -- (6,656) (6,656)
Translation gain............................. -- -- 178 -- 178
---- ------ ----- ------- -------
Balance at December 31, 1996 907 1,585 22 12,919 15,433
Net income................................... -- -- -- 6,032 6,032
Dividends.................................... -- -- -- (6,881) (6,881)
Translation loss............................. -- -- (27) --..... (27)
---- ------ ----- ------- -------
Balance at December 31, 1997................... 907 1,585 (5) 12,070 14,557
Net income (unaudited)....................... -- -- -- 1,042 1,042
Dividends (unaudited)........................ -- -- -- (13) (13)
Translation gain (unaudited)................. -- -- 3 -- 3
---- ------ ----- ------- -------
Balance at March 31, 1998 (unaudited).......... $907 $1,585 $ (2) $13,099 $15,589
==== ====== ===== ======= =======
</TABLE>
See accompanying notes.
F-18
<PAGE> 131
AIRCRAFT SERVICE INTERNATIONAL GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 5,017 $ 4,219 $ 6,032 $ 1,580 $ 1,042
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......... 4,340 4,420 4,604 1,172 1,154
Deferred income taxes.................. 1,048 (104) (136) 182 131
Provision for bad debts................ 240 289 245 60 --
Equity loss in joint venture........... -- 3 133 -- 84
Changes in operating assets and
liabilities:
Accounts receivable.................. (2,554) 1,291 1,822 3,170 2,635
Prepaid expenses..................... (61) (337) 161 211 160
Spare parts and supplies............. (385) (304) (71) 48 (18)
Other assets......................... (118) (91) 63 171 172
Accounts payable..................... (2,410) (866) 1,387 (286) 472
Accrued expenses..................... (330) (762) 2,438 (458) 428
Customer deposits.................... 273 (597) 461 77 (939)
-------- ------- --------- ------- -------
Net cash provided by operating activities... 5,060 7,161 17,139 5,927 5,321
INVESTING ACTIVITIES
Purchases of property, plant and
equipment................................. (4,402) (9,061) (3,947) (963) (2,702)
Advances to joint venture................... -- -- (353) -- --
-------- ------- --------- ------- -------
Net cash used in investing activities....... (4,402) (9,061) (4,300) (963) (2,702)
FINANCING ACTIVITIES
Payments on notes payable................... (67) (74) (82) -- --
Advances from (to) Parent, net.............. 6,258 8,821 (6,067) (2,682) (2,606)
Dividends................................... (6,997) (6,656) (6,881) (1,698) (13)
-------- ------- --------- ------- -------
Net cash provided by (used in) financing
activities................................ (806) 2,091 (13,030) (4,380) (2,619)
-------- ------- --------- ------- -------
Net increase (decrease) in cash............. (148) 191 (191) 584 --
Cash at beginning of period................. 148 -- 191 191 --
-------- ------- --------- ------- -------
Cash at end of period....................... $ -- $ 191 $ -- $ 775 $ --
======== ======= ========= ======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE> 132
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. BUSINESS AND BASIS OF PRESENTATION
NATURE OF BUSINESS
The Company provides aviation fueling and aircraft ground services at
various airports in the United States, Europe and the Bahamas.
BASIS OF PRESENTATION
Aircraft Service International Group (the "Company" or the "Combined
Affiliates") is a combined group of companies affiliated through common
ownership by Viad Corp ("Viad"). These businesses were sold as of April 1, 1998
(see Note 12). The accompanying combined financial statements include the
following entities: Aircraft Services International, Inc., Dispatch Services,
Inc., Florida Aviation Fueling Co., Bahamas Airport Service, Inc., Freeport
Flight Services, Ltd., Aircraft Service, Ltd., ASII Holding GmbH and ASII
Aircraft Service Canada Ltd.
For the years ended December 31, 1995, 1996 and 1997, respectively, the
accounts of the above entities were not presented on a combined basis as those
of a separate reporting entity. Accordingly, the accounts included in the
accompanying financial statements were carved out of Viad's historical
accounting records. For all years presented, the financial statements of the
Company include the accounts of these entities. The accompanying financial
statements include costs allocated by Viad to the Company for certain legal,
audit, risk assessment, treasury and financial services. The financial statement
captions which include allocated amounts, along with a description of the
functions or services and the amounts allocated are summarized in Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the
entities affiliated by common ownership and control outlined in Note 1. All
significant intercompany balances and transactions have been eliminated in
combination.
SPARE PARTS AND SUPPLIES
Spare parts and supplies are valued at the lower of cost or market. Cost is
computed using the first-in first-out cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is recorded
using the straight-line method over the estimated useful lives of the assets,
which ranges from 4 to 20 years for operating equipment, 20 to 30 years for
buildings, and 3 to 10 years for office furniture and equipment. Leasehold
improvements are amortized over the life of the lease or the related asset,
whichever is shorter. Maintenance and repairs are charged to expense when
incurred. Significant expenditures, which extend the useful lives of assets, are
capitalized.
FOREIGN CURRENCY TRANSLATION
For the Company's operations where the functional currency is other than
the U.S. Dollar, balance sheet amounts are translated using the exchange rate in
effect at the balance sheet date. Income statement amounts
F-20
<PAGE> 133
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
are translated at the average exchange rates during the year. Translation
adjustments resulting from the changes in exchange rates from year to year are
recorded as a separate component of combined equity.
INVESTMENTS IN AND ADVANCES TO JOINT VENTURE
The Company accounts for its investment in a 50% owned joint venture under
the equity method of accounting. The joint venture, Omni Aircraft Service GmbH,
located in Munich, Germany, provides aviation fueling and aircraft ground
services at Munich International Airport.
GOODWILL
Goodwill is amortized on a straight-line basis over 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for the impairment of long-lived assets under
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
(SFAS No. 121). SFAS No. 121 requires impairment losses to be recorded on
long-lived assets when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company believes no impairment indicators existed at
December 31, 1997.
CONCENTRATION OF CREDIT RISK
The Company provides services to domestic and foreign airlines and
continually monitors its exposure for credit losses. The Company limits its
exposure by requiring prepayments or deposits from certain customers.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA
In the opinion of the management of the Company, the accompanying unaudited
combined financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the combined financial
position of the Company as of March 31, 1998, and the combined results of
operations for the three months ended March 31, 1997 and 1998.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
accrued expenses in the accompanying combined financial statements approximate
their fair value because of their short term maturity.
3. RELATED-PARTY TRANSACTIONS
The Parent provided certain corporate general and administrative services
to the Company, including legal, audit, risk assessment, treasury and finance
services. Related allocated expenses, included in selling, general and
administrative in the accompanying combined statements of income, were
approximately $883,
F-21
<PAGE> 134
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
$896 and $854 in 1995, 1996 and 1997, respectively, and $212 and $173 for the
three months ended March 31, 1997 and 1998, respectively.
The Company transferred ownership of certain accounts receivable to the
Parent. Total amounts transferred through the due from (to) parent account were
$10,200 and $12,800 at December 31, 1996 and 1997, respectively. No receivables
were transferred at March 31, 1998. The Company was charged a discount from the
Parent for these transferred receivables based on the amount of receivables
actually sold by the Parent. Allocated charges totaled $375, $483 and $555 for
the years ended December 31, 1995, 1996 and 1997, respectively, and $143 and
$148 for the three months ended March 31, 1997 and 1998, respectively, and are
included in interest and other financial expense in the accompanying combined
statements of income.
The Parent managed the cash and financing requirements of the Company. The
Company's available cash was swept into the Parent's accounts and the Company's
cash requirements were paid from the Parent's accounts. Interest was credited to
the Company on net balances due from Parent based on the prime lending rate less
1.5%. Interest income credited to the Company totaled approximately $613, $246
and $247 in 1995, 1996 and 1997, respectively, and $21 and $55 for the three
months ended March 31, 1997 and 1998, respectively.
Due from (to) Parent represents the net amount due to or from the Parent
for expenses allocated in conjunction with services provided by the Parent, cash
and receivables transferred to the Parent, dividends paid, and other charges
between the Company and the Parent.
All allocations and estimates were based on assumptions the Parent believed
were reasonable in these circumstances. The allocated amounts are not
necessarily indicative of the costs that the Company would have incurred as a
stand-alone entity.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1996 1997 1998
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
Operating equipment............................... $ 56,544 $ 58,216 $ 58,955
Buildings and leasehold improvements.............. 4,948 5,796 5,944
Office furniture and equipment.................... 4,315 4,758 4,543
Construction in progress.......................... 3,180 2,966 4,942
-------- -------- --------
68,987 71,736 74,384
Accumulated depreciation and amortization......... (50,093) (53,423) (54,492)
-------- -------- --------
$ 18,894 $ 18,313 $ 19,892
======== ======== ========
</TABLE>
F-22
<PAGE> 135
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and wages.................................. $ 6,674 $ 6,273 $ 5,889
Pension............................................. 1,218 1,393 1,610
Damage claims....................................... 1,294 1,102 1,226
Workmen's compensation.............................. 2,241 2,595 2,799
Deferred condemnation award......................... -- 1,832 1,830
Other............................................... 5,951 6,621 6,890
------- ------- -------
$17,378 $19,816 $20,244
======= ======= =======
</TABLE>
In 1997, the Company was granted a cash condemnation award of approximately
$1.8 million related to the condemnation of its facilities in Burbank,
California. The entire amount, which included awards for the estimated value of
the leasehold estate, improvements to the Company's realty, and loss of business
goodwill, was deferred and is included in accrued expenses in the accompanying
December 31, 1997 balance sheet, pending the final outcome of court hearings
concerning the condemnation award. At December 31, 1997, the Company had assets
at its Burbank Facility with a net book value of $30, included in property,
plant and equipment.
6. INCOME TAXES
The Company files a consolidated federal and various state income tax
returns with the Parent and other eligible subsidiaries of the Parent. A verbal
intercompany tax agreement requires the Company to pay the Parent an amount
which approximates the income tax it would pay if it were filing separate
consolidated income tax returns. In addition, the Parent credits the Company for
an allocated portion of the state tax savings which the Parent and its
subsidiaries realize upon filing combined or consolidated income tax returns in
certain states. In accordance with Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, the Company has accounted for federal and
state income taxes as if the Company was filing unconsolidated federal and state
income tax returns.
The income before provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States.......................... $4,893 $4,954 $7,910 $2,055 $1,239
Non-U.S................................ 2,687 1,698 1,724 459 418
------ ------ ------ ------ ------
$7,580 $6,652 $9,634 $2,514 $1,657
====== ====== ====== ====== ======
</TABLE>
F-23
<PAGE> 136
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
U.S. Federal......................... $ 638 $1,699 $2,737 $ 471 $ 276
State................................ 69 224 478 94 56
Non-U.S.............................. 808 614 523 187 152
------ ------ ------ ------ ------
1,515 2,537 3,738 752 484
------ ------ ------ ------ ------
Deferred:
U.S. Federal......................... 1,022 (89) (120) 216 138
State................................ 109 (11) (14) 26 12
Non-U.S.............................. (83) (4) (2) (60) (19)
------ ------ ------ ------ ------
1,048 (104) (136) 182 131
------ ------ ------ ------ ------
$2,563 $2,433 $3,602 $ 934 $ 615
====== ====== ====== ====== ======
</TABLE>
Significant components of the Company's deferred income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
MARCH 31,
1996 1997 1998
------ ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for doubtful accounts............................. $ 421 $ 197 $ 238
Interest on deferred compensation........................... 269 290 294
Worker's compensation insurance............................. 784 908 873
Accrued post-retirement benefits............................ 176 253 219
Accrued medical and life insurance.......................... 302 271 223
Damage claims and other insurance liabilities............... 530 458 492
Deferred condemnation award................................. - 641 641
Other....................................................... 756 357 264
------ ------ ------
Deferred income tax asset................................... $3,238 $3,375 $3,244
====== ====== ======
</TABLE>
A reconciliation of income taxes to the U.S. statutory rate of 34% is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------
1995 1996 1997 1997 1998
------ ------ ------ ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income taxes at U.S. statutory rate.................... $2,577 $2,262 $3,276 $855 $563
State income taxes..................................... 131 141 306 79 38
Permanent items........................................ 89 57 43 10 12
Effect of non-U.S. operations.......................... (234) (27) (23) (10) 2
------ ------ ------ ---- ----
$2,563 $2,433 $3,602 $934 $615
====== ====== ====== ==== ====
</TABLE>
F-24
<PAGE> 137
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. COMMITMENTS
The Company leases operating facilities and office space pursuant to
various operating leases. The aggregate minimal rental payments under all
operating leases with initial terms of one year or more at December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998........................................................ $ 776
1999........................................................ 315
2000........................................................ 275
2001........................................................ 268
2002........................................................ 212
Thereafter.................................................. 830
------
$2,676
======
</TABLE>
Total rent expense for all operating leases amounted to $2,591, $2,516 and
$2,491 for the years ended December 31, 1995, 1996 and 1997, respectively, and
$752 and $754 for the three months ended March 31, 1997 and 1998, respectively.
8. LITIGATION
The Company is engaged in litigation arising in the normal course of
business. Management believes that the outcome of such litigation will not have
a material adverse effect on the Company's financial position or its results of
operations.
9. EMPLOYEE BENEFIT PLANS
The Company sponsors three non-contributory defined benefit pension plans.
Two of the plans cover management, supervisory, administrative and non-union
hourly employees. The third plan covers union employees at the Company's Miami
International Airport operations. These plans cover approximately 40% of the
Company's employees. With the exception of the third plan, no other union
employees are covered under a pension program. These plans provide benefits
based on the employees' tenure and qualifying average compensation. The plans
were funded by the Parent. The Parent's funding policies provide that payments
to defined benefit pension trusts be at least equal to the minimum funding
required by applicable regulations.
The assumptions used in the calculation of the actuarial present value of
the projected benefit obligation and expected long-term return on plan assets
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate.............................. 8.0% 8.0% 7.5%
Rate of increase in compensation levels..................... 5.0 5.0 4.5
Expected long-term return on plan assets.................... 9.5 9.5 9.5
</TABLE>
F-25
<PAGE> 138
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The following table sets forth the funded status and pension liability
recognized in the combined balance sheets:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---- ----
<S> <C> <C>
OVERFUNDED PLANS
Actuarial present value of accumulated benefit obligations:
Vested benefit obligations.................................. $5,541 $ 8,269
====== =======
Accumulated benefit obligations............................. $7,757 $ 9,275
====== =======
Projected benefit obligations............................... $9,959 $11,542
Plan assets allocated by Parent at fair value............... 7,869 10,142
------ -------
Projected benefit obligations in excess of plan assets...... 2,090 1,400
Unrecognized transition assets.............................. 20 15
Unrecognized prior service costs............................ (367) (333)
Unrecognized net losses..................................... (844) (174)
------ -------
Accrued pension costs....................................... $ 899 $ 908
====== =======
UNDERFUNDED AND UNFUNDED PLANS
Actuarial present value of accumulated benefit obligations:
Vested benefit obligations.................................. $ 253 $ 336
====== =======
Accumulated benefit obligations............................. $ 268 $ 362
====== =======
Projected benefit obligations............................... $ 485 $ 486
Unrecognized prior service costs............................ (409) (209)
Unrecognized net gains...................................... -- 19
Additional minimum liability................................ 192 67
------ -------
Accrued pension costs....................................... $ 268 $ 363
====== =======
</TABLE>
The Company also participates in a foreign multi-employer defined benefit
pension plan which covers seven of the Company's managers in Europe.
The following table sets forth the Company's net periodic pension cost:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the period.......... $ 551 $ 718 $ 715
Interest cost on projected benefit obligation........... 609 731 815
Return on plan assets................................... (1,141) (780) (1,765)
Net amortization and deferral........................... 636 270 1,119
------- ----- -------
Net pension expense..................................... $ 655 $ 939 $ 884
======= ===== =======
</TABLE>
The Company also sponsors a defined contribution plan pursuant to Section
401(k) of the Internal Revenue Code. Subject to certain dollar limits, employees
may contribute a percentage of their salaries to the plan and the Company will
match a portion of each employee's contribution. This plan is in effect for U.S.
based non-union employees only. The expense pertaining to this plan was
approximately $137, $300 and $331 for the years ended December 31, 1995, 1996
and 1997, respectively.
F-26
<PAGE> 139
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
The Company provides contributory health care benefits to the retirees and
their dependents of two of its entities. The Company has recorded a liability
equal to the unfunded accumulated benefit obligation for these benefits as
required by the provisions of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other than Pensions (SFAS No. 106). SFAS
No. 106 requires that the cost of these benefits, which are primarily for health
care and life insurance, be recognized in the financial statements throughout
the employees' active working careers.
The following table sets forth the financial status of the plan reconciled
to amounts recorded in the accompanying combined financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 59 $ 72
Fully eligible participants............................... 132 159
Other active plan participants............................ 220 265
---- ----
Accumulated postretirement benefit obligation............... 411 496
Unrecognized net gain (loss)................................ 23 (76)
---- ----
Accrued cost................................................ $434 $420
==== ====
</TABLE>
The weighted average discount rate used in determining the accumulated
benefit obligation was 8.0% and 7.5% at December 31, 1996 and 1997,
respectively. The assumed health care cost trend rate used in measuring the 1996
and 1997 accumulated postretirement benefit obligation was 11% and 10%,
respectively, gradually declining to 5% by the year 2002 and remaining at that
level thereafter for retirees below age 65, and 8.0% and 7.5%, respectively,
gradually declining to 5% by the year 2002 and remaining at that level
thereafter for retirees above age 65.
Because the benefits are capped, a one-percentage point increase in the
assumed health care cost trend rate would not increase the accumulated
postretirement benefit obligation as of December 31, 1997, or related annual
expense.
The components of net periodic postretirement benefit cost consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned during the period.............. $20 $28 $30
Interest cost on accumulated benefit obligation............. 24 29 33
Net amortization and deferral............................... -- (5) (3)
--- --- ---
Net postretirement expense.................................. $44 $52 $60
=== === ===
</TABLE>
10. SIGNIFICANT CUSTOMERS
One of the Company's customers accounted for 17.6%, 20.2% and 17.5% of the
Company's revenues for the years ended December 31, 1995, 1996 and 1997,
respectively, and 18.8% and 15.2% for the three months ended March 31, 1997 and
1998, respectively. Another customer accounted for 14.3%, 14.1% and 14.1% of the
Company's revenues for the years ended December 31, 1995, 1996 and 1997,
respectively, and 12.9% and 13.3% for the three months ended March 31, 1997 and
1998, respectively.
F-27
<PAGE> 140
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
11. GEOGRAPHIC AREA INFORMATION
The following table includes selected financial information pertaining to
the Company's geographic operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
United States....................................... $ 93,730 $102,995 $ 98,853
United Kingdom...................................... 14,894 15,897 16,792
Freeport, Bahamas................................... 3,034 2,682 3,680
-------- -------- --------
$111,658 $121,574 $119,325
======== ======== ========
Operating income:
United States....................................... $ 4,936 $ 5,399 $ 8,307
United Kingdom...................................... 2,043 1,623 1,572
Germany............................................. (23) (2) (45)
Freeport, Bahamas................................... 355 (60) 190
-------- -------- --------
$ 7,311 $ 6,960 $ 10,024
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
---- ----
<S> <C> <C>
Identifiable assets:
United States............................................. $34,452 $36,423
United Kingdom............................................ 3,852 5,339
Germany................................................... 73 250
Freeport, Bahamas......................................... 1,368 1,207
Eliminations.............................................. (1,143) (1,289)
------- -------
$38,602 $41,930
======= =======
</TABLE>
12. SUBSEQUENT EVENT
On April 1, 1998, the Parent sold the Company for approximately $95
million, subject to adjustment, to Aircraft Service International Group, Inc.
("ASIG"), pursuant to a share purchase agreement (the "Share Purchase
Agreement"). In accordance with the Share Purchase Agreement, certain assets and
liabilities of the Company were retained by the Parent.
F-28
<PAGE> 141
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS
In connection with the acquisition of the Company as discussed in Note 12,
ASIG is planning to offer $80 million in aggregate principal amount of Senior
Notes due 2005 (the "Notes"). The Notes would be guaranteed on a senior
unsecured basis, jointly and severally, by each of ASIG's domestic subsidiaries
(the "Guarantors"). The Guarantors would include Aircraft Services
International, Inc., Dispatch Services, Inc., and Florida Aviation Fueling Co.
The condensed combined financial statements of the Guarantors should be read in
connection with the combined financial statements of the Company. Separate
financial statements of the Guarantors are not presented because the Guarantors
are to be jointly, severally and unconditionally liable under the guarantees,
and the Company believes the condensed combining financial statements presented
are more meaningful in understanding the financial position and results of
operations of the Guarantors.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ -- $ 550 $ (550) $ --
Accounts receivable, net................... 5,858 1,283 7,141
Due from Parent............................ 5,691 1,829 7,520
Prepaid expenses........................... 390 55 445
Spare parts and supplies................... 2,116 34 2,150
Deferred income taxes...................... 1,108 -- 1,108
------- ------ ------- -------
Total current assets............... 15,163 3,751 (550) 18,364
Property, plant and equipment, net........... 15,735 2,578 18,313
Due from (to) affiliates..................... 713 -- (713) --
Goodwill, net................................ 1,968 198 2,166
Deferred income taxes........................ 2,242 25 2,267
Investments in and advances to joint
venture.................................... -- 235 235
Other assets................................. 602 9 (26) 585
------- ------ ------- -------
Total assets....................... $36,423 $6,796 $(1,289) $41,930
======= ====== ======= =======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Accounts payable........................... $ 3,916 $ 728 $ (550) $ 4,094
Due from (to) affiliates................... -- 713 (713) --
Accrued expenses........................... 16,275 3,541 19,816
Customer deposits.......................... 2,762 610 3,372
Current portion of notes payable........... 91 -- 91
------- ------ ------- -------
Total current liabilities.......... 23,044 5,592 (1,263) 27,373
Combined equity:
Common stock............................... 5 928 (26) 907
Paid-in capital............................ 441 1,144 1,585
Cumulative translation adjustment.......... -- (5) (5)
Retained earnings (deficit)................ 12,933 (863) 12,070
------- ------ ------- -------
Total combined equity.............. 13,379 1,204 (26) 14,557
------- ------ ------- -------
Total liabilities and combined
equity........................... $36,423 $6,796 $(1,289) $41,930
======= ====== ======= =======
</TABLE>
F-29
<PAGE> 142
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ -- $1,174 $ (983) $ 191
Accounts receivable, net................... 8,021 1,214 9,235
Due from Parent............................ 1,002 451 1,453
Prepaid expenses........................... 581 25 606
Spare parts and supplies................... 2,047 32 2,079
Deferred income taxes...................... 871 871
------- ------ ------- -------
Total current assets............... 12,522 2,896 (983) 14,435
Property, plant and equipment, net........... 16,808 2,086 18,894
Due from (to) affiliates..................... 98 29 (127) --
Goodwill, net................................ 2,024 219 2,243
Deferred income taxes........................ 2,343 24 2,367
Investments in and advances to joint
venture.................................... -- 15 15
Other assets................................. 657 24 (33) 648
------- ------ ------- -------
Total assets....................... $34,452 $5,293 $(1,143) $38,602
======= ====== ======= =======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Accounts payable........................... $ 3,221 $ 469 $ (983) $ 2,707
Due from (to) affiliates................... 29 98 (127) --
Accrued expenses........................... 14,503 2,875 17,378
Customer deposits.......................... 2,803 108 2,911
Current portion of notes payable........... 82 -- 82
------- ------ ------- -------
Total current liabilities.......... 20,638 3,550 (1,110) 23,078
Notes payable................................ 91 -- 91
Combined equity:
Common stock............................... 5 935 (33) 907
Paid-in capital............................ 441 1,144 1,585
Cumulative translation adjustment.......... -- 22 22
Retained earnings (deficit)................ 13,277 (358) 12,919
------- ------ ------- -------
Total combined equity.............. 13,723 1,743 (33) 15,433
------- ------ ------- -------
Total liabilities and combined
equity........................... $34,452 $5,293 $(1,143) $38,602
======= ====== ======= =======
</TABLE>
F-30
<PAGE> 143
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
GUARANTOR NON-GUARANTOR COMBINED
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
Revenues............................................... $98,853 $20,472 $119,325
Cost and expenses:
Operating expenses................................... 81,058 17,132 98,190
Selling, general and administrative.................. 5,464 1,043 6,507
Depreciation and amortization........................ 4,024 580 4,604
------- ------- --------
Total cost and expenses...................... 90,546 18,755 109,301
------- ------- --------
Operating income....................................... 8,307 1,717 10,024
------- ------- --------
Other income (expense), net............................ 56 (127) (71)
Interest income........................................ 216 134 350
Interest and other financial expense................... (669) -- (669)
------- ------- --------
Income before income taxes............................. 7,910 1,724 9,634
Income taxes........................................... 3,081 521 3,602
------- ------- --------
Net income............................................. $ 4,829 $ 1,203 $ 6,032
======= ======= ========
</TABLE>
F-31
<PAGE> 144
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
GUARANTOR NON-GUARANTOR COMBINED
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
Revenues............................................... $102,995 $18,579 $121,574
Cost and expenses:
Operating expenses................................... 87,274 15,661 102,935
Selling, general and administrative.................. 6,371 888 7,259
Depreciation and amortization........................ 3,951 469 4,420
-------- ------- --------
Total cost and expenses...................... 97,596 17,018 114,614
-------- ------- --------
Operating income....................................... 5,399 1,561 6,960
-------- ------- --------
Other income (expense), net............................ (41) (4) (45)
Interest income........................................ 202 141 343
Interest and other financial expense................... (606) -- (606)
-------- ------- --------
Income before income taxes............................. 4,954 1,698 6,652
Income taxes........................................... 1,823 610 2,433
-------- ------- --------
Net income............................................. $ 3,131 $ 1,088 $ 4,219
======== ======= ========
</TABLE>
F-32
<PAGE> 145
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------
GUARANTOR NON-GUARANTOR COMBINED
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
Revenues............................................... $93,730 $17,928 $111,658
Cost and expenses:
Operating expenses................................... 79,272 14,268 93,540
Selling, general and administrative.................. 5,698 769 6,467
Depreciation and amortization........................ 3,824 516 4,340
------- ------- --------
Total cost and expenses...................... 88,794 15,553 104,347
------- ------- --------
Operating income....................................... 4,936 2,375 7,311
------- ------- --------
Other income (expense), net............................ 50 (3) 47
Interest income........................................ 527 315 842
Interest and other financial expense................... (620) -- (620)
------- ------- --------
Income before income taxes............................. 4,893 2,687 7,580
Income taxes........................................... 1,838 725 2,563
------- ------- --------
Net income............................................. $ 3,055 $ 1,962 $ 5,017
======= ======= ========
</TABLE>
F-33
<PAGE> 146
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION
SUBSIDIARIES SUBSIDIARIES ENTRIES COMBINED TOTAL
------------ ------------- --------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................... $ 4,829 $ 1,203 $ 6,032
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 4,005 599 4,604
Deferred income taxes............... (135) (1) (136)
Equity loss in joint venture........ - 133 133
Changes in operating assets and
liabilities:
Accounts receivable............ 2,163 (96) 2,067
Due from (to) affiliates....... (644) 644 --
Prepaid expenses............... 191 (30) 161
Spare parts and supplies....... (69) (2) (71)
Other assets................... 55 8 63
Accounts payable............... 695 259 $ 433 1,387
Accrued expenses............... 1,772 666 2,438
Customer deposits.............. (41) 502 461
------- ------- ----- --------
Net cash provided by operating
activities............................. 12,821 3,885 433 17,139
INVESTING ACTIVITIES
Purchases of property, plant and
equipment.............................. (2,877) (1,070) (3,947)
Advances to joint venture................ -- (353) (353)
------- ------- ----- --------
Net cash used in investing activities.... (2,877) (1,423) (4,300)
FINANCING ACTIVITIES
Payments on notes payable................ (82) -- (82)
Advances from (to) Parent, net........... (4,689) (1,378) (6,067)
Dividends................................ (5,173) (1,708) (6,881)
------- ------- ----- --------
Net cash used in financing activities.... (9,944) (3,086) (13,030)
------- ------- ----- --------
Net increase (decrease) in cash.......... -- (624) 433 (191)
Cash at beginning of year................ -- 1,174 (983) 191
------- ------- ----- --------
Cash at end of year...................... $ -- $ 550 $(550) $ --
======= ======= ===== ========
</TABLE>
F-34
<PAGE> 147
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 3,131 $ 1,088 $ 4,219
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 3,951 469 4,420
Deferred income taxes................... (102) (2) (104)
Equity loss in joint venture............ -- 3 3
Changes in operating assets and
liabilities:
Accounts receivable................... 1,598 (18) 1,580
Due from (to) affiliates.............. 399 (399) --
Prepaid expenses...................... (328) (9) (337)
Spare parts and supplies.............. (293) (11) (304)
Other assets.......................... (80) (11) (91)
Accounts payable...................... (673) 111 $(304) (866)
Accrued expenses...................... (664) (98) (762)
Customer deposits..................... (593) (4) (597)
------- ------- ----- -------
Net cash provided by operating activities.... 6,346 1,119 (304) 7,161
INVESTING ACTIVITIES
Purchases of property, plant and equipment... (8,500) (561) (9,061)
Net cash used in investing activities........ (8,500) (561) (9,061)
FINANCING ACTIVITIES
Payments on notes payable.................... (74) -- (74)
Advances from (to) Parent, net............... 7,130 1,691 8,821
Dividends.................................... (4,902) (1,754) (6,656)
------- ------- ----- -------
Net cash provided by (used in) financing
activities................................. 2,154 (63) 2,091
------- ------- ----- -------
Net increase (decrease) in cash.............. -- 495 (304) 191
Cash at beginning of year.................... -- 679 (679) --
------- ------- ----- -------
Cash at end of year.......................... $ -- $ 1,174 $(983) $ 191
======= ======= ===== =======
</TABLE>
F-35
<PAGE> 148
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................ $ 3,055 $ 1,962 $ 5,017
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 4,034 306 4,340
Deferred income taxes................... 1,134 (86) 1,048
Equity loss in joint venture............ -- -- --
Changes in operating assets and
liabilities:
Accounts receivable.................. (1,573) (741) (2,314)
Due from (to) affiliates............. 1,463 (1,463) --
Prepaid expenses..................... 36 (97) (61)
Spare parts and supplies............. (392) 7 (385)
Other assets......................... (127) 9 (118)
Accounts payable..................... (1,472) (259) $(679) (2,410)
Accrued expenses..................... (852) 522 (330)
Customer deposits.................... 244 29 273
-------- -------- ----- -------
Net cash provided by operating
activities.............................. 5,550 189 (679) 5,060
INVESTING ACTIVITIES
Purchases of property, plant and
equipment............................... (4,101) (301) (4,402)
-------- -------- ----- -------
Net cash used in investing activities..... (4,101) (301) (4,402)
FINANCING ACTIVITIES
Payments on notes payable................. (67) -- (67)
Advances from (to) Parent, net............ 4,024 2,234 6,258
Dividends................................. (4,881) (2,116) (6,997)
-------- -------- ----- -------
Net cash provided by (used in) financing
activities.............................. (924) 118 (806)
-------- -------- ----- -------
Net increase (decrease) in cash........... 525 6 (679) (148)
Cash at beginning of year................. (525) 673 -- 148
-------- -------- ----- -------
Cash at end of year....................... $ -- $ 679 $(679) $ --
======== ======== ===== =======
</TABLE>
F-36
<PAGE> 149
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash....................................... $ -- $ 293 $ (293) $ --
Accounts receivable, net................... 16,436 873 17,309
Due from Parent............................ -- 1,565 (1,565) --
Prepaid expenses........................... 262 23 285
Spare parts and supplies................... 2,127 41 2,168
Deferred income taxes...................... 1,126 -- 1,126
------- ------ ------- -------
Total current assets............... 19,951 2,795 (1,858) 20,888
Property, plant and equipment, net........... 17,071 2,821 19,892
Due from (to) affiliates..................... 410 -- (410) --
Goodwill, net................................ 1,942 193 2,135
Deferred income taxes........................ 2,074 44 2,118
Investments in and advances to joint
venture.................................... -- 151 151
Other assets................................. 430 4 (21) 413
------- ------ ------- -------
Total assets....................... $41,878 $6,008 $(2,289) $45,597
======= ====== ======= =======
LIABILITIES AND COMBINED EQUITY
Current liabilities:
Accounts payable........................... $ 4,180 $ 679 $ (293) $ 4,566
Due from (to) affiliates................... -- 410 (410) --
Accrued expenses........................... 17,013 3,231 20,244
Customer deposits.......................... 2,376 57 2,433
Due to Parent.............................. 4,239 -- (1,565) 2,674
Current portion of notes payable........... 91 -- 91
------- ------ ------- -------
Total current liabilities.......... 27,899 4,377 (2,268) 30,008
Combined equity:
Common stock............................... -- 928 (21) 907
Paid-in capital............................ 441 1,144 1,585
Cumulative translation adjustment.......... -- (2) (2)
Retained earnings (deficit)................ 13,538 (439) 13,099
------- ------ ------- -------
Total combined equity.............. 13,979 1,631 (21) 15,589
------- ------ ------- -------
Total liabilities and combined
equity........................... $41,878 $6,008 $(2,289) $45,597
======= ====== ======= =======
</TABLE>
F-37
<PAGE> 150
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
GUARANTOR NON-GUARANTOR COMBINED
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
Revenues................................................... $25,846 $5,189 $31,035
Cost and expenses:
Operating expenses....................................... 22,134 4,186 26,320
Selling, general and administrative...................... 1,397 357 1,754
Depreciation and amortization............................ 954 200 1,154
------- ------ -------
Total cost and expenses.......................... 24,485 4,743 29,228
------- ------ -------
Operating income........................................... 1,361 446 1,807
Other income (expense), net................................ (4) (53) (57)
Interest income............................................ 51 26 77
Interest and other financial expense....................... (170) -- (170)
------- ------ -------
Income before income taxes................................. 1,238 419 1,657
Income taxes............................................... 482 133 615
------- ------ -------
Net income................................................. $ 756 $ 286 $ 1,042
======= ====== =======
</TABLE>
F-38
<PAGE> 151
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
GUARANTOR NON-GUARANTOR COMBINED
SUBSIDIARIES SUBSIDIARIES TOTAL
------------ ------------- --------
<S> <C> <C> <C>
Revenues................................................... $25,366 $4,450 $29,816
Cost and expenses:
Operating expenses....................................... 20,339 3,634 23,973
Selling, general and administrative...................... 1,767 297 2,064
Depreciation and amortization............................ 1,055 117 1,172
------- ------ -------
Total cost and expenses.......................... 23,161 4,048 27,209
------- ------ -------
Operating income........................................... 2,205 402 2,607
Other income (expense), net................................ 31 4 35
Interest income............................................ 22 15 37
Interest and other financial expense....................... (165) -- (165)
------- ------ -------
Income before income taxes................................. 2,093 421 2,514
Income taxes............................................... 807 127 934
------- ------ -------
Net income................................................. $ 1,286 $ 294 $ 1,580
======= ====== =======
</TABLE>
F-39
<PAGE> 152
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 756 $ 286 $ 1,042
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 954 200 1,154
Deferred income taxes................... 150 (19) 131
Equity loss in joint venture............ -- 84 84
Changes in operating assets and
liabilities:
Accounts receivable................... 2,226 409 2,635
Due from (to) affiliates.............. 303 (303) --
Prepaid expenses...................... 128 32 160
Spare parts and supplies.............. (11) (7) (18)
Other assets.......................... 167 5 172
Accounts payable...................... 264 (49) $ 257 472
Accrued expenses...................... 596 (168) 428
Customer deposits..................... (386) (553) (939)
------- ----- ----- -------
Net cash provided by (used in) by operating
activities................................. 5,147 (83) 257 5,321
INVESTING ACTIVITIES
Purchases of property, plant and equipment... (2,264) (438) (2,702)
------- ----- ----- -------
Net cash used in investing activities........ (2,264) (438) (2,702)
FINANCING ACTIVITIES
Advances from (to) Parent, net............... (2,870) 264 (2,606)
Dividends.................................... (13) -- (13)
------- ----- ----- -------
Net cash provided by (used in) financing
activities................................. (2,883) 264 (2,619)
------- ----- ----- -------
Net increase (decrease) in cash.............. -- (257) 257 --
Cash at beginning of period.................. -- 550 (550) --
------- ----- ----- -------
Cash at end of period........................ $ -- $ 293 $(293) $ --
======= ===== ===== =======
</TABLE>
F-40
<PAGE> 153
AIRCRAFT SERVICE INTERNATIONAL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL DOLLAR AMOUNTS ARE IN THOUSANDS; INFORMATION PERTAINING TO THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
13. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL STATEMENTS --
(CONTINUED)
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------------------
COMBINATION
GUARANTOR NON-GUARANTOR AND ELIMINATION COMBINED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL
------------ ------------- --------------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................... $ 1,286 $ 294 $ 1,580
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 1,055 117 1,172
Deferred income taxes................... 241 (59) 182
Changes in operating assets and
liabilities:
Accounts receivable................... 2,555 675 3,230
Due from (to) affiliates.............. (175) 175 --
Prepaid expenses...................... 194 17 211
Spare parts and supplies.............. 43 5 48
Other assets.......................... 171 -- 171
Accounts payable...................... (288) 51 $(49) (286)
Accrued expenses...................... (3) (455) (458)
Customer deposits..................... 77 -- 77
-------- ----- ---- -------
Net cash provided by (used in) by operating
activities................................. 5,156 820 (49) 5,927
INVESTING ACTIVITIES
Purchases of property, plant and equipment... (1,031) 68 (963)
-------- ----- -------
Net cash provided by (used in), investing
activities................................. (1,031) 68 (963)
FINANCING ACTIVITIES
Advances from (to) Parent, net............... (2,711) 29 (2,682)
Dividends.................................... (1,414) (284) (1,698)
-------- ----- ---- -------
Net cash provided by (used in) financing
activities................................. (4,125) (255) (4,380)
-------- ----- ---- -------
Net increase (decrease) in cash.............. -- 633 (49) 584
Cash at beginning of period.................. -- 191 -- 191
-------- ----- ---- -------
Cash at end of period........................ $ -- $ 824 $(49) $ 775
======== ===== ==== =======
</TABLE>
F-41
<PAGE> 154
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Aircraft Service International Group, Inc.
We have audited the accompanying balance sheet of Aircraft Service
International Group, Inc. as of March 31, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Aircraft Service International
Group, Inc. at March 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Greenville, South Carolina
September 16, 1998
F-42
<PAGE> 155
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash........................................................ $100
====
STOCKHOLDER'S EQUITY
Common stock, $0.01 par value -- authorized 1,000 shares,
issued and outstanding 100 shares......................... $ 1
Additional paid-in capital.................................. 99
----
Total stockholder's equity.................................. $100
====
</TABLE>
See accompanying note.
F-43
<PAGE> 156
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
NOTE TO BALANCE SHEET
MARCH 31, 1998
1. BASIS OF PRESENTATION
Aircraft Service International Group, Inc. (the "Company") was incorporated
on March 24, 1998 for the purpose of acquiring beneficial ownership and control
of all the outstanding capital stock or other equity interests in Aircraft
Service International, Inc., Dispatch Services, Inc., Florida Aviation Fueling
Co., Bahamas Airport Service, Inc., Freeport Flight Services, Inc., Aircraft
Service, Ltd., ASII Holding GmbH, and ASII Aircraft Service Canada Ltd.
(collectively the "ASIG business" or "Predecessor") from Viad Corp ("Viad") and
Viad Service Companies, Limited as of April 1, 1998 pursuant to a share purchase
agreement (the "Acquisition"). Prior to the Acquisition by the Company, the ASIG
business was operated under the divisional name of Aircraft Services
International Group. The Company is 100% owned by Ranger Aerospace Corporation.
Prior to April 1, 1998, the Company had no operations.
The purchase price of the Acquisition was $95 million in cash, plus fees
and expenses of approximately $4.1 million. The purchase price is subject to a
purchase price adjustment in favor of the Company for any shortfall in the net
asset value, net working capital or required cash (as such terms are defined in
the "Share Purchase Agreement") of the ASIG business from the levels represented
at the closing of the Acquisition. The purchase price is also subject to
adjustment in favor of Viad in an amount equal to the amount of cash in the ASIG
business at the closing of the Acquisition in excess of the required cash.
The Acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on appraisals and other estimates of their underlying fair values. The
allocation of the purchase price is preliminary pending finalization of
appraisals and other estimates. The excess of the purchase price over the fair
value of net assets acquired of approximately $48.0 million is classified as
goodwill and other intangibles and is generally being amortized over 20 years.
The following is a summary of the purchase price allocation:
<TABLE>
<S> <C>
Net working capital, including cash of $6,513,000........... $ 3,879,000
Property, plant and equipment............................... 44,208,000
Other assets................................................ 3,056,000
Intangibles................................................. 47,957,000
-----------
$99,100,000
===========
</TABLE>
The purchase price was funded as follows:
<TABLE>
<S> <C>
Sale of 100 shares of common stock, $0.01 per value, to
Ranger Aerospace Corporation.............................. $24,100,000
Borrowings under Senior Increasing Rate Notes............... 75,000,000
-----------
$99,100,000
===========
</TABLE>
BUSINESS
The Company and it subsidiaries provide aviation fueling services, aircraft
ground services and other aviation services at various airports in the United
States, Europe and the Bahamas.
F-44
<PAGE> 157
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. i
Prospectus Summary..................... 1
Risk Factors........................... 13
The Acquisition........................ 22
Use of Proceeds........................ 23
Capitalization......................... 23
Unaudited Pro Forma Financial Data..... 24
Selected Historical Financial Data..... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 31
Business............................... 39
Management............................. 51
Description of Capital Stock........... 55
Security Ownership of Certain
Beneficial Owners and Management..... 56
Certain Transactions................... 57
Description of Senior Credit
Facility............................. 62
The Exchange Offer..................... 63
Description of the Notes............... 72
Material Federal Income Tax
Considerations....................... 101
Plan of Distribution................... 106
Legal Matters.......................... 107
Experts................................ 107
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$80,000,000
AIRCRAFT SERVICE
INTERNATIONAL GROUP, INC.
OFFER TO EXCHANGE ITS SERIES B
11% SENIOR NOTES DUE 2005
FOR ANY AND ALL OF ITS OUTSTANDING
11% SENIOR NOTES DUE 2005
-----------------
PROSPECTUS
-----------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 158
PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware ("Section
145") provides that a Delaware corporation may indemnify any persons who are, or
are threatened to be made, parties 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 such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
or are threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
actually or reasonably incurred by such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
Article Nine of the Certificate of Incorporation of the Company provides
that to the fullest extent permitted by the General Corporation Law of the State
of Delaware as the same exists of may hereafter be amended, a director of the
Company shall not be liable to the Company or its stockholders for monetary
damages for a breach of fiduciary duty as a director.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
All of the directors and officers of the Company are covered by insurance
policies maintained and held in effect by such corporation against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
ITEM 21. EXHIBITS.
<TABLE>
<S> <C>
(a) Exhibits.
3.1 Certificate of Incorporation of the Company**
3.2 Bylaws of the Company**
3.3 Certificate of Incorporation of Aircraft Service
International, Inc.**
3.4 Bylaws of Aircraft Service International, Inc.**
3.5 Certificate of Incorporation of Florida Aviation Fueling
Company, Inc.**
3.6 Bylaws of Florida Aviation Fueling Company, Inc.**
3.7 Certificate of Incorporation of Dispatch Services, Inc.**
3.8 Bylaws of Dispatch Services, Inc.**
</TABLE>
II-1
<PAGE> 159
<TABLE>
<S> <C>
4.1 Securities Purchase Agreement dated as of August 13, 1998, by and among the Company, the Guarantors
and CIBC Oppenheimer Corp.**
4.2 Indenture dated as of August 18, 1998, among the Company and State Street Bank and Trust Company, as
Trustee with respect to the 11% Senior Notes due 2005 (including the form of Series B 11% Senior
Notes and Guarantees)**
4.3 Registration Rights Agreement dated as of August 18, 1998, among the Company, the Guarantors and CIBC
Oppenheimer Corp. and State Street Bank and Trust with respect to the 11% Senior Notes due 2005**
5.1 Opinion of Kirkland & Ellis
10.1 Share Purchase Agreement dated as of March 14, 1998, between Viad Corp. and Viad Service Companies
Limited and Ranger, as amended on March 31, 1998+
10.2 Securities Purchase Agreement dated as of April 1, 1998, by and among Ranger, John Hancock Mutual
Life Insurance Company, CIBC Wood Gundy Ventures, Randolph Street Partners and Gregg L. Engles**
10.3 Securityholders Agreement, dated April 1, 1998 by and among Ranger, John Hancock Mutual Life
Insurance Company, CIBC Wood Gundy Ventures, Randolph Street Partners II and Gregg L. Engles**
10.4 Registrations Rights Agreement, dated April 1, 1998 by and among Ranger, CIBC Wood Gundy Ventures,
Randolph Street Partners II and Gregg L. Engles**
10.5 Executive Stock Agreement, dated April 2, 1998 between Ranger and Stephen D. Townes**
10.6 Investor Stock Agreement, dated April 2, 1998 between Ranger and The Danielle Schwartz Trust**
10.7 Employment Agreement, dated April 2, 1998, between Ranger, the Company and Stephen D. Townes**
10.8 Employment Agreement, dated April 2, 1998, between Ranger, the Company and F. Andrew Mitchell**
10.9 Employment Agreement, dated April 2, 1998, between Ranger, the Company and George W. Watts**
10.10 Chairman Agreement, dated April 2, 1998, between Ranger, the Company, Tioga Capital Corporation and
George B. Schwartz**
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed Charges
21.1 Subsidiaries of the Company**
23.1 Consent of Ernst & Young LLP
23.2 Consent of Deloitte & Touche
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1)
24.1 Power of Attorney (included in Part II of the Registration Statement)**
25.1 Statement of Eligibility of Trustee on Form T-1
27.1 Financial Data Schedule for the year ended December 31, 1997
27.2 Financial Data Schedule for the nine months ended September 30, 1998
99.1 Form of Letter of Transmittal**
</TABLE>
II-2
<PAGE> 160
<TABLE>
<S> <C>
99.2 Form of Notice of Guaranteed Delivery**
99.3 Form of Tender Instructions**
</TABLE>
- ---------------
** Previously filed
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the Commission.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or not material, or
the information called for thereby is otherwise included in the financial
statements and therefore has been omitted.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof,
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) 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 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, such registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aircraft
Service International Group, Inc. duly caused this Amendment No. 2 to
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in City of Miami, State of Florida, on
the 10th day of December, 1998.
AIRCRAFT SERVICE INTERNATIONAL
GROUP, INC.
By: /s/ STEPHEN D. TOWNES
------------------------------------
Stephen D. Townes
President and Chief Executive
Officer
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on the 10th day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN D. TOWNES President and Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Stephen D. Townes
/s/ F. ANDREW MITCHELL Executive Vice President and Chief Financial
- ----------------------------------------------------- Officer (Principal Accounting and Financial
F. Andrew Mitchell Officer)
* Chairman of the Board, Director and
- ----------------------------------------------------- Assistant Secretary
George B. Schwartz
* Director
- -----------------------------------------------------
D. Dana Donovan
* Director
- -----------------------------------------------------
Jay R. Levine
* Director
- -----------------------------------------------------
Edward Levy
* Director
- -----------------------------------------------------
S. Mark Ray
</TABLE>
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 to Registration Statement on Form S-4 on behalf of the above
named officers and directors of Aircraft Service International Group, Inc.
pursuant to the Power of Attorney executed by such officers and directors
and filed with the Securities and Exchange Commission.
<TABLE>
<C> <S>
/s/ F. ANDREW MITCHELL Attorney-in-Fact
- -----------------------------------------------------
F. Andrew Mitchell
</TABLE>
II-4
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aircraft
Service International, Inc. duly caused this Amendment No. 2 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in City of Miami, State of Florida, on the 10th day of
December, 1998.
AIRCRAFT SERVICE INTERNATIONAL, INC.
By: /s/ STEPHEN D. TOWNES
------------------------------------
Stephen D. Townes
President and Chief Executive
Officer
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on the 10th day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN D. TOWNES President and Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Stephen D. Townes
/s/ F. ANDREW MITCHELL Executive Vice President
- ----------------------------------------------------- (Principal Accounting and Financial Officer)
F. Andrew Mitchell
</TABLE>
II-5
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Dispatch
Services, Inc. duly caused this Amendment No. 2 to Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in City of Miami, State of Florida, on the 10th day of December,
1998.
DISPATCH SERVICES, INC.
By: /s/ STEPHEN D. TOWNES
------------------------------------
Stephen D. Townes
President and Chief Executive
Officer
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on the 10th day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN D. TOWNES President and Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Stephen D. Townes
/s/ F. ANDREW MITCHELL Executive Vice President
- ----------------------------------------------------- (Principal Accounting and Financial Officer)
F. Andrew Mitchell
</TABLE>
II-6
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Florida
Aviation Fueling Company, Inc. duly caused this Amendment No. 2 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in City of Miami, State of Florida, on the 10th day of
December, 1998.
FLORIDA AVIATION FUELING COMPANY, INC.
By: /s/ STEPHEN D. TOWNES
-------------------------------------
Stephen D. Townes
President and Chief Executive Officer
* * *
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on the 10th day of December, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN D. TOWNES President and Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Stephen D. Townes
/s/ F. ANDREW MITCHELL Executive Vice President
- ----------------------------------------------------- (Principal Accounting and Financial Officer)
F. Andrew Mitchell
</TABLE>
II-7
<PAGE> 165
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
AIRCRAFT SERVICE INTERNATIONAL GROUP
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts............ $1,276 $240 $ 825(1) $ 691
====== ==== ===== ======
Year Ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 691 $289 $(296)(1)(2) $1,276
====== ==== ===== ======
Year Ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts............ $1,276 $245 $ 899(1) $ 622
====== ==== ===== ======
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents offset of customer deposits against allowance.
S-1
<PAGE> 1
EXHIBIT 5.1
[KIRKLAND & ELLIS LETTERHEAD]
December 9, 1998
Aircraft Service International Group, Inc.
8240 N.W. 52nd Terrace, #200
Miami, FL 33166-7766
Re: Aircraft Service International Group, Inc.,
Aircraft Service International, Inc.,
Florida Aviation Fueling Company, Inc., and
Dispatch Services, Inc.
Registration Statement on Form S-4
Registration No. 333-64513
Ladies and Gentlemen:
We are issuing this opinion letter in our capacity as special legal
counsel to Aircraft Service International Group, Inc., a Delaware corporation
(the "Issuer") and Aircraft Service International, Inc., a Delaware corporation
("ASII"), Florida Aviation Fueling Company, Inc., a Florida corporation
("FAFCO"), and Dispatch Services, Inc., a Florida corporation, ("DSI" and,
collectively with ASII and FAFCO, the "Guarantors" and, together with the
Issuer, the "Registrants"), in connection with the proposed registration by the
Issuer of up to $80,000,000 in aggregate principal amount of the Issuer's 11%
Series B Senior Notes due 2005 (the "Exchange Notes"), pursuant to a
Registration Statement on Form S-4 (Registration No. 333-64513) originally filed
with the Securities and Exchange Commission (the "Commission") on September 29,
1998, under the Securities Act of 1933, as amended (the "Act") (such
Registration Statement, as amended or supplemented, is hereinafter referred to
as the "Registration Statement"). The obligations of the Issuer under the
Exchange Notes will be guaranteed by the Guarantors (the "Guarantees"). The
Exchange Notes and the Guarantees are to be issued pursuant to the Indenture
(the "Indenture"), dated as of August 18, 1998, among the Issuer and State
Street Bank and Trust Company, as Trustee, in exchange for and in replacement of
the Issuer's outstanding 11% Senior Notes due 2005 (the "Old Notes"), of which
$80,000,000 in aggregate principal amount is outstanding.
<PAGE> 2
KIRKLAND & ELLIS
Aircraft Service International Group, Inc.
December 9, 1998
Page 2
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the Certificate of Incorporation and By-Laws of the
Registrants, (ii) minutes and records of the corporate proceedings of the
Registrants with respect to the issuance of the Exchange Notes and the
Guarantees, respectively, (iii) the Registration Statement, and (iv) the
Registration Rights Agreement, dated August 18, 1998, among the Issuer, the
Guarantors, and CIBC Oppenheimer Corp.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the genuineness of the
signatures of persons signing all documents in connection with which this
opinion is rendered, the authority of such persons signing on behalf of the
parties thereto and the due authorization, execution and delivery of all
documents by the parties thereto other than the Issuer. We have also assumed
that with respect to FAFCO and DSI that: (i) each has the corporate power and
authority to enter into and perform its obligations under the Guarantees and
(ii) that neither entering into or performing the Guarantees is in contradiction
of the General Corporation Act of the State of Florida. As to any facts material
to the opinions expressed herein which we have not independently established or
verified, we have relied upon statements and representations of officers and
other representatives of the Registrants and others.
Our opinion expressed below is subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
Based upon and subject to the assumptions, qualifications, assumptions
and limitations and the further limitations set forth below, we are of the
opinion that when (i) the Registration Statement becomes effective, (ii) the
Board of Directors and the appropriate officers of the Registrants have taken
all necessary action to fix and approve the terms of the Exchange Notes and the
Guarantees,
<PAGE> 3
KIRKLAND & ELLIS
Aircraft Service International Group, Inc.
December 9, 1998
Page 3
respectively, (iii) the Indenture has been duly qualified under the Trust
Indenture Act of 1939, as amended and (iv) the Exchange Notes and the Guarantees
have been duly executed and authenticated in accordance with the provisions of
the Indenture and duly delivered to the purchasers thereof in exchange for the
Old Notes, the Exchange Notes and the Guarantees will be validly issued
obligations of the Registrants.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the heading "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of New York or Delaware or the federal law of the United
States be changed by legislative action, judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Sincerely,
\s\ Kirkland & Ellis
--------------------
Kirkland & Ellis
<PAGE> 1
EXHIBIT 10.1
Conformed to Document of 03/14/98
SHARE PURCHASE AGREEMENT
BETWEEN
VIAD CORP,
a Delaware corporation
("Viad")
and
VIAD SERVICE COMPANIES LIMITED,
a United Kingdom limited liability company
("Viad Services")
as "Sellers"
AND
RANGER AEROSPACE CORPORATION,
a Delaware corporation
as "Buyer"
Dated as of March 14, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. PURPOSES..................................................................................1
1.1 Business.........................................................................1
1.2 Share Capital Ownership..........................................................1
1.3 Agreement to Purchase and Sell...................................................1
2. DEFINITIONS...............................................................................2
2.1 Certain Defined Terms............................................................2
2.2 Accounting Terms.................................................................2
3. PURCHASE AND SALE OF COMPANIES' SHARES....................................................2
3.1 Purchase And Sale................................................................2
3.2 Purchase Price...................................................................2
3.3 Intercompany Account.............................................................3
3.4 Sharp Transfers..................................................................3
3.5 Closing..........................................................................3
4. PURCHASE PRICE ADJUSTMENT.................................................................4
4.1 Adjustment.......................................................................4
4.2 Adjustment Procedures............................................................4
(a) Net Assets Report.......................................................4
(b) Objections..............................................................5
(c) Failure to Agree........................................................6
4.3 Settlement.......................................................................6
5. REPRESENTATIONS AND WARRANTIES CONCERNING SELLERS.........................................7
5.1 Corporate Organization...........................................................7
(a) Organization of Viad....................................................7
(b) Organization of Viad Services...........................................7
5.2 Authority........................................................................8
5.3 No Violation.....................................................................8
5.4 Consents and Approvals of Governmental Authorities...............................9
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE ASIG
ENTITIES..................................................................................9
6.1 Corporate Organization, Etc......................................................9
6.2 Capitalization..................................................................10
6.3 No Violation....................................................................11
6.4 Equity and Other Interests......................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
6.5 Financial Statements............................................................11
6.6 Taxes...........................................................................12
(a) Filing of Returns......................................................12
(b) Examination of Returns.................................................13
(c) Consents...............................................................13
(d) Agreements/Waivers.....................................................13
(e) Tax Sharing Agreements.................................................13
(f) Audits.................................................................14
(g) Elections..............................................................14
6.7 Assets of ASIG Entities.........................................................14
(a) Title..................................................................14
(b) Adequacy of Assets.....................................................14
6.8 Real Property...................................................................15
(a) Owned Real Property....................................................15
(b) Leased Real Property...................................................16
(c) Real Property Used in the Business.....................................17
(d) Improvements...........................................................17
(e) Lawful Use.............................................................17
(f) Condemnation; Other Actions............................................17
6.9 Intellectual Property...........................................................18
(a) List of Rights.........................................................18
(b) Title and Effect.......................................................18
(d) Year 2000..............................................................20
6.10 Contracts.......................................................................20
(a) List of Contracts......................................................20
(b) Binding Contracts......................................................24
(c) Consents...............................................................25
6.11 Litigation......................................................................25
6.12 Employee and Related Matters; ERISA.............................................25
(a) Benefits Plans.........................................................25
(b) Copies of Plans........................................................26
(c) Plan Liability.........................................................26
(d) Claims, Etc............................................................26
(e) Contributions..........................................................27
(f) Group Health Plans.....................................................27
(g) Insurance Funding......................................................28
(h) Severance Liabilities..................................................28
(i) Additional Benefits....................................................28
(j) Qualification..........................................................29
(k) PBGC Liability.........................................................29
6.13 Multiemployer Plans.............................................................29
(a) Withdrawal Liability...................................................29
(b) Insolvency.............................................................29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.14 Absence of Changes or Events....................................................30
(a) No Changes.............................................................30
(b) Increases in Payments/Expenses.........................................30
(c) Modification of Plan...................................................31
(d) Shares in Business.....................................................31
(e) Transfer of Assets.....................................................31
(f) Acquisitions...........................................................32
(g) Articles and Bylaws....................................................32
(h) Failure to Operate in Ordinary Course..................................32
(i) Change in Policies.....................................................32
(j) Change in Accounting...................................................33
(k) Maintenance of Books...................................................33
(l) Certain Modifications..................................................33
(m) Capital Expenditures...................................................33
(n) Obligations............................................................34
(o) Encumbrancers..........................................................34
(p) Receivables............................................................34
(q) Debt...................................................................34
(r) Property Damage/Loss...................................................34
(s) Distributions..........................................................34
(t) Settlements............................................................35
(u) Labor Matters..........................................................35
(v) Lapse of Intellectual Property Rights..................................35
(w) Sale/Leasebacks........................................................35
(x) Payments to Sellers....................................................35
(y) General................................................................36
6.15 Compliance with Applicable Laws.................................................36
(a) General Compliance.....................................................36
(b) Environmental..........................................................36
6.16 Employee and Labor Relations....................................................38
(a) Collective Bargaining Representative...................................38
(b) Labor Disputes.........................................................38
(c) Representative Questions...............................................38
(d) Unfair Labor Practices.................................................38
(e) Grievances.............................................................39
(f) Employment Matters.....................................................39
(g) Collective Bargaining Obligations......................................39
6.17 Absence of Undisclosed Liabilities..............................................39
6.18 Brokers and Finders.............................................................40
6.19 Insurance.......................................................................40
6.20 Banking Facilities..............................................................40
6.21 Books of Accounts, Records......................................................40
6.22 Accounts Receivable.............................................................41
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
6.23 Affiliated Transactions.........................................................41
6.24 Licenses and Permits............................................................41
6.25 Customers.......................................................................42
6.26 Disclosure......................................................................42
7. REPRESENTATIONS AND WARRANTIES OF BUYER..................................................42
7.1 Corporate Organization and Qualification........................................42
7.2 Authority.......................................................................43
7.3 No Violation....................................................................43
(a) No Conflicts...........................................................43
(b) No Defaults............................................................43
7.4 Brokers and Finders.............................................................44
7.5 Investment......................................................................44
7.6 Consents and Approvals..........................................................44
8. ADDITIONAL COVENANTS AND AGREEMENTS ACKNOWLEDGMENTS......................................45
8.1 Conduct of Business of the ASIG Entities........................................45
(a) Ordinary Course of Business............................................45
(b) Preservation of Business...............................................45
8.2 Reasonable Efforts..............................................................46
8.3 Access to Information...........................................................46
8.4 Publicity.......................................................................46
8.5 Taxes...........................................................................47
(a) Mutual Assistance......................................................47
(b) Allocation of Tax Liability............................................48
(c) Tax Audit Adjustments..................................................49
(d) Tax Returns............................................................50
(e) Section 338(h)(10) Election............................................51
8.6 Insurance.......................................................................51
8.7 Resignations....................................................................52
8.8 Third-Party Consents............................................................52
8.9 Post-Closing Pension Plan Service Funding.......................................53
(a) V-RIP Pension Plan.....................................................53
(b) Buyer Cooperation......................................................54
(c) Savings Plans..........................................................54
(d) ESOP...................................................................54
(e) DSI Pension Plan.......................................................55
(f) Retiree Welfare Benefits...............................................55
(g) Transfer of Assets.....................................................55
8.10 Noncompete Agreement............................................................56
8.11 Certain Property Transfers......................................................56
8.12 Confidential Information; Solicitation of Personnel.............................56
(a) Seller's Obligation....................................................56
(b) Buyer's Obligation.....................................................56
8.13 Obligations under Financial Accomodations.......................................57
8.14 Liabilities under Certain Plans.................................................57
8.15 Budgeted Capital Expenditure....................................................57
8.16 Disclosure Obligations..........................................................58
8.17 Covenant Regarding Receivables and Cash Accounts................................58
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
8.18 Other Documents/Actions.........................................................59
8.19 Medical Benefits................................................................59
8.20 Worker's Compensation Cooperation...............................................59
8.21 Net Asset Value Adjustment Related to Medical Claims and Worker's
Compensation Claims.............................................................60
8.22 Burbank Condemnation Proceeding.................................................60
8.23 Certain Tax Obligations.........................................................60
8.24 Retained Assets and Retained Liabilities........................................61
8.25 Estoppel Letter.................................................................61
8.26 Non-Disturbance Agreement.......................................................61
9. CONDITIONS...............................................................................61
9.1 Conditions to Each Party's Obligations..........................................61
(a) Governmental and Regulatory Consents...................................62
(b) Litigation.............................................................62
9.2 Conditions to Obligations of Buyer..............................................62
(a) Representations and Warranties: Performance of Agreement...............62
(b) Third-Party Consents...................................................63
(c) Noncompete Agreement...................................................63
(d) Opinion................................................................63
(e) Due Diligence..........................................................63
(f) Financing..............................................................63
(g) .......................................................................64
(h) Deliveries Completed...................................................64
9.3 Conditions to Obligations of Sellers............................................64
(a) Representations and Warranties; Performance of Agreement...............64
(b) Noncompete Agreement...................................................65
(c) Deliveries.............................................................65
(d) Board..................................................................65
10. CLOSING DELIVERIES.......................................................................65
10.1 Deliveries by Sellers...........................................................65
(a) Corporate Resolutions..................................................65
(b) Share Certificates.....................................................65
(c) Officer's Certificate..................................................65
(d) Articles and Bylaws....................................................66
(e) Corporate Records......................................................66
(f) Good Standing..........................................................66
(g) Legal Opinion..........................................................66
(h) Noncompete Agreement...................................................66
(i) Certificate of Incumbency..............................................66
(j) Estoppel Certificates..................................................67
(k) Original Contracts.....................................................67
(l) Non-Disturbance Agreements.............................................67
(m) Resignations of Officers and Directors.................................67
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C>
(n) Release................................................................67
(o) Other Documents........................................................67
10.2 Deliveries by Buyer.............................................................67
(a) Corporate Resolution...................................................68
(b) Purchase Price.........................................................68
(c) Officer's Certificate..................................................68
(d) Noncompetition.........................................................68
(e) Certificate of Incumbency..............................................68
(f) Other Documents........................................................68
11. TERMINATION..............................................................................68
11.1 Termination by Mutual Consent...................................................68
11.2 Termination by Buyer or Sellers.................................................68
11.3 Termination by Buyer............................................................69
11.4 Termination by Sellers..........................................................69
11.5 Effect of Termination and Abandonment...........................................69
12. INDEMNIFICATION..........................................................................70
12.1 Survival........................................................................70
12.2 Indemnification by the Sellers..................................................70
(a) General Indemnity......................................................70
(b) Specific Indemnities...................................................71
(c) Limitations............................................................73
12.3 Indemnification by Buyer........................................................75
12.4 Termination of Indemnification..................................................76
12.5 Procedures Relating to Indemnification..........................................76
(a) Notice.................................................................76
(b) Participation..........................................................77
(c) Exceptions.............................................................78
(d) Acceptance or Dispute..................................................79
12.6 Payment of Indemnity Payments...................................................79
12.7 Fraud...........................................................................80
12.8 Special Procedures Relating to Environmental Issues and Liabilities.............80
(a) Management.............................................................80
(b) Consulting.............................................................81
(c) Good Faith.............................................................81
(d) Completion Standard....................................................81
13. MISCELLANEOUS AND GENERAL................................................................82
13.1 Payment of Expenses.............................................................82
(a) General................................................................82
(b) Audit And Environmental................................................82
13.2 Modification or Amendment.......................................................82
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C>
13.3 Waiver of Conditions............................................................82
13.4 Counterparts....................................................................83
13.5 Governing Law...................................................................83
13.6 Notices.........................................................................83
13.7 Entire Agreement; Assignment....................................................84
13.8 Parties in Interest; Successors and Assigns.....................................85
13.9 Obligation of Sellers...........................................................85
13.10 Remedies for Breach.............................................................85
13.11 Captions........................................................................86
13.12 Further Assurances..............................................................86
13.13 Dispute Resolution..............................................................87
13.14 Schedules and Exhibits..........................................................87
13.15 Severability....................................................................87
13.16 Binding Effect..................................................................87
13.17 Exclusivity.....................................................................88
</TABLE>
vii
<PAGE> 9
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1 Companies and ASIG Entities
Schedule 1.2 Share Capital Ownership, Etc.
Schedule 2.1 Defined Terms
Schedule 3.2 Pro Forma Balance Sheet
Schedule 5.3 No Violation -- Sellers
Schedule 5.4 Consents and Approvals of Governmental
Authorities -- Sellers
Schedule 6.2 Shareholder Agreements, Etc./Governmental
Consents/Permits
Schedule 6.3 No Violation -- ASIG Entities
Schedule 6.4 Equity Interests
Schedule 6.5 Financial Statements
Schedule 6.6 Taxes
Schedule 6.7 Encumbrances
Schedule 6.8 Condemnations; Other Actions
Schedule 6.8(a) Owned Real Property
Schedule 6.8(b) Leased Real Property
Schedule 6.8(d) Improvements
Schedule 6.9 Intellectual Property
Schedule 6.10 Contracts
Schedule 6.11 Litigation
Schedule 6.12 Employee and Related Matters; ERISA
Schedule 6.13 Multi-Employer Plans
Schedule 6.14 Changes or Events Since the Date of the
Balance Sheet
Schedule 6.15 Compliance with Applicable Laws
Schedule 6.15(b) Known Environmental Liabilities
Schedule 6.16 Employee and Labor Relations
Schedule 6.17 Liabilities
Schedule 6.18 Brokers and Finders -- Sellers
Schedule 6.19 Insurance
Schedule 6.20 Banking Facilities
Schedule 6.23 Affiliated Transactions
Schedule 6.24 Licenses/Permits, Etc.
Schedule 6.25 List of Customers of ASIG Entities
Schedule 6.26 Buyer's Disclosure
Schedule 7.4 Brokers and Finders -- Buyer
Schedule 7.5 Accredited Investor Status
Schedule 7.6 Consents and Approvals.
Schedule 8.7 Resignations
Schedule 8.10 Noncompete Agreement
</TABLE>
viii
<PAGE> 10
<TABLE>
<S> <C>
Schedule 8.11 Trademarks and Trademark Assignment
Schedule 8.13 Obligations under Financial Accommodations
Schedule 8.14 Participants in SERP, MIP and PUP
Schedule 8.15 Budgeted Capital Expenditures
Schedule 8.20 Worker's Compensation/Return-to-Work Program
Schedule 8.24 Retained Assets and Retained Liabilities
Schedule 8.25 Estoppel Certificate
Schedule 9.2(d) Opinions of Sellers' Counsel
Schedule 9.2(f) Financing Commitment Letters
Schedule 13.1 Expenses
Schedule 13.13 Dispute Resolution
</TABLE>
ix
<PAGE> 11
Conformed to Document of 3/14/98
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT ("Agreement"), dated as of March 14,
1998, between Viad Corp, a Delaware corporation, and Viad Service Companies
Limited, a limited liability company of the United Kingdom ("Sellers"), and
Ranger Aerospace Corporation, a Delaware corporation ("Buyer").
RECITALS
1. PURPOSES.
1.1 Business. Buyer intends to acquire from Sellers the Business, all
of which is conducted by those entities comprising Sellers' Aircraft Service
International Group ("ASIG Entities") listed on Schedule 1.1 hereto, by purchase
from Sellers of all the shares of capital or equity in those entities identified
as "Companies" on Schedule 1.1.
1.2 Share Capital Ownership. Sellers own all of the authorized, issued
and outstanding shares of capital or equity of Companies, all of which are shown
on Schedule 1.2 hereto, and intend to sell them to Buyer. The Companies own
shares of capital or equity in the Subsidiaries as shown on Schedule 1.2.
1.3 Agreement to Purchase and Sell. In consideration of the mutual
representations, warranties, covenants and agreements, and subject to all of the
terms and conditions specified herein, Buyer and Sellers hereby agree as set
forth herein.
<PAGE> 12
2. DEFINITIONS.
2.1 Certain Defined Terms. Defined terms used in this Agreement shall
have the meanings set forth or described on Schedule 2.1 hereto (such meanings
to be equally applicable to both the singular and plural forms of such terms).
2.2 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with generally accepted
accounting principles in the United States, or the equivalent accounting
principles in the jurisdiction of incorporation, or the jurisdiction governing
the conduct of a portion of the Business conducted by each of the foreign ASIG
Entities, as applicable, in each case consistently applied ("GAAP") .
3. PURCHASE AND SALE OF COMPANIES' SHARES.
3.1 Purchase And Sale. At the Closing and subject to the conditions set
forth in Section 9 herein, Sellers will sell and Buyer will purchase all of the
issued and outstanding shares of capital stock or other equity interests in the
Companies ("Companies' Shares"). All of the Companies' Shares are shown on
Schedule 1.2 hereto.
3.2 Purchase Price. The price for the Companies' Shares to be paid to
Sellers by Buyer hereunder ("Purchase Price"), as adjusted pursuant to the terms
of Section 4 hereof, shall be a cash amount of US $95,000,000 at Closing by wire
transfer to an account specified by Viad, such payment to be based on the
following assumptions: (a) the Net Asset Value of the ASIG Entities, as of the
Closing shall not be less than the amount reflected on Schedule 3.2(a) before
taking into account the calculations described in Section 8.21 hereof; (b) the
Net Working Capital of the ASIG Entities as of the Closing shall not be less
than the amount reflected on Schedule 3.2(b); (c) cash on hand as of the Closing
shall not be less than the amount of cash to be
2
<PAGE> 13
left in the Business in accordance with Sections 8.15 and 8.17 (it being
understood that such amount represents the sum of all cash related to customer
deposits, consortia cash, a normalized level of petty cash at all 37 of the
Company's locations and the Remaining Required Capital Expenditure Amount); and
(d) the Retained Assets and Retained Liabilities and the Intercompany Account
shall be removed from the calculation of Net Assets and Net Working Capital
reflected in the Amounts set forth in (a) and (b) of this paragraph and as shown
on the Pro Forma Balance Sheet of the ASIG Entities attached hereto as Schedule
3.2.
3.3 Intercompany Account. All indebtedness of any of the ASIG Entities
to Sellers and Sellers to the ASIG Entities as of the Closing Date
("Intercompany Account") shall have been contributed to the capital of the
debtor entity prior to the Closing Date so that the ASIG Entities will have no
liabilities or obligations with respect to Intercompany Accounts from and after
the Closing Date.
3.4 Share Transfers. Sellers shall deliver to Buyer certificates or
other documentation representing the Companies' Shares, free and clear of all
Encumbrances, duly endorsed in blank or accompanied by transfer powers duly
endorsed in blank in proper form for transfer of all of Sellers' interests in
the Companies' Shares.
3.5 Closing. If the closing conditions are satisfied, the closing of
the transactions ("Transactions") contemplated by this Agreement ("Closing")
shall take place at 10:00 a.m. on March 31, 1998, or if later, 2 business days
after the conditions set forth in Section 9 hereof are satisfied ("Closing
Date") at the offices of Viad Corp, 1850 North Central Avenue, Phoenix, Arizona,
unless the parties hereto agree upon a different time, date or place.
Notwithstanding any other provisions hereof, if the Closing has not occurred by
the close of business on May 4, 1998,
3
<PAGE> 14
either party shall be entitled to terminate this Agreement pursuant to the
provisions of Sections 11.3 (Termination by Buyer) and 11.4 (Termination by
Sellers) hereof so long as such terminating party is not in material breach of
its obligations hereunder.
4. PURCHASE PRICE ADJUSTMENT.
4.1 Adjustment. The Purchase Price shall be adjusted by subtracting
therefrom any shortfall in the Net Asset Value or Net Working Capital as of the
Closing Date (as reflected on the Net Asset Report and Net Working Capital
Report, respectively, finally calculated in accordance with Section 4.2 below)
from the minimum Net Assets balance or Net Working Capital balance set forth in
Sections 3.2(a) and (b) hereof.
4.2 Adjustment Procedures.
(a) Net Assets Report. Not later than 90 days following the
Closing Date, Buyer shall deliver to Sellers a draft combined balance
sheet of the ASIG Entities ("Closing Balance Sheet") and a Schedule
setting forth Buyer's determination of the Net Asset Value ("Net Assets
Report") and of the Net Working Capital ("Net Working Capital Report")
as of the Closing Date, and at such time also shall provide Sellers,
their accountants and independent auditors, upon receipt of reasonable
advance notice, reasonable access to employees, accountants,
workpapers, the books and records of all of the Companies during normal
business hours for the purpose of reviewing (all to be at Sellers'
expense) the draft Closing Balance Sheet, Net Assets Report and Net
Working Capital Report. Such access by Sellers shall not disrupt the
conduct of the Business by the ASIG Entities. No later than 30 days
following receipt of the draft Closing Balance Sheet, Net Assets
Report, and Net Working Capital Report, Sellers shall advise Buyer that
4
<PAGE> 15
Sellers either (i) agree with the draft Closing Balance Sheet, Net
Assets Report, or Net Working Capital Report, or (ii) have proposed
modifications to the draft Closing Balance Sheet, Net Assets Report or
Net Working Capital Report, but only if and to the extent that any of
such modifications are based on the Net Assets Report or Net Working
Capital Report not being in compliance with GAAP consistently applied
with the methods and procedures used in the calculation of Net Assets
and Net Working Capital set forth in Section 3.2 and giving effect to
the transactions contemplated hereby. If Sellers agree with the draft
Closing Balance Sheet, Net Assets Report or the Net Working Capital
Report, such report shall be deemed to be final for purposes of this
Agreement. If Sellers have proposed modifications to any of the draft
Closing Balance Sheet, Net Assets Report, or Net Working Capital
Report, Sellers, for a period of 15 days following delivery of such
proposed modifications, shall provide to Buyer, its accountants and
independent auditors, upon reasonable notice, access to the employees,
accountants, books, records, and related work papers of Sellers at
Buyer's expense.
(b) Objections. If, by the close of business on the last day
of such 15-day period, Buyer has notified Sellers that it has no
objections to the proposed modifications to any of the draft Closing
Balance Sheet, Net Assets Report, or Net Working Capital Report, or if
it has notified Sellers it has objections and Sellers agree with the
objections, then such draft Closing Balance Sheet, Net Assets Report or
Net Working Capital Report shall be deemed to be the Closing Balance
Sheet, Net Assets Report and Net Working Capital Report for the
purposes of this Agreement.
5
<PAGE> 16
(c) Failure to Agree. If, by the end of such 15-day period,
the parties are unable to agree on the determination of the draft
Closing Balance Sheet, Net Assets Report or Net Working Capital Report,
then an independent accounting firm of certified public accountants,
mutually acceptable to the parties hereto, shall review the disputed
matters and, as soon as practicable, deliver to Sellers and Buyer a
statement setting forth its determination as to the proper treatment
under this Agreement of the matters as to which there was disagreement.
Such determination shall be final and binding upon the parties hereto
without any further right of appeal. All charges of such independent
accounting firm incurred in making such determination shall be borne
50% by Buyer and 50% by Sellers. At the option of Buyer, in place of
the above-outlined procedure, the final determination may be made using
the dispute resolution procedures provided for in Section 13.13 hereof.
4.3 Settlement. Upon final determination of the Net Asset Value and Net
Working Capital, Sellers, in the event and to the extent of any shortfall from
the minimum amounts thereof or the cash required to be in the Company's
possession at Closing required pursuant to Section 3.2 hereof, promptly shall
pay in cash to Buyer the amount calculated pursuant to Section 4.1 hereof. Any
amount so paid in cash to Buyer by Sellers pursuant to this Section 4.3 as a
result of a Net Working Capital shortfall shall also be treated to increase the
Net Asset Value and the amount of cash in the Business to the extent of such
amount paid by Sellers.
6
<PAGE> 17
5. REPRESENTATIONS AND WARRANTIES CONCERNING SELLERS. As an
inducement to Buyer to enter into this Agreement, Sellers hereby jointly and
severally make the following representations and warranties to Buyer as of the
date hereof and as of the Closing Date:
5.1 Corporate Organization.
(a) Organization of Viad. Viad Corp is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, has full corporate power and authority to carry on
its business as it is now being conducted and as heretofore conducted
and to own the properties and assets it now owns, is duly qualified or
licensed to do business as a foreign corporation, is in good standing
in each state of the U.S. and foreign jurisdictions in which its
ownership of property or the conduct of its business requires such
qualification, other than jurisdictions in which the failure to so
qualify would not have a material adverse effect on the business,
operations, assets, properties, rights, prospects, or condition
(financial or otherwise) (a "Material Adverse Effect") of Viad Corp,
and has full corporate power to enter into this Agreement and to carry
out the Transactions.
(b) Organization of Viad Services. Viad Service Companies
Limited is a limited liability company duly organized, validly existing
and in good standing under the laws of England, has full corporate
power and authority to carry on its business as it now is being and as
heretofore conducted and to own the properties and assets it now owns,
is duly qualified or licensed to do business and is in good standing in
each jurisdiction in which ownership of property or the conduct of its
business requires such qualification,
7
<PAGE> 18
other than jurisdictions in which the failure to so qualify would not
have a Material Adverse Effect on Viad Service Companies Limited, and
has full corporate power to enter into this Agreement and to carry out
the Transactions.
5.2 Authority. Except as provided in Section 5.4 hereof, Sellers have
taken all actions required by law, their respective Articles, Bylaws or
otherwise, to authorize the execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
Transactions, and no other action, consent, authorization, approval or corporate
proceedings on the part of Sellers or their respective shareholders, Boards or
any other Person are necessary to authorize the execution, delivery and
performance by Sellers of this Agreement subject to Board approval of Viad which
will have been obtained on or before March 24, 1998. This Agreement has been
duly executed and delivered by Sellers. This Agreement is a valid and binding
agreement enforceable against Sellers in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity
and equitable relief.
5.3 No Violation. Neither the execution and delivery of this Agreement
nor the consummation of the Transactions will violate any provisions of the
respective Articles or Bylaws of Sellers. Except as disclosed on Schedules 5.3
and 5.4 hereto, neither the execution and delivery of this Agreement nor the
consummation of the Transactions will violate, or be in conflict with, or allow
the termination of, or constitute a default under, or cause the acceleration of
the maturity of any material debt or obligation pursuant to, any material
agreement or commitment to which Sellers are a party or by which Sellers or any
of the assets of the Business are bound, or
8
<PAGE> 19
violate any Laws or any Orders of any Governmental Authority, to which Sellers
are subject or result in the creation of any Encumbrance on the Companies'
Shares.
5.4 Consents and Approvals of Governmental Authorities. Except as
disclosed on Schedule 5.4 hereto, and for the requirements of the HSR Act and
the Exon-Florio Amendment, if applicable, no consent, approval or authorization
of, or declaration, filing or registration with, any Governmental Authority is
required to be made or obtained by Sellers for the validity of the execution and
delivery or for the performance by Sellers of this Agreement or the consummation
of the Transactions.
6. REPRESENTATIONS AND WARRANTIES CONCERNING THE ASIG ENTITIES.
As an inducement to Buyer to enter into this Agreement, Sellers hereby
jointly and severally make the following representations and warranties to Buyer
as of the date hereof and as of the Closing Date:
6.1 Corporate Organization, Etc. The ASIG Entities all are duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation or organization as set forth on Schedule 1.1
hereto without limitation on the period of their existence. Each ASIG Entity has
full corporate power and authority to carry on its respective business as now
being conducted and heretofore conducted and to own the properties and assets it
now owns, and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each state and territory of the United
States and foreign jurisdiction in which its ownership of property or the
conduct of its business requires such qualification, other than jurisdictions in
which the failure to so qualify would not have a Material Adverse Effect on such
9
<PAGE> 20
ASIG Entity. A list of such jurisdictions in which each ASIG Entity is so
qualified is shown on Schedule 1.1.
6.2 Capitalization. The authorized, issued and outstanding capital of
the ASIG Entities as of the date hereof is shown on Schedule 1.2 hereto. All
outstanding Companies' Shares are owned by the Sellers hereto free and clear of
any Encumbrances. There are not any outstanding stock appreciation rights
("SARs") or any outstanding or authorized options, warrants, calls, rights,
commitments or any other agreements of any character which any of the ASIG
Entities is a party to, or may be bound by, or any securities law, requiring the
ASIG Entities to issue, transfer, sell, purchase, redeem or acquire, or register
any shares of capital or any securities or rights convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of capital of the ASIG
Entities. Except as disclosed on Schedule 6.2 hereof, there are not, as of the
date hereof, nor will there be at the Closing Date, any shareholder agreement,
rights of first refusal or first offer, voting trust restrictions or limitations
on transfer or other agreements or understandings to which any of the ASIG
Entities or Sellers is a party or to which any of them is bound relating
directly or indirectly to any Companies' Shares or the Subsidiary Shares,
excepting those restrictions and limitations under the Securities Act. Except as
disclosed on Schedule 6.2, with respect to the ASIG Entities that are organized
under a foreign law, no consent of or notice to any Governmental Entity or any
other third party is required with respect to the sale and transfer of
Companies' Shares to Buyer.
10
<PAGE> 21
6.3 No Violation. Except as set forth on Schedule 6.3 hereto, neither
the execution, delivery and performance of this Agreement nor the consummation
by Sellers of the Transactions, will (a) conflict with, or result in any
violation of, the Articles or Bylaws of the ASIG Entities; (b) violate, result
in the breach of, or constitute a default (with or without notice or lapse of
time, or both) under, or result in the modification, limitation or revocation
of, or result in the loss, suspension, impairment or forfeiture of any right,
privilege or benefit under, or require any payment under, or give rise to a
right of termination, cancellation or acceleration of any obligation under, any
provision of (i) any note, bond, debt instrument, mortgage, indenture, deed of
trust, item of intellectual property, Permit, license, lease, lien, contract,
commitment, agreement or other instrument or arrangement to which any of the
ASIG Entities are a party or by which any of their respective properties, assets
or businesses are bound or (ii) any Law or Order applicable to any of the ASIG
Entities or by which they are bound or by which any of their respective
properties or assets or businesses is bound or affected; or (c) result in the
creation of any Encumbrances upon any of the properties or assets of the ASIG
Entities or on the Companies' Shares.
6.4 Equity and Other Interests. Except for interests disclosed on
Schedule 6.4 hereto, none of the ASIG Entities owns, directly or indirectly, any
capital stock of or other debt or equity interests in any corporation, joint
venture, partnership or other entity.
6.5 Financial Statements. Schedule 6.5 hereto contains the consolidated
balance sheet of the ASIG Entities as of December 31, 1994, 1995, 1996, and
1997, and the related statements of income and cash flows for the periods
indicated in each case, together with the notes thereto, if any, and the
consolidated balance sheet of the ASIG Entities as of December 31, 1997 ("Most
11
<PAGE> 22
Recent Balance Sheet") and the related statements of income and cash flows for
the period then ended, all of the foregoing collectively herein referred to as
the "Financial Statements". Except as set forth on Schedule 6.5, the Financial
Statements have been prepared, and the Financial Statement items, including,
without limitation, reserves and inventories, are consistent with the Companies'
books and records which are correct and complete in all material respects and
have been presented in accordance with GAAP as applied on a basis consistent
with past practices and fairly present in all material respects the financial
condition and results of operations of the ASIG Entities as of the respective
dates thereof and for the respective periods covered thereby.
6.6 Taxes.
(a) Filing of Returns.
(i) Each of the ASIG Entities has filed or caused to
be filed in a timely manner (within any applicable extension
periods) with the appropriate Governmental Authority all
Returns required to be filed by the Code or by applicable
state, local or foreign Laws or Orders relating to Taxes and
Returns in effect from time to time through the Closing Date
and all such Returns were complete and accurate in all
material respects;
(ii) All Taxes shown to be due on such Returns have
been, or will be timely paid in full by the due date thereof;
and
(iii) Except as disclosed on Schedule 6.6 hereto, no
Tax liens have been filed by any Governmental Authority
against any property or assets of the ASIG Entities, and no
claims are being asserted with respect to any Taxes.
12
<PAGE> 23
(b) Examination of Returns. To Sellers' Knowledge, the U,.S.
federal, state, local or foreign Returns (whether filed on a separate
or consolidated basis) in which the ASIG Entities have filed or have
joined in filing have been examined by the IRS or the equivalent state,
local or foreign Governmental Authority (if applicable) for all the
taxable years through the years ended as shown on Schedule 6.6. All
deficiencies resulting from such examinations have either been paid or
adequately provided for in the Financial Statements.
(c) Consents. Except as set forth on Schedule 6.6, (i) there
has not been made with respect to the ASIG Entities or any property
held by the ASIG Entities, any consent under Section 341 of the Code
(or any corresponding provision of state, local or foreign tax Law),
(ii) no property of the ASIG Entities or any of their respective
subsidiaries is "tax exempt use property" within the meaning of Section
168(h) of the Code, and (iii) the ASIG Entities are not parties to any
lease made pursuant to former Section 168(f)(8) of the Code.
(d) Agreements/Waivers. Except as set forth on Schedule 6.6,
there are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any Returns required to be filed
with respect to the ASIG Entities.
(e) Tax Sharing Agreements. Except as set forth on Schedule
6.6, none of the ASIG Entities is party to any Tax sharing agreement or
any other agreement with respect to Taxes nor does any ASIG Entity have
a contractual obligation to indemnify any other person with respect to
Taxes which will survive the Closing Date. Any and all such agreements
between any ASIG Entity and either Seller or its respective affiliates
shall be
13
<PAGE> 24
terminated as of the Closing without any further or remaining
liabilities or obligations to the ASIG Entities.
(f) Audits. Other than as set forth on Schedule 6.6, there are
no ongoing audits or notification of audits of any Returns or reports
of any Tax filed by or any business activity engaged in by the ASIG
Entities.
(g) Elections. Schedule 6.6 sets forth all elections made by
the ASIG Entities in the past 3 tax years (1995, 1996, 1997) that
remain in effect for the ASIG Entities with respect to Returns and
Taxes.
6.7 Assets of ASIG Entities.
(a) Title. Each of the ASIG Entities has good title to or a
valid leasehold interest in all assets used in the conduct of its
business, whether or not reflected on the Most Recent Balance Sheet or
acquired after the date thereof, except for Receivables collected or
inventory sold or otherwise disposed of after the date thereof, in the
ordinary course of business consistent with past practices in
character and amount, in each case free and clear of all Encumbrances,
other than Encumbrances (i) set forth on Schedule 6.7 hereto, and (ii)
which are Permitted Liens as defined in Schedule 2.1.
(b) Adequacy of Assets. The assets of the ASIG Entities,
including but not limited to assets reflected in the Most Recent
Balance Sheet, but excluding any of the assets included in Retained
Assets, (i) constitute all of the assets necessary to conduct the
Business as presently conducted, (ii) constitute all of the assets
currently owned, held, leased, licensed or otherwise available to the
ASIG Entities and which directly or indirectly are or may be used in,
or otherwise relate to, the Business as presently
14
<PAGE> 25
conducted. Except as disclosed on Schedule 6.7, none of the Sellers
nor its affiliates (other than the ASIG Entities) own or lease any
assets used in the operation of the Business as historically or
presently conducted. Except as set forth in Schedule 6.7, as of the
Closing, the ASIG Entities shall own and hold all properties, assets
(whether tangible or intangible), operations, rights, privileges and
permits useful, held for use or used since January 1, 1997, in the
operation of the Business or located on the premises of the Business
as of January 1, 1998 (other than inventory, damaged, destroyed or
obsolete assets or assets not useful to the Business that are sold or
disposed of in the ordinary course of business). All Permits and
Concessions have been issued and are in full force and effect as of
the date hereof. Seller has made available to Buyer for examination
true, correct and complete copies of all written Permits and
Concessions to Buyer. Within the 12-month period ending on the Closing
Date, Seller has not received any notice from any Governmental
Authority threatening a suspension, revocation, modification or
cancellation of any Permit or Concessions, and to Seller's Knowledge,
there is no basis for the issuance of any such notice or the taking of
any such action.
6.8 Real Property.
(a) Owned Real Property. Schedule 6.8(a) sets forth the
address and a true, correct and complete legal description of each
Owned Real Property. With respect to each parcel of Owned Real
Property: (i) the respective ASIG Entity has good and marketable fee
simple title to such parcel, which will be free and clear of all liens
and encumbrances as of the Closing, except Permitted Lines; (ii) there
are no written (or to Sellers' Knowledge oral) leases, subleases,
licenses, concessions or other agreements
15
<PAGE> 26
granting to any person the right to use or occupy such parcel or any
portion thereof; and (iii) other than the right of Buyer pursuant to
this Agreement, there are no outstanding options, rights of first offer
or rights of first refusal to purchase such parcel or any portion
thereof or interest therein. None of the ASIG Entities hold any option
to purchase any real property or interest therein.
(b) Leased Real Property. Schedule 6.8(b) sets forth the
address and a list of all of the Leases. Sellers have delivered to
Buyer a true, correct and complete copy of each written Lease, and in
the case of any oral Lease, a written summary of the basic terms
thereof. With respect to each of the Leases: (i) the Lease is legal,
valid, binding, enforceable and in full force and effect; (ii) the
Lease will continue to be legal, valid, binding, enforceable and in
full force and effect on identical terms following the Closing; (iii)
neither the respective ASIG Entity nor any other party to the Lease is
in breach or default under the Lease, and no event has occurred or
circumstance exists which, with the delivery of notice, passage of time
or both, would constitute such a breach or default or permit the
termination, modification or acceleration of rent under the Lease; (iv)
no party to the Lease has repudiated any provision thereof, and there
are no disputes, oral agreements or forbearance programs in effect as
to the Lease; (v) except as set forth on Schedule 6.8(b), the
respective ASIG Entity has not assigned, subleased, mortgaged, deeded
in trust or otherwise transferred or encumbered the Lease or any
interest therein; and (vi) except as set forth in Schedule 6.8(b), no
consent is required from the landlord or any other third party for the
sale and purchase of the Companies' Shares contemplated under this
Agreement.
16
<PAGE> 27
(c) Real Property Used in the Business. The Owned Real
Property, Leased Real Property and Leasehold Improvements constitute
all of the real property used by the ASIG Entities in the operation of
the Business.
(d) Improvements. To Sellers' Knowledge and except as
disclosed on Schedule 6.8(d), all buildings, structures, fixtures and
other improvements and all components thereof included within the Owned
Real Property and Leased Real Property and all Leasehold Improvements
(collectively, the "Improvements") are in good condition and repair and
sufficient for the continued operation of the Business.
(e) Lawful Use. To Sellers' Knowledge, the Real Property and
the use and operation of the Improvements located on the Real Property
as presently conducted by any of the ASIG Entities is not in violation
of any applicable building Law or code, zoning Law or other Law or
Orders thereunder or any easement, covenant, condition, restriction or
similar provision in any instrument of record affecting any of the Real
Property.
(f) Condemnation; Other Actions. Except as disclosed in
Schedule 6.8 hereto, none of the ASIG Entities has received notice of
any proposed condemnation, special assessment, or any proposed material
change in property tax or land use laws affecting all or any portion of
the Real Property. There is no writ, injunction, decree, order or
judgment outstanding, nor any Actions pending or, to Sellers'
Knowledge, threatened, relating to the ownership, lease, use, occupancy
or operation of any Real Property or any portion thereof.
17
<PAGE> 28
6.9 Intellectual Property.
(a) List of Rights. Schedule 6.9 hereto discloses all of the
Intellectual Property Rights owned or used by the ASIG Entities, which
are (i) the subject of any license agreement or arrangement, Trademark,
Patent or Copyright registrations or grants, or the subject of pending
applications for Trademark, Patent or Copyright registrations or
grants; (ii) an identification of the Intellectual Property Rights
ownership or right of use of which is claimed by the ASIG Entities,
noting the owner, licensor and licensee; (iii) all agreements ("Rights
Agreements") which are neither listed on Schedule 6.10 nor specifically
identified thereon as Intellectual Property Contracts which include any
assignment of, license or other right to, or any consent or undertaking
with respect to, or which affects such Intellectual Property Rights;
and (iv) all agreements which include any assignment of, license or
other right to, or any consent or undertaking with respect to, or which
affects any patents, trademarks, trade secrets, copyrights or other
intellectual property rights of others.
(b) Title and Effect. Except as disclosed in Schedule 6.9
hereto: (i) all such listed Rights Agreements are in effect, and each
of the ASIG Entities owns or has the right to use the Intellectual
Property Rights identified as owned or licensed in Schedule 6.9
(indicating thereon the owner or licensor thereof); (ii) each of the
ASIG Entities is using the Intellectual Property Rights that are
claimed by each of the ASIG Entities under color of title or license,
whether by written agreement or otherwise; (iii) each of the ASIG
Entities has the right to transfer or assign all material Intellectual
Property Rights that are licensed, without the consent of any other
party, and no Person has any rights or has been
18
<PAGE> 29
granted any license under the licensed Intellectual Property Rights;
(iv) all of the Intellectual Property Rights and all grants or
registrations thereof are in full force and effect and all
registrations and grants of such Intellectual Property Rights which are
subject to and have become due for renewal or maintenance, have been
renewed or maintained or are the subject of pending renewal
applications or payment of maintenance; (v) there are no facts or
circumstances which might reasonably be expected to cause any of the
material Intellectual Property Rights to be unenforceable or otherwise
not useable in the Business; (vi) the use of the Intellectual Property
Rights in the Business and the conduct of the Business as presently
conducted do not infringe or violate in any material respect the rights
(statutory, contractual or otherwise) of any other Person; and (vii)
all Trademark, Patent and Copyright registrations and grants included
in the Intellectual Property Rights which are indicated as being owned
by any of the ASIG Entities are owned by the ASIG Entities as
disclosed.
(c) Conflicts. Except as set forth in Schedule 6.9: (i) no
Intellectual Property Rights are involved in an interference, conflict,
cancellation, opposition or reexamination proceeding and, to Sellers'
Knowledge, there has been no threat or other indication that any such
proceeding will hereafter be declared or commenced; (ii) Sellers know
of no basis or indication that any such proceeding will hereafter be
declared or commenced or that any of the ASIG Entities has or will have
any basis for provoking or initiating an interference, conflict,
cancellation, opposition or reexamination proceeding with respect to
Intellectual Property Rights held by it or others; (iii) none of the
Intellectual Property Rights have been, are being, or will be infringed
by others or that any Information has
19
<PAGE> 30
been or is being misappropriated by others; and (iv) Sellers have no
Knowledge that any Person has obtained, sought, is seeking, or will
seek to obtain patent coverage on any invention or development used in
the conduct of the Business or which is the subject of any of the
Patents or Information.
(d) Year 2000. The ASIG Entities have developed and are timely
implementing a plan to address the issue that all software of the
Business shall perform as originally designed with respect to data and
processing for the year 2000 and beyond.
6.10 Contracts.
(a) List of Contracts. Schedule 6.10 hereto contains, as of
the date hereof, a correct and complete list of each of the following
types of contracts to which any of the ASIG Entities is a party
(whether written or oral) or by or to which any of its Businesses may
be affected or its properties may be bound or subject:
(i) Any contracts for the performance of Aircraft
Fueling Services and Aircraft Ground Handling Services and any
Concessions for such services in effect on the date hereof
producing revenue to the ASIG Entities in excess of US$100,000
per year individually or US$2,000,000 per year in the
aggregate (or its equivalent in foreign currency).
(ii) Any employment or severance agreement or
employment contract covering any former or present Personnel;
(iii) Any employee collective bargaining agreement or
other contract with any labor union or organization (except as
set forth on Schedule 6.10, there
20
<PAGE> 31
are no terms and conditions binding on any ASIG Entity under
any such contracts or agreements not set forth on the face of
such contracts or agreements);
(iv) Any agreement containing a covenant
not-to-compete or that otherwise limits the ability of any
ASIG Entity to conduct the Business or to engage in the
business of providing VIP lounge maintenance or interior
grooming services anywhere in the world;
(v) Any lease or similar agreement under which any of
the ASIG Entities is a lessor or sublessor of, or otherwise
makes available for use by or for any third party, any real or
personal property leased by any of the ASIG Entities or any
portion of premises otherwise occupied by any of the ASIG
Entities;
(vi) Any license or other agreement relating in whole
or in part to Intellectual Property Rights (including any
Rights Agreement under which any of the ASIG Entities has the
right to use any of the Intellectual Property Rights owned or
held by a third party);
(vii) Any agreement or contract under which any of
the ASIG Entities has borrowed or loaned any money or issued
any note, bond, indenture or other evidence of indebtedness,
or directly or indirectly guaranteed indebtedness, liabilities
or obligations of others or which obligates any of the ASIG
Entities to do any of the foregoing (other than endorsements
for the purpose of collection in the ordinary course of
business);
(viii) Any mortgage, pledge, security agreement, deed
of trust or other document granting an Encumbrance (including
Encumbrances upon properties
21
<PAGE> 32
acquired under conditional sales agreements, capital leases or
other title retention or security devices);
(ix) Any agreement, contract, lease, license,
commitment or instrument to which any of the ASIG Entities or
by or to which any of its respective assets or business is or
may be bound or subject, which is not in the ordinary course
of business or which (A) has or may have any aggregate future
liability in excess of US$100,000, individually or in excess
of US$2,000,000 in the aggregate, or its equivalent in foreign
currency, or (B) is not terminable by any of the ASIG Entities
for a cost of less than US$100,000 (or its equivalent in
foreign currency);
(x) Any Contract for sale or pledge of Receivables;
(xi) Any powers of attorney;
(xii) Any agreement, contract or commitment under
which any of the ASIG Entities is obligated to indemnify
Sellers or its affiliates (all of which agreements shall be
terminated on or prior to the Closing) or any director or
officer of any of the ASIG Entities or of any other entity,
except as set forth in the Articles or Bylaws of any of the
ASIG Entities;
(xiii) Any guaranty by Sellers.
(xiv) Any agreement (other than as listed in Section
6.10(a)(i) hereof), contract, purchase order or commitment
requiring any of the ASIG Entities to perform specified work
or supply material for a specified price in excess of
US$100,000, individually or in excess of US$2,000,000 in the
aggregate (or its equivalent in foreign currency);
22
<PAGE> 33
(xv) Any agreement, contract, purchase order or
commitment (other than as listed in Section 6.10(a)(i) hereof)
involving more than US$100,000 individually or in excess of
US$2,000,000 in the aggregate (or its equivalent in foreign
currency) or extending more than 6 months from the date hereof
for the purchase of materials, goods, supplies or services;
(xvi) Any agreement, contract, or commitment with
independent sales persons or consultants which reasonably may
be expected to cost any of the ASIG Entities more than
US$100,000 individually or in excess of US$2,000,000 with
respect all such agreements in the aggregate (or its
equivalent in foreign currency) during one year;
(xvii) Any agreement or contract pursuant to which
any officer, director or employee of any of the ASIG Entities
has a right to terminate his or her employment or receive a
payment of any kind upon the sale or merger or any other
change in control of any of the ASIG Entities;
(xviii) Any agreement or any other contract
reasonably expected to generate revenues in excess of
US$100,000 individually or in excess of US$2,000,000 with
respect all such agreements in the aggregate, or its
equivalent in foreign currency;
(xix) Any joint venture agreement with third parties
for the conduct of Business or any portion thereof, including
operation of the Aircraft Fueling Services, Tank Farms and
Hydrant Systems, and Aircraft Ground Handling Services;
23
<PAGE> 34
(xx) Any confidentiality agreement to which any of
the ASIG Entities is a party or by which it or its properties
is bound or is subject; or
(xxi) Any written agreement, contract, purchase order
or commitment not otherwise described in Sections 6.10(a)(i)
through 6.10(a)(xx) hereof which is material to any of the
ASIG Entities.
(b) Binding Contracts. As of the date hereof and immediately
after giving effect to the Closing, each contract, lease, license,
purchase order, commitment instrument or other agreement to which any
of the ASIG Entities is a party or by which any of the ASIG Entities
or their respective assets or properties are otherwise bound
(collectively the "Contracts") is, valid and binding, in full force
and effect and enforceable in accordance with its terms, except to the
extent such enforceability may be limited by or subject to the effect
of any bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or limiting
creditors' rights generally or by general principles of equity
(assuming proper authorization by all requisite corporate or, if not a
corporation, by all other requisite action by the other party thereto,
which, to Sellers' Knowledge, has occurred), except as disclosed on
Schedule 6.10 or the other Schedules attached hereto. Except as
disclosed in Schedule 6.10, each of the ASIG Entities has performed
all material obligations required to be performed by it under the
Contracts and is not (and with the passage of time or the giving of
notice, or both, will not be) in breach or default in any material
respect thereunder and, to Sellers' Knowledge, no other party to any
of the Contracts is (or with the lapse of time or the giving of
notice, or both, will be) in breach or default in any material respect
thereunder. Except as disclosed in Schedule
24
<PAGE> 35
6.10, no Contract will terminate or be terminable as a result of
transactions contemplated hereby. The Sellers have made available to
the Buyer correct and complete copies of each Contract.
(c) Consents. Except as disclosed on Schedule 6.10, no consent
or approval of or any notice with respect to any Concession, operation
of the Business as regularly conducted, ownership or lease of any
asset of the Business, Contract or Permit is required in connection
with consummation of the Transactions.
6.11 Litigation. Schedule 6.11 hereto contains a list, as of the date
of this Agreement, of (a) all pending or, to Sellers' Knowledge, threatened
Actions by, against or directly affecting any of the ASIG Entities or any of
their respective properties, assets, operations or businesses, (b) all Orders
against or directly affecting any of the ASIG Entities or any of their
respective properties, assets, operations or businesses, and (c) all Actions or
Orders against, and all settlements entered into by, any of the ASIG Entities
since January 1, 1996. Except as set forth on Schedule 6.11, none of the ASIG
Entities is in default under any Order or settlement and there are no Actions
pending or, threatened against, and no Orders entered against, any of the ASIG
Entities, nor is there, to Seller's knowledge, any basis for an Action against
any ASIG Entity.
6.12 Employee and Related Matters; ERISA.
(a) Benefits Plans. Schedule 6.12 hereto contains each written
or documented defined benefit pension plan (except Viad's Corporate
Retirement Income Plan referred to herein as "V-RIP", the "SERP", the
"MIP" and the "PUP" all herein defined), defined contribution pension
plan, retirement, profit sharing, stock option, incentive, deferred
compensation, medical, dental, vision, life insurance, sick pay,
disability, severance or
25
<PAGE> 36
other written plan, fund, program, policy, contract or arrangement
providing employee benefits administered, maintained or contributed to
by any of the Sellers or the ASIG Entities ("Plans") in which any ASIG
Entities' Personnel (defined herein) or beneficiary currently
participates, has participated or was eligible to participate or under
which any ASIG Entities' Personnel has accrued or is or will be
entitled to any benefits or on behalf of which any of the ASIG Entities
is or has acted as a fiduciary since December 31, 1996 (individually, a
"Plan" and collectively, the "Plans").
(b) Copies of Plans. Sellers have delivered or made available
to Buyer copies, together with all amendments thereto, of (i) each Plan
(other than certain union Plans listed in Schedule 6.12 which cannot be
obtained upon reasonable effort or, in the case of any unwritten Plans,
descriptions thereof), (ii) the most recent annual report on Form 5500
filed with the IRS or the equivalent or similar form of return (if any)
required by any foreign jurisdiction with respect to each Plan (if any
such report was required), (iii) the most recent summary plan
description for each Plan for which such a summary plan description is
required, (iv) the most recent trust agreement relating to any Plan;
and (v) a complete copy of the most recent IRS determination letter for
each Plan for which such a letter was obtained.
(c) Plan Liability. Except as in Schedule 6.12, there exists
no liability in connection with any Plan that has been terminated and
all procedures for termination of such plans have been followed
properly.
(d) Claims, Etc. Except as described in Schedule 6.12, each of
the Plans and any trust created thereunder has been operated and
administered in all material respects in
26
<PAGE> 37
accordance with its terms and in compliance with applicable Laws and
Orders, including but not limited to ERISA and the Code and any
applicable similar or equivalent Law of any foreign jurisdiction.
Except as described in Schedule 6.12, there are no pending or, to
Sellers' Knowledge, threatened actions, audits, or examinations with
respect to any of the Plans and any trust created thereunder by any
Governmental Authority.
(e) Contributions. All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each Plan and all contributions for any period
beginning on or before the Closing Date which are not yet due have been
paid to each Plan or accrued in accordance with the past custom and
practice of Seller and the ASIG Entities.
(f) Group Health Plans. With respect to any "welfare plan" (as
defined in Section 3(l) of ERISA) which qualifies as a "group health
plan" under Section 607(1) of ERISA and Section 4980B of the Code and
related regulations (relating to the benefit continuation rights
imposed by COBRA), or any applicable equivalent or similar Law of any
foreign jurisdiction, there is no material liability of any of the ASIG
Entities, such group health plan and the administrator of such group
health plan all have complied, in all material respects, with all
reporting, disclosure, notice, election and other benefit requirements
imposed under COBRA, or any applicable equivalent or similar Law of any
foreign jurisdiction, as and when applicable; and none of the ASIG
Entities has incurred any direct or indirect material liability, nor
are any of the ASIG Entities subject to any loss, assessment, excise
tax penalty, loss of federal income tax deduction or other sanction
arising on account of or in respect of any direct or indirect failure
to comply with such
27
<PAGE> 38
COBRA requirements or any applicable equivalent or similar Law of any
foreign jurisdiction.
(g) Insurance Funding. To Sellers' Knowledge, with respect to
each Plan that is funded wholly or partially through an insurance
policy, there will be no liability of any of the ASIG Entities as of
the Closing Date that has not been either paid or assumed by Sellers
pursuant to the terms of this Agreement or fully reserved against on
the Closing Balance Sheet and Net Assets Report.
(h) Severance Liabilities. Neither the signing and delivery of
this Agreement nor the consummation of the Transactions will (i) result
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due from any of
the ASIG Entities under any Plan, (ii) increase any benefits otherwise
payable under any Plan, or (iii) result in the acceleration of the time
of payment or vesting of any such benefits other than with respect to
benefits assumed by Sellers.
(i) Additional Benefits. None of the ASIG Entities has
announced any plan or made any legally binding commitment to create
additional benefits which are intended to cover Personnel of any of the
ASIG Entities or to make any amendment or modifications to any Plan
that covers or has covered or is available to any of the ASIG Entities'
Personnel other than as set forth in Schedule 6.12 or as required by
law. No payment under any Plan will not be deductible by any of the
ASIG Entities subject to provisions of the Code by reason of failure to
comply with any provisions of the Code.
28
<PAGE> 39
(j) Qualification. Except as disclosed in Schedule 6.12
hereto, each Plan intended by Sellers or ASIG Entities to be a
qualified Plan under Code Section 401(a) meets the requirements of a
"qualified plan" under Code Section 401(a) and has received a favorable
determination letter from the Internal Revenue Service, and to Sellers'
Knowledge, there are no facts or circumstances which could render such
favorable determination letters invalid.
(k) PBGC Liability. None of Sellers or ASIG Entities has
incurred, and there are no facts or circumstances which would cause
Sellers or any of the ASIG Entities to incur any Liability to the PBGC
(other than PBGC premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to
any Plan that any of Sellers maintains or ever has maintained or to
which any of them contributes, ever has contributed, or ever has been
required to contribute.
6.13 Multiemployer Plans.
(a) Withdrawal Liability. Each of the ASIG Entities has timely
made all contributions which any of them has been or is required to
make by law or contract to any Multiemployer Plan, and there is no
obligation to make payments for withdrawal liability.
(b) Insolvency. To Sellers' Knowledge, no Multiemployer Plan
to which any of the ASIG Entities are required to contribute or to
which their respective previously owned subsidiaries were required to
contribute is in reorganization status (as defined in Section 4241 of
ERISA or any applicable equivalent or similar Law of any foreign
jurisdiction) or insolvent (as defined in Section 4245 of ERISA or any
applicable equivalent or similar Law of any foreign jurisdiction).
Except as set forth on Schedule
29
<PAGE> 40
6.13, to Sellers' Knowledge, none of the Multiemployer Plans to which
any of the ASIG Entities contributes is subject to Title IV of ERISA.
6.14 Absence of Changes or Events. Since December 31, 1997, and
through the Closing Date, except as disclosed on Schedule 6.14 hereto or as
otherwise provided for in Section 8 hereof, there has not been any event or
circumstance which could reasonably be expected to have a Material Adverse
Effect on the ASIG Entities or the Business or any:
(a) No Changes. Change in the Business, financial condition,
assets, Liabilities, results of operations or prospects of any of the
ASIG Entities, except for changes which have not had or could not
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(b) Increases in Payments/Expenses. Except for actions taken
by the ASIG Entities in the ordinary course of business consistent
with past practice, (i) increases in the base compensation payable or
to become payable by any of the ASIG Entities to any of the Personnel,
(ii) except for amounts awarded in the ordinary course of business
consistent with past practices in character and amount, pursuant to
Plans in existence as of December 31, 1997, any bonus, incentive
compensation, service award or other like benefit granted, made or
accrued, contingently or otherwise, for or to the credit of any of the
Personnel (all of which are set forth on Schedule 6.14), (iii)
employee welfare, pension, retirement profit-sharing or similar
payment or arrangement made or agreed to by any of the ASIG Entities
for any Personnel whether past or present, except pursuant to Plans in
existence as of December 31, 1997, whether or not such Plans become
effective
30
<PAGE> 41
on January 1, 1998, (iv) amendment of or new employment, severance or
other compensation agreement involving annual compensation in excess of
US$25,000, or management or consulting agreement involving annual
payments in excess of US$25,000 to which any of the ASIG Entities is a
party and pursuant to which any third party will perform services for
any of the ASIG Entities, (v) commitment to any additional Plans
related to the Personnel or amendment or commitment to amend any of
such Plans, funds or similar arrangements as of December 31, 1997, or
(vi) except for amounts granted in the ordinary course of business,
consistent with past practice under existing agreements described in
Schedule 6.14, grant or award of any termination or severance payment
for any Personnel;
(c) Modification of Plans. Additions to or modification of the
Plans affecting any of the Personnel other than (i) contributions made
since December 31, 1997, in accordance with the terms of the Plans or
otherwise in accordance with the normal practices of any of the ASIG
Entities, (ii) the extension of coverage to any other Personnel who
became eligible after December 31, 1997, in accordance with the terms
thereof in effect prior to December 31, 1997, or (iii) as required by
law;
(d) Shares in Business. Issuance, sale or agreement to issue
or sell (i) any shares of capital, or (ii) any securities convertible
into, or options with respect to, or warrants to purchase or rights to
subscribe for, any shares of capital or any other participation in any
of the ASIG Entities or the Business;
(e) Transfer of Assets. Except for transfers pursuant to
Sections 8.9 and 8.24, hereof or the distribution of cash dividends
which will not and do not limit or impair
31
<PAGE> 42
Sellers' ability to deliver the minimum Net Working Capital or minimum
cash pursuant to Section 3.2, if any, for fiscal periods ending on or
prior to the Closing Date, Sale, assignment or transfer of any of the
assets of any of the ASIG Entities which are material individually or
in the aggregate to any of the ASIG Entities other than in the ordinary
course of business and consistent with past practice in character and
amount;
(f) Acquisitions.
(i) Acquisition by any of the ASIG Entities, by
merger or consolidation with, or purchase of substantially all
of the assets or capital, or any other acquisition of any
material assets or business of, any corporation, partnership,
association or other business organization or division
thereof;
(ii) Agreement by any of the ASIG Entities to enter
into the formation of any joint venture, partnership or other
similar arrangement or form any other new material arrangement
involving the Business; or
(g) Articles and Bylaws. Amendment to any of the ASIG
Entities' Articles or Bylaws;
(h) Failure to Operate in Ordinary Course. Failure to operate
any of the ASIG Entities in the ordinary course consistent with past
practice, or failure to preserve for any of the ASIG Entities its
customers and others having material business relations with it
(including employees, suppliers, customers, licensors, licensees and
distributors);
(i) Change in Policies. Change in or discontinuance of any
existing policies of insurance with coverages for any of the ASIG
Entities in full force and effect at least at such levels as were in
effect on December 31, 1997;
32
<PAGE> 43
(j) Change in Accounting. Change in accounting methods or
practices by any of the ASIG Entities, or reversal of previously
established accounting provisions or treatments, or any change in the
method of applying GAAP, or the realization of any extraordinary or
nonrecurring gain or loss;
(k) Maintenance of Books. Failure to maintain each of the ASIG
Entities' books and records in the usual, regular and ordinary manner
on a basis consistently applied with prior periods;
(l) Certain Modifications. Entry into, or termination,
amendment or modification by any of the ASIG Entities of, any Contract,
agreement, commitment, transaction, Permit or other instrument
(including, without limitation, any borrowing, capital expenditure,
capital contribution or capital financing) which is material to any of
the ASIG Entities other than in the ordinary course of business or as
is contemplated by this Agreement;
(m) Capital Expenditures. Except as required under Section
8.15, commitment to make any capital expenditure resulting in an
obligation of the ASIG Entities in excess of US$50,000 after the
Closing (which are not reflected on Schedule 6.14(m) unless Sellers
deliver written notice to Buyer and Buyer does not object to such
expenditure prior to Sellers' committing the ASIG Entities thereto) or
the failure to make any capital expenditures as provided in the
existing budget or operating plan of the ASIG Entities, a correct and
complete copy of which is attached to Schedule 6.14, has been delivered
to Buyer and is referenced in Section 8.15 and Schedule 8.15 hereof, or
the execution of any capital Lease or any incurring of any commitment
or Liability therefor by any of the ASIG
33
<PAGE> 44
Entities which is not in the ordinary course of business, or the cost
of which is in excess of US$50,000 each (or its equivalent in foreign
currency);
(n) Obligations. Failure to pay any obligation when due after
giving effect to any applicable grace or cure period, or failure to pay
accounts payable of the ASIG Entities in accordance with the terms
thereof;
(o) Encumbrancers. Mortgage, pledge or other Encumbrance of
any asset of any of the ASIG Entities, other than in the ordinary
course of business consistent with past practice;
(p) Receivables. Acceleration of the collection of Receivables
or other change from the Sellers' past practices with respect thereto.
(q) Debt. Incurrence of or commitment to incur any
indebtedness for borrowed money or any assumption, guarantee,
endorsement or other creation of responsibility for obligations of any
other Person or any loan or advance to any person by any of the ASIG
Entities, none of which shall be outstanding as of the Closing Date.
The foregoing shall not apply to trade payables and wages to employees
incurred in the ordinary course of business to the extent reserved on
the Closing Balance Sheet;
(r) Property Damage/Loss. Damage, destruction, casualty or
loss or waiver of rights of material value with respect to any assets
of any of the ASIG Entities (whether or not covered by insurance) in
excess of US$25,000 in the aggregate;
(s) Distributions. Except for transfer of the Retained Assets
and Retained Liabilities, settlement of the Intercompany Accounts and
payments not prohibited by Sections 6.14(e) or 6.14(x) hereto,
declaration, setting aside or payment of dividends or
34
<PAGE> 45
distributions (whether in cash, capital shares or property) in respect
of any capital of any of the ASIG Entities, or any redemption, purchase
or other acquisition of any capital of any of the ASIG Entities;
(t) Settlements. Settlement of pending or threatened
litigation involving the payment by any of the ASIG Entities of an
amount exceeding individually or in the aggregate US$100,000 (or its
equivalent in foreign currency);
(u) Labor Matters. Change in employee relations which has had
or could reasonably be expected to have a Material Adverse Effect,
including any material commitments (through negotiation or otherwise)
of any liability or obligation to any employee, employee representative
or labor union by any of the ASIG Entities;
(v) Lapse of Intellectual Property Rights. Disposition or
lapsing of any material Intellectual Property Rights or any disclosure
to any Person of any material Intellectual Property Rights not
theretofore a matter of public knowledge;
(w) Sale/Leasebacks. Entry by any of the ASIG Entities into
any sale/leaseback transaction;
(x) Payments to Sellers. Except for payments pursuant to
Section 8.9 hereof and the distribution of cash dividends, which will
not limit Sellers' ability to deliver the minimum Net Working Capital
pursuant to Section 3.2, if any, for fiscal periods ending on or prior
to the Closing Date, any payment by any of the ASIG Entities or any
agreement by any of the ASIG Entities to make payment to Sellers, of
whatever kind or nature, and whether or not in the ordinary course
consistent with past practice, including but not limited to
compensation payments
35
<PAGE> 46
or payments pursuant to Plans, except as disclosed on Schedule 6.14 or as
explicitly provided this Agreement; or
(y) General. Agreement by any of the ASIG Entities to do any
of the foregoing, except as contemplated under this Agreement.
6.15 Compliance with Applicable Laws.
(a) General Compliance. Except as disclosed on Schedule 6.15
hereto; (i) all of the ASIG Entities have complied and are in
compliance with all Laws and all Orders (other than Environmental Laws,
which are covered by Section 6.15(b) hereof), except where
noncompliance reasonably could not be expected to have a Material
Adverse Effect; (ii) since December 31, 1996, none of the ASIG Entities
has received any written or oral communication from any Person that
alleges that any of the ASIG Entities, their respective predecessors,
or any of their respective previously owned subsidiaries was not or is
not in compliance with any Law or Order.
(b) Environmental. Except for the Known Environmental
Liabilities disclosed on Schedule 6.15 (b)) hereto:
(i) All of the ASIG Entities, as well as the assets
of the ASIG Entities and the Business have complied and are in
compliance with applicable Environmental Laws;
(ii) Each ASIG Entity has timely obtained all
permits, licenses, registrations and other governmental
approvals and authorizations and has timely filed all reports
and other documents required by applicable Environmental Laws;
36
<PAGE> 47
(iii) There are no conditions or circumstances
concerning any of the assets of the ASIG Entities which pose a
material risk to the environment or health or safety of
persons;
(iv) No ASIG Entity or Seller has received notice of
and Sellers have no Knowledge of any violation (whether
alleged or proven), claim, liability, demand, litigation,
proceeding or governmental investigation (whether pending or
threatened) arising from applicable Environmental Laws
relating to, the Business, the assets of the ASIG Entities or
Hazardous Materials which are or were present on or with
respect to the assets of the ASIG Entities.
(v) Without limiting Sellers' indemnification
obligations under Sections 12.2(a)(iii), (iv), (v) and (vi)
hereof, to Sellers' Knowledge, there are no past or present
conditions, circumstances, activities, practices, incidents,
actions, or plans relating to the past or current business,
assets or facilities of the ASIG Entities that could interfere
with or prevent compliance or continued compliance with
applicable Environmental Laws or which would give rise to any
legal liability (whether statutory or common law) or which may
otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study or
investigation based on or related to the generation,
manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling or the Release into
the indoor or outdoor environment of any Hazardous Material;
(vi) No lien relating to any applicable Environmental
Law has attached to any asset of an ASIG Entity;
37
<PAGE> 48
(vii) No ASIG Entity has, either expressly or by
operation of law, assumed or undertaken any liability,
including without limitation any obligation for corrective or
remedial action, of any other person relating to Environmental
Laws; and
(viii) Sellers have made available to Buyer full and
complete copies of all environmental study, assessment, audit
and analytical reports in their possession or under their
reasonable control relating to the past or current properties
or facilities of the ASIG Entities and all other material
documents relating to environmental compliance or liability
issues relating to the ASIG Entities.
6.16 Employee and Labor Relations. Except as disclosed on Schedule
6.16 hereto:
(a) Collective Bargaining Representative. There is no
collective bargaining representative of any employees of the ASIG
Entities;
(b) Labor Disputes. There is and for the past 3 years has been
no labor strike, work stoppage, lockout or other work action, and no
such dispute is actually pending or, to Sellers' Knowledge, threatened
against or affecting any of the ASIG Entities;
(c) Representative Questions. No union organization or
decertification campaign is in progress or, to Sellers' Knowledge,
threatened with respect to any of the ASIG Entities; and no question
concerning representation exists respecting such employees;
(d) Unfair Labor Practices. There is no unfair labor practice
charge or complaint pending or, to Sellers' Knowledge, threatened
before the National Labor
38
<PAGE> 49
Relations Board or any similar state, local or foreign Governmental
Authority having jurisdiction, including any foreign labor Law against
any of the ASIG Entities;
(e) Grievances. There is no pending or, to Sellers' Knowledge,
threatened labor grievance against any of the ASIG Entities;
(f) Employment Matters. No Actions or investigations with
respect to any Law relating to the employment of labor is under way (or
to Sellers' Knowledge threatened) against any of the ASIG Entities and
no facts or circumstances exist that could give rise to a liability
under any such law which would have a Material Adverse Effect; and
(g) Collective Bargaining Obligations. All collective
bargaining obligations required by any Law or contract have been, or
prior to Closing will be, satisfied by Sellers or the ASIG Entities. No
plant closing or mass layoffs as those terms are defined in the WARN
Act or any similar state or local Law have been implemented in the past
5 years, and no layoffs that could implicate such Laws will be
implemented before Closing without advance notice to Buyer.
6.17 Absence of Undisclosed Liabilities. Except as disclosed on
Schedule 6.17 hereto, none of the ASIG Entities have any Liabilities other than
(a) Liabilities or obligations to the extent reflected or reserved against in
the Most Recent Balance Sheet; (b) liabilities or obligations which were
incurred after the date of the Most Recent Balance Sheet in the ordinary course
of business consistent with past practice in character and amount (none of which
is the result of a claim for breach of contract, a warranty claim, a tort or
infringement) and which will be reflected on the Closing Balance Sheet and the
Net Assets Report; or (c) are as expressly described in this Agreement or in the
Schedules hereto.
39
<PAGE> 50
6.18 Brokers and Finders. Except as disclosed on Schedule 6.18 hereto
(all of which will be paid by Seller at Closing), no investment banker, broker,
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement hired by or on behalf of Sellers or the ASIG
Entities is entitled to any investment banking, brokerage, finder's or similar
fee or commission in connection with this Agreement or the Transactions.
6.19 Insurance. Schedule 6.19 hereto contains a list of insurance
policies of any nature whatsoever presently in effect and maintained with
respect to the business or property of any of the ASIG Entities or for which any
ASIG Entity has been named as an insured or otherwise has been the beneficiary
of coverage at any time during the past 1 year, and all such insurance has been
customary and reasonable in scope and amount for the Business. Except as
otherwise disclosed on Schedule 8.20, no ASIG Entity has any self-insurance
arrangements.
6.20 Banking Facilities. Schedule 6.20 hereto contains a list of: each
bank, savings and loan or similar financial institution or other entity in which
any of the ASIG Entities has an account or safe deposit box or which holds other
assets of any of the ASIG Entities and the numbers of the accounts or safe
deposit boxes maintained thereat; and the names of all persons authorized to
draw on each such account or to have access to any such safe deposit box
facility, or who acts as a fiduciary or hold a power of attorney from any of the
ASIG Entities with respect to any such accounts.
6.21 Books of Accounts, Records. Each of the ASIG Entities' general
ledgers, stock record books, minute books and other material records relating to
its respective assets, properties, Contracts and outstanding legal obligations
are, in all material respects complete and correct, and have been maintained in
accordance with good business practices.
40
<PAGE> 51
6.22 Accounts Receivable. All Receivables reflected on the Most Recent
Balance Sheet of the Financial Statements have arisen from bona fide
transactions in the ordinary course of business.
6.23 Affiliated Transactions. Except as disclosed on Schedule 6.23
hereto, no Seller and no officer, director, shareholder, or affiliate of any
Seller or ASIG Entity or any person related by blood or marriage to any such
Person or any entity in which any such person possesses, directly or indirectly,
any material beneficial interest, is a party to any agreement, contract,
commitment or transaction with, or performs any material service for, any ASIG
Entity or has any interest, directly or indirectly, in any property used by any
ASIG Entity. No Seller nor any of its subsidiaries nor any director, officer,
shareholder or affiliate of any Seller or ASIG Entity, or any person related by
blood or marriage to any such Person possesses, directly or indirectly, any
material financial interest in, or is a director, officer or employee of, any
corporation, firm, association or business organization which is a substantial
supplier, customer, lessor, lessee, or competitor of any ASIG Entity.
6.24 Licenses and Permits. Except as disclosed in Schedule 6.24 hereto,
(a) each of the ASIG Entities has and is in compliance with all material
licenses, franchises, permits (including without limitation environmental and
construction permits and operating permits), approvals, authorizations,
exemptions, classifications, certificates, registrations, and similar documents
or instruments required to conduct its business as presently conducted; and (b)
all such licenses, franchises, permits (including without limitation
environmental and construction permits and operating permits), approvals,
authorizations, exemptions, classifications, certificates,
41
<PAGE> 52
registrations, arrangements, commitments, and similar documents or instruments
are valid, binding, and in full force and effect.
6.25 Customers. Schedule 6.25 hereto lists each customer or group of
related customers who accounted for more than 5% of the consolidated revenues of
the Business during the past 24 months. Neither Seller nor any ASIG Entity has
received any notice or has any knowledge that any such customer intends to
terminate or materially reduce its business with the ASIG Entities in the
future, and except as set forth on Schedule 6.25 no such customer has terminated
or materially reduced its business with the ASIG Entities during the past 12
months.
6.26 Disclosure. No representation or warranty regarding the ASIG
Entities or the Business contained in this Agreement nor any schedule,
attachment or exhibit hereto, and no statement contained herein or in any
certificate or document identified herein or on Schedule 6.26 as having been
furnished to Buyer pursuant to the Transactions contemplated hereby, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. There is no fact or condition of which either Seller has knowledge
which has not been disclosed to Buyer and which has or could reasonably be
expected to have a Material Adverse Effect on the Business.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to Sellers that:
7.1 Corporate Organization and Qualification. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified or licensed to do business
as a foreign corporation and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business
42
<PAGE> 53
conducted by it require such qualification, except where the failure to so
qualify or be in such good standing would not have a Material Adverse Effect.
Buyer has full corporate power and authority to own its properties and to carry
on its business as it is now being conducted.
7.2 Authority. Buyer has the requisite corporate power and authority to
approve, authorize, execute and deliver this Agreement and to consummate the
Transactions. As of the Closing, this Agreement and the consummation by Buyer of
the Transactions will have been duly and validly authorized and approved by all
necessary corporate proceedings on the part of Buyer. This Agreement will have
been duly and validly executed and delivered by Buyer and will constitute the
valid and binding agreement of Buyer, enforceable against Buyer in accordance
with its terms, subject to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors, rights and to
general principles of equity.
7.3 No Violation. As of the Closing, neither the execution, delivery
and performance of this Agreement nor the consummation by Buyer of the
transactions contemplated hereby, will:
(a) No Conflicts. Conflict with or result in any violation of
the Articles or Bylaws of Buyer; or
(b) No Defaults. Result in the breach of, or constitute a
default (with or without notice or lapse of time, or both) under, or
result in the modification, limitation or revocation of, or result in
the loss, suspension, impairment or forfeiture of any right, privilege
or benefit under, or require any payment under, or give rise to a right
of termination, cancellation or acceleration of any obligation under,
any provision of (i) any note, bond, debt instrument, mortgage,
indenture, deed of trust, item of intellectual property, Permit,
license, lease, lien, contract, commitment, agreement or other
instrument
43
<PAGE> 54
or arrangement to which Buyer or any of its subsidiaries is a party or
by which any of their respective properties, assets or businesses are
bound or (ii) any Law or order applicable to Buyer or by which Buyer or
any of its subsidiaries is bound or by which any of their respective
properties or assets or businesses is bound or affected.
7.4 Brokers and Finders. Except as disclosed on Schedule 7.4 hereto
(all of which will be paid by Buyer), no investment banker, broker, finder,
consultant or intermediary hired by or on behalf of Buyer is entitled to any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement and the Transactions.
7.5 Investment. Buyer (a) understands that the Companies' Shares have
not been, and will not be, registered under the Securities Acts, and are being
offered and sold in reliance upon U.S. federal and state exemptions for
transactions not involving any public offering, (b) is acquiring the Companies'
Shares solely for its own account for investment purposes, and not with a view
to the distribution thereof, (c) is a sophisticated investor with knowledge and
experience in business and financial matters, (d) has received certain
information concerning Sellers and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks inherent in
holding the Companies' Shares, (e) is able to bear the economic risk and lack of
liquidity inherent in holding the Companies' Shares, and (f) is an Accredited
Investor for the reasons set forth on Schedule 7.5 hereto.
7.6 Consents and Approvals. Except for requirements of the HSR Act and
the Exon-Florio Amendment, no Permit of, or registration, declaration or filing
with, any Governmental Authority, or any other Person not a party to this
Agreement, is required for the validity of the execution and delivery of, or for
Buyer to execute and deliver, this Agreement or to pay the
44
<PAGE> 55
Purchase Price to Sellers at Closing, other than (a) as may be required by
applicable state corporate and the Securities Act, the HSR Act or the
Exon-Florio Amendment, (b) as disclosed on Schedule 7.6 hereto, and (c) Permits,
registrations, declarations and filings which will be made on or prior to
Closing or which are not required as of the Closing.
8. ADDITIONAL COVENANTS AND AGREEMENTS; ACKNOWLEDGMENTS.
8.1 Conduct of Business of the ASIG Entities.
(a) Ordinary Course of Business. From the date hereof through
the Closing Date, except as consented to or approved by Buyer in
writing and except as provided for or contemplated in Section 6.14
hereof and this Section 8, Sellers covenant and agree that Sellers
shall cause all of the ASIG Entities to operate the Business in the
ordinary and usual course consistent with past practices. Moreover,
except as consented to by Buyer in writing, Sellers agree that from the
date hereof through Closing Date, none of the ASIG Entities shall
engage in any practice, take any action or enter into any transaction
of the nature that would require a disclosure as provided for or
contemplated by Sections 6.14 or 8.17 hereof.
(b) Preservation of Business. Without limiting the foregoing,
Sellers shall use their best efforts to cause the ASIG Entities to
preserve and advance the Business, keep its properties intact, preserve
the goodwill of the Business, perform its agreements and obligations,
pay its payables promptly as they become due (without extension) in
accordance with the terms thereof, make all committed budgeted or
scheduled replacements or repairs or equivalent, maintain all of its
physical properties in good repair and operating condition, subject
only to ordinary wear and tear and in each case in accordance with past
practices, continue appropriate maintenance, repair and replacement,
45
<PAGE> 56
capital expense or improvement programs in accordance with original
plans in all material respects but subject to the permitted
limitations of Section 8.15 hereof and perform and comply in all
material respects with the terms of such plans and the contracts set
forth in Schedule 6.10 hereto.
8.2 Reasonable Efforts. Sellers and Buyer promptly shall: (a) make
their respective filings and thereafter make any other required submissions
under all applicable laws, including filings under the HSR Act and the
Exon-Florio Amendment, if applicable, with respect to the Transactions; and (b)
use all their reasonable best efforts to take, or cause to be taken, all other
actions and do, or cause to be done, all other things necessary, proper or
appropriate to cause the Closing to occur and to consummate and make effective
the Transactions as herein required.
8.3 Access to Information. From the date hereof and through the
Closing, upon reasonable notice, Sellers and all of the ASIG Entities shall
permit representatives of Buyer to have full access to all premises, properties,
personnel, books, records, contracts and documents of or pertaining to the ASIG
Entities and shall provide Buyer with such financial information regarding the
Business as Buyer reasonably may request. Such access by Buyer shall not disrupt
the conduct of the Business by the ASIG Entities. From and after the date hereof
(including after Closing), Sellers will give Buyer reasonable access to and
cooperation from its staff, accountants, auditors, books, records and workpapers
for purposes of preparing historical financial information and statements of the
ASIG Entities.
8.4 Publicity. Prior to Closing, except for disclosures specifically
required by Law or any order, no public announcement relating to the
transactions contemplated hereby shall be released by Buyer or the Sellers (and
the Sellers shall cause the ASIG Entities not to make any
46
<PAGE> 57
such release), without the prior written consent of the other parties hereto. If
disclosure specifically is required by Law or any Order, prior to Closing, Buyer
or Sellers, as applicable, shall give the non-disclosing party prior written
notice of the disclosure to be made and a reasonable opportunity to consult with
the disclosing party prior to making any such disclosure.
8.5 Taxes.
(a) Mutual Assistance. Buyer and Sellers will provide each
other such records, access to employees and assistance including
execution of documents that are merely ministerial in nature, such as
the signing of Returns and other forms which Sellers represent to be
complete and correct) as reasonably may be requested by either of them
in connection with the preparation of any Return, any audit or other
examination by any Governmental Authority, and any judicial or
administrative proceedings relating to liability for Taxes (including
refunds thereof) as provided pursuant to Section 8.5(b) hereof. From
and after the Closing Date, Buyer agrees to retain Tax Records of the
ASIG Entities relating to tax periods for which Sellers have
indemnified Buyer pursuant to Section 8.5(b) hereof for until the
expiration of any applicable limitations period (including any
extensions thereof) with respect to such tax periods. Buyer will use
reasonable efforts to notify Sellers prior to destroying material tax
records for such tax periods. Any such records or other information
disclosed pursuant hereto shall be held in strict confidence and shall
not be disclosed to others for any reason whatsoever, except to the
extent that such disclosure is required in order to effect the intent
of this Agreement or such disclosure is required by law.
47
<PAGE> 58
(b) Allocation of Tax Liability. Sellers shall be responsible
for and shall indemnify and hold Buyer and the ASIG Entities harmless
against and from all Taxes (excluding any Transaction Tax imposed by
Government Authorities on Buyer and not on Sellers) (i) due or payable
at any time with respect to or relating to the income, ownership and/or
operation of the ASIG Entities at any time on or before Closing, and
for all periods ending on or before the Closing Date; or (ii) resulting
from any ASIG Entity having been, or ceasing to be, a member of any
consolidated, combined, unitary or similar group that includes either
of Sellers, whether imposed under Treasury Regulation 1.1502-6 of the
Code or otherwise. Buyer and the ASIG Entities jointly and severally
shall be responsible for and shall indemnify and hold Sellers harmless
against all Taxes relating to the ownership and operations of the ASIG
Entities for all taxable periods beginning on the date immediately
after the Closing Date or thereafter. Sellers shall be responsible for
and shall indemnify and hold Buyer and the ASIG Entities harmless from
and against all Taxes relating to the ownership and operation of the
ASIG Entities for any taxable period beginning before and ending after
the Closing Date to the extent such Taxes are attributable to the
portion of such period ending on the Closing Date. For any tax period
that begins before the Closing Date and ends after the Closing Date,
the portion of such Tax attributable to the portion of such period
ending on the Closing Date:
(i) In the case of any such Taxes not based upon or
related to income or receipts, shall be deemed to be the
amount of such Taxes for the entire taxable period multiplied
by a fraction, the numerator of which is the number of days in
the
48
<PAGE> 59
period ending on the Closing Date and the denominator of
which is the number of days in the entire taxable period;
and
(ii) In the case of any such Taxes based upon or
related to income or receipts, shall be determined on the
basis of an interim closing of the books at the close of
business on the Closing Date.
(c) Tax Audit Adjustments. Buyer shall be responsible for the
good faith representation of each of the ASIG Entities in regard to all
present and future U.S. and foreign, federal, state, provincial and
local Tax audits, protests and appeals for all years or periods open
for the assessment of Tax deficiencies with respect to the Business
through and including any taxable period ending on or before the
Closing Date and all succeeding periods. Buyer shall inform the Sellers
of (i) the commencement of any audit or examination, (ii) proposals of
deficiencies or refunds, and (iii) the assessment of deficiencies or
the agreement to refund an overpayment of Taxes, with respect to all of
the ASIG Entities for any Tax Period for which Sellers have indemnified
Buyer pursuant to Section 8.5(b) hereof. Sellers shall be entitled to
participate in such audits and any subsequent protests and appeals, and
to review any workpapers relating thereto with respect to such Tax
periods. Neither Buyer nor any of the ASIG Entities shall settle,
compromise, accept, reject, protest or appeal any adjustment or
proposed adjustment in connection with any Tax audit or examination
unless Buyer and the ASIG Entities have first obtained the Sellers'
written approval, which approval shall not be unreasonably withheld or
delayed, with respect to such adjustment if such actions would
materially,
49
<PAGE> 60
adversely affect the Tax liability of any of the ASIG Entities or
Sellers giving effect to this Agreement.
(d) Tax Returns. Prior to the Closing Date, each of the ASIG
Entities duly and timely shall file all Returns with respect to the
ownership and operations of the Business required to be filed by it by
such time (giving effect to any extensions available therefor) and
shall pay all Taxes due and payable with respect to such Returns,
provided that any of the ASIG Entities may contest in appropriate
proceedings any Tax, governmental charge, duty, or assessment; and each
of the ASIG Entities will withhold from each payment made to each of
its employees, if any, the amount of all Taxes (including, but not
limited to, federal income taxes and the U.S. Federal Insurance
Contribution Act Taxes and state, local and foreign income, wage,
disability, unemployment, and similar Taxes) required to be withheld
therefrom and will pay the same, before becoming delinquent, to the
proper Governmental Authority. Sellers duly and timely shall file all
federal, state and local Returns and reports for each of the ASIG
Entities and the Business for all taxable periods ending on or prior to
the Closing Date, and Buyer shall duly and timely file all Returns and
reports for each of the ASIG Entities for all taxable periods beginning
after the Closing Date. Notwithstanding the foregoing, Buyer duly and
timely shall file all other Returns and reports for each of the ASIG
Entities for all taxable periods beginning before and ending after the
Closing Date. Consistent with the prior practice of the ASIG Entities,
at Sellers' reasonable written request (to be made no later than 30
days prior to the requested delivery date), Buyer shall use reasonable
efforts, at Sellers' expense, to cause the ASIG Entities to provide to
Sellers pro
50
<PAGE> 61
forma 1997 and short period 1998 (through the Closing Date) U.S.
federal and state income and franchise tax returns in a manner
consistent with prior practice. If such pro forma returns are requested
by Sellers, Buyer shall use reasonable efforts to provide Sellers such
1997 pro forma returns by one month after the Closing and such 1998 pro
forma returns by 3 1/2 months following Closing. Upon receipt of the
invoice with respect to reasonable out-of-pocket fees and expenses
incurred with respect to such pro forma returns, Sellers shall promptly
pay all such amounts.
(e) Section 338(h)(10) Election. With respect to the
acquisition of Shares hereunder, Buyer shall make a timely election
under Section 338(g) of the Code and Seller and Buyer jointly shall
make an election under Section 338(h)(10) of the Code and any
corresponding elections under state or local law (collectively, a
"Section 338 Election"). Seller and Buyer shall (i) take, and cooperate
with each other to take, all actions necessary and appropriate
(including filing such forms, returns, elections, schedules and other
documents as may be required) to effect and preserve a timely Section
338 Election promulgated thereunder, or any successor provisions, as
promptly as practicable following the Closing Date, but not later than
the date which is the latest date for making such Section 338 Election,
and (ii) Seller and Buyer shall report the sale of the Shares pursuant
to this Agreement consistent with the Section 338 Election and shall
take no position contrary thereto or inconsistent therewith in any Tax
Return, any discussion with or proceeding before any taxing authority,
or otherwise.
8.6 Insurance. Sellers shall cause each of the ASIG Entities to keep,
or cause to be kept, all insurance identified on Schedule 6.19 in full force and
effect through the close of
51
<PAGE> 62
business on the Closing Date. Upon the signing hereof Sellers and Buyer
shall cooperate to arrange for the replacement of such Insurance
identified for replacement as of the Closing Date without the Sellers
being responsible thereunder, and Sellers shall cooperate with the ASIG
Entities as may be necessary to permit such insurance not identified
for replacement to remain in force as of the Closing Date for
continuation after the Closing Date as determined by Sellers, Buyer and
the ASIG Entities.
8.7 Resignations. Except to the extent Buyer directs otherwise, Sellers
shall cause the resignation of each of the ASIG Entities' present directors and
officers, named on Schedule 8.7 hereto, effective as of the date Buyer causes
them to be accepted.
8.8 Third-Party Consents. To the extent that the change of ownership of
Companies' Shares or ASIG Subsidiary Shares requires, pursuant to any License,
Concession, Permit, Contract, or lease, the consent, release or waiver of or
notice to any third party, Sellers shall use best efforts to obtain such
consent, release or waiver, without any condition or modification adverse to the
Business, or to give such notice. Buyer may delay the Closing or terminate this
Agreement upon notice in writing if Sellers fail to obtain any such consent or
to give any such notice and any such failure (individually or in the aggregate)
could, in Buyer's reasonable judgment, have a Material Adverse Effect and
Sellers do not agree to a reduction in the Purchase Price that compensates Buyer
in an amount satisfactory to Buyer for Sellers, inability to deliver such
License, Concession, Permit Contract or Lease. If Sellers do not obtain, without
conditions or modifications adverse to the Business, a consent required under
any License, Concession, Permit, Contract or Lease in connection with the sale
and transfer of the Companies' Shares to Buyer (or the consummation of any other
Transaction contemplated by this Agreement), or is
52
<PAGE> 63
otherwise not permitted to transfer any asset of the Business (each a
"Non-Transferred Asset"), then Sellers shall enter into any alternative
arrangements Buyer requests which are reasonably acceptable to Sellers (such as,
without limitation, closing the transactions contemplated by this Agreement into
a trust or escrow or distributing the Non-Transferred Asset to Sellers and
entering into a "back-to-back" agreement with Buyer or the ASIG Entities), so as
to provide Buyer and the ASIG Entities with the full benefit after the Closing
of any Non-Transferred Asset to the extent Buyer or the ASIG Entities perform
the post-closing obligations with respect to such Non-Transferred Asset.
8.9 Post-Closing Pension Plan Service Funding.
(a) V-RIP Pension Plan. As of the Closing Date, the V-RIP Plan
shall be amended in a manner reasonably acceptable to Buyer so that the
ASIG Personnel who are participants in the V-RIP that have not attained
vesting in the V-RIP shall continue to be credited with service with
the ASIG Entities solely for the purposes of the vesting of benefits.
Sellers shall retain all liabilities under the VRIP and shall be solely
responsible for all benefits accrued by the ASIG Personnel (and all
former employees of the ASIG Entities) thereunder as of the Closing
Date. ASIG Personnel shall be entitled to a distribution of their
accrued benefit from the V-RIP in accordance with the terms of the
plan, as if they had terminated employment on the Closing Date. No
assets held on behalf of the V-RIP shall be transferred from the V-RIP
to any plan established by Buyer (other than with respect to a
participant rollover distribution, if applicable) and Sellers shall
indemnify and save the ASIG Entities harmless against any and all
obligations arising under or with respect to the V-RIP.
53
<PAGE> 64
(b) Buyer Cooperation. Buyer shall reasonably cooperate with
Viad in providing after the Closing Date information regarding
continued service of employees so that Viad may give proper credit for
vesting service to such employees under the V-RIP. Buyer also shall
provide such assistance and information reasonably requested by Viad
with respect to the ASIG Entities' Personnel in order for Viad
toperform such-testing and-calculations as required under ERISA.
(c) Savings Plans. With respect to the Viad Capital
Accumulation Plan (the "Savings Plans"), Sellers and Buyer shall
cooperate to transfer the accounts of the ASIG Personnel to a savings
plan qualified under Code Section 401(a) to be established by the ASIG
Entities within 60 days of Closing. Prior to transfer of assets, Buyer
shall deliver to Sellers an opinion of counsel with respect to the
qualified status of Buyer's plan. Sellers shall cause the ASIG
Personnel to be fully vested in their account balances under the
Savings Plans as of the Closing Date. Until such time as the account
balances can be distributed, Sellers shall instruct the Trustee of the
Savings Plan to continue to accept loan repayments from the ASIG
Personnel consistent with prior practice. The ASIG Entities shall
include the outstanding loan balances under the Savings Plan to be
transferred to the savings plan it establishes.
(d) ESOP. With respect to the Viad Employee Stock Ownership
Plan (the "ESOP"), Sellers shall retain all obligations and liabilities
arising under or with respect to the ESOP and shall be solely
responsible to the ASIG Personnel with respect to benefits accrued
thereunder as of the Closing Date. Seller shall cause the ASIG
Personnel to be fully vested in their account balances under the ESOP
as of the Closing Date. The ASIG
54
<PAGE> 65
Personnel will be entitled to a distribution of their account balance
in the ESOP in accordance with the terms of the plan, as if they
terminated employment on the Closing Date.
(e) DSI Pension Plan. As of the Closing, Buyer or a subsidiary
thereof shall maintain the Bargained Employees' Pension Plan of
Dispatch Services, Inc. (the IIDSI Plan"). In the event the assets are
maintained in a trust controlled by Sellers, Sellers and Buyer shall
cooperate to take all actions which are necessary or desirable prior to
closing so that the trust assets for this plan are maintained in a
trust sponsored by DSI.
(f) Retiree Welfare Benefits. All ASIG Personnel who are
eligible to receive post-retirement medical or life insurance benefits
under a Plan sponsored by Viad or any of its affiliates (the "Retiree
Plan") if they retired under the Retiree Plan as of the Closing Date
shall receive and continue to receive benefits under the Retiree Plan
at Sellers, sole cost and expense if they retire as of or prior to the
Closing from employment with the ASIG Entities under the same terms and
conditions as applicable to Sellers, or any of its affiliates'
retirees. Sellers shall remain responsible, and shall retain all
obligations with respect to, any person receiving post-retirement
medical or life insurance benefits as of the Closing Date and Sellers
shall indemnify and save the ASIG Entities harmless from and against
any and all liabilities and obligations arising under or with respect
to such Plans.
(g) Transfer of Assets. Any and all V-RIP or Retiree Plan
assets reflected on the books of the ASIG Entities shall be transferred
to Sellers as of the Closing Date. Buyer shall provide Sellers with
copies of the pension and retiree files of the ASIG Personnel.
55
<PAGE> 66
8.10 Noncompete Agreement. Sellers and Buyer shall enter into and
execute a noncompetition agreement ("Noncompete Agreement") in form and
substance as set forth as Schedule 8.10 hereto.
8.11 Certain Property Transfers. On or prior to Closing, Viad shall
transfer and assign to one of the Companies or one of the ASIG Entities the
Trademarks or (service marks) held by Viad for use by the ASIG Entities in the
Business and listed on Schedule 8.11 hereto substantially in the form attached
hereto as Schedule 8.11 and on or prior to Closing, Sellers shall cause the
appropriate ASIG Entity to transfer to Viad, as necessary, the Retained Assets
and Retained Liabilities.
8.12 Confidential Information; Solicitation of Personnel. Sellers and
Buyer each covenant and agree as follows:
(a) Sellers' Obligation. Sellers shall not (i) at any time
after the Closing Date, disclose to any Person other than Buyer or the
ASIG Entities, in any manner, directly or indirectly, any Information
pertaining to the Business, which is licensed to or owned in whole or
in part by any of the ASIG Entities or which has been created or
developed for, used in or necessary for the conduct of the Business;
and (ii) for a period of 3 years after the Closing Date, except for
Robert Tarman, solicit for employment by Sellers or their respective
subsidiaries, or employ persons who are directors, officers, agents,
employees or contractors of Buyer or any of the ASIG Entities after the
Closing Date.
(b) Buyer's Obligation. Buyer shall not, and shall not permit
the ASIG Entities or any subsidiary or successor thereof to, for a
period of 3 years, disclose to any Person other-than Sellers or their
respective subsidiaries, in any manner, directly or indirectly, any
56
<PAGE> 67
Information pertaining to the businesses of Sellers (other than the
Business) or their respective subsidiaries, which is licensed or owned
in whole or in part by Sellers or any of their respective subsidiaries
(including, without limitation, the businesses of Dobbs International,
Inc. or any other subsidiary of Sellers engaged in the airline catering
business) or which has been created or developed for, used in or
necessary for the conduct of such businesses.
8.13 Obligations under Financial Accommodations. To extent permitted by
third parties, Buyer shall use reasonable efforts to cause ASIG Entities to
assume all of the obligations of Sellers pursuant to all of the Financial
Accommodations disclosed in Schedule 8.13 which are indicated as to be assumed
by Buyer, copies of which have been given to Buyer, and to the extent possible,
shall assert reasonable efforts to obtain for Sellers a full release and
discharge of Sellers from all obligations under the Financial Accommodations.
8.14 Liabilities under Certain Plans. Sellers shall terminate the
eligibility of the ASIG Entities under the Supplemental Retirement Income Plan
("SERP") and the deferred compensation plan for such Personnel under the
Performance Unit Plan ("PUP") and the Management Incentive Plan ("MIP") as of
the Closing Date, shall retain and shall fully indemnify Buyer and the ASIG
Entities against all liability to participating Personnel of the ASIG Entities
thereunder and shall retain, and not transfer to Buyer or the ASIG Entities any
of the assets or amounts, if any, funding, SERP, MIP or PUP. Personnel
participating in SERP, the MIP and the PUP as of the Closing Date are identified
on Schedule 8.14 hereto.
8.15 Budgeted Capital Expenditures. Sellers have agreed that they will,
or will cause the ASIG Entities to make and pay for, the capital expenditures
described in Schedule 8.15 in an
57
<PAGE> 68
aggregate amount of approximately US$3.4 million. To the extent any such capital
expenditures are not paid for prior to the Closing, Sellers agree to leave an
additional amount of cash in the ASIG Entities on the Closing Date equal to the
difference between approximately US$3.4 million and the actual cost paid after
the date hereof and prior to Closing for specific budgeted capital expenditure
items which are required to be capitalized on a balance sheet under GAAP listed
on Schedule 8.15.
8.16 Disclosure Obligations. Sellers shall promptly deliver a written
notice to Buyer explaining any material development known by Sellers to affect
materially the assets, liabilities, business, financial condition, operations,
prospects, or results of operations of the ASIG Entities or disclosing in detail
facts they may discover or changes in facts occurring, after the date on which
the Schedules are accepted pursuant to Section 13.16 hereof which, if existing
on such date would have been required to be disclosed or described in a schedule
hereto. No later than 10 business days after receipt of any such notice from
Sellers, Buyer may elect to (i) request Sellers to cure at Sellers' expense any
matter referred to in such notice; (ii) accept such notice in which case the
Schedules will be deemed amended by such notice; or (iii) terminate the
Agreement. Buyer's election pursuant to the foregoing sentence shall be in
writing.
8.17 Covenant Regarding Receivables and Cash Accounts. Sellers shall
restore (or cause to be restored) to the ASIG Entities, free and clear of any
Encumbrance (subject only to filing with the applicable Governmental Authorities
of the UCC-3 documents or such other applicable form of termination or release
delivered to Buyer pursuant to Section 10.1(n) hereof), all Receivables of the
ASIG Entities as of the Closing Date with appropriate reserves for any past due
or uncollectible receivables. Sellers may contribute cash to (or refrain from
distributing cash
58
<PAGE> 69
from) the ASIG Entities in lieu of restoring any particular Receivables. Seller
shall cause funds maintained by the ASIG Entities as petty cash accounts to
remain intact at normal levels consistent with past practice. Sellers shall
return to the ASIG Entities as of the Closing all cash relating to customer
deposits or held on behalf of the consortia without diminution (except for the
purposes for which such accounts have been maintained in the ordinary course of
business of the ASIG Entities).
8.18 Other Documents/Actions. In addition to the foregoing, Buyer and
Sellers shall each execute such documents and take such further actions as may
be required for each such entity to assure performance of its other obligations
set forth in Section 8 hereof.
8.19 Medical Benefits. Viad agrees to retain and be solely responsible
for all liability or obligation of any ASIG Entity for claims made and
conditions existing on or prior to Closing with respect to any medical condition
or illness of any employee, former employee, laid-off or disabled employee
(including in each case spouses and dependents thereof) (including, without
limitation, the plan administered by John Alden Healthcare Inc., the Dispatch
Plan and the other medical plans disclosed on Schedule 8.20), it being
understood that with respect to matters subsequent to December 31, 1997, that
are covered by the Aetna HMO Plan or other insured Plan, Sellers shall not be
liable to the extent (i) any such claims are paid under such Plan; or (ii) of
any employee co-pay or deductible requirements. Buyer agrees to provide Viad
such reasonable cooperation and access to employee records to enable Viad to
manage effectively the processing and disposition of such liability for such
claims.
8.20 Worker's Compensation Cooperation. Buyer agrees to implement and
maintain a program of rehabilitation designed to promote the injured employees,
return to work, similar to
59
<PAGE> 70
the Return-to-Work program Sellers maintained during periods prior to the
Closing Date as summarized on Schedule 8.20 hereof. Buyer agrees to maintain
such return-to-work program for as long as Sellers are responsible for such
Worker's Compensation claims. Buyer will provide reasonable assistance to
Sellers for the disposition of claims, including making employees reasonably
available for statements, depositions taken by Sellers, and Sellers'
investigation.
8.21 Net Asset Value Adjustment Related to Medical Claims and Worker's
Compensation Claims. Buyer and Sellers agree that in exchange for Sellers
retaining (and indemnifying Buyer against) the liabilities set forth in Section
12.2(b)(i) hereof, and notwithstanding anything in this Agreement to the
contrary, Sellers shall receive a credit of US$800,000 in the calculation of Net
Assets for the Closing Balance Sheet and Net Asset Report and if such credit is
unavailable, Buyer shall execute a Promissory Note in favor of Viad for an
amount which results in net proceeds of US$800,000.00.
8.22 Burbank Condemnation Proceeding. Buyer and Sellers agree that
Sellers shall retain all Liabilities (including without limitation all Burbank
Facility Environmental Liabilities) and assets (including without limitation the
99 year Lease with respect to the Tank Farm located at the Burbank airport which
is the subject of the Burbank Condemnation) in connection with the Burbank
Condemnation proceeding. Sellers shall cause the ASIG Entities to make any
transfers of assets or any payments necessary to effect the terms of this
Section. Buyer and Sellers will cooperate with each other so as to not
unreasonably disrupt the condemnation proceedings or the operation of the
Burbank facility in accordance with the applicable Permits.
8.23 Certain Tax Obligations. Buyer and Sellers agree that Sellers
shall retain all liability and (other than with respect to reserves for foreign
Tax) related accrued reserves for
60
<PAGE> 71
Taxes as provided in Section 8.5 above. Buyer shall make available to Seller the
information, assistance and access described in Section 8.5 hereto to permit
Sellers to file timely reports or returns for such taxes for such periods.
8.24 Retained Assets and Retained Liabilities. Prior to Closing, the
ASIG Entities shall transfer to Viad all of their respective rights and Viad
shall assume all of the related liabilities to those assets and such other
Retained Liabilities described on Schedule 8.24 hereto ("Retained Assets and
Retained Liabilities"). Viad shall pay for all sales and transfer taxes, if any,
which may result from such transfer.
8.25 Estoppel Letter. Sellers shall obtain an estoppel certificate, if
available (the "Estoppel Certificate"), dated no more than fifteen (15) days
prior to the Closing Date, from the landlords, lessors, sublessors or licensors
with respect to each of the Leases for such Leased Real Property in form and
substance reasonably satisfactory to Buyer and Buyer's lender (if any).
8.26 Non-Disturbance Agreement. Seller shall use reasonable efforts to
obtain a non-disturbance agreement (the "Non-Disturbance Agreements") in form
and substance reasonably satisfactory to Buyer and Buyer's lender (if any) from
each lender encumbering any parcel of Leased Real Property insured pursuant to a
Title Policy.
9. CONDITIONS.
9.1 Conditions to Each Party's Obligations. The respective obligations
of each party to consummate the Transactions are subject to the fulfillment at
or prior to the Closing Date of each of the following conditions, any or all of
which may be waived, in writing, in whole or in part:
61
<PAGE> 72
(a) Governmental and Regulatory Consents. All filings,
including filings required by the HSR Act and the Exon-Florio
Amendment, required to be made prior to or on the closing Date with,
and all Permits required to be obtained prior to or on the Closing Date
from, any Governmental Authority in connection with the execution and
delivery of this Agreement and the consummation of the Transactions
shall have been made or obtained or the applicable waiting period shall
have expired (as the case may be) without restrictions having a
Material Adverse Effect. In addition, no threat or challenge to the
consummation of the Transactions shall have been made or, if made, such
threat or challenge shall have been resolved in favor of permitting
such Transactions.
(b) Litigation. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order or taken any action
which prohibits or materially and adversely affects the Business or
consummation of the Transactions; provided, however, that the parties
invoking this condition shall use commercially reasonable efforts to
have any such Order vacated or rescinded.
9.2 Conditions to Obligations of Buyer. The obligations of Buyer to
consummate the Transactions are subject to the fulfillment on or prior to the
Closing Date of each of the following conditions, any or all of which may be
waived, in writing, in whole or part by Buyer:
(a) Representations and Warranties; Performance of Agreement.
Each of the representations and warranties of Sellers herein shall have
been true and correct in all respects when made and as of the Closing
Date as if made at and as of the Closing Date (except to the extent
they relate to a particular date); Sellers shall have performed or
62
<PAGE> 73
complied with all agreements and covenants required by this Agreement
to be performed or complied with by Sellers on or prior to the Closing
Date; and Sellers shall have delivered to Buyer a certificate, dated
the Closing Date, on behalf of Sellers signed by a duly authorized
officer of Sellers in form and substance reasonably satisfactory to
Buyer, to such effect.
(b) Third-Party Consents. All required authorizations,
consents or approvals of any Governmental Authority or third party
under the Concessions, Permits, Contracts or otherwise, shall have been
requested by Sellers, and all material authorizations, consents and
approvals of any Governmental Authority or third party shall have been
obtained.
(c) Noncompete Agreement. The noncompetition agreement in form
and substance set forth in Schedule 8.10 hereto have been executed and
delivered.
(d) Opinion. Buyer shall have been furnished at the Closing
with opinions of Peter J. Novak, Vice President and General Counsel of
Viad dated as of the Closing Date with respect to the matters set forth
on Schedule 9.2(d) hereto.
(e) Due Diligence. Buyer, its agents and representatives shall
have completed an evaluation of the operations, assets and liabilities
of the Business, including a review of business, financial,
contractual, environmental and legal information, the results of which
shall in good faith be satisfactory to Buyer in all material respects.
(f) Financing. Buyer shall have obtained the financing
necessary to consummate this transaction in accordance with the terms
set forth in the commitment letters attached hereto as Schedule 9-2(f).
63
<PAGE> 74
(g) Subject to Section 8.22, all right, title and interest in
the assets comprising the Burbank, California, Tank Farm facility shall
have been, as appropriate, assigned, contributed, or otherwise
transferred from the ASIG Entity in which they reside as of the date
hereof to Viad and Viad and the appropriate ASIG Entity shall cooperate
to enter into an M&O agreement satisfactory in form and substance to
Buyer and Viad by which the appropriate ASIG Entity shall, without
undertaking responsibility for any Environmental Liabilities associated
with such facility, operate the Burbank Tank Farm facility on behalf of
Viad for so long as the Buyer reasonably requires, which agreement
shall, inter alia, provide that Viad shall bear sole responsibility for
the full cost and expense necessary to upgrade if and as required the
Tank Farm at such Facility in a timely manner to comply with all
applicable Environmental Laws without disrupting the ongoing operation
of such Tank Farm.
(h) Deliveries Completed. The deliveries contemplated by
Section 10 hereof have been completed.
9.3 Conditions to Obligations of Sellers. The obligations of Sellers to
consummate the Transactions are subject to the fulfillment on or prior to the
Closing Date of each of the following conditions, any or all of which may be
waived, in writing, in whole or in part by Sellers to the extent permitted by
applicable Law or Order:
(a) Representations and Warranties; Performance of Agreement.
Each of the representations and warranties of Buyer herein shall be
true and correct in all material respects when made and shall be true
and correct in all material respects at and as of the Closing Date as
if made at and as of the Closing Date (except to the extent they relate
to a
64
<PAGE> 75
particular date); Buyer shall have performed or complied in all
respects with all agreements and covenants required by this Agreement
to be performed or complied with by Buyer on or prior to the Closing
Date; and Buyer shall have delivered to Sellers a certificate, dated
the Closing Date, on behalf of Buyer by a duly authorized officer of
Buyer, in form and substance reasonably satisfactory to Sellers, to
such effect.
(b) Noncompete Agreement. The Noncompete Agreement in form and
substance set forth in Schedule 8.10 have been executed and delivered.
(c) Deliveries. The deliveries contemplated by Section 10
hereof have been completed.
(d) Board. The Board of Viad shall have approved on or prior
to March 24, 1998, the execution, delivery and performance of this
Agreement in accordance with Section 5.2 above.
10. CLOSING DELIVERIES.
10.1 Deliveries by Sellers. On the Closing Date, Sellers shall deliver
or cause to be delivered to Buyer (unless previously delivered) the following:
(a) Corporate Resolutions. Enabling resolutions of the Boards
of Sellers authorizing the Transactions.
(b) Share Certificates. Subject to availability under
applicable foreign Law, one or more stock certificates or other
evidence satisfactory to Buyer representing all of the Companies'
Shares;
(c) Officer's Certificate. The Sellers' certificate referred
to in Section 9.2(a) hereof;
65
<PAGE> 76
(d) Articles and Bylaws. Subject to availability under
applicable foreign Law, correct and complete copies of the Articles,
and all amendments thereto, and the Bylaws, and all amendments thereto,
of each of the ASIG Entities certified, in the case of the Articles as
of the most recent practicable date by an official of the appropriate
Governmental Authority, and in the case of the Bylaws, as of the
Closing Date by the corporate secretary or other authorized officer of
each of the ASIG Entities;
(e) Corporate Records. Subject to availability under
applicable foreign Law, all minute books, stock transfer books, stock
certificate books, and corporate certificates, and all corporate seals
and financial and accounting books and records of each of the ASIG
Entities;
(f) Good Standing. Except where not available in foreign
jurisdictions, a long-form certificate of good standing for each of
the ASIG Entities certified as of a recent date by the appropriate
official of the appropriate Governmental Authority;
(g) Legal Opinion. The opinion of counsel to Sellers referred
to in Section 9.2(d) hereof;
(h) Noncompete Agreement. The Noncompete Agreement referenced
in Section 8.10 hereof;
(i) Certificate of Incumbency. A certificate of incumbency of
Sellers certified by its secretary or assistant secretary, which shall
identify by name, title and signature the officer(s) of Sellers
authorized to execute this Agreement and all related documents;
66
<PAGE> 77
(j) Estoppel Certificates. If available, duly executed
estoppel certificates from each landlord, sublandlord, licensor,
grantor or owner of any concessions or contract for those properties or
facilities at the locations specified on Schedule 6.8;
(k) Original Contracts. The originals, conformed copies or
photocopies of Leases, concessions or contracts, together with duly
executed consents of the landlord, sublandlord, licensor, owner or
other party to concessions or contracts, if required, and if in
possession of Sellers;
(l) Non-Disturbance Agreements. The Non-Disturbance Agreements
to the extent available in the form required under Section 8.26.
(m) Resignations of Officers and Directors. A duly executed
certificate of resignation of each officer or director of any ASIG
Entity dated as of or prior to the Closing; and
(n) Release. A release, in form and substance reasonably
satisfactory to Buyer, of all Encumbrances on the Receivables.
(o) Other Documents. All other documents, instruments or
writings reasonably required to be delivered by Sellers at or prior to
the Closing pursuant to this Agreement or otherwise required in
connection herewith, including, without limitation, the resignations
referred to in Section 8.7 hereof and, if requested, a transition
services agreement reasonably acceptable to the parties hereto.
10.2 Deliveries by Buyer. At the Closing, Buyer will deliver or cause
to be delivered to Sellers (unless previously delivered) the following:
67
<PAGE> 78
(a) Corporate Resolution. Enabling resolution by the Board of
Buyer authorizing the Transactions;
(b) Purchase Price. The Purchase Price of US$95,000,000 to be
wire transferred to the account or accounts designated by Viad;
(c) Officer's Certificate. The officer's certificate referred
to in Section 9.3(a) hereof;
(d) Noncompetition. The Noncompete Agreement described in
Section 8.10 hereof;
(e) Certificate of Incumbency. A certificate of incumbency of
Buyer certified by its secretary or assistant secretary, which shall
identify by name, title and signature the officer(s) of Buyer
authorized to execute this Agreement and all related documents; and
(f) Other Documents. All other documents, instruments or
writings reasonably required to be delivered by Buyer at or prior to
the Closing pursuant to this Agreement or otherwise required in
connection herewith.
11. TERMINATION.
11.1 Termination by Mutual Consent. This Agreement may be terminated
and the Transactions may be abandoned at any time prior to the Closing Date, by
the mutual written consent of Buyer and Sellers.
11.2 Termination by Buyer or Sellers. This Agreement may be terminated
by action of either Buyer or Sellers if any court of competent jurisdiction in
the United States or some other Governmental Authority shall have issued an
Order or taken any other action permanently restraining, enjoining or otherwise
prohibiting the Transactions.
68
<PAGE> 79
11.3 Termination by Buyer. This Agreement may be terminated at any time
prior to the Closing Date by Buyer, if (a) a condition to the performance of
Buyer under Section 9.1 or Section 9.2 hereof shall not be fulfilled on or
before the time specified for the fulfillment thereof, and such failure is not
the direct result of action or nonaction of Buyer; (b) a failure, breach or
default of any representation, warranty or covenant of Sellers resulting in a
Material Adverse Effect on the Business or Buyer shall occur hereunder, which
failure, breach or default has not been cured within 5 business days following
receipt by Sellers of notice of such failure; or (c) at any time after May 4,
1998, if all of the conditions precedent to its obligation to effect the
Transactions shall not have been fulfilled by reason other than Buyer's failure
to comply with its obligations hereunder.
11.4 Termination by Sellers. This Agreement may be terminated by Viad
on behalf of Sellers, if (a) a condition to the performance of Sellers under
Sections 9.1 or 9.3 hereof shall not be fulfilled on or before the time
specified for the fulfillment thereof and such failure is not the result of
action or nonaction of Seller; (b) a failure, breach or default of any
representation, warranty or covenant of Buyer resulting in a Material Adverse
Effect on Sellers shall occur hereunder, which failure, breach or default has
not been cured within 5 business days following receipt by Buyer of notice of
such failure; or (c) at any time after May 4, 1998, if all of the conditions
precedent to its obligation to effect the Transactions shall not have been
fulfilled by reason other than Sellers, failure to comply with its obligations
hereunder.
11.5 Effect of Termination and Abandonment. In the event of termination
of this Agreement pursuant to this Section 11, this Agreement shall no longer be
of any force or effect and there shall be no liability on the part of any party
or its respective directors, officers or
69
<PAGE> 80
shareholders, except that (a) in the case of termination pursuant to Section
11.3 or Section 11.4 hereof because of a failure, default or breach of the other
party, in which event the aggrieved party or parties, in addition to any and all
other rights, remedies and damages available at law or equity, may recover from
the defaulting party the amount of Loss or Losses incurred by such aggrieved
party or parties in connection with this Agreement and the Transactions
contemplated hereby which the aggrieved party or parties would otherwise have to
bear pursuant to Section 13.1 of this Agreement; and (b) in any event, no such
termination shall affect the Indemnifying Party's obligations pursuant to
Section 8.12 hereof.
12. INDEMNIFICATION.
12.1 Survival. Except as stated in this Section 12, liability of the
parties pursuant to the representations and warranties in this Agreement shall
survive the Closing and shall remain effective for claims for which notice has
been delivered to the Indemnifying Party not later than 2 years after the
Closing Date regardless of any investigation or inquiry by Buyer or Sellers at
anytime; provided, however, that the liability of the parties hereto pursuant to
all of the covenants herein shall survive the Closing indefinitely subject to
applicable statute of limitations.
12.2 Indemnification by the Sellers.
(a) General Indemnity. Subject to the limitations set forth in
Sections 6, (representations and warranties concerning the ASIG
entities), this Section 12 and Section 13.13 (concerning dispute
resolution) hereof, Sellers, as Indemnifying Party, shall indemnify and
hold harmless the ASIG Entities, Buyer, its affiliates and each of
their respective Personnel, all as Indemnified Parties, against and
from any Loss or Losses, suffered or incurred by any such Indemnified
Parties to the extent arising from (i) any
70
<PAGE> 81
breach of any representation or warranty of Indemnifying Parties
contained herein which and to the extent it survives the Closing
(pursuant to Section 12.1 hereof); (ii) any breach of any covenant of
Indemnifying Parties contained in this Agreement requiring performance
before or after the Closing Date;(iii) any liability of the ASIG
Entities assumed by Sellers hereunder; (iv) any Burbank Facility
Environmental Liabilities; (v) any Known Environmental Issues; and (vi)
any Unknown Environmental Liabilities.
(b) Specific Indemnities.
(i) Liability for Medical Claims and Worker's
Compensation. Sellers shall, without limitation, indemnify
Buyers and the ASIG Entities against, be solely responsible
for, and pay on behalf of Buyer and the ASIG Entities as
incurred, the full amount of all obligations, duties and
liabilities relating to any claims by employees or former
employees (including dependents and spouses of employees or
former employees) of the ASIG Entities (or any of their
respective predecessors) existing on or prior to the Closing
Date, or arising from or alleged to arise from or in
connection with any fact, event, claim, injury or condition
existing on or prior to the Closing Date, for, and shall
provide all necessary support and administrative services with
respect to: (a) medical costs and expenses relating to all
self-insured benefit programs, and (b) costs, expenses and
other liabilities under any worker's compensation law,
regulations, requirements or programs. Sellers shall perform
or cause to be performed all of the administrative functions
of processing and managing after the Closing such medical and
worker's compensation claims contemplated hereby with the same
standard of care used to
71
<PAGE> 82
perform such functions prior to the Closing. Nothing herein
express or implied is intended or shall be construed to confer
upon or give to any person, firm or corporation, other than
the parties hereto and their respective permitted successors
and assigns, any rights or remedies under or by reason of this
Agreement.
(ii) Liability for Unknown or Undisclosed Claims.
Without limitation, Sellers hereby assume and are jointly and
severally liable for, and shall pay on behalf of Buyer and the
ASIG Entities, all obligations, duties and liabilities
relating to any Liabilities existing on or prior to the
Closing Date or arising from or alleged to arise from or in
connection with any fact, violation, event, claim, injury or
condition existing on or prior to the Closing Date that is not
reflected on the Closing Balance Sheet or is not otherwise
disclosed in detail in the Schedules hereto.
(iii) Liability for Other Welfare Benefits. Sellers
shall indemnify Buyers and the ASIG Entities against, be
solely responsible for, and pay on behalf of Buyer and the
ASIG Entities, all obligations, duties and liabilities
relating to any claims under Sellers (if applicable) or ASIG
Entity Plans or benefits existing on the date hereof or on the
Closing Date for severance pay, vacation pay, death,
disability or other non-medical welfare benefits payable as a
result of facts, actions or conditions existing on or prior to
the Closing Date, or which are provided to any person who is
an employee or is a retired or inactive employee (or a
dependent thereof) of the ASIG Entities on or immediately
prior to the Closing Date, in each
72
<PAGE> 83
case except to the extent of the amounts specifically accrued
for each such item on the Closing Balance Sheet.
(iv) Liability for Litigation Matters. The Sellers
shall indemnify Buyers and the ASIG Entities against, be
solely responsible for, and pay on behalf of Buyer and the
ASIG Entities, all obligations, duties, liabilities or losses
relating to any claim or matter to the extent relating to or
arising with respect to the ownership or operation of,the
Business or its assets on or prior to the Closing Date
including, without limitation, those matters set forth on
Schedule 6.11 to the extent such obligation, duty, liability
or Loss exceeds the amount set forth as a reserve for such
litigation on the Closing Balance Sheet.
(c) Limitations.
(i) Except as otherwise set forth in this Agreement,
Sellers, obligation to indemnify, defend and hold harmless
Buyer under Sections 12.2(a)(i), and 12.2(b)(ii) hereof shall
be applicable only to the extent that the aggregate amount of
all such Losses exceeds US $500,000 (or its equivalent in
foreign currency) (it being understood that if any
representation or warranty is breached in accordance with its
terms, then for purposes of calculating the amount of any Loss
resulting from any such breach, all materiality, knowledge,
Knowledge Material Adverse Effect qualifications and other
dollar thresholds set forth in the representations and
warranties shall be ignored for purposes of determining the
amount of any Losses resulting from any breach of a
representation or warranty and the full amount of
73
<PAGE> 84
such Losses (without regard to any such qualifications,
limitations, or thresholds) shall be applied against the
foregoing $500,000 deductible);
(ii)(A) Sellers' obligations pursuant to Section
12.2(a)(v) hereof shall arise only to the extent that the
aggregate amount of all Known Environmental Issues covered
thereunder paid after Closing by Buyer or ASIG Entities (or
their successors or assigns) exceed US$170,000 and Losses paid
by Sellers thereunder shall be limited to not more than a
gross aggregate amount of US $5,000,000. Sellers shall have no
obligation to indemnify Buyer pursuant to Section 12.2(a)(v)
for any Routine Monitoring Costs after the third anniversary
of the Closing Date.
(B) Sellers' obligations pursuant to Section
12.2(a)(vi) hereof shall be limited to not more than a gross
aggregate amount of US $10,000,000. Subject to Section 12.4
hereof, Sellers shall have no obligation to indemnify Buyer
pursuant to Section 12.2(a)(vi) for any Unknown Environmental
Liabilities with respect to any matter as to which Buyer does
not give notice hereunder prior to the fifth anniversary of
the Closing Date.
(iii) In no event shall Sellers' aggregate obligation
with respect to Section 12.2(a)(i) or 12.2(b)(ii) hereunder
exceed an amount equal to 50% of the Purchase Price, as
adjusted, actually received by Sellers; and
(iv) The liabilities of Sellers hereunder shall be
joint and several.
Notwithstanding anything to the contrary contained herein, the foregoing
limitations on Seller's obligation to indemnify Buyer against Losses incurred as
a result of breaches of representations
74
<PAGE> 85
and warranties under Section 12.2(a)(i) shall not apply to limit Sellers joint
and several obligation to indemnify Buyer under or in connection with any other
provision of this Agreement.
12.3 Indemnification by Buyer. Subject to the limitations set forth in
this Section 12 and Section 13.3 hereof, Buyer, as Indemnifying Party, shall
indemnify and hold harmless Sellers and their personnel, including officers,
directors, agents and assigns, as Indemnified Parties, for, against and from any
Loss or Losses suffered or incurred by either of the Indemnified Parties to the
extent arising from (a) any breach of any representation or warranty of
Indemnifying Party contained herein which and to the extent it survives the
Closing Date (pursuant to Section 12.1 hereof); (b) any breach of any covenant
of Indemnifying Party contained in this Agreement requiring performance
responsibility or assumption of liabilities before, on or after the Closing
Date; (c) any failure of Buyer or the ASIG Entities to abide by or perform
strictly their respective obligations under Section 7.5 hereof; (d) any claim
arising directly or indirectly from the failure of the ASIG Entities or their
successors or subsidiaries to discharge as and when due any liabilities of the
ASIG Entities which were the subject of the Financial Accommodations assumed by
Buyer in effect on the Closing to the extent caused by operation of the Business
after Closing; and (e) Liabilities arising under Environmental Laws to the
extent such Liabilities arise from facts, events or conditions occurring or
caused as a result of the operation of the Business of the ASIG Entities after
the Closing Date. Buyer's obligations pursuant to Section 12.3(e) hereof shall
be limited to not more than a gross aggregate amount of US$10,000,000. Subject
to Section 12.4 hereof, Buyer shall have no obligation to indemnify Sellers
pursuant to Section 12.3(e) hereof with respect to any matter as to which
Sellers do not give notice hereunder prior to the fifth anniversary of the
Closing Date. The limits of Sections 12.2(c)(i) and 12.2(c)(iii) shall apply to
all
75
<PAGE> 86
breaches of representations and warranties by Buyer as if such Sections applied
to Buyer's obligations to indemnify Sellers pursuant to this Section 12.3.
12.4 Termination of Indemnification. The obligations of Indemnifying
Party hereto to indemnify and hold harmless an Indemnified Party hereto shall
not terminate with respect to any item as to which the Indemnified Party hereto
shall have, before the expiration of the applicable period in which a claim for
indemnification under this Agreement can be made, previously made a claim by
delivering a notice (stating in reasonable detail the basis of such claim) to
the Indemnifying Party.
12.5 Procedures Relating to Indemnification.
(a) Notice. In order for an Indemnified Party to be entitled
to any indemnification, defense or hold harmless provided for in this
Section 12 in respect of any Third Party Claim, such Indemnified Party
must notify the Indemnifying Party in writing, and in reasonable detail,
of the Third Party Claim after receipt by such Indemnified Party of
written notice of the Third Party Claim; provided, however, that failure
to give such notification within a reasonable time after receipt of such
written notice shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure (except that the Indemnifying
Party shall not be liable for any expenses or Losses incurred during the
period in which the Indemnified Party failed to give such notice).
Thereafter, the Indemnified Party shall deliver to the Indemnifying
76
<PAGE> 87
Party, within 5 business days after the Indemnified Party's receipt.
thereof, copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third Party Claim.
(b) Participation. If a Third Party Claim is made against an
Indemnified Party, the Indemnifying Party will be entitled to
participate in the defense thereof and, if Buyer and Sellers mutually
agree in writing on the terms upon which the Indemnifying Party may
assume the defense of such claim, the Indemnifying Party may assume the
defense thereof with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party. Should the
Indemnifying Party be entitled pursuant to the preceding sentence to
assume the defense of a Third Party Claim, and the Buyer and Sellers
agree in writing to the Indemnifying Party's assumption of the defense
of such Third Party Claim, the Indemnifying Party will not be liable to
the Indemnified Party for legal expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof. If the
Indemnifying Party assumes such defense in accordance with this Section
12.5(b), the Indemnified Party shall have the right to participate in
the defense thereof and to employ counsel, separate from the counsel
employed by the Indemnifying Party, it being understood that the
Indemnifying Party shall control such defense but the fees and expenses
of the Indemnified Party's counsel shall be the expense of such
Indemnified Party unless (i) the Indemnifying Party has agreed in
writing to pay such fees and expenses, (ii) any relief other than the
payment of money damages is sought against any Indemnified Party, or
(iii) such Indemnified Party shall have been advised by its counsel
that there may be one or more legal defenses reasonably available to it
which are different from or
77
<PAGE> 88
additional to those available to the Indemnifying Party other than a
claim against the Indemnifying Party. In any such case as provided in
Sections 12.5(b)(i), (ii) or (iii) hereof, the reasonable fees and
expenses of such separate counsel shall be borne by the Indemnifying
Party. If the Indemnifying Party is entitled to, and chooses to, defend
or prosecute any Third Party Claim, all the parties hereto shall
cooperate in the defense or prosecution thereof. Such cooperation shall
include the retention and, upon the Indemnifying Party's request, the
provision to the Indemnifying Party of records and information which
are reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. The
Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise or consent to the entry of any
judgment with respect to any action or Third Party Claim if the effect
thereof is to admit any criminal liability by, or to permit any
injunctive relief or other order providing nonmonetary relief to be
entered against, the Indemnified Party.
(c) Exceptions. Notwithstanding the foregoing terms of Section
12.5:
(i) The Indemnifying Party shall not be entitled to
assume control of such defense and shall bear the fees and
expenses of counsel retained by the Indemnified Party if the
Indemnifying Party failed or is failing to vigorously prosecute
or defend such claim; and
(ii) The Indemnifying Party shall not be entitled to
control the defense of any claim to the extent that the claim
seeks an injunction or equitable relief against Indemnified
Party which, if successful, could materially interfere with the
78
<PAGE> 89
business of Indemnified Party. If the Indemnifying Party, with
the consent of the Indemnified Party, shall control the
defense of any such claim, the Indemnifying Party shall obtain
the prior written consent of the Indemnified Party (which
shall not be unreasonably withheld) before entering into any
settlement of a claim or ceasing to defend such claim, if
pursuant to or as a result of such settlement or cessation,
injunction or other equitable relief will be imposed against
the Indemnified Party or any other relief (including without
limitation monetary relief) is to be imposed on the Business
or the Indemnified Party.
(d) Acceptance or Dispute. Upon receipt of notice of any claim
of indemnity hereunder, the Indemnifying Party, within 30 days after
such receipt, shall notify the Indemnified Party that such Indemnifying
Party either (i) acknowledges and accepts its obligation and agrees to
accept liability for any losses resulting from such claim or (ii)
disputes such claim. Failure to give such notice will be deemed to
constitute acknowledgment and acceptance by the Indemnifying Party.
12.6 Payment of Indemnity Payments. If any payment is due to an
Indemnified Party, such payment shall be made to such Indemnified Party within
10 days of such payment becoming due, and any payment that is made after such
10th day shall bear interest from (and including) the date due to (but
excluding) the date of payment, at a rate equal to the base or prime rate
published by Citibank N.A. or, if not available, such other major money center
bank, from time to time in effect on the date such payment became due, provided,
that no payment shall be due so long as it is the subject of any reasonable
contest by the Indemnifying Party.
79
<PAGE> 90
12.7 Fraud. Notwithstanding anything in this Agreement to the contrary,
none of the limitations in this Section 12 shall apply to any matter giving rise
to a claim which, or the delay in discovery of which, is the consequence of
fraud, willful or intentional misrepresentation or omission by Sellers.
12.8 Special Procedures Relating to Environmental Issues and
Liabilities.
(a) Management. Sellers shall assume Management of (i) any
Known Environmental Issue after the $170,000 limitation set forth in
Section 12.2(c)(ii)(A) is satisfied and until the $5,000,000 limitation
set forth in Section 12.2(c)(ii)(A) is reached; and (ii) any Unknown
Environmental Liability until the $10,000,000 limitation set forth in
Section 12.2(c)(ii)(B) is reached. Buyer shall be entitled to assume
Management of any matter for which Sellers seek indemnification under
Section 12.3(e) hereof until the $10,000,000 limitation set forth in
Section 12.3 hereof is reached. An Indemnifying Party shall (or shall
be entitled to) assume Management where it concludes, based upon a
reasonable review of information available to such party upon such
assumption, that it is obligated to indemnify the Indemnified Party for
the entirety of any Liabilities associated with such matter. To assume
Management with regard to any matter, an Indemnifying Party must, in a
reasonably prompt manner, provide to the Indemnified Party written
notification that (a) such party assumes Management of the matter, and
(b) such party will be financially able to fully and promptly satisfy
and discharge Liabilities associated with such matter. Notwithstanding
the foregoing, in cases where the Indemnifying Party concludes in good
faith either (i) prior to assumption of management, or (ii) following
assumption of management based upon newly discovered facts or
circumstances, that is
80
<PAGE> 91
not obligated to indemnify the Indemnified Party for the entirety of
any Liabilities associated with such matter, the Indemnifying Party
shall promptly notify the Indemnified Party in writing of such
conclusion and the parties shall negotiate in good faith to arrive at,
and shall thereafter adjust as appropriate from time to time, a
mechanism for the joint Managment of the matter which comports with the
reasonably anticipated allocation of Liability hereunder for such
matter.
(b) Consultation. As to any matter for which an Indemnifying
Party undertakes Management hereunder, the Indemnifying Party shall:
(i) reasonably consult with, and keep the Indemnified Party apprised of
major developments; and (ii) obtain the Indemnified Party's consent
prior to undertaking any material action with respect to such matter
(such consent not to be unreasonably withheld or delayed).
(c) Good Faith. The party undertaking Management for any
matter shall: (i) do so in a manner that does not diminish the value or
productivity of, materially disrupt or materially interfere with, the
ASIG Entities businesses, operations, business relationships,
governmental relationships, assets or properties; (ii) exercise
Management in a commercially reasonable manner; and (iii) put forth
good faith efforts to expeditiously complete environmental work and
negotiations with any applicable Governmental Authority.
(d) Completion Standard. The standard for completion of
environmental work by Sellers in connection with an Environmental Issue
or Liability shall be the satisfaction of the applicable regulatory
agency under Environmental Laws, provided that Sellers shall
81
<PAGE> 92
retain responsibility to the extent additional work is later required
by such agency with respect to such Environmental Issue or Liability.
13. MISCELLANEOUS AND GENERAL.
13.1 Payment of Expenses.
(a) General. Except as provided in Schedule 13.1 hereto or
otherwise provided herein, whether or not the transaction shall be
consummated, each party hereto shall pay their own expenses incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the Transactions.
(b) Audit And Environmental. After the Closing Date, Sellers
shall promptly reimburse Buyer in an amount not to exceed US$350,000
for verified out-of-pocket expenses of Buyer for the audit of the
Financial Statements for 1995, 1996 and 1997, and its preclosing
environmental due diligence review. Prior to Sellers' reimbursement
herein, Buyer shall submit to Sellers copies of all applicable invoices
and proof of Buyer's payment thereof.
13.2 Modification or Amendment. At any time prior to the Closing Date,
the parties hereto may modify or amend this Agreement, by written agreement
executed and delivered by duly authorized officers of the respective parties.
13.3 Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the transaction are for the sole benefit of such party
and may be waived, in writing, by such party in whole or in part to the extent
permitted by applicable law.
82
<PAGE> 93
13.4 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
13.5 Governing Law.
(a) This Agreement (including the Noncompete Agreement and any
other agreement required to consummate the Transactions) shall be
governed by and construed in accordance with the laws of the State of
Delaware, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.
(b) Subject to the dispute resolution provisions of Section
13.13 hereof, the federal or state courts of Dade County, Florida,
shall have exclusive jurisdiction and venue in the litigation of any
disputes or issues herein; and by signing this Agreement, Sellers,
Buyer and the ASIG Entities each hereby submit to such exclusive
jurisdiction and venue.
13.6 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile transmission (with a confirming copy sent by overnight courier), as
follows:
If to Sellers:
Viad Corp
1850 North Central Avenue
Phoenix, Arizona 85077-2212
Attn: Vice President and General Counsel
Facsimile: 602-207-5480
83
<PAGE> 94
If to Buyer or any of the ASIG Entities:
Ranger Aerospace
GSP International Airport
Box 12233
Greenville, South Carolina 29612
Attn: Chief Executive officer
Facsimile: 864-848-2759
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: William S. Kirsch, P.C.
Richard Porter
Facsimile: 312-861-2200
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
13.7 Entire Agreement; Assignment. This Agreement and the
Confidentiality Letter, previously executed by Buyer and Dillon Read and Co.
Inc., these documents described herein and in the Schedules hereto, (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof (it being understood that, as of the Closing, Sellers shall have
no right to indemnification from any ASIG Entity, including without limitation
pursuant to the Articles, Bylaws or the organizational document of such ASIG
Entity or any intercompany agreement to which such ASIG Entity is a party, other
than pursuant to the terms of this Agreement), and (b) shall not be assigned by
operation of law or otherwise, provided that Buyer and the ASIG Entities may
freely assign their
84
<PAGE> 95
respective rights and obligations hereunder, but no such assignment shall
relieve Buyer or Sellers of its obligations hereunder if such assignee does not
perform such obligations.
13.8 Parties in Interest; Successors and Assigns. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto and their
respective successors and assigns, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever, including rights as a third-party
beneficiary, under or by reason of this Agreement.
13.9 Obligation of Sellers. Whenever this Agreement requires any of the
ASIG Entities to take any action on or prior to the Closing, such requirement
shall be deemed to include an undertaking on the part of Sellers to cause such
ASIG Entities to take such action.
13.10 Remedies for Breach.
(a) The parties hereto agree that irreparable damage would
occur if any of the provisions of this Agreement were not performed in
accordance with their terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction
or injunctions or any other equitable relief from a court of competent
jurisdiction to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law, in equity or under
Section 13.13 hereof.
(b) All remedies provided herein shall, to the extent
permitted by law, be deemed cumulative and not exclusive of any other
thereof, or of any other remedies available to the parties, by judicial
proceeding or otherwise, to enforce the performance or observance of
the covenants or agreements contained herein, and every remedy given
85
<PAGE> 96
herein or by law to any party hereto may be exercised from time to time
and as often as shall be deemed expedient, by such party. However,
Sellers and Buyer and their respective successors and assigns
understand and agree that their respective rights to indemnification
hereunder with respect to environmental, health or safety matters shall
constitute their sole recourse against one another and that they shall
have no other right or remedy against one another with regard to any
such matters (including without limitation all matters arising under
CERCLA or any other Environmental Laws) arising from this Agreement or
the transactions contemplated thereby (collectively "Environmental
Matters"). Except for such rights to indemnification hereunder, Sellers
and Buyer and their respective assigns hereby waive and release one
another and their respective officers, directors, employees, agents,
successors and assigns from any and all claims, demands, causes of
action, liabilities, costs or expenses with respect to Environmental
Matters.
13.11 Captions. The section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
13.12 Further Assurances. From time-to-time, at the request of either
party hereto and without further consideration, the other party or parties will
execute and deliver to such requesting party such documents and take such other
action (but without incurring any material financial obligation) as such
requesting party may reasonably request in order to consummate more effectively
the transactions contemplated hereby, including without limitation, vesting in
Buyer good and valid title to the Companies' Shares being transferred hereunder.
86
<PAGE> 97
13.13 Dispute Resolution. Subject to the provisions of Sections 4.2 and
13.10 hereof with respect to injunction, specific performance and other
equitable relief, any dispute arising under or relating to this Agreement,
including, without limitation, any dispute with respect to any indemnification
claim or purchase price adjustment, will be settled in accordance with the
dispute resolution procedures set forth on Schedule 13.13 hereto.
13.14 Schedules and Exhibits. All Schedules to the Agreement and all
agreements or contracts referenced herein as required for the Transaction are
incorporated by reference and made a part of this Agreement.
13.15 Severability. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
13.16 Binding Effect. The parties have signed this Agreement on the
date hereof on the express understanding and condition that the Schedules hereto
have not been completed, reviewed or agreed upon. The parties expect to finalize
and agree to each of the Schedules hereto no later than 9:00 AM MST on March 20,
1998. If for whatever reason the parties do not agree on the form and content of
each of the Schedules contemplated hereby by such deadline, then either party
may terminate this Agreement without liability by delivering written notice to
the other party hereto at any time prior to the date that the Schedules are
acknowledged to be accepted by each party affixing its signature to the last
page of the Schedules. If and when the parties agree on the
87
<PAGE> 98
Schedules hereto, they will memorialize their acceptance thereof and
satisfaction of the condition by affixing their signature to the last page of
the Schedules.
13.17 Exclusivity.
(a) In order to induce Buyer to proceed with the transactions
set forth herein, Sellers agree that so long as Buyer is working in
good faith toward Closing the Transaction, none of the Sellers or their
affiliates may, directly or indirectly, through any officer, director,
employee, agent or otherwise (including through any investment banker,
attorney or accountant retained by any of the foregoing), solicit,
initiate, encourage or discuss (other than to inform a third party that
Sellers and Buyer have entered into a contract that Sellers may not
have further discussions with such third party) any Third-Party
Acquisition Proposal, or furnish to any other person or entity any
information with respect to, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage-any effort or attempt
by any other person or entity to do or seek to do any of the foregoing.
Sellers shall immediately cease and cause to be terminated any and all
contacts, discussions and negotiations with third parties regarding any
of the foregoing. This Section 13.17 shall expire and be of no further
force and effect (other than with respect to breaches prior to such
date of expiration) if the Board of Viad does not approve the
Transactions as contemplated by Section 5.2 without further action by
the parties hereto.
(b) In the event that Sellers breach the provisions of this
Section 13.17 and the transactions contemplated hereby are not
consummated, Buyer shall have available all remedies at law or in
equity, it being understood that, without limiting the foregoing,
88
<PAGE> 99
Sellers, shall reimburse Buyer for up to $350,000.00 of the
out-of-pocket legal fees and expenses it incurs.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto and shall be effective as
of the date first hereinabove written.
VIAD CORP RANGER AEROSPACE CORPORATION
By: /s/ WAYNE A. WIGHT By: /s/ GEORGE B. SCHWARTZ
------------------------------------- ---------------------------------
Name: Wayne A. Wight Name: George B. Schwartz
----------------------------------- -------------------------------
Title: Vice President Corp. Development Title: Chairman
---------------------------------- ------------------------------
Date: March 14, 1998 Date: March 13, 1998
----------------------------------- -------------------------------
VIAD SERVICE COMPANIES LIMITED
By: /s/ WAYNE A. WIGHT By: /s/ STEPHEN D. TOWNES
------------------------------------- ---------------------------------
Name: Wayne A. Wight Name: Stephen D. Townes
----------------------------------- -------------------------------
Title: Director Title: President & CEO
---------------------------------- ------------------------------
Date: March 14, 1998 Date: March 13, 1998
----------------------------------- -------------------------------
89
<PAGE> 100
AMENDMENT NO. 1 TO THE SHARE PURCHASE AGREEMENT
This AMENDMENT NO. 1 ("Amendment"), dated as of March 31, 1998, by and
between Viad Corp. a Delaware corporation ("Viad") and Viad Service Companies
Limited, an England limited liability company ("Viad Services" and, together
with Viad, "Sellers") and Ranger Aerospace Corporation, a Delaware corporation
("Buyer"), Aircraft Service International Group Inc., a Delaware corporation
("Assignee"), and ASIG Europe Ltd., an England limited liability company ("UK
Assignee").
Sellers and Buyer entered into a Share Purchase Agreement. dated as of
March 14, 1998 ("Agreement"). pursuant to which Buyer has agreed to acquire from
Sellers the Business, all of which is conducted by those entities comprising
Sellers' Aircraft Service International Group. Sellers and Buyer wish to amend
the Agreement in accordance with the terms of Section 13.2 thereof. Buyer is
also assigning its rights and obligations hereunder to Assignee in accordance
with the terms of Section 13.7 of the Agreement, except that Buyer is assigning
its rights to acquire Aircraft Service Ltd., an England limited liability
company, to UK Assignee. Capitalized terms not otherwise defined in this
Amendment have the meaning given to such terms in the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Net Asset Value Definition.
(a) The definition of "Net Asset Value" in the Agreement is
hereby amended by deleting the parenthetical stating "(including the
amount of all budgeted earnings during the period from 12/31/97 to
3/31/98, and all capital expenditures during such period)" from the
definition.
(b) The definition of "Net Asset Value" in the Agreement is
hereby amended further by inserting after the first "Entities" a
parenthetical stating "(including $3,556,000 of capital expenditures
minus $1,100,000 of depreciation and amortization)".
(c) To give effect to the two amendments in clauses (a) and
(b) above, "Net Asset Value" in the Agreement is hereby amended in its
entirety to read as follows:
Net Asset Value means the value of combined assets of the ASIG
Entities (including $3,556,000 of capital expenditures and
minus $1,100,000 of depreciation and amortization) that are
not Retained Assets as of the Closing minus the combined
liabilities of the ASIG Entities that are not being assumed by
Sellers as Retained Liabilities pursuant to the terms of this
Agreement, excluding amounts of Intercompany, Accounts, all as
determined in accordance with GAAP in the context of Section
4.2 hereof.
<PAGE> 101
2. Net Asset Value Adjustment. Section 8.21 of the Agreement is hereby
amended by deleting "US$800,000" in both locations in which that number appears
in this Section and replacing it with "US$250,000" in both locations.
3. Liabilities Under Certain Plans. Section 8.14 of the Agreement is
hereby amended by, deleting the first sentence thereof and replacing it with the
following:
Sellers shall terminate the eligibility of the ASIG Entities under each
plan or arrangement of deferred compensation which covers Personnel,
including the Supplemental Retirement Income Plan ("SERP") and the
deferred compensation plan for such Personnel under the Performance
Unit Plan ("PUP") and the Management Incentive Plan ("MIP") as of the
Closing Date. Sellers shall retain and shall fully, indemnify Buyer and
the ASIG Entities against all liability to participating Personnel of
the ASIG Entities under each plan of deferred compensation which covers
Personnel, including the SERP, PUP and MIP and shall retain, and not
transfer to Buyer or the ASIG Entities any of the assets or amounts, if
any, funding any plan of deferred compensation which covers Personnel,
including the SERP, MIP and PUP.
4. Board Condition. Section 9.3)(d) of the Agreement has been satisfied
and is therefore hereby, deleted. Sections 8.25, 8.26, 10.10) and (1) have been
waived and are therefore hereby deleted.
5. Indemnification.
(a) Section 12.2(a) of the Agreement is hereby amended by
deleting from the first clause thereof the following: "set forth in
Section 6, (representations and warranties concerning the ASIG
Entities)," and replacing that language with the word "in".
(b) Section 12.2(a)(i) is hereby deleted in its entirety and
amended by inserting the following in lieu thereof: "(i) any breach of
any representation or warranty of Indemnifying Parties contained herein
which and to the extent it survives the Closing (pursuant to Section
12.1 hereof), subject to the limitations set forth in such
representation or warranty."
(c) Section 12.2(a) of the Agreement is hereby amended further
by adding at the end of the last sentence the following: "; and (vii)
South Eighth Street Envirorunental Liabilities."
(d) A new Section 12.2(d) is hereby added to the Agreement as
follows: Independent Remedies. To the extent Sellers have assumed
liabilities or obligations or agreed to provide indemnification with
respect to any matters or items in the Agreement (including without
limitation thase matters set forth in Schedule 8.24 attached hereto),
disclosure by Sellers of such liabilities, obligations or matters does
not relieve Sellers of
2
<PAGE> 102
responsibility for assuming and/or indemnifying Buyer with respect to
such matters or items; it being understood that the information
disclosed in connection with a representation and warranty is disclosed
solely for purposes of determining whether such representation and
warranty is accurate and complete and does not limit or affect Sellers'
covenants in the Agreement, except to the extent such covenant contains
a specific and express reference to the information disclosed on the
Schedule.
6. Funded Indebtedness. Sellers shall assume and pay when due any debt
for borrowed money of the ASIG Entities, including the note payable in the
amount of approximately $90,000.
7. Assignment. Pursuant to the terms of Section 13.7 of the Agreement,
Buyer has assigned its rights and obligations under the Agreement to Assignee,
except that Buyer has assigned its rights to acquire Aircraft Service Ltd. to UK
Assignee.
8. Employees. Viad shall not commence or pursue any claim against an
employee, officer or director of any ASIG Entity that held such position prior
to the Closing ("Existing Officers") (i) with respect to any matter arising from
or relating to any indemnification claim made by Buyer or any ASIG Entity
against Viad and (ii) with respect to which such Existing Officer is entitled to
indemnification from any ASIG Entity, except that, notwithstanding this
forbearance agreement, Sellers may withhold or recover payment of any sale bonus
payable to an Existing Officer if such Existing Officer has engaged in
fraudulent conduct.
9. Patent. Neither Buyer nor any ASIG Entity shall commence or pursue
any claim against Viad or its affiliates regarding the enforceability of Patent
No. 4,345,146.
10. Allocation of Purchase Price. The purchase price for the Company's
Shares shall be allocated among the Companies as set forth on Schedule I hereto.
11. Vehicle Leases. Buyer will reimburse Viad for the monthly rental
charge under the Agreement of Lease, dated as of January 1, 1984, as amended, by
and between The Greyhound Corporation and PHH Leasing Inc. and the Fleet
Management Agreement, dated as of September 18, 1991, by and between The Dial
Corp and United States Fleeting Leasing for the vehicles disclosed on Schedule
II as being subject to such Lease in amounts not greater than the amount set
forth on such Schedule, until such time as Viad obtains the consent of "Lessor"
thereunder to assign to Buyer the lease with respect to such Vehicles without
any conditions or changes adverse to Buyer or the ASIG Entities through and
until December 31, 1998.
12. Cash Adjustment. On the Closing Date, the ASIG Entities are
obligated to have a minimum amount of cash on hand as of the Closing (and
Sellers are obligated to contribute any shortfall in such amount), as described
in Sections 3.2, 8.15 and 8.17 ("Required Cash"). In conjunction with the
preparation and delivery of the Net Asset Report and Net Working Capital Report
pursuant to Section 4.1 and Section 4.2. Buyer and deliver to Sellers a draft
statement reporting the cash held by the ASIG Entities as of the Closing Date
and the amount of Required
3
<PAGE> 103
Cash on hand at the ASIG Entities as of the Closing Date ("Cash Statement").
Sellers may review the books and records of all the ASIG Entities with respect
to the preparation of the draft Cash Statement during normal business hours in
conjunction with Sellers' review of Buyer's draft Net Assets Report and the
draft Net Working Capital Report as contemplated by Section 4.2(a) of the
Agreement. No later than 30 days following receipt of the draft Cash Statement,
Sellers shall advise Buyer that Sellers either (i) agree with the Cash Statement
or (ii) have proposed modifications to the draft Cash Statement, but only on the
basis that the determination of Required Cash on hand at the ASIG Entities as of
the Closing Date was not in conformity with the requirements of Sections 8.15
and/or 8.17. If Sellers agree with the draft Cash Statement, such statement
shall be deemed to be final for purposes of the Agreement. If Sellers do not
agree with the draft Cash Statement, Sellers shall provide written notice to
Buyer setting forth the basis for the disagreement and during the 15 days
thereafter Sellers shall provide Buyer access to Sellers accountants,
independent auditors and the related work papers for Buyer to review the basis
of such disagreement. If after the end of such 15 day, period the parties have
not reached agreement on the Cash Statement, the disagreement between the
parties shall be resolved in accordance with the process set forth in Section
4.2(c) of the Agreement. Upon final determination of the Cash Statement, (x) if
there was less cash in the ASIG Entities' possession on the Closing Date than
the Required Cash, then Sellers shall promptly pay in cash to Buyer the amount
of the shortfall from such Required Cash or (y) if there was more cash in the
ASIG Entities' possession on the Closing Date than the Required Cash, then the
Buyer shall promptly pay in cash to Sellers the amount of such excess over the
Required Cash (or offset such amount against amounts due to Buyer under Section
4.3 of the Agreement). The foregoing provision applies only to the determination
of Required Cash as of the Closing Date and not to the determination of Net
Asset Value or Net Working Capital.
13. Purchase Price Adjustment. The terms of Section 9.2(b) of the
Agreement require Sellers to deliver prior to the Closing Date all material
consents required in connection with the purchase and sale of the Companies
Shares. Such material consents have not been obtained and delivered as of the
Closing Date, but Sellers have requested that Buyer nonetheless consummate the
Transactions contemplated hereby. As contemplated by Section 8.8 of the
Agreement, Buyer has proposed and Seller hereby agrees to the following
arrangement which is intended to provide Buyer and the ASIG Entities with the
full benefit of the Transactions.
(a) With respect to each contract, Permit, lease or license
for which the consent of a Third Party is required in connection with
the change of ownership of the Companies' Shares or the consummation of
the Transactions or right of first refusal for which a waiver is
required ("Required Consents"):
(i) if Buyer determines in its sole and absolute
discretion (based on an action or an official communication
from the Governmental Authority or third party from whom such
consent is required) that a Required Consent will not be
obtained without conditions or modifications adverse to the
Business and Buyer's and/or an ASIG Entities' Adjusted EBITDA
(as defined below) with respect to operations
4
<PAGE> 104
under such contract, Permit, lease or licensee would be
reduced by more than a de minimis amount, Sellers shall pay to
Buyer and/or the ASIG Entity affected by Sellers' failure to
deliver an abovementioned consent or to obtain such waiver, an
amount equal to the product of (I) 8.5 multiplied by (II) the
sum of (A) earnings before interest, taxes, depreciation,
amortization or other non-cash charges ("EBITDA"), arising
from the operations relating to such contract, Permit, lease
or license, and before allocation of any overhead expenses of
Viad with respect to the operation relating to such contract,
Permit, lease or license ("Adjusted EBITDA") for the twelve
month period ending on March 31, 1998 ("Location Adjusted
EBITDA"), plus (B) the product of (x) the combined S, G & A
expense of the ASIG Entities for the twelve month period
ending on March 31, 1998 multiplied by (y) a fraction, the
numerator of which is the Location Adjusted EBITDA and the
denominator of which is the combined EBITDA of the ASIG
Entities during the 12 month period ending on March 31, 1998
(the "Lost Contract Adjustment Amount").
<TABLE>
<S> <C>
8.5 x (Location Adjusted EBITDA + ((Combined S, G & A x Location Adjusted EBITDA))
------------------------
Combined EBITDA)
</TABLE>
(ii) The Lost Contract Adjustment Amount shall be
reduced by any amounts actually received by Buyer or the ASIG
Entity with respect to any right of first refusal that was
exercised by the party holding such rights. However, the Lost
Contract Adjustment Amount shall not be reduced by any
earnings received by Buyer or such ASIG Entity after the
Closing Date.
(b) When Buyer or the affected ASIG Entity determines in its
sole and absolute discretion (based on an action or an official
communication from the Governmental Authority or third party from whom
such consent is required and which determination may occur before all
remedies are exhausted) that a Required Consent will not be delivered,
then Buyer and/or the affected ASIG Entity shall deliver to Viad a
written notice stating that it has determined that the Required Consent
will not be delivered and setting forth Buyer's or such ASIG Entity's
determination of the Lost Contract Adjustment Amount. Seller shall
promptly (within 5 days after receipt of such notice) pay all amounts
due hereunder and hereby agrees not to challenge on any basis
whatsoever its obligation to promptly pay to Buyer or the ASIG Entities
the Lost Contract Adjustment Amount hereunder, it being understood that
the Lost Contract Adjustment Amount reflects the methodology by which
the parties would have reduced the Purchase Price in advance of Closing
if the parties had notice on the Closing Date that such consent would
not be delivered. Notwithstanding the foregoing, Sellers may dispute
mechanical mathematical errors in the determination of the Lost
Contract Adjustment Amount within 5 days of receipt of the notice
contemplated by this Section (b), it being understood that mechanical
mathematical errors are the sole permitted basis for any dispute. If
Buyer does not agree with Seller's objection to the mathematical
determination, the dispute between the parties shall be resolved in
accordance with the dispute resolution process set forth in Section
4.2(c) of the Agreement. If it is later
5
<PAGE> 105
finally determined through an appeal process that the Required Consent
was wrongfully withheld and Buyer or the affected ASIG Entity's rights
are restored under the contract, Permit, lease or license at issue,
Buyer shall reimburse Viad for the excess Lost Contract Adjustment
Amount that Buyer has received relating to the Adjusted EBITDA that
Buyer subsequently receives with respect to such operation. Buyer's or
such ASIG Entity's obligation to make the reimbursement to Viad
pursuant to the foregoing sentence shall terminate upon the earlier of
the date (1) on which operations cease under such contract Permit,
lease or license as a result of the failure to obtain such Required
Consent or (ii) the appeals process with respect to the rejection of
such Required Consent is exhausted. In furtherance of the foregoing, if
Seller pays any amounts under Section 12.2(b)(v) or the Lost Contract
Adjustment Amount to Buyer or any ASIG Entity, it is understood that
Seller is subrogated to Buyer's or the affected ASIG Entity's right to
money damages for any wrongful termination or wrongful withholding of
consent by any Governmental Authority or owner or entity failing to
grant such Required Consent. Any amounts paid by Sellers hereunder
shall be deemed to be a reduction of the Purchase Price hereunder.
(c) Sellers shall continue to use their respective best
efforts at their sole cost and expense after the Closing to obtain and
deliver all Required Consents in connection with the purchase and sale
of the Companies Shares that have not been delivered prior to the date
hereof. Buyer and the ASIG Entities shall continue to cooperate with
Sellers to obtain and deliver all Required Consents.
14. Consent Indemnification. In consideration of Buyer's willingness to
consummate the Transactions prior to receipt of the required consents, Section
12.2(b) of the Agreement is hereby amended by the addition of a new section (v)
thereof as follows:
(v) In addition to, and without limiting the right to the Lost
Contract Adjustment, Sellers hereby agree to fully indemnify Buyer and
the ASIG Entities against, and shall promptly pay to Buyer and/or the
ASIG Entities any and all costs, Losses or damages (including
reasonable attorney's fees incurred in connection with enforcing the
terms hereof) incurred by Buyer or any ASIG Entity arising from or
relating to the failure to obtain a Required Consent (without
conditions or modifications adverse to the Business) with respect to
any operating permit, license, lease, or waiver of first refusal right,
necessary for Buyer's or any ASIG Entity's continued operations at any
location where it is currently operating, except that Buyer or any ASIG
Entity shall not be entitled to any indemnification under this sentence
to the extent such amount exceeds 20% of the Lost Contract Adjustment
Amount as reduced pursuant to Section 13(a)(ii) of this Amendment No.
1. It is understood by the parties hereto that this Section 12.2(b)(v)
is the sole remedy with respect to Sellers' failure to obtain such
consent or waiver.
15. Full Force and Effect. Other than as modified in accordance with
the foregoing provisions, the remaining terms of the Agreement remain in full
force and effect.
6
<PAGE> 106
16. Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
17. References to Buyer. All references to Buyer herein shall be deemed
to refer as well to Assignee and UK Assignee.
* * * *
7
<PAGE> 107
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto and shall be effective as
of the date first hereinabove written.
VIAD CORP RANGER AEROSPACE CORPORATION
By: /s/ WAYNE A. WIGHT By: /s/ STEPHEN D. TOWNES
------------------------------------- ---------------------------------
Name: Wayne A. Wight Name: Stephen D. Townes
----------------------------------- -------------------------------
Title: Vice President Corp. Development Title: President & CEO
---------------------------------- ------------------------------
Date: March 31, 1998 Date: March 31, 1998
----------------------------------- -------------------------------
VIAD SERVICE COMPANIES LIMITED ASIG EUROPE, LTD.
By: /s/ WAYNE A. WIGHT By: /s/ STEPHEN D. TOWNES
------------------------------------- ---------------------------------
Name: Wayne A. Wight Name: Stephen D. Townes
----------------------------------- -------------------------------
Title: Vice President Corp. Development Title: Chief Executive Officer
---------------------------------- ------------------------------
Date: March 31, 1998 Date: March 31, 1998
----------------------------------- -------------------------------
AIRCRAFT SERVICE INTERNATIONAL
GROUP, INC.
By: /s/ STEPHEN D. TOWNES
-------------------------------------
Name: Stephen D. Townes
-----------------------------------
Title: President
----------------------------------
Date: March 31, 1998
-----------------------------------
8
<PAGE> 1
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
EXHIBIT 12.1 - STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Pro forma
year ended
Year ended December 31, March 31,
1993 1994 1995 1996 1997 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pretax income (loss) from continuing operations $ 6,302 $ 8,157 $ 7,580 $ 6,652 $ 9,634 $ (833)
Interest 151 158 620 606 669 8,850
Amortization of debt issuance costs -- -- -- -- -- 495
Interest portion of rental expense 998 965 864 839 830 830
-----------------------------------------------------------
EARNINGS $ 7,451 $ 9,280 $ 9,064 $ 8,097 $11,133 $ 9,342
Interest 151 158 620 606 669 8,850
Amortization of debt issuance costs -- -- -- -- -- 495
Interest portion of rental expense 998 965 864 839 830 830
-----------------------------------------------------------
Fixed charges $ 1,149 $ 1,123 $ 1,484 $ 1,445 $ 1,499 $10,175
RATIO OF EARNINGS TO FIXED CHARGES 6.5 8.3 6.1 5.6 7.4 0.9
Surplus/(Deficit) Earnings $ 6,302 $ 8,157 $ 7,580 $ 6,652 $ 9,634 $ (833)
<CAPTION>
Pro forma
six months
Three months ended Six months ended ended
March 31, September 30, September 30,
1997 1998 1997 1998 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pretax income (loss) from continuing operations $ 2,514 $ 1,657 $ 5,338 $(3,006) $ (910)
Interest 165 170 330 3,965 4,424
Amortization of debt issuance costs -- -- -- 2,531 302
Interest portion of rental expense 251 251 470 475 475
-----------------------------------------------------------
EARNINGS $ 2,930 $ 2,078 $ 6,138 $ 3,965 $ 4,291
Interest 165 170 330 3,965 4,424
Amortization of debt issuance costs -- -- -- 2,531 302
Interest portion of rental expense 251 251 470 475 475
-----------------------------------------------------------
Fixed charges $ 416 $ 421 $ 800 $ 6,971 $ 5,201
RATIO OF EARNINGS TO FIXED CHARGES 7.0 4.9 7.7 0.6 0.8
Surplus/(Deficit) Earnings $ 2,514 $ 1,657 $ 5,338 $(3,006) $ (910)
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated May 1, 1998 for Aircraft Service International Group
and September 16, 1998 for Aircraft Service International Group, Inc., in
Amendment No. 2 to the Registration Statement (Form S-4 No. 333-64513) and
related Prospectus of Aircraft Service International Group, Inc. for the
registration of $80,000,000 aggregate principal amount of its Series B 11%
Senior Notes due 2005.
/s/ Ernst & Young LLP
Miami, Florida
December 8, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Aircraft Service
International Group, Inc. of our report dated July 7, 1998 (relating to the
financial statements of Aircraft Service Limited not presented separately
herein) appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE
Chartered Accountant
Hill House
1 Little New Street
London EC4A 3TR
December 8, 1998
<PAGE> 1
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
__________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
AIRCRAFT SERVICE INTERNATIONAL GROUP, INC.
(NAME OF ISSUER)
(Exact name of obligor as specified in its charter)
DELAWARE (65-0822351 )
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(ADDRESS OF ISSUER)
(Address of principal executive offices) (Zip Code)
8240 N.W. 52nd Terrace, # 200
Miami, Florida 33166-7766
(TYPE OF SECURITIES)
Senior Notes due 2005
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS
IN DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING
AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as Exhibit
7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on November 23,1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Philip G. Kane, Jr.
-----------------------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by {AIRCRAFT
SERVICE INTERNATIONAL GROUP, INC.}. of its {11% SENIOR NOTES DUE 2005 }, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Philip G. Kane, Jr.
-----------------------------------
NAME PHILIP G. KANE, JR.
TITLE VICE PRESIDENT
DATED: NOVEMBER 23, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1998, published
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ......................... 1,553,703
Interest-bearing balances .................................................. 12,440,716
Securities .................................................................... 9,436,138
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ........................................ 8,785,353
Loans and lease financing receivables:
Loans and leases, net of unearned income ............ 6,633,608
Allowance for loan and lease losses ................. 92,999
Allocated transfer risk reserve...................... 0
Loans and leases, net of unearned income and allowances .................... 6,540,609
Assets held in trading accounts ............................................... 1, 267,679
Premises and fixed assets ..................................................... 491,928
Other real estate owned ....................................................... 100
Investments in unconsolidated subsidiaries .................................... 1,278
Customers' liability to this bank on acceptances outstanding .................. 68,312
Intangible assets ............................................................. 231,294
Other assets................................................................... 1,667,282
-------------
Total assets .................................................................. 42,484,392
=============
LIABILITIES
Deposits:
In domestic offices ......................................................... 12,553,371
Noninterest-bearing .................. 10,204,405
Interest-bearing ..................... 2,348,966
In foreign offices and Edge subsidiary ...................................... 16,961,571
Noninterest-bearing .................. 154,792
Interest-bearing ..................... 16,806,779
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ......................................... 8,182,794
Demand notes issued to the U.S. Treasury and Trading Liabilities .............. 0
Trading liabilities............................................................ 883,096
Other borrowed money .......................................................... 361,141
Subordinated notes and debentures ............................................. 0
Bank's liability on acceptances executed and outstanding ...................... 68,289
Other liabilities ............................................................. 1,017,284
Total liabilities ............................................................. 40,027,546
-------------
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................................. 0
Common stock .................................................................. 29,931
Surplus ....................................................................... 455,288
Undivided profits and capital reserves/Net unrealized holding gains (losses) .. 1,964,924
Net unrealized holding gains (losses) on available-for-sale securities......... 15,557
Cumulative foreign currency translation adjustments .......................... (8,854)
-------------
Total equity capital .......................................................... 2,456,846
-------------
Total liabilities and equity capital .......................................... 42,484,392
-------------
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AIRCRAFT SERVICE INTERNATIONAL GROUP FOR THE YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001070173
<NAME> AIRCRAFT SERVICE INT'L GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 7,763
<ALLOWANCES> 622
<INVENTORY> 2,150
<CURRENT-ASSETS> 18,364
<PP&E> 71,736
<DEPRECIATION> 53,423
<TOTAL-ASSETS> 41,930
<CURRENT-LIABILITIES> 27,373
<BONDS> 0
0
0
<COMMON> 907
<OTHER-SE> 13,650
<TOTAL-LIABILITY-AND-EQUITY> 41,930
<SALES> 119,325
<TOTAL-REVENUES> 119,325
<CGS> 98,190
<TOTAL-COSTS> 109,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 669
<INCOME-PRETAX> 9,634
<INCOME-TAX> 3,602
<INCOME-CONTINUING> 6,032
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,032
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AIRCRAFT SERVICE INTERNATIONAL GROUP, INC. FOR THE SIX
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001070173
<NAME> AIRCRAFT SERVICE INT'L GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 4,752
<SECURITIES> 0
<RECEIVABLES> 19,546
<ALLOWANCES> 535
<INVENTORY> 2,203
<CURRENT-ASSETS> 27,029
<PP&E> 49,536
<DEPRECIATION> 2,982
<TOTAL-ASSETS> 124,807
<CURRENT-LIABILITIES> 24,101
<BONDS> 80,000
0
0
<COMMON> 0
<OTHER-SE> 20,706
<TOTAL-LIABILITY-AND-EQUITY> 124,807
<SALES> 61,243
<TOTAL-REVENUES> 61,243
<CGS> 49,471
<TOTAL-COSTS> 57,765
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,496
<INCOME-PRETAX> (3,006)
<INCOME-TAX> 323
<INCOME-CONTINUING> (3,329)
<DISCONTINUED> 0
<EXTRAORDINARY> (213)
<CHANGES> 0
<NET-INCOME> (3,542)
<EPS-PRIMARY> (35,420)
<EPS-DILUTED> (35,420)
</TABLE>
