<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1999
REGISTRATION NO. 333-88593
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
WORLDWIDE FLIGHT SERVICES, INC.
(Exact name of registrant as specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4581 75-1932711
(State or Other Jurisdiction Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number Identification Number)
Organization)
</TABLE>
A. SCOTT LETIER
CHIEF FINANCIAL OFFICER
1001 WEST EULESS BOULEVARD, SUITE 320, EULESS, TEXAS 76040
PH: (817) 665-3200
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
<TABLE>
<S> <C>
CO-REGISTRANTS CT CORPORATION
SEE NEXT PAGE CORPORATION TRUST CENTER
C/O WORLDWIDE FLIGHT SERVICES, INC. 1209 ORANGE STREET
ATTN: A. SCOTT LETIER WILMINGTON, DE 19801
1001 WEST EULESS BOULEVARD, SUITE 320 PH: (800) 677-3394
EULESS, TEXAS 76040 FAX: (302) 655-5049
PH: (817) 665-3200 (Name, Address, Including Zip Code, and
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
Telephone Number, Including Area Code, of Agent For Service)
of Co-Registrants)
</TABLE>
Copies to:
MICHAEL R. LITTENBERG, ESQ.
SCHULTE ROTH & ZABEL LLP
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
PH: (212) 756-2000
FAX: (212) 593-5955
---------------------
Approximate Date of Commencement of Proposed Offer to the Public. As soon
as practicable after this registration statement becomes effective.
If the securities being registered are being offered in connection with the
formation of a holding company and there is compliance with General Instruction
G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CO-REGISTRANTS
<TABLE>
<CAPTION>
EXACT NAME OF STATE OR OTHER PRIMARY STANDARD
CO-REGISTRANT AS JURISDICTION OF INDUSTRIAL
SPECIFIED IN ITS INCORPORATION OR CLASSIFICATION CODE I.R.S. EMPLOYER
CHARTER ORGANIZATION NUMBER IDENTIFICATION NUMBER
---------------- ---------------- ------------------- ---------------------
<S> <C> <C> <C>
Worldwide Flight Delaware 4581 75-2533058
Finance Company
Worldwide Flight Delaware 4581 75-2276559
Security Service
Corporation
Miami International Florida 4581 59-2550848
Airport Cargo
Facilities &
Services, Inc.
International Florida 4581 65-0117574
Enterprises Group,
Inc.
Miami Aircraft Delaware 4581 59-2096579
Support, Inc.
Aerolink Pennsylvania 4581 25-1559013
International, Inc.
Aerolink Maintenance, Pennsylvania 4581 25-1579442
Inc.
Aerolink Management, Pennsylvania 4581 25-1824429
Inc.
Aerolink Pennsylvania 4581 25-6449621
International, L.P.
</TABLE>
<PAGE> 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED NOVEMBER 24, 1999
PRELIMINARY PROSPECTUS
[WORLDWIDE FLIGHT SERVICES, INC. LOGO]
WORLDWIDE FLIGHT SERVICES, INC.
OFFER TO EXCHANGE
12 1/4% SENIOR NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING
12 1/4% SENIOR NOTES DUE 2007, SERIES A
OF
WORLDWIDE FLIGHT SERVICES, INC.
- --------------------------------------------------------------------------------
The Exchange Offer will expire at 5:00 p.m., New York City time,
on , unless extended.
- --------------------------------------------------------------------------------
THE COMPANY:
- - We are one of the world's leading independent providers of ground services to
air cargo and passenger airlines.
THE OFFERING:
- - Offered Securities: the securities offered by this prospectus are senior
notes, which are being issued in exchange for senior notes sold by us in our
August 1999 private placement. The New Notes are substantially identical to
the Original Notes and are governed by the same indenture governing the
Original Notes.
- - Expiration of Offering: the exchange offer expires at 5:00 p.m., New York City
time, on , unless extended.
THE NEW NOTES:
- - Maturity: August 15, 2007.
- - Interest Payment Dates: semiannually in cash in arrears on each February 15
and August 15, beginning on February 15, 2000.
- - Subsidiary guarantees: with some exceptions, our domestic subsidiaries will
unconditionally guarantee the New Notes. Our foreign subsidiaries and any
subsidiaries we later designate as "unrestricted" under the indenture will not
guarantee the New Notes.
- - Redemption: we can redeem the New Notes on or after August 15, 2003, except we
may redeem up to 35% of the New Notes prior to August 15, 2002 with the
proceeds of one or more public equity offerings. We are required to redeem the
New Notes under some circumstances involving changes of control and asset
sales.
- - Ranking: the New Notes and subsidiary guarantees will be senior unsecured
obligations, and will rank equally with all of our other existing and future
obligations that are not by their terms subordinated in right of payment to
the New Notes. The New Notes will rank senior in right of payment to all of
our obligations that are expressly subordinated in right of payment to the New
Notes.
SEE "RISK FACTORS," BEGINNING ON PAGE 11, FOR A DISCUSSION OF SOME FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS IN CONNECTION WITH A DECISION TO TENDER
ORIGINAL NOTES IN THE EXCHANGE OFFER.
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed on
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
The date of this prospectus is , 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Notice to New Hampshire Residents........................... i
Special Note Regarding Forward-Looking Statements........... i
Prospectus Summary.......................................... 1
Risk Factors................................................ 11
Use of Proceeds............................................. 19
Unaudited Pro Forma Combined Consolidated Financial Data.... 20
Selected Historical Consolidated Financial Data............. 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
The Exchange Offer.......................................... 39
Business.................................................... 49
Management.................................................. 58
Security Ownership of Certain Beneficial Owners and
Management................................................ 65
Related Party Transactions.................................. 67
Description of Senior Secured Credit Facility............... 68
Description of New Notes.................................... 71
Certain United States Federal Income Tax Consequences....... 117
Plan of Distribution........................................ 121
Legal Matters............................................... 122
Experts..................................................... 122
Where You Can Find More Information......................... 123
Index to Consolidated Financial Statements.................. F-1
</TABLE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
Neither the fact that a registration statement or an application for a
license has been filed with the State of New Hampshire nor the fact that a
security is effectively registered or a person is licensed in the State of New
Hampshire constitutes a finding by the Secretary of State that any document
filed under RSA 421-B is true, complete and not misleading. Neither those facts
nor the fact that an exemption or exception is available for a security or a
transaction means that the Secretary of State has passed in any way upon the
merits or qualifications of, or recommended or given approval to, any person,
security, or transaction. It is unlawful to make, or cause to be made, to any
prospective purchaser, customer or client any representation inconsistent with
the provisions of this paragraph.
-------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. The safe harbors contained in these sections are not applicable to
"forward-looking statements" made in connection with "tender offers" or "initial
public offerings." The words "believe," "estimate," "anticipate," "project,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. All forward-looking statements involve some risks
and uncertainties. In light of these risks and uncertainties, the
forward-looking events discussed in this prospectus might not occur. Factors
that may cause actual results or
i
<PAGE> 5
events to differ materially from those contemplated by the forward-looking
statements include, among other things, the following possibilities:
- future revenues are lower than expected;
- costs or difficulties relating to the integration of businesses that we
acquire are greater than expected;
- expected cost savings from our acquisitions are not fully realized or
realized within the expected time frame;
- competitive pressures in the industry increase;
- general economic conditions or conditions affecting the airline industry,
whether internationally, nationally or in the states in which we do
business, are less favorable than expected;
- changes in the interest rate environment generally; and
- conditions in the securities markets are less favorable than expected.
You are cautioned not to place undue reliance on forward-looking statements
contained in this prospectus as these speak only as of its date. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. For a further
discussion of these and other risks related to our business, see the section
entitled "Risk Factors."
ii
<PAGE> 6
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should read the entire prospectus, including the financial
statements and other financial data, before making an investment decision to
tender Original Notes.
Unless the context otherwise indicates:
- "We," "our," "us" or the "Company" refers to Worldwide Flight Services,
Inc. and its subsidiaries on a pro forma combined basis after giving
effect to the acquisitions of Miami Aircraft Support, Inc. and its
subsidiaries, which are collectively referred to in this prospectus as
MAS, and Aerolink International, Inc. and its affiliates, which are
collectively referred to in this prospectus as Aerolink; and
- "Worldwide" refers to Worldwide Flight Services, Inc. and its
subsidiaries without giving effect to the acquisitions of MAS and
Aerolink.
THE COMPANY
We are one of the world's leading independent providers of ground services
to air cargo and passenger airlines. Our services include cargo handling and
ramp, passenger and technical services. We provide services for over 300
customers, including American Airlines, British Airways, Cathay Pacific,
Continental Airlines, Delta Air Lines, DHL, Emery Worldwide, Korean Air Lines,
Nippon Cargo Airlines and UPS. We currently service our customers at 89
airports, including 25 of the 30 busiest U.S. airports and five of the 10
busiest European airports, each based on 1998 annual arrivals and departures. We
employ approximately 9,700 employees in North America, the Caribbean, Europe and
Hong Kong.
The ground services that we provide fall into the following four main
categories:
- CARGO HANDLING. Cargo handling includes loading and unloading of cargo
aircraft, cargo warehousing at or near airport terminals, the build-up
and break-down of cargo and other related cargo services.
- RAMP SERVICES. Ramp services include loading and unloading of baggage and
freight from passenger aircraft, guiding the aircraft to and from the
gate, cabin cleaning and providing heating, air conditioning, lavatory
and water services.
- PASSENGER SERVICES. Passenger services include passenger ticketing,
curbside and ticket counter check-in, boarding services, baggage claim
and other services for passengers. We customize our passenger services to
meet the specific needs of each of our airline customers.
- TECHNICAL SERVICES. Technical services include jet bridge and ground
equipment maintenance, aircraft de-icing, freight management, aircraft
fueling and other services.
We frequently provide more than one of our services to the same customer at
a particular airport. Our services are generally provided under service
contracts. At September 30, 1999, we had over 800 service contracts and over 75
of our customer relationships date back five years or more.
1
<PAGE> 7
BUSINESS STRATEGY
Our goal is to become the world's leading provider of ground services for
air cargo and passenger airlines. We intend to achieve this goal through the
following:
- increasing our customer base at existing locations where we provide
services;
- cross-selling our services;
- emphasizing our service quality; and
- selectively pursuing additional complementary acquisitions.
COMPETITIVE STRENGTHS
We believe that we are well positioned to benefit from current trends,
including expected growth in our industry due to the following competitive
strengths:
- our long-standing customer relationships;
- the wide range of services that we offer;
- our broad geographic presence; and
- our experienced management team.
Our principal executive offices are located at 1001 West Euless Boulevard,
Suite 320, Euless, Texas 76040, and our telephone number is (817) 665-3200.
2
<PAGE> 8
THE EXCHANGE OFFER
Expiration Date.............. 5:00 p.m., New York City time, on ,
unless we extend the exchange offer.
Exchange and Registration
Rights..................... In an A/B exchange registration rights agreement
dated August 12, 1999, the holders of
Worldwide's 12 1/4 senior notes due 2007, series
A, which are referred to in this prospectus as
the Original Notes, were granted exchange and
registration rights. This exchange offer is
intended to satisfy these rights. You have the
right to exchange the Original Notes that you
hold for Worldwide's 12 1/4 senior notes due
2007, series B, which are referred to in this
prospectus as the New Notes, with substantially
identical terms. Once the exchange offer is
complete, you will no longer be entitled to any
exchange or registration rights with respect to
your Original Notes.
Accrued Interest on the New
Notes and Original Notes... The New Notes will bear interest from August 12,
1999. Holders of Original Notes which are
accepted for exchange will be deemed to have
waived the right to receive any payment in
respect of interest on those Original Notes
accrued to the date of issuance of the New
Notes.
Conditions to the Exchange
Offer...................... The exchange offer is conditioned upon some
customary conditions which we may waive and upon
compliance with securities laws.
Procedures for Tendering
Original Notes............. Each holder of Original Notes wishing to accept
the exchange offer must:
- complete, sign and date the letter of
transmittal, or a facsimile of the letter of
transmittal; or
- arrange for the Depository Trust Company to
transmit certain required information to the
exchange agent in connection with a book-entry
transfer.
You must mail or otherwise deliver this
documentation together with the Original Notes
to the exchange agent.
Special Procedures for
Beneficial Holders......... If you beneficially own Original Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your Original Notes in
the exchange offer, you should contact the
registered holder promptly and instruct them to
tender on your behalf. If you wish to tender on
your own behalf, you must, before completing and
executing the letter of transmittal for the
exchange offer and delivering your Original
Notes, either arrange to have
3
<PAGE> 9
your Original Notes registered in your name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time.
Guaranteed Delivery
Procedures................... You must comply with the applicable procedures
for tendering if you wish to tender your
Original Notes and:
- time will not permit your required documents
to reach the exchange agent by the expiration
date of the exchange offer; or
- you cannot complete the procedure for
book-entry transfer on time; or
- your Original Notes are not immediately
available.
Withdrawal Rights............ You may withdraw your tender of Original Notes
at any time up to 5:00 p.m., New York City time,
on the business day prior to the date the
exchange offer expires.
Failure to Exchange Will
Affect You Adversely......... If you are eligible to participate in the
exchange offer and you do not tender your
Original Notes, you will not have further
exchange or registration rights and your
Original Notes will continue to be subject to
some restrictions on transfer. Accordingly, the
liquidity of the Original Notes will be
adversely affected.
Certain Federal Tax
Considerations............. We believe that the exchange of Original Notes
for New Notes pursuant to the exchange offer
will not be a taxable event for United States
federal income tax purposes. A holder's holding
period for New Notes will include the holding
period for Original Notes, and the adjusted tax
basis of the New Notes will be the same as the
adjusted tax basis of the Original Notes
exchanged. See "Certain United States Federal
Income Tax Consequences."
Exchange Agent............... The Bank of New York, trustee under the
Indenture under which the New Notes will be
issued, is serving as exchange agent.
Use of Proceeds.............. We will not receive any proceeds from the
exchange offer.
4
<PAGE> 10
SUMMARY TERMS OF NEW NOTES
Issuer....................... Worldwide Flight Services, Inc.
Securities Offered........... The form and terms of the New Notes will be the
same as the form and terms of the Original Notes
except that:
- the New Notes will bear a different CUSIP
number from the Original Notes;
- the New Notes will have been registered under
the Securities Act and, therefore, will not
bear legends restricting their transfer; and
- you will not be entitled to any exchange or
registrations rights with respect to the New
Notes.
The New Notes will evidence the same debt as the
Original Notes. They will be entitled to the
benefits of the indenture governing the Original
Notes and will be treated under the indenture as
a single class with the Original Notes.
Maturity..................... August 15, 2007.
Interest..................... The New Notes will bear cash interest at the
rate of 12 1/4% per annum, payable semi-annually
in arrears.
Payment frequency--every six months on February
15 and August 15.
First payment--February 15, 2000.
Ranking...................... The New Notes and subsidiary guarantees will be
senior unsecured obligations and will rank
equally with all of our other existing and
future obligations that are not by its terms
subordinated in right of payment to the New
Notes, including borrowings under our senior
secured credit facility. The New Notes will rank
senior in right of payment to all of our
obligations that are expressly subordinated in
right of payment to the New Notes.
Guarantees................... The New Notes will be unconditionally guaranteed
by our domestic subsidiaries (existing, and with
some exceptions, future), which are referred to
in this prospectus as the guarantors. Our
existing and future foreign subsidiaries and any
subsidiaries we later designate as
"unrestricted" under the indenture will not be
guarantors. The guarantees, which are referred
to in this prospectus as the "subsidiary
guarantees," will be senior unsecured
obligations of each guarantor. These subsidiary
guarantees will rank equal to other existing and
future senior subordinated indebtedness of the
guarantors and senior in right of payment to all
of the existing and future obligations of the
guarantors that are expressly subordinated in
right of payment to the subsidiary guarantees.
Optional Redemption.......... On or after August 15, 2003, we may redeem some
or all of the New Notes at any time at the
redemption prices listed in the section
"Description of New Notes" under the heading
"Optional Redemption."
5
<PAGE> 11
Before August 15, 2002, we may redeem up to 35%
of the New Notes with the proceeds of one or
more public equity offerings by us or WFS
Holdings, Inc., which is our parent and is
referred to in this prospectus as Holdings. The
redemption would be at the price listed in the
section "Description of New Notes" under the
heading "Optional Redemption."
Mandatory Offer to
Repurchase................... If we sell some of our assets or experience
specific kinds of changes of control, we must
offer to repurchase the New Notes at the prices
listed in the section "Description of New Notes"
under the heading "Repurchase at Option of
Holders."
Basic Covenants of
Indenture.................... We will issue the New Notes under an indenture
with The Bank of New York. The terms of the New
Notes will, among other things, restrict our
ability and the ability of our restricted
subsidiaries to:
- borrow more money;
- pay dividends on stock or make other
equity distributions;
- purchase or redeem our capital stock;
- make some investments;
- allow the imposition of dividend
restrictions on some subsidiaries;
- sell some assets;
- create some liens;
- engage in transactions with affiliates;
and
- sell all, or almost all, of our assets or
merge with or into other companies.
For more details, see the section "Description
of New Notes" under the heading "Certain
Covenants."
Exchange Offer; Registration
Rights....................... You have the right to exchange the Original
Notes for New Notes with substantially identical
terms. This exchange offer is intended to
satisfy that right. The New Notes will not
provide you with any further exchange or
registration rights.
Resales Without Further
Registration............... We believe that the New Notes issued in the
exchange offer in exchange for Original Notes
may be offered for resale, resold and otherwise
transferred by you without compliance with the
registration and prospectus delivery provisions
of the Securities Act, if:
- you are acquiring the New Notes issued in the
exchange offer in the ordinary course of your
business;
- you have not engaged in, do not intend to
engage in, and have no arrangement or
understanding with any person to participate
in the distribution of the New Notes issued to
you in the exchange offer; and
6
<PAGE> 12
- you are not our "affiliate," as defined under
Rule 405 of the Securities Act.
Each of the participating broker-dealers that
receives New Notes for its own account in
exchange for Original Notes that were acquired
by it as a result of market-making or other
activities must acknowledge that it will deliver
a prospectus in connection with the resale of
the New Notes. We do not intend to list the New
Notes on any securities exchange.
7
<PAGE> 13
SUMMARY PRO FORMA AND HISTORICAL CONSOLIDATED FINANCIAL DATA
THE COMPANY--UNAUDITED PRO FORMA FINANCIAL DATA
The summary unaudited pro forma financial data set forth below have been
derived from the unaudited pro forma financial data included elsewhere in this
prospectus and give effect to:
- the acquisitions of MAS and Aerolink;
- Worldwide's entering into a new senior secured credit facility;
- an equity contribution of $10.0 million to Worldwide by Holdings;
the refinancing of the existing indebtedness of Worldwide, MAS and
Aerolink; and
- the prior acquisition of AMR Services Corporation, which is referred to
in this prospectus as AMRS or the Predecessor.
All of the above listed transactions, except for the acquisitions of AMRS
and Aerolink, occurred on August 12, 1999 and are collectively referred to in
this prospectus as the Transactions. The acquisition of AMRS took place on March
31, 1999 and the acquisition of Aerolink took place on August 23, 1999.
The pro forma statements of operations data and other data give effect to
the Transactions and the acquisitions of AMRS and Aerolink as if they had
occurred at the beginning of the period presented.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1999
----
(DOLLARS IN
THOUSANDS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $237,579
Salaries, wages, and benefits............................. 150,071
Depreciation and amortization............................. 10,978
Other operating expenses.................................. 66,582
--------
Operating income from continuing operations............... 9,948
Interest expense, net..................................... (15,024)
Other income (expense).................................... (732)
--------
Loss from continuing operations before income taxes and
extraordinary loss...................................... $ (5,808)
OTHER DATA:
Capital expenditures...................................... $ 7,934
Cash interest expense(a).................................. 13,561
ADDITIONAL DATA:
EBITDA(b)................................................. $ 20,194
SELECTED RATIOS:
Ratio of EBITDA to cash interest expense(b)............... 1.5x
Ratio of earnings to fixed charges........................ (c)
</TABLE>
- -------------------------
(a) Cash interest expense represents interest expense, less the amortization of
debt discount and issuance costs.
(b) EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating net income: (1) interest
expense (income), (2) income tax expense, (3) depreciation expense and (4)
amortization expense. We consider EBITDA to be a widely accepted financial
indicator of a company's ability to service debt, fund capital expenditures
and expand its business; however, EBITDA is not calculated in the same way
by all companies and is neither a measurement required, nor represents cash
flow from operations as defined, by generally accepted accounting
principles. EBITDA should not be considered by you as an alternative to net
income, as an indicator of operating performance or as an alternative to
cash flow as a measure of liquidity. The calculation of EBITDA in this
prospectus is calculated differently than for purposes of the covenants
under the indenture and the senior secured credit facility. See "Description
of Senior Secured Credit Facility" and "Description of New Notes" for how
these instruments calculate EBITDA.
(c) Ratio of earnings to fixed charges is computed assuming that 1/3 of rental
expense is representative of the interest factor. Earnings were insufficient
to cover fixed charges by $8,296,000 for the nine months ended September 30,
1999.
8
<PAGE> 14
WORLDWIDE--HISTORICAL AND PREDECESSOR FINANCIAL DATA
The following table sets forth certain summary historical consolidated
financial data of Worldwide and its predecessor, AMRS. The statement of
operations data, other data and additional data for 1997 and 1998 and the three
months ended March 31, 1999 have been derived from the audited consolidated
financial statements of AMRS included elsewhere in this prospectus. The balance
sheet data, statement of operations data, other data and additional data at and
for the six months ended September 30, 1999 has been derived from the audited
consolidated financial statements of Worldwide included elsewhere in this
prospectus. The results of operations for the three months ended March 31, 1999
and the six months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for all of 1999.
<TABLE>
<CAPTION>
AMRS HISTORICAL (PREDECESSOR) WORLDWIDE
---------------------------------------- -------------
THREE MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------- MARCH 31, SEPTEMBER 30,
1997 1998 1999 1999
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $223,090 $229,742 $61,475 $131,579
Salaries, wages, and benefits............. 144,422 154,706 39,679 85,803
Depreciation and amortization............. 5,643 5,908 1,627 4,476
Other operating expenses.................. 66,167 61,074 18,438 35,243
-------- -------- ------- --------
Operating income from continuing
operations.............................. 6,858 8,054 1,731 6,057
Interest income........................... 1,421 2,160 440 --
Interest expense.......................... -- -- -- (5,083)
Other income (expense).................... (584) 580 (552) (185)
-------- -------- ------- --------
Income from continuing operations before
income taxes and extraordinary loss..... 7,695 10,794 1,619 789
OTHER DATA:
Depreciation and amortization............. $ 5,643 $ 5,908 $ 1,627 $ 4,476
Capital expenditures...................... 12,662 7,219 1,688 4,606
Ratio of earnings to fixed charges........ 3.1x 3.4x 2.3x 1.1x
ADDITIONAL DATA:
EBITDA(a)................................. $ 11,917 $ 14,542 $ 2,806 $ 10,348
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1999
----
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA
Cash and cash equivalents................................. $ 11,629
Working capital........................................... 40,921
Total assets.............................................. 241,244
Long-term debt (including current portion)................ 147,801
Stockholder's equity...................................... 34,774
</TABLE>
- -------------------------
(a) EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating net income: (1) interest
expense (income), (2) income tax expense, (3) depreciation expense, (4)
amortization expense and (5) extraordinary gains or losses. We consider
EBITDA to be a widely accepted financial indicator of a company's ability to
service debt, fund capital expenditures and expand its business; however,
EBITDA is not calculated in the same way by all companies and is neither a
measurement required, nor represents cash flow from operations as defined,
by generally accepted accounting principles. EBITDA should not be considered
by you as an alternative to net income, as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity. The
calculation of EBITDA in this prospectus is calculated differently than for
purposes of the covenants under the indenture and the senior secured credit
facility. See "Description of Senior Secured Credit Facility" and
"Description of New Notes" for how the instruments calculate EBITDA.
9
<PAGE> 15
MAS--HISTORICAL FINANCIAL DATA
The following table sets forth summary historical consolidated financial
data of MAS. The statement of operations data, other data and additional data
for 1997, 1998 and for the period from January 1, 1999 to August 12, 1999 have
been derived from MAS's audited consolidated financial statements. The results
of operations for the interim period is not necessarily indicative of the
results of operations for a full year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD FROM
----------------- JANUARY 1, 1999
1997 1998 TO AUGUST 12, 1999
---- ---- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................... $46,557 $56,402 $ 36,516
Operating expenses............................ 36,145 43,519 28,602
Depreciation and amortization................. 2,743 3,274 2,116
General and administrative expenses........... 4,297 4,073 3,450
------- ------- --------
Total operating expenses...................... 43,185 50,866 34,168
------- ------- --------
Operating income.............................. 3,372 5,536 2,348
Interest income............................... 71 69 73
Interest expense.............................. (516) (563) (316)
Other income (expense)........................ 74 (62) --
------- ------- --------
Income before income taxes.................... 3,001 4,980 2,105
Provision for income tax expense.............. 1,163 1,886 747
------- ------- --------
Net income.................................... $ 1,838 $ 3,094 $ 1,358
OTHER DATA:
Depreciation and amortization................. $ 2,743 $ 3,274 $ 2,116
Capital expenditures.......................... 611 537 1,052
Ratio of earnings to fixed charges............ 2.4x 3.0x 2.5x
ADDITIONAL DATA:
EBITDA(a)..................................... $ 6,189 $ 8,748 $ 4,464
</TABLE>
- -------------------------
(a) EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating net income: (1) interest
expense (income), (2) income tax expense, (3) depreciation expense and (4)
amortization expense. We consider EBITDA to be a widely accepted financial
indicator of a company's ability to service debt, fund capital expenditures
and expand its business; however, EBITDA is not calculated in the same way
by all companies and is neither a measurement required, nor represents cash
flow from operations as defined, by generally accepted accounting
principles. EBITDA should not be considered by you as an alternative to net
income, as an indicator of operating performance or as an alternative to
cash flow as a measure of liquidity. The calculation of EBITDA in this
prospectus is calculated differently than for purposes of the covenants
under the indenture and the senior secured credit facility. See "Description
of Senior Secured Credit Facility" and "Description of New Notes" for how
these instruments calculate EBITDA.
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<PAGE> 16
RISK FACTORS
In addition to the other information set forth in this prospectus, you
should carefully consider the following factors before tendering Original Notes
in exchange for New Notes. The risks and uncertainties described below are not
the only ones we face. Additional risks and uncertainties not presently known to
us, or that we consider immaterial or that are similar to those faced by other
companies in one or more of the same lines of business, may also impair our
business operations. The following risks could materially harm our business,
financial condition or future results. If that occurs, the value of the New
Notes could decline, and you could lose all or part of your investment.
OUR SUBSTANTIAL AMOUNT OF DEBT COULD MATERIALLY HARM OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NEW NOTES
We have a substantial amount of debt. As of September 30, 1999, we had
total debt of $147.8 million, which reflects $16.0 million of borrowings under
the senior secured credit facility that was outstanding at September 30, 1999.
At September 30, 1999, we had additional availability under the senior secured
credit facility of approximately $30.4 million, subject to us satisfying
leverage and coverage ratios and other customary conditions. As of September 30,
1999, our total stockholders' equity was approximately $35.4 million.
After giving effect to the Transactions, for the nine months ended
September 30, 1999:
- we would have had a net loss of $8.3 million; and
- our earnings would have been insufficient to cover our fixed charges by
$8.3 million.
Our high level of debt could have important consequences for you and us.
For example, it could:
- make it more difficult for us to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or other
purposes;
- require us to dedicate a large portion of our cash flow to pay principal
and interest on our indebtedness, including the New Notes, which would
reduce the amount of cash flow available to fund working capital, capital
expenditures, acquisitions and other business activities;
- adversely effect the value of the securities;
- increase our vulnerability to general adverse economic and industry
conditions, including increases in interest rates;
- place us at a competitive disadvantage compared to our competitors that
have proportionately less debt; and
- limit our flexibility in planning for, or reacting to, changes in our
business and the ground services industry generally.
We anticipate that our cash flow from operations, together with borrowings
under the senior secured credit facility, will be sufficient to service our debt
obligations as they become due. Our ability to meet these requirements depends
on our future financial performance, which will be affected by financial,
business, economic, competitive and other factors. We will not be able to
control many of these factors, such as economic conditions in the markets in
which we operate and competitive initiatives undertaken by competitors. We
cannot be certain that our cash flow from operations will be sufficient to allow
us to
11
<PAGE> 17
pay principal and interest on our debt, including the New Notes, and meet our
other obligations. If we cannot generate sufficient cash flow from operations,
we may be required to adopt one or more alternative financing plans, such as
refinancing or restructuring all or part of our existing debt, including the New
Notes, selling assets, reducing or delaying investments in our business or
seeking to raise additional debt or equity capital. We may not be able to effect
any of these actions on commercially reasonable terms, or at all, and these
actions may not enable us to continue to satisfy our cash requirements. In
addition, the terms of existing or future debt agreements, including the senior
secured credit facility and the indenture relating to the New Notes, may
restrict us from adopting any of these alternatives.
COVENANT RESTRICTIONS MAY LIMIT OUR ABILITY TO OPERATE OUR BUSINESS
The senior secured credit facility and the indenture contain, and our other
indebtedness agreements may contain, covenants that restrict our ability to make
distributions or other payments to our investors and creditors unless financial
tests or other criteria are satisfied. We must also comply with specified
financial ratios and tests. If we do not comply with these or other covenants
and restrictions contained in the senior secured credit facility or the
indenture, we could default under those agreements and the indebtedness,
together with accrued interest, could then be declared immediately due and
payable. Our ability to comply with these provisions of the senior secured
credit facility and the indenture may be affected by changes in economic or
business conditions or other events beyond our control.
The senior secured credit facility contains, and our other indebtedness
agreements may contain, additional affirmative and negative covenants, including
limitations on our ability to incur additional indebtedness and to make
acquisitions and capital expenditures, which could affect our ability to operate
our business. The indenture restricts, among other things, our ability to incur
additional debt, sell assets, create liens or other encumbrances, make dividend
and other payments to third parties or merge or consolidate, all of which could
affect our ability to operate our business and may limit our ability to take
advantage of potential business opportunities as they arise. A failure to comply
with these covenants and restrictions could result in an event of default under
either the senior secured credit facility or the indenture, which could lead to
an acceleration of the related debt and the acceleration of debt under other
debt instruments that may contain cross-acceleration or cross-default
provisions.
OUR ASSETS ARE ENCUMBERED TO SECURE THE SENIOR SECURED CREDIT FACILITY
The New Notes and guarantees of the New Notes will not be secured by any of
our assets. Our obligations under the senior secured credit facility, however,
are secured by a first priority pledge of, and security interest in, the stock
of all our present and future domestic subsidiaries, and 65% of the stock of all
our present and future foreign subsidiaries, and substantially all of our assets
and the assets of our domestic subsidiaries. If we were to become insolvent or
liquidate, or if payment under the senior secured credit facility were
accelerated, the lenders under the senior secured credit facility would be
entitled to exercise the legal remedies available to a secured lender.
Accordingly, all secured lenders would be effectively senior in right of payment
to all unsecured lenders, including the holders of the New Notes, to the extent
of the value of the assets securing the indebtedness owed to the secured
lenders.
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<PAGE> 18
OUR ABILITY TO REPAY THE NEW NOTES AND OTHER DEBT DEPENDS ON CASH FLOW FROM OUR
SUBSIDIARIES
We conduct a substantial amount of our business through our subsidiaries.
As a result, we depend, in part, on dividends, loans, advances or other payments
from our subsidiaries to satisfy our financial obligations and make payments to
our investors.
The ability of our subsidiaries to make payments to us may be restricted
by, among other things:
- their earnings;
- covenants contained in their debt agreements;
- covenants contained in other agreements to which our subsidiaries
are or may become a party;
- business and tax considerations; and
- applicable corporate and other laws and regulations.
Although the indenture limits the ability of our subsidiaries to agree to
encumbrances and restrictions on their ability to pay dividends and make other
payments, this limitation is subject to a number of significant exceptions and
qualifications.
NOT ALL OF OUR SUBSIDIARIES ARE GUARANTORS; ASSETS OF THE NON-GUARANTOR
SUBSIDIARIES MAY NOT BE AVAILABLE TO MAKE PAYMENTS ON THE NEW NOTES
Our present and future foreign subsidiaries and some of our other
subsidiaries which do not meet certain economic measures will not be guarantors
of the New Notes. Payments on the New Notes are only required to be made by us
and the guarantors. As a result, no payments are required to be made from assets
of subsidiaries which do not guarantee the New Notes unless those assets are
transferred, by dividend or otherwise, to us or a guarantor.
In the event of a bankruptcy, liquidation or reorganization of any of our
non-guarantor subsidiaries, holders of their indebtedness, including their trade
creditors, will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us. As of September 30, 1999, the total liabilities, including trade payables,
of our non-guarantor foreign subsidiaries were approximately $8.1 million.
After giving effect to the Transactions, our non-guarantor foreign
subsidiaries generated approximately 12.3% of our pro forma consolidated
revenues for the nine months ended September 30, 1999. In addition, our
non-guarantor foreign subsidiaries held approximately 10.8% of our consolidated
assets as of September 30, 1999.
WE MAY NOT BE ABLE TO REPURCHASE THE NEW NOTES UPON A CHANGE OF CONTROL AS
REQUIRED BY THE INDENTURE
Upon the occurrence of specific change of control events under the
indenture, we will be required to offer to repurchase all outstanding New Notes
from their holders at 101% of their principal amount, plus accrued interest to
the date of repurchase. However, a change of control will also constitute an
event of default under the senior secured credit facility.
13
<PAGE> 19
Any future credit agreements or other agreements to which we become a party may
contain similar provisions. A default under the senior secured credit facility
would result in an event of default under the indenture if the lenders were to
accelerate the debt under the senior secured credit facility. This event of
default under the indenture would require us to repurchase the New Notes.
However, the terms of the senior secured credit facility provide that certain
change of control events will constitute a default thereunder. In the event a
change of control occurs at a time when we are prohibited from repurchasing the
New Notes, we could seek the consent of our lenders to repurchase the New Notes
or could attempt to refinance those borrowings. If we do not obtain their
consent or refinance borrowings, we will remain contractually prohibited from
repurchasing the New Notes.
The source of funds for any repurchase of the New Notes would be our
available cash or cash generated from other sources, including borrowings, sales
of assets or sales of equity. None of these sources may be available. Upon the
occurrence of a change of control event, we may seek to refinance the
indebtedness outstanding under the senior secured credit facility and the New
Notes. However, it is possible that we will not be able to complete the
refinancing on commercially reasonable terms or at all. In that case, we would
not have the funds necessary to finance the required change of control offer.
WE ARE DEPENDENT ON MAINTAINING OUR RELATIONSHIPS WITH SOME OF OUR SIGNIFICANT
CUSTOMERS
We derived approximately 23% of our revenues from American Airlines and its
affiliate American Eagle for the nine months ended September 30, 1999 and our
top ten customers accounted for approximately 50% of our revenues for the nine
months ended September 30, 1999, in both cases after giving effect to the
acquisitions of MAS and Aerolink. If we experience a significant reduction in
business from American Airlines or its affiliates before we grow our business,
it would result in material harm to our business, financial condition and future
results. We cannot assure you that we will be able to service our significant
customers at current or increased levels. Revenues from our customers could
decrease either because they choose to use other third party ground services
providers or because they choose to perform these services using their own
personnel. Many of our customers, including American Airlines, currently provide
a significant portion of their own ground services.
OUR CUSTOMERS MAY TERMINATE THEIR CONTRACTS WITH US ON SHORT NOTICE
Many of our service contracts allow customers to terminate their contract
on 90 days notice or sooner for performance breaches. However, many of our
contracts have passed the term specified in the contract, and therefore, under
their terms, generally have become terminable by either party on 60 days notice
or less for any reason. While we believe these terms are typical in the
industry, we can provide no assurance that customers will not terminate their
contracts. The termination of a large portion of our contracts would have a
material adverse effect on our business, financial condition and future results.
OUR RIGHTS TO OPERATE AT AIRPORTS COULD BE TERMINATED BY LOCAL AIRPORT
AUTHORITIES
In order to provide our services at an airport, we usually must have
permission from the local airport authority. This permission generally can be
terminated by the local airport authority at will and without cause. The loss of
one or more of our permits, licenses or
14
<PAGE> 20
consents to operate could materially harm our business, financial condition and
future results.
THE OCCURRENCE OF SIGNIFICANT ADVERSE EVENTS AFFECTING THE AIRLINE INDUSTRY MAY
HARM OUR BUSINESS
Because we provide most of our services to air cargo and passenger
airlines, we are likely to be affected by significant events that affect those
businesses. All of these events will be outside of our control and any of them
could materially harm our business, financial condition and future results. Some
of the events that could harm our business include the following:
- an economic downturn in one or more of the geographic markets where
we do business;
- route changes by airlines;
- strikes by unions; and
- a substantial reduction in air traffic or financial problems
incurred by air cargo or passenger airlines.
THE GROUND SERVICES INDUSTRY IS HIGHLY COMPETITIVE
The ground services business is highly competitive. If we do not compete
effectively with other service providers, we could lose customers and our
revenues could be reduced. Either of these could materially harm our business,
financial condition and future results.
Service quality and price are particularly important competitive factors in
our industry. In addition to competition for customers, we compete against other
service providers for airport permits, which are in some cities only issued to a
small number of service providers. In addition to competing with other service
providers, we indirectly compete for portions of our business with airlines that
do not outsource some or all of their ground services and businesses that
provide other forms of transportation, including businesses that transport cargo
by trucks. Although we believe that trends and projections in our industry are
favorable for third party providers of ground services, this may not prove to be
the case as a result of factors outside of our control such as changes in
economic conditions or a change in outsourcing strategies by airlines. In
addition, some of our competitors are larger than us and have significant
financial and other resources.
OUR ACQUISITION STRATEGY ENTAILS RISKS
As part of our business strategy, we intend to grow through acquisitions,
as well as through internal growth. On August 12, 1999, Worldwide acquired MAS
and on August 23, 1999, Worldwide acquired Aerolink. We intend to pursue
additional acquisitions. Acquisitions present various risks, including the
following:
- difficulties assimilating and integrating the operations of the combined
companies and retaining key personnel;
- difficulties integrating the acquired company's financial, computer,
payroll and other systems into our own;
15
<PAGE> 21
- difficulties implementing additional controls and information systems
appropriate to a larger company;
- distractions to management, which could result in a disruption of our
business;
- unanticipated liabilities or contingencies relating to the acquired
company; and
- reduced earnings due to increased goodwill amortization, increased
interest costs and costs related to integration.
If we fail to manage our growth effectively, we could be materially harmed.
In addition, suitable acquisition candidates may not be available. Anticipated
benefits from acquisitions also may not be realized.
FLUCTUATIONS IN FOREIGN CURRENCY MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE
A substantial portion of our revenues are denominated in non-U.S.
currencies, consisting principally of French francs, Canadian dollars, Hong Kong
dollars and British pounds. However, most of our expenses, including interest
and principal on our indebtedness, are denominated in U.S. dollars. This exposes
us to fluctuations in the rate of exchange between foreign currencies and the
U.S. dollar. Significant exchange rate fluctuations could materially harm our
business and financial condition. We currently do not engage in foreign currency
hedging, although we may do so in the future.
OUR BUSINESS IS SUBJECT TO SIGNIFICANT ENVIRONMENTAL REGULATION
We are subject to a variety of international, federal, state and local
governmental regulations relating to the use, storage, discharge, emission and
disposal of hazardous substances and wastes, remediation of contamination
associated with the releases of hazardous substances and worker health and
safety.
We maintain fueling operations at four locations. In connection with these
fueling operations, we stock jet fuel in large above-ground storage tanks and
operate sub-surface fuel lines that may give rise to unknown releases. We are
not aware of the occurrence of any releases that are expected to materially harm
our business, financial condition and future results. However, future events,
such as the discovery of unknown contamination, future spills and releases,
compliance with more stringent regulations, more vigorous enforcement policies
by regulatory agencies or stricter or different interpretations of existing
regulations could cause us operating constraints or require us to make material
expenditures for cleaning up contamination or complying with evolving
environmental regulations. These or other events relating to compliance with
environmental regulations could materially harm our business, financial
condition and future results. See "Business--Regulatory
Compliance--Environmental" for a summary discussion of these regulations.
THE INTERESTS OF HOLDINGS' SHAREHOLDERS MAY CONFLICT WITH YOUR INTERESTS
All of our outstanding shares of common stock are owned by Holdings. The
principal shareholder of Holdings and parties related to the principal
shareholder own and control in excess of 98% of Holdings' outstanding voting
common stock. As a result, the principal shareholder and parties related to the
principal shareholder have the ability to elect all of our directors and the
directors of Holdings and approve any action requiring the approval of the
holders of other voting common stock and the voting common stock of Holdings,
16
<PAGE> 22
including adopting amendments to our certificate of incorporation and the
certificate of incorporation of Holdings and approving acquisitions or sales of
all or substantially all of our assets or the assets of Holdings.
Circumstances may occur in which the interests of Holdings' shareholders
could be in conflict with your interests. In addition, Holdings' shareholders
may have an interest in pursuing transactions that, in their judgment, enhance
the value of their equity investment in our company, even though these
transactions may involve risks to you as a holder of New Notes.
OUR BUSINESS MAY BE DISRUPTED BY YEAR 2000 PROBLEMS
Internal or external Year 2000-related disruptions and costs could
materially harm our business, financial condition and future results. Although
we believe that our systems are Year 2000 compliant, undetected errors or
effects may remain, which could result in disruptions to our business or
unexpected costs. Disruptions and unexpected costs also may arise as a result of
third parties not being Year 2000 compliant, especially air cargo and passenger
airlines, airports and air traffic control systems. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Year 2000" for a
more extensive discussion of Year 2000 risks.
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance law, if, at the
time the New Notes or the subsidiary guarantees are issued:
(1) we or our guarantors incurred that indebtedness with the intent to
hinder, delay or defraud creditors; or
(2) (a) we or our guarantors received less than reasonably equivalent value
for incurring that indebtedness; and
(b) we or our guarantors
- were insolvent or were rendered insolvent by reason of the
incurrence of that indebtedness (and the application of the
proceeds of the incurrence);
- were engaged, or about to engage, in a business or transaction
for which the assets remaining constituted unreasonably small
capital to carry on our business; or
- intended to incur, or believed that we would incur, debts beyond
our ability to pay those debts as they matured;
then, in each of these cases, a court of competent jurisdiction could void,
in whole or in part, the New Notes or the subsidiary guarantees or, in the
alternative, subordinate the New Notes or the subsidiary guarantees to our
existing and future indebtedness.
The measure of insolvency for purposes of the above would likely vary
depending upon the law applied in the case. Generally, however, we or our
guarantors would be considered insolvent if the sum of our debts, including
contingent liabilities, were greater than all of our assets at a fair valuation.
We believe that, for purposes of the United States Bankruptcy Code and state
fraudulent transfer or conveyance laws, the New Notes and the subsidiary
guarantees are being issued without the intent to hinder, delay or defraud
17
<PAGE> 23
creditors and for proper purposes and in good faith, and that we will receive
reasonably equivalent value or fair consideration therefor. Based on our
projections of expected cash flows and estimates of the fair value of our assets
and liabilities, we believe that after the issuance of the New Notes and the
subsidiary guarantees and the application of the net proceeds therefrom, we will
be solvent, will have sufficient capital for carrying on our business and will
be able to pay our debts as they mature. However, we cannot assure you that a
court passing on these issues would agree with our determination.
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE NEW NOTES
There is no established trading market for the New Notes. The Original
Notes are eligible for trading in the PORTAL market. The New Notes are a new
issue of securities with no established trading market and will not be listed on
any securities exchange. The initial purchasers informed us that they intend to
make a market in the New Notes. However, they may cease their market-making at
any time.
We cannot assure you that a liquid market will develop for the New Notes.
The liquidity of any market for the New Notes will depend upon many factors,
including:
- the number of holders of the New Notes;
- our results of operations and financial condition;
- the market for similar securities; and
- the interest of securities dealers in making a market in the New Notes.
If a trading market does not develop or is not maintained, you may
experience difficulty in reselling the New Notes, or you may be unable to sell
them at all.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in prices. It is possible that the
market for the New Notes will be subject to disruptions. These disruptions may
have a negative effect on you as a holder of the New Notes regardless of our
prospects and financial performance.
IF YOU FAIL TO EXCHANGE YOUR ORIGINAL NOTES, YOUR ORIGINAL NOTES WILL REMAIN
SUBJECT TO RESTRICTIONS ON TRANSFER
Holders of Original Notes who do not exchange their Original Notes for New
Notes in the exchange offer will continue to be subject to the restrictions on
transfer of the Original Notes described in the legend on those notes. The
restrictions result from the issuance of the Original Notes in reliance on
exemptions from registration under the Securities Act and applicable state
securities laws. In general, the Original Notes may not be transferred or resold
except in a transaction registered in accordance with, or exempt from, these
registration requirements. If we complete this exchange offer, we will not be
required to register the Original Notes, and we do not anticipate that we will
register the Original Notes, under the Securities Act. Additionally, to the
extent that Original Notes are tendered and accepted in the exchange offer, the
aggregate principal amount of the Original Notes outstanding will decrease, with
a resulting decrease in the liquidity of the market for the Original Notes.
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<PAGE> 24
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
registration rights agreement entered into in connection with the offering of
the Original Notes. We will not receive any proceeds from the exchange offer. In
consideration for issuing the New Notes, we will receive Original Notes with
like original principal amount at maturity. The form and terms of the Original
Notes are the same as the form and terms of the New Notes, except as otherwise
described in this prospectus. The Original Notes surrendered in exchange for New
Notes will be retired and canceled and cannot be reissued. Accordingly, the
issuance of the New Notes will not result in any increase in our outstanding
debt.
We received net proceeds totaling approximately $126.8 million from the
private placement of the Original Notes. The net proceeds were used to:
- fund the acquisition of MAS;
- repay outstanding indebtedness of Worldwide and MAS; and
- pay related fees and expenses.
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<PAGE> 25
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
FINANCIAL DATA
The unaudited pro forma combined consolidated financial data is based on
the historical consolidated financial statements of Worldwide, its predecessor
AMRS and the historical consolidated financial statements of MAS and Aerolink,
and on the assumptions and adjustments described in the notes to the unaudited
pro forma combined consolidated financial data, including assumptions relating
to the allocation of the consideration paid for AMRS, MAS and Aerolink to the
assets and liabilities of AMRS, MAS and Aerolink based on preliminary estimates
of their respective fair values. The actual allocation of this consideration may
differ from that reflected in the unaudited pro forma combined consolidated
financial data.
Our unaudited pro forma combined consolidated statements of operations data
has been presented as if the Transactions and the acquisitions of AMRS and
Aerolink had occurred as of January 1, 1999. Pro forma adjustments were
calculated to:
- reflect the resulting changes in amortization and interest expense from
the acquisition of MAS, the acquisition of AMRS and the acquisition of
Aerolink;
- adjust the results of operations of MAS, Aerolink and AMRS to remove
certain operating expenses, previously allocated by their owners, that no
longer existed after the acquisitions; and
- adjust interest expense resulting from the refinancings of existing MAS,
Aerolink and Worldwide indebtedness.
We completed the Transactions in the third quarter of 1999. We recorded an
extraordinary loss of approximately $2.0 million in connection with the
refinancing of Worldwide's existing indebtedness.
Our unaudited pro forma combined financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the respective historical consolidated financial
statements of Worldwide, AMRS and MAS and the related notes thereto included
elsewhere in this prospectus. Our unaudited pro forma combined consolidated
financial data does not purport to represent what our financial position and
results of operations would have been if the Transactions had actually been
completed as of the dates indicated and are not intended to project our
financial position or results of operations for any future period.
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<PAGE> 26
UNAUDITED PRO FORMA COMBINED CONSOLIDATED
STATEMENT OF OPERATIONS DATA
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
MAS AEROLINK
PREDECESSOR ---------- ---------- PRO FORMA
AMRS WORLDWIDE PERIOD PERIOD COMBINED
------------ ------------- FROM FROM -------------
THREE MONTHS SIX MONTHS JANUARY 1, JANUARY 1, NINE MONTHS
ENDED ENDED 1999 TO 1999 TO ENDED
MARCH 31, SEPTEMBER 30, AUGUST 12, AUGUST 23, PRO FORMA SEPTEMBER 30,
1999 1999 1999 1999 ADJUSTMENTS 1999
---- ---- ---- ---- ----------- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $61,475 $ 131,579 $ 36,516 $ 8,009 $ -- $ 237,579
Salaries, wages, and
benefits................ 39,679 85,803 20,499 4,527 (437)(d) 150,071
Depreciation and
amortization............ 1,627 4,476 2,116 231 2,528(a)(b)(c) 10,978
Other operating
expenses................ 18,438 35,243 11,553 2,868 (1,520)(g)(h)(i) 66,582
------- --------- -------- -------- -------- ---------
Operating income from
continuing operations... 1,731 6,057 2,348 383 (571) 9,948
Interest income........... 440 -- 73 7 (440)(j) 80
Interest expense.......... -- (5,083) (316) (33) (9,672)(e) (15,104)
Other income (expense),
net..................... (552) (185) -- 5 -- (732)
------- --------- -------- -------- -------- ---------
Income (loss) from
continuing operations
before income taxes and
extraordinary loss...... 1,619 789 2,105 362 (10,683) (5,808)
Provision for income tax
expense................. 644 1,659 747 -- (562)(f) 2,488
------- --------- -------- -------- -------- ---------
Income (loss) from
continuing operation
before extraordinary
loss.................... 975 (870) 1,358 362 (10,121) (8,296)
------- --------- -------- -------- -------- ---------
Extraordinary loss on
early extinguishment of
debt.................... -- (1,959) -- -- 1,959(m) --
------- --------- -------- -------- -------- ---------
Income (loss) from
continuing operations... $ 975 $ (2,829) $ 1,358 $ 362 $ (8,162) $ (8,296)
======= ========= ======== ======== ======== =========
OTHER DATA:
Ratio of earnings to fixed charges(l)............................................. -- ........
ADDITIONAL DATA:
EBITDA(k)......................................................................... 20$,194 ....
</TABLE>
The accompanying notes are an integral part of these
pro forma combined consolidated financial statements.
21
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(a) Represents the increase in amortization expense for the excess of the AMRS
purchase price over estimated fair value of the net assets acquired under
the terms of the acquisition agreement. In connection with the acquisition
of AMRS, Worldwide recorded approximately $37.0 million of intangibles,
including goodwill which is being amortized over 20 years. The purchase
price allocation is preliminary, and still subject to adjustments. The pro
forma adjustment reflects additional amortization expense assuming the
acquisition had occurred as of January 1, 1999.
(b) Represents the increase in amortization expense for the excess of the MAS
purchase price over estimated fair value of the net assets acquired under
the terms of the acquisition agreement. In connection with the acquisition
of MAS, Worldwide recorded approximately $66.0 million of intangibles,
including goodwill which is being amortized over 20 years. The purchase
price allocation is preliminary, and still subject to adjustments. The pro
forma adjustment reflects additional amortization assuming the acquisition
had occurred as of January 1, 1999.
(c) Represents the increase in amortization expense for the excess of the
Aerolink purchase price over estimated fair value of the net assets
acquired under the terms of the acquisition agreement. In connection with
the acquisition of Aerolink, Worldwide recorded approximately $4.0 million
of intangibles, including goodwill which is being amortized over 20 years.
The purchase price allocation is preliminary, and still subject to
adjustments. The pro forma adjustment reflects additional amortization
assuming the acquisition had occurred as of January 1, 1999.
(d) Represents the elimination of costs previously incurred by MAS and
Aerolink that are no longer incurred by Worldwide. In connection with the
acquisition of MAS and Aerolink, some salary expenses, primarily relating
to a transaction with an employee shareholder and costs incurred related
to the acquisition, have been eliminated.
22
<PAGE> 28
(e) Represents the interest expense resulting from completion of the
Transactions net of the elimination of interest expense of MAS. In
addition, upon completion of the Transactions, Worldwide had outstanding
some amounts under the senior secured credit facility and some other
amounts. The following table sets forth the calculation of pro forma
interest expense:
<TABLE>
<CAPTION>
INTEREST RATE PRO FORMA
USED IN ANNUAL
PRO FORMA INTEREST
DEBT ISSUE BASE INTEREST RATE BORROWINGS CALCULATION EXPENSE
---------- ------------------ ----------- ------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Senior Secured Credit
Facility..................... LIBOR plus 3% for the
outstanding balance $ 16,000 8.93% $ 1,428
Commitment Fee -- 0.5% on
unused balance 0.5% 295
Senior Notes due
2007............. 12.25% $130,000 12.25% 15,925
-------
Pro forma cash interest expense................................................ 17,648
Amortization of debt discount and issuance costs............................... 1,775
-------
Total pro forma interest expense............................................... $19,423
=======
</TABLE>
A 1/8% change in interest rates on the senior secured credit facility would
cause interest expense to increase or decrease by approximately $20,000 per
annum as compared to the amounts set forth above.
(f) Represents an adjustment to estimated tax expense related primarily to
establishment of valuation allowances on foreign taxes.
(g) Represents the elimination of the corporate overhead expenses allocated
from AMR Corporation and included in the historical financial statements
of AMRS. Prior to the acquisition of AMRS by Holdings, AMR Corporation
allocated significant overhead expenses to AMRS. In connection with the
acquisition certain of these expenses will no longer be incurred by
Worldwide. These expenses primarily relate to benefit plans, including
stock based compensation plans and employee personal travel plans that
will no longer be continued nor replaced by Worldwide, and allocation of
the AMR Corporation senior executive salaries for which there will be no
equivalent at Worldwide. The following is a listing of expenses that will
no longer be incurred by Worldwide:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1999
----
(IN THOUSANDS)
<S> <C>
Allocation of AMR Corporation senior executives............. $349
Personal travel benefits............................. 79
Variable stock based compensation plans allocated by
AMR Corporation..................................... 80
----
Total........................................ $508
</TABLE>
(h) Represents the additional overhead expense that was allocated by AMR
Corporation during the three month period ended March 31, 1999. During the
three months ended March 31, 1999 AMRS received a monthly allocation of
approximately $640,000 of
23
<PAGE> 29
overhead expense, excluding items removed above, from AMR Corporation as
compared to an average monthly allocation of $407,000 of overhead expense,
excluding items removed above, during fiscal 1998. This increase resulted
exclusively from the sale during the quarter of AMR Corporation's other
operations in this segment. Upon their sale, corporate overhead allocated
to AMRS was increased with no increase in services. As a result, a pro
forma adjustment has been included for $699,000 to reduce the AMR
Corporation overhead allocation to reflect historical levels.
(i) As a consequence of the offering of the Original Notes, we and Castle
Harlan, Inc. amended the management agreement as described in "Related
Party Transactions" to provide that management fees will not be earned or
be payable in respect of any period from July 1, 1999 to June 30, 2000.
Accordingly, this adjustment removes management fees paid by Worldwide
during the three months ended June 30, 1999.
(j) Represents the elimination of interest income from AMR Corporation related
to accumulated undistributed cash of AMRS, held by AMR Corporation, and
included in the historical financial statements. These amounts were paid by
dividend to AMR Corporation prior to the sale of AMRS.
(k) EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating net income: (1) interest
expense (income), (2) income tax expense, (3) depreciation expense and (4)
amortization expense. We consider EBITDA to be a widely accepted financial
indicator of a company's ability to service debt, fund capital expenditures
and expand its business; however, EBITDA is not calculated in the same way
by all companies and is neither a measurement required, nor represents cash
flow from operations as defined, by generally accepted accounting
principles. EBITDA should not be considered by you as an alternative to net
income, as an indicator of operating performance or as an alternative to
cash flow as a measure of liquidity. The calculation of EBITDA in this
prospectus is calculated differently than for purposes of the covenants
under the indenture and the senior secured credit facility. See
"Description of Senior Secured Credit Facility" and "Description of New
Notes" for how these instruments calculate EBITDA.
(l) Ratio of earnings to fixed charges is computed assuming that 1/3 of rental
expense is representative of the interest factor. Earnings were
insufficient to cover fixed charges by $8,296,000.
(m) Represents the elimination of extraordinary loss caused by the early
extinguishment of debt in connection with the offering of the original
notes.
24
<PAGE> 30
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
You should read the selected historical consolidated financial data set
forth below in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the consolidated financial
statements and the notes thereto, and the pro forma and other financial
information included herein.
WORLDWIDE AND PREDECESSOR FINANCIAL INFORMATION
The selected consolidated financial data for the years ended December 31,
1995 and December 31, 1996 have been derived from Worldwide's and AMRS's
unaudited consolidated financial statements and, in the opinion of our
management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of its results of operations for
these periods and financial condition as at the dates presented. The selected
historical consolidated financial data for the fiscal years ended December 31,
1997, December 31, 1998 and the three months ended March 31, 1999 have been
derived from AMRS's audited consolidated financial statements. The selected
historical consolidated financial data for the six months ended September 30,
1999 have been derived from Worldwide's audited consolidated financial
statements.
<TABLE>
<CAPTION>
AMRS Historical (Predecessor) Worldwide
-------------------------------------------------------- ------------- COMBINED
THREE MONTHS SIX MONTHS NINE MONTHS
Years Ended December 31, ENDED ENDED ENDED
----------------------------------------- MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1998 1999 1999 1999(a)
---- ---- ---- ---- ---- ---- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $156,262 $193,189 $223,090 $229,742 $61,475 $131,579 $193,054
Salaries, wages, and
benefits.................. 96,662 124,543 144,422 154,706 39,679 85,803 125,482
Depreciation and
amortization.............. 5,650 5,938 5,643 5,908 1,627 4,476 6,103
Other operating expenses.... 50,609 56,598 66,167 61,074 18,438 35,243 53,681
-------- -------- -------- -------- ------- -------- --------
Operating income............ 3,341 6,110 6,858 8,054 1,731 6,057 7,788
Interest income............. 1,460 1,052 1,421 2,160 440 -- (a)
Interest expense............ -- -- -- -- -- (5,083) (a)
Other income (expense)...... 585 288 (584) 580 (552) (185) (737)
-------- -------- -------- -------- ------- -------- --------
Income from continuing
operations before income
taxes and extraordinary
loss...................... 5,386 7,450 7,695 10,794 1,619 789 (a)
Provision for income tax
expense................... 2,316 3,162 3,309 4,490 644 1,659 (a)
-------- -------- -------- -------- ------- -------- --------
Income (loss) from
continuing operations
before extraordinary
loss...................... 3,070 $ 4,288 $ 4,386 $ 6,304 $ 975 $ (870) (a)
Extraordinary loss on early
extinguishment of debt.... -- -- -- -- -- (1,959) (a)
Income (loss) from
continuing operations..... 3,070 4,288 4,386 6,304 975 (2,829) (a)
Loss from discontinued
operations................ -- -- -- 552 210 -- (a)
======== ======== ======== ======== ======= ======== ========
Net income (loss)........... $ 3,070 4,288 $ 4,386 $ 5,752 $ 765 $ (2,829) (a)
======== ======== ======== ======== ======= ======== ========
OTHER DATA:
Capital expenditures........ $ 6,253 $ 9,182 $ 12,662 $ 7,219 $ 1,688 $ 4,606 $ 6,294
Ratio of earnings to fixed
charges................... 2.3x 2.6x 3.1x 3.4x 2.3x 1.1x (a)
ADDITIONAL DATA:
EBITDA(b)................... $ 9,576 $ 12,336 $ 11,917 $ 14,542 $ 2,806 $ 10,348 $ 13,154
</TABLE>
25
<PAGE> 31
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 3,922 $20,396 $20,544 $14,200 $ 11,629
Working capital................... 14,448 23,707 24,083 25,747 40,921
Total assets...................... 79,937 79,205 85,418 88,696 241,244
Long-term debt (including current
position)...................... -- -- -- -- 147,801
Stockholders' equity.............. 48,451 52,773 56,756 62,365 34,774
</TABLE>
- ---------------
(a) The nine months ended September 30, 1999 represents a combination of two
interim periods, one for the Predecessor for the three month period prior to
the consummation of the acquisition ended March 31, 1999, and one for
Worldwide for the six month period following the consummation of the
acquisition ended September 30, 1999. Revenue and operating expense data for
the two periods have been combined to present a combined nine month period
ended September 30, 1999. No combined information is presented below the
operating income from continued operations line item, except for other
income (expense), as Worldwide and AMRS had dramatically different capital
structures and a combination of such data is not meaningful. For a
presentation of the pro forma combined results assuming the new capital
structure of the Company and its subsequent acquisitions see the unaudited
pro forma combined consolidated statement of operations data included
herein.
(b) EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating net income: (1) interest
expense (income), (2) income tax expense, (3) depreciation expense, (4)
amortization expense and (5) extraordinary gains or losses. We consider
EBITDA to be a widely accepted financial indicator of a company's ability to
service debt, fund capital expenditures and expand its business; however,
EBITDA is not calculated in the same way by all companies and is neither a
measurement required, nor represents cash flow from operations as defined,
by generally accepted accounting principles. EBITDA should not be considered
by you as an alternative to net income, as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity. The
calculation of EBITDA in this prospectus is calculated differently than for
purposes of the covenants under the indenture and the senior secured credit
facility. See "Description of Senior Secured Credit Facility" and
"Description of New Notes" for how these instruments calculate EBITDA.
26
<PAGE> 32
MAS
The following table sets forth selected historical data of MAS. The
selected historical consolidated financial data for 1995, 1996, 1997, 1998 and
the period from January 1, 1999 to August 12, 1999 have been derived from MAS's
audited consolidated financial statements included elsewhere in this prospectus.
The results of operations for the interim period are not necessarily indicative
of the results of operations for a full year.
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999
1995 1996 1997 1998 TO AUGUST 12, 1999
---- ---- ---- ---- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................ $34,617 $38,084 $46,557 $56,402 $ 36,516
Operating expenses............. 26,633 29,876 36,145 43,519 28,602
Depreciation and
amortization................ 3,034 2,338 2,743 3,274 2,116
General and administrative
expenses.................... 1,870 2,717 4,297 4,073 3,450
------- ------- ------- ------- ---------
Operating income............... 3,080 3,153 3,372 5,536 2,348
Interest income................ 36 32 71 69 73
Interest expense............... (559) (621) (516) (563) (316)
Other income (expense)......... 61 (53) 74 (62) --
------- ------- ------- ------- ---------
Income before income taxes..... 2,618 2,511 3,001 4,980 2,105
Provision for income tax
expense..................... 981 942 1,163 1,886 747
------- ------- ------- ------- ---------
Net income..................... $ 1,637 $ 1,569 $ 1,838 $ 3,094 $ 1,358
OTHER DATA:
Ratio of earnings to fixed
charges..................... 2.5x 2.6x 2.4x 3.0x 2.5x
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------
1995 1996 1997 1998
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 8 $ 4 $ 4 $ 1,212
Working capital (deficit)........... (972) (671) (871) 1,638
Total assets........................ 17,936 18,044 22,412 25,299
Long-term debt and capital leases
(including current portion)...... 6,991 6,136 6,716 6,886
Stockholders' equity................ 5,486 7,055 9,238 12,332
</TABLE>
27
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements, and the notes thereto, included elsewhere in
this prospectus. This discussion should also be read in conjunction with the
Unaudited Pro Forma Combined Consolidated Financial Statements included
elsewhere in this prospectus.
THE COMPANY
OVERVIEW
We are one of the world's leading independent providers of ground services
to air cargo and passenger airlines. Our services include cargo handling, and
ramp, passenger and technical services. We provide services for over 300
customers, including American Airlines, British Airways, Cathay Pacific,
Continental Airlines, Delta Air Lines, DHL, Emery, Korean Air Lines, Nippon
Cargo Airlines and UPS. We currently service our customers at 89 airports,
including 25 of the 30 busiest U.S. airports and five of the 10 busiest European
airports, based on 1998 annual arrivals and departures. We have approximately
9,700 employees in North America, the Caribbean, Europe and Hong Kong.
Worldwide Acquisition; Predecessor Entity. Holdings, which is owned by
Castle Harlan Partners III, L.P., its affiliates and some members of Worldwide's
management, acquired Worldwide from AMR Corporation on March 31, 1999. Prior to
the acquisition, Worldwide was known as AMR Services Corporation. Worldwide's
business was not operated by AMR Corporation as a single entity, but instead
operated through a number of companies that were part of the AMR Global Services
group. Prior to the date the acquisition was closed, some of these operations
were sold or were merged directly into AMR Corporation. The financial statements
and financial information included in this prospectus for AMR Services
Corporation represent the entity purchased (and that entity is sometimes
referred to in this prospectus as the Predecessor) and not the distinct AMR
Services Corporation legal entity that existed prior to the acquisition.
Acquisition of MAS. We completed the acquisition of MAS on August 12,
1999, the same time as the sale of the Original Notes. The purchase price for
MAS was approximately $63.0 million. We also repaid $6.0 million of debt of MAS.
The acquisition was accounted for under the purchase method of accounting.
Worldwide recorded approximately $62.6 million of intangibles, including
goodwill which is being amortized over 20 years.
Acquisition of Aerolink. We completed the acquisition of Aerolink on
August 23, 1999. The purchase price was approximately $5.9 million plus an
earn-out of a maximum of $1.0 million. As part of the purchase price, we repaid
$0.6 million of debt of Aerolink. The acquisition was accounted for under the
purchase method of accounting. Worldwide recorded approximately $4.0 million of
intangibles, including goodwill which is being amortized over 20 years.
Integration and Expansion Strategy. Historically, under AMR Corporation's
ownership, we pursued an aggressive geographic expansion strategy, spending a
significant amount of capital to open new locations. In the future, we plan to
focus on building market share at existing locations and spending capital
primarily on equipment to service
28
<PAGE> 34
new contracts at existing locations. Limited capital spending on new locations
is anticipated, as we intend to acquire other companies to gain access to new
locations rather than incurring significant start-up costs. We completed our
acquisition of MAS on August 12, 1999 and we completed the acquisition of
Aerolink on August 23, 1999.
Allocated Corporate Expenses. Prior to the sale of Worldwide to Holdings,
AMR Corporation provided us with various corporate services, including executive
oversight and corporate planning, cash management, tax planning, risk
management, insurance, payroll, legal, corporate administrative and other
services. Allocated expenses for these services amounted to $2.3 million, $5.8
million, $5.9 million and $5.9 million for the three month period ended March
31, 1999 and for the years ended December 31, 1998, 1997 and 1996, respectively.
These expenses have been reflected in our operating income for these periods.
Charges for these corporate services were based on a general allocation
methodology used by AMR Corporation to allocate all corporate overhead expenses
to its operating divisions. These costs were not necessarily allocated on a
basis that approximated Worldwide's estimated usage of services or the costs
Worldwide would have incurred if it had provided these services using its own
personnel. AMR Corporation's corporate allocations ceased at the time the
acquisition was closed.
Discontinued Business. In July 1998, the Predecessor acquired a license to
operate and began to fund the operations of Cyclone Surface Cleaning, Inc.,
which was engaged in developing a technology to clean airport runways. We
decided that Cyclone does not fit with our core businesses and to discontinue
its operations. Results of operations for 1998 and the three months ended March
31, 1999 have been adjusted to reflect Cyclone as a discontinued operation. On
August 31, 1999, we assigned our license and a stock option that we also had
acquired and paid approximately $0.6 million to the owners of Cyclone to settle
our obligations due under a promissory note.
RESULTS OF OPERATIONS
Revenues, operating income, and income from continuing operations before
extraordinary loss for the six months ended as of September 30, 1999 were
$131,579,000, 6,057,000, and 789,000, respectively, as a result of the
acquisition of Worldwide effective March 31, 1999 these amounts are not
comparable to those items in the financial statements in the comparable periods
of the prior year. Financial information for periods subsequent to March 31,
1999 are presented using different bases of accounting. However, for information
purposes results of operations for the nine months ended September 30, 1999 have
been included and represent an adjusted combination of two interim periods: one
for the Predecessor for the period prior to the consummation of the acquisition
until March 31, 1999, and one for Worldwide for the six month period following
the consummation of the acquisition through September 30, 1999. No combined
historical financial information is presented below the operating income line
item, except for other income (expense), because Worldwide and AMR Services
Corporation had different capital structures and we believe that a combination
of this information is not meaningful. Information with respect to interest
expense, income taxes, and a complete presentation of the impact of recent
acquisitions, is provided in the unaudited pro forma combined consolidated
statement of operations for the nine months ended September 30, 1999.
Revenues. Revenues are generated by providing cargo handling and ramp,
passenger and technical services for air cargo and passenger airlines. Cargo
services are generally billed based on the number of man-hours needed to provide
the services, the number of pounds of cargo handled or, in some cases, a
combination of the two. Most of our other
29
<PAGE> 35
services are billed based on the number of man-hours used to provide the
services, although some ramp services are billed on a per aircraft basis.
Technical services are generally billed based on time and materials.
Expenses. Expenses incurred to generate revenues consist primarily of
salaries, wages and benefits. Other significant expenditures are (1) materials,
supplies and services, which includes operating supplies such as fuel, glycol
for de-icing, outsourced services, cost of sales for freight management services
and office supplies, (2) equipment and facilities rentals, (3) depreciation and
amortization and (4) other operating expenses, which include data processing and
information systems, telecommunications, accounting, human resources, office
supplies, travel and general corporate administration.
As indicated above, the Predecessor was responsible for paying significant
overhead allocations from AMR Corporation in addition to the overhead required
to run the Predecessor's daily operations. For example, the Predecessor had its
own executive group, finance and accounting, legal and human resources
departments. AMR Corporation's corporate allocations ceased at the time the
acquisition of Worldwide by Holdings was closed. In connection with our
establishment of an administrative structure, we have hired, and intend to
continue to hire, additional personnel at our Euless corporate office.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999
The following table contains, for the periods indicated, revenues and
categories of expenses in dollars and as a percentage of sales.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
1998 % 1999(A) %
---- - ------- -
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.......................... $169,196 100% $193,054 100%
Salaries, wages and benefits...... 113,723 67.2 125,482 65.0
Materials, supplies and
services........................ 20,643 12.2 23,715 12.3
Equipment and facilities rental... 10,026 5.9 12,132 6.3
Depreciation and amortization..... 4,398 2.6 6,103 3.2
Other operating expenses.......... 9,902 5.9 15,565 8.1
General and administrative
allocated expenses.............. 4,591 2.7 2,269 1.2
-------- --------
Operating income from continuing
operations...................... $ 5,913 3.5 $ 7,788 4.0
======== ========
</TABLE>
- ---------------
(a) Represents two interim periods consisting of one for the Predecessor for the
three month period prior to the consummation of the acquisition from January
1, 1999 through March 31, 1999, and one for Worldwide for the six month
period following the consummation of the acquisition from April 1, 1999
through September 30, 1999.
Revenues. Total revenues increased $23.9 million, or 14.1%, from $169.2
million in 1998 to $193.1 million in 1999. Revenues increased $3.4 million, or
1.8%, in 1999 as a result of the addition of a new location in Hong Kong, which
opened in July 1998. We also experienced revenue growth in our cargo handling
operations, especially at our location in Paris, and moderate increases in our
freight management business over the 1998 period. The remainder of the growth
can be attributed to the acquisitions of MAS and Aerolink acquired in August
1999.
30
<PAGE> 36
Salaries, wages and benefits. Salaries, wages and benefits increased $11.8
million, or 10.4%, from $113.7 million in 1998 to $125.5 million in 1999. The
primary reason for the increase was the increased number of employees required
to support the additional new business during 1999 and the addition of employees
as part of the MAS and Aerolink acquisitions in August 1999. Also, an increase
of $2.1 million occurred at our new location in Hong Kong, which was not in
operation during most of the same period in 1998.
Materials, supplies and services. Materials, supplies and services
increased $3.1 million, or 15.0%, from $20.6 million in 1998 to $23.7 million in
1999. This increase was primarily due to an increase in freight management cost
of sales, resulting from additional freight management business.
Equipment and facilities rental. Equipment and facilities rental increased
$2.1 million, or 21.0%, from $10.0 million in 1998 to $12.1 million in 1999. One
of the reasons for the increase was the increase in facility rentals required to
service our cargo handling operations, primarily in New York and Europe. In
addition, MAS and Aerolink maintain facility rentals as part of its cargo
handling operations which attributed to the increase.
Depreciation and amortization. Depreciation and amortization increased
$1.7 million, or 38.6%, from $4.4 million in 1998 to $6.1 million in 1999. The
primary reason for the increase was additional amortization in 1999 as a result
of the acquisition of AMRS, MAS and Aerolink.
Other operating expenses. Other operating expenses increased $5.7 million,
or 57.6%, from $9.9 million in 1998 to $15.6 million in 1999. Expenses increased
as a result of the higher level of business activity, the growth in freight
management expenses due to the increase in business volume, the addition of the
new Hong Kong location, increases in corporate expenses due to staff added to
provide some services previously provided by AMR Corporation and an increase in
operating expenses due to the acquisitions of MAS and Aerolink. The increase was
substantially offset by a decrease in general and administrative allocated
expenses as indicated below.
General and administrative allocated expenses. General and administrative
allocated expenses decreased $2.3 million, or 50.0%, from $4.6 million in 1998
to $2.3 million in 1999. The reason for the decrease was the elimination of the
corporate overhead charge allocated to the Predecessor from AMR Corporation.
This allocation was included in the 1998 period and the quarter ended March 31,
1999, but was eliminated at the time of the acquisition of Worldwide. AMR
Corporation increased the allocation in the quarter ended March 31, 1999, which
resulted in this decrease being lower than if the allocation had remained
constant with amounts from prior years.
Operating income from continuing operations. Operating income from
continuing operations increased $1.9 million, or 32.2%, from $5.9 million in
1998 to $7.8 million in 1999. As a percentage of sales, operating income
increased by 0.5% in 1999 to 4.0%. This increase resulted from the elimination
of corporate overhead allocations from AMR Corporation in the quarter ended
March 31, 1999, and lower expenses, consisting primarily of salaries and wages,
as a percentage of sales during the nine month period ended September 30, 1999.
Also responsible for the increase during 1999 were one-time start-up costs of
$0.7 million incurred in Hong Kong during the first six months of 1998 before
operations began at that location.
31
<PAGE> 37
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
The following table contains, for the periods indicated, revenues and
categories of expenses in dollars and as a percentage of sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 % 1998 %
---- - ---- -
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues............................ $223,090 100.0% $229,742 100.0%
Expenses:
Salaries, wages and benefits........ 144,422 64.7 154,706 67.3
Materials, supplies and services.... 33,384 15.0 28,047 12.2
Equipment and facilities rental..... 11,059 5.0 13,597 5.9
Depreciation and amortization....... 5,643 2.5 5,908 2.6
Other operating expenses............ 15,847 7.1 13,632 6.0
General and administrative allocated
expenses.......................... 5,877 2.6 5,798 2.5
-------- --------
Operating income from continuing
operations........................ 6,858 3.1 8,054 3.5
Interest income..................... 1,421 0.6 2,160 0.9
Other income (expense), net......... (584) 0.3 580 0.3
-------- --------
Income before taxes................. 7,695 3.4 10,794 4.7
Taxes............................... 3,309 1.5 4,490 2.0
-------- --------
Income from continuing operations... 4,386 2.0 6,304 2.7
-------- --------
Loss from discontinued operations
net of applicable income taxes.... -- -- (552) .2
-------- --------
Net income.......................... $ 4,386 2.0 $ 5,752 2.5
======== ========
</TABLE>
Revenues. Total revenues increased $6.6 million, or 3.0%, from $223.1
million in 1997 to $229.7 million in 1998. This increase had a number of
components, including (1) revenue from providing technical and passenger
services at our new Hong Kong location, which accounted for $3.9 million of the
increase, (2) an expansion of cargo handling and passenger services operations
at Boston, which accounted for $2.0 million and (3) additional revenues from our
New York cargo operations, which increased by $2.2 million. However, these were
largely offset by a $7.6 million loss of revenue in the freight management
business due to a major customer in that business ceasing operations in late
1997.
Salaries, wages and benefits. Salaries, wages and benefits increased $10.3
million, or 7.1%, from $144.4 million in 1997 to $154.7 million in 1998.
Increases in salaries and wages track closely with increases in revenues in our
Hong Kong, Boston and New York locations discussed above. The decrease in the
freight management business during 1998 did not significantly decrease salaries
and wages as fulfillment in our freight management business is exclusively
provided by common carriers, and not our employees.
Materials, supplies and services. Materials, supplies and services
decreased $5.3 million, or 16.0%, from $33.4 million in 1997 to $28.0 million in
1998. The primary
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<PAGE> 38
reason for the decrease was the reduction in volume in the freight management
business, which accounted for $6.3 million, due to the major customer loss
discussed above. This decrease was partially offset by normal growth in our
other business lines, as discussed above.
Equipment and facilities rental. Equipment and facilities rental increased
$2.5 million, or 22.9%, from $11.1 million in 1997 to $13.6 million in 1998. The
primary reason for the increase was the increase in the cargo handling
operations at our New York location, which were lower in 1997 due to rental
credit received.
Depreciation and amortization. Depreciation and amortization remained
relatively flat increasing only $0.3 million, or 4.7%, from $5.6 million in 1997
to $5.9 million in 1998. This increase was primarily related to our new location
in Hong Kong.
Other operating expenses. Other operating expenses decreased $2.2 million,
or 14.0%, from $15.8 million in 1997 to $13.6 million in 1998. The primary
reason for the decrease was the decrease in freight management business,
including a $1.0 million bad debt write-off occurring in 1997 relating to a
major customer ceasing operations.
General and administrative allocated expenses. Allocations included in the
financial statements for 1997 and 1998 were at AMR Corporation's discretion and
were comparable.
Operating income from continuing operations. Operating income from
continuing operations increased $1.2 million, or 17.4%, from $6.9 million in
1997 to $8.1 million in 1998. As a percent of sales, operating income remained
relatively flat increasing by only 0.5% in 1998.
Interest income. Interest income increased $0.7 million, or 52.0%, from
$1.4 million in 1997 to $2.2 million in 1998. This increase reflected an
increase in the accumulated undistributed cash balances at the Predecessor,
which were held on its behalf by AMR Corporation.
Income tax expense. Income tax expense increased from $3.3 million in 1997
to $4.5 million in 1998. The Predecessor's effective income tax rate remained
relatively flat at approximately 43.0% in 1997 and 41.6% in 1998.
Loss from discontinued operations net of applicable income taxes. Loss
from discontinued operations net of applicable income taxes was $0.6 million in
1998. It was due to the operations of Cyclone, which was purchased in July 1998.
As discussed above, we intend to dispose of Cyclone.
Net income. Net income increased $1.4 million, or 31.1%, from $4.4 million
in 1997 to $5.8 million in 1998. The increase in net income was due to increases
in operating income and interest income in 1998.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
The Predecessor's statement of operations data for 1996 is unaudited.
However, in the opinion of management, this data includes all adjustments,
consisting only of normal recurring adjustments, which we consider necessary for
a fair presentation of results of operations for 1996. Some results of
operations data for the Predecessor has not been presented because it was not
determinable from AMR Corporation's historical accounting records. Prior to
December 31, 1996, balance sheet data was aggregated for the Predecessor with
other AMR Corporation non-airline subsidiaries, although operating data
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<PAGE> 39
was tracked to each specific entity. The absence of separate balance sheet data
makes operating costs with respect to interest and taxes not determinable. As a
result, 1996 statement of operations data is presented only through operating
income from continuing operations.
The following table contains, for the periods indicated, revenues and
categories of expenses in dollars and as a percentage of sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 % 1997 %
---- - ---- -
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................... $193,189 100.0% $223,090 100.0%
Expenses:
Salaries, wages and benefits....... 124,543 64.5 144,422 64.7
Materials, supplies and services... 25,661 13.3 33,384 15.0
Equipment and facilities rental.... 12,776 6.6 11,059 5.0
Depreciation and amortization...... 5,729 3.0 5,643 2.5
Other operating expenses........... 12,466 6.5 15,847 7.1
General and administrative
allocated expenses............... 5,904 3.1 5,877 2.6
-------- --------
Operating income................... $ 6,110 3.2 $ 6,858 3.1
</TABLE>
Revenues. Total revenues increased $29.9 million, or 15.5%, from $193.2
million in 1996 to $223.1 million in 1997. Significant increases in revenues
resulted from an $8.1 million increase due to new customers in the freight
management business, subsequently lost in late 1997, significant new operations
starting up in Boston, Halifax, Providence, and Oakland in late 1996 or early
1997, most of which related to new ramp services activities, and a significant
increase in Denver's revenues due to the opening of the new Denver International
Airport in 1997.
Salaries, wages and benefits. Salaries, wages and benefits increased $19.9
million, or 16.0%, from $124.5 million in 1996 to $144.4 million in 1997. The
primary reason for the increase was the increase in employees required to
support additional business activity as described in the preceding paragraph.
Materials, supplies and services. Materials, supplies and services
increased $7.7 million, or 30.1%, from $25.7 million in 1996 to $33.4 million in
1997. The increase is almost exclusively related to the increase in freight
management business, for which fulfillment cost is included in materials,
supplies, and services.
Equipment and facilities rental. Equipment and facilities rental decreased
$1.7 million, or 13.4%, from $12.8 million in 1996 to $11.1 million in 1997. The
primary reason for the decrease was rent credits received on our New York cargo
facilities in 1997.
Depreciation and amortization. Depreciation and amortization remained flat
decreasing only $0.1 million, or 1.5%, from $5.7 million in 1996 to $5.6 million
in 1997.
Other operating expenses. Other operating expenses increased $3.3 million,
or 27.1%, from $12.5 million in 1996 to $15.8 million in 1997. The primary
reason for the increase was the increase in operating expenses required to
support additional business activity, including the increase in freight
management business.
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<PAGE> 40
General and administrative allocated expenses. Allocations included in the
financial statements for 1996 and 1997 were at AMR Corporation's discretion and
were comparable as a percentage of sales.
Operating income. Operating income increased $0.7 million, or 12.2%, from
$6.1 million in 1996 to $6.9 million in 1997. As a percentage of sales,
operating income decreased by 0.1% in 1997 due to slightly lower operating
margins. The slight decrease in operating margins was due to a significant
increase in freight management business, which has a lower operating margin than
most of our other services.
LIQUIDITY AND CAPITAL RESOURCES
Prior to August 12, 1999, our primary sources of liquidity were cash flows
from operations and borrowings under our old credit facility. Our current
primary sources of liquidity are cash flows from operations and borrowings under
the senior secured credit facility, which is discussed below. In the six months
ended September 30, 1999, net cash used in operations was $4.1 million and
borrowings under our senior secured credit facility of $16.0 million and the
$10.7 million equity contribution by our parent were used to fund this expansion
in working capital and $4.6 million in capital expenditures. At September 30,
1999, we had $11.6 million in cash and cash equivalents, approximately one-half
of which is held by our operations in France and Hong Kong.
In addition to our debt service obligations, our principal liquidity needs
are for working capital and capital expenditures. During 1998, the Predecessor
spent $7.2 million on capital projects, and for the nine months ended September
30, 1999, Worldwide spent $6.3 million on capital projects. Most of the projects
were related to the purchase of additional equipment to handle new business
activity, the purchase of replacement capital items, the refurbishment of
equipment and new financial systems.
We have significant debt service obligations. Our annual interest payments
on the Original Notes are $15.9 million. Our interest payment requirements on
borrowings under the senior secured credit facility depend on the level of our
borrowings.
Total capital expenditures for the year ended December 31, 1999 are
expected to be approximately $9.5 million. Of this amount, approximately $3.0
million is expected to be incurred in connection with the establishment of our
new corporate administrative facility, principally for computer software and
hardware, as well as for furniture, fixtures and office equipment. The other
capital expenditures of $6.5 million are budgeted for the replacement and
refurbishment of equipment and for new equipment to support existing and new
business. AMR Corporation has agreed to fund up to $3.0 million for the
replacement or establishment of a new business enterprise resource planning
system for us. We are in the process of implementing this system and expect it
to be completed prior to the end of 1999.
The purchase price for MAS, which was acquired on August 12, 1999, was
$63.0 million. In addition, we repaid or retained approximately $6.0 million of
MAS indebtedness. These amounts were funded out of the proceeds of the offering
of the Original Notes and an equity contribution of $10.0 million to Worldwide
by Holdings which occurred simultaneously.
The purchase price of Aerolink was approximately $5.9 million, plus
possible additional consideration of up to a maximum of $1.0 million based on
various conditions being satisfied, including conditions relating to calendar
1999 earnings. We repaid
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<PAGE> 41
$0.6 million of Aerolink indebtedness. These amounts were funded in part with
borrowings under the senior secured credit facility.
We are also pursuing additional acquisitions which, if completed, are
expected to be funded primarily through borrowings under the senior secured
credit facility.
The acquisition price for Worldwide has an adjustment provision that
requires a price adjustment depending on a calculation based on working capital
and capital spending. This issue is still being negotiated and its ultimate
outcome cannot currently be determined. As a result of our separation from AMR,
our levels of trade receivables and accrued liabilities have both increased.
This has resulted in a net increase in our working capital levels. We expect
both our trade receivables and accrued liabilities to decrease, but we can
provide no assurances that our net working capital will either increase or
decrease from its current levels.
We entered into the senior secured credit facility with a new group of
lenders that provides us with up to $75.0 million for purposes of funding
working capital requirements and funding financing needs for future
acquisitions. Through September 30, 1999, we borrowed approximately $16.0
million under the senior secured credit facility. As of that date, we had
additional availability under the senior secured credit facility of at least
$30.4 million. As of September 30, 1999, borrowings accrued interest at an
average rate of 8.93%. However, our future additional availability may be less
than the total remaining commitment amount and will depend on the borrowing base
and us being able to meet the applicable leverage and coverage ratios and other
customary conditions. If we are in default under the senior secured credit
facility, which may occur if we fail to maintain financial ratios and meet other
covenants, we may not be able to make these additional borrowings under that
facility. See "Description of Senior Secured Credit Facility" for a summary of
some of its terms.
We intend to satisfy our working capital requirements, capital expenditures
and scheduled debt service requirements for at least the next twelve months
through a combination of cash flows generated from operations, funds available
under the senior secured credit facility.
EFFECTS OF INFLATION
Inflation has not had a significant effect on our operations. However, in
the event of increases in inflation, particularly in employment costs, we could
experience sudden and significant increases in operating costs. Over the
short-term, we may be unable to completely pass wage increases on to our
customers. Management believes that, over longer periods of time, we generally
will be able to pass on inflationary increases to our customers.
SEASONALITY
Historically, our revenues and operating income have not been significantly
seasonal due to our geographic dispersion and business line diversity. We
experience a moderate seasonal peak during the fourth quarter due to December
holiday season cargo activity.
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<PAGE> 42
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all derivatives to be
measured at fair value and recognized as either assets or liabilities on the
balance sheet. Changes in such fair value are required to be recognized
immediately in net income (loss) to the extent the derivatives are not effective
as hedges. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000 and is effective for interim periods in the initial year of adoption. At
the present time, we do not feel the adoption of SFAS No. 133 will have a
material effect on our results of operations, financial position or cash flows.
YEAR 2000
We are not heavily reliant on date sensitive equipment to provide our
services. Worldwide's information technology, or IT, systems that use date
sensitive equipment consist primarily of computers that we use for billing,
accounting and payroll. We also use the Sabre system to provide certain
information to perform flight operation tasks. This is a system owned and
operated by Sabre Group, a subsidiary of AMR Corporation, that we access over
telecommunications lines. Most commercial airlines use the Sabre system for
reservation and flight information. None of our non-IT systems, which consist
primarily of ground services equipment, use date sensitive technology.
We received notice or confirmation from the vendors of our IT systems that
these systems are Year 2000 compliant. The Sabre system also has been
represented as Year 2000 compliant by the Sabre Group. Because we believe that
our systems are Year 2000 compliant, and because we believe that Year 2000
compliance is not critical to providing our services, we have not established a
Year 2000 contingency plan and do not intend to do so. To date, we have not
incurred material expenses for Year 2000 analysis, testing or remediation. We do
not anticipate any material expenses in connection with Year 2000 compliance,
and therefore have not included any expenditures for Year 2000 compliance in our
budget. However, we cannot assure you that we will not incur significant
unanticipated expenses for Year 2000 compliance. We believe that our reasonably
likely worst-case scenario if one or more of our internal systems are not Year
2000 compliant is that we would be required to manually complete billing,
payroll and/or accounting until we either upgraded or replaced these systems.
Our business is indirectly reliant on the Year 2000 compliance of our
airline customers and the municipalities and airports at which we operate, as
well as air traffic control systems. We have not independently sought to confirm
the Year 2000 compliance of any customers, municipalities, airports or air
traffic control systems. If one or more of them is not Year 2000 compliant, it
could impair demand for our services or our ability to provide them, either of
which could materially harm our business, financial condition and operating
results.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in our market risk sensitive instruments and positions is
the potential loss arising from adverse changes in foreign currency exchange
rates and interest rates. The sensitivity analyses presented do not consider the
effects that those adverse changes may have on overall economic activity, nor do
they consider additional actions we may take to mitigate our exposure to those
changes. Actual results may differ.
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<PAGE> 43
Foreign currency. We are exposed to the effect of foreign exchange rate
fluctuations between the U.S. dollar and the currencies related to our foreign
operations. Our largest exposure comes from the French franc. However the
operations in France are substantially self-contained in that the majority of
the revenues and related expenses are incurred in French francs. However, we are
exposed to currency fluctuations with respect to finance costs which are
currently all incurred in the United States in U.S. dollars, and to the extent
there are investments and profits denominated in French francs that need to be
repatriated. During 1997, foreign currency losses amounted to $584,000, during
1998, foreign currency gains amounted to $440,000, for the three months ended
March 31, 1999, losses amounted to 552,000 and for the six months ended
September 30, 1999, losses amounted to $52,000, mainly as a result of French
franc fluctuations.
Interest. Our earnings are also affected by changes in interest rates due
to the impact those changes have on our interest expense from variable-rate debt
instruments. A 1/8% change in interest rates under the senior secured credit
facility would cause interest expense to increase or decrease by approximately
$20,000. We purchased an interest rate cap to limit our exposure to increases in
levels of variable interest rates. The interest rate cap agreements are for a
notional amount of $50.0 million. We have $16.0 million of borrowing currently
outstanding under variable-rate debt instruments, but have elected to maintain
the interest rate caps in their full $50.0 million notional amount, in the
anticipation of incurring additional borrowings from variable-rate debt
instruments in the future to fund various activities, including possible
acquisitions.
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<PAGE> 44
THE EXCHANGE OFFER
GENERAL
We sold the Original Notes on August 12, 1999 in a transaction exempt from
the registration requirements of the Securities Act. The initial purchaser of
the Original Notes subsequently resold them to qualified institutional buyers in
reliance on Rule 144A under the Securities Act.
In connection with the sale of Original Notes to the initial purchasers,
the holders of the Original Notes became entitled to the benefits of an A/B
exchange registration rights agreement dated August 12, 1999 among us, some of
our subsidiaries and the initial purchasers.
Under the registration rights agreement, we became obligated to file a
registration statement in connection with an exchange offer within 60 days after
the issue date and cause the exchange offer registration statement to become
effective within 180 days after the issue date. The exchange offer being made by
this prospectus, if consummated within the required time periods, will satisfy
our obligations under the registration rights agreement. This prospectus,
together with the letter of transmittal, is being sent to all beneficial holders
known to us.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept all Original Notes
properly tendered and not withdrawn on or prior to the expiration date. We will
issue $1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Original Notes accepted in the exchange offer. Holders may
tender some or all of their Original Notes pursuant to the exchange offer.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (which is sometimes referred to in this prospectus as the
SEC) to third parties, we believe that holders of the New Notes issued in
exchange for Original Notes may offer for resale, resell and otherwise transfer
the New Notes, other than any holder that is an affiliate of ours within the
meaning of Rule 405 under the Securities Act, without compliance with the
registration and prospectus delivery provisions of the Securities Act. This is
true as long as the New Notes are acquired in the ordinary course of the
holder's business, the holder has no arrangement or understanding with any
person to participate in the distribution of the New Notes and neither the
holder nor any other person is engaging in or intends to engage in a
distribution of the New Notes. A broker-dealer that acquired Original Notes
directly from us cannot exchange the Original Notes in the exchange offer. Any
holder who tenders in the exchange offer for the purpose of participating in a
distribution of the New Notes cannot rely on the no-action letters of the staff
of the Securities and Exchange Commission and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction.
Each broker-dealer that receives New Notes for its own account in exchange
for Original Notes, where Original Notes were acquired by such broker-dealer as
a result of market-making or other trading activities, must acknowledge that it
will deliver a
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<PAGE> 45
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution" for additional information.
We will be deemed to have accepted validly tendered Original Notes when, as
and if we have given oral or written notice of the acceptance of those notes to
the exchange agent. The exchange agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the New Notes from the
issuer and delivering New Notes to those holders.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender or the occurrence of the conditions set forth under
"--Conditions" without waiver by us, certificates for any of those unaccepted
Original Notes will be returned, without expense, to the tendering holder of any
of those Original Notes as promptly as practicable after the expiration date.
Holders of Original Notes who tender 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
Original Notes, pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes in connection with the exchange
offer. See "--Fees and Expenses."
SHELF REGISTRATION STATEMENT
If (1) applicable law or interpretations of the staff of the SEC are
changed so that the New Notes received by holders who make all of the necessary
representations in the letter of transmittal are not or would not be, upon
receipt, transferable by each such holder without restriction under the
Securities Act, or (2) any holder of Original Notes which are Transfer
Restricted Securities (which is defined below) notifies the Company prior to the
20th business day following the consummation of the exchange offer that (a)
based on the advise of counsel (which may be internal counsel), it is prohibited
by law or SEC policy from participating in the exchange offer, (b) it may not
resell the New Notes acquired by it in the exchange offer to the public without
delivering a prospectus, and the prospectus contained in the exchange offer
registration statement is not appropriate or available for such resales by it,
or (c) it is a broker-dealer and holds Original Notes acquired directly from the
Company or any of the Company's affiliates, we will, at our cost:
- file a shelf registration statement covering resales of the Original
Notes;
- use our best efforts to cause the shelf registration statement to be
filed under the Securities Act at the earliest possible time, but no
later than 30 days after the time the obligation to file arises;
- use our best efforts to cause the shelf registration statement to be
declared effective at the earliest possible time, but no later than 60
days after the date in which we are required to file the shelf
registration statement as set forth above; and
use our reasonable best efforts to keep effective the shelf registration
statement until the earlier of two years after the date as of which the SEC
declares that shelf registration statement effective or the shelf registration
otherwise becomes effective, or a shorter period as will terminate when all
Transfer Restricted Securities covered thereby have been sold pursuant thereto,
except that the Company and the Guarantors will have the ability to suspend the
shelf registration statement for up to 60 calendar days in the aggregate, if the
Company, upon written advice of counsel, determines that the continued
effectiveness and
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<PAGE> 46
use of a shelf registration statement would require the disclosure of
confidential information or interfere with any financing, acquisition,
reorganization or other material transaction involving the Company.
"Transfer Restricted Securities" means each Original Note or New Note until
the earliest on the date of which (1) that note is exchanged in the exchange
offer and entitled to be resold to the public by the Holder thereof without
complying with the prospectus delivery requirements of the Securities Act, (2)
that note has been disposed of in accordance with the shelf registration
statement, (3) that note is disposed of by a broker-dealer pursuant to the "Plan
of Distribution" contemplated herein (including delivery of the prospectus
contained therein) or (4) that note is distributed to the public pursuant to
Rule 144 under the Securities Act.
We will, if and when we file the shelf registration statement, provide to
each holder of the Original Notes copies of the prospectus which is a part of
the shelf registration statement, notify each holder when the shelf registration
statement has become effective and take other actions as are required to permit
unrestricted resales of the Original Notes. A holder that sells Original Notes
pursuant to the shelf registration statement generally must be named as a
selling security-holder in the related prospectus and must deliver a prospectus
to purchasers. A seller will be subject to civil liability provisions under the
Securities Act in connection with these sales. A seller of the Original Notes
also will be bound by applicable provisions of the registration rights
agreement, including indemnification obligations. In addition, each holder of
Original Notes must deliver information to be used in connection with the shelf
registration statement and provide comments on the shelf registration statement
in order to have its Original Notes included in the shelf registration statement
and benefit from the provisions regarding any liquidated damages in the
registration rights agreement.
LIQUIDATED DAMAGES
If we are required to file the shelf registration statement and either:
(1) if the exchange offer is not consummated on or before the 30th business day
after this registration statement is declared effective;
(2) if obligated to file the shelf registration statement and the we and the
guarantors fail to file the shelf registration statement with the SEC on or
prior to the 30th day after such filing obligation arises;
(3) if obligated to file a shelf registration statement and the shelf
registration statement is not declared effective on or prior to the 60th day
after the obligation to file a shelf registration statement arises; or
(4) if the exchange offer registration statement or the shelf registration
statement, as the case may be, is declared effective but thereafter ceases
to be effective or useable in connection with resales of the Transfer
Restricted Securities, for such time of non-effectiveness or non-usability
(each, a "Registration Default"),
then the we and the guarantors agree to pay to each holder of Transfer
Restricted Securities affected thereby liquidated damages ("Liquidated Damages")
in an amount equal to $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such holder for each week or portion thereof that
the Registration Default
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<PAGE> 47
continues for the first 90-day period immediately following the occurrence of
such Registration Default. The amount of the Liquidated Damages will increase by
an additional $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities with respect to each subsequent 90 day period until all
Registration Defaults have been cured, up to a maximum amount of Liquidated
Damages of $0.35 per week per $1,000 in principal amount of Transfer Restricted
Securities. We and the guarantors will not be required to pay Liquidated Damages
for more than one Registration Default at any given time. Following the cure of
all Registration Defaults, the accrual of Liquidated Damages will cease.
All accrued Liquidated Damages will be paid by us or the Guarantors to
holders entitled thereto in the same manner in which interest is payable to
holders under the Indenture.
The sole remedy available to the holders of the Original Notes will be that
described above. Any amounts of additional interest due will be payable in cash
on the same interest payments dates as the Original Notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENT
The term "expiration date" means 5:00 p.m., New York City time, on,
, unless we extend the exchange offer, in which case the term
"expiration date" means the latest date to which the exchange offer is extended.
In order to extend the expiration date, we will notify the exchange agent
of any extension by oral or written notice and will issue a public announcement
of the extension, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right:
(a) to delay accepting of any Original Notes, to extend the exchange offer or to
terminate the exchange offer and not accept Original Notes not previously
accepted if any of the conditions set forth under "--Conditions" shall have
occurred and shall not have been waived by us, if permitted to be waived by
us, by giving oral or written notice of the delay, extension or termination
to the exchange agent, or
(b) to amend the terms of the exchange offer in any manner deemed by us to be
advantageous to the holders of the Original Notes.
We will notify you as promptly as practicable of any delay in acceptance,
extension, termination or amendment. If the exchange offer is amended in a
manner determined by us to constitute a material change, we will promptly
disclose the amendment in a manner intended to inform the holders of the
Original Notes of the amendment. Depending upon the significance of the
amendment, we may extend the exchange offer if it otherwise would expire during
the extension period.
Without limiting the manner in which we may choose to publicly announce any
extension, amendment or termination of the exchange offer, we will not be
obligated to publish, advertise, or otherwise communicate that announcement,
other than by making a timely release to an appropriate news agency.
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<PAGE> 48
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile of the letter of transmittal, have the
signatures on the letter of transmittal guaranteed if required by instruction 3
of the letter of transmittal, and mail or otherwise delivery the letter of
transmittal or the facsimile in connection with a book entry transfer, together
with the Original Notes and any other required documents. To be validly
tendered, the documents must reach the exchange agent by or before 5:00 p.m. New
York City time, on the expiration date. Delivery of the Original Notes may be
made by book-entry transfer in accordance with the procedures described below.
Confirmation of the book-entry transfer must be received by the exchange agent
on or prior to the expiration date.
The tender by a holder of Original Notes will constitute an agreement
between that holder and us in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its address
set forth below. Holders may also request their brokers, dealers, commercial
banks, trust companies or nominees to effect the tender for those holders.
The method of delivery of Original Notes and the letter of transmittal and
all other required documents to the exchange agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery to the exchange agent by or before 5:00 p.m.
New York City time, on the expiration date. No letter of transmittal or Original
Notes should be sent to us.
Only a holder of Original Notes may tender Original Notes in the exchange
offer. The term "holder" with respect to the exchange offer means any person in
whose name Original Notes are registered on our books or any other person who
has obtained a properly completed bond power from the registered holder.
Any beneficial holder whose Original Notes are registered in the name of
its broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct the
registered holder to tender on its behalf. If the beneficial holder wishes to
tender on its own behalf, it must, prior to completing and executing the letter
of transmittal and delivering its Original Notes, either make appropriate
arrangements to register ownership of the Original Notes in the holder's name or
obtain a properly completed bond power from the registered holder. The transfer
of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States referred to
as an "eligible institution," unless the Original Notes are tendered: (a) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the letter of transmittal;
or (b) for the account of an eligible institution. In the event that signatures
on a letter of transmittal or a notice of withdrawal, are required to be
guaranteed, the guarantee must be by an eligible institution.
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If the letter of transmittal is signed by a person other than the
registered holder of any Original Notes listed therein, those Original Notes
must be endorsed or accompanied by appropriate bond powers and a proxy which
authorizes that person to tender the Original Notes on behalf of the registered
holder, in each case signed as the name of the registered holder or holders
appears on the Original Notes.
If the letter of transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, they should indicate that when signing, and unless waived by us,
submit evidence satisfactory to us of their authority to act with the letter of
transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, and withdrawal of the tendered Original Notes will be determined by us
in our sole discretion. This determination will be final and binding. We reserve
the absolute right to reject any Original Notes not properly tendered or any
Original Notes our acceptance of which, in the opinion of counsel for us, would
be unlawful. We also reserve the right to waive any irregularities or conditions
of tender as to particular Original Notes. Our 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 Original Notes must be
cured within such time as we shall determine. None of us, the exchange agent or
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Original Notes, nor shall any of them
incur any liability for failure to give notification. Tenders of Original Notes
will not be deemed to have been made until irregularities have been cured or
waived. Any Original 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 without cost by the exchange agent to the tendering
holders of Original Notes, unless otherwise provided in the letter of
transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion to:
(a) purchase or make offers for any Original Notes that remain outstanding
subsequent to the expiration date or, as set forth under "--Conditions," to
terminate the exchange offer in accordance with the terms of the
registration rights agreements; and
(b) to the extent permitted by applicable law, purchase Original Notes in the
open market, in privately negotiated transactions or otherwise. The terms of
any such purchases or offers may differ from the terms of the exchange
offer.
By tendering Original Notes pursuant to the exchange offer, each holder
will represent to us that, among other things,
(a) the New Notes acquired pursuant to the exchange offer are being obtained in
the ordinary course of business of such holder;
(b) the holder is not engaged in and does not intend to engage in a distribution
of the New Notes;
(c) the holder has no arrangement or understanding with any person to
participate in the distribution of such New Notes; and
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<PAGE> 50
(d) the holder is not our "affiliate," as defined under Rule 405 of the
Securities Act, or, if the holder is an affiliate, will comply with the
registration and prospectus delivery requirements of the Securities Act to
the extent applicable.
BOOK-ENTRY TRANSFER
We understand that the exchange agent will make a request promptly after
the date of this prospectus to establish accounts with respect to the Original
Notes at the Depository Trust Company for the purpose of facilitating the
exchange offer, and subject to the establishment of those accounts, any
financial institution that is a participant in the Depository Trust Company's
system may make book-entry delivery of Original Notes by causing the Depository
Trust Company to transfer the Original Notes into the exchange agent's account
with respect to the Original Notes in accordance with the Depository Trust
Company's procedures for transfers. Although delivery of the Original Notes may
be effected through book-entry transfer into the exchange agent's account at the
Depository Trust Company, 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 the procedures. Delivery of
documents to the Depository Trust Company does not constitute delivery to the
exchange agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and
(a) whose Original Notes are not immediately available or
(b) who cannot deliver their Original Notes, the letter of transmittal or any
other required documents to the exchange agent on or prior to the expiration
date, may effect a tender if:
(1) the tender is made through an eligible institution;
(2) on or prior to the expiration date, the exchange agent receives from
the 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 of the
Original Notes, the certificate number or numbers of the Original Notes
and the principal amount of Original Notes tendered stating that the
tender is being made thereby, and guaranteeing that, within three
business days after the expiration date, the letter of transmittal, or
facsimile thereof, together with the certificate(s) representing the
Original Notes to be tendered in proper form for transfer and any other
documents required by the letter of transmittal will be deposited by
the eligible institution with the exchange agent; and
(3) the properly completed and executed letter of transmittal (or facsimile
thereof) together with the certificate(s) representing all tendered
Original Notes in proper form for transfer and all other documents
required by the letter of transmittal are received by the exchange
agent within three business days after the expiration date.
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WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of Original Notes
may be withdrawn at any time by or prior to 5:00 p.m., New York City time, on
the expiration date, unless previously accepted for exchange.
To withdraw a tender of Original Notes in the exchange offer, a written or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth in this prospectus by 5:00 p.m., New York City
time, on the expiration date. Any such notice of withdrawal must:
(a) specify the name of the depositor, who is the person having deposited the
Original Notes to be withdrawn;
(b) identify the Original Notes to be withdrawn, including the certificate
number or numbers and principal amount of the Original Notes or, in the case
of Original Notes transferred by book-entry transfer, the name and number of
the account at Depository Trust Company to be credited;
(c) be signed by the holder in the same manner as the original signature on the
letter of transmittal by which such Original Notes were tendered, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to have the trustee with respect to the Original Notes
register the transfer of such Original Notes into the name of the depositor
withdrawing the tender; and
(d) specify the name in which any such Original Notes are being registered if
different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of withdrawal notices will be determined by us, and our determination
will be final and binding on all parties. Any Original Notes so withdrawn will
be deemed not to have been validly tendered for purposes of the exchange offer
and no New Notes will be issued with respect to the Original Notes withdrawn
unless the Original Notes so withdrawn are validly retendered. Any Original
Notes which have been tendered but which are not accepted for exchange will be
returned to their holder without cost to the holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn Original Notes may be retendered by following one of the procedures
described above under "Procedures for Tendering" at any time on or prior to the
expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange, any New Notes for any Original
Notes, and may terminate or amend the exchange offer on or before the expiration
date, if the exchange offer violates any applicable law or interpretation by the
staff of the SEC.
If we determine in our reasonable discretion that the foregoing condition
exists, we may (1) refuse to accept any Original Notes and return all tendered
Original Notes to the tendering holders, (2) extend the exchange offer and
retain all Original Notes tendered prior to the expiration of the exchange
offer, subject, however, to the rights of holders who tendered the Original
Notes to withdraw their tendered Original Notes, or (3) waive such condition, if
permissible, with respect to the exchange offer and accept all properly tendered
Original Notes which have not been withdrawn. If a waiver constitutes a material
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change to the exchange offer, we will promptly disclose the waiver by means of a
prospectus supplement that will be distributed to the holders, and we will
extend the exchange offer as required by applicable law.
Pursuant to the registration rights agreement, we are required to cause to
be filed with the SEC a shelf registration statement with respect to the
Original Notes on or prior to 30 days after the filing deadline, and thereafter
use our best efforts to have the shelf registration statement declared
effective, if:
(a) the exchange offer is not permitted by law or applicable interpretations of
the staff of the SEC or
(b) any holder of Original Notes or New Notes notifies us that either
(1) the holder is not eligible to participate in the exchange offer
(2) the holder participates in the exchange offer and does not receive
freely transferable New Notes in exchange for tendered Original Notes,
or
(3) the holder is a broker-dealer and holds the Original Notes acquired
directly from us or our affiliates.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer, and is also the trustee under the Indenture under which the New Notes
will be issued. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to , addressed as follows:
For information by Telephone:
(212) 815-2742
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Delivery Service:
The Bank of New York The Bank of New York
101 Barclay Street, Floor 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Service Window, Ground
Attn: , Reorganization Level
Dept.--7E New York, New York 10286
Attn: , Reorganization
Dept.--7E
</TABLE>
By Facsimile Transmission:
(212) 815-4699
(Telephone Confirmation)
(212) 815-2742
FEES AND EXPENSES
We have agreed to bear the expenses of the exchange offer pursuant to the
registration rights agreement. We have 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. We, 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 with
providing the services.
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The cash expenses to be incurred in connection with the exchange offer will
be paid by us. These expenses include fees and expenses of The Bank of New York
as exchange agent, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Original
Notes as reflected in our accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us.
The expenses of the exchange offer and the unamortized expenses related to the
issuance of the Original Notes will be amortized over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Original Notes who are eligible to participate in the exchange
offer but who do not tender their Original Notes will not have any further
registration rights, and their Original Notes will continue to be subject to
restrictions on transfer. Accordingly, such Original Notes may be resold only:
(a) to us, upon redemption of the Original Notes or otherwise;
(b) so long as the Original Notes are eligible for resale pursuant to Rule 144A
under the Securities Act to a person inside the United States whom the
seller reasonably believes is a qualified institutional buyer within the
meaning of Rule 144A, in a transaction meeting the requirements of Rule
144A;
(c) in accordance with Rule 144 under the Securities Act, or under another
exemption from the registration requirements of the Securities Act, and
based upon an opinion of counsel reasonably acceptable to us;
(d) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act; or
(e) under 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.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approval will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of Original
Notes should carefully consider whether to accept the terms and condition of
this exchange offer. Holders of the Original Notes are urged to consult their
financial and tax advisors in making their own decisions on what action to take
with respect to the exchange offer.
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BUSINESS
We are one of the world's leading independent providers of ground services
to air cargo and passenger airlines. Our services include cargo handling and
ramp, passenger and technical services. We provide services for over 300
customers, including American Airlines, British Airways, Cathay Pacific,
Continental Airlines, Delta Air Lines, DHL, Emery Worldwide, Korean Air Lines,
Nippon Cargo Airlines and UPS. We currently service our customers at 89
airports, including 25 of the 30 busiest U.S. airports and five of the 10
busiest European airports, each based on 1998 annual arrivals and departures. We
employ approximately 9,700 employees in North America, the Caribbean, Europe and
Hong Kong.
We have experienced steady revenue growth by providing dependable and cost
effective service in the commercial aviation market that has experienced nearly
uninterrupted growth in annual departures, revenue passenger miles and air cargo
ton miles. Worldwide's revenues grew from $72.0 million in 1989 to $229.7
million in 1998, representing a compounded annual growth rate of 13.8%. On
August 12, 1999, Worldwide purchased all of the stock of MAS, one of the largest
independent providers of express air cargo handling services in the United
States. MAS's revenues grew from $24.8 million in 1994 to $56.4 million in 1998,
representing a compounded annual growth rate of 22.7%. On a pro forma basis for
the nine months ended September 30, we generated revenues and EBITDA of $237.6
million and $20.2 million, respectively.
INDUSTRY TRENDS
We believe that the demand for independent ground services will continue to
increase due to (1) the growing demand for air cargo and passenger
transportation and the increased outsourcing of ground services and (2)
continuing European regulatory liberalization. In addition, we believe that the
highly fragmented nature of our industry will provide us with significant
opportunities to obtain new business and make acquisitions. Each of these
factors is discussed below.
Growing Demand for Air Transportation. Historically, the ground services
industry has grown along with cargo and passenger air traffic. We expect
continued growth in both cargo and passenger air traffic, as well as in the
ground services industry, due to continued global economic growth, increased
globalization of trade, increased use of express air shipments and foreign
airport liberalization. According to MergeGlobal, Inc., global freight
ton-kilometers, which is a measure of cargo air traffic, were estimated to have
grown at a compounded annual rate of 8.6% from 1990 to 1998 and were projected
to grow at a compounded annual rate of 8.0% from 1998 to 2006. According to The
Airline Monitor, global passenger air traffic, as measured by revenue passenger
miles, were estimated to have grown at a compounded annual rate of 5.6% from
1990 to 1998 and were projected to grow at a compounded annual rate of 4.8% from
1998 to 2008.
Increased Outsourcing. Outsourcing ground services is a cost-effective
alternative to performing services internally for many airlines. For example,
outsourcing is cost-effective when a carrier has a limited number of daily
flights into a particular airport, making the purchase and maintenance of the
necessary equipment and labor uneconomical. As a result, foreign carriers,
regional carriers, carriers initiating service to a new city and U.S. carriers
at non-hub airports outsource a relatively high percentage of their ground
services. We believe that outsourcing of ground services will increase as (1)
major carriers further heighten their focus on their core airline businesses and
seek to further reduce
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costs, (2) airlines expand to new airports, (3) ground services liberalization
continues at European Union airports and (4) new airlines emerge.
European Regulatory Liberalization. We expect regulatory liberalization in
Europe to increase demand for third party ground services at European airports.
We believe that this regulatory liberalization will create significant
opportunities for expansion of our presence in Europe.
At most European airports, there have historically been significant
limitations on the ability of third party ground services providers to provide
these services. The European Union has called for a two-part liberalization of
European airports which took effect January 1999. The first part of the
liberalization requires that all European airports allow any ground services
provider to provide cargo handling, passenger services and cabin cleaning
services at these airports. The second part requires that European airports
grant permission for at least one independent ground services provider that is
not affiliated with the airport or the national flag carrier in that country to
provide ramp services and baggage handling services. Compliance with this second
part of regulatory liberalization is subject to petitions by European airports
that may postpone compliance until 2003.
Fragmented Industry. The ground services industry is highly fragmented in
both the United States and Europe and consists of a large number of domestic and
international service providers, many of which provide services at a small
number of airports or a single airport. Many of the smaller providers also
specialize in particular geographic areas or niche markets such as cargo
warehousing or fueling. We believe that smaller providers are likely to face
significant competitive pressures as large airlines increasingly outsource to
fewer and larger suppliers that can provide a broader range of services at
multiple locations.
COMPETITIVE STRENGTHS
We believe that we are well positioned to benefit from current trends,
including expected growth in our industry due to the following competitive
strengths:
Long-standing Customer Relationships. We have long-standing relationships
with many of the major passenger airlines and express air cargo carriers. We
believe that these relationships provide us with significant credibility when
marketing our services to new customers and in cross-selling additional services
to our existing customers. Our long-standing customer relationships include
Emery (16 years), UPS (16 years), American Airlines (15 years), Nippon Cargo
Airlines (15 years), Continental Airlines (10 years), Korean Air Lines (10
years), DHL (10 years) and BAX Global (7 years). We believe that our
long-standing customer relationships are due in part to our emphasis on
providing quality service.
Wide Range of Services. We provide a wide range of services, from aircraft
arrival through departure, to both air cargo and passenger airlines. By doing
so, we are able to build on existing customer relationships by cross-selling our
services. For example, when we sign a new contract for baggage loading and cargo
handling, we may offer that customer additional services such as aircraft
cleaning, de-icing or passenger ticketing at the same or another airport. We
believe that cargo and passenger airlines will increasingly look to fewer and
larger suppliers, such as our company, that provide a more comprehensive range
of ground services at multiple locations.
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Broad Geographic Presence. We have a presence at 19 international airports
and 70 domestic airports. We intend to use our broad geographic presence to
further build on our customer relationships by cross-selling our services at
more locations. We believe that few other providers can offer as many types of
ground services in as many locations. We also believe that the diversity of our
customer base, both by geography and type of carrier, creates a stronger revenue
base and reduces our exposure to regional economic cycles.
Experienced Management Team. Our executive officers have an average of
over 17 years of experience in the aviation industry. Many of our executive
officers and our managers have worked at major international airlines, which we
believe provides them with firsthand knowledge of the needs and perspectives of
our airline customers. Our chairman and chief executive officer, Peter A.
Pappas, has held various management positions in the aviation industry for
approximately 30 years, including as a corporate officer for both AMR
Corporation and Pan American World Airways. In addition, our president and chief
operating officer, Mark Dunkerley, has worked in the aviation industry for
approximately 14 years, including as a senior vice president for British
Airways.
BUSINESS STRATEGY
Our goal is to become the world's leading provider of ground services for
air cargo and passenger airlines by:
Increasing Our Customer Base at Existing Locations. We intend to market
our wide range of services and broad geographic presence to increase our
customer base across our existing network of 89 airports. We believe that our
services and geographic presence will provide us with a competitive advantage
when offering our services to potential new customers. We also believe that, as
an independent company, we will have new customer opportunities that were not
available to us when we were affiliated with American Airlines.
Cross-Selling Our Services. By providing a broad range of services at a
large number of airports in North America and Europe, we believe that we are
well positioned to cross-sell additional services to our customers, including at
additional locations. For example, if we provide cargo handling services to a
customer at one location, we can cross-sell cargo handling or other services to
that customer at one or more additional locations. Moreover, we believe that the
increase in the number of airline alliances will present cross-selling
opportunities by enabling us to use our relationships with alliance member
customers to more effectively market our services to other alliance members.
Emphasizing Service Quality. Due to the nature of the services we provide,
we believe that service quality is critical to our customers and therefore
compete on this basis. Our employees go through training programs tailored to
our customers' policies and procedures. Local managers at our airport locations
are also given substantial discretion in tailoring services to the needs of
customers at their airports. Additionally, we believe that we are one of the few
ground service providers that has brought its services to a new standard of
quality by obtaining ISO 9002 certification for our cargo terminals at key
domestic and international airports. We intend to pursue this certification at
additional locations.
Selectively Pursuing Complementary Acquisitions. We believe that
significant acquisition opportunities exist as a result of the highly fragmented
nature of the U.S. and European ground services industry. We view the purchase
of MAS and Aerolink as excellent examples of these opportunities because both
MAS and Aerolink complement
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Worldwide in terms of current services, customer base and geographic presence
and are expected to improve our profitability and cash flow stability. We intend
to continue to selectively pursue additional domestic and international
acquisitions that complement our existing business, profitability and cash flow
stability.
SERVICES
Our ground services consist of:
- cargo handling;
- ramp services;
- passenger services; and
- technical services.
Cargo Handling. Cargo handling is our largest line of business. We
generate much of our cargo handling revenue by charging fees to load and unload
cargo on to and from cargo aircraft. Through the acquisition of MAS, we are one
of the largest providers of services for express air cargo carriers that deliver
time sensitive parcels, mail and other cargo. We also handle various types of
cargo items, including perishables, electronic equipment, valuable or fragile
merchandise and bulk items for other air carrier customers.
For selected customers, we also manage warehouse facilities. For inbound
flights, we transport freight to a warehouse, remove it from the pallet or
container and process the shipment and delivery orders. For outbound flights, we
handle cargo shipment receiving, processing and aircraft loading.
We provide cargo handling services at approximately 50 U.S. airports. We
principally provide these services in the United States at John F. Kennedy
International Airport in New York, Dallas-Fort Worth International Airport and
Miami International Airport. In France, we are a leading provider of cargo
handling services, with operations at six airports. We also provide cargo
handling services at four other European markets.
We believe that we are one of the few ground service providers that has
brought its services to a new standard of quality by obtaining ISO 9002
certification at John F. Kennedy airport in New York and Charles de Gaulle and
Orly airports in Paris, which are key domestic and international airports. ISO
9002 certification is important to our customers because it demonstrates formal
recognition of our quality control procedures. Currently we intend to pursue
this certification in additional locations.
Ramp Services. Ramp services include the following services for passenger
airlines:
- guiding the aircraft to and from the gate;
- loading and unloading baggage and freight;
- cabin cleaning; and
- providing heating, air conditioning, lavatory and water services.
Ramp services are critical to every airline. This is because airlines only
have a short period of time between arrival and departure to prepare an aircraft
for new passengers. Without experienced ramp crews and well-maintained
equipment, a flight may be delayed and customers may become dissatisfied. An
experienced ramp crew helps ensure that an aircraft departs on schedule.
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Passenger Services. Passenger services, which are provided to passenger
airlines, include the following:
- checking passengers' baggage at curbside;
- providing ticket counter service, which includes helping passengers to
check baggage, receive boarding passes, purchase tickets, check
documentation and receive flight-related information;
- staffing airline lounges;
- providing departure gate services and managing the ticket-taking process;
- assisting with passengers' baggage-related problems such as damage, theft
or mishandled bags; and
- providing wheelchair assistance.
We customize passenger services to meet the particular needs of an airline.
For example, at the airports where we provide passenger services to American
Airlines, our employees that provide these services wear the same uniforms as
American Airlines employees and are trained to their standards. For our foreign
airline customers, we frequently provide employees who are fluent in the
language of the airline's home country. Passenger services customers provide
individualized specifications regarding the number of employees that must be
available for the handling of a given flight.
Our approximately 75 customers for these services include American
Airlines, for which we provide passenger services at approximately 50 airports,
foreign airlines such as Korean Air Lines and Japan Airlines, and smaller and
start-up airlines, such as Citybird and Spirit Airlines.
Technical Services. Technical services include the following:
- preventive maintenance and mechanical support for aircraft, ground
equipment and jet bridges;
- freight management, including brokering freight for both airline and
non-airline customers;
- shuttling of airline crews to and from the airport;
- aircraft fueling and managing airport fuel storage facilities; and
- aircraft de-icing.
Because we already have a presence at 89 airports and our equipment and
personnel are already in place, we believe that we are able to provide these
additional services for customers at these airports upon short notice and in an
efficient manner.
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AIRPORT LOCATIONS
We provide services at the airports indicated below.
UNITED STATES
Atlanta, GA
Baltimore, MD
Boston, MA
Bradley, CT
Buffalo, NY
Burbank, CA
Charlotte, NC
Chicago, IL
Cincinnati, OH
Cleveland, OH
Colorado Springs, CO
Columbus, OH
Dallas/Ft. Worth, TX
Dayton, OH
Denver, CO
Detroit, MI
Ft. Lauderdale, FL
Ft. Myers, FL
Greensboro, NC
Greenville/Spartanburg, SC
Gunnison, CO
Harrisburg, PA
Hayden, CO
Honolulu, HI
Houston, TX
Islip, NY
Jackson Hole, WY
Jackson, MS
Jacksonville, FL
Kona, HI
Las Vegas, NV
Lihue, HI
Los Angeles, CA
Louisville, KY
Mather AFB, CA
Maui, HI
Memphis, TN
Miami, FL
Newburgh, NY
New York(JFK), NY
New York(LaGuardia), NY
Newark, NJ
Norfolk, VA
Oakland, CA
Oklahoma City, OK
Omaha, NB
Ontario, CA
Orange County, CA
Philadelphia, PA
Pittsburgh, PA
Portsmouth, NH
Providence, RI
Raleigh/Durham, NC
Reno, NV
Richmond, VA
Sacramento, CA
Salt Lake City, UT
San Antonio, TX
San Francisco, CA
San Jose, CA
San Juan, Puerto Rico
Seattle, WA
Spokane, WA
St. Petersburg, FL
Tucson, AZ
Vail, CO
Washington(Dulles), DC
Washington(National), DC
West Palm Beach, FL
White Plains, NY
CANADA
Halifax, Nova Scotia
Montreal,(Dorval), Quebec
Montreal,(Mirabel), Quebec
Toronto, Ontario
CARIBBEAN
Kingston, Jamaica
Montego Bay, Jamaica
St. Croix, Virgin Islands
St. Thomas, Virgin Islands
EUROPE
Brussels, Belgium
Frankfurt, Germany
Lille, France
London(Heathrow), England
Lyon, France
Madrid, Spain
Marseilles, France
Paris(Charles de Gaulle), France
Paris(Orly), France
Toulouse, France
ASIA
Hong Kong, China
CUSTOMERS
We have over 300 customers, including approximately 200 airline customers,
approximately 30 air cargo carrier customers and approximately 10 airport
customers. Our remaining customers include among others, freight forwarders and
non-airline customers for which we provide a variety of services. Our airline
customers include American Airlines and its affiliate American Eagle, British
Airways, Continental Airlines, Korean Air Lines, Nippon Cargo Airlines and Saudi
Arabian Airlines. Air cargo carrier customers include UPS, DHL, Emery and BAX
Global. Significant airport customers include the Port Authority of New York and
New Jersey, the Houston Intercontinental Airport, the State of Hawaii and the
Madrid airport. Our top ten customers, including American Airlines and its
affiliate American Eagle, accounted for approximately 50% of year to date
September 30, 1999 pro forma revenues. No single customer accounted for more
than 5% of our pro forma revenues for the nine months ended September 30, 1999,
other than American Airlines and American Eagle, which together accounted for
approximately 23% of total pro forma revenues for the nine months ended
September 30, 1999.
We generally have service contracts with our customers and, at September
30, 1999, we had over 800 service contracts. These contracts are typically based
on standard industry
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forms that are customized to fit the desired contractual arrangement. Many of
our service contracts are effective for a specified term and allow our customers
to terminate their contract on ninety days notice or sooner for continuing
performance breaches. After their initial term, our contracts typically
automatically continue but become terminable by either party on 60 days notice
or less for any reason. Our contracts usually contain price escalation clauses
that are linked to the consumer price index. Under these clauses, if the
consumer price index increases, we are permitted to increase our prices by the
consumer price index or a percentage of it.
SALES AND MARKETING
We employ eight sales and four marketing professionals on a full-time
basis. They have been with our company for an average of approximately nine
years.
Our sales force performs a combination of functions, including the
servicing of existing accounts and generating new business. Each salesperson is
assigned accounts that they manage on a national and local basis. Our sales
force formally markets our services through customer visits, membership in trade
organizations and annual customer events. Our sales force also conducts market
and competitive research to identify new business opportunities. Emphasis is
placed on determining where a current or potential customer is currently
outsourcing ground services and on who is providing the services. The research
conducted by our sales force on market conditions and competition enables us to
concentrate on our strengths at an individual location. Local managers also
informally market our services on a daily basis through their interaction with
customers. Instead of paying commissions to our sales professionals, we allow
them to participate in our incentive compensation plan, which we believe alters
their focus from short-term growth to establishing and maintaining profitable
long-term customer relationships.
The primary function of our five person marketing group is to create and
enhance our brand and image through advertising and sales promotion activities.
The marketing group also prepares customer and industry presentations and
prepares and reviews contracts.
COMPETITION
The ground services industry consists of a large number of domestic and
international service providers. Many of these provide service at more than one
airport, although only a small number of them provide services nationally or
internationally. In the United States, our principal competitors are national
ground service providers such as DynAir Services, Hudson General Corporation and
Ogden Aviation Corporation, as well as smaller companies that operate regionally
or at individual locations. Internationally, we compete principally with
international ground service providers such as Cargo Service Centers, Globe
Ground, Servisair and Swissport. We also indirectly compete against airlines,
since airlines continue to perform a large portion of their ground services
in-house.
The principal competitive factors in our industry are:
- price;
- reputation for quality;
- breadth of services offered; and
- experience in a particular market or geographic region.
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<PAGE> 61
We believe that we compare favorably to our competition with respect to all
of these factors.
EMPLOYEES
As of September 30, 1999, we had approximately 9,700 employees, of whom
approximately 1,050 were management and approximately 8,650 were non-management
personnel. Approximately 4,050, or 42%, of our employees work part-time.
Approximately 2,300 of our U.S. employees are represented by collective
bargaining agreements. These employees consist primarily of cargo handling and
ramp services workers. The Transport Workers Union, or TWU, represents
approximately 2,250 of our U.S.-based employees. Our current agreement with the
TWU is effective until June 2001. The Teamsters Union also represents
approximately 75 Philadelphia employees, and the contract is effective until
February 2000. In Canada, approximately 300 of our employees are represented by
the Canadian Auto Workers Union. This agreement expired in November 1998. We
continue to operate under the agreement and we intend to renegotiate the
agreement in the near future. In some of the other countries where we operate,
we are subject to industry-wide collective bargaining agreements, as well as
local labor laws.
We have not experienced any material business interruption as a result of
labor disputes and believe that we have a good relationship with our employees.
PROPERTIES
Our headquarters are located in Euless, Texas, where we lease approximately
18,700 square feet of office space. This lease expires on August 15, 2004. We
also lease more than 2,350,000 square feet of other space at approximately 50
different airports domestically and internationally. Many of these leases are on
a month-to-month basis. We do not own any facilities.
Often, the cargo facilities that we use are owned or leased by airline
customers, rather than leased by us.
LEGAL PROCEEDINGS
We are not a party to any legal proceedings, other than ordinary routine
litigation incidental to our business, that we believe are material to our
business or financial condition.
REGULATORY COMPLIANCE
FAA and Other Related Operational Regulations. Our business is subject to
Federal Aviation Administration, or FAA, airport security regulations regarding
the screening of passengers and cargo on behalf of air carriers. While companies
that screen passengers and cargo are not currently required to be certificated
by the FAA, the FAA published an advance notice of proposed rulemaking in March
1997 that would have required the certification of companies that screen
passengers or cargo, such as ours. While the FAA withdrew this advance notice in
May 1998, the FAA may require this certification in the future. At that time, we
would be required to become certificated to continue screening passengers and
cargo. In addition, we would be directly regulated by the FAA and could be
subject to enforcement actions, such as suspension or revocation of our
certification or civil penalties, if we did not adequately comply with FAA
security regulations.
Because we accept hazardous material on behalf of our customers and perform
services regarding the transportation of hazardous materials by both air and
ground transport, we are subject to Department of Transportation, or DOT,
regulations governing
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the handling, packaging, marking, labeling and transportation of hazardous
materials. Our employees who directly affect hazardous materials transportation
safety must comply with DOT regulations, including among other things, receiving
specialized training. If we fail to properly handle, package, mark, label or
transport hazardous materials or to properly train employees who directly affect
hazardous materials transportation safety, it could result in substantial civil
penalties. Additionally, because of the types of materials that we carry for
ground transport on behalf of our customers, such as explosives and toxic
materials, we are required to register with the DOT annually as a hazardous
materials carrier.
While we do not hold an FAA-issued repair station certificate, and do not
hold ourselves out as an FAA-certificated repair station, we employ certificated
and rated mechanics who perform maintenance and preventive maintenance on
aircraft. These mechanics must perform their duties in accordance with the
Federal Aviation Regulations in order to approve and return to service aircraft
upon which any maintenance has been performed. Their failure to comply with
these regulations could result in civil penalties, as well as the suspension or
revocation of their individual mechanic's certificates, which could adversely
affect that portion of our business.
While we are not directly impacted by FAA regulations regarding drug and
alcohol use, our certificated mechanics, our employees who perform passenger and
cargo screening and our other employees who perform safety sensitive functions
must be covered by FAA approved drug and alcohol misuse plans to perform
services on behalf of many of our customers. If we or our employees fail to
comply with the FAA drug and alcohol use regulations, we could be subject to
fines or be restricted by our airline customers from performing these services
in the future, which could adversely affect that portion of our business.
Environmental. Our business is subject to compliance with a variety of
international, federal and state laws and regulations relating to environmental
protection, including laws and regulations relating to the handling, storage,
disposal and remediation of petroleum-based products used in the airline
industry. These operations are regulated by the Resource Conservation and
Recovery Act, or RCRA, and its state and local counterparts. RCRA regulates our
hazardous waste generator status, the disposal of solid wastes from our
operations and our storage of petroleum products. We are also required to file
Spill Prevention Control and Countermeasure Plans with the regulatory
authorities where we have bulk storage of petroleum. Also, at some of our
locations, we are required to register with regulatory authorities as either
permittee or co-permittee for discharges of wastewater and stormwater.
These laws and regulations may affect the cost of operating our business
because we operate fueling depots in a small number of locations, maintain
equipment for our cargo and ramp operations and store and dispose of petroleum
products used in these operations. We believe that our operations are in
material compliance with these environmental laws and regulations. We do not
expect future costs associated with compliance with these laws and regulations
to materially harm our business, financial condition or future results. In
addition, in connection with the sale of Worldwide to Holdings, we obtained
environmental indemnities from AMR Corporation which provide that AMR
Corporation will indemnify us, subject to deductibles, for all environmental
liabilities that relate to periods prior to the closing of the sale. We also
received environmental indemnities from the sellers of MAS and Aerolink. We also
maintain environmental impairment insurance.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table contains the name, age and position of each person who
is an executive officer or director of our company. Each director also serves as
a director of Holdings.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter A. Pappas..................... 62 Chairman and Chief Executive Officer
Mark Dunkerley...................... 36 Chief Operating Officer, President and
Director
A. Scott Letier..................... 38 Chief Financial Officer
John P. Vittas...................... 55 Senior Vice President, Sales and
Marketing
Olivier Bijaoui..................... 42 Senior Vice President, Europe
Jonathan S. Weaver.................. 35 Senior Vice President, Planning
Albert V. Casey..................... 79 Director
Marcel Fournier..................... 44 Director
Leonard M. Harlan................... 63 Director
Lieut. General Thomas G. McInerney
(Retired)......................... 62 Director
Bradley G. Stanius.................. 53 Director
Gilbert A. Yanuck................... 59 Director
</TABLE>
We currently have eight authorized directors, each of whom will serve until
a successor is elected or until any of them resigns or is removed.
Peter A. Pappas joined Worldwide in October 1998 and serves as Chairman and
Chief Executive Officer. From October 1998 to July 1999, Mr. Pappas served as
Worldwide's President and Chief Executive Officer. Mr. Pappas has approximately
30 years of aviation industry experience. Prior to joining Worldwide, Mr. Pappas
served as Senior Vice President of Marketing, Planning and Sales at American
Eagle, a position he held since November 1995. From January 1992 to October
1995, Mr. Pappas served as President of the AMR Consulting Group and its
successor, AMR Training and Consulting Group. From March 1989 to November 1991,
Mr. Pappas served as Vice President of Strategic Planning at Pan American World
Airways. Prior to March 1989, Mr. Pappas held various executive positions with
American Airlines, Pan American World Airways and Eastern Airlines.
Mark Dunkerley joined Worldwide in July 1999 and serves as Chief Operating
Officer and President and as a director. Prior to joining Worldwide, Mr.
Dunkerley served as the Senior Vice President in charge of the Latin America and
Caribbean Division for British Airways from April 1997 to July 1999 and also
served as Manager in British Airways' Eastern Europe division from October 1995
until April 1997. Mr. Dunkerley also served as a Vice President and Manager of
British Airways from August 1989 to October 1995 in various capacities and was
responsible for Commercial and Government Affairs for North America and Investor
Relations for North America. Prior to joining British Airways, Mr. Dunkerley
served as the Assistant to the Chief Executive Officer of the Miami
International Airport from August 1985 to August 1989.
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<PAGE> 64
A. Scott Letier joined Worldwide in April 1999 and has served as Chief
Financial Officer since coming to Worldwide. Prior to joining Worldwide, Mr.
Letier served as Vice President and Chief Financial Officer of
Gorges/Quik-to-Fix Foods, Inc. from January 1997 to March 1999. From July 1996
until December 1996, Mr. Letier served as Senior Vice President and Chief
Financial Officer of CS Wireless Systems Inc. and from February 1992 until June
1996 served as Vice President of Finance and Chief Financial Officer of
AmeriServ Food Company. Prior to that time, Mr. Letier spent five years with
Ernst & Young as a certified public accountant.
John P. Vittas joined Worldwide in September 1993 and has been Senior Vice
President of Sales and Marketing since August 1998. Mr. Vittas also served as
Senior Vice President of the New York Region of Worldwide from September 1993 to
July 1998. Prior to joining Worldwide, Mr. Vittas held various management
positions at American Airlines, dating back to 1968.
Olivier Bijaoui joined Worldwide in January 1996 and has served as Senior
Vice President for Europe since May 1996. From January 1993 to May 1996, Mr.
Bijaoui served as President of SFS, a cargo handling company operated at Orly
and Charles de Gaulle airports in Paris which had been built by Mr. Bijaoui and
his father and was acquired by Worldwide in 1993. From 1980 until his promotion
to President, Mr. Bijaoui served as managing director of SFS.
Jonathan S. Weaver joined Worldwide in September 1988 and has served as
Senior Vice President of Planning since February 1999. From August 1998 to
February 1999, Mr. Weaver served as Vice President of Field Resources of
Worldwide. From May 1997 to August 1998, he acted as Assistant Vice President of
Field Resources. From March 1995 to May 1997, Mr. Weaver served as Director of
Field Resources. Prior to March 1995, Mr. Weaver held various other management
positions at Worldwide.
Albert V. Casey has served as a director of Worldwide since March 1999. Mr.
Casey rejoined the Edwin L. Cox School of Business at Southern Methodist
University during July 1993 after having served as the school's Ann Cox
Distinguished Professor of Business Policy from August 1986 to May 1988. Prior
to rejoining the Business School, Mr. Casey was the President and Chief
Executive Officer of the Resolution Trust Corporation from October 1991 to March
1993. Mr. Casey was the Chief Executive Officer of AMR Corp. and American
Airlines from February 1974 until the retirement in February 1985. In 1986, Mr.
Casey served as Postmaster General of the United States.
Marcel Fournier has served as a director of Worldwide since March 1999. Mr.
Fournier has served as a Managing Director of Castle Harlan, Inc. since December
1995. Prior to joining Castle Harlan, Inc., Mr. Fournier held various positions,
including Managing Director, at the investment banking group of Lepercq, de
Neuflize & Co., Inc. from November 1981 to November 1995. From June 1979 to
November 1981, Mr. Fournier was Assistant Director of the United States office
of the agency of the French Prime Minister.
Leonard M. Harlan has served as a director of Worldwide since March 1999.
Mr. Harlan is the President of Castle Harlan, Inc., which he co-founded in 1987,
Castle Harlan Partners II GP, Inc. and Castle Harlan Partners III GP, Inc. Prior
to founding Castle Harlan, from 1969 to 1995, Mr. Harlan was Chairman and Chief
Executive Officer of the Harlan Company, a real estate investment banking and
advisory firm. Mr. Harlan was also a member of the Executive Committee of the
Harvard Business School Alumni
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<PAGE> 65
Association, is currently a Trustee of the New York City Citizens Budget
Commission and is on the Advisory Board of the Journal of Private Equity.
Lieut. General Thomas G. McInerney (Retired) has served as a director of
Worldwide since March 1999. General McInerney has served as the Chief Executive
Officer and President of Business Executives for National Security (BENS) since
March 1996. Prior to joining BENS, General McInerney was Vice President of
Command and Control for Loral Defense Systems--Eagan, which was formerly Unisys,
Electronic Systems Division, from November 1994 to March 1996. Prior to 1994,
General McInerney served in numerous key U.S. Air Force assignments and had
extensive military command, including Assistant Vice Chief of Staff of the Air
Force, Director of the Defense Performance Review, Vice Commander in
Chief-United States Air Forces in Europe and Commander-Alaskan Air Command.
General McInerney is also a member of the board of directors of Signal
Technology Corporation.
Bradley G. Stanius has served as a director of Worldwide since March 1999.
Mr. Stanius has served as the Chief Executive Officer of Smarte Carte since
December 1997, which he joined in 1992. Prior to joining Smarte Carte in 1992,
Mr. Stanius served as the Chairman and Chief Executive Officer of Pharmaceutical
Services, Inc. Mr. Stanius is also a former member of the Minnesota House of
Representatives, served as the Republican caucus whip and is a former Mayor of
White Bear Lake, Minnesota.
Gilbert A. Yanuck has served as a director of Worldwide since March 1999.
Mr. Yanuck spent 28 years with MAG Aerospace Industries, Inc. and has held
various positions there, including President and Chief Executive Officer. Mr.
Yanuck has also served as a consultant and a director of MAG Aerospace
Industries, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors presently has two committees, a compensation
committee and an audit committee. The compensation committee is comprised of
Messrs. Fournier, Harlan, Stanius and Yanuck and the audit committee is
comprised of Mr. Casey, General McInerney and Mr. Fournier. The compensation
committee establishes remuneration levels for some of our officers and performs
other functions as may be delegated to it under our various benefit and
executive compensation programs. The audit committee selects and engages the
independent public accountants to audit our annual financial statements. The
audit committee also reviews and approves the planned scope of the annual audit.
The board of directors may from time to time establish other committees to
facilitate our management.
COMPENSATION OF DIRECTORS
Messrs. Casey, McInerney, Stanius and Yanuck, as directors who are not
otherwise associated with Worldwide or its affiliates, are paid $25,000 per
year, payable quarterly. Mr. Harlan and Mr. Fournier, employees of Castle
Harlan, Inc., and Mr. Pappas and Mr. Dunkerley, who are executive officers of
Worldwide, do not receive compensation for serving as directors.
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EXECUTIVE COMPENSATION
The following table indicates the minimum 1999 contractual compensation of
our Chief Executive Officer and our four other most highly compensated officers
under their employment agreements. The table does not include discretionary
bonuses. The board of directors may in its discretion increase the salary or
bonus of any of these employees. Selected terms of their employment agreements
are summarized below. Salary information for executive officers during 1998 is
not included below because we believe that information would not be meaningful,
as two of our executive officers were not hired until 1999, our Chairman and
Chief Executive Officer was not hired until October 1998 and some of our
executive officers during 1998 are no longer executive officers.
<TABLE>
<CAPTION>
1999 CONTRACTUAL
COMPENSATION, EXCLUDING
DISCRETIONARY BONUSES AND
NAME TITLE SIGNING BONUSES(4)
- ---- ----- -------------------------
<S> <C> <C>
Peter A. Pappas...... Chairman and Chief Executive Officer $320,000
Mark Dunkerley(1).... President and Chief Operating Officer 235,000
A. Scott Letier(2)... Chief Financial Officer 165,000
Olivier Bijaoui...... Senior Vice President, Europe 198,847(3)
John P. Vittas....... Senior Vice President, Sales and 141,700
Marketing
</TABLE>
- -------------------------
(1) Hired on July 12, 1999.
(2) Hired on March 31, 1999.
(3) Converted from 1,264,672 French francs at a conversion rate of FF 6.36 to
$1.00.
(4) Some of our executive officers received signing bonuses when they entered
into their employment agreements or upon the closing of the acquisition of
Worldwide by Holdings. These signing bonuses are described in the summaries
of their employment agreements below.
1999 STOCK OPTION PLAN
Holdings has established a stock option plan which provides for the
granting of incentive stock options and non-qualified stock options to key
employees, consultants and directors of Holdings, our company and our
subsidiaries to acquire shares of non-voting common stock of Holdings. The
granting of these options is made in the discretion of the compensation
committee of the board of directors of Holdings and each grantee will receive
options over a period of five years. The exercise price of each option will be
the fair market value of the stock on the date that the option is granted.
Options vest and become exercisable based on the achievement of performance
targets. The compensation committee of Holdings will review performance targets
annually or upon the sale of a majority of the stock of either Holdings or the
sale of all or substantially all of the assets of Holdings, to determine what
portion, if any, of the options will vest and become exercisable. If the
grantee's employment is terminated for any reason, all options not yet
exercisable as of the date of termination will expire.
We have reserved 100,000 shares of non-voting common stock for issuance
under the option plan. As of September 30, 1999, no options had been granted.
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EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
PETER A. PAPPAS. We have an employment agreement with Peter A. Pappas for
him to serve as our Chief Executive Officer. Mr. Pappas is to be paid an annual
base salary of $270,000 per year and compensation committee of the board of
directors, with a guaranteed minimum bonus of $50,000. The term of his agreement
extends to September 30, 2001. Mr. Pappas's employment agreement provides that
if he dies, becomes disabled, terminates his employment with good reason or if
Worldwide terminates his employment without cause, he will be entitled to
receive a severance payment, equal to his base salary for the remainder of his
employment term and a termination bonus. If Mr. Pappas' employment is terminated
other than for the reasons listed above, he will not receive any severance
payment. If Mr. Pappas continues his employment until September 30, 2001 and the
fair market value of the stock in Holdings granted to him is less than the
aggregate amount of bonuses paid to him throughout his employment term, Mr.
Pappas will be entitled to receive an additional payment equal to the difference
between his total bonuses and the fair market value of his stock in Holdings.
MARK DUNKERLEY. We have an employment agreement with Mark Dunkerley under
which he serves as our Chief Operating Officer and President. This agreement
extends to July 12, 2002. Mr. Dunkerley is to be paid an annual base salary of
$235,000 per year and a discretionary annual cash bonus up to a maximum of 50%
of his base salary, as determined by the compensation committee of Worldwide.
Mr. Dunkerley was paid a signing bonus of $30,000 on July 12, 1999 and is
entitled to an additional signing bonus of $32,500 on October 12, 1999. Mr.
Dunkerley's employment agreement also provides that if he terminates his
employment with good reason or if Worldwide terminates his employment for any
reason other than cause, he will be entitled to receive a severance payment
equal to his base salary for the greater of 18 months and the remainder of his
employment term. If there is a sale of a majority of the stock of Holdings or
the sale of all or substantially all of the assets of Holdings, Mr. Dunkerley
will have the right to terminate his employment and receive a lump sum severance
payment equal to nine months of his base salary. If Mr. Dunkerley's employment
is terminated for reasons other than those listed above, he will not receive any
severance payment.
A. SCOTT LETIER. We have entered into an employment agreement with A.
Scott Letier for him to serve as our Chief Financial Officer. The agreement
extends until March 31, 2002. He is to be paid an annual base salary of $165,000
and a discretionary annual cash bonus up to a maximum of 50% of his base salary,
as determined by the compensation committee of Worldwide. Mr. Letier's
employment agreement also provides that if he terminates his employment or if he
is terminated by Worldwide for a reason other than for cause, he will receive a
lump sum severance payment equal to the number of years remaining in the term of
the agreement, including fractional years, multiplied by base salary. If Mr.
Letier's employment is terminated for reasons other than those listed above, he
will not receive any severance payment.
JOHN P. VITTAS. We have an employment agreement with John Vittas for him
to serve as our Senior Vice President, Sales and Marketing. Under this
agreement, Mr. Vittas is to be paid an annual base salary of $109,000. Also, Mr.
Vittas is guaranteed an annual bonus of 30% of his base salary. The term of this
agreement extends until March 31, 2001. Mr. Vittas also was paid a signing bonus
equal to two months of his base salary upon the closing of the acquisition of
Worldwide by Holdings. This agreement also provides that, if Mr. Vittas becomes
disabled, terminates his employment with good reason or if Worldwide terminates
his employment without cause, he will be entitled to receive a severance payment
equal to his base salary and bonus until the end of his employment term. If
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Mr. Vittas' employment is terminated for reasons other than those listed above,
he will not receive any severance payment.
OLIVIER BIJAOUI. We have an employment agreement with Olivier Bijaoui for
him to serve as our Senior Vice President, Europe. The agreement took effect as
of December 7, 1998 and extends until March 31, 2001. He is to be paid an annual
base salary of 972,825 French francs. Mr. Bijaoui is also guaranteed an annual
bonus of 30% of his base salary. Mr. Bijaoui also was paid a signing bonus equal
to eight months of his base salary upon the closing of the acquisition of
Worldwide by Holdings. This agreement provides that if Mr. Bijaoui becomes
disabled, terminates his employment with good reason or if Worldwide terminates
his employment without cause, he will be entitled to receive a severance payment
equal to his base salary and bonus until the end of the term of his employment.
agreement. If Mr. Bijaoui's employment is terminated for reasons other than
those listed above, he will not receive any severance payment.
All of the employment agreements described above provide that each of the
executives will receive life, disability and health insurance benefits for the
period of time that they receive payments from Worldwide after their termination
of employment, except for Mr. Pappas who will only receive these benefits until
the end of his agreement's term if his employment terminates as a result of a
disability.
In addition, Holdings and Worldwide have entered into non-competition and
confidentiality agreements with each of Mr. Dunkerley and Mr. Letier that
prohibit these executives from competing with or soliciting employees or
customers of Holdings, Worldwide or any of our subsidiaries. These limitations
last for three years from the termination of employment if the executive leaves
Worldwide without good reason or if he is terminated for cause. If the executive
leaves our employment with good reason or is terminated without cause, the
limitations on competition and solicitation will last for the remaining term of
the employment agreement or eighteen months from the time of termination,
whichever is longer. In addition, these executives are prohibited from
disclosing confidential information obtained while working for us.
LIMITATIONS ON OFFICERS' AND DIRECTORS' LIABILITY
Our Certificate of Incorporation indemnifies our officers and directors to
the fullest extent permitted by the Delaware General Corporation Law, which is
referred to in this prospectus as the DGCL. Under Section 145 of the DGCL, a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in that capacity. The DGCL provides,
however, that the person must have acted in good faith and in a manner that he
or she reasonably believed to be in (or not opposed to) the best interests of
the corporation and, in the case of a criminal action, he or she must have had
no reasonable cause to believe his or her conduct was unlawful. In addition, the
DGCL does not permit indemnification in an action or suit by or in the right of
the corporation where he or she has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that he or she fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnification is mandatory to the extent a
claim, issue or matter has been successfully defended. The Certificate of
Incorporation and the DGCL also prohibit limitations on officer or
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director liability for acts or omissions which resulted in a violation of a
statute prohibiting certain dividend declarations, certain payments to
stockholders after dissolution and particular types of loans. The effect of
these provisions is to eliminate the rights of our company and our stockholders
(through stockholders' derivative suits on behalf of our company) to recover
monetary damages against an officer or director for breach of a fiduciary duty
as an officer or director (including breaches resulting from grossly negligent
behavior), except in the situations described above.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors or officers of our company pursuant to the
foregoing provisions, we have been informed that, in the opinion of the SEC,
this indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
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<PAGE> 70
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
As a wholly-owned subsidiary of Holdings, all of our issued and outstanding
capital stock is held by Holdings. As of November 15, 1999, Holdings had
outstanding 1,369,912 shares of voting common stock, $.01 par value per share,
and 3,424,781 shares of Series A preferred stock, $.01 par value per share. Each
share of voting common stock carries one vote while the shares of the Series A
preferred stock are non-voting shares.
The following table contains information with respect to the beneficial
ownership of the voting common stock (but not giving effect to the issuance of
warrants to purchase 74,750 shares of the voting common stock of Holdings issued
in connection with the Original Notes) and Series A preferred stock of Holdings
as of November 15, 1999 by (1) any person or group who beneficially owns more
than five percent of Holdings' voting common stock or Series A preferred stock,
(2) each of our directors and executive officers and (3) all of our directors
and officers as a group. All information with respect to beneficial ownership
has been furnished to us by the respective stockholders of Holdings.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
SHARES OF OF TOTAL SHARES OF OF TOTAL
COMMON COMMON PREFERRED PREFERRED
NAME AND ADDRESS OF BENEFICIAL OWNER(1) STOCK STOCK STOCK STOCK
- --------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Castle Harlan Partners III,
L.P.(2)(3)(5)........................ 1,353,982 98.8% 3,384,956 98.8%
Leonard M. Harlan(3)(4)(5)........... 38,103 2.8 10,565 *
Peter A. Pappas...................... 7,080 * 17,700 *
Mark Dunkerley....................... -- -- -- --
A. Scott Letier...................... -- -- -- --
John P. Vittas....................... -- -- -- --
Olivier Bijaoui(6)................... -- -- -- --
Jonathan S. Weaver................... -- -- -- --
Albert V. Casey(5)................... 3,540 * 8,850 *
Marcel Fournier(5)(7)................ 1,770 * 4,425 *
Thomas G. McInerney(5)............... 1,770 * 4,425 *
Bradley G. Stanius(5)................ 1,770 * 4,425 *
Gilbert A. Yanuck(5)................. 1,770 * 4,425 *
All directors and officers as a group
(12 persons)....................... 38,103 2.8 54,815 1.6
</TABLE>
- -------------------------
* Less than 1%.
(1) Beneficial ownership includes shares of voting common stock and Series A
preferred stock to be outstanding upon the Holdings' equity contribution and
shares of voting common stock and Series A preferred stock that any person
has the right to acquire within 60 days after November 15, 1999. Shares of
voting common stock and Series A preferred stock not outstanding but deemed
beneficially owned because a person or group has the right to acquire them
within 60 days are treated as outstanding only for purposes of determining
the percentage owned by that person or group. For purposes of this table,
all fractional shares have been rounded to the
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<PAGE> 71
nearest whole share. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named in the
table have sole investment power with respect to the voting common stock and
the Series A preferred stock, but (1) all of the shares of the voting common
stock are subject to a voting trust agreement under which Mr. Harlan acts as
voting trustee and (2) all of the shares of Series A preferred stock are
non-voting shares. Except as otherwise indicated in the footnotes to this
table, the address for each person in the table is c/o Worldwide Flight
Services, Inc., 1001 West Euless Boulevard, Suite 320, Euless, Texas 76040.
(2) Includes 77,726 shares of voting common stock and 181,048.46 shares of
Series A preferred stock held by related entities and persons, all of which
may be deemed to be beneficially owned by Castle Harlan Partners III, L.P.
Castle Harlan Partners III, L.P. disclaims beneficial ownership of these
shares.
(3) John K. Castle and Leonard M. Harlan are the controlling stockholders of
Castle Harlan Partners III G.P., Inc., the general partner of the general
partner of Castle Harlan Partners III, L.P., and as such, each of them may
be deemed to be a beneficial owner of the shares owned by Castle Harlan
Partners III, L.P. Both Mr. Castle and Mr. Harlan disclaim beneficial
ownership of the shares in excess of their respective pro rata partnership
interests in Castle Harlan Partners III, L.P. and its affiliates.
(4) Includes 38,103 shares of voting common stock of entities and persons
related to Castle Harlan Partners III, L.P. and some of our officers or
directors, the voting of which Leonard M. Harlan may direct pursuant to a
voting trust agreement under which Mr. Harlan acts as voting trustee. Mr.
Harlan disclaims beneficial ownership of the shares subject to the voting
trust agreement, other than 4,226 shares of voting common stock owned by him
subject to the voting trust. The term of the voting trust is the maximum
period allowed under Delaware law.
(5) The address for this person is c/o Castle Harlan, Inc., 150 East 58th
Street, New York, New York 10155.
(6) The address for this person is c/o Societe de Fret et de Services, Zone
Roissy-Tech, 5, Rue du cercle -- Batiment 3312, Roissy CDG 96703, France.
(7) All shares are held in Marcel Fournier's individual retirement account of
which Mr. Fournier is the sole beneficiary. These shares may be deemed to be
beneficially owned by Mr. Fournier. Mr. Fournier disclaims beneficial
ownership of these shares.
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<PAGE> 72
RELATED PARTY TRANSACTIONS
We entered into a management agreement with Castle Harlan, Inc., as
manager, under which the manager will provide us with business and
organizational strategy, financial, investment management, advisory and merchant
and investment banking services. Castle Harlan, Inc. is an affiliate of
Holdings, which owns all of our outstanding stock. In connection with the
Transactions, the management agreement was amended to provide that we pay the
manager an annual fee of $1.25 million starting July 1, 2000 until December 31,
2002, increasing to $2.0 million starting January 1, 2003 until December 31,
2005. After December 31, 2005 the agreement will automatically renew each year
unless cancelled by either party. On March 31, 1999, we paid $312,000 to Castle
Harlan, Inc. under this fee agreement. We also indemnify the manager, its
officers, directors and affiliates from any losses or claims suffered by them as
a result of services they provide us.
In connection with the acquisition of Worldwide from AMR Corporation, we
paid $2.0 million to Castle Harlan, Inc. for reimbursement of expenses related
thereto. Concurrent with the closing of the offering of the Original Notes and
the senior secured credit facility, fees of $2.5 million were paid to Castle
Harlan. See "Description of New Notes--Certain Covenants--Restricted Payments."
For a discussion of the Predecessor's transactions with its affiliates, see
note 5 to the Worldwide financial statements.
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<PAGE> 73
DESCRIPTION OF SENIOR SECURED CREDIT FACILITY
The Chase Manhattan Bank, Chase Securities Inc. and DLJ Capital Funding,
Inc., which are referred to as the Agents, provided to us a 5 1/2-year revolving
credit facility of up to $75.0 million which provides for loans and under which
letters of credit may be issued. The maximum amount we may borrow at any time
will be limited by a borrowing base formula which will consist of a percentage
of some of our accounts receivable and a percentage of the value of some of our
equipment.
We may use the proceeds of loans under the senior secured credit facility
as follows:
- up to $50.0 million for acquisitions, including the acquisitions of MAS
and Aerolink; and
- up to $25.0 million for working capital purposes.
As of September 30, 1999, we had 30.4 of available borrowings under the
senior secured credit facility.
REDUCTION IN COMMITMENTS
Commitments under the senior secured credit facility will be reduced as
follows:
<TABLE>
<CAPTION>
MONTHS AFTER
AUGUST 12,
1999 REDUCTION
------------ ---------
<S> <C>
12.......................................................... $ 0
24.......................................................... 0
36.......................................................... 5,000,000
42.......................................................... 5,000,000
48.......................................................... 5,000,000
54.......................................................... 5,000,000
60.......................................................... 5,000,000
</TABLE>
Except for limited exceptions, the commitment under the senior secured
credit facility will be reduced by 100% of the net cash proceeds of all asset
sales and other dispositions of our property or that of our subsidiaries.
We are permitted to voluntarily reduce the unutilized amount committed
under the senior secured credit facility without any penalty or premium at any
time.
INTEREST
At our option, the interest rate on the senior secured credit facility will
be either (1) LIBOR plus 3.00% or (2) 2.00% plus the greater of The Chase
Manhattan Bank's prime rate, the federal funds effective rate plus 1/2% and the
base CD rate published by The Chase Manhattan Bank plus 1%. The interest rate
will be subject to step-downs based on our financial performance. At September
30, 1999, we were paying interest averaging 8.93% based on LIBOR plus 3.00%.
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<PAGE> 74
FEES
We have agreed to pay customary fees with respect to the senior secured
credit facilities, including annual administration and agency fees, commitment
fees on the unused portion of the senior secured credit facility and letter of
credit fees.
PREPAYMENTS
Except for limited exceptions, we are required to repay the senior secured
credit facility with:
- 100% of the net cash proceeds of all asset sales and other dispositions
of our property and property of our subsidiaries; and
- 100% of the net cash proceeds of any debt issuances by us and our
subsidiaries.
Mandatory repayments will be applied first to borrowings made for acquisitions
and then to borrowings made for working capital purposes.
GUARANTEES
Holdings and our existing domestic subsidiaries have unconditionally
guaranteed repayment of the senior secured credit facility. Our future domestic
subsidiaries, and to the extent no adverse tax consequences to us would result,
our future foreign subsidiaries, will also unconditionally guarantee repayment
of the senior secured credit facility.
SECURITY
We, Holdings and our existing domestic subsidiaries have, our future
domestic subsidiaries will and, to the extent no adverse tax consequences to us
would result, our future foreign subsidiaries will unconditionally secure
repayment of the senior secured credit facility through the following:
- a first-priority pledge in all of our capital stock owned by Holdings and
all of the capital stock of our existing and future subsidiaries, except
that, in the case of a foreign subsidiary, the pledge will be limited to
65% of the voting capital stock of the foreign subsidiary to the extent
that any greater percentage will result in adverse tax consequences to
us; and
- first-priority security interests in, and mortgages on, substantially all
of our tangible and intangible assets (including all accounts receivable,
inventory, equipment, intellectual property, licensing agreements, real
property and proceeds of the foregoing) and those of our existing and
future domestic, and, to the extent indicated above, foreign
subsidiaries.
RESTRICTIVE COVENANTS
The senior secured credit facility contains covenants restricting our
ability and the ability of our domestic subsidiaries to:
- incur debt;
- issue equity securities;
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<PAGE> 75
- subject our assets to liens and enter into sale-leaseback transactions;
- engage in mergers and acquisitions and change the nature of our business;
- conduct asset sales;
- enter into hedging agreements;
- pay dividends and make investments, loans, guarantees and other
restricted payments;
- make capital expenditures;
- prepay other debt; and
- enter into affiliate transactions.
In addition, the senior secured credit facility requires us to meet various
financial performance tests, including a minimum interest coverage ratio and a
maximum leverage ratio, and also contain some covenants restricting the ability
of Holdings to enter into some transactions.
EVENTS OF DEFAULT
An event of default could occur under the senior secured credit facility if
any of the following occurs:
- principal, interest or fees under the senior secured credit facility are
not paid when due;
- we default under other debt or other debt obligations are accelerated;
- we breach covenants or representations and warranties contained in the
senior secured credit facility;
- the security interests created in connection with the senior secured
credit facility are invalid or are claimed to be invalid;
- voluntary bankruptcy or involuntary bankruptcy of us, Holdings or any of
our subsidiaries;
- there is a material judgment against us; or
- we have a change in control.
If an event of default occurs, all principal and interest owed under the
senior secured credit facility could become immediately payable within a short
period of time after the event of default occurs.
Borrowings under the senior secured credit facility are subject to
significant conditions, including compliance with certain financial ratios and
the absence of any material adverse change.
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<PAGE> 76
DESCRIPTION OF NEW NOTES
As used in this "Description of New Notes," the term the "Company" refers
only to Worldwide Flight Services, Inc., a Delaware corporation, and not to any
of our Subsidiaries or Affiliates. You can find the definitions of certain terms
used in this Description of New Notes under the subheading "Certain
Definitions."
The Original Notes were issued, and the New Notes will be issued under an
Indenture (the "INDENTURE") among the Company, the Guarantors and The Bank of
New York, as trustee (the "TRUSTEE"). The terms of the New Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (the "TRUST INDENTURE ACT"). The holders of New
Notes (the "HOLDERS") are referred to the Indenture and the Trust Indenture Act
for a statement of the terms thereof.
The terms of the New Notes are identical in all material respects to the
terms of the Original Notes, except for transfer restrictions and registration
rights relating to the Original Notes.
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
Holders. A copy of the Indenture is available as indicated below under "Where
You Can Find More Information."
BRIEF DESCRIPTION OF THE NEW NOTES AND THE GUARANTEES
THE NEW NOTES
The New Notes:
(a) will be senior unsecured obligations of the Company;
(b) will be equal in right of payment to all existing and future
Indebtedness of the Company that is not by its terms subordinated in
right of payment to the New Notes and senior in right of payment to
any future subordinated Indebtedness of the Company;
(c) will be effectively subordinated in right of payment to all existing
and future secured Indebtedness of the Company, including all
Indebtedness under the Senior Secured Credit Facility, to the extent
of the assets securing such Indebtedness;
(d) will be unconditionally guaranteed by the Guarantors; and
(e) will be effectively subordinated to all liabilities of the Company's
Subsidiaries that are not Guarantors, including trade payables.
THE GUARANTEES
With certain exceptions provided for below, the New Notes will be
unconditionally guaranteed by all of the Domestic Subsidiaries of the Company.
The Guarantees of the New Notes:
(a) will be senior unsecured obligations of each Guarantor;
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<PAGE> 77
(b) will be equal in right of payment to all existing and future
Indebtedness of each Guarantor that is not by its terms subordinated
in right of payment to the Guarantees and senior in right of payment
to any future subordinated Indebtedness of each Guarantor; and
(c) will be effectively subordinated in right of payment to all existing
and future secured Indebtedness of each Guarantor, including all
Indebtedness under the Senior Secured Credit Facility, to the extent
of the assets securing such Indebtedness.
As of the Issue Date, all of our subsidiaries will be "Restricted
Subsidiaries." However, under the circumstances described below in the
definition of "Unrestricted Subsidiaries," we will be permitted to designate
certain of our Subsidiaries as "Unrestricted Subsidiaries." Unrestricted
Subsidiaries will not be subject to any of the restrictive covenants in the
Indenture and will not guarantee the New Notes. Our Foreign Subsidiaries,
whether existing currently or acquired or created subsequently, will not
guarantee the New Notes.
Not all of our "Restricted Subsidiaries" will guarantee the New Notes. In
the event of a bankruptcy, liquidation or reorganization of any non-guarantor
Subsidiaries, these non-guarantor Subsidiaries will pay the holders of their
debt and their trade creditors before they will be able to distribute any of
their assets to us.
PRINCIPAL, MATURITY AND INTEREST
The Company will issue New Notes with a maximum aggregate principal amount
of $130.0 million in exchange for the Original Notes. The Company will issue New
Notes in denominations of $1,000 and integral multiples of $1,000. The New Notes
will mature on August 15, 2007.
Interest on the New Notes will accrue at the rate of 12 1/4% per annum and
will be payable semi-annually in arrears on February 15 and August 15,
commencing on February 15, 2000. The Company will make each interest payment to
the Holders of record of the New Notes on the immediately preceding February 1
and August 1, respectively.
Interest on the New Notes will accrue from August 12, 1999, the date of
original issuance of the Original Notes or, if interest has already been paid,
from the date it was most recently paid. Interest will be computed on the basis
of a 360-day year comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NEW NOTES
If a Holder has given wire transfer instructions to the Company, the
Company will make all principal, premium and interest payments on those New
Notes in accordance with those instructions. All other payments on the New Notes
will be made at the office or agency of the Paying Agent and Registrar within
the City and State of New York unless the Company elects to make interest
payments by check mailed to the Holders at their respective addresses set forth
in the register of Holders.
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<PAGE> 78
PAYING AGENT AND REGISTRAR FOR THE NEW NOTES
The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the Holders of
the New Notes, and the Company or any of its Subsidiaries may act as Paying
Agent or Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder will be treated as the owner of it for all purposes.
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee the Company's
Obligations under the New Notes. Each Subsidiary Guarantee will be effectively
subordinated in right of payment to all existing and future secured Indebtedness
of that Guarantor to the extent of the assets securing such Indebtedness. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited as
necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See "--Risk Factors--Fraudulent transfer
considerations."
The Subsidiary Guarantee of a Guarantor will be automatically and
unconditionally released without any action on the part of the Trustee or the
Holder of the New Notes: (1) in connection with any sale or other disposition of
all or substantially all of the assets of that Guarantor (including, without
limitation, by way of merger or consolidation), if the Company applies the Net
Proceeds of that sale or other disposition, in accordance with the applicable
provisions of the Indenture; (2) in connection with any sale of all of the
Capital Stock of that Guarantor, if the Company applies the Net Proceeds of that
sale in accordance with the applicable provisions of the Indenture; or (3) if
the Company designates that Guarantor as an Unrestricted Subsidiary in
accordance with the applicable provisions of the Indenture. See "--Repurchase at
Option of Holders--Asset Sales."
In addition, concurrently with any Legal Defeasance or Covenant Defeasance,
the Guarantors shall be released from all of their Obligations under their
Subsidiaries Guarantees.
OPTIONAL REDEMPTION
At any time prior to August 15, 2002, the Company may, at its option, use
the net cash proceeds of any one or more Public Equity Offerings to the extent
the net cash proceeds thereof are contributed to the equity capital of the
Company to redeem up to 35% of the aggregate principal amount of New Notes
issued under the Indenture at a
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<PAGE> 79
redemption price of 112.250% of the principal amount thereof, plus accrued and
unpaid interest to the redemption date; provided that
(1) at least 65% of the aggregate principal amount of New Notes issued on the
Issue Date remains outstanding immediately after the occurrence of each
such redemption (excluding New Notes held by the Company and its
Subsidiaries); and
(2) each such redemption must occur within 90 days of the date of the closing
of the related Public Equity Offering.
Except pursuant to the preceding paragraph, the New Notes will not be
redeemable at the Company's option prior to August 15, 2003. After August 15,
2003, the Company may redeem the New Notes, in whole or from time to time in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption date,
if redeemed during the twelve-month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................ 106.125%
2004........................................ 104.594%
2005........................................ 103.063%
2006........................................ 101.531%
2007 and thereafter......................... 100.000%
</TABLE>
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of New Notes will have the right
to require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's New Notes pursuant to an Offer to
repurchase the New Notes in accordance with the terms of this section (a "CHANGE
OF CONTROL OFFER"). In the Change of Control Offer, the Company will offer a
payment in cash (a "CHANGE OF CONTROL PAYMENT") equal to 101% of the aggregate
principal amount of New Notes repurchased plus accrued and unpaid interest
thereon, if any, to the date of purchase. Within 30 days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase New Notes on a date specified in such notice (the "CHANGE OF
CONTROL PAYMENT DATE"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations to
the extent such laws and regulations are applicable in connection with the
repurchase of the New Notes as a result of a Change of Control. To the extent
that the provisions of any securities laws or regulations applicable to the
Company and the Change of Control Offer conflict with the "Change of Control"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Indenture by virtue thereof.
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<PAGE> 80
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all New Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of Control
Payment in respect of all New Notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the Trustee the New Notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of New Notes or portions thereof being tendered to the Company.
The Paying Agent will promptly mail to each Holder of New Notes so tendered
the Change of Control Payment for such New Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a replacement New Note equal in principal amount to any unpurchased portion of
the New Notes surrendered, if any; provided that each such replacement New Note
will be in a principal amount of $1,000 or an integral multiple thereof.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable whether or not
the covenant described below under "--Certain Covenants--Merger, Consolidation
or Sale of Assets" is applicable. Except as described above with respect to a
Change of Control Offer, the Indenture does not contain provisions that permit
the Holders of the New Notes to require that the Company repurchase or redeem
the New Notes in the event of a takeover, recapitalization or similar
transaction.
There can be no assurance that the Company will have sufficient funds
available to make the payments (including purchasing the New Notes) required in
connection with any Change of Control Offer. The Senior Secured Credit Facility
will prohibit the Company from purchasing any New Notes prior to the repayment
in full of the Indebtedness thereunder, and also will provide that certain
change of control events with respect to the Company will constitute a default
thereunder. Any future credit agreements or other agreements relating to other
Indebtedness of the Company may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is contractually
prohibited from purchasing New Notes, the Company could seek the consent of its
lenders thereunder to the purchase of New Notes or could attempt to refinance
the borrowings made pursuant to agreements that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain contractually prohibited from purchasing New Notes. In such case,
the Company's failure to purchase tendered New Notes would constitute an Event
of Default pursuant to clause (3) described in "Events of Default and Remedies"
which would, in turn, constitute a default under the agreements relating to such
other Indebtedness.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. There is a
limited body of case law
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<PAGE> 81
interpreting the phrase "substantially all;" however, there is no precise
established definition of the phrase under applicable law. Accordingly, the
ability of a Holder of New Notes to require the Company to repurchase such New
Notes as a result of a sale, lease, transfer, conveyance or other disposition of
less than all of the assets of the Company and its Subsidiaries, taken as a
whole, to another Person or group may be uncertain.
ASSET SALES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or such Restricted Subsidiary) receives consideration at the
time of such Asset Sale (without giving effect to subsequent changes in
value) at least equal to the fair market value of the assets or Equity
Interests issued or sold or otherwise disposed of;
(2) with respect to any such Asset Sale involving aggregate consideration in
excess of $2.5 million, such fair market value is determined by the
Company's Board of Directors and evidenced by a resolution of the Board of
Directors set forth in an Officer's Certificate delivered to the Trustee;
and
(3) at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a)any Indebtedness or other liabilities, of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated
to the New Notes or any Subsidiary Guarantee) that are assumed by the
transferee of any such assets pursuant to an agreement that releases the
Company or such Restricted Subsidiary from further liability; and
(b)any currencies, securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee (or any
Person on behalf of such transferee in respect of such Asset Sale) and
that are converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents within 60 days after the closing of such Asset
Sale (to the extent of the cash or Cash Equivalents received in that
conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or any Restricted Subsidiary may, at its option, apply such Net
Proceeds, or enter into a legally binding agreement:
(1) to prepay or repay permanently Indebtedness of the Company or Restricted
Subsidiaries under the Senior Secured Credit Facility or any other
Indebtedness secured by a Lien and, if the Indebtedness repaid is revolving
credit Indebtedness, to correspondingly reduce commitments with respect
thereto to the extent the aggregate of all such revolving commitments
exceeds $40.0 million;
(2) to acquire all or substantially all of the assets of, or a majority of the
Voting Stock of, another Permitted Business or to make a Permitted
Investment pursuant to clause (7) of the definition of "Permitted
Investments;"
(3) to make a capital expenditure;
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<PAGE> 82
(4) to acquire other properties or other assets (other than Indebtedness, cash
or Cash Equivalents or Capital Stock) that are used or useful in a
Permitted Business; or
(5) to make any combination of (1) through (4) above.
Pending the final application of any such Net Proceeds, the Company or such
Restricted Subsidiary may temporarily reduce outstanding Indebtedness or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Indenture will
require the Company to make an offer to all Holders of New Notes (an "ASSET SALE
OFFER") and, to the extent required by the terms thereof, the Company may also
make a similar offer to all holders of other Indebtedness that is pari passu
with the New Notes containing provisions similar to those set forth in the
Indenture with respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of New Notes and such
other pari passu Indebtedness that may be purchased out of the Excess Proceeds.
The offer price in any Asset Sale Offer will be equal to 100% of principal
amount plus accrued and unpaid interest, if any, to the date of purchase, and
will be payable in cash. If any Excess Proceeds remain after consummation of an
Asset Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of New
Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the New Notes
and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any Asset Swaps, unless:
(1) at the time of entering into such Asset Swap and immediately after giving
effect to such Asset Swap, no Default or Event of Default shall have
occurred and be continuing;
(2) in the event such Asset Swap involves the transfer by the Company or any
Restricted Subsidiary of the Company of assets having an aggregate fair
market value, as determined by the Board of Directors in good faith, in
excess of $2.5 million, the terms of such Asset Swap have been approved by
a majority of the members of the Board of Directors whose resolution with
respect thereto shall be delivered to the Trustee; and
(3) in the event such Asset Swap involves the transfer by the Company or any
Restricted Subsidiary of the Company of assets having an aggregate fair
market value, as determined by a majority of the members of the Board of
Directors in good faith, in excess of $10.0 million, the Company has
received an opinion issued by an accounting, appraisal or investment
banking firm of nationally recognized standing that such Asset Swap is fair
to the Company or such Restricted Subsidiary, as the case may be, from a
financial point of view.
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<PAGE> 83
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, the
Trustee will select New Notes for redemption as follows:
(1) if the New Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the New Notes are listed;
or
(2) if the New Notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No New Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of New Notes to be redeemed at
such Holder's registered address. Notices of redemption may not be conditional.
If any New Note is to be redeemed in part only, the notice of redemption
that relates to that New Note shall state the portion of the principal amount
thereof to be redeemed. A replacement New Note in principal amount equal to the
unredeemed portion of the replaced New Note will be issued in the name of the
Holder thereof upon cancellation of the replaced New Note. New Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest shall cease to accrue on New Notes or portions of them
called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of the Company's or any of its Restricted Subsidiaries' Equity
Interests other than declarations or payments of dividends, distributions
or such other payments payable (a) in Equity Interests (other than
Disqualified Stock) of the Company or (b) to the Company or a Restricted
Subsidiary of the Company;
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of the Company or any direct or indirect parent of the Company or
any Restricted Subsidiary of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary of the Company
or in exchange for other Equity Interests (other than Disqualified Stock)
of the Company);
(3) make any voluntary or optional principal payment, or purchase, redeem,
defease or otherwise acquire or retire for value, any Indebtedness that (a)
is subordinate in right of payment to the Subsidiary Guarantees, with
respect to the Guarantors or (b) otherwise constitutes Subordinated
Indebtedness, except a payment of principal at the Stated Maturity thereof
or pursuant to any required sinking fund payments; or
(4) make any Restricted Investment;
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(all such payments and other actions set forth in clauses (1) through (4) above
being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of
and immediately after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing; and
(2) the Company would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been made at the
beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the Issue Date (excluding Restricted Payments permitted by clauses
(2), (3), (4) and (9) of the next succeeding paragraph), is less than the
sum, without duplication, of
(a)50% of the Consolidated Net Income of the Company for the period (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most
recently ended fiscal quarter for which internal financial statements
are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit); plus
(b)100% of the aggregate net cash proceeds received by the Company from any
Person (other than a Subsidiary of the Company) since the Issue Date (i)
as a contribution to its common equity capital, (ii) from the issuance
or sale of Equity Interests of the Company (other than Disqualified
Stock) and/or (iii) from the issuance or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of the Company that have been converted into or exchanged for
such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of the Company), together
with the aggregate cash received by the Company or any of its
Subsidiaries at the time of such conversion or exchange (in any case,
other than net cash proceeds received from an issuance or sale of such
Capital Stock to an employee of the Company or any of its Restricted
Subsidiaries to the extent such sale is financed by loans from or
guaranteed by the Company or any Restricted Subsidiary unless such loans
have been repaid (or such guarantee has been released or discharged) on
or prior to the date of determination); plus
(c)to the extent that any Restricted Investment that was made after the
Issue Date is sold or otherwise liquidated or repaid, the lesser of (i)
the cash (including Cash Equivalents) return of capital with respect to
such Restricted Investment, including any cash or Cash Equivalents
received as a result of the sale of any property received upon the sale
or other liquidation or repayment of such Restricted Investment within
60 days after the receipt of such property (less the cost of
disposition, if any) and (ii) the initial amount of such Restricted
Investment; plus
(d)upon the redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the fair market value (as determined by the Board of
Directors in good faith) of such Unrestricted Subsidiary as of the date
it is redesignated; provided, however,
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that for purposes of this clause (d), the fair market value of any
redesignated Unrestricted Subsidiary shall be reduced by the amount that
any such redesignation replenishes or increases the amount of Restricted
Investments permitted to be made pursuant to clause (7) of the
definition of Permitted Investments.
The preceding provisions will not prohibit:
(1) the payment of any dividend or distribution within 60 days after the date
of declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition of
any Indebtedness or of any Equity Interests of the Company or of any
Restricted Subsidiary in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the
Company) of, Equity Interests of the Company (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (3)(b) of the preceding
paragraph;
(3) payment of principal or the defeasance, redemption, retirement, repurchase
or other acquisition of Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend, distribution or other payment by a Restricted
Subsidiary of the Company to the holders of its common Equity Interests or
the repurchase by a Restricted Subsidiary of the Company of its common
Equity Interests, in each case, on a pro rata basis, provided that no
Default or Event of Default shall have occurred and be continuing (i) in
the case of any dividend, distribution or other payment, at the time of,
and immediately after giving effect to, the declaration of such dividend,
distribution or other payment or (ii) in the case of any repurchase, at the
time of, and immediately after giving effect to, such repurchase;
(5) the repurchase, redemption or other acquisition or retirement for value of
(a) any Equity Interests of the Company or any Restricted Subsidiary of the
Company held by any member (present or former) of the Company's or any of
its Subsidiaries' management (or their estates or beneficiaries thereunder)
pursuant to any management equity subscription agreement or stock option
agreement or other compensation or severance arrangement in effect as of
the Issue Date or entered into or created thereafter without violating the
Indenture or (b) any Equity Interests of the Company or any of its
Restricted Subsidiaries to the extent necessary, in the good faith judgment
of the Board of Directors of the Company, to prevent the loss or secure the
renewal or reinstatement of any license, permit or authorization held by
the Company or any of its Restricted Subsidiaries under any applicable law
or governmental regulation or the policies of any applicable governmental
authority or other regulatory body; provided, that the amount of any such
repurchase, redemption, acquisition or retirement for value pursuant to
this clause (b) shall not exceed the fair market value of the Equity
Interests being repurchased, redeemed, acquired or otherwise retired;
provided, further, that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests pursuant to clauses
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(a) and (b) shall not exceed $2.0 million in any calendar year (with up to
$1.0 million of any unused amount in any calendar year being carried over
to the succeeding calendar year subject to a maximum of $3.0 million in any
calendar year, after giving effect to any unused amounts carried over to a
succeeding calendar year);
(6) the payment or distribution to dissenting equityholders (other than
Affiliates of the Company or any of its Subsidiaries) pursuant to
applicable law, pursuant to or in connection with a consolidation, merger
or transfer of all, or substantially all, of the assets or property of the
Company that is not prohibited by the Indenture;
(7) the declaration or payment of dividends on the common stock of the Company
following any Public Equity Offering of such common stock, or of the common
stock of Holdings, of up to 6% per annum of the net cash proceeds received
by the Company, or contributed by Holdings to the equity capital of the
Company, in all such Public Equity Offerings; provided that, at the time of
the declaration of any such dividends and immediately after giving effect
to such declaration, no Default or Event of Default shall have occurred and
be continuing;
(8) the repurchase of any Subordinated Indebtedness pursuant to an offer to
purchase in the event of a change of control in accordance with provisions
similar to the "Change of Control" covenant in the Indenture; provided,
that, (i) at the time any such Subordinated Indebtedness is accepted for
payment pursuant to the offer to purchase and immediately after giving
effect to such repurchase, no Default or Event of Default shall have
occurred and be continuing and (ii) prior to or simultaneously with the
making of the offer to purchase such Subordinated Indebtedness, the Company
has made the Change of Control Offer as provided in such covenant with
respect to the New Notes and has repurchased all New Notes validly tendered
for payment in connection with such Change of Control Offer;
(9) loans and advances to employees, officers and directors of the Company and
its Restricted Subsidiaries the proceeds of which are used to purchase
Equity Interests of the Company or its Restricted Subsidiaries and other
loans and advances to employees and officers in the ordinary course of
business for bona fide business purposes, provided that the aggregate
principal amount of all such loans and advances made pursuant to this
clause (9) does not exceed $2.0 million at any one time outstanding; and
(10) the declaration or payment of any dividends or distributions or the making
of loans or other payments to Holdings to enable Holdings to pay reasonable
and customary fees to directors of Holdings.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or its Restricted
Subsidiaries, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash assets or securities that are required to be valued
by this covenant in excess of $2.5 million shall be determined by a majority of
the members of the Board of Directors whose resolution with respect thereto
shall be delivered to the Trustee. The Board of Directors' determination must be
based upon an opinion or appraisal issued by an accounting, appraisal or
investment banking firm of national standing if the fair market value exceeds
$10.0 million. Not later than 10 days after the date of making any Restricted
Payment (but not including
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any Restricted Payment described in the preceding paragraph), of more than $2.5
million, the Company shall deliver to the Trustee an Officer's Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this "Restricted Payments" covenant were
computed, together with a copy, if any, of any fairness opinion or appraisal
required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "INCUR") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company and any Guarantor may incur Indebtedness
(including Acquired Debt) or issue Disqualified Stock or preferred stock (or
other Capital Stock having preferential rights similar to preferred stock) if
the Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock or preferred stock (or other Capital Stock having
preferential rights similar to preferred stock) is issued would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if such additional Indebtedness
had been incurred, or such Disqualified Stock or preferred stock (or other
Capital Stock having preferential rights similar to preferred stock) has been
issued, as the case may be, at the beginning of such four-quarter period.
So long as no Default shall have occurred and be continuing or would occur
or be continuing immediately after giving effect to the incurrence of any of the
following, the first paragraph of this covenant will not prohibit the incurrence
of any of the following (collectively, "PERMITTED DEBT"):
(1) the incurrence by the Company and any Restricted Subsidiary of Indebtedness
under one or more Credit Facilities; provided that the aggregate principal
amount of all Indebtedness of the Company outstanding under all Credit
Facilities after giving effect to such incurrence does not exceed an amount
equal to the sum of (A) (1) $75 million less (2) (without duplication) the
aggregate amount applied by the Company or any of its Subsidiaries since
the Issue Date to repay Indebtedness under a Credit Facility as a result of
asset dispositions which are required by the Indenture to be accompanied by
a corresponding permanent commitment reduction plus (B) additional
Indebtedness incurred under one or more Credit Facilities in an aggregate
amount not exceeding in the aggregate the amount of Indebtedness that is
permitted to be incurred, but has not been incurred, under clauses (4) and
(10) of this paragraph;
(2) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(3) the incurrence by the Company and the Guarantors of Indebtedness
represented by the New Notes in an aggregate principal amount of $130.0
million at any time outstanding and the Subsidiary Guarantees;
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(4) (a) Acquired Debt of the Company and its Restricted Subsidiaries and (b)
the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Restricted Subsidiary; provided that the aggregate
principal amount at any time outstanding of all Indebtedness outstanding
under clauses (a) and (b) after giving effect to such incurrence does not
exceed $10.0 million (reduced by the aggregate amount of additional
Indebtedness incurred under one or more Credit Facilities then in effect
that represents such additional Indebtedness under the immediately
preceding clause (1)(B)) (it being understood that any Indebtedness
incurred under this clause (4) shall, at the option of the Company, cease
to be deemed incurred or outstanding for purposes of this clause (4) but
shall be deemed to be incurred for purposes of the first paragraph of this
covenant from and after the first date on which the Company or such
Restricted Subsidiary could have incurred such Indebtedness under such
paragraph without reliance on this clause (4));
(5) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace, Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3) or
(10) of this paragraph;
(6) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that:
(a)if the Company or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be expressly subordinated upon the occurrence
and continuation of an Event of Default, to the prior payment in full
in cash or Cash Equivalents of all Obligations with respect to the New
Notes, in the case of the Company, or the Subsidiary Guarantee of such
Guarantor, in the case of a 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 Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is other than the
Company or a Restricted Subsidiary thereof; shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company
or any such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6) (provided that for purposes of this clause
(6), a pledge of Equity Interests under the Credit Facilities shall not
be considered a sale, transfer or issuance of such Equity Interests);
(7) shares of preferred stock (or other Capital Stock having preferential
rights similar to preferred stock) of a Restricted Subsidiary of the
Company issued to the Company or another Restricted Subsidiary of the
Company; provided that any subsequent
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event which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary of the Company shall be deemed, in each case, to be
an Investment by the Company or any such Restricted Subsidiary in the
issuer of such preferred stock (or other Capital Stock having preferential
rights similar to preferred stock)(provided that for purposes of this
clause (7), a pledge of Equity Interests under the Credit Facilities shall
not be considered a sale, transfer or issuance of such Equity Interests);
(8) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred in the ordinary course of business
for the purpose of fixing or hedging interest rate risk or foreign currency
valuation risk, but excluding Hedging Obligations entered into for
speculative purposes;
(9) (a) the guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or any Restricted Subsidiary that was permitted to be
incurred by another provision of this covenant and (b) the guarantee by a
Restricted Subsidiary of the Company that is not a Guarantor of
Indebtedness of any other Restricted Subsidiary of the Company that is not
a Guarantor;
(10) the incurrence by the Company or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including, without
duplication, all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause
(10), not to exceed $5.0 million (reduced by the aggregate amount of
additional Indebtedness incurred under one or more Credit Facilities then
in effect that represents such additional Indebtedness under the
immediately preceding clause (1)(B) (it being understood that any
Indebtedness incurred under this clause (10) shall, at the option of the
Company, cease to be deemed incurred or outstanding for purposes of this
clause (10) but shall be deemed to be incurred for purposes of the first
paragraph of this covenant from and after the first date on which the
Company or such Restricted Subsidiary could have incurred such Indebtedness
under such paragraph without reliance on this clause (10));
(11) Indebtedness of the Company's Foreign Subsidiaries in an aggregate
principal amount at any time outstanding not to exceed the Foreign
Borrowing Base at the time of such incurrence;
(12) the accrual of interest, accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock or preferred stock (or other Capital Stock having
preferential rights similar to preferred stock) in the form of additional
shares of the same class of Disqualified Stock or preferred stock; (or
other Capital Stock having preferential rights similar to preferred stock)
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued;
(13) Indebtedness in respect of standby letters of credit and performance,
surety and appeal bonds and completion guarantees provided by the Company
or any Restricted Subsidiary in the ordinary course of business or pursuant
to self-insurance obligations
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and not in connection with the borrowing of money or the obtaining of
advances of credit;
(14) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that the maximum assumable
liability in respect of the principal amount of all such Indebtedness shall
at no time exceed the gross proceeds including noncash proceeds (the fair
market value of such noncash proceeds being measured at the time received
and without giving effect to any subsequent changes in value) actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition; and
(15) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds in the ordinary course of business; provided,
that such Indebtedness is extinguished within five Business Days of
incurrence.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness on the
date of its incurrence in any manner that complies with this covenant and such
items of Indebtedness will be treated as having been incurred pursuant to one or
more of such clauses or pursuant to the first paragraph of this covenant, as so
classified. Indebtedness under Credit Facilities outstanding on the Issue Date
shall be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the preceding paragraph.
For purposes of this covenant, "Acquired Debt" shall be deemed to have been
incurred by the Company or one of its Restricted Subsidiaries, as the case may
be, at the time an acquired Person becomes a Restricted Subsidiary (or is merged
into the Company or any of its Restricted Subsidiaries) or at the time of the
acquisition of assets, as the case may be; and, to avoid duplication,
guarantees, Liens, letters of credit or other obligations supporting
Indebtedness otherwise included in the determination of any particular amount of
Indebtedness under this covenant shall not be included.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided that if such
Indebtedness is incurred to refinance other Indebtedness denominated in a
foreign currency, and such refinancing would cause the applicable U.S. dollar-
denominated restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, such U.S.
dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing
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Indebtedness does not exceed the principal amount of such Indebtedness being
refinanced. The principal amount of any Indebtedness incurred to refinance other
Indebtedness, if incurred in a different currency from the Indebtedness being
refinanced, shall be calculated based on the currency exchange rate between the
currency in which such Refinancing Indebtedness is denominated and the currency
applicable to the Indebtedness being refunded that is in effect on the date of
such refinancing.
The Company will not incur, create, issue, assume or guarantee any
Indebtedness that is contractually subordinate or junior in right of payment to
any other Indebtedness other than Indebtedness permitted by clause (1) of the
second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" of the Company unless such Indebtedness is also
contractually subordinated in right of payment to the New Notes on substantially
similar terms. No Guarantor will incur, create, issue, assume or guarantee any
Indebtedness that is contractually subordinate in right of payment to any other
Indebtedness other than Indebtedness permitted by clause (1) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock" of such Guarantor unless such Indebtedness is also
contractually subordinated in right of payment to such Guarantor's Subsidiary
Guarantee on substantially similar terms.
LIENS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing any Indebtedness on any asset now owned or
hereafter acquired, unless the New Notes or such Guarantee, as the case may be,
are directly secured equally and ratably with (or prior to, in the case of
Subordinated Indebtedness) the Indebtedness secured by such Lien; provided,
however, that the foregoing restriction shall not apply to any Permitted Lien.
In the event that the Lien the existence of which gives rise to a Lien
securing the New Note or a Subsidiary Guarantee pursuant to the provisions of
this covenant ceases to exist, the Lien securing the New Notes or such
Subsidiary Guarantee required by this covenant shall automatically be released
and the Trustee shall execute appropriate documentation.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of such
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Equity Interests to
the Company or any of the Company's Restricted Subsidiaries, or pay any
Indebtedness owed to the Company or any of the Company's Restricted
Subsidiaries;
(2) make loans or advances to the Company or any of the Company's Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of the
Company's Restricted Subsidiaries.
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However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements, including, without limitation, those with respect to Existing
Indebtedness and the Credit Facilities in each case, as in effect on the
Issue Date and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, in any material respect, taken as a whole, with respect to
such dividend and other payment restrictions than those contained in such
agreements as in effect on the Issue Date;
(2) the Indenture, the Subsidiary Guarantees and the New Notes;
(3) applicable law;
(4) any instrument governing Acquired Debt or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Acquired Debt
was incurred in connection with or in contemplation of such acquisition),
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, so acquired;
(5) customary non-assignment provisions restricting subletting, assignment or
transfer in licenses, leases or other agreements entered into in the
ordinary course of business;
(6) purchase money or capital lease obligations for property or assets acquired
in the ordinary course of business that impose restrictions on the property
or assets so acquired of the nature described in clause (3) of the
preceding paragraph;
(7) any agreement for the sale or other disposition of all or substantially all
of the Equity Interests of, or property and assets of, any Restricted
Subsidiary that restricts dividends, distributions, loans, advances or
transfers by such Restricted Subsidiary pending its sale or other
disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, in any material respect, taken as a
whole, than those contained in the agreements governing the Indebtedness
being refinanced;
(9) Liens not prohibited by the Indenture that limit the right of the Company
or any of its Restricted Subsidiaries to transfer property or assets
subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business;
(11) restrictions on cash or other deposits imposed by customers under contracts
entered into in the ordinary course of business;
(12) provisions in agreements or instruments which prohibit the payment of
dividends or the making of other distributions with respect to any Capital
Stock of a Person other than on a pro rata basis;
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(13) restrictions on the ability of any Restricted Subsidiary to make dividends
or other distributions resulting from the operation of reasonable and
customary covenants including, without limitation, negative pledge
covenants, contained in documentation governing Indebtedness incurred by
such Restricted Subsidiary in compliance with the Indenture; and
(14) provisions contained in any licenses, permits or leases with airports or
airport regulatory authorities entered into in the ordinary course of
business that restrict the ability of any Restricted Subsidiary of the
Company to make loans or advances or to transfer any of its properties or
assets to Persons other than the Company or any other Person which owns,
directly or indirectly, any Equity Interests in such Restricted Subsidiary.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving Person); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of its properties or assets (determined on a consolidated basis for the
Company and its Restricted Subsidiaries), in one or more related transactions,
to another Person; unless:
(1) either: (a) the Company is the surviving Person; or (b) the Person formed
by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of the Company under the New Notes, the Indenture and the
Registration Rights Agreement pursuant to a supplemental indenture
reasonably satisfactory to the Trustee;
(3) immediately after giving effect to such transaction no Default or Event of
Default exists; and
(4) except in the case of a merger of the Company with a Wholly Owned
Restricted Subsidiary, the Company or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, conveyance or other disposition shall have been
made:
(a)will have, on a pro forma basis after giving effect to the transaction,
Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction; and
(b)will, on the date of such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
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In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This covenant will not apply to a sale,
assignment, transfer, conveyance or other disposition of assets between or among
the Company and any of its Wholly Owned Subsidiaries.
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person, whether or not such Person is affiliated with
such Guarantor), another Person unless: (1) immediately after giving effect to
that transaction, no Default or Event of Default exists; and (2) either: (a) the
Person acquiring the property in any such sale or disposition or the Person
formed by or surviving any such consolidation or merger assumes all the
Obligations of that Guarantor under its Guarantee pursuant to a supplemental
indenture reasonably satisfactory to the Trustee; or (b) the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. If the sale, disposition, consolidation or merger
is with or into the Company or another Guarantor, then the immediately preceding
sentence shall not apply.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted
Subsidiaries to sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"AFFILIATE TRANSACTION"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to the
Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a)with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $2.5
million, a resolution of the Board of Directors set forth in an
Officer's Certificate certifying that such Affiliate Transaction or
series of related Affiliate Transactions complies with this covenant and
that such Affiliate Transaction or series of related Affiliate
Transactions has been approved by a majority of the disinterested
members of the Board of Directors; and
(b)with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0
million, an opinion as to the fairness to the Company or such Restricted
Subsidiary, as the case may be, of such Affiliate Transaction or series
of related Affiliate Transactions from a financial point of view issued
by an accounting, appraisal or investment banking firm of national
standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment, consulting, stock option, stock repurchase, employee
benefit, indemnification, compensation (including the payment of reasonable
and customary
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fees to Directors of the Company or any of its Restricted Subsidiaries who
are not employees of any such Person), business expense reimbursement or
other employee-related agreements, arrangements or plans entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course of
business;
(2) transactions between or among the Company and its Restricted Subsidiaries;
(3) any agreement, including, without limitation, the Management Agreement
(provided that all obligations of the Company under the Management
Agreement are subordinated to the prior payment in full in cash or Cash
Equivalents of all Obligations with respect to the New Notes upon the
occurrence and continuation of an Event of Default), as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) or any replacement agreement
thereto so long as any such amendment or replacement agreement is not
materially more disadvantageous to the Holders taken as a whole than the
original agreements as in effect on the Issue Date;
(4) the entering into, and any payment pursuant to, any tax-sharing agreement
existing at the time of such payment between the Company and any other
Person with which it files a consolidated tax return or with which the
Company is part of a consolidated group for tax purposes, provided, that
any such payment relates solely to taxes and, in each case, is not in
excess of the tax liability that would have been payable by the Person
making such payment on a stand-alone basis;
(5) payment by the Company or any of its Restricted Subsidiaries to CHI of fees
for advisory services in connection with financings, acquisitions or
divestitures or other investment banking activities upon terms no less
favorable than the Company or any of its Restricted Subsidiaries could
obtain from a nationally recognized investment banking firm for a
comparable transaction, in each case, which fees pursuant to this clause
(5) are approved by a majority of the Board of Directors in good faith; and
(6) Restricted Payments that are permitted by the provisions of the Indenture
described above under the caption "--Restricted Payments."
ADDITIONAL SUBSIDIARY GUARANTEES
If the Company or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the Issue Date or if any Foreign Subsidiary
becomes a Domestic Subsidiary, then that newly acquired or created Restricted
Subsidiary must become a Guarantor and execute a supplemental indenture
reasonably satisfactory to the Trustee and deliver an opinion of counsel to the
Trustee within 10 Business Days of the date on which it was acquired or created,
provided, that this covenant shall not apply to any Subsidiary that has been
properly designated as an Unrestricted Subsidiary; provided, further, the
Company may, at its option, elect to have any such newly acquired or created
Restricted Subsidiary not become a Guarantor (a "NON-GUARANTOR SUBSIDIARY")
provided that, and for so long as, (1) none of the total assets, stockholders'
equity or Consolidated Cash Flow of such Restricted Subsidiary exceeds $500,000
and (2) none of the total assets, stockholders' equity or Consolidated Cash Flow
of such Restricted Subsidiary together with all other Non-Guarantor
Subsidiaries, considered as a single Person, exceeds $1.0 million in the
aggregate.
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SALE AND LEASEBACK TRANSACTIONS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary of the Company may enter into a sale
and leaseback transaction if:
(1) the Company or that Restricted Subsidiary, as applicable, could have
incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction under the Fixed Charge Coverage
Ratio test in the first paragraph of the covenant described above under the
caption "--Incurrence of Additional Indebtedness and Issuance of Preferred
Stock;"
(2) the gross proceeds consisting of cash and Cash Equivalents of that sale and
leaseback transaction are at least equal to the fair market value (in the
case of gross cash proceeds in excess of $1.0 million as determined in good
faith by the Board of Directors and set forth in an Officer's Certificate
delivered to the Trustee), of the property that is the subject of such sale
and leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction complies with
the covenant described above under the caption "--Asset Sales," to the
extent applicable.
The foregoing restrictions shall not apply to one or more sale and leaseback
transactions that (i) singly or in the aggregate relate to assets having in the
aggregate (in the case of related transactions) a fair market value not
exceeding $1.0 million; (ii) are solely between or among any of the Company and
any Guarantors; or (iii) are solely between or among any Restricted Subsidiary
of the Company that are not Guarantors and other Restricted Subsidiaries that
are not Guarantors.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of New Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
New Notes unless such consideration is offered to be paid and is paid to all
Holders of the New Notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
REPORTS
Whether or not required by the SEC, so long as any New Notes are
outstanding, the Company will deliver or otherwise make available to the Holders
of New Notes or the Trustee, within the time periods specified in the SEC's
rules and regulations:
(1) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial
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Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by the
Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on Form
8-K if the Company were required to file such reports.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest or liquidated
damages on the New Notes;
(2) default in payment when due of the principal of or premium, if any, on the
New Notes;
(3) failure by the Company or any Guarantor to comply with its Obligations
described under the caption "--Merger, Consolidation or Sale of Assets," or
the failure of the Company to make or consummate a Change of Control Offer
under the provisions described under the caption "--Change of Control," or
the failure of the Company to make or consummate an Asset Sale Offer under
the provisions described under the caption "--Asset Sales;"
(4) failure by the Company or any of its Restricted Subsidiaries for 60 days
after receipt of written notice by the Trustee to the Company specifying
the default to comply with any of the other agreements in the Indenture;
(5) default under the terms of any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether
such Indebtedness or guarantee now exists, or is created after the Issue
Date, if that default:
(a)is caused by a failure to pay principal of such Indebtedness when due at
final stated maturity after the expiration of the grace period provided
in such Indebtedness on the date of such default (a "PAYMENT DEFAULT");
or
(b)results in the acceleration of such Indebtedness prior to its final
maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $5.0 million or
more;
(6) failure by the Company or any Significant Subsidiary or group of Restricted
Subsidiaries that, taken together (as of the latest audited consolidated
financial statements for the Company and its Restricted Subsidiaries) would
constitute a Significant Subsidiary to pay one or more final judgments
which exceed in the aggregate $5.0 million (net of any amounts for which a
reputable and creditworthy insurance company has assumed the defense of or
acknowledged liability for in writing), which judgments are not paid,
discharged or stayed for a period of 60 consecutive days;
(7) except as permitted by the terms of the Indenture, any Subsidiary Guarantee
shall be held in any judicial proceeding by a court of competent
jurisdiction to be
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unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Guarantor shall deny or disaffirm in writing that it has
any further liability under its Subsidiary Guarantee; and
(8) certain events of bankruptcy, insolvency or reorganization of the Company
or a Significant Subsidiary or group of Restricted Subsidiaries that, taken
together (as of the latest audited consolidated financial statements for
the Company and its Restricted Subsidiaries), would constitute a
Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Restricted Subsidiary
that is a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding New
Notes will become due and payable immediately without further action or notice.
If any other Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable by notice in writing to the
Company and the Trustee specifying the respective Event of Default and that it
is a notice of acceleration (the "ACCELERATION NOTICE") and the same shall
become immediately due and payable.
In the event of an Acceleration Notice because an Event of Default has
occurred and is continuing as a result of the acceleration of any Indebtedness
described in clause (5) of the preceding paragraph, the Acceleration Notice
shall be automatically annulled and rescinded if the holders of any Indebtedness
described in clause (5) have rescinded the declaration of acceleration in
respect of such Indebtedness within 30 days of the date of such declaration and
if (i) the annulment of the acceleration of the New Notes would not conflict
with any judgment or decree binding on the Company or its property and issued by
a court of competent jurisdiction, and (ii) all existing Events of Default,
except nonpayment of principal or interest on the New Notes that became due
solely because of the acceleration of the New Notes, have been cured or waived.
The Trustee may withhold from Holders of the New Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
Holders of the New Notes may not enforce the Indenture or the New Notes
except as provided in the Indenture and under the Trust Indenture Act. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding New Notes may direct the Trustee in its exercise of any trust or
power. The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the New Notes. At any time after the date of
the Acceleration Notice the Holders of a majority in aggregate principal amount
of the New Notes then outstanding may rescind and cancel such declaration and
its consequences if (i) the annulment of the acceleration of the New Notes would
not conflict with any judgment or decree binding on the Company or its property
and issued by a court of competent jurisdiction, and (ii) all existing Events of
Default, except nonpayment of principal or interest on the New Notes that became
due solely because of the acceleration of the New Notes, have been cured or
waived.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver promptly to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or the Guarantors under the New Notes, the Indenture or the Subsidiary
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of New Notes by accepting a New Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the New Notes. The waiver may not be effective to
waive liabilities under the federal securities laws, and it is the view of the
SEC that such waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("LEGAL DEFEASANCE") except for:
(1) the rights of Holders of outstanding New Notes to receive payments in
respect of the principal of, premium, if any, and interest on such New
Notes when such payments are due from the trust referred to below;
(2) the Company's obligations with respect to the New Notes concerning issuing
temporary notes, registration of New Notes, mutilated, destroyed, lost or
stolen New Notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants that are described in the Indenture ("COVENANT DEFEASANCE")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default with respect to the New Notes. In the event
Covenant Defeasance occurs, events (other than non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute Events of Default with respect to the New
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the New Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants selected by the
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Company, to pay the principal of, premium, if any, and interest on the
outstanding New Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether
the New Notes are being defeased to maturity or to a particular redemption
date;
(2) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that (a) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of the outstanding New Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding New Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default arising in connection with the borrowing of funds to be applied to
such deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under the Senior Secured Credit
Facility or any other material agreement or instrument (other than the
Indenture) to which the Company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is
bound;
(6) the Company must have delivered to the Trustee an opinion of counsel to the
effect that 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;
(7) the Company must deliver to the Trustee an Officer's Certificate stating
that the deposit was not made by the Company with the intent of preferring
the Holders of New Notes over the other creditors of the Company with the
intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(8) the Company must deliver to the Trustee an Officer's Certificate and an
opinion of counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the Indenture
or the New Notes may be amended, supplemented or otherwise modified with the
consent of the Company and the Holders of at least a majority in principal
amount of the New Notes then outstanding (including consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the New
Notes), and any existing Default or Event of Default or compliance with any
provision of the Indenture or the New Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding New Notes
(including consents obtained in connection with a purchase of, or tender offer
or exchange offer for, the New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder):
(1) reduce the principal amount of New Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any New Note or
alter the provisions with respect to the redemption of the New Notes (other
than provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any New
Note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the New Notes (except a rescission of
acceleration of the New Notes by the Holders of at least a majority in
aggregate principal amount of the New Notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any New Note payable in money other than that stated in the New Notes;
(6) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of New Notes to receive payments of
principal of or premium, if any, or interest on the New Notes;
(7) waive a redemption payment with respect to any New Note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders"); or
(8) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of New
Notes, the Company and the Trustee may amend, supplement, waive or otherwise
modify provisions of the Indenture, the New Notes or the Guarantees:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated New Notes in addition to or in place of
certificated New Notes;
(3) to provide for the assumption of the Company's obligations to Holders of
New Notes in the case of a merger or consolidation or sale of all or
substantially all of the Company's assets;
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(4) to make any change that would provide any additional rights or benefits to
the Holders of New Notes or that does not adversely affect the legal rights
under the Indenture of any such Holder; or
(5) to comply with requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of the Company or any Guarantor, the
Indenture limits its right to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will 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 exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing (which shall not be cured or waived in conformity
with the Indenture), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent person in the conduct of such person's
own affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of New Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, New Notes will be issued in registered, global
form in minimum denominations of $1,000 and integral multiples of $1,000 in
excess thereof. New Notes will be issued at the closing of this exchange offer
only against delivery of the tendered Original Notes.
The New Notes initially will be represented by one or more New Notes in
registered, global form without interest coupons (collectively, the "Global
Notes"). The Global Notes will be deposited upon issuance with the Trustee as
custodian for the Depository Trust Company, in New York, New York, and
registered in the name of the Depository Trust Company or its nominee, in each
case for credit to an account of a direct or indirect participant in the
Depository Trust Company as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of the Depository Trust Company or to a
successor of the Depository Trust Company or its nominee. Beneficial interests
in the Global Notes may not be exchanged for New Notes in certificated form
except in limited circumstances.
In addition, transfers of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of the Depository Trust Company
and its direct or indirect participants (including, if applicable, those of
Euroclear and Cedel), which may change from time to time.
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DEPOSITORY PROCEDURES
The following description of the operations and procedures of the
Depository Trust Company, Euroclear and Cedel are provided solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to changes by them. The
Company takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
The Depository Trust Company has advised the Company that it is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of its Participants. The Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to the Depository Trust
Company's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may beneficially
own securities held by or on behalf of the Depository Trust Company only through
the Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of the
Depository Trust Company are recorded on the records of the Participants and
Indirect Participants.
The Depository Trust Company has also advised the Company that, pursuant to
procedures established by it:
(1) upon deposit of the Global Notes, the Depository Trust Company will credit
the accounts of Participants designated by the tendering Holders with
portions of the principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by the Depository Trust Company (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interest in the Global Notes).
Investors in the Global Notes who are Participants in the Depository Trust
Company's system may hold their interests therein directly through the
Depository Trust Company. Investors in the Global Notes who are not Participants
may hold their interests therein indirectly through organizations (including
Euroclear and Cedel) which are Participants in such system. All interests in a
Global Note, including those held through Euroclear or Cedel, may be subject to
the procedures and requirements of the Depository Trust Company. Those interests
held through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
Persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such Persons will be limited to that extent. Because the Depository Trust
Company can act only on behalf of Participants, which in turn act on behalf of
Indirect Participants, the ability of a Person having beneficial interests in a
Global Note to pledge such interests to Persons that do not participate in the
Depository Trust Company system, or otherwise take actions in respect
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of such interests, may be affected by the lack of a physical certificate
evidencing such interests.
Except as described below, owners of interests in the Global Notes will not
have New Notes registered in their names, will not receive physical delivery of
New Notes in certificated form and will not be considered the registered owners
or "Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Liquidated Damages, if any, on a Global Note registered in the name of the
Depository Trust Company or its nominee will be payable to Depository Trust
Company in its capacity as the registered Holder under the Indenture. Under the
terms of the Indenture, the Company and the Trustee will treat the Persons in
whose names the New Notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving payments and for all other purposes.
Consequently, neither the Company, the Guarantors, the Trustee nor any agent of
the Company, the Guarantors, or the Trustee has or will have any responsibility
or liability for:
(1) any aspect of the Depository Trust Company's records or any Participant's or
Indirect Participant's (including Euroclear and Cedel, without limitation)
records relating to or payments made on account of beneficial ownership
interest in the Global Notes or for maintaining, supervising or reviewing
any of the Depository Trust Company's records or any Participant's or
Indirect Participant's (including Euroclear and Cedel, without limitation)
records relating to the beneficial ownership interests in the Global Notes;
or
(2) any other matter relating to the actions and practices of the Depository
Trust Company or any of its Participants or Indirect Participants (including
Euroclear and Cedel, without limitation).
The Depository Trust Company has advised the Company that its current
practice, upon receipt of any payment in respect of securities such as the New
Notes (including principal and interest), is to credit the accounts of the
relevant Participants with the payment on the payment date unless the Depository
Trust Company has reason to believe it will not receive payment on such payment
date. Each relevant Participant is credited with an amount proportionate to its
beneficial ownership of an interest in the principal amount of the relevant
security as shown on the records of the Depository Trust Company. Payments by
the Participants and the Indirect Participants to the beneficial owners of New
Notes will be governed by standing instructions and customary practices and will
be the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of the Depository Trust Company, the Trustee, the
Company or the Guarantors. The Company, the Guarantors and the Trustee will not
be liable for any delay by the Depository Trust Company or any of its
Participants in identifying the beneficial owners of the New Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from the Depository Trust Company or its nominee for all
purposes.
Transfers between Participants in the Depository Trust Company will be
effected in accordance with the Depository Trust Company's procedures, and will
be settled in same-day funds, and transfers between participants in Euroclear
and Cedel will be effected in accordance with their respective rules and
operating procedures.
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Subject to compliance with the transfer restrictions applicable to the New
Notes described herein, cross-market transfers between the Participants in the
Depository Trust Company, on the one hand, and Euroclear or Cedel participants,
on the other hand, will be effected through the Depository Trust Company in
accordance with the Depository Trust Company's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance with
the rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Note in the Depository Trust
Company, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to the Depository Trust Company.
Euroclear participants and Cedel participants may not deliver instructions
directly to the depositories for Euroclear or Cedel.
The Depository Trust Company has advised the Company that it 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 Depository Trust Company has
credited the interests in the Global Notes and only in respect of such portion
of the aggregate principal amount of the 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, the Depository Trust Company reserves the right
to exchange the Global Notes for legended New Notes in certificated form, and to
distribute such New Notes to its Participants.
Although the Depository Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the Global
Notes among participants in the Depository Trust Company, Euroclear and Cedel,
they are under no obligation to perform or to continue to perform such
procedures, and may discontinue such procedures at any time. The Company, the
Guarantors, the Trustee and their respective agents will not have any
responsibility for the performance by the Depository Trust Company, Euroclear or
Cedel or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means Indebtedness of a Person or any of its Subsidiaries
existing at the time such Person becomes a Restricted Subsidiary of the Company
or at the time it merges or consolidates with the Company or any of its
Restricted Subsidiaries or is assumed by the Company or any of its Restricted
Subsidiaries in connection with the acquisition of assets from such Person,
including without limitation, Indebtedness incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall
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mean 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; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control. For purposes of this definition, the terms "controlling,"
"controlled by" and "under common control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease (other than operating leases entered into in the ordinary
course of business), conveyance or other disposition of any assets, other
than sales of Cash Equivalents or inventory in the ordinary course of
business; provided that the sale, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Repurchase at the Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and
not by the provisions of the Asset Sale covenant; and
(2) the issuance by any of the Company's Restricted Subsidiaries of the Equity
Interests of such Restricted Subsidiary or the sale by the Company or any
Restricted Subsidiary of Equity Interests in any Restricted Subsidiaries
(other than directors' qualifying shares).
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(a) any single transaction or series of related transactions that: (i)
involves assets having a fair market value of less than $1.0 million;
or (ii) results in net proceeds to the Company and its Restricted
Subsidiaries of less than $1.0 million;
(b) a transfer, sale, lease, conveyance or other disposition of assets
between or among the Company and its Restricted Subsidiaries;
(c) an issuance or sale of Equity Interests by a Restricted Subsidiary to
the Company or to another Restricted Subsidiary;
(d) a Restricted Payment that is permitted by the covenant described above
under the caption "--Certain Covenants--Restricted Payments;"
(e) a Permitted Lien;
(f) a sale or other disposition or abandonment of damaged, worn-out or
obsolete property in the ordinary course of business;
(g) any sale, transfer or conveyance of Equity Interests of a Restricted
Subsidiary; provided that immediately after giving effect to such sale,
transfer or conveyance, if such Restricted Subsidiary would (i) no
longer be a Restricted Subsidiary, the Investment of the Company (or
any Restricted Subsidiary) in such Person (after giving effect to such
sale, transfer or conveyance) would have been permitted to be made
pursuant to the covenant described above under the caption "--Certain
Covenants--Restricted Payments" as if made on the date of such sale,
transfer or conveyance or (ii) continue to be a Restricted Subsidiary,
the aggregate noncash consideration received by the Company or any of
its
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Restricted Subsidiaries in such sale, transfer or conveyance does not
have a fair market value, taken together with all other noncash
consideration (other than such consideration converted into cash or
Cash Equivalents) received pursuant to this clause (ii), in excess of
$10.0 million; provided, further that as part of any such sale,
transfer or conveyance pursuant to clause (i) or (ii) above (1) the
Company or any of its Restricted Subsidiaries, as the case may be,
receives consideration at the time of such sale, transfer or conveyance
(without giving effect to subsequent changes in value) at least equal
to the fair market value of the Equity Interests sold, transferred or
conveyed and (2) with regard to any such sale, transfer or conveyance
involving aggregate consideration in excess of $2.5 million, the fair
market value of such consideration is determined by the Company's Board
of Directors and evidenced by a resolution of the Board of Directors
set forth in an Officer's Certificate delivered to the Trustee;
(h) sales of accounts receivable in the ordinary course of business for
cash for financing purposes;
(i) an Asset Swap effected in compliance with the terms contained in the
covenant under the caption "--Repurchase at the Option of
Holders--Asset Sales;" and
(j) the issuance of options, warrants or other similar rights to purchase
Equity Interests of a Restricted Subsidiary to any then-serving
director or member of management of such Restricted Subsidiary in the
ordinary course of business.
"Asset Swap" means a substantially concurrent purchase and sale or exchange
of Related Business Assets between the Company or any of its Restricted
Subsidiaries and another Person; provided that any cash received must be applied
in accordance with the terms contained in the covenant under the caption
"--Repurchase at the Option of Holder--Asset Sales."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which banking institutions in New York, New York are not required to be open.
"Capital Lease Obligation" means, at the time of determination, the amount
of the liability in respect of a capital lease that would at that time be
required to be capitalized on a balance sheet in accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
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(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
in the equity of such association or entity;
(3) in the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets
of, the issuing Person.
"Cash Equivalents" means (i) securities issued by, or unconditionally
guaranteed or insured by, the United States Government or issued by any agency
thereof and backed by the full faith and credit of the United States Government,
in each case maturing within one year from the date of acquisition thereof
("GOVERNMENT OBLIGATIONS"); (ii) marketable direct obligations issued by any
state of the United States of America or any political subdivision thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("MOODY'S"); (iii) commercial paper and variable or fixed rate notes maturing no
more than six months from the acquisition thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the District of
Columbia or any U.S. branch of a foreign bank having at the date of acquisition
thereof combined capital and surplus of not less than $250.0 million; (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; (vi) federally tax
exempt securities rated "A" or better by S&P or "A2" or better by Moody's and
(vii) investments in money market funds with assets of $100.0 million or greater
which invest substantially all their assets in securities of the types described
in clauses (i) through (vi) above; and (viii) in the case of Foreign
Subsidiaries, substantially similar Cash Equivalents as those described in
clauses (i), (iii) and (iv) above that are available in the local currency.
"Change of Control" means the occurrence of any one or more of the
following:
(1) the sale, transfer, conveyance or other disposition (other than a Lien or
by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than a Permitted Holder or a
Related Party of a Permitted Holder;
(2) the adoption by holders of the Capital Stock of the Company of a plan for
the liquidation or dissolution of the Company;
(3) prior to the first Public Equity Offering, the consummation of any
transaction (including, without limitation, any merger or consolidation)
the result of which is that the Permitted Holders and their Related Parties
are the Beneficial Owners, directly or indirectly, of less than 51% of the
total voting power of the Voting Stock of the Company;
(4) after the first Public Equity Offering, the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any
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"person" (as defined above), other than the Permitted Holders and their
Related Parties, becomes the Beneficial Owner, directly or indirectly, of
more than 30% of the total voting power of the Voting Stock of the Company;
or
(5) the first day on which a majority of the members of the Board of Directors
of the Company are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income; plus
(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and commitment
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments, if any, pursuant to
Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for such period,
other than items that were accrued in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the preceding sentence, clauses (1) and (3) relating to
amounts of a Restricted Subsidiary of a Person will be added to Consolidated Net
Income to compute Consolidated Cash Flow of such Person only to the extent (and
in the same proportion) that the Net Income (loss) of such Restricted Subsidiary
was included in calculating the Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a Restricted
Subsidiary shall be included only to the extent of the amount of dividends
or distributions paid in cash to the specified Person or a Wholly Owned
Subsidiary thereof;
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(2) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary of such Net Income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to such Restricted Subsidiary,
except to the extent of dividends or distributions paid in accordance
therewith;
(3) the Net Income of any Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition shall be excluded (it
being understood, however, that the acquisition of such Person may still be
considered for purposes of calculating the Fixed Charge Coverage Ratio in
accordance with the terms of the definition thereof); and
(4) the cumulative effect of a change in accounting principles shall be
excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date
the consolidated stockholders' equity of such Person and its consolidated
Subsidiaries as of such date, less (without duplication) amounts attributable to
Disqualified Stock of such Person.
"Consolidated Revenue" means with respect to any specified Person for any
period, the aggregate revenue of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the Issue Date (together with
individuals whose nomination for election to the Board of Directors is or
was recommended by CHI); or
(2) was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Credit Facilities" means, with respect to the Company or any Restricted
Subsidiary, one or more debt facilities or commercial paper facilities,
including, without limitation, the Senior Secured Credit Facility, in each case
with banks or other lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time
under existing or new Credit Facilities.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable), or upon the happening of any event, 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
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part, on or prior to the date that is 91 days after the date on which the New
Notes mature. Notwithstanding the preceding sentence, any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
prior to the repurchase of all New Notes as may be required pursuant to the
provisions of the Indenture described under the captions "Change of Control" and
"Limitations on Asset Sales."
"Domestic Subsidiary" means a Subsidiary that is organized under the laws
of the United States, any state thereof or the District of Columbia.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issue Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized, including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations; plus
(2) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien
on assets of such Person or one of its Restricted Subsidiaries, to the
extent such interest is actually paid by such Person or one of its
Restricted Subsidiaries or such Lien is foreclosed upon; plus
(3) the product of (a) all cash dividend payments on any series of preferred
stock of such Person or any of its Restricted Subsidiaries, other than
dividend payments to the Company or a Restricted Subsidiary of the Company,
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on
a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, repays or redeems any Indebtedness (other than
revolving credit borrowings) or issues or redeems preferred stock or
Disqualified Stock subsequent to the commencement of the period for which the
Fixed Charge Coverage Ratio is being calculated but prior to the date on which
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the event for which the calculation of the Fixed Charge Coverage Ratio is made
(the "CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, repayment or
redemption of Indebtedness (and the application of the proceeds thereof), or
such issuance or redemption of preferred stock or Disqualified Stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the
obligations giving rise to such Fixed Charges will not be obligations of
the specified Person or any of its Restricted Subsidiaries following the
Calculation Date.
For the purpose of this definition, whenever pro forma effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
incurred in connection therewith, or any other calculation under this
definition, the pro forma calculations will be determined in good faith by a
responsible financial or accounting officer of the Company (including pro forma
expense and cost reductions calculated on a basis consistent with Regulation S-X
under the Securities Act). If any Indebtedness bears a floating rate of interest
and is being given pro forma effect, the interest expense on such Indebtedness
will be calculated as if the average rate for the period had been the applicable
rate for the entire period (taking into account any interest rate agreement
applicable to such Indebtedness).
"Foreign Borrowing Base" means, as of any date, an amount equal to:
(1) 85% of the face amount of all accounts receivable (net of bad debt
reserves) owned by the Company's Foreign Subsidiaries as of the end of the
most recent fiscal quarter preceding such date, calculated on a
consolidated basis and in accordance with GAAP; plus
(2) 50% of the orderly liquidation value of all property, plant and equipment
owned by the Company's Foreign Subsidiaries as of the end of the most
recent fiscal quarter preceding such date; provided, that, such liquidation
value shall be determined by an appraisal of such property, plant and
equipment conducted by an independent appraisal firm of national standing.
"Foreign Subsidiary" means any Subsidiary that is not a Domestic
Subsidiary.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, through letters of credit
or reimbursement agreements in respect thereof, of all or any part of any
Indebtedness.
"Guarantors" means each of:
(1) the Company's Domestic Subsidiaries other than Non-Guarantor Subsidiaries;
and
(2) any other subsidiary that executes a Subsidiary Guarantee;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) foreign currency exchange agreements, interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"Holdings" means WFS Holdings, Inc., a Delaware corporation.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, without duplication:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the deferred and unpaid purchase price of any property, except
any such balance that constitutes an accrued expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than reimbursement
obligations with regard to letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of the specified Person prepared in
accordance with GAAP. In addition, the term "Indebtedness" includes all
Indebtedness referred to in clauses (1) through (6) above of other Persons
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person), the amount of such Indebtedness being deemed to be
the lesser of the fair market value of such property or asset and the amount
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of the obligation so secured, and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person to the extent
of such Guarantor of such Indebtedness provided by such Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities of such other Persons, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP but excluding extensions of trade credit in the ordinary
course of business. If the Company or any Restricted Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any such
sale or disposition, such Person is no longer a Restricted Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Issue Date" means the date of original issuance of the Original Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind on such asset, whether or
not filed, recorded or otherwise perfected under applicable law, including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any agreement to give a security interest in and any filing of any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction.
"Management Agreement" means the management agreement dated March 31, 1999,
by and between Castle Harlan, Inc. and the Company, as amended as of the Issue
Date.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends, excluding,
however (without duplication):
(1) any gain (or loss), together with any related provision for taxes on such
gain (or loss), realized in connection with: (a) any Asset Sale; or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries; and
(2) any extraordinary gain (or loss), together with any related provision for
taxes on such extraordinary gain (or loss).
"Net Proceeds" means the aggregate cash or Cash Equivalents proceeds
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash or Cash Equivalents (other
than interest) received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of fees, commissions, expenses
and other direct costs relating to such Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and sales or
brokerage commissions, and any relocation expenses and severance costs incurred
as a result thereof,
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taxes paid or payable as a result thereof, in each case after taking into
account any available tax credits or deductions and any tax sharing arrangements
and amounts required to be applied to the repayment of Indebtedness, other than
Indebtedness in respect of a Credit Facility or any other Indebtedness secured
by a Lien, as a result of such Asset Sale, all distributions and other payments
required to be made to minority interest holders in Subsidiaries as a result of
such Asset Sale, any reserve for adjustment in respect of the sale price of such
assets established in accordance with GAAP and any reserves in accordance with
GAAP against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise,
or (c) constitutes the lender or (2) pursuant to which the lender has no
recourse to any of the assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees, costs,
expenses, indemnifications, reimbursements, damages and other liabilities or
amounts payable under the documentation governing any Indebtedness.
"Permitted Business" means the coordination, provision and supervision of
ground services to the aviation industry including, without limitation, cargo
services, ramp services, passenger services and technical and industry services,
and any business which is the same as or related, ancillary or complementary
thereto.
"Permitted Holder" means (a) Castle Harlan Partners III, L.P., a Delaware
limited partnership ("CHP III"), any Person controlling, controlled by, or under
common control with, CHP III and any managed account controlled by, or under
common control with CHP III, (b) Castle Harlan, Inc., a Delaware corporation,
and (c) employees, management and directors of any of the foregoing, and any
trust or individual retirement account for the benefit of any such employees,
management or directors, or members of their immediate families and any Person
controlled by any such employee, manager or director.
"Permitted Investments" means:
(1) (a) any Investment in the Company or in a Guarantor or (b) any Investment
by a Restricted Subsidiary of the Company that is not a Guarantor in
another Restricted Subsidiary of the Company that is not a Guarantor;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person, if as a result of such Investment:
(a)such Person becomes a Guarantor or, to the extent such Investment is
made by a Restricted Subsidiary of the Company that is not a Guarantor,
such Person becomes a Restricted Subsidiary of the Company that is not
a Guarantor;
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(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 Guarantor or to the extent such
Investment is made by a Restricted Subsidiary of the Company that is
not a Guarantor, such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, a Restricted Subsidiary of the Company that
is not a Guarantor;
(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;"
(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company;
(6) Hedging Obligations;
(7) other Investments in any Unrestricted Subsidiary or in any other Person
engaged in a Permitted Business having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (7) since the Issue Date, not to
exceed $3.0 million at any time outstanding (reduced, without duplication,
by the amount of Investments made pursuant to clause (10)(b) of this
definition);
(8) Investments in securities of trade creditors or customers received pursuant
to any plan of reorganization or similar agreement upon the bankruptcy or
insolvency of such trade creditors or customers;
(9) Investments by the Company or any Guarantor in any Foreign Subsidiary of
the Company; provided that each Investment is by means of an intercompany
loan made by the Company or a Guarantor to such Foreign Subsidiary;
provided, further, that the Indebtedness of such Foreign Subsidiary
evidenced by such intercompany loan shall not be contractually subordinated
to the prior payment of any other obligations for the payment of money of
such Foreign Subsidiary; and
(10) other Investments by the Company or any Guarantor in a Foreign Subsidiary
having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to
this clause (10) that are at the time outstanding, not to exceed (a) 15% of
Total Tangible Assets at the time of such Investment plus (b) the amount of
Investments that are permitted to be made but have not been made under
clause (7) of this definition.
"Permitted Liens" means:
(1) Liens on any assets and property of the Company and its Subsidiaries
securing Indebtedness, guarantees of Indebtedness and other Obligations
under one or more Credit Facilities permitted by clause (1) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock";
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(2) Liens in favor of (a) the Company or the Guarantors or (b) any Restricted
Subsidiary that is not a Guarantor granted by, and with respect to property
or assets of, another Restricted Subsidiary that is not a Guarantor;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with the Company or any Restricted Subsidiary
of the Company; provided that such Liens were not incurred in connection
with or in contemplation of, such merger or consolidation and do not extend
to any assets other than those of the Person merged into or consolidated
with the Company or the Restricted Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the
Company or any Restricted Subsidiary of the Company, provided that such
Liens were not incurred in connection with or in contemplation of such
acquisition;
(5) Liens to secure the performance of statutory obligations (including,
without limitation, Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen and other similar Liens imposed by law), surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (or to secure reimbursement
obligations in respect of letters of credit issued in connection with any
of the foregoing obligations);
(6) Liens to secure Indebtedness (including Acquired Debt and Capital Lease
Obligations) permitted by clause (4) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness or such
assets related to the Acquired Debt;
(7) Liens existing on the Issue Date;
(8) Liens for taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently pursued, provided that any
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor;
(9) Liens on assets of Foreign Subsidiaries to secure Indebtedness permitted by
clause (11) of the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock";
(10) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do
not exceed the principal amount of $10.0 million at any one time
outstanding;
(11) Liens securing the New Notes or the Subsidiary Guarantees, if any;
(12) Liens securing Permitted Refinancing Indebtedness, provided, however, that
such Liens (a) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being refinanced, and (b) do not extend to or
cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so refinanced;
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(13) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, employment insurance or other types
of social security, including Liens securing letters of credit issued in
the ordinary course of business or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations including those arising from regulatory, contractual or
warranty requirements of the Company and its Subsidiaries, including rights
of offset and set-off (in each case exclusive of obligations for the
payment of borrowed money);
(14) Liens arising by reason of any judgment, decree or order of any court not
giving rise to an Event of Default, so long as such Lien is adequately
bonded and any appropriate legal proceedings which may have been duly
initiated for the review of such judgment, order or decree shall not have
been finally terminated or the period with which such proceedings may be
initiated shall not have expired;
(15) Survey exceptions, easements, rights of way, zoning restrictions and other
restrictions on the use of property;
(16) Liens to secure Indebtedness permitted by clauses (8), (9) and (10) of the
second paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(17) Any extension, renewal or replacement, in whole or in part, of any Lien
described in the foregoing clauses (1) through (16); provided that any such
extension, renewal or replacement is no more restrictive in any material
respect than the Lien so extended, renewed or replaced and does not extend
to any additional property or assets.
"Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified
Stock of the Company or any of its Restricted Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness or Disqualified Stock of the Company or any
of its Restricted Subsidiaries; provided that:
(1) the principal amount (or accreted value, if applicable) or mandatory
redemption amount of such Permitted Refinancing Indebtedness does not
exceed the principal amount of (or accreted value, if applicable) or
mandatory redemption amount, plus accrued interest or dividends on, the
Indebtedness or Disqualified Stock so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of contractual prepayment
charges and fees and expenses and other amounts incurred in connection
therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity or final
redemption date no earlier than the final maturity or final redemption date
of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness or Disqualified
Stock being extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness or Disqualified Stock being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment
to the New Notes, such Permitted Refinancing Indebtedness is subordinated
in right of payment to, the New Notes on terms at least as favorable to the
Holders of New Notes as those contained in the documentation governing the
Indebtedness or Disqualified Stock being extended, refinanced, renewed,
replaced, defeased or refunded; and
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(4) such Indebtedness is incurred or Disqualified Stock is issued either by the
Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness or Disqualified Stock being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated association, government or any agency political subdivision
thereof or any other entity.
"Public Equity Offering" means any underwritten public offering of common
stock (other than Disqualified Stock) pursuant to an effective registration
statement under the Securities Act, of any Equity Interest of the Company or
Holdings in which the gross proceeds to the Company are at least $20.0 million.
"Related Business Assets" means any assets used or useful in a Permitted
Business.
"Related Party" with respect to any Permitted Holder means:
(1) a spouse or immediate family member (in the case of an individual) of such
Permitted Holder; or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding an 80% or
more controlling interest of which consist of such Permitted Holder and/or
such other Persons referred to in the immediately preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Secured Credit Facility" means that certain Credit Agreement, dated
as of August 12, 1999, by and among Holdings, the Company, the lenders named
therein, The Chase Manhattan Bank, as administrative agent, and DLJ Capital
Funding, Inc., as syndication agent, providing for revolving credit loans,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, supplemented, extended, renewed, restated, refunded, replaced or
refinanced from time to time, including any amendment, modification, supplement,
extension, renewal, restatement, refunding, replacement or refinancing that
increases the amount borrowable thereunder, provided such Indebtedness could be
incurred under the Indenture, or alters the maturity thereof.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of principal on
any series of Indebtedness, the date on which such payment of principal was
scheduled to be paid in the original documentation governing such Indebtedness,
and shall not include any contingent obligations to repay, redeem or repurchase
any such principal prior to the date originally scheduled for the payment
thereof.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter incurred) which is subordinate or
junior in right of payment to the New Notes pursuant to a written agreement.
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"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any other Person of which at least a majority of the voting interest
(without regard to the occurrence of any contingency) is at the time
directly or indirectly owned by such Person.
"Subsidiary Guarantee" means that certain Subsidiary Guarantee executed by
the Guarantors in accordance with the terms of the Indenture.
"Total Tangible Assets" means the total consolidated tangible assets of the
Company and its Restricted Subsidiaries determined in accordance with GAAP and
as shown on the most recent balance sheet of the Company.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding with
the Company or any Restricted Subsidiary of the Company unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Company;
(3) is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant. The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary;
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provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence immediately following such
designation.
The Board of Directors of the Company may designate any Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default to be
continuing immediately after such designation. If a Subsidiary is designated as
an Unrestricted Subsidiary, all outstanding Investments owned by the Company and
its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be
an Investment made as of the time of such designation and will either reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments" or reduce the amount available for future Investments under one or
more clauses of the definition of "Permitted Investments." All such outstanding
Investments will be valued at their fair market value at the time of such
designation. That designation will only be permitted if such Restricted Payment
would be permitted at that time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary. The Board of Directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
redesignation would not cause a Default to be continuing immediately after such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
"Wholly Owned Subsidiary" of any person means a subsidiary of such person
all of the outstanding capital stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by one or
more wholly owned subsidiaries.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal income
tax consequences of the exchange of the Original Notes for the New Notes and the
ownership and disposition of the New Notes. Except where noted, the following
deals only with New Notes held as capital assets within the meaning of section
1221 of the Internal Revenue Code of 1986, as amended (the "Code") by a holder
of New Notes that acquired the New Notes pursuant to their original issue. The
following does not deal with special situations, such as those of dealers in
securities or currencies, tax-exempt organizations, financial institutions,
insurance companies, or persons holding New Notes as part of a hedging or
conversion transaction or a straddle. Furthermore, the following is based upon
the provisions of the Code, U.S. Treasury Department regulations promulgated
thereunder, administrative pronouncements, judicial decisions and
interpretations of the foregoing as of the date hereof. Such authorities may be
repealed, revoked, or modified, possibly with retroactive effect, so as to
result in United States federal income tax consequences different from those
discussed below. In addition, except as otherwise indicated, the following does
not consider the effect of any applicable foreign, state, local or other tax
laws or estate or gift tax considerations.
As used herein, a "United States person" is:
(1) a citizen or resident of the U.S.;
(2) a corporation or partnership created or organized in or under the laws of
the U.S. or any political subdivision thereof;
(3) an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
(4) a trust if
(A) a court within the United States is able to exercise primary
supervision over the administration of the trust and
(B) one or more United States persons have the authority to control all
substantial decisions of the trust.
A U.S. Holder is a beneficial owner of a New Note who is a United States
person. A Non-U.S. Holder is a beneficial owner of a New Note who is not a U.S.
Holder.
THE EXCHANGE OFFER
The exchange of New Notes pursuant to the exchange offer will be treated as
a continuation of the corresponding Original Notes because the terms of the New
Notes are not materially different from the terms of the Original Notes.
Accordingly:
(1) such exchange will not constitute a taxable event to a holder;
(2) no gain or loss will be realized by a holder upon receipt of a New Note;
(3) the holding period of a New Note will include the holding period of the
Original Note exchanged therefor; and
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(4) the adjusted tax basis of the New Notes will be the same as the adjusted tax
basis of the Original Notes exchanged.
TAX CONSEQUENCES TO U.S. HOLDERS
ORIGINAL ISSUE DISCOUNT. The New Notes will be issued with original issue
discount ("OID") in an amount equal to the difference between the principal
amount of the New Notes and the issue price of the New Notes. U.S. Holders
should be aware that they generally must include OID in gross income in advance
of the receipt of cash attributable to that income.
The amount of OID includable in income by a U.S. Holder of a New Note is
the sum of the "daily portions" of OID with respect to the New Note for each day
during the U.S. Holder's taxable year on which it held such New Note. The daily
portion is determined by allocating to each day in any "accrual period" a pro
rata portion of the OID allocable to that accrual period. The accrual period for
a New Note may be of any length and may vary in length over the term of the New
Note, provided that each accrual period is no longer than one year and each
scheduled payment of principal or interest occurs on the first day or the final
day of an accrual period.
In general, the amount of OID allocable to an accrual period is an amount
equal to the excess, if any, of (a) the product of the New Note's "adjusted
issue price" at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period and
properly adjusted for the length of the accrual period) over (b) the sum of any
stated interest allocable to the accrual period. OID allocable to a final
accrual period is the difference between the amount payable at maturity (other
than a payment of stated interest) and the adjusted issue price at the beginning
of the final accrual period. The adjusted issue price of a New Note at the
beginning of any accrual period is equal to its issue price increased by the
accrued OID for each prior accrual period. Under these rules, a U.S. Holder will
have to include in income increasingly greater amounts of OID in successive
accrual periods.
SALE, EXCHANGE OR DISPOSITION OF THE NEW NOTES. Upon the sale, exchange or
other disposition of a New Note, a U.S. Holder generally will recognize capital
gain or loss equal to the difference between the amount of cash and the fair
market value of property received by such U.S. Holder (except to the extent
attributable to accrued interest, which will be treated as interest) and such
U.S. Holder's adjusted tax basis in the New Note. Such capital gain or loss
generally will be long-term capital gain or loss if at the time of such sale,
exchange or other disposition the New Note has been held by the U.S. Holder for
more than 12 months, and will be short-term capital gain or loss if the New Note
has been held by the U.S. Holder for 12 months or less. In the case of certain
non-corporate taxpayers, long-term capital gain will be subject to tax at a
maximum rate of 20% and short-term capital gain will be taxable as ordinary
income at a maximum rate of 39.6%. The deductibility of capital losses is
subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Certain noncorporate U.S.
Holders may be subject to backup withholding at a rate of 31% on payments of
principal, and interest on, and the proceeds of disposition of, a New Note.
Backup withholding will apply only if:
(1) the U.S. Holder fails to furnish its Taxpayer Identification Number ("TIN")
in the manner required;
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(2) the U.S. Holder furnishes an incorrect TIN;
(3) the Internal Revenue Service notifies the Company or other payor that the
U.S. Holder has underreported payments of interest or dividends; or
(4) under certain circumstances, the U.S. Holder fails to certify, under penalty
of perjury, that it has furnished a correct TIN and has not been notified by
the Internal Revenue Service that it is subject to backup withholding.
In general, information reporting requirements will apply to certain
payments made in respect of the New Note of a U.S. Holder, unless the U.S.
Holder is an exempt recipient or otherwise establishes an exemption. Generally,
individuals are not exempt recipients, whereas corporations and certain other
entities are exempt recipients.
If you are a U.S. Holder, any amounts withheld under the backup withholding
rules from a payment to you would be allowed as a refund or a credit against
your U.S. federal income tax liability, provided that the required information
is furnished in a timely manner to the Internal Revenue Service.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
PAYMENTS OF INTEREST. Payments of interest on the New Notes to a Non-U.S.
Holder will generally not be subject to U.S. federal income or withholding tax,
provided that:
(1) (a) the holder is not (A) a direct or indirect owner of 10% or more of the
total combined voting power of all classes of stock of the Company within
the meaning of Section 871(h)(3) of the Code or (B) a controlled foreign
corporation related to us within the meaning of Section 864(d)(4) of the
Code;
(b) such interest is not effectively connected with the conduct by that holder
of a trade or business within the United States; and
(c) we or our paying agent receives (A) from the beneficial owner of the New
Note, a properly completed Internal Revenue Service Form W-8, Form W-8BEN or
other appropriate successor form, signed under penalties of perjury, which
provides its name and address and certifies that it is a Non-U.S. Holder or
(B) from a securities clearing organization, bank or other financial
institution that holds the New Notes in the ordinary course of its trade or
business (a "Financial Institution") on behalf of the beneficial owner, a
statement certifying under penalties of perjury that it has received such a
Form W-8, Form W-8BEN or other appropriate successor form from the Non-U.S.
Holder, or that it has received from another Financial Institution a
statement that it has received a Form W-8, Form W-8BEN or other appropriate
successor form from the Non-U.S. Holder, and a copy of such form is
furnished to the payor; or
(2) the payments of interest are not effectively connected with the conduct of a
U.S. trade or business and the Non-U.S. Holder is entitled to the benefits
of an income tax treaty under which interest on the New Notes is exempt from
United States federal withholding tax and the Non-U.S. Holder provides a
properly executed Internal Revenue Service Form 1001, Form W-8BEN or other
appropriate successor form claiming the exemption.
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<PAGE> 125
If payment of interest on a New Note is effectively connected with the
conduct of a trade or business in the United States by a Non-U.S. Holder, such
payment will generally be subject to United States federal income tax on a net
basis at the rates applicable to U.S. Holders (and, if you are a corporate
Non-U.S. Holder, such payments may also be subject to a 30% branch profits tax).
Payments that are subject to United States federal income tax in such a manner
will not be subject to United States federal withholding tax so long as the
Non-U.S. Holder provides us or our paying agent with a properly executed
Internal Revenue Service Form 4224, Form W-8ECI or other appropriate successor
form.
SALE, EXCHANGE OR RETIREMENT OF THE NEW NOTES. Subject to the discussion
below concerning backup withholding, if you are a Non-U.S. Holder, you will not
be subject to United States federal income or withholding tax with respect to
gain recognized on a sale, exchange or other disposition of the New Notes unless
(1) the gain is effectively connected with your conduct of a trade or business
in the United States, (2) if you are an individual, you are present in the
United States for 183 or more days in the taxable year of the disposition and
certain other requirements are met or (3) you are subject to the special rules
applicable to some former citizens and residents of the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under current U.S. federal
income tax law, backup withholding at a rate of 31% will not apply to payments
of interest to a Non-U.S. Holder by us or our paying agent on a New Note if the
certifications described above under "Non-U.S. Holders--Payment of Interest" are
received, provided that we (or our paying agent) do not have actual knowledge
that the payee is a United States person. Interest paid with respect to a New
Note, and payment of the proceeds from the sale, exchange or other disposition
of a New Note to or through a United States office of a broker will be subject
to information reporting and backup withholding unless the payor receives the
appropriate certification statement. Appropriate certification procedures
require that the beneficial owner certifies as to its status as a Non-U.S.
Holder or otherwise establishes an exemption. In addition, payments of the
proceeds from the sale, exchange or other disposition of a New Note to or
through a foreign office of a broker or the foreign office of a custodian,
nominee or other agent acting on behalf of the beneficial owner of a New Note
will not be subject to information reporting or backup withholding; however, if
the broker, custodian, nominee or other agent is, for United States federal
income tax purposes, a United States person, a controlled foreign corporation or
a foreign person 50% or more of whose gross income over a specified three-year
period is from a United States trade or business, information reporting may be
required with respect to such payments. Backup withholding may apply to any
payment that the broker is required to report if the broker has actual knowledge
that the payee is a United States person.
If you are a Non-U.S. Holder, any amounts withheld under the backup
withholding rules from a payment to you would be allowed as a refund or a credit
against your U.S. federal income tax liability, provided that the required
information is furnished in a timely manner to the Internal Revenue Service.
New Treasury regulations governing the certification procedures regarding
withholding, backup withholding and information reporting on certain amounts
paid to Non-U.S. Holders are generally effective for payments made after
December 31, 2000. In general, the new Treasury regulations do not alter the
treatment of Non-U.S. Holders who satisfy current reporting requirements. The
new Treasury regulations change some procedural requirements relating to
establishing a holder's non-U.S. status, alter the procedures for claiming the
benefits of an income tax treaty and may change certain procedures relating to
intermediaries receiving payments on behalf of a beneficial owner of
120
<PAGE> 126
a New Note. If you are a Non-U.S. Holder you should consult your tax advisor
concerning the effect, if any, of such new Treasury regulations on the ownership
and disposition of the New Notes.
PLAN OF DISTRIBUTION
A broker-dealer that is the Holder of Original Notes that were acquired for
the account of that broker-dealer as a result of market-making or other trading
activities, other than Original Notes acquired directly from us or any of our
affiliates, may exchange those Original Notes for New Notes pursuant to the
exchange offer. This is true so long as each broker-dealer that receives New
Notes for its own account in exchange for Original Notes, where the Original
Notes were acquired by the broker-dealer as a result of market-marking or other
trading activities, acknowledges that it will deliver a prospectus in connection
with any resale of such New Notes. This prospectus, as it may be amended or
supplemented form time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Original Notes where the
Original Notes were acquired as result of market-making activities or other
trading activities. We have agreed that for a period of 180 days after
consummation of the exchange offer or such shorter period as will terminate when
all registrable securities covered hereby have been sold pursuant hereto, we
will make this prospectus, as it may be amended or supplemented from time to
time, available to any broker-dealer for use in connection with any resale,
except that the period may be suspended for a period if we and our guarantors
determine, upon the advise of counsel, that the amended or supplemented
prospectus would require disclosure of confidential information or interfere
with any of our financing, acquisition, reorganization or other material
transactions. All broker-dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of New Notes by
broker-dealers or any other Holder of New Notes. New Notes received by
broker-dealers for their own account in 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 New 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 resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New 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 New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
resale of New Notes and any commissions or concessions received by those persons
may be deemed to be underwriting compensation under the Securities Act. The
letter of transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after consummation of the exchange offer or such
time as any broker-dealer no longer owns any registrable securities, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests those documents
in the letter of transmittal, except that the period may be suspended for a
period if we and our guarantors determine, upon the
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<PAGE> 127
advise of counsel, that the amended or supplemented prospectus would require
disclosure of confidential information or interfere with any of our financing,
acquisition, reorganization or other material transactions. We have agreed to
pay all expenses incident to the exchange offer and to our performance of, or
compliance with, the registration rights agreements (other than commissions or
concessions of any brokers or dealers) and will indemnify the Holders of the New
Notes (including any broker-dealers) against some liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for us by
Schulte Roth & Zabel LLP, New York, New York.
EXPERTS
The consolidated financial statements of AMR Services Corporation, as of
December 31, 1998 and Worldwide Flight Services, Inc. as of September 30, 1999,
and the related consolidated statements of operations, stockholder's equity, and
cash flows for the years ended December 31, 1997 and December 31, 1998 and for
the three months ended March 31, 1999, of AMR Services Corporation and the
consolidated statements of operations, stockholders equity, and cash flows for
the six months ended September 30, 1999 of Worldwide Flight Services, Inc.
appearing in this prospectus, have been audited by Ernst & Young LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated statements of income and cash flows of MAS and its
subsidiary for the period January 1, 1999 through August 12, 1999, appearing in
this prospectus, have been audited by Ernst & Young LLP, independent auditors,
as stated in their report appearing herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of MAS and its subsidiary as of
December 31, 1997 and 1998 and for each of the years in the two year period
ended December 31, 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
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<PAGE> 128
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Act with respect to our offering of the New Notes. This prospectus does not
contain all the information included in the registration statement and the
exhibits and schedules thereto. You will find additional information about us
and the New Notes in the registration statement. The registration statement and
the exhibits and schedules thereto may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the public reference
facilities of the SEC's Regional Offices: New York Regional Office, Seven World
Trade Center, Suite 1300, New York, New York 10048; and Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
this material may also be obtained from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The SEC also maintains a site on the World Wide Web
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, including Worldwide, that file
electronically with the SEC. Statements made in this prospectus about legal
documents may not necessarily be complete and you should read the documents
which are filed as exhibits to the registration statement or otherwise filed
with the SEC.
If for any reason we are not required to comply with the reporting
requirements of the Securities Exchange Act of 1934, we are still required under
the indenture to furnish the holders of the New Notes with the information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. In addition, we have agreed that, for so long as any Original Notes or New
Notes remain outstanding, we will furnish to the holders of those notes and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
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<PAGE> 129
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF WORLDWIDE FLIGHT
SERVICES, INC. (AND PREDECESSOR AMR SERVICES CORPORATION)
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets--As of December 31, 1998 and
September 30,
1999................................................... F-3
Consolidated Statements of Operations--Years ended
December 31, 1997 and 1998, the three months ended
March 31, 1999 and six months ended September 30,
1999................................................... F-4
Consolidated Statements of Changes in Stockholders'
Equity--Years ended December 31, 1997 and 1998, the
three months ended March 31, 1999 and six months ended
September 30, 1999..................................... F-5
Consolidated Statements of Cash Flows--Years ended
December 31, 1997 and 1998, the three months ended
March 31, 1999 and six months ended September 30,
1999................................................... F-6
Notes to Consolidated Financial Statements................ F-7
CONSOLIDATED FINANCIAL STATEMENTS OF MIAMI AIRCRAFT SUPPORT,
INC.
Report of Ernst & Young LLP, Independent Auditors......... F-28
Consolidated Statements of Income--Period from January 1,
1999 through August 12, 1999........................... F-29
Consolidated Statements of Cash Flows--Period from January
1, 1999 through August 12, 1999........................ F-30
Notes to Consolidated Financial Statements................ F-31
Report of KPMG LLP, Independent Auditors.................. F-34
Consolidated Balance Sheets--December 31, 1997 and 1998... F-35
Consolidated Statements of Income--Years ended December
31, 1997
and 1998............................................... F-36
Consolidated Statements of Changes in Stockholders'
Equity--Years ended December 31, 1997 and 1998......... F-37
Consolidated Statements of Cash Flows--Years ended
December 31, 1997 and 1998............................. F-38
Notes to Consolidated Financial Statements................ F-39
</TABLE>
F-1
<PAGE> 130
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholder of
Worldwide Flight Services, Inc.
We have audited the accompanying consolidated balance sheets of AMR
Services Corporation (the "Predecessor"), as of December 31, 1998 and Worldwide
Flight Services as of September 30, 1999, and the related consolidated
statements of operations, stockholder's equity, and cash flows for the years
ended December 31, 1997 and December 31, 1998 and for the three months ended
March 31, 1999, of AMR Services Corporation and the consolidated statements of
operations, stockholders equity, and cash flows for the six months ended
September 30, 1999 of Worldwide Flight Services. 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 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AMR Services
Corporation at December 31, 1998 and the consolidated financial position of
Worldwide Flight Services as of September 30, 1999 and the consolidated results
of operations and cash flows for the years ended December 31, 1997 and 1998 and
for the three months ended March 31, 1999 of AMR Services Corporation and the
consolidated results of operations and cash flows for the six months ended
September 30, 1999 of Worldwide Flight Services in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
November 19, 1999
F-2
<PAGE> 131
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR
AMRS WORLDWIDE
------------ -------------
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.......................... $14,200 $ 11,629
Accounts receivable, less allowance for doubtful
accounts of $449, and $1,430, respectively...... 31,255 66,098
Inventories........................................ 554 422
Deferred income taxes.............................. 2,445 4,124
Prepaid and other current assets................... 2,786 4,633
------- --------
Total current assets....................... 51,240 86,906
Equipment and property:
Equipment and property, at cost.................... 68,050 45,850
Less accumulated depreciation...................... 39,276 2,502
------- --------
28,774 43,348
Intangible assets including Goodwill, net............ 6,512 101,232
Other assets......................................... 2,170 9,758
------- --------
Total assets............................... $88,696 $241,244
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable................................... $10,543 $ 19,727
Accrued salaries, wages, and benefits.............. 10,317 11,212
Accrued liabilities................................ 3,681 12,419
Current portion of long-term debt.................. 952 2,627
------- --------
Total current liabilities.................. 25,493 45,985
Deferred income taxes................................ 838 15,311
Long-term debt....................................... -- 145,174
Stockholder's equity:
Common stock....................................... 1 --
Additional paid-in-capital......................... 15,000 38,918
Retained earnings.................................. 48,394 (2,829)
Accumulated other comprehensive income............. (1,030) (1,315)
------- --------
Total stockholder's equity................. 62,365 34,774
------- --------
Total liabilities and stockholder's
equity.................................. $88,696 $241,244
======= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 132
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
AMRS WORLDWIDE
---------------------------------- -------------
YEAR ENDED THREE MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
------------------- MARCH 31, SEPTEMBER 30,
1997 1998 1999 1999
-------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
External customers.............. $147,841 $155,443 $38,640 $131,579
Affiliates...................... 75,249 74,299 22,835 --
-------- -------- ------- --------
Total operating
revenues............. 223,090 229,742 61,475 131,579
Expenses:
Salaries, wages, and benefits... 144,422 154,706 39,679 85,803
Materials, supplies, and
services..................... 33,384 28,047 7,744 15,971
Equipment and facilities
rental....................... 11,059 13,597 3,641 8,491
Depreciation and amortization... 5,643 5,908 1,627 4,476
Other miscellaneous expenses.... 15,847 13,632 4,784 10,781
General and administrative
allocated expenses........... 5,877 5,798 2,269 --
-------- -------- ------- --------
Total operating
expenses............. $216,232 $221,688 $59,744 $125,522
-------- -------- ------- --------
Operating income from continuing
operations...................... 6,858 8,054 1,731 6,057
Interest expense.................. -- -- -- (5,083)
Interest income................... 1,421 2,160 440 --
Other income (expense), net....... (584) 580 (552) (185)
-------- -------- ------- --------
Income from continuing operations
before income taxes and
extraordinary loss.............. 7,695 10,794 1,619 789
Provision for income taxes........ 3,309 4,490 644 1,659
-------- -------- ------- --------
Income (loss) from continuing
operations before extraordinary
loss............................ 4,386 6,304 975 (870)
Extraordinary loss on early
extinguishment of debt.......... -- -- -- (1,959)
Loss from discontinued operations,
net of tax benefit of $395 and
$139, respectively.............. -- (552) (210) --
-------- -------- ------- --------
Net income (loss)................. $ 4,386 $ 5,752 $ 765 $ (2,829)
======== ======== ======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 133
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
------------------------------------------------------------
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME EQUITY
------ -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997......... $ 1 $ 15,000 $42,642 $ (887) $ 56,756
Net income......................... -- -- 5,752 -- 5,752
Foreign currency translation....... -- -- -- (143) (143)
--------
Total comprehensive
income.................... 5,609
--- -------- -------- ------- --------
Balance at December 31, 1998......... 1 15,000 48,394 (1,030) 62,365
Net income......................... -- -- 765 -- 765
Foreign currency translation....... -- -- -- 223 223
--------
Total comprehensive
income.................... 988
--- -------- -------- ------- --------
Balance at March 31, 1999............ 1 15,000 49,159 (807) 63,353
Sale of AMRS....................... (1) (15,000) (49,159) 807 (63,353)
WORLDWIDE
------------------------------------------------------------
Sale of stock to parent............ -- $ 28,250 -- -- $ 28,250
Equity contribution by parent........ 10,668 10,668
Net loss............................. -- -- (2,829) -- (2,829)
Foreign currency translation......... -- -- -- (1,315) (1,315)
--- -------- -------- ------- --------
Total comprehensive loss.... (4,144)
--- -------- -------- ------- --------
Balance at September 30, 1999........ -- $ 38,918 $(2,829) $(1,315) $ 34,774
=== ======== ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 134
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
AMRS WORLDWIDE
--------------------------------- -------------
YEAR ENDED THREE MONTHS SIX MONTHS
DECEMBER 31, ENDED ENDED
------------------ MARCH 31, SEPTEMBER 30,
1997 1998 1999 1999
-------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss)............................ $ 4,386 $ 5,752 $ 765 $ (2,829)
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization.............. 5,643 6,333 1,627 4,476
Deferred income taxes...................... (292) 933 1,584 (39)
Extraordinary loss......................... -- -- -- 1,959
Other...................................... -- -- -- 494
Change in assets and liabilities:
Accounts receivable........................ 3,969 (5,630) (4,190) (22,937)
Other assets............................... (357) (506) 183 (1,023)
Accounts payable and accrued liabilities... (658) (4,008) (7,117) 15,821
-------- ------- -------- ---------
Net cash provided by (used in) operating
activities................................... 12,691 2,874 (7,148) (4,078)
Investing Activities:
Capital expenditures......................... (12,662) (7,219) (1,688) (4,606)
Acquisitions, net of cash.................... -- (1,500) -- (149,833)
Other........................................ 119 (499) 26 --
-------- ------- -------- ---------
Net cash used in investing activities.......... (12,543) (9,218) (1,662) (154,439)
Financing Activities:
Proceeds from sale of senior notes........... -- -- -- 126,793
Issue costs on long term debt................ -- -- -- (10,204)
Proceeds from long-term debt................. -- -- -- 85,748
Payments on long-term debt................... -- -- -- (70,866)
Proceeds from sale of stock.................. -- -- -- 28,250
Equity contribution by parent................ 10,425
Dividend to parent........................... -- -- (5,390) --
-------- ------- -------- ---------
Net cash provided by financing activities...... -- -- (5,390) 170,146
Net increase (decrease) in cash and cash
equivalents.................................. 148 (6,344) (14,200) 11,629
Cash and cash equivalents at beginning of
period....................................... 20,396 20,544 14,200 --
Cash and cash equivalents at end of period..... $ 20,544 $14,200 $ -- $ 11,629
======== ======= ======== =========
Supplemental Disclosures of Cash Flow
Information:
Cash paid (refunded) for income taxes.......... $ 3,017 $ 3,162 (1,079) 456
Cash paid for interest....................... -- -- -- 2,806
Non-cash transactions:
Note payable for acquisition............... -- $ 914 -- --
</TABLE>
See accompanying notes.
F-6
<PAGE> 135
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION
On March 31, 1999, MR Services Acquisition Corporation completed the
acquisition of all of the outstanding stock of AMR Services Corporation
("Predecessor"), a wholly owned subsidiary of AMR Services Holding Corporation,
which was a wholly owned subsidiary of AMR Corporation, the parent company of
American Airlines, Inc. ("American"). MR Services Acquisition Corporation was
immediately merged with and into AMRS, and AMRS, the surviving corporation was
renamed Worldwide Flight Services, Inc. ("Worldwide"). Worldwide is owned by WFS
Holdings, Inc. ("Holdings" or "Parent"). The acquisition was funded by an
initial capital contribution by the parent of $28.3 million and borrowings under
a term debt facility and revolving credit facility (see Note 3). The initial
purchase price was $75.0 million plus subsequent adjustments for working capital
and capital spending, all of which is described in more detail in Note 3. The
acquisition as of March 31, 1999 has resulted in a new entity as well as a
change in the basis of accounting and as a result, financial information at any
point or for any period subsequent to March 31, 1999 is not comparable to
financial information at any point or for any period prior to the acquisition.
Prior to the acquisition, some subsidiaries, divisions and branches of AMRS
were sold or transferred to AMR Corporation. As a result, the accompanying
consolidated historical financial statements of the Predecessor have been
adjusted to exclude certain subsidiaries, divisions, or branches, in order to
achieve a consistent presentation of the entities included in the acquisition as
discussed above. The excluded subsidiaries, divisions, or branches include AMR
Combs, Inc.; the logistics division (consisting of the CP19 warehouse, McKesson,
Southland, and Airbourne branches); Dalfort Aviation Services, LP; the Warsaw
operations branch; and the ground services branch in Spain servicing American
contracts. As a result, the financial statements presented herein do not
represent the legal entity AMR Services Corporation as it existed during 1997 or
1998 or at December 31, 1998 or March 31, 1999, but rather represent the entity
to be sold. The accompanying financial statements were prepared from the
historical accounting records of AMR Corporation. These financial statements
included all revenues of the Predecessor and all items of expense directly
incurred by it and expenses charged or allocated to it by AMR Corporation in the
normal course of business.
On August 12, 1999, Worldwide purchased all of the stock of Miami Aircraft
Services, Inc. ("MAS"), an independent provider of express air cargo handling
services in the United States, for $63.0 million plus transactions. Also, on
August 23, 1999, Worldwide completed the acquisition of Aerolink International,
Inc. ("Aerolink"), a leading provider of ground services, located in Pittsburg,
Pennsylvania for a purchase price of $5.9 million plus possible additional
consideration. The operations of MAS and Aerolink are included in the operations
of Worldwide since the date of acquisition. (see Note 3)
Worldwide is an independent provider of ground services which operates in
four separate areas: cargo handling and ramp, passenger and technical services.
Cargo handling activities includes the loading and unloading of cargo aircraft,
the build-up and break-down of cargo and other services. Ramp services include
loading and unloading, aircraft marshaling, aircraft push-back, cabin cleaning,
and providing heating, air-conditioning,
F-7
<PAGE> 136
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
lavatory and water services. Passenger services include passenger ticketing,
curbside and ticket counter check-in boarding services, baggage claim and other
services for passengers. Technical services include jet bridge and ground
equipment maintenance, aircraft de-icing, freight management, aircraft fueling
and other services.
Worldwide operates in airports around the world, after completion of the
acquisitions described in Note 3, with primary operations in New York City, New
York; Dallas, Texas; Miami, Florida; Pittsburg, Pennsylvania, Paris, France; and
Hong Kong, China. International operations are generally organized as either
foreign branches or separately incorporated subsidiaries. Worldwide provides
services to a significant number of airlines around the world with typical
payment terms of 30-60 days. Worldwide routinely analyzes the credit worthiness
of its customers and generally does not require collateral.
All material intercompany balances and transactions for the entity have
been eliminated in consolidation.
The financial statements of Worldwide's foreign subsidiaries and branches
are translated as if the local currency were the functional currency.
Accordingly, assets and liabilities of the foreign subsidiaries and branches are
translated at end-of-period rates. Operations are translated at average exchange
rates in effect during the period. Included in other income/(expense) net are
foreign exchange gains(losses) resulting from foreign currency transactions of
$(584,000), $440,000, $(552,000), and $(52,000) for the years ended December 31,
1997 and 1998, the three months ended March 31, 1999 and the six months ended
September 30, 1999, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Worldwide recognizes fees from its services contracts as service is
provided. The terms of the service contracts are cancellable by either party on
60 days notice or less for any reason.
BUSINESS AND CONCENTRATIONS OF CREDIT RISK
At September 30, 1999, Worldwide derived approximately 23% of its revenues
from one customer and its affiliates. If Worldwide experiences a significant
reduction in business from its significant customer, it could result in material
harm to its business, financial condition and future results. Revenues from this
significant customer could decrease either because they choose to use other
third party ground service providers or because they choose to perform these
services using their own personnel.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect
F-8
<PAGE> 137
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term, highly liquid
investments with maturities of 90 days or less when purchased.
INTANGIBLES (PREDECESSOR)
Intangibles result primarily from the acquisition discussed in Note 10 (the
Cyclone Acquisition) and certain prior acquisitions of freight handling
companies in Miami, Florida, and Paris, France. Intangibles are amortized on a
straight-line basis over 30 years. Worldwide continually evaluates intangible
assets to determine whether current events and circumstances warrant adjustment
of the carrying value or amortization periods. See Note 3 for a description of
the Worldwide acquisition and the related intangible.
Intangible assets consist of goodwill of $6,760,000 at December 31, 1998
(net of accumulated amortization of $1,678,000) and other intangibles of
$1,922,000 at December 31, 1998, (net of accumulated amortization of $492,000).
INTANGIBLES (WORLDWIDE FLIGHT SERVICES)
Intangible assets consist primarily of values assigned to customer
relationships and goodwill of $103,322,000 at September 30, 1999 (net of
accumulated amortization of $2,000,000) from the acquisitions of AMR Services,
MAS and Aerolink. Such amounts include goodwill of approximately $32,000,000
(net of accumulated amortization of $200,000). Intangibles and goodwill are both
being amortized over 20 years. (See Note 3)
FINANCIAL INSTRUMENTS
Worldwide purchases interest rate cap agreements to hedge interest on
variable-rate debt instruments. To the extent Worldwide has borrowings
outstanding on variable-rate debt instruments, interest rate cap agreements are
deferred and recognized as an adjustment to interest expense on the variable
rate debt. Notional amounts in excess of variable-rate debt outstanding are
marked to market with the resulting gain or loss being included in interest
expense.
INCOME TAXES
The Predecessor was included in AMR Corporation's consolidated United
States federal income tax return and state income tax returns in unitary states.
Under the terms of AMR Corporation's tax sharing policy, income taxes are
allocated to AMR Corporation subsidiaries as if the subsidiaries were separate
taxable entities. The Predecessor computes its provision for deferred federal
income taxes using the liability method as if it were a
F-9
<PAGE> 138
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separate taxpayer. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates. As part of
the provisions of the acquisition agreement with AMR Corporation, income,
franchise, ad valorem, and other tax liabilities for periods prior to March 31,
1999 remain the liability of by AMR Corporation.
Worldwide will be included in Holdings' consolidated United States federal
income tax return and state income tax returns in unitary states. Under the
terms of Holdings' tax sharing policy, income taxes will be allocated to
Holdings' subsidiaries as if the subsidiaries were separate taxable entities.
Worldwide computes its provision for deferred federal income taxes using the
liability method as if it were a separate taxpayer. Under this method, deferred
tax assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates.
COMMON STOCK AND STOCK OPTIONS
The Predecessor had 1000 shares of issued, authorized, and outstanding
$1.00 par value common stock at December 31, 1998. Worldwide has 1,000 shares of
issued, authorized, and outstanding $.01 par value common stock at September 30,
1999. Certain Worldwide employees are covered by a stock option plan which will
grant shares of its Parent's nonvoting common stock. Such grants will vest over
various periods of time (generally five years), subject to certain conditions.
As of November 19, 1999, there have been no shares granted under the stock
option plan.
In connection with the placement of $130,000,000 in Senior Notes (see Note
4) in a private placement, Holdings issued 130,000 warrants which will entitle
the holders to purchase an aggregate of 74,750 shares of its non-voting common
stock. The warrants represent approximately 5% of the common stock of Holdings
at an exercise price of $.01 per share. The warrants cannot be exercised until a
public offering of Holdings is consummated, a class of common stock is listed on
a national securities exchange, or certain other exercise events occur.
ACCOUNTS RECEIVABLE
Worldwide periodically evaluates the credit worthiness of its customers as
accounts receivable balances are not collateralized. The Company has not
experienced significant credit losses.
F-10
<PAGE> 139
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following summarizes the activity in the allowance for doubtful
accounts for the following periods (in thousands):
<TABLE>
<CAPTION>
BALANCE
AT BAD
BEGINNING DEBT BALANCE AT
PERIOD OF PERIOD EXPENSE ACQUIRED WRITE-OFFS END OF PERIOD
- ------ --------- ------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Period ended September 30,
1999.......................... 915 301 250 (36) 1,430
- -------------------------------------------------------------------------------------------
Period ended March 31, 1999... 449 466 -- -- 915
Year ended December 31,
1998........................ 1,611 189 -- (1,351) 449
Year ended December 31,
1997........................ 1,350 1,076 -- (815) 1,611
</TABLE>
INVENTORIES
Inventories consist primarily of fuel and glycol inventories which are
carried at cost determined on a first-in, first-out basis.
NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Predecessor adopted Financial Accounting
Standards Board Statement No. 130, Reporting Comprehensive Income. ("FAS 130")
which establishes rules for the reporting and display of comprehensive income
and its components. The Statement of Shareholders' Equity presents comprehensive
income for the year ended December 31, 1998 and the period ended September 30,
1999. Comprehensive income has been presented for all periods.
As of January 1, 1998, the Financial Accounting Standards Board established
Statement No. 131, Disclosures about Segments of an Enterprise and Related
Information ("FAS 131"), which establishes standards for the way in which public
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosure about products and services,
geographic areas, and major customers. Worldwide adopted FAS 131 effective April
1, 1999. Since Worldwide reports financial information and evaluates its
operations by location and not by its four different services areas. The
adoption of FAS 131 did not have an effect on the results of operations,
financial position, cash flows or disclosure information. Worldwide determined
it operates under one reportable segment.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"),
as amended, which is required to be adopted in years beginning after June 15,
2000. FAS 133 requires all derivatives to be measured at fair value and
recognized as either assets or liabilities on the balance sheet . Changes in
such fair value are required to be recognized immediately in net income (loss)
to the extent the derivatives are not effective as hedges. At present
F-11
<PAGE> 140
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
time, Worldwide does not feel the adoption of FAS 133 will have a material
effect on its financial position, results of operations or cash flows.
3. ACQUISITIONS
On March 31, 1999, the Predecessor was acquired from AMR Corporation for
$75.0 million plus transaction costs estimated at approximately $3.2 million.
The acquisition was financed by a $28.3 million sale of stock to the Parent and
proceeds from the issuance of $50.0 million in term debt (see Note 4). The
acquisition of the Predecessor was accounted for as a purchase. The stock
purchase agreement also contains provisions by which AMR Corporation may receive
up to an additional $10.0 million in purchase price based on the growth rate of
revenues received from AMR Corporation and its affiliates as measured against
certain benchmarks and certain other consideration. Finally, the stock purchase
agreement has provisions for purchase adjustments based on working capital and
capital spending at closing. These provisions are not yet resolved, but are not
expected to result in significant adjustments to the purchase price.
The purchase price allocation resulted in approximately $35.4 million of
intangible assets, including goodwill which is being amortized over 20 years.
On August 12, 1999, Worldwide acquired the business of Miami Aircraft
Support, Inc. (MAS), a provider of ground services to airlines, for $63 million
plus transaction costs. Worldwide paid for the capital stock of MAS which was
financed primarily from proceeds from a debt offering described in Note 4. The
acquisition of MAS was accounted for as a purchase and resulted in goodwill and
intangibles of approximately $66 million which is being amortized on a
straight-line basis over 20 years. The operations of MAS are included in
Worldwide's operations from the date of acquisition.
On August 23, Worldwide completed the acquisition of Aerolink, a provider
of ground services to airlines. The purchase price was $5.9 million plus
possible additional consideration of $1.0 million based on the actual results
for 1999. As part of the purchase price, Worldwide repaid $0.6 million of debt
of Aerolink. The acquisition was accounted under the purchase method of
accounting. Worldwide recorded approximately 4 million of goodwill and
intangibles which is being amortized on a straight-line basis over 20 years. The
operations of Aerolink are included in Worldwide's operations from the date of
acquisition. The acquisition was financed with borrowings under the senior
secured credit facility.
COMBINED PURCHASE PRICE ALLOCATION (IN THOUSANDS)
<TABLE>
<S> <C>
Current assets.............................................. $ 45,978
Property, plant and equipment............................... 42,240
Goodwill and other intangible assets........................ 101,232
Other assets................................................ 2,142
Total liabilities, including deferred taxes................. (41,759)
--------
$149,833
========
</TABLE>
These purchase price allocations are preliminary, and still subject to
adjustment.
F-12
<PAGE> 141
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS (CONTINUED)
If the acquisitions of AMRS, MAS, and Aerolink had occurred at the
beginning of the year ended December 31, 1998 and the nine months ended
September 30, 1999 total revenues and net loss would have been as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -----------------
<S> <C> <C>
Total Revenues........................... $297,938 $237,425
Total Net Loss........................... (8,561) (5,808)
</TABLE>
4. SENIOR SECURED CREDIT FACILITY AND SENIOR NOTES:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt consists of the following (in thousands):
Borrowings under a $75,000 senior secured credit facility
with a bank; revolving commitment due March 2005 with
minimum interest payable monthly....................... $ 16,000
12 1/4% Senior Notes due August 2007; interest payable
semiannually beginning on February 2000................ 126,599
Other notes payable....................................... 5,202
--------
147,801
Less current maturities..................................... 2,627
--------
Long term debt.............................................. $145,174
========
</TABLE>
In July, 1999, Worldwide entered into a series of transactions to provide
financing for the MAS acquisition (see Note 3) and refinance its existing
borrowings. Such transaction included the placement of $130 million in Senior
Notes ("the offering") due 2007 in a private transaction along with the issuance
of certain warrants (as described in Note 2). In addition, Worldwide entered
into a new long-term secured revolving credit agreement with a syndicate of
banks, totaling $75 million. The facility provides for the availability of both
term borrowings and revolving credit. These transactions closed on August 12
1999.
In connection with the acquisition of the Predecessor on March 31, 1999,
Worldwide entered into a series of revolving credit and term loan agreements
with a syndicate of banks. As a result of the transactions described above,
Worldwide retired its existing indebtedness under these agreements and recorded
an extraordinary loss of $2.0 million from the early extinguishment of this
debt.
Worldwide's obligation under the senior secured facility are secured by a
first priority pledge of, and security interest in, the stock of all present and
future domestic subsidiaries,
F-13
<PAGE> 142
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SENIOR SECURED CREDIT FACILITY AND SENIOR NOTES (CONTINUED)
and 65% of the stock of all our present and future foreign subsidiaries, and
substantially all of our assets and the assets of our domestic subsidiaries.
Worldwide's obligation under the 12 1/4% Senior Notes is unconditionally
guaranteed by its domestic subsidiaries.
At Worldwide's option the interest rate on the senior secured credit
facility will be either (1) the London Interbank Offering Rate (LIBOR) plus
3.00% or (2) 2.00% plus the greater of The Chase Manhattan Bank's prime rate,
the federal funds effective rate plus 1/2% and the base CD rate published by
The Chase Manhattan Bank plus 1%. The interest rate is subject to step-downs
based on Worldwide's financial performance. At September 30, 1999, Worldwide's
weighted average borrowing rate was 8.93%. Worldwide also pays a quarterly fee
equal to 0.5% of the unused commitments under the senior secured credit
facility.
Worldwide is subject to various covenants associated with the $75 million
senior secured facility such as certain leverage and coverage ratios and other
customary conditions. In addition, Worldwide has certain restrictions on its
ability to incur debt, make capital expenditures, pay dividends, conduct asset
sales, issue equity securities, engage in acquisitions and other restrictions.
The maximum amount Worldwide may borrow at any time is limited by a borrowing
base formula which consists of a percentage of some of its accounts receivable
and a percentage of the value of some of its equipment which may have the effect
of limiting the credit available to Worldwide under the facility to an amount
less than the $75 million. At September 30, 1999, based on the borrowing base
calculation, Worldwide has $30.7 million available under its $75 million
facility. At September 30, 1999, Worldwide was in compliance with all debt
covenants. However, if the Company completes additional acquisitions, the
borrowing base would rise based on the acquired company's available collateral.
The scheduled maturities on long-term debt for the three months ended December
31, 1999 and the next five fiscal years are as follows (in thousands):
<TABLE>
<S> <C>
Remainder of 1999........................................... $ 1,079
2000...................................................... 2,145
2001...................................................... 787
2002...................................................... 512
2003...................................................... 338
2004 and thereafter....................................... 142,940
</TABLE>
The senior secured credit facility requires Worldwide to enter into one or
more interest rate protection agreements such that the interest cost with
respect to at least 50% of Worldwide's indebtedness will be fixed, hedged or
capped. (See Note 8)
Based on current rates available to Worldwide for debt with similar terms,
there is not a significant difference between the carrying amounts of long term
debt and their fair values.
F-14
<PAGE> 143
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS
PREDECESSOR
Cash and cash equivalents consisted of cash held at the operations and cash
held for the Predecessor by American. American invests this cash or
alternatively provides financing for the operations of its other affiliates. As
of December 31, 1998, the cash held for Worldwide by American was $11.2 million,
respectively; these amounts were immediately available for use by the
Predecessor. The balances were immediately charged or credited upon recording
certain transactions with AMR Corporation or its affiliates. The Predecessor
received interest at the average rate earned by American's portfolio of short-
term marketable securities. The aforementioned arrangement resulted in interest
income that may not be representative of what AMRS would have received if it
were not affiliated with AMR Corporation. Interest income related to this
arrangement was approximately $1.1 million and $1.9 million for the years ended
December 31, 1997 and 1998, respectively. The interest rate, which is reset
monthly, was 5.9% and 5.4% as of December 31, 1997 and 1998, respectively. The
average interest rate during 1997 and 1998 was 5.9% and 5.8%, respectively.
The Predecessor's transactions with AMR Services Holding Corporation,
American, and American Eagle Inc., a wholly owned subsidiary of AMR Corporation,
have been recorded on a basis determined by the parties which may not be
representative of the terms the Predecessor might have negotiated with third
parties.
The Company recognized revenue from affiliates primarily related to freight
handling and ramp services. General and administrative expenses allocated and
transfer priced from AMR Services Holding Corporation and AMR Corporation and
its affiliates to Worldwide, including legal, accounting, personnel, employee
benefits (including post-employment benefits), marketing, and other
administrative costs, aggregated $6.3 million, and $6.0 million for the years
ended December 31, 1997 and 1998 and $2.3 million for the three month period
ended March 31, 1999, respectively. In addition, AMR Corporation and affiliates
allocated approximately $3.8 million, and $3.4 million of other operating
expenses, primarily travel expenses, computer related charges, and facilities
rent for the years ended December 31, 1997 and 1998, respectively and $0.6
million for the three months ended March 31, 1999, respectively.
Certain eligible members of management participated in a defined benefit
plan sponsored by American. Worldwide was jointly and severally liable with AMR
Corporation and other members of AMR Corporation's consolidated group for
applicable funding and termination liabilities, if any, of the plan. The
accompanying financial statements do not reflect the portion of the net
obligation of the defined benefit plan sponsored by American attributable to the
employees of the Company.
WORLDWIDE
Worldwide entered into a management agreement with Castle Harlan, Inc., as
manager, under which the manager will provide us with business and
organizational strategy, financial, investment management, advisory and merchant
and investment banking
F-15
<PAGE> 144
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
services. Castle Harlan, Inc. is an affiliate of Holdings, which owns all of our
outstanding stock. During the six months ended September 30, 1999, we paid
$312,000 to Castle Harlan, Inc. for such fee. On August 12, 1999, the management
agreement with Castle Harlan, Inc. was amended to provide an annual service fee
of $1.25 million starting July 1, 2000 until December 31, 2002 and increasing to
$2.0 million starting January 1, 2003 until December 31, 2005. After December
31, 2005 the agreement will automatically renew each year unless canceled by
either party.
In connection with the acquisition of the Predecessor, Worldwide paid $2.0
million to Castle Harlan, Inc., primarily as reimbursement of expenses that
Castle Harlan, Inc. incurred in connection with the acquisition. Also,
concurrent with the closing of the offering (see Note 4) and the senior secured
credit facility, Worldwide paid fees of $2.5 million to Castle Harlan, Inc.
6. EQUIPMENT AND PROPERTY
Equipment and property are carried at cost and are depreciated using the
straight-line method over the estimated lives indicated in the table below. A
summary of equipment and property at December 31, 1998 of the Predecessor and at
September 30, 1999 of Worldwide follows (in thousands):
<TABLE>
<CAPTION>
DEPRECIABLE
LIFE 1998 1999
----------- ------- -------
<S> <C> <C> <C>
Buildings and improvements.............. 25-30 years $17,191 $12,564
Ground equipment........................ 5-8 years 46,888 26,918
Other equipment......................... 3-10 years 3,971 6,368
------- -------
Equipment and property, at cost......... $68,050 $45,850
======= =======
</TABLE>
Depreciation expense totaled $5,332,000 and $5,420,000 for the years ended
December 31, 1997 and 1998 and the three months ended March 31, 1999 of
$1,579,000 of the Predecessor and $2,926,000 for the six months ended September
30, 1999 of Worldwide.
7. INCOME TAXES
Income before income taxes for years ended December 31, 1997, 1998 and the
three month period ended March 31, 1999 of the Predecessor was $3,160,000,
$5,879,000 and $479,000, respectively, for U.S. operations and was $4,535,000,
$3,968,000, and $1,140,000 for foreign operations, respectively. Income (loss)
before income taxes for the six month period ended September 30, 1999 of
Worldwide was $(5,180,000) for US operations and was $4,010,000 for foreign
operations. These amounts include the amounts allocated to discontinued
operations, all of which occurred in U.S. operations.
F-16
<PAGE> 145
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
The components of the income tax provision for the years ended December 31,
1997, 1998 and the three month period ended March 31, 1999 of the Predecessor
and for the six month period ended September 30, 1999 of Worldwide are as
follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1998 1999 1999
------ ------ --------- -------------
<S> <C> <C> <C> <C>
Current
Federal..................... $1,083 $1,265 $(1,194) $ --
Foreign..................... 1,905 1,136 180 1,588
State....................... 613 761 (65) 110
------ ------ ------- ------
3,601 3,162 (1,079) 1,698
Deferred...................... (292) 933 1,584 (39)
------ ------ ------- ------
Total income tax
provision........ $3,309 $4,095 $ 505 $1,659
====== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1998 1999 1999
------ ------ --------- -------------
<S> <C> <C> <C> <C>
Statutory income provision.... $2,693 $3,445 $ 445 $ (409)
State income tax provision,
net......................... 399 492 39 71
Foreign Taxes................. -- -- 180 1,588
Other......................... 217 158 (159) 409
------ ------ ----- ------
Income tax
provision........ $3,309 $4,095 $ 505 $1,659
====== ====== ===== ======
</TABLE>
F-17
<PAGE> 146
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES (CONTINUED)
The components of deferred income taxes for the year ended December 31,
1998 of the Predecessor and September 30, 1999 of Worldwide are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998 1999
------ -------------
<S> <C> <C>
Deferred tax assets:
Expenses deductible for tax in a different
period than books........................... $2,445 $ 3,934
Foreign tax credit............................. 998 1,588
Net Operating Loss Carryforward................ -- 1,422
Other.......................................... 253 190
------ --------
Total deferred tax assets.............. 3,696 7,134
------ --------
Valuation Allowance.................... -- (3,010)
------ --------
Net Deferred Tax Asset................. $3,696 $ 4,124
====== ========
Deferred tax liabilities:
Undistributed earnings of foreign
subsidiaries................................ $1,368 $ 670
Identified Intangibles......................... -- 12,264
Accelerated depreciation....................... 126 536
Other.......................................... 595 1,841
------ --------
Total deferred tax liabilities......... 2,089 15,311
------ --------
Net deferred tax asset (liability)............... $1,607 $(11,187)
====== ========
</TABLE>
At September 30, 1999, Worldwide has recorded a valuation allowance to
reflect the estimated amount of deferred tax assets that may not be realized due
to the expiration of the foreign tax credit carryforward and net operating loss
carryforward. Worldwide has approximately $1,422,000 of net operating loss
carryforwards at September 30, 1999, the majority of which will expire in 2019.
8. FINANCIAL INSTRUMENTS
In connection with the initial term loan agreements, Worldwide acquired
interest rate caps in order to manage risks related to changes in variable
interest rates and to comply with the provisions under the initial term loan
agreements. With the extinguishment of the initial term loan agreement on August
12, 1999, the fair value of the interest rate cap was recognized as a component
of the extraordinary loss. Worldwide elected not to terminate these cap
agreements as similar hedging instruments will be required as borrowings are
made under the $75,000,000 senior secured credit facility. Worldwide's interest
rate caps limit its exposure to floating interest rates to a maximum LIBOR of
6.5% (at
F-18
<PAGE> 147
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. FINANCIAL INSTRUMENTS (CONTINUED)
September 30, 1999, LIBOR is 5.44%). The interest rate caps have a notional
amount of $50 million and expire in varying amounts through March, 2003.
However, as the notional amount of the interest rate caps currently exceed the
borrowings outstanding of the senior secured credit facility, a portion of the
interest rate caps has been marked to market as a component of interest expense
of approximately $212,000 for the six months ended September 30, 1999.
9. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under operating leases with initial and
remaining noncancelable lease terms in excess of one year for the remainders of
1999 and the five following years, are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 899
2000........................................................ 7,788
2001........................................................ 6,715
2002........................................................ 4,291
2003........................................................ 2,154
2004 and thereafter......................................... 1,961
-------
$23,808
=======
</TABLE>
All major airport facilities and office spaces are leased under operating
leases which include options to renew the leases and, escalation clauses. In
addition to the above minimum rental payments, some lease agreements require
contingent rental payments based on a percentage of the Company's revenue in the
respective location. The Company has other operating leases with terms either
less than one year (which generally are renewed on an annual basis), or
exclusively based on a percentage of revenue.
COLLECTIVE BARGAINING AGREEMENTS
Approximately 23% of Worldwide's United States employees are represented by
collective bargaining agreements. The employees consists primarily of cargo
handling and ramp services workers. The Transport Workers Union, or TWU
represents approximately 2,200 of U.S. based employees. Worldwide's current
agreement with TWU is effective until June 2001. The Teamsters Union is also
represents approximately 100 Philadelphia employees and the contract is
effective until February 2000. In Canada, approximately 300 of employees are
represented by the Canadian Auto Workers Union. This agreement expired in
November 1998. Worldwide continues to operate under the agreement and intends to
renegotiate the agreement in the near future.
Worldwide has not experienced any material business interruption as a
result of labor disputes and believes that it has a good relationship with its
employees.
F-19
<PAGE> 148
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. DISCONTINUED OPERATIONS -- CYCLONE
In July 1998, the Predecessor acquired all of the stock of Cyclone Surface
Cleaning, Inc. (Cyclone) and began to fund its operations which was engaged in
developing a technology to clean airport runaways. Assets acquired consisted
primarily of intangibles, including $565,000 of goodwill and was accounted for
as a purchase.
Worldwide elected to discontinue the Cyclone business since it did not fit
with Worldwide's core businesses. Accordingly the results of operations for 1998
and the three month period ended March 31, 1999 have been restated to reflect
the Cyclone business as discontinued operations. On August 31, 1999, Worldwide
terminated its relationship with the former owners of Cyclone and settled all
obligations due under a promissory note. No other costs are expected to be
incurred under this transaction.
11. FOREIGN OPERATIONS
Worldwide operates as an independent ground services provider to air cargo
and passenger airlines in North America, Europe, and Asia. The Company, however,
operated in a single business segment, as a provider of ground services to the
aviation industry. Inter-area sales are not material. Net assets by geographic
area are those assets and liabilities which are used in Worldwide's operations
in each area. Corporate level assets and liabilities are included as a component
of North and South America.
Information about Worldwide's operations in these geographic areas is as
follows (in thousands):
<TABLE>
<CAPTION>
NORTH AND SOUTH
PERIOD AMERICA EUROPE ASIA
------------------- --------------- ------- ------
<S> <C> <C> <C> <C>
Total Revenue........ December 31, 1997 $194,703 $28,387 --
December 31 1998 193,242 32,596 $3,904
Three months ended 50,849 8,662 1,964
March 31, 1999
--------------------------------------------------------
Six months ended 108,633 19,588 3,358
September 30, 1999
Long-lived assets.... December 31, 1998 $ 22,169 $ 9,809 $4,458
--------------------------------------------------------
September 30, 1999 34,629 4,626 4,093
</TABLE>
F-20
<PAGE> 149
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUMMARIZED FINANCIAL INFORMATION
Worldwide and its subsidiaries have operations in various countries around
the world. Domestic and international operations are either organized as
branches or separate corporate subsidiaries. The Senior Notes discussed in Note
4 result in debt securities that are unconditionally guaranteed by current
domestic subsidiaries, while all foreign subsidiaries do not guarantee the
securities. The following tables present the financial positions, results of
operations, and cash flows for the years ended December 31, 1997 and 1998 and
for the three months ended March 31, 1999 and the six months ended June 30, 1999
combined into three categories: 1) the operations of Worldwide, the legal
entity, and its international branches, 2) domestic subsidiaries, and 3) foreign
subsidiaries (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.................... $43,705 $ 2,860 $ 5,540 $ -- $52,105
Intercompany receivable........... 1,992 9,435 -- (11,427) --
Non-current assets................ 23,323 2,996 6,994 -- 33,313
Investments in affiliates......... 6,329 -- -- (6,329) --
------- ------- ------- -------- -------
Total assets...................... $75,349 $15,291 $12,534 $(17,756) $85,418
======= ======= ======= ======== =======
Liabilities....................... 18,593 130 9,939 -- 28,662
Intercompany payable.............. -- -- 11,427 (11,427) --
Stockholder's equity.............. 56,756 15,161 (8,832) (6,329) 56,756
------- ------- ------- -------- -------
Total liabilities and
stockholder's equity............ $75,349 $15,291 $12,534 $(17,756) $85,418
======= ======= ======= ======== =======
</TABLE>
F-21
<PAGE> 150
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $187,947 $11,539 $23,604 $ -- $223,090
Operating expenses................ 185,181 10,084 20,967 -- 216,232
-------- ------- ------- ------- --------
Operating income.................. 2,766 1,455 2,637 -- 6,858
Other income (expense)............ (497) 250 (337) -- (584)
Interest income (expense)......... 1,559 635 (773) -- 1,421
Equity in earnings of
subsidiaries.................... 3,867 -- -- (3,867) --
-------- ------- ------- ------- --------
Income before income taxes........ 7,695 2,340 1,527 (3,867) 7,695
Provision for income taxes........ 3,309 767 722 (1,489) 3,309
-------- ------- ------- ------- --------
Net Income........................ $ 4,386 $ 1,573 $ 805 $(2,378) $ 4,386
======== ======= ======= ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities.............. $ 10,931 $ 2,654 $ (894) $ $ 12,691
Cash used in investing
activities...................... (10,110) (2,326) (107) -- (12,543)
Cash provided by (used in)
financing activities............ (2,891) 1,563 1,328 -- --
-------- ------- ------ -- --------
Change in Cash.................... $ (2,070) $ 1,891 $ 327 $-- $ 148
======== ======= ====== == ========
</TABLE>
F-22
<PAGE> 151
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.................... $36,947 $ 3,678 $10,615 $ -- $51,240
Intercompany receivables.......... 11,058 8,737 -- (19,795) --
Non-current assets................ 21,557 2,821 13,078 37,456
Investments in affiliates......... 12,062 -- -- (12,062) --
------- ------- ------- -------- -------
Total assets...................... $81,624 $15,236 $23,693 $(32,239) $88,696
======= ======= ======= ======== =======
Liabilities....................... $19,259 $ 1,595 $ 5,477 $ -- $26,331
Intercompany payables............. -- -- 19,795 (19,795) --
Stockholder's equity.............. 62,365 13,641 (1,579) (12,062) 62,365
------- ------- ------- -------- -------
Total liabilities and
stockholder's equity............ $81,624 $15,236 $23,693 $(32,239) $88,696
======= ======= ======= ======== =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $186,262 $13,292 $30,188 $ -- $229,742
Operating expenses................ 182,959 11,275 27,454 -- 221,688
-------- ------- ------- ------- --------
Operating income.................. 3,303 2,017 2,734 -- 8,054
Interest income (expense)......... 3,239 (440) (639) -- 2,160
Other income (expense)............ 557 609 (586) -- 580
Equity in earnings of
subsidiaries.................... 3,695 -- -- (3,695) --
-------- ------- ------- ------- --------
Income before income taxes........ 10,794 2,186 1,509 (3,695) 10,794
Provision for income taxes........ 4,490 1,275 640 (1,915) 4,490
-------- ------- ------- ------- --------
Income from continuing
operations...................... 6,304 911 869 (1,780) 6,304
Loss from discontinued
operations...................... 552 -- -- -- 552
-------- ------- ------- ------- --------
Net income........................ $ 5,752 $ 911 $ 869 $(1,780) $ 5,752
======== ======= ======= ======= ========
</TABLE>
F-23
<PAGE> 152
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities.............. $ 2,369 $ 37 $ 468 $ -- $ 2,874
Cash used in investing
activities...................... (2,367) (364) (6,487) -- (9,218)
Cash provided by (used in)
intercompany financing
activities...................... (5,828) (472) 6,300 -- --
------- ----- ------- ------- -------
Change in cash.................... $(5,826) $(799) $ 281 $ -- $(6,344)
======= ===== ======= ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $49,645 $2,524 $9,306 $ -- $61,475
Operating expenses................ 49,460 1,955 8,329 -- 59,744
------- ------ ------ ------- -------
Operating income.................. 185 569 977 -- 1,731
Interest income (expense)......... 385 170 (115) -- 440
Other income (expense)............ -- (552) -- -- (552)
Equity in earnings of
subsidiaries.................... 1,049 -- -- (1,049) --
------- ------ ------ ------- -------
Income before income taxes........ 1,619 187 862 (1,049) 1,619
Provision for income taxes........ 644 77 275 (352) 644
------- ------ ------ ------- -------
Income from continuing
operations...................... 975 110 587 (697) 975
Loss from discontinued
operations...................... 210 -- -- -- 210
------- ------ ------ ------- -------
Net Income........................ $ 765 $ 110 $ 587 $ (697) $ 765
======= ====== ====== ======= =======
</TABLE>
F-24
<PAGE> 153
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities.............. $ (8,392) $ 877 $ 367 $-- $ (7,148)
Cash used in investing
activities...................... (1,467) (127) (68) -- (1,662)
Cash provided by (used in)
intercompany financing
activities...................... (3,908) 141 (1,623) -- (5,390)
-------- ----- ------- -- --------
Change in Cash.................... $(13,767) $ 891 $(1,324) $-- $(14,200)
======== ===== ======= == ========
</TABLE>
CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets.................... $ 58,923 $14,344 $13,639 $ -- $ 86,906
Intercompany receivable........... 8,568 9,126 -- (17,694) --
Non-current assets................ 71,642 70,126 12,570 154,338
Investments in affiliates......... 84,890 -- -- (84,890) --
-------- ------- ------- --------- --------
Total assets............. $224,023 $93,596 $26,209 $(102,584) $241,244
======== ======= ======= ========= ========
Liabilities....................... $ 41,448 $ 9,094 $ 8,127 -- $ 58,669
Intercompany payable.............. -- -- 17,694 (17,694) --
Long-term debt.................... 147,801 -- -- -- 147,801
Stockholder's equity.............. 34,774 84,502 388 (84,890) 34,774
-------- ------- ------- --------- --------
Total liabilities and
stockholder's equity............ $224,023 $93,596 $26,209 $(102,584) $241,244
======== ======= ======= ========= ========
</TABLE>
F-25
<PAGE> 154
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. SUMMARIZED FINANCIAL INFORMATION (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $96,579 $15,028 $19,972 $ -- $131,579
Operating expenses................ 94,839 13,474 17,209 -- 125,522
------- ------- ------- ------- --------
Operating income.................. 1,740 1,554 2,763 -- 6,057
Other income (expense)............ (397) -- -- -- (397)
Interest income (expense)......... (4,801) 201 (271) -- (4,871)
Equity in earnings of
subsidiaries.................... 4,247 -- -- (4,247) --
------- ------- ------- ------- --------
Income (loss) before income
taxes........................... 789 1,755 2,492 (4,247) 789
Provision for income taxes
(benefit)....................... 1,659 593 923 (1,516) 1,659
------- ------- ------- ------- --------
Income before extraordinary
loss............................ (870) 1,162 1,569 (2,731) (870)
Loss from early extinguishment of
debt............................ (1,959) -- -- -- (1,959)
------- ------- ------- ------- --------
Net Income........................ $(2,829) $ 1,162 $ 1,569 $(2,731) $ (2,829)
======= ======= ======= ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
COMBINED COMBINED
DOMESTIC FOREIGN
WORLDWIDE SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities............. $ (9,764) $ 2,443 $3,243 $ -- $ (4,078)
Cash used in investing
activities..................... (89,832) (64,001) (606) -- (154,439)
Cash provided by (used in)
financing activities........... 170,605 (530) 71 -- 170,146
--------- -------- ------ ---- ---------
Change in Cash................... $ 71,009 $(62,088) $2,708 $ -- $ 11,629
========= ======== ====== ==== =========
</TABLE>
F-26
<PAGE> 155
WORLDWIDE FLIGHT SERVICES, INC.
(FORMERLY AMR SERVICES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
PREDECESSOR QUARTER QUARTER QUARTER QUARTER
- ----------- ------- ------- ------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Total operating revenues............................ $56,748 $54,156 $58,292 $ 60,546
Operating income.................................... 2,160 1,152 2,601 2,141
Income from continuing operations................... 1,590 982 1,984 1,748
Net income.......................................... 1,590 982 1,719 1,461
NINE MONTHS ENDED SEPTEMBER 30, 1999
Total operating revenues............................ 61,475 59,877 71,702
Operating income.................................... 1,731 2,952 3,105
Income from continuing operations before
extraordinary loss................................ 975 539 (1,409)
Net income (loss)................................... 765 539 (3,368)
</TABLE>
The net income for the third and fourth quarter of 1998 includes a loss on
discontinued operations of $265,000 and $287,000, respectively, related to
Cyclone (see Note 10).
F-27
<PAGE> 156
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Miami Aircraft Support, Inc.:
We have audited Miami Aircraft Support, Inc. and subsidiary's consolidated
statements of income and cash flows for the period from January 1, 1999 through
August 12, 1999. These consolidated statements of income and cash flows are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated statements of income and cash flows 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of Miami Aircraft Support,
Inc. and subsidiary's operations and its cash flows for the period from January
1, 1999 through August 12, 1999 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
November 19, 1999
F-28
<PAGE> 157
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 1999
THROUGH AUGUST 12, 1999
---------------------------
<S> <C>
Revenues:
Ground services...................................... $36,362
Other................................................ 154
-------
Total revenues............................... 36,516
-------
Expenses:
Operating............................................ 28,602
General and administrative........................... 3,450
Depreciation and amortization........................ 2,116
-------
Total operating expenses..................... 34,168
-------
Operating profit............................. 2,348
Other (income)/expenses, net:
Interest income...................................... (73)
Interest expense..................................... 316
-------
Total other expense, net..................... 243
-------
Income before income taxes........................ 2,105
Income taxes........................................... 747
-------
Net income................................... $ 1,358
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 158
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999
THROUGH
AUGUST 12,
1999
---------------
<S> <C>
Cash flows from operating activities:
Net income................................................ $ 1,358
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,116
Other.................................................. 251
Deferred income taxes.................................. (478)
Changes in operating assets and liabilities:
Accounts receivable.................................. 3,222
Prepaid expenses and other current assets............ (568)
Accounts payable and accrued expenses................ (1,364)
Other, net........................................... 663
-------
Net cash provided by operating activities......... 5,200
-------
Cash flows from investing activities:
Purchase of property and equipment........................ (1,052)
Proceeds from sale of equipment........................... 25
-------
Net cash used in investing activities............. (1,027)
-------
Cash flows from financing activities:
Principal payments on long-term debt...................... (1,337)
Principal payments on capital lease obligations........... (493)
Borrowing from long-term debt............................. 961
-------
Net cash used in financing activities............. (869)
-------
Net increase in cash.............................. 3,304
Cash and cash equivalents at beginning of year.............. 1,212
-------
Cash and cash equivalents at end of year.................... $ 4,516
=======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................. $ 339
=======
Income taxes......................................... $ 1,471
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 159
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF INCOME
PERIOD FROM JANUARY 1, 1999 TO AUGUST 12, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Basis of Presentation
Miami Aircraft Support, Inc. ("MAS" or the "Company") provides ground
service support and rents equipment to domestic and international air-cargo
shippers operating in the United States. The accompanying consolidated
statements of income and cash flows cover the period from January 1, 1999
through August 12, 1999. MAS was acquired by Worldwide Flight Services
("Worldwide") on August 12, 1999 for a total purchase price of $63 million plus
transaction costs. These financial statements present the results of MAS for the
period ending upon its acquisition by Worldwide.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(b) Ground Service Revenue
Ground service revenue is recognized when service is provided.
(c) 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 consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates
(d) Property and Equipment
Depreciation and amortization are provided on the straightline basis over
the following estimated useful lives: ground equipment -- lesser of seven years
or lease life, other property and equipment -- five to seven years.
At the times the assets are retired or otherwise disposed of, the cost and
accumulated depreciation and amortization are removed from the related accounts
and the differences, net of proceeds, are recorded as gains and losses.
(e) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-31
<PAGE> 160
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF INCOME--(CONTINUED)
(2) LEASES
Lease agreements require contingent rental payments based on a percentage
of the Company's revenue in the respective location. The Company has other
operating leases with terms either less than one year (which generally are
renewed on an annual basis), or exclusively based on a percentage of revenue.
Rent expense for the period from January 1, 1999 through August 12, 1999:
consists of the following (in thousands):
<TABLE>
<S> <C>
Minimum rent........................................... 2,555
Contingent rent........................................ 611
Rent expense total..................................... 3,166
</TABLE>
(3) INCOME TAXES
Income tax expense from January 1, 1999 through August 12, 1999 consists of
(in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Period from January 1, to August 12, 1999:
Federal........................................ 1,134 (452) 682
State.......................................... 91 (26) 65
------ ----- ----
Total $1,225 $(478) $747
====== ===== ====
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1999
TO AUGUST 12,
1999
---------------
<S> <C>
Computed "expected" tax expense............................. 737
State taxes, net of federal income tax benefit.............. 42
Travel and entertainment expenses........................... 11
Other....................................................... (43)
Total tax expense................................. 747
</TABLE>
(4) BUSINESS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company provides services to various customers in the aviation industry.
Although the Company is directly affected by the well being of the aviation
industry, management does not believe significant credit risk exists at August
12, 1999. For the period from January 1, 1999 through August 12, 1999,
F-32
<PAGE> 161
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF INCOME--(CONTINUED)
(4) BUSINESS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
one customer accounted for approximately 24 percent of the Company's
consolidated revenue. The Company estimates an allowance for doubtful accounts
based on the creditworthiness of its customers, as well as general economic
conditions. Consequently, an adverse change in those factors could affect the
Company's estimate of its bad debts.
(5) RELATED-PARTY TRANSACTIONS
During the period from January 1, 1999 through August 12, 1999 the Company
provided approximately $31,000 of services to a related party by way of common
management.
(6) COMMITMENTS AND CONTINGENCIES
The Company is a party to various claims and legal actions arising in the
ordinary course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the ultimate disposition of these
matters will no have material adverse effect on the Company's consolidated
results of operations.
F-33
<PAGE> 162
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Miami Aircraft Support, Inc.:
We have audited the accompanying consolidated balance sheets of Miami
Aircraft Support, Inc. and subsidiary as of December 31, 1997 and 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Miami
Aircraft Support, Inc. and subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG LLP
February 26, 1999, except as to note 11
which is as of May 28, 1999
Fort Lauderdale, Florida
F-34
<PAGE> 163
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................. $ 4 $ 1,212
Accounts receivable, net of allowance for doubtful
accounts of $274 and $268 in 1997 and 1998,
respectively....................................... 8,933 9,808
Other current assets.................................. 164 --
Deferred income taxes................................. 391 401
------- -------
Total current assets.......................... 9,492 11,421
------- -------
Property and equipment:
Ground equipment...................................... 27,664 31,573
Other property and equipment.......................... 789 755
------- -------
28,453 32,328
Less accumulated depreciation and amortization.......... 15,536 18,454
------- -------
Property and equipment, net............................. 12,917 13,874
Other assets............................................ 3 4
------- -------
Total assets.................................. $22,412 $25,299
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt..................... $ 4,145 $ 3,447
Current portion of capital lease obligations.......... 253 808
Accounts payable...................................... 2,878 1,507
Accrued expenses...................................... 2,346 2,915
Income tax payable.................................... 731 1,106
Due to affiliates..................................... 10 --
------- -------
Total current liabilities..................... 10,363 9,783
------- -------
Long-term debt, excluding current portion............... 2,061 1,711
Capital lease obligations, excluding current portion.... 257 920
Deferred income taxes................................... 493 553
------- -------
Total liabilities............................. 13,174 12,967
------- -------
Stockholders' equity:
Capital stock, no par value. Authorized and issued
2,000 shares, outstanding 1,600 shares............. 1 1
Additional paid-in capital............................ 459 459
Retained earnings..................................... 8,840 11,934
------- -------
9,300 12,394
Treasury stock, 400 shares, at cost................... (62) (62)
------- -------
Total stockholders' equity.................... 9,238 12,332
$22,412 $25,299
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-35
<PAGE> 164
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Revenues:
Ground services........................................... $46,341 $56,238
Other..................................................... 216 164
------- -------
Total revenues.................................... 46,557 56,402
------- -------
Expenses:
Operating................................................. 36,145 43,519
General and administrative................................ 4,297 4,073
Depreciation and amortization............................. 2,743 3,274
------- -------
Total operating expenses.......................... 43,185 50,866
------- -------
Operating profit.................................. 3,372 5,536
Other (income)/expenses, net:
(Gain)/loss on disposal of assets......................... (74) 62
Interest expense, net..................................... 445 494
------- -------
Total other expense, net.......................... 371 556
------- -------
Income before income taxes........................ 3,001 4,980
Income taxes................................................ 1,163 1,886
------- -------
Net income........................................ $ 1,838 $ 3,094
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE> 165
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
--------- ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996....... 1,600 $ 1 $ 8 $ 7,108 (62) 7,055
Acquisition of International
Enterprises Group, Inc. from
affiliate under common control
(note 2)....................... -- -- 451 (107) -- 344
Net income........................ -- -- -- 1,839 -- 1,839
----- --- ---- ------- ---- -------
Balances at December 31, 1997....... 1,600 1 459 8,840 (62) 9,238
Net income........................ -- -- -- 3,094 -- 3,094
----- --- ---- ------- ---- -------
Balances at December 31, 1998....... 1,600 1 459 11,934 (62) 12,332
Net income (unaudited)............ -- -- -- 1,168 -- 1,168
----- --- ---- ------- ---- -------
Balances at June 30, 1999
(unaudited)....................... 1,600 $ 1 $459 $13,102 $(62) $13,500
===== === ==== ======= ==== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-37
<PAGE> 166
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1997 1998
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $1,838 $3,094
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 2,743 3,274
Loss (gain) on sale/disposal of equipment.............. (74) 62
Bad Debt expense....................................... 33 --
Deferred income taxes.................................. 98 50
Changes in operating assets and liabilities:
Accounts receivable.................................. (3,500) (875)
Notes receivable..................................... -- --
Prepaid expenses and other current assets............ (41) --
Due from/to affiliate................................ -- --
Other assets......................................... 18 --
Accounts payable..................................... 1,543 (1,371)
Accrued expenses..................................... 150 734
Income tax payable................................... 348 375
Other, net........................................... 402 --
------ ------
Net cash provided by operating activities......... 3,558 5,343
------ ------
Cash flows from investing activities:
Purchase of property and equipment........................ (611) (537)
Proceeds from sale of equipment........................... 522 --
------ ------
Net cash used in investing activities............. (89) (537)
------ ------
Cash flows from financing activities:
Principal payments on long-term debt...................... (3,485) (3,049)
Principal payments on capital lease obligations........... (306) (539)
Borrowing from affiliates................................. -- --
Payments to affiliate..................................... (49) (10)
------ ------
Net cash used in financing activities............. (3,840) (3,599)
------ ------
Net increase (decrease) in cash................... (371) 1,208
Cash and cash equivalents at beginning of year.............. 375 4
------ ------
Cash and cash equivalents at end of year.................... $ 4 $1,212
====== ======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................. $ 516 $ 563
====== ======
Income taxes......................................... $ 859 $1,491
====== ======
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During, 1997 and 1998, the Company financed the purchase of ground
equipment in the amounts of $2,331 in 1997 and $3,756 in 1998, by entering
into promissory note agreements totaling $2,332 in 1997 and $2,001 in 1998,
and capital lease obligations of $0 and $1,757, in 1997 and 1998,
respectively.
See accompanying notes to consolidated financial statements.
F-38
<PAGE> 167
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Miami Aircraft Support, Inc. ("MAS" or the "Company") provides ground
service support and rents equipment to domestic and international air-cargo
shippers operating in the United States. The 1997 and 1998 consolidated
financial statements include the accounts of the Company and its inactive wholly
owned subsidiary, International Enterprises Group, Inc. (note 2).
All significant intercompany balances and transactions have been eliminated
in consolidation.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly-liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(c) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation and amortization
are provided on the straight-line basis over the following estimated useful
lives: ground equipment--lesser of seven years or lease life, other property and
equipment--five to seven years.
At the time the assets are retired or otherwise disposed of, the cost and
accumulated depreciation or amortization are removed from the related accounts
and the differences, net of proceeds, are recorded as gains or losses.
(d) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments, consisting of cash and cash
equivalents, trade accounts receivables, other current assets, trade accounts
payables, accrued expenses, is based on the short maturity of these instruments
which approximates fair value at December 31, 1997 and 1998. The fair value of
long-term debt and capital lease obligations is based on current rates offered
for similar debt which approximates carrying value at December 31, and 1997 and
1998.
(e) GROUND SERVICE REVENUE
Ground service revenue is recognized when service is provided.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and
F-39
<PAGE> 168
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(g) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(h) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets used in the Company's operations are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
(i) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 130, "Reporting Comprehensive Income."
Comprehensive income presents a measure of all changes in stockholders' equity
except for changes resulting from transactions with stockholders in their
capacity as stockholders. The statement also requires the separate presentation
of the accumulated balance of comprehensive income other than net earnings in
the Consolidated Balance Sheets. Comprehensive income equaled net income for the
years ended December 31, 1997 and 1998.
Effective December 31, 1998, the Company adopted FAS 131, "Disclosures
About Segments of an Enterprise and Related Information." This statement
establishes standards for reporting information about a company's operating
segments and related disclosures about its products, services, geographic areas
of operations and major customers. Adoption of this statement did not impact the
Company's results of operations or financial position. The Company has
determined it operates under one reportable segment.
(j) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal
F-40
<PAGE> 169
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
years beginning after December 15, 1998. SOP 98-1 outlines the accounting
treatment for certain costs related to the development or purchase of software
to be used internally and requires that costs incurred during the preliminary
project and post-implementation/ operation stages be expensed, and costs
incurred during the application development stage be capitalized and amortized
over the estimated useful life of the software. Adoption of this statement did
not have a material impact on the Company's results of operations or financial
position.
In April 1998, the AICPA also issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, requires that all costs of start-up activities,
including organization costs, be expensed as incurred. Adoption of this
statement did not have material impact on the Company's results of operations or
financial position.
(k) RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform with the 1998 presentation.
(2) ACQUISITION
On November 1, 1997, the Company acquired from an affiliate under common
control all of the outstanding shares of this affiliate's wholly owned
subsidiary, International Enterprises Group, Inc. ("IEG"). The purchase price
amounted to $1.9 million. The Company's affiliate maintained a noncontrolling
interest in IEG since 1996. On March 27, 1997, the affiliate obtained control of
IEG when it acquired the majority interest from an unrelated party. The
acquisition of the controlling interest by the affiliate was accounted for under
the purchase method of accounting for business combinations. The Company's
subsequent acquisition of IEG was accounted for in a manner similar to a pooling
of interest, since it was acquired from an entity under common control.
On November 1, 1997, the aforementioned affiliate forgave all amounts due
from IEG, amounting to $230,946 as of that date. This transaction was accounted
for as a capital contribution to the Company.
(3) LEASES
(a) CAPITAL LEASES
The Company leases equipment under capital leases that expire at various
dates through the year 2000. The lease agreements either provide for the
transfer of ownership at the end of the lease term or contain a bargain purchase
option. At December 31, 1997 and
F-41
<PAGE> 170
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LEASES (CONTINUED)
1998 cost and accumulated depreciation of equipment under capital leases was (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Cost.................................................... $948 $2,290
Accumulated depreciation................................ 244 263
---- ------
$704 $2,027
==== ======
</TABLE>
The following is a schedule of future minimum lease payments under capital
leases, together with the present value of the net minimum lease payments, as of
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999.................................................. $ 912
2000.................................................. 679
2001.................................................. 198
2002.................................................. 74
2003.................................................. 55
------
Total minimum lease payments.......................... 1,918
Less amount representing interest (at rates ranging
from 8.47% to 8.78%)............................. 190
------
Present value of minimum lease payments............... 1,728
Less current portion................................ 808
------
Long-term portion..................................... $ 920
======
</TABLE>
(b) OPERATING LEASES
The Company leases office and warehouse facilities under operating lease
agreements. The following is a schedule of future minimum rental payments as of
December 31, 1998,
F-42
<PAGE> 171
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LEASES (CONTINUED)
for operating leases having initial noncancelable lease terms in excess of one
year (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999.................................................. $2,210
2000.................................................. 1,682
2001.................................................. 1,332
2002.................................................. 745
2003.................................................. 494
Thereafter............................................ 29
------
$6,492
======
</TABLE>
In addition to the above minimum rental payments, some lease agreements
require contingent rental payments based on a percentage of the Company's
revenue in the respective location. The Company has other operating leases with
terms either less than one year (which generally are renewed on an annual
basis), or exclusively based on a percentage of revenue. Rent expense for the
years ended December 31, 1997 and 1998, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Minimum rent.......................................... $3,776 $4,550
Contingent rent....................................... 995 1,088
------ ------
Rent expense total.................................... $4,771 $5,638
====== ======
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Accrued payroll expense............................... $1,044 $1,295
Accrued workers' compensation......................... 761 762
Other................................................. 541 858
------ ------
$2,346 $2,915
====== ======
</TABLE>
F-43
<PAGE> 172
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) LINE OF CREDIT
As of December 31, 1997, the Company maintains standby letters of credit
totaling $1,029,184 under a $2 million line of credit with a bank. These letters
of credit collateralize mainly certain Company's operating lease rental
obligations to third parties and the Company's obligations to its workers'
compensation insurance carrier. The line of credit is generally renewed annually
and is secured by the Company's accounts receivable. As of December 31, 1997,
the Company had a $-0- balance under this line of credit.
(6) LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Various notes payable for purchase of equipment with
interest rates ranging from 6.75% to 8.05% in 1998
and 7% to 10% in 1997, maturing at various dates
through October 2003, payable in monthly
installments including principal and interest;
secured by certain equipment with a net book value
of $4,896 and $6,525 at December 31, 1998 and 1997,
respectively........................................ $4,340 $3,706
Note payable to United National Bank, payable on
demand, but if no demand is made, then in 47 monthly
installments of $47, including interest at 8.5% per
annum. The note is secured by the Company's accounts
receivable, property and equipment.................. 1,866 1,452
------ ------
6,206 5,158
Less current portion.................................. 4,145 3,447
------ ------
Long-term debt, excluding current portion............. $2,061 $1,711
====== ======
</TABLE>
The aggregate amounts of principal maturities of debt outstanding at
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999................................................... $3,447
2000................................................... 1,121
2001................................................... 256
2002................................................... 170
2003................................................... 164
------
Total........................................ $5,158
======
</TABLE>
F-44
<PAGE> 173
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES
Income tax expense for the years ended December 31, 1997 and 1998, consists
of (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal.................................... $ 831 $78 $ 909
State...................................... 234 20 254
------ --- ------
$1,065 $98 $1,163
====== === ======
Year ended December 31, 1998:
Federal.................................... $1,437 $41 $1,478
State...................................... 398 10 408
------ --- ------
$1,835 $51 $1,886
====== === ======
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Computed "expected" tax expense....................... $1,020 $1,693
State taxes, net of federal income tax benefit........ 167 269
Travel and entertainment expenses..................... 17 16
Other................................................. (41) (92)
------ ------
Total tax expense........................... $1,163 $1,886
====== ======
Effective tax rate.................................... 38.7% 37.9%
====== ======
</TABLE>
F-45
<PAGE> 174
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES -- (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1998, are presented below (in thousands).
<TABLE>
<CAPTION>
1997 1998
----- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts............................ $ 75 $ 75
Accrued expenses, mainly workers' compensation...... 316 327
Preacquisition net operating losses of subsidiary... 501 460
----- -------
Total gross deferred tax assets............. 892 862
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation...................... (977) (985)
Other............................................... (17) (29)
----- -------
Total gross deferred tax liabilities........ (994) (1,014)
----- -------
Net deferred tax liability.................. $(102) $ (152)
===== =======
</TABLE>
As a result of the IEG acquisition (note 2), the Company had, at December
31, 1998, approximately $1,353,000 of preacquisition net operating loss
carryforwards. These amounts can be used to reduce future taxable income of the
Company, as provided for under Internal Revenue Code Section 382 described
below. Such tax loss carryforwards expire as follows: $679,000 in 2010, $443,000
in 2011 and $231,000 in 2012, subject to the limitation noted below.
Once an ownership change is deemed to have occurred under Section 382, a
limitation on the annual utilization of net operating loss carryovers is
imposed. Under the provisions of Section 382, the utilization of the
aforementioned net operating losses is limited to a maximum of $103,550 annually
through their expiration date.
Based upon the level of historical taxable income and projections for
future taxable income over the periods in which the deferred tax assets are
deductible, and after considering the reversal of deferred tax liabilities,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences.
(8) BUSINESS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company provides services to various customers in the aviation industry.
Although the Company is directly affected by the well being of the aviation
industry, management does not believe significant credit risk exists at December
31, 1998. During 1998, three customers accounted for approximately 46 percent of
the Company's consolidated revenue. As of December 31, 1998, approximately 60
percent of trade accounts receivable originated from five customers
F-46
<PAGE> 175
MIAMI AIRCRAFT SUPPORT, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) BUSINESS AND CONCENTRATIONS OF CREDIT RISK -- (CONTINUED)
located in the United States. The Company estimates an allowance for doubtful
accounts based on the creditworthiness of its customers, as well as general
economic conditions. Consequently, an adverse change in those factors could
affect the Company's estimate of its bad debts.
(9) RELATED-PARTY TRANSACTIONS
During 1998, the Company provided approximately $135,000 of services to a
related party by way of common management. The revenue and related receivable as
of December 31, 1998, amounting to approximately $135,000, is included in ground
service revenue and accounts receivable, respectively.
In 1998, the Company purchased used ground equipment for $726,405 from the
aforementioned affiliate.
(10) COMMITMENTS AND CONTINGENCIES
The Company obtains insurance for workers' compensation claims. However,
the Company has elected to retain a significant portion of expected losses
through the use of deductibles. Provisions for losses expected under these
programs are recorded based upon the Company's estimate of the aggregate
liability for claims incurred. These estimates utilize the Company's prior
experience and actuarial assumptions that are provided by the Company's
insurance carrier. The total estimated liability for these losses at December
31, 1998, is $761,933 and is included in accrued expenses.
The Company is a party to various claims and legal actions arising in the
ordinary course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position and results of operations.
(11) SUBSEQUENT EVENTS (UNAUDITED)
On May 28, 1999, Worldwide Flight Services, Inc. ("Worldwide") contracted
to purchase 100 percent of the outstanding stock of MAS. The total purchase
price is $61 million, a portion of which is to be held in escrow for a period up
to six months to secure MAS's indemnification obligations under the agreement.
Upon consummation, an additional $2 million will be paid to MAS for distribution
to employees over an established period of time. In conjunction with the
purchase contract, the stockholder's of MAS have agreed not to compete with
Worldwide in ground service business or solicit Worldwide employees for a period
of five years. MAS anticipates the completion of the sale to Worldwide in July
1999.
F-47
<PAGE> 176
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS DATED ,
[WORLDWIDE FLIGHT SERVICES, INC. LOGO]
$130,000,000
WORLDWIDE FLIGHT SERVICES, INC.
OFFER TO EXCHANGE
12 1/4 SENIOR NOTES DUE 2007, SERIES B
FOR ANY AND ALL OUTSTANDING
12 1/4 SENIOR NOTES DUE 2007, SERIES A
--------------------
PROSPECTUS
--------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Worldwide
have not changed since the date hereof.
- --------------------------------------------------------------------------------
Until (90 days from the date of this prospectus), all dealers
effecting transactions in the securities, whether or not participating in this
exchange offer, may be required to deliver a prospectus.
- --------------------------------------------------------------------------------
<PAGE> 177
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION UNDER THE BY-LAWS OF WORLDWIDE FLIGHT SERVICES, INC. AND MIAMI
AIRCRAFT SUPPORT, INC.
The by-law provisions of Worldwide Flight Services, Inc. and Miami Aircraft
Support, Inc. relating to indemnification of Officers and Directors are
identical. Accordingly, the description below of "Worldwide Flight Services,
Inc." or "Worldwide" applies to each of Worldwide Flight Services, Inc. and
Miami Aircraft Support, Inc.
The by-laws of Worldwide Flight Services, Inc. provide that Worldwide will
indemnify to the full extent permitted by law any person made or threatened to
be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person or such
person's testator or intestate is or was a director, officer or employee of
Worldwide or serves or served at the request of Worldwide or any other
enterprise as a director, officer or employee. Expenses, including attorneys'
fees, incurred by any such person in defending any such action, suit or
proceeding will be paid or reimbursed by Worldwide promptly upon receipt by it
of an undertaking of such person to repay such expenses if it shall ultimately
be determined that such person is not entitled to be indemnified by Worldwide.
The rights provided to any person by the by-laws will be enforceable against
Worldwide by such person who will be presumed to have relied upon it in serving
or continuing to serve as a director, officer or employee as provided above. The
indemnification and advancement of expenses provided by, or granted pursuant to,
the by-laws of Worldwide will not be deemed exclusive and are declared expressly
to be non-exclusive of any other rights to which those seeking indemnification
or advancements of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding an
office, and, unless otherwise provided when authorized or ratified, will
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such person.
INDEMNIFICATION UNDER THE BY-LAWS OF WORLDWIDE FLIGHT FINANCE COMPANY AND
WORLDWIDE FLIGHT SECURITY SERVICE CORPORATION.
The by-law provisions of Worldwide Flight Finance Company and Worldwide
Flight Security Service Corporation relating to indemnification of Officers and
Directors are identical. Accordingly, the description below of "Worldwide
Flight" applies to each of Worldwide Flight Finance Company and Worldwide Flight
Security Service Corporation.
Worldwide Flight's by-laws provide that Worldwide Flight will indemnify its
directors and officers as permitted by law against all expense, liability and
loss paid or incurred by such person in connection with any threatened, pending
or completed action, suit or proceeding (a "Action") involving such person by
reason of the fact the he or she was a director or officer of Worldwide Flight
or is or was serving at the request or for the benefit of Worldwide Flight in
any capacity for another corporation or entity. Any indemnification will be made
unless it is determined that indemnification is not proper because the officer
or director (i) has not acted in good faith and in a manner he or she reasonably
believes to be in the best interest of Worldwide Flight and, with respect to any
criminal action or
II-1
<PAGE> 178
proceeding, (ii) had no reasonable cause to believe his or her conduct was
unlawful. The indemnification provided by the by-laws of Worldwide Flight (i)
will not be deemed exclusive of any other rights to which those indemnified may
be entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, (ii) will be deemed to
create contractual rights in favor of each person seeking indemnification or
advancement of expenses and (iii) will continue as to each person who has ceased
to have the status pursuant to which he or she was entitled or was denominated
as entitled to indemnification pursuant to the by-laws and applicable law and
shall inure to the benefit of the heirs and legal representatives of each person
seeking indemnification or advancement of expenses.
INDEMNIFICATION UNDER THE DELAWARE GENERAL CORPORATION LAW
Section 145 of the Delaware General Corporation Law, authorizes a
corporation to indemnify any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the person 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, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding, if the person
acted in good faith and in a manner the person reasonably believed to be in, or
not opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the person's
conduct was unlawful. In addition, the Delaware General Corporation Law does not
permit indemnification in any threatened, pending or completed action or suit by
or in the right of the corporation in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses, which such court
shall deem proper. To the extent that a present or former director or officer of
a corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim, issue
or matter, such person shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by such person. Indemnity is
mandatory to the extent a claim, issue or matter has been successfully defended.
The Delaware General Corporation Law also allows a corporation to provide for
the elimination or limit of the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director
(1) for any breach of the director's duty of loyalty to the
corporation or its stockholders,
(2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(3) for unlawful payments of dividends or unlawful stock purchases
or redemptions, or
II-2
<PAGE> 179
(4) for any transaction from which the director derived an improper
personal benefit. These provisions will not limit the liability
of directors or officers under the federal securities laws of
the United States.
INDEMNIFICATION UNDER THE BY-LAWS OF AEROLINK INTERNATIONAL, INC., AEROLINK
MAINTENANCE, INC. AND AEROLINK MANAGEMENT, INC.
The by-law provisions of Aerolink International, Inc., Aerolink
Maintenance, Inc. and Aerolink Management, Inc. relating to indemnification of
Officers and Directors are identical. Accordingly, the description below of
"Aerolink" applies to each of Aerolink International, Inc., Aerolink
Maintenance, Inc. and Aerolink Management, Inc.
The by-laws of Aerolink provide that Aerolink will indemnify its directors
and officers as permitted by law against all expense, liability and loss paid or
incurred by such person in connection with any threatened, pending or completed
action, suit or proceeding (a "Action") involving such person by reason of the
fact the he or she was a director or officer of Aerolink or is or was serving at
the request or for the benefit of Aerolink in any capacity for another
corporation or entity. No right of indemnification shall exist with respect to
an Action brought by an officer or director and any other person entitled to
indemnification under the by-laws against Aerolink except for expenses incurred
in connection with any Action brought by such person entitled to indemnification
under the by-laws against Aerolink only if the Action is a claim for indemnity
or expenses not paid in full by Aerolink or otherwise and either (i) such person
entitled to indemnification under the by-laws is successful in whole or in part
in the Action for which expenses are claimed or (ii) the indemnification for
expenses is included in a settlement of the Action or is awarded by a court. The
rights of indemnification and advancement of expenses provided by the by-laws of
Aerolink (i) will not be deemed exclusive of any other rights, whether now
existing or hereafter created, to which those seeking indemnification or
advancement of expenses may be entitled under the Articles or by-laws of
Aerolink, any agreement, any vote of shareholders or directors or otherwise,
(ii) will be deemed to create contractual rights in favor of each person seeking
indemnification or advancement of expenses, (iii) will continue as to each
person who has ceased to have the status pursuant to which he or she was
entitled or was denominated as entitled to indemnification pursuant to the
by-laws and applicable law and shall inure to the benefit of the heirs and legal
representatives of each person seeking indemnification or advancement of
expenses and (iv) will be applicable to Actions commenced after the adoption of
such by-laws, whether arising from acts or omissions occurring before or after
the adoption of such by-laws.
INDEMNIFICATION UNDER THE PENNSYLVANIA BUSINESS CORPORATION LAW
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL") provide that a business corporation may indemnify
directors and officers against liability they may incur as such provided that
the particular person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. In the case of actions against a director or
officer by or in the right of the Corporation, the power to indemnify extends
only to expenses (not judgments and amounts paid in the settlement) and such
power generally does not exist if the person otherwise entitled to
indemnification shall have been adjudged to be liable to the Corporation unless
it is judicially determined that, despite the adjudication of liability but in
view of all the circumstances of the case, the person is fairly
II-3
<PAGE> 180
and reasonably entitled to indemnification for specified expenses. In addition,
under Sections 1743 and 1744 of the BCL, the Corporation is required to
indemnify directors and officers against expenses they may incur in defending
actions against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions and a corporation may pay the expenses
of a director or officer incurred in defending an action or proceeding in
advance of the final amounts advanced unless it is ultimately determined that
such person is entitled to indemnification from the corporation.
Also, Section 1746 of the BCL grants a corporation broad authority to
indemnify its directors, officers and other agents for liabilities and expenses
incurred in such capacity, except in circumstances where the act or failure to
act giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness. Section 1747 grants a
corporation the power to purchase and maintain insurance on behalf of any
directors, officers and other agents against any liability incurred in such
capacity, whether or not the corporation would have the power to indemnify such
directors, officers and other agents against that liability under the BCL.
INDEMNIFICATION UNDER THE BY-LAWS OF MIAMI INTERNATIONAL AIRPORT CARGO
FACILITIES & SERVICES, INC. AND INTERNATIONAL ENTERPRISES GROUP, INC.
The by-law provisions of Miami International Airport Cargo Facilities &
Services, Inc. and International Enterprises Group, Inc. relating to
indemnification of Officers and Directors are identical. Accordingly, the
description below of "Miami International" applies to each of Miami
International Airport Cargo Facilities & Services, Inc. and International
Enterprises Group, Inc.
The by-laws of Miami International provide that, except for some
circumstances, Miami International will indemnify any person made or threatened
to be made a party to any action, suit or proceeding, either by or in the right
of the Miami International or such other company, a derivative action, or by a
third-party action by reason of the fact that the person is or was a director,
officer, employee or agent of Miami International or serves or served at the
request of Miami International if either:
(a) the person is wholly successful in defending the derivative or
third-party action, or
(b) it is determined by a court of competent jurisdiction, a
majority of a quorum of the Board of Directors of Miami
International (which quorum shall not include any director who
is a party to or is otherwise involved in such action) or an
opinion of independent legal counsel that the person acted
without negligence or misconduct in the performance of his duty
to Miami International in the case of a derivative action or
acted in good faith in what he reasonably believed to be the
best interests of Miami International in the case of a
third-party action.
Additionally, in any criminal action, an opinion of independent legal
counsel will be delivered stating that the person had no reasonable cause to
believe that his action was unlawful.
II-4
<PAGE> 181
INDEMNIFICATION UNDER THE FLORIDA BUSINESS CORPORATION ACT
In general, Florida law permits a Florida corporation to indemnify its
directors, officers, employees and agents, and persons serving at the
corporation's request in such capacities for another enterprise against
liabilities arising from conduct that such persons reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. The provisions of the Florida Business Corporation Act
that authorize indemnification do not eliminate the duty of care of a director
and, inappropriate circumstances, equitable remedies such as injunctive or other
forms of nonmonetary relief will remain available under Florida law. In
addition, each director will continue to be subject to liability for (a)
violations of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his conduct
was unlawful, (b) deriving an improper personal benefit from a transaction, (c)
voting for or assenting to an unlawful distribution, and (d) willful misconduct
or a conscious disregard for the best interests of the corporation in a
proceeding by or in the right of the corporation to procure a judgment in its
favor or in a proceeding by or in the right of a shareholder. The statute does
not affect a director's responsibilities under any other law, such as the
Federal securities laws or state or Federal environmental laws.
INDEMNIFICATION UNDER THE AEROLINK INTERNATIONAL, L.P. PARTNERSHIP AGREEMENT
Aerolink Management, Inc., as general partner of Aerolink International,
L.P. Partnership, will be indemnified by the partnership but not by any limited
partner against any losses, judgments, claims and/or liabilities in connection
with any action, suit or proceeding, other than an action, suit or proceeding by
or in the right of a limited partner or the partnership, threatened, pending or
completed to which Aerolink Management, Inc., as general partner, or threatened
to be made a party. Indemnification may be sought whereby Aerolink Management,
Inc., as general partner, acted or refrained from acting in a manner that it or
its agents believed in good faith was in the best interest of the partnership,
and in a case involving a criminal proceeding, Aerolink Management, Inc., as
general partner, had no reasonable cause to believe that its actions or actions
of its agents constituted unlawful conduct.
INDEMNIFICATION UNDER THE PENNSYLVANIA REVISED UNIFORM LIMITED PARTNERSHIP ACT
Section 8510 of the Pennsylvania Revised Uniform Limited Partnership Act
provides that subject to standards and restrictions, if any, as set forth in the
partnership agreement, a limited partnership may indemnify any partner or other
person against any and all claims and demands, whether or not the limited
partnership would have power to indemnify the person under any other provision
of the law, and whether or not the liability arises out of an action by or in
the right of a limited partnership. Indemnification is not permitted, however,
in any case in which the person's conduct is judicially determined to have
constituted willful misconduct or recklessness.
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<PAGE> 182
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
3.1 Certificate of Incorporation of Worldwide Flight Services,
Inc. with all amendments (formerly known as AMR Services
Corporation and AMR Airline Services Corporation)*
3.2 Amended and Restated By-Laws of Worldwide Flight Services,
Inc. (formerly known as AMR Services Corporation and AMR
Airline Services Corporation)*
3.3 Certificate of Incorporation of Worldwide Flight Finance
Company with all amendments (formerly known as AMRS Holding
Corporation and AMRS Finance Company)*
3.4 By-Laws of Worldwide Flight Finance Company (formerly known
as AMRS Holding Corporation and AMRS Finance Company)*
3.5 Certificate of Incorporation of Worldwide Flight Security
Service Corporation with all amendments (formerly known as
AMR Services Security Service Corporation)*
3.6 By-Laws of Worldwide Flight Security Service Corporation
(formerly known as AMR Services Security Service
Corporation)*
3.7 Certificate of Incorporation of Aerolink International, Inc.
with all amendments*
3.8 By-Laws of Aerolink International, Inc.*
3.9 Certificate of Incorporation of Aerolink Maintenance, Inc.
with all amendments*
3.10 By-Laws of Aerolink Maintenance, Inc.*
3.11 Certificate of Incorporation of Aerolink Management, Inc.
with all amendments*
3.12 By-Laws of Aerolink Management, Inc.*
3.13 Certificate of Limited Partnership of Aerolink
International, L.P.*
3.14 Agreement of Limited Partnership of Aerolink International,
L.P.*
3.15 Amended and Restated Articles of Incorporation of Miami
International Airport Cargo Facilities & Services, Inc.
(formerly known as Miami International Container Freight
Station Inc.)*
3.16 Amended and Restated By-Laws of Miami International Airport
Cargo Facilities & Services, Inc.*
3.17 Certificate of Incorporation of International Enterprises
Group, Inc. with all amendments*
3.18 Amended and Restated By-Laws of International Enterprises
Group, Inc.*
3.19 Certificate of Incorporation of Miami Aircraft Support, Inc.
with all amendments*
3.20 Amended and Restated By-Laws of Miami Aircraft Support,
Inc.*
</TABLE>
II-6
<PAGE> 183
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
4.1 Indenture, dated as of August 12, 1999, among Worldwide
Flight Services, Inc., The Bank of New York as Trustee and
Guarantors*
4.2 Form of 12 1/4 Senior Note due 2007, Series B (included in
exhibit 4.1)*
4.3 A/B Exchange Registration Rights Agreement, dated August 12,
1999, by and among Worldwide Flight Services, Inc.,
Guarantors and Initial Purchasers*
4.4 Form of Senior Guarantee (included in exhibit 4.1)*
5.1 Opinion of Schulte Roth & Zabel LLP**
9.1 Form of Voting Trust Agreement, among WFS Holdings, Inc.,
Stockholders and Leonard M. Harlan*
10.1 Purchase Agreement, dated August 5, 1999 by and among the
Registrant, WFS Holdings, Inc., the initial Guarantors and
the Initial Purchasers*
10.2 Stock Purchase Agreement, dated May 28, 1999, among MAS
Worldwide Holding Corporation, Anthony Romeo and Charles
Micale*
10.3 WFS Holdings, Inc. 1999 Stock Option Plan*
10.4 Employment Agreement, effective October 1, 1998, between
Peter A. Pappas and Worldwide Flight Services, Inc.
(formerly known as AMR Services Corporation)*
10.5 Executive Employment Agreement dated May 30, 1999, between
Worldwide Flight Services, Inc. and Mark Dunkerley*
10.6 Executive Employment Agreement, dated March 29, 1999,
between Worldwide Flight Services, Inc. (formerly known as
AMR Services Corporation) and Scott Letier*
10.7 Employment Agreement, dated December 7, 1998, between
Worldwide Flight Services, Inc. (formerly known as AMR
Services Corporation) and Olivier Bijaoui*
10.8 Employment Agreement, dated November 13, 1998, between
Worldwide Flight Services, Inc. (formerly known as AMR
Services Corporation) and John Vittas*
10.9 Credit Agreement dated as of August 12, 1999, among WFS
Holdings, Inc., Worldwide Flight Services, Inc., the Lenders
party thereto, The Chase Manhattan Bank, as Administrative
Agent, and DLJ Capital Funding, Inc., as Syndication Agent*
10.10 Security Agreement dated as of August 12, 1999, among
Worldwide Flight Services, Inc., each subsidiary of WFS
Holdings, Inc. listed on Schedule I thereto and The Chase
Manhattan Bank, a New York banking corporation, as
administrative agent for the Secured Parties*
10.11 Indemnity, Subrogation and Contribution Agreement dated as
of August 12, 1999, among Worldwide Flight Services, Inc.,
each subsidiary of WFS Holdings, Inc. listed on Schedule I
thereto and The Chase Manhattan Bank, a New York banking
corporation, as administrative agent for the Secured
Parties*
</TABLE>
II-7
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.12 Guarantee Agreement dated as of August 12, 1999, among WFS
Holdings, Inc., each subsidiary of Holdings listed on
Schedule I thereto and The Chase Manhattan Bank, a New York
banking corporation, as administrative agent for the Secured
Parties*
10.13 Pledge Agreement dated as of August 12, 1999, among
Worldwide Flight Services, Inc., WFS Holdings, Inc., each
subsidiary of WFS Holdings, Inc. listed on Schedule I
thereto and The Chase Manhattan Bank, a New York banking
corporation, as administrative agent for the Secured
Parties*
10.14 Amended and Restated Stock Purchase Agreement dated as of
December 23, 1998 among MR Services Acquisition Corporation,
AMR Services Holding Corporation and AMR Corporation**
12.1 Statement regarding Computation of Ratio of Earnings to
Fixed Charges of Worldwide Flight Services, Inc.**
12.2 Statement regarding Computation of Ratio of Earnings to
Fixed Charges of Miami Aircraft Support, Inc.**
21 Subsidiaries of Worldwide Flight Services, Inc.*
23.1 Consent of Ernst & Young LLP**
23.2 Consent of KPMG LLP**
23.3 Consent of Schulte Roth & Zabel LLP (incorporated by
reference in exhibit 5.1**)
24 Power of Attorney (included on Signature Page of initial
filing)*
25 Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York, as Trustee*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery for Outstanding
12 1/4% Senior Notes due 2007, Series A, in exchange for
12 1/4% Senior Notes due 2007, Series B*
</TABLE>
- ---------------
* Previously filed in Registration Statement No. 333-88593 on October 7, 1999
** Filed herewith
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake that:
(1) Prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration Statement,
by any person or party who is deemed to be an underwriter within the meaning
of Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to the reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
II-8
<PAGE> 185
(2) Every prospectus: (i) that is filed pursuant to the immediately preceding
paragraph or (ii) that purports to meet the requirements of Section 10(a)(3)
of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by then is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-9
<PAGE> 186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Worldwide
Flight Services, Inc. has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Euless, State of Texas on the 24th day of November,
1999.
WORLDWIDE FLIGHT SERVICES, INC.
By: *
--------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, Chief
Peter A. Pappas Executive Officer and
Director (principal
executive officer)
* President, Chief November 24, 1999
- --------------------------------------------- Operating Officer and
Mark Dunkerley Director
* Chief Financial Officer November 24, 1999
- --------------------------------------------- (principal financial
A. Scott Letier and accounting
officer)
Director November 24, 1999
- ---------------------------------------------
Leonard M. Harlan
* Director November 24, 1999
- ---------------------------------------------
Marcel Fournier
* Director November 24, 1999
- ---------------------------------------------
Albert V. Casey
Director November 24, 1999
- ---------------------------------------------
Lieut. General Thomas G. McInerney
</TABLE>
II-10
<PAGE> 187
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
* Director November 24, 1999
- ---------------------------------------------
Bradley G. Stanius
* Director November 24, 1999
- ---------------------------------------------
Gilbert A. Yanuck
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-11
<PAGE> 188
Pursuant to the requirements of the Securities Act of 1933, Worldwide
Flight Finance Company has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Euless, State of Texas on the 24th day of November,
1999.
WORLDWIDE FLIGHT FINANCE COMPANY
By: *
--------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors and
Peter A. Pappas President and Director
(principal executive
officer)
* Chief Financial Officer November 24, 1999
- --------------------------------------------- (principal financial
A. Scott Letier and accounting officer)
* Vice President and November 24, 1999
- --------------------------------------------- Director
Gary Burtzlaff
* Vice President and November 24, 1999
- --------------------------------------------- Secretary and Director
James Enright
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-12
<PAGE> 189
Pursuant to the requirements of the Securities Act of 1933, Worldwide
Flight Security Service Corporation has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Euless, State of Texas on the 24th day of
November, 1999.
WORLDWIDE FLIGHT SECURITY SERVICE
CORPORATION
By: *
-----------------------------------------
Name: Peter A. Pappas
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
* President and Director November 24, 1999
- --------------------------------------------- (principal executive
Peter A. Pappas officer)
* Chief Financial Officer November 24, 1999
- --------------------------------------------- (principal financial
A. Scott Letier and accounting officer)
* Vice President and November 24, 1999
- --------------------------------------------- Director
Gary Burtzlaff
* Assistant Vice November 24, 1999
- --------------------------------------------- President and Director
Patricia Kearney
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-13
<PAGE> 190
Pursuant to the requirements of the Securities Act of 1933, Miami
International Airport Cargo Facilities & Services, Inc. has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Euless, State of Texas on
the 24th day of November, 1999.
MIAMI INTERNATIONAL AIRPORT
CARGO FACILITIES & SERVICES, INC.
By: *
--------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
of the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, President
Peter A. Pappas and Director (principal
executive officer)
* Chief Financial Officer November 24, 1999
- --------------------------------------------- (principal financial
A. Scott Letier and accounting officer)
* Vice President and November 24, 1999
- --------------------------------------------- Secretary and Director
James Enright
* Vice President and November 24, 1999
- --------------------------------------------- Director
Gary Burtzlaff
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-14
<PAGE> 191
Pursuant to the requirements of the Securities Act of 1933, International
Enterprises Group, Inc. has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Euless, State of Texas on the 24th day of November,
1999.
INTERNATIONAL ENTERPRISES GROUP, INC.
By: *
-----------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, Chief
Peter A. Pappas Executive Officer and
Director (principal
executive officer)
* President, Chief November 24, 1999
- --------------------------------------------- Operating Officer and
Mark Dunkerley Director
* Chief Financial Officer November 24, 1999
- --------------------------------------------- and Director (principal
A. Scott Letier financial and
accounting officer)
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-15
<PAGE> 192
Pursuant to the requirements of the Securities Act of 1933, Miami Aircraft
Support, Inc. has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Euless, State of Texas on the 24th day of November, 1999.
MIAMI AIRCRAFT SUPPORT, INC.
By: *
--------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, Chief
Peter A. Pappas Executive Officer and
Director (principal
executive officer)
* Vice Chairman of the November 24, 1999
- --------------------------------------------- Board of Directors,
Mark Dunkerley Chief Operating Officer
and Director
* Chief Financial Officer November 24, 1999
- --------------------------------------------- and Director (principal
A. Scott Letier financial and
accounting officer)
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-16
<PAGE> 193
Pursuant to the requirements of the Securities Act of 1933, Aerolink
International, Inc. has duly caused this Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Euless, State of Texas on the 24th day of November, 1999.
AEROLINK INTERNATIONAL, INC.
By: *
--------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
- ---------- ------ ----
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, Chief
Peter A. Pappas Executive Officer and
Director (principal
executive officer)
* President, Chief November 24, 1999
- --------------------------------------------- Operating Officer and
Mark Dunkerley Director
* Chief Financial Officer November 24, 1999
- --------------------------------------------- and Director (principal
A. Scott Letier financial and
accounting officer)
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-17
<PAGE> 194
Pursuant to the requirements of the Securities Act of 1933, Aerolink
Maintenance, Inc. has duly caused this Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Euless, State of Texas on the 24th day of November, 1999.
AEROLINK MAINTENANCE, INC.
By: *
--------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
- ---------- ------ ----
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, Chief
Peter A. Pappas Executive Officer and
Director (principal
executive officer)
* President, Chief November 24, 1999
- --------------------------------------------- Operating Officer and
Mark Dunkerley Director
* Chief Financial Officer November 24, 1999
- --------------------------------------------- and Director (principal
A. Scott Letier financial and
accounting officer)
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-18
<PAGE> 195
Pursuant to the requirements of the Securities Act of 1933, Aerolink
Management, Inc. has duly caused this Amendment to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Euless, State of Texas on the 24th day of November, 1999.
AEROLINK MANAGEMENT, INC.
By: *
-----------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES
- ----------
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, Chief
Peter A. Pappas Executive Officer and
Director (principal
executive officer)
* President, Chief November 24, 1999
- --------------------------------------------- Operating Officer and
Mark Dunkerley Director
* Chief Financial Officer November 24, 1999
- --------------------------------------------- and Director (principal
A. Scott Letier financial and
accounting officer)
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-19
<PAGE> 196
Pursuant to the requirements of the Securities Act of 1933, Aerolink
International, L.P. has duly caused this Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Euless, State of Texas on the 24th day of November, 1999.
AEROLINK INTERNATIONAL, L.P.
By: AEROLINK MANAGEMENT, INC.
Its general partner
*
-----------------------------------------
Name: Peter A. Pappas
Title: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE
----
<S> <C> <C>
* Chairman of the Board November 24, 1999
- --------------------------------------------- of Directors, Chief
Peter A. Pappas Executive Officer and
Director (principal
executive officer)
* President, Chief November 24, 1999
- --------------------------------------------- Operating Officer and
Mark Dunkerley Director
* Chief Financial Officer November 24, 1999
- --------------------------------------------- and Director (principal
A. Scott Letier financial and
accounting officer)
*By: /s/ A. SCOTT LETIER
---------------------------------------
A. Scott Letier
Attorney-in-fact
</TABLE>
II-20
<PAGE> 197
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
3.1 Certificate of Incorporation of Worldwide Flight Services,
Inc. with all amendments (formerly known as AMR Services
Corporation and AMR Airline Services Corporation)*
3.2 Amended and Restated By-Laws of Worldwide Flight Services,
Inc. (formerly known as AMR Services Corporation and AMR
Airline Services Corporation)*
3.3 Certificate of Incorporation of Worldwide Flight Finance
Company with all amendments (formerly known as AMRS Holding
Corporation and AMRS Finance Company)*
3.4 By-Laws of Worldwide Flight Finance Company (formerly known
as AMRS Holding Corporation and AMRS Finance Company)*
3.5 Certificate of Incorporation of Worldwide Flight Security
Service Corporation with all amendments (formerly known as
AMR Services Security Service Corporation)*
3.6 By-Laws of Worldwide Flight Security Service Corporation
(formerly known as AMR Services Security Service
Corporation)*
3.7 Certificate of Incorporation of Aerolink International, Inc.
with all amendments*
3.8 By-Laws of Aerolink International, Inc.*
3.9 Certificate of Incorporation of Aerolink Maintenance, Inc.
with all amendments*
3.10 By-Laws of Aerolink Maintenance, Inc.*
3.11 Certificate of Incorporation of Aerolink Management, Inc.
with all amendments*
3.12 By-Laws of Aerolink Management, Inc.*
3.13 Certificate of Limited Partnership of Aerolink
International, L.P.*
3.14 Agreement of Limited Partnership of Aerolink International,
L.P.*
3.15 Amended and Restated Articles of Incorporation of Miami
International Airport Cargo Facilities & Services, Inc.
(formerly known as Miami International Container Freight
Station Inc.)*
3.16 Amended and Restated By-Laws of Miami International Airport
Cargo Facilities & Services, Inc.*
3.17 Certificate of Incorporation of International Enterprises
Group, Inc. with all amendments*
3.18 Amended and Restated By-Laws of International Enterprises
Group, Inc.*
3.19 Certificate of Incorporation of Miami Aircraft Support, Inc.
with all amendments*
3.20 Amended and Restated By-Laws of Miami Aircraft Support,
Inc.*
4.1 Indenture, dated as of August 12, 1999, by and among
Worldwide Flight Services, Inc., The Bank of New York, as
Trustee and Guarantors*
</TABLE>
<PAGE> 198
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
4.2 Form of 12 1/4 Senior Note due 2007, Series B (included in
exhibit 4.1)*
4.3 A/B Exchange Registration Rights Agreement, dated August 12,
1999, by and among Worldwide Flight Services, Inc.,
Guarantors and Initial Purchasers*
4.4 Form of Senior Guarantee (included in exhibit 4.1)*
5.1 Opinion of Schulte Roth & Zabel LLP**
9.1 Form of Voting Trust Agreement, among WFS Holdings, Inc.,
Stockholders and Leonard M. Harlan*
10.1 Purchase Agreement, dated August 5, 1999 by and among the
Registrant, WFS Holdings, Inc., the initial Guarantors and
the Initial Purchasers*
10.2 Stock Purchase Agreement, dated May 28, 1999, among MAS
Worldwide Holding Corporation, Anthony Romeo and Charles
Micale*
10.3 WFS Holdings, Inc. 1999 Stock Option Plan*
10.4 Employment Agreement, effective October 1, 1998, between
Peter A. Pappas and Worldwide Flight Services, Inc.
(formerly known as AMR Services Corporation)*
10.5 Executive Employment Agreement dated May 30, 1999, between
Worldwide Flight Services, Inc. and Mark Dunkerley*
10.6 Executive Employment Agreement, dated March 29, 1999,
between Worldwide Flight Services, Inc. (formerly known as
AMR Services Corporation) and Scott Letier*
10.7 Employment Agreement, dated December 7, 1998, between
Worldwide Flight Services, Inc. (formerly known as AMR
Services Corporation) and Olivier Bijaoui*
10.8 Employment Agreement, dated November 13, 1998, between
Worldwide Flight Services, Inc. (formerly known as AMR
Services Corporation) and John Vittas*
10.9 Credit Agreement dated as of August 12, 1999, among WFS
Holdings, Inc., Worldwide Flight Services, Inc., the Lenders
party thereto, The Chase Manhattan Bank, as Administrative
Agent, and DLJ Capital Funding, Inc., as Syndication Agent*
10.10 Security Agreement dated as of August 12, 1999, among
Worldwide Flight Services, Inc., each subsidiary of WFS
Holdings, Inc. listed on Schedule I thereto and The Chase
Manhattan Bank, a New York banking corporation, as
administrative agent for the Secured Parties*
10.11 Indemnity, Subrogation and Contribution Agreement dated as
of August 12, 1999, among Worldwide Flight Services, Inc.,
each subsidiary of WFS Holdings, Inc. listed on Schedule I
thereto and The Chase Manhattan Bank, a New York banking
corporation, as administrative agent for the Secured
Parties*
10.12 Guarantee Agreement dated as of August 12, 1999, among WFS
Holdings, Inc., each subsidiary of Holdings listed on
Schedule I thereto and The Chase Manhattan Bank, a New York
banking corporation, as administrative agent for the Secured
Parties*
</TABLE>
<PAGE> 199
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
10.13 Pledge Agreement dated as of August 12, 1999, among
Worldwide Flight Services, Inc., WFS Holdings, Inc., each
subsidiary of WFS Holdings, Inc. listed on Schedule I
thereto and The Chase Manhattan Bank, a New York banking
corporation, as administrative agent for the Secured
Parties*
10.14 Amended and Restated Stock Purchase Agreement dated as of
December 23, 1998 among MR Services Acquisition Corporation,
AMR Services Holding Corporation and AMR Corporation**
12.1 Statement regarding Computation of Ratios of Earnings to
Fixed Charges of Worldwide Flight Services, Inc.**
12.2 Statement regarding Computation of Ratios of Earnings to
Fixed Charges of Miami Aircraft Support, Inc.**
21 Subsidiaries of Worldwide Flight Services, Inc.*
23.1 Consent of Ernst & Young LLP**
23.2 Consent of KPMG LLP**
23.3 Consent of Schulte Roth & Zabel LLP (incorporated by
reference in exhibit 5.1)**
24 Power of Attorney (included on Signature Page of initial
filing)*
25 Statement of Eligibility and Qualification on Form T-1 of
The Bank of New York, as Trustee*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery for Outstanding
12 1/4% Senior Notes due 2007, Series A, in exchange for
12 1/4% Senior Notes due 2007, Series B*
</TABLE>
- ---------------
* Previously Filed in Registration Statement No. 333-88593 on October 7, 1999
** Filed herewith
<PAGE> 1
EXHIBIT 5.1
[Schulte Roth & Zabel LLP Letterhead]
November 4, 1999
Worldwide Flight Services, Inc.
1001 West Euless Boulevard, Suite 320
Euless, Texas 76040
Ladies and Gentlemen:
We have acted as counsel for Worldwide Flight Services, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing by the Company with the Securities and Exchange Commission (the
"Commission") of a Registration Statement on Form S-4 (the "Registration
Statement"), relating to the 12 1/4% Senior Notes due 2007, Series B of the
Company in the aggregate principal amount of $130,000,000 (the "New Notes").
The New Notes are to be offered by the Company in exchange for $130,000,000 in
aggregate principal amount of its outstanding 12 1/4% Senior Notes due 2007,
Series A (the "Original Notes").
In this capacity, we have examined originals, telecopies or copies
certified or otherwise identified to our satisfaction of such records of the
Company and all such agreements, certificates of public officials, certificates
of officers or representatives of the Company and others, and such other
documents, certificates and corporate or other records as we have deemed
necessary or appropriate as a basis for this opinion.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons signing or delivering any
instrument, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents. As to any facts material to this opinion that were not independently
established or verified, we have relied upon statements and representations of
officers and other representatives of the Company.
Based on the foregoing, and having such regard for such legal
considerations as we deem relevant, we are of the opinion that, upon the
issuance of the New Notes in the manner referred to in the Registration
Statement, and when the New Notes are duly authorized and executed by the
Company and authenticated by The Bank of New York, in its capacity as trustee
under the Indenture, dated as of August 12, 1999 (the "Indenture"), between the
Company, certain subsidiary guarantors of the Company, and The Bank of New
York, as supplemented by a Supplemental Indenture, dated as of September 7,
1999 (the "Supplemental Indenture"), between the Company, certain subsidiary
guarantors of the Company, and The Bank of New York, the New Notes will be
legally issued and will be binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject to applicable
bankruptcy,
<PAGE> 2
reorganization, fraudulent conveyance, insolvency, moratorium or other laws
affecting creditors' rights generally from time to time in effect and to general
principles of equity.
This opinion is not rendered with respect to any laws other than the
laws of the State of New York.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus. 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 Securities Act of 1933, as amended, or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Schulte Roth & Zabel LLP
<PAGE> 1
EXHIBIT 10.14
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
by and among
MR SERVICES ACQUISITION CORPORATION,
as Buyer,
AMR SERVICES HOLDING CORPORATION,
as Seller,
and
AMR CORPORATION,
Seller's Parent
Dated: December 23, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.......................................................................................... 1
2. Sale and Transfer of Shares; Closing................................................................. 13
a. Shares......................................................................................... 13
b. Purchase Price................................................................................. 13
c. Closing........................................................................................ 13
d. Closing Obligations............................................................................ 13
e. Adjustment Procedure........................................................................... 14
f. Deferred Payment Amount Procedure.............................................................. 15
g. Escrow......................................................................................... 17
3. Representations and Warranties of Seller............................................................. 17
a. Organization and Good Standing................................................................. 17
b. Authority; No Conflict......................................................................... 17
c. Capitalization................................................................................. 19
d. Financial Statements........................................................................... 19
e. Books of Account............................................................................... 20
f. Title to Properties, Encumbrances.............................................................. 20
g. No Undisclosed Liabilities..................................................................... 22
h. Taxes.......................................................................................... 22
i. Compliance with Legal Requirements; Governmental Authorizations................................ 23
j. Legal Proceedings; Orders...................................................................... 25
k. Absence of Certain Changes and Events.......................................................... 26
l. Contracts; No Defaults......................................................................... 27
m. Environmental Matters.......................................................................... 28
n. Employees...................................................................................... 29
o. Labor Relations; Compliance.................................................................... 30
p. Intellectual Property Assets................................................................... 30
q. Employee Benefit Matters....................................................................... 32
r. Brokers or Finders............................................................................. 34
s. Insurance...................................................................................... 34
t. Transactions with the Seller and Seller's Parent............................................... 34
u. Tangible Property.............................................................................. 34
v. Accounts and Notes Receivable.................................................................. 35
w. Computer Systems; Year 2000; Euro.............................................................. 35
x. Foreign Corrupt Practices Act.................................................................. 35
y. Extended Contracts............................................................................. 36
</TABLE>
-1-
<PAGE> 3
<TABLE>
<S> <C>
4. Representations and Warranties of Buyer.............................................................. 36
a. Organization and Good Standing................................................................. 36
b. Authority; No Conflict......................................................................... 36
c. Investment..................................................................................... 37
d. Certain Proceedings............................................................................ 37
e. Brokers or Finders............................................................................. 37
f. Funds Available................................................................................ 37
g. No Additional Representations.................................................................. 38
h. Support Services............................................................................... 38
i. Venture Capital Operating Company.............................................................. 38
5. Representations and Warranties of Seller's Parent.................................................... 38
a. Organization and Good Standing................................................................. 39
b. Authority; No Conflict......................................................................... 39
6. Covenants of Seller Prior to the Closing Date........................................................ 40
a Access and Investigation....................................................................... 40
b. Operation of the Businesses of the Acquired Companies.......................................... 40
c. Required Approvals............................................................................. 43
d. Notice of Developments......................................................................... 43
e. 401(k) Plan Trust-to-Trust Transfer............................................................ 43
f. Best Reasonable Efforts........................................................................ 44
g. Acquisition Proposals.......................................................................... 44
h. Non-Competition................................................................................ 45
i. Nonsolicitation................................................................................ 46
j. Taxes.......................................................................................... 46
k. Audit Consent.................................................................................. 47
l. Insurance Claims............................................................................... 47
m. No Termination of Contract..................................................................... 47
n. Compliance..................................................................................... 47
o. Acquisition of SAP System...................................................................... 47
7. Covenants of Buyer Prior to the Closing Date......................................................... 48
a. Approvals...................................................................................... 48
b. Releases of Seller and Affiliates.............................................................. 48
c. Notifications.................................................................................. 49
d. Best Reasonable Efforts........................................................................ 49
8. Covenants of Buyer Subsequent to the Closing Date.................................................... 49
a. Post-Closing Access to Records................................................................. 49
b. No Use of Name and Cancellation of Registrations............................................... 49
c. Severance Amounts.............................................................................. 50
d. One-Year Benefit Standstill.................................................................... 50
</TABLE>
-2-
<PAGE> 4
<TABLE>
<S> <C>
e. Reimbursement for Certain Intercompany Transactions and Employee Loans......................... 50
f. Pre-Closing Date Obligations................................................................... 51
g. Performance Bonus Plan......................................................................... 51
h. Workers Compensation Claims.................................................................... 51
9. Conditions Precedent to Buyer's Obligation to Close.................................................. 51
a. Accuracy of Representations.................................................................... 51
b. Seller's Performance........................................................................... 51
c. Consents....................................................................................... 52
d. Additional Documents........................................................................... 52
e. No Proceedings................................................................................. 52
f. Certificates................................................................................... 52
g. Resignations................................................................................... 52
h. Incumbency Certificates........................................................................ 52
i. Opinion........................................................................................ 52
j. Debt........................................................................................... 52
k. Financing...................................................................................... 53
l. EBITDA......................................................................................... 53
m. Audit.......................................................................................... 53
n. No Material Adverse Change..................................................................... 53
o. AA Agreement................................................................................... 53
10. Conditions Precedent to Seller's Obligation to Close................................................. 53
a. Accuracy of Representations.................................................................... 53
b. Buyer's Performance............................................................................ 53
c. Consents....................................................................................... 54
d. Additional Documents........................................................................... 54
e. No Proceedings................................................................................. 54
f. Opinion........................................................................................ 54
11. Termination.......................................................................................... 54
a. Termination Events............................................................................. 54
b. Effect of Termination.......................................................................... 55
c. Limited Remedies of Buyer Upon Termination..................................................... 55
12. Indemnification; Remedies............................................................................ 56
a. Survival....................................................................................... 56
b. Indemnification and Payment of Damages by Seller and Seller's Parent........................... 56
c. Indemnification and Payment of Damages by Buyer................................................ 57
d. Time Limitations............................................................................... 57
e. Environmental Indemnification.................................................................. 58
f. Other Limitations.............................................................................. 62
g. Procedure for Indemnification--Third Party Claims.............................................. 63
h. Procedure for Indemnification--Other Claims.................................................... 64
i. Exclusivity of Indemnification Provisions...................................................... 64
</TABLE>
-3-
<PAGE> 5
<TABLE>
<S> <C>
13. Tax Matters.......................................................................................... 65
a. Section 338(h)(10) Election.................................................................... 65
b. Liability for Taxes............................................................................ 66
c. Tax Returns.................................................................................... 67
d. Tax Allocation Arrangements.................................................................... 68
e. Tax Proceedings................................................................................ 68
f. Cooperation and Exchange of Information........................................................ 69
g. Treatment of Payments.......................................................................... 70
14. General Provisions................................................................................... 70
a. Expenses....................................................................................... 70
b. Public Announcements........................................................................... 70
c. Notices........................................................................................ 70
d. Confidentiality................................................................................ 71
e. Further Assurances............................................................................. 72
f. Waiver......................................................................................... 72
g. Entire Agreement and Modification.............................................................. 72
h. Disclosure Schedules........................................................................... 72
i. Assignments, Successors, and No Third-Party Rights............................................. 72
j. Severability................................................................................... 73
k. Section Headings, Construction................................................................. 73
l. Governing Law; Venue........................................................................... 73
m. Counterparts................................................................................... 73
n. Transition Cooperation......................................................................... 73
o. Antitrust Notification......................................................................... 74
p. Confidentiality Agreements..................................................................... 74
</TABLE>
-4-
<PAGE> 6
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
This Amended and Restated Stock Purchase Agreement (the
"AGREEMENT") is made and entered into as of December 23, 1998, by and among MR
Services Acquisition Corporation, a Delaware corporation ("BUYER"), AMR Services
Holding Corporation, a Delaware corporation ("SELLER"), and AMR Corporation, a
Delaware corporation and the parent of Seller ("SELLER'S PARENT").
RECITALS
WHEREAS, Seller desires to sell, and Buyer desires to
purchase, all of the issued and outstanding shares (the "SHARES") of capital
stock of AMR Services Corporation, a Delaware corporation ("COMPANY"), for the
consideration and on the terms set forth in this Agreement.
WHEREAS, Castle Harlan Partners III, L.P., a Delaware limited
partnership and the parent of Buyer ("BUYER'S PARENT"), has executed and
delivered to Seller a limited guaranty of Buyer's performance of Buyer's
obligations under this Agreement from the date of this Agreement until the
Closing Date (the "PERFORMANCE GUARANTY").
AGREEMENT
The parties, intending to be legally bound, hereby agree as
follows:
1. DEFINITIONS For purposes of this Agreement, the
following terms have the meanings specified or referred to in this Section 1:
"ACCOUNTANT'S COMPUTATION" - as defined in Section
2.f.ii.
"ACCOUNTING REFEREE" - as defined in Section
13.c.iii.
"ACQUIRED COMPANIES" - the Company and its
Subsidiaries, and any other entities, collectively (whether in the form of
partnerships, joint ventures or limited liability companies), in which the
Company or any of its Subsidiaries has a voting interest excluding Cyclone
Surface Cleaning, Inc. and AMR Combs, Inc. and its Subsidiaries), as detailed in
Section 3.a. of Seller's Disclosure Schedule.
"ACQUIRED GROUND HANDLING SUBSIDIARY" - as defined in
Section 6.h.iv.
"ACQUISITION DATE" - as defined in Section 6.h.iv.
"ACQUISITION PROPOSAL" - as defined in Section
6.g.ii.
<PAGE> 7
"ACQUISITION TRANSACTION" - means any purchase of
assets or stock, merger, consolidation, code sharing, marketing alliance or
other similar transaction.
"ACTUAL AMR REVENUES" - means the aggregate AMR
Revenues during the Revenue Period.
"ACTUAL PRE-CLOSING CAPITAL EXPENDITURES" - as
defined in Section 6.b.iii.(2).
"ADJUSTMENT AMOUNT" - an amount (which may be a
positive or negative number) equal to (a) the Working Capital of the Acquired
Companies as of the Closing Date, but excluding accruals and reserves relating
to taxes for any period ending on or prior to the Closing Date, to the extent
Seller and not one of the Acquired Companies pays such taxes after the Closing
Date, minus (b) $10,000,000. For the purpose of this Adjustment, the following
revisions to the Working Capital as of the Closing Date as contained in the
Working Capital Statement will be made, if appropriate:
a. if awards have been paid under the 1998 IC Plan,
then the cost of those awards will be subtracted from the Working Capital as of
the Closing Date,
b. if the portion of the allowance for doubtful
accounts on the Interim Balance Sheet related to the disputed Company billings
to the Port Authority of New York and New Jersey ($388,000) has been removed
from the allowance, then the amount of the allowance ($388,000) will be
subtracted from the Working Capital as of the Closing Date, to the extent the
associated receivable has not also been removed from the books,
c. if the note payable associated with the Cyclone
Surface Cleaning, Inc. stock option and exclusive license agreement remains
unpaid as of the Closing Date but is not reflected in the Working Capital, then
the amount of the note will be subtracted from the Working Capital as of the
Closing Date, and
d. if the worker's compensation liability or a
portion thereof is reclassified to non-current liabilities, then the amount
reflected in non-current liabilities will be subtracted from Working Capital as
of the Closing Date.
"AFFILIATE" - has the meaning set forth in Rule 405
of the regulations promulgated under the Securities Act.
"AGGREGATE CAPITAL BUDGET" - as defined in Section
6.b.iii.(2).
"AGS" - as defined in Section 6.h.iii.
"AMR-CONTROLLED AIRLINE" - as defined in Section
6.h.i.
"AMR GROUP" - as defined in Section 3.h.i.
-2-
<PAGE> 8
"AMR REVENUES" - means revenues of the Company
generated from services provided to and goods sold to the Seller's Parent and
its Consolidated Subsidiaries during the relevant period(s) as determined in
accordance with GAAP.
"AMT CREDIT CARRYOVER" - as defined in Section
13.b.v.
"APPLICABLE CONTRACT" - any Contract (a) under which
any Acquired Company may be entitled to receive revenues of more than $100,000
in any calendar year, (b) under which any Acquired Company may become subject to
any obligation to pay a liability of more than $100,000 in any calendar year,
(c) by which assets owned by any Acquired Company having a net book value of at
least $100,000 are bound, (d) under which any Acquired Company is restricted
from (i) competing with third parties, (ii) entering into agreements with any
other party, or (iii) acting in a manner which is in the Ordinary Course of
Business, or (e) under which, to the Knowledge of Seller, the Seller or any of
its Affiliates is a party and that relates to the confidentiality of matters or
information pertaining to the proposed sale of Shares.
"APPRAISER" - as defined in Section 13.a.
"ASM" - means one aircraft passenger seat flown one
mile. For purposes of calculating the Baseline Revenues, all ASMs of American
Airlines, Inc., American Eagle Airlines, Inc. and any other airline that is a
Consolidated Subsidiary of Seller's Parent shall be aggregated.
"AVIATION LIABILITY INSURANCE POLICY" - means the
insurance policy identified as item No.7 in Section 3.s. of Seller's Disclosure
Schedule.
"BALANCE SHEET" - as defined in Section 3.d.
"BASE AMOUNT" - equals $10 million.
"BASELINE PERIOD" - means the period from January 1,
1999 through December 31, 2008.
"BASELINE REVENUES" - means the hypothetical
cumulative AMR revenues over the Baseline Period calculated in accordance with
Exhibit "D". In the case of services that are terminated by (i) the Seller's
Parent or any Consolidated Subsidiary for default by the Company or (ii) by the
Company other than for default by Seller's Parent or any Subsidiary, there shall
be subtracted from 1998 AMR Revenues any revenues earned by and paid to the
Company for the terminated services in 1998.
"BEST REASONABLE EFFORTS" - the reasonable efforts
that a prudent Person desirous of achieving a result would use in similar
circumstances to ensure that such result is achieved as reasonably expeditiously
as possible; provided, however, that an obligation to use Best Reasonable
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would materially and adversely impact the
benefits to such Person of this Agreement and the Contemplated Transactions or
to expend a material amount of funds.
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<PAGE> 9
"BREACH" - a "Breach" of a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if there is
or has been any inaccuracy in or a breach of, or any failure to perform or
comply with, such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"BUSINESS" - all businesses of the Acquired Companies
as currently conducted by the Acquired Companies, including, without limitation,
the provision of cargo handling, passenger, ramp and technical services to
aircraft.
"BUSINESS DAY" - a day other than a Saturday or
Sunday on which trading occurs on the New York Stock Exchange.
"BUYER" - as defined in the first paragraph of this
Agreement.
"BUYER INDEMNIFIED PERSONS" - as defined in Section
12.b.
"BUYER'S ACCOUNTANTS" - as defined in Section 2.e.i.
"BUYER'S 401(k) PLAN" - as defined in Section 6.e.
"BUYER'S PARENT" - as defined in the Recitals of this
Agreement.
"CAPITAL EXPENDITURE NOTICE" - as defined in Section
6.b.iii.(2).
"CAPITAL EXPENDITURE SHORTFALL AMOUNT" - as defined
in Section 6.b.iii.
"CAPITAL EXPENDITURE SURPLUS AMOUNT" - as defined in
Section 6.b.iii.(1).
"CAPITAL IMPROVEMENT" - as defined in Section
6.b.iii.
"CERCLA" - as defined in the definition of
Environmental Law.
"CLAIM" - any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter or other written communication asserting or
alleging liability.
"CLOSING" - as defined in Section 2.c.
"CLOSING DATE" - the date and time as of which the
Closing actually takes place.
"CODE" - the Internal Revenue Code of 1986, as
amended, or any successor law.
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<PAGE> 10
"COMPANY" - as defined in the Recitals of this
Agreement.
"COMPUTER SYSTEM" - as defined in Section 3.w.i.
"CONFIDENTIALITY AGREEMENT" - as defined in Section
14.d.
"CONSENT" - any approval, consent, ratification,
waiver, or other authorization (including any Governmental Authorization).
"CONSENT DEADLINE" - as defined in Section 2.g.
"CONSOLIDATED SUBSIDIARY" - means any Subsidiary of
Seller's Parent whose results are consolidated in the financial statements of
Seller's Parent.
"CONTEMPLATED TRANSACTIONS" - all of the transactions
contemplated by this Agreement, including, without limitation:
a. the sale of the Shares by Seller to Buyer;
b. the execution, delivery, and performance of this
Agreement, the Technical Services Agreement, License Agreement and the
Performance Guaranty; and
c. the performance by the parties of their respective
covenants and obligations under this Agreement.
"CONTRACT" - any agreement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is reasonably expected to be legally binding.
"CONTROLLER'S MANUAL" - the AMR Services Accounting
Policies and Procedures Manual containing the policies and procedures which have
been in effect since at least January 1, 1995, and utilized by the Acquired
Companies in connection with the preparation of financial information, including
unaudited financial statements and Seller's Parent's audited financial
statements.
"COPYRIGHTS" - as defined in Section 3.p.i.(3).
"DALFORT MERGER AGREEMENT" - as defined in Section
3.k.x. of Seller's Disclosure Schedule.
"DAMAGES" - as defined in Section 12.b.
"DEBT COMMITMENT LETTER" - as defined in Section 4.f.
"DEFERRED PAYMENT AMOUNT" - as defined in Section
2.f.ii.
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<PAGE> 11
"DEFERRED PAYMENT INTEREST" - means simple interest
on the Base Amount or any portion thereof at a rate equal to 0.25% above the
rate of interest, as of the Closing Date, payable on the most subordinated
third-party indebtedness of the Buyer utilized in financing the Contemplated
Transactions.
"DISCLOSING PARTY" - as defined in Section 14.d.
"DOJ" - as defined in Section 14.o.
"EMPLOYEE PLANS" - as defined in Section 3.q.i.
"EMPLOYEES" - means all persons employed by any of
the Acquired Companies as of the specific time referenced, but with respect to
the time period prior to Closing, shall not include Transferred Employees.
"ENCUMBRANCE" - any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, preemptive right, right of first refusal, or restriction of any kind
(other than restrictions on transfers imposed by Securities Laws); including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"ENVIRONMENT" - soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins, and wetlands), ground waters, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal life, and
any other environmental medium or natural resource.
"ENVIRONMENTAL CLAIM" - any Claim from any
Governmental Body or any third party involving violations of Environmental Laws
or Releases of Hazardous Materials from (i) any assets, properties or businesses
of the Acquired Companies or any predecessor in interest of any asset or
property of the Acquired Companies; (ii) from adjoining properties or
businesses; or (iii) from or onto any facility which received Hazardous
Materials generated by the Acquired Companies or any prior owner of a Facility.
"ENVIRONMENTAL LAWS" - all Legal Requirements under
the Comprehensive Environmental Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et seq., as amended ("CERCLA"), the Resources Conservation
and Recover Act, 42 U.S.C. 6901 et seq., as amended, the Clean Air Act,
42 U.S.C. 7401 et seq., as amended, the Clean Water Act, 33 U.S.C. 1251 et seq.,
as amended, the Occupational Safety and Health Act, 29 U.S.C. 655 et seq., and
any other international, federal, state, local or municipal laws, statutes,
regulations, rules or ordinances imposing liability or establishing standards of
conduct for the protection of health, safety and the Environment.
"ENVIRONMENTAL LIABILITIES" - all monetary
obligations, losses, liabilities (including strict liability), damages, punitive
damages, treble damages, costs and expenses (including all reasonable
out-of-pocket fees, disbursements and expenses of counsel, out-of-pocket expert
and consulting fees and out-of-pocket costs for environmental site assessments,
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<PAGE> 12
remedial investigation and feasibility studies), fines, penalties, sanctions and
interest incurred as a result of any Environmental Claim filed by any
Governmental Body or any third party which relate to any violations of
Environmental Laws, Remedial Actions or Releases of Hazardous Materials from or
onto (i) any Facility, even to the extent owned by a predecessor in interest
thereof, or (ii) any facility which received Hazardous Materials generated by
the Company or any of its Subsidiaries or any prior owner of a Facility.
"ENVIRONMENTAL REPORTS" - as defined in Section
3.m.iv.
"EQUITY COMMITMENT LETTER" - as defined in Section
4.f.
"ERISA" - the Employee Retirement Income Security Act
of 1974, as amended, or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.
"ESCROW ACCOUNT" - as defined in Section 2.g.
"ESCROW AMOUNT" - as defined in Section 2.g.
"ESCROW SPREAD RATE" - means the difference between
(i) the rate of interest, as of the Closing Date, payable on the most
subordinated indebtedness of the Buyer from a non-Affiliate of Buyer utilized in
financing the Contemplated Transactions, and (ii) the rate of interest or
earnings paid on the Escrow Account.
"EXTENDED CONTRACTS" - has the meaning set forth in
the Umbrella Amendment.
"FAA" - as defined in Section 3.i.iii.
"FCPA" - as defined in Section 3.x.
"FACILITIES" - any real property, leaseholds, or
similar interests currently or formerly owned, leased or operated by any
Acquired Company and any buildings, plants, structures, or equipment located
thereon.
"FINAL ACCOUNTANT'S COMPUTATION" - as defined in
Section 2.f.iv.
"FIVE-YEAR PERIOD" - as defined in Section 6.h.
"FOREIGN EMPLOYEE PLAN" - as defined in Section
3.q.viii.
"FTC" - as defined in Section 14.o.
"GAAP" - means United States generally accepted
accounting principles as in effect from time to time applied on a consistent
basis.
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<PAGE> 13
"GOVERNMENTAL AUTHORIZATION" - any approval, consent,
license, permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental Body or
pursuant to any Legal Requirement.
"GOVERNMENTAL BODY" - any nation, state, county,
city, town, village, district, or other government or jurisdiction of any nature
or any governmental, regulatory or quasi-governmental body, including airport
authorities, acting thereunder in each case with jurisdiction over any of the
Acquired Companies.
"GROUND HANDLING SERVICES" - as defined in Section
6.h.
"HAZARDOUS MATERIAL" - means "hazardous substance,"
"pollutant or contaminant," and "petroleum" and "natural gas liquids," as those
terms are defined or used in Section 101 of CERCLA, and any other substances
regulated under Environmental Laws because of their effect or potential effect
on public health and the environment, including, without limitation, PCBs, lead
paint, asbestos, and radioactive materials.
"HSR ACT" - the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or any successor law, and regulations and
rules issued pursuant to that Act or any successor law.
"IC PLAN" - as defined in Section 8.g.
"INDEMNIFIED PARTY" - as defined in Section 13.f.
"INDEMNIFYING PARTY" - as defined in Section 13.f.
"INTELLECTUAL PROPERTY" - as defined in Section
3.p.i.
"INTELLECTUAL PROPERTY ASSETS" - as defined in
Section 3.p.i.
"INTERCOMPANY TRANSACTIONS" - those transactions
among Seller, Seller's Parent, the Acquired Companies and their respective
Affiliates described in Section 6.b.i. and 6.b.ii. of Seller's Disclosure
Schedule which will be consummated prior to or as of the Closing Date.
"INTERIM BALANCE SHEET" - as defined in Section 3.d.
"IRS" - the United States Internal Revenue Service or
any successor agency, and, to the extent relevant, the United States Department
of the Treasury.
"KNOWLEDGE" - an individual will be deemed to have
"Knowledge" of a particular fact or other matter if such individual is actually
aware of such fact or other matter after inquiry. For the purpose of this
definition, "inquiry" shall mean a complete review and discussion of this
Agreement, the Disclosure Schedules and the agreements attached hereto. Seller
shall only be deemed to have "Knowledge" of a particular fact or other matter if
any of Peter Pappas, Joseph Reedy, Gary Burtzlaff, William White, Jon Weaver,
John Vittas, Lauri
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<PAGE> 14
Curtis, Otto Grunow, Jim Gunn, Tom Zelewski, Jim Enright, or Jeff Wier has
Knowledge of such fact or matter. Buyer shall only be deemed to have "Knowledge"
of a particular fact or other matter if Marcel Fournier, Kim Foerster, or
Salvatore Calvino, as consultant, has Knowledge of such fact or matter. Any
other Person (other than an individual) will only be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving as Chief
Executive Officer, President or Chief Financial Officer of such Person, as of
the date hereof or as of the Closing Date, as the case may be, has Knowledge of
such factor or other matter.
"LEASES" - as defined in Section 3.f.ii.
"LEGAL REQUIREMENT" - any federal, state, local,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, rule,
statute, or treaty of any Governmental Body.
"LICENSE AGREEMENT" - as defined in Section
2.d.i.(3).
"LOVE FIELD LEASE" - as defined in Section 3.k.x. of
Seller's Disclosure Schedule.
"MARKS" - as defined in Section 3.p.i.(1).
"MATERIAL ADVERSE CHANGE" - as defined in Section
9.n.
"MATERIAL ADVERSE EFFECT" - any single or series of
related violations, inaccuracies, breaches, defaults, failures to comply,
changes in circumstance, losses, effects, facts, agreements, arrangements,
commitments, understandings or obligations which, as a result of the occurrence
or existence thereof, have a material adverse effect or material adverse impact
on the financial condition, assets, or results of operations, as applicable of
(i) the Acquired Companies taken as a whole, (ii) Seller's Parent and Seller
taken as a whole or (iii) any other Person(s) in question. However, a Material
Adverse Effect, when used with respect to any Person(s), does not include a
material adverse effect on the business, operations, properties, financial
condition, assets or results of operations of such Person(s) to the extent it is
caused by (i) one or more downturns in the economy or the securities markets in
general, or (ii) one or more downturns in the industries in which the Person(s)
operate.
"MCLA" - as defined in Section 6.h.iii.
"MONTHLY CAPITAL BUDGET" - as defined in Section
6.b.iii.(1).
"NON-MANDATORY CONSENT" - any Consent listed as such
in Part C of Section 10.c. of Seller's Disclosure Schedule.
"ORDER" - any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
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<PAGE> 15
"ORDINARY COURSE OF BUSINESS" - an action taken by a
Person will be deemed to have been taken in the "Ordinary Course of Business"
if:
a. such action is taken in the ordinary course of the
normal operations of such Person;
b. such action is similar in nature and magnitude to
actions customarily taken in the ordinary course of the normal operations of
such Person;
c. such action that is taken with the prior written
approval of Buyer; or
d. such action is listed in Seller's Disclosure
Schedule as considered to be in the Ordinary Course of Business.
"ORGANIZATIONAL DOCUMENTS" - (a) the articles or
certificate of incorporation and the bylaws of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) any charter or similar document adopted or filed
in connection with the creation, formation, or organization of a Person,
including, with respect to a limited liability company, its member or operating
agreement; and (e) any amendment to any of the foregoing.
"OWNER" - as defined in the definition of Subsidiary.
"PATENTS" - as defined in Section 3.p.i.(2).
"PENSION PLAN" - as defined in Section 3.q.i.
"PERFORMANCE GUARANTY" - as defined in the Recitals
of this Agreement.
"PERSON" - any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
"PLAN ASSETS REGULATIONS" - as defined in Section
4.i.
"POST-CLOSING CONSENT" - as defined in Section 2.g.
"POST-CLOSING PERIOD" - as defined in Section
13.b.ii.
"PRE-CLOSING PERIOD" - as defined in Section 13.b.i.
"PROCEEDING" - any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
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<PAGE> 16
"PROPRIETARY RIGHTS AGREEMENT" - as defined in
Section 3.n.
"PURCHASE PRICE" - as defined in Section 2.b.
"QUARTERLY REPORT" - as defined in Section
12.e.ii.(6).
"RAW" - as defined in Section 12.e.(ii)(6).
"RECEIVING PARTY" - as defined in Section 14.d.
"RECORDS" - as defined in Section 8.a.
"RELEASE" - any spilling, leaking, pumping, emitting,
emptying, discharging, injecting, escaping, leaching, migrating, dumping, or
disposing of Hazardous Materials (including the abandonment or discharging of
barrels, containers or other closed receptacles containing Hazardous Materials)
into the Environment.
"REMEDIAL ACTION" - all actions taken to correct,
remediate and resolve Covered Environmental Liabilities, including action, taken
to (i) clean up, remove, remediate, contain, treat, monitor, assess, evaluate or
in any other way address any Environmental Liability or any Hazardous Materials
in the Environment; (ii) prevent or minimize a Release of Hazardous Materials so
they do not migrate or endanger or threaten to endanger public health or welfare
or the Environment; (iii) perform pre-remedial studies and investigations and
post-remedial operation and maintenance activities; or (iv) any other actions
authorized by 42 U.S.C. 9601.
"REPRESENTATIVE" - with respect to a particular
Person, any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, financial
advisors, financing sources and potential financing sources.
"RETURNS" - as defined in Section 3.h.ii.
"REVENUE PERIOD" - means the period commencing on the
first day of the first calendar month following the Closing Date and ending on
the tenth (10th) anniversary thereof.
"SECTION 338(h)(10) ELECTION" - as defined in Section
13.a.
"SECURITIES ACT" - the Securities Act of 1933, as
amended, or any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"SELLER" - as defined in the first paragraph of this
Agreement.
"SELLER ENVIRONMENTAL LIABILITIES" - as defined in
Section 12.e.i.
"SELLER INDEMNIFIED PERSONS" - as defined in Section
12.c.
"SELLER'S ACCOUNTANTS" - as defined in Section 2.e.i.
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<PAGE> 17
"SELLER'S DISCLOSURE SCHEDULE" - the disclosure
schedule delivered by Seller to Buyer concurrently with the execution and
delivery of this Agreement.
"SELLER'S PARENT" - as defined in the first paragraph
of this Agreement.
"SELLER'S PARENT'S 401(k) PLAN" - as defined in
Section 6.e.
"SHARES" - as defined in the Recitals of this
Agreement.
"STIPULATED CONSENT VALUE" - as defined in Section
2.g.
"SUBSIDIARY" - with respect to any Person ("OWNER"),
any corporation or other Person of which securities or other interests having
the power to elect a majority of that corporation's or other Person's board of
directors or similar governing body are held by the Owner and/or one or more of
its Subsidiaries; when used with respect to the Company, "Subsidiary" will
include only those Subsidiaries with respect to which the Company is an Owner
after giving effect to the consummation of the Intercompany Transactions; and
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary with respect to which the Company is an Owner. For purposes of this
definition, Cyclone Surface Cleaning, Inc. is not considered to be a Subsidiary.
"TAX ASSET" - as defined in Section 6.j.ii.
"TAXES" - as defined in Section 3.h.ii.
"TECHNICAL SERVICES AGREEMENT" - as defined in
Section 2.d.i.(2).
"THREATENED" - a Claim or Release will be deemed to
be "Threatened" if any demand or statement of such Claim or Release has been
made in writing or any notice has been given in writing.
"THRESHOLD REVENUES" - means 85% of the Baseline
Revenues.
"TRADE SECRETS" - as defined in Section 3.p.i.(4).
"TRANSFERRED EMPLOYEES" - as defined in Section
6.b.ii.
"TREASURY REGULATIONS" - means a regulation issued by
the Treasury Department pursuant to the Code.
"UMBRELLA AMENDMENT" - as defined in Section 9.o.
"UNADJUSTED PURCHASE PRICE" - as defined in Section
2.b.
"WELFARE PLAN" - as defined in Section 3.q.i.
"WORKERS COMPENSATION ACCRUAL" - means $2,009,000.
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<PAGE> 18
"WORKING CAPITAL" - the amount remaining when the
current liabilities of the Acquired Companies are subtracted from the current
assets of the Acquired Companies, as determined in accordance with GAAP,
however, in no case will there be any reclassification (from the date of the
Interim Balance Sheet) of assets or liabilities between the current and
non-current categories.
"WORKING CAPITAL STATEMENT" - as defined in Section
2.e.i.
2. SALE AND TRANSFER OF SHARES; CLOSING.
a. Shares. Subject to the terms and conditions of
this Agreement, at the Closing, Seller will sell and transfer the Shares to
Buyer, and Buyer will purchase the Shares from Seller.
b. Purchase Price. The consideration for the Shares
comprises (i) the amount of SEVENTY-FIVE MILLION DOLLARS ($75,000,000.00) (the
"UNADJUSTED PURCHASE PRICE") minus any principal portion of the Escrow Amount,
if any, returned to Buyer pursuant to Section 2.g. hereof, (ii) the Adjustment
Amount (which can be a negative or positive amount), (iii) the Capital
Expenditure Shortfall Amount or the Capital Expenditure Surplus Amount, as the
case may be, and (iv) the Deferred Payment Amount.
c. Closing. The purchase and sale (the "CLOSING")
provided for in this Agreement will take place at the offices of Seller's
counsel, as soon as practicable, but in no event later than the fifth Business
Day following the satisfaction or waiver of all conditions to the obligations of
the parties to consummate the Contemplated Transactions (other than conditions
with respect to actions the respective parties will take at the Closing itself),
or at such other place or time as agreed by the parties. Subject to the
provisions of Section 11, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 2.c. will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement.
d. Closing Obligations. At the Closing:
i. Seller will deliver to Buyer:
(1) certificates representing
the Shares, duly endorsed
in blank (or accompanied by
duly executed stock
powers);
(2) a Technical Services
Agreement substantially in
the form of Exhibit
2.d.i.(2) executed by
Seller's Parent or any
other Affiliates of
Seller's Parent that are
designated by Seller's
Parent (the "TECHNICAL
SERVICES AGREEMENT");
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<PAGE> 19
(3) a License Agreement
substantially in the form
of Exhibit 2.d.i.(3)
executed by the parties
thereto (the "LICENSE
AGREEMENT"); and
(4) the legal opinion of
Seller's counsel
substantially in the form
of Exhibit 2.d.i.(4).
ii. Buyer will deliver to Seller:
(1) the Unadjusted Purchase
Price less any Escrow
Amount in the form of a
wire transfer of
immediately available funds
delivered in accordance
with the instructions of
Seller;
(2) the Technical Services
Agreement executed by Buyer
and the Acquired Companies
specified therein;
(3) the License Agreement
executed by the parties
thereto;
(4) evidence of the deposit of
the Escrow Amount into the
Escrow Account; and
(5) the legal opinion of
Buyer's counsel
substantially in the form
of Exhibit 2.d.ii.(6).
e. Adjustment Procedure.
i. Seller will cause Ernst & Young, L.L.P.
("SELLER'S ACCOUNTANTS") to audit the consolidated working capital
statement of the Acquired Companies as of the Closing Date based on
information provided by the Company, and provide a computation in
accordance with GAAP of Working Capital as of the Closing Date (the
"WORKING CAPITAL STATEMENT"). Seller will deliver the Working Capital
Statement to Buyer within forty-five (45) days after the Closing Date,
and Seller shall cause Seller's Accountants to give Buyer and Buyer's
Accountants (defined below) access to Seller's Accountants and their
workpapers in order to evaluate the Working Capital Statement. The
Company shall, cooperate with Seller's Accountants in the preparation
of the Working Capital Statement. If within thirty (30) days following
delivery of the Working Capital Statement, Buyer has not given Seller
notice of its objection to the Working Capital Statement (which notice
must contain a detailed statement of the basis of Buyer's objection),
then the Working Capital reflected in the Working Capital Statement
will be used in computing the Adjustment Amount. If Buyer gives such
notice of objection, then the issues in dispute will be submitted
promptly to Seller's Accountants and PricewaterhouseCoopers, L.L.P.,
(the "BUYER'S ACCOUNTANTS"), for joint resolution. If issues in dispute
are submitted to Seller's Accountants and Buyer's Accountants for
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<PAGE> 20
resolution, then (i) each party will furnish to the accountants such
workpapers and other documents and information relating to the disputed
issues as the accountants may request and are available to that party
or its Subsidiaries (or its independent public accountants), and will
be afforded the opportunity to present to the accountants any material
relating to the disputed issues and to discuss the disputed issues with
the accountants; (ii) the determination by the accountants, as set
forth in a notice delivered to all parties by the accountants within
thirty (30) days of submission, will be binding and conclusive on all
parties to this Agreement; and (iii) Buyer and Seller will each bear
the cost of their own accountants for such determination. If the
accountants are unable to resolve any such disputes, such accountants
shall appoint a third firm of certified public accountants to resolve
such disputes, and the determination of such third accounting firm
shall be conclusive and binding on the parties. During the period from
the Closing Date through the date of resolution of any dispute
regarding the Working Capital Statement as contemplated by this Section
2.e.i., Buyer will also provide Seller and its Representatives
reasonable access during normal business hours to the books, records,
facilities and employees of the Acquired Companies for the purposes of
preparing such Working Capital Statement and resolving any related
dispute. Buyer and Seller will each bear 50% of the fees of the third
firm of certified public accountants, if such accountants are retained
pursuant hereto.
ii. If the Adjustment Amount is greater than
zero, Buyer will pay the Adjustment Amount to Seller, and if the
Adjustment Amount is less than zero, Seller will pay the Adjustment
Amount to Buyer. All payments will be made together with interest per
annum at the prime rate as published in the Wall Street Journal on the
Closing Date for the period beginning on the Closing Date and ending on
the date of payment. Payments must be made by wire transfer of
immediately available funds within two (2) Business Days after the
final determination of the Adjustment Amount as provided herein.
f. Deferred Payment Amount Procedure
i. Buyer shall pay any Deferred Payment
Amount as calculated from the Final Accountant's Computation to Seller
in immediately available funds and to such accounts as Seller will
specify. Payment of all amounts under this section shall be subordinate
and junior in right of payment to all obligations of the Company for
borrowed money at the time of any such proposed payment other than
obligations owed to Affiliates of the Company.
ii. Within sixty (60) days following the end
of the Revenue Period, Seller will report to Buyer the ASMs for each
year in the revenue period based on Seller's Parent's public disclosure
thereof. As soon as reasonably practicable following the end of the
Revenue Period (but in no event later than the 90th day following the
end of the Revenue Period), Buyer shall cause its Certified Public
Accountants to prepare and deliver to Seller a computation
("Accountant's Computation") of the "DEFERRED PAYMENT AMOUNT" which
shall equal:
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<PAGE> 21
(1) If the Actual AMR Revenues
equal or exceed the
Baseline Revenues, the Base
Amount plus Deferred
Payment Interest (to the
extent not previously paid)
for the period commencing
on the first day of the
Revenue Period and ending
on the date such Base
Amount is paid to Seller;
(2) If the Actual AMR Revenues
equal or exceed the
Threshold Revenues but are
less than the Baseline
Revenues, an amount equal
to (i) $666,666.66 plus
(ii) Deferred Payment
Interest (to the extent not
previously paid), for the
period commencing on the
first day of the Revenue
Period and ending on the
date such amount is paid to
Seller, for each percentage
point by which the Actual
AMR Revenues exceed the
Threshold Revenues (plus a
pro rata amount for each
partial percentage point);
or
(3) If the Actual AMR Revenues
are less than the Threshold
Revenues, $0.
Buyer shall have the option to pay Deferred Payment
Interest in cash annually or have the Deferred Payment Interest accrue
annually.
iii. Upon receipt of the Accountant's
Computation, Seller and its accountants shall have the right, during
the succeeding thirty (30) day period, to examine, at Seller's expense,
the Accountant's Computation and all records used to prepare such
Accountant's Computation. Seller shall notify the Buyer in writing, on
or before the last day of the thirty (30) day period, of any good faith
objections to the Accountant's Computation, setting forth a detailed
description of Seller's objections and the dollar amount of each such
objection. If Seller does not deliver such notice within such thirty
(30) day period, the Accountant's Computation shall be deemed to have
been accepted by Seller and deemed to be the Final Accountant's
Computation.
iv. If Seller in good faith objects to the
Accountant's Computation, Seller and Buyer shall attempt to resolve any
such objections within ten (10) days of Buyer's receipt of the Seller's
objections. If the parties agree upon the resolution of their dispute,
such resolution shall be conclusive and binding upon the parties. If
the parties are unable to resolve the matter within such ten (10) day
period, then the parties shall submit such dispute for final resolution
in accordance with the procedures set forth in Section 2.e.i. The
Accountant's Computation after the acceptance thereof by Seller or the
resolution of all disputes in connection therewith pursuant to Section
2.e.i. hereof is referred to herein as the "FINAL ACCOUNTANT'S
COMPUTATION."
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<PAGE> 22
g. Escrow. If either party reasonably anticipates
that a Non-Mandatory Consent will not be obtained prior to Closing, then the
parties will negotiate in good faith to enter into an escrow agreement to
establish an escrow account (the "ESCROW ACCOUNT") with an escrow agent, all as
mutually agreed between the parties. At Closing, Buyer shall deposit into the
Escrow Account an amount equaling the value of each Non-Mandatory Consent, as
stipulated in Part C of Section 10.c. of Seller's Disclosure Schedule (the
"STIPULATED CONSENT VALUE"), that is not obtained by Seller prior to or on the
Closing Date (the "ESCROW AMOUNT"). At any time after the Closing Date and prior
to the end of the ninth full calendar month following the Closing Date (the
"CONSENT DEADLINE"), if Seller obtains any Non-Mandatory Consent that Seller had
not obtained prior to Closing (a "POST-CLOSING CONSENT"), then the Seller shall
promptly provide to Buyer a copy (or other satisfactory evidence) of the
obtained Post-Closing Consent. Within five (5) Business Days of Buyer's receipt
of the copy (or other evidence) of the Post-Closing Consent, Buyer shall
instruct the escrow agent to release from the Escrow Account that portion of the
Escrow Amount that corresponds to the Stipulated Consent Value of the
Post-Closing Consent, plus any interest accrued on such portion. The Escrow
Account shall remain in place until the earlier of (i) the date on which all
Post-Closing Consents have been obtained by Seller and (ii) the Consent
Deadline. If on the Consent Deadline, Seller has not obtained all of the
Post-Closing Consents, then Buyer may close the Escrow Account and retain any
remaining portion of the Escrow Amount including interest on such remaining
portion. If any Post-Closing Consents that are not obtained on or prior to the
Closing Date are subsequently granted subject to a condition that would have a
material adverse effect on the operations of the Acquired Company to which such
Post-Closing Consent pertains, Buyer and Seller shall negotiate in good faith to
determine an amount that reasonably compensates the Acquired Company for such
material adverse effect. Such compensatory amount shall be deducted from the
portion of the Escrow Amount to be disbursed to Seller and such deducted amount
shall be released to Buyer.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents
and warrants to Buyer the following as set forth in this Section 3. No
representations or warranties are made by Seller, any Acquired Company, any
Affiliate (other than Seller's Parent as set forth in Section 5 hereof) or any
Representative thereof in connection with the Contemplated Transactions, except
as expressly set forth in this Section 3.
a. Organization and Good Standing. Except as set
forth in Seller's Disclosure Schedule, Seller and each Acquired Company is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation, with the requisite corporate power
and authority to conduct its business as it is now being conducted and to own or
use the properties and assets that it purports to own or use, with such
exceptions as would not individually or collectively have a Material Adverse
Effect. Except as set forth in Seller's Disclosure Schedule, each Acquired
Company is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, save for such
exceptions as would not individually or collectively have a Material Adverse
Effect.
b. Authority; No Conflict.
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<PAGE> 23
i. This Agreement constitutes the legal,
valid, and binding obligation of Seller enforceable against Seller in
accordance with its terms, subject to bankruptcy, reorganization,
insolvency and other similar laws affecting the enforcement of
creditors' rights in general and to general principles of equity
(regardless of whether considered in a proceeding in equity or an
action at law). Seller has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations under
this Agreement. The execution, delivery and performance of this
Agreement and the consummation of the Contemplated Transactions have
been duly and validly authorized by all necessary corporate action on
the part of Seller.
ii. Except as set forth in Seller's
Disclosure Schedule and save for such exceptions as would not
individually or collectively have a Material Adverse Effect, neither
the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will:
(1) contravene or result in a
violation of any provision
of the Organizational
Documents of the Acquired
Companies;
(2) contravene, conflict with,
or result in a violation
of, or give any
Governmental Body the right
to challenge any of the
Contemplated Transactions
or to exercise any remedy
or obtain any relief under,
any Legal Requirement or
any Order to which any
Acquired Company or Seller,
or any of the assets owned
by any Acquired Company, is
subject;
(3) contravene or result in a
violation of any of the
terms or requirements of,
or give any Governmental
Body the right to revoke,
withdraw, suspend, cancel,
terminate, or modify, any
Governmental Authorization
that is held by any
Acquired Company;
(4) result in the imposition or
creation of any Encumbrance
upon or with respect to any
of the assets owned by any
Acquired Company;
(5) contravene, conflict with,
or result in a violation or
breach of any provision of,
or give any Person the
right to declare a default
or exercise any remedy
under, or to accelerate the
maturity or performance of,
or to cancel, terminate, or
modify, any Applicable
Contract; and
(6) require the Consent of any
Governmental Body.
-18-
<PAGE> 24
iii. Except as set forth in Seller's
Disclosure Schedule, neither Seller nor any Acquired Company is or will
be required to give any notice to or obtain any Consent or Governmental
Authorizations from any Person in connection with the consummation or
performance of any of the Contemplated Transactions.
c. Capitalization.
i. The authorized capital stock of the
Company consists of:
<TABLE>
<CAPTION>
Shares of Shares of
Authorized Issued and
Company Common Stock Outstanding Stock Par Value
------- ------------ ----------------- ---------
<S> <C> <C> <C>
AMR Services
Corporation 1,000 1,000 $1.00
</TABLE>
The authorized capital stock of each of the Acquired Companies other than the
Company is as set forth in Seller's Disclosure Schedule. Except as set forth in
Seller's Disclosure Schedule, all of the outstanding equity securities of each
Acquired Company have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth in Seller's Disclosure Schedule, all of
the outstanding equity securities and other securities of each Acquired Company
are owned of record and beneficially by Seller or one or more of the Acquired
Companies, free and clear of all Encumbrances. Except as set forth on Seller's
Disclosure Schedule, there are no warrants, options, convertible or exchangeable
securities, preemptive rights or Contracts relating to the issuance, sale, or
transfer of any equity securities or other securities of any Acquired Company.
Except as set forth on Seller's Disclosure Schedule, no Acquired Company owns,
or has any Contract to acquire, any equity securities or other securities of any
Person (other than Acquired Companies) or any direct or indirect equity or
ownership interest in any other business. Schedule 3.c. of Seller's Disclosure
Schedule sets forth a list distinguishing each dormant and active Acquired
Company.
ii. Under consummation of the Contemplated
Transactions, the Seller will transfer to the Buyer, and Buyer will
have, good and valid title to, the Shares, free and clear of all
Encumbrances (other than those that may be created by Buyer).
d. Financial Statements. Seller has delivered to
Buyer: (i) unaudited consolidated balance sheets of the Acquired Companies as of
December 31 in each of 1995 and 1996, and the related unaudited consolidated
statements of income and changes in stockholder's equity, for each of the fiscal
years then ended, (ii) an unaudited consolidated balance sheet of the Acquired
Companies as of December 31, 1997 (the "BALANCE SHEET"), and the related
consolidated statements of income and changes in stockholder's equity, for the
fiscal year then ended, and (iii) an unaudited consolidated balance sheet of the
Acquired Companies as of September 30, 1998 (the "INTERIM BALANCE SHEET") and
the related unaudited consolidated statement of income for the nine months then
ended. Such financial statements were prepared in
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<PAGE> 25
accordance with the procedures and principles set forth in the Controller's
Manual on a basis consistent with the past preparation of prior financial
statements. Such financial statements fairly present in all material respects
the financial condition, results of operations and changes in stockholder's
equity, as the case may be, of the Acquired Companies as of their respective
dates and for the periods referred to in such financial statements, all in
accordance with such Controller's Manual on a basis consistent with the past
preparation of prior financial statements, subject, in the case of the interim
financial statements specified above, to (i) normal recurring year-end
adjustments (the effect of which will not have a Material Adverse Effect) and
(ii) the absence of notes.
e. Books of Account. The books of account of the
Acquired Companies, all of which have been made available to Buyer, are complete
and correct in all respects, save for such exceptions as would not individually
or collectively have a Material Adverse Effect, and have been maintained in
accordance with sound business practices, including the maintenance of an
adequate system of internal controls, save for such exceptions as would not
individually or collectively have a Material Adverse Effect. Except for any
item, the absence of which, individually or collectively, would not have a
Material Adverse Effect: the minute books of the Acquired Companies contain
accurate and complete records of all meetings held of, and corporate action
taken by, the stockholders, the Boards of Directors, and committees of the Board
of Directors of the Acquired Companies, and no meeting of any such stockholders,
Board of Directors or committees has been held for which minutes have not been
prepared and are not contained in such minute books. At the Closing Date, all of
those books and records will be in the possession of the Acquired Companies.
f. Title to Properties, Encumbrances.
i. The Acquired Companies own (with good and
indefeasible title in the case of real property, subject only to the
matters permitted by the following sentence) all the properties and
assets (whether real, personal, or mixed and whether tangible or
intangible) reflected in the Balance Sheet and the Interim Balance
Sheet (except in each case for assets held under capitalized leases and
personal property and assets sold or otherwise disposed of since the
date of the Balance Sheet and the Interim Balance Sheet, as the case
may be, in the Ordinary Course of Business, as otherwise disclosed in
Seller's Disclosure Schedule and properties and assets which may be
transferred by the Acquired Companies on or prior to the Closing Date
as part of the Intercompany Transactions), save for such exceptions as
would not individually or collectively have a Material Adverse Effect.
Except as set forth in Seller's Disclosure Schedule, all properties and
assets reflected in the Balance Sheet and the Interim Balance Sheet are
held by an Acquired Company free and clear of all Encumbrances and are
not, in the case of real property, subject to any rights of way,
building use restrictions, exceptions, variances, reservations, or
limitations of any nature, except, with respect to all such properties
and assets (i) mortgages or security interests shown on the Balance
Sheet or the Interim Balance Sheet as securing specified liabilities or
obligations, (ii) liens for current taxes not yet due (to the extent
such liens have been accounted for in the Balance Sheet and the Interim
Balance Sheet), (iii) with respect to real property, (1) imperfections
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<PAGE> 26
of title, if any, none of which materially detracts from the value of
the property subject thereto, and (2) zoning laws and other land use
restrictions that do not materially impair the use of the property
subject thereto and (iv) any such matters which would not individually
or collectively have a Material Adverse Effect.
ii. Seller's Disclosure Schedule contains a
list of each real property lease that is material to the respective
stations at which the Acquired Companies conduct operations, including
any amendment, modification or supplement thereto (the "LEASES").
Seller has previously made available to Buyer true, correct and
complete copies of the Leases. Except as set forth in Seller's
Disclosure Schedule, the Acquired Companies have good and valid title
to the leasehold estates conveyed under the Leases, free and clear of
liens, except (i) liens shown on the Balance Sheet or the Interim
Balance Sheet, (ii) liens for current taxes not yet due and payable,
(iii) zoning, building and other similar governmental restrictions and
liens imposed by operation of law (including without limitation
mechanics', carriers', workmen's, repairmen's, landlord's or other
similar liens arising from or incurred in the ordinary course of
business and for which the underlying payments are not yet delinquent),
and (iv) easements, covenants, encroachments, rights-of-way or other
similar restrictions and imperfections of title, none of which items
referred to in the foregoing clauses (iii) and (iv) materially impairs
the use of the property subject thereto in the Business of the Acquired
Companies as presently conducted. The Leases are valid and, to the
Knowledge of Seller, in full force and effect and are binding and
enforceable in accordance with their terms, subject to bankruptcy,
reorganization, insolvency and other similar laws affecting the
enforcement of creditors' rights in general and to general principles
of equity (regardless of whether considered in a proceeding in equity
or an action at law). Except as set forth in Seller's Disclosure
Schedule, the Acquired Companies are not in default with respect to any
payment obligation under the Leases and, to the Knowledge of Seller,
there are no other existing material defaults on the part of the
Acquired Companies or any other party (including any landlord) with
respect to the Leases. To the Knowledge of Seller, no event has
occurred which (with or without notice, lapse of time or both) would
constitute a material default on the part of the Acquired Companies or
such other parties under the Leases. Except as set forth in Seller's
Disclosure Schedule, the consummation of the contemplated transactions
will not constitute a material default, or give rise to a right of
termination, cancellation or acceleration of any right under, the
Leases.
iii. Except as set forth in Seller's
Disclosure Schedule:
(1) the Acquired Companies have
received no notice, demand
or request from any
insurance company, any
board of fire underwriters
(or organization exercising
functions similar thereto)
or any Governmental Body or
any other Person requesting
the performance of any work
or alteration in respect to
the real property leased by
the Acquired Companies
under the Leases, save for
such
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<PAGE> 27
exceptions that would not
individually or
collectively have a
Material Adverse Effect;
and
(2) to the Knowledge of the
Seller, the real property
leased by the Acquired
Companies under the Leases
is in a state of working
condition and repair
(ordinary wear and tear and
refurbishing excepted).
g. No Undisclosed Liabilities. Except as set forth in
Seller's Disclosure Schedule or contemplated pursuant to the terms of this
Agreement, on the Closing Date none of the Acquired Companies will have any
liabilities of a type required to be set forth on the Balance Sheet or on the
Interim Balance Sheet except for (i) liabilities reflected or reserved against
in the Balance Sheet or the Interim Balance Sheet, (ii) liabilities incurred in
the Ordinary Course of Business since the respective dates of such balance
sheet, and (iii) liabilities that would not individually or collectively have a
Material Adverse Effect.
h. Taxes.
i. Except as set forth in Seller's
Disclosure Schedule, the Company and any of its Subsidiaries
incorporated under the laws of the United States of America have been
included in the consolidated federal income tax returns of the
affiliated group of which Seller's Parent is the common parent (the
"AMR GROUP") at least since the taxable year beginning January 1, 1990
and continuing through the taxable year ending December 31, 1997, and
will be included in the consolidated federal income tax returns of the
AMR Group for all taxable periods through the Closing Date.
ii. Except as set forth in Seller's
Disclosure Schedule and save for such exceptions as would not
individually or collectively have a Material Adverse Effect, (1) the
Acquired Companies have timely filed or will timely file (or, where
permitted or required, Seller's Parent has timely filed or will timely
file) all returns, information returns and statements required to be
filed by any of the Acquired Companies in respect of any Taxes for any
period ending on or before the Closing Date (collectively, "RETURNS");
(2) as of the time of the filing, the Returns correctly reflected (and,
as to Returns not filed as of the date hereof, will correctly reflect)
the Taxes payable by the Acquired Companies; (3) the Acquired Companies
have withheld and paid over to the proper Governmental Body all Taxes
required to have been withheld and paid in connection with amounts paid
or owing to any Employee or other persons; (4) all Taxes shown as due
or payable on the Returns have been or will be paid at the time of
filing thereof; (5) neither Seller's Parent nor, to the Knowledge of
Seller, any of the Acquired Companies, has received or has Knowledge of
any notice of deficiency or assessment or proposed deficiency or
assessment which could affect the Tax liability of any of the Acquired
Companies or its properties from any Governmental Body; (6) there are
no outstanding agreements or waivers by, or with respect to, any of the
Acquired Companies that extend the statutory period of limitations
applicable to any Return or Tax; (7) there are no pending Tax claims,
audits, proceedings or controversies involving or affecting the
-22-
<PAGE> 28
Tax liability of any of the Acquired Companies; (8) set forth on the
Seller's Disclosure Schedule is a list of all federal income tax audits
that have ended within three years of the date of this Agreement that
resulted or could have resulted in adjustments to Taxes imposed upon
the Acquired Companies; (9) no tax liens have been filed and no claims
are being asserted with respect to any Taxes of the Company or any
Subsidiary; (10) neither the Company nor any Subsidiary is a party to
any agreement or understanding providing for the allocation or sharing
of Taxes other than with respect to each other; (11) neither the
Company nor any Subsidiary is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or any
Subsidiary and neither the Company nor any Subsidiary has knowledge
that the Internal Revenue Service has proposed any such adjustment or
change in accounting method, except as set forth in Seller's Disclosure
Schedule; (12) the acquisition of the stock of the Company will not be
a factor causing any payments to be made by the Company or any
Subsidiary to be nondeductible (in whole or in part) pursuant to
Section 280G of the Code; (13) neither the Company nor any Subsidiary
has filed with respect to any item a disclosure statement pursuant to
Section 6662 of the Code or any comparable disclosure with respect to
foreign, state and/or local tax statutes; and (14) no property of the
Company or any Subsidiary is "tax exempt use property" within the
meaning of Section 168(h) of the Code, and neither the Company nor any
Subsidiary is a party to any lease made pursuant to Section 168(f)(8)
of the Internal Revenue Code of 1954, as amended, except as set forth
on Seller's Disclosure Schedule. For purposes of the Agreement "TAX"
means any of the Taxes, and "Taxes" means any tax, including, without
limitation, any income, gross receipts, sales, use, ad valorem,
transfer, franchise, withholding, payroll, employment, excise,
occupation, premium, property, stamp or other tax, duty or charge,
together with any interest, any penalties, additions to such tax or
additional amounts imposed by any Governmental Body (domestic or
foreign).
i. Compliance with Legal Requirements;
Governmental Authorizations.
(i) Except (a) for any
noncompliance specifically covered by any other representation or
warranty contained in this Section 3 (for example, Taxes, labor
relations, Employee Plans and environmental matters) (it being the
intention of the parties that any such noncompliance will be governed,
if at all, by such other representations and warranties), (b) as set
forth in Seller's Disclosure Schedule and (c) for such exceptions as
would not individually or collectively have a Material Adverse Effect:
(1) each Acquired Company is,
and at all times since
January 1, 1995 has been,
in compliance with each
Legal Requirement that is
or was applicable to it or
to the conduct or operation
of its business or the
ownership of any of its
assets;
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<PAGE> 29
(2) no event has occurred or
circumstance exists that
(with or without notice or
lapse of time) (A) would
constitute or result in a
violation by any Acquired
Company of, or a failure on
the part of any Acquired
Company to comply with, any
Legal Requirement or (B)
would give rise to any
obligation on the part of
any Acquired Company to
undertake, or to bear all
or any material portion of
the cost of, any remedial
action under any Legal
Requirement;
(3) to the Knowledge of Seller,
neither Seller nor any of
the Acquired Companies has
received any written notice
or other communication from
any Governmental Body
regarding (A) any actual or
alleged violation of, or
failure to comply with, any
Legal Requirement by any
Acquired Company, or (B)
any actual or alleged
obligation on the part of
any Acquired Company to
undertake, or to bear all
or any portion of the cost
of, any remedial action
under any Legal
Requirement.
ii. Except (a) for those Governmental
Authorizations specifically covered by any other representation or
warranty contained in this Section 3 (for example, Taxes and
environmental matters) (it being the intention of the parties that such
Governmental Authorizations will be governed, if at all, by any such
other representations and warranties), (b) as set forth in Seller's
Disclosure Schedule and (c) for such exceptions as would not
individually or collectively have a Material Adverse Effect:
(1) Seller's Disclosure
Schedule contains a
complete and accurate list
of each Governmental
Authorization that is held
by any Acquired Company;
(2) Each Acquired Company holds
all Governmental
Authorizations required to
conduct the Business;
(3) each Acquired Company is in
compliance with all of the
terms and requirements of
each Governmental
Authorization identified in
Seller's Disclosure
Schedule;
(4) no event has occurred or
circumstance exists that
(A) constitutes a violation
of or a failure to comply
with any term or
requirement of any
Governmental Authorization
listed on Seller's
Disclosure
-24-
<PAGE> 30
Schedule, or (B) could
reasonably be expected to
result in the revocation,
withdrawal, suspension,
cancellation, or
termination of any
Governmental Authorization
listed in Seller's
Disclosure Schedule; and
(5) to the Knowledge of Seller,
neither Seller nor any of
the Acquired Companies has
received any written notice
or other communication from
any Governmental Body
regarding (A) any actual or
alleged violation of, or
failure to comply with, any
Governmental Authorization,
or (B) any actual or
alleged revocation,
withdrawal, suspension,
cancellation, termination
of, or modification to any
Governmental Authorization.
iii. Except as set forth in Seller's
Disclosure Schedule, Seller and each Acquired Company does not have any
pending formal or informal enforcement Proceedings that were initiated
by the Federal Aviation Administration ("FAA") against any Acquired
Company or any officers or employees (acting in their official capacity
for any Acquired Company). The term "pending formal or informal
enforcement Proceeding" includes (1) any Letter of Investigation,
Notice of Proposed Civil Penalty, Notice of Proposed Certificate
Action, Regional or National Aviation Safety Inspection Program Report,
Certificate Suspension/Amendment/Revocation hearing before the National
Transportation Safety Board, action by the U.S. Attorney's office for
Civil Penalty or other similar action, (2) which alleges that any
Acquired Company and/or its officers, agents or employees acting in
their official capacity for any Acquired Company has violated 49
USC Section 5101, 14 CFR Part 1, 49 CFR Part 171, or other statutes and
regulations enforced by the FAA, and (3) which have not been closed.
"Closing" includes all actions recorded in writing by the FAA and does
not include matters resulting solely in an oral reprimand.
j. Legal Proceedings; Orders.
i. Except as set forth in Seller's
Disclosure Schedule and save for such exceptions as would not
individually or collectively have a Material Adverse Effect, there is
no pending Proceeding:
(1) that has been commenced
against any Acquired
Company; or
(2) that challenges or
prevents, delays, makes
illegal, or otherwise
interferes with, any of the
Contemplated Transactions.
-25-
<PAGE> 31
ii. Except as set forth in Seller's
Disclosure Schedule and save for such exceptions as would not
individually or collectively have a Material Adverse Effect:
(1) there is no Order to which
any of the Acquired
Companies, or any of the
assets owned, or to
Seller's Knowledge leased,
by any Acquired Company, is
subject;
(2) Seller is not subject to
any Order that affects any
of the assets owned, or to
Seller's Knowledge leased,
by any Acquired Company;
and
(3) each Acquired Company is in
compliance with each Order
to which it, or any of the
assets owned, or to
Seller's Knowledge leased,
by it, is subject.
k. Absence of Certain Changes and Events. Except as
set forth in Seller's Disclosure Schedule and save for such exceptions as would
not individually or collectively have a Material Adverse Effect or have been
approved by Buyer since the date of the Interim Balance Sheet, the Acquired
Companies have conducted their businesses only in the Ordinary Course of
Business and there has not been any:
i. change in any Acquired Company's
authorized or issued capital stock; grant of any stock option or right
to purchase shares of capital stock of any Acquired Company; issuance
of any security convertible into such capital stock; or purchase,
redemption, retirement, or other acquisition by any Acquired Company of
any shares of any such capital stock or amendment to the organizational
documents of any Acquired Company;
ii. payment or increase or proposed payment
or increase by any Acquired Company of any bonuses, salaries, or other
compensation to any officer of any Acquired Company or entry into any
employment, severance, or similar Contract with any such person other
than in the Ordinary Course of Business;
iii. except for ordinary wear and tear,
damage to or destruction or non-cash loss of any asset or property of
any Acquired Company, not covered by insurance;
iv. contract for, finance of, lease with
respect to, or payment for any single capital expenditure by any
Acquired Company in excess of $100,000 during the period from the date
of the Interim Balance Sheet through the date of this Agreement;
v. merger with or into or consolidation with
any other Person;
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vi. declaration, set aside or payment of any
non-cash dividend or non-cash distributions of any kind to the
stockholders of any Acquired Company;
vii. adoption of a plan of liquidation or
resolutions providing for the liquidation, dissolution, merger,
consolidation or other reorganization of any Acquired Company (except
with respect to any dormant company as identified in Sections 3.a. and
3.c. of Seller's Disclosure Schedule);
viii. revaluation of any portion of the
non-current assets of the Acquired Companies in excess of $50,000;
ix. waiver or cancellation of any material
debt or right, claim or privilege other than in the Ordinary Course of
Business;
x. sale, lease, or other disposition of any
material asset of any Acquired Company or mortgage, pledge, or
imposition of any lien or other encumbrance on any material asset of
any Acquired Company; or
xi. except in the Ordinary Course of
Business incur any liability, guaranty, or off-balance sheet liability
in excess of $100,000; or
xii. agreement, whether oral or written, by
any Acquired Company to do any of the foregoing.
l. Contracts; No Defaults.
i. Save for such exceptions as would not
individually or collectively have a Material Adverse Effect, Seller's
Disclosure Schedule contains a complete and accurate list of, and
Seller has delivered to Buyer true and (to the extent written) complete
copies of:
(1) each Applicable Contract to
which any of the Acquired
Companies is a party;
(2) each collective bargaining
agreement in effect with
any labor union to which
any Acquired Company is
subject;
(3) each joint venture,
partnership, and other
Applicable Contract
(however named) involving a
sharing of profits or
losses by any Acquired
Company with any other
Person;
(4) each Applicable Contract
containing covenants that
purport to limit the
freedom of any Acquired
Company to engage in any
line of business or to
compete with any Person;
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(5) each written warranty,
guaranty, and/or other
similar undertaking with
respect to contractual
performance extended by any
Acquired Company other than
in the Ordinary Course of
Business; and
(6) each amendment, supplement
and modification in respect
of any of the foregoing.
ii. Except as set forth in Seller's
Disclosure Schedule and save for such exceptions as would not
individually or collectively have a Material Adverse Effect, each
Applicable Contract is in full force and effect and is valid and
enforceable against an Acquired Company in accordance with its terms,
subject to bankruptcy, reorganization, insolvency and other similar
laws affecting the enforcement of creditors' rights in general and to
general principles of equity (regardless of whether considered in a
proceeding in equity or an action at law) and will remain in full force
and effect immediately following the Closing Date after giving effect
to the Contemplated Transactions and any notices to be given or
Consents required to be obtained pursuant to the provisions of the
Applicable Contract.
iii. Except as set forth in Seller's
Disclosure Schedule, and save for such exceptions as would not
individually or collectively have a Material Adverse Effect:
(1) each Acquired Company is
in compliance with all
applicable terms and
requirements of each
Applicable Contract;
(2) to the Knowledge of Seller,
each other Person that has
any obligation or liability
under any Applicable
Contract is in compliance
with all applicable terms
and requirements of such
Applicable Contract; and
(3) no event has occurred or
circumstance exists that
contravenes or results in a
violation or breach of, or
gives any Person other than
any Acquired Company the
right to accelerate, cancel
or terminate any Applicable
Contract.
m. Environmental Matters. Except as set forth in
Seller's Disclosure Schedule or the Environmental Reports and save for such
exceptions as would not individually or collectively have a Material Adverse
Effect:
i. To the Knowledge of Seller, each Acquired
Company is, and at all times since January 1, 1995 has been in
compliance with, and has not been and is not in violation of, any
Environmental Law. Neither Seller nor any Acquired Company has received
any pending written Order or written regulatory notice from (1) any
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<PAGE> 34
Governmental Body, or (2) the current or prior owner or operator of any
Facility, alleging any failure of any Acquired Company to comply with
any Environmental Law, or alleging any obligation of any Acquired
Company to undertake or bear the cost of any Environmental Liabilities
with respect to any of the Facilities or any other property to which
any Hazardous Material was transferred or disposed of by any Acquired
Company.
ii. There are no pending Environmental
Claims or Proceedings or, to the Knowledge of Seller, Threatened
Environmental Claims arising under any Environmental Law affecting any
of the Facilities.
iii. To the Knowledge of Seller, there has
been no Release of any Hazardous Materials at or from the Facilities.
iv. Seller has prior to the date hereof
given Buyer copies of the Phase I Assessments and other environmental
reports listed on Section 3.m. of Seller's Disclosure Schedule
reflecting the environmental condition of the Facilities (the
"ENVIRONMENTAL REPORTS"). Buyer hereby acknowledges receipt of such
Environmental Reports and acknowledges that such Environmental Reports
are provided (i) solely for the convenience of Buyer in conducting
Buyer's independent due diligence investigation, and (ii) with no
representation or warranty by Seller, Seller's Parent or any Acquired
Company as to the accuracy or completeness of the Environmental
Reports.
v. Each of the Acquired Companies has
obtained and is in compliance with Governmental Authorizations required
under Environmental Laws to conduct the business of the Acquired
Companies as presently conducted;
vi. To Seller's Knowledge, no Environmental
Claims have been asserted against the Acquired Companies or any
predecessor in interest nor are there any Threatened Environmental
Claims against any of the Acquired Companies;
vii. Seller has not received notice that any
Environmental Claims have been asserted relating to any facilities that
may have received Hazardous Materials generated by any of the Acquired
Companies;
viii. Except as set forth on Seller's
Disclosure Schedule, no underground storage tanks exist at any of the
Facilities.
The representations and warranties of Seller contained in this
Section 3.m. constitute all of the representations and warranties of Seller
concerning matters encompassed within the purview of Environmental Laws or
concerning Environmental Liabilities and Hazardous Materials and will not be
construed or deemed to be included in other, more general representations and
warranties, including without limitation those contained in Sections 3.i. and
3.j.
n. Employees. To the Knowledge of Seller, no Employee
of any Acquired Company or any Transferred Employee is a party to any agreement,
including any
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confidentiality, non-competition, or proprietary rights agreement, between such
Employee or Transferred Employee and any other Person besides the Acquired
Companies ("PROPRIETARY RIGHTS AGREEMENT") that would be material to (i) the
performance of his or her duties as an Employee of the Acquired Companies or
(ii) the ability of any Acquired Company to conduct its business in the Ordinary
Course of Business. On the date of this Agreement, the Acquired Companies shall
have adequate numbers of employees necessary to operate their businesses as
currently operated.
o. Labor Relations; Compliance. Except as set forth
in Seller's Disclosure Schedule, since January 1, 1995, no Acquired Company has
been or is a party to any collective bargaining agreement. Except as set forth
in Seller's Disclosure Schedule and save for such exceptions as would not
individually or collectively have a Material Adverse Effect, since January 1,
1995, there has not been and there is not presently existing (i) any strike or
work stoppage, or any organizational activity with respect to non-unionized
Employees or Transferred Employees, and to the Knowledge of Seller, no such
action is contemplated, or (ii) any petition for a union election, demand for
recognition or request for voluntary recognition by a collective bargaining
agent. Except as set forth in Seller's Disclosure Schedule, and save for such
exceptions as would not individually or collectively have a Material Adverse
Effect, there is not presently existing any Proceeding against any Acquired
Company relating to the alleged violation of any Legal Requirement pertaining to
labor relations or employment matters (including any charge or complaint filed
by an Employee or Transferred Employee or union with any court, the National
Labor Relations Board, the National Mediation Board, the Equal Employment
Opportunity Commission, the Department of Labor or any comparable Governmental
Body). There is no lockout of any Employees by any Acquired Company, and to the
Knowledge of Seller, no such action is contemplated by any Acquired Company.
Except as set forth in Seller's Disclosure Schedule and save for such exceptions
as would not individually or collectively have a Material Adverse Effect, each
Acquired Company has complied with all Legal Requirements relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health, and plant closing.
The representations and warranties of Seller contained in this Section 3.o.
constitute all of the representations and warranties of Seller concerning
matters relating to labor relations and will not be construed or deemed to be
included in other, more general representations and warranties, including
without limitation those contained in Sections 3.i. and 3.j.
p. Intellectual Property Assets.
i. Intellectual Property Assets. The term
"INTELLECTUAL PROPERTY" means:
(1) foreign and domestic
trademarks, service marks,
trade names, fictitious
names, Internet domain
names, d/b/a's, collective
marks, certification marks,
logos, symbols, trade
dress, other indicia of
source,
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whether registered or
unregistered, and
applications and
registrations therefor
(collectively, "MARKS");
(2) foreign and domestic
patents, industrial
designs, inventions and
applications and
registrations therefor
(collectively, "PATENTS");
(3) foreign and domestic
copyrights in published
works and unpublished
works, and applications for
registration and
registrations therefor
(collectively,
"COPYRIGHTS");
(4) know-how, trade secrets,
confidential information,
customer and vendor lists
and files, software,
proprietary and technical
information, data, process
technology, plans, drawings
and blueprints
(collectively, "TRADE
SECRETS"); and
(5) rights of publicity and
other proprietary rights.
All Intellectual Property owned, used, or licensed,
as licensee or licensor, by each Acquired Company is herein called "INTELLECTUAL
PROPERTY ASSETS." Seller's Disclosure Schedule contains a complete list of all
registered Marks, material unregistered Marks, Patent applications, issued
Patents and registrations and Copyright registrations owned by the Acquired
Companies and their designation (e.g. Mark Copyright, etc.), save for such
exceptions as would not individually or collectively have a Material Adverse
Effect.
ii. Intellectual Property Necessary for the
Business. Save for such exceptions as would not individually or
collectively have a Material Adverse Effect and except as set forth in
Seller's Disclosure Schedule, the Intellectual Property Assets
constitute all Intellectual Property necessary for the operation of the
Acquired Companies' Business as they are currently conducted. Except as
set forth on Seller's Disclosure Schedule, one or more of the Acquired
Companies is the owner of all right, title, and interest in and to, or
the licensee of, each of the Intellectual Property Assets, free and
clear of all Encumbrances, save for those that would not individually
or collectively have a Material Adverse Effect, and has the right to
use without further payment to any Person (except as contemplated by
those applicable license agreements identified in Seller's Disclosure
Schedule) all of such Intellectual Property Assets.
iii. Infringement. To Seller's Knowledge, no
Acquired Company is violating the Intellectual Properly rights
belonging to any Person and, to Seller's Knowledge, there is no
violation by any Person of any Intellectual Property Assets, save for
such exceptions as would not individually or collectively have a
Material Adverse Effect.
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<PAGE> 37
iv. Except as otherwise set forth in
Seller's Disclosure Schedule and save for those that would not
individually or collectively have a Material Adverse Effect:
(1) Each of the registered
Patents, issued Patents,
registered Trademarks and
registered Copyrights owned
by the Acquired Companies,
or if not owned then to
Seller's Knowledge, is
valid, subsisting and in
full force and effect.
(2) No Intellectual Property
Asset owned by the Acquired
Companies, or if not owned
then to Seller's Knowledge,
is the subject of any
outstanding Order or
agreement (including
without limitation
trademark coexistence
agreements, trademark
consent agreements, and
covenants not to sue), that
restricts or limits in any
way any Acquired Company's
use of, rights to or
enforcement of such
Intellectual Property
Asset.
(3) To Seller's Knowledge no
claim or position is
currently being asserted or
threatened that any of the
Acquired Companies has
violated any Intellectual
Property of any Person, or
breached any agreement
which grants Intellectual
Property to any of the
Acquired Companies.
(4) To Seller's Knowledge no
claim or position is
currently being asserted or
threatened that any of the
Intellectual Property
Assets is invalid,
unenforceable,
unpatentable,
unregisterable or
cancelable.
q. Employee Benefit Matters.
i. Seller's Disclosure Schedule sets forth a
complete and accurate list of each pension, retirement, savings,
disability, medical, dental, health, or life plan or similar
arrangement (including any individual life, death benefit, group
insurance, profit sharing, deferred compensation, stock option, bonus,
incentive, vacation, severance, or other employee benefit plan, trust,
material arrangement, contract, agreement, material policy, or material
commitment (including without limitation, any pension plan ("PENSION
PLAN") as defined in Section 3(2) of ERISA, and any welfare plan as
defined in Section 3(1) of ERISA ("WELFARE PLAN")), whether funded,
insured, or self-funded for any directors, Employees or agents or the
dependents thereof, which as of the date hereof is maintained or
contributed to by any of the Acquired Companies ("EMPLOYEE PLANS").
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ii. None of the Acquired Companies currently
maintain or contribute to and have not at any time maintained or
contributed to any Pension Plan subject to Title IV of ERISA.
iii. Except as set forth in Seller's
Disclosure Schedule, none of the Employee Plans is a Pension Plan or is
or was a multiemployer plan (within the meaning of ERISA Section
3(37)(A)).
iv. Seller has delivered to Buyer true and
accurate copies of each Employee Plan and any associated funding
instruments or contracts with service providers that relate to any
Employee Plan, the most recent summary plan description for each
Employee Plan subject thereto, copies of all IRS determination letters
in the case of all Employee Plans intended to qualify under Code
Section 401(a), copies of all other correspondence with any
governmental agency relating to any Employee Plan and affecting any of
the Acquired Companies, and the annual reports required to be filed
under ERISA for the last two years with respect to any Employee Plans.
v. To the Knowledge of Seller, the Employee
Plans have been operated in material compliance with all federal, state
and local laws applicable to such Employee Plans, and have been
maintained and operated in all material respects in accordance with the
terms and conditions of the respective plan documents. There is no
pending Proceeding or, to Seller's Knowledge, Threatened Claim relating
to any Employee Plan, other than claims for benefits under the Employee
Plans.
vi. The Acquired Companies have made all
material required contributions or paid in full all material required
insurance premiums with regard to the Employee Plans for policy or plan
years or other applicable periods ending on or before the Closing Date
to the extent due or owing as of the Closing Date. Save for those
exceptions which would not individually or collectively have a Material
Adverse Effect and except as set forth in Seller's Disclosure Schedule,
the Acquired Companies have made appropriate entries in their
respective financial records and statements for all obligations and
liabilities under the Employee Plans that have accrued but are not yet
due.
vii. No Welfare Plan provides any benefits
or coverage to any retired or former Employees or active Employees
following such Employees' retirement or termination of service except
as required under Section 4980B of the Code.
viii. Each Foreign Employee Plan (as defined
below) has been maintained in material compliance with its terms and
with the requirements of any and all applicable laws and has been
maintained, where required, in good standing in all material respects
with applicable regulatory entities. Except as set forth in Seller's
Disclosure Schedule, none of the Acquired Companies has any unfunded
liability with respect to benefits under any such Foreign Employee Plan
or has incurred any material liabilities in connection with the
termination of or withdrawal from any Foreign Employee Plan. "FOREIGN
EMPLOYEE PLAN" means (i) any plan, fund or other similar program
established or maintained outside the United States of America by any
of the Acquired Companies
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primarily for the benefit of Employees residing outside of the United
States of America which plan, fund or other similar program provides
retirement income for such Employees, results in a deferral of income
for such Employees in contemplation of retirement or provides payments
to be made to such Employees upon termination of employment, and which
plan is not subject to ERISA or the Code, and (ii) any plan, fund or
other similar program established or maintained outside the United
States of America by any of the Acquired Companies primarily for the
benefit of Employees residing outside of the United States of America
which plan, fund or similar program is not described in (i) above
including, but not limited to, any plan, fund or other similar program
established or maintained outside the United States of America by any
of the Acquired Companies providing benefits comparable to those
provided under a Welfare Plan.
The representations and warranties of Seller contained in this Section 3.q.
constitute all of the representations and warranties of Seller concerning
matters relating to employee benefit matters and will not be construed or deemed
to be included in other, more general representations and warranties, including
without limitation those contained in Sections 3.i. and 3.j.
r. Brokers or Finders. Except as set forth in
Seller's Disclosure Schedule, Seller, Seller's Parent and their respective
Representatives have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement that are payable by Buyer or
any Acquired Company.
s. Insurance. Seller's Disclosure Schedule lists all
insurance policies owned or held by the Acquired Companies on the date hereof,
save for those insurance policies that the failure to so have would not
individually or collectively have a Material Adverse Effect. All such insurance
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the date hereof have been paid to the
extent due and no notice of cancellation or termination has been received with
respect to any such policy, save for those matters that would not individually
or collectively have a Material Adverse Effect. The Acquired Companies
themselves or through their Affiliates have held insurance for all risks and in
the amounts typically insured against by a Person carrying on the same business
as the Company.
t. Transactions with the Seller and Seller's Parent.
As of the Closing Date, after giving effect to and except as contemplated by the
Intercompany Transactions or other Contemplated Transactions, none of the
Acquired Companies will be required to make any material payment to or perform
any material services for the Seller or Seller's Parent or any Affiliate thereof
except as set forth in Seller's Disclosure Schedule. Except as set forth in
Seller's Disclosure Schedule, neither Seller nor Seller's Parent nor any of
their Affiliates have any direct or indirect interest in any assets shown on the
Interim Balance Sheet.
u. Tangible Property. Seller has provided a fixed
assets register to Buyer prepared in accordance with the Controller's Manual
that sets forth all material tangible
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property owned by the Acquired Companies. All contracts and other agreements
pursuant to which the Acquired Companies may hold or use any interest owned or
claimed by the Acquired Companies (including, without limitation, options) in or
to the material tangible property are in full force and effect and, with respect
to the performance of the Acquired Companies, there is no default or event of
default (or event which, with notice or lapse of time or both, would constitute
a default) that would have a Material Adverse Effect. The tangible property of
the Company is in good operating condition and repair save any exceptions that
would not individually or collectively have a Material Adverse Effect.
v. Accounts and Notes Receivable. All accounts and
notes receivable reflected on the Balance Sheet and the Interim Balance Sheet
and all accounts and notes receivable arising subsequent to the date of the
Interim Balance Sheet, have arisen in the Ordinary Course of Business.
w. Computer Systems; Year 2000; Euro.
i. Except as set forth in the Seller's
Disclosure Schedule, the Acquired Companies own, lease or possess
adequate licenses or other rights to use all material computer hardware
and software and related materials used in connection with the
operation of the Business (collectively, the "COMPUTER SYSTEM").
Subject to the provisions of Section 3.w.ii., to Seller's Knowledge
there are no material malfunctions or design failures with respect to
any of the electronic data processing, communications,
telecommunications, disaster recovery, PC-based database technology or
other Computer System of the Acquired Companies required for effective
management and servicing of the Acquired Companies.
ii. The Company has developed an appropriate
plan for addressing problems associated with the ability of the
Computer System to process, provide, and receive, to the extent
properly formatted (1) date related data in connection with any valid
date in the twentieth and twenty-first centuries and (2) currency data
in connection with conversions into or from the Euro, and following the
implementation of such plan, the Seller reasonably believes the
Computer System will not malfunction in any material respect when
processing, providing and/or receiving any such date and currency
related data. The cost of implementation of such plan will not exceed
$150,000 in excess of the amounts reserved on the Acquired Companies'
consolidated balance sheets for periods on or after January 1, 1999.
x. Foreign Corrupt Practices Act. To the Knowledge of
Seller, no Acquired Company nor any officer, director, employee, consultant or
agent thereof acting on their behalf has made, directly or indirectly, any
payment or promise to pay, or gift or promise to give or authorized such a
promise or gift, of any money or anything of value, directly or indirectly, to:
(a) any foreign official (as such term is defined in the Foreign Corrupt
Practices Act of 1977, as amended (the "FCPA")), for the purpose of influencing
any official act or decision of such official or inducing him or her to use his
or her influence to affect any act or decision of a foreign government, or any
agency or subdivision thereof; or (b) any foreign
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<PAGE> 41
political party or official thereof or candidate for foreign political office
for the purpose of influencing any official act or decision of such party,
official or candidate or inducing such party, official or candidate to use his,
her or its influence to affect any act or decision of a foreign government or
agency or subdivision thereof, in the case of both (a) and (b) above in order to
assist the Acquired Companies to obtain or retain business for, or direct
business to the Acquired Companies, and under circumstances which would subject
any of the Acquired Companies to liability under the FCPA.
The representations and warranties of Seller contained in this
Section 3.x. constitute all of the representations and warranties of Seller
concerning matters relating to this subject matter and will not be construed or
deemed to be included in other, more general representations and warranties,
including without limitation those contained in Section 3.i.
y. Extended Contracts. The Company's revenues for the
eleven months ended November 30, 1998, derived from the Extended Contracts,
including revenues only from those services provided on the date hereof and
excluding services previously cancelled by the parties, constituted at least
eighty (80%) of all of the Company's AMR Revenues during such period.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants to Seller and Seller's Parent the following as set forth in this
Section 4. No representations or warranties are made by Buyer or any Affiliate
or any Representative thereof in connection with the Contemplated Transactions,
except as expressly set forth in this Section 4.
a. Organization and Good Standing. Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware.
b. Authority; No Conflict.
i. Each of this Agreement and the
Performance Guaranty constitutes and, when executed at Closing, each of
the Technical Services Agreement and the License Agreement will
constitute, the legal, valid, and binding obligation of Buyer
enforceable against Buyer in accordance with its terms, subject to
bankruptcy, reorganization, insolvency and other similar laws affecting
the enforcement of creditors' rights in general and to general
principles of equity (regardless of whether considered in a proceeding
in equity or an action at law). Buyer has full corporate power and
authority to execute and deliver this Agreement and such other
agreements and to perform their respective obligations under this
Agreement and such other agreements. The execution, delivery and
performance of this Agreement, such other agreements and the
consummation of the Contemplated Transactions have been duly and
validly authorized by all corporate action on the part of Buyer.
ii. Neither the execution and delivery of
this Agreement by Buyer nor the consummation or performance of any of
the Contemplated Transactions by Buyer will give any Person the right
to prevent, delay, or otherwise interfere with any of the Contemplated
Transactions pursuant to:
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(1) any provision of the
Organizational Documents
of Buyer or Buyer's
Parent;
(2) any Legal Requirement or
Order to which Buyer or
Buyer's Parent may be
subject; or
(3) any Contract to which Buyer
or Buyer's Parent is a
party or by which Buyer or
Buyer's Parent may be
bound.
Except as required under the HSR Act, Buyer is not, and will not be,
required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
c. Investment. Buyer is an accredited investor, as
defined in Regulation D promulgated under the Securities Act. Buyer has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its purchase of the Shares. Buyer confirms
that Seller and Seller's Parent have made available to the Buyer the opportunity
to ask questions of the officers and management employees of each Acquired
Company, Seller and Seller's Parent and to acquire additional information about
the businesses and financial condition of each Acquired Company. Buyer is
acquiring the Shares for its own account and not with a view to their
distribution within the meaning of Section 2(11) of the Securities Act. Buyer
agrees the Shares may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act or pursuant to an exemption from such registration.
d. Certain Proceedings. There is no pending
Proceeding that has been commenced against Buyer that challenges, or may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions. To the Knowledge of Buyer, no such
Proceeding has been Threatened.
e. Brokers or Finders. Buyer, and its Representatives
have not incurred any obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement that are payable by Seller or Seller's Parent or
any Affiliate of Seller's Parent.
f. Funds Available. Buyer will obtain a legal, valid,
binding and enforceable debt commitment letter (the "DEBT COMMITMENT LETTER")
from BankBoston, N.A., in the form attached hereto as Exhibit "A", on or before
2:00 p.m. New York local time on December 24, 1998. If the executed Debt
Commitment Letter is not delivered to Seller by such deadline, this Agreement
shall become null and void ab initio. In addition, Buyer has obtained a legal,
valid, binding and enforceable equity commitment letter (the "EQUITY COMMITMENT
LETTER"). A true, correct and complete copy of the Equity Commitment Letter is
attached hereto as Exhibit "B" and is in full force and effect, without
modification or revision. On the date hereof, neither BankBoston, N.A. nor
Buyer's Parent has indicated to Buyer any unwillingness to
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advance to Buyer funds in accordance with the terms of such Commitment Letters,
and Buyer has no Knowledge of any facts or circumstances that would lead to any
such unwillingness.
g. No Additional Representations. Buyer acknowledges
that it and its Representatives have been permitted full and complete access to
the books and records, facilities, equipment, tax returns, contracts, insurance
policies (or summaries thereof) and other properties and assets of the Acquired
Companies which it and its Representatives have desired and requested to see
and/or review, and that it and its Representatives have had a full opportunity
to meet with the officers and employees of Seller and the Acquired Companies to
discuss the businesses and assets of the Acquired Companies. Buyer acknowledges
that none of Seller's Parent, Seller, any Acquired Company or any other Person
has made any representation or warranty, express or implied, as to the accuracy
or completeness of any information regarding the Acquired Companies furnished or
made available to Buyer and its Representatives, except as expressly set forth
in this Agreement or Seller's Disclosure Schedule, and none of Seller's Parent,
Seller, any Acquired Company or any other Person will have or be subject to any
liability to Buyer or any other Person resulting from the distribution to Buyer,
or Buyer's use of, any such information, including the Confidential Information
Memorandum prepared by Seller's investment banker dated October 1998 and any
information, documents or material made available to Buyer in records and files
stored on computer disks, certain "data rooms," management presentations or any
other forms in expectation of the Contemplated Transactions. Buyer has not
relied and is not relying upon any statement or representation not made in this
Agreement or Seller's Disclosure Schedule. To Buyer's Knowledge, as of the date
hereof, there is no Breach of any representation or warranty of Seller or
Seller's Parent that would reasonably be expected to result in the conditions
specified in Section 9 hereof to not be satisfied as of the Closing Date.
h. Support Services. Buyer understands that Seller
provides the Acquired Companies with certain support services, including cash
management, credit and accounts receivable, payroll and human resources, legal,
tax and benefit plan administration. Buyer acknowledges that all such support
services will be terminated as of the Closing Date, except as expressly
contemplated pursuant to the terms of this Agreement, including, without
limitation, Section 14.n.
i. Venture Capital Operating Company. Buyer's Parent
is a "venture capital operating company" as defined in the Department of Labor
regulations, Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the
Code of Federal Regulations (the "PLAN ASSETS REGULATIONS") so that no
investment as a limited partner in Buyer's Parent by any Pension Plan or Welfare
Plan will result in the assets of Buyer's Parent constituting "plan assets" of
said Pension Plan or Welfare Plan within the meaning of the Plan Assets
Regulations and ERISA.
5. REPRESENTATIONS AND WARRANTIES OF SELLER'S PARENT. Seller's
Parent represents and warrants to Buyer the following as set forth in this
Section 5. No representations or warranties are made by Seller's Parent, any
Affiliate (other than Seller pursuant to Section 3 hereof) or any Representative
in connection with the Contemplated Transactions, except as expressly set forth
in this Section 5.
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a. Organization and Good Standing. Seller's Parent is
a corporation duly organized, validly existing, and in good standing under the
laws of Delaware, with the requisite corporate power and authority to conduct
its business as it is now being conducted and to own or use the properties and
assets that it purports to own or use, with such exceptions as would not
individually or collectively have a Material Adverse Effect.
b. Authority; No Conflict.
i. This Agreement constitutes and, when
executed at the Closing, each of the Technical Services Agreement and
the License Agreement will constitute, the legal, valid, and binding
obligation of Seller's Parent, or an Affiliate of Seller's Parent, as
the case may be, enforceable against Seller's Parent, or an Affiliate
of Seller's Parent, as the case may be, in accordance with its terms,
subject to bankruptcy, reorganization, insolvency and other similar
laws affecting the enforcement of creditors' rights in general and to
general principles of equity (regardless of whether considered in a
proceeding in equity or an action at law). Seller's Parent, or an
Affiliate of Seller's Parent, as the case may be, has full corporate
power and authority to execute and deliver this Agreement and such
other agreements and to perform its obligations under this Agreement
and such other agreements. The execution, delivery and performance of
this Agreement, such other agreements and the consummation of the
Contemplated Transactions have been duly and validly authorized by all
necessary corporate action on the part of Seller's Parent.
ii. Neither the execution and delivery of
this Agreement nor the consummation or performance of any of the
Contemplated Transactions will give any Person the right to prevent,
delay or otherwise interfere with any of the Contemplated Transactions
pursuant to:
(1) any provision of the
Organizational Documents of
Seller's Parent;
(2) any Legal Requirement or
any Order to which Seller's
Parent, or any of the
assets owned by Seller's
Parent, is subject; or
(3) result in the imposition or
creation of any Encumbrance
upon or with respect to any
of the assets owned or used
by Seller's Parent.
iii. Except as set forth in Seller's
Disclosure Schedule, Seller's Parent is not required to give any notice
to or obtain any Consent from any Person in connection with the
consummation or performance of any of the Contemplated Transactions.
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6. COVENANTS OF SELLER PRIOR TO THE CLOSING DATE.
a. Access and Investigation. Prior to Closing, Seller
will, and will cause the Acquired Companies to, give Buyer and its
Representatives reasonable access, during normal business hours and upon
reasonable notice, to the personnel, properties, books and records of the
Acquired Companies (excluding in all events employee files and medical records
and any documents that are subject to confidentiality commitments to Persons who
have declined Seller's request for permission to disclose such documents to
Buyer); provided, however, that such access must be upon reasonable notice and
must not unreasonably disrupt the normal operations of Seller or the Acquired
Companies, and such investigation will not include access to any item relating
to businesses of Seller or Seller's Parent other than the business conducted by
the Acquired Companies. All requests for access to the offices, plants,
properties, books, and records will be made to such Representatives of Seller as
Seller will designate, who will be solely responsible for coordinating all such
requests and all access permitted hereunder. It is further understood and agreed
that neither Buyer nor its Representatives will contact any of the Employees,
customers, suppliers, joint venture partners, or other associates or Affiliates
of Seller or Seller's Parent, in connection with the Contemplated Transactions,
whether in person or by telephone, mail or other means of communication, without
the prior authorization of such Representatives of Seller as Seller may
designate, which authorization shall not be unreasonably delayed or withheld;
provided, however, that Seller hereby authorizes Buyer to contact and
communicate with those employees identified in paragraph (ii) of Section 3.k. of
Seller's Disclosure Schedule, who as of the date hereof have executed employment
contracts with the Company. Notwithstanding the foregoing, it is understood that
Buyer will not be entitled to obtain Phase II environmental assessment reports
except for the Environmental Reports or conduct any drilling, boring or sampling
at the Facilities.
b. Operation of the Businesses of the Acquired
Companies.
i. Between the date of this Agreement and
the Closing Date and except as either (a) set forth in Seller's
Disclosure Schedule, including the Intercompany Transactions set forth
in Section 6.b.i. of Seller's Disclosure Schedule, (b) contemplated
pursuant to the terms hereof or (c) otherwise consented to in writing
by Buyer, Seller will, and will cause each Acquired Company to:
(1) conduct the business of
such Acquired Company in
accordance with the
Ordinary Course of
Business;
(2) use its Best Reasonable
Efforts to preserve intact
the current business
organization of such
Acquired Company and
maintain the relations and
good will with suppliers,
customers, lessors and
Employees of such Acquired
Company and any Transferred
Employees;
(3) confer with Buyer
concerning operational
matters of a material
nature;
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(4) otherwise report
periodically to Buyer
concerning the status of
the business, operations,
and finances of the
Acquired Companies; and
(5) not, without the prior
written consent of Buyer,
take any affirmative
action, or fail to take any
reasonable action within
their or its control, which
results in any of the
changes or events listed in
Section 3.k. with respect
to the Acquired Companies.
ii. Notwithstanding the foregoing, on or
prior to the Closing Date, Seller will use its Best Reasonable Efforts
to cause certain employees of Seller's Parent or its Affiliates (other
than the Acquired Companies) as listed in Section 6.b.ii. of Seller's
Disclosure Schedule (the "TRANSFERRED EMPLOYEES"), to the extent such
employees are then employed by Seller's Parent or its Affiliates, to be
transferred to the Acquired Companies and employed by one or more of
the Acquired Companies, so that the Transferred Employees will be
employees as of the Closing Date.
iii. (1) The Seller shall cause
the Acquired Companies,
prior to the Closing Date,
to proceed diligently with
capital improvements to the
assets of the Acquired
Companies in accordance
with an expected capital
budget of $500,000 per
month (the "MONTHLY CAPITAL
BUDGET") in each case upon
request of management of
the Company (each a
"CAPITAL IMPROVEMENT").
(2) As part of preparation of
the Working Capital
Statement pursuant to
Section 2.e.ii., and in
accordance with the
procedures set forth
therein, Seller shall cause
Seller's Accountants to
determine the aggregate
actual amount Seller or
Seller's Acquired Companies
have paid in connection
with Capital Improvements
during the period beginning
on the date hereof and
ending on the Closing Date,
excluding any Capital
Improvement for which there
is an accrued liability as
of the date hereof ("ACTUAL
PRE-CLOSING CAPITAL
EXPENDITURES"). Seller
shall concurrently with the
delivery to Buyer of the
Working Capital Statement
give notice to Buyer which
notice (the "CAPITAL
EXPENDITURE NOTICE") shall
set forth the difference
between (i) the aggregate
of the Monthly Capital
Budgets of $500,000 for
each month (or pro rata
portion thereof) between
the date hereof and the
Closing
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Date (the "AGGREGATE
CAPITAL BUDGET") and (ii)
the Actual Pre-Closing
Capital Expenditures as
determined by Seller's
Accountants. If the
Aggregate Capital Budget is
in excess of the Actual
Pre-Closing Capital
Expenditures (the "CAPITAL
EXPENDITURE SHORTFALL
AMOUNT"), then Seller shall
pay to Buyer the Capital
Expenditure Shortfall
Amount at the time the
payments referred to in
Section 2.e.ii. are made.
If the Actual Pre-Closing
Capital Expenditures are in
excess of the Aggregate
Capital Budget (the
"CAPITAL EXPENDITURE
SURPLUS AMOUNT"), then
Buyer shall pay the Seller
the Capital Expenditure
Surplus Amount at the time
the payments referred to in
Section 2.e.ii. are made,
excluding any capital
expenditures for which
approval was required under
Section 6.b.iii.(3), but
not obtained by Seller. All
payments will be made
together with interest per
annum at the prime rate as
published in the Wall
Street Journal on the
Closing Date for the Period
beginning on the Closing
Date and ending on the date
of payment. Any dispute
regarding any amount
described in this Section
6.b.iii. shall be resolved
in accordance with the
procedures set forth in
Section 2.e.i.
(3) Between the date of this
Agreement and the Closing
Date, and except as either
(a) set forth in Section
3.k.iv. of Seller's
Disclosure Schedule, or (b)
otherwise consented to in
writing by Buyer, Seller
will not approve any
capital expenditures in
excess of the Monthly
Capital Budget of $500,000
where such capital
expenditures exceed $50,000
individually or
cumulatively $250,000 in
the aggregate.
(iv) Between the date of this Agreement and
the Closing Date, Seller will cause American Airlines, Inc. to use its
Best Reasonable Efforts to renegotiate the Exhibit for YUL to the
letter agreement between American Airlines, Inc. and the Company dated
September 23, 1987 to contain fixed rate pricing equal to the fair
market rate for such services.
(v) From January 1, 1999, to the Closing
Date, Seller will cause the Company to accrue liabilities in respect of
the 1999 IC Plan in a manner consistent with past practices for
previous IC Plans.
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c. Required Approvals. As promptly as practicable
after the date of this Agreement, Seller will, and will cause each Acquired
Company to, make all filings required by any Legal Requirement to be made by
them as legally required to consummate the Contemplated Transactions (including
all filings under the HSR Act). Between the date of this Agreement and the
Closing Date, Seller will, and will cause each Acquired Company to (a) cooperate
with Buyer with respect to all filings that Buyer is required by any Legal
Requirement to make in connection with the Contemplated Transactions, and (b)
use its Best Reasonable Efforts to obtain all consents identified in Seller's
Disclosure Schedule. If at Closing all Non-Mandatory Consents have not been
obtained, Seller will continue to use its Best Reasonable Efforts for a period
through the Consent Deadline to obtain any such Non-Mandatory Consents. If
either party reasonably anticipates that a Non-Mandatory Consent will not be
obtained prior to Closing, then Buyer and Seller will negotiate in good faith to
structure and implement interim arrangements to preserve intact to the greatest
practicable extent the operations to which such consent pertains and to confer
the economic benefits of such operations on Buyer. If such interim arrangements
are not able to confer the economic benefits on Buyer, then Seller shall pay to
Buyer the Escrow Spread Rate on the Stipulated Consent Value with respect to
such operations until such time as the Non-Mandatory Consent in question is
obtained, the Stipulated Consent Value is paid to Buyer or Seller is able to
confer such economic benefits on Buyer.
d. Notice of Developments. At least two (2) Business
Days prior to the Closing Date (or on the Closing Date with respect to matters
occurring after such period but prior to the Closing), Seller will deliver to
Buyer an updated Seller's Disclosure Schedule reflecting any and all (i) events
that existed at the date of this Agreement, or (ii) that arose subsequent
thereto, which, in the case of (i) or (ii) would render untrue any
representation or warranty of Seller or Seller's Parent if made as of the
Closing Date or form a basis for any indemnification or other claim by Buyer
hereunder. Within two (2) Business Days of the delivery of the update of
Seller's Disclosure Schedule, Buyer may provide Seller with notification of its
intent to terminate this Agreement pursuant to Section 11.a.i. hereof, to the
extent permitted by, and only in accordance with, the provisions of Section
11.a.i.; provided, however, that the cure period provided therein shall not
extend beyond March 31, 1999. If Buyer is entitled to terminate this Agreement
pursuant to Section 11.a.i., and Buyer elects not to terminate this Agreement,
after the cure period, if applicable, then Seller's Disclosure Schedule shall be
deemed amended to reflect the information contained in such update and the
changes or events reflected in such update shall not (i) form the basis of any
claim by Buyer for indemnification, (ii) enable Buyer thereafter to terminate
this Agreement based on such update under Section 11, or (iii) be deemed to
result in the failure of a condition to be satisfied under Section 9.
e. 401(k) Plan Trust-to-Trust Transfer. Seller shall
cause a spin-off and transfer in compliance with Section 414(1) of the Code from
the trust for the $uper $aver 401(k) Capital Accumulation Plan for Employees of
Participating AMR Corporation Subsidiaries (the "SELLER'S PARENT'S 401(k) PLAN")
to a trust established by and for a defined contribution savings plan qualified
under Sections 401(a) and 401(k) of the Code maintained or established by the
Acquired Companies ("BUYER'S 401(k) PLAN") of an amount in cash equal to the
aggregate account balances, as of the date of such transfer, of the employees
who are
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participants under the Buyer's 401(k) Plan as of such transfer date, provided,
however, that if any employee has an outstanding loan under the Seller's
Parent's 401(k) Plan as of such transfer date, the Seller's Parent's 401(k) Plan
will transfer to the Buyer's 401(k) Plan such loan and the promissory note and
other documentation with respect to such loan. Any such transfer shall occur as
soon as practicable following the later of (i) the Closing date, (ii) the
designation (or establishment or amendment, if necessary) of Buyer's 401(k)
Plan, (iii) the receipt by Seller of a favorable determination letter issued by
the Internal Revenue Service for the Buyer's 401(k) Plan or an opinion of
counsel of Buyer reasonably satisfactory to Seller opining that the Buyer's
401(k) Plan is a qualified plan under Sections (401(a) and 401(k) of the code,
and (iv) an opinion of counsel of Buyer reasonably satisfactory to Seller
opining that the Buyer's 401(k) Plan contains all provisions necessary to permit
a transfer of assets in accordance with Section 414(l) of the Code and the
regulations thereunder, from the Seller's Parent's 401(k) Plan to Buyer's 401(k)
Plan, including, but not limited to, for example, an opinion that Buyer's 401(k)
Plan contains all provisions necessary to avoid an impermissible cutback under
Section 411(d)(6) of the Code with respect to the benefits, rights and features
associated with the amounts transferred from the Seller's Parent's 401(k) Plan.
The Buyer's 401(k) Plan shall provide that any employee that was eligible to
participate under the Seller's Parent's 401(k) Plan shall immediately be
eligible to participate under the Buyer's 401(k) Plan.
f. Best Reasonable Efforts. Between the date of this
Agreement and the Closing Date, Seller will use its Best Reasonable Efforts to
cause the conditions in Section 9 to be satisfied.
g. Acquisition Proposals. Between the date of this
Agreement and the earlier of its termination or the Closing Date:
i. the Seller, Seller's Parent, their
Affiliates and their respective Representatives (including, without
limitation, any investment banker, attorney or accountant retained by
the Seller or Seller's Parent or any of their Subsidiaries) shall,
except as set forth in Seller's Disclosure Schedule, or with respect to
transactions that would not require the consent of Buyer under Section
6.b.i., immediately cease any existing discussions or negotiations, if
any, with any Persons conducted heretofore with respect to any
acquisition or exchange of all or any material portion of the assets
of, or equity interest in, any of the Acquired Companies, or any
business combination, merger or similar transaction (including an
exchange of stock or assets) with or involving any of the Acquired
Companies (an "ACQUISITION TRANSACTION").
ii. Neither the Seller, Seller's Parent, nor
any of their Affiliates, nor any of their respective officers,
directors, employees, representatives or agents, shall, directly or
indirectly, encourage, solicit, participate in or initiate discussion
or negotiations with, or provide any information to, any Person (other
than Buyer and Buyer's Parent) with respect to any inquiries or the
making of any offer or proposal concerning an Acquisition Transaction
(an "ACQUISITION PROPOSAL"). The Seller shall notify Buyer and Buyer's
Parent immediately if any Acquisition Proposal is made after the date
of this Agreement and shall in such notice indicate the identity of the
offeror and
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<PAGE> 50
the terms and conditions of any such proposal and, if the Acquisition
Proposal is written, shall include a copy thereof.
h. Non-Competition. Each of Seller's Parent and
Seller agrees that the going concern value of the Acquired Companies is
important to Buyer and acknowledge that Buyer would not have entered into this
Agreement or the Contemplated Transactions absent the provisions of this Section
6.h. As a result, Seller's Parent agrees that from and after the Closing Date it
will not, and will not permit its Affiliates to, until the fifth anniversary
date of the Closing Date (the "FIVE-YEAR PERIOD"), own, manage, operate, control
or participate in the ownership, management, operation or control of any Person
that is engaged in the business of providing ground handling, cargo handling or
passenger services ("GROUND HANDLING SERVICES") except that:
i. No Affiliate of Seller's Parent that
conducts passenger or cargo air transport operations (an
"AMR-CONTROLLED AIRLINE") will be precluded, prohibited or in any
manner restricted from providing Ground Handling Services for its own
internal operations;
ii. No AMR-Controlled Airline will be
precluded, prohibited or in any manner restricted from utilizing its
own employees, equipment and other assets to provide Ground Handling
Services to any third-party airline or other Person at those locations
where such AMR-Controlled Airline provides Ground Handling Services for
its own internal operations;
iii. Seller's Parent's Affiliate, Americas
Ground Services, Inc., and its Subsidiaries (collectively "AGS") will
not be precluded, prohibited or in any manner restricted from owning,
managing, operating or controlling any Ground Handling Services within
Mexico, the Caribbean and Central and South America ("MCLA"); provided,
however, that during the Five-Year Period, AGS will only provide Ground
Handling Services (whether to an AMR-Controlled Airline or to any
third-party airline or other Person) at locations at which it is
providing Ground Handling Services as of the date of this Agreement and
at any other locations within MCLA where any AMR-Controlled Airline now
or in the future conducts passenger or cargo air transport operations
(it being understood that once AGS provides Ground Handling Services at
any such present or future location, it may continue to provide Ground
Handling Services at such locations even if such air transport
operations by an AMR-Controlled Airline are subsequently discontinued);
iv. Neither Seller's Parent nor any
Affiliate shall be precluded, prohibited or in any manner restricted
from entering into any Acquisition Transaction involving any Person
whose principal business is the operation of passenger or cargo air
transport operations that owns, manages, operates or controls, or
participates in the ownership, management, operation or control of, a
Person that provides Ground Handling Services (an "ACQUIRED GROUND
HANDLING SUBSIDIARY"); provided that (A) if pursuant to such
Acquisition Transaction, the Acquired Ground Handling Subsidiary
becomes an
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<PAGE> 51
Affiliate of Seller's Parent, then from and after the date of
consummation of such Acquisition Transaction (the "ACQUISITION DATE"),
and during the remainder of the Five-Year Period, such Acquired Ground
Handling Subsidiary may only provide Ground Handling Services at (x)
the locations at which it provides such services as of the Acquisition
Date and (y) any new locations at which any AMR-Controlled Airline (i)
thereafter conducts passenger or cargo air transport operations and
(ii) utilizes such Acquired Ground Handling Subsidiary to perform
Ground Handling Services for its own internal operations (it being
understood that once such Acquired Ground Handling Subsidiary expands
its business to any such new locations, it may provide Ground Handling
Services to any third-party airlines or other Person at such location
and continue to conduct business at such locations even if such AMR
Controlled Airline's air transport operations are subsequently
discontinued), and (B) if pursuant to such Acquisition Transaction, the
Acquired Ground Handling Subsidiary does not become an Affiliate of
Seller's Parent, and provided further that acquisition of ownership or
control of such Acquired Ground Handling Subsidiary by Seller's Parent
or any Affiliate is not the primary purpose of such Acquisition
Transaction, then such Acquired Ground Handling Subsidiary shall not be
subject to the restrictions set forth in subclause (A) of this Section
6.h.iv. or any other provision hereof; and
v. Seller's Parent and its Subsidiaries will
not be precluded, prohibited or in any manner restricted from
purchasing or otherwise acquiring up to five percent (5%) of any class
of equity securities of any Person if such purchase or acquisition is
solely for investment purposes or part of a larger transaction, the
primary purpose of which is not to create an affiliation between
Seller's Parent and a Person engaged in providing Ground Handling
Services.
Seller and Seller's Parent agree that, in addition to any other relief
to which Buyer may be entitled, Buyer would be entitled to seek and
obtain injunctive relief (without the requirement of any bond) from a
court of competent jurisdiction for the purposes of restraining
Seller's Parent from any actual or threatened breach of this covenant.
i. Nonsolicitation. For a period of two (2) years
after the Closing Date, each of Seller's Parent and Seller severally agree that
it will not, and will not permit its Subsidiaries to, knowingly solicit for
employment any Employees of the Acquired Companies as of the Closing Date or any
Transferred Employees. In addition, for a period of one (1) year after the
Closing Date, Seller's Parent will not, and will not permit its Subsidiaries to,
without the prior consent of Buyer, hire any officer or employee of the Acquired
Companies listed on Section 6.i. of Seller's Disclosure Schedule. Seller and
Seller's Parent agree that, in addition to any other relief to which Buyer may
be entitled, Buyer would be entitled to seek and obtain injunctive relief
(without the requirement of any bond) from a court of competent jurisdiction for
the purposes of restraining Seller's Parent from any actual or threatened breach
of this covenant.
j. Taxes.
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i. Without the prior written consent of
Buyer, neither Seller nor the Company, any Subsidiary or any Affiliate
of Seller shall, to the extent it may affect or relate to the Company
or any Subsidiary, make or change any tax election, change any annual
tax accounting period, adopt or change any method of tax accounting,
file any amended Return, enter into any closing agreement, settle any
Tax claim or assessment, surrender any right to claim a Tax refund,
consent to any extension or waiver of the limitation period applicable
to any Tax claim or assessment or take or omit to take any other action
(other than the Contemplated Transactions), if any such action or
omission would have the effect of materially increasing the Tax
liability or reducing any Tax Asset, of the Company, any Subsidiary,
Buyer or any affiliate of Buyer.
ii. For purposes of this Agreement, "TAX
ASSET" shall mean any net operating loss, net capital loss, investment
tax credit, or any other credit or tax attribute which could reduce
Taxes (including, without limitation, deductions and credits related to
alternative minimum taxes).
k. Audit Consent. Seller shall cause Seller's
Accountants to agree to provide consents, without cost to Buyer, to use of
Seller's Accountant's report and name with respect to such audited financial
statements in connection with any public or private offering of securities of
the Acquired Companies or any Affiliate thereof or any similar use thereof.
l. Insurance Claims. With respect to any claims
arising out of events, occurrences, or acts prior to the Closing, regardless of
when such claims are brought, each of Seller and Seller's Parent shall cooperate
with Buyer and the Acquired Companies in the Buyer's and Acquired Companies'
tendering of claims to the appropriate carrier of any occurrence insurance
policies, facilitate the payment of insurance proceeds with respect thereto, and
not take any action to cause the coverage of the Acquired Companies under any
such policy to be reduced or restricted.
m. No Termination of Contract. Between the date
hereof and the Closing Date, Seller shall not terminate or modify or allow its
Affiliates to terminate or modify any Contract between the Company on the one
hand and the Seller or an Affiliate of Seller on the other hand other than in
the Ordinary Course of Business or as provided in Seller's Disclosure Schedule.
n. Compliance. Seller covenants that it will use its
Best Reasonable Efforts to comply on or before the Closing Date in all material
respects with any applicable property transfer laws under any Environmental Law
for each jurisdiction where the Acquired Companies own or conduct business as of
the date hereof.
o. Acquisition of SAP System. Seller will cause the
Company to commence acquisition of an SAP accounting system (including hardware,
software and related services and expenses) or another substantially comparable
accounting system to be owned by the Company. Such system will contain
substantially similar capabilities as exist in the SAP system as utilized by the
Company as of the date hereof. Seller will pay, prior to or after the Closing
(provided that expenditures prior to the Closing shall not constitute a Capital
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Improvement), up to three million dollars ($3,000,000) of the cost of acquiring
such system, in accordance with a project scope, timeline, and budget approved
by Buyer, which approval shall not be unreasonably withheld or delayed. For
purposes of calculating the Working Capital, the Company will not be required to
reflect any current liability accruals for SAP project costs on its balance
sheet prior to or as of the Closing Date.
7. COVENANTS OF BUYER PRIOR TO THE CLOSING DATE.
a. Approvals. As promptly as practicable after the
date of this Agreement, Buyer will make all filings required by any Legal
Requirement to be made by it to consummate the Contemplated Transactions
(including all filings under the HSR Act). Between the date of this Agreement
and the Closing Date, Buyer will (i) cooperate with Seller and Seller's Parent,
as the case may be, with respect to all filings that Seller or Seller's Parent,
as the case may be, elects to make or is required by any Legal Requirement to
make in connection with the Contemplated Transactions, and (ii) cooperate with
Seller, Seller's Parent and the Acquired Companies in obtaining all Consents
identified in Seller's Disclosure Schedule. Buyer agrees that Seller and
Seller's Parent will not have any liability whatsoever to Buyer arising out of
or relating to the failure to obtain any such Consents that may be required in
connection with the Contemplated Transactions or because of any termination of
any Contract as a result of the failure to obtain such Consent. Buyer further
agrees that no representation, warranty or covenant of Seller or Seller's Parent
contained herein will be Breached or deemed Breached as a result of (i) the
failure to obtain any such Consent, (ii) any termination of any such Contract as
a result of the failure to obtain any such Consent, or (iii) any Proceeding or
Threatened Claim by or on behalf of any Person arising out of or relating to the
failure to obtain any such Consent or any such resulting Contract termination,
except as provided in Sections 6.c.ii. and 6.f. to the extent relating to
Consents.
b. Releases of Seller and Affiliates. From the date
of this Agreement to the Closing Date, Buyer hereby agrees to use its Best
Reasonable Efforts to assist Seller in obtaining releases reasonably
satisfactory to Seller of the obligations of Seller, Seller's Parent and their
respective Affiliates (other than the Acquired Companies) under all guarantees,
surety bonds, and letters of credit obligations listed on Section 7.b. of
Seller's Disclosure Schedule. Buyer hereby covenants that it will substitute
itself as necessary, as obligor with respect to all such guarantees, surety
bonds, and letters of credit obligations, if necessary to obtain the release of
Seller, Seller's Parent and their respective Affiliates (other than the Acquired
Companies) from such obligations and will provide all financial and other credit
information requested in connection with any such substitution of Buyer as
obligors with respect to such guarantees, surety bonds and letters of credit
obligations. If Buyer is unable to effect such a substitution with respect to
any such guaranty, surety bond or letter of credit obligation after using its
Best Reasonable Efforts to do so, Buyer will obtain letters of credit for the
benefit of Seller, Seller's Parent and their respective Affiliates (other than
the Acquired Companies), on terms and from financial institutions satisfactory
to Seller, with respect to the obligations covered by each of the guarantees,
surety bonds and letters of credit obligations for which Buyer does not effect
such substitution.
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c. Notifications. Buyer will (a) promptly notify
Seller and Seller's Parent in writing of any development which could reasonably
be anticipated to affect the ability of Buyer to consummate the Contemplated
Transactions, and (b) promptly notify Seller and Seller's Parent in writing of
any events, facts and occurrences arising subsequent to the date of this
Agreement which could reasonably be anticipated to result in any Breach of any
representation or warranty or any covenant of Buyer contained in, or which could
reasonably be anticipated to have the effect of making any of the
representations and warranties in, this Agreement false or misleading in any
respect.
d. Best Reasonable Efforts. Between the date of this
Agreement and the Closing Date, Buyer will use its Best Reasonable Efforts to
cause the conditions in Section 10 to be satisfied.
8. COVENANTS OF BUYER SUBSEQUENT TO THE CLOSING DATE.
a. Post-Closing Access to Records. Seller and
Seller's Parent may after Closing retain copies of any Acquired Company's books,
records and other documents, including records and files stored in computer
disks or tapes or any other storage medium (collectively, "RECORDS"), that are
delivered to Buyer as may be required by Seller and Seller's Parent to meet
accounting, auditing and tax requirements or any Legal Requirement or to
litigate any matters relating in whole or in part to any Acquired Company. Buyer
will after Closing retain the Records delivered to it by Seller for at least a
period of seven (7) years after Closing and will allow Seller and Seller's
Parent reasonable access at Seller's and Seller's Parent's cost and expense to
such Records and the right to make copies thereof at Seller's and Seller's
Parent's expense at any reasonable time upon written request in the event any
such Records are required by Seller or Seller's Parent in connection with
accounting or auditing requirements or any Legal Requirement or in connection
with any claim or Proceeding, including, but not limited to, any financial
reporting obligation.
b. No Use of Name and Cancellation of Registrations.
Buyer hereby acknowledges that (i) the Acquired Companies do not own the names,
"American," "American Airlines," "AA," "AMR," "AMRS" or the scissors eagle
design or any confusingly similar derivative thereof, and (ii) the Acquired
Companies' use of those names is pursuant to a non-exclusive, royalty-free
license subject to the terms and conditions of the License Agreement. During the
term of the License Agreement and without limiting the express provisions
thereof, Buyer will use its Best Reasonable Efforts to cease and discontinue use
of the names covered by the License Agreement and will otherwise comply with the
terms thereof. After the termination of such License Agreement, Buyer hereby
covenants that it will not, and it will cause each Acquired Company not to, use
the names "AMR," "American Airlines," "AA," "AMRS" or "American" or the scissors
eagle design or any other name that is likely to result in confusion or dilution
of the name "AMR," "American Airlines," "AA," "AMRS" or "American" or the
scissors eagle design. Upon termination or expiration of the License, Buyer will
cause the Company to cancel its registrations of all service marks and
trademarks which include "AMR" in every class and every jurisdiction in which
they are currently registered and will provide to Seller evidence of such
cancellations. In no event will Buyer be in breach of this Section for failure
to
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cancel a registration unless Seller has given Buyer written notice of such
registration (either through this Agreement or otherwise) and Buyer has had a
reasonable opportunity to effect such cancellation. Notwithstanding the above,
it is understood that the Acquired Companies may represent in a truthful and ad
hoc manner that they were formerly associated with AMR Services, provided that
such use is not likely to result in confusion with Seller, result in dilution of
Seller's Marks or otherwise unfairly trade on the goodwill of Seller.
c. Severance Amounts. In the event that subsequent to
the Closing Date but prior to the first anniversary of the Closing Date Buyer
terminates the employment of any Transferred Employee or any Employee of the
Acquired Companies, who was an Employee as of the Closing Date, Buyer will be
responsible for and will pay, and will indemnify and hold harmless Seller and
Seller's Parent in respect of, in accordance with the provisions set forth in
Section 12 hereof, all applicable severance amounts to such Employees in
accordance with the amounts, procedures and timing contemplated by Seller's
existing severance policies as set forth in Section 3.q. of Seller's Disclosure
Schedule.
d. One-Year Benefit Standstill. Commencing on the
Closing Date and continuing until the first anniversary of the Closing Date,
Buyer will provide and maintain for the benefit of the Employees and their
eligible spouses and dependents, compensation and Employee Plans that at a
minimum provide compensation and benefits substantially equivalent in aggregate
value to the compensation paid and Employee Plans maintained by the Acquired
Companies or on their behalf as of the Closing Date. Notwithstanding the
foregoing, Buyer will not be required to offer the non-revenue travel privileges
currently offered to Employees or benefits equivalent to those offered under the
AMR Employee Stock Purchase Plan and the AMR Long-Term Incentive Plan or the
benefits provided to Transferred Employees prior to their transfer to the
Acquired Company, except to the extent those benefits are also generally
provided to other Employees of the Acquired Companies. In partial satisfaction
of the foregoing obligations, Buyer will use its Best Reasonable Efforts to
continue for the balance of calendar year 1999 following the Closing Date the
medical, dental, vision, life insurance, death, disability, accident and similar
benefits in effect at the Closing Date; and for one year following the Closing
Date, will continue the same vacation, holiday and leave policies in effect as
of the date hereof. In addition, without limiting the generality of the
foregoing and in addition to the requirements specified in Section 8.g. below,
Buyer will be required to maintain an incentive compensation plan that will
provide to Employees the economic benefits they would have received under the IC
Plan attributable to the period beginning on January 1, 1999 and ending on the
Closing Date.
e. Reimbursement for Certain Intercompany
Transactions and Employee Loans. On or prior to the date that any Adjustment
Amount becomes payable in accordance with Section 2.e.ii. hereof and in any
event, no later than ninety (90) days from the Closing Date, Buyer will, or will
cause the Acquired Companies to, reimburse Seller's Parent or its Affiliates
(other than the Acquired Companies) for all costs for health insurance benefits
provided by Seller's Parent or any of its Subsidiaries or Affiliates to any
Acquired Company or any of its Employees prior to the Closing Date, and which,
in either case, represent an account payable, liability, obligation or accrual
of any of the Acquired Companies as of the Closing Date. Without limiting the
generality of the foregoing, to the extent permitted by law, Buyer will use
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Best Reasonable Efforts to cause the Acquired Companies to withhold from each
employee's pay checks amounts equal to the payments required to be made (i) in
respect of any non-revenue travel on flights of American Airlines and American
Eagle or otherwise by such employee or his or her relatives or acquaintances
prior to and through the Closing Date and (ii) if requested by Seller, on any
loans to such employee outstanding from American Airlines Employees Federal
Credit Union (as shown by such Acquired Companies as owing to such Credit
Union.) Buyer will cause the Acquired Companies to remit promptly such withheld
amounts to the Credit Union, American Airlines or American Eagle, as the case
may be, without setoff, counterclaim or reduction for any reason.
f. Pre-Closing Date Obligations. The Company shall
retain responsibility under all Employee Plans (except as set forth in Section
8.g. and h., both of which shall be the responsibility of Seller), for all cost
of coverage and all amounts payable by reason of claims incurred by Employees or
former Employees prior to the Closing Date, including claims which are not
submitted until after the Closing Date.
g. Performance Bonus Plan. Seller shall retain
responsibility for the timely payment of all performance bonuses under the
Company's incentive compensation plan (the "IC PLAN") with respect to the year
ended December 31, 1998. Buyer will assist Seller in distributing such bonus
payments to Employees in accordance with Seller's instructions. Promptly
following the Closing Date, Seller shall pay to eligible Employees those
transition benefits identified in Section 3.k. of Seller's Disclosure Schedule.
h. Workers Compensation Claims. On or prior to each
of the first, second, and third anniversary of the Closing Date, respectively,
Buyer shall pay to Seller an amount equal to one-third of the Workers
Compensation Accrual.
9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
a. Accuracy of Representations. All of Seller's and
Seller's Parent's representations and warranties in this Agreement must have
been accurate as of the date of this Agreement and must be accurate as of the
Closing as if made on the Closing Date (except that representations and
warranties that are confined to a specific date or period will be accurate only
as of such date or period) in either case, after giving effect to all updates
and amendments of Seller's Disclosure Schedule under Section 6.d. that have not
resulted in Buyer's termination pursuant to Section 6.d and 11.a.i.; provided,
however, that this condition will be deemed to be satisfied notwithstanding that
any representation or warranty that is not qualified by a materiality or a
Material Adverse Effect exception may not be accurate so long as all such
inaccuracies considered together would not be deemed to have a Material Adverse
Effect.
b. Seller's Performance.
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i. All of the covenants and obligations that
Seller is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing Date, must have been duly
performed and complied with in all material respects; and
ii. Each document required to be delivered
pursuant to Section 2.d.i. must have been delivered to Buyer.
c. Consents. Each of the Consents that are identified
or referred to in Parts A and B of Section 10.c. of Seller's Disclosure Schedule
must have been obtained and must be in full force and effect as of the Closing
Date.
d. Additional Documents. Buyer will have received a
certificate executed by Seller stating that all conditions set forth in Sections
9.a. to 9.c. have been satisfied.
e. No Proceedings. On the Closing Date, there shall
be no Proceeding or Order instituted by any court or any Governmental Body that
would reasonably be expected to (i) prohibit or invalidate the sale of the
Shares or (ii) affect materially and adversely the right of Buyer to own the
Shares and to control the Company.
f. Certificates. The Seller shall have delivered to
Buyer (i) copies of the respective Certificates of Incorporation, including all
amendments thereto, of each of the Acquired Companies, certified by the
appropriate official of its jurisdiction of incorporation or, to the extent such
certification cannot be obtained in any non-U.S. jurisdiction, on a timely basis
prior to the Closing Date, then by an officer of such Acquired Company; and (ii)
a certificate from the appropriate official in each jurisdiction in the United
States in which the Acquired Companies are incorporated or qualified to do
business to the effect that each of the Acquired Companies is in good standing
in such state, or in the case of an Acquired Company incorporated outside of the
United States, equivalent documentation if customarily available; in each case,
dated as of a recent date.
g. Resignations. Buyer shall have the received the
resignations, dated the Closing Date, of, (or shall have removed from office)
those officers and directors of the Acquired Companies as shall be designated by
Buyer in writing to Seller not less than five Business Days prior to the Closing
Date.
h. Incumbency Certificates. Seller and Seller's
Parent shall have delivered to Buyer incumbency certificates with respect to
each of the persons signing this Agreement and any other document or certificate
in connection herewith on behalf of Seller and Seller's Parent.
i. Opinion. Buyer shall have received an opinion of
Haynes and Boone, LLP, dated the Closing Date, addressed to Buyer substantially
in the form of Exhibit 2.d.i(4).
j. Debt. Seller shall have paid, or caused to be
paid, or assumed full and complete liability for the outstanding balance of
indebtedness for borrowed money from
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Seller, Seller's Parent or any other Person and shall have paid or discharged
any capitalized leases.
k. Financing. Buyer shall have obtained debt
financing in at least the amount set forth in the Debt Commitment Letter.
l. EBITDA. The consolidated net income of the
Acquired Companies before net interest, expense, income taxes, depreciation and
amortization expense as set forth on the audited income statement of the
Acquired Companies for the year ended December 31, 1998 shall have been no less
than $14 million.
m. Audit. Prior to the Closing Date, an audit of the
Acquired Companies on a consolidated basis for the year 1998 in accordance with
GAAP shall have been completed by Seller's Accountants and delivered to Buyer.
n. No Material Adverse Change. Since the date of this
Agreement, there shall have been no event or circumstance or series of related
events or circumstances that have caused or could reasonably be expected to
cause a material adverse change in the Business or the financial condition,
operations, properties, assets or results of operations of the Acquired
Companies, taken as a whole (a "MATERIAL ADVERSE CHANGE"), however, no Material
Adverse Change will be deemed to have occurred if such event or circumstance is
caused by (i) one or more downturns in the economy or the securities market in
general, or (ii) one or more downturns in the industries in which the Business
operates.
o. AA Agreement. The Company and American Airlines,
Inc. shall have entered into the Restated Amendment of Airline Services Contract
in the form attached hereto as Exhibit "C" (the "UMBRELLA AMENDMENT").
10. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to sell the Shares and to take the other actions required to
be taken by Seller at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Seller, in whole or in part):
a. Accuracy of Representations. All of Buyer's
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
b. Buyer's Performance.
i. All of the covenants and obligations that
Buyer is required to perform or to comply with pursuant to this
Agreement at or prior to the Closing (considered collectively), and
each of these covenants and obligations (considered individually), must
have been performed and complied with in all material respects; and
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ii. Buyer must have delivered each of the
documents required to be delivered by Buyer pursuant to Section 2.d.ii.
and must have paid the Unadjusted Purchase Price.
c. Consents. Each of the Consents that is
specifically identified in Part A of Section 10.c. of the Seller's Disclosure
Schedule must have been obtained and must be in full force and effect as of the
Closing Date.
d. Additional Documents. Seller will have received
the following documents:
i. a certificate executed by Buyer stating
that all conditions set forth in Sections 10.a. and 10.b. have been
satisfied; and
ii. a certificate executed by Buyer
verifying that all necessary actions have been taken to change the name
of the Company and of all Subsidiaries of the Company and the names
under which such entities conduct operations to remove all references
to "American," "American Airlines," "AA," "AMR," "AMRS" and all
derivatives thereof; provided, however, that in the case of name
changes in foreign jurisdictions, such changes shall be implemented as
soon as practicable following the Closing (but in no event later than
10 Business days following the Closing Date).
e. No Proceedings. On the Closing Date, there shall
be no Proceeding or Order instituted by or before any court or any Governmental
Body that would reasonably be expected to (i) prevent consummation of the
purchase and sale of the Shares, or (ii) cause the purchase and sale of the
Shares to be rescinded following Closing.
f. Opinion. Seller shall have received an opinion of
Schulte Roth & Zabel L.L.P. dated the Closing Date, addressed to Seller and
Seller's Parent substantially in the form of Exhibit 2.d.ii.(6).
11. TERMINATION.
a. Termination Events. This Agreement may, by notice
given prior to or at the Closing, be terminated:
i. by Buyer if a Breach of any
representation, warranty, or covenant of Seller's Parent or Seller in
this Agreement has occurred that would constitute a failure of the
conditions set forth in Sections 9.a. or 9.b.i., and such Breach has
not been cured by Seller or waived by Buyer within thirty (30) days
following written notice from Buyer;
ii. by Seller if a Breach of any
representation, warranty, or covenant of Buyer in this Agreement has
occurred that would constitute a failure of the conditions set forth in
Sections 10.a. or 10.b.i. and such Breach has not been cured by Buyer
or waived by Seller within thirty (30) days of notice from Seller;
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iii. by Buyer if any of the conditions in
Section 9 has not been satisfied as of March 31, 1999 (other than
through the failure of Buyer to comply with its obligations under this
Agreement) and Buyer has not waived such condition on or before the
Closing Date;
iv. by Seller, if any of the conditions in
Section 10 has not been satisfied as of March 31, 1999 (other than
through the failure of Seller or Seller's Parent to comply with their
obligations under this Agreement) and Seller has not waived such
condition on or before the Closing Date;
v. by mutual consent of Buyer and Seller; or
vi. by either Buyer or Seller if the Closing
has not occurred (other than through the failure of any party seeking
to terminate this Agreement to comply fully with its obligations under
this Agreement) on or before March 31, 1999 or such later date as the
parties may agree upon in writing.
b. Effect of Termination. Each party's right of
termination under Section 11.a. is in addition to any other rights it may have
under this Agreement, and the exercise of a right of termination will not be an
election of remedies, except as may be specifically provided in Section 11.c. of
this Agreement. If this Agreement is terminated pursuant to Section 11.a., all
further obligations of the parties under this Agreement will terminate, except
as provided in Sections 14.a. and 14.d. or as otherwise expressly provided in
this Agreement or the Performance Guaranty.
c. Limited Remedies of Buyer Upon Termination. In the
event the Agreement is terminated by Buyer (a) pursuant to Section 11.a.i. as a
result of a Breach by Seller (which is not cured within the applicable grace
period), or (b) pursuant to Section 11.a.iii. if the Closing does not occur by
March 31, 1999 because of a failure by Seller to meet the conditions set forth
in Sections 9.a., b., d. (to the extent the failure of the condition set forth
in Section 9.d. is not related to an inability to obtain a Consent), f., g., h.,
i., j., m., n. (to the extent the failure of the condition set forth in Section
9.n. could reasonably have been avoided by Seller) and o., or by Seller (i)
pursuant to Section 11.a.ii. as a result of a Breach by Buyer (which is not
cured within the applicable grace period) or (ii) pursuant to Section 11.a.iv.
if the Closing does not occur by March 31, 1999 because of a failure by Buyer to
meet the conditions set forth in Sections 10.a., b., d., and f., then the
non-breaching party will, in addition to any equitable remedies (including,
without limitation, specific performance) that may be available to such
non-breaching party, be entitled to receive reimbursement of its reasonable
out-of-pocket expenses in connection with the Contemplated Transactions, not to
exceed the aggregate amount of $500,000, within five (5) Business Days of the
claiming party's submission of vouchers evidencing such expenses. EXCEPT FOR ANY
EQUITABLE REMEDIES AVAILABLE TO THE PARTIES, NO OTHER REMEDIES, INCLUDING THE
REMEDIES SPECIFIED IN SECTION 12 HEREOF, WILL BE AVAILABLE TO EITHER PARTY IN
SUCH EVENTS. IT IS UNDERSTOOD AND AGREED THAT (A) BUYER WILL RECOVER THE
FOREGOING AMOUNTS SOLELY FROM THE ACQUIRED COMPANIES, AND BUYER COVENANTS NOT TO
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SUE SELLER OR SELLER'S PARENT THEREFOR AND (B) SELLER AND SELLER'S PARENT WILL
RECOVER SUCH AMOUNTS SOLELY FROM BUYER, OR BUYER'S PARENT PURSUANT TO THE
PERFORMANCE GUARANTY. SUCH REIMBURSEMENT OF EXPENSES WILL CONSTITUTE A PARTY'S
SOLE MONETARY REMEDY AGAINST THE OTHER PARTY IN RESPECT OF ITS TERMINATION OF
THIS AGREEMENT PURSUANT TO SUCH PROVISIONS. TO THE EXTENT IT IS DETERMINED THAT
A PARTY IS ENTITLED TO A REMEDY, THE PARTIES ACKNOWLEDGE AND AGREE THAT THE
AMOUNT SET FORTH IN THIS SECTION 11.c. AS SUCH PARTY'S SOLE MONETARY REMEDY UPON
SUCH TERMINATION, IS A REASONABLE ESTIMATE, AS LIQUIDATED DAMAGES AND NOT AS A
PENALTY, OF ACTUAL DAMAGES TO SUCH PARTY RESULTING FROM ANY BREACH BY THE OTHER
PARTY.
12. INDEMNIFICATION; REMEDIES.
a. Survival. Subject to the provisions set forth in
Section 12.d. below, all representations, warranties, covenants, and obligations
contained in this Agreement, Seller's Disclosure Schedule, and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing.
b. Indemnification and Payment of Damages by Seller
and Seller's Parent. Subject to the limitations otherwise set forth in this
Section 12, from and after the Closing Date, Seller and Seller's Parent jointly
and severally will indemnify and hold harmless Buyer, the Acquired Companies,
and their respective Representatives, stockholders, and Affiliates
(collectively, the "BUYER INDEMNIFIED PERSONS") for, and will pay to the Buyer
Indemnified Persons the amount of, any loss, liability, claim, damage (excluding
incidental, punitive, lost opportunity and consequential or special damages of
any nature), reasonable expenses (including reasonable costs of investigation
and reasonable defense and attorneys' fees) or diminution of value, whether or
not involving a third-party claim (collectively, "DAMAGES"), arising, directly
or indirectly, from or in connection with:
i. any Breach as of the Closing Date of any
representation or warranty made by Seller or Seller's Parent in this
Agreement, Seller's Disclosure Schedule or any certificate delivered by
Seller pursuant to this Agreement;
ii. any Breach by Seller of any covenant or
obligation of Seller in this Agreement;
iii. any Damages resulting from any claim
made under and to the extent covered by any U.S. federal, state, or
local workers compensation law with respect to Employees employed by
the Acquired Companies prior to the Closing Date and with respect to
Transferred Employees arising out of or relating to any accident,
injury or other similar event that occurred prior to the Closing Date;
iv. any Damages resulting from any
third-party claims made under and to the extent covered by the Aviation
Liability Insurance Policy arising out of
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occurrences prior to the Closing Date net of insurance proceeds
received by the Acquired Companies; and
v. those certain matters set forth in
Section 12.b.v. of Seller's Disclosure Schedule.
vi. any Damages resulting from or relating
to the assignment of the Love Field Lease and Dalfort Merger Agreement;
vii. any Damages arising out of liabilities
of the Seller or any of its ERISA Affiliates (defined as any other
person that, together with the Seller, would be treated as a single
employer under Section 4001(b) of ERISA and the regulations thereunder)
under any and all Pension Plans subject to Title IV of ERISA currently
or at any time in the past maintained or contributed to by the Seller
or any of its ERISA Affiliates.
c. Indemnification and Payment of Damages by Buyer.
Prior to the Closing Date Buyer will, and after the Closing Date Buyer will, and
will cause the Acquired Companies jointly and severally with Buyer to, indemnify
and hold harmless Seller and Seller's Parent, and their respective
Representatives, stockholders, controlling persons, and Affiliates (collectively
the "SELLER INDEMNIFIED PERSONS"), and will pay to the Seller Indemnified
Persons, the entire amount of any Damages arising, directly or indirectly, from
or in connection with:
i. any Breach as of the Closing Date of any
representation or warranty made by Buyer in this Agreement or any
certificate delivered by Buyer or Buyer's Parent pursuant to this
Agreement; and
ii. any Breach by Buyer of any covenant or
obligation of Buyer in this Agreement.
d. Time Limitations.
i. Seller and Seller's Parent. If the
Closing occurs, neither Seller nor Seller's Parent will have any
liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed
and complied with by Seller prior to the Closing Date, other than those
specified in Sections 3.b.i., 3.c. (except for the last two sentences
of Section 3.c.i.), 3.h., 3.m., 3.q., 12.b.iii., 12.b.v., 12.b.vi.,
12.b.vii., 12.e. and 13. hereof, unless on or before the second
anniversary of the Closing Date, Buyer notifies Seller and Seller's
Parent of a claim, specifying the factual basis of that claim in
reasonable detail to the extent then known by Buyer. Claims with
respect to Sections 3.b.i., 3.c. (except for the last two sentences of
Section 3.c.i.), 3.h., 3.q., 12.b.iii., 12.b.v., 12.b.vi., 12.b.vii.
and 13 hereof or other covenants of Seller or Seller's Parent which, by
their terms apply after or survive the Closing may be made at any time
after the Closing Date, subject to any applicable statute of
limitations. Claims with respect to the representations and warranties
of Seller set forth in Section 3.m. hereof will in no event survive the
Closing Date for any purpose.
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Claims with respect to Section 12.e. hereof may be made at any time on
or before the fifth anniversary of the Closing Date.
ii. Buyer. If the Closing occurs, Buyer will
have no liability (for indemnification or otherwise) with respect to
any representation or warranty, or covenant or obligation to be
performed and complied with by Buyer prior to the Closing Date, other
than those specified in Sections 4.b.i., 4.i., 8 and 13 hereof, unless
on or before the second anniversary of the Closing Date, Seller or
Seller's Parent notifies Buyer of a claim specifying the factual basis
of that claim in reasonable detail to the extent then known by Seller
or Seller's Parent. Claims with respect to Sections 4.b.i., 4.i. and 13
hereof or other covenants of Buyer or Buyer's Parent which by their
terms apply after or survive the Closing may be made at any time
hereafter, subject in each case to any applicable statute of
limitations.
e. Environmental Indemnification.
i. Seller Indemnification. In addition to
the indemnification provided by Seller pursuant to Section 12.b.
hereof, Seller will defend, indemnify and hold harmless the Buyer
Indemnified Persons from and against any and all Environmental
Liabilities arising from (i) any Release or Threatened Release of a
Hazardous Material which occurred prior to the Closing Date at any
Facility; (ii) any violation of any environmental permit or
Environmental Law with respect to any period after the Closing Date;
and (iii) Environmental Claims arising from a condition existing at any
of the Facilities prior to the Closing Date (collectively, "SELLER
ENVIRONMENTAL LIABILITIES"). Notwithstanding the foregoing and in
addition to the other limitation which may arise pursuant to the terms
of Section 12.e.iii. below, Seller Environmental Liabilities will be
subject to a deductible of $50,000 per Station (i.e., airport or other
location at which one or more Facilities are or were located), or an
aggregate deductible of $250,000, and Seller will have no liability
with respect to Seller Environmental Liabilities until such amounts are
exceeded; the foregoing will in no event affect Seller's rights with
respect to Remedial Actions under Section 12.e.iv. below, it being
understood that at Seller's option, in lieu of Buyer assuming any
responsibility for Seller Environmental Liabilities which fall within
the foregoing deductible, Seller may request reimbursement for the
foregoing amounts from Buyer to the extent Seller Environmental
Liabilities subsequently exceed the foregoing.
ii. Buyer Indemnification. For a period of
five (5) years from the Closing Date, in addition to the
indemnification provided by Buyer pursuant to Section 12.b. hereof,
Buyer will defend, indemnify and hold harmless the Seller Indemnified
Persons from and against (i) any and all Environmental Liabilities
arising from any Release or Threatened Release of a Hazardous Material
caused by an Acquired Company which occurs after the Closing Date at
any Facility; (ii) any violation of any environmental permit or
Environmental Law caused by an Acquired Company with respect to any
period after the Closing Date; and (iii) Environmental Claims arising
from
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a condition existing at any of the Facilities after the Closing Date
caused by any Acquired Company.
iii. Exclusive Indemnities. Notwithstanding
anything to the contrary in this Agreement, the indemnities contained
in this Section 12.e. are the sole indemnity provisions concerning
Environmental Liabilities under this Agreement and will operate with
respect to the matters covered to the exclusion of any and all other
indemnity provisions herein, but subject to Section 12.d., 12.f.iii.,
12.g., 12.h. and 12.i.
iv. Procedures with Respect to Covered
Liabilities
(1) Seller will take Remedial
Action with respect to
Seller Environmental
Liabilities in compliance
with any applicable
Environmental Laws in a
manner acceptable to the
appropriate Governmental
Body. Remedial Action may
include the use of risk
assessments and/or
institutional controls to
the extent approved by a
Governmental Body in order
to obtain approval of any
plan of Remedial Action
with respect thereto.
Seller will negotiate the
requirements for any
Remedial Action with the
appropriate Governmental
Bodies, employ all
consultants and contractors
necessary for any Remedial
Action, pay all costs
associated with such
Remedial Action and be
entitled to manage, control
and conduct any such
Remedial Action that
constitutes a Seller
Environmental Liability.
Seller will consult with
Buyer regarding discussions
with any Governmental Body
concerning any Remedial
Action. Buyer or any
Acquired Company may have a
Representative present
during any meeting with any
Governmental Body;
provided, however, that
such Representative will
not actively participate in
any such meetings. To the
extent Buyer or any
Acquired Company requests
any material changes to any
Remedial Action or RAW
which exceed to any extent
the requirements of any
Governmental Body or
Environmental Law, Buyer or
such Acquired Company will
be solely responsible for
any increased costs
attributable to such
material changes. Seller
will use its Best
Reasonable Efforts to
conduct any Remedial Action
in a manner to reasonably
minimize interference with
the operations of the
Acquired Companies at any
Facility, although Buyer or
any Acquired Company
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recognizes that
interference is probable.
Seller and Buyer or any
Acquired Company, as
applicable, will execute an
access agreement if the
Remedial Action materially
interferes with the
Acquired Companies'
operations, which access
agreement will be in
accordance with customary
industry practice.
(2) Neither Buyer nor any
Acquired Company will
(without the express
written consent of Seller
which will not be
unreasonably withheld)
initiate or conduct any
subsurface investigation of
an environmental condition
at any Facility which may
constitute a Seller
Environmental Liability,
unless and except to the
extent required to do so
under Environmental Law or
in fulfillment of the
express requirement of an
appropriate Governmental
Body and, then, only with
prior notice to Seller and
after providing Seller with
an opportunity to be
present at any subsurface
investigation and an
ability to split any
samples taken. Activities
conducted by the Buyer or
any Acquired Company in the
Ordinary Course of
Business, including
improvements or repairs,
will not be considered
subsurface investigation,
unless Buyer or any
Acquired Company reasonably
anticipates that a
subsurface condition
exists.
(3) Buyer will promptly (but in
no event greater than
fourteen (14) calendar
days) notify Seller upon
Buyer's receipt of any
Environmental Claim of or
upon gaining of any
knowledge of a Seller
Environmental Liability.
Buyer also hereby agrees to
provide Seller with prompt
written notice of any
Release or Threatened
Release of a Hazardous
Material that is reportable
to a Governmental Body at
any Facility after the
Closing Date. Failure to
provide such notice on a
timely basis will not
result in the Damages
relating thereto being
excluded as Seller
Environmental Liabilities,
except to the extent the
Seller is prejudiced
thereby.
(4) Notwithstanding anything
herein to the contrary,
Seller will have the
absolute right to manage,
control and resolve any
settlement or defense of
any
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Environmental Claim arising
in connection with any
Seller Environmental
Liability. Buyer will have
the right to participate in
the settlement or defense
of any such Environmental
Claim, with its own counsel
and at its own expense, so
long as it does not
interfere with or delay in
any manner Seller's
resolution of any such
Environmental Claim.
(5) Upon reasonable written
notice from Seller, Buyer
agrees to provide
reasonable access to Seller
to any Facility and to
Buyer's or the Acquired
Companies' Employees or
Representatives at all
reasonable times necessary
to carry out any Remedial
Action at any Facility and
to prepare any materials
for submission to a
Governmental Body.
(6) Seller will propose a
remedial action workplan
("RAW") with respect to any
Remedial Action relative to
a Seller Environmental
Liability and will provide
Buyer with a copy of the
RAW prior to submission to
the Governmental Body for
review by Buyer, which
review must be conducted by
Buyer within fourteen (14)
calendar days after
receipt. Seller will
incorporate any reasonable
comments or reasonable
modifications proposed by
the Buyer into the RAW.
Upon approval of the RAW,
Seller will implement the
RAW in all material
respects. Seller will
provide Buyer with a status
report of the Remedial
Action within fourteen (14)
calendar days of the end of
each quarterly period (the
"QUARTERLY REPORT"). Seller
will provide the Buyer with
copies of any submissions
and applications to the
Governmental Body at least
ten (10) days prior to
filing with the
Governmental Body for
Buyer's review (it being
understood that comments
must be received at least
two (2) Business Days prior
to the date the submission
is due). Seller will
incorporate any reasonable
comments made by Buyer to
such documents; provided,
however, that neither Buyer
nor any Acquired Company
will take any action or
fail to take any action
hereunder which could
materially delay the RAW or
materially increase
Seller's Environmental
Liabilities covered by such
RAW. Seller will further
promptly (but in no event
greater
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than ten (10) calendar
days) provide Buyer with
copies of all material
correspondence from the
Governmental Body,
environmental consultant's
reports and other material
documents relating to the
Remedial Action.
f. Other Limitations.
(i) Threshold. Except as provided in
Sections 12.e. and 13 hereof or with respect to the matters set forth
in Sections 12.b.iii., 12.b.iv., 12.b.v., 12.b.vi. and 12.b.vii. of
Seller's Disclosure Schedule, Seller and Seller's Parent (considered
jointly) will not have any obligation to indemnify Buyer and/or any
other Buyer Indemnified Person for claims under this Agreement or in
connection with the Contemplated Transactions until Buyer's and/or any
other Buyer Indemnified Person's indemnifiable Damages exceed $1.0
million and then Seller and Seller's Parent will indemnify Buyer and/or
any other Buyer Indemnified Person for all Damages subject to Section
12.f.ii. without regard to such threshold.
(ii) Cap. Except as provided in Section
13.b.i.(2) hereof, or with respect to the matters set forth in Section
12.b.v. of Seller's Disclosure Schedule or Section 12.e. hereof, Seller
and Seller's Parent (considered jointly) will not have any liability to
Buyer and/or any other Buyer Indemnified Person for indemnifiable
Damages under this Agreement or in connection with the Contemplated
Transactions in excess of 50% of the Purchase Price (after which point
Seller and Seller's Parent will have no obligation to indemnify Buyer
and/or any other Buyer Indemnified Person from and against further
Damages).
(iii) Indemnification Based Upon Net Damage.
The duty and obligation of either Seller, Seller's Parent or Buyer or
any Acquired Company to provide indemnification hereunder will be
limited to the net amount of any Damages actually sustained and/or
paid. In determining the net amount of Damages, the actual amount of
Damages will be reduced by the aggregate value of any assets,
properties and rights, including without limitation, proceeds of
insurance, claims, cross-claims, counterclaims and the like which are
either received directly by the indemnified party, or by the
indemnifying party on behalf of the indemnified party and remitted to
the indemnified party, and federal or state income or franchise Tax
benefits realized or reasonably expected to be realized by such party
as a direct result of the event giving rise to the claim for
indemnification. In such connection, an indemnified party will fully
cooperate with the indemnifying party in pursuing and realizing all
amounts which may be available from third persons (without being
obligated to incur any additional non-reimbursable expense, or
liability in respect of specious or unfounded lawsuits filed in its
name). In addition, in determining the net amount of such Damages for
which indemnification is required, the amount of indemnification will
be increased to include any federal or state income or franchise Tax
liability incurred or reasonably expected to be incurred by a party as
a direct result of such indemnification. If any Tax benefit expected to
be realized
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is in fact not realized, or any Tax liability expected to be incurred
is not in fact incurred, then an adjustment will be made to compensate
the other party. This Section 12.f.iii. shall not apply to any
indemnification obligations under Section 13.
g. Procedure for Indemnification -- Third Party
Claims.
i. Promptly after receipt by an indemnified
party under Section 12.b. or 12.c. of notice of the commencement of any
Proceeding against it, such indemnified party will, if a claim is to be
made against an indemnifying party under such Section, give prompt
notice in writing to the indemnifying party of the assertion and
commencement of such claim, but the failure to notify the indemnifying
party will not relieve the indemnifying party of any liability that it
may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party's failure to give such notice.
ii. If any Proceeding referred to in Section
12.g.i. is brought against an indemnified party and the indemnified
party gives notice to the indemnifying party of the commencement of
such Proceeding, the indemnifying party will be entitled to participate
in such Proceeding and, to the extent that it wishes (unless the
indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint representation
would be inappropriate because of a conflict of interest) the
indemnifying party shall be entitled to assume the defense of such
Proceeding with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such Proceeding within
fifteen (15) days after the indemnified party has given notice to the
indemnifying party of the commencement of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such
defense, be liable to the indemnified party under this Section 12.g.
for any fees of other counsel or any other expenses with respect to the
defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding. If
the indemnifying party assumes the defense of a Proceeding, (1) no
compromise or settlement of such claims may be effected by the
indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements
or any violation of the rights of any Person and no effect on any other
claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the
indemnifying party; and (2) the indemnified party will have no
liability with respect to any compromise or settlement of such claims
effected without its consent (other than in accordance with clause (1)
hereof), which will not be unreasonably withheld. If notice is given to
an indemnifying party of the commencement of any Proceeding and the
indemnifying party does not, within fifteen (15) days after the
indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such Proceeding, then
the indemnifying party will remain responsible for any Damages the
indemnified party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Proceeding to the fullest extent
provided by this Section 12.
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iii. EACH PARTY HEREBY CONSENTS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES COURT IN WHICH A
PROCEEDING IS BROUGHT AGAINST ANY INDEMNIFIED PERSON FOR PURPOSES OF
ANY CLAIM THAT AN INDEMNIFIED PERSON MAY HAVE UNDER THIS AGREEMENT WITH
RESPECT TO SUCH PROCEEDING OR THE MATTERS ALLEGED THEREIN, AND AGREE
THAT PROCESS MAY BE SERVED ON IT WITH RESPECT TO SUCH A CLAIM ANYWHERE
IN THE UNITED STATES.
iv. The provisions of this Section 12.g.
will not be deemed to apply to the matters set forth in Section 12.b.v.
of Seller's Disclosure Schedule; it being understood that Seller has
already assumed the defense of such Proceedings and will have the
right, in its sole discretion, to compromise or settle such matters,
without Buyer's or an Acquired Company's consent or participation.
Buyer's rights with respect to such matters will instead be limited to
the right to be informed from time to time by Seller with respect to
the status of such matters, subject in any case to confidentiality
concerns of Seller or Seller's counsel. In addition, the provisions of
this Section 12.g. will not apply with respect to proceedings related
to Taxes, which and proceedings shall be governed by Sections 13.e.
h. Procedure for Indemnification -- Other Claims. A
claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
i. Exclusivity of Indemnification Provisions. The
parties acknowledge and agree that the purpose of the representations and
warranties, and covenants and obligations in this Agreement is to give the
aggrieved party the right to be indemnified pursuant to Sections 12. and 13.
Accordingly, the parties agree that breaches of such representations and
warranties will not be deemed to constitute fraud or misrepresentation under
state or federal law. Additionally, the following limitations will apply:
EXCEPT AS PROVIDED IN SECTIONS 6.h. AND
6.i., FOLLOWING THE CLOSING DATE, THE INDEMNIFICATION
PROVISIONS AS PROVIDED IN THIS AGREEMENT WILL BE THE SOLE AND
EXCLUSIVE REMEDY AND RECOURSE FOR ANY BREACH OF THIS AGREEMENT
BY SELLER OR SELLER'S PARENT OR ANY OTHER CLAIM BY BUYER UNDER
OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE CONTEMPLATED
TRANSACTIONS AND BUYER WILL HAVE NO OTHER ENTITLEMENT, REMEDY
OR RECOURSE, WHETHER IN CONTRACT, TORT OR OTHERWISE, AGAINST
SELLER OR SELLER'S PARENT, OR THEIR RESPECTIVE AFFILIATES OR
REPRESENTATIVES UNDER OR WITH RESPECT TO THIS AGREEMENT, ALL
OF SUCH ENTITLEMENTS, REMEDIES AND RECOURSE BEING HEREBY
EXPRESSLY WAIVED BY BUYER TO
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THE FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS.
IN ADDITION, THE AMOUNT OF THE CAPS APPLICABLE TO SELLER OR
SELLER'S PARENT SET FORTH IN SECTION 12.f WILL BE THE MAXIMUM
AMOUNT OF THE INDEMNIFICATION OBLIGATIONS OF SELLER AND
SELLER'S PARENT HEREUNDER, AND NEITHER SELLER, SELLER'S
PARENT, NOR THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES
WILL HAVE FURTHER PERSONAL OR OTHER LIABILITY THEREFOR. IF THE
CLOSING OCCURS, AND TO THE EXTENT PERMITTED BY APPLICABLE
LEGAL REQUIREMENTS, BUYER WILL NOT BE ENTITLED TO A RESCISSION
OF THIS AGREEMENT OR TO ANY FURTHER INDEMNIFICATION RIGHTS OR
CLAIMS OF ANY NATURE WHATSOEVER HEREUNDER, ALL OF WHICH BUYER
HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LEGAL REQUIREMENTS.
FOLLOWING THE CLOSING DATE, THE
INDEMNIFICATION PROVIDED IN THIS AGREEMENT WILL BE THE SOLE
AND EXCLUSIVE REMEDY AND RECOURSE FOR ANY BREACH OF THIS
AGREEMENT BY BUYER OR ANY OTHER CLAIM BY SELLER OR SELLER'S
PARENT UNDER OR WITH RESPECT TO THIS AGREEMENT OR ANY OF THE
CONTEMPLATED TRANSACTIONS AND SELLER AND SELLER'S PARENT WILL
HAVE NO OTHER ENTITLEMENT, REMEDY OR RECOURSE, WHETHER IN
CONTRACT, TORT OR OTHERWISE, AGAINST BUYER OR ITS RESPECTIVE
AFFILIATES OR REPRESENTATIVES UNDER OR WITH RESPECT TO THIS
AGREEMENT, ALL OF SUCH ENTITLEMENTS, REMEDIES AND RECOURSE
BEING EXPRESSLY WAIVED BY SELLER AND SELLER'S PARENT TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS. IF
THE CLOSING OCCURS, AND TO THE EXTENT PERMITTED BY APPLICABLE
LEGAL REQUIREMENTS, NEITHER SELLER NOR SELLER'S PARENT WILL BE
ENTITLED TO A RESCISSION OF THIS AGREEMENT OR TO ANY FURTHER
INDEMNIFICATION RIGHTS OR CLAIMS OF ANY NATURE WHATSOEVER
HEREUNDER, ALL OF WHICH SELLER AND SELLER'S PARENT HEREBY
WAIVE TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LEGAL
REQUIREMENTS.
13. TAX MATTERS.
a. Section 338(h)(10) Election. If requested by
Buyer, Seller's Parent will join with Buyer in making an election under Section
338(h)(10) of the Code or any comparable provision of state, local or foreign
law (the "SECTION 338(h)(10) ELECTION") with respect to Buyer's acquisition of
the Shares and, in such case, Seller's Parent agrees to file all
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necessary forms and schedules as may be required under applicable Treasury
Regulations to effectuate the Section 338(h)(10) Election. If Buyer elects to
make the Section 338(h)(10) Election, Buyer and Seller's Parent agree that they
will use their Best Reasonable Efforts to agree on the appropriate "fair market
value" of the assets of the Company as of the Closing Date and the allocation of
the "modified adjusted deemed sale price" (as defined in Treasury Regulation
Section 1.338(h)(10)-1(f)) among the assets of the Company and the Acquired
Companies. If, sixty days before the last date on which the Section 338(h)(10)
Election must be filed, no agreement has been reached, then Buyer and Seller's
Parent shall each submit its respective determination of the proper allocation
to an independent valuation firm mutually acceptable to the parties (the
"APPRAISER"). The Appraiser shall select either the allocation submitted by
Buyer or by Seller's Parent as the more reasonable of the two allocations, and
thereafter such allocation shall be binding on Buyer and Seller's Parent and
their respective affiliates, successors and assigns for all Federal, state,
local and foreign income tax purposes. The fees and disbursements of the
Appraiser shall be borne by the party whose allocation was not selected as the
more reasonable by the Appraiser.
b. Liability for Taxes.
i. Seller will be liable for (1) any Taxes
imposed on or incurred by the Acquired Companies for any taxable period
ending on or before the Closing Date (the "PRE-CLOSING PERIOD") or
allocated to Seller pursuant to this paragraph (i), including any Taxes
resulting from the Section 338(h)(10) Election, but excluding any
Federal Income Taxes caused by, or arising from, an actual or deemed
election under Section 338(g) of the Code with respect to the purchase
of the Share and (2) any income Taxes imposed on the Acquired Companies
pursuant to Treasury Regulation Section 1.1502-6 or any comparable
state, local or foreign tax provision with respect to the taxable
income of any member of the AMR Group or any other affiliated,
consolidated, combined or unitary group of which any Acquired Company
was a member prior to the Closing Date (other than the Acquired
Companies) for any taxable period and (3) and Taxes imposed as a result
of the breach or inaccuracy of any representation or warranty contained
in Section 3.h. hereof. The liability for foreign, state or local
income Taxes imposed on or incurred by the Acquired Companies for any
taxable period which begins on or before the Closing Date and ends
after the Closing Date will be allocated between Seller and Buyer in
the same manner as taxable income is reported for that taxable period
for federal income tax purposes. In the case of ad valorem, franchise
(other than such Taxes that are a substitute for income taxes) and
similar Taxes that are imposed for a taxable period beginning before
and ending after the Closing Date, the portion attributable to the
Pre-Closing Period will be determined by prorating such Taxes for the
taxable period on a daily basis.
ii. Buyer will be liable for (1) any Federal
Income Taxes imposed on or incurred by any member of the AMR Group
caused by, or arising from, an actual or deemed election under Section
338(g) of the Code (excluding any Taxes resulting from the Section
338(h)(10) Election) with respect to the purchase of the Shares, (2)
any Taxes imposed on or incurred by the Acquired Companies for any
taxable period
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(the "POST-CLOSING PERIOD") beginning after the Closing Date, and (3)
any excise or transfer Tax arising from the sale of Shares. Buyer will
also be liable for any foreign, state or local Taxes incurred by any
Acquired Company which are not the liability of the Seller pursuant to
Section 13.b.i. of this Agreement.
iii. Seller will be entitled to any refunds
(whether by payment, credit, offset or otherwise) in respect to any
Taxes for which Seller is liable under Section 13.b.i. of this
Agreement. Buyer and its Affiliates will cooperate with Seller in order
to permit Seller to take all necessary steps to claim any such refunds.
Any such refund received after the Closing by Buyer or its Affiliates,
including the Acquired Companies, will be paid to Seller within thirty
(30) days after its receipt.
iv. Buyer will cause an election under
Section 172(b)(3)(C) of the Code to be made to relinquish the net
operating loss carryback period with respect to any losses incurred by
the Acquired Companies following the Closing.
v. Seller and Buyer agree that none of the
AMR Group's unused minimum tax credit under Section 53 of the Code
arising in any Pre-Closing Period (the "AMT CREDIT CARRYOVER") is
allocable, apportionable or attributable to the Acquired Companies and
that none of the Acquired Companies will claim any of the AMR Group's
AMT Credit Carryover for any Return that includes any taxable period
after the Closing Date.
vi. It is expressly understood and agreed
that the limitations set forth in Section 12.f.i. hereof will not apply
to any liability of Seller or Seller's Parent for Taxes, as set forth
in this Section 13.
c. Tax Returns.
i. Seller is responsible for preparing and
filing with the appropriate Governmental Bodies all Returns of the
Acquired Companies for any Pre-Closing Period and for which the due
date (with regard to waivers or extensions) of any such Return is after
the Closing Date. All such Returns shall be prepared on a basis that is
consistent with the manner in which Seller prepared or filed such Tax
Returns for prior periods. Buyer and its Affiliates, including the
Acquired Companies, will cooperate with Seller and will make available
all necessary records and timely take all action necessary to allow
Seller or its Affiliates to file, or prepare and file, as the case may
be, any such Returns (including, without limitation, providing or
causing to be provided to Seller or its Affiliates any powers of
attorney that Seller may request for purposes of filing any such
Returns).
ii. Buyer and its Affiliates, including the
Acquired Companies, are responsible for preparing and filing with the
appropriate Governmental Bodies all Returns that relate to the Taxes of
the Acquired Companies other than those described in Section 13.c.i.
above. Seller, Seller's Parent and their Affiliates will cooperate with
Buyer and will make available all necessary records and timely take all
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action necessary to allow Buyer or its Affiliates (including the
Acquired Companies) to file, or prepare and file, as the case may be,
any Returns of the Acquired Companies.
iii. With respect to any Return to be filed
by Buyer for a Tax period beginning on or before the Closing Date and
ending after the Closing Date, Buyer shall deliver, at least thirty
(30) days prior to the due date for filing such Return (including
extensions), to Seller a statement setting forth the amount of Tax for
which Seller is responsible pursuant to this Agreement, and copies of
such Return. Any disagreement between Buyer and Seller with respect to
the treatment of any item on such Return shall be submitted to an
independent accounting firm of national standing mutually agreed upon
by Buyer and Seller (the "ACCOUNTING REFEREE") for prompt final
resolution. The Accounting Referee may resolve any dispute with respect
to a Return in a manner which is consistent with the position which
results in the least tax to be paid on such Return unless taking such
position would result in a significant risk that penalties would be
imposed with respect thereto.
iv. The costs of referring the dispute to
the Accounting Referee shall be shared equally by Buyer and Seller.
Seller shall pay Buyer the Taxes for which Seller is liable pursuant to
Section 13.b.i. but which are payable with Returns to be filed by Buyer
pursuant to this Section 13.c.iii. within ten (10) Business Days prior
to the due date for the filing of such Tax Returns. If the Accounting
Referee has not resolved the treatment of any disputed items by the
date which is ten (10) Business Days prior to the due date for the
filing of such Tax Returns, the Seller shall pay Buyer the amount
claimed by Buyer to be owed with respect thereto by such date and Buyer
shall refund to Seller the amount, if any, by which the Accounting
Referee determines that such amount exceeded Seller's actual liability
under Section 13.b.i. once such final determination has been made.
d. Tax Allocation Arrangements. Effective as of the
Closing, all liabilities and obligations between the Acquired Companies on the
one hand and Seller or its Affiliates (other than the Acquired Companies) on the
other hand under any Tax allocation agreement or arrangement in effect prior to
the Closing will be extinguished in full, and any liabilities or rights existing
under any such agreement or arrangement will cease to exist and will no longer
be enforceable. Seller and its Affiliates (including the Acquired Companies)
will execute any documents necessary to effectuate the provisions of this
Section 13.d.
e. Tax Proceedings. In the event Buyer or any of its
Affiliates, including the Acquired Companies, receives any oral or written
communication regarding any pending or threatened examination, claim, adjustment
or other proceeding with respect to the liability of any of the Acquired
Companies for Taxes for any period for which Seller is or may be liable under
Section 13.b.i., Buyer will within ten (10) days notify Seller in writing
thereof. As to any such Taxes for which Seller is or may be liable under Section
13.b.i., Seller will be entitled to control, or settle the contest of, such
examination, claim, adjustment or Proceeding. Buyer and its Affiliates,
including the Acquired Companies, will cooperate fully with Seller in handling
any such Tax audit, or administrative Tax proceeding, or other Tax Proceeding.
Buyer
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will provide, or cause to be provided to Seller or its designee, necessary
authorizations, including powers of attorney, to control any proceedings which
Seller is entitled to control pursuant to this Section 13.e. In addition,
regardless of which party is responsible for the payment of the Tax, no Tax
audit, administrative Tax proceeding, or other Tax Proceeding which may affect a
Return of any member of the AMR Group, including any of the Acquired Companies,
for any Pre-Closing Period will be concluded by Buyer or any of its Affiliates,
including the Acquired Companies, without the prior written consent of Seller's
Parent, which consent will not be unreasonably withheld. No Tax audit,
administrative Tax proceeding or other Tax proceeding which may affect a Return
of Buyer, any Acquired Company or any group that includes Buyer or any Acquired
Company for any period that includes any day after the Closing Date will be
concluded by Seller or any Affiliate thereof without the prior written consent
of Buyer, which consent shall not be unreasonably withheld.
f. Cooperation and Exchange of Information. Except as
otherwise provided in this Section 13, any amount to which a party is entitled
under this Section 13 will be promptly paid to such party by the party obligated
to make such payment following written notice to the party so obligated that the
Taxes to which such amount relates have been paid or incurred and that provides
details supporting the calculation of such amount. Each Party subject to
indemnification under this Section 13 (an "INDEMNIFIED PARTY") will provide, or
cause to be provided, to the party liable to indemnify such Indemnified Party
(the "INDEMNIFYING PARTY") copies of all correspondence received from any Taxing
authority by such Indemnified Party or any of its Affiliates, including the
Acquired Companies, in connection with the liability of any of the Acquired
Companies for Taxes for any period for which such Indemnifying Party is or may
be liable under Section 13.b.i. or Section 13.b.ii. The parties will provide
each other with such cooperation and information as they may reasonably request
of each other in preparing or filing any Return, amended Return or claim for
refund, in determining a liability or a right to refund or in conducting any
audit or other Proceeding in respect of Taxes imposed on the parties or their
respective Affiliates. Buyer and its Affiliates will preserve and retain all
Returns, schedules, work papers and other Records relating to any such Returns,
claims, audits or other Proceedings until the expiration of the statutory period
of limitations (with regard to waivers and extensions) of the taxable periods to
which such Records relate and until the final determination of any payments
which may be required with respect to such periods under this Agreement and will
make such documents available to Representatives of Seller or its Affiliates
upon reasonable notice and at reasonable times, it being understood that such
Representatives will be entitled to make copies of any such Records as they deem
necessary. Buyer further agrees to permit Representatives of Seller or its
Affiliates to meet with employees of Buyer or the Acquired Companies on a
mutually convenient basis in order to enable such Representatives to obtain
additional information and explanations of any documents provided pursuant to
this Section 13.f. Buyer will make available, or cause the Acquired Companies to
make available, to the Representatives of Seller or its Affiliates sufficient
work space and facilities to perform the activities described in the two
preceding sentences. Any information obtained pursuant to this Section 13.f.
will be kept confidential in accordance with Section 14.d., except as may be
otherwise necessary in connection with the filing of Returns or claims for
refund or in conducting any audit or other proceeding. Each of the parties will
provide the cooperation and information required by this Section 13.f. at its
own expense.
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g. Treatment of Payments. Solely for all Tax
purposes, any payments to or from Seller or to or from Buyer pursuant to this
Section 13 will be treated by Buyer and Seller as adjustments to the Purchase
Price.
14. GENERAL PROVISIONS.
a. Expenses. Except as otherwise expressly provided
in this Agreement, each party to this Agreement will bear its respective
expenses incurred in connection with the preparation, execution, and performance
of this Agreement and the Contemplated Transactions, including all fees and
expenses of agents, representatives, counsel, and accountants. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
b. Public Announcements. Except as may be required by
law, any public announcement or similar publicity prior to or on the Closing
Date with respect to this Agreement or the Contemplated Transactions will be
issued, if at all, at such time and in such manner as agreed by Seller, Seller's
Parent and Buyer. Unless agreed by Seller, Seller's Parent and Buyer in advance
or otherwise required by Legal Requirements, prior to Closing, Buyer, Seller and
Seller's Parent will, and will cause the Acquired Companies to, keep this
Agreement and the existence of the Contemplated Transactions strictly
confidential and may not make any disclosure of this Agreement and the existence
of the Contemplated Transactions to any Person. Seller, Seller's Parent and
Buyer will consult with each other concerning the means by which the Acquired
Companies' employees, customers, and suppliers and others having dealings with
the Acquired Companies will be informed of the Contemplated Transactions.
c. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (i) delivered by hand (with written confirmation of
receipt), (ii) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(iii) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and telecopier numbers set forth below (or to such other addresses and
telecopier numbers as a party may designate by notice to the other parties):
SELLER: AMR Services Holding Corporation
4333 Amon Carter Blvd.
MD 5675
Ft. Worth, Texas 76155
Telephone: 817-967-1254
Fax: 817-967-2937
Attn: Corporate Secretary
SELLER'S PARENT: AMR Corporation
4333 Amon Carter Blvd.
MD 5675
Ft. Worth, Texas 76155
Telephone: 817-967-1254
Fax: 817-967-2937
Attn: Corporate Secretary
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<PAGE> 76
BUYER: MR Services Acquisition Corp.
c/o Castle Harlan Partners III, L.P.
East 58th St.
New York, NY 10155
Attn: Marcel Fournier
Telephone: (212) 644-8600
Fax: (212) 207-8042
WITH COPY TO: Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Attn: Marc Weingarten
Telephone: (212) 756-2000
Fax: (212) 593-5955
d. Confidentiality. Buyer acknowledges that the
information being provided to it in connection with the purchase and sale of the
Shares and the consummation of the other Contemplated Transactions is subject to
the terms of a confidentiality agreement between Buyer and Seller (the
"CONFIDENTIALITY AGREEMENT"), the terms of which are incorporated herein by
reference. In addition to, and without prejudice to or limiting the foregoing,
between the date of this Agreement and the earliest of (i) October 8, 2001, (ii)
the Closing Date, or (iii) the date of termination of this Agreement pursuant to
Section 11, Buyer and Seller will maintain in confidence, and will cause their
respective Representatives to maintain in confidence, and not use to the
detriment of the other party or an Acquired Company any written, oral, or other
information obtained in confidence from the other party or an Acquired Company
(the "DISCLOSING PARTY") in connection with this Agreement or the Contemplated
Transactions, unless such information (i) is or becomes generally available to
the public other than as a result of a disclosure by the Disclosing Party's
Representatives, (ii) was within a party's (the "RECEIVING PARTY") possession
prior to its being furnished to the Receiving Party by or on behalf of a
Disclosing Party or its Representatives; provided, however, that the source of
such information was not known by the Receiving Party to be bound by an
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the Disclosing Party or any other party with respect to such
information, or (iii) becomes available to the Receiving Party on a
non-confidential basis from a source other than the Disclosing Party or any of
its Representatives, provided, further, that such source is not bound by an
agreement with, or other contractual, legal or fiduciary obligation of
confidentiality to, the Disclosing Party, the Company or any other party with
respect to such information. If the Contemplated Transactions are not
consummated, each party will return or destroy as much of such written
information as the other party may reasonably request.
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<PAGE> 77
e. Further Assurances. The parties agree (i) to
furnish upon request to each other such further information, (ii) to execute and
deliver to each other such other documents, and (iii) to do such other acts and
things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and of the documents referred to in
this Agreement. Without limiting the foregoing, after the Closing Date, Seller
and Seller's Parent, on the one hand, and Buyer and the Acquired Companies, on
the other hand, will each cooperate with the other, at the other's request and
expense, in furnishing such information, testimony and other assistance in
connection with any Proceedings with other Persons or investigations involving
the Acquired Companies and the Contemplated Transactions, and in connection with
the preparation of any Tax returns.
f. Waiver. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Neither the failure nor any
delay by any party in exercising any right, power, or privilege under this
Agreement or the documents referred to in this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (i) no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(ii) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (iii) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the documents referred to in
this Agreement.
g. Entire Agreement and Modification. This Agreement
supersedes all prior agreements, understandings, representations and warranties
between the parties relating to its subject matter, including the statements in
the Confidential Information Memorandum dated October 1998, and constitutes
(along with the documents referred to in this Agreement) a complete and
exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
h. Disclosure Schedules. In the event of any
inconsistency between the statements in the body of this Agreement and those in
any Disclosure Schedule, the statements in such Disclosure Schedule will
control.
i. Assignments, Successors, and No Third-Party
Rights. Neither party may directly or indirectly assign any of its rights under
this Agreement, whether by agreement, operation of law or otherwise without the
prior consent of the other parties, and any attempted assignment in violation of
this Section 14.i. will be void; provided, however, (i) that after the Closing,
Seller may assign its rights and delegate its obligations hereunder to Seller's
Parent or another Affiliate of Seller's Parent at which time Seller will be
deemed released from any obligations hereunder, and (ii) Buyer may assign its
right to purchase all or portion of the
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<PAGE> 78
Shares to one or more of its Affiliates and may assign any or all of its rights
hereunder to a lender providing financing for the Contemplated Transactions.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties and nothing expressed or referred to in this Agreement
will be construed to give any Person other than the parties to this Agreement
any legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement, except as otherwise expressly
provided in Section 12. This Agreement and all of its provisions and conditions
are for the sole and exclusive benefit of the parties to this Agreement and
their successors and permitted assigns.
j. Severability. If any provision of this Agreement
is held invalid or unenforceable by any court of competent jurisdiction, the
other provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or degree
will remain in full force and effect to the extent not held invalid or
unenforceable. Notwithstanding the foregoing, this subparagraph will not apply
if doing so would materially alter the recourse or benefits to any party.
k. Section Headings, Construction. The headings of
Sections in this Agreement are provided for convenience only and will not affect
its construction or interpretation. All references to "Section" or "Sections"
refer to the corresponding Section or Sections of this Agreement. All words used
in this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
l. Governing Law; Venue. This Agreement will be
governed by the laws of the State of New York without regard to conflicts of
laws principles. Any Proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement, the License Agreement, the Technical
Services Agreement and the Training Material Agreement (but excluding the
Umbrella Amendment and the Intercompany Transactions identified in Part A of
Section 6.b.i. of Seller's Disclosure Schedule) may be brought against any of
the parties only in the courts of the State of New York, sitting in the Borough
of Manhattan, City of New York, or, if it has or can acquire jurisdiction, in
the United States District Court for the Southern District of New York and each
of the parties consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts) in any such action or proceeding and waives any
objection to venue laid therein. Process in any Proceeding referred to in the
preceding sentence may be served on any party anywhere in the world. The parties
hereby waive their right to a trial by jury.
m. Counterparts. This Agreement may be executed in
one or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
n. Transition Cooperation. Buyer and Seller will
cooperate with each other, and will cause their Representatives to cooperate
with each other, for a period of 180 days after the Closing to ensure the
orderly transition of the Acquired Companies from Seller to Buyer
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<PAGE> 79
and to minimize any disruption to the respective businesses of Seller, Buyer or
the Acquired Companies that might result from the Contemplated Transactions.
After the Closing, upon reasonable written notice, Buyer and Seller will furnish
or cause to be furnished to each other and their Representatives access, during
normal business hours, to such information and assistance relating to the
Acquired Companies as is reasonably necessary for financial reporting and
accounting matters, the preparation and filing of any Returns, reports or forms
or the defense of any Tax claim or assessment. Each party will reimburse the
other for reasonable out-of-pocket costs and expenses incurred in assisting the
other pursuant to this Section 14.n. Neither party will be required by this
Section 14.n. to take any action that would unreasonably interfere with the
conduct of its business or unreasonably disrupt its normal operations (or, in
the case of Buyer, the business or operations of the Acquired Companies). The
rights and obligations described in this Section 14.n. are in addition to those
rights and obligations described in that certain Technical Services Agreement to
be dated as of the Closing Date between the Buyer, Seller and Seller's Parent.
o. Antitrust Notification. Each of Seller and Buyer
will as promptly as practicable, but in no event later than ten (10) Business
Days following the execution and delivery of this Agreement, file with the
United States Federal Trade Commission (the "FTC") and the United States
Department of Justice (the "DOJ") the notification and report form, if any,
required for the Contemplated Transactions and any supplemental information
requested in connection therewith pursuant to the HSR Act. Any such notification
and report form and supplemental information will be in substantial compliance
with the requirements of the HSR Act. Each of Buyer and Seller will furnish to
the other such necessary information and reasonable assistance as the other may
request in connection with its preparation of any filing or submission which is
necessary under the HSR Act. Seller and Buyer will keep each other apprised of
the status of any communications with, and any inquiries or requests for
additional information from, the FTC and the DOJ and will comply promptly with
any such inquiry or request. Each of Seller and Buyer will use its Best
Reasonable Efforts to obtain any clearance required under the HSR Act for the
purchase and sale of the Shares. Buyer will be solely responsible for any filing
(but not for legal or other) fees payable by Buyer or Seller under the HSR Act.
p. Confidentiality Agreements. Effective as of the
Closing, and to the extent permitted in the agreements in question, Seller,
Seller's Parent and any applicable Affiliates thereof shall be deemed to have
transferred to the Acquired Companies all rights and privileges such parties
have under all confidentiality and exclusivity agreements and like agreements,
letters of intent and memoranda of understanding (whether written or oral)
relating to the Business or any Acquired Company. Effective as of the Closing,
and to the extent such transfer is not permitted by the agreements in question,
Seller, Seller's Parent and any applicable Affiliates shall enforce these
agreements on Buyer's and the Acquired Companies' behalf at Buyer's request and
reasonable expense.
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<PAGE> 80
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above.
BUYER:
MR SERVICES ACQUISITION CORPORATION,
a Delaware corporation
By: /s/ Marcel Fournier
--------------------------------
Name: Marcel Fournier
Title:
SELLER:
AMR SERVICES HOLDING CORPORATION,
a Delaware corporation
By: /s/ Charles MarLett
--------------------------------
Name: Charles MarLett
Title: Corporate Secretary
SELLER'S PARENT:
AMR CORPORATION,
a Delaware corporation
By: /s/ Charles MarLett
--------------------------------
Name: Charles MarLett
Title: Corporate Secretary
<PAGE> 1
EXHIBIT 12.1
WORLDWIDE FLIGHT SERVICES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31, 3 Mths 6 Mths
Ended March Ended September
31, 30,
------------------------------------------- ---------- -----------
1995 1996 1997 1998 1999 1999
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Earnings (loss) from
continuing operations
before income taxes and
extraordinary loss $ 5,386 $ 7,450 $ 7,695 $10,794 $ 1,619 $ 789
Add: Total fixed charges (per below) 4,010 4,550 3,686 4,532 1,214 7,913
Less: Interest capitalized 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total earnings $ 9,396 $12,000 $11,381 $15,326 $ 2,833 $ 8,702
======= ======= ======= ======= ======= =======
Fixed charges:
Interest $ 0 $ 0 $ 0 $ 0 $ 0 $ 4,794
Portion of rental expenses
representative of the
interest factor 4,010 4,550 3,686 4,532 1,214 2,830
Amortization of debt expense 0 0 0 0 0 289
------- ------- ------- ------- ------- -------
Total fixed charges $ 4,010 $ 4,550 $ 3,686 $ 4,532 $ 1,214 $ 7,913
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 2.3x 2.6x 3.1 x 3.4x 2.3x 1.1x
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 12.2
MIAMI AIRCRAFT SUPPORT, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Period January 1,
1999 through
Year Ended December 31, August 12, 1999
-------------------------------------------- -----------------
1995 1996 1997 1998
Earnings: (In thousands)
<S> <C> <C> <C> <C> <C>
Earnings (loss) from
continuing operations
before income taxes and
extraordinary loss $ 2,618 $ 2,511 $ 3,001 $ 4,980 $ 2,105
Add: Total fixed charges (per
below) 1,778 1,572 2,107 2,442 1,371
Less: Interest capitalized 0 0 0 0 0
------- ------- ------- ------- -------
Total earnings $ 4,396 $ 4,083 $ 5,108 $ 7,422 $ 3,476
======= ======= ======= ======= =======
Fixed charges:
Interest $ 559 $ 621 $ 516 $ 563 $ 316
Portion of rental expenses
representative of the
interest factor 1,219 951 1,591 1,879 1,055
Amortization of debt
expense 0 0 0 0 0
------- ------- ------- ------- -------
Total fixed charges $ 1,778 $ 1,572 $ 2,107 $ 2,442 $ 1,371
======= ======= ======= ======= =======
Ratio of earnings to fixed
charges 2.5x 2.6x 2.4x 3.0x 2.5x
======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and to
the use of our reports dated November 19, 1999, in Amendment No. 1 to the
Registration Statement Form S-4 (333-88593) of Worldwide Flight Services, Inc.
for the registration of $130,000,000 of 12 1/4% Senior Notes due 2007.
/s/ Ernst & Young LLP
Dallas, Texas
November 19, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Miami Aircraft Support, Inc.:
We consent to the inclusion of our report dated February 26, 1999, except as to
note 11 which is as of May 28, 1999, relating to the consolidated balance sheets
of Miami Aircraft Support, Inc. as of December 31, 1997 and 1998 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1998, which report
appears in the registration statement of Worldwide Flight Services, Inc. and to
the reference of our firm under the heading "Experts".
/s/ KPMG LLP
October 1, 1999