<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 1996
REGISTRATION NO. 33-65085
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MERCURY AIR GROUP, INC.
(Each Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
NEW YORK 5172 11-1800515
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5456 MCCONNELL AVENUE
LOS ANGELES, CALIFORNIA 90066
(310) 827-2737
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
SEYMOUR KAHN
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
MERCURY AIR GROUP, INC.
5456 MCCONNELL AVENUE
LOS ANGELES, CALIFORNIA 90066
(310) 827-2737
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
PLEASE SEND COPIES OF ALL CORRESPONDENCE TO:
<TABLE>
<S> <C>
FREDERICK H. KOPKO, JR., ESQ. MARK R. LEVIE, ESQ.
McBreen, McBreen & Kopko Orrick, Herrington & Sutcliffe
20 North Wacker Drive Old Federal Reserve Bank Building
Suite 2520 400 Sansome Street
Chicago, Illinois 60606 San Francisco, California 94111-3143
(312) 332-6405 (415) 773-5955
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED DEBENTURE (1) PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
% Convertible Subordinated Debentures
Due 2006.................................. $28,750,000(2) 100% $28,750,000 $9,914(3)
Common Stock, $.01 par value................ (4) -- -- (5)
</TABLE>
(1) Estimated solely for purposes of determining the registration fee.
(2) Includes an additional $3,750,000 aggregate principal amount of Debentures
which the Underwriters have the option to purchase to cover over-allotments,
if any.
(3) Previously paid.
(4) Represents such indeterminate number of shares of Common Stock as shall be
issuable upon conversion of the Debentures, and such additional securities
issued as a result of the "anti-dilution" provisions thereof.
(5) Pursuant to Rule 457(i), no registration fee is required.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERCURY AIR GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM AND CAPTION LOCATION IN PROSPECTUS
- ----------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Not Applicable
6. Dilution............................................. Not Applicable
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Underwriting
9. Description of Securities to be Registered........... Description of Debentures; Rating of Debentures
10. Interests of Named Experts and Counsel............... Legal Matters
11. Information With Respect to the Registrant........... Prospectus Summary; Risk Factors; Use of Proceeds;
Capitalization; Price Range of Common Stock and
Dividend Policy; Selected Consolidated Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Shareholders; Description of Capital
Stock; Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED JANUARY 26, 1996
$25,000,000
MERCURY AIR GROUP, INC.
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2006
Interest Payable August and February
The % Convertible Subordinated Debentures due 2006 (the "Debentures") are
convertible into shares of the common stock, par value $.01 per share (the
"Common Stock"), of Mercury Air Group, Inc. ("Mercury" or the "Company") at any
time prior to maturity, unless previously redeemed or repurchased, at a
conversion rate of shares per $1,000 principal amount of Debentures
(equivalent to a conversion price of approximately $ per share), subject to
adjustment in certain circumstances. See "Description of Debentures." The Common
Stock is traded on the American Stock Exchange (the "AMEX") under the symbol
MAX. On January 10, 1996, the last reported sale price for the Common Stock on
the AMEX was $8.00 per share. See "Price Range of Common Stock and Dividend
Policy."
Interest on the Debentures is payable semi-annually on August and February
of each year, commencing August , 1996. On or after February , 1999, the
Debentures will be redeemable, in whole or in part, at any time, at the option
of Mercury, at the declining redemption prices set forth herein plus accrued and
unpaid interest to the date of redemption. Mercury may also redeem the
Debentures between February , 1998 and February , 1999, in whole or in part,
at the redemption prices set forth herein plus accrued and unpaid interest to
the date of redemption, if the closing price of the Common Stock has been at
least 140% of the conversion price for at least 20 trading days within a period
of 30 consecutive trading days ending not more than five trading days prior to
the notice of redemption. Subject to certain limitations, Mercury will redeem,
in whole or in part, at any time, at 100% of the principal amount thereof plus
accrued and unpaid interest to the date of redemption, Debentures properly
tendered in respect of a deceased holder. In addition, upon a Change of Control
and a Rating Downgrade (as such terms are defined herein), each holder of
Debentures has the right, subject to certain restrictions and conditions, to
require Mercury to repurchase all or a part of such holder's Debentures at 100%
of the principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. See "Description of Debentures."
The Debentures are unsecured obligations and are subordinated in the right
of payment to all existing and future Senior Indebtedness (as defined herein) of
Mercury. See "Description of Debentures."
The Debentures will be initially issued only in fully registered book-entry
form. The Debentures will not initially be issuable in definitive certificated
form to any person other than the Depositary (as defined herein) or its
nominees. See "Description of Debentures -- Book-Entry System." The minimum
principal amount of Debentures which may be purchased is $1,000. The Debentures
have been approved for listing on the AMEX under the symbol "MAX.A." Application
has also been made to list the Debentures on the Pacific Stock Exchange
Incorporated (the "PSE"). The Company has been advised by the Underwriters that
they intend to make a market in the Debentures; however, no assurance can be
made that an active trading market for the Debentures will develop.
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBENTURES OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNT PROCEEDS TO
PUBLIC AND COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Debenture............................ % % %
Total (3)................................ $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by Mercury which are estimated at
$300,000.
(3) Mercury has granted the Underwriters an option, exercisable for 30 days from
the date of this Prospectus, to purchase up to $3,750,000 additional
aggregate principal amount of the Debentures at the Price to Public, less
the Underwriting Discount and Commissions, solely to cover over-allotments,
if any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
The Debentures are offered by the Underwriters named herein when, as and if
delivered and accepted by the Underwriters and subject to prior sale, withdrawal
or cancellation of the offer without notice and subject to the right of the
Underwriters to reject any order in whole or in part. It is expected that the
Debentures will be available for delivery on or about , 1996.
EVEREN SECURITIES, INC. CROWELL, WEEDON & CO.
, 1996
<PAGE>
AVAILABLE INFORMATION
Mercury is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy materials and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
materials and other information concerning Mercury and the Registration
Statement (as defined below) can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024 Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the public reference facilities
maintained by the Commission at its regional offices located at The Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies can be obtained by mail from the Commission at prescribed rates
from the Public Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Mercury's
Common Stock is listed on the American Stock Exchange and copies of reports and
other material concerning Mercury can be inspected at the American Stock
Exchange, 86 Trinity Place, New York, New York 10006.
Mercury has filed with the Commission a registration statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this Prospectus is a part. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement, including the exhibits filed as a part thereof.
Statements made in this Prospectus as to the contents of any documents referred
to are not necessarily complete, and in each instance reference is made to such
exhibits for a more complete description and each such statement is qualified in
its entirety by such reference. Copies of such materials may be obtained from
the Public Reference Section of the Commission at the address set forth above at
prescribed rates.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES OR
THE COMMON STOCK, OR BOTH, AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND SHOULD BE READ IN
CONJUNCTION WITH, AND IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO)
APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO
READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS OTHERWISE INDICATED, ALL
INFORMATION HEREIN ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED. ALL PER SHARE AND OTHER SHAREHOLDER INFORMATION HAS BEEN ADJUSTED TO
REFLECT THE EFFECT OF A JUNE 16, 1995 TEN PERCENT STOCK DIVIDEND.
EXCEPT AS OTHERWISE NOTED, REFERENCES IN THIS PROSPECTUS TO "MERCURY" OR THE
"COMPANY" REFER TO MERCURY AIR GROUP, INC. AND ITS SUBSIDIARIES. THE DEBENTURES
OFFERED HEREBY ARE OBLIGATIONS OF MERCURY AIR GROUP, INC., THE PARENT HOLDING
COMPANY, AND NOT ITS SUBSIDIARIES, AND REFERENCES TO "MERCURY" OR THE "COMPANY"
RELATING TO THE DEBENTURES REFER ONLY TO THE PARENT HOLDING COMPANY.
THE COMPANY
Mercury provides a broad range of services to the aviation industry. These
services include fuel sales and fuel delivery to commercial, private and
military aircraft (collectively, "fuel sales and services"); cargo handling,
space brokerage and general cargo sales agent services (collectively, "cargo
operations"); fixed base operations for commercial, private and other aircraft,
including fuel sales, fuel delivery services ("into-plane services"), ground
support services and tie-down facilities (collectively, "FBOs"); and the
operation of government-owned fuel depots and the performance of aircraft and
other services at U.S. military bases (collectively, "government contract
services"). Mercury's customers in one or more of these categories include
domestic and international airlines; regional and commuter air carriers;
operators of cargo, corporate and private aircraft; and the U.S. government.
FUEL SALES AND SERVICES. Mercury's fuel sales and services consist
primarily of aviation fuel sales; comprehensive fuel management services, which
allow customers to reduce administrative expenses; into-plane services; and the
brokering of non-aviation fuel. Through its extensive network of third-party
delivery and supply relationships, Mercury conducts its fuel sales business at
over 100 airports primarily in the United States, as well as throughout the
world. At most of these locations, Mercury contracts with third parties for
into-plane services, thereby minimizing its fixed costs and capital
requirements. Mercury believes that its status as a volume purchaser and its
creditworthiness enable it to purchase fuel on more favorable pricing and credit
terms than most of its customers could obtain independently. Mercury's fuel
sales and services strategy is to expand its business with existing customers
and attract new customers by further enhancing its customer services and by
continuing to offer favorable credit terms and competitive fuel prices.
CARGO OPERATIONS. Mercury's cargo operations are conducted primarily at Los
Angeles International Airport ("LAX") where it maintains approximately 90,000
square feet of warehouse facilities. Mercury also leases a 45,000 square foot
warehouse facility near the San Francisco International Airport which it uses
for cargo handling operations. In September 1995, Mercury acquired the operating
and other assets of certain providers of cargo handling services at airport
facilities in Toronto and Montreal, Canada. See "Business -- Recent Developments
- -- Excel Cargo." Mercury's strategy is to continue to expand its cargo handling
operations by securing additional warehouse facilities on favorable economic
terms and to obtain additional customers to fully utilize existing warehouse
facilities. Space brokerage, a significant part of Mercury's cargo operations,
consists of contracting with domestic and international airlines for cargo space
and reselling the cargo space to customers with shipping needs. This allows
airlines to increase cargo capacity utilization by using Mercury's marketing
capabilities. Mercury's strategy is to expand its space brokerage operations by
establishing relationships with additional shipping agents and by contracting
for additional cargo space. In conducting its general cargo sales agent
services, another important component of Mercury's cargo operations, Mercury
acts as an agent for airlines in the Far East, Mexico, Central and South America
and the United States. In this capacity, Mercury earns a commission from the
airlines for
3
<PAGE>
selling air cargo space. Mercury's strategy is to expand its revenues and
operating income from general cargo sales agent services by obtaining new sales
territories for airlines with which it has an existing relationship and by
entering into arrangements with additional airlines.
FBOS. Mercury's FBO services are performed at leased facilities located at
LAX and at airports in Reno, Nevada; Bakersfield, California; Burbank,
California; and Santa Barbara, California. At each FBO, Mercury maintains
administrative offices, conducts fuel sales and refueling operations, provides
catering and other ground support services and provides tie-down space for its
customers. Mercury's strategy is to acquire additional FBOs on favorable
economic terms and to expand its business at existing FBOs.
GOVERNMENT CONTRACT SERVICES. Mercury conducts its government contract
services at 14 military bases throughout the United States and at three military
bases outside the United States, one in Greece and two in Japan. The majority of
these contracts entail providing equipment and manpower to fuel aircraft, but do
not include the sale of fuel, the procurement of which is handled by the
military. The Company's government contracts have terms of one to four years.
Mercury has recently lost several government contracts due to base closures and
other reasons. Mercury's strategy in the government contract services area is to
retain existing contracts and cost effectively bid for new refueling contracts.
Mercury also intends to expand the types of outsourcing services provided to the
U.S. government beyond the Company's core military refueling business. Potential
areas of expansion include engineering services, base operating services and
maintenance and operations services. Mercury believes its expansion efforts in
this area will be facilitated by its familiarity with military base operations
and government contract requirements.
Mercury's principal executive offices are located at 5456 McConnell Avenue,
Los Angeles, California 90066, and its telephone number is (310) 827-2737. The
Company was incorporated in New York in April 1956.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................. $25,000,000 aggregate principal amount of %
Convertible Subordinated Debentures due 2006.
Maturity Date...................... February , 2006.
Interest Payment Dates............. Interest payable semi-annually on August and
February of each year, commencing August , 1996.
The first interest payment will represent interest
from the date of original issuance to and including
August , 1996.
Denominations...................... $1,000 and any integral multiple thereof.
Conversion Rights.................. The Debentures are convertible at the option of the
holder at any time prior to maturity, unless
previously redeemed or repurchased, at a conversion
rate of shares of Common Stock per $1,000
principal amount of Debentures (equivalent to a
conversion price of approximately $ per share),
subject to adjustment in certain circumstances as
described herein. No accrued interest will be paid
upon conversion, except that Debentures called for
redemption which are held on a record date respecting
any interest payment date shall be paid accrued
interest to the earlier of the date of conversion or
through the end of the related semi-annual interest
payment period. See "Description of Debentures --
Conversion Rights."
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Optional Redemption................ The Debentures are redeemable on or after February ,
1999, in whole or in part, at any time, at the option
of Mercury, at the declining redemption prices set
forth herein plus accrued and unpaid interest to the
date of redemption. In addition, Mercury may redeem
the Debentures between February , 1998 and February
, 1999, if the closing price of the Common Stock has
been at least 140% of the Conversion Price (as defined
herein) for at least 20 trading days within a period
of 30 consecutive trading days ending not more than
five trading days prior to the date of the redemption
notice. See "Description of Debentures -- Optional
Redemption."
Sinking Fund....................... None.
Redemption Option Upon
Death of Holder.................. Debentures tendered by an authorized representative or
the surviving joint tenant, tenant by the entirety or
tenant in common of a deceased holder will be
redeemable, in whole or in part, within 60 days of
tender, at 100% of the principal amount plus accrued
and unpaid interest to and including the date of
redemption, subject to a maximum principal amount of
$100,000 per deceased holder and a maximum aggregate
principal amount for all deceased holders of $500,000
during each calendar year. See "Description of
Debentures -- Repurchase of Debentures Upon Death of
Holder."
Repurchase at Option of Holder
After Certain Changes of
Control.......................... After a Change of Control and a Rating Downgrade, each
holder will have the right, subject to certain
conditions, to require Mercury to repurchase all or
part of such holder's Debentures at 100% of the
principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. See "Risk Factors
-- Limitations on Repurchase of Debentures" and
"Description of Debentures -- Repurchase of Debentures
at the Option of the Holder After Certain Changes of
Control."
Subordination...................... The Debentures are unsecured obligations of Mercury
and are subordinated in the right of payment to all
existing and future Senior Indebtedness (as defined
herein) of Mercury. As of September 30, 1995, assuming
application of the net proceeds of this offering in
the manner described herein, Senior Indebtedness would
have been approximately $8.8 million. The Indenture
does not restrict the incurrence of additional Senior
Indebtedness or other indebtedness by Mercury or any
subsidiary. See "Risk Factors -- Subordination" and
"Description of Debentures -- Subordination."
Rating............................. The Debentures are rated "B-" by Standard & Poor's
Corporation. See "Rating of Debentures."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Listing............................ Application has been made to list the Debentures on
the AMEX under the symbol MAX.A. The Common Stock is
listed on the AMEX and traded under the symbol "MAX."
See "Price Range of Common Stock and Dividend Policy."
Use of Proceeds.................... Mercury intends to use the net proceeds of this
offering to repay the outstanding balance under the
Revolver (as defined herein); to fund expansion and
growth, both internally and through acquisitions; and
for general corporate purposes. See "Use of Proceeds."
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1994 1995
---------- ---------- ----------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and revenues.................... $ 73,498 $ 71,746 $ 84,543 $ 103,069 $ 183,000 $ 35,554 $ 51,880
Operating income...................... 7,909 6,492 8,903 12,665 16,573 3,851 4,597
Income before income taxes............ 1,634 616 3,363(1) 5,169 7,312 1,724 2,076
Net income............................ 944 359 1,950 2,995 4,307 1,002 1,232
PER SHARE DATA: (2)
Net income per common share on a fully
diluted basis....................... $ 0.38 $ 0.01 $ 0.39 $ 0.59 $ 0.76 $ 0.18 $ 0.22
Weighted average common shares
outstanding......................... 2,377,821 2,394,151 2,431,549 3,719,884 5,420,158 5,354,000 5,415,000
SUPPLEMENTAL DATA:
EBITDA (3)............................ $ 4,474 $ 2,761 $ 5,024 $ 8,404 $ 11,210 $ 2,661 $ 3,124
Ratio of earnings to fixed charges
(4)................................. 1.82x 1.36x 2.73 x 3.82x 4.16x 4.34x 4.11x
Dividends per share (5)............... -- -- -- -- $ 0.02 -- $ 0.01
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------------
ACTUAL AS ADJUSTED (6)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................... $ 20,488 $ 31,991
Total assets............................................................................ 59,491 72,544
Long-term debt (net of current maturities).............................................. 20,011 33,064
Total liabilities....................................................................... 40,756 53,809
Shareholders' equity.................................................................... 18,735 18,735
</TABLE>
- ---------------
(1) Includes a pre-tax gain from a legal judgment in the amount of $1,060,000.
(2) Shares outstanding and earnings per share have been adjusted retroactively
to reflect the payment of a ten percent stock dividend on June 16, 1995.
(3) EBITDA as used herein means earnings before interest expense, interest
income, taxes, depreciation and amortization, and excludes minority
interest and the pre-tax gain from a legal judgment in fiscal 1993.
(4) For purposes of calculating this ratio, earnings consist of income before
income taxes and fixed charges. Fixed charges consist of interest expense
and one-third of rental expense, representative of that portion of the
rental expense attributable to interest. The pro forma ratio, adjusted to
reflect the issuance of the Debentures offered hereby and the application
of the net proceeds therefrom to repay the Revolver, with the balance
invested at short-term market rates, would be 2.70x and 2.96x for the year
ended June 30, 1995 and the three months ended September 30, 1995,
respectively.
(5) In December 1994, Mercury's Board of Directors adopted a quarterly dividend
plan of $.01 per share of common stock. Dividends in the aggregate amounts
of $50,000, $50,000, $55,000 and $54,000 were paid on February 1, 1995, May
1, 1995, September 1, 1995 and November 1, 1995, respectively.
(6) Adjusted to reflect the issuance of the Debentures offered hereby and the
application of a portion of the net proceeds therefrom to repay the
Revolver in full. As of December 31, 1995, the amount of the Revolver was
$13.2 million. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
THE DEBENTURES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. IN ADDITION TO
THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISKS INHERENT IN AN INVESTMENT IN THE DEBENTURES.
SUBSTANTIAL LEVERAGE
The Company's leverage will increase following the issuance of the
Debentures. As of September 30, 1995, the Company's actual leverage, as measured
by its long-term debt to capitalization ratio, was 51.6%; assuming the issuance
of the Debentures and the application of the net proceeds therefrom, the
Company's leverage would have been 63.8%. The degree to which the Company is
leveraged could have important consequences to holders of the Debentures,
including the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of the principal of and interest on the Debentures and existing
indebtedness; and (iii) the Company's substantial degree of leverage may make it
more vulnerable to a downturn in the aviation services industry, which
historically has been sensitive to changes in general economic conditions.
Although the Company presently anticipates that it will be able to pay its debt
service and other obligations, there can be no assurance that the Company will
possess sufficient income and liquidity to meet all of its long-term debt
service requirements and other obligations. See "Use of Proceeds" and
"Capitalization."
CONSENT OF LENDER TO ADDITIONAL INDEBTEDNESS
Under the terms of its Credit Facility (as defined herein), Mercury's
principal lender must consent to the incurrence of any additional indebtedness.
There can be no assurance that Mercury will not require additional funds to
repay the Debentures, that such additional funds could be obtained, or that the
lender would consent to Mercury incurring additional indebtedness. Moreover,
Mercury may in the future enter into financing arrangements which could require
additional consents to repay the Debentures and/or contain terms limiting its
ability to incur additional indebtedness. There can be no assurance that such
additional consents could be obtained, or that the lender under such additional
financing arrangements would allow Mercury to enter into further indebtedness.
CREDIT QUALITY OF RECEIVABLES
Mercury frequently sells aviation fuel on an unsecured basis with extended
credit terms. In addition, a substantial portion of Mercury's accounts
receivable are due from smaller and generally less well-established or
well-capitalized airlines, including certain foreign, regional, commuter and
start-up airlines, which may be less creditworthy than larger, well-established
and well-capitalized airlines. Mercury has incurred in the past and is likely to
continue to incur losses as the result of the business failure of a customer.
The failure of a relatively large customer or a number of smaller customers
could have a material adverse effect on the Company's business, operating
results and financial condition. See MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Recent Developments and
"Business -- Fuel Sales and Services."
FOREIGN CUSTOMERS
Approximately 39% of Mercury's consolidated revenues for fiscal 1995 were
generated from foreign-based customers headquartered in Asia, Europe, Latin
America and the Caribbean. Mercury frequently grants foreign customers extended
credit terms, which may result in proportionately larger receivable balances for
a given quantity of fuel sales. To the extent such customers are also large fuel
purchasers, Mercury's credit exposure to a single customer may be relatively
large. Although invoices are usually denominated in U.S. dollars, foreign
customers may have difficulty in paying such invoices in the event of the
devaluation of their national currency. In addition, if a foreign customer fails
to abide by its contractual commitments, Mercury's legal remedies may not be as
effective as they would be in collecting from domestic customers.
7
<PAGE>
DEPENDENCE ON SIGNIFICANT CUSTOMERS
Although during fiscal 1995 no single customer accounted for over 10% of
Mercury's consolidated revenues, at times certain key customers have accounted
for a significant portion of Mercury's consolidated revenues and/or operating
income. Furthermore, at times certain key customers have accounted for a
significant portion of the revenues and/or operating income of one or more of
Mercury's operating units. The loss of one or more key customers in any of
Mercury's operating units could substantially impair the operating results of
such operating unit and could have a material adverse effect on Mercury's
business, operating results and financial condition.
NATURE OF CONTRACTS
A large portion of Mercury's business with its customers is based on verbal
agreements, invoice terms or short-term contracts terminable by either party
upon limited notice. While Mercury has operated pursuant to such contracts for
some time, there can be no assurance that such contracts, agreements or
arrangements will not be terminated. The termination of a large portion of those
arrangements could have a material adverse effect on Mercury's business,
operating results and financial condition.
COMPETITION
Each of the markets in which Mercury operates is highly competitive. In the
aviation fuel sales and services market, Mercury is in direct competition with
major oil companies, major airlines and other aircraft support companies. In the
cargo services market, Mercury competes with major airlines, specialized freight
transporters and other cargo service firms. In the FBO market, Mercury competes
against other FBOs at each of the airports at which it currently operates. In
the military services market, Mercury competes with other military service
contractors as well as government provided services. Competition for customers
between Mercury and its competitors is principally on the basis of price and
quality of service. Substantially all of the Company's services are subject to
competitive bidding. Many of the Company's competitors have greater financial,
technical and marketing resources than Mercury. There can be no assurance that
the Company will be able to compete successfully with existing or new
competitors. See "Business -- Competition."
GENERAL ECONOMIC CONDITIONS
The air transportation industry is highly sensitive to general economic
conditions. Mercury's fuel sales and services business, air cargo operations and
FBOs could be adversely affected by a sustained economic recession either in the
United States or globally. A substantial reduction in air traffic, particularly
at LAX, or financial problems incurred by Mercury's commercial customers could
have a material adverse effect on Mercury's business, operating results and
financial condition. Furthermore, Mercury's business with foreign air carriers,
its fuel sales and its cargo operations could be adversely affected by political
or military disputes involving the United States and/or certain foreign
countries.
AVIATION FUEL AVAILABILITY
Mercury's fuel sales business could be materially adversely affected by a
significant decrease in the availability, or increase in the price, of aviation
fuel. Fuel sales and services represented approximately 77.5% and 62.5% of total
revenues in fiscal 1995 and fiscal 1994, respectively. For the last five years,
with the exception of a short-term market dislocation surrounding the Gulf War
in 1990-1991, aviation fuel prices have remained in a relatively predictable
range. However, there can be no assurance that such prices will remain within
such range in the future. Moreover, although Mercury believes that there are
currently adequate aviation fuel supplies and that aviation fuel supplies will
generally remain available, events outside Mercury's control have in the past
resulted and could in the future result in spot shortages or rapid increases in
fuel costs. If aviation fuel prices were to materially increase for a sustained
period, or if aviation fuel supplies were for any reason to become unavailable
to Mercury, Mercury's business, operating results and financial condition could
be materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Fuel Sales and Services."
8
<PAGE>
IMPACT OF FUEL SALES ON WORKING CAPITAL
The Company uses substantial working capital to finance accounts receivable
generated from its fuel sales operations. The amount of working capital consumed
by these accounts receivable depends primarily on the quantity of fuel sold, the
price of the fuel, the Company's extension of credit and customer compliance
with credit terms. Any increase in such quantity or price, any increase in
credit extended, or any substantial customer noncompliance with credit terms
will result in a corresponding increase in the aggregate accounts receivable
balance, thereby requiring Mercury to employ additional working capital. While
the quantity of fuel sold by Mercury has increased substantially in the last
several years, Mercury has been able to finance the related growth in accounts
receivable by increasing the Credit Facility and through internally generated
funds. However, at the current level of fuel sales, if the price of aviation
fuel were to materially increase for a sustained period, Mercury might have to
reallocate funds from business expansion to meet working capital demand, or
alternatively, Mercury could be forced to curtail fuel sales or change the
credit terms granted to its customers, which could adversely affect earnings and
jeopardize established customer relationships. See "Business -- Fuel Sales and
Services."
EFFECT OF AVIATION FUEL AVAILABILITY ON CUSTOMERS
A material rise in the price or material decrease in the availability of
aviation fuel would adversely impact Mercury's customers. To the extent that
Mercury's airline customers were not able to immediately adjust their business
operations to reflect increased operating costs, they could take relatively
longer to pay Mercury's accounts receivable. Such payment delays would further
increase Mercury's working capital demands. In some cases, the impact of a fuel
price increase could materially impair the financial stability of an airline
customer such that it would be unable to pay amounts owed to Mercury and could
result in such airline customer filing for bankruptcy protection. In that event,
Mercury could incur significant losses related to the uncollectability of the
receivable. See "Business -- Fuel Sales and Services."
MANAGEMENT OF GROWTH
Mercury has experienced rapid growth of its business. Management's ability
to support and manage this growth is dependent upon, among other things, the
ability to hire, train, motivate and retain personnel, and the quality and
flexibility of its internal controls and automated systems. If Mercury's
management is unable to manage growth effectively, Mercury's business, operating
results and financial condition could be adversely affected.
DEPENDENCE UPON KEY PERSONNEL
Mercury's success depends in large part on its ability to retain and develop
its management team. To date, Mercury has been heavily dependent upon Seymour
Kahn, its Chairman of the Board and Chief Executive Officer, who maintains
significant personal relationships with many of Mercury's major customers. Mr.
Kahn is 68 years old and his employment agreement with Mercury expires in
December 1998. Although Mercury has a key man life insurance policy on the life
of Mr. Kahn, Mercury's operations could be adversely affected if, for any
reason, Mr. Kahn does not continue to be active in Mercury's management. The
future success of Mercury also depends on its ability to identify, attract and
retain additional qualified management personnel. There can be no assurance that
employees will not leave Mercury or compete against Mercury. Mercury's failure
to attract additional qualified employees or to retain the services of key
personnel could materially adversely affect the Company's business, operating
results and financial condition. See "Business -- Employees" and "Management."
EXPANSION BY ACQUISITION
Mercury's strategy is to expand its operations through internal growth as
well as through selected acquisitions of aviation businesses which may be
integrated into or complement Mercury's existing businesses. Although Mercury
regularly reviews possible acquisition candidates, there can be no assurance
that suitable acquisition candidates will be identified or that acquisitions can
be consummated on acceptable terms. Under the Credit Facility, the consent of
Mercury's principal lender may
9
<PAGE>
be required for an acquisition. Failure to accomplish future acquisitions could
limit Mercury's revenue and earnings growth potential. In addition, acquisitions
involve a number of risks that could adversely affect Mercury's business,
operating results and financial condition, including the diversion of
management's attention, the assimilation of the operations and personnel of the
acquired companies, the amortization of acquired intangible assets and the
potential loss of key employees. There can be no assurance that any acquisition
by Mercury will not materially adversely affect Mercury's business, operating
results and financial condition or that any such acquisition will enhance
Mercury's business, operating results or financial condition. See "Business --
Recent Developments."
GOVERNMENT CONTRACT SERVICES OUTLOOK
Mercury's government contract services business has been negatively impacted
by contract losses due to base closures, the loss of competitive bids, small
business contract set asides and internalization of the refueling function by
the U.S. military. Since June 30, 1994, ten contracts held by Mercury have been
terminated for such reasons, five of which were terminated in fiscal 1995, four
of which have been terminated or are scheduled for termination during fiscal
1996, and one of which is scheduled for termination in fiscal 1997. Since June
30, 1994, Mercury renewed two four-year contracts and added two contracts.
Growth of the Company's government contract services business is dependent on
obtaining additional contracts and renewing existing contracts through the
process of competitive bids, and on expanding the types of outsourcing services
provided to the U.S. government. There can be no assurance that the Company will
be able to obtain additional government contracts, renew existing government
contracts, or expand the types of outsourcing services provided to the U.S.
government. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" and "Business -- Government
Contract Services."
CAPACITY CONSTRAINTS IN CARGO OPERATIONS
Growth prospects for Mercury's cargo handling operations are limited by the
availability of additional strategically located warehouse facilities. Mercury's
cargo handling operations currently occur principally at LAX. Mercury also
leases a warehouse facility which it uses for cargo handling in San Francisco,
California. In addition, Mercury recently acquired certain operating and other
assets used for cargo handling services at airport facilities in Toronto and
Montreal. At LAX, a portion of Mercury's cargo handling operations are conducted
in a facility subject to a month-to-month agreement. Continuous long-term growth
in Mercury's cargo handling operations can be realized only by maintaining and
expanding current warehouse facilities or by obtaining additional warehouse
facilities at existing or new locations. There can be no assurance that the
Company will be able to maintain or expand its existing warehouse facilities or
continue to obtain additional warehouse facilities. See "Business -- Cargo
Operations" and "Business -- Recent Developments."
GROWTH POTENTIAL FOR FBOS
Growth within Mercury's FBOs is not likely to be substantial, and may not
occur at all, without the acquisition of additional FBO locations. There can be
no assurance that Mercury will be able to obtain additional FBO facilities to
support continued, long-term growth in this unit. Even if such facilities are
available, the cost of the acquisition or the capital expenditure requirements
thereof may be prohibitive or render the operation of such facilities
unprofitable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations" and "Business -- Fixed Base
Operations."
AVIATION FUEL INVENTORY
Due to the nature of Mercury's business, the volume of its aviation fuel
inventories has increased and may continue to increase. Depending upon the price
and price movement of aviation fuel, such inventories may subject Mercury to a
risk of financial loss. Mercury's fuel inventories are partially hedged pursuant
to pricing terms with its customers and to transactions in heating oil futures.
There can be no assurance that such hedges will adequately protect Mercury in
the event of a substantial downward movement in the price of aviation fuel. See
"Business -- Fuel Sales and Services."
10
<PAGE>
ENVIRONMENTAL MATTERS
Mercury owns and leases underground fuel storage tanks and operates fuel
tank trucks. Leaks or spills from such fuel containers could expose Mercury to
substantial remediation costs or capital expenditures to repair or replace fuel
containers. Mercury's fuel tanks, fuel trucks and other operations are subject
to numerous federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and transporting of fuel and
related materials. Mercury believes that it has installed the necessary
safeguards and procedures required for full compliance with all such applicable
environmental laws and regulations regarding its fuel facilities. There can be
no assurance that changes to applicable laws and regulations will not in the
future occur which might require substantial additional expenditures. See
"Business -- Environmental Matters."
EMPLOYEE RELATIONS
Many workers in the aviation services industry are represented by labor
unions. If unionization of Mercury's employees were to occur, changes to
effective labor costs and employee utilization could result in an increase in
costs which could adversely affect Mercury's business, operating results and
financial condition. See "Business -- Employees."
CONTROL OF MERCURY
As of December 31, 1995, Mr. Kahn beneficially owned approximately 25.5% of
the Company's outstanding voting securities. As a principal shareholder, Mr.
Kahn is able to exert greater influence than other shareholders of Mercury in
the election of the members of Mercury's Board of Directors and in business
transactions such as mergers or other business combinations, the acquisition or
disposition of assets, the incurrence of indebtedness, the issuance of
additional Common Stock or other equity securities and the payment of dividends.
See "Principal Shareholders" and "Management -- Certain Transactions."
POSSIBLE NEGATIVE EFFECTS OF PREFERRED STOCK AND LOAN PROVISIONS
Mercury's Articles of Incorporation authorize the issuance of up to
3,000,000 shares of preferred stock with such rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors may, without shareholder approval, issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the rights, value and liquidity of the Common Stock. The issuance of
shares of preferred stock may also have the effect of rendering more difficult
an acquisition or a change in control of Mercury. Moreover, such issuance may
constitute a Change of Control, which, in certain instances, may require Mercury
to repurchase the Debentures. Mercury has no present plans to issue shares of
preferred stock. See "Description of Debentures -- Repurchase of Debentures at
the Option of the Holder After Certain Changes of Control" and "Description of
Capital Stock -- Preferred Stock."
LIMITATIONS ON REPURCHASE OF DEBENTURES
After a Change of Control and a Rating Downgrade, a holder of Debentures,
may have the right, at the holder's option, to require the Company to repurchase
all or a portion of such holder's Debentures. Repurchase rights may also apply
following the death of a holder of Debentures. If either event was to occur,
there can be no assurance that the Company would have sufficient funds to
repurchase the Debentures. In addition, the Company's repurchase of Debentures
may be limited by, or create an event of default under, its Credit Facility or
under additional agreements relating to borrowings which the Company may enter
into from time to time. See "Description of Debentures -- Repurchase of
Debentures at the Option of the Holder After Certain Changes of Control" and
"Description of Debentures -- Repurchase of Debentures Upon Death of Holder."
ABSENCE OF SECURITY FOR PAYMENT; LIMITED COVENANTS IN THE INDENTURE
The Debentures are unsecured obligations of Mercury and do not have the
benefit of a sinking fund or other similar provision for payment at maturity.
Furthermore, the Indenture contains only limited covenants, none of which are
designed to protect holders of the Debentures in the event of a
11
<PAGE>
material adverse change in Mercury's business, operating results or financial
condition. Moreover, the Indenture does not restrict the incurrence of
additional Senior Indebtedness or other Indebtedness (as defined in the
Indenture) by Mercury or any subsidiary. Consequently, Mercury could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect Mercury's ability to service the Debentures. During the continuance
beyond any applicable grace period of any default in the payment of principal,
premium, interest or any other payment due on any Senior Indebtedness, no
payment of principal, premium, if any, or interest on the Debentures (including
the redemption of any Debentures) may be made by the Company. See "Description
of Debentures."
SOURCES OF PAYMENTS ON THE DEBENTURES
The Debentures are obligations exclusively of the Company and not of any of
its subsidiaries. The Company's cash flow and its ability to service debt,
including the Debentures, are partially dependent upon the earnings of its
subsidiaries and the distribution of those earnings to the Company, or upon
other payments of funds by the subsidiaries to the Company. During fiscal 1995,
42.2% of the Company's operating income and 13.9% of its revenues were derived
from two of its subsidiaries, Mercury Air Cargo, Inc. ("MAC") and Maytag
Aircraft Corporation ("Maytag"). The Company's subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Debentures or to make any funds available
therefor, whether by dividends, loans or other payments. In addition, MAC and
Maytag are direct obligors under the Credit Facility. The payment of dividends
and the making of loans and advances to the Company by its subsidiaries may be
subject to additional contractual restrictions or to statutory or other
restrictions, are dependent upon the earnings of those subsidiaries and are
subject to various business considerations. See "Description of Debentures --
Subordination."
SUBORDINATION
The Debentures are subordinated in the right of payment to all existing and
future Senior Indebtedness of Mercury. As of September 30, 1995, after giving
effect to this offering and the application of the net proceeds therefrom,
Senior Indebtedness would have been approximately $8.8 million. The Company's
Credit Facility and certain other Senior Indebtedness are secured by
substantially all of Mercury's assets. Therefore, in the event of a liquidation,
dissolution, reorganization or similar proceeding involving Mercury, the assets
of Mercury will be available to pay obligations on the Debentures (and any other
obligations ranking PARI PASSU with the Debentures) only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets to
pay any or all amounts due on the Debentures. If Mercury becomes insolvent or is
liquidated, or if payment of the Senior Indebtedness is accelerated, the holders
of the Senior Indebtedness would be entitled to exercise the remedies available
to secured lenders under applicable law and pursuant to the terms of the Senior
Indebtedness. See "Description of Debentures -- Subordination."
LIMITED MARKET FOR DEBENTURES
There is no existing market for the Debentures. The Company has been advised
by the Underwriters that they intend to make a market in the Debentures;
however, there can be no assurance that an active trading market in the
Debentures will develop. If a market were to develop, the Debentures could trade
at prices higher or lower than the initial offering price thereof depending on
many factors, including but not limited to prevailing interest rates, Mercury's
operating results, the market price for the Common Stock and the market for
similar securities. If the Underwriters cease making a market in the Debentures,
the price of the Debentures may be adversely affected and holders may be unable
to sell the Debentures.
RULE 144 SALES
The prevailing market price of Common Stock after this offering could be
adversely affected by future sales of Common Stock by existing shareholders and
option holders. Of the 5,380,087 shares of Common Stock outstanding as of
December 31, 1995, 1,595,790 shares were held by affiliates of Mercury and were
not freely tradable except in compliance with Rule 144 ("Rule 144") promulgated
by the Commission under the Securities Act. Subject to the satisfaction of
certain conditions, Rule 144
12
<PAGE>
permits aggregate sales by any affiliate in a three-month period of no more than
the greater of 1% of the outstanding shares (53,800 shares as of December 31,
1995) or the average of the weekly trading volume for the shares for the four
weeks preceding the sale.
USE OF PROCEEDS
The net proceeds of this offering, after deducting the underwriting discount
and commissions and estimated expenses of the offering, are estimated to be
$23,450,000 ($27,012,500 if the Underwriters' over-allotment option is exercised
in full). Mercury's credit facility with its senior lender (the "Credit
Facility") consists of a revolving portion (the "Revolver") and a term portion
(the "Term Loan"). Mercury intends to use the net proceeds to repay its
outstanding balance under the Revolver; for expansion and growth of its
business, both internally and through acquisitions; and for general corporate
purposes. As of December 31, 1995, outstanding advances under the Revolver were
$13.2 million, accruing interest at an effective rate of approximately 8% per
annum.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Mercury on a
consolidated basis at September 30, 1995, and as adjusted to reflect the sale of
the Debentures offered hereby and the application of the net proceeds therefrom.
See "Use of Proceeds." This table should be read in conjunction with Mercury's
consolidated financial statements and the accompanying notes contained elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolver (2)(4)..................................................................... $ 11,947 $ --
Other long-term debt (3)(4)......................................................... 8,064 8,064
% Convertible Subordinated Debentures due 2006................................... -- 25,000
--------- --------------
Total long-term debt.............................................................. 20,011 33,064
Shareholders' equity:
Preferred Stock, par value $.01 per share, 3,000,000 shares authorized; no shares
outstanding....................................................................... -- --
Common Stock, par value $.01 per share, 9,000,000 shares authorized; 5,371,087
shares outstanding (5)............................................................ 54 54
Additional paid-in capital.......................................................... 14,611 14,611
Retained earnings................................................................... 4,225 4,225
Common Stock in treasury (35,200 shares)............................................ (155) (155)
--------- --------------
Total shareholders' equity........................................................ 18,735 18,735
--------- --------------
Total capitalization.................................................................. $ 38,746 $ 51,799
--------- --------------
--------- --------------
</TABLE>
- ------------
(1) Adjusted to reflect the sale of the Debentures (assuming the Underwriters'
over-allotment option is not exercised) and the application of $11,947,000
of the net proceeds to repay the Revolver in full.
(2) Advances to Mercury under the Revolver bear interest at a fluctuating per
annum rate equal to either the lender's announced prime rate ("Prime Rate")
plus 1/2%, or the London Interbank Offered Rate ("LIBOR") plus 2%, at the
Company's option.
(3) Includes the outstanding balance on the Term Loan of $4,378,000. The Term
Loan bears interest at the Prime Rate plus 3/4%, provided no change in the
interest rate shall be made for any decrease in the Prime Rate below 5%, or
LIBOR plus 2 1/4%. Principal under the Term Loan is repayable in monthly
installments of $125,000. Upon an event of default which remains uncured,
interest will accrue and compound monthly at the applicable interest rate
described above plus 2%.
(4) The Credit Facility requires Mercury to maintain certain levels of financial
performance, including specified minimum levels of tangible net worth, as
defined, working capital and ratios related to working capital and debt to
net worth. The Credit Facility also limits Mercury's annual capital
expenditures and limits the payment of dividends on shares of Common Stock
to $250,000 annually. For the fiscal years ended June 30, 1994 and June 30,
1995, Mercury was, and Mercury currently is, in compliance with each of the
financial covenants contained in the Credit Facility.
(5) Excludes shares of Common Stock reserved for issuance upon
conversion of the Debentures offered hereby, 284,250 shares of Common Stock
reserved for issuance upon the exercise of options granted or to be granted
under the Company's 1990 Directors Stock Option Plan, 242,800 shares of
Common Stock reserved for issuance upon the exercise of options granted or
to be granted under the Company's 1990 Long-Term Incentive Stock Plan,
110,000 shares of Common Stock reserved for issuance upon the exercise of a
Non-Qualified Stock Option dated
14
<PAGE>
January 31, 1993, 18,335 shares of Common Stock reserved for issuance upon
the exercise of a certain underwriter warrant dated June 18, 1991, and
167,970 shares of Common Stock reserved for issuance upon conversion of the
debenture issued in connection with the Excel Transaction (as defined
herein). See "Business -- Recent Developments -- Excel Cargo," "Management
-- Compensation of Directors" and Note 11 of Notes to Consolidated Financial
Statements.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Mercury's Common Stock is listed and traded on the AMEX under the symbol
"MAX", and application has been made to list Mercury's Common Stock on the PSE.
The table below sets forth, for the quarterly periods indicated, the high and
low daily closing sale prices on the AMEX for the Company's Common Stock. All
per share stock price information has been adjusted to reflect the June 16, 1995
ten percent stock dividend.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1994:
Quarter ended September 30, 1993............................................................. $ 3.13 $ 2.50
Quarter ended December 31, 1993.............................................................. 3.64 2.84
Quarter ended March 31, 1994................................................................. 5.68 3.30
Quarter ended June 30, 1994.................................................................. 5.45 4.09
FISCAL 1995:
Quarter ended September 30, 1994............................................................. $ 6.14 $ 4.89
Quarter ended December 31, 1994.............................................................. 7.05 5.11
Quarter ended March 31, 1995................................................................. 8.64 6.25
Quarter ended June 30, 1995.................................................................. 9.00 7.27
FISCAL 1996:
Quarter ended September 30, 1995............................................................. $ 9.00 $ 7.75
Quarter ended December 31, 1995.............................................................. 10.75 8.13
Quarter ending March 31, 1996 (through January 25, 1996)..................................... 8.63 8.00
</TABLE>
On January 25, 1996, the closing sale price of the Common Stock as reported
on the AMEX was $8.50. As of January 9, 1996, there were approximately 479
holders of record.
In December 1994, Mercury's Board of Directors adopted a quarterly dividend
plan of $.01 per common share. The first such dividend was paid on February 1,
1995. Based upon the current number of shares of Common Stock outstanding and
assuming the quarterly amount of $.01 per share remains in effect, annual
dividend requirements will amount to approximately $215,000. Mercury intends to
review its dividend policy from time to time in light of its earnings, financial
condition and other relevant factors, including applicable covenants in debt and
other agreements. In this regard, as discussed in Note 9 of Notes to
Consolidated Financial Statements, certain of Mercury's loan agreements provide
for the maintenance of specified levels of working capital as well as
limitations on cash dividends.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of income data set forth below with respect to
the years ended June 30, 1993, 1994 and 1995 and the consolidated balance sheet
data at June 30, 1994 and 1995 are derived from, and are qualified by reference
to, the audited consolidated financial statements included elsewhere in this
Prospectus. The consolidated statement of income data set forth below with
respect to the years ended June 30, 1991 and 1992 and the consolidated balance
sheet data at June 30, 1991, 1992, and 1993 are derived from audited financial
statements of Mercury not included in this Prospectus. The selected consolidated
financial data presented below as of September 30, 1994 and September 30, 1995,
and for the three-month periods then ended, have been derived from the unaudited
consolidated financial statements of Mercury and reflect all normal recurring
accruals and adjustments which, in the opinion of Mercury's management, are
necessary for a fair presentation of the unaudited results. The information
presented below should be read in conjunction with the consolidated financial
statements and notes thereto presented elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1994 1995
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and revenues...................... $ 73,498 $ 71,746 $ 84,543 $ 103,069 $ 183,000 $ 35,554 $ 51,880
Operating income........................ 7,909 6,492 8,903 12,665 16,573 3,851 4,597
Income before income taxes.............. 1,634 616 3,363 (1) 5,169 7,312 1,724 2,076
Net income.............................. 944 359 1,950 2,995 4,307 1,002 1,232
PER SHARE DATA: (2)
Net income per common share on a fully
diluted basis......................... $ 0.38 $ 0.01 $ 0.39 $ 0.59 $ 0.76 $ 0.18 $ 0.22
Weighted average common shares
outstanding........................... 2,377,821 2,394,151 2,431,549 3,719,884 5,420,158 5,354,000 5,415,000
SUPPLEMENTAL DATA:
EBITDA (3).............................. $ 4,474 $ 2,761 $ 5,024 $ 8,404 $ 11,210 $ 2,661 $ 3,124
Ratio of earnings to fixed charges
(4)................................... 1.82x 1.36x 2.73 x 3.82x 4.16x 4.34x 4.11x
Dividends per share (5)................. -- -- -- -- $ 0.02 -- $ 0.01
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1994 1995
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 5,482 $ 6,182 $ 8,409 $ 9,353 $20,528 $12,339 $20,488
Total assets............................ 22,370 26,090 31,800 35,442 54,210 40,822 59,491
Long-term debt (net of current
maturities)........................... 4,941 7,299 9,821 8,650 17,104 10,711 20,011
Total liabilities....................... 14,966 18,001 22,264 21,806 35,839 26,713 40,756
Shareholders' equity.................... 7,404 8,089 9,536 13,636 18,371 14,109 18,735
</TABLE>
- ---------------
(1) Includes a pre-tax gain from a legal judgment in the amount of $1,060,000.
(2) Shares outstanding and earnings per share have been adjusted retroactively
to reflect the payment of a ten percent stock dividend on June 16, 1995.
(3) EBITDA as used herein means earnings before interest expense, interest
income, taxes, depreciation and amortization, and excludes minority
interest and the pretax gain from a legal judgment in 1993.
(4) For purposes of calculating this ratio, earnings consist of income before
income taxes and fixed charges. Fixed charges consist of interest expense
and one-third of rental expense, representative of that portion of the
rental expense attributable to interest. The pro forma ratio, adjusted to
reflect the issuance of the Debentures offered hereby and the application
of the net proceeds therefrom to repay the Revolver, with the balance
invested at short-term market rates, would be 2.70x and 2.96x for the
fiscal year ended June 30, 1995 and the three months ended September 30,
1995, respectively.
(5) In December 1994, Mercury's Board of Directors adopted a quarterly dividend
plan of $.01 per share of common stock. Dividends in the aggregate amounts
of $50,000, $50,000, $55,000 and $54,000 were paid on February 1, 1995, May
1, 1995, September 1, 1995 and November 1, 1995, respectively.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
Revenues in the three months ended December 31, 1995 increased 12.7% to
$55.4 million from $49.2 million in the same period of the prior year. Net
income in the three months ended December 31, 1995 increased 15.5% to $1.4
million from $1.2 million in the same period of the prior year.
Revenues in the six months ended December 31, 1995 increased 26.6% to $107.3
million from $84.7 million in the same period of the prior year. Net income in
the six months ended December 31, 1995 increased 18.9% to $2.6 million from $2.2
million in the same period of the prior year.
On January 22, 1996, a petition for reorganization under Chapter 11 of the
Federal Bankruptcy Code was filed against Business Express, Inc. ("Business
Express"), a fuel customer of Mercury. Subsequent to the filing, the Company
placed Business Express on a prepaid basis for future fuel purchases. The
Company's reserves and collateral are adequate to cover any losses incurred on
the receivables from Business Express. On an ongoing basis, the Company believes
that the filing will have no material adverse impact on the Company's business,
operating results or financial condition.
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1994
The following table sets forth, for the periods indicated, the revenues and
operating income of each of the Company's four operating units, as well as
certain other financial data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1994 1995
------------------- -------------------
% OF TOTAL % OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES
------ ---------- ------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenues:
Fuel sales and services..................................... $25.1 70.6% $41.1 79.3%
Cargo operations............................................ 2.1 5.8 2.9 5.6
Government contract services................................ 4.2 11.8 3.6 6.8
FBOs........................................................ 4.2 11.8 4.3 8.3
------ ----- ------ -----
Total revenues............................................ $35.6 100.0% $51.9 100.0%
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
<TABLE>
<CAPTION>
% OF UNIT % OF UNIT
AMOUNT REVENUES AMOUNT REVENUES
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Operating income:
Fuel sales and services..................................... $1.4 5.5% $2.0 4.7%
Cargo operations............................................ 0.5 25.9 0.9 32.1
Government contract services................................ 1.0 24.3 0.9 24.7
FBOs........................................................ 0.9 21.6 0.8 19.5
------ --- ------ ---
Total operating income.................................... $3.8 10.8% $4.6 8.9%
------ --- ------ ---
------ --- ------ ---
</TABLE>
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Expenses:
Selling, general and administrative......................... $ 1.2 3.3% $ 1.5 2.8%
Depreciation and amortization............................... 0.6 1.7 0.6 1.2
Interest and other.......................................... 0.3 1.0 0.4 0.9
------ ----- ------ -----
Income before income taxes.................................. 1.7 4.8 2.1 4.0
Provision for income taxes.................................. 0.7 2.0 0.9 1.6
------ ----- ------ -----
Net income................................................ $ 1.0 2.8% $ 1.2 2.4%
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
17
<PAGE>
Revenues in the three months ended September 30, 1995 increased 45.9% to
$51.9 million from $35.6 million in the same period of the prior year. Operating
income in the three months ended September 30, 1995 increased 19.4% to $4.6
million from $3.8 million in the same period of the prior year.
Revenues from fuel sales and services include all revenues from Mercury's
contract fueling business, as well as revenues from a number of other commercial
activities which are headquartered at LAX as part of Mercury's fuel sales and
services operations. These activities include refueling services at LAX and John
Wayne International Airport in Santa Ana, California, the brokering of non-
aviation fuel to industrial and commercial customers, the provision of air frame
and power plant mechanics to commercial airlines and the provision of cargo
warehouse manpower to a commercial airline. Revenues from the sale of fuel by
Mercury's FBOs are included in the amounts for FBOs, and not in fuel sales and
services.
Revenues from fuel sales and services represented 79.3% of total revenues in
the three months ended September 30, 1995 compared to 70.6% of total revenues in
the same period of the prior year. Revenues from fuel sales and services in the
three months ended September 30, 1995 increased 63.7% to $41.1 million from
$25.1 million in the same period of the prior year. The increase in revenues
from fuel sales and services was primarily due to an increase in the number of
gallons sold as a result of the addition of a significant number of new accounts
subsequent to September 30, 1994. Average fuel prices were marginally higher in
the three months ended September 30, 1995 compared to the same period of the
prior year. Operating income from fuel sales and services in the three months
ended September 30, 1995 increased 40.5% to $2.0 million from $1.4 million in
the same period of the prior year. The increase was attributable primarily to an
increase in fuel sales, and to a lesser extent, a slight improvement in per
gallon margins. Due to sales to the new accounts subsequent to September 30,
1994 which were included in the results of the second fiscal quarter of 1995,
the comparative rate of growth in fuel sales and services revenues and operating
income in the second fiscal quarter of 1996 is expected to be lower than that
experienced in the three months ended September 30, 1995.
Revenues from cargo operations in the three months ended September 30, 1995
increased 39.7% to $2.9 million from $2.1 million in the same period of the
prior year. This increase was primarily due to a general increase in the volume
of business from existing accounts. Operating income from cargo operations in
the three months ended September 30, 1995 increased 72.7% to $931,000 from
$539,000 in the same period of the prior year.
Revenues from government contract services in the three months ended
September 30, 1995 decreased 15.8% to $3.6 million from $4.2 million in the same
period of the prior year. The decrease was primarily due to five contract
terminations during fiscal 1995, which terminations were only partially offset
by a new contract received in November 1994. Operating income from government
contract services in the three months ended September 30, 1995 decreased 14.5%
to $873,000 from $1.0 million in the same period of the prior year due to lower
revenues. Subsequent to September 30, 1995, four government contracts have been
terminated or are scheduled for termination in fiscal 1996, and one government
contract is scheduled for termination in fiscal 1997.
Revenues from FBOs in the three months ended September 30, 1995 increased
2.9% to $4.3 million from $4.2 million in the same period of the prior year in
part due to an increase in fuel sales and to higher service revenues. Operating
income in the three months ended September 30, 1995 decreased 6.8% to $841,000
from $902,000 in the same period of the prior year. The decrease was primarily
attributable to lower per gallon margins and higher operating expenses.
Selling, general and administrative expenses in the three months ended
September 30, 1995 increased 23.8% to $1.5 million from $1.2 million in the same
period of the prior year. The increase was primarily due to higher compensation
expense and, to a lesser extent, higher professional fees and facility expenses.
18
<PAGE>
Depreciation and amortization expense in the three months ended September
30, 1995 increased 2.8% to $623,000 from $606,000 in the same period of the
prior year.
Interest expense in the three month periods September 30, 1995 increased
44.7% to $437,000 from $302,000 in the same period of the prior year. The
increase was due to significantly higher average borrowings under the Revolver.
Charges for minority interest were eliminated in the three months ended
September 30, 1995 as compared to $42,000 in the same period of the prior year.
The elimination was due to the acquisition of the remaining minority interest's
share of MAC in November 1994. See Note 4 of Notes to Consolidated Financial
Statements.
Income tax expense in the three months ended September 30, 1995 approximated
40.7% of pre-tax income and 41.9% in the same period of the prior year,
reflecting the expected effective annual tax rate.
FISCAL 1993, 1994, AND 1995
The following table sets forth, for the periods indicated, the revenues and
operating income for each of the Company's four operating units, as well as
certain other financial data.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1993 1994 1995
------------------- ------------------ ------------------
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ ---------- ------ ---------- ------ ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Fuel sales and services..................................... $52.9 62.5% $ 64.4 62.5% $141.8 77.5%
Cargo operations............................................ 4.8 5.7 7.0 6.8 9.9 5.4
Government contract services................................ 12.4 14.7 16.0 15.5 15.6 8.5
FBOs........................................................ 14.4 17.1 15.7 15.2 15.7 8.6
------ ----- ------ ----- ------ -----
Total revenues............................................ $84.5 100.0% $103.1 100.0% $183.0 100.0%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
</TABLE>
<TABLE>
<CAPTION>
% OF UNIT % OF UNIT % OF UNIT
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Operating income:
Fuel sales and services..................................... $2.2 4.3% $ 3.0 4.7% $ 6.9 4.9%
Cargo operations............................................ 1.6 33.1 2.7 38.4 2.8 28.5
Government contract services................................ 3.2 25.8 4.0 25.0 4.2 26.7
FBOs........................................................ 1.9 12.8 3.0 18.9 2.7 17.1
------ --- ------ --- ------ ---
Total operating income.................................... $8.9 10.5% $12.7 12.3% $16.6 9.1%
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---
</TABLE>
<TABLE>
<CAPTION>
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Expenses:
Selling, general and administrative......................... $ 3.9 4.6% $ 4.3 4.1% $ 5.4 2.9%
Depreciation and amortization............................... 1.7 2.0 2.0 2.0 2.4 1.3
Interest and other.......................................... -- -- 1.2 1.2 1.5 0.8
------ ----- ------ ----- ------ -----
Income before income taxes.................................. 3.4 4.0 5.2 5.0 7.3 4.0
Provision for income taxes.................................. 1.4 1.7 2.2 2.1 3.0 1.6
------ ----- ------ ----- ------ -----
Net income................................................ $ 2.0 2.3% $ 3.0 2.9% $ 4.3 2.4%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
Revenues in fiscal 1995 increased 77.6% to $183.0 million from $103.1
million in fiscal 1994. Operating income in fiscal 1995 increased 30.9% to $16.6
million from $12.7 million in fiscal 1994.
19
<PAGE>
Revenues from fuel sales and services represented 77.5% of total revenues in
fiscal 1995 compared to 62.5% of total revenues in fiscal 1994. Revenues from
fuel sales and services in fiscal 1995 increased 120.1% to $141.8 million from
$64.4 million in fiscal 1994. The increase in revenues from fuel sales and
services was primarily due to an increase in the number of gallons sold as a
result of the addition of a significant number of new accounts in fiscal 1995.
These new accounts were attributable in part to the opening of sales offices in
Houston and Miami in October 1994. Average fuel prices were also marginally
higher in fiscal 1995 compared to fiscal 1994. Operating income from fuel sales
and services in fiscal 1995 increased 127.9% to $6.9 million from $3.0 million
in fiscal 1994. The increase was attributable primarily to an increase in fuel
sales and, to a lesser extent, a slight improvement in per gallon margins.
Revenues from cargo operations in fiscal 1995 increased 41.8% to $9.9
million from $7.0 million in fiscal 1994. This increase was primarily due to a
general increase in the volume of business from existing accounts and the
addition of a new location in San Francisco. During fiscal 1995, Mercury opened
a cargo operation in Miami; however, in March 1995, the operation was closed as
a result of the loss of a key employee. Operating income from cargo operations
in fiscal 1995 increased 5.5% to $2.8 million from $2.7 million in fiscal 1994.
The increase in operating income was significantly lower than the corresponding
revenue increase due to operating losses at the San Francisco and Miami
locations in fiscal 1995 and higher labor and other operating costs at LAX in
fiscal 1995 compared to fiscal 1994.
Revenues from government contract services in fiscal 1995 decreased 2.6% to
$15.6 million from $16.0 million in fiscal 1994. Revenues from government
contract services in fiscal 1995 included $5.3 million from ten contracts, five
of which were terminated in fiscal 1995 and the balance of which have been or
are scheduled for termination during fiscal 1996. The decrease in revenues from
government contract services in fiscal 1995 compared to fiscal 1994 was
primarily due to the contract terminations during fiscal 1995, which
terminations were only partially offset by a new contract received in November
1994. Operating income from government contract services in fiscal 1995
increased 4.1% to $4.2 million from $4.0 million in fiscal 1994 due to lower
operating expenses. Operating income from government contract services in fiscal
1995 included $1.4 million from the ten contracts described above which have or
will be terminated. Mercury does not anticipate significant charge-offs
associated with the contract terminations described above.
Revenues from FBOs remained relatively constant in fiscal 1994 and 1995 at
$15.7 million, but operating income decreased 9.0% from $3.0 million in fiscal
1994 to $2.7 million in fiscal 1995. The decrease was primarily attributable to
a reduction in the volume of fuel sold, as well as lower per gallon margins.
Selling, general and administrative expenses in fiscal 1995 increased 25.9%
to $5.4 million from $4.3 million in fiscal 1994. The increase was primarily due
to an increase in the provision for bad debts. Provision for bad debts in fiscal
1995 increased to $905,000 from $324,000 in fiscal 1994 due to a significant
increase in sales and accounts receivable. Excluding the provision for bad
debts, selling, general and administrative expenses in fiscal 1995 increased
13.2% to $4.5 million from $3.9 million in fiscal 1994, primarily due to higher
compensation expenses related to the expansion of Mercury's business.
Depreciation and amortization expense in fiscal 1995 increased 17.6% to $2.4
million from $2.0 million in fiscal 1994. The increase was primarily due to $2.0
million of capital expenditures in fiscal 1995 and $5.0 million of capital
expenditures in fiscal 1994.
Interest expense in fiscal 1995 increased 36.9% to $1.5 million from $1.1
million in fiscal 1994. The increase was due to higher interest rates and
significantly higher average borrowings on the Revolver in fiscal 1995 compared
to fiscal 1994. Interest income in fiscal 1995 decreased 40.0% to $84,000 from
$140,000 in fiscal 1994 due to the declining principal balance of outstanding
notes receivable.
20
<PAGE>
Charges for minority interest in fiscal 1995 decreased 61.4% to $95,000 from
$246,000 in fiscal 1994. The decrease was due to the acquisition of the
remaining minority interest's share of MAC in November 1994. See Note 4 of Notes
to Consolidated Financial Statements.
Income tax expense for fiscal 1995 approximated 41.1% of pre-tax income and
42.1% for fiscal 1994, reflecting the expected effective annual tax rate.
FISCAL YEAR ENDED JUNE 30, 1994 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1993
Revenues in fiscal 1994 increased 21.9% to $103.1 million from $84.5 million
in fiscal 1993. Operating income in fiscal 1994 increased 42.3% to $12.7 million
from $8.9 million in fiscal 1993.
Revenues from fuel sales and services represented 62.5% of total revenues in
both fiscal 1994 and fiscal 1993. Revenues from fuel sales and services in
fiscal 1994 increased 21.8% to $64.4 million from $52.9 million in fiscal 1993.
The increase in revenues from fuel sales and services was primarily due to an
increase in the number of gallons sold. On average, fuel prices were
approximately 13% lower in fiscal 1994 than during fiscal 1993. Operating income
from fuel sales and services in fiscal 1994 increased 34.4% to $3.0 million from
$2.2 million in fiscal 1993. The increase in operating income was principally
attributable to the increase in fuel sales.
Revenues from cargo operations in fiscal 1994 increased 46.3% to $7.0
million from $4.8 million in fiscal 1993. This increase was primarily due to a
general increase in the volume of business from existing accounts and the
addition of one cargo handling account. Operating income from cargo operations
in fiscal 1994 increased 69.4% to $2.7 million from $1.6 million in fiscal 1993.
The increase in operating income was attributable to higher revenues.
Revenues from government contract services in fiscal 1994 increased 28.7% to
$16.0 million from $12.4 million in fiscal 1993 due in part to the addition of
two contracts, one in October 1992 and one in September 1993, and in part due to
increased add-ons to existing contracts. Operating income from government
contract services in fiscal 1994 increased 24.4% to $4.0 million from $3.2
million in fiscal 1993 primarily due to higher revenues.
Revenues from FBOs in fiscal 1994 increased 8.3% to $15.7 million from $14.4
million in fiscal 1993 due to an increase in fuel sales and service revenues.
Operating income from FBOs increased by 59.6% to $3.0 million in fiscal 1994
from $1.9 million in fiscal 1993. The increase was primarily attributable to
higher margins from fuel sales and, to a lesser extent, a greater volume of fuel
sold.
Selling, general and administrative expenses in fiscal 1994 increased 9.8%
to $4.3 million from $3.9 million in fiscal 1993. Excluding the provision for
bad debts, selling, general and administrative expenses in fiscal 1994 increased
13.6% to $3.9 million from $3.5 million in fiscal 1993, primarily due to higher
compensation expense. Included in selling, general and administrative expenses
in fiscal 1994 was a $324,000 provision for bad debts compared to a $414,000
provision in fiscal 1993.
Depreciation and amortization expense in fiscal 1994 increased 22.0% to $2.0
million from $1.7 million in fiscal 1993. The increase was primarily due to $5.0
million of capital expenditures in fiscal 1994 and $4.0 million of capital
expenditures in fiscal 1993.
Interest expense remained relatively constant in fiscal 1994 and fiscal 1993
at $1.1 million. Interest income in fiscal 1994 decreased 18.1% to $140,000 from
$171,000 in fiscal 1993 due to the declining principal balance of outstanding
notes receivable.
Charges for minority interest in fiscal 1994 increased 92.2% to $246,000
from $128,000 in fiscal 1993. The increase was due to significantly higher
income generated by MAC, 20% of which was owned by a minority shareholder.
Income tax expense for fiscal 1994 approximated 42.1% of pre-tax income and
42.0% for fiscal 1993, reflecting the expected effective annual tax rate.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Mercury has historically financed its operations through operating cash flow
and borrowings under the Revolver. Mercury's cash balance as of September 30,
1995 totaled $529,000.
Net cash provided by operating activities totaled $1,336,000 during the
three months ended September 30, 1995. During this period, the primary sources
of cash from operations were net income plus depreciation and amortization
totaling $1,855,000, an increase in accounts payable of $1,721,000 and an
increase in income taxes payable of $732,000. The primary uses of such cash were
an increase in accounts receivable of $2,377,000 and a decrease in accrued
expenses and other current liabilities of $1,095,000.
Net cash used in operating activities totaled $5,581,000 during fiscal 1995.
During this period, the primary sources of cash from operations were net income
plus depreciation and amortization totaling $6,716,000 and an increase in
accounts payable of $6,078,000. The primary uses of such cash were an increase
in accounts receivable of $16,105,000 and an increase in inventories of
$2,332,000.
Net cash used in investing activities totaled $1,272,000 during the three
months ended September 30, 1995. The primary uses of cash for investing
activities included additions to other assets of $640,000, which includes
goodwill from the Excel Transaction of $750,000, and additions to property,
equipment and leaseholds of $561,000.
Net cash used in investing activities totaled $2,021,000 during fiscal 1995.
The primary uses of cash for investing activities included additions to
property, equipment and leaseholds of $1,574,000 and additions to other assets
of $632,000.
Net cash used in financing activities totaled $366,000 during the three
months ended September 30, 1995. The primary source of such cash was borrowings
under the Revolver of $1,829,000. The primary uses of such cash were the
reduction in long-term debt of $1,327,000 and repurchases of Common Stock
totaling approximately $820,000.
Net cash provided by financing activities totaled $6,663,000 during fiscal
1995. The primary source of such cash was borrowings under the Revolver of
$10,118,000. The primary uses of such cash were the reduction in long-term debt
of $2,443,000 and repurchases of Common Stock, including redemption by a
subsidiary of a portion of a minority shareholder's interest, totaling
$1,925,000.
The Credit Facility is secured by substantially all of Mercury's assets. The
original principal balance of the Term Loan was $7,500,000, of which $4,128,000
was outstanding as of November 30, 1995. The Term Loan is amortized and paid on
a monthly basis and matures in August 1998. Pursuant to the Revolver, funds may
be obtained in an amount equal to the value of up to 85% of Mercury's eligible
receivables, as determined by the lender, up to an aggregate of $16,000,000. The
Revolver was established in December 1989 and has been renewed and expanded
several times. The current agreement matures in October 1997, subject to renewal
by the parties. At November 30, 1995, Mercury had approximately $12,045,000 of
borrowings under the Revolver and had approximately $3,000,000 of additional
borrowing availability based on the 85% of eligible receivables test.
On September 30, 1995, the Company issued convertible debentures with a face
amount of $2,016,000 in connection with the Excel Transaction. See "Business --
Recent Developments -- Excel Cargo" and Note 16 of Notes to Consolidated
Financial Statements.
During fiscal 1995, Mercury repurchased 236,300 shares of Common Stock at a
total cost of approximately $1,474,000. During fiscal 1995, Mercury received
approximately $379,000 from the exercise of certain underwriter warrants and
stock options which resulted in the issuance of 128,532 shares of Common Stock.
During the three months ended September 30, 1995, the Company repurchased an
additional 155,420 shares of Common Stock at a cost of approximately $820,000.
Management is currently authorized by the Company's Board of Directors to
repurchase up to approximately an additional $240,000 in Common Stock.
22
<PAGE>
Historically, the Company's capital expenditure requirements have been
related to refueling and ground handling equipment for both commercial and
government contract services operations. In fiscal 1994, the Company spent
approximately $2,400,000 for equipment requirements related to new and existing
contracts and to purchase equipment previously held under noncancelable
operating leases. During fiscal 1994, the Company also acquired a 20,000 square
foot building for its headquarters at a cost of approximately $1,800,000. In
addition, the Company invested nearly $800,000 to acquire a leasehold interest
at its Bakersfield FBO. In fiscal 1995, the Company purchased a building in
Colorado Springs at a cost of $500,000 to relocate its government contract
services headquarters. The Company also invested nearly $700,000 to remodel and
furnish its Los Angeles headquarters building and to purchase computer
equipment. In addition, the Company spent approximately $700,000 to purchase
refueling and ground equipment for its commercial, FBO and government contract
service operations.
The Company's accounts receivable increased from $17,164,000 at June 30,
1994 to $33,269,000 at June 30, 1995, an increase of $16,105,000 with an
increase in accounts payable during the same period of only $6,078,000 to
$12,998,000 at June 30, 1995 from $6,920,000 at June 30, 1994. Accounts
receivable days outstanding for the quarter ended June 30, 1994 were 64 days
compared to 61 days for the quarter ended June 30, 1995 based upon consolidated
revenue for each period. Accounts receivable days outstanding are impacted by a
high volume of fuel brokerage which is reported in revenues on a net margin
basis and a high concentration of fuel sales to customers with extended payment
terms. Allowance for doubtful accounts increased to $610,000 at June 30, 1995
from $508,000 at June 30, 1994.
The Company's accounts receivable increased from $33,269,000 at June 30,
1995 to $35,992,000 at September 30, 1995, an increase of $2,723,000, with an
increase in accounts payable during the same period of $2,189,000 to $15,187,000
at September 30, 1995 from $12,998,000 at June 30, 1995. Accounts receivable
days outstanding for each of the quarters ended September 30, 1995 and June 30,
1995 were unchanged at 61 days based upon total revenue for each period.
Allowance for doubtful accounts increased to $810,000 at September 30, 1995 from
$610,000 at June 30, 1995.
Absent a major prolonged surge in oil prices or a capital intensive
acquisition, the Company believes that the proceeds from this offering, along
with operating cash flow, the Revolver and vendor credit, will provide it with
sufficient liquidity during the next twelve months. In the event that fuel
prices increase significantly for an extended period of time, the Company's
liquidity could be adversely affected unless the Company is able to increase
vendor credit or increase lending limits under its Credit Facility.
SEASONAL NATURE OF BUSINESS
Mercury's commercial fuel sales, FBOs and aircraft support operations are
seasonal in nature. Mercury's fuel sales and services business and FBOs are
relatively stronger during the months of April through September than during the
months of October through March. Commercial air traffic and traffic at the
Company's FBOs are reduced during the winter months, due in part to weather
conditions, and increased during the summer months, due in part to additional
commercial flights and more recreational flying. Mercury's cargo business is
relatively stronger during the months of October through March than during the
months of April through September. The cargo business is affected by the
patterns for commercial and retail inventory build-ups in international trade.
Operations at military facilities are not seasonal.
CURRENCY FLUCTUATIONS AND INFLATION
Mercury is only minimally subject to the risk of currency fluctuations, as
most of its invoices for payment are denominated in U.S. dollars. The effects of
inflation are experienced by Mercury through increases in the cost of labor and
aviation fuel, the latter of which can usually be offset and/or anticipated
through resale price increases.
23
<PAGE>
BUSINESS
GENERAL
Mercury provides a broad range of services to the aviation industry through
four principal operating units: fuel sales and services, cargo operations, FBOs
and government contract services. Fuel sales and services include the sale of
fuel and delivery of fuel primarily to commercial airlines and air freight
companies. Cargo operations consist of cargo handling, space brokerage
operations and general cargo sales agent services. FBOs include fuel sales,
into-plane services, ground support services and aircraft hangar facilities and
tie-down facilities for commercial, private and other aircraft. Government
contract services principally consist of operating government-owned fuel depots
and refueling aircraft for the military.
CURRENT BUSINESS ENVIRONMENT
According to the Air Transport Association of America (the "ATA") and the
LAX 1994 annual report, the amount of passenger traffic and air cargo shipments
in the entire United States and at LAX has increased significantly in recent
years. Domestic passenger miles on U.S. carriers have increased from 243.7
billion in 1984 to 378.8 billion in 1994, an increase of 55.4%, equivalent to
4.5% compounded annually, while international passenger miles have increased
from 61.4 billion to 140.3 billion, an increase of 128.5%, equivalent to 8.6%
compounded annually, in the same period. At LAX, where Mercury's fuel sales and
services operations are headquartered, the number of passengers increased from
33.3 million in 1984 to 48.9 million in 1994, an increase of 46.9%, equivalent
to 3.9% compounded annually, while the number of international passengers
increased from 5.1 million to 12.2 million, an increase of 139.2%, equivalent to
9.1% compounded annually, in the same period.
The market for cargo operations has also greatly expanded in recent years.
Among U.S. airlines, domestic cargo has increased from 3.6 billion ton miles in
1984 to 5.9 billion ton miles in 1994, an increase of 63.9%, equivalent to 5.1%
compounded annually, while international ton miles has increased from 3.0
billion to 7.8 billion, an increase of 160.0%, equivalent to 10.0% compounded
annually, in the same period. At LAX, where Mercury's cargo operations are
headquartered, total cargo has increased from 949,178 tons in 1984 to 1,570,417
tons in 1994, an increase of 65.5%, equivalent to 5.2% compounded annually,
while international cargo has increased from 295,277 tons to 619,237 tons, an
increase of 109.7%, equivalent to 7.7% compounded annually, in the same period.
Not only do increases in the amount of passenger and cargo traffic
positively impact Mercury's operations, but management also believes that
Mercury is well-positioned to take advantage of the airlines' increased emphasis
on cost-containment. For example, an airline can outsource with Mercury to
perform services, such as refueling, on an "as needed" basis, rather than
investing in capital-intensive refueling equipment. Moreover, in many instances,
Mercury is able to realize economies of scale and to obtain better pricing.
Mercury's presence at certain locations may allow it to present itself as a
cost-saving alternative for larger customers who do not have, and do not wish to
invest in, their own equipment or facilities at such locations.
Mercury's strategy is to take advantage of the increase in passenger and
cargo traffic while positioning itself as a cost-saving alternative for airlines
increasingly focused on profitability concerns.
FUEL SALES AND SERVICES
Mercury's fuel sales consist of contract fueling and related fuel management
services. Sales of aviation fuel are made primarily to domestic and
international airline customers.
Contract fuel sales are generally made pursuant to verbal or short-term
contracts whereby Mercury provides fuel supply and, in most cases, delivery to
meet all or a portion of a customer's fuel supply requirements. To facilitate
its fuel sales business at locations where Mercury does not have its own
facilities, Mercury has developed an extensive network of third party delivery
and supply relationships which enable it to provide fuel to customers on a
scheduled or ad hoc basis. Through these third party relationships, Mercury is
currently conducting its fuel sales business at over 100 airports primarily in
the United States, as well as throughout the world.
24
<PAGE>
Mercury believes that it adds value for its customers and is able to attract
business by providing high quality service and by offering a combination of
favorable pricing and credit terms. Mercury provides 24-hour, single source,
coordinated supply and delivery on a national and international basis and
provides related support services. Mercury believes its scale of operations and
creditworthiness allow the purchase of fuel on more favorable price and credit
terms than would be available to most of its customers on an individual basis.
In general, the aviation industry is capital intensive and highly leveraged.
Recognizing the financial risks of the airline industry, major oil companies
often restrict or prohibit the extension of credit to smaller or less
well-capitalized airlines. Consequently, in order to obtain fuel from a major
oil company, many carriers must either post a letter of credit for or prepay
fuel purchases. These supply requirements can absorb a substantial portion of an
airline's working capital.
Mercury believes that the extension of credit to smaller or less
well-capitalized airlines represents a risk, but also is a contributing factor
in attracting and retaining customers. Accordingly, Mercury frequently extends
credit on an unsecured basis to customers which may be less creditworthy and who
may otherwise be required to prepay or post letters of credit for fuel
purchases. The amount of credit extended to any particular customer is a
subjective decision. Factors considered in credit decisions include the
customer's financial strength and payment history, competitive conditions in the
market, the expected profitability of the account and, with respect to domestic
accounts, the availability of credit insurance. Mercury considers its existing
credit portfolio to be of acceptable quality and, on an ongoing basis,
establishes allowances that management believes are adequate to absorb potential
credit problems inherent in the portfolio. See "Risk Factors -- Credit Quality
of Receivables."
Mercury purchases fuel at current market prices from a number of independent
and major oil companies based on the expected requirements of its customers.
Mercury's terms of payment range from ten to thirty days for most of its fuel
purchases, except for bulk pipeline purchases which generally are payable two
days from invoice receipt. Mercury has agreements with certain suppliers under
which Mercury purchases a minimum amount of fuel each month at prices which
approximate current market prices. Mercury makes occasional spot purchases of
fuel to take advantage of market differentials. In order to meet customer supply
requirements, Mercury carries limited inventories at numerous locations and two
to three weeks inventory requirements at a few key pipeline locations. Due to
the nature of Mercury's business, the volume of Mercury's aviation fuel
inventories will occasionally fluctuate. Depending upon the price and price
movement of aviation fuel, such inventories may subject Mercury to a risk of
financial loss.
Mercury's fuel supply contracts may generally be canceled by either party
with no further obligations. In some cases, Mercury has monthly purchase
requirements which are established based on historical volumes of fuel purchased
by Mercury. Such fuel purchase history may result in the seller agreeing to
provide a monthly allocation to Mercury such that the seller agrees to dedicate
a portion of its available fuel for Mercury's requirements. Mercury benefits
from such an allocation because, during periods of short fuel supply, reductions
in supply are generally made first to those buyers who have not been given any
allocations. To maintain dedicated allocations of fuel, Mercury usually
purchases fuel at levels approximating the allocated amount. However, Mercury is
not obligated to purchase any fuel under an allocation. Currently, the monthly
allocations from Mercury's fuel suppliers represent only a small portion of
Mercury's total monthly supply requirements.
Mercury's fuel sales and services could be materially adversely affected by
a significant decrease in the availability, or increase in the price, of
aviation fuel. Fuel sales and services of $141.8 million in fiscal 1995 and
$64.4 million in fiscal 1994 represented approximately 77.5% and 62.5% of total
revenues in fiscal 1995 and fiscal 1994, respectively. Although Mercury believes
that there are currently adequate aviation fuel supplies and that aviation fuel
supplies will generally remain available, events outside Mercury's control have
resulted and could result in spot shortages or rapid increases in fuel costs.
Although Mercury is generally able to pass through rising fuel costs to its
customers,
25
<PAGE>
extended periods of high fuel costs could adversely affect Mercury's ability to
purchase fuel in sufficient quantities because of credit limits placed on
Mercury by its fuel suppliers. See "Risk Factors -- Aviation Fuel Availability."
In addition to contract fueling, Mercury considers a number of other
commercial activities which are headquartered at LAX as part of its fuel sales
and services operations. These activities include refueling services at LAX and
John Wayne International Airport in Santa Ana, California, the brokering of
non-aviation fuel to the industrial and commercial marketplace, the provision of
air frame and power plant mechanics to commercial airlines and the provision of
cargo warehouse manpower to a commercial airline. Refueling services at LAX and
John Wayne International Airport consist of the delivery of fuel by
Company-owned trucks or hydrant carts for a fee. Mercury also maintains fuel
tanks at LAX to support its fuel sales operations.
CARGO OPERATIONS
The Company's cargo operations are conducted through MAC, which provides the
following services: cargo handling, space brokerage and general cargo sales
agent services.
CARGO HANDLING. MAC provides domestic and international air cargo handling, air
mail handling and bonded warehousing. MAC is one of only two non-airline
providers of contractual cargo containerization and palletization for
international carriers and cargo shippers at LAX. MAC specializes in
consolidating smaller parcels into air cargo pallets and breaking down shipping
containers for sea-to-air and air-to-air transfers. In addition, MAC receives
cargo and loads pallets for shipping.
As an example of its cargo handling services, a large quantity of goods
manufactured in the Far East might be shipped by sea to the port of Los Angeles.
The shipment will be delivered by truck to MAC's LAX warehouse where the goods
may be temporarily stored while waiting to be broken down and redistributed to a
number of cities throughout the United States. Later, MAC's warehouse personnel
will combine that portion of the Far East shipment intended for any particular
destination, for example, Chicago, with other unrelated merchandise destined for
Chicago, onto pallets specifically sized to fit efficiently in airplane cargo
holds. This process is called palletization. MAC personnel will then deliver the
configured pallet to an air carrier who will transport it to Chicago. MAC's fee
for this service is typically based on the weight of the cargo handled.
MAC's cargo handling operations occur primarily at LAX. In May 1994, MAC
expanded its cargo handling operations by opening an off-airport warehouse in
San Francisco, California. In July 1994, MAC opened a cargo handling facility in
Miami, Florida in conjunction with the hiring of a key employee. Upon the
departure of the key employee in March 1995, the Miami facility was closed at
minimal expense.
In September 1995, Mercury acquired, as a result of the Excel Transaction,
the operating and other assets of certain providers of cargo handling service
facilities in Montreal and Toronto. This acquisition provides Mercury with an
approximately 50,000 square foot cargo handling facility in Montreal and an
approximately 12,000 square foot cargo handling facility in Toronto.
MAC is able to compete in the cargo handling business by offering quality
service from its strategically located LAX and San Francisco warehouse
facilities. At LAX, a portion of Mercury's cargo handling operations are
conducted in a facility subject to a month-to-month agreement. Continuous
long-term growth in MAC's cargo handling operations can only be realized by
maintaining and expanding current warehouse facilities or by obtaining
additional warehouse facilities at LAX or new locations.
SPACE BROKERAGE. MAC brokers cargo space on international flights to Europe,
the Middle East, Mexico and Central and South America. Space brokerage involves
contracting for cargo space on airlines and subsequently, on MAC's own airway
bill, selling that space to customers with shipping
26
<PAGE>
needs. MAC has established a network of shipping agents who assist in obtaining
cargo for shipment on space purchased from airlines, and who facilitate the
delivery and collection of freight charges for cargo shipped on MAC's airway
bills.
Unlike an air cargo company which operates its own aircraft, MAC's space
brokerage business utilizes otherwise unfilled cargo space on scheduled airline
flights. Accordingly, MAC is able to profit from the sale of cargo
transportation space worldwide without the fixed overhead expense of maintaining
aircraft. MAC purchases cargo space from a number of airlines worldwide. As a
result of its large volume of cargo space purchases and its ability to negotiate
among airlines, MAC adds value for its customers and is able to attract business
by offering favorable pricing. MAC's revenues are the difference between the
cost of the space and the amount at which the space is resold.
MAC believes it can expand its space brokerage business by establishing
relationships with additional shipping agents, by negotiating for additional
space on airlines with which it currently ships goods, and by purchasing space
from airlines with which it does not currently ship goods. MAC believes that its
knowledge of worldwide shipping patterns can help it to achieve growth in this
area.
GENERAL CARGO SALES AGENT SERVICES. MAC also serves as general cargo sales
agent for airlines in the Far East, Mexico, Central and South America and in the
United States. In this capacity, MAC sells the transportation of cargo on client
airlines' flights, using the client airlines' own airway bills. MAC earns
commissions from the airlines for selling air cargo space. As with its space
brokerage operations, the growth potential for MAC's general cargo sales agent
business is not limited by requirements for physical facilities or additional
capital investments. MAC believes that it can further develop its general cargo
sales agent business by adding sales territories from existing airline general
cargo sales agent customers and by entering into arrangements with additional
airline customers.
FIXED BASE OPERATIONS
Mercury currently provides FBO services at LAX; Cannon International Airport
in Reno, Nevada; Meadows Field Airport in Bakersfield, California;
Burbank-Glendale-Pasadena Airport in Burbank, California; and Santa Barbara
Municipal Airport in Santa Barbara, California. See "-- Properties." At each
FBO, Mercury maintains administrative offices; conducts retail fuel sales and
refueling operations which service principally corporate and private aircraft
("general aviation") and to some extent commercial airlines; and acts as a
landlord for office and aircraft tie-down space tenants and, except at LAX, for
hangar tenants. In addition, at Cannon International Airport, Mercury provides
ground handling services for commercial airlines.
Each FBO operates refueling vehicles and maintains fuel storage tanks to
support its into-plane and fuel sales activities. The FBO facilities and the
property on which their operations are conducted are generally leased from the
respective airport authorities. See "-- Properties."
Mercury competes with other FBOs by offering favorable pricing and quality
service to its customers. Mercury's long-term strategy for increasing revenues
and operating income of its FBOs is to acquire additional FBOs on favorable
economic terms and to increase its business at existing FBOs. In considering
potential acquisitions, Mercury analyzes factors such as capital requirements,
the terms and conditions of the lease for the FBO facility, the condition and
nature of the physical facilities and the size and competitive conditions of the
airport. Although Mercury is in the process of evaluating several FBOs for
possible acquisition, Mercury has not entered into any binding commitments to
purchase any additional FBOs.
GOVERNMENT CONTRACT SERVICES
Mercury conducts its government contract services business through Maytag.
Headquartered in Colorado Springs, Colorado, Maytag provides services at 17 U.S.
military bases, primarily for the U.S. Navy, including 14 located in the United
States and three additional bases located in Greece and Japan. Maytag provides
services to the government pursuant to contracts for each base which run for one
to four years. Under these contracts, Maytag principally operates
government-owned fuel depots and services a variety of aircraft for the
military. Under the terms of its contracts, Maytag supplies all
27
<PAGE>
necessary personnel and equipment to provide 24-hour refueling capability. All
fuel handled in these operations is government owned. Maytag owns and operates a
fleet of refueling trucks and other support vehicles to support its government
contract services business.
The following table lists the bases at which Maytag provides services, as of
December 31, 1995, and the expiration date of each contract for each base.
Generally, these contracts provide for fueling services, unless otherwise noted.
<TABLE>
<CAPTION>
EXPIRATION DATE OF
LOCATION CONTRACT
- ------------------------ -------------------------
<S> <C>
Cherry Point, NC January 1996
Washington, DC April 1996
Willow Grove, PA August 1996
Memphis, TN September 1996
Bangor, WA September 1996 (1)
Fukuoka, Japan September 1996 (2)
Lakehurst, NJ September 1996
Souda Bay, Crete September 1996
Yokota, Japan September 1996 (3)
Brunswick, ME October 1996
Pensacola, FL August 1997
Whidbey Island, WA August 1997
Fallon, NV September 1997
Whiting Field, FL September 1997
Yuma, AZ July 1998
Point Mugu, CA April 1999
El Centro, CA September 1999
</TABLE>
- ------------
(1) Contract to provide library services.
(2) Contract to provide air terminal services.
(3) Contract to provide housing maintenance services.
Maytag's government contracts are subject to competitive bidding, are
generally awarded on a firm fixed-price basis and are subject to termination at
the discretion of the U.S. government in whole or in part. Termination of a
contract may occur if the U.S. government determines that it is in its best
interest to discontinue the contract, in which case closure costs will be paid
to Maytag. Termination may also occur if Maytag defaults under a contract.
Maytag has never experienced any such default termination.
Maytag's government contract services business has been negatively impacted
by contract losses due to base closures, the loss of competitive bids, small
business contract set asides and internalization of the refueling function by
the U.S. military. Since June 30, 1994, ten contracts held by Maytag have been
terminated or are scheduled to be terminated, five of which were terminated in
fiscal 1995, four of which were terminated or are scheduled for termination
during fiscal 1996 and one of which is scheduled for termination during fiscal
1997. Former base contracts terminated in fiscal 1996 were North Island, CA,
Peterson, CO, and Bermuda. Maytag lost a bid to renew its refueling contract at
North Island which contract expired in December 1995. In addition, the refueling
contract at Cherry Point, which will expire in January 1996, has not been
renewed due to the government's decision to perform the services with military
personnel. The contract at Peterson has been set aside for small business
effective January 1996. The Bermuda base was closed in September 1995, and the
Memphis base is scheduled to close in September 1996, both under federal base
closure and realignment legislation. The Washington D.C. base contract is
expected to be renewed for an additional four-year term, effective May 1, 1996.
Based upon the July 13, 1995 presidential approval of the Defense Base
28
<PAGE>
Closure and Realignment Commission recommendation, no additional bases served by
Maytag were selected for closure under the last round of federally mandated base
closures. The Company knows of no additional plans by the U.S. government to
close bases.
Operating income from government contract services in fiscal 1995 included
$1.4 million from the ten contracts which have been terminated or are scheduled
for termination.
Since June 30, 1994, Maytag successfully renewed four-year contracts at
Point Mugu and El Centro. Mercury also acquired new contracts at Fukuoka, Japan,
to provide air terminal services, and at Yokota, Japan, to provide housing
maintenance services, effective November 1994 and October 1995, respectively.
Mercury's strategy in the government contract services area is to capture
new refueling contracts, to retain existing refueling contracts by utilizing
cost advantages based on the availability of excess capital equipment which has
been fully amortized, and to expand the types of outsourcing services provided
to the U.S. government. Potential areas of expansion include engineering
services, base operating services and maintenance and operations services.
Mercury believes expansion beyond its core military refueling business is
feasible due to Mercury's familiarity with military base operations and
government contract requirements in general.
RECENT DEVELOPMENTS
EXCEL CARGO
On September 30, 1995, Mercury closed the acquisition of certain operating
and other assets of Excel Cargo Inc., Excel Handling Inc. and 3087-1966 (Quebec)
Inc. (the "Excel Parties"), providers of cargo handling services at airport
facilities in Toronto and Montreal (the "Excel Transaction"). The consideration
paid for the assets was $2,766,000 (U.S. dollars). In addition, Mercury assumed
certain liabilities in connection with the transaction, including notes which
totaled approximately $573,000, along with accounts payable and accrued
expenses. Total liabilities assumed totaled approximately $1,041,000. Mercury
paid the notes at the closing of the Excel Transaction.
Mercury acquired the assets through the issuance, by a wholly-owned
subsidiary, of a convertible debenture, guaranteed by Mercury. The convertible
debenture bears interest at the rate of 8.5%, is payable over eight years in
equal monthly installments of principal and interest, and is convertible into
Common Stock at a conversion price of $12.00 per share, subject to adjustment
upon certain events. In addition, the face amount of the convertible debenture
is adjustable downward in the event the pre-tax earnings generated during the
three years following the acquisition is less than a certain amount.
The transaction provides for the employment of the former President of each
of the Excel Parties for three years, at $100,000 per year, plus bonus. In
addition, the Excel Parties and their affiliates have agreed not to compete with
Mercury or any of its affiliates in the cargo handling business in Canada until
February 1, 2000. In addition to the purchase price, Mercury agreed to pay
$60,000 to a third party as a finder's fee.
LAX CARGO FACILITY
In August 1995, MAC expanded its cargo handling operations at LAX by
leasing, on a month-to-month basis, an additional 30,000 square foot hangar. See
"-- Properties."
FLORACOOL INCORPORATED OF FLORIDA
On November 20, 1995, a letter of intent was executed between Mercury and
Floracool Incorporated of Florida ("Floracool"). The letter of intent provides
for Mercury to acquire all of the outstanding common stock of Floracool for
$250,000, subject to adjustment, and to employ the former President of Floracool
under a consulting agreement for five years, at $70,000 per year. It is
anticipated that this transaction will close during the third quarter of fiscal
1996. Floracool is engaged in the air cargo business in Miami.
29
<PAGE>
CARNIVAL AIR LINES, INC.
On October 18, 1995, Mercury announced the signing of a letter of intent
under which Carnival Air Lines, Inc., a privately owned airline, would be merged
with and into the Company. On November 29, 1995, Mercury announced the
termination of the transaction due to the inability of the parties to agree upon
certain material terms and closing conditions.
MAJOR CUSTOMERS
During fiscal 1995, no customers accounted for over 10% of Mercury's total
revenues. See "Risk Factors -- Dependence on Significant Customers."
POTENTIAL LIABILITY AND INSURANCE
Mercury's business activities subject it to risk of significant potential
liability under federal and state statutes, common law and contractual
indemnification agreements. Mercury reviews the adequacy of its insurance on an
on-going basis. Mercury believes it follows generally accepted standards for its
lines of business with respect to the purchase of business insurance and risk
management practices. The Company purchases airport liability and general and
auto liability in amounts which the Company believes are adequate for the risks
of its business.
COMPETITION
Mercury competes with major oil companies which maintain their own source of
aviation fuel and with other aircraft support companies whose total sales and
financial resources far exceed those of Mercury. In addition, certain airlines
provide cargo and fueling services comparable to those furnished by Mercury. At
LAX, Mercury competes with, in addition to the airlines, three independent fuel
delivery services providers and primarily with one non-airline entity with
respect to air cargo handling. Each FBO has a minimum of one competitor at each
airport. Mercury has many principal competitors in the government contract
services business, including certain small disadvantaged businesses which
receive a ten percent cost advantage with respect to certain bids and set asides
of certain contracts. Substantially all of Mercury's services are subject to
competitive bidding. Mercury competes on the basis of price and quality of
service. See "Risk Factors -- Competition."
ENVIRONMENTAL MATTERS
Mercury must continuously comply with federal, state and local environmental
statutes and regulations associated, in part, with its numerous underground fuel
storage tanks. These requirements include, among other things, tank and pipe
testing for tightness, soil sampling for evidence of leaking and remediation of
detected leaks and spills. Mercury has installed inventory systems for its
underground storage tanks and has placed sensors underground to detect leaking.
Mercury's operations are subject to frequent inspection by federal and local
environmental agencies and local fire and airline quality control departments.
To date, there have been no material capital expenditures nor has there been a
material negative impact on Mercury's earnings or competitive position in
performing such compliance and related remediation work. To date, Mercury has
not received any notice of violation or been subject to any cease and abatement
proceeding by any government agency as a result of failure to comply with
applicable environmental laws and regulations. Based on tests performed to date,
Mercury knows of no basis for any notice of violation or cease and abatement
proceeding by any government agency. See "Risk Factors -- Environmental
Matters."
EMPLOYEES
As of December 31, 1995, Mercury employed 1,047 persons in the following
units: fuel sales and services, 198 persons; cargo handling, 298 persons; FBOs,
178 persons; government contract services, 329 persons; and administration, 44
persons. Mercury is in the process of negotiating collective bargaining
agreements for its military refueling operations at Brunswick, Maine and Point
Mugu, California. Management believes that, in general, wages, hours, fringe
benefits and other conditions of employment offered throughout Mercury's
operations are at least equivalent to those found elsewhere in its industry and
that its general relationship with its employees is satisfactory. See "Risk
Factors -- Dependence Upon Key Personnel" and "Risk Factors -- Employee
Relations."
30
<PAGE>
PROPERTIES
Mercury owns its executive offices, which consist of approximately 20,000
square feet, located at 5456 McConnell Avenue, Los Angeles, California. Mercury
also owns a hangar and administrative facility located at Cannon International
Airport in Reno, Nevada, which consists of approximately 33,000 square feet, an
aircraft facility located at Burbank-Glendale-Pasadena Airport in Burbank,
California, which consists of approximately 106,000 square feet, and an aircraft
facility located at Meadows Field Airport in Bakersfield, California, which
consists of approximately 118,000 square feet. Mercury leases the land on which
such buildings are situated. Mercury also leases various airport and off-airport
facilities at locations throughout the western United States, including the
following: (i) an approximately 10,000 square foot office and approximately
90,000 square feet of cargo hangar facilities at LAX, (ii) an approximately
43,000 square foot aircraft facility and an approximately 5,200 square foot
hangar facility at Burbank-Glendale Pasadena Airport in Burbank, California,
(iii) an approximately 45,000 square foot cargo hangar facility in San
Francisco, California, (iv) an approximately 50,000 square foot cargo hangar
facility in Montreal, and (v) an approximately 12,000 square foot cargo handling
facility in Toronto.
At commercial airports where Mercury operates FBOs, Mercury maintains its
own fuel storage capabilities which are principally located underground as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
CAPACITY
LOCATION (GALLONS)
- ----------------- ------------
<S> <C>
LAX 311,000
Bakersfield 105,000
Burbank 119,000
Santa Barbara 42,000
Reno 100,000
</TABLE>
Management believes that Mercury's property and equipment are adequate for
its present business needs.
LEGAL PROCEEDINGS
Other than routine litigation incident to Mercury's business, Mercury knows
of no material litigation or administrative proceedings pending against Mercury
to which Mercury or any of its subsidiaries is a party or to which any of their
property is subject.
31
<PAGE>
MANAGEMENT
Set forth in the table below is certain information with respect to the
executive officers and directors of Mercury and certain of its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------------- --- ------------------------------------------
<S> <C> <C>
Seymour Kahn 68 Chairman of the Board and Chief Executive
Officer of Mercury
Joseph A. Czyzyk 48 President, Chief Operating Officer and
Director of Mercury and President of
Mercury Air Cargo, Inc. ("MAC")
Randolph E. Ajer 42 Executive Vice President, Chief Financial
Officer, Secretary and Treasurer of
Mercury
William L. Silva 45 Executive Vice President of Mercury and
Executive Vice President of Maytag
Aircraft Corporation ("Maytag")
Kevin J. Walsh 45 Executive Vice President and Senior Vice
President of Maytag
Philip J. Fagan, Jr., M.D.(1) 51 Director
Frederick H. Kopko, Jr.(1) 40 Director
William G. Langton 49 Director
Robert L. List(1) 59 Director
</TABLE>
- ------------
(1) Member of Audit and Compensation Committees
Except for Messrs. Kahn and Czyzyk, the executive officers of Mercury, who
are appointed by the Board of Directors, hold office for one-year terms or until
their respective successors have been duly elected and have qualified. See "--
Employment Agreements." The executive officers of Mercury's subsidiaries, who
are appointed by such subsidiaries' Boards of Directors, also hold office for
one-year terms or until their respective successors have been duly elected and
have qualified.
SEYMOUR KAHN served as President of Mercury from 1969 until 1989 and has
served as Chief Executive Officer and Chairman of the Board of Directors of
Mercury since 1974.
JOSEPH A. CZYZYK has been President, Chief Operating Officer and a director
of Mercury since November 1994 and President of MAC since August 1988. Mr.
Czyzyk also served as President of Mercury Service, a division of Mercury which
sells aviation fuel and provides refueling services for commercial aircraft,
from August 1985 until August 1988. Mr. Czyzyk served as an Executive Vice
President of Mercury in November 1990. Pursuant to his employment agreement, the
Board of Directors will continue to nominate Mr. Czyzyk as a candidate for
election to the Board of Directors while Mr. Czyzyk remains employed by Mercury.
See "-- Employment Agreements."
RANDOLPH E. AJER has been Chief Financial Officer of Mercury since 1987 and
Secretary and Treasurer since May 1985. Mr. Ajer served as a director of Mercury
from September 1989 until December 1990. He was appointed an Executive Vice
President of Mercury in November 1990.
WILLIAM L. SILVA served as Director of Operations of Maytag from October
1982 to October 1987 and was appointed Vice President of Maytag in November
1987. Since June 1992, Mr. Silva has been an Executive Vice President of Maytag.
In August 1993, Mr. Silva became an Executive Vice President of Mercury.
KEVIN J. WALSH served as Vice President of Maytag from 1987 to June 1992
when he was appointed Senior Vice President of Maytag. Since January 1992, Mr.
Walsh has been managing the Mercury Service division. Mr. Walsh was appointed an
Executive Vice President of Mercury in November 1990. Mr. Walsh has been
employed by Mercury in various capacities since 1972.
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<PAGE>
PHILIP J. FAGAN, JR., M.D. has been a director of Mercury since September
1989. Dr. Fagan has been the Chief Executive Officer and President of the
Emergency Department Physicians Medical Group, Inc. since its inception in 1978.
Dr. Fagan has also been President of Fagan Emergency Room Medical Group since
its inception in 1989. Both companies are currently located in Burbank,
California.
FREDERICK H. KOPKO, JR. has been a director of Mercury since October 1992.
Mr. Kopko has been a partner in the law firm of McBreen, McBreen & Kopko since
January 1990. Previously, Mr. Kopko served as managing partner of the law firm
of D'Ancona & Pflaum, a firm which he was associated with from August 1983
through December 1989. Mr. Kopko presently serves on the board of directors of
Butler International, Inc.
WILLIAM G. LANGTON has been a director of Mercury since August 1993. Mr.
Langton has been President and Chief Operating Officer of Southern Air
Transport, a provider of a wide range of commercial and supplemental aviation
services, for over ten years.
ROBERT L. LIST has been a director of Mercury since 1990. Mr. List is
presently an independent financial consultant. From December 1989 to August
1992, Mr. List was President of Yellowstone Environmental Services, Inc. of
Phoenix, Arizona, an environmental/engineering consulting firm. Prior to that,
Mr. List owned and operated Cimarron Research, an investment consulting firm,
based in Durango, Colorado and Dallas, Texas since 1977. Mr. List serves on the
board of directors of Pancho's Mexican Buffet, Inc.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mercury's Compensation Committee consists of Messrs. List and Kopko and Dr.
Fagan. During fiscal 1995 and the six months ended December 31, 1995, Mercury
paid to the law firm of McBreen, McBreen & Kopko, of which Mr. Kopko is a
partner, $5,534 and $10,351, respectively, for legal services.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or accrued by
Mercury for the Chairman of the Board and Chief Executive Officer and for each
of the four other most highly compensated officers (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ----------- -------------
------------------------ SECURITIES LONG-TERM ALL OTHER
FISCAL UNDERLYING COMPENSATION COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) PAYOUTS ($) ($)
- ----------------------------------- ----------- ----------- ----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Seymour Kahn 1995 300,000 408,000 -0- -0- 14,362(2)
Chairman of the Board and 1994 230,000 301,500 -0- -0- 2,536
Chief Executive Officer 1993 230,000 196,433 100,000 -0- 2,436
Joseph A. Czyzyk 1995 271,000 136,000 -0- -0- 56,030(3)
President and 1994 271,000 -0- -0- -0- 54,388
Chief Operating Officer 1993 271,000 -0- 25,000 -0- 288
Randolph E. Ajer 1995 130,000 258,000 -0- -0- 55,382(4)
Executive Vice President and 1994 126,500 198,500 -0- -0- 54,388
Chief Financial Officer 1993 126,500 71,092 -0- -0- 288
Kevin J. Walsh 1995 156,000 40,000 -0- -0- 55,463(5)
Executive Vice 1994 144,375 75,000 -0- -0- 54,188
President 1993 137,500 10,000 -0- -0- 188
William L. Silva 1995 102,917 37,000 -0- -0- 410(6)
Executive Vice 1994 100,000 50,000 -0- -0- 200
President 1993 80,000 33,738 -0- -0- 100
</TABLE>
- ------------
(1) Amounts reflected include Mercury's contributions to a 401(k) Plan
maintained for the benefit of all employees, premiums paid for life
insurance policies to the extent such policies are for the benefit of an
executive officer's designated beneficiary and loan forgiveness with respect
to Mercury financed purchases of Common Stock. See "Certain Transactions."
33
<PAGE>
(2) Consists of 401(k) contributions and life insurance premiums in the amounts
of $200 and $14,162, respectively.
(3) Consists of 401(k) contributions, life insurance premiums and loan
forgiveness in the amounts of $200, $1,830 and $54,000, respectively.
(4) Consists of 401(k) contributions, life insurance premiums and loan
forgiveness in the amounts of $200, $1,182 and $54,000, respectively.
(5) Consists of life insurance premiums and loan forgiveness in the amounts of
$1,463 and $54,000, respectively.
(6) Consists of 401(k) contributions and life insurance premiums in the amounts
of $200 and $210, respectively.
EMPLOYMENT AGREEMENTS
Mr. Kahn has an employment agreement with Mercury dated as of December 10,
1993 pursuant to which Mercury will employ him as Chairman of the Board and
Chief Executive Officer for a three-year period with automatic one-year
extensions at the end of each year unless either party terminates the agreement
in writing prior to such renewal. Under the employment agreement, Mr. Kahn's
annual compensation was $230,000 from December 1, 1993 to December 1, 1994.
Since December 1, 1994, Mr. Kahn has been paid compensation at the rate of
$350,000 per year .
If Mr. Kahn is disabled for more than six weeks while employed, his
compensation will be reduced by 50%. If Mr. Kahn is disabled for more than
twelve months, Mercury may terminate his employment with a severance payment
equal to his salary for the lesser of one year or the remaining term of the
employment agreement. If Mr. Kahn's employment is terminated without cause,
Mercury will be obligated to pay him all amounts which would otherwise be paid
to him over the remaining term of the employment agreement. Mr. Kahn may
voluntarily terminate the employment agreement and receive all amounts which
would otherwise be paid to him over the remaining term of the employment
agreement if any of the following events occurs without Mr. Kahn's written
consent, including: (i) any person gains sufficient control over the voting
stock of Mercury so as to control Mercury or the election of a majority of the
Board of Directors, (ii) Mercury is acquired by another entity, either through
the purchase of Mercury's assets or stock or a combination thereof, or (iii)
Mercury is merged or consolidated with another entity or reorganized, in a
manner in which Mercury's present status, business or methods are changed. If
Mr. Kahn dies during the term of the employment agreement, Mercury will pay to
Mr. Kahn's estate the compensation which would otherwise be paid to Mr. Kahn
through the end of the month in which he dies. In addition, Mercury will pay Mr.
Kahn's estate or other designated beneficiary $2,250,000 upon his death.
Relating to this obligation, Mercury has obtained a life insurance policy on Mr.
Kahn's life in the amount of $2,025,000 which designates Mr. Kahn's wife as
beneficiary.
Mr. Kahn has agreed not to compete with Mercury within a radius of 300 miles
from Mercury's present place of business for five years after the termination of
the employment agreement. Mercury must make the severance payments required by
the employment agreement for this non-competition agreement to be effective.
A cash bonus plan for Mr. Kahn was approved by the Board of Directors in
November 1990 (commencing fiscal 1991). The Compensation Committee continued the
bonus plan during fiscal 1995 and will continue the bonus plan during fiscal
1996. The two-part bonus plan is based on earnings before interest and taxes
(EBIT) of the Company for the year in which the bonus is calculated. Under Part
I of the Bonus Plan, if the bonus year's EBIT meets or exceeds the trailing
three-year EBIT average, Mr. Kahn is entitled to a bonus equal to 25% of his
salary. For years where EBIT falls below the trailing three-year average, any
bonus paid to Mr. Kahn is solely at the discretion of the Compensation
Committee. Under Part II of the Bonus Plan, an additional bonus is paid to Mr.
Kahn in an amount equal to 6.67% of any increase in the bonus year's EBIT level
over the trailing three-year average EBIT level.
34
<PAGE>
Mr. Czyzyk has an employment agreement with Mercury, dated as of November
15, 1994, pursuant to which Mercury will employ him as its President and Chief
Operating Officer and as the president of MAC for a term ending on November 15,
1997, subject to automatic one-year extensions each successive November 15,
unless either party gives 30 days' notice of non-renewal. The agreement provides
that Mr. Czyzyk's tenure as President and Chief Operating Officer shall serve as
a period of training and evaluation for appointment as Chief Executive Officer
of Mercury, when and as such position may be vacated by Mr. Kahn, subject to the
sole discretion and judgment of the Board of Directors. The agreement further
provides for the continued nomination of Mr. Czyzyk to the Board of Directors of
Mercury, so long as Mr. Czyzyk continues to serve as President and Chief
Operating Officer.
Mr. Czyzyk will receive an annual salary of $270,000 plus a bonus at the end
of each fiscal year based on the following: (i) for fiscal 1996, in the event
that Mercury's consolidated operating income less sales, general and
administrative expenses and depreciation (EBIT) for that year exceeds the
average EBIT of fiscal 1994 and fiscal 1995, then Mr. Czyzyk shall be paid a
bonus of 25% of his base compensation under Part I of the Bonus Plan and 2 1/2%
of the amount by which fiscal 1996 EBIT exceeds the average EBIT of fiscal 1994
and fiscal 1995 under Part II of the Bonus Plan; and (ii) for fiscal years
subsequent to fiscal 1996, Part I and Part II of the Bonus Plan remain in effect
except that the threshold EBIT is based on a trailing average of EBIT for the
prior three fiscal years.
In the event Mr. Czyzyk's employment is terminated for cause, Mr. Czyzyk
will not be entitled to receive or be paid a bonus. In the event Mr. Czyzyk's
employment is terminated without cause, Mercury will be obligated to pay Mr.
Czyzyk the lesser of one year's base compensation or the base compensation that
would otherwise be paid to him over the remaining term of the agreement, and a
bonus for the fiscal year of termination in an amount which would otherwise be
paid to him prorated over the days Mr. Czyzyk was employed by Mercury during the
fiscal year of termination. "Cause" is defined in the employment agreement as
misappropriation of corporate funds, negligence, Mr. Czyzyk's voluntary
abandonment of his job (other than following a change in control, as defined in
his employment agreement) or a material breach of the employment agreement. In
the event of Mr. Czyzyk's death, Mr. Czyzyk's estate or beneficiary will be
entitled to receive the death benefits of a $1,000,000 insurance policy, but all
other obligations under his employment agreement will terminate and Mercury's
only obligation will be to pay Mr. Czyzyk's estate all accrued salary through
the end of the month of his death. In the event of Mr. Czyzyk's disability (as
determined by the Chief Executive Officer of Mercury), Mr. Czyzyk's base salary
will be reduced by 50% during the period of disability. If Mr. Czyzyk is
disabled for a period of more than 12 months (as determined by the Chief
Executive Officer of Mercury), Mercury will be obligated to pay Mr. Czyzyk the
same amount that would have been paid to Mr. Czyzyk if his employment was
terminated without cause, except that all amounts paid to Mr. Czyzyk under any
long-term disability insurance policy maintained by Mercury will be credited as
if paid by Mercury to Mr. Czyzyk and after giving effect to any federal or state
income tax savings resulting from the payment under a disability policy (as
opposed to taxable salary). The employment agreement further provides that Mr.
Czyzyk may terminate his employment following such a change in control, in which
event Mr. Czyzyk will be entitled to be paid the lesser of one year's base
compensation or the entire balance of his base compensation remaining to be paid
to Mr. Czyzyk over the remaining term of the agreement.
Mr. Czyzyk also received a signing bonus in the amount of $100,000 upon the
execution of the employment agreement. The agreement includes a five-year
post-employment, non-competition covenant.
COMPENSATION OF DIRECTORS
Commencing July 1994, Mercury paid each non-employee director $1,000 per
meeting with an annual minimum of $7,500 in fees paid in advance on the annual
meeting date. Directors are also reimbursed for their travel, meals, lodging and
out-of-pocket expenses incurred in connection with
35
<PAGE>
attending Board meetings. In addition, during fiscal 1995 and continuing through
fiscal 1996, the law firm of McBreen, McBreen & Kopko has been providing legal
services to Mercury at its standard billing rates.
Under the 1990 Directors Stock Option Plan (the "1990 Directors Plan"), each
individual who was a non-employee director on March 9, 1990 received an option
to purchase 11,000 shares of Common Stock. As of the date of each annual meeting
of shareholders ("Annual Meeting Date") occurring after March 9, 1990, each
individual who was a non-employee director at any time since the end of the next
preceding Annual Meeting Date was, and will continue to be, awarded options to
purchase 11,000 shares of Common Stock.
The purchase price of a share of Common Stock under an option is equal to
the greater of 100% of the fair market value of a share of Common Stock as of
the date the option is granted or the par value of a share of such Common Stock
on such date. The options vest one year after the date of grant except following
a "change in control", as defined, in which event the options vest immediately.
Each option expires ten years after the date of grant.
Under the 1990 Directors Plan, each of the current directors who are not
employees of Mercury were granted non-qualified stock options at exercise prices
equal to the fair market value of the Common Stock on the date of grants, as
follows: Philip Fagan, Jr., M.D., options to purchase 66,000 shares, all
currently outstanding, exercisable at prices between $1.70 and $6.36 per share;
Frederick H. Kopko, Jr., options to purchase 33,000 shares, all currently
outstanding, exercisable at prices between $1.93 and $6.36 per share; Robert L.
List, options to purchase 66,000 shares, 55,000 exercised, 11,000 currently
outstanding, exercisable at $6.36 per share; and William Langton, options to
purchase 22,000 shares, all currently outstanding, exercisable at $3.35 to $6.36
per share. Mr. Langton was also granted a non-qualified stock option outside the
1990 Directors Plan on August 9, 1993, exercisable to purchase 10,000 shares at
$3.125 per share, the fair market value on the date of grant. This option was
exercised in March 1994.
STOCK OPTIONS
The following table sets forth information regarding option exercises during
fiscal 1995, as well as the number and total of in-the-money options at June 30,
1995, for each of the Named Executive Officers. No Named Executive Officers were
granted options during fiscal 1995.
36
<PAGE>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES (1)
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL AT FISCAL
YEAR-END (#) YEAR-END ($)(4)
SHARES ------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($)(2)(3) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------- ------------- ---------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Seymour Kahn.......................... -0- -0- 110,000/-0- 688,050/-0-
Joseph A. Czyzyk...................... 4,620 31,500 22,800/-0- 146,946/-0-
Randolph E. Ajer...................... 5,500 30,875 22,000/-0- 139,150/-0-
Kevin J. Walsh........................ 5,500 32,500 22,000/-0- 139,150/-0-
William L. Silva...................... -0- -0- 27,500/-0- 153,807/-0-
</TABLE>
- ------------
(1) As adjusted for the ten percent stock dividend, effective June 16, 1995.
(2) In accordance with the rules of the Commission, the amounts set forth in the
"Value Realized" column of this table are calculated by subtracting the
exercise price from the fair market value of the underlying Common Stock on
the exercise date. The amounts reported thus reflect the increase in the
price of Mercury's common stock from the option grant date to the option
exercise date, but do not necessarily reflect actual proceeds received upon
option exercises.
(3) For purposes of this table, fair market value is deemed to be the average of
the high and low Common Stock price reported by the American Stock Exchange
Composite Transactions on the date indicated.
(4) Based upon a fair market value of $8.375 per share at June 30, 1995.
CERTAIN TRANSACTIONS
In November 1994, Mercury acquired from Mr. Czyzyk the outstanding minority
interest in Mercury's 80% owned subsidiary, MAC. The transaction included a
redemption of 5% of the capital stock of MAC held by Mr. Czyzyk in exchange for
$450,000 in cash and acquisition of the remaining 15% of the capital stock of
MAC held by Mr. Czyzyk through the issuance of 225,000 shares of Common Stock
valued at $1,406,000 ($6.25 per share, the closing price of the Common Stock on
the AMEX on the date the Board approved the transaction) for a total
consideration of $1,856,000. In addition, concurrent with the acquisition,
Mercury entered into an employment agreement with Mr. Czyzyk. See "Management --
Employment Agreements."
Pursuant to a Stock Purchase Agreement (the "First Stock Purchase
Agreement") dated December 10, 1990 between Mercury, SK Acquisition, Inc., a
Delaware corporation wholly-owned by Mr. Kahn ("SKAI"), Randolph E. Ajer, Kevin
J. Walsh, Grant G. Murray and Joseph A. Czyzyk (the "First Purchasers"), all
full-time employees and Executive Vice Presidents of Mercury, SKAI sold 110,000
shares of Common Stock to each of Messrs. Ajer, Walsh, Murray and Czyzyk, at the
price of $2.73 per share, with each purchaser paying a purchase price of
$300,000, or an aggregate of $1,200,000. On December 10, 1990, the closing price
of the Common Stock on the AMEX was $2.73 per share. Pursuant to a Stock
Purchase Agreement (the "Second Stock Purchase Agreement", collectively, the
First and Second Stock Purchase Agreements are hereinafter referred to as the
"Stock Purchase Agreement") dated August 9, 1993 between Mercury, SKAI and
William L. Silva, a full-time employee and Executive Vice President of Mercury,
SKAI sold 110,000 shares of Common Stock to Mr. Silva at a price of $2.73 per
share, with Mr. Silva paying a total purchase price of $300,000. On August 9,
1993, the closing price of the Common Stock on the AMEX was $2.84 per share.
Each of the First Purchasers and Mr. Silva (collectively, the "Purchasers") paid
$30,000 cash at the closing of his purchase, or an aggregate of $150,000, and
agreed to pay the remaining $270,000, or an aggregate of $1,350,000, over a
period of five years from the date of purchase, together with interest at the
rate of
37
<PAGE>
10% per annum on the outstanding balance. The purchase price owed to SKAI is
secured by a first security interest in the Common Stock sold to each Purchaser
and each such loan is non-recourse. Each Purchaser has given SKAI an irrevocable
proxy to vote the Common Stock purchased by him for all purposes until the
purchase price for his Common Stock has been paid in full.
As part of the Stock Purchase Agreement, Mercury has agreed to loan the
principal balance of the unpaid purchase price to each of the Purchasers during
the five-year payment period as each payment is required to be made on March 1,
June 1, September 1 and December 1 of each year until the principal amount owed
by each Purchaser is paid in full, which will occur by the end of 1995 with
respect to the First Purchasers and the end of 1998 with respect to Mr. Silva.
Such loans are non-recourse, bear no interest, and are secured by a second
security interest in the purchased stock. The Purchasers have each agreed to pay
their own interest on the balance of the purchase price due SKAI from personal
funds. Commencing March 1, 1994, and annually thereafter, for each of the First
Purchasers who remain employed by Mercury, one-fifth of his loan will be
forgiven. For each First Purchaser who remains employed by Mercury through March
1, 1998, his loan will be forgiven in full, his shares of Common Stock will be
owned without any further lien in favor of Mercury or SKAI and the proxy granted
to SKAI will expire by its terms. Commencing January 1, 1997, and annually
thereafter, one-fifth of Mr. Silva's loan will be forgiven if he remains
employed by Mercury. If Mr. Silva remains employed by Mercury through January 1,
2001, his loans will be forgiven in full, his shares of Common Stock will be
owned without any further lien in favor of Mercury or SKAI and the proxy granted
to SKAI will expire by its terms. See Note 6 of Notes to Consolidated Financial
Statements.
During fiscal 1995, Mercury loaned an aggregate of $337,500 to the First
Purchasers and Mr. Silva which was used to make the June 1, 1994 through June 1,
1995 payments to SKAI. Amounts outstanding on the loans made by the Company as
of June 30, 1995 and September 30, 1995, respectively, were as follows: Mr. Ajer
$121,500 and $135,000, Mr. Walsh $121,500 and $135,000, Mr. Murray $121,500 and
$0, Mr. Czyzyk $121,500 and $135,000 and Mr. Silva $94,500 and $108,000. The
maximum amounts outstanding on the loans made by the Company during fiscal 1995
were as follows: Mr. Ajer $162,000, Mr. Walsh $162,000, Mr. Murray $162,000, Mr.
Czyzyk $162,000 and Mr. Silva $94,500.
During March 1994 and March 1995, Mercury loaned Mr. Ajer $19,274, Mr. Walsh
$19,143 and Mr. Murray $22,491, which was used to pay withholding taxes
associated with the loan forgiveness under the First Stock Purchase Agreement.
Such loans bore or bear no interest and were or are being repaid through ratable
payroll deductions over a one-year period.
In September 1994, Mercury loaned Mr. Czyzyk $130,000, which Mr. Czyzyk
repaid in November 1994.
On August 1, 1995, Grant G. Murray and Mercury entered into an agreement
("Agreement") in connection with the termination of Mr. Murray's employment. The
Agreement provides for the payment to Mr. Murray by Mercury of the sum of
$275,000, payable $75,000 upon execution of the Agreement followed by quarterly
payments of $50,000 on November 1, 1995, February 1, 1996, May 1, 1996 and
August 1, 1996.
In consideration for the payment of $275,000, Mr. Murray transferred to
Mercury 110,000 shares acquired by him pursuant to the First Stock Purchase
Agreement and returned all stock options held by him. The Agreement also
provides (i) for the forgiveness of all debts or loans, aggregating $178,000,
owed by Mr. Murray to Mercury; (ii) for Mr. Murray to procure new business for
Mercury and to receive as compensation a percentage of net margins realized on
such new business; (iii) for Mr. Murray not to compete with Mercury or its
affiliates until August 1, 1996; (iv) for the continuation of medical insurance
for Mr. Murray through December 1995; (v) for a release by Mr. Murray of all
claims against Mercury, including his claim with respect to an accrued bonus of
$60,000; and (vi) for a release by Mercury of all claims against Mr. Murray. In
consideration for SKAI's facilitating the stock repurchase transaction by
waiving its right to restrict the transfer of Mr. Murray's shares, and as
payment in full of all interest and remaining amounts due to SKAI in connection
with the purchase
38
<PAGE>
transaction, Mercury agreed to pay SKAI the amount of $100,000 in the form of
options to purchase 30,000 shares of the Common Stock. Such options are to be
granted at $3.33 below the closing price of the Common Stock on the AMEX as of
August 24, 1995 (the date the Board approved the transaction), and will, subject
to continued employment, vest and become exercisable six months from the date of
grant. Such options will be granted subject to: (1) an increase in the
authorized shares of Mercury at the next annual meeting of shareholders; and (2)
acceptance of the shares underlying such options for listing on the AMEX. If the
conditions for the issuance of the options are not met, Mercury will reconsider
the form of payment of the $100,000 to SKAI. Based on the consideration paid by
Mercury to Mr. Murray, the effective per share price paid by Mercury for the
110,000 shares acquired from Mr. Murray was approximately $4.12. The per share
price paid by Mercury will be increased by an additional $.91 per share when the
$100,000 amount becomes payable to SKAI, in options or otherwise.
During fiscal 1995, Mercury sold approximately $211,000 in fuel to
Millionaire of Long Beach, a company owned by Mr. Murray. The sales prices for
such fuel were based on cost plus a normal competitive mark-up, but the level of
credit extended may have been greater than what would have been available from
an unaffiliated party. Mercury has been paid in full for the fuel purchases.
Mercury has Indemnity Agreements with each of its directors and executive
officers which require Mercury, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors, officers, employees or agents of Mercury, and, under certain
circumstances, to advance their expenses incurred as a result of proceedings
brought against them. In order to be entitled to indemnification, the executive
officer or director must have acted in a manner reasonably believed to be in, or
not opposed to, the best interests of Mercury and, with respect to a criminal
matter, in a manner which he had no reason to believe was illegal.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of December 31, 1995 by (i) each person (or group
of affiliated persons) known to Mercury to be the beneficial owner of more than
five percent of Common Stock, (ii) each director of Mercury, (iii) each Named
Executive Officer and (iv) all executive officers and directors of Mercury as a
group. As of December 31, 1995, there were 5,380,087 shares of Common Stock
outstanding. Unless otherwise indicated below, to the knowledge of Mercury, all
persons listed below have sole voting and investment power with respect to their
shares of Common Stock, except to the extent such power is shared by spouses
under applicable law.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT
- --------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Seymour Kahn (1)........................................................... 1,398,140(2) 25.5%
Joseph A. Czyzyk (1)....................................................... 396,450(3) 7.3%
Randolph E. Ajer........................................................... 143,000(4) 2.6%
Kevin J. Walsh............................................................. 132,000(5) 2.4%
William L. Silva........................................................... 137,500(6) 2.5%
Philip J. Fagan, Jr., M.D.................................................. 99,000(7) 1.8%
Frederick H. Kopko, Jr..................................................... 33,000(8) *
William G. Langton......................................................... 22,000(9) *
Robert L. List............................................................. 11,000(10) *
Kennedy Capital Management, Inc.
425 N. New Ballas Road, #181
St. Louis, Missouri 63141-6821........................................... 395,000(11) 7.3%
All directors and executive officers as a group (9 persons)................ 1,932,090(12) 33.8%
</TABLE>
- ------------
* Less than one percent.
39
<PAGE>
(1)The address for each of Messrs. Kahn and Czyzyk is 5456 McConnell Avenue,
Suite 100, Los Angeles, California 90066.
(2)Includes 829,660 shares held of record by SKAI. Also includes 440,000 shares
owned by four executive officers of Mercury which SKAI holds a proxy to vote
and which are subject to a security interest held by SKAI. See "Certain
Transactions." Includes 110,000 shares issuable upon the exercise of options
exercisable within 60 days from December 31, 1995. Also includes 8,800
shares held of record by Mr. Kahn's wife, as to which Mr. Kahn disclaims
beneficial ownership.
(3)Includes 22,800 shares issuable upon exercise of options exercisable within
60 days from December 31, 1995. Includes 110,000 shares beneficially owned
by Mr. Czyzyk for which Mr. Czyzyk has granted a proxy to SKAI and which are
subject to pledges. See "Certain Transactions." Includes 3,850 shares held
by Mr. Czyzyk, as custodian for his children, and 1,100 shares held by Mr.
Czyzyk's spouse's IRA account with respect to which Mr. Czyzyk disclaims
beneficial ownership.
(4)Includes 22,000 shares issuable upon exercise of options exercisable within
60 days from December 31, 1995. Includes 110,000 shares beneficially owned
by Mr. Ajer for which Mr. Ajer has granted a proxy to SKAI and which are
subject to pledges. See "Certain Transactions."
(5)Includes 22,000 shares issuable upon exercise of options exercisable within
60 days from December 31, 1995. Includes 110,000 shares beneficially owned
by Mr. Walsh for which Mr. Walsh has granted a proxy to SKAI and which are
subjected to pledges. See "Certain Transactions."
(6)Includes 27,500 shares issuable upon exercise of options exercisable within
60 days from December 31, 1995. Includes 110,000 shares beneficially owned
by Mr. Silva which Mr. Silva has granted a proxy to SKAI and which are
subject to pledges. See "Certain Transactions."
(7) Includes 66,000 shares issuable upon exercise of options exercisable within
60 days from December 31, 1995.
(8) Consists of 33,000 shares issuable upon exercise of options exercisable
within 60 days from December 31, 1995.
(9) Consists of 22,000 shares issuable upon exercise of options exercisable
within 60 days from December 31, 1995.
(10) Consists of 11,000 shares issuable upon exercise of options exercisable
within 60 days from December 31, 1995.
(11) Information is as disclosed in a Schedule 13G dated February 15, 1995 filed
by Gerald T. Kennedy for Kennedy Capital Management pursuant to the rules
and regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
(12) Includes 336,300 shares issuable upon exercise of options exercisable
within 60 days from December 31, 1995.
40
<PAGE>
DESCRIPTION OF DEBENTURES
THE DEBENTURES ARE BEING ISSUED PURSUANT TO AN INDENTURE (THE "INDENTURE")
TO BE DATED AS OF JANUARY , 1996 BETWEEN MERCURY AND IBJ SCHRODER BANK & TRUST
COMPANY, AS TRUSTEE (THE "TRUSTEE"). THE FOLLOWING IS A SUMMARY OF THE MATERIAL
TERMS AND PROVISIONS OF THE DEBENTURES. THE TERMS OF THE DEBENTURES INCLUDE
THOSE SET FORTH IN THE INDENTURE AND THOSE MADE PART OF THE INDENTURE BY
REFERENCE TO THE TRUST INDENTURE ACT OF 1939, AS AMENDED (THE "TRUST INDENTURE
ACT"). THE DEBENTURES ARE SUBJECT TO ALL SUCH TERMS, AND PROSPECTIVE PURCHASERS
OF THE DEBENTURES ARE REFERRED TO THE INDENTURE AND THE TRUST INDENTURE ACT FOR
A STATEMENT THEREOF. THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF THE DEBENTURES AND IS SUBJECT TO THE DETAILED PROVISIONS OF, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE FORM OF INDENTURE (INCLUDING
THE FORM OF DEBENTURE) THAT HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS IS A PART. ALL SECTION REFERENCES APPEARING
IN THIS "DESCRIPTION OF DEBENTURES" ARE TO SECTIONS OF THE INDENTURE, AND
CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS ASSIGNED
TO THEM IN THE INDENTURE. AS USED IN THIS "DESCRIPTION OF DEBENTURES," THE TERM
"COMPANY" MEANS MERCURY AIR GROUP, INC. AND DOES NOT INCLUDE ITS SUBSIDIARIES.
GENERAL
The Debentures will be unsecured obligations of Mercury, will be limited to
$25,000,000 in aggregate principal amount (up to $28,750,000 if the
Underwriters' over-allotment option is exercised in full) and will mature on
February , 2006. The Debentures will bear interest at the rate per annum shown
on the cover of this Prospectus from and including the date of the initial
issuance of the Debentures under the Indenture or from and including the most
recent Interest Payment Date to which interest has been paid or provided for,
payable semi-annually on August and February
of each year, commencing August , 1996, to the Person in whose name the
Debenture (or any predecessor Debenture) is registered at the close of business
on the preceding July or January , as the case may be. Interest on the
Debentures will be paid on the basis of a 360-day year of twelve 30-day months.
Debentures issued pursuant to the over-allotment option, if any, shall accrue
interest from the date of issuance of the initial $25,000,000 aggregate
principal amount of Debentures. (Sections 2.1, 2.2 and 4.1).
Principal of, premium, if any, and interest on, the Debentures will be
payable at the office or agency of Mercury or the Trustee maintained for that
purpose in New York, New York and at any other office or agency maintained by
Mercury or the Trustee for such purpose, all as provided in the Indenture.
(Sections 2.1 and 4.2).
The Debentures will be initially issued only in fully registered book-entry
form with The Depository Trust Company, as the book-entry depositary (the
"Depositary"). (Section 2.1). Except as described in this Prospectus or in the
Indenture, the Debentures will not be issuable in definitive certificated form
to any person other than the Depositary or its nominees. See "-- Book-Entry
System." No service charge will be made for any transfer or exchange of the
Debentures, but Mercury may require payment of a sum sufficient to cover any
related tax or other governmental charge.
All moneys paid by Mercury to the Trustee or any Paying Agent for the
payment of principal of, and premium, if any, and interest on, any Debenture
which remain unclaimed for two years after such principal, premium or interest
becomes due and payable may be repaid to Mercury. Thereafter, the Holder of such
Debenture shall, as an unsecured general creditor, look only to Mercury for
payment thereof. (Section 8.5).
The Debentures have been approved for listing on the AMEX, an application
has been made to list the Debentures on the PSE. When issued, the Debentures
will be a new issue of securities with no established trading market. No
assurance can be given as to the liquidity of the trading market for the
Debentures. Because the Debentures are convertible into Common Stock, the prices
at which the Debentures trade in the market will likely be affected by the price
of Mercury's Common Stock.
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The Indenture will not restrict Mercury's ability to incur indebtedness,
create or grant liens, pay dividends or make other distributions on its capital
stock (other than to the extent the conversion price may thereafter be required
to be adjusted) or make investments, acquisitions or dispositions and will not
require Mercury to meet any financial tests.
The Indenture does not contain any provisions that would provide protection
to Holders of the Debentures against a sudden and dramatic decline in credit
quality of Mercury resulting from any takeover, recapitalization or similar
restructuring, except as described under "-- Repurchase of Debentures by Mercury
at the Option of the Holder After Certain Changes of Control."
BOOK-ENTRY SYSTEM
The Debentures will be represented by a single global security (a "Global
Note"). The Global Note will be deposited with, or on behalf of, the Depositary
and registered in the name of the Depositary's nominee. Except as set forth
below, the Global Note may be transferred, in whole and not in part, only to the
Depositary or another nominee of the Depositary or to a successor depositary or
nominee of such successor. Except as set forth below, book-entry beneficial
owners of the Debentures will not be entitled to have such book-entry beneficial
ownership registered in their names on the Security Register, will not receive
or be entitled to receive physical delivery of the Debentures beneficially owned
by book-entry registration, and will not be deemed to be the registered Holders
of the Debentures under the Indenture.
Settlement of Debentures deposited with the Depositary will be made in the
Depositary's Same-Day Funds Settlement System. The Debentures will trade in such
system until maturity or until the Debentures are repurchased or redeemed in
full, and secondary market trading activity for the Debentures will therefore
settle in immediately available funds. All payments of principal and interest
will be made in immediately available funds. No assurance can be given as to the
effect, if any, of settlement in immediately available funds on trading activity
in the Debentures.
The Depositary has advised as follows: It is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Depositary holds securities that its participants ("Participants") deposit with
the Depositary. The Depositary also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. "Direct Participants" include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations. The Depositary is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., AMEX and the National Association of
Securities Dealers, Inc. Access to the Depositary's system is also available to
others such as securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable to
the Depositary and its Participants are on file with the Securities and Exchange
Commission.
Purchases of interests in the Global Note under the Depositary's system must
be made by or through Direct Participants, which will receive a credit for such
interests on the Depositary's records. The ownership interest of each actual
purchaser of interests in the Global Note ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchase, but
Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in the Global
Note are to be accomplished by entries made on the books of Participants acting
on behalf of Beneficial Owners.
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To facilitate subsequent transfers, all Global Notes deposited by
Participants with the Depositary are registered in the name of the Depositary's
partnership nominee, Cede & Co. The deposit of Global Notes with the Depositary
and their registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners of
the interests in the Global Notes; the Depositary's records reflect only the
identity of the Direct Participants to whose accounts interests in the Global
Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Note. Under its usual procedures, the Depositary mails an Omnibus
Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts interests in the Global Note are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
Principal and interest payments on the Global Note will be made to the
Depositary. The Depositary's practice is to credit Direct Participants' accounts
on the payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payment on the payment date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participant
and not the Depositary, the Paying Agent or Mercury, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
principal and interest to the Depositary is the responsibility of Mercury or the
Paying Agent, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants. None of Mercury, the Trustee, or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in any Global Note,
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Global Note representing all but not part of the Debentures is
exchangeable for Debentures in definitive form of like tenor and terms if (i)
the Depositary is at any time unwilling, unable or ineligible to continue as
Depositary for such Global Notes and a successor Depositary is not appointed by
the Company within 60 days of the date the Company is so informed in writing;
(ii) the Company executes and delivers to the Trustee a Company Order to the
effect that such Global Note shall be so exchangeable; or (iii) an Event of
Default or an event which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default with respect to the Debentures, has
occurred and is continuing. A Global Note that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Debentures issuable in
denominations of $1,000 and any integral multiple thereof and registered in such
names as the Depositary holding such Global Note shall direct. Subject to the
foregoing, a Global Note shall not be exchangeable, except for a Global Note of
like denomination to be registered in the name of such Depositary or its
nominee.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Mercury
believes to be reliable, but Mercury takes no responsibility for the accuracy
thereof.
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CONVERSION RIGHTS
The Debentures will be convertible into Common Stock at any time prior to
redemption or Stated Maturity, initially at the conversion price set forth on
the cover of this Prospectus. The conversion price will be subject to adjustment
upon the occurrence of any of the following events: (i) the payment, dividend or
other distribution on any class of capital stock of Mercury in shares of Common
Stock or any class of capital stock of Mercury; (ii) the issuance of rights,
options or warrants to all or substantially all holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the then current market price per share (as defined in the
Indenture); (iii) the subdivision, combination or reclassification of
outstanding shares of Common Stock; and (iv) the distribution to all or
substantially all holders of Common Stock of evidences of indebtedness or assets
of Mercury or rights or warrants to acquire such evidences of indebtedness or
assets (including securities, but excluding (a) rights, options or warrants
referred to in clause (ii) above, and (b) dividends or distributions referred to
in clause (i) above). No adjustment of the conversion price will be required to
be made until cumulative adjustments amount to at least $0.125. Any adjustments
which by reason of the foregoing are not required to be made will be carried
forward and taken into account in any subsequent adjustment. In addition to the
foregoing adjustments, Mercury will be permitted to reduce the conversion price
at its discretion. (Section 13.4).
Subject to the rights of Holders to require Mercury to repurchase their
Debentures upon the occurrence of a Change of Control and a Rating Downgrade
(see "-- Repurchase of Debentures at the Option of the Holder After Certain
Changes of Control"), in the case of any consolidation or merger of Mercury with
any other corporation or trust, or in case of any merger of another corporation
or trust into Mercury (other than one in which no change is made in the Common
Stock), or in case of any sale, transfer or other disposition of all or
substantially all of the assets of Mercury, the Holder of any Debentures shall,
after such sale, transfer or other disposition, have the right to convert such
Debenture only into the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, sale or transfer by a Holder of the
number of shares of Common Stock into which such Debenture might have been
converted immediately prior to such consolidation, merger, sale or transfer; and
adjustments will be provided for events subsequent thereto that are as nearly
equivalent as practical to the conversion price adjustments described above.
(Section 13.10).
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, Mercury will pay a cash adjustment based upon the Current
Market Price on the day of conversion. (Section 13.8).
Except as provided below, no adjustment will be made on conversion of a
Debenture for interest accrued thereon. If a Debenture is surrendered for
conversion after the close of business on any regular record date for payment of
interest and before the opening of business on the corresponding interest
payment date, then, notwithstanding such conversion, the interest payable on
such interest payment date will be paid in cash to the person in whose name the
Debenture is registered at the close of business on such record date and (other
than a Debenture or a portion of a Debenture called for redemption on a
redemption date occurring after such record date and on or prior to the fifth
calendar day following such interest payment date) when so surrendered for
conversion, the Debenture must be accompanied by payment of an amount equal to
the interest payable on such interest payment date.
With respect to Debentures called for redemption, the conversion right will
expire at the close of business on the fifth calendar day preceding the date
fixed for redemption. (Section 13.1). The interest payment with respect to a
Debenture (or portion of a Debenture) called for redemption on a redemption date
occurring on a date during the period from the close of business on any regular
record date next preceding any interest payment date to the close of business on
the fifth calendar day following such interest payment date will be payable on
such interest payment date to the Holder of such Debenture at the close of
business on such regular record date notwithstanding the conversion of such
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Debenture after such regular date and on or prior to such interest payment date,
and the Holder converting such Debenture will not be required to pay an amount
equal to the interest payable on such interest payment date upon surrender of
such Debenture for conversion.
SUBORDINATION
The indebtedness evidenced by the Debentures is subordinate to all Senior
Indebtedness of Mercury. To the extent and in the manner provided in the
Indenture, Senior Indebtedness must be paid before any payment may be made to
any Holders of Debentures. No payment shall be made by Mercury on account of
principal of, premium, if any, or interest on the Debentures or on account of
the redemption, repurchase, acceleration or other acquisition of Debentures of
Mercury, if there shall have occurred and be continuing any default or event of
default with respect to any Senior Indebtedness (a "Senior Indebtedness
Default") until such Senior Indebtedness Default shall have been cured or waived
or shall have ceased to exist, or if such payment shall cause a Senior
Indebtedness Default.
No enforcement action shall be taken against Mercury or any of its assets to
collect the Debentures until the expiration of one hundred eighty (180) days
after the date on which the Trustee gives written notice to the holders of all
Senior Indebtedness of an Event of Default, and during such one hundred eighty
(180) day period, each holder of any Senior Indebtedness shall have the right
(but not the obligation) to cure, or to cause Mercury to cure, such Event of
Default. Any and all liens and security interests now or hereafter held on
account of the Debentures shall be subordinate and subject to any and all liens
and security interests now or hereafter held on account of any Senior
Indebtedness. Upon any acceleration of the principal of the Debentures or any
distribution of assets of Mercury upon any dissolution, winding up, total or
partial liquidation or reorganization of Mercury, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or similar proceeding or
upon assignment for the benefit of creditors, all amounts due or to become due
upon all Senior Indebtedness must be paid in full before the Holders of the
Debentures are entitled to receive or retain any assets so distributed in
respect of the Debentures. (Section 11.3). By reason of this provision, in the
event of insolvency of Mercury, Holders of the Debentures may recover less,
ratably, than holders of Senior Indebtedness and the general creditors of
Mercury.
"Senior Indebtedness" is defined to mean the principal of, premium, if any,
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to Mercury whether or not
a claim for post-filing interest is allowed in such proceeding), fees, charges,
expenses, reimbursement and indemnification obligations, and all other amounts
payable under or in respect of Indebtedness (as defined) of Mercury, whether any
such Indebtedness exists as of the date of the Indenture or is created,
incurred, assumed or guaranteed after such date, other than (i) Indebtedness
that by its terms or by operation of law is subordinated to or on a parity with
the Debentures and (ii) Indebtedness of Mercury owed to a subsidiary of Mercury.
(Section 1.1).
"Indebtedness" with respect to any Person is defined to mean:
(i) any debt (a) for money borrowed (other than the Debentures), or (b)
evidenced by a bond, note, debenture or similar instrument (including
purchase money obligations) given in connection with the acquisition of any
business, property or assets, whether by purchase, merger, consolidation or
otherwise, but shall not include any account payable or other obligation
created or assumed by a Person in the ordinary course of business in
connection with the obtaining of materials or services, or (c) which is a
direct or indirect obligation which arises as a result of banker's
acceptances or bank letters of credit issued to secure obligations of such
Person, or to secure the payment of revenue bonds issued for the benefit of
such Person, whether contingent or otherwise;
(ii) any debt of others described in the preceding clause (i) which such
Person has guaranteed or for which it is otherwise liable;
(iii) the obligation of such Person as lessee under any lease of property
which is reflected on such Person's balance sheet as a capitalized lease;
and
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(iv) any deferral, amendment, renewal, extension, supplement or refunding
of any liability of the kind described in any of the preceding clauses (i),
(ii) and (iii). (Section 1.1).
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness by Mercury or of other Indebtedness or liabilities by Mercury or
any of its subsidiaries. Certain of Mercury's operations are conducted through
subsidiaries, which are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Debentures or to make any funds available therefore, whether by dividends, loans
or other payments. The Debentures will be structurally subordinated to all
Indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of Mercury's subsidiaries. Any right of Mercury to receive
assets of any such subsidiary upon the liquidation or reorganization of any such
subsidiary (and the consequent right of the Holders of the Debentures to
participate in those assets) will be structurally subordinated to the claims of
that subsidiary's creditors.
OPTIONAL REDEMPTION
The Debentures will be redeemable, at Mercury's option, in whole or from
time to time in part, at any time on or after February , 1999, upon not less
than 30 nor more than 60 days' notice at the following Redemption Prices
(expressed as percentages of principal amounts) plus accrued and unpaid interest
to the Redemption Date (subject to the right of Holders of record on the
relevant Record Date to receive interest due on an Interest Payment Date that is
prior to the Redemption Date). (Sections 3.1 and 3.4).
If redeemed during the period indicated below, the Redemption Price shall
be:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------------------------------------------------------------- ---------------
<S> <C>
February , 1999 - February , 2000........................ 104%
February , 2000 - February , 2001........................ 103%
February , 2001 - February , 2002........................ 102%
February , 2002 - February , 2003........................ 101%
</TABLE>
and thereafter at 100% of the principal amount thereof.
In addition, the Debentures may be redeemed at the election of the Company,
in whole or in part, at any time on or after February , 1998 and before
February , 1999, at a Redemption Price of 105% of the principal amount of the
Debentures plus accrued and unpaid interest to the Redemption Date if the
Closing Price of the Common Stock has been at least 140% of the conversion price
for at least 20 trading days within a period of 30 consecutive trading days
ending not more than five trading days prior to the date of the redemption
notice. The redemption amounts will be paid with interest accrued to the date
fixed for redemption, subject to the right of the registered holder on the
Record Date for an interest payment to receive such interest. If Mercury elects
to redeem less than all the Debentures, the Trustee will select which Debentures
to redeem using such method as it deems fair and appropriate (including the
selection for redemption of a portion of the principal amount of any Debenture,
but not less than $1,000). On and after the redemption date, interest ceases to
accrue on the Debentures or portion of the Debentures called for redemption.
(Section 3.1).
Mercury may at any time buy Debentures on the open market at prices which
may be greater or less than the Redemption Prices listed above.
No sinking fund is provided for the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that Mercury may, without the consent of the Holders
of the Debentures, consolidate with or merge into any other corporation, or
convey, transfer or lease its properties and assets substantially as an entirety
to any person, provided that in any such case (a) the successor corporation
shall be a domestic corporation and such corporation shall assume by a
supplemental indenture Mercury's obligations under the Indenture and (b)
immediately after giving effect to such
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transaction, no default shall have occurred and be continuing. Upon compliance
with these provisions by a successor corporation, Mercury would be relieved of
its obligations under the Indenture and the Debentures. (Section 5.1).
REPURCHASE OF DEBENTURES AT THE OPTION OF THE HOLDER AFTER CERTAIN CHANGES OF
CONTROL
In the event of any Change of Control and a Rating Downgrade, occurring
after the date of issuance of the Debentures and on or prior to Stated Maturity,
each Holder of Debentures will have the right, at the Holder's option, to
require Mercury to repurchase all (or any portion with a principal amount equal
to $1,000 or an integral multiple thereof) of the Holder's Debentures on or
promptly following the date (the "Repurchase Date") that is 45 calendar days
after the date Mercury gives notice of the Change of Control and the Rating
Downgrade as described below, at a price (the "Repurchase Price") equal to 100%
of the principal amount thereof, together with accrued and unpaid interest to
the Repurchase Date. (Section 12.1).
The right to require Mercury to repurchase Debentures as a result of the
occurrence of a Change of Control and a Rating Downgrade could create an event
of default under Senior Indebtedness as a result of which any repurchase could,
absent a waiver, be blocked by the subordination provisions of the Debentures.
See "-- Subordination." However, failure by Mercury to repurchase the Debentures
when required under the preceding paragraph will result in an Event of Default
under the Indenture whether or not such repurchase is permitted by the
subordination provisions of the Indenture. (Section 6.1).
Within 30 calendar days after the occurrence of a Change of Control and a
Rating Downgrade, Mercury is obligated to mail to all Holders of Debentures a
notice of the occurrence of such Change of Control and Rating Downgrade, the
Repurchase Date, the Repurchase Price, the procedures which the Holder must
follow to exercise the repurchase right and other information with respect to
the repurchase of the Debentures. To exercise the repurchase right, the Holder
of a Debenture must deliver, on or before the close of business on the tenth
Business Day immediately preceding the Repurchase Date, written notice to the
Trustee of the Holder's exercise of such right. (Section 12.3).
As used in the Indenture, (a) a "Change of Control" shall be deemed to have
occurred at such time as, whether or not approved by the Board of Directors of
Mercury, any person (i) is or becomes the beneficial owner, directly or
indirectly, of securities representing more than 50% of the total number of
votes that may be cast for the election of the directors of Mercury or (ii)
acquires from Mercury more than 50% of the assets or earning power of Mercury
and its subsidiaries, (b) "person" means a person or group (within the meaning
of Sections 13(d) and 14(d) of the Exchange Act), together with any affiliates
or associates thereof, but does not include Seymour Kahn or any subsidiary of
Mercury, (c) "beneficial ownership" shall be determined pursuant to the
provisions of Rule 13d-3 and 13d-5 under the Exchange Act, except that a person
shall have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time and (d) "Rating Downgrade" means a decrease by one or more
gradations (including gradations within rating categories as well as between
rating categories) of the investment rating assigned to the Debentures by any
nationally recognized statistical rating organization, provided that such
downgrade occurs on, or within 90 days after, the earlier to occur of (i) the
occurrence of a Change of Control or (ii) public notice of the occurrence of a
Change of Control or the intention by Mercury to effect a Change of Control
(which period shall be extended so long as the rating of the Debentures is under
publicly announced consideration for possible downgrade by any nationally
recognized statistical rating organization). (Section 1.1).
If a Change of Control and a Rating Downgrade were to occur, no assurance
can be given that Mercury would have sufficient funds to repurchase all
Debentures tendered by the Holders thereof or to make any principal or interest
payment otherwise required by the Debentures.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving Mercury that may adversely affect Holders.
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In addition, the foregoing provisions may discourage open market purchases of
the Common Stock or a non-negotiated tender or exchange offer for such stock
and, accordingly, may limit a shareholder's ability to realize a premium over
the market price of the Common Stock in connection with any such transaction.
In the event a Change of Control and a Rating Downgrade occurs and the
Holders exercise their rights to require Mercury to repurchase Debentures,
Mercury intends to comply with applicable tender offer rules under the Exchange
Act, including Rules 13e-4 and 14e-1, as then in effect, with respect to any
such purchase.
REPURCHASE OF DEBENTURES UPON DEATH OF HOLDER
Mercury will repurchase Debentures tendered by the personal representative
or surviving co-owner of a deceased Debenture Holder within 60 days of tender at
a price equal to 100% of the principal amount plus accrued and unpaid interest
to the date of payment, subject to the limitations hereinafter described.
(Section 12.2). Under the terms of the Indenture, Mercury is obligated to
repurchase up to an annual maximum principal amount of $100,000 per Debenture
Holder, subject to an annual maximum principal amount of $500,000 with respect
to Debentures tendered on behalf of all deceased Debenture Holders. In the case
of Debentures registered in the name of banks, trust companies or broker-dealers
who are members of a national securities exchange or the National Association of
Securities Dealers, Inc. ("Qualified Institutions"), the individual $100,000
annual limitation applies to each beneficial owner of Debentures held by any
Qualified Institution. (Section 12.2).
A Debenture held in tenancy by the entirety, joint tenancy or tenancy in
common will be deemed to be held by a single Holder, and the death of any such
co-owner will be deemed the death of a Holder, regardless of the name in which
the Debenture is registered, provided that the co-owner establishes his or her
beneficial interest in the Debenture to the satisfaction of the Trustee. Such
beneficial ownership will normally be deemed to exist in typical cases of street
name or nominee ownership, ownership by a custodian for the benefit of a minor
under the Uniform Gifts to Minors Act, community property or other joint
ownership arrangements between a husband and wife and certain other arrangements
whereby a person has substantially all of the beneficial ownership interests in
the Debentures during his or her lifetime.
Except for Qualified Institutions, no particular form of request for
repurchase or authority to request the repurchase is necessary. However, in
order for Debentures to be validly tendered for repurchase, the Trustee must
receive: (i) a written request for repurchase signed by the personal
representative or surviving co-owner, (ii) evidence satisfactory to Mercury and
the Trustee that the deceased Holder held a book-entry beneficial interest in
the Debentures or, if applicable, the certificates representing the Debentures
to be repurchased, free and clear of liens and encumbrances; (iii) appropriate
evidence of death and, if made by a representative of a deceased Debenture
Holder, appropriate evidence of authority to make such request; and (iv) such
other additional documents as the Trustee shall require, including inheritance
or estate tax waivers and evidence of authority of the personal representative.
Debentures not repurchased because of the annual individual Holder or aggregate
limitations will be held for repurchase in order of receipt, subject to the same
per Holder and aggregate limitations, within 60 days following the commencement
of the next Repurchase Period until paid, unless sooner withdrawn by the
personal representative of the deceased Debenture Holder or surviving co-owner
of the Debenture.
In the case of Debentures held by Qualified Institutions on behalf of
beneficial owners, the $100,000 principal amount per Repurchase Period
limitation shall apply to each such beneficial owner. Such Qualified Institution
in its request for prepayment on behalf of such beneficial owner must certify
that it holds Debentures on behalf of the beneficial owner and that the
aggregate requests for repayment tendered by the Qualified Institution on behalf
of the beneficial owner during the calendar
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year does not exceed $100,000. In addition, any request for repurchase made by a
Qualified Institution on behalf of a beneficial owner must be delivered to the
Trustee by registered mail, return receipt requested.
Although Mercury is obligated to repurchase in any Repurchase Period up to
$500,000 principal amount of the Debentures issued under the Indenture, it is
not required to establish a sinking fund or otherwise set aside funds for that
purpose. Mercury intends to repay Debentures tendered out of its internally
generated funds or, if necessary, short-term or other long-term borrowings. The
obligation to repurchase the Debentures, however, is an unsecured obligation of
Mercury.
Nothing in the Indenture prohibits Mercury from repurchasing, in acceptance
of tenders made pursuant to the Indenture, Debentures in excess of the principal
amount that Mercury is obligated to repurchase, nor does anything in the
Indenture prohibit Mercury from purchasing any Debentures on the open market.
EVENTS OF DEFAULT
An "Event of Default" is defined in the Indenture as (i) failure by Mercury
to pay interest on any of the Debentures when it becomes due and payable and the
continuance of any such failure for 30 days; (ii) failure by Mercury to pay all
or any part of the principal of, or premium, if any, on the Debentures when it
becomes due and payable, whether at Stated Maturity, upon redemption, upon
acceleration or otherwise, including payment of the Repurchase Price; (iii)
failure by Mercury to comply with the provisions described under "Consolidation,
Merger and Sale of Assets" above; (iv) failure of Mercury to provide notice of a
Change of Control and a Rating Downgrade as provided in the Indenture; (v)
failure by Mercury to comply with any other covenant in the Indenture and
continuance of such failure for 60 days after notice of such failure has been
given to Mercury by the Trustee or by the Holders of at least 25% of the
aggregate principal amount of the Debentures then outstanding; (vi) any
acceleration of the maturity of Indebtedness of Mercury or any of its
subsidiaries having an outstanding principal amount of at least $5,000,000 or a
failure to pay such Indebtedness at its stated maturity after demand therefor,
if acceleration is not annulled within ten days after written notice; (vii) a
final judgment or final judgments that exceed $5,000,000 for the payment of
money have been entered by a court or courts of competent jurisdiction against
Mercury and/or any subsidiary of Mercury and such judgment or judgments have not
been discharged with 30 days after all rights to appeal have been exhausted; and
(viii) certain events of bankruptcy, insolvency or reorganization involving
Mercury or any subsidiary of Mercury. (Section 6.1).
Subject to certain restrictions on the ability to accelerate contained in
the subordination provisions as described above under "-- Subordination," if (i)
an Event of Default with respect to the Debentures shall occur and be continuing
(except for an Event of Default referred to in clause (viii) above), the Trustee
or the Holders of not less than 25% in aggregate principal amount of the
Debentures then outstanding may declare the principal of all such Debentures,
including interest thereon, to be due and payable or (ii) an Event of Default
referred to in clause (viii) occurs, all principal of, premium, if any, and
accrued and unpaid interest on the Debentures shall be immediately due and
payable without any declaration by the Trustee or Holders. (Section 6.2).
Mercury is required to furnish to the Trustee, within 45 days after the end of
each financial quarter, a statement as to the performance by Mercury of its
obligations under the Indenture and as to any default in such performance.
(Section 4.6) Under certain circumstances, any declaration of acceleration with
respect to the Debentures may be rescinded and past defaults may be waived by
the Holders of a majority of the aggregate principal amount of the Debentures
then outstanding. (Sections 6.2 and 6.12).
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders shall have offered to the Trustee reasonable indemnity. (Section 7.2)
The Holders of a majority in aggregate principal amount of the Debentures then
outstanding will have the right to
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direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee (subject to certain exceptions). (Section 6.11).
No Holder of any Debenture will have the right to institute any proceeding
with respect to the Indenture or for any remedy thereunder unless such Holder
shall have previously given to the Trustee written notice of a continuing Event
of Default and unless the Holders of at least 25% in aggregate principal amount
of the Debentures then outstanding shall also have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee, and the Trustee shall not have received with 60 days after its receipt
of such notice from the Holders of a majority in aggregate principal amount of
the Debentures then outstanding a direction inconsistent with such request and
the Trustee shall have failed to institute such proceeding with 60 days.
(Section 6.7).
AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture may be made by Mercury and the
Trustee with the consent of the Holders of not less than a majority in aggregate
principal amount of the Debentures then outstanding; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Debenture affected thereby, (i) reduce the percentage of principal
amount of Debentures whose Holders must consent to an amendment, supplement or
waiver of any provisions of the Indenture or Debentures; (ii) reduce the rate or
extend the time for payment of interest on any Debenture; (iii) reduce the
principal amount of any Debenture, or reduce the Repurchase Price or the
Redemption Price; (iv) change the Stated Maturity of any Debenture or change the
Repurchase Date of any Debenture; (v) alter in a manner adverse to any Holder
(a) the redemption provisions in the Indenture, (b) the repurchase provisions in
the Indenture or (c) the conversion provisions in the Indenture; (vi) change the
provisions concerning waivers of Defaults or Events of Default by Holders of the
Debentures (except to increase any required percentage or to provide that
certain other provisions hereof cannot be modified or waived without the consent
of the Holders of each outstanding Debenture affected thereby) or the rights of
Holders to recover the principal of, premium, if any, interest on, or redemption
or repurchase payment with respect to, any Debenture; and (vii) make the
principal of, premium, if any, or the interest on, any Debenture payable with
anything or in any manner other than as provided for in the Indenture. (Sections
9.1 and 9.2).
The Holders of not less than a majority in aggregate principal amount of the
Debentures then outstanding may, on behalf of all Holders of Debentures, waive
any past default under the Indenture with respect to the Debentures, except a
default in the payment of principal of, premium, if any, or interest, or in
respect of a provision which under the Indenture cannot be modified or amended
without consent of the Holder of each outstanding Debenture affected. (Section
6.12).
RATING OF DEBENTURES
The Debentures are rated "B-" by Standard & Poor's Corporation ("S & P"). S
& P states that debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
According to S & P, adverse business, financial or economic conditions will
likely impair capacity or willingness to pay interest and repay principal. The
"+" and "-" signs are used by S & P to show relative standing within a
particular rating category. Ratings are not a recommendation to purchase, hold
or sell the Debentures and are not intended to provide any guidance concerning
the relative value of an investment. The rating is based on current information
furnished to S & P by the Company and obtained from other sources. The rating
may be changed, suspended or withdrawn at any time as a result of changes in, or
unavailability of, such information.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR U.S. HOLDERS
The following discussion is a summary of the material federal income tax
consequences of holding and disposing of the Debentures by U.S. Holders (as
defined below). This summary is based upon laws,
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regulations, rulings and judicial decisions now in effect, all of which are
subject to change (possibly on a retroactive basis). This summary assumes that
the Debentures and Common Stock of the Company will be held as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Further, this summary does not discuss all aspects of
federal income taxation that may be relevant to investors in light of their
personal circumstances or to certain types of purchasers subject to special
treatment under the federal income tax laws (for example, dealers in securities,
holders of securities held as part of a "straddle," "hedge" or "conversion
transaction," tax-exempt organizations, insurance companies, financial
institutions and foreign persons), and does not discuss the consequences to a
holder under state, local or foreign tax laws. Prospective investors are advised
to consult their own tax advisors regarding the federal, state, local and other
tax considerations of holding and disposing of the Debentures.
For purposes hereof, a "U.S. Holder" is (i) a citizen or resident of the
United States, (ii) a corporation or partnership created or organized in the
United States or under the laws of the United States or of any state, or (iii)
an estate or trust the income of which is includible in gross income for United
States federal income tax purposes regardless of its source.
GENERAL
A U.S. Holder of a Debenture will be required to report as ordinary income
for federal income tax purposes interest earned on a Debenture in accordance
with the holder's method of tax accounting. Generally, principal payments on a
Debenture will be treated as a return of capital to the extent of a holder's
basis therein.
The Company anticipates that the Debentures will not be issued with original
issue discount within the meaning of the Code, and the Company does not intend
to take any original issue discount deductions with respect to the Debentures.
CONVERSION OF DEBENTURES
A U.S. Holder of a Debenture will not recognize any gain or loss upon the
conversion of a Debenture into Common Stock except with respect to cash (if any)
received in lieu of fractional shares. A holder receiving cash in lieu of a
fractional share will recognize capital gain or loss (subject to the discussion
of market discount set forth below) in an amount equal to the difference between
the amount of cash and the amount of the basis in the converted Debenture that
is allocable to the fractional share. Such gain or loss will be long-term
capital gain or loss provided the Debenture has been held for more than one year
at the time of conversion. A holder's aggregate tax basis in the Common Stock
received upon conversion will be equal to the holder's tax basis of the
Debenture converted, reduced by any amount allocable to fractional share
interests. A holder's holding period for the Common Stock received upon
conversion of a Debenture will include the holder's holding period for such
Debenture.
CONVERSION PRICE ADJUSTMENT
The conversion price of the Debentures will be adjusted if the Company makes
certain distributions to holders of Common Stock or in the event of certain
subdivisions, combinations or reclassifications of Common Stock. Such an
adjustment under certain circumstances could be treated as a constructive
distribution that is taxable to a U.S. Holder of a Debenture at the time of
adjustment under Sections 301 and 305 of the Code.
DISPOSITION OF DEBENTURES OR COMMON STOCK
In general, a U.S. Holder of a Debenture or the Common Stock into which a
Debenture was converted will recognize gain or loss upon the sale, exchange or
retirement (including redemptions but excluding conversion) of a Debenture or
Common Stock in an amount equal to the difference between the amount of cash and
the fair market value of any property received (other than in respect of accrued
and unpaid interest) and such holder's adjusted tax basis in the Debenture or
Common Stock (including any market discount previously included in income by the
holder thereof). Such gain or loss
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will be capital gain or loss except to the extent of any accrued market discount
(see "Market Discount" below), and will be long-term capital gain or loss if the
Debenture or Common Stock has been held for more than one year at the time of
sale, exchange or retirement.
MARKET DISCOUNT
"Market discount" is defined generally as the excess of the stated
redemption price at maturity of a debt instrument over the tax basis of the debt
instrument in the hands of the holder immediately after its acquisition. In
general, a Debenture in the hands of an original holder or a Debenture that is
purchased at its stated principal amount is not a market discount bond. In
addition, under a de minimis exception, there is no market discount if the
excess of the stated redemption price at maturity of a Debenture over the
holder's tax basis therein is less than 0.25% of the stated redemption price at
maturity of the Debenture multiplied by the number of complete years remaining
to maturity (after the holder acquired the Debenture). Market discount generally
will accrue ratably during the period from the date of acquisition to the
maturity date of the Debenture unless the holder elects to accrue such discount
on the basis of a constant interest method.
A U.S. Holder in whose hands a Debenture is a market discount bond generally
will be required to treat as ordinary income any gain recognized on the sale,
exchange, redemption or other disposition of the Debenture (excluding conversion
thereof) to the extent of accrued market discount not previously included in
taxable income. It is anticipated that regulations will be issued that will
provide that any accrued market discount on a Debenture that is converted into
Common Stock pursuant to the conversion feature would be carried over into the
Common Stock received and treated as ordinary income of the holder upon
disposition of the Common Stock. A U.S. Holder of a Debenture acquired at market
discount also may be required to defer the deduction of all or a portion of the
interest on any indebtedness incurred or maintained to purchase or carry the
Debenture until such market discount is included in taxable income.
A U.S. Holder of a Debenture acquired at a market discount may elect to
include market discount in income as it accrues. This election would apply to
all market discount bonds acquired by the electing holder on or after the first
day of the first taxable year to which the election applies. The election may
not be revoked without the consent of the Internal Revenue Service (the "IRS").
BACKUP WITHHOLDING
Under federal income tax law, certain U.S. Holders of Debentures or Common
Stock are required to provide the Company with such holder's correct taxpayer
identification number ("TIN"). If the holder is an individual, the TIN is his or
her social security number. If the Company is not provided with the correct TIN,
the holder may be subject to a $50 penalty imposed by the IRS. In addition,
payments that are made to such holder (such as interest on a Debenture) may be
subject to backup withholding. Certain U.S. Holders (including, among others,
corporations) are not subject to these backup withholding and reporting
requirements. The backup withholding rules will apply only if the U.S. Holder
(i) fails to furnish its Taxpayer Identification Number ("TIN") which, for an
individual, would be his or her Social Security Number, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to certify, under penalty of perjury, that it
has both furnished the correct TIN and has not been notified by the Internal
Revenue Service that it is subject to backup withholding for failure to report
interest and dividend payments. If backup withholding applies, the Company is
required to withhold 31% of any payment made to the holder. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If backup withholding results in an overpayment of federal
income taxes, a refund may be obtained from the IRS provided the required
information is furnished. U.S. Holders of Debentures and Common Stock should
consult their tax advisors as to their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption.
CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S.
HOLDERS
The following is a summary of certain United States federal income and
estate tax consequences of the ownership and disposition of Debentures by
holders who are Non-U.S. Holders (as defined
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below). This summary discusses only Debentures held as "capital assets" (as
defined in the Code) by the holders thereof. This summary does not discuss all
aspects of United States federal income and estate taxation that may be relevant
to a particular Non-U.S. Holder of Debentures in light of its individual
investment circumstances. This discussion does not address the tax consequences
to shareholders, partners or beneficiaries of a Non-U.S. Holder. Further, it
does not consider Non-U.S. Holders subject to special tax treatment under the
federal income tax laws (including dealers in securities, holders of securities
held as part of a "straddle," hedge or "conversion transaction," or situations
in which the "functional currency" within the meaning of Section 985(b) of the
Code of a holder is not the United States dollar).
The following discussion is based upon the Code, the applicable Treasury
regulations promulgated and proposed thereunder, judicial authority and current
administrative rulings and practices. All of the foregoing are subject to change
(possibly on a retroactive basis) and any such change could affect the
continuing validity of this discussion.
For purposes hereof, a "Non-U.S. Holder" means any person other than: (i) a
citizen or resident of the United States; (ii) a corporation or partnership
created or organized in the United States or under the laws of the United States
or of any state; or (iii) any estate or trust whose income is includible in
gross income for United States federal income tax purposes regardless of its
source. For purposes of the withholding tax on interest discussed below, a
non-resident alien or other non-resident fiduciary of an estate or trust will be
considered a Non-U.S. Holder.
For purposes of the following discussion, interest income and gain or the
sale, exchange or retirement of a Debenture will be "United States trade or
business income" if such income or gain is (i) effectively connected with a
trade or business carried on by the Non-U.S. Holder within the United States and
(ii) if a tax treaty applies, attributable to a permanent establishment (or in
the case of an individual, a fixed place of business) in the United States.
United States trade or business income would be taxed at regular United States
federal income tax rates. See, generally, "Certain United States Federal Income
Tax Considerations for U.S. Holders" above. In the case of a Non-U.S. Holder
that is a corporation, such United States trade or business income may also be
subject to the branch profits tax (which is generally imposed on a foreign
corporation on the actual or deemed repatriation from the United States of
earnings and profits attributable to United States trade or business income) at
a 30% rate. The branch profits tax may not apply (or may apply at a reduced
rate) if the recipient is a qualified resident of certain countries with which
the United States has an income tax treaty.
CONVERSION OF DEBENTURES
A Non-U.S. Holder of a Debenture will be treated substantially the same as a
U.S. Holder upon the conversion of the Debenture into Common Stock. See "--
Conversion of Debentures" and
"-- Disposition of Debentures or Common Stock" above.
CERTAIN FIRPTA CONSIDERATIONS
The foregoing discussion for Non-U.S. Holders under "Disposition of
Debentures or Common Stock" and "Conversion of Debentures" assumes that the
Company is not considered a United States real property holding corporation
("USRPHC") within the meaning of Section 897(c) of the Code. In general, if the
Company is determined to be a USRPHC then certain Non-U.S. Holders may be
subject to United States income tax on the sale, exchange, retirement or other
disposition of a Debenture (possibly on the conversion of a Debenture into
Common Stock) or the converted Common Stock, and to withholding at a rate of 10%
on any such disposition. However, a Non-U.S. Holder will not be subject to these
special rules even if the Company is determined to be a USRPHC provided that
such holder did not during a specified five-year period actually or
constructively own more than 5% of the Common Stock of the Company (including
any Common Stock that may be received in exchange for a Debenture).
Although the Company believes that it is not presently a USRPHC, there can
be no assurance that it will not become a USRPHC in the future.
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INTEREST
Payments of interest to a Non-U.S. Holder that do not qualify for the
portfolio interest exception discussed below and which are not United States
trade or business income will be subject to withholding of United States federal
income tax at a rate of 30% unless a United States income tax treaty applies to
reduce the rate of withholding. To claim a treaty reduced rate or an exemption
from withholding because the interest is United States trade or business income,
the Non-U.S. Holder must provide a properly executed Form 1001 or Form 4224,
respectively, as applicable. The same rules apply to dividends paid on Common
Stock received upon conversion of the Debentures.
Generally, however, interest that is paid to a Non-U.S. Holder on a
Debenture that is not United States trade or business income will not be subject
to United States tax if the interest qualifies as "portfolio interest."
Generally, interest on the Debentures that is paid by the Company will qualify
as portfolio interest if (i) the Non-U.S. Holder does not own, actually or
constructively, 10% or more of the total combined voting power of all classes of
stock of the Company entitled to vote and is not a controlled foreign
corporation that is related to the Company through stock ownership for United
States federal income tax purposes; (ii) the Non-U.S. Holder is not a bank that
is receiving the interest on a loan made in the ordinary course of its trade or
business; and (iii) the Company, or its paying agent, received a properly
executed certification signed under penalties of perjury that the beneficial
owner is not a "U.S. person" for U.S. federal income tax purposes and which
provides the beneficial owner's name and address.
SALE, EXCHANGE OR RETIREMENT OF DEBENTURES
Except as described below, any gain realized by a Non-U.S. Holder on the
sale, exchange or retirement of Debentures, generally will not be subject to
United States federal income tax provided that (i) such gain is not United
States trade or business income; (ii) the Non-U.S. Holder is not an individual
who is present in the United States for 183 days or more in the taxable year of
the disposition, and meets certain other requirements; and (iii) the Non-U.S.
Holder is not subject to tax pursuant to the provisions of United States tax law
applicable to certain United States expatriates. For the treatment of amounts
received in respect of accrued and unpaid interest, see "-- Interest."
FEDERAL ESTATE TAX
Debentures held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his or her death (or theretofore transferred subject to
certain retained rights or powers) will not be subject to United States federal
estate tax provided that any interest thereon would be exempt as portfolio
interest if such interest were received by the Non-U.S. Holder at the time of
his or her death. However, shares of Common Stock into which a Debenture was
converted, held by an individual at the time of his or her death, will be
included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company generally must report annually to the IRS and to each Non-U.S.
Holder the amount of interest paid to, and the tax withheld, if any, with
respect to, each Non-U.S. Holder. These reporting requirements apply whether or
not withholding is reduced or eliminated by an applicable tax treaty. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
Non-U.S. Holder resides. Payments of principal to a Non-U.S. Holder will not be
subject to information reporting if the holder has provided certification of its
Non-U.S. Holder status.
The United States backup withholding tax (in general, a tax imposed at the
rate of 31% on payments to persons that fail to furnish the information required
under the United States information reporting requirements) will generally not
apply to payments of interest that qualify as portfolio interest as described
above (provided that the Company has no actual knowledge that the holder is a
U.S. person).
Payments of the proceeds of the sale of Debentures to or through a foreign
office of a "broker" (as defined in the pertinent regulations) will not be
subject to information reporting if the broker is a U.S.
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person, a controlled foreign corporation for United States federal income tax
purposes, or a foreign person 50% or more of whose gross income is from a United
States trade or business for a specified three-year period, unless the broker
has in its records documentary evidence that the holder is not a U.S. person and
certain conditions are met (including that the broker has no actual knowledge
that the holder is a U.S. person) or the holder otherwise establishes an
exemption. The United States Treasury Department has indicated that it is
studying the possible application of backup withholding in the case of foreign
offices of United States and United States-related brokers. Payment of the
proceeds of a sale to or through the United States office of a broker is subject
to backup withholding and information reporting, unless the holder certifies
that it is a Non-U.S. Holder under penalties of perjury or otherwise establishes
an exemption.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's
regular federal income tax liability, provided that certain information is
provided to the IRS.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Mercury consists of 9,000,000 shares of
Common Stock, par value $.01 per share, and 3,000,000 shares of preferred stock,
par value $.01 per share ("Preferred Stock"), As of December 31, 1995 there were
5,380,087 outstanding shares of Common Stock. There are no shares of Preferred
Stock of any designation issued or outstanding.
As of December 31, 1995 Mercury had reserved 548,285 shares of Common Stock
for issuance pursuant to outstanding options, warrants and a convertible
debenture.
COMMON STOCK
All shares of Common Stock have equal voting, dividend and liquidation
rights. Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders, and holders are not
entitled to cumulative voting in the election of directors. Holders of Common
Stock are entitled to such dividends as may be declared by the Board of
Directors out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of Mercury, the holders of Common Stock are entitled
to receive all assets remaining after payment of liabilities and after payment
of any preference to holders of preferred stock. Holders of shares of Common
Stock have no conversion, preemptive or other rights to subscribe for additional
shares and the shares are not subject to redemption. All of the outstanding
shares of Common Stock are legally and validly issued, fully paid and
nonassessable.
PREFERRED STOCK
Mercury's Articles of Incorporation authorize the issuance of up to
3,000,000 shares of preferred stock with such rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors may, without shareholder approval, issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the rights, value and liquidity of the Common Stock. In addition, the
issuance of shares of preferred stock may have the effect of rendering more
difficult an acquisition of Mercury or a change in control of Mercury. There are
no shares of preferred stock of any designation issued or outstanding, and
Mercury has no present plans to issue shares of preferred stock.
REGISTRATION RIGHTS
Mercury has reserved 18,335 shares of Common Stock for issuance upon
exercise of outstanding underwriter warrants which have an exercise price of
$3.82 and an expiration date of June 1996. The holder of the underwriter warrant
has the right to require Mercury to register such shares.
TRANSFER AGENT AND REGISTRAR
The American Stock Transfer & Trust Company is the transfer agent and
registrar for the Common Stock.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
between Mercury and each of the Underwriters named below (the "Underwriters"),
for whom EVEREN Securities, Inc. and Crowell, Weedon & Co. are acting as
representatives (the "Representatives"), the Company has agreed to sell to each
such Underwriter, and each of such Underwriters has severally agreed to purchase
from the Company, the aggregate principal amount of the Debentures set forth
opposite each Underwriter's name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF DEBENTURES
- ---------------------------------------------------------------------------- ----------------
<S> <C>
EVEREN Securities, Inc......................................................
Crowell, Weedon & Co........................................................
----------------
Total................................................................... $ 25,000,000
----------------
----------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are obligated severally to purchase all of the Debentures offered
hereby (other than those covered by the over-allotment option described below)
if any Debentures are purchased.
The Underwriters have advised Mercury that they propose to offer the
Debentures to the public at the price to public set forth on the cover page of
this Prospectus and that the Underwriters may allow certain dealers a concession
not to exceed % of the principal amount of the Debentures, of which such
dealers may reallow a concession not to exceed % of the principal amount of
the Debentures to certain other dealers. After the Debentures are released for
sale to the public, the public offering price and the other selling terms may be
changed by the Representatives.
Mercury has granted the Underwriters an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to $3,750,000 aggregate
principal amount of Debentures at the price to public set forth on the cover
page of this Prospectus less the underwriters discount and commissions solely to
cover over-allotments. Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the Underwriters exercise
such option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of Debentures proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
Mercury has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Prior to this offering, there has been no established trading market for the
Debentures. The initial price to public for the Debentures offered hereby will
be determined by negotiation among the Company and the Representatives. There
can be no assurance, however, that the prices at which the Debentures will sell
in the public market after this offering will not be lower than the price at
which the Debentures are sold to the public by the Underwriters. See "Risk
Factors --Limited Market for Debentures."
EXPERTS
The consolidated financial statements of Mercury as of June 30, 1995 and
1994, and for each of the three years in the period ended June 30, 1995,
included in this Prospectus and the related financial statement schedule
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
56
<PAGE>
LEGAL MATTERS
The validity of the Debentures offered hereby and the Common Stock issuable
upon conversion thereof and certain other matters will be passed upon for
Mercury by McBreen, McBreen & Kopko, Chicago, Illinois. Frederick H. Kopko, Jr.
is a member of that firm, a director of Mercury and beneficially owns an option
to acquire 33,000 shares of Mercury's Common Stock. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by Orrick,
Herrington & Sutcliffe, San Francisco, California.
57
<PAGE>
MERCURY AIR GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets at June 30, 1994 and 1995 and September 30, 1995......... F-3
Consolidated Statements of Income for the Years Ended June 30, 1993, 1994 and 1995
and the Three Months Ended September 30, 1994 and 1995.............................. F-4
Consolidated Statements of Cash Flows for the Years Ended June 30, 1993, 1994 and
1995 and the Three Months Ended September 30, 1994 and 1995......................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1993,
1994 and 1995 and the Three Months Ended September 30, 1995......................... F-6
Notes to Consolidated Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Mercury Air Group, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Mercury Air
Group, Inc. and subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements.
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, such consolidated financial statements present fairly, in
all material respects, the financial position of Mercury Air Group, Inc. and
subsidiaries as of June 30, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Los Angeles, California
September 15, 1995
F-2
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------ SEPTEMBER 30,
1994 1995 1995
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 1,770,000 $ 831,000 $ 529,000
Trade accounts receivable, net of allowance for doubtful accounts of
$508,000 at 6/30/94, $610,000 at 6/30/95 and $810,000 at 9/30/95
(Note 9).......................................................... 17,164,000 33,269,000 35,992,000
Notes receivable -- current portion................................. 185,000 50,000 60,000
Inventories (Notes 3 and 9)......................................... 951,000 3,283,000 3,071,000
Prepaid expenses and other current assets........................... 1,297,000 1,822,000 1,573,000
----------- ----------- -------------
Total current assets.............................................. 21,367,000 39,255,000 41,225,000
PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated depreciation
and amortization of $18,277,000 at 6/30/94, $20,391,000 at 6/30/95
and $20,995,000 at 9/30/95 (Notes 5, 9 and 16)...................... 12,570,000 12,219,000 14,883,000
NOTES RECEIVABLE, net of current portion.............................. 186,000 136,000 197,000
OTHER ASSETS (Notes 6 and 16)......................................... 1,319,000 2,600,000 3,186,000
----------- ----------- -------------
$35,442,000 $54,210,000 $59,491,000
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 6,920,000 $12,998,000 $15,187,000
Accrued expenses and other current liabilities (Note 7)............. 2,078,000 3,008,000 1,913,000
Income taxes payable (Note 8)....................................... 699,000 114,000 846,000
Current portion of long-term debt (Note 9).......................... 2,317,000 2,607,000 2,791,000
----------- ----------- -------------
Total current liabilities......................................... 12,014,000 18,727,000 20,737,000
LONG-TERM DEBT (Note 9)............................................... 8,650,000 17,104,000 20,011,000
DEFERRED INCOME TAXES (Note 8)........................................ 218,000 8,000 8,000
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY (Note 4)................. 924,000
----------- ----------- -------------
Total liabilities................................................. 21,806,000 35,839,000 40,756,000
----------- ----------- -------------
COMMITMENTS AND CONTINGENCIES (Note 12)...............................
STOCKHOLDERS' EQUITY (Notes 9, 10 and 11):
Preferred Stock -- $.01 par value; authorized 3,000,000 shares; no
shares outstanding
Common Stock -- $ .01 par value; authorized 9,000,000 shares;
outstanding 4,905,779 shares at 6/30/94, 5,524,257 shares at
6/30/95; and 5,371,087 shares at 9/30/95.......................... 49,000 55,000 54,000
Additional Paid-in Capital.......................................... 9,187,000 14,992,000 14,611,000
Retained Earnings................................................... 4,555,000 3,479,000 4,225,000
Treasury Stock -- 32,000 shares of common stock at 6/30/94; 35,200
shares of common stock at 6/30/95 and 9/30/95..................... (155,000) (155,000) (155,000)
----------- ----------- -------------
Total stockholders' equity........................................ 13,636,000 18,371,000 18,735,000
----------- ----------- -------------
$35,442,000 $54,210,000 $59,491,000
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------- --------------------------
1993 1994 1995 1994 1995
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales and Revenues (Note 13):
Sales..................................................... $57,186,000 $ 68,991,000 $145,166,000 $ 26,155,000 $ 42,214,000
Service revenues.......................................... 27,357,000 34,078,000 37,834,000 9,399,000 9,666,000
----------- ------------ ------------ ------------ ------------
84,543,000 103,069,000 183,000,000 35,554,000 51,880,000
----------- ------------ ------------ ------------ ------------
Costs and Expenses:
Cost of sales............................................. 50,804,000 61,060,000 132,838,000 23,666,000 38,747,000
Operating expenses........................................ 24,836,000 29,344,000 33,589,000 8,037,000 8,536,000
----------- ------------ ------------ ------------ ------------
75,640,000 90,404,000 166,427,000 31,703,000 47,283,000
----------- ------------ ------------ ------------ ------------
Operating Income........................................ 8,903,000 12,665,000 16,573,000 3,851,000 4,597,000
----------- ------------ ------------ ------------ ------------
Other Expenses (Income):
Selling, general and administrative (Note 6).............. 3,879,000 4,261,000 5,363,000 1,190,000 1,473,000
Depreciation and amortization............................. 1,680,000 2,049,000 2,409,000 606,000 623,000
Interest expense.......................................... 1,084,000 1,080,000 1,478,000 302,000 437,000
Interest income........................................... (171,000) (140,000) (84,000) (13,000) (12,000)
Minority interest (Note 4)................................ 128,000 246,000 95,000 42,000
Gain-legal judgement (Note 2)............................. (1,060,000)
----------- ------------ ------------ ------------ ------------
5,540,000 7,496,000 9,261,000 2,127,000 2,521,000
----------- ------------ ------------ ------------ ------------
Income Before Income Taxes.................................. 3,363,000 5,169,000 7,312,000 1,724,000 2,076,000
Provision for Income Taxes (Note 8)......................... 1,413,000 2,174,000 3,005,000 722,000 844,000
----------- ------------ ------------ ------------ ------------
Net Income.................................................. $ 1,950,000 $ 2,995,000 $ 4,307,000 $ 1,002,000 $ 1,232,000
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Net Income applicable to Common Stock....................... $ 1,496,000 $ 2,920,000 $ 4,307,000 $ 1,002,000 $ 1,232,000
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Net Income Per Common Share and Common Equivalent Share
(Primary) (Note 14)....................................... $ 0.62 $ 0.75 $ 0.76 $ 0.18 $ 0.22
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Net Income Per Common Share-Assuming Full Dilution (Note
14)....................................................... $ 0.39 $ 0.59 $ 0.76 $ 0.18 $ 0.22
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Weighted Average Number of Shares of Common Stock (Note
14)....................................................... 2,431,549 3,719,884 5,420,158 5,354,000 5,415,000
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------- ------------------------
1993 1994 1995 1994 1995
----------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 1,950,000 $ 2,995,000 $ 4,307,000 $ 1,002,000 $ 1,232,000
Adjustments to derive cash flow from operating
activities:
Depreciation and amortization.................. 1,680,000 2,049,000 2,409,000 606,000 623,000
Minority interest.............................. 128,000 246,000 95,000 42,000
Amortization of officers' loans................ 154,000 154,000 140,000 39,000 39,000
Increase (decrease) in deferred income taxes... 229,000 (651,000) (210,000)
Changes in operating assets and liabilities:
Trade and other accounts receivable............ (3,929,000) (474,000) (16,105,000) (6,461,000) (2,377,000)
Inventories.................................... 84,000 (103,000) (2,332,000) (606,000) 212,000
Prepaid expenses and other current assets...... 398,000 (304,000) (525,000) 207,000 249,000
Accounts payable............................... 459,000 150,000 6,078,000 3,470,000 1,721,000
Income taxes payable........................... 351,000 348,000 (368,000) 181,000 732,000
Accrued expenses and other current
liabilities.................................. 162,000 (43,000) 930,000 (917,000) (1,095,000)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) operating
activities................................. 1,666,000 4,367,000 (5,581,000) (2,437,000) 1,336,000
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment................. 300,000
Decrease in notes receivable..................... 261,000 677,000 185,000 15,000 (71,000)
Addition to other assets......................... (265,000) (259,000) (632,000) (78,000) (640,000)
Additions to property, equipment and
leaseholds..................................... (2,538,000) (1,933,000) (1,574,000) (167,000) (561,000)
----------- ----------- ------------ ----------- -----------
Net cash used in investing activities........ (2,542,000) (1,215,000) (2,021,000) (230,000) (1,272,000)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividend on common stock.............. (100,000) (55,000)
Proceeds from long-term debt..................... 3,461,000 2,876,000 10,752,000 2,720,000 1,829,000
Reduction of long-term debt...................... (1,952,000) (5,902,000) (2,443,000) (589,000) (1,327,000)
Payment of dividend on preferred stock........... (454,000) (75,000)
Issuance of common stock......................... 3,097,000 379,000 13,000 7,000
Repurchase and retire preferred and common stock
and warrants................................... (50,000) (1,917,000) (1,475,000) (542,000) (820,000)
Redemption by subsidiary of common stock owned by
minority shareholder........................... (450,000)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used in) financing
activities................................. 1,005,000 (1,921,000) 6,663,000 1,602,000 (366,000)
----------- ----------- ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 129,000 1,231,000 (939,000) (1,065,000) (302,000)
CASH AND CASH EQUIVALENTS, beginning of period..... 410,000 539,000 1,770,000 1,770,000 831,000
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS, end of period........... $ 539,000 $ 1,770,000 $ 831,000 $ 705,000 $ 529,000
----------- ----------- ------------ ----------- -----------
----------- ----------- ------------ ----------- -----------
CASH PAID DURING THE PERIOD:
Interest......................................... $ 1,084,000 $ 1,080,000 $ 1,478,000 $ 302,000 $ 437,000
Income taxes..................................... $ 645,000 $ 2,477,000 $ 3,607,000 $ 542,000 $ 112,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Direct financing for purchase of equipment and
property....................................... $ 1,425,000 $ 2,518,000 $ 435,000
Cancellation of a note receivable and other
assets as consideration for the purchase of
leasehold property............................. $ 540,000
Issuance of 225,000 common shares in exchange for
the remaining minority interest of Mercury Air
Cargo, Inc..................................... $ 1,406,000
Issuance of notes payable for the acquisition of
assets (Note 16)............................... $ 2,016,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A COMMON STOCK
PREFERRED STOCK COMMON STOCK IN TREASURY
------------------- ------------------ ADDITIONAL ---------------------
NUMBER OF NUMBER OF PAID-IN RETAINED NUMBER OF
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
--------- ------- --------- ------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1992.................. 575,000 $6,000 2,206,191 $22,000 $ 7,049,000 $ 1,167,000 32,000 $(155,000)
Net income............................ 1,950,000
Series A Preferred Stock converted
into Common Stock................... (12,002) 48,008
Cash Dividend on Series A Preferred
Stock............................... (454,000)
Repurchase and retire Preferred
Stock............................... (4,000) (32,000) (17,000)
--------- ------- --------- ------- ----------- ----------- --------- ---------
BALANCE, June 30, 1993.................. 558,998 6,000 2,254,199 22,000 7,017,000 2,646,000 32,000 (155,000)
Net income............................ 2,995,000
Cash Dividend on Series A Preferred
Stock............................... (75,000)
Repurchase and retire Preferred
Stock............................... (80,256) (1,000 ) (640,000) (475,000)
Series A Preferred Stock converted
into Common Stock................... (478,742) (5,000 ) 1,914,968 19,000 (14,000)
Repurchase and retire Common Stock.... (169,200 ) (1,000) (264,000) (536,000)
Common Stock issued on exercise of
warrants and options................ 905,812 9,000 3,088,000
--------- ------- --------- ------- ----------- ----------- --------- ---------
BALANCE, June 30, 1994.................. 0 0 4,905,779 49,000 9,187,000 4,555,000 32,000 (155,000)
Net income............................ 4,307,000
Cash Dividend on Common Stock......... (100,000)
Repurchase and retire Common Stock.... (236,300 ) (2,000) (450,000) (1,022,000)
Common Stock issued on exercise of
warrants and options................ 128,532 1,000 378,000
Tax benefit from exercise of stock
options............................. 217,000
Common stock issued in exchange for
the remaining minority interest of
Mercury Air Cargo, Inc.............. 225,000 2,000 1,404,000
Issue 10% stock dividend.............. 501,246 5,000 4,256,000 (4,261,000) 3,200
--------- ------- --------- ------- ----------- ----------- --------- ---------
BALANCE, June 30, 1995.................. 0 0 5,524,257 55,000 14,992,000 3,479,000 35,200 (155,000)
Net income............................ 1,232,000
Repurchase and retire Common Stock.... (155,420 ) (2,000) (387,000) (431,000)
Common Stock issued on exercise of
options............................. 2,250 1,000 6,000
Cash dividend on Common Stock......... (55,000)
--------- ------- --------- ------- ----------- ----------- --------- ---------
BALANCE, September 30, 1995
(unaudited)........................... 0 $ 0 5,371,087 $54,000 $14,611,000 $ 4,225,000 35,200 $(155,000)
--------- ------- --------- ------- ----------- ----------- --------- ---------
--------- ------- --------- ------- ----------- ----------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Mercury Air Group, Inc. and subsidiaries (the "Company") are principally
engaged in the conduct of cargo handling, cargo general sales agency and air
cargo space brokerage, and the sale and delivery of aviation fuels to
commercial, air courier and commuter airlines, and to general aviation aircraft.
The Company also provides ground support services to U.S. military aircraft.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mercury Air
Group, Inc., and its subsidiaries. All material intercompany transactions and
balances have been eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments that are
readily convertible into cash and were purchased with maturities of three months
or less.
INVENTORIES
Inventory amounts are stated at the lower of aggregate cost (first-in,
first-out method) or market.
PROPERTY, EQUIPMENT AND LEASEHOLDS
Property, equipment and leaseholds are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful life of the
asset (3-25 years) and over the lease life or useful life for leasehold
improvements, whichever is less.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired arose in the acquisitions of Maytag
Aircraft Corporation, a wholly-owned subsidiary, in 1984, the minority interest
in Mercury Air Cargo, Inc. in November 1994 and Excel Cargo, Inc. in September
1995. Such costs are being amortized on the straight-line method over 40 years
with respect to Maytag Aircraft Corporation and Mercury Air Cargo, Inc. and 15
years with respect to Excel Cargo, Inc. The Company assesses recoverability on a
periodic basis. Factors included in evaluating recoverability include historical
earnings and projected future earnings of the operations.
REVENUE RECOGNITION
Revenues are recognized upon delivery of product or completion of the
service. The Company's contracts with the U.S. Government are subject to profit
renegotiation. The Company has not been required to adjust profits arising out
of U.S. Government contracts to date.
INCOME TAXES
Deferred tax assets and liabilities are recognized based on differences
between financial statement and tax basis of assets and liabilities using
presently enacted tax rates.
INCOME PER SHARE
Per share data is based on the weighted average number of shares
outstanding, after giving effect to the cumulative dividend on cumulative
preferred stock, and common stock equivalents, excluding those common stock
equivalents that would increase the income per share.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, accounts
receivable and payable, and debt instruments. The book values of all financial
instruments, other than debt instruments, are representative of their fair
values due to their short-term maturity. The book values of the Company's debt
instruments are considered to approximate their fair values because the interest
rates of these instruments are based on current rates offered to the Company.
F-7
<PAGE>
INTERIM REPORTING
The accompanying unaudited financial statements reflect all adjustments
(consisting of normal, recurring accruals only) which are necessary to fairly
present the results for the interim periods. The results of operations for the
three months ended September 30, 1995 are not necessarily indicative of results
for the full year.
NOTE 2 -- GAIN-LEGAL JUDGMENT:
The Company recorded a pretax gain of $1,060,000 in fiscal 1993 related to a
recovery obtained from a legal judgment which arose following the bankruptcy of
a former significant customer.
NOTE 3 -- INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------- SEPTEMBER 30,
1994 1995 1995
----------- ------------- -------------
<S> <C> <C> <C>
Aviation fuel................................................ $ 757,000 $ 3,166,000 $ 2,955,000
Supplies and parts........................................... 194,000 117,000 116,000
----------- ------------- -------------
$ 951,000 $ 3,283,000 $ 3,071,000
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS:
Twenty percent of Mercury Air Cargo, Inc. ("MAC"), a subsidiary of the
Company, was owned by a company which is wholly-owned by an executive officer of
Mercury Air Group, Inc. The minority interest share in the net income of MAC
resulting from this ownership amounted to $95,000 (1995), $246,000 (1994) and
$128,000 (1993). In November 1994, the Company acquired the remaining minority
interest from the executive officer. The transaction included a redemption of 5%
in exchange for $450,000 in cash and acquisition of the remaining 15% through
the issuance of 247,500 common shares (after adjustment for the 10% stock
dividend) valued at $1,406,000 ($5.68 per share) for a total consideration of
$1,856,000. The acquisition of the minority interest has been accounted for as a
purchase and, accordingly, the excess of the cost over the book value
($1,019,000) of the shares acquired is included in other assets in the
accompanying consolidated balance sheet at June 30, 1995 (See note 6).
NOTE 5 -- PROPERTY, EQUIPMENT AND LEASEHOLDS:
Property, equipment and leaseholds consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1994 1995
-------------- ---------------
<S> <C> <C>
Land, buildings and leasehold improvements............................ $ 15,230,000 $ 16,187,000
Equipment, furniture and fixtures..................................... 15,509,000 16,391,000
Construction in progress.............................................. 108,000 32,000
-------------- ---------------
30,847,000 32,610,000
Less accumulated depreciation and amortization........................ (18,277,000) (20,391,000)
-------------- ---------------
$ 12,570,000 $ 12,219,000
-------------- ---------------
-------------- ---------------
</TABLE>
F-8
<PAGE>
NOTE 6 -- OTHER ASSETS:
Other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Cost in excess of net assets acquired............. $ 665,000 $1,466,000
Deferred lease cost............................... 38,000 26,000
Other assets...................................... 404,000 698,000
Loans to officers................................. 212,000 410,000
---------- ----------
$1,319,000 $2,600,000
---------- ----------
---------- ----------
</TABLE>
Cost in excess of net assets acquired includes $823,000 which arose from the
Company's acquisition of the outstanding minority interest in MAC in November
1994. (See note 4)
In 1991, four executive officers of the Company each agreed to purchase
110,000 (after adjustment for the 10% stock dividend) shares of the Company's
stock from a company owned by the Chairman and Chief Executive Officer at $2.73
per share pursuant to a Stock Purchase Agreement ("Agreement'). The officers
each paid $30,000 in cash, or $120,000, with the remaining aggregate purchase
price of $1,080,000 to be paid over a five year period ending in 1996. As part
of the Agreement to purchase the stock, the Company agreed to loan the
executives the $1,080,000 in quarterly installments. Beginning in 1994, one
fifth of the amount ultimately to be loaned will be forgiven each year over a
five year period ending in 1998 provided each of the officers remains in the
employ of the Company.
In 1994, a fifth executive officer of the Company purchased 110,000 shares
(after adjustment for the 10% stock dividend) of the Company's stock from a
company owned by the Chairman and Chief Executive Officer at $2.73 per share
pursuant to a Stock Purchase Agreement similar to the agreements above. The
officer paid $30,000 in cash with the remaining purchase price of $270,000 to be
paid over a five year period ending in 1998.
The Company agreed to loan the executive the $270,000 in quarterly
installments. Beginning in 1996, one fifth of the amount to be loaned, or
$54,000, will be forgiven each year over a five year period ending in 2000
provided the officer remains in the employ of the Company.
For accounting purposes, the amounts subject to forgiveness of $1,080,000
and $270,000 are being treated as additional compensation over the seven year
period from the date of the Agreements through 1998 and 2000, respectively. The
loans to officers are increased by actual amounts advanced by the Company and
are decreased annually, by one-seventh of the amount to be forgiven, or
approximately $154,000 through fiscal 1994 and $140,000 in 1995. In July 1995,
one of the executive officers resigned resulting in the elimination of any
future forgiveness with respect to that officer's loan. In August 1995, the
Company repurchased this officer's stock for $453,000, less the balance
outstanding on the loan.
NOTE 7 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Salaries and wages................................ $1,393,000 $1,918,000
Other............................................. 685,000 1,090,000
---------- ----------
$2,078,000 $3,008,000
---------- ----------
---------- ----------
</TABLE>
F-9
<PAGE>
NOTE 8 -- INCOME TAXES:
The provision for taxes on income from continuing operations consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal, current........................ $ 944,000 $2,262,000 $2,565,000
State, current.......................... 240,000 563,000 650,000
---------- ---------- ----------
1,184,000 2,825,000 3,215,000
Deferred, primarily federal............. 229,000 (651,000) (210,000)
---------- ---------- ----------
Net provision......................... $1,413,000 $2,174,000 $3,005,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Deferred taxes arise from the recognition of certain items of revenue and
expense for tax purposes in years different from those in which they are
recognized in the financial statements.
Major components of deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Depreciation/amortization............... $ 337,000 $ 150,000
Deferred and prepaid expenses........... 258,000 275,000
State income taxes...................... (191,000) (209,000)
Allowance for doubtful accounts......... (186,000) (244,000)
Miscellaneous........................... 36,000
--------- ---------
$ 218,000 $ 8,000
--------- ---------
--------- ---------
</TABLE>
The components of the deferred tax provision prior to the adoption of SFAS
109 consisted of:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
1993
-----------
<S> <C>
Excess of book over tax depreciation.... $ (57,000)
Allowance for bad debts................. 96,000
Deferred expenses....................... (79,000)
Amortization of officers loans.......... (62,000)
Gain -- legal judgement................. 445,000
State income taxes and miscellaneous.... (114,000)
-----------
$ 229,000
-----------
-----------
</TABLE>
The reconciliation of the federal statutory rate to the Company's effective
tax rate on income is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------
1993 1994 1995
----- ----- ----
<S> <C> <C> <C>
Computed "expected" tax rate............ 34% 34% 34%
State income taxes, net of federal
income tax benefit.................... 6 6 6
Other................................... 2 2 1
----- ----- ----
Effective rate.......................... 42% 42% 41%
----- ----- ----
----- ----- ----
</TABLE>
F-10
<PAGE>
NOTE 9 -- LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER
------------------------ 30,
1994 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable to banks...................................... $ 6,251,000 $14,870,000 $16,325,000
Installment notes, payable to financial institutions in
monthly installments aggregating approximately $70,000 at
June 30, 1995 including interest from 7.23% to 11.85%,
collateralized by certain assets of the Company and
maturing from 1995 through 1999........................... 2,288,000 2,075,000 1,911,000
Mortgage payable to financial institution in monthly
principal installments of $9,750 plus interest at 7.5% per
annum, collateralized by land and building, maturing in
April 2004................................................ 1,151,000 1,034,000 1,004,000
Mortgage payable to financial institution in monthly
installments of $4,447 including interest at 9% per annum,
collateralized by land and building, maturing in May
2010...................................................... 434,000 431,000
Note payable to seller of assets and leasehold at
Bakersfield, California due in December 2004, interest at
prime (9.00% at June 30, 1995), collateralized by property
acquired, which is principally a leasehold................ 1,093,000 1,017,000 1,000,000
Note payable to seller of assets and leasehold at
Bakersfield, California due in November 1997, interest at
10%....................................................... 169,000 126,000 115,000
Debenture payable to Seller of Excel assets due in September
2003, interest at 8.5% per annum, collateralized by
property acquired......................................... 2,016,000
Other....................................................... 15,000 155,000
----------- ----------- -----------
10,967,000 19,711,000 22,802,000
Less current portion........................................ 2,317,000 2,607,000 2,791,000
----------- ----------- -----------
$ 8,650,000 $17,104,000 $20,011,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Notes payable to banks at June 30, 1995 consists of a term loan in the
amount of $4,752,000, which is payable in monthly payments of approximately
$125,000 plus interest at prime plus 3/4% or LIBOR + 2 1/4% and is scheduled to
mature in August 1998. At June 30, 1995 the Company also has a revolving credit
line that matures in October 1997, bears interest at prime plus 1/2% or LIBOR +
2% and permits borrowing of up to $16,000,000 subject to available eligible
collateral. At June 30, 1995, there was approximately $10,118,000 in outstanding
borrowings. At September 30, 1995, amounts outstanding under the term loan and
revolving credit line were $4,378,000 and $11,947,000, respectively. The term
loan and line of credit are collateralized by substantially all of the Company's
assets.
Certain debt agreements contain provisions that require: the maintenance of
certain financial ratios, minimum tangible net worth (as defined) and minimum
working capital levels and limit payments of dividends on common stock to
$250,000 annually, annual capital expenditures and payments under operating
leases.
F-11
<PAGE>
Long-term debt payable subsequent to June 30, 1995 is as follows:
<TABLE>
<S> <C>
1996.................................................. $ 2,607,000
1997.................................................. 2,489,000
1998.................................................. 12,277,000
1999.................................................. 709,000
2000.................................................. 249,000
Thereafter............................................ 1,380,000
-----------
$19,711,000
-----------
-----------
</TABLE>
NOTE 10 -- SERIES A PREFERRED STOCK:
During fiscal 1994, 478,742 shares of Series A Preferred Stock were
converted into 1,914,968 shares of Common Stock. Also in fiscal 1994, the
Company repurchased and/or redeemed 80,256 shares of Series A Preferred Stock at
a cost of $1,115,000. In addition, 660,320 Series A and Series B Warrants were
exercised resulting in proceeds of $2,400,000 and the remaining 18,680 Series A
and Series B Warrants were redeemed at a cost of $.10 per Warrant. As a result
of these transactions, there are no remaining outstanding shares of Series A
Preferred Stock or Series A and Series B Warrants as of June 30, 1994.
NOTE 11 -- COMMON STOCK:
The Company has 9,000,000 authorized shares of common stock having a par
value of $0.01 per share.
The Company has reserved 639,300 shares of common stock of which 242,800
shares relate to the 1990 Long-Term Incentive Plan; 286,500 shares relate to the
1990 Directors Stock Option Plan and 110,000 shares relate to a special option
grant made outside the Company's option plans.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
LONG-TERM DIRECTORS
INCENTIVE STOCK OPTION
OPTION PRICES PLAN OPTION PRICES PLAN
----------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Outstanding July 1, 1992.............. $ 2.25 - 3.38 135,000 $ 1.875 - 3.00 60,000
Granted............................... 2.125 135,000 2.125 30,000
Cancelled............................. 2.25 - 3.38 (95,000)
------------- ------------
Outstanding June 30, 1993............. $ 2.125 - 3.38 175,000 $ 1.875 - 3.00 90,000
Granted............................... 3.688 25,000 3.688 40,000
Exercised............................. 2.125 - 2.25 (32,500) 1.875 - 2.25 (13,000)
------------- ------------
Outstanding June 30, 1994............. $ 2.13 - 3.688 167,500 $ 1.875 - 3.69 117,000
Granted............................... 7.00 40,000
Exercised............................. 2.125 - 2.25 (54,700) 2.125 - 3.00 (30,500)
------------- ------------
$ 2.125 - 3.688 112,800 $ 1.875 - 7.00 126,500
10% Stock Dividend.................... 11,280 12,650
------------- ------------
Outstanding June 30, 1995............. $ 1.93 - 3.35 124,080 $ 1.70 - 6.36 139,150
------------- ------------
------------- ------------
</TABLE>
F-12
<PAGE>
At June 30, 1995, options to purchase 95,150 shares at prices ranging from
$1.70 to $3.35 are exercisable under the Director's Stock Option Plan. All of
the options outstanding under the Long-Term Incentive Plan are exercisable.
On January 21, 1993, a special option grant for 110,000 shares at $2.12 was
made and is exercisable at June 30, 1995. On August 9, 1993 a special option
grant for 11,000 shares at $2.84 was made and such option was exercised in
March, 1995.
The Company has also reserved 18,335 shares of common stock for issuance
upon exercise of outstanding underwriter warrants which have an exercise price
of $3.82 per share and an expiration date of June 1996. During fiscal 1995,
33,332 warrants were exercised.
All amounts have been restated to include the 10% stock dividend paid on
June 16, 1995.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES:
LEASES
The Company is obligated under noncancellable operating leases. Certain
leases include renewal clauses and require payment of real estate taxes,
insurance and other operating costs. Total rental expense on all such leases for
the fiscal years 1995, 1994 and 1993 was approximately $2,502,000, $2,265,000
and $2,596,000, respectively, net of sublease income of approximately $230,000
annually. The minimum annual rentals on all noncancellable operating leases
having a term of more than one year at June 30, 1995 are as follows:
<TABLE>
<S> <C>
1996................................................... $1,836,000
1997................................................... 1,836,000
1998................................................... 1,815,000
1999................................................... 1,686,000
2000................................................... 707,000
Thereafter............................................. 1,198,000
----------
Total minimum payments required...................... $9,078,000
----------
----------
</TABLE>
LITIGATION
The Company is also a defendant in certain litigation arising in the normal
course of business. In the opinion of management, the ultimate resolution of
such litigation will not have a significant effect on the financial statements.
NOTE 13 -- MAJOR CUSTOMERS AND FOREIGN CUSTOMERS:
Revenues from the United States government amounted to approximately 9%, 16%
and 15% for fiscal 1995, 1994 and 1993, respectively.
The Company does business with a number of foreign airlines, principally in
the sale of aviation fuels. For the most part, such sales are made within the
United States and utilize the same assets and generally the same personnel as
are utilized in the Company's domestic business. Revenues related to these
foreign airlines amounted to approximately 39%, 45% and 40% of consolidated
revenues for the years ended June 30, 1995, 1994 and 1993, respectively.
NOTE 14 -- EARNINGS PER SHARE:
Primary earnings per Common Share is computed by dividing net income
available to common stockholders, which gives effect to the cash portion of the
cumulative dividend on preferred stock, by the weighted average number of common
stock and common stock equivalents outstanding during the period. Options
granted to purchase 373,230 shares of common stock under the Company's Long-
F-13
<PAGE>
Term Incentive Plan and Directors' Stock Option Plan at exercise prices ranging
from $1.70 to $6.36 were included as common stock equivalents in fiscal 1995 for
purposes of computing earnings per share.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JUNE 30, 1995 SEPTEMBER 30, 1995
------------- -------------------
<S> <C> <C>
Weighted average number of common shares outstanding during the
period............................................................ 5,420,000 5,415,000
Common stock equivalents resulting from the assumed exercise of
stock options..................................................... 236,000 241,000
------------- ----------
Weighted average number of common and common equivalent shares
outstanding during the period..................................... 5,656,000 5,656,000
------------- ----------
------------- ----------
</TABLE>
Weighted average outstanding shares and earnings per share have been
retroactively restated to include the 10% stock dividend paid on June 16, 1995
which amounted to the issuance of 501,246 shares.
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
GROSS PROFIT EARNINGS PER SHARE
SALES AND (OPERATING --------------------------
REVENUES INCOME) NET INCOME PRIMARY FULLY DILUTED
---------------- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995
First Quarter......................... $35,554,000 $3,851,000 $1,002,000 $0.18 $0.18
Second Quarter........................ 49,165,000 4,444,000 1,200,000 0.21 0.21
Third Quarter......................... 50,002,000 4,038,000 1,003,000 0.18 0.18
Fourth Quarter........................ 48,279,000 4,240,000 1,102,000 0.19 0.19
---------------- -------------- ------------- ----- -----
YEAR ENDED JUNE 30, 1995................ $183,000,000 $16,573,000 $4,307,000 $0.76 $0.76
---------------- -------------- ------------- ----- -----
---------------- -------------- ------------- ----- -----
YEAR ENDED JUNE 30, 1994
First Quarter......................... $24,982,000 $2,715,000 $597,000 $0.19 $0.12
Second Quarter........................ 26,668,000 3,165,000 817,000 0.31 0.17
Third Quarter......................... 26,613,000 3,349,000 819,000 0.14 0.15
Fourth Quarter........................ 24,806,000 3,436,000 762,000 0.11 0.15
---------------- -------------- ------------- ----- -----
YEAR ENDED JUNE 30, 1994................ $103,069,000 $12,665,000 $2,995,000 $0.75 $0.59
---------------- -------------- ------------- ----- -----
---------------- -------------- ------------- ----- -----
</TABLE>
NOTE 16 -- ACQUISITION OF EXCEL CARGO, INC. (UNAUDITED):
On September 30, 1995, the Company acquired the assets of Excel Cargo, Inc.,
a cargo handling company located in Montreal, Canada, for approximately
$2,766,000. The purchase price consisted of an 8.5% debenture in the amount of
$2,016,000, payable in equal monthly installments over eight years, and $750,000
cash. In addition, the Company paid off outstanding bank notes totaling $573,000
at the closing. The purchase price has been allocated to assets and liabilities
as follows:
<TABLE>
<S> <C>
Accounts receivable............................................ $ 346,000
Property, equipment and leaseholds............................. 2,711,000
Goodwill....................................................... 750,000
Notes payable.................................................. (573,000)
Accounts payable and other current liabilities................. (468,000)
----------
Purchase price................................................. $2,766,000
----------
----------
</TABLE>
F-14
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
IN THE FACTS SET FORTH IN THIS PROSPECTUS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use Of Proceeds................................ 13
Capitalization................................. 14
Price Range of Common Stock and Dividend
Policy........................................ 15
Selected Consolidated Financial Data........... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business....................................... 24
Management..................................... 32
Certain Transactions........................... 37
Principal Shareholders......................... 39
Description of Debentures...................... 41
Rating of Debentures........................... 50
Certain Federal Income Tax Consequences........ 50
Description of Capital Stock................... 55
Underwriting................................... 56
Experts........................................ 56
Legal Matters.................................. 57
Index to Financial Statements.................. F-1
</TABLE>
$25,000,000
MERCURY AIR GROUP, INC.
% CONVERTIBLE SUBORDINATED
DEBENTURES DUE 2006
-------------------
P R O S P E C T U S
-------------------
EVEREN SECURITIES, INC.
CROWELL, WEEDON & CO.
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the offering of the Debentures being registered hereby. All
amounts shown are estimates except the SEC Commission registration fee and the
NASD filing fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 9,914
NASD Filing Fee.................................................. 3,375
AMEX Stock Exchange Listing Application Fee...................... 10,000
Transfer Agent's and Registrar's Fees............................ 15,000
Printing Fees.................................................... 35,000
Legal Fees and Expenses.......................................... 125,000
Blue Sky Fees and Expenses....................................... 15,000
Accounting Fees and Expenses..................................... 50,000
Miscellaneous Expenses........................................... 36,711
---------
Total........................................................ $ 300,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the New York Business Corporation Law (the "NYBCL") provides
for indemnification by a corporation of its directors and officers against
amounts paid in settlement and reasonable expenses, including attorneys' fees,
actually and necessarily incurred by them in connection with the defense or
settlement of such action, or in connection with an appeal therein if such
director or officer acted in good faith for a purpose which they reasonably
believed to be in the best interests of the corporation. No indemnification will
be made, however, in respect of either (1) a threatened action, or a pending
action which is settled or otherwise disposed of, or (2) any claim, issue or
matter as to which any such officer or director is adjudged to be liable to the
corporation, unless and only to the extent that the court to which the action
was brought, or, if no action was brought, any court of competent jurisdiction,
determines upon application that in view of all the circumstances of the case,
the director or officer is fairly and reasonably entitled to indemnity for such
portion of the settlement amount and expenses as the court deems proper.
The NYBCL further provides that a New York corporation has the power to
purchase and maintain insurance in order to indemnify the corporation for any
obligation which it incurs as a result of the indemnification of directors and
officers pursuant to the provisions of the NYBCL, to indemnify directors and
officers in instances in which they may be indemnified by the corporation
pursuant to the provisions of the NYBCL, and to indemnify directors and officers
in instances in which they may not otherwise by indemnified by the corporation
pursuant to the provisions of the NYBCL, provided the contract of insurance
covering such directors and officers provides, in a manner acceptable to the
superintendent of insurance, for a retention amount and for co-insurance.
The Company's bylaws authorize it to indemnify its directors and officers
against any judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, if such director or officer acted in good
faith.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On September 30, 1995, the Company acquired the assets of Excel Cargo, Inc.,
a cargo handling company located in Montreal, Canada, for approximately
$2,766,000. The purchase price consisted of an 8.5% debenture in the amount of
$2,016,000, payable in equal monthly installments over eight years, and $750,000
cash. In addition, the Company paid off outstanding bank notes totaling $573,000
at the closing.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits, which are furnished with this Registration
Statement or incorporated herein by reference, are filed as part of this
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement*..............................................................................
3.1 Restated Certificate of Incorporation (4)
3.2 Form of Amendment to Restated Certificate of Incorporation creating the Series A 8% Convertible
Cumulative Redeemable Preferred Stock (4)
3.3 Form of Amendment to Restated Certificate of Incorporation declaring the Separation Date for the
Series A 8% Convertible Redeemable Preferred Stock (6)
3.4 Bylaws of the Company (4)
3.5 Amendment to Bylaws of the Company (13)
4.1 Form of Indenture between Mercury Air Group, Inc. and IBJ Schroder Bank & Trust Company, as Trustee,
under which the Debentures are to be issued, including the Form of Debenture attached as Exhibit A
thereto*...........................................................................................
5.1 Opinion of McBreen, McBreen & Kopko*.................................................................
10.1 Underwriter's Unit Warrant dated June 18, 1991 issued to Emanuel and Company by the Company (4)
10.2 Employment Agreement dated December 10, 1993 between the Company and Seymour Kahn (10)
10.3 Loan and Security Agreements among the Company, Maytag Aircraft Corporation and Marine Midland
Business Loans, Inc. dated December 6, 1989 (2)
10.4 Stock Purchase Agreement between the Company, SK Acquisition, Inc., Randolph E. Ajer, Kevin J. Walsh,
Grant Murray and Joseph Czyzyk (2)
10.5 Company's 1990 Long-Term Incentive Plan (7)
10.6 Company's 1990 Directors Stock Option Plan (1)
10.7 Lease for 6851 West Imperial Highway, Los Angeles, California (4)
10.8 Amendment to Loan Agreement and Security Agreement among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. dated October 2, 1990 (4)
10.9 Second Amendment to Loan and Security Agreement among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. dated April 18, 1991 (4)
10.10 Third Amendment to Loan and Security Agreement among the Company, Maytag Aircraft Corporation and
Marine Midland Business Loans, Inc. dated June 1991 (5)
10.11 Amendment to Loan and Security Agreement and Term Notes dated as of April 1, 1992 among the Company,
Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. dated April 1, 1992 (6)
10.12 Amendment to Loan and Security Agreements and Term Notes dated as of April 1, 1992 among the Company,
Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (8)
10.13 Amendment to Loan and Security Agreements and Term Notes dated as of December 21, 1992 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.14 Amendment to Loan and Security Agreements and Term Notes dated as of August 30, 1993 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9)
10.15 Memorandum Dated September 15, 1995 regarding Summary of Officer Life Insurance Policies with
Benefits Payable to Officers or Their Designated Beneficiaries (13)
10.16 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for Seymour Kahn, Joseph Czyzyk
and Randolph E. Ajer (13)
10.17 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for Kevin Walsh and William
Silva (13)
10.18 The company's 401(k) Plan consisting of LCI Actuaries, Inc. Regional Prototype Defined Contribution
Plan and Trust and Adoption Agreement (9)
10.19 Amendment to Loan and Security Agreements and Term Notes dated as of September 21, 1993 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9)
10.20 Non-Qualified Stock Option Agreement by and between the Company and Seymour Kahn dated January 21,
1993 (9)
10.21 Non-Qualified Stock Option Agreement by and between the Company and William G. Langton dated August
9, 1993 (9)
10.22 Stock Purchase Agreement among the Company, SK Acquisition, Inc. and William L. Silva dated as of
August 9, 1993 (10)
10.23 Amendment to Loan and Security Agreements and Term Notes dated as of September 21, 1993 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (10)
10.24 Amendment to Loan and Security Agreements and Term Notes dated as of April 1, 1994 among the Company,
Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (10)
10.25 Stock Exchange Agreement dated as of November 15, 1994 between Joseph Czyzyk and the Company (11)
10.26 Employment Agreement dated November 15, 1994 between the Company and Joseph Czyzyk (12)
10.27 Amendment to Loan and Security Agreements and Term Notes dated as of December 20, 1994 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (12)
10.28 Amendment to Loan and Security Agreements and Term Notes dated as of December 17, 1994 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (12)
10.29 Amendment to Loan and Security Agreements and Term Notes dated as of June 12, 1995 among the Company,
Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (13)
10.30 Loan and Security Agreement dated as of June 12, 1995 between Mercury Air Cargo, inc. and Marine
Midland Business Loans, Inc. (13)
10.31 Agreement dated August 1, 1995 between Mercury Air Group, Inc. and Grant Murray (13)
11.1 Computation of Earnings Per Share (3)
12.1 Statements Regarding Computation of Earnings to Fixed Charges (14)
21.1 Subsidiaries of Registrant (13)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Deloitte & Touche LLP*
23.2 Consent of McBreen, McBreen & Kopko (included in their opinion filed as Exhibit 5.1 to the
Registration Statement)
24.1 Power of Attorney (included on the signature page of the Registration Statement)
25.1 Form T-1 Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust Company, as trustee
under the Indenture relating to the Debentures (14)
</TABLE>
- ------------
* Filed herewith.
(1) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 10, 1993 Annual Meeting of Shareholders and is
incorporated herein by reference.
(2) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 6, 1989 and is incorporated herein by
reference.
(3) Such statement is included in Note 14 of Notes to Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year ended
June 30, 1995, and is incorporated herein by reference.
(4) All such documents were previously filed as Exhibits to the Company's
Registration Statement No. 33-39044 on Form S-2 and are incorporated herein
by reference.
(5) Such document was previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended June 30, 1991 and is incorporated
herein by reference.
(6) All such documents were previously filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and are
incorporated herein by reference.
(7) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 2, 1992 Annual Meeting of Shareholders.
(8) Such document was previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992 and is incorporated
herein by reference.
(9) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993 and are
incorporated herein by reference.
(10) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994 and are
incorporated herein by reference.
(11) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated November 15, 1994 and is incorporated herein by
reference.
(12) All such documents were previously filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994 and
are incorporated herein by reference.
(13) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995 and are hereby
incorporated by reference.
(14) Such document was previously filed as an Exhibit to this Registration
Statement.
II-4
<PAGE>
(b) The following schedules supporting the consolidated financial statements
are included herein:
Schedule II -- Valuation and Qualifying Accounts
17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, and State of California, on the 26th day of January, 1996.
MERCURY AIR GROUP, INC.
By /s/ SEYMOUR KAHN*
--------------------------------
Seymour Kahn, PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 Registration Statement has been signed by the following persons as of the
date indicated below.
SIGNATURES
- ----------------------------------------
Principal Executive Officer:
/s/ SEYMOUR KAHN* Dated: January 26, 1996
- ----------------------------------------
Seymour Kahn
CHIEF EXECUTIVE OFFICER AND DIRECTOR
Principal Chief Operating Officer and Director:
/s/ JOSEPH CZYZYK* Dated: January 26, 1996
- ----------------------------------------
Joseph Czyzyk
CHIEF OPERATING OFFICER AND DIRECTOR
Principal Financial and Accounting Officer:
/s/ RANDOLPH E. AJER Dated: January 26, 1996
- ----------------------------------------
Randolph E. Ajer
EXECUTIVE VICE PRESIDENT,
SECRETARY AND TREASURER
II-6
<PAGE>
SIGNATURES
- ----------------------------------------
Additional Directors:
/s/ ROBERT LIST* Dated: January 26, 1996
- ----------------------------------------
Robert List
DIRECTOR
/s/ PHILIP J. FAGAN, JR., M.D.* Dated: January 26, 1996
- ----------------------------------------
Philip J. Fagan, Jr., M.D.
DIRECTOR
/s/ WILLIAM G. LANGTON* Dated: January 26, 1996
- ----------------------------------------
William G. Langton
DIRECTOR
/s/ FREDERICK H. KOPKO, JR.* Dated: January 26, 1996
- ----------------------------------------
Frederick H. Kopko, Jr.
DIRECTOR
*Signed by Randolph E. Ajer pursuant to Power of Attorney.
By /s/ RANDOLPH E.
AJER
- ---------------------------------------
Randolph E. Ajer
Attorney-in-fact
II-7
<PAGE>
MERCURY AIR GROUP, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS- AT END
CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DEDUCTIONS OF PERIOD
- -------------------------------------------------- ---------- ---------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1995
Allowance for doubtful accounts................... $ 508,000 $ 905,000(d) $ (803,000)(a) $ 610,000
---------- ---------- --------------- ---------- ---------
---------- ---------- --------------- ---------- ---------
1994
Allowance for doubtful accounts................... $ 83,000 $ 624,000(c) $ (199,000)(a) $ 508,000
---------- ---------- --------------- ---------- ---------
---------- ---------- --------------- ---------- ---------
1993
Allowance for doubtful accounts................... $ 294,000 $ 671,000(b) $ (882,000)(a) $ 83,000
---------- ---------- --------------- ---------- ---------
---------- ---------- --------------- ---------- ---------
</TABLE>
- ------------
(a) Accounts receivable write-off
(b) Included in the $671,000 is $414,000 charged to selling, general and
administrative expenses and $257,000 recorded as a reduction to revenues.
(c) Included in the $624,000 is $324,000 charged to selling, general and
administrative expenses and $300,000 recorded as a reduction to revenues.
(d) Amount charged to selling, general and administrative expense.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- -----
<C> <S> <C>
1.1 Underwriting Agreement*.......................................................................
3.1 Restated Certificate of Incorporation (4)
3.2 Form of Amendment to Restated Certificate of Incorporation creating the Series A 8%
Convertible Cumulative Redeemable Preferred Stock (4)
3.3 Form of Amendment to Restated Certificate of Incorporation declaring the Separation Date for
the Series A 8% Convertible Redeemable Preferred Stock (6)
3.4 Bylaws of the Company (4)
3.5 Amendment to Bylaws of the Company (13)
4.1 Form of Indenture between Mercury Air Group, Inc. and IBJ Schroder Bank & Trust Company, as
Trustee, under which the Debentures are to be issued, including the Form of Debenture
attached as Exhibit A thereto*..............................................................
5.1 Opinion of McBreen, McBreen & Kopko*..........................................................
10.1 Underwriter's Unit Warrant dated June 18, 1991 issued to Emanuel and Company by the Company
(4)
10.2 Employment Agreement dated December 10, 1993 between the Company and Seymour Kahn (10)
10.3 Loan and Security Agreements among the Company, Maytag Aircraft Corporation and Marine Midland
Business Loans, Inc. dated December 6, 1989 (2)
10.4 Stock Purchase Agreement between the Company, SK Acquisition, Inc., Randolph E. Ajer, Kevin J.
Walsh, Grant Murray and Joseph Czyzyk (2)
10.5 Company's 1990 Long-Term Incentive Plan (7)
10.6 Company's 1990 Directors Stock Option Plan (1)
10.7 Lease for 6851 West Imperial Highway, Los Angeles, California (4)
10.8 Amendment to Loan Agreement and Security Agreement among the Company, Maytag Aircraft
Corporation and Marine Midland Business Loans, Inc. dated October 2, 1990 (4)
10.9 Second Amendment to Loan and Security Agreement among the Company, Maytag Aircraft Corporation
and Marine Midland Business Loans, Inc. dated April 18, 1991 (4)
10.10 Third Amendment to Loan and Security Agreement among the Company, Maytag Aircraft Corporation
and Marine Midland Business Loans, Inc. dated June 1991 (5)
10.11 Amendment to Loan and Security Agreement and Term Notes dated as of April 1, 1992 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. dated April 1,
1992 (6)
10.12 Amendment to Loan and Security Agreements and Term Notes dated as of April 1, 1992 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (8)
10.13 Amendment to Loan and Security Agreements and Term Notes dated as of December 21, 1992 among
the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9)
10.14 Amendment to Loan and Security Agreements and Term Notes dated as of August 30, 1993 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- -----
10.15 Memorandum Dated September 15, 1995 regarding Summary of Officer Life Insurance Policies with
Benefits Payable to Officers or Their Designated Beneficiaries (13)
<C> <S> <C>
10.16 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for Seymour Kahn, Joseph
Czyzyk and Randolph E. Ajer (13)
10.17 Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for Kevin Walsh and
William Silva (13)
10.18 The company's 401(k) Plan consisting of LCI Actuaries, Inc. Regional Prototype Defined
Contribution Plan and Trust and Adoption Agreement (9)
10.19 Amendment to Loan and Security Agreements and Term Notes dated as of September 21, 1993 among
the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (9)
10.20 Non-Qualified Stock Option Agreement by and between the Company and Seymour Kahn dated January
21, 1993 (9)
10.21 Non-Qualified Stock Option Agreement by and between the Company and William G. Langton dated
August 9, 1993 (9)
10.22 Stock Purchase Agreement among the Company, SK Acquisition, Inc. and William L. Silva dated as
of August 9, 1993 (10)
10.23 Amendment to Loan and Security Agreements and Term Notes dated as of September 21, 1993 among
the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (10)
10.24 Amendment to Loan and Security Agreements and Term Notes dated as of April 1, 1994 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (10)
10.25 Stock Exchange Agreement dated as of November 15, 1994 between Joseph Czyzyk and the Company
(11)
10.26 Employment Agreement dated November 15, 1994 between the Company and Joseph Czyzyk (12)
10.27 Amendment to Loan and Security Agreements and Term Notes dated as of December 20, 1994 among
the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (12)
10.28 Amendment to Loan and Security Agreements and Term Notes dated as of December 17, 1994 among
the Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (12)
10.29 Amendment to Loan and Security Agreements and Term Notes dated as of June 12, 1995 among the
Company, Maytag Aircraft Corporation and Marine Midland Business Loans, Inc. (13)
10.30 Loan and Security Agreement dated as of June 12, 1995 between Mercury Air Cargo, inc. and
Marine Midland Business Loans, Inc. (13)
10.31 Agreement dated August 1, 1995 between Mercury Air Group, Inc. and Grant Murray (13)
11.1 Computation of Earnings Per Share (3)
12.1 Statements Regarding Computation of Earnings to Fixed Charges (14)
21.1 Subsidiaries of Registrant (13)
23.1 Consent of Deloitte & Touche LLP*.............................................................
23.2 Consent of McBreen, McBreen & Kopko (included in their opinion filed as Exhibit 5.1 to the
Registration Statement)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------------------- -----
24.1 Power of Attorney (included on the signature page of the Registration Statement)
<C> <S> <C>
25.1 Form T-1 Statement of Eligibility and Qualification of IBJ Schroder Bank & Trust Company, as
trustee under the Indenture relating to the Debentures (14)
</TABLE>
- ------------
* Filed herewith.
(1) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 10, 1993 Annual Meeting of Shareholders and is
incorporated herein by reference.
(2) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 6, 1989 and is incorporated herein by
reference.
(3) Such statement is included in Note 14 of Notes to Consolidated Financial
Statements included in the Annual Report on Form 10-K for the year ended
June 30, 1995, and is incorporated herein by reference.
(4) All such documents were previously filed as Exhibits to the Company's
Registration Statement No. 33-39044 on Form S-2 and are incorporated herein
by reference.
(5) Such document was previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended June 30, 1991 and is incorporated
herein by reference.
(6) All such documents were previously filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and are
incorporated herein by reference.
(7) Such document was previously filed as Appendix A to the Company's Proxy
Statement for the December 2, 1992 Annual Meeting of Shareholders.
(8) Such document was previously filed as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended June 30, 1992 and is incorporated
herein by reference.
(9) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1993 and are
incorporated herein by reference.
(10) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1994 and are
incorporated herein by reference.
(11) Such document was previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated November 15, 1994 and is incorporated herein by
reference.
(12) All such documents were previously filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994 and
are incorporated herein by reference.
(13) All such documents were previously filed as Exhibits to the Company's
Annual Report on Form 10-K for the year ended June 30, 1995 and are hereby
incorporated by reference.
(14) Such document was previously filed as an Exhibit to this Registration
Statement.
<PAGE>
EXHIBIT 1.1
DRAFT: January 23, 1996
MERCURY AIR GROUP, INC.
$25,000,000*
___% Convertible Subordinated Debentures due February __, 2006
UNDERWRITING AGREEMENT
January __, 1996
EVEREN Securities, Inc.
Crowell, Weedon & Co.
c/o EVEREN Securities, Inc.
77 West Wacker Drive, Suite 3100
Chicago, Illinois 60601
Ladies and Gentlemen:
Pursuant to the terms of this Underwriting Agreement (this
"Agreement"), Mercury Air Group, Inc., a New York corporation (the
"Company"), proposes to sell to the underwriters named in Schedule I hereto
(the "Underwriters") an aggregate of $25,000,000 principal amount of its
____% Convertible Subordinated Debentures due February __, 2006 (the "Firm
Debentures"). The Firm Debentures are to be sold to the Underwriters, acting
severally and not jointly, in such amounts as are set forth in Schedule I
hereto opposite the name of such Underwriter. The Company also proposes to
grant to the Underwriters a one-time option to purchase up to an additional
$3,750,000 in principal amount of the Company's ___% Convertible Subordinated
Debentures due February __, 2006 as provided for in Section 2 of this
Agreement (the "Option Debentures"). The Firm Debentures and the Option
Debentures purchased pursuant to this Agreement are herein collectively
referred to as the "Debentures." The Debentures are to be issued pursuant to
an Indenture (the "Indenture"), to be dated as of January ___, 1996, between
the Company and IBJ Schroder Bank & Trust Company, as trustee (the
"Trustee").
The Company and the Underwriters hereby agree to the following matters
with respect to the purchase and sale of the Debentures:
______________________
*/ Plus an option to purchase up to an additional $3,750,000 aggregate
principal amount of the Debentures to cover over-allotments, if any.
<PAGE>
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 (File No. 33-65085), including a
preliminary prospectus and a Statement of Eligibility on Form T-1 with
respect to the Trustee pursuant to the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), relating to the Debentures and certain
amendments thereto. The Company expects to file the prospectus containing
the information required by Commission Rule 430A pursuant to Commission Rule
424(b) under the Act. The registration statement as amended at the time it
becomes effective, including all exhibits thereto (except the Statement of
Eligibility on Form T-1 with respect to the Trustee), is referred to in this
Agreement as the "Registration Statement" and the prospectus in the form
filed with the Commission as part of the Registration Statement or, if
applicable, in the form first filed pursuant to Commission Rule 424(b) after
the Registration Statement becomes effective is referred to in this Agreement
as the "Prospectus."
2. AGREEMENT TO SELL AND PURCHASE.
(a) On the basis of the representations, warranties and agreements
of the Company herein contained and subject to the terms and conditions set
forth herein, the Company hereby agrees to issue and sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at the purchase price of $_______ per $1,000
principal amount, the number of Firm Debentures set forth opposite the name
of such Underwriter in Schedule I hereto (or such number of Firm Debentures
as such Underwriter shall be obligated to purchase pursuant to the provisions
of Section 9 hereof).
(b) The Company agrees to sell to the Underwriters and, on the basis
of the representations, warranties and agreements of the Company set forth
herein and subject to the terms and conditions set forth herein, the
Underwriters shall have the right to purchase, severally and not jointly, from
the Company all or any portion of the Option Debentures at the purchase price
set forth above plus accrued interest upon delivery to the Company of the notice
hereinafter referred to. Option Debentures may be purchased solely for the
purpose of covering over-allotments made in connection with the offering of the
Firm Debentures. If any Option Debentures are to be purchased, each
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Option Debentures which bears the same proportion to the total number
of Option Debentures to be purchased from the Company as the number of Firm
Debentures set forth opposite such Underwriter's name in Schedule I (or such
number of Firm Debentures increased pursuant to the terms set forth in Section 9
hereof) bears to the total number of Firm Debentures.
3. TERMS OF PUBLIC OFFERING. The Company is advised by the Underwriters
that the Underwriters have agreed to make a public offering of their respective
portions of the Debentures as soon after the Registration Statement has become
effective and this Agreement has been executed as in the judgment of the
Underwriters is advisable and to first offer the Debentures upon the terms set
forth in the Prospectus.
2
<PAGE>
4. DELIVERY OF THE DEBENTURES AND PAYMENT THEREFOR.
(a) Delivery to the Underwriters of the Firm Debentures shall be
made against payment therefor at 7:00 a.m., California time, on February __,
1996 (the "Closing Date") at the offices of Orrick, Herrington & Sutcliffe,
777 South Figueroa Street, Los Angeles, California 90017. The place of the
closing and the Closing Date may be varied by agreement among the
Underwriters and the Company.
(b) Delivery to the Underwriters of any Option Debentures to be
purchased by the several Underwriters shall be made in Los Angeles,
California against payment therefor at the offices of Orrick, Herrington &
Sutcliffe at such time and on such date (the "Option Closing Date"), which
may be the same as the Closing Date but shall in no event be earlier than the
Closing Date nor earlier than two nor later than three business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from the Underwriters to the Company of the determination to
purchase Option Debentures in such principal amount as specified in said
notice. Said notice may be given at any time within 30 days after the date
of the execution of this Agreement. The place of the closing and the Option
Closing Date may be varied by agreement between the Underwriters and the
Company.
(c) Certificates for the Firm Debentures and for the Option
Debentures shall be registered in such names and in such denominations as the
Underwriters shall request prior to 9:00 a.m., California time, on the second
full business day preceding the Closing Date or the Option Closing Date, as
the case may be. Such certificates shall be made available to the
Underwriters at the office of The Depository Trust Company, New York, New
York, for inspection and packaging not later than 9:00 a.m., California time,
on the business day next preceding the Closing Date or the Option Closing
Date, as the case may be. The certificates evidencing the Firm Debentures and
the Option Debentures shall be delivered to the Underwriters on the Closing
Date or the Option Closing Date, as the case may be, for the respective
accounts of the several Underwriters, against payment of the purchase price
therefor by certified or official bank checks payable in Los Angeles Clearing
House or other next day funds to the order of the Company, subject to change
by written agreement of the Company and the Underwriters.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the several
Underwriters as follows:
(a) The Company will endeavor to cause the Registration Statement
to become effective and will advise the Underwriters promptly and, if
requested by the Underwriters, will confirm such advice in writing, (A) when
the Registration Statement has become effective and when any post effective
amendment to it becomes effective, and of the filing of any final prospectus
or supplement or amendment to the Prospectus, (B) of any request by the
Commission for amendments or supplements to the Registration Statement or
Prospectus or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of the suspension of qualification of the Debentures for
offering or sale in any jurisdiction, or the initiation or contemplation
known to the Company of any proceeding for such purposes, and (D) within
3
<PAGE>
the period of time referred to in paragraph (f) below, of the happening
of any event which makes any statement made in the Registration Statement or
Prospectus (as then amended or supplemented) untrue in any material respect
or which requires the making of any additions to or changes in the
Registration Statement or Prospectus (as then amended or supplemented) in
order to make the statements therein not misleading or the necessity to amend
or supplement the Prospectus to comply with the Act, the Trust Indenture Act
or any other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible moment.
(b) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A under the Act, then promptly following the execution of this
Agreement, the Company will prepare and file with the Commission, in accordance
with Rule 430A and Rule 424(b) under the Act, copies of an amended Prospectus
or, if required by Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus) containing all information so
omitted.
(c) The Company will furnish to the Underwriters, without charge,
three signed copies of the Registration Statement and of each amendment thereto,
including all exhibits thereto, and will also furnish to the Underwriters,
without charge, for transmittal to each of the other Underwriters such number of
conformed copies of the Registration Statement and of each amendment thereto as
the Underwriters may reasonably request.
(d) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus of which the
Underwriters shall not previously have been advised or to which the Underwriters
shall promptly after being so advised reasonably object in writing.
(e) Prior to the effective date of the Registration Statement, the
Company has delivered or will deliver to each of the Underwriters, without
charge, copies of each form of preliminary prospectus in such quantities as they
have reasonably requested or may hereafter reasonably request. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Debentures are
offered by the several Underwriters and by dealers, prior to the effective date
of the Registration Statement, of each preliminary prospectus so furnished by
the Company.
(f) On the effective date of the Registration Statement and
thereafter from time to time during such period as in the opinion of counsel for
the Underwriters a prospectus is required by law to be delivered in connection
with offers or sales of the Debentures by an Underwriter or a dealer, the
Company will deliver to each Underwriter and dealer, without charge, as many
copies of the Prospectus (and of any amendment or supplement thereto) as they
may reasonably request. During such period, if any event occurs which in the
judgment of the Company, or in the opinion of counsel for the Underwriters,
should be set forth in the Prospectus in order to ensure that no part of the
Prospectus includes an untrue statement of a material fact or omits to state a
material fact necessary in
4
<PAGE>
order to make the statements therein, in the light of the circumstances at
the time the Prospectus is delivered to a purchaser, not misleading, the
Company will forthwith prepare, submit to the Underwriters, file with the
Commission and deliver, without charge to the several Underwriters and
dealers (whose names and addresses will be furnished by the Underwriters to
the Company) to whom Debentures have been sold by the Underwriters or to
other dealers any amendments or supplements to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will comply with
the standards set forth in this sentence. The Company consents to the use of
such Prospectus (and of any amendments or supplements thereto) in accordance
with the provisions of the Act and with the securities or Blue Sky laws of
the jurisdictions described in the preliminary Blue Sky memorandum in which
the Debentures are lawfully offered by the several Underwriters and by all
dealers to whom Debentures may be sold, both in connection with the offering
or sale of the Debentures and for such period of time thereafter as the
Prospectus is required by law to be delivered in connection therewith. In
case any Underwriter is required to deliver a Prospectus (and any amendment
or supplement thereto) more than nine months after the first date upon which
the Debentures are offered to the public, the Company will, upon the request
of the Underwriters and at the expense of the Company, furnish such
Underwriter with reasonable quantities of a Prospectus complying with Section
10(a)(3) of the Act.
(g) The Company will cooperate with the Underwriters and counsel for
the Underwriters in connection with the registration or qualification of the
Debentures for offer and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such jurisdictions as the Underwriters may
designate and will file such consents to service of process or other documents
as may be necessary in order to effect such registration or qualification;
provided that in no event shall the Company be obligated (i) to qualify to do
business in any jurisdiction where it is not now so qualified or (ii) to file
any general consent to service of process.
(h) The Company will make generally available to its security
holders an earnings statement of the Company, which need not be audited,
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as
soon as practicable after the end of such period, which earnings statement
shall satisfy the provisions of Section 11(a) of the Act and the rules and
regulations of the Commission thereunder (including Rule 158).
(i) For a period of five years after the date of this Agreement:
(1) the Company will furnish to the Underwriters (1) as
soon as available, a copy of each report of the Company of general
interest mailed to any class of its security holders, (2) copies of
all annual reports and current reports filed with the Commission on
Forms 10-K, 10-Q and 8-K and any amendment thereto or such other
similar forms as may be designated by the Commission and (3) from
time to time, such other information concerning the Company as the
Underwriters may reasonably request;
(2) if, at any time during such five year period, the
Company shall cease filing with the Commission the annual reports and
5
<PAGE>
current reports on Forms 10-K, 10-Q and 8-K or other similar forms
referred to in clause (1) above, the Company will forward to its
stockholders generally and the Underwriters and upon request to each
of the other Underwriters (i) as soon as practicable after the end of
each fiscal year, copies of a balance sheet and statements of income
and retained earnings of the Company as of the end of and for such
fiscal year, certified by independent public accountants, and (ii) as
soon as practicable after the end of each quarterly fiscal period,
except for the last quarterly fiscal period in each fiscal year, a
summary statement (which need not be certified) of income and
retained earnings of the Company for such period, which shall also be
made publicly available.
(j) The Company will pay, or reimburse if paid by the
Underwriters, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident
to the performance by it of its obligations under this Agreement including,
without limiting the generality of the foregoing, (i) preparation, printing,
filing and distribution (including postage, air freight charges and charges
for counting and packaging) of the original registration statement, the
Registration Statement, each preliminary prospectus, the Prospectus, each
amendment and/or supplement to any of the foregoing, and this Agreement and
other underwriting agreements and the Indenture, (ii) furnishing to the
several Underwriters and dealers copies of the foregoing materials as
reasonably requested by the Underwriters, (iii) the registrations or
qualifications referred to in paragraph (g) above (including reasonable fees
and disbursements of counsel in connection therewith) and expenses of
printing and delivering to the several Underwriters copies of the preliminary
and final Blue Sky Memoranda, (iv) the review of the terms of the public
offering of the Debentures by the NASD (including the filing fees paid to the
NASD in connection therewith) and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith, (v) the performance by
the Company of its other obligations under this Agreement, including the fees
of the Company's counsel and accountants, (vi) the issuance of the Debentures
and the preparation and printing of the certificates representing the
Debentures, (vii) the fees and expenses of the Trustee and any agent of the
Trustee and the fees and disbursements of counsel for the Trustee in
connection with the Indenture and the Debentures, (viii) all fees and
expenses associated with obtaining credit ratings on the Debentures, (ix) all
travel, lodging and reasonable living expenses incurred by the Company in
connection with marketing, dealer and other meetings attended by the Company
and the Underwriters in marketing the Debentures, (x) furnishing to the
several Underwriters copies of all reports and information required by
paragraph (i) above, including reasonable costs of shipping and mailing and
(xi) the fees payable to The American Stock Exchange (the "AMEX") in
connection with the listing of the Debentures on the AMEX.
(k) If this Agreement shall be terminated pursuant to any of the
provisions hereof (otherwise than by notice given by the Underwriters to
terminate this Agreement pursuant to Section 9 hereof), the Company agrees to
reimburse the several Underwriters for all out-of-pocket expenses (including
reasonable fees and expenses of counsel for the Underwriters) reasonably
incurred by them in connection herewith but without any further obligation of
the Company for lost profits or otherwise; provided, however, that the
Company's reimbursement obligation pursuant to this Section 5(k) shall not
exceed $100,000. If this Agreement is terminated
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pursuant to Section 9 hereof, the several Underwriters shall themselves bear
any such out-of-pocket expenses incurred by them.
(l) The Company will apply the net proceeds from the sale of the
Debentures to be sold by it under this Agreement for the purposes set forth
in the Prospectus under the caption "Use of Proceeds."
(m) If at any time during the 25-day period after the Registration
Statement becomes effective or the period prior to the Option Closing Date,
any rumor, publication or event relating to or affecting the Company shall
occur as a result of which in your opinion the market price of the Company's
Common Stock has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you
advising the Company to the effect set forth above, forthwith prepare,
consult with you concerning the substance of, and disseminate a press release
or other public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(n) The Company will cause the Debentures to be listed on the AMEX
prior to the Firm Closing Date. The Company will ensure that the Debentures
remain listed on the AMEX following the Firm Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto or filed
pursuant to Rule 424(b) under the Act complied in all material respects when
so filed with the provisions of the Act and the Trust Indenture Act and the
rules and regulations thereunder; except that this representation and
warranty does not apply to statements in or omissions from the Registration
Statement or the Prospectus (or any supplement or amendment thereto) made in
reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by or on behalf of such Underwriter
specifically for use in the Registration Statement or to statements in or
omissions from the Registration Statement or the Prospectus (or any
supplement or amendment thereto) relating to that part of the Registration
Statement which shall constitute the Statement of Eligibility and
Qualification on Form T-1 under the Trust
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Indenture Act of the Trustee. The Commission has not issued any order
preventing or suspending the use of any preliminary prospectus.
(b) The Registration Statement in the form in which it becomes
effective and also in such form as it may be when this Agreement is executed
or any post-effective amendment to the Registration Statement shall become
effective, and the Prospectus when and in the form last filed with the
Commission as part of the Registration Statement prior to effectiveness or,
if applicable, first filed pursuant to Rule 424(b) under the Act, and when
any supplement or amendment thereto is filed with the Commission, each will
comply in all material respects with the provisions of the Act and the Trust
Indenture Act and the rules and regulations thereunder, will not at any such
time contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the Prospectus
(or any supplement or amendment thereto) made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by or on behalf of such Underwriter specifically for use
in the Registration Statement or to statements in or omissions from the
Registration Statement or the Prospectus (or any supplement or amendment
thereto) relating to that part of the Registration Statement which shall
constitute the Statement of Eligibility and Qualification on Form T-1 under
the Trust Indenture Act of the Trustee.
(c) There is no contract or other document of a character required
to be described in the Registration Statement or Prospectus or to be filed as
an exhibit to the Registration Statement by the Act or the Trust Indenture
Act or the rules and regulations thereunder which is not described or filed
as required.
(d) Deloitte & Touche LLP, who are certifying certain of the
consolidated financial statements of the Company included in the Registration
Statement and the Prospectus, are independent public accountants as required
by the Act.
(e) The consolidated financial statements, together with the notes
thereto, of the Company included in the Registration Statement and the
Prospectus comply in all material respects with the Act and present fairly
the consolidated financial position of the Company as of the dates indicated,
and the results of operations, cash flows and changes in financial position
of the Company for the periods specified. Such consolidated financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the entire
period involved except to the extent disclosed therein.
(f) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation and are duly
qualified to transact business, as such business is currently being
conducted, as foreign corporations and are in good standing under the laws of
all other jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the condition (financial or otherwise) of the
Company.
(g) The Company has an authorized and outstanding capitalization
as set forth in the Prospectus and the Debentures conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding shares of capital stock of the Company and each of its
subsidiaries have been duly authorized, validly issued and are fully paid and
non-assessable and free of preemptive or other similar rights. There are no
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options, agreements, contracts or other rights in existence to acquire from
the Company any shares of capital stock except as set forth in the
Prospectus.
(h) The Indenture, which will be substantially in the form filed
as an exhibit to the Registration Statement, has been duly authorized and
duly qualified under the Trust Indenture Act and when executed and delivered
by the Company and the Trustee, the Indenture will have been duly authorized,
executed and delivered by the Company and will constitute a valid and legally
binding agreement of the Company, enforceable against the Company in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws affecting creditors' rights
generally and to general principles of equity; and the Indenture conforms in
all material respects to the description thereof in the Prospectus.
(i) The Debentures have been duly authorized and, when executed
and authenticated in accordance with the terms of the Indenture and issued
and delivered in accordance with the terms of this Agreement against payment
therefor, will have been duly executed, authenticated and delivered by the
Company and will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture, enforceable against the Company in
accordance with their terms, subject, as to such benefit and enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and to general principles of equity; the
Debentures conform in all material respects to the description thereof
contained in the Prospectus; and the Debentures will be substantially in the
form filed as an exhibit to the Registration Statement.
(j) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated or
contemplated therein, there has not been (A) any material adverse change in
the condition (financial or otherwise), earnings, affairs, business or
prospects of the Company or any of its subsidiaries, whether or not arising
in the ordinary course of business, (B) any material transaction entered
into, or any material liability or obligation incurred, by the Company or any
of its subsidiaries other than in the ordinary course of business, (C) any
change in the capital stock, or material increase in the short-term debt or
long-term debt of the Company or any of its subsidiaries, or (D) any dividend
or distribution of any kind declared, paid or made by the Company on its
capital stock.
(k) The Company and each of its subsidiaries have good and
marketable title to all properties and assets described in the Prospectus as
owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are referred to in the Prospectus or are not
materially significant in relation to the businesses of the Company and its
subsidiaries; all of the leases and subleases material to the business of the
Company and each of its subsidiaries or under which the Company or a
subsidiary holds properties described in the Prospectus are in full force and
effect; and neither the Company nor any subsidiary has received any notice of
any material claim of any sort which has been asserted by anyone adverse to
the rights of the Company or any subsidiary as owner or as lessee or
sublessee under any of the leases or subleases mentioned above, or affecting
or questioning the rights of the Company or any subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
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(l) Neither the Company nor any subsidiary is in default in the
observance of any provision of its Certificate of Incorporation, by-laws or
other organizational documents, or in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which
it is a party or by which it or any of its properties may be bound, the
effect of which could be materially adverse to the condition (financial or
otherwise), earnings, affairs, business or prospects of the Company or any
such subsidiary.
(m) The execution and delivery of this Agreement and the
Indenture, the issuance and delivery of the Debentures, the consummation of
the transactions contemplated herein and in the Registration Statement and
the compliance with the terms of this Agreement have been duly authorized by
all necessary corporate action and will not result in any violation of the
Certificate of Incorporation or by-laws of the Company, and will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company under
any contract, indenture, mortgage, loan agreement, note, lease or other
agreement or instrument to which the Company is a party or by which the
Company, or any of its properties, is bound, or any existing applicable law,
rule, regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its properties.
(n) No approval, authorization or consent of any court,
governmental authority or agency having jurisdiction over the Company is
required in connection with the issuance and delivery of the Debentures in
accordance with the terms of this Agreement and the Indenture, except such as
may be required under the Act, the Trust Indenture Act and state securities
or Blue Sky laws.
(o) Except as disclosed in the Registration Statement, there is no
action, suit or proceeding before or by any court or governmental agency or
body, domestic or foreign, or any arbitrator or arbitration panel, now
pending or, to the knowledge of the Company, threatened against or affecting
the Company or any of its subsidiaries which could result in any material
adverse change to the condition (financial or otherwise), earnings, affairs,
business or prospects of the Company or any such subsidiary; and there is no
decree, judgment or order of any kind in existence against or restraining the
Company or any of its subsidiaries, or any of their respective officers,
employees or directors, from taking any actions of any kind in connection
with the business of the Company or any such subsidiary.
(p) The Company and each of its subsidiaries own or possess or
have obtained all material governmental licenses, permits, consents, orders,
approvals and other authorizations necessary to lease or own, as the case may
be, and to operate their properties and to carry on their business as
presently conducted, and neither the Company nor any subsidiary has received
any notice of proceedings related to revocation or modification of any such
licenses, permits, consents, orders, approvals or authorizations which singly
or in the aggregate, if the subject of an unfavorable ruling or finding,
would be materially adverse to
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the condition (financial or otherwise), earnings, affairs, business or
prospects of the Company or any subsidiary.
(q) The Company and each of its subsidiaries are in compliance
with all applicable federal, state and local laws and regulations that
regulate or are concerned in any way with the business of the Company or any
of its subsidiaries, where the effect of the failure to comply would be
materially adverse to the condition (financial or otherwise), earnings,
affairs, business or prospects of the Company or any subsidiary.
(r) The Company and each of its subsidiaries own or possess, or
can acquire on reasonable terms, trademarks, service marks and trade names
necessary to conduct the business now operated by them, and neither the
Company nor any of its subsidiaries has received any notice of infringement
of or conflict with asserted rights of others with respect to any trademark,
service marks or trade names which, singly or in the aggregate, if the
subject of any unfavorable decision, ruling or finding, would be materially
adverse to the condition (financial or otherwise), earnings, affairs,
business or prospects of the Company or any subsidiary.
(s) The Company has filed all tax returns required to be filed and
is not in default in the payment of any taxes which were payable pursuant to
said returns or any assessments with respect thereto, other than any tax
returns which the Company is contesting in good faith or which are not
material to the Company.
(t) This Agreement has been duly executed and delivered by the
Company.
(u) The Company is not and does not intend to conduct
businesses in a manner in which it would become an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940, as amended
(the "Investment Company Act").
(v) The Company has timely filed all reports required to be filed
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), since June 30, 1994.
(w) No labor dispute with the employees of the Company or any of
its subsidiaries exists or is threatened or imminent that could result in a
material adverse change in the condition (financial or otherwise), earnings,
affairs, business or prospects of the Company or any of its subsidiaries,
except as described in or contemplated by the Prospectus.
(x) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which
they are engaged; neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for; and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise),
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earnings, affairs, business or prospects of the Company and its subsidiaries,
except as described in or contemplated by the Prospectus.
(y) No subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any
other distribution on such subsidiary's capital stock, from repaying to the
Company any loans or advances to such subsidiary from the Company or from
transferring any of such subsidiary's property or assets to the Company or
any other subsidiary of the Company, except as described in or contemplated
by the Prospectus.
(z) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to occupational
safety and health or to the storage, handling or transportation of hazardous
or toxic materials and the Company and its subsidiaries have received all
permits, licenses or other approvals required of them under applicable
federal and state occupational safety and health and environmental laws and
regulations to conduct their respective businesses, and the Company and each
such subsidiary is in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or failure
to comply with the terms and conditions of such permits, licenses or
approvals which would not, singly or in the aggregate, result in a material
adverse change in the condition (financial or otherwise), earnings, affairs,
business or prospects of the Company and its subsidiaries, except in each
case as described in or contemplated by the Prospectus.
(aa) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and except for shares of Western Pacific
Airlines, Inc. and LAXCA owned by the Company, neither the Company nor any
subsidiary owns any shares of stock or any other equity securities of any
corporation or has any equity interest in any firm, partnership, association
or other entity, except as described in or contemplated by the Prospectus.
(bb) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that
(1) transactions are executed in accordance with management's general or
specific authorizations; (2) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses
whatsoever (including any investigation, legal or other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which they, or any of them, may become
subject, arising out of or based upon any untrue statement or alleged untrue
statement of a material
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<PAGE>
fact contained in any preliminary prospectus or the Registration Statement or
the Prospectus or in any amendment or supplement thereto or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages, liabilities or expenses arise out of
or are based upon any such untrue statement or omission or allegation thereof
which has been made therein or omitted therefrom in reliance upon and in
conformity with information relating to such Underwriter furnished in writing
to the Company by or on behalf of any Underwriter expressly for use therein;
PROVIDED however, that the foregoing indemnity agreement with respect to any
preliminary prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages or liabilities
purchased Debentures, or any person controlling such Underwriter, if a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Debentures to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage or liability.
(b) If any action or claim shall be brought against any
Underwriter or any person controlling such Underwriter, in respect of which
indemnity may be sought against the Company, such Underwriter shall promptly
notify the Company in writing, and the Company shall assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Any Underwriter or any such person controlling such Underwriter
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Underwriter or such controlling person unless
(i) the Company has agreed in writing to pay such fees and expenses, (ii) the
Company has failed to assume the defense and employ counsel, or (iii) the
named parties to any such action (including any impleaded party) included
such Underwriter or controlling person and the Company and such Underwriter
or controlling person shall have been advised by such counsel that there may
be one or more legal defenses available to it which are different from or
additional to those available to the Company and which may also result in a
conflict of interest (in which case if such Underwriter or controlling person
notifies the Company, the Company shall not have the right to assume the
defense of such action on behalf of such Underwriter or controlling person,
it being understood, however, that the Company shall not, in connection with
any one such action or separate but substantially similar or related actions
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys for all such Underwriters and controlling
persons, which firm shall be designated in writing by the Underwriters). The
Company shall not be liable for any settlement or any such action effected
without the written consent of the Company, but if settled with the written
consent of the Company, or if there shall be a final judgment for the
plaintiff in any such action and the time for filing all appeals has expired,
the Company agrees to indemnify and hold harmless any Underwriter and any
such controlling person from and against any loss or liability by reason of
such settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act to the
same extent as the foregoing indemnity from the Company to each Underwriter,
but only with respect to information relating to such Underwriter furnished
in writing to the Company by or on behalf of such Underwriter expressly for
use in the Registration Statement, the Prospectus or any preliminary
prospectus. If any action or claim shall be brought or asserted against the
Company, any of its directors, any such officer, or any such controlling
person based on the Registration Statement, the
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Prospectus or any preliminary prospectus and in respect of which indemnity
may be sought against any Underwriter, such Underwriter shall have the rights
and duties given to the Company pursuant to Section 7(b) hereof (except that
if the Company shall have assumed the defense thereof, such Underwriter shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such Underwriter), and the Company, its directors,
any such officers, and any such controlling person shall have the rights and
duties given to the Underwriters by Section 7(b) hereof.
(d) (i) If the indemnification of the Underwriters, the Company,
its directors, its officers who sign the Registration Statement or their
respective controlling persons provided for in this Section 7 is unavailable
as a matter of law to the Underwriters, the Company or such directors,
officers or controlling persons, as the case may be, in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then
the Underwriters, or the Company, as the case may be, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by damages, liabilities or expenses (A) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Underwriters from the offering of the Debentures or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of the Company
and the Underwriters in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The respective relative
benefits received by the Company and the Underwriters shall be deemed to be
in the same proportion in the case of the Company, as the total price paid to
the Company for the Debentures by the Underwriters (net of underwriting
discount but before deducting expenses), and in the case of the Underwriters
as the underwriting discount received by them bears to the total of such
amounts paid to the Company and received by the Underwriters as underwriting
discount, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Company and the Underwriters shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company or by
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(ii) The Company and the Underwriters agree that the
determination of contribution pursuant to Section 7(d)(i) based on pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph would not be just and equitable (even if the several Underwriters
were treated as one entity for such purpose). The amount paid or payable by
an indemnified party as a result of the losses, claims, damages, liabilities
and expenses referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth in this Section 7,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the
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Debentures underwritten by it and distributed to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11 (f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7 are
several in proportion to the number of Firm Debentures set forth opposite
their respective names in Schedule I to this Agreement and not joint.
(e) The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, the Company or its directors or
officers (or any person controlling the Company), (ii) acceptance of any
Debentures and payment therefor hereunder and (iii) any termination of this
Agreement. A successor or assign of an Underwriter, the Company or its
directors or officers, and their legal and personal representatives (or of
any person controlling an Underwriter or the Company) shall be entitled to
the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Debentures hereunder are
subject to the following conditions:
(a) That the Registration Statement shall have become effective
not later than 4:00 p.m., Chicago time, on the date hereof, or at such later
date and time as shall be consented to in writing by the Underwriters, and,
if the Underwriters and the Company have elected to rely upon Rule 430A, the
price of the Debentures and any price-related or other information previously
omitted from the effective Registration Statement pursuant to such Rule 430A
shall have been transmitted to the Commission for filing pursuant to Rule
424(b) within the prescribed time period, and on or prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Underwriters of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A.
(b) That subsequent to the effective date of the Registration
Statement, (i) there shall not have occurred any change, or any development
involving a prospective change, in or affecting particularly the business or
properties of the Company not contemplated by the Prospectus, which, in the
Representatives' opinion, would materially adversely affect the market for
the Debentures or make it impracticable or inadvisable to proceed with the
offering or the delivery of the Debentures, as contemplated herein and in the
Prospectus, or to attempt to enforce contracts for the purchase of
Debentures, and (ii) the business and operations of the Company shall not
have been adversely affected by strike, fire, flood, accident or other
calamity (whether or not insured).
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(c) The Underwriters shall have received from McBreen, McBreen &
Kopko, counsel for the Company, a favorable opinion dated the Closing Date
and satisfactory to the Underwriters and the Underwriters' counsel to the
effect that:
(i) the Company and each of its subsidiaries listed in Exhibit
21 to the Registration Statement (the "Subsidiaries") have been duly
organized and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation and
are duly qualified to transact business as foreign corporations and
are in good standing under the laws of all other jurisdictions where
the ownership or leasing of their respective properties or the
conduct of their respective businesses requires such qualification,
except where the failure to be so qualified would not have a material
adverse effect on the condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have the corporate
power to own or lease their respective properties and conduct their
respective businesses as described in the Registration Statement and
the Prospectus, and the Company has the corporate power to enter into
this Agreement and to carry out all of the terms and provisions
hereof to be carried out by it;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned beneficially by the Company free
and clear of any perfected security interests or, to the best
knowledge of such counsel, any other security interests, liens,
encumbrances, equities or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued
shares of capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable, have been issued
in compliance with all applicable federal and state securities laws
or any liability of the Company resulting from noncompliance with any
such laws has been terminated and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or
purchase securities; the Firm Debentures have been duly authorized by
all necessary corporate action of the Company and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the
Debentures have been duly listed on the AMEX; no holders of
outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the
Debentures; and no holders of securities of the Company are entitled
to have such securities registered under the Registration Statement;
(v) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the valid and legally
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally,
16
<PAGE>
and by general principles of equity, except that such counsel need
express no opinion as to the enforceability of the indemnity and
contribution provisions of Section 7 of this Agreement.
(vi) The Debentures have been duly and validly authorized,
executed and delivered by the Company and when delivered and paid for
pursuant hereto will constitute valid and binding obligations of the
Company entitled to the benefits of the Indenture, enforceable
against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally
and by general principles of equity, and conform in all material
respects to the description thereof in the Prospectus.
(vii) The Indenture has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally and by general principles of equity;
conforms in all material respects to the description thereof
in the Prospectus; and has been duly qualified under the Trust
Indenture Act.
(viii) No authorization, approval, order or consent of any
governmental authority or agency is required for the valid sale of
the Debentures, except such as may be required under the Act, the
Trust Indenture Act or the rules and regulations of the Commission
thereunder or state securities laws as to which such counsel need
express no opinion.
(ix) The issuance and sale of the Debentures, the execution,
delivery and performance of this Agreement and the Indenture by the
Company and the consummation of the transactions contemplated hereby
and thereby will not conflict with or result in a breach of any of
the provisions of, or constitute a default under (A) the Company's
Certificate of Incorporation or by-laws or any indenture, mortgage,
deed of trust or other instrument or agreement known to such counsel
to which the Company is a party or by which the Company is bound or
to which any of its properties is subject or (B) any order known to
such counsel, rule or regulation applicable to the Company of any
court or other governmental authority or body having jurisdiction
over the Company or any of its properties.
(x) The Registration Statement has become effective under the
Act, and, to the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending
or contemplated under the Act.
17
<PAGE>
(xi) The Registration Statement and the Prospectus and any
supplements or amendments thereto (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) comply in all material respects as to form
with the requirements of the Act, the Trust Indenture Act and the
rules and regulations of the Commission thereunder and nothing has
come to the attention of such counsel that would cause such counsel
to believe that the Registration Statement, at the time it became
effective, at the time this Agreement was executed and at the Closing
Date, included or includes any untrue statement of a material fact or
omitted or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(xii) The statements in the Prospectus in the
sections captioned "Management -- Employment Agreements," "Certain
Transactions," "Description of Debentures," "Certain Federal Income
Tax Consequences" and "Description of Capital Stock" in each case
insofar as such statements reflect a summary of the material legal
matters or the documents referred to therein, fairly and accurately
present the information called for by the Act and the applicable
rules and regulations promulgated thereunder.
(xiii) To the knowledge of such counsel there are no statutes
or regulations, provisions of the New York Corporation Law or any
pending or threatened litigation or governmental proceedings against
the Company required to be described in the Prospectus which are not
so described, nor, to the knowledge of such counsel, are there any
contracts or documents required to be described in or filed as a part
of the Registration Statement which are not described or filed as
required.
In expressing such opinions, such counsel may, as to matters of
fact, rely on certificates of officers of the Company and of public
officials. With respect to subparagraph (xii) above and the opinion
regarding the statements in the Prospectus in the section captioned
"Certain Federal Income Tax Consequences," such counsel may rely on an
opinion of counsel satisfactory in form and scope to counsel for the
Underwriters provided that a copy of any such opinion is delivered to
the Representatives and to counsel for the Underwriters and the
foregoing opinion states that counsel knows of no reason the
Underwriters are not entitled to rely upon the opinion of such other
counsel.
(d) That the Underwriters shall have received on the Closing Date a
favorable opinion dated the Closing Date from Orrick, Herrington & Sutcliffe,
counsel for the Underwriters, as to such matters as the Underwriters may
reasonably require.
18
<PAGE>
(e) That the Underwriters shall have received letters addressed to
the Underwriters and dated the date hereof and the Closing Date from Deloitte
& Touche, LLP independent public accountants for the Company, substantially
in the forms heretofore approved by the Underwriters and counsel for the
Underwriters.
(f) That (i) no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any change in the capital stock of the Company nor any
material increase in the short or long-term debt of the Company from that set
forth or contemplated in the Registration Statement; (iii) there shall not
have been, since the respective dates as to which information is given in the
Registration Statement and the Prospectus, except as may otherwise be set
forth or contemplated in the Registration Statement and the Prospectus, any
material adverse change in the financial condition or results of operations
of the Company; (iv) the Company shall not have incurred any material
liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), other than those reflected in the Registration
Statement, and (v) all of the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and the Closing Date as if made on and as of each such date, and the
Underwriters shall have received a certificate, dated the Closing Date and
signed by the Chairman of the Board and Chief Executive Officer and the
President and Chief Operating Officer (or such other officers as are
acceptable to the Underwriters) to the effect set forth in this Section 8(f)
and in Section 8(h) hereof.
(g) Within 24 hours after the Registration Statement becomes
effective, or within such longer period as to which the Underwriters shall
have consented, the Debentures shall have been qualified for sale or exempted
from such qualification under the securities laws of such jurisdictions
(subject to Section 5(vii) hereof) as the Underwriters shall have designated
prior to the time of execution of this Agreement and such qualification or
exemption shall continue in effect to and including the Closing Date.
(h) That the Company shall not have failed at or prior to the
Closing Date to have performed or complied in all material respects with any
of the agreements herein contained and required to be performed or complied
with by it at or prior to the Closing Date.
The several obligations of the Underwriters to purchase Option
Debentures hereunder are subject to the satisfaction on and as of the Option
Closing Date of the conditions set forth in paragraphs (a) through (h);
except that the opinions called for in paragraphs (c) and (d) shall be
revised to reflect the sale of Option Debentures and shall be dated the
Option Closing Date, if different from the Closing Date.
9. EFFECTIVE DATE OF AGREEMENT.
(a) This Agreement shall become effective when notice of the
effectiveness of the Registration Statement has been released by the
Commission. Until such time as this
19
<PAGE>
Agreement shall have become effective, it may be terminated by the Company by
notifying the Underwriters, or by the Underwriters by notifying the Company.
(b) If any one or more of the Underwriters shall fail or refuse to
purchase Firm Debentures which it or they have agreed to purchase under this
Agreement and the aggregate principal amount of Firm Debentures which such
defaulting Underwriter or Underwriters agreed but failed or refused to
purchase is not more than one-tenth of the aggregate principal amount of Firm
Debentures, each non-defaulting Underwriter shall be obligated, severally, in
the proportion which the principal amount of Firm Debentures set forth
opposite its name in Schedule I bears to the aggregate principal amount of
Firm Debentures set forth opposite the names of all non-defaulting
Underwriters, to purchase the Firm Debentures which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase. If any
Underwriter or Underwriters shall fail or refuse to purchase Firm Debentures
and the aggregate principal amount of Firm Debentures with respect to which
such default occurs is more than one-tenth of the aggregate principal amount
of Firm Debentures and arrangements satisfactory to the Underwriters and the
Company for the purchase of such Firm Debentures are not made within 36 hours
after such default, this Agreement will terminate without liability on the
part of any non-defaulting Underwriter or the Company. In any such case which
does not result in termination of this Agreement, either the Underwriters or
the Company shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any,
in the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall
not relieve any defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement.
(c) Any notice under this Section 9 may be made by telecopy or
telephone but shall be subsequently confirmed by letter.
10. TERMINATION OF AGREEMENT. The Underwriters shall have the right to
terminate this Agreement at any time prior to the Closing Date (and with
respect to the Option Debentures, the Option Closing Date) by notice to the
Company from the Underwriters, without liability (other than with respect to
Section 7) on the Underwriters' part to the Company if, on or prior to such
date, (i) the Company shall have failed, refused or been unable to perform in
any material respect any agreement on its part to be performed hereunder,
(ii) any other condition to the obligations of the Underwriters hereunder as
provided in Section 8 is not fulfilled when and as required in any material
respect, (iii) trading in securities generally on the New York Stock
Exchange, the AMEX or the NASD Automated Quotation System shall have been
suspended or materially limited, or minimum prices shall have been
established on such exchange or system by the Commission, or by such exchange
or system or other regulatory body or governmental authority having
jurisdiction, (iv) a general banking moratorium shall have been declared by
Federal, New York or Illinois State authorities, (v) there is a material
outbreak or escalation of armed hostilities involving the United States on or
after the date hereof, or if there has been a declaration by the United
States of a national emergency or war, the effect of which shall be, in the
Underwriters' reasonable judgment, to make it inadvisable or impracticable to
proceed with the public offering or delivery of the Debentures on the terms
and in the manner contemplated in the Prospectus as supplemented or amended
prior to the occurrence of such
20
<PAGE>
event, (vi) in the Underwriters' reasonable opinion any material adverse
change shall have occurred since the respective dates as of which information
is given in the Registration Statement or the Prospectus (as supplemented or
amended prior to the occurrence of such event) in the condition (financial or
other) of the Company whether or not arising in the ordinary course of
business other than as set forth in the Prospectus as supplemented or amended
prior to the occurrence of such event, or (vii) there shall have been such a
material adverse change in general economic, political or financial
conditions or if the effect of international conditions on the financial
markets in the United States shall be such as, in the Underwriters'
reasonable opinion, makes it inadvisable or impracticable to proceed with the
delivery of the Debentures as contemplated hereby. Notice of such
cancellation shall be given to the Company by telecopy or telephone but shall
be subsequently confirmed by letter.
11. MISCELLANEOUS.
(a) Except as otherwise provided in Sections 9 and 10 hereof,
notice given pursuant to any of the provisions of this Agreement shall be in
writing and shall be delivered (a) if to the Company, at the office of the
Company at 5456 McConnell Avenue, Los Angeles, California 90066. Attention:
Chairman and Chief Executive Officer, or (b) if to the Underwriters, at the
offices of EVEREN Securities, Inc., 77 West Wacker Drive, Suite 3100,
Chicago, Illinois 60601, Attention: Stephen G. Moyer, or in any case to such
other address as the person to be notified may have requested in writing.
(b) This Agreement is made solely for the benefit of the several
Underwriters, the Company, their directors and officers and other controlling
persons referred to in Section 7 hereof, and their respective successors and
assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" as used in this
Agreement shall not include a purchaser from any of the several Underwriters
of any of the Debentures in his status as such purchaser.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
21
<PAGE>
13. COUNTERPARTS. This Agreement may be signed in various counterparts
which together shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
MERCURY AIR GROUP, INC.
By:__________________________________
Seymour Kahn
Chairman and Chief Executive Officer
Accepted and delivered as of the date first written above.
EVEREN Securities, Inc.
Crowell, Weedon & Co.
By: EVEREN SECURITIES, INC.
By:___________________________
22
<PAGE>
MERCURY AIR GROUP, INC.
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF FIRM DEBENTURES
- ---- ------------------
<S> <C>
EVEREN Securities, Inc . . . . . . . . . . . . . .
Crowell, Weedon & Co. . . . . . . . . . . . . . .
TOTAL . . . . . . . . . . . . . . . . . . . . $25,000,000
-----------
</TABLE>
23
<PAGE>
EXHIBIT 4.1
DRAFT: JANUARY 23, 1996
$25,000,000
____% Convertible Subordinated Debentures due February ___, 2006
____________________________________
MERCURY AIR GROUP, INC.
INDENTURE
Dated as of January ___, 1996
IBJ Schroder Bank & Trust Company, as Trustee
____________________________________________
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
SECTION SECTION
- ------- -------
<S> <C>
310 (a)(1).........................................................7.10
(a)(2).........................................................7.10
(a)(3).........................................................N.A.
(a)(4).........................................................N.A.
(a)(5).........................................................7.10
(b)............................................................7.8; 7.10
(c)............................................................N.A.
311 (a)............................................................7.11
(b)............................................................7.11
(c)............................................................N.A.
312 (a)............................................................2.5
(b)............................................................14.3
(c)............................................................14.3
313 (a)............................................................7.6
(b)(1).........................................................7.6
(b)(2).........................................................7.6
(c)............................................................7.6; 14.2
(d)............................................................7.6
314 (a)............................................................4.7; 14.2
(b)............................................................N.A.
(c)(1).........................................................2.2; 7.2; 14.4
(c)(2).........................................................7.2; 14.4
(c)(3).........................................................N.A.
(d)............................................................N.A
(e)............................................................14.5
(f)............................................................N.A
315 (a)............................................................7.1(b)
(b)............................................................7.5; 14.2
(c)............................................................7.1(a)
(d)............................................................7.1(c)
(e)............................................................6.13
316 (a) (last sentence)............................................2.9
(a)(1)(A)......................................................6.11
(a)(1)(B)......................................................6.12
(a)(2).........................................................N.A.
(b)............................................................6.8, 6.12
(c)............................................................10.5
317 (a)(1).........................................................6.3
(a)(2).........................................................6.4
(b)............................................................2.4
318 (a)............................................................14.1
</TABLE>
___________________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
ii
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1 Definitions............................................... 1
Section 1.2 Incorporation by Reference of TIA......................... 7
Section 1.3 Rules of Construction..................................... 7
ARTICLE II.
THE DEBENTURES
Section 2.1 Form and Dating........................................... 8
Section 2.2 Execution and Authentication.............................. 8
Section 2.3 Registrar, Paying Agent and Conversion Agent.............. 9
Section 2.4 Paying Agent to Hold Assets in Trust...................... 10
Section 2.5 Debentureholder Lists..................................... 10
Section 2.6 Transfer and Exchange..................................... 11
Section 2.7 Replacement Debentures.................................... 12
Section 2.8 Outstanding Debentures.................................... 13
Section 2.9 Treasury Debentures....................................... 13
Section 2.10 Temporary Debentures...................................... 13
Section 2.11 Cancellation.............................................. 14
Section 2.12 Defaulted Interest........................................ 14
Section 2.13 CUSIP Number.............................................. 15
Section 2.14 Debentures in Global Form................................. 15
ARTICLE III.
REDEMPTION
Section 3.1 Right of Redemption....................................... 16
Section 3.2 Notices to Trustee........................................ 16
Section 3.3 Selection of Debentures to be Redeemed.................... 16
Section 3.4 Notice of Redemption...................................... 17
Section 3.5 Effect of Notice of Redemption............................ 18
Section 3.6 Deposit of Redemption Price............................... 18
Section 3.7 Debentures Redeemed in Part............................... 18
iii
<PAGE>
ARTICLE IV.
COVENANTS
Section 4.1 Payment of Debentures..................................... 19
Section 4.2 Maintenance of Office or Agency........................... 19
Section 4.3 Corporate Existence....................................... 20
Section 4.4 Payment of Taxes and Other Claims......................... 20
Section 4.5 Maintenance of Properties and Insurance................... 20
Section 4.6 Compliance Certificate; Notice of Default................. 20
Section 4.7 SEC Reports............................................... 21
Section 4.8 Limitations on Status as Investment Company............... 21
ARTICLE V.
SUCCESSOR CORPORATION
Section 5.1 When Company May Merge, Etc............................... 22
Section 5.2 Successor Corporation Substituted......................... 23
ARTICLE VI.
EVENTS OF DEFAULT AND REMEDIES
Section 6.1 Events of Default......................................... 23
Section 6.2 Acceleration of Maturity Date; Rescission and Annulment... 25
Section 6.3 Collection of Indebtedness and Suits for Enforcement by
Trustee................................................... 26
Section 6.4 Trustee May File Proofs of Claim.......................... 27
Section 6.5 Trustee May Enforce Claims Without Possession of
Debentures................................................ 27
Section 6.6 Priorities................................................ 28
Section 6.7 Limitation on Suits....................................... 28
Section 6.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest...................................... 29
Section 6.9 Rights and Remedies Cumulative............................ 29
Section 6.10 Delay or Omission Not Waiver.............................. 29
Section 6.11 Control by Holders........................................ 29
Section 6.12 Waiver of Past Default.................................... 30
Section 6.13 Undertaking for Costs..................................... 30
Section 6.14 Restoration of Rights and Remedies........................ 31
ARTICLE VII.
TRUSTEE
Section 7.1 Duties of Trustee......................................... 31
Section 7.2 Rights of Trustee......................................... 32
iv
<PAGE>
Section 7.3 Individual Rights of Trustee.............................. 33
Section 7.4 Trustee's Disclaimer...................................... 33
Section 7.5 Notice of Default......................................... 33
Section 7.6 Reports by Trustee to Holders............................. 33
Section 7.7 Compensation and Indemnity................................ 34
Section 7.8 Replacement of Trustee.................................... 35
Section 7.9 Successor Trustee by Merger, Etc.......................... 36
Section 7.10 Eligibility; Disqualification............................. 36
Section 7.11 Preferential Collection of Claims against Company......... 36
Section 7.12 No Bonds.................................................. 36
Section 7.13 Condition of Action....................................... 36
ARTICLE VIII.
SATISFACTION AND DISCHARGE
Section 8.1 Satisfaction, Discharge of the Indenture and
Defeasance of the Debentures.............................. 37
Section 8.2 Survival of Certain Obligations........................... 38
Section 8.3 Acknowledgment of Discharge by Trustee.................... 38
Section 8.4 Application of Trust Assets............................... 38
Section 8.5 Repayment to the Company.................................. 38
Section 8.6 Reinstatement............................................. 39
ARTICLE IX.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1 Supplemental Indentures Without Consent of Holders........ 39
Section 9.2 Amendments, Supplemental Indentures and Waivers With
Consent of Holders........................................ 40
Section 9.3 Compliance with TIA....................................... 41
Section 9.4 Revocation and Effect of Consents......................... 41
Section 9.5 Notation on or Exchange of Debentures..................... 42
Section 9.6 Trustee to Sign Amendments, Etc........................... 42
ARTICLE X.
MEETINGS OF DEBENTURE HOLDERS
Section 10.1 Purposes for Which Meetings May be Called................. 43
Section 10.2 Manner of Calling Meetings................................ 43
Section 10.3 Call of Meetings by Company or Holders.................... 43
Section 10.4 Who May Attend and Vote at Meetings....................... 44
Section 10.5 Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights, Adjournment....................... 44
v
<PAGE>
Section 10.6 Voting at the Meeting and Record to Be Kept............... 45
Section 10.7 Exercise of Rights of Trustee or Debentureholders
May Not Be Hindered or Delayed by Call of Meeting......... 45
ARTICLE XI.
SUBORDINATION
Section 11.1 Debentures Subordinated to Senior Indebtedness............ 46
Section 11.2 No Payment on or Acceleration of Debentures Upon Senior
Payment Default........................................... 46
Section 11.3 Debentures Subordinated to Prior Payment of All Senior
Indebtedness on Acceleration of Principal of Debentures
or on Dissolution, Liquidation or Reorganization.......... 47
Section 11.4 Debentureholders to Be Subrogated to Rights of Holders
of Senior Indebtedness.................................... 48
Section 11.5 Obligations of the Company Unconditional.................. 48
Section 11.6 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice......................................... 49
Section 11.7 Application by Trustee of Assets Deposited with It........ 49
Section 11.8 Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Indebtedness.......... 50
Section 11.9 Debentureholders Authorize Trustee to Effectuate
Subordination of Debentures............................... 50
Section 11.10 Right of Trustee to Hold Senior Indebtedness.............. 51
Section 11.11 Article XI Not to Prevent Events of Default............... 51
Section 11.12 No Fiduciary Duty of Trustee to Holders of Senior
Indebtedness.............................................. 51
ARTICLE XII.
RIGHT TO REQUIRE REPURCHASE
Section 12.1 Repurchase of Debentures at Option of the Holder Upon
Change of Control and Rating Downgrade.................... 51
Section 12.2 Repurchase Option Upon Death of Holder.................... 52
Section 12.3 Notices; Method of Exercising Repurchase Right, Etc....... 54
ARTICLE XIII.
CONVERSION OF DEBENTURES
Section 13.1 Right of Conversion; Conversion Price..................... 56
Section 13.2 Issuance of Shares on Conversion.......................... 56
Section 13.3 No Adjustment for Interest or Dividends................... 57
Section 13.4 Adjustment of Conversion Price............................ 57
vi
<PAGE>
Section 13.5 Notice of Adjustment of Conversion Price.................. 59
Section 13.6 Notice of Certain Corporation Action...................... 60
Section 13.7 Taxes on Conversions...................................... 61
Section 13.8 Fractional Shares......................................... 61
Section 13.9 Cancellation of Converted Debentures...................... 61
Section 13.10 Provisions in Case of Consolidation, Merger or Sale of
Assets.................................................... 61
Section 13.11 Disclaimer by Trustee of Responsibility for Certain
Matters................................................... 62
Section 13.12 Covenant to Reserve Shares................................ 63
ARTICLE XIV.
MISCELLANEOUS
Section 14.1 TIA Controls.............................................. 63
Section 14.2 Notices................................................... 63
Section 14.3 Communications by Holders With Other Holders.............. 64
Section 14.4 Certificate and Opinion as to Conditions Precedent........ 64
Section 14.5 Statements Required in Certificate or Opinion............. 64
Section 14.6 Legal Holidays............................................ 65
Section 14.7 Governing Law............................................. 65
Section 14.8 No Adverse Interpretation of Other Agreements............. 65
Section 14.9 No Recourse Against Others................................ 66
Section 14.10 Successors................................................ 66
Section 14.11 Duplicate Originals....................................... 66
Section 14.12 Severability.............................................. 66
Section 14.13 Table of Contents, Headings, Etc.......................... 66
Exhibit A FORM OF DEBENTURE
vii
<PAGE>
INDENTURE, dated as of January __, 1996, by and between Mercury
Air Group, Inc., a New York corporation (the "Company"), and IBJ Schroder
Bank & Trust Company, a banking corporation organized and existing under
the laws of the State of New York, as trustee (the "Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's __%
Convertible Subordinated Debentures due February ___, 2006:
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 DEFINITIONS.
"Acceleration Notice" shall have the meaning specified in Section
6.2 hereof.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
the purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as used
with respect to any Person, shall 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 or by agreement
or otherwise.
"Agent" means any Registrar, co-Registrar, Paying Agent,
Conversion Agent or agent for service of notices and demands.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal,
state or foreign law for the relief of debtors
"Board of Directors" means, with respect to any Person, the Board
of Directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
"Business Day" means a day that is not a Legal Holiday.
"Change of Control" means, except as described below, the
occurrence of any of the following events, whether or not approved by the Board
of Directors of the Company: (i) any person is or becomes the beneficial owner,
directly or indirectly, of securities representing more than 50% of the total
number of votes that may be cast for the election of directors of the Company or
(ii) any person acquires from the Company more than 50% of the assets or earning
<PAGE>
power of the Company and its subsidiaries. For the purposes of this
definition, "person" means a person or group (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable), together with any affiliates or associates thereof, but does not
include Seymour Kahn or any subsidiary of the Company and "beneficial
ownership" shall be determined pursuant to the provisions of Rules 13d-3 and
13d-5 under the Exchange Act, whether or not applicable, except that a person
shall have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time. For the purpose of clause (i) above, a Change of Control
shall be deemed to occur when the Company receives a Schedule 13D or Schedule
13G relating to the change in beneficial ownership or at such earlier time as
the Company becomes aware of the change in beneficial ownership.
"Closing Price" means, with respect to the shares of Common Stock
of the Company on any day, (i) the last reported sales price regular way or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the American Stock
Exchange, or (ii) if the shares of Common Stock are not listed or admitted to
trading on the American Stock Exchange, the last reported sales price regular
way, or in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, on the principal national
securities exchange on which the shares of Common Stock are listed or admitted
to trading, or (iii) if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked price as furnished by any New York Stock Exchange member firm selected
from time to time by the Company for that purpose.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Common Stock of the Company, par value
$0.01 per share.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Company Request" and "Company Order" mean, respectively, a
written request or order, as the case may be, signed in the name of the Company
by the Chairman of the Board, a Vice Chairman of the Board, the Chief Executive
Officer, the President, a Vice President, the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary, of the Company, or by another officer
of the Company duly authorized to sign by a Board Resolution, and delivered to
the Trustee.
"Conversion Agent" shall have the meaning specified in Section 2.3
hereof.
"conversion price" shall have the meaning specified in Section
13.1 hereof.
"Corporate Trust Office" means the principal office of the Trustee
at which at any particular time its corporate trust business shall be
administered.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
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"current market price" shall have the meaning specified in Section
13.4(f) hereof.
"Debenture Register" shall have the meaning specified in Section
2.5 hereof.
"Debentures" means the _____% Convertible Subordinated
Debentures due February ___, 2006, which Debentures are definitive and fully
registered as outlined in Section 2.6 hereof and authenticated and delivered
under this Indenture in accordance with its terms.
"Default" means an event or condition, the occurrence of which is,
or with the lapse of time or giving of notice, or both, would be, an Event of
Default.
"Defaulted Interest" shall have the meaning specified in Section
2.12 hereof.
"Depository" means, with respect to any Debenture issuable or
issued in the form of one or more global Debentures, the Person designated as
Depository by the Company in or pursuant to this Indenture, which Person must
be, to the extent required by applicable law or regulation, a clearing agency
registered under the Exchange Act, and, if so provided with respect to any
Debenture, any successor to such Person. If at any time there is more than one
such Person, "Depository" shall mean, with respect to any Debentures, the
qualifying entity which has been appointed with respect to such Debentures.
"Event of Default" shall have the meaning specified in Section 6.1
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Final Repurchase Put Date" shall have the meaning specified in
Section 12.3 hereof.
"GAAP" means generally accepted accounting principles as in effect
in the United States from time to time.
"Holder" or "Debentureholder" means the Person in whose name a
Debenture is registered on the Registrar's books.
"Indebtedness" with respect to any Person means: (i) any debt (a)
for money borrowed (other than the Debentures), or (b) evidenced by a bond,
note, debenture, or similar instrument (including purchase money obligations)
given in connection with the acquisition of any business, property or assets,
whether by purchase, merger, consolidation, or otherwise, but shall not include
any account payable or other obligation created or assumed by a Person in the
ordinary course of business in connection with the obtaining of materials or
services, or (c) which is a direct or indirect obligation which arises as a
result of banker's acceptances or bank letters of credit issued to secure
obligations of such Person, or to secure the payment of revenue bonds issued for
the benefit of such Person, whether contingent or otherwise; (ii) any debt of
others described in the preceding clause (i) which such Person has guaranteed or
for which it is
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otherwise liable; (iii) the obligation of such Person as lessee under any lease
of property which is reflected on such Person's balance sheet as a capitalized
lease; and (iv) any deferral, amendment, renewal, extension, supplement or
refunding of any liability of the kind described in any of the preceding clauses
(i), (ii) and (iii), PROVIDED, HOWEVER, that, in computing the Indebtedness
of any Person, there shall be excluded any particular indebtedness if, upon or
prior to the maturity thereof, there shall have been deposited with a depository
in trust money (or evidence of indebtedness if permitted by the instrument
creating such indebtedness) in the necessary amount to pay, redeem or satisfy
such indebtedness as it becomes due, and the amount so deposited shall not be
included in any computation of the assets of such Person.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Interest Payment Date" means the stated due date of an
installment of interest on the Debentures.
"Issue Date" means the date of initial issuance of the Debentures
under this Indenture.
"Legal Holiday" shall have the meaning specified in Section 14.6
hereof.
"Maturity Date," when used with respect to any Debenture, means
the date on which the principal of such Debenture becomes due and payable as
therein or herein provided, whether at the Stated Maturity or Repurchase Date or
by declaration of acceleration, call for redemption or otherwise.
"Officer" means, with respect to the Company, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or
Executive Vice President, the Chief Financial Officer, the Treasurer, the
Controller or the Secretary of the Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and otherwise complying with the requirements of Sections 14.4
and 14.5 hereof.
"Opinion of Counsel" means a written opinion from legal counsel
complying with the requirements of Sections 14.4 and 14.5 hereof. Unless
otherwise reasonably required by the Trustee, the counsel may be inside counsel
to the Company.
"Over-Allotment Option" means the option of the Underwriters to
purchase additional Debentures in the aggregate principal amount of up to
$3,750,000 as provided in Section 2.2 hereof.
"Paying Agent" shall have the meaning specified in Section 2.3
hereof.
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"Person" means any corporation, individual, joint stock company,
joint venture, partnership, unincorporated association, governmental regulatory
entity, country, state or political subdivision thereof, trust, municipality or
other entity.
"Rating Downgrade" means a decrease by one or more gradations
(including gradations within rating categories as well as between rating
categories) of the investment rating assigned to the Debentures by any
nationally recognized statistical rating organization, provided that such
downgrade occurs on, or within 90 days after, the earlier to occur of (i) the
occurrence of a Change of Control or (ii) public notice of the occurrence of a
Change of Control or the intention by the Company to effect a Change of Control
(which period shall be extended so long as the rating of the Debentures is under
publicly announced consideration for possible downgrade by any nationally
recognized statistical rating organization).
"Record Date" means a Record Date specified in the Debentures
whether or not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Debenture or
Debentures to be redeemed, means the date fixed for such redemption pursuant to
this Indenture and Paragraph 5 in the form of Debenture attached hereto as
Exhibit A.
"Redemption Price," when used with respect to any Debenture or
Debentures to be redeemed, means the redemption price for such redemption
pursuant to Paragraph 5 in the form of Debenture attached hereto as Exhibit A.
"Registrar" shall have the meaning specified in Section 2.3
hereof.
"Repurchase Date" shall have the meaning specified in Section 12.1
hereof.
"Repurchase Offer" shall have the meaning specified in Section
12.3 hereof.
"Repurchase Price" shall have the meaning specified in Section
12.1 hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Senior Indebtedness" means the principal of, premium, if any,
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such proceeding), fees,
charges, expenses, reimbursement and indemnification obligations, and all other
amounts payable under or in respect of Indebtedness of the Company, whether any
such Indebtedness exists as of the date of this Indenture or is created,
incurred, assumed or guaranteed after such date, other than (i) Indebtedness
that by its terms or by operation of law is subordinated to or on a parity with
the Debentures and (ii) Indebtedness owed to a Subsidiary.
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"Senior Payment Default" shall have the meaning specified in
Section 11.2 hereof.
"Special Payment Date" shall have the meaning specified in Section
2.12 hereof.
"Special Record Date" for payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 2.12 hereof.
"Stated Maturity," when used with respect to any Debenture, means
February ___, 2006.
"Subsidiary" means, with respect to any Person, (i) a corporation
at least 50% of whose capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, or (ii) a partnership in which such
Person or a Subsidiary of such Person is, at the time, a general partner of such
partnership, or (iii) any other Person (other than a corporation or a
partnership) in which such Person, one or more Subsidiaries of such Person, or
such Person and one or more Subsidiaries of such Person, directly or indirectly,
at the date of determination thereof has (1) at least a 50% ownership interest
or (2) the power to elect or direct the election of the directors or other
governing body of such Person.
"Surviving Person" shall have the meaning specified in Section
5.1(a) hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of the execution of this Indenture,
except as provided in Section 9.3 hereof.
"Trading Day" means any day other than any day on which securities
are not traded on the applicable securities exchange or in the applicable
securities market.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
department (or any successor group) of the Trustee including any vice president,
assistant vice president, secretary, assistant secretary or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the Persons who at that time shall be such officers, and also
means, with respect to a particular corporate trust matter, any other officer of
the corporate trust department (or any successor group) of the Trustee to whom
such trust matter is referred because of his knowledge of and familiarity with
the particular subject.
"Underwriters" means the parties underwriting the offering of the
Debentures.
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"U.S. Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the payment of which obligation or guarantee the full faith and
credit of the United States of America is pledged.
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
SECTION 1.2 INCORPORATION BY REFERENCE OF TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Debentures.
"obligor" on the indenture securities means the Company and any
other obligor on the Debentures.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and words in the
plural include the singular;
(e) provisions apply to successive events and transactions;
(f) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(g) references to Sections or Articles mean reference to such
Section or Article in this Indenture, unless stated otherwise.
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ARTICLE II.
THE DEBENTURES
SECTION 2.1 FORM AND DATING.
The Debentures and the Trustee's certificate of authentication,
in respect thereof, shall be substantially in the form of Exhibit A hereto,
which is part of this Indenture, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of
identification and such legends, notations or endorsements placed thereon as
may be required by law to comply with the rules of any securities exchange,
usage, or as may, consistently herewith, be determined by the officers
executing such Debentures, as evidenced by their execution thereof. The
Company shall approve the form of the Debentures and any notation, legend or
endorsement on them. Any such notations, legends or endorsements not
contained in the form of Debenture attached as Exhibit A hereto shall be made
in accordance with Section 9.5 hereof. Each Debenture shall be dated the
date of its authentication.
The terms and provisions contained in the forms of Debentures
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby. In the event of any inconsistency between the Debentures and
the Indenture, the Indenture controls.
The Debentures will initially be represented by one or more global
securities which shall bear the legend set forth in Exhibit A hereto and shall
be deposited with The Depository Trust Company ("DTC"), as Depository, or an
agent of DTC.
SECTION 2.2 EXECUTION AND AUTHENTICATION.
Two Officers shall sign, or one Officer shall sign and one Officer
shall attest to, the Debentures for the Company by manual or facsimile
signature. The Company's seal shall be impressed, affixed, imprinted or
reproduced on the Debentures and may be in facsimile form.
If an Officer whose signature is on a Debenture was an Officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Debenture, the Debenture shall be valid nevertheless
and the Company shall nevertheless be bound by the terms of the Debentures and
this Indenture.
A Debenture shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Debenture
and such signature shall be conclusive evidence that the Debenture has been
authenticated pursuant to the terms of this Indenture.
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The Trustee shall authenticate Debentures for original issue in
the aggregate principal amount of up to $25,000,000 (or up to $28,750,000 if the
Over-Allotment Option is exercised) upon a written order of the Company signed
by two Officers or by an Officer and Assistant Treasurer or Assistant Secretary
of the Company. The written order shall specify the amount of Debentures to be
authenticated and the date on which the Debentures are to be authenticated. The
aggregate principal amount of Debentures outstanding at any time may not exceed
$25,000,000 (or up to $28,750,000 if the Over-Allotment Option is exercised),
except as provided in Section 2.7 hereof. Upon a written order of the Company
signed by two Officers or by an Officer and Assistant Treasurer or Assistant
Secretary for the Company, the Trustee shall authenticate Debentures in
substitution of Debentures originally issued to reflect any name change of the
Company.
Upon receipt by the Trustee of a Company Order stating that the
Underwriters have exercised the Over-Allotment Option for a specified
aggregate principal amount of additional Debentures not to exceed a total of
$3,750,000 pursuant to the Underwriting Agreement, dated January___, 1996,
between the Company and the Underwriters, the Trustee shall authenticate and
make available for delivery such specified aggregate principal amount of such
additional Debentures to or upon the Company's request, and such specified
aggregate principal amount of such additional Debentures shall be considered
part of the original aggregate principal amount of the Debentures.
The Trustee may appoint an authenticating agent to authenticate
Debentures. Unless otherwise provided in the appointment, an authenticating
agent may authenticate Debentures whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as
an Agent to deal with any obligor, any Affiliate of any obligor, or any of
their respective Subsidiaries.
Unless otherwise provided in or pursuant to this Indenture,
debentures shall be issuable only in global form without coupons.
SECTION 2.3 REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain an office or agency where Debentures
may be presented for registration of transfer or for exchange ("Registrar"), an
office or agency where Debentures may be presented for payment ("Paying Agent")
and an office or agency where Debentures may be presented for conversion
("Conversion Agent"). Notices and demands to or upon the Company in respect of
the Debentures may be served as is provided in Section 14.2 hereof. The Company
or an Affiliate of the Company may act as Registrar, Paying Agent or Conversion
Agent, except that, for the purposes of Articles III, VIII and XII hereof,
neither the Company nor any Affiliate of the Company shall act as Paying Agent.
The Registrar shall keep a register of the Debentures and of their transfer and
exchange as provided in Section 2.5 hereof.
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The Company may have one or more co-Registrars, one or more
additional Paying Agents and one or more additional Conversion Agents. The term
"Paying Agent" includes any additional Paying Agent and the term "Conversion
Agent" includes any additional Conversion Agent. The Company may change any
Registrar, co-Registrar, Paying Agent, Conversion Agent or agent for service of
notices and demands on 30 days' prior notice to the Trustee.
The Company shall enter into an appropriate written agency
agreement with any Agent not a party to this Indenture, which agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee in writing in advance of the name and address
of any such Agent. If the Company fails to maintain a Registrar, Paying Agent,
Conversion Agent or agent for service of notices and demands, the Trustee shall
act as such.
The Company hereby appoints the Trustee as Registrar, Paying
Agent, Conversion Agent and agent for service of notices and demands, and the
Trustee hereby agrees so to act.
SECTION 2.4 PAYING AGENT TO HOLD ASSETS IN TRUST.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, premium, if any, or interest on, the Debentures (whether such
assets have been distributed to it by the Company or any other obligor on the
Debentures), and shall notify the Trustee in writing of any Default in making
any such payment. If the Company or an Affiliate of the Company acts as Paying
Agent, it shall segregate such assets and hold them as a separate trust fund for
the benefit of the Holders. The Company at any time may require
a Paying Agent to distribute all assets held by it to the Trustee and account
for any assets disbursed and the Trustee may at any time during the continuance
of any payment Default, upon written request to a Paying Agent, require such
Paying Agent to distribute all assets held by it to the Trustee and to account
for any assets distributed. Upon distribution to the Trustee of all assets that
shall have been delivered by the Company to the Paying Agent, the Paying Agent
(if other than the Company or an Affiliate of the Company) shall have no further
liability for such assets.
SECTION 2.5 DEBENTUREHOLDER LISTS.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and
in any other office or agency designated pursuant to this Section 2.5 being
herein sometimes collectively referred to as the "Debenture Register") in
which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration, transfer and exchange of
Debentures. The Registrar shall preserve in the Debenture Register, in as
current a form as is reasonably practicable, the most recent list available
to the Registrar of the names and addresses of Holders. If the Trustee is
not the Registrar, the Company shall furnish to the Trustee on or before the
third Business Day after the record date to which such interest payment
relates and at such other times as the Trustee may request in
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writing a list in such form and as of such date as the Trustee reasonably may
require of the names, addresses and tax identification numbers of Holders.
SECTION 2.6 TRANSFER AND EXCHANGE.
(a) When Debentures (other than Debentures in global form)
are presented to the Registrar or a co-Registrar with a request to register
the transfer of such Debentures or to exchange such Debentures for an equal
principal amount of Debentures of other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested provided the requirements for such transaction are met; PROVIDED,
HOWEVER, that the Debentures surrendered for transfer or exchange shall be
duly endorsed or accompanied by a written instrument of transfer in form
reasonably satisfactory to the Company and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in
writing. To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Debentures at the
Registrar's or co-Registrar's request. No service charge shall be made for
any registration of transfer or exchange, but the Company or the Trustee may
require payment of a sum sufficient to cover any transfer tax, assessment, or
similar governmental charge payable in connection therewith (other than any
such transfer taxes, assessment, or similar governmental charge payable upon
exchanges or transfers pursuant to Section 2.2, 2.10, 3.7, 9.5, 12.1, 12.1 or
13.2 hereof).
Notwithstanding the foregoing, except as otherwise provided in
or pursuant to this Indenture, any global Debenture shall be exchangeable for
definitive Debentures only if (i) the Depository is at any time unwilling,
unable or ineligible to continue as Depository and a successor depository is
not appointed by the Company within 60 days of the date the Company is so
informed in writing, (ii) the Company executes and delivers to the Trustee a
Company Order to the effect that such global Debenture shall be so
exchangeable, or (iii) an Event of Default or an event which, with the giving
of notice or lapse of time or both, would constitute an Event of Default has
occurred and is continuing with respect to the Debentures. A global
Debenture that is exchangeable pursuant to the preceding sentence shall be
exchangeable for Debentures issuable in denominations of $1,000 and any
integral multiple thereof and registered in such names as the Depository
holding such global Debenture shall direct. If the beneficial owners of
interests in a global Debenture are entitled to exchange such interests for
definitive Debentures of like tenor of any authorized form and denomination
as specified as contemplated by Section 2.10, then without unnecessary delay
but in any event not later than the earliest date on which such interests may
be so exchanged, the Company shall deliver to the Trustee an adequate supply
of definitive Debentures in such form and denominations as are required by or
pursuant to this Indenture containing identical terms and in aggregate
principal amount equal to the principal amount of, such global Debenture,
executed by the Company. On or after the earliest date on which such
interests may be so exchanged, such global Debentures shall be surrendered
from time to time by the Depository, and in accordance with instructions
given to the Trustee and the Depository (which instructions shall be in
writing but need not be contained in or accompanied by an Officers'
Certificate or be accompanied by an Opinion of Counsel), as shall be
specified in the Company Order with respect thereto to the Trustee, as the
Company's agent for such purpose, to be exchanged PROVIDED, HOWEVER, that no
such exchanges may occur during a period beginning at the opening of business
15 days before any such selection of
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Debentures for redemption, to be redeemed and ending on the relevant Redemption
Date. Promptly following any such exchange in part, such global Debenture shall
be returned by the Trustee to such Depository in accordance with the
instructions of the Company referred to above. If a Debenture is issued in
exchange for any portion of a global Debenture after the close of business at
the office or agency for such Debenture where such exchange occurs on or after
(i) any Regular Record Date and before the opening of business at such office or
agency on the next Interest Payment Date, or (ii) any Special Record date and
before the opening of business at such office or agency on the related proposed
date for payment of interest or Defaulted Interest, as the case may be, interest
shall not be payable on such Interest Payment Date or proposed date for payment,
as the case may be, in respect of such Debenture, but shall
be payable on such Interest Payment Date or proposed date for payment, as the
case may be, only to the Person to whom interest in respect of such portion of
such global Debenture shall be payable in accordance with the provisions of this
Indenture.
(b) The Company shall not be required (i) to issue, register
the transfer of or exchange any Debenture for a period beginning 10 Business
Days before the mailing of a notice of an offer to repurchase pursuant to
Article XII hereof or redeem Debentures pursuant to Article III hereof and
ending at the close of business on the day of such mailing or (ii) to
register the transfer or exchange of any Debenture selected for redemption in
whole or in part pursuant to Article III, except the unredeemed portion of
any Debenture being redeemed in part. The Company shall indemnify the
Registrar or co-Registrar for all claims, costs and expenses incurred by it
in connection with refusing to transfer Debentures as instructed by the
Company.
SECTION 2.7 REPLACEMENT DEBENTURES.
If a mutilated Debenture is surrendered to the Trustee or if the
Holder of a Debenture claims and submits to the Trustee an affidavit or other
evidence, satisfactory to the Company and Trustee, to the effect that the
Debenture has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Debenture if the Company's and
the Trustee's requirements are met. If required by the Trustee or the Company,
such Holder must provide an indemnity bond or other indemnity, sufficient in the
judgment of both the Company and the Trustee, to protect the Company, the
Trustee or any Agent from any loss which any of them may suffer if a Debenture
is replaced. Upon the issuance of any new Debenture under this Section 2.7, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
The provisions of this Section 2.7 are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures. Every replacement
Debenture is an additional obligation of the Company.
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SECTION 2.8 OUTSTANDING DEBENTURES.
Debentures outstanding at any time are all the Debentures that
have been authenticated by the Trustee except those cancelled by it, those
delivered to it for cancellation and those described in this Section 2.8 as not
outstanding. A Debenture does not cease to be outstanding because the Company
or an Affiliate of the Company holds the Debenture, except as provided in
Section 2.9 hereof.
If a Debenture is replaced pursuant to Section 2.7 hereof (other
than a mutilated Debenture surrendered for replacement), it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a BONA FIDE purchaser. A mutilated Debenture
ceases to be outstanding upon surrender of such Debenture and replacement
thereof pursuant to Section 2.7 hereof.
If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or an Affiliate of the Company) holds U.S. Legal Tender
or U.S. Government Obligations sufficient to pay all of the principal of,
premium, if any, and interest due on the Debentures payable on that date, then
on and after that date such Debentures shall cease to be outstanding and
interest on such Debentures shall cease to accrue. Any obligations pursuant
to such Debentures shall be satisfied pursuant to Section 8.1 hereof.
SECTION 2.9 TREASURY DEBENTURES.
In determining whether the Holders of the required principal
amount of Debentures have concurred in any direction, amendment, supplement,
waiver or consent, Debentures owned by the Company and Affiliates of the Company
shall be disregarded, except that, for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, amendment,
supplement, waiver or consent, only Debentures that the Trustee knows or has
reason to know are so owned shall be disregarded.
SECTION 2.10 TEMPORARY DEBENTURES.
Until definitive Debentures are ready for delivery, the Company
may prepare, and the Trustee shall authenticate, temporary Debentures.
Temporary Debentures shall be substantially in the form of definitive Debentures
but may have variations that the Company reasonably and in good faith considers
appropriate for temporary Debentures. Except in the case of temporary
Debentures in global form, which shall be exchanged in accordance with the
provisions thereof, without unreasonable delay, the Company shall prepare, and
the Trustee shall authenticate, definitive Debentures in exchange for temporary
Debentures. Unless otherwise provided in or pursuant to this Indenture with
respect to a temporary global Debenture, until so exchanged, the temporary
Debentures shall in all respects be entitled to the same benefits under this
Indenture as permanent Debentures authenticated and delivered hereunder.
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SECTION 2.11 CANCELLATION.
The Company at any time may deliver Debentures to the Trustee for
cancellation which the Company may have acquired in any manner whatsoever, and
all Debentures so delivered shall be promptly cancelled by the Trustee. The
Registrar, the Paying Agent and the Conversion Agent shall forward to the
Trustee any Debentures surrendered to them for transfer, payment or exchange.
The Trustee, or at the direction of the Trustee, the Registrar, the Paying Agent
or Conversion Agent (other than the Company or an Affiliate of the Company),
shall cancel and, at the written direction of the Company, shall dispose of all
Debentures surrendered for transfer, payment, exchange or cancellation. Subject
to Section 2.7 hereof, the Company may not issue new Debentures to replace
Debentures it has paid or delivered to the Trustee for cancellation. No
Debentures shall be authenticated in lieu of or in exchange for any Debentures
cancelled as provided in this Section 2.11, except as expressly permitted in the
form of Debentures and as permitted by this Indenture.
SECTION 2.12 DEFAULTED INTEREST.
Interest on any Debenture which is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name that Debenture (or one or more predecessor Debentures) is
registered at the close of business on the Record Date for such interest.
Any interest on any Debenture which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date plus, to the
extent lawful, any interest payable on the defaulted interest (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
holder on the relevant Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Debentures (or their respective
predecessor Debentures) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Debenture, and at the
same time the Company shall deposit with the Trustee an amount of money equal to
the aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit prior to
the date fixed for payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as provided in
this clause (a). Thereupon the Trustee shall fix a Special Record Date and
special payment date (the "Special Payment Date") for the payment of such
Defaulted Interest. The Special Record Date shall be not more than 15 days and
not less than 10 days prior to the Special Payment Date. The Special Payment
Date shall be not more than 60 days after receipt by the Trustee of the notice
to pay the Defaulted Interest. The Trustee shall promptly notify the Company
for such Special Record Date and, in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid, to each
Holder at
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his address as it appears in the Debenture Register not less than 10 days prior
to such Special Record Date. The Trustee may, in its discretion, in the name
and at the expense of the Company, cause a similar notice to be published at
least once in a newspaper, customarily published in the English language on each
Business Day and of general circulation in the Borough of Manhattan, The City of
New York, but such publication shall not be a condition precedent to the
establishment of such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having been mailed
as aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names the Debentures (or their respective predecessor Debentures) are registered
on such Special Record Date and shall no longer be payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any securities
exchange on which the Debentures may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause accompanied by an Opinion of
Counsel stating that the manner of payment complies with this clause, such
manner shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 2.12, each
Debenture delivered under this Indenture upon transfer of or in exchange for or
in lieu of any other Debenture shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Debenture.
SECTION 2.13 CUSIP NUMBER.
The Company may use a "CUSIP" number when issuing the Debentures,
and if so, the Trustee may use the CUSIP number in notices of redemption or
exchange as a convenience to Debentureholders; provided that any such notice may
state that no representation is made as to the correctness or accuracy of the
CUSIP number printed in the notice or on the Debentures, and that reliance may
be placed only on the other identification numbers printed on the Debentures.
SECTION 2.14. DEBENTURES IN GLOBAL FORM.
The Debentures shall initially be issued in global form (i.e., in
the name of the nominee of a Depository for purposes of book-entry transfer) and
one or more Debentures shall represent the aggregate amount of all outstanding
Debentures from time to time endorsed thereon and may provide that the aggregate
amount of outstanding Debentures represented thereby may from time to time be
increased or reduced to reflect exchanges, repurchases and redemptions. Any
endorsement of any Debenture in global form to reflect the amount, or any
increase or decrease in the amount, or changes in the rights of Holders, of
outstanding Debentures represented thereby shall be made in such manner and by
such Person or Persons as shall be specified therein or in a written order of
the Company signed by two Officers or by an Officer and Assistant Treasurer or
Assistant Secretary for the Company. The Trustee shall deliver and redeliver
any Debenture in permanent global form in the manner and upon instructions given
by the Person or Persons specified therein or in the written order of the
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Company signed by two Officers or by an Officer and Assistant Treasurer or
Assistant Secretary for the Company.
ARTICLE III.
REDEMPTION
SECTION 3.1 RIGHT OF REDEMPTION.
Redemption of Debentures, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision
and this Article III. The Debentures may be redeemed at the election of the
Company, in whole or in part, at any time on or after February __, 1999, at
the applicable Redemption Prices specified in Paragraph 5 of the form of
Debenture attached as Exhibit A hereto, set forth therein under the caption
"Optional Redemption," plus accrued and unpaid interest to but excluding the
Redemption Date. In addition, the Debentures may be redeemed at the election
of the Company, in whole or in part, at any time on or after February __,
1998 and before February __, 1999, at a Redemption Price of 105% of the
principle amount of the Debentures plus accrued and unpaid interest to but
excluding the Redemption Date if the Closing Price shall have been at least
140% of the conversion price for at least 20 Trading Days within a period of
30 consecutive Trading Days ending not more than five Trading Days prior to
the date of the notice of such redemption.
SECTION 3.2 NOTICES TO TRUSTEE.
If the Company elects to redeem Debentures pursuant to Paragraph 5
of the Debentures, it shall notify the Trustee in writing of the Redemption Date
and the principal amount of Debentures to be redeemed and whether the Company or
the Trustee is to give notice of redemption to the Holder or Holders.
The Company shall give each notice to the Trustee provided for in
this Section 3.2 at least 45 days before the Redemption Date (unless a shorter
notice shall be satisfactory to the Trustee).
SECTION 3.3 SELECTION OF DEBENTURES TO BE REDEEMED.
If less than all of the Debentures are to be redeemed pursuant
to Paragraph 5(a) of the Debentures, the Trustee shall, as it determines in
its sole discretion, redeem the Debentures either PRO RATA or by lot or in
such other manner as complies with any applicable legal and stock exchange
requirements.
The Trustee shall make the selection from the Debentures
outstanding and not previously called for redemption and shall promptly notify
the Company in writing of the Debentures selected for redemption and, in the
case of any Debenture selected for partial redemption, the principal amount
thereof to be redeemed. Debentures in denominations of $1,000 may be redeemed
only in whole. The Trustee may select for redemption portions (equal to $1,000
or any integral multiple thereof) of the principal of Debentures that have
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denominations larger than $1,000. Provisions of this Indenture that apply to
Debentures called for redemption also apply to portions of Debentures called for
redemption.
SECTION 3.4 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee and each Holder whose Debentures are to be redeemed
pursuant to Paragraph 5 of the Debentures at his address appearing in the
Debenture Register.
Each notice of redemption shall identify the Debentures to be
redeemed and shall state the following and such other matters as the Company
shall deem proper:
(a) the Redemption Date;
(b) the Redemption Price and the fact that accrued and
unpaid interest will be paid upon such redemption;
(c) the name and address of the Paying Agent;
(d) that Debentures called for redemption must be surrendered
to the Paying Agent at the address specified in such notice to collect the
Redemption Price plus accrued and unpaid interest;
(e) that, unless the Company defaults in its obligation to
deposit U.S. Legal Tender with the Paying Agent in accordance with Section 3.6
hereof, interest on Debentures called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders of such
Debentures is to receive payment of the Redemption Price and accrued and unpaid
interest, upon surrender to the Paying Agent of the Debentures called for
redemption and to be redeemed;
(f) if any Debenture is being redeemed in part, the portion of
the principal amount, equal to $1,000 or any integral multiple thereof, of such
Debenture that will not be redeemed and that, after the Redemption Date, and
upon surrender of such Debenture, a new Debenture or Debentures in aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(g) if less than all the Debentures are to be redeemed, the
identification of the particular Debentures (or portion thereof) to be redeemed,
as well as the aggregate principal amount of such Debentures to be redeemed and
the aggregate principal amount of Debentures to be outstanding after such
partial redemption; and
(h) that the notice is being provided pursuant to this
Section 3.4 and pursuant to the redemption provisions of Paragraph 5 of the
Debentures.
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At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. If a CUSIP
number is listed in such notice or printed on the Debenture, the notice shall
state that no representation is made as to the correctness or accuracy of such
CUSIP number.
SECTION 3.5 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.4
hereof, Debentures called for redemption become due and payable on the
Redemption date at the Redemption Price plus accrued and unpaid interest to the
Redemption Date. Upon surrender to the Trustee or Paying Agent, such Debentures
called for redemption shall be paid on the Redemption Date at the Redemption
Price plus interest, if any, accrued and unpaid to the Redemption Date;
PROVIDED that if the Redemption Date is after a regular Record Date and on or
prior to the Interest Payment Date, the accrued interest shall be payable to the
Holder of the redeemed Debentures registered as of the close of business on the
relevant Record Date; and PROVIDED, FURTHER, that if a Redemption Date is a
Legal Holiday, payment shall be made on the next succeeding Business Day and no
interest shall accrue for the period from such Redemption Date to such
succeeding Business Day.
SECTION 3.6 DEPOSIT OF REDEMPTION PRICE.
On or prior to the Redemption Date, the Company shall deposit
with the Paying Agent (other than the Company or an Affiliate of the Company)
U.S. Legal Tender sufficient to pay the Redemption Price of and accrued and
unpaid interest on all Debentures to be redeemed on such Redemption Date
(other than Debentures or portions thereof called for redemption on that date
that have been delivered by the Company to the Trustee for cancellation or
Debentures or portions thereof previously cancelled because of conversion or
otherwise). The Paying Agent shall promptly return to the Company any U.S.
Legal Tender so deposited which is not required for that purpose because of
conversion or otherwise upon the written request of the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III, interest on the Debentures to be redeemed will
cease to accrue on the applicable Redemption Date, whether or not such
Debentures are presented for payment. Notwithstanding anything herein to the
contrary, if any Debenture surrendered for redemption in the manner provided in
the Debentures shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall
continue to accrue and be paid from the Redemption Date until such payment is
made on the unpaid principal, and, to the extent lawful, on any interest not
paid on such unpaid principal, in each case at the rate and in the manner
provided in Section 4.1 hereof and the Debentures.
SECTION 3.7 DEBENTURES REDEEMED IN PART.
Upon surrender of a Debenture that is to be redeemed in part, the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder, without service charge, a new Debenture or Debentures equal in principal
amount to the unredeemed portion of the Debenture surrendered. If a Debenture
in global form is so surrendered, the Company shall execute, and the Trustee
shall authenticate and deliver to the Depository for such Debenture in
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global form as shall be specified in the Company Order with respect thereto to
the Trustee, without service charge, a new Debenture in global form in a
denomination equal to and in exchange for the unredeemed portion of the
principal of the Debenture in global form so surrendered in accordance with
the Depository's procedures as then in effect.
ARTICLE IV.
COVENANTS
SECTION 4.1 PAYMENT OF DEBENTURES.
The Company shall pay the principal of, premium, if any, and
interest on the Debentures on the dates and in the manner provided in the
Debentures. An installment of principal of, premium, if any, or interest on the
Debentures shall be considered paid on the date it is due if the Trustee or
Paying Agent (other than the Company or an Affiliate of the Company) holds for
the benefit of the Holders, on or before 10:00 a.m. New York City time on that
date, U.S. Legal Tender deposited and designated for and sufficient to pay the
installment in accordance with the Depository arrangements.
The Company shall pay interest on overdue principal and on overdue
installments of interest at the rate specified in the Debentures compounded
semi-annually, to the extent lawful.
Notwithstanding anything to the contrary contained in this
Indenture, the Company or the Trustee may, to the extent required by law, deduct
or withhold income or other similar taxes imposed by the United States of
America or any state or other political jurisdiction thereof from principal of,
premium, if any, or interest payments on the Debentures.
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, New York,
New York an office or agency where Debentures may be presented or surrendered
for payment, where Debentures may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Debentures and this Indenture may be served. The Company shall give prior
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the address of the Trustee set forth in Section 14.2 hereof. Such
office may be an office maintained directly or indirectly by the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Debentures may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
PROVIDED, HOWEVER, that no such designation or rescission shall in any
manner relieve the Company of its obligation to maintain an office or agency in
New York, New York for such purposes. The Company shall give prior
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written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency. The Company hereby
initially designates the Corporate Trust Office of the Trustee (or the office of
the agent of the Trustee) in New York, New York as such office of the Company.
SECTION 4.3 CORPORATE EXISTENCE.
Subject to Article V hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and the corporate or other existence of each of its
Subsidiaries in accordance with the respective organizational documents of each
of them; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any such existence if (a) the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and (b) the loss thereof is not disadvantageous in
any material respect to the Holders.
SECTION 4.4 PAYMENT OF TAXES AND OTHER CLAIMS.
The Company shall, and shall cause each of its Subsidiaries to,
comply with or contest in good faith all statutes and governmental regulations
and pay all taxes, assessments, governmental charges, claims for labor,
supplies, rent and any other obligations which, if unpaid, might become a lien,
charge or encumbrance against any of their properties, except liabilities being
contested in good faith and against which adequate reserves have been
established.
SECTION 4.5 MAINTENANCE OF PROPERTIES AND INSURANCE.
The Company shall maintain or shall cause to be maintained in good
working order and condition (ordinary wear and tear excepted) the properties
necessary to its and its Subsidiaries' operations and shall make or shall cause
to be made all needed repairs, replacements and renewals as are necessary to
conduct its business and the businesses of its Subsidiaries in accordance with
customary business practices. The Company and each of its Subsidiaries will
cause insurance, in favor of the Company or the Subsidiaries, to be maintained
with responsible insurers with respect to each of the Company's and the
Subsidiaries' properties and businesses against such casualties and
contingencies as shall be in accordance with general practices of businesses
engaged in similar activities in similar geographic areas.
SECTION 4.6 COMPLIANCE CERTIFICATE; NOTICE OF DEFAULT.
(a) The Company shall deliver to the Trustee within 45 days
after the end of each of its fiscal quarters an Officers' Certificate. The
Officers' Certificate for the third quarter shall comply with the annual
reporting requirements of Section 314(a)(4) of the TIA (including the
required signatory provisions) and stating that a review of its activities
and the activities of its Subsidiaries during the preceding fiscal quarter
has been made under the supervision of the signing Officers with a view to
determining whether the Company and its Subsidiaries have kept, observed,
performed and fulfilled its obligations under this Indenture and further
stating,
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as to each such Officer signing such certificate, whether or not to the best
knowledge of the signers thereof the Company or any Subsidiary of the Company
has failed to comply with any conditions or covenants in this Indenture, or if
the Company shall be in Default, the occurrence of any Default, and, if such
signor does know of such a failure to comply or Default, the certificate shall
describe such failure or Default with reasonable particularity.
(b) The Company shall, so long as any of the Debentures are
outstanding, deliver to the Trustee, immediately upon becoming aware of any
Default or Event of Default under this Indenture, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto. The Trustee shall not be
deemed to have knowledge of a Default or an Event of Default unless one of its
Trust Officers receives notice of the Default giving rise thereto from the
Company or any of the Holders.
SECTION 4.7 SEC REPORTS.
The Company shall deliver to the Trustee and each Holder, within
10 days after it files the same with the SEC, copies of all reports and
information (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe), if any, which the Company is required to
file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act provided
that in the case of annual reports, information may be incorporated by reference
and furnished to Holders at the time and in the manner in which such information
is required to be furnished to the Company's common stockholders. The Company
agrees to continue to comply with the filing and reporting requirements of the
SEC as long as any of the Debentures are outstanding; PROVIDED, that if the
Company is not subject to the filing and reporting requirements of the SEC at
any time, (a) the Company shall provide the Trustee and each Holder with the
reports and information (or copies of such portions of any of the foregoing as
the SEC may by rules and regulations prescribe) which are specified in Section
13 or 15(d) of the Exchange Act as if the Company were subject to such filing
and reporting requirements, and (b) the Company shall provide copies of such
reports and information to any prospective holder of the Debentures promptly
upon written request and payment of reasonable costs of duplication and
delivery. The Record Date to identify the Holders to whom such reports shall be
furnished shall be no longer than 60 days prior to the date on which such
reports are first mailed to the Holders of the Debentures.
SECTION 4.8 LIMITATIONS ON STATUS AS INVESTMENT COMPANY.
The Company shall not, and shall not permit any of its
Subsidiaries to, become an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended) or otherwise become subject to
regulation under such Investment Company Act.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other similar law which would prohibit or forgive the Company from
paying all or any portion of the principal of, premium, if any, or interest on
the Debentures as contemplated herein, wherever enacted, now or at any
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time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) the Company
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE V.
SUCCESSOR CORPORATION
SECTION 5.1 WHEN COMPANY MAY MERGE, ETC.
(a) The Company shall not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person, or, directly or indirectly, sell, lease, assign, transfer or convey or
otherwise dispose of all or substantially all of its assets (computed on a
consolidated basis), to another Person or group of Affiliated Persons, unless:
(i) either (A) the Company shall be the continuing Person,
or (B) the Person formed by such consolidation or into which the Company are
transferred as an entirety or substantially as an entirety (the Company or such
other Person being hereinafter referred to as the "Surviving Person") shall be a
corporation or partnership organized and validly existing under the laws of the
United States, any state therefor or the District of Columbia, and shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee on or prior to the consummation of such transaction, in form
satisfactory to the Trustee, all the obligations of the Company under the
Debentures and this Indenture;
(ii) immediately after giving effect to such transaction,
no Event of Default, and no event which, after notice or lapse of time or both,
would become an Event of Default, shall have happened and be continuing; and
(iii) the Company has delivered to the Trustee an
Officers' Certificate stating that such consolidation, merger, sale, lease,
assignment, transfer, conveyance or other disposition and such supplemental
indenture comply with this Article V and that all conditions precedent herein
provided relating to such transaction have been satisfied, including an Opinion
of Counsel with respect to the matters set forth in paragraph (a)(i) of this
Section 5.1.
(b) For purposes of clause (a), the sale, lease, assignment,
transfer, conveyance, or other disposition of all or substantially all of the
properties and assets of one or more wholly owned Subsidiaries of the Company,
which properties and assets, if held by the Company instead of such
Subsidiaries, would constitute all or substantially all of the properties and
assets of the Company on a consolidated basis shall be deemed to be the transfer
of all or substantially all of the properties and assets of the Company.
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SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED.
Upon consolidation or merger, or any transfer or disposition of
assets in accordance with Section 5.1 hereof, the Surviving Person formed by
such consolidation or into which the Company is merged or to which such transfer
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
Surviving Person had been named as the Company herein. When a Surviving Person
duly assumes all of the obligations of the Company pursuant hereto and pursuant
to the Debentures, the predecessor shall be released from such obligations.
ARTICLE VI.
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1 EVENTS OF DEFAULT.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) the failure by the Company to pay installments of interest
upon any Debenture as and when the same becomes due and payable, and the
continuance of such failure for 30 days;
(b) the failure by the Company to pay all or any part of the
principal of, or premium, if any, on the Debentures when and as the same becomes
due and payable at Stated Maturity, upon redemption, upon acceleration, or
otherwise, including payment of the Repurchase Price;
(c) the failure of the Company to comply with the provisions in
Article V hereof;
(d) the failure of the Company to provide notice of a Change of
Control and a Rating Downgrade as provided in Section 12.3 hereof;
(e) the failure by the Company to observe or perform any
covenant, agreement or warranty of the Company contained in the Debentures or
this Indenture (other than a default in the performance of any covenant,
agreement or warranty which is specifically dealt with elsewhere in this Section
6.1), and continuance of such failure for the period and after the notice
specified below;
(f) (i) a default or defaults under any bond, debenture, note
or other evidence of Indebtedness for money borrowed by the Company or any
Subsidiary, or under any
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mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness of money borrowed, whether
such Indebtedness now exists or shall hereafter be created, which shall have
resulted in Indebtedness in the outstanding principal amount of at least
$5,000,000 becoming or being declared due and payable prior to the date on which
it would otherwise have become due and payable, without such Indebtedness having
been discharged, or such acceleration having been rescinded or annulled or (ii)
a failure to pay Indebtedness in the outstanding principal amount of at least
$5,000,000 at its stated maturity after demand therefor; PROVIDED, that in
each case of (i) and (ii) above within a period of 10 days after such
acceleration or maturity there shall have been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Debentures then
outstanding a written notice specifying such default and (1) requiring the
Company to cause such accelerated Indebtedness to be discharged or such
acceleration to be rescinded or annulled or (2) requiring the Company to pay the
Indebtedness which the Company failed to pay at maturity after demand therefor
and in each case stating that such notice is a "Notice of Default" hereunder;
(g) the entry by a court or courts of competent jurisdiction of
a final judgment or final judgments for the payment of money against the Company
or any Subsidiary which remain undischarged for a period (during which execution
shall not be effectively stayed, the posting of any required bond not being
deemed an execution for purposes hereof) of 30 days after all rights to appeal
have been exhausted, provided that the aggregate amount of all such judgments
exceeds $5,000,000;
(h) the entry by a court having jurisdiction in the premises of
(a) a decree or order for relief in respect of the Company or any Subsidiary in
an involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (b) a decree or
order adjudging the Company or any Subsidiary as bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company or any Subsidiary
under any applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary or of any substantial part of their respective
property, or ordering the winding up or liquidation of affairs, and the
continuance of any such decree or order for relief or any such other decree or
order unstayed and in effect for a period of 90 consecutive days; or
(i) the commencement by the Company or any Subsidiary of a
voluntary case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated as bankrupt or insolvent, or the consent to the
entry of a decree or order for relief in respect of the Company or any
Subsidiary in an involuntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against it, or
the filing of a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent to the filing of such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Company or any Subsidiary or of any substantial part of their respective
property, or the making of an
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assignment for the benefit of creditors, or the admission in writing of
inability to pay debts generally as they become due, or the taking of corporate
action by the Company or any Subsidiary in furtherance of any such action.
A Default under clause (e) above (other than in the case of any
Default under Article XII of this Indenture) is not an Event of Default until
the Trustee notifies the Company, or the Holders of at least 25% in aggregate
principal amount of the Debentures then outstanding notify the Company and the
Trustee, of the Default, and the Company does not cure the Default within 60
days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default." Such
notice shall be given by the Trustee if so requested by the Holders of at least
25% in aggregate principal amount of the Debentures then outstanding.
In the case of any Event of Default pursuant to the provisions of
this Section 6.1 occurring by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company or any Subsidiary with the
intention of avoiding the period of time the Debentures are not optionally
redeemable or the payment of the premium which the Company would have to pay if
the Company then had elected to redeem the Debentures pursuant to Paragraph 5 of
the Debentures, an equivalent premium (or, in the case of an Event of Default
prior to the time optional redemptions are permitted, to the extent permitted by
law, a premium equal to the stated interest rate of the Debentures multiplied by
the quotient of (i) the number of full years left to maturity plus one, divided
by (ii) seven) shall also become and be immediately due and payable to the
extent permitted by law, anything in this Indenture or in the Debentures to the
contrary notwithstanding.
SECTION 6.2 ACCELERATION OF MATURITY DATE; RESCISSION AND
ANNULMENT.
Subject to Section 11.2(c), if an Event of Default (other than an
Event of Default specified in Section 6.1(h) or (i) relating to the Company or
its Subsidiaries) occurs and is continuing, then, and in every such case, unless
the principal of all of the Debentures shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Debentures then outstanding, by a notice in writing to
the Company (and to the Trustee if given by Holders) (an "Acceleration Notice"),
may declare all of the principal of the Debentures, determined as set forth
below, including in each case accrued interest thereon, to be due and payable
immediately. If an Event of Default specified in Section 6.1(h) or (i) relating
to the Company or its Subsidiaries occurs, all principal of, premium, if any,
and accrued and unpaid interest on the Debentures shall be immediately due and
payable on all outstanding Debentures without any declaration or other act on
the part of the Trustee or the Holders.
At any time after such a declaration or acceleration is made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of a
majority in aggregate principal amount of the Debentures then outstanding, by
written notice to the Company and the Trustee, may waive, rescind and annul on
behalf of all Holders, any such declaration of acceleration if:
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(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay:
(i) all overdue interest on all Debentures;
(ii) the principal of, and premium, if any, applicable to,
any Debentures which is then due other than by such declaration of acceleration,
and interest thereon at the rate borne by the Debentures;
(iii) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Debentures; and
(iv) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances then due
and unpaid of the Trustee, its agents and counsel; and
(b) all Events of Default (other than the nonpayment of the
principal of, premium, if any, and interest on Debentures which have become due
solely by such declaration of acceleration) have been cured or waived as
provided in Section 6.12 hereof, including, if applicable, any Event of Default
relating to the covenants contained in Article XII hereof. No such waiver shall
cure or waive any subsequent default or impair any right consequent thereon.
SECTION 6.3 COLLECTION OF INDEBTEDNESS AND SUITS FOR
ENFORCEMENT BY TRUSTEE.
Subject to Section 11.2 hereof, the Company covenants that if an
Event of Default in payment of principal of, premium, if any, or interest
specified in clause (a) or (b) of Section 6.1 hereof occurs and is continuing,
the Company shall, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Debentures, the whole amount then due and payable on such
Debentures for principal, premium, if any, and interest, and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal, and premium, if any, and on any overdue interest, at the rate borne
by the Debentures, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation to, and expenses, disbursements and advances of the
Trustee, its agents and counsel.
If the Company fails to pay such amounts within 10 days of such
demand, the Trustee, in its own name and as trustee of an express trust in favor
of the Holders, may institute a judicial proceeding for the collection of the
sums so due and unpaid, may prosecute such proceeding to judgment or final
decree and may enforce the same against the Company or any other obligor upon
the Debentures and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other obligor
upon the Debentures, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may
in its discretion proceed to protect and enforce its rights and the rights of
the Holders by such
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appropriate judicial proceedings as the Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
SECTION 6.4 TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Debentures or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Debentures
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company or any obligor for the payment of overdue principal, premium, if
any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise to take any and all actions under the TIA, including:
(a) to file and prove a claim for the whole amount of principal
of, premium, if any, and interest owing and unpaid in respect of the Debentures
and to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same;
and any debtor-in-possession custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7 hereof.
Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment, or composition affecting the
Debentures or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.5 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
DEBENTURES.
All rights of action and claims under this Indenture or the
Debentures may be prosecuted and enforced by the Trustee without the possession
of any of the Debentures or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the
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Trustee shall be brought in its own name as trustee of an express trust in favor
of the Holders, and any recovery of judgment shall, after provision of the
payment of reasonable compensation to, and reasonable expenses, disbursements
and advances of the Trustee, its agents and counsel, be for the ratable benefit
of the Holders of the Debentures in respect of which such judgment has been
recovered.
SECTION 6.6 PRIORITIES.
Subject to the provisions of Article XI hereof, any money
collected by the Trustee pursuant to this Article VI shall be applied in the
following order, at the date or dates fixed by the Trustee and, in case of the
distribution of such money on account of principal, premium, if any, or
interest, upon presentation of the Debentures and the notation thereon of the
payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to
Section 7.7 hereof;
SECOND: To the Holders in payment of the amounts then due and
unpaid for principal of, premium, if any, and interest on, the Debentures in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Debentures for principal of, premium, if any, and
interest, respectively; and
THIRD: To the Company, the remainder, if any.
SECTION 6.7 LIMITATION ON SUITS.
No Holder of any Debenture shall have any right to institute or to
order or direct the Trustee to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal
amount of the Debentures then outstanding shall have made written request to the
Trustee to institute proceedings in respect to such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities to
be incurred or reasonably probable to be incurred in compliance with such
request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding; and
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(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the Debentures then outstanding;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8 UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE
PRINCIPAL, PREMIUM AND INTEREST.
Notwithstanding any other provision of this Indenture, but subject
to Section 11.2 hereof, the Holder of any Debenture shall have the right, which
is absolute and unconditional, to receive payment of the principal of, premium,
if any, and interest on, such Debenture on the Maturity Dates of such payments
as expressed in such Debenture and to institute suit for the enforcement of any
such payment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION 6.9 RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Debentures in Section 2.7
hereof, no right or remedy herein conferred upon or reserved to the Trustee or
to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 6.10 DELAY OR OMISSION NOT WAIVER.
No delay or omission by the Trustee or by any Holder of any
Debenture to exercise any right or remedy arising upon any Event of Default
shall impair the exercise of any such right or remedy or constitute a waiver of
any such Event of Default. Every right and remedy given by this Article VI or
by law to the Trustee or to the Holders may be exercised from time to time, and
as often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
SECTION 6.11 CONTROL BY HOLDERS.
The Holder and Holders of a majority in aggregate principal amount
of the Debentures then outstanding shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred upon the Trustee, PROVIDED,
that
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(a) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 6.12 WAIVER OF PAST DEFAULT.
Subject to Sections 2.9 and 9.2 hereof, the Holder or Holders of
not less than a majority in aggregate principal amount of the Debentures then
outstanding may, on behalf of all Holders, prior to the declaration of the
maturity of the Debentures, waive any past default hereunder and its
consequences, except a default
(a) in the payment of the principal of, premium, if any, or
interest on, any Debenture as specified in clauses (a) and (b) of Section 6.1,
or
(b) in respect of a covenant or provision hereof which, under
Article IX, cannot be modified or amended without the consent of the Holder of
each outstanding Debenture affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair the exercise of any right arising therefrom.
SECTION 6.13 UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any
Debenture by his acceptance thereof shall be deemed to have agreed, that any
court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted to be taken by it as Trustee, the filing by
any party litigant in such suit of an undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 6.13 shall not apply to any suit
instituted by the Company, to any suit, instituted by the Trustee, to any suit
instituted by the Holder, or group of Holders, holding in the aggregate more
than 10% in aggregate principal amount of the Debentures then outstanding, or to
any suit instituted by any Holder for enforcement of the payment of principal
of, premium, if any, or interest on, any Debenture on or after the respective
Maturity Date expressed in such Debenture (including, in the case of redemption,
on or after the Redemption Date and in the case of repurchase, on or after the
Repurchase Date).
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SECTION 6.14 RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding has been instituted.
ARTICLE VII.
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
SECTION 7.1 DUTIES OF TRUSTEE.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of his or her own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(i) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no covenants or
obligations shall be implied in or read into this Indenture which are adverse to
the Trustee.
(ii) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of
paragraph (b) of this Section 7.1.
(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
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(iii) The Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a direction
receive by it pursuant to Section 6.2 or 6.11 hereof.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
of the Holders or in the exercise of any of its rights or powers if it shall
have reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(e) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree in writing with the Company.
Assets held in trust by the Trustee need not be segregated from other assets
except to the extent required by law.
(f) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b), (c), (d) and (e) of this
Section 7.1.
SECTION 7.2 RIGHTS OF TRUSTEE.
Subject to Section 7.1 hereof:
(a) The Trustee may rely and shall be fully protected in acting
or refraining from acting on any document believed by it to be genuine and to
have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may, in the case of any request or application by the
Company, require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Sections 14.4 and 14.5 hereof. The Trustee shall not be liable for
any action it takes or omits to take in good faith in reliance on written advice
from such counsel or such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it
reasonably may see fit.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders,
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pursuant to the provisions of this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
(g) Whenever by the terms of this Indenture, the Trustee shall
be required to transmit notices or reports to any or all Holders, the Trustee
shall be entitled to rely on the information provided by the Registrar as to the
names and addresses of the Holders as being correct. If the Registrar is other
than the Trustee, the Trustee shall not be responsible for the accuracy of such
information.
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Debentures and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11 hereof.
SECTION 7.4 TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Debentures; it shall not be accountable for the
Company's use of the proceeds from the Debentures; and it shall not be
responsible for (a) the use or application of any funds received by a Paying
Agent other than the Trustee or (b) any statement in the Debentures, other than
the Trustee's certificate of authentication.
The Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenants, conditions or agreements on the part
of the Company hereunder, except as specifically set forth herein.
SECTION 7.5 NOTICE OF DEFAULT.
If a Default or an Event of Default occurs and is continuing and
if it is known to the Trustee pursuant to Section 4.6(b) hereof, the Trustee
shall mail to each Debentureholder notice of the uncured Default or Event of
Default within 90 days after such Default or Event of Default occurs. Except in
the case of a Default or an Event of Default in payment of principal of, or
premium, if any, or interest on, any Debenture (including all payments due on
any Maturity Date), the Trustee may withhold the notice if and so long as the
board of directors, the executive committee or a trust committee of directors
and/or responsible officers of the Trustee in good faith determines that
withholding the notice is in the best interest of the Holders.
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each September 15 beginning with the
September 15 following the date of this Indenture, the Trustee shall, if
required, mail to each Debentureholder
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a brief report dated as of such September 15 that complies with TIA Section
313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to
Debentureholders shall be mailed to the Company and filed with the SEC and each
stock exchange, if any, on which the Debentures are listed.
SECTION 7.7 COMPENSATION AND INDEMNITY.
For so long as any of the Debentures shall remain outstanding,
the Company covenants and agrees to pay to the Trustee (all references in
this Section 7.7 to the Trustee shall be deemed to apply to the Trustee in
its capacities as Trustee, Paying Agent and Security Registrar) from time to
time, and the Trustee shall be entitled to, reasonable compensation for all
services rendered by it hereunder (which shall be agreed to from time to time
by the Company and the Trustee and which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust), and, except as herein otherwise expressly provided, the Company shall
pay or reimburse the Trustee upon its request for all reasonable expenses and
disbursements incurred or made by the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
reasonable expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense or disbursement as may arise
from its gross negligence or bad faith. The Company also covenants and agrees
to indemnify the Trustee for, and to hold it harmless against, any loss,
liability, claim, damage or expense incurred without gross negligence or bad
faith on the part of the Trustee or any of its employees, officers or agents,
arising out of or in connection with the acceptance or administration of the
trust. The Company need not pay for any settlement made without its written
consent which shall not be unreasonably withheld. The Company need not
reimburse any expense or indemnify against any loss or liability to the
extent incurred by the Trustee through its negligence, bad faith or willful
misconduct.
To secure the Company's payment obligations in this Section 7.7,
the Trustee shall have a lien prior to the Debentures on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal of, and premium, if any, or interest on particular
Debentures.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.1(h) or (i) hereof occurs, the expenses
and the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the
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Company's obligations pursuant to Article VIII of this Indenture and any
rejection or termination of this Indenture under any Bankruptcy Law.
SECTION 7.8 REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company in writing.
The Holder or Holders of a majority in aggregate principal amount of the
Debentures then outstanding may remove the Trustee by so notifying the Company
and the Trustee in writing and the Company shall appoint a successor trustee.
The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes charge
of the Trustee or its property;
(d) the Trustee becomes incapable of acting; or
(e) the Trustee fails to perform its duties, obligations and
responsibilities under this Indenture in any material respect.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in aggregate principal amount of the Debentures then
outstanding may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the Trustee provided for in Section 7.7
hereof have been paid, the retiring Trustee shall transfer all property held by
it as Trustee to the successor Trustee, subject to the lien provided in Section
7.7 hereof, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
Subject to Section 310(b) of the TIA, if a successor Trustee does
not take office within 60 days after the retiring Trustee resigns or is removed,
the retiring Trustee, the Company or the Holder or Holders of at least 10% in
aggregate principal amount of the Debentures then outstanding may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any
Debentureholder who has been a bona fide holder of Debentures for at least six
months may petition any court of competent jurisdiction for the removal of the
Trustee and the appointment of a successor Trustee.
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Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 hereof shall continue
for the benefit of the retiring Trustee.
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting surviving or transferred corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.
The Trustee shall at all times satisfy the requirements of
TIA Sections 310(a)(1), (a)(2), and (a)(5). The Trustee shall comply with
TIA Section 310(b).
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST
COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who shall be
subject to TIA Section 311(a) to the extent indicated therein.
SECTION 7.12 NO BONDS.
The Trustee shall not be required to give any bond or surety in
respect to the execution of its trusts, powers, rights and duties under this
Indenture or otherwise in respect of the premises.
SECTION 7.13 CONDITION OF ACTION.
Notwithstanding anything elsewhere in this Indenture to the
contrary, the Trustee shall have the right, but shall not be required, to
demand, in respect of the authentication of any Debentures, any showings,
certificates, opinions, or other information, or corporate action or evidence
thereof in addition to that by the terms hereof required, as a condition of such
action by the Trustee if reasonably deemed desirable by the Trustee for the
purpose of establishing the right to the authentication of any Debentures by the
Trustee.
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ARTICLE VIII.
SATISFACTION AND DISCHARGE
SECTION 8.1 SATISFACTION, DISCHARGE OF THE INDENTURE AND
DEFEASANCE OF THE DEBENTURES.
This Indenture shall cease to be of further effect (except as to
any surviving rights of conversion, registration of transfer or exchange of
Debentures herein expressly provided for), and the Trustee, on demand of and at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) either
(i) all Debentures theretofore authenticated and
delivered (other than (1) Debentures which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 2.7 hereof and (2)
Debentures for whose payment money has heretofore been deposited in trust or
segregated and held in trust by the Trustee and thereafter repaid to the Company
or discharged from such trust, as provided in Sections 8.4 and 8.5 hereof) have
been delivered to the Trustee for cancellation; or
(ii) all such Debentures not theretofore delivered to
the Trustee for cancellation
(1) have become due and payable, or
(2) will become due and payable at their Stated
Maturity within one year, or
(3) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of clauses (1), (2) or (3) above, has
deposited or caused to be deposited with the Trustee, as trust funds in an
irrevocable defeasance trust, U.S. Legal Tender or U.S. Government
Obligations sufficient to pay and discharge the entire indebtedness on such
Debentures not theretofore delivered to the Trustee for cancellation, for
principal, premium, if any, and interest up to but excluding the Redemption
Date, the Stated Maturity or the Repurchase Date, as the case may be;
PROVIDED, HOWEVER, that the Company shall be deemed to have made the deposit
required herein as to any Debentures in respect of which the Trustee has
mailed a check to the address of the Holder, as such address appears in the
Debenture Register;
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
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(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
SECTION 8.2 SURVIVAL OF CERTAIN OBLIGATIONS.
Notwithstanding the satisfaction and discharge of this Indenture
and of the Debentures referred to in Section 8.1 hereof, the respective
obligations of the Company and the Trustee under Sections 2.2, 2.3, 2.4, 2.5,
2.6, 2.7, 2.11, Article III, Sections 4.1, 4.2, 6.8, 7.7, 7.8, 8.4, 8.5, 8.6
hereof and this Section 8.2 shall survive until the Debentures are no longer
outstanding, and thereafter the obligations of the Company and the Trustee under
Sections 6.8, 7.7, 8.4, 8.5, 8.6 hereof and this Section 8.2 shall survive.
Nothing contained in this Article VIII shall abrogate any of the obligations or
duties of the Trustee under this Indenture.
SECTION 8.3 ACKNOWLEDGMENT OF DISCHARGE BY TRUSTEE.
After (a) the conditions of Section 8.1 hereof have been
satisfied, (b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company and (c) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel as provided for in Section 8.1
hereof, the Trustee upon request shall acknowledge in writing the discharge of
the Company's obligations under this Indenture except for those surviving
obligations specified in Section 8.2 hereof.
SECTION 8.4 APPLICATION OF TRUST ASSETS.
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it in the irrevocable defeasance trust established
pursuant to Section 8.1 hereof. The Trustee shall apply the deposited U.S.
Legal Tender or U.S. Government Obligations, together with earnings thereon,
through the Paying Agent (other than the Company or any Affiliate of the
Company), in accordance with this Indenture and the terms of the irrevocable
trust agreement, if any, to the payment of principal of, premium, if any, and
interest on the Debentures.
SECTION 8.5 REPAYMENT TO THE COMPANY.
Upon termination of the trust established pursuant to Section 8.1
hereof, the Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess U.S. Legal Tender or U.S. Government Obligations held by
them.
The Trustee and the Paying Agent shall pay to the Company upon
request, and, if applicable, in accordance with the irrevocable trust
established pursuant to Section 8.1 hereof, any U.S. Legal Tender or U.S.
Government Obligations held by them for the payment of principal of, premium, if
any, or interest on the Debentures that remain unclaimed for two years after the
date on which such payment shall have become due; PROVIDED, HOWEVER, that
the Trustee or such Paying Agent, before being required to make any such
repayment, may, at the
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expense of the Company, cause to be published once, in a newspaper customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
shall be repaid to the Company. After payment to the Company, Holders entitled
to such payment must look to the Company for such payment as general creditors
unless an applicable abandoned property law designates another Person.
SECTION 8.6 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Sections 8.4 hereof by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the
Debentures shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.1 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in
accordance with Section 8.4 hereof; PROVIDED, HOWEVER, that if the Company
has made any payment of principal of, premium, if any, or interest on any
Debentures because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Debentures to receive such
payment from the U.S. Legal Tender or U.S. Government Obligations held by the
Trustee or Paying Agent.
ARTICLE IX.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
HOLDERS.
Without the consent of any Holder, the Company, when authorized by
Board Resolutions, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(a) to cure any ambiguity, defect, or inconsistency, or to make
any other provisions with respect to matters or questions arising under this
Indenture which shall not be inconsistent with the provisions of this Indenture,
provided such action pursuant to this clause (a) shall not adversely affect the
interests of any Holder in any respect;
(b) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon the Company
or to make any other change that does not adversely affect the rights of any
Holder, PROVIDED, that the Company has delivered to the Trustee an Opinion of
Counsel stating that such change does not adversely affect the rights of any
Holder;
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(c) to provide for collateral for the Debentures for the
benefit of the Holders;
(d) to evidence the succession of any other Person to the
Company and the assumption by any such successor of the obligations of the
Company herein and in the Debentures in accordance with Article V; or
(e) to comply with the TIA or SEC requirements under the TIA.
SECTION 9.2 AMENDMENTS, SUPPLEMENTAL INDENTURES AND WAIVERS
WITH CONSENT OF HOLDERS.
Subject to Sections 2.9 and 6.8 hereof, with the consent of the
Holders of not less than a majority in aggregate principal amount of the
Debentures then outstanding, by written act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by Board Resolutions, and
the Trustee may amend or supplement this Indenture or the Debentures or enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or Debentures or of modifying in any manner the rights of the
Holders under this Indenture or the Debentures. Subject to Sections 2.9 and 6.8
hereof, the Holder or Holders of not less than a majority in aggregate principal
amount of the Debentures then outstanding may waive compliance by the Company
with any provision of this Indenture or the Debentures. Notwithstanding any of
the above, however, no such amendment, supplemental indenture or waiver shall,
without the consent of the Holder of each outstanding Debenture affected
thereby:
(a) reduce the percentage of principal amount of Debentures
whose Holders must consent to an amendment, supplement or waiver of any
provision of this Indenture or the Debentures;
(b) reduce the rate or extend the time for payment of interest
on any Debenture;
(c) reduce the principal amount of any Debenture, or reduce the
Repurchase Price or the Redemption Price;
(d) (i) change the Stated Maturity of any Debenture or (ii)
change the Repurchase Date of any Debenture;
(e) alter (i) the redemption provisions of Article III hereof
or paragraph 5 of the Debentures, (ii) the terms or provisions of Article XII
hereof in a manner adverse to any Holder or (iii) the conversion provisions of
Article XII hereof or paragraph 14 of the Debentures;
(f) make any changes in the provisions concerning waivers of
Defaults or Events of Default by Holders of the Debentures (except to increase
any required percentage or to provide that certain other provisions hereof
cannot be modified or waived without the consent of the Holders of each
outstanding Debenture affected thereby) or the rights of Holders to
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recover the principal of, premium, if any, interest on, or redemption payments
with respect to, any Debenture; or
(g) make the principal of, premium, if any, or the interest on,
any Debenture payable with anything or in any manner other than as provided for
in this Indenture (including changing the place of payment where, or the coin or
currency in which, any Debenture or any premium or the interest thereon is
payable) and the Debentures as in effect on the date hereof.
It shall not be necessary for the consent of the Holders under
this Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.2
becomes effective, the Company shall mail to all Holders a notice briefly
describing the amendment, supplement or waiver. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture.
After an amendment, supplement or waiver under this Section 9.2
or under Section 9.4 hereof becomes effective, it shall bind each Holder and
subsequent Holder of a Debenture.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
SECTION 9.3 COMPLIANCE WITH TIA
Every amendment, waiver or supplement of this Indenture or the
Debentures shall comply with the TIA as then in effect.
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS.
Any amendment, waiver, or supplement shall be effective upon
receipt by the Trustee of an Officers' Certificate and Opinion of Counsel
from the Company that such amendment or waiver has been authorized by the
Company and that the consent of the Holders of not less than a majority in
aggregate principal amount of the Debentures then outstanding has been
obtained, unless such consents specify that they shall become effective at a
later date, in which case such amendment or waiver shall become effective in
accordance with the terms of such consent, and upon execution of a supplemental
Indenture in the case of an amendment to this Indenture.
Until such time of effectiveness, a consent to it by a Holder
is a continuing consent by the Holder and every subsequent Holder of a
Debenture or portion of a Debenture that evidences the same debt as the
consenting Holder's Debenture, even if notation of the consent is not made on
any Debenture. However, any such Holder or subsequent Holder may revoke the
consent as to his Debenture or portion of his Debenture by written notice to
the Company or the Person designated by the Company as the Person to whom
consents should be sent if such revocation is received by the Company or such
Person before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the
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requisite principal amount of Debentures have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Debentureholder; PROVIDED, that any such waiver shall not
impair or affect the right of any Holder to receive payment of principal of,
premium, if any, and interest on a Debenture, on or after the respective dates
set for such amounts to become due and payable expressed in such Debenture, or
to bring suit for the enforcement of any such payment on or after such
respective dates.
SECTION 9.5 NOTATION ON OR EXCHANGE OF DEBENTURES.
If an amendment, supplement or waiver changes the terms of a
Debenture, the Company may require the Holder of the Debenture to deliver it
to the Trustee to put an appropriate notation on the Debenture. The Trustee
shall, if so directed by the Company, place an appropriate notation on the
Debenture about the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Debenture shall issue and the Trustee shall authenticate a
new Debenture that reflects the changed terms. Any failure to make the
appropriate notation or to issue a new Debenture shall not affect the
validity of such amendment, supplement or waiver.
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; PROVIDED, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee at the expense of the Company shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of any amendment, supplement or waiver authorized
pursuant to this Article IX is authorized or permitted by this Indenture.
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ARTICLE X.
MEETINGS OF DEBENTURE HOLDERS
SECTION 10.1 PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Debentureholders may be called at any time and from
time to time pursuant to the provisions of this Article X for any of the
following purposes:
(a) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to waiver or to consent to the waiving of
any Default or Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by Debentureholders pursuant to any of the
provisions of Article VI hereof;
(b) to remove the Trustee or appoint a successor Trustee
pursuant to the provisions of Article VII hereof;
(c) to consent to an amendment, supplement or waiver pursuant
to the provisions of Section 9.2 hereof; or
(d) to take any other action (i) authorized to be taken by or
on behalf of the Holder or Holders of any specified aggregate principal amount
of the Debentures under any other provision of this Indenture, or authorized or
permitted by law or (ii) which the Trustee deems necessary or appropriate in
connection with the administration of this Indenture.
SECTION 10.2 MANNER OF CALLING MEETINGS.
The Trustee may at any time call a meeting of Debentureholders to
take any action specified in Section 10.1 hereof, to be held at such time and at
such place in The City of New York, New York or elsewhere as the Trustee shall
determine. Notice of every meeting of Debentureholders, setting forth the time
and place of such meeting and in general terms the action proposed to be taken
at such meeting, shall be mailed by the Trustee, first-class postage prepaid, to
the Company and to the Holders at their last addresses as they shall appear on
the registration books of the Registrar, not less than 10 nor more than 60 days
prior to the date fixed for a meeting.
Any meeting of Debentureholders shall be valid without notice if
the Holders of all Debentures then outstanding are present in Person or by
proxy, or if notice is waived before or after the meeting by the Holders of all
Debentures outstanding, and if the Company and the Trustee are either present by
duly authorized representatives or have, before or after the meeting, waived
notice.
SECTION 10.3 CALL OF MEETINGS BY COMPANY OR HOLDERS.
In case at any time the Company, pursuant to a Board Resolution,
or the Holders of not less than 10% in aggregate principal amount of the
Debentures then outstanding,
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shall have requested the Trustee to call a meeting of Debentureholders to take
any action specified in Section 10.1 hereof, by written request setting forth in
reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within 20 days after
receipt of such request, then the Company or the Holders of Debentures in the
amount above specified may determine the time and place in The City of New York,
New York or elsewhere for such meeting and may call such meeting for the purpose
of taking such action, by mailing or causing to be mailed notice thereof as
provided in Section 10.2 hereof, or by causing notice thereof to be published at
least once in each of two successive calendar weeks (on any Business Day during
such week) in a newspaper or newspapers printed in the English language,
customarily published at least five days a week of a general circulation in The
City of New York, State of New York, the first such publication to be not less
than 10 nor more than 60 days prior to the date fixed for the meeting.
SECTION 10.4 WHO MAY ATTEND AND VOTE AT MEETINGS.
To be entitled to vote at any meeting of Debentureholders, a
Person shall (a) be a registered Holder of one or more Debentures or (b) be a
Person appointed by an instrument in writing as proxy for the registered Holder
or Holders of Debentures. The only Persons who shall be entitled to be present
or to speak at any meeting of Debentureholders shall be the Persons entitled to
vote at such meeting and their counsel and any representative of the Trustee and
its counsel and any representative of the Company and its counsel.
SECTION 10.5 REGULATIONS MAY BE MADE BY TRUSTEE; CONDUCT OF THE
MEETING; VOTING RIGHTS, ADJOURNMENT.
Notwithstanding any other provision of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any action by
or any meeting of Debentureholders, in regard to proof of the holding of
Debentures and of the appointment of proxies, and in regard to the appointment
and duties of inspectors of votes, and submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate. Such
regulations may fix a record date and time for determining the Holders of record
of Debentures entitled to vote at such meeting, in which case those and only
those Persons who are Holders of Debentures at the record date and time so
fixed, or their proxies, shall be entitled to vote at such meeting whether or
not they shall be such Holders at the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a chairman
and secretary of the meeting, unless the meeting shall have been called by the
Company, in which case the Company shall in like manner appoint a chairman and
secretary. In the case of meetings called by Debentureholders as provided by
Section 10.3 hereof, the Debentureholders calling the meeting shall by an
instrument in writing appoint a temporary chairman and temporary secretary with
a permanent chairman and a permanent secretary of the meeting to be elected by
vote of the Holders of a majority in aggregate principal amount of the
Debentures then outstanding represented at the meeting and entitled to vote.
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At any meeting each Debentureholder or proxy shall be entitled to
one vote for each $1,000 principal amount of Debentures held or represented by
him; PROVIDED, HOWEVER, that no vote shall be cast or counted at any meeting
in respect of any Debentures challenged as not outstanding and ruled by the
chairman of the meeting to be not then outstanding. The chairman of the meeting
shall have no right to vote other than by virtue of Debentures held by him or
instruments in writing as aforesaid duly designating him as the proxy to vote on
behalf of other Debentureholders. Any meeting of holders duly called pursuant
to the provisions of Section 10.2 or Section 10.3 hereof may be adjourned from
time to time by vote of the Holder or Holders of a majority in aggregate
principal amount of the Debentures then outstanding represented at the meeting
and entitled to vote, and the meeting may be held as so adjourned without
further notice.
SECTION 10.6 VOTING AT THE MEETING AND RECORD TO BE KEPT.
The vote upon any resolution submitted to any meeting of
Debentureholders shall be by written ballots on which shall be subscribed the
signatures of the Holders of Debentures or of their representatives by proxy and
the principal amount of the Debentures voted by the ballot. The chairman of the
meeting shall appoint two inspectors of votes, who shall count all votes cast at
the meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Debentureholders shall be prepared by the secretary of the meeting
and there shall be attached to such record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more Persons having knowledge of the facts, setting forth a copy of the notice
of the meeting and showing that such notice was mailed as provided in Section
10.2 hereof or published as provided in Section 10.3 hereof. The record shall
be signed and verified by the affidavits of the chairman and the secretary of
the meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
SECTION 10.7 EXERCISE OF RIGHTS OF TRUSTEE OR DEBENTUREHOLDERS
MAY NOT BE HINDERED OR DELAYED BY CALL OF MEETING.
Nothing contained in this Article X shall be deemed or construed
to authorize or permit, by reason of any call of a meeting of Debentureholders
or any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Debentureholders under any of the provisions
of this Indenture or of the Debentures.
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ARTICLE XI.
SUBORDINATION
SECTION 11.1 DEBENTURES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company, for itself and its successors, and each Holder, by
his acceptance of Debentures, agrees that (a) the payment of the principal of,
premium, if any, and interest on the Debentures and (b) any payment on account
of the acquisition or redemption of the Debentures by the Company including,
without limitation, pursuant to Section 12.1 hereof, is subordinated, to the
extent and in the manner provided in this Article XI, to the prior payment in
full of all Senior Indebtedness of the Company and that these subordination
provisions are for the benefit of the holders of Senior Indebtedness.
This Article XI shall constitute a continuing offer to all Persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and any one
or more of them may enforce such provisions.
SECTION 11.2 NO PAYMENT ON OR ACCELERATION OF DEBENTURES UPON
SENIOR INDEBTEDNESS DEFAULT.
No payment shall be made by the Company on account of principal
of, premium, if any, or interest on the Debentures or on account of the
redemption, repurchase, acceleration or other acquisition of Debentures of the
Company, if there shall have occurred and be continuing any default or event
of default with respect to any Senior Indebtedness (a "Senior Indebtedness
Default") until such Senior Indebtedness Default shall have been cured or
waived or shall have ceased to exist, or if such payment shall cause a Senior
Indebtedness Default.
In furtherance of the provisions of Section 11.1 hereof, in the
event that, notwithstanding the foregoing provisions of this Section 11.2, any
payment or distribution of assets on account of principal of, premium, if any,
or interest on the Debentures or to defease or acquire any of the Debentures
(including repurchases of Debentures pursuant to Article XII hereof) for cash,
property or securities, on or account of the redemption provisions of the
Debentures shall be made by the Company and received by the Trustee, by any
Holder or by an Paying Agent (or, if the Company is acting as its own Paying
Agent, money for any such payment shall be segregated and held in trust), at a
time when such payment or distribution was prohibited by the provisions of this
Section 11.2, then, unless such payment or distribution is no longer prohibited
by this Section 11.2, such payment or distribution (subject to the provisions of
Sections 11.6 and 11.7 hereof) shall be received and held in trust by the
Trustee or such Holder or Paying Agent for the benefit of the holders of Senior
Indebtedness, and shall be paid or delivered by the Trustee or such Holders or
such Paying Agent, as the case may be, to the holders of Senior Indebtedness
remaining unpaid and unprovided for or their representative or representatives,
or to the trustee or trustees under any indenture pursuant to which any
instruments evidencing any of such Senior Indebtedness held or represented by
each, to the extent necessary to enable payment in full (except as such payment
otherwise shall have been
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provided for), of all Senior Indebtedness remaining unpaid, after giving effect
to all concurrent payments and distributions and all provisions therefor, to or
for the holders of such Senior Indebtedness, but only to the extent that as to
any holder of such Senior Indebtedness, as promptly as practical following
notice from the Trustee to the holders of such Senior Indebtedness that such
prohibited payment has been received by the Trustee, Holder(s) or Paying Agent
(or a representative thereof) notifies the Trustee of the amounts then due and
owing on such Senior Indebtedness, if any, held by such holder and only the
amounts specified in such notices to the Trustee shall be paid to the holders of
such Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of any
default or event of default, and any cure or waiver thereof, or any acceleration
under any Senior Indebtedness or under any agreement pursuant to which Senior
Indebtedness may have been issued.
SECTION 11.3 DEBENTURES SUBORDINATED TO PRIOR PAYMENT OF ALL
SENIOR INDEBTEDNESS ON ACCELERATION OF PRINCIPAL OF DEBENTURES OR ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION.
No enforcement action shall be taken against the Company or any
of its assets to collect the Debentures until the expiration of one hundred
eighty (180) days after the date on which the Trustee gives written notice to
the holders of all Senior Indebtedness of an Event of Default hereunder, and
during such one hundred eighty (180) day period, each holder of any Senior
Indebtedness shall have the right (but not the obligation) to cure, or to
cause the Company to cure, such Event of Default. Any and all liens and
security interests now or hereafter held on account of the Debentures shall
be subordinate and subject to any and all liens and security interests now or
hereafter held on account of any Senior Indebtedness.
Upon any acceleration of the principal of the Debentures or any
distribution of assets of the Company upon any dissolution, winding up, total or
partial liquidation or reorganization of the Company, whether voluntary or
involuntary, in bankruptcy, insolvency, receivership or similar proceeding or
upon assignment for the benefit of creditors:
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payments in full (or to have such payment duly provided for)
of the principal of, premium, if any, and interest on and all other amounts
payable in respect thereof, before the Holders are entitled to receive any
payment on account of the principal of, premium, if any, and interest on the
Debentures;
(b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which the Holders
or the Trustee on behalf of the Holders would be entitled except for the
provisions of this Article XI, shall be paid by the liquidating trustee or agent
or other Person making such a payment or distribution, directly to the holders
of Senior Indebtedness or their representative, ratably according to the
respective amounts of Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full (or have such payment duly provided
for) of all such Senior Indebtedness remaining unpaid after giving effect to all
concurrent payments and distributions and all provisions therefore to or for the
holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, shall be received by the Trustee or the Holders or
any Paying Agent (or, if the Company is acting as its own Paying Agency, money
for any such payment or distribution shall be segregated or held in trust) on
account of principal of, premium, if any, or interest on the Debentures, as the
case may be, before all Senior Indebtedness is paid in full (or provision made
therefor), such payment or distribution (subject to the provisions of Sections
11.6 and
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11.7 hereof) shall be received and held in trust by the Trustee or such Holder
or Paying Agent for the benefit of the holders of such Senior Indebtedness, or
their respective representative, ratably according to the respective amounts of
Senior Indebtedness held or represented by each, to the extent necessary to make
payment in full (except as such payment otherwise shall have been provided for)
of all such Senior Indebtedness remaining unpaid after giving effect to all
concurrent payments and distributions and all provisions therefor to or for the
holders of such Senior Indebtedness, but only to the extent that as to any
holder of such Senior Indebtedness, as promptly as practical following notice
from the Trustee to the holders of such Senior Indebtedness that such prohibited
payment has been received by the Trustee, Holder(s) or Paying Agent (or has been
segregated as provided above), such holder (or a representative therefor)
notifies the Trustee of the amounts then due and owing on such Senior
Indebtedness, if any, held by such holder and only the amounts specified in such
notices to the Trustee shall be paid to the holders of such Senior Indebtedness.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Company or
assignment for the benefit of creditors by the Company.
SECTION 11.4 DEBENTUREHOLDERS TO BE SUBROGATED TO RIGHTS OF
HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full of all Senior Indebtedness (or
provision made for its payment), the Holders of Debentures shall be subrogated
to the rights of the holders of such Senior Indebtedness to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness
until all amounts owing on the Debentures shall be paid in full, and for the
purpose of such subrogation no such payments or distribution to the holders of
such Senior Indebtedness by or on behalf of the Company, or by or on behalf of
the Holders by virtue of this Article XI, which otherwise would have been made
to the Holders shall, as between the Company and the Holders be deemed to be
payment by the Company, to or on account of such Senior Indebtedness, it being
understood that the provisions of this Article XI are and are intended solely
for the purpose of defining the relative rights of the Holders, on the one hand,
and the holders of such Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article XI shall
have been applied, pursuant to the provisions of this Article XI, to the payment
of amounts payable under Senior Indebtedness, then the Holders shall be entitled
to receive from the holders of such Senior Indebtedness any payments or
distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable under or in respect of such Senior
Indebtedness in full.
SECTION 11.5 OBLIGATIONS OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article XI or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as between the
Company and the Holders, the obligation of the Company, which is absolute and
unconditional, to pay to the Holders the
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principal of, premium, if any, and interest on the Debentures as and when the
same shall become due and payable in accordance with their terms, or is intended
to or shall affect the relative rights of the Holders and creditors of the
Company other than the holders of the Senior Indebtedness, nor shall anything
herein or in the Debentures, prevent the Trustee or any Holder from exercising
all remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article XI, of the holders
of Senior Indebtedness in respect of cash, property or securities of the Company
received upon the exercise of any such remedy. Notwithstanding anything to the
contrary in this Article XI or elsewhere in this Indenture or in the Debentures
upon any distribution of assets of the Company referred to in this Article XI,
the Trustee, subject to the provisions of Sections 7.1 and 7.2 hereof, and the
Holders shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other Person making any distribution to the Trustee or to
the Holders for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article XI. Nothing in this Section 11.5 shall apply to the claims of,
or payments to, the Trustee under or pursuant to Section 7.7 hereof.
SECTION 11.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED
IN ABSENCE OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee unless and until a Trust Officer of the Trustee or any Paying Agent
shall have received, no later than three Business Days prior to such payment,
written notice thereof from the Company or from one or more holders of Senior
Indebtedness or from any representative therefor and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Section 7.1
and 7.2 hereof, shall be entitled in all respects conclusively to assume that no
such fact exists, and subject to the provisions contained in the first
paragraph of Section 11.3 hereof.
SECTION 11.7 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT.
U.S. Legal Tender or U.S. Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Section 8.1 or 8.2
hereof shall be for the sole benefit of Debentureholders and, to the extent (i)
the making of such deposit by the Company shall not have been in contravention
of any term or provision of any agreement creating or evidencing Senior
Indebtedness and (ii) allocated for the payment of Debentures, shall not be
subject to the subordination provisions of this Article XI. Otherwise, any
deposit of assets by the Company with the Trustee or any Paying Agent (whether
or not in trust) for the payment of principal of, premium, if any, or interest
on any Debentures shall be subject to the provisions of Sections 11.1, 11.2,
11.3 and 11.4 hereof; PROVIDED, that, if prior to the third Business Day
preceding the date on which by the terms of this Indenture any such assets may
become distributable for any purpose (including without limitation, the payment
of principal of, premium, if any, or interest on any Debenture) the Trustee or
such Paying Agent shall not have received with respect to such assets the
written notice provided for in Section 11.6 hereof, then
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the Trustee or such Paying Agent shall have full power and authority to receive
such assets and to apply the same to the purpose for which they were received,
and shall not be affected by any notice to the contrary which may be received by
it on or after such date.
SECTION 11.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior
Indebtedness to enforce subordination provisions contained in this Article XI
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Company or by any act or failure to act, in good faith,
by any such holder, or by any noncompliance by the Company with the terms of
this Indenture, regardless of any knowledge thereof with which any such holder
may have or be otherwise charged. The holders of Senior Indebtedness may
extend, renew, modify or amend the terms of the Senior Indebtedness or any
security therefor and release, sell or exchange such security and otherwise deal
freely with the Company all without affecting the liabilities and obligations of
the parties to this Indenture or the Holders of the Debentures or the
subordination provisions of this Article XI or the rights of holders of Senior
Indebtedness to enforce such provisions.
SECTION 11.9 DEBENTUREHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF DEBENTURES.
Each Holder of the Debentures by his acceptance thereof authorizes
and expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate under this Indenture to effectuate the subordination
provisions contained in this Article XI and to protect the rights of the
Holders, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of assets and liabilities of the Company) tending towards liquidation
of the business and assets of the Company, the immediate filing of a claim for
the unpaid balance of his Debentures in the form required in said proceedings
and causing said claim to be approved. If the Trustee does not file a proper
claim or proof of debt in the form required in such proceeding prior to 30 days
before the expiration of the time to file such claim or claims, then the holders
of the Senior Indebtedness or their representative are or is hereby authorized
to have the right to file and are or is hereby authorized to file an appropriate
claim for and on behalf of the Holders of said Debentures. Nothing herein
contained shall be deemed to authorize the Trustee or the holders of Senior
Indebtedness or their representative to authorize or consent to or accept or
adopt on behalf of any Debentureholder any plan of reorganization, arrangement,
adjustment or composition affecting the Debentures or the rights of any Holder
thereof, or to authorize the Trustee or the holders of Senior Indebtedness or
their representative to vote in respect of the claim of any Debentureholder in
any such proceeding, and the authority granted herein to holders of Senior
Indebtedness shall not impose any duty or other obligation on such holders to
take any action or refrain from any action with respect to any such plan or
proceeding.
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SECTION 11.10 RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all of the rights set forth in
this Article XI in respect of any Senior Indebtedness at any time held by it to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as such
holder.
SECTION 11.11 ARTICLE XI NOT TO PREVENT EVENTS OF DEFAULT.
Subject to the provisions contained in the first paragraph of
Section 11.3 hereof, the failure to make a payment on account of principal
of, premium, if any, or interest on the Debentures by reason of any provision
of this Article XI shall not be construed as preventing the occurrence of a
Default or an Event of Default under Section 6.1 hereof or in any way prevent
the Holders from exercising any right hereunder other than the rights to
receive payment on the Debentures and to accelerate the maturity thereof.
SECTION 11.12 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF SENIOR
INDEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and shall not be liable to any such holders
(other than for its willful misconduct or negligence) if it shall in good faith
mistakenly pay over or distribute to the Holders of Debentures or the Company or
any other Person, cash, property or securities to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article XI or otherwise.
Nothing in this Section 11.12 shall affect the obligation of the Holders or the
Company or any other Person to hold such payment for the benefit of, and to pay
such payment over to, the holders of Senior Indebtedness or their
representative.
ARTICLE XII.
RIGHT TO REQUIRE REPURCHASE
SECTION 12.1 REPURCHASE OF DEBENTURES AT OPTION OF THE HOLDER
UPON CHANGE OF CONTROL AND RATING DOWNGRADE.
In the event that a Change of Control and a Rating Downgrade
occur, each Holder of Debentures shall have the right, at such Holder's
option, subject to the terms and conditions set forth herein, to require the
Company to repurchase all or any part of such Holder's Debentures (provided
that the principal amount of such Debentures at maturity must be $1,000 or an
integral multiple thereof) on a date that is no later than 45 calendar days
after the date the Company gives notice of such Change of Control and a
Rating Downgrade (the "Repurchase Date"), at a cash purchase price (the
"Repurchase Price") equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to but excluding the Repurchase Date.
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SECTION 12.2 REPURCHASE OPTION UPON DEATH OF HOLDER.
(a) Upon the death of any Holder of Debentures, and upon the
further receipt by the Company or the Trustee of a written request for
repayment and satisfaction of the conditions set forth in subsection (b)
below, the Company shall be required to pay, in accordance with the terms
of this Article, the Repurchase Price (excluding any premium) of, and
(except if the repayment date described below shall be an Interest
Payment Date) any accrued interest on all or such portion (which portion
shall be an integral multiple of $1,000) of the Debenture or Debentures
held by the deceased Holder at the date of his death as requested,
PROVIDED that the Company shall not be required to make repayment
payments aggregating more than $100,000 in principal amount (plus accrued
interest) in any calendar year on a Debenture or Debentures held by any
one deceased Holder or aggregating more than $500,000 in principal amount
(plus accrued interest) during any calendar year held by any number of
deceased Holders (the "Maximum Annual Repayment Amount"). Subject to
subsection (b) below, repayment of such Debentures shall be made in the
order in which requests therefor are received (subject to the Maximum
Annual Repayment Amount) within 60 days following receipt by the Company
or the Trustee of the following:
(1) a written request for repayment of the Debenture or
Debentures signed by a duly authorized representative of the Holder,
which request shall set forth the name of the deceased Holder, the date
of death of the deceased Holder, and the principal amount of the
Debenture or Debentures to be repaid; and
(2) the certificates representing the Debenture or Debentures
to be repaid; and
(3) evidence satisfactory to the Company and the Trustee of the
death of such deceased Holder and the authority of the representative to
such extent as may be required by the Trustee.
Debentures not repaid in any calendar year because of the Maximum Annual
Repayment Amount may be held or the unpaid portion reissued by the Trustee at
its option upon notification to the representative of the deceased Holder
and repaid in subsequent years in the order in which such Debentures are
received.
(b) A Debenture or Debentures held by the deceased Holder shall
not be entitled to repayment pursuant to this Section 12.2 unless all of
the following conditions are met:
(1) the Debentures to be repaid shall have been
registered on the register maintained by the Registrar in the name
of the deceased Holder since the Issue Date of such Debenture or
for a period of at least six months prior to the date of the
deceased Holder's death, whichever is less; and
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(2) the Company or the Trustee shall have received a
written request for repayment within one year after the date of
the deceased Holder's death or, in the case of requests for a
subsequent repayment of a Debenture or Debentures held by such
deceased Holder, within one year after any such preceding request;
and
(3) the Company shall not, after giving effect to such
repayment, have made repayment payments aggregating more than the
Maximum Annual Repayment Amount within the then current calendar
year; and
(4) the Company shall not be subject to any law,
regulation, agreement or administrative directive preventing such
repayment.
(c) Authorized representatives of a Holder shall include the
following: executors, administrators or other legal representatives of
an estate; trustees of a trust; joint owners of Debentures owned in joint
tenancy or tenancy by the entirety; custodians; conservators; guardians;
attorneys-in-fact; and other Persons generally recognized as having legal
authority to act on behalf of another.
(d) For purposes of this Section 12.2, the death of a Person
owning a Debenture or Debentures in joint tenancy or tenancy by the
entirety with another or others shall be deemed the death of the Holder
of the Debenture or Debentures, and the entire principal amount of the
Debenture or Debentures so held shall be subject to repayment, together
with accrued interest thereon to the repayment date, in accordance with
the provisions of this Article. For purposes of this Section 12.2, the
death of a Person owning a Debenture or Debentures by tenancy in common
shall be deemed the death of a Holder of Debenture or Debentures only
with respect to the deceased Holder's interest in the Debenture or
Debentures so held by tenancy in common; except that in the event a
Debenture or Debentures are held by husband and wife as tenants in
common, the death of either shall be deemed the death of the Holder of
the Debenture or Debentures and the entire principal amount of the
Debenture or Debentures so held shall be subject to repayment in
accordance with the provisions of this Article. The Company shall
give the Trustee a Company Order specifying the repayment amount in
the event of the death of a Person owning a Debenture or Debentures
by tenancy in common and the exercise of the repurchase rights provided
in this Section 12.2. A Person who, during such Person's lifetime, was
entitled to substantially all of the beneficial interests of ownership
of Debentures will, upon such Person's death, be deemed the Holder
thereof for purposes of this Section 12.2, regardless of the registered
holder, if such beneficial interest can be established to the
satisfaction of the Trustee. Such beneficial interest will be deemed to
exist in typical cases of nominee ownership, ownership under the Uniform
Transfers (or Gifts) to Minors Act, community property or other joint
ownership arrangements between a husband and wife, and trust arrangements
where one Person has substantially all of the beneficial ownership
interests in Debentures during such Person's lifetime. Beneficial
interests shall include the power to sell, transfer or otherwise
dispose of Debentures and the right to receive the proceeds therefrom,
as well as the principal thereof, interest thereon and any premium,
with respect thereto.
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(e) If Debentures are issuable in global form (i.e., in the
name of the nominee of a Depository for purposes of book-entry transfer),
the Company or the Trustee may adopt appropriate procedures to allow
beneficial owners of Debentures to obtain payment in accordance with the
requirements of the Depository in the event of a request for repayment of
the Debentures pursuant to this Section.
SECTION 12.3 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHT,
ETC.
(a) Within 30 calendar days after the occurrence of a Change
of Control and a Rating Downgrade, the Company shall make an irrevocable
unconditional offer (a "Repurchase Offer") to the Holders to purchase for
U.S. Legal Tender all the Debentures pursuant to the offer described in
clause (b) of this Section 12.3 at the Repurchase Price plus accrued and
unpaid interest, if any, to but excluding the Repurchase Date. Within five
Business Days after each date upon which the Company receives notice or
otherwise obtains knowledge of the occurrence of a Change of Control
requiring the Company to make a Repurchase Offer pursuant to Section 12.1
hereof, the Company shall so notify the Trustee.
(b) Notice of a Repurchase Offer shall be sent, not more than
30 calendar days after the occurrence of the Change of Control and a Rating
Downgrade by first class mail, by the Company to each Holder at its registered
address, with a copy to the Trustee. The notice to the Holders shall contain
all instructions and materials required by applicable law and shall contain or
make available to Holders other information material to the decision of Holders
generally to tender Debentures pursuant to the Repurchase Offer. No failure of
the Company to give such notice or defect therein shall limit any Holder's right
to exercise his repurchase right or affect the validity of the proceedings for
the repurchase of the Debentures. The notice, which shall govern the terms of
the Repurchase Offer, shall state that:
(i) the Repurchase Offer is being made pursuant to such
notice and this Article XII and that all Debentures, or portions thereof,
properly tendered pursuant to the Repurchase Offer prior to the fifth Business
Day prior to the Repurchase Date (the "Final Repurchase Put Date") will be
accepted for payment;
(ii) the Repurchase Price, the Repurchase Date and the
Final Repurchase Put Date;
(iii) that any Debenture, or portion thereof, not tendered
or accepted for payment will continue to accrue interest, if interest is then
accruing;
(iv) that, unless the Company defaults in depositing U.S.
Legal Tender with the Paying Agent in accordance with the last paragraph of
clause (c) of this Section 12.3 or payment is otherwise prevented, any
Debentures, or portion thereof, accepted for payment pursuant to the Repurchase
Offer shall cease to accrue interest after the Repurchase Date;
(v) that Holders electing to have a Debenture, or portion
thereof, purchased purchase to a Repurchase Offer will be required to surrender
the Debenture, with the
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form entitled "Option of Holder to Elect Purchase" on the reverse of the
Debenture completed, to the Paying Agent (which may not for purposes of this
Article XII, notwithstanding anything in this Indenture to the contrary, be the
Company or any Affiliate of the Company) at the address specified in the notice
prior to the close of business on the Final Repurchase Put Date;
(vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, prior to the close of business on the
Final Repurchase Put Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Debentures the
Holder is withdrawing and a statement containing a facsimile signature that such
Holder is withdrawing his election to have such principal amount of Debentures
purchased;
(vii) that Holders whose Debentures were purchased only in
part will be issued new Debentures equal in principal amount to the unpurchased
portion of the Debentures surrendered; and
(viii) a brief description, to the extent known to the
Company, of the events resulting in such Change of Control and a statement as to
the rating assigned to the Debentures after the Rating Downgrade.
(c) Any such Repurchase Offer shall comply with all
applicable provisions of federal and state laws, including those regulating
tender offers, if applicable, and any provisions of this Indenture which
conflict with such laws shall be deemed to be superseded by the provisions of
such laws. On or before the Repurchase Date, the Company shall (a) accept
for payment Debentures or portions thereof properly tendered pursuant to the
Repurchase Offer prior to the close of business on the Final Repurchase Put
Date, (b) deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Repurchase Price plus accrued and unpaid interest, if any, to the
Repurchase Date of all Debentures so tendered and (c) deliver to the Trustee
Debentures so accepted together with an Officers' Certificate listing the
Debentures or portions thereof being purchased by the Company as well as
those Debentures to be authenticated as indicated hereunder. The Paying
Agent shall promptly mail to the Holders of Debentures so accepted payment in
an amount equal to the Repurchase Price plus accrued and unpaid interest, if
any, to the Repurchase Date, and the Trustee shall promptly authenticate and
mail or deliver to such Holders a new Debenture equal in principal amount to
any unpurchased portion of the Debenture surrendered. Any Debentures not so
accepted shall be promptly mailed or delivered by the Company to the Holder
thereof and the principal shall, until paid, bear interest to the extent
permitted by applicable law from the Repurchase Date at the rate borne by the
Debenture and each Debenture shall remain convertible into Common Stock as
outlined in Article XIII hereof until the principal of such Debenture shall
have been paid or duly provided for. The Company shall publicly announce the
results of the Repurchase Offer on or as soon as practicable after the
Repurchase Date.
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ARTICLE XIII.
CONVERSION OF DEBENTURES
SECTION 13.1 RIGHT OF CONVERSION; CONVERSION PRICE.
Subject to the provision of Section 14 of the Debentures and
Section 13.13 hereof, the Holder of any Debenture or Debentures shall have the
right, at his option, at any time before the close of business on
February __, 2006 (except that, with respect to any Debenture or portion of
a Debenture which shall be called for redemption, such right shall terminate at
the close of business on the fifth calendar day prior to the date fixed for
redemption of such Debenture or portion of a Debenture unless the Company shall
default in payment due upon redemption thereof), to convert, subject to the
terms and provisions of this Article XIII, the principal of any such Debenture
or Debentures or any portion thereof which is $1,000 principal amount or an
integral multiple thereof into shares of Common Stock, initially at the
conversion price per share of $________; or, in case an adjustment of such price
has taken place pursuant to the provisions of Section 13.4 hereof, then at the
price as last adjusted (such price or adjusted price being referred to herein as
the "conversion price"), upon surrender of the Debenture or Debentures, the
principal of which is so to be converted, accompanied by written notice of
conversion duly executed, to the Company, at any time during usual business
hours at the office or agency maintained by it for such purpose, and, if so
required by the Conversion Agent or Registrar, accompanied by a written
instrument or instruments of transfer in form satisfactory to the Conversion
Agent or Registrar duly executed by the Holder or his duly authorized
representative in writing. For convenience, the conversion of any portion of
the principal of any Debenture or Debentures into Common Stock is hereinafter
sometimes referred to as the conversion of such Debenture or Debentures.
SECTION 13.2 ISSUANCE OF SHARES ON CONVERSION.
As promptly as practicable after the surrender, as herein
provided, of any Debenture or Debentures for conversion, the Company shall
deliver or cause to be delivered at its said office or agency, to or upon the
written order of the Holder of the Debenture or Debentures so surrendered,
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which such Debenture or Debentures may be converted in
accordance with the provisions of this Article XIII. Such conversion shall
be deemed to have been made as of the close of business on the date that such
Debenture or Debentures shall have been surrendered for conversion in proper
form with a written notice of conversion duly executed, so that the rights of
the Holder of such Debenture or Debentures as a Debentureholder shall cease
at such time and, subject to the following provisions of this paragraph, the
Person or Persons entitled to receive the shares of Common Stock upon
conversion of such Debenture or Debentures shall be treated for all purposes
as having become the record holder or holders of such shares of Common Stock
at such time and such conversion shall be at the conversion price in effect
at such time; PROVIDED, HOWEVER, that no such surrender on any date when the
stock transfer books of the Company shall be closed shall be effective to
constitute the Person or Persons entitled to receive the shares of Common
Stock upon such conversion as the record holder or holders of such shares of
Common Stock on such date, but such surrender shall be effective to constitute
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the Person or Persons entitled to receive such shares of Common Stock as the
record holder or holders thereof for all purposes at the close of business on
the next succeeding day on which such stock transfer books are open; such
conversion shall be at the conversion price in effect on the date that such
Debenture or Debentures shall have been surrendered for conversion, as if the
stock transfer books of the Company had not been closed.
Upon conversion of any Debenture which is converted in part only,
the Company shall execute and the Trustee shall authenticate and deliver to or
on the order of the Holder thereof, at the expense of the Company, a new
Debenture or Debentures of authorized denominations in principal amount equal to
the unconverted portion of such Debenture.
SECTION 13.3 NO ADJUSTMENT FOR INTEREST OR DIVIDENDS.
No payment or adjustment in respect of interest on the Debentures
or dividends on the shares of Common Stock shall be made upon the conversion of
any Debenture or Debentures; PROVIDED, HOWEVER, that if a Debenture or any
portion thereof (other than a Debenture or portion thereof called for
redemption) shall be converted subsequent to any Record Date and on or prior to
the next succeeding Interest Payment Date, the interest falling due on such
Interest Payment Date shall be payable on such Interest Payment Date
notwithstanding such conversion, and such interest (whether or not punctually
paid or duly provided for) shall be paid to the Person in whose name such
Debenture is registered at the close of business on such Record Date and
Debentures surrendered for conversion during the period from the close of
business on any Record Date to the opening of business on the corresponding
Interest Payment Date must be accompanied by payment of an amount equal to the
interest payable on such Interest Payment Date. No such additional funds shall
be required from Holders for Debentures called for redemption and converted.
SECTION 13.4 ADJUSTMENT OF CONVERSION PRICE.
(a) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company in shares of Common
Stock or any class of capital stock of the Company, the conversion price in
effect at the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such conversion price by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such reduction to
become effective immediately after the opening of business on the day following
the date fixed for such determination.
(b) In case the Company shall issue rights, options or warrants
to all or substantially all holders of its shares of Common Stock entitling them
to subscribe for or purchase shares of Common Stock at a price per share less
than the current market price per share (determined as provided in paragraph (f)
of this Section 13.4) of Common Stock on the date fixed for the determination of
stockholders entitled to receive such rights or warrants, the conversion price
in effect at the opening of business on the day following the date fixed for
such
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determination shall be reduced by multiplying such conversion price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate of the
subscription price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such current market price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on the date fixed for such determination plus the number of
shares of Common Stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following the date fixed for such determination. In the event that all of the
shares of Common Stock subject to such rights or warrants have not been issued
when such rights or warrants expire, then the conversion price shall promptly be
readjusted to the conversion price which would then be in effect had the
adjustment upon the issuance of such rights or warrants been made on the basis
of the actual number of shares of Common Stock issued upon the exercise of such
rights or warrants. For the purposes of this paragraph (b), the number of
shares of Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock. The
Company will not issue any rights or warrants in respect of shares of Common
Stock held in the treasury of the Company.
(c) In case the outstanding shares of Common Stock shall be
subdivided or reclassified into a greater number of shares, the conversion price
in effect at the opening of business on the day following the day upon which
such subdivision or reclassification becomes effective shall be proportionately
reduced, and, conversely, in case outstanding shares of Common Stock shall be
combined into a smaller number of shares, the conversion price in effect at the
opening of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision,
reclassification or combination becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all or substantially all holders of shares of Common Stock
evidences of indebtedness or assets of the Company or rights or warrants to
acquire such evidences of indebtedness or assets (including securities, but
excluding any (i) rights, options or warrants referred to in paragraph (b) of
this Section 13.4 and (ii) any dividend or distribution referred to in paragraph
(a) of this Section 13.4), the conversion price shall be adjusted so that the
same shall equal the price determined by multiplying the conversion price in
effect immediately prior to the close of business on the day fixed for the
determination of stockholders entitled to receive such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in paragraph (f) of this Section 13.4) of Common Stock
on the date fixed for such determination less the then fair market value as
determined by the Board of Directors (whose determination shall be conclusive
and described in a Board Resolution filed with the Trustee) of the portion of
the assets or evidences of indebtedness so distributed allocable to one share of
Common Stock and the denominator shall be such current market price per share of
Common Stock, such adjustment to become effective immediately prior to the
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such distribution.
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(e) In case the shares of Common Stock shall be changed into
the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or a stock dividend described in paragraph
(a) or paragraph (c) of this Section 13.4, or a consolidation, merger or sale of
assets described in Section 13.10 hereof), then and in each such event the
Holders of Debentures shall have the right thereafter to convert such Debentures
into the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change, by
holders of the number of shares of Common Stock into which such Debentures might
have been converted immediately prior to such reorganization, reclassification
or change.
(f) For the purpose of any computation under paragraphs (b) and
(d) of this Section 13.4, the current market price per share of Common Stock on
any date shall be deemed to be the average of the Closing Prices for the 15
consecutive Trading Days selected by the Company commencing not more than 30 and
not less than 20 Trading Days before the date in question.
(g) No adjustment in the conversion price shall be required
unless such adjustment (plus any adjustments not previously made by reason of
this paragraph (g)) would require an increase or decrease of at least $0.125;
PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph
(g) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under this paragraph (g) shall
be made to the nearest cent.
(h) The Company may, but shall not be required to, make such
reductions in the conversion price, in addition to those required by paragraphs
(a), (b), (c) and (d) of this Section 13.4, as the Company's Board of Directors,
in its discretion, considers to be advisable. The Company's Board of Directors
shall have the power to resolve any ambiguity or correct any error in the
adjustments made pursuant to this Section 13.4 and its actions in so doing shall
be final and conclusive.
(i) No adjustment in the conversion price need be made for
rights to purchase or the sale of the Common Stock pursuant to a Company plan
providing for reinvestment of dividends or interest; PROVIDED, HOWEVER, that
any discount under such plan may not exceed 5% of the current market price of
the Common Stock and such plan is registered under the Securities Act.
SECTION 13.5 NOTICE OF ADJUSTMENT OF CONVERSION PRICE.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price in
accordance with Section 13.4 and shall prepare an Officers' Certificate setting
forth the adjusted conversion price and showing in reasonable detail the facts
upon which such adjustment is based on the computation thereof, and such
certificate shall forthwith be filed at each office or agency
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maintained for the purpose of conversion of Debentures pursuant to Section 2.3
hereof and with the Trustee; and
(b) a notice stating that the conversion price has been
adjusted and setting forth the adjusted conversion price shall as soon as
practicable be mailed by the Company to all Holders at their last addresses as
they shall appear in the Debenture Register.
SECTION 13.6 NOTICE OF CERTAIN CORPORATION ACTION.
(a) In case:
(i) the Company shall authorize the granting to holders
of its shares of Common Stock of rights or warrants entitling them to subscribe
for or purchase any shares of capital stock of any class or of any other rights;
or
(ii) of any reclassification of the shares of Common
Stock, or of any consolidation or merger to which the Company is a part and for
which approval of any stockholders of the Company is required, or of the sale or
transfer of all or substantially all of the assets of the Company; or
(iii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Debentures pursuant to Section 2.3 and shall cause
to be mailed to all Holders at their last addresses as they shall appear in the
Debenture Register, at least 10 days (or 20 days in any case specified in clause
(iii) above) prior to the applicable record date hereinafter specified, a notice
stating (1) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights or warrants, or, if a record is not to be taken,
the date as of which the holders of shares of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants is to be determined,
or (2) the date on which such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of shares of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up. Such notice shall also state whether such
transaction will result in the adjustment in the conversion price applicable to
the Debentures and, if so, shall state what the adjusted conversion price will
be and when it will become effective. Neither the failure to give the notice
required by this Section 13.6, nor any defect therein, to any particular Holder
shall affect the sufficiency of the notice or the legality or validity of any
such dividend, distribution, right, warrant, reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding-up, or the vote on
any action authorizing such with respect to the other Holders.
(b) In case the Company or any Affiliate of the Company shall
propose to engage in a "Rule 13e-3 Transaction" (as defined in the SEC's Rule
13e-3 under the Exchange
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Act) the Company shall, no later than the date on which any information with
respect to such Rule 13e-3 Transaction is first required to be given to the SEC
or any other person pursuant to such Rule 13e-3, cause to be mailed to all
Holders at their last addresses as they shall appear in the Debenture Register,
a copy of all information required to be given to the SEC or such other person
pursuant to such Rule 13e-3. The information required to be given under this
paragraph shall be in addition to and not in lieu of any other information
required to be given by the Company pursuant to this Section 13.6 or any other
provision of the Debentures or this Indenture.
SECTION 13.7 TAXES ON CONVERSIONS.
The Company will pay any and all stamp or similar taxes that may
be payable in respect to the issuance or delivery of shares of Common Stock on
conversion of Debentures pursuant hereto. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of shares of Common Stock in a name other than that
of the Holder of the Debenture or Debentures to be converted, and no such
issuance or delivery shall be made unless and until the Person requesting such
issuance has paid the Company the amount of any such tax, or has established to
the satisfaction of the Company that such tax has been paid.
SECTION 13.8 FRACTIONAL SHARES.
No fractional shares or script representing fractional shares
shall be issued upon the conversion of Debentures. If any such conversion would
otherwise require the issuance of a fractional share, an amount equal to such
fraction multiplied by the Current Market Price per share of Common Stock
(determined as provided in paragraph (f) of Section 13.6 hereof) on the day of
conversion shall be paid to the Holder in cash by the Company.
SECTION 13.9 CANCELLATION OF CONVERTED DEBENTURES.
All Debentures delivered for conversion shall be delivered to the
Trustee to be cancelled by or at the direction of the Trustee, which shall
dispose of the same as provided in Section 2.11 hereof.
SECTION 13.10 PROVISIONS IN CASE OF CONSOLIDATION, MERGER OR
SALE OF ASSETS.
(a) In case of any consolidation of the Company with, or merger
of the Company into, any other corporation or trust, or in the case of any
merger of another corporation or trust into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company), or in the
case of any sale, transfer or other disposition of all or substantially all of
the assets of the Company, the corporation or trust formed by such consolidation
or resulting from such merger or which acquires such assets, as the case may be,
shall execute and deliver to the Trustee a supplemental indenture (which shall
conform to the TIA at the time of execution) providing that the Holder of each
Debenture then outstanding shall have the right
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thereafter, during the period such Debenture shall be convertible as specified
in Section 13.1 hereto to convert such Debenture only into the kind and amount
of securities, cash and other property receivable upon such consolidation,
merger, sale or transfer by a holder of the number of shares of Common Stock of
the Company into which such Debenture might have been converted immediately
prior to such consolidation, merger, sale or transfer, assuming such holder of
Common Stock (i) is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or transfer was made, as the case may be (a "Constituent Person"), or an
Affiliate of the Constituent Person and (ii) failed to exercise his rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer (provided
that if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, sale or transfer is not the same for each share
of Common Stock held immediately prior to such consolidation, merger, sale or
transfer by other than a Constituent Person or an Affiliate thereof and in
respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purpose of this Section 13.10 the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of
non-electing shares). Such supplemental indenture shall provide for adjustments
which, for events subsequent to the effective date of such supplemental
indenture, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article XIII. The above provisions of this
Section 13.10 shall similarly apply to successive consolidations, mergers, sales
or transfers.
(b) The Trustee shall not be under any responsibility to
determine the correctness of any provisions contained in any such supplemental
indenture relating either to the kind or amount of shares of stock or securities
or property receivable by Holders upon the conversion of their Debentures after
any such reclassification, change, consolidation, merger, sale or conveyance or
to any adjustment to be made with respect thereto.
SECTION 13.11 DISCLAIMER BY TRUSTEE OF RESPONSIBILITY FOR
CERTAIN MATTERS.
The Trustee and each Conversion Agent (other than the Company or
any of its Subsidiaries) shall not at any time be under any duty or
responsibility to any Holder of Debentures to determine whether any facts exist
which may require any adjustment of the conversion price, or with respect to the
nature or extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and each Conversion Agent (other than the Company
or any of its Subsidiaries) shall not be responsible for any failure of the
Company to issue, transfer or deliver any shares of Common Stock or stock
certificates or other securities or property upon the surrender of any
Debenture for the purpose of conversion or, subject to Section 7.1 hereof, to
comply with any of the covenants of the Company contained in this Article XIII.
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SECTION 13.12 COVENANT TO RESERVE SHARES.
The Company covenants that it will at all times reserve and keep
available, free from preemptive rights, out of its authorized shares of Common
Stock, solely for the purpose of issuance upon conversion of Debentures as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding Debentures. The Company covenants that
all shares of Common Stock which shall be so issuable shall be, when issued in
accordance with the Debentures and this Indenture, duly and validly issued and
fully paid and nonassessable. For purposes of this Section 13.12, the number of
shares of Common Stock which shall be deliverable upon the conversion of all
outstanding Debentures shall be computed as if at the time of computation all
outstanding Debentures were held by a single holder.
ARTICLE XIV.
MISCELLANEOUS
SECTION 14.1 TIA CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 14.2 NOTICES.
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be sufficiently
given if made by hand delivery by a nationally recognized overnight air courier,
by telex, by telecopier or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
if to the Company:
Mercury Air Group, Inc.
5456 McConnell Avenue
Los Angeles, CA 90066
Attention: Randolph E. Ajer, Chief Financial Officer
Telecopy: (310) 827-8921
If to the Trustee:
IBJ Schroder Bank & Trust Company
1 State Street
New York, NY 10004
Attention: Irene Teutonico, Assistant Vice President
Telecopy: (212) 858-2952
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The Company or the Trustee by notice to each other party may
designate additional or different addresses as shall be furnished in writing by
such party. Any notice or communication to the Company or the Trustee shall be
deemed to have been given or made as of the date so delivered, if personally
delivered or delivered by air courier; when answered back, if telexed; when
receipt is acknowledged, if telecopied; and five Business Days after mailing if
sent by registered or certified mail, postage prepaid (except that a notice of
change of address shall not be deemed to have been given until actually received
by the addressee).
Any notice or communication mailed to a Debentureholder shall be
mailed to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed for the giving of such
notice.
Failure to mail a notice or communication to a Debentureholder or
any defect in it shall not affect its sufficiency with respect to other
Debentureholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 14.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Debentureholders may communicate pursuant to TIA Section 312(b)
with other Debentureholders with respect to their rights under this Indenture
or the Debentures. The Company, the Trustee, the Registrar and any other
Person shall have the protection of TIA Section 312(c).
SECTION 14.4 CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
SECTION 14.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
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(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or
she has made such examination or investigation as is necessary to enable him
or her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with; PROVIDED,
HOWEVER, that with respect to matters of fact or mixed matters of law and
fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates
of public officials.
SECTION 14.6 LEGAL HOLIDAYS.
A "Legal Holiday" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions at such
place are not required to be open. If a payment date is a Legal Holiday at such
place, payment may be made at such place on the next succeeding day that is not
a Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 14.7 GOVERNING LAW.
This Indenture and the Debentures shall be governed by and
construed in accordance with the laws of the State of New York, as applied to
contracts made and performed within the State of New York, without regard to
principles of conflicts of law. The Company hereby irrevocably submits to the
jurisdiction of any New York State court sitting in the Borough of Manhattan in
The City of New York or any federal court sitting in the Borough of Manhattan in
The City of New York in respect of any suit, action or proceedings arising out
of or relating to this Indenture and the Debentures, and irrevocably accepts for
itself and in respect of its property, generally and unconditionally,
jurisdiction of the aforesaid courts. The Company irrevocably waives, to the
fullest extent it may effectively do so under applicable law, trial by jury and
any objection which it may now or hereafter have to the laying of the venue of
any such suit, action or proceeding brought in any such court and any claim that
any such suit, action or proceeding brought in any such court has been brought
in an inconvenient forum. Nothing herein shall affect the right of the Trustee
or any Debentureholder to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against the Company in any
other jurisdiction.
SECTION 14.8 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
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SECTION 14.9 NO RECOURSE AGAINST OTHERS.
A director, officer, employee, stockholder or incorporator, as
such, of the Company shall not have any liability for any obligations of the
Company under the Debentures or this Indenture or for any claim based on, in
respect of or by reason of such obligations or their creations. Each
Debentureholder by accepting a Debenture waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Debentures.
SECTION 14.10 SUCCESSORS.
All agreements of the Company in this Indenture and the Debentures
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 14.11 DUPLICATE ORIGINALS.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 14.12 SEVERABILITY.
In case any one or more of the provisions in this Indenture or in
the Debentures shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 14.13 TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and headings of the
Articles and the Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed as of the date first written above.
MERCURY AIR GROUP, INC.
By:________________________________
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:________________________________
Title:
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EXHIBIT A
FORM OF DEBENTURE
Unless this certificate is presented by an authorized representative of the
Depository Trust Company, a New York corporation ("DTC"), to the Company or its
agent for registration of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
MERCURY AIR GROUP, INC.
_____% CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY __, 2006
No._____________ $________________
CUSIP No. ________
Mercury Air Group, Inc., a New York corporation (hereinafter called
the "Company," which term includes any successor corporation under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co., or registered assigns, the principal sum of _______________ Dollars, on
February __, 2006.
Interest Payment Dates: August __ and
February __, commencing
August __, 1996
Record Dates: _____________ and ______________
Reference is made to the further provisions of this Debenture on the
reverse side, which will, for all purposes, have the same effect as if set forth
at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this
Debenture shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purpose.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Instrument to be
duly executed under its corporate seal.
Dated:
MERCURY AIR GROUP, INC.
By:________________________________
Attest:
______________________________
Secretary
[Seal]
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures described in the within-mentioned
Indenture.
IBJ SCHRODER BANK & TRUST COMPANY
By:________________________________
Authorized Signatory
Dated:
A-2
<PAGE>
MERCURY AIR GROUP, INC.
______% CONVERTIBLE SUBORDINATED DEBENTURE DUE FEBRUARY __, 2006
1. INTEREST.
Mercury Air Group, Inc., a New York corporation (the "Company"),
promises to pay interest on the principal amount of this Debenture at a rate of
____% per annum until the principal hereof is paid or made available for
payment. To the extent it is lawful, the Company promises to pay interest on
any interest payment due but unpaid on such principal amount at a rate of ____%
per annum.
The Company will pay interest semi-annually on August __ and
February __ of each year (each, an "Interest Payment Date"), commencing
August __, 1996. Interest on the Debentures will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the Issue Date of the Debentures. Notwithstanding the foregoing,
Debentures issued pursuant to the Over-Allotment Option shall accrue interest
from the Issue Date of the initial $25,000,000 aggregate principal amount
of Debentures. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Debentures (except
defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest
Payment Date. Holders must surrender Debentures to a Paying Agent to collect
principal payments. Except as provided below, the Company shall pay principal
of, premium, if any, and interest on the Debentures in such coin or currency
of the United States of America as at the time of payment shall be legal
tender for payment of public and private debts ("U.S. Legal Tender"). The
Company shall provide monies sufficient for interest payments in U.S. legal
tender to the Paying Agent who shall remit such payment to the Person in
whose name this Debenture (or one or more predecessor Debentures) is
registered at the close of business on the Record Date for such interest,
which shall be the _________________ or _____________________ (whether or not
a Business Day), as the case may be, next preceding such Interest Payment
Date; such monies shall be paid by wire transfer of federal funds or the
Company's check. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the Holder on such Record Date and
may either (i) be paid to the Person in whose name this Debenture (or one or
more predecessor Debentures) is registered at the close of business on a
Special Record Date for the payment or such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Debentures not less
than 10 days prior to such Special Record Date, or (ii) be paid at any time
in any other lawful manner not inconsistent with the requirement of any
securities exchange on which the Debentures may be listed, and upon such
notice as may be required by such exchange.
A-3
<PAGE>
3. REGISTRAR AND AGENTS.
Initially, IBJ Schroder Bank & Trust Company (the "Trustee") will
act as Registrar, Paying Agent, Conversion Agent and agent for service of
notice and demands. The Company may change any Registrar, Paying Agent,
Conversion Agent and agent for service of notice and demands without notice
to the Holders. The Company or an Affiliate of the Company may, subject to
certain exceptions, act as Registrar, Paying Agent or Conversion Agent.
4. INDENTURE.
The Company issued the Debentures under an Indenture, dated as of
January __, 1996 (the "Indenture"), between the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Debentures include those stated
in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa - 77bbb), as amended
(the "TIA") as in effect on the date of the Indenture. The Debentures are
subject to all such terms, and Holders of Debentures are referred to the
Indenture and the TIA for a statement of them. The Debentures are general
unsecured obligations of the Company limited in aggregate principal amount to
$25,000,000 (up to $28,750,000 if the Over-Allotment Option is exercised in
full).
5. OPTIONAL REDEMPTION.
The Debentures may be redeemed, in whole or in part, at any time on
and after February __, 1999, at the option of the Company, at the Redemption
Price (expressed as a percentage of principal amount) set forth below with
respect to the indicated Redemption Date, in each case, together with any
accrued but unpaid interest to but excluding the Redemption Date.
If redeemed during the period indicated below, the Redemption Price shall be:
<TABLE>
<CAPTION>
REDEMPTION PRICE
----------------
<S> <C>
February ..., 1999 - February ..., 2000............................... 104%
February ..., 2000 - February ..., 2001............................... 103%
February ..., 2001 - February ..., 2002............................... 102%
February ..., 2002 - February ..., 2003............................... 101%
</TABLE>
and thereafter at 100% of the principal amount thereof. In addition, on or
after February __, 1998 and before February __, 1999, if the price of the
Company's Common Stock shall have been at least 140% of the conversion price
for at least 20 trading days within a period of 30 consecutive trading days
ending not more than five trading days prior to the notice of such
redemption, the Debentures will be redeemable, in whole or in part, at the
Company's option, at a Redemption Price of 105% of the principal amount of
the Debenture, together with any accrued but unpaid interest to and including
the Redemption Date.
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Any such redemption will comply with Article III of the
Indenture. Pursuant to Section 3.3 if less than all of the Debentures are to
be redeemed, the Trustee shall, as it determines in its sole discretion,
redeem either PRO RATA or by lot or in such other manner as complies with any
applicable legal and stock exchange requirements.
6. NOTICE OF REDEMPTION.
Notice of redemption will be mailed by first class mail at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Debentures to be redeemed at his registered address. The Debentures may be
redeemed in part in multiples of $1,000 only. Debentures in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Debentures called for redemption shall
have been deposited with the Paying Agent on such Redemption Date the Debentures
called for redemption will cease to bear interest and the only right of the
Holders of such Debentures will be to receive payment of the Redemption Price
and any accrued and unpaid interest to but excluding the Redemption Date.
7. TRANSFER AND EXCHANGE.
The Debentures are in global form, without coupons. A Holder
may register the transfer of or exchange of Debentures in accordance with the
Indenture and subject to the restrictions contained therein, including the
restrictions described in Paragraph 21 below. The Registrar or co-Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar or co-Registrar is not required (i) to issue,
register the transfer of or exchange any Debentures during a period beginning 10
Business Days before the mailing of a notice of an offer to repurchase pursuant
to Article XII of the Indenture or redeem Debentures pursuant to Article III of
the Indenture and ending at the close of business on the day of such mailing or
(ii) to register the transfer of or exchange any Debenture selected for
redemption in whole or in part, except the unredeemed portion of Debentures
being redeemed in part. Any attempted transfer of a Debenture or Debentures by
a Holder in violation of the limits set forth above shall be null and void AB
INITIO as to such Holder and such transferee, and such transferee shall not
acquire any rights or economic interest in the Debenture or Debentures
transferred.
8. PERSONS DEEMED OWNERS.
The Company, the Trustee and any agent of the Company or the Trustee
may treat the registered Holder of a Debenture as the owner of it for all
purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal of, premium, if any or
interest on the Debentures remains unclaimed for two years, the Trustee and the
Paying Agent(s) will pay the
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money back to the Company at its written request. After that, all liability of
the Trustee and such Paying Agent(s) with respect to such money shall cease.
10. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
If the Company at any time deposits into an irrevocable
defeasance trust with the Trustee U.S. Legal Tender or U.S. Government
Obligations sufficient to pay the principal of, premium, if any, and interest
on the Debentures to redemption or maturity and complies with the other
provisions of the Indenture relating thereto, the Company will be discharged
from certain provisions of the Indenture and the Debentures (excluding its
obligation to pay the principal of, premium, if any, and interest on the
Debentures).
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Debentures may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Debentures then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Debentures then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Debentures to, among other things, cure any ambiguity, defect or inconsistency
(provided such amendment or supplement does not adversely affect the rights of
any Holder of a Debenture).
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, merge or consolidate with
any other Person and sell, lease, transfer or otherwise dispose of substantially
all of its properties or assets. The limitations are subject to a number of
important qualifications and exceptions. The Company must make quarterly
reports to the Trustee with respect to its compliance with such limitations.
13. REPURCHASE EVENTS.
In the event there shall occur any Change of Control, each Holder of
Debentures shall have the right, at such Holder's option but subject to the
limitations and conditions set forth in the Indenture, to require the Company to
purchase on the Repurchase Date in the manner specified in the Indenture, all or
any part (in integral multiples of $1,000) of such Holder's Debentures at a
Repurchase Price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest, if any, to and including the Repurchase Date.
Debentures tendered by the authorized representative or surviving
joint tenant, tenant by the entirety or tenant in common of a deceased Holder
will be redeemable, in whole or in part, within 60 days of tender, at 100% of
the principal amount plus accrued interest to and including the date of
redemption, subject to a maximum principal amount of $100,000 per deceased
Holder and a maximum aggregate principal amount for all deceased Holders of
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<PAGE>
$500,000 during each calendar-year until maturity.
14. CONVERSION.
A Holder of a Debenture may convert such Debenture into shares of
Common Stock of the Company at any time before the close of business on
February __, 2006. If the Debenture is called for redemption, the Holder may
convert it at any time before the close of business on the last Business Day
prior to the date fixed for such redemption. The initial conversion price is
$_______ per share, subject to adjustment in certain events. To determine the
number of shares issuable upon conversion of a Debenture, divide the
principle amount to be converted by the conversion price in effect on the
conversion date. The Company will deliver a check for any fractional share.
To convert a Debenture, a Holder must (i) complete and sign the
Conversion Notice on the back of the Debenture, (ii) surrender the Debenture to
a Conversion Agent, (iii) furnish appropriate endorsements and transfer
documents if required by the Registrar or Conversion Agent and (iv) pay any
transfer or similar tax if required. No adjustment is to be made on conversion
for interest accrued hereon or for dividends on shares of Common Stock issued on
conversion; PROVIDED, HOWEVER, that if a Debenture (other than a Debenture
called for redemption) is surrendered for conversion after the record date for a
payment of interest and on or before the interest payment date, then,
notwithstanding such conversion, the interest falling due to such interest
payment date will be paid to the Person in whose name the Debenture is
registered at the close of business on such record date and any Debenture
surrendered for conversion during the period from the close of business on any
regular record payment date to the opening of business on the corresponding
interest payment date shall not be required to be accompanied by payment of an
amount equal to the interest payable on such interest payment date. A Holder
may convert a portion of a Debenture if the portion is $1,000 principal amount
or an integral multiple thereof.
If the Company is a party to a consolidation or merger or a
transfer, lease or other disposition of all or substantially all of its assets,
the right to convert a Debenture into shares of Common Stock may be changed into
a right to convert it into securities, cash or other assets of the Company or
another Person.
15. SUCCESSORS.
When a successor assumes all the obligations of its predecessor
under the Debentures and the Indenture, the predecessor will be released from
those obligations.
16. DEFAULTS AND REMEDIES.
Subject to certain restrictions on the ability to accelerate
contained in the subordination provisions in the Indenture, if an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of Debentures then outstanding may declare all the
Debentures to be due and payable immediately in the manner
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<PAGE>
and with the effect provided in the Indenture. Holders of Debentures may not
enforce the Indenture or the Debentures except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it enforces the
Indenture or the Debentures. Subject to certain limitations, Holders of a
majority in aggregate principal amount of the Debentures then outstanding may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Debentures notice of any continuing Default or Event of
Default (except a Default in payment of principal of, premium, if any, or
interest on the Debentures, including a Default at any Maturity Date), if it
determines that withholding notice is in their interest.
17. NO RECOURSE AGAINST OTHERS.
No stockholder, director, officer, employee or incorporator, as
such, past, present or future, of the Company or any successor corporation shall
have any liability for any obligation of the Company under the Debentures or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Debenture by accepting a
Debenture waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Debentures.
18. SUBORDINATION.
The Indebtedness evidence by this Debenture is subordinate to all
Senior Indebtedness of the Company. To the extent and in the manner provided in
the Indenture, Senior Indebtedness must be paid before any payment may be made
to any Holders of Debentures. In addition, under certain circumstances, upon
the occurrence of an Event of Default, the Trustee and the Holders of the
Debentures may be prohibited from accelerating the obligations of the Company
under the Debentures and the Indenture. Each Holder of this Debenture, by
accepting the same (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee as his attorney-in-fact for any and all such purposes.
In addition to all other rights of Senior Indebtedness described in
the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness
and entitled to the benefit of the subordination provisions irrespective of any
amendment, modification or waiver of any term of any instrument relating to the
Senior Indebtedness or extension or renewal of the Senior Indebtedness.
19. AUTHENTICATION.
This Debenture shall not be valid until the Trustee or an
authenticating agent acceptable to the Company signs the certificate of
authentication contained in this Debenture.
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<PAGE>
20. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a
Debenture or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act). Additional abbreviations may also be used though not in the
above list. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to them in the Indenture.
21. GLOBAL SECURITY.
This Debenture is a global Debenture and shall be exchangeable, in
whole but not in part, for Debentures registered in the names of Persons other
than the Depository with respect to this global Debenture or its nominee only if
(i) the Depository is at any time unwilling, unable or ineligible to continue as
Depository and a successor Depository is not appointed by the Company within 60
days of the date the Company is so informed in writing, (ii) the Company
executes and delivers to the Trustee a Company Order to the effect that this
global Debenture shall be so exchangeable, or (iii) an Event of Default or an
event which, with the giving of notice or lapse of time, or both, would
constitute an Event of Default has occurred and is continuing with respect to
the Debentures. If this global Debenture is exchangeable pursuant to the
preceding sentence it shall be exchangeable for Debentures issuable in
denominations of $1,000 and any integral multiple thereof, registered in such
names as such Depository shall direct.
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<PAGE>
FORM OF ASSIGNMENT
I or we assign this Debenture to
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of
assignee: _________________________________
and irrevocably appoint _____________ agent to transfer this Debenture on the
books of the Company. The agent may substitute another to act for him.
Dated:__________________ Signed: x __________________________________
x __________________________________
x __________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signatures guaranteed: x ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN OR DESTROYED,
THE CORPORATION MAY REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Debenture purchased by the Company
pursuant to Article XII of the Indenture, check the box: / /
If you want to elect to have only part of this Debenture purchased
by the Company pursuant to Article XII of the Indenture, state the amount you
want to be purchased (which must be a minimum of $1,000 or any multiple
thereof): $________________.
If this Option of Holder to Elect Purchase is being elected by an
authorized representative of a deceased Holder pursuant to Section 12.2 of the
Indenture, you must provide the Company or the Trustee with the information
required to be so provided pursuant to such section of the Indenture.
Dated:__________________ Signed: x __________________________________
x __________________________________
x __________________________________
NOTICE: THE SIGNATURE(S) TO THIS
OPTION OF HOLDER TO ELECT PURCHASE
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
Signatures guaranteed: x ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
CONVERSION NOTICE
To convert this Debenture into shares of common stock, par value
$.01 per share, of the Company, check the box: / /
To convert only part of this Debenture, state the principal amount
you want to be converted (which must be a minimum of $1,000 or any multiple
thereof): $________________
If you want the certificate made out in another person's name, fill
in the form below:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Print or type other person's name, address and zip code)
Dated:__________________ Signed: x __________________________________
x __________________________________
x __________________________________
NOTICE: THE SIGNATURE(S) TO THIS
CONVERSION NOTICE MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signatures guaranteed: x ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
[MCBREEN, MCBREEN & KOPKO-LETTERHEAD]
January 26, 1996
Mercury Air Group
5456 McConnell Avenue
Los Angeles, California 90066
Re: Registration Statement on Form S-1
File No. 33-65085
------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Mercury Air Group, Inc., a New York
corporation (the "Company"), in connection with the issuance by the Company of
up to $28,750,000 aggregate principal amount of ___ % Convertible Subordinated
Debentures due 2006 (the "Debentures"), pursuant to the above-referenced
Registration Statement (the "Registration Statement"), including the prospectus
contained therein (the "Prospectus"), under the Securities Act of 1933, as
amended (the "Securities Act") filed by the Company with the Securities and
Exchange Commission.
We have examined copies of (i) the Restated Certificate of
Incorporation of the Company, certified by the Secretary of State of New
York, (ii) Bylaws of the Company, (iii) Trust Indenture between the Company
and IBJ Schroder Bank & Trust Company, as Trustee, (iv) form of the
Debentures, and (v) resolutions adopted by the Board of Directors of the
Company relating to the matters referred to herein. We have also examined
the Registration Statement (collectively, with the documents described in the
preceding sentence, referred to as the "Documents").
In expressing the opinions set forth below, we have assumed, and so
far as is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms except as limited (a) by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws relating to or
<PAGE>
McBreen, McBreen, Kopko
Mercury Air Group, Inc.
January 26, 1996
Page 2
affecting the enforcement of creditors' rights, or (b) by general equitable
principles;
2. Each individual executing any Documents on behalf of a party
(other than the Company) is duly authorized to do so, and each individual
executing any of the Documents is legally competent to do so; and
3. All Documents submitted to us as originals are authentic; all
documents submitted to us as certified or photostatic copies conform to the
original documents; all signatures on all such Documents are genuine; all public
records reviewed or relied upon by us or on our behalf are true and complete;
and all statements and information contained in the Documents are true and
complete.
Based on the foregoing, it is our opinion that the Debentures have
been duly and validly authorized and, upon completion of the offering described
in the Registration Statement and payment therefor by the purchasers thereof in
the manner described in the Registration Statement, the Debentures will be valid
and binding obligations of the Company, enforceable against the Company in
accordance with their terms.
The foregoing opinion is limited to the laws of the State of New York
and the United States and we do not express any opinion herein concerning any
other law. We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion may be relied upon exclusively by you and not by any
other person without our prior written consent. It should be noted that
Frederick H. KopKo, Jr., is a partner in this firm and a director of the
Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this opinion, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933.
Very truly yours,
McBreen, McBreen & Kopko
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement of
Mercury Air Group, Inc. on Form S-1 of our report dated September 15, 1995,
appearing in the Prospectus, which is a part of this Registration Statement, and
to the reference to us under the caption "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of Mercury Air Group,
Inc., listed in Item 16(b). This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Los Angeles, California
January 26, 1996
