<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION NO. 333-37475
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SC INTERNATIONAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6719 75-2607219
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
FOR INFORMATION REGARDING ADDITIONAL REGISTRANTS, SEE "TABLE OF ADDITIONAL
REGISTRANTS."
------------------------
<TABLE>
<S> <C>
524 E. LAMAR BOULEVARD MR. PATRICK W. TOLBERT
ARLINGTON, TEXAS 76011-3999 EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL
(817) 792-2123 AND ADMINISTRATIVE OFFICER
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE SC INTERNATIONAL SERVICES, INC.
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S 524 E. LAMAR BOULEVARD
PRINCIPAL EXECUTIVE OFFICES) ARLINGTON, TEXAS 76011-3999
(817) 792-2123
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
</TABLE>
COPIES OF COMMUNICATIONS TO:
JOEL I. GREENBERG, ESQ.
KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
425 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 836-8201
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
=======================================================================================================
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS INCORPORATION OR CLASSIFICATION IDENTIFICATION
CHARTER ORGANIZATION CODE NUMBER NO.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sky Chefs, Inc................................ Delaware 5812 13-1318387
- -------------------------------------------------------------------------------------------------------
Caterair International, Inc. (II)............. Delaware 5812 75-2607218
- -------------------------------------------------------------------------------------------------------
Caterair International Corporation............ Delaware 6512 52-1640561
- -------------------------------------------------------------------------------------------------------
Arlington Services, Inc. ..................... Delaware 6794 51-0344713
- -------------------------------------------------------------------------------------------------------
Arlington Services Holding Corporation........ Delaware 6719 51-0368977
- -------------------------------------------------------------------------------------------------------
JFK Caterers, Inc. ........................... Delaware 6719 52-1312557
- -------------------------------------------------------------------------------------------------------
Caterair Consulting Services Corporation...... Delaware 5812 52-0936585
- -------------------------------------------------------------------------------------------------------
Western Aire Chef, Inc. ...................... Delaware 6719 52-0974724
- -------------------------------------------------------------------------------------------------------
Bethesda Services, Inc. ...................... Delaware 6794 51-0369138
- -------------------------------------------------------------------------------------------------------
Caterair New Zealand Limited.................. Delaware 6719 51-0369139
- -------------------------------------------------------------------------------------------------------
Onex Ohio Finance Corp. ...................... Delaware 6141 75-2184952
- -------------------------------------------------------------------------------------------------------
Onex Ohio Finance Corp. II.................... Delaware 6141 75-2228384
- -------------------------------------------------------------------------------------------------------
Onex Ohio Equity Corp. ....................... Delaware 6141 75-2184952
- -------------------------------------------------------------------------------------------------------
Onex Ohio Equity Corp. II..................... Delaware 6141 75-2641451
- -------------------------------------------------------------------------------------------------------
Onex Ohio Credit Corp. ....................... Delaware 6141 75-2137074
- -------------------------------------------------------------------------------------------------------
Onex Ohio Credit Corp. II..................... Delaware 6141 75-2641443
- -------------------------------------------------------------------------------------------------------
Onex Ohio Acceptance Corporation.............. Delaware 6141 75-2137075
- -------------------------------------------------------------------------------------------------------
Onex Ohio Capital Corp. ...................... Delaware 6141 75-2344670
- -------------------------------------------------------------------------------------------------------
Onex Ohio Capital Corp. II.................... Delaware 6141 75-2641452
- -------------------------------------------------------------------------------------------------------
Onex Ohio Fiscal Corp. ....................... Delaware 6141 75-2273325
- -------------------------------------------------------------------------------------------------------
Onex Ohio Fiscal Corp. II..................... Delaware 6141 75-2641448
- -------------------------------------------------------------------------------------------------------
Onex Ohio Funds Corp. ........................ Delaware 6141 75-2272625
- -------------------------------------------------------------------------------------------------------
Onex Ohio Funds Corp. II...................... Delaware 6141 75-2641444
- -------------------------------------------------------------------------------------------------------
Caterair International Transition
Corporation................................. Delaware 5812 52-1947041
- -------------------------------------------------------------------------------------------------------
Sky Chefs International Corp. ................ Delaware 6719 13-3800220
- -------------------------------------------------------------------------------------------------------
Caterair Airport Properties, Inc. ............ Delaware 6719 52-1047952
- -------------------------------------------------------------------------------------------------------
Caterair St. Thomas Holdings Corporation...... Delaware 6719 52-1805211
- -------------------------------------------------------------------------------------------------------
Sky Chefs Argentine Inc. ..................... Delaware 6719 52-1689276
=======================================================================================================
</TABLE>
The address, including zip code, and telephone number, including area code,
of the principal executive offices of, and the name, address, including zip
code, and telephone number, including area code, of agent for service for, each
of the Additional Registrants other than Caterair International, Inc. (II),
Arlington Services, Inc., Arlington Services Holding Corporation, Bethesda
Services, Inc. and Caterair New Zealand Limited is the same as for SC
International Services, Inc., as set forth on the facing page of this
Registration Statement. The address, including zip code, and telephone number,
including area code, of the principal executive offices of Caterair
International, Inc. (II) is 6550 Rock Spring Drive, Bethesda, Maryland 20817
(telephone number (301) 897-7800), and the agent for service for Caterair
International, Inc. (II) is Thomas A. Statas, Vice President, Caterair
International, Inc. (II), 6550 Rock Spring Drive, Bethesda, Maryland 20817
(telephone number (301) 897-7800). The address, including zip code, and
telephone number, including area code, of the principal executive offices of
each of Arlington Services, Inc., Arlington Services Holding Corporation,
Bethesda Services, Inc. and Caterair New Zealand Limited is 300 Delaware Avenue,
Third Floor, Suite 315, Wilmington, Delaware 19801 (telephone number for
Arlington Services, Inc. and Arlington Services Holding Corporation (302)
427-7860 and telephone number for Bethesda Services, Inc. and Caterair New
Zealand Limited (302) 427-7863), and the agent for service for each of Arlington
Services, Inc., Arlington Services Holding Corporation, Bethesda Services, Inc.
and Caterair New Zealand Limited is Steven R. Director, Morris, James, Hitchens
& Williams, 222 Delaware Avenue, P.O. Box 2306, Wilmington, Delaware 19899
(telephone number (302) 888-6800). Copies of communications to any Additional
Registrant should be sent to Joel I. Greenberg, Esq., Kaye, Scholer, Fierman,
Hays & Handler, LLP, 425 Park Avenue, New York, NY 10022 (telephone number (212)
836-8201).
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997
PRELIMINARY PROSPECTUS
[LSG/SKYCHEFS LOGO] [CATERAIR INTERNATIONAL LOGO]
[SCIS LOGO]
SC INTERNATIONAL SERVICES, INC.
OFFER TO EXCHANGE
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED.
------------------------
SC International Services, Inc., a Delaware corporation (the "Issuer" or
"SCIS"), is hereby offering (the "Exchange Offer"), upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its registered 9 1/4% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes"), for each $1,000 principal amount of its outstanding
unregistered 9 1/4% Senior Subordinated Notes due 2007, Series A (the "Private
Notes"), of which $300,000,000 in aggregate principal amount was issued on
August 28, 1997 and is outstanding as of the date hereof. The form and the terms
of the Exchange Notes are identical in all material respects to those of the
Private Notes, except for certain transfer restrictions and registration rights
relating to the Private Notes and except for certain interest provisions related
to such registration rights. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued
pursuant to, and entitled to the benefits of, an Indenture, dated as of August
15, 1997, governing the Private Notes and the Exchange Notes (the "Indenture").
The Private Notes and the Exchange Notes are sometimes referred to herein,
collectively, as the "Notes." See "The Exchange Offer" and "Description of
Notes."
Interest on the Notes will be payable semi-annually on March 1 and
September 1 of each year commencing March 1, 1998, at the rate of 9 1/4% per
annum. The Notes will be redeemable, in whole or in part, at the option of the
Issuer, at any time on or after September 1, 2002, at the redemption prices set
forth herein (payable in cash), plus accrued interest to the date of redemption.
In addition, on or prior to September 1, 2000, the Issuer may redeem in the
aggregate up to $105,000,000 in principal amount of the Notes with the net cash
proceeds of one or more Public Equity Offerings (as defined herein) at a
redemption price of 109.25% of the principal amount of such Notes (payable in
cash), plus accrued interest to the date of redemption; provided that at least
$195,000,000 in principal amount of the Notes remains outstanding immediately
after any such redemption.
The Notes are general unsecured obligations of the Issuer, and are
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Issuer, including the Issuer's obligations under the
Senior Bank Financing (as defined herein). The Notes are unconditionally
guaranteed (the "Guarantees") on a joint and several senior subordinated basis
by Caterair International Corporation ("Caterair") and certain domestic
subsidiaries of the Issuer (collectively, the "Guarantors"). The Guarantees are
general unsecured obligations of the Guarantors, and are subordinated in right
of payment to all existing and future Guarantor Senior Debt (as defined herein)
of the Guarantors, including guarantees and borrowings under the Senior Bank
Financing. At September 30, 1997, the aggregate amount of outstanding Senior
Debt of the Issuer (including borrowings and guarantees under the Senior Bank
Financing but excluding advances by Caterair to SCIS and letters of credit) was
approximately $250.0 million and the aggregate amount of outstanding Guarantor
Senior Debt (excluding borrowings and guarantees under the Senior Bank Financing
and the loan by SCIS to Caterair) was approximately $31.5 million. LSG Lufthansa
Service GmbH is not an obligor on the Notes.
(continued on next page)
------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 17, FOR A DISCUSSION OF CERTAIN
RISKS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND
AN INVESTMENT IN THE EXCHANGE NOTES.
------------------------
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.
------------------------
The date of this Prospectus is , 1997
<PAGE> 4
(continued from previous page)
If a Change of Control (as defined herein) occurs, the Issuer will be
required to offer to repurchase the Notes at a purchase price equal to 101% of
the principal amount thereof, plus accrued interest to the date of repurchase.
There can be no assurance that the Issuer will have the financial ability or
will be permitted by its other indebtedness agreements to repurchase the Notes
upon a Change of Control. In addition, the Issuer and, under certain
circumstances, Caterair, will be required to offer to repurchase Notes with the
net cash proceeds of certain asset sales at a purchase price equal to 100% of
the principal amount thereof, plus accrued interest to the date of repurchase.
See "Description of Notes."
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Issuer and the Guarantors contained in the Registration
Rights Agreement, dated as of August 28, 1997 (the "Registration Rights
Agreement"), among the Issuer, the Guarantors, and BT Securities Corporation,
J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Goldman,
Sachs & Co., Smith Barney Inc. and Bankers Trust International PLC, as the
initial purchasers (the "Initial Purchasers") of the Private Notes.
Based upon interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties unrelated to the Issuer, the Issuer believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Private Notes may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than (i) any person who is an "affiliate" of the Issuer within the meaning of
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"), or
(ii) a broker-dealer who purchases Notes from the Issuer to resell pursuant to
Rule 144A under the Securities Act or any other available exemption under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act; provided that such holder is acquiring the
Exchange Notes in the ordinary course of its business and such holder is not
engaging, and has no intention to engage, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes. Holders of Private Notes wishing to accept the Exchange Offer
must represent to the Issuer that such conditions have been met. Each
broker-dealer that will receive Exchange Notes for its own account in exchange
for Private Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes, where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. The Issuer has agreed to make this Prospectus, as it may be
amended or supplemented from time to time, available to any such broker-dealer
that requests copies of such Prospectus in the Letter of Transmittal for use in
connection with any such resale for a period of up to 90 days after the
Expiration Date (as defined herein). See "The Exchange Offer" and "Plan of
Distribution."
The Issuer will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
the Exchange Offer.
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless the Exchange Offer is extended by the Issuer in its
sole discretion. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being tendered for exchange.
The National Association of Securities Dealers, Inc. ("NASD") has
designated the Private Notes as securities eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market of
the NASD, and the Issuer has been advised that the Initial Purchasers have
heretofore acted as market makers for the Private Notes. Holders of Private
Notes whose Private Notes are not tendered and accepted in the Exchange Offer
will continue to hold such Private Notes and will be entitled to all the rights
and preferences and will be subject to the limitations applicable thereto under
the Indenture. Following consummation of the Exchange Offer, the holders of
Private Notes will continue to be subject to the existing restrictions upon
transfer thereof and the Issuer, subject to limited exceptions, will have no
further
(ii)
<PAGE> 5
obligation to such holders to provide for the registration under the Securities
Act of the Private Notes held by them. To the extent that any Private Notes are
tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Private Notes could be adversely affected. No assurances can be given
as to the liquidity of the trading market for the Private Notes.
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any market that
may develop for the Exchange Notes, the ability of holders to sell the Exchange
Notes, or the price at which holders would be able to sell the Exchange Notes.
Each of the Initial Purchasers has advised the Issuer that it currently intends
to make a market in the Exchange Notes. The Initial Purchasers are not obligated
to do so, however, and any market-making activities with respect to the Exchange
Notes may be discontinued at any time without notice. Future trading prices of
the Exchange Notes will depend on many factors, including among other things,
prevailing interest rates, the Issuer's and the Guarantors' operating results
and the market for similar securities. Historically, the market for securities
similar to the Exchange Notes, including non-investment grade debt, has been
subject to disruptions that have caused substantial volatility in the prices of
such securities. There can be no assurance that any market for the Exchange
Notes, if such a market develops, will not be subject to similar disruptions.
See "Risk Factors -- Lack of Public Market for the Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL IN CONNECTION WITH THE EXCHANGE OFFER, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE ISSUER OR ANY OF THE GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR THE EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE ISSUER OR ANY OF THE GUARANTORS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act. The Issuer and the Guarantors are hereby
providing cautionary statements identifying important factors that could cause
the Issuer's and the Guarantors' actual results to differ materially from those
projected in forward-looking statements made in this Prospectus. Any statements
that express, or involve discussions as to, expectations, beliefs, plans,
objectives, assumptions or future events or performance (often, but not always,
through the use of words or phrases such as "will likely result," "are expected
to," "will continue," "is anticipated," "estimate," "intends," "plans,"
"projection" and "outlook") are not historical facts and may be forward-looking
and, accordingly, such statements involve estimates, assumptions and
uncertainties which could cause actual results to differ materially from those
expressed in the forward-looking statements. Accordingly, any such statements
are qualified in their entirety by reference to, and are accompanied by, the
(iii)
<PAGE> 6
factors discussed throughout this Prospectus, and particularly in the risk
factors set forth herein under "Risk Factors." Among the key factors that have a
direct bearing on the Issuer's and the Guarantors' results of operations are the
substantial indebtedness and significant debt service obligations of the Issuer
and the Guarantors; changes in the airline industry, the airline catering
industry and the catering industry generally; acceptance of new business
initiatives; the Issuer's and the Guarantors' ability to implement their
business strategies and to successfully integrate acquired companies;
availability of key personnel; intensified competition; changes in general
economic conditions; fluctuations in foreign currency exchange rates; changes in
operating costs or volume; availability of funds; the loss of a significant
customer; product liability litigation; and changes in government regulation.
These and other factors are discussed herein under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Prospectus.
The risk factors described herein could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements of the
Issuer and the Guarantors or made by or on behalf of the Issuer and the
Guarantors, and investors, therefore, should not place undue reliance on any
such forward-looking statements. Further, any forward-looking statement speaks
only as of the date on which such statement is made, and the Issuer and the
Guarantors undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to
predict all of such factors. Further, management cannot assess the impact of
each such factor on the Issuer's and the Guarantors' businesses or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
(iv)
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, the "Company" refers to (i)
subsequent to September 29, 1995, the combined businesses of SC International
Services, Inc. ("SCIS" or the "Issuer") and Caterair International Corporation
("Caterair") and their subsidiaries and (ii) until September 29, 1995, the
business of Sky Chefs, Inc. ("Sky Chefs"). The term "Guarantors" refers to Sky
Chefs and Caterair International, Inc. (II) ("CII"), both wholly-owned
subsidiaries of the Issuer, certain other indirectly wholly-owned domestic
subsidiaries of SCIS, and Caterair.
THE COMPANY
The Company believes that it is the world's largest provider of airline
catering services with food service revenues (as defined herein) for the year
ended December 31, 1996 of approximately $1.56 billion. Management believes that
these revenues are more than 50% higher than those of its next largest
competitor in the airline catering industry. The Company had Adjusted EBITDA (as
defined herein) for the twelve months ended September 30, 1997 of approximately
$176 million. See Annex I -- Summary Unaudited Combined Pro Forma Financial Data
and "Selected Historical Financial Data." The Company currently operates,
directly or through joint ventures, 139 kitchens located at or adjacent to 117
airports in 28 countries. Approximately 60% of the Company's food service
revenues for the twelve months ended September 30, 1997 were derived from United
States operations and 40% from international operations. On a daily basis, the
Company services an average of approximately 7,000 domestic and international
airline flights and prepares an average of 650,000 meals. SCIS is a Delaware
corporation, incorporated in 1995 in connection with the transactions which
effectuated the combination of the businesses of Sky Chefs and Caterair (the
"Combination"). See "Certain Transactions -- The Combination."
STRENGTHS
The Company believes that the following factors contribute to its position
as the world's market leader in the airline catering industry:
- - WORLDWIDE COVERAGE. The Company is the only airline caterer with a
significant operating presence in both the United States and international
markets. Management believes that the Company's global network of kitchens,
strategically located to service major international airlines, provides
significant competitive advantages. As a result, management believes the
Company is well positioned to take advantage of the anticipated growth in
international airline traffic and the higher and more stable food service
levels provided on long-haul flights (over two and one-half hours), some of
which offer up to three meals. Management also believes that the breadth of
the global network operated by the Company and its strategic marketing
partner, LSG Lufthansa Service GmbH ("LSG"), provides a significant
opportunity to attract international airlines with a single supplier
approach worldwide. The Company currently operates kitchens at or adjacent
to 25 international gateway airports, including substantially all of the
international gateway airports in the United States, Latin America and
Australia, and the Company or LSG also operate kitchens at a significant
number of international gateway airports in Europe, including London,
Paris, Frankfurt and Rome. See "Business -- Strategy -- Promote Single
Supplier Approach."
- - LSG STRATEGIC ALLIANCE. The Company's worldwide coverage is enhanced through
a strategic marketing alliance formed in 1993 with LSG, the airline
catering subsidiary of Lufthansa German Airlines ("Lufthansa"). The
alliance creates an international marketing network with kitchens at or
near 157 airports in 40 countries, including 29 international gateway
airports. The Company and LSG, while remaining separate companies,
generally conduct operations under the "LSG Lufthansa Service/SKY Chefs"
name and logo and organize their respective marketing activities with the
goal of achieving a coordinated approach to customers on a worldwide basis.
See "Business -- Strategy -- Promote Single Supplier Approach" and "Certain
Transactions -- LSG Lufthansa Service GmbH."
<PAGE> 8
- - DIVERSE AND STABLE CUSTOMER BASE. The Company provides airline catering
services to over 250 airlines, comprising substantially all of the world's
major airlines. The Company's five largest North American customers are
American Airlines ("American"), Delta Air Lines ("Delta"), Northwest
Airlines, United Airlines and Canadian Airlines and the Company's five
largest international customers are Qantas Airways, British Airways, Japan
Air Lines, Lufthansa and Cathay Pacific Airlines. The Company has conducted
business with each of these customers for at least ten years. Since its
acquisition from AMR Corporation ("AMR"), the parent of American, in 1986,
Sky Chefs has provided services to American under long-term contracts. The
current Sky Chefs contract with American runs through the end of 2003 and,
together with Caterair's contract with American, which runs through the end
of 2001, accounted for approximately 30% of the Company's 1996 food service
revenues. No other customer of the Company accounted for more than six
percent of its 1996 food service revenues. See "Risk Factors -- Dependence
on Key Customers" and "Business -- Customers -- Contracts."
- - LOW COST STRUCTURE. In 1992, Sky Chefs implemented an extensive operating
improvement plan which reduced annual operating costs by approximately $47
million in 1994 as compared with 1992. Due in large part to its operating
improvement plan, Sky Chefs increased EBITDA from $29 million in 1992 to
$59 million in 1994 and improved EBITDA as a percentage of revenues from
6.1% to 12.6% over the same period. As part of the Combination which was
consummated on September 29, 1995, management estimated that approximately
$55 million of net cost savings on an annualized basis were achievable by
the end of the third year of combined operations of Sky Chefs and Caterair.
Management believes that as of September 30, 1997 a significant portion of
these net cost savings have been achieved as evidenced by an increase in
the combined companies' Adjusted EBITDA from $123 million for the year
ended December 31, 1994 to $176 million for the twelve months ended
September 30, 1997 and an improvement in Adjusted EBITDA as a percentage of
the combined companies' revenues from 8.0% for the year ended December 31,
1994 to 11.0% for the twelve months ended September 30, 1997. See Annex
I -- Summary Unaudited Combined Pro Forma Financial Data and "Selected
Historical Financial Data." These net cost savings have been achieved
through, among other things, increasing labor productivity and reducing
labor and employee costs at certain of the kitchens formerly operated by
Caterair (the "Caterair Kitchens"); consolidating certain corporate level
management and administrative functions of Sky Chefs and Caterair; reducing
food waste spoilage and shrinkage at certain of the Caterair Kitchens;
eliminating redundant kitchens; and reducing other kitchen operating
expenses at certain of the Caterair Kitchens. In order to achieve these net
cost savings, the Company incurred approximately $52 million in
non-recurring costs through September 1997 principally relating to (i)
severance payments and other employee costs, (ii) external consulting
services primarily associated with the implementation of labor savings
programs and (iii) other items in connection with the integration of the
business of Sky Chefs and Caterair. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business --
Strengths -- Low Cost Structure," "Selected Historical Financial Data --
SCIS" and "Certain Transactions -- The Combination."
STRATEGY
The Company's business strategy is to: (i) promote a single supplier
approach to the marketing of services through the Company's worldwide network
with LSG; (ii) expand international operations by pursuing new business at
existing locations and by expanding to new locations at international gateway
airports; (iii) develop non-airline catering opportunities; and (iv) achieve
additional net cost savings, while maintaining service quality.
- - PROMOTE SINGLE SUPPLIER APPROACH. The Company and LSG, through their
respective global kitchen networks, intend to continue to promote the
benefits that a global catering network can offer to worldwide airlines.
These benefits include enabling customers to streamline planning for meals
and service scheduling, as well as enhancing communications with airline
caterers and improving their capacity to monitor the quality of catering
services. This approach has enabled the Company and LSG to obtain long-term
contracts with Delta, Northwest Airlines and Canadian Airlines and the
Company and LSG
2
<PAGE> 9
intend to continue to pursue long-term contracts with other existing and
new customers. See "Business -- Strengths -- LSG Strategic Alliance" and
"Certain Transactions -- LSG Lufthansa Service GmbH."
- - EXPAND INTERNATIONAL OPERATIONS. The Company intends to continue to pursue
an international market development program by competing for new business
at international gateway airports where it currently operates, engaging in
strategic acquisitions of international airline caterers and stand-alone
kitchens, and entering into joint venture arrangements with airlines and
other parties in markets outside the United States. In particular, the
Company plans to focus on the development of opportunities at international
gateway airports. Such a plan is expected to provide the Company with the
benefit of higher and more stable food service levels from long-haul
flights and greater access to international airline traffic from such
airports. During 1997, the Company acquired a 49% interest in an airline
catering business in Mexico and acquired the airline catering business of
Air New Zealand at Auckland, Wellington, Christchurch and Rarotonga. Since
September 1995, the Company has also acquired airline catering businesses
in Bogota, Colombia, Asuncion, Paraguay and Guayaquil, Ecuador through an
existing joint venture.
- - DEVELOP NON-AIRLINE CATERING OPPORTUNITIES. The Company is pursuing a
strategy to sell food services to non-airline customers in order to further
diversify its revenue base. The Company will focus on developing the
business of preparing and delivering meals from its kitchens to
supermarkets and convenience stores in the United States and employee
cafeterias at industrial plants and office buildings in Latin America. The
Company currently produces fresh food products in two major geographic
markets for The Southland Corporation for sale in 7-Eleven stores and is
operating a pilot program with a subsidiary of The Sara Lee Corporation for
the production of home meal solutions. The United States market for
supermarket and convenience store home meal solutions was approximately $8
billion in 1996 and is expected to grow rapidly as dual income families
seek alternatives to in-home preparation of meals and restaurant dining.
The Company believes that these alternative markets, particularly the
United States home meal solutions market, represent substantial future
opportunities. See "Business -- Non-Airline Catering Operations."
- - ACHIEVE ADDITIONAL NET COST SAVINGS. The Company will continue to implement
its operating improvement plan in an effort to achieve additional net cost
savings. See "-- Low Cost Structure."
PRINCIPAL STOCKHOLDERS
The Company is controlled by Onex Corporation ("Onex") and its affiliates.
Onex, based in Toronto, Canada, is a publicly listed (on the Toronto Stock
Exchange and the Montreal Exchange) diversified holding company that operates
through autonomous subsidiaries and strategic partnerships. In addition to its
interests in the Company, as of September 30, 1997, Onex had investments in a
broad range of companies, including Celestica Inc., ProSource, Inc., Tower
Automotive, Inc., Dura Automotive Systems, Inc., Scotsman Industries, Inc.,
Phoenix Pictures Inc., BC Sugar Refinery and Vencap, Inc. Onex had consolidated
revenues of C$10.6 billion for the twelve months ended September 30, 1997 and
consolidated assets of C$5.3 billion at September 30, 1997.
LSG is the airline catering subsidiary of Lufthansa. In connection with the
formation of the strategic marketing alliance with Sky Chefs, LSG acquired from
stockholders of Onex Food Services, Inc. ("OFSI"), the parent of SCIS, a 23.3%
interest in OFSI for $75 million. See "Certain Transactions -- LSG Lufthansa
Service GmbH." Neither Onex nor LSG is an obligor on the Notes.
HISTORICAL BACKGROUND
Sky Chefs was formed in 1941 as the captive airline catering subsidiary of
American and was acquired in 1986 from AMR, the parent of American, by Onex
Capital Corporation ("Onex Capital"), the indirect parent of OFSI and an
affiliate of Onex, and members of Sky Chefs' management.
Marriott Corporation ("Marriott") founded the airline catering industry in
1937 when it began providing meals on commercial airline flights in the
Washington, D.C. area. Caterair acquired Marriott's airline catering business in
December 1989 through a management-led buy-out.
3
<PAGE> 10
On September 29, 1995, the Sky Chefs and Caterair businesses were combined.
See "Certain Transactions -- The Combination."
The principal executive offices of SCIS and the Guarantors (other than CII)
are located at 524 East Lamar Blvd., Arlington, Texas 76011 (telephone number
(817) 792-2123). The principal executive offices of CII are located at 6550 Rock
Spring Drive, Bethesda, Maryland 20817 (telephone number (301) 897-7800).
THE REFINANCING
On August 28, 1997, the Issuer and the Guarantors consummated an offering
of the Private Notes and the related Guarantees in a transaction exempt from the
registration requirements of the Securities Act (the "Offering"). The price to
investors of the Private Notes was $299.6 million in the aggregate and the
principal amount of the Private Notes is $300.0 million in the aggregate.
The net proceeds to SCIS from the Offering, after deduction of discounts
and offering expenses, were approximately $289.9 million. SCIS used $209.4
million of the net proceeds to repay and retire all of its outstanding term loan
indebtedness under the Credit Agreement, dated as of September 29, 1995, among
SCIS, Caterair, Caterair Holdings Corporation ("Caterair Holdings"), the parent
of Caterair, OFSI and the lenders named therein (the "Old Credit Agreement").
The indebtedness of SCIS under the Old Credit Agreement which was repaid had
maturities ranging from September 15, 1997 to September 15, 2003 and accrued
interest at fluctuating rates (an average weighted rate of 8.7% per year at
August 21, 1997).
On August 25, 1997, SCIS commenced a tender offer for all of its $125.0
million principal amount of 13% Senior Subordinated Notes due 2005 (the
"Existing Notes"). In connection therewith, SCIS offered to purchase all of the
Existing Notes at a price equal to 117% of the principal amount thereof plus
accrued and unpaid interest to the date of purchase and solicited consents to
certain amendments (the "Existing Indenture Amendments") to the Indenture
relating to the Existing Notes from the holders thereof (collectively, the
"Offer to Purchase"). Holders of Existing Notes who consented to the Existing
Indenture Amendments received a payment equal to 2% of the principal amount of
the Existing Notes for which a consent was delivered. Holders of the Existing
Notes were not permitted to tender their Existing Notes without consenting to
the Existing Indenture Amendments or to consent to the Existing Indenture
Amendments without tendering their Existing Notes.
The Offer to Purchase expired on September 24, 1997. All of the Existing
Notes were tendered by the holders thereof and accepted for payment by SCIS in
connection with the Offer to Purchase. SCIS paid $148.75 million (excluding
$7.85 million of accrued interest) in the aggregate in consideration of the
repurchase of the Existing Notes and the related consents. SCIS used
approximately $80.50 million of the net proceeds from the Offering and
approximately $68.25 million of borrowings under the Term Loan Agreement (as
defined herein) to fund such payments.
In connection with the Offering, SCIS, certain other parties and certain
lenders entered into a senior secured revolving credit agreement (the "Revolving
Credit Agreement"), and Caterair, SCIS, certain other parties and certain
lenders entered into a senior secured credit agreement (the "Term Loan
Agreement," and together with the Revolving Credit Agreement, the "Senior Bank
Financing"). See "Description of Certain Indebtedness -- Senior Bank Financing."
Concurrently with the Offering, Caterair, a Guarantor of the Notes, repaid
and retired all of its outstanding indebtedness under the Old Credit Agreement
(approximately $155.9 million) with borrowings under the Term Loan Agreement
(the "Caterair Refinancing"). See "Description of Certain Indebtedness -- Senior
Bank Financing."
4
<PAGE> 11
CORPORATE STRUCTURE
The following chart summarizes the ownership structure of OFSI, SCIS, Sky
Chefs, CII, Caterair and Caterair Holdings and certain of their subsidiaries,
and certain relationships among such parties.
[Ownership Structure Chart]
- ---------------
(1) Represents shares (including shares acquirable upon the exercise of the OFSI
Warrants (as defined herein)) indirectly owned by Onex and shares for which
Onex has voting control.
(2) Onex indirectly also holds in excess of 25% of the shares of Class A
non-voting common stock of Caterair Holdings.
(3) Certain indirectly wholly-owned domestic subsidiaries of SCIS are Guarantors
of the Notes. See "Description of Notes -- Unconditional Joint and Several
Senior Subordinated Guarantees."
5
<PAGE> 12
THE EXCHANGE OFFER
The Exchange Offer......... The Issuer is hereby offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Private Notes that are properly
tendered and accepted. The Issuer will issue
Exchange Notes on or as promptly as practicable
after the Expiration Date. As of the date hereof,
there is $300,000,000 aggregate principal amount of
Private Notes outstanding. See "The Exchange
Offer." The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Private
Notes being tendered for exchange.
Based upon interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties unrelated to the Issuer, the Issuer
believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Private Notes
may be offered for resale, resold and otherwise
transferred by a holder thereof (other than (i) any
person who is an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act or
(ii) a broker-dealer who purchases Notes from the
Issuer to resell pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act) without compliance with
the registration and prospectus delivery provisions
of the Securities Act; provided that such holder is
acquiring the Exchange Notes in the ordinary course
of its business and such holder is not engaging,
and has no intention to engage, and has no
arrangement or understanding with any person to
participate, in the distribution of the Exchange
Notes. Holders of Private Notes wishing to accept
the Exchange Offer must represent to the Issuer
that such conditions have been met. Each broker-
dealer that will receive Exchange Notes for its own
account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer
as a result of market-making or other trading
activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in
connection with any resale of such Exchange Notes;
however by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to
time, may be used by such a broker-dealer in
connection with resales of Exchange Notes received
in exchange for Private Notes acquired by such
broker-dealer as a result of market-making or other
trading activities. See "The Exchange
Offer -- Resale of the Exchange Notes" and "Plan of
Distribution."
In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the Exchange
Notes may not be offered or sold unless they have
been registered or qualified for sale in such
jurisdictions or an exemption from registration or
qualification is available and complied with. The
Issuer and the Guarantors have agreed, pursuant to
the Registration Rights Agreement (subject to
certain specified limitations set forth therein),
to use their reasonable best efforts to register or
qualify the Exchange Notes for offer or sale under
the securities or blue sky laws of such
jurisdictions as any holder of the Notes reasonably
requests in writing.
Registration Rights
Agreement.................. The Private Notes and the related Guarantees were
sold by the Issuer and the Guarantors to the
Initial Purchasers in a transaction exempt from the
registration requirements of the Securities Act on
August 28, 1997 pursuant to a Purchase Agreement,
dated August 22, 1997, by and
6
<PAGE> 13
among the Issuer, the Guarantors and the Initial
Purchasers (the "Purchase Agreement"). Pursuant to
the Purchase Agreement, the Issuer, the Guarantors
and the Initial Purchasers entered into a
Registration Rights Agreement, dated August 28,
1997, which grants the holders of the Private Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such rights,
which terminate upon consummation of the Exchange
Offer. The holders of Exchange Notes will not be
entitled to any exchange or registration rights
with respect to the Exchange Notes. See "The
Exchange Offer -- Termination of Certain Rights."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, unless the Exchange
Offer is extended by the Issuer in its sole
discretion, in which case the term "Expiration
Date" shall mean the latest date and time to which
the Exchange Offer is extended. See "The Exchange
Offer -- Expiration Date; Extensions; Termination."
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Issuer. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer." The Issuer
reserves the right to terminate or amend the
Exchange Offer at any time prior to the Expiration
Date upon the occurrence of any such conditions.
Procedures for Tendering
Private Notes.............. Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Private Notes and any other required
documentation to The Bank of New York, as exchange
agent (the "Exchange Agent"), at the address set
forth herein. Private Notes may be physically
delivered, but physical delivery is not required if
a confirmation of a book-entry transfer of such
Private Notes to the Exchange Agent's account at
The Depository Trust Company ("DTC" or the
"Depositary") is delivered in a timely fashion. By
executing the Letter of Transmittal, each holder of
Private Notes will represent to and agree with the
Issuer that, among other things, (i) the Exchange
Notes to be acquired pursuant to the Exchange Offer
are being acquired in the ordinary course of
business of the person receiving such Exchange
Notes, whether or not such person is the holder,
(ii) that neither the holder nor any such other
person is engaged in, or intends to engage in, or
has an arrangement or understanding with any person
to participate in, the distribution of the Exchange
Notes, and (iii) that neither the holder nor any
such other person is an "affiliate" of the Issuer
within the meaning of Rule 405 under the Securities
Act (or, if such holder or other person is an
affiliate, that it will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable).
Each broker-dealer that will receive Exchange Notes
for its own account in exchange for Private Notes,
where such Private Notes were acquired by such
broker-dealer as a result of market-making or other
trading activities, must acknowledge in the Letter
of Transmittal that it will deliver a prospectus in
connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the
meaning of the
7
<PAGE> 14
Securities Act. See "The Exchange
Offer -- Procedures for Tendering" and "Plan of
Distribution."
Special Procedures for
Beneficial Owner........... Any beneficial owner whose Private Notes are held
through a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender
such Private Notes in the Exchange Offer should
contact such intermediary promptly and instruct
such intermediary to tender on such beneficial
owner's behalf. See "The Exchange Offer --
Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Private Notes
according to the guaranteed delivery procedures set
forth under "The Exchange Offer -- Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the
Exchange Notes........... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Issuer will
accept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior
to the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered on
the earliest practicable date following the
Expiration Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
Withdrawal Rights.......... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
Certain Federal Income Tax
Considerations........... For a discussion of certain federal income tax
considerations relating to the exchange of the
Private Notes for the Exchange Notes, see "Certain
Federal Income Tax Considerations -- Tax
Consequences of the Exchange Offer."
Exchange Agent............. The Bank of New York is serving as the Exchange
Agent in connection with the Exchange Offer. See
"The Exchange Offer -- Exchange Agent." The Bank of
New York also serves as trustee under the
Indenture.
8
<PAGE> 15
THE NOTES
The Exchange Offer applies to $300,000,000 aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Private Notes except that the
Exchange Notes will have been registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof and holders of the Exchange Notes will not be entitled to any of the
registration rights of holders of the Private Notes under the Registration
Rights Agreement (or related rights to certain interest payments upon the
failure of the Issuer to fulfill certain conditions set forth in the
Registration Rights Agreement), which rights will terminate upon consummation of
the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace), and will be issued under, and be
entitled to the benefits of, the Indenture. The Private Notes and the Exchange
Notes will be considered collectively to be a single class for all purposes
under the Indenture. See "Description of Notes."
Issuer..................... SC International Services, Inc., a Delaware
corporation.
Securities Offered......... $300.0 million aggregate principal amount of 9 1/4%
Senior Subordinated Notes due 2007.
Maturity Date.............. September 1, 2007.
Interest Rate and
Payment Dates............ The Notes bear interest at a rate of 9 1/4% per
annum. Interest will accrue from the date of
original issuance and will be payable semi-annually
on each March 1 and September 1, commencing on
March 1, 1998.
Sinking Fund............... None.
Optional Redemption........ The Notes will be redeemable at the option of the
Issuer at any time, in whole or in part, on or
after September 1, 2002, at the redemption prices
set forth herein (payable in cash), plus accrued
interest to the date of redemption. In addition, at
any time on or prior to September 1, 2000, the
Issuer may redeem in the aggregate up to $105.0
million in principal amount of the Notes with the
net cash proceeds of one or more Public Equity
Offerings at the redemption price set forth herein
(payable in cash), plus accrued interest to the
date of redemption; provided that (i) at least
$195.0 million in principal amount of the Notes
remains outstanding immediately after any such
redemption and (ii) such redemption is effected not
more than 60 days after the consummation of such
Public Equity Offering. See "Description of Notes
-- Redemption."
Change of Control.......... If a Change of Control occurs, the Issuer will be
required to offer to repurchase the Notes at a
purchase price equal to 101% of the principal
amount thereof, plus accrued interest to the date
of repurchase. Prior to making any such offer to
repurchase the Notes, the Issuer and/or Caterair
are required to repay in full all indebtedness
under the Senior Bank Financing and the Issuer may
be required to repay other Senior Debt of the
Issuer, the terms of which require repayment upon a
Change of Control, or obtain the requisite consents
under the Senior Bank Financing and any such other
Senior Debt to consummate such offer. At September
30, 1997, the aggregate amount of outstanding
Senior Debt of the Issuer (including borrowings and
guarantees under the Senior Bank Financing) was
approximately $250.0 million (excluding advances by
Caterair to SCIS and $24.7 million of letters of
credit). After repayment of all indebtedness under
the Senior Bank Financing and all such other Senior
Debt, there can be no assurance that the Issuer
would have sufficient funds available or would be
permitted under its other indebtedness agreements
to repurchase the Notes upon the occurrence of a
9
<PAGE> 16
Change of Control. See "Risk Factors -- Impact of a
Change of Control" and "Description of Notes --
Change of Control."
Offers to Purchase......... The Issuer and, under certain circumstances,
Caterair, will be required to offer to repurchase
Notes with the net cash proceeds of certain asset
sales at a purchase price equal to 100% of the
principal amount thereof, plus accrued interest to
the date of repurchase. See "Description of Notes
-- Certain Covenants -- Limitation on Asset Sales."
Unconditional Joint and
Several Senior Subordinated
Guarantees............... The Private Notes are, and the Exchange Notes will
be, unconditionally guaranteed (the "Guarantees")
by Sky Chefs, CII, certain other indirectly
wholly-owned domestic subsidiaries of SCIS, and
Caterair, on a joint and several senior
subordinated basis. The Guarantees are general
unsecured obligations of the Guarantors, and are
subordinated in right of payment to all existing
and future Guarantor Senior Debt. See "Description
of Notes -- Unconditional Joint and Several Senior
Subordinated Guarantees."
Ranking.................... The Notes are general unsecured obligations of the
Issuer, and are subordinated in right of payment to
all existing and future Senior Debt of the Issuer,
including the Issuer's obligations under the Senior
Bank Financing. At September 30, 1997, the
aggregate amount of outstanding Senior Debt of the
Issuer (including borrowings and guarantees under
the Senior Bank Financing) was approximately $250.0
million (excluding advances by Caterair to SCIS and
$24.7 million of letters of credit) and the Issuer
had approximately $65.3 million available to be
borrowed pursuant to the Revolving Credit
Agreement, and the Guarantors had approximately
$31.5 million of Guarantor Senior Debt outstanding
(excluding the loan by SCIS to Caterair and the
Guarantors' borrowings and guarantees under the
Senior Bank Financing). In addition, the Notes are
structurally subordinated to all liabilities of the
Issuer's subsidiaries (other than subsidiaries
which are Guarantors) because these liabilities
have priority over the claims of the Issuer as the
stockholder of such subsidiaries. Accordingly, any
right of the Issuer to receive assets of any of its
subsidiaries (other than a subsidiary which is a
Guarantor) upon such subsidiary's liquidation or
reorganization (and the consequent right of the
holders of Notes to participate in those assets)
will be subordinated to the claims of such
subsidiary's creditors. The Senior Bank Financing
also is secured by substantially all of the assets
of the Issuer and Caterair and their respective
domestic subsidiaries. See "Description of Notes --
Subordination."
Certain Covenants.......... The Indenture governing the Notes contains
covenants which, among other things, impose certain
limitations on the ability of the Issuer and its
Restricted Subsidiaries (as defined herein) and
Caterair and its subsidiaries to incur additional
indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the Issuer. Upon
consummation of the Exchange Offer, the Issuer will
be in material compliance with all financial and
operating covenants contained in its principal
indebtedness agreements.
10
<PAGE> 17
For additional information regarding the Notes and the Guarantees, see
"Description of Notes."
USE OF PROCEEDS
The Issuer will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer.
RISK FACTORS
See "Risk Factors" for a discussion of certain risks that investors should
consider in connection with the Exchange Offer and an investment in the Exchange
Notes.
11
<PAGE> 18
SUMMARY HISTORICAL FINANCIAL DATA
SCIS
The following table presents selected historical financial data of SCIS as
of and for each of the five years ended December 31, 1996, and the nine months
ended September 30, 1996 and 1997. For all periods presented prior to the
Combination, the consolidated financial information only reflects the
consolidated financial position, results of operations and cash flows of Sky
Chefs. The information presented for each of the five years ended December 31,
1996, except for the operating statistics, has been derived from the financial
statements of SCIS as audited by Coopers & Lybrand L.L.P., independent
accountants. The information presented for the nine months ended September 30,
1996 and 1997 has been derived from unaudited interim financial statements of
SCIS and, in the opinion of management, reflects a fair presentation of SCIS'
financial information. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of SCIS and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -----------------------
1992 1993 1994 1995(1) 1996(1) 1996(1) 1997(1)
-------- -------- -------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................................... $465,902 $458,317 $468,608 $ 739,102 $1,529,816 $1,142,102 $1,198,190
Cost of operations.......................... 411,726 391,669 388,276 634,375 1,352,359 1,014,782 1,046,467
-------- -------- -------- --------- ---------- ---------- ----------
Gross profit................................ 54,176 66,648 80,332 104,727 177,457 127,320 151,723
Depreciation and amortization............. 14,364 17,144 15,503 21,338 37,928 27,504 31,245
Selling, general and administrative....... 18,025 16,085 17,125 28,076 48,854 35,761 37,594
Integration expenses...................... -- -- -- 28,644 30,361 21,897 13,774
Other costs and expenses.................. 7,642 5,667 4,345 29,882 23,721 17,251 12,105
-------- -------- -------- --------- ---------- ---------- ----------
Operating income (loss)..................... 14,145 27,752 43,359 (3,213) 36,593 24,907 57,005
Interest income........................... (669) (507) (204) (2,458) (7,896) (5,303) (4,789)
Interest expense.......................... 8,223 6,703 5,748 19,715 50,431 38,870 39,589
Other (income) expense.................... 934 948 1,225 2,099 4,679 4,785 8,107
-------- -------- -------- --------- ---------- ---------- ----------
Earnings (loss) before income taxes......... 5,657 20,608 36,590 (22,569) (10,621) (13,445) 14,098
Provision (benefit) for income taxes...... 1,075 7,033 13,385 (6,525) 420 (4,800) 11,235
Extraordinary loss, net of tax(2)......... (15,573) -- -- -- -- -- (20,745)
-------- -------- -------- --------- ---------- ---------- ----------
Net income (loss)........................... $(10,991) $13,575 $23,205 $ (16,044) $ (11,041) $ (8,645) $ (17,882)
======== ======== ======== ========= ========== ========= =========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................ $222,046 $211,903 $243,016 $ 828,793 $ 853,456 $ 866,500 $ 888,866
Total debt and capital lease obligations.... 52,811 44,582 46,370 392,059 380,229 384,818 429,716
Shareholder's equity........................ 31,214 26,255 49,460 54,570 46,731 44,963 29,141
OTHER FINANCIAL DATA:
EBITDA(3)................................... $28,509 $44,896 $58,862 $ 18,125 $ 74,521 $ 52,411 $ 88,250
EBITDA margin(4)............................ 6.1% 9.8% 12.6% 2.5% 4.9% 4.6% 7.4%
Adjusted EBITDA(3).......................... $28,509 $44,896 $58,862 $ 64,769 $ 104,882 $ 74,308 $ 102,024
Adjusted EBITDA margin(4)................... 6.1% 9.8% 12.6% 8.8% 6.9% 6.5% 8.5%
Net cash flows from:
Operating activities...................... $ 2,600 $31,329 $21,159 $ 59,108 $ 39,182 $ 44,332 $ (22,524)
Investing activities...................... (9,298) (8,807) (23,357) (259,145) (31,352) 14,866 (41,039)
Financing activities...................... 6,114 (26,585) 9,233 242,411 (7,001) (11,355) 46,232
Cash interest expense(5).................... 8,223 6,703 5,748 19,190 47,515 27,400 37,646
Capital expenditures........................ 10,717 6,032 11,775 9,575 36,900 20,699 18,962
Ratio of Adjusted EBITDA to cash interest
expense(5)................................ 3.4x 2.2 x 2.7x 2.7x
Ratio (deficiency) of earnings to fixed
charges(6)................................ 1.3 x 2.2 x 3.2 x $ (22,569) $ (10,621) $ (13,445) 1.2x
Pro forma ratio (deficiency) of earnings to
fixed charges(6).......................... -- -- -- -- $ (6,719) $ (11,424) 1.3x
OPERATING STATISTICS(7):
Number of flights serviced (000's).......... 751 720 740 2,572 2,567 1,936 1,901
Number of airports served at end of
period.................................... 32 30 32 100 102 102 117
</TABLE>
- ---------------
(1) Results for the years ended December 31, 1995 and 1996 and for the nine
months ended September 30, 1996 and 1997 include the results of operations
acquired, licensed, leased and subleased from Caterair in connection with
the Combination consummated on September 29, 1995. See "Certain
Transactions -- The Combination."
12
<PAGE> 19
(2) Effective January 1, 1992, Sky Chefs adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Accounting for Postretirement
Benefits Other Than Pensions," which required the accrual of postretirement
benefits other than pensions during the employees' service with Sky Chefs.
The cumulative effect of this change in accounting principle was a decrease
in net income of $15.6 million in 1992. The extraordinary loss of $20.7
million for the nine months ended September 30, 1997 was the result of the
write off of $6.4 million of deferred financing fees (net of a $4.3 million
tax benefit) due to the retirement of SCIS' term loan indebtedness under the
Old Credit Agreement and the Existing Notes and the premium paid to retire
the Existing Notes of $14.3 million (net of a $9.5 million tax benefit).
(3) EBITDA represents earnings before interest expense, provision (benefit) for
income taxes, depreciation and amortization and other (income) expense.
Adjusted EBITDA excludes costs associated with the Combination including
consulting, transfer, severance and relocation costs and other transition
costs including a customer consent fee. EBITDA and Adjusted EBITDA are
presented because management believes they provide useful information
regarding SCIS' ability to incur and/or service debt. Neither EBITDA nor
Adjusted EBITDA should be considered in isolation nor as a substitute for
operating income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of SCIS' profitability or liquidity.
Calculation of Adjusted EBITDA for the periods presented is as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA......................................... $28,509 $44,896 $58,862 $18,125 $ 74,521 $52,411 $ 88,250
Adjustments:
Integration expenses......................... -- -- -- 8,200 30,361 21,897 13,774
Idle kitchen accruals........................ -- -- -- 17,229 -- -- --
Write-down of investment in subsidiary....... -- -- -- 3,215 -- -- --
Other transition expenses.................... -- -- -- 18,000 -- -- --
------- ------- ------- ------- -------- ------- --------
Adjusted EBITDA................................ $28,509 $44,896 $58,862 $64,769 $104,882 $74,308 $102,024
======= ======= ======= ======= ======== ======= ========
</TABLE>
(4) EBITDA margin represents EBITDA as a percentage of revenues. Adjusted EBITDA
margin represents Adjusted EBITDA as a percentage of revenues.
(5) Cash interest expense represents interest expense excluding the amortization
of deferred financing fees and other non-cash interest amounts of $0.5
million and $2.9 million for the years ended December 31, 1995 and 1996, and
$2.2 million and $2.0 million for the nine months ended September 30, 1996
and 1997, respectively.
(6) For purposes of computing the ratio (deficiency) of earnings to fixed
charges and pro forma ratio (deficiency) of earnings to fixed charges,
"earnings" consist of earnings (loss) before income taxes and fixed charges
before capitalized interest. "Fixed charges" consist of interest expense and
the portion of operating lease rental payments (29%) deemed representative
of the interest factor. The ratio (deficiency) of earnings to fixed charges
and pro forma ratio (deficiency) of earnings to fixed charges exclude the
guarantees by SCIS and certain of its subsidiaries of indebtedness of
Caterair. See the Financial Statements of SCIS and notes thereto included
elsewhere in this Prospectus.
(7) Operating statistics are management estimates for the periods presented.
13
<PAGE> 20
CATERAIR
The following table presents selected historical financial data of Caterair
as of and for each of the five years ended December 31, 1996 and the nine months
ended September 30, 1996 and 1997. The information presented for the three years
ended December 31, 1994 has been derived from the financial statements of
Caterair as audited by Arthur Andersen LLP, independent public accountants. The
information presented for the years ended December 31, 1995 and 1996 has been
derived from the financial statements of Caterair as audited by Coopers &
Lybrand L.L.P., independent accountants. The information presented for the nine
months ended September 30, 1996 and 1997 has been derived from unaudited interim
financial statements of Caterair and, in the opinion of management, reflects a
fair presentation of Caterair's financial information. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements of
Caterair and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- --------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Total revenues............... $ $ $ $ 18,953 $ 77,958 $ 58,876 $ 56,415
Cost of operations........... -- -- -- 7,649 30,416 24,082 22,207
-------- --------- --------- --------- --------- --------- --------
Gross profit................. -- -- -- 11,304 47,542 34,794 34,208
Depreciation and
amortization............. -- -- -- 3,400 11,806 9,023 8,218
Selling, general and
administrative........... -- -- -- 125 1,393 1,806 593
-------- --------- --------- --------- --------- --------- --------
Operating income............. -- -- -- 7,779 34,343 23,965 25,397
Interest income............ -- -- -- (264) (208) (155) (372)
Interest expense........... -- -- -- 4,979 18,450 14,308 13,443
Other (income) expense..... -- -- -- -- -- -- (611)
Income tax provision
(benefit)(2)............. -- -- -- (50,380) 8,044 3,527 3,622
-------- --------- --------- --------- --------- --------- --------
Income from continuing
operations................. -- -- -- 53,444 8,057 6,285 9,315
Income (loss) from
discontinued
operations............... (406) (251,745) (23,847) 27,244 1,682 2,837 (470)
Extraordinary loss, net of
tax(3)................... -- -- -- (4,319) -- -- (3,044)
-------- --------- --------- --------- --------- --------- --------
Net income (loss)............ $ (406) $(251,745) $ (23,847) $ 76,369 $ 9,739 $ 9,122 $ 5,801
======== ========= ========= ========= ========= ========= ========
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets(4).............. $722,197 $ 498,734 $ 498,828 $ 194,277 $ 173,948 $ 184,139 $164,217
Total debt and capital lease
obligations(5)............. 432,342 407,968 416,714 225,542 211,031 214,509 205,864
Shareholder's equity
(deficit).................. 124,166 (129,558) (155,908) (111,752) (101,990) (102,630) (96,189)
OTHER FINANCIAL DATA:
EBITDA(6).................... $ -- $ -- $ -- $ 11,179 $ 46,149 $ 32,988 $ 33,615
EBITDA margin(7)............. -- -- -- 59.0% 59.2% 56.0% 59.6%
Adjusted EBITDA(8)........... $102,095 $ 46,218 $ 63,918 $ 63,235 $ 48,407 $ 35,335 $ 33,429
Adjusted EBITDA margin(7).... 9.2% 4.4% 6.2% 8.0% 44.4% 39.8% 56.4%
Net cash flows from:
Operating activities....... $ 47,905 $ 18,541 $ 29,403 $ (67,591) $ 31,665 $ 31,566 $ 16,710
Investing activities....... (23,037) (17,133) (34,611) 196,755 (7,848) (8,133) (13,178)
Financing activities....... (24,607) 5,330 8,554 (141,566) (17,601) (21,420) (10,244)
Cash interest expense(9)..... -- -- -- 3,969 14,343 11,278 10,323
Capital expenditures(10)..... -- -- -- 6,128 2,300 2,300 --
Ratio of EBITDA to cash
interest expense(9)........ -- -- -- 2.8x 3.2x 2.9x 3.3x
Ratio of earnings to fixed
charges(11)................ -- -- -- 1.4x 1.6x 1.5x 1.6x
</TABLE>
- ---------------
(1) In connection with the Combination, Caterair discontinued most of its
airline catering services business and engaged in the business of leasing,
subleasing and licensing domestic property to its affiliates, Sky Chefs and
CII. See "Certain Transactions -- The Combination." Accordingly, all
operations prior to September 30, 1995 have been reflected as discontinued.
Identifiable revenues and expenses from discontinued operations have been
reclassified on the table above presenting summary historical
14
<PAGE> 21
financial data from their historical classification to separately identify
them as discontinued operations for the five years ended December 31, 1996,
and the nine months ended September 30, 1996 and 1997, respectively.
Discontinued operations include allocations of general and administrative
and interest expenses that were determined to be directly related to such
operations. Summary operating results for the discontinued operations are
as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- -------- ------- ------- ------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............... $1,103,746 $1,056,598 $1,023,143 $773,243 $31,169 $29,982 $2,872
Cost of operations........... 969,259 953,914 916,422 698,689 27,854 27,635 3,058
---------- ---------- ---------- -------- ------- ------- ------
Gross profit................. 134,487 102,684 106,721 74,554 3,315 2,347 (186)
Depreciation and
amortization............. 49,270 49,296 30,890 21,821 -- -- --
Selling, general and
administrative........... 32,392 46,055 42,803 27,698 1,057 -- --
Goodwill write-off and
restructuring charges.... -- 192,311 -- -- -- -- --
---------- ---------- ---------- -------- ------- ------- ------
Operating income............. 52,825 (184,978) 33,028 25,035 2,258 2,347 (186)
Interest expense, net...... 47,055 44,829 50,962 45,626 18 (13) 11
Other...................... 5,151 5,266 890 (674) 920 (1,003) 494
---------- ---------- ---------- -------- ------- ------- ------
Income (loss) before income
taxes...................... 619 (235,073) (18,824) (19,917) 1,320 1,331 (691)
Provision (benefit) for
income taxes............. 3,652 16,672 5,023 5,513 416 (262) (221)
Cumulative effect of change
in accounting
principle................ 2,627 -- -- -- -- -- --
---------- ---------- ---------- -------- ------- ------- ------
Income (loss) from
discontinued operations.... (406) (251,745) (23,847) (25,430) 904 1,593 (470)
Gain on disposition of
discontinued operations.... -- -- -- 52,674 778 1,244 --
---------- ---------- ---------- -------- ------- ------- ------
Income (loss) from
discontinued operations.... $ (406) $ (251,745) $ (23,847) $ 27,244 $ 1,682 $ 2,837 $ (470)
========= ========= ========= ======== ======= ======= ======
</TABLE>
Operating income in 1993 includes the impact of a $181.9 million impairment
of Caterair's goodwill related to United States operations and $10.4
million in charges for restructuring costs from a management reorganization
and kitchen consolidation, consisting primarily of severance and early
retirement expense.
(2) In connection with the Combination, Caterair evaluated the potential for
the realization of its deferred tax assets and subsequently recognized a
deferred income tax benefit of $50.5 million in 1995 for the realization of
a portion of the net deferred tax assets. The deferred benefit was offset
by $0.1 million of current tax expense.
(3) In connection with the Combination, Caterair repaid all of its indebtedness
outstanding prior to the Combination. Caterair recorded an extraordinary
loss of $4.3 million in 1995 consisting of the difference between amounts
paid to lenders for full extinguishment of debt and the carrying amounts of
debt including deferred financing costs and accrued interest. The
extraordinary loss of $3.0 million (net of a $1.2 million tax benefit) for
the nine months ended September 30, 1997 was due to the write off of
deferred financing fees as a result of the retirement of Caterair's term
loan indebtedness under the Old Credit Agreement.
(4) The decrease of $223.5 million in total assets in 1993 is primarily due to
the $181.9 million impairment of Caterair's goodwill related to United
States operations, a $9.4 million decrease in fixed assets due to the
acceleration of depreciation for six kitchen facilities resulting from a
change in business conditions at these locations, a $6.5 million increase
in the provision for bad debt expense resulting from the deteriorating
financial position of certain customers, as well as a $4.0 million
write-off of development costs for two international locations.
(5) Total debt and capital lease obligations represent current portion of
long-term debt, current portion of obligations under capital leases,
long-term debt, obligations under capital leases and the note payable by
15
<PAGE> 22
Caterair to SCIS made in connection with the Combination. See "Certain
Transactions -- The Combination."
(6) EBITDA represents earnings from continuing operations before interest
expense, provision (benefit) for income taxes, depreciation and
amortization and other (income) expense. EBITDA is presented because
management believes it provides useful information regarding Caterair's
ability to incur and/or service debt. EBITDA should not be considered in
isolation or as a substitute for operating income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with generally accepted accounting principles or as a measure
of Caterair's profitability or liquidity.
(7) EBITDA margin represents EBITDA as a percentage of total revenues from
continuing operations. Adjusted EBITDA margin represents Adjusted EBITDA as
a percentage of total revenues from continuing and discontinued operations.
(8) Adjusted EBITDA includes earnings from continuing and discontinued
operations (as presented in Note 1) before interest expense, provision for
income taxes, depreciation and amortization and other (income) expense, and
excludes other transition expenses associated with the Combination
including consulting, severance, and other costs. Adjusted EBITDA is
presented because management believes it provides useful information
regarding Caterair's ability to incur and/or service debt. Adjusted EBITDA
should not be considered in isolation or as a substitute for operating
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of Caterair's profitability or liquidity.
Calculation of Adjusted EBITDA for the periods presented is as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ -----------------
1992 1993 1994 1995 1996 1996 1997
-------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA from continuing operations........... $ -- $ -- $ -- $11,179 $46,149 $32,988 $33,615
EBITDA from discontinued operations......... 102,095 46,218 63,918 46,856 2,258 2,347 (186)
Adjustments:
Other transition expenses................. -- -- -- 5,200 -- -- --
-------- ------- ------- ------- ------- ------- -------
Adjusted EBITDA............................. $102,095 $46,218 $63,918 $63,235 $48,407 $35,335 $33,429
======== ======= ======= ======= ======= ======= =======
</TABLE>
(9) Cash interest expense from continuing operations excludes the amortization
of deferred financing fees and interest expense on the note payable to SCIS
of $1.1 million and $4.1 million for the years ended December 31, 1995 and
1996, and $3.0 million and $3.1 million for the nine months ended September
30, 1996 and 1997, respectively. Cash interest expense included in income
(loss) from discontinued operations was $42.9 million, $40.8 million, $42.9
million and $39.6 million for the years ended December 31, 1992, 1993, 1994
and 1995, respectively.
(10) Capital expenditures from discontinued operations were $22.4 million, $21.8
million, $34.6 million and $11.1 million for the years ended December 31,
1992, 1993, 1994 and 1995, respectively.
(11) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income
taxes and fixed charges before capitalized interest. "Fixed charges"
consist of interest expense and the portion of operating lease rental
payments (29%) deemed representative of the interest factor. The ratio of
earnings to fixed charges excludes the guarantees by Caterair of
indebtedness of SCIS. See the Financial Statements of Caterair and notes
thereto included elsewhere in this Prospectus.
16
<PAGE> 23
RISK FACTORS
The risk factors set forth below, as well as the other information set
forth in this Prospectus, should be carefully considered before deciding to
surrender the Private Notes in exchange for Exchange Notes pursuant to the
Exchange Offer.
SUBSTANTIAL LEVERAGE
The Company has significant indebtedness. At September 30, 1997, the
Company had total combined indebtedness of approximately $591.5 million
(excluding the loan by SCIS to Caterair, advances by Caterair to SCIS,
guarantees of indebtedness and $24.7 million of letters of credit). In addition,
the Company may borrow additional amounts under the Senior Bank Financing or
otherwise. See "The Refinancing," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Description of
Certain Indebtedness -- Senior Bank Financing" and the Financial Statements and
notes thereto included elsewhere in this Prospectus.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes including, but not limited to, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited; (ii) a substantial portion of the
Company's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its indebtedness; (iii) the agreements governing
the Company's indebtedness will contain certain restrictive financial and
operating covenants that could limit the Company's ability to compete and
expand; and (iv) the Company's substantial leverage may make it more vulnerable
to economic downturns, limit its ability to withstand competitive pressures and
reduce its flexibility in responding to changing business and economic
conditions. The ability of the Company to pay interest and principal on the
Notes, to satisfy its other debt obligations and to make planned expenditures
will be dependent on the future operating performance of the Company, which
could be affected by changes in economic conditions and other factors, including
factors beyond the control of the Company. A failure to comply with the
covenants and other provisions of its debt instruments could result in events of
default under such instruments, which could permit acceleration of the debt
under such instruments and in some cases acceleration of debt under other
instruments that contain cross-default or cross-acceleration provisions. The
Company believes that cash flow from operations will be sufficient to cover its
debt service requirements and other requirements. However, if the Company is at
any time unable to generate sufficient cash flow from operations to service its
indebtedness, it may be required to seek to renegotiate the terms of the
instruments relating to that indebtedness or seek to refinance all or a portion
of that indebtedness or to obtain additional financing. There can be no
assurance that the Company will be able to successfully renegotiate such terms
or that any such refinancing would be possible or that any additional financing
could be obtained, or obtained on terms that are favorable or acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Certain Indebtedness -- Senior Bank
Financing."
SUBORDINATION OF THE NOTES AND GUARANTEES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Debt of the Issuer, including the
Issuer's obligations under the Senior Bank Financing. In the event of the
bankruptcy, liquidation, dissolution, reorganization or other winding up of the
Issuer, or the acceleration of indebtedness under the Senior Bank Financing, the
assets of the Issuer will be available to pay obligations on the Notes only
after all Senior Debt of the Issuer has been paid in full, and there may not be
sufficient assets remaining to pay any or all amounts due on the Notes. In
addition, under certain circumstances, the Issuer may not pay principal of,
premium, if any, or interest on, or any other amounts owing in respect of, the
Notes, or purchase, redeem or otherwise retire the Notes, if a payment default
or a non-payment default exists with respect to certain Senior Debt of the
Issuer and, in the case of a non-payment default, a payment blockage notice has
been received by the Trustee. See "Description of Notes -- Subordination." Each
Guarantor's Guarantee is subordinated in right of payment to the prior payment
in full of all existing and future Guarantor Senior Debt of such Guarantors,
including guarantees or borrowings under the Senior Bank Financing. At September
30, 1997, the Issuer had approximately $250.0 million of Senior Debt (including
borrowings and guarantees under
17
<PAGE> 24
the Senior Bank Financing but excluding advances by Caterair to SCIS and $24.7
million of letters of credit) and had approximately $65.3 million available to
be borrowed pursuant to the Senior Bank Financing, and the Guarantors had
approximately $31.5 million of Guarantor Senior Debt outstanding (excluding the
loan by SCIS to Caterair and the Guarantors' borrowings and guarantees under the
Senior Bank Financing). In addition, the Notes are structurally subordinated to
all liabilities of the subsidiaries of the Issuer which are not Guarantors. The
Indenture will limit, but not prohibit, the incurrence by the Issuer and the
Guarantors of additional indebtedness, including Senior Debt or Guarantor Senior
Debt, as the case may be.
NON-GUARANTOR SUBSIDIARIES' CREDITORS' CLAIMS EFFECTIVELY SENIOR TO THE NOTES
Substantially all operations of the Issuer are conducted through its
subsidiaries and substantially all of its assets are owned or leased by those
subsidiaries. Accordingly, the Issuer's cash flow and consequent ability to meet
its obligations depends to a significant extent upon the earnings of those
subsidiaries and the availability of those earnings to the Issuer by way of
dividends, distributions or repayment of advances. Claims of creditors
(including trade creditors) of those subsidiaries may reduce significantly the
funds otherwise available from the operations of such subsidiaries. Certain
domestic subsidiaries of the Issuer have jointly and severally guaranteed the
Notes on a basis that is subordinated to the guarantees provided under the
Senior Bank Financing. Subject to the considerations described below under "--
Fraudulent Conveyance Considerations; Avoidance of Guarantees," the Guarantees
provide the holders of the Notes with a subordinated direct claim to the assets
of such subsidiaries. Substantially all of the assets of the Issuer and the
Guarantors are subject to security interests in favor of the lenders securing
the indebtedness under the Senior Bank Financing. See "Description of Certain
Indebtedness -- Senior Bank Financing" and "Description of
Notes -- Unconditional Joint and Several Senior Subordinated Guarantees."
REPATRIATION AND CURRENCY RISKS
A significant portion of the Company's earnings is generated outside the
United States. International operations are subject to a number of special risks
that may increase in significance to the Company in future years if the
Company's international operations expand. These special risks include currency
exchange rate fluctuations, trade barriers, and political and economic risks in
less developed countries such as hyperinflation, governmental expropriation and
exchange controls, and other governmental restrictions that may limit the
ability to repatriate funds, and consequently reduce the cash flow available to
meet debt service requirements and other obligations of the Company, including
payments of principal, premium, if any, and interest on the Notes.
The Company's revenues and expenses for its international operations
generally are denominated in local currency. The Company generally is exposed to
foreign currency exchange rate fluctuations to the extent that such fluctuations
affect the amount that may be repatriated from international subsidiaries and
affiliates to the United States through dividends or management fee
arrangements.
In addition, the earnings of international subsidiaries and affiliates paid
out to the Company through dividends and fee arrangements may be subject to
foreign withholding taxes that reduce the cash flow available to meet debt
service requirements and other obligations of the Company.
OPERATIONS THROUGH FOREIGN SUBSIDIARIES
The Company conducts its foreign operations principally through foreign
subsidiaries and affiliates and substantial assets are owned by those
subsidiaries and affiliates. Many of the foreign operations are conducted
through joint ventures, over which the Company may not have operational or
financial control. Approximately 40% of the Company's food service revenues for
the twelve months ended September 30, 1997 was derived from foreign operations.
Accordingly, the Company's cash flows and consequent ability to meet its
obligations will depend to a significant extent upon the earnings of those
foreign subsidiaries and joint ventures and the availability of those earnings
to the Company by way of dividends, distributions, payment of fees or repayment
of advances. In addition, the Indenture permits foreign subsidiaries of the
Issuer to incur certain indebtedness containing provisions restricting such
foreign subsidiaries from making funds available to the Issuer by way of
18
<PAGE> 25
dividends, distributions, payment of fees or repayment of advances. Repatriation
and currency risks, claims of creditors (including trade creditors) of those
subsidiaries and joint ventures may reduce significantly the funds otherwise
available to the Company from the operations of such subsidiaries and
affiliates. See "-- Repatriation and Currency Risks."
RESTRICTIONS UNDER INDEBTEDNESS AND OTHER AGREEMENTS
The Indenture contains covenants which, among other things, impose certain
limitations on the ability of the Issuer and its Restricted Subsidiaries and
Caterair and its subsidiaries to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or otherwise
dispose of all or substantially all of their respective assets. The Term Loan
Agreement contains restrictions similar to the foregoing. In addition, the
Revolving Credit Agreement contains restrictive covenants which, generally, are
more restrictive than those contained in the Indenture, and prohibits the Issuer
from prepaying its subordinated indebtedness. The Revolving Credit Agreement
also requires the Issuer and Caterair to maintain specified combined financial
ratios and satisfy certain combined financial tests. Certain other agreements of
the Issuer and the Guarantors require the Issuer and/or the Guarantors to
maintain certain financial ratios and satisfy certain financial tests. The
Issuer's and the Guarantors' ability to meet those financial ratios and
financial tests can be affected by events beyond their control, and there can be
no assurance that the Issuer and/or any Guarantor will meet those tests. A
breach of any of these covenants could result in a default under the Senior Bank
Financing, the Indenture and/or other agreements. If an event of default occurs
under the Senior Bank Financing, the lenders could elect to declare all amounts
outstanding thereunder, together with accrued interest, to be immediately due
and payable. If the Issuer and/or Caterair are unable to repay those amounts,
the lenders could proceed against the collateral granted to them to secure the
indebtedness outstanding under the Senior Bank Financing. Substantially all the
assets of the Issuer and Caterair and their respective domestic subsidiaries are
pledged as security under the Senior Bank Financing. See "Description of Certain
Indebtedness -- Senior Bank Financing." A default under certain other agreements
to which the Issuer or a Guarantor is a party could have a material adverse
effect on the Issuer or the Guarantors.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent on the performance
and continued service of Messrs. Kay, Tolbert and Boyd. The loss of the services
of any of such persons could have a material adverse effect on the business and
operations of the Company. Certain of the Company's executive officers have
entered into employment agreements with the Company which expire on December 31,
2001. See "Management" and "Executive Compensation."
DEPENDENCE ON AIRLINE INDUSTRY TRENDS
The Company's revenues are largely dependent upon the number of passengers
who travel on airlines, the number of airline flights serviced by the Company
and the level of meal service provided to passengers. As a result, a decline in
the number of airline flights or in passenger traffic, or a reduction or
downgrading of airline meal services, as has been the case recently with many
North American carriers, or an increase in the number of no-frills airlines, or
the flights or passengers serviced by such airlines, could have a significant
adverse effect on the Company's revenues and earnings. See "The Airline Catering
Industry" and "Business -- Customers." Problems similar to those facing the
North American airline industry have begun to affect the worldwide airline
industry, which could take similar actions in response. Such actions by the
worldwide airline industry could have a significant adverse effect on the
Company's revenues and earnings for its international operations. Certain
events, including economic slowdowns, increased aviation fuel costs, airline
labor strikes, acts of terrorism against airlines, airline accidents, and war,
historically have had a significant negative impact on airline profitability
and, to a lesser extent, traffic. These matters are beyond the Company's
control, and the likelihood that they may occur and their effect on the Company
cannot be predicted.
19
<PAGE> 26
IMPACT OF CUSTOMER BANKRUPTCY OR CESSATION OF OPERATIONS
In the past several years, a number of United States airlines have merged
with other airlines, sought protection under federal bankruptcy laws or ceased
operating altogether. To the extent that the Company has a significant business
relationship with an airline that reduces or ceases operations, and passengers
that frequented that airline elect to fly on another airline with which the
Company does not have a significant business relationship or which provides a
lesser level of meal service, the Company will lose revenues, and that loss may
be significant. In addition, the filing of a bankruptcy petition or the
cessation of operations by an airline may result in the nonpayment of some or
all accounts receivable owed by that airline to the Company. See "The Airline
Catering Industry."
DEPENDENCE ON KEY CUSTOMERS
During 1996, services provided to American accounted for 30% of the
Company's food service revenues. The loss of a significant customer, including
American, or a large portion of the business with a significant customer, could
have a material adverse effect on the Company's financial condition, results of
operations and cash flows.
Although the Company has two long-term contracts with American, these
contracts specify quality performance standards; failure to comply with these
standards may result in financial penalties or termination of such contracts at
the affected airport (or in some cases, at a comparable airport), and, in
certain cases, the purchase of the kitchen at the affected airport by American.
During 1997, American terminated the Company's services at six Caterair Kitchens
due to the Company's failure to comply with those quality standards. Based on
current service levels, the Company estimates that such terminations will result
in a reduction of annual revenues of approximately $34 million. See "Business --
Customers -- Contracts."
A substantial portion of the Company's revenues are derived from customers
with whom the Company does not have long-term contracts. These customers are
thus not restricted by contract from ceasing to do business with the Company on
little or no notice. There can be no assurance that historic levels of business
from any customer of the Company will be maintained in the future. See "Business
- -- Customers."
COMPETITION
The airline catering business is highly competitive. The Company competes
in substantially all of its markets with other airline catering companies and,
at certain airports, with airport terminal concession operations. In addition,
there is unutilized kitchen capacity at many airports which may lead to
increased competition among airline caterers and gives airlines leverage in
negotiating contracts with all caterers located at such airports. Furthermore,
there are few competitive restraints for a new caterer or an airline to begin
catering in any market. The Company competes primarily with other independent
caterers, and to some extent with captive caterers, in the United States market.
Most major airports outside the United States are dominated by the local flag
carriers, which have historically maintained their own catering operations to
serve locations where they have a significant share of air passenger traffic.
See "Business -- Competition." A substantial portion of the Company's revenues
is derived from customers with whom the Company does not have long-term
contracts. See "Business -- Customers."
CONTROL OF THE COMPANY
Onex owns (or has voting control over) approximately 78% of the OFSI Class
A Common Stock (including shares acquirable under the OFSI Warrants) and 100% of
the OFSI Class B Common Stock. SCIS, Sky Chefs and CII are each direct or
indirect wholly-owned subsidiaries of OFSI. In addition, Onex and its affiliates
own more than 51% of the outstanding voting capital stock, and 25% of the
outstanding non-voting capital stock, of Caterair Holdings. Caterair is a
wholly-owned subsidiary of Caterair Holdings.
As a result of the foregoing relationships, Onex and its affiliates
indirectly effectively control the affairs of SCIS and Caterair. Therefore, Onex
and its affiliates have the ability to determine the outcome of most corporate
actions requiring stockholder approval, including, among other things, the
election of the board of
20
<PAGE> 27
directors of SCIS and Caterair, the adoption of amendments to SCIS' and
Caterair's respective certificates of incorporation and the approval of mergers
and sales of all or substantially all of SCIS' and Caterair's assets. Mr. Gerald
W. Schwartz, the Chairman, President and Chief Executive Officer of Onex, owns
stock with a majority of the voting power of Onex and its affiliates and,
therefore, effectively controls the affairs of SCIS and Caterair.
IMPACT OF A CHANGE OF CONTROL
Upon a Change of Control, the Issuer will be required to offer to
repurchase all of the outstanding Notes at 101% of the principal amount thereof,
plus accrued interest to the date of repurchase. There can be no assurance that
the Issuer will have sufficient funds available or will be permitted by its
other indebtedness agreements to repurchase the Notes upon the occurrence of a
Change of Control. In particular, a Change of Control constitutes a default
under the Senior Bank Financing and may cause an acceleration under certain
other Senior Debt of the Issuer, if any, in which case the subordination
provisions of the Notes would require payment in full of all such Senior Debt of
the Issuer before repurchase of the Notes. See "Description of Notes -- Change
of Control" and "Description of Notes -- Subordination." The inability to repay
Senior Debt of the Issuer, if accelerated, and to repurchase all of the tendered
Notes, would constitute an event of default under the Indenture.
FRAUDULENT CONVEYANCE CONSIDERATIONS; AVOIDANCE OF GUARANTEES
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes or
any Guarantee in favor of other existing or future creditors of the Issuer or a
Guarantor.
The incurrence by the Issuer of the Notes is subject to review under
relevant federal and state fraudulent conveyance laws in a bankruptcy case or a
lawsuit by or on behalf of unpaid creditors of the Issuer or a representative of
such creditors, such as a trustee or the Issuer as debtor-in-possession. Under
such laws, if a court were to find that, at the time the Notes were issued,
either (i) the Issuer issued the Notes with the intent of hindering, delaying or
defrauding creditors, or (ii) the Issuer received less than a reasonably
equivalent value or fair consideration for issuing the Notes and the Issuer (a)
was insolvent or rendered insolvent by reason of the issuance of the Notes, (b)
was engaged in business or a transaction, or was about to engage in business or
a transaction, for which any property remaining with the Issuer after issuance
of the Notes constituted an unreasonably small amount of capital, (c) intended
to incur, or believed that it would incur, debts beyond its ability to pay as
they matured or (d) was a defendant in an action for money damages or had a
judgment for money damages docketed against it (if, in either case, after final
judgment, the judgment is unsatisfied), such court could void the Issuer's
obligations under the Notes and direct the repayment of any amounts paid
thereunder to the Issuer to a fund for the benefit of the Issuer's creditors, or
take other action detrimental to the holders of the Notes. Such other action
could include subordinating the Notes to claims of existing or future creditors
of the Issuer.
Similarly, indebtedness under the Guarantees of the Notes also may be
subject to review under relevant federal and state fraudulent conveyance laws in
a bankruptcy of a Guarantor or in a lawsuit brought by or on behalf of creditors
of a Guarantor under the same standards described above. Pursuant to the terms
of the Guarantees, the liability of each Guarantor is limited to the maximum
amount of indebtedness permitted, at the time of the grant of such Guarantee, to
be incurred in compliance with fraudulent conveyance or similar laws.
To the extent any Guarantee was avoided as a fraudulent conveyance, limited
as described above, or held unenforceable for any other reason, holders of the
Notes would, to such extent, cease to have a claim in respect of such Guarantee
and, to such extent, would be creditors solely of the Issuer and any Guarantor
whose Guarantee was not avoided, limited, or held unenforceable. In such event,
the claims of the holders of the Notes against the issuer of an avoided, limited
or unenforceable Guarantee would be subject to the prior payment of all
liabilities of such Guarantor. There can be no assurance that, after providing
for all prior claims, there would be sufficient assets to satisfy the claims of
the holders of Notes.
21
<PAGE> 28
LACK OF PUBLIC MARKET FOR THE NOTES
The Exchange Notes are a new issue of securities for which there is
currently no market. There can be no assurance regarding the future development
of a market for the Exchange Notes, or the ability of holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders may be
able to sell their Exchange Notes. If such a market were to develop, the
Exchange Notes could trade at prices that may be higher or lower than their
principal amount depending on many factors, including prevailing interest rates,
the Issuer's and the Guarantors' operating results and the market for similar
securities. Each of the Initial Purchasers has advised the Issuer that it
currently intends to make a market in the Exchange Notes. The Initial Purchasers
are not obligated to do so, however, and any market-making activities with
respect to the Exchange Notes may be discontinued at any time without notice.
Therefore, there is no assurance as to the liquidity of any trading market for
the Exchange Notes or that an active public market for the Exchange Notes will
develop. The Issuer does not intend to apply for listing or quotation of the
Exchange Notes on any securities exchange or stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There is no assurance that the market for the Exchange Notes will
not be subject to similar disruptions. Any such disruption may have an adverse
effect on holders of the Exchange Notes.
CONSEQUENCES OF FAILURE TO COMPLY WITH PROCEDURES FOR TENDER OF PRIVATE NOTES
The Exchange Notes will be issued in exchange for the Private Notes only
after timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Issuer is under any
duty to give notification of defects or irregularities with respect to tenders
of Private Notes for exchange. Private Notes that are not tendered or are
tendered but not accepted will, following consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof. In
addition, any holder of Private Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. See "The Exchange
Offer" and "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE PRIVATE NOTES
The Private Notes have not been registered under the Securities Act and are
subject to substantial restrictions on transfer. Private Notes that are not
tendered in exchange for Exchange Notes or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. The Issuer does not currently
anticipate that it will register the Private Notes under the Securities Act. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected due to the limited amount, or "float," of the
Private Notes that are expected to remain outstanding following the Exchange
Offer. Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See "The
Exchange Offer" and "Plan of Distribution."
22
<PAGE> 29
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of SCIS and
the Guarantors under the Registration Rights Agreement. SCIS will not receive
any cash proceeds from, and has agreed to bear the expenses of, the Exchange
Offer. In consideration for issuing the Exchange Notes as contemplated in this
Prospectus, SCIS will receive, in exchange, Private Notes in like principal
amount. The Private Notes surrendered in exchange for the Exchange Notes will be
retired and cancelled. Accordingly, issuance of the Exchange Notes will not
result in any increase in the outstanding indebtedness of SCIS and the
Guarantors.
THE REFINANCING
On August 28, 1997, the Issuer and the Guarantors consummated the Offering
in a transaction exempt from the registration requirements of the Securities
Act. The price to investors of the Private Notes was $299.6 million in the
aggregate and the principal amount of the Private Notes is $300.0 million in the
aggregate.
The net proceeds to SCIS from the Offering, after deduction of discounts
and offering expenses, were approximately $289.9 million. SCIS used $209.4
million of the net proceeds to repay and retire all of its outstanding term loan
indebtedness under the Old Credit Agreement. The indebtedness of SCIS under the
Old Credit Agreement which was repaid had maturities ranging from September 15,
1997 to September 15, 2003 and accrued interest at fluctuating rates (an average
weighted rate of 8.7% per year at August 21, 1997).
On August 25, 1997, SCIS commenced a tender offer for all of the Existing
Notes. In connection therewith, SCIS offered to purchase all of the Existing
Notes at a price equal to 117% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase and solicited consents to the Existing
Indenture Amendments. Holders of Existing Notes who consented to the Existing
Indenture Amendments received a payment equal to 2% of the principal amount of
the Existing Notes for which a consent was delivered. Holders of the Existing
Notes were not permitted to tender their Existing Notes without consenting to
the Existing Indenture Amendments or to consent to the Existing Indenture
Amendments without tendering their Existing Notes.
The Offer to Purchase expired on September 24, 1997. All of the Existing
Notes were tendered by the holders thereof and accepted for payment by SCIS in
connection with the Offer to Purchase. SCIS paid $148.75 million (excluding
$7.85 million of accrued interest) in the aggregate in consideration of the
repurchase of the Existing Notes and the related consents. SCIS used
approximately $80.50 million of the net proceeds from the Offering and
approximately $68.25 million of borrowings under the Term Loan Agreement to fund
such payments.
In connection with the Offering, SCIS, certain other parties and certain
lenders entered into the Revolving Credit Agreement, and Caterair, SCIS, certain
other parties and certain lenders entered into the Term Loan Agreement. The
Revolving Credit Agreement, together with the Term Loan Agreement, constitute
the Senior Bank Financing. See "Description of Certain Indebtedness -- Senior
Bank Financing."
Concurrently with the Offering, Caterair, a Guarantor of the Notes, repaid
and retired all of its outstanding indebtedness under the Old Credit Agreement
(approximately $155.9 million) with borrowings under the Term Loan Agreement.
See "Description of Certain Indebtedness -- Senior Bank Financing."
23
<PAGE> 30
CAPITALIZATION
The following table sets forth the historical capitalization of SCIS and
Caterair as of September 30, 1997. See "The Refinancing." The following table
should be read in conjunction with the Financial Statements and the notes
thereto included elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SCIS
Total debt and capital lease obligations:
Borrowings under the Revolving Credit Agreement(1)................. $ --
Borrowings under the Term Loan Agreement........................... 90,000
Foreign loans...................................................... 10,015
9 1/4% Senior Subordinated Notes due 2007.......................... 300,000
Capital lease obligations.......................................... 29,701
--------
Total debt and capital lease obligations(2)................... 429,716
Shareholder's equity.......................................... 29,141
--------
Total capitalization.......................................... $458,857
========
CATERAIR
Total debt and capital lease obligations:
Borrowings under the Term Loan Agreement........................... $160,000
Loan from SCIS..................................................... 44,075
Capital lease obligations.......................................... 1,788
--------
Total debt and capital lease obligations(3)................... 205,863
Shareholder's deficit......................................... (96,189)
--------
Total capitalization.......................................... $109,674
========
</TABLE>
- ---------------
(1) Excludes $24.7 million of letters of credit.
(2) Excludes guarantees of Caterair's indebtedness.
(3) Excludes guarantees of SCIS' indebtedness.
24
<PAGE> 31
SELECTED HISTORICAL FINANCIAL DATA
SCIS
The following table presents selected historical financial data of SCIS as
of and for each of the five years ended December 31, 1996, and the nine months
ended September 30, 1996 and 1997. For all periods presented prior to the
Combination the consolidated financial information only reflects consolidated
financial position, results of operations and cash flows of Sky Chefs. The
information presented for each of the five years ended December 31, 1996, except
for the operating statistics, has been derived from the financial statements of
SCIS as audited by Coopers & Lybrand L.L.P., independent accountants. The
information presented for the nine months ended September 30, 1996 and 1997 has
been derived from unaudited interim financial statements of SCIS and, in the
opinion of management, reflects a fair presentation of SCIS' financial
information. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of SCIS and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- ------------------------
1992 1993 1994 1995(1) 1996(1) 1996(1) 1997(1)
-------- -------- -------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................... $465,902 $458,317 $468,608 $ 739,102 $1,529,816 $1,142,102 $1,198,190
Cost of operations................. 411,726 391,669 388,276 634,375 1,352,359 1,014,782 1,046,467
-------- -------- -------- --------- ---------- ---------- ----------
Gross profit....................... 54,176 66,648 80,332 104,727 177,457 127,320 151,723
Depreciation and amortization.... 14,364 17,144 15,503 21,338 37,928 27,504 31,245
Selling, general and
administrative................. 18,025 16,085 17,125 28,076 48,854 35,761 37,594
Integration expenses............. -- -- -- 28,644 30,361 21,897 13,774
Other costs and expenses......... 7,642 5,667 4,345 29,882 23,721 17,251 12,105
-------- -------- -------- --------- ---------- ---------- ----------
Operating income (loss)............ 14,145 27,752 43,359 (3,213) 36,593 24,907 57,005
Interest income.................. (669) (507) (204) (2,458) (7,896) (5,303) (4,789)
Interest expense................. 8,223 6,703 5,748 19,715 50,431 38,870 39,589
Other (income) expense........... 934 948 1,225 2,099 4,679 4,785 8,107
-------- -------- -------- --------- ---------- ---------- ----------
Earnings (loss) before income
taxes............................ 5,657 20,608 36,590 (22,569) (10,621) (13,445) 14,098
Provision (benefit) for income
taxes.......................... 1,075 7,033 13,385 (6,525) 420 (4,800) 11,235
Extraordinary loss, net of
tax(2)......................... (15,573) -- -- -- -- -- (20,745)
-------- -------- -------- --------- ---------- ---------- ----------
Net income (loss).................. $(10,991) $ 13,575 $ 23,205 $ (16,044) $ (11,041) $ (8,645) $ (17,882)
======== ======== ======== ========= ========= ========= =========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets....................... $222,046 $211,903 $243,016 $ 828,793 $ 853,456 $ 866,500 $ 888,866
Total debt and capital lease
obligations...................... 52,811 44,582 46,370 392,059 380,229 384,818 429,716
Shareholder's equity............... 31,214 26,255 49,460 54,570 46,731 44,963 29,141
OTHER FINANCIAL DATA:
EBITDA(3).......................... $ 28,509 $ 44,896 $ 58,862 $ 18,125 $ 74,521 $ 52,411 $ 88,250
EBITDA margin(4)................... 6.1% 9.8% 12.6% 2.5% 4.9% 4.6% 7.4%
Adjusted EBITDA(3)................. $ 28,509 $ 44,896 $ 58,862 $ 64,769 $ 104,882 $ 74,308 $ 102,024
Adjusted EBITDA margin(4).......... 6.1% 9.8% 12.6% 8.8% 6.9% 6.5% 8.5%
Net cash flows from:
Operating activities............. $ 2,600 $ 31,329 $ 21,159 $ 59,108 $ 39,182 $ 44,332 $ (22,524)
Investing activities............. (9,298) (8,807) (23,357) (259,145) (31,352) 14,866 (41,039)
Financing activities............. 6,114 (26,585) 9,233 242,411 (7,001) (11,355) 46,232
Cash interest expense(5)........... 8,223 6,703 5,748 19,190 47,515 27,400 37,646
Capital expenditures............... 10,717 6,032 11,775 9,575 36,900 20,699 18,962
Ratio of Adjusted EBITDA to cash
interest expense(5).............. 3.5x 6.7x 10.2x 3.4x 2.2x 2.7x 2.7x
Ratio (deficiency) of earnings to
fixed charges(6)................. 1.3x 2.2x 3.2x $ (22,569) $ (10,621) $ (13,445) 1.2x
Pro forma ratio (deficiency) of
earnings to fixed charges(6)..... -- -- -- -- $ (6,719) $ (11,424) 1.3x
OPERATING STATISTICS(7):
Number of flights serviced
(000's).......................... 751 720 740 2,572 2,567 1,936 1,901
Number of airports served at end of
period........................... 32 30 32 100 102 102 117
</TABLE>
- ---------------
(1) Results for the years ended December 31, 1995 and 1996 and for the nine
months ended September 30, 1996 and 1997 include the results of operations
acquired, licensed, leased and subleased from Caterair in connection with
the Combination consummated on September 29, 1995. See "Certain
Transactions -- The Combination."
25
<PAGE> 32
(2) Effective January 1, 1992, Sky Chefs adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Accounting for Postretirement
Benefits Other Than Pensions," which required the accrual of postretirement
benefits other than pensions during the employees' service with Sky Chefs.
The cumulative effect of this change in accounting principle was a decrease
in net income of $15.6 million in 1992. The extraordinary loss of 20.7
million for the nine months ended September 30, 1997 was the result of the
writeoff of $6.4 million of deferred financing fees (net of a $4.3 million
tax benefit) due to the retirement of SCIS' term loan indebtedness under the
Old Credit Agreement and the Existing Notes and the premium paid to retire
the Existing Notes of $14.3 million (net of a $9.5 million tax benefit).
(3) EBITDA represents earnings before interest expense, provision (benefit) for
income taxes, depreciation and amortization and other (income) expense.
Adjusted EBITDA excludes costs associated with the Combination including
consulting, transfer, severance and relocation costs and other transition
costs including a customer consent fee. EBITDA and Adjusted EBITDA are
presented because management believes they provide useful information
regarding SCIS' ability to incur and/or service debt. Neither EBITDA nor
Adjusted EBITDA should be considered in isolation nor as a substitute for
operating income, cash flows from operating activities and other income or
cash flow statement data prepared in accordance with generally accepted
accounting principles or as a measure of SCIS' profitability or liquidity.
Calculation of Adjusted EBITDA for the periods presented is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA........................................... $28,509 $44,896 $58,862 $18,125 $ 74,521 $52,411 $ 88,250
Adjustments:
Integration expenses........................... -- -- -- 8,200 30,361 21,897 13,774
Idle kitchen accruals.......................... -- -- -- 17,229 -- -- --
Writedown of investment in subsidiary.......... -- -- -- 3,215 -- -- --
Other transition expenses...................... -- -- -- 18,000 -- -- --
------- ------- ------- ------- ------- ------- -------
Adjusted EBITDA.................................. $28,509 $44,896 $58,862 $64,769 $104,882 $74,308 $102,024
======= ======= ======= ======= ======= ======= =======
</TABLE>
(4) EBITDA margin represents EBITDA as a percentage of revenues. Adjusted EBITDA
margin represents Adjusted EBITDA as a percentage of revenues.
(5) Cash interest expense represents interest expense excluding the amortization
of deferred financing fees and other non-cash interest amounts of $0.5
million and $2.9 million for the years ended December 31, 1995 and 1996, and
$2.2 million and $2.0 million for the nine months ended September 30, 1996
and 1997, respectively.
(6) For purposes of computing the ratio (deficiency) of earnings to fixed
charges and pro forma ratio (deficiency) of earnings to fixed charges,
"earnings" consist of earnings before income taxes and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense and the
portion of operating lease rental payments (29%) deemed representative of
the interest factor. The ratio (deficiency) of earnings to fixed charges and
pro forma ratio (deficiency) of earnings to fixed charges exclude the
guarantees by SCIS and certain of its subsidiaries of indebtedness of
Caterair. See the Financial Statements of SCIS and notes thereto included
elsewhere in this Prospectus.
(7) Operating statistics are management estimates for the periods presented.
26
<PAGE> 33
CATERAIR
The following table presents selected historical financial data of Caterair
as of and for each of the five years ended December 31, 1996 and the nine months
ended September 30, 1996 and 1997. The information presented for the three years
ended December 31, 1994 has been derived from the financial statements of
Caterair as audited by Arthur Andersen LLP, independent public accountants. The
information presented for the years ended December 31, 1995 and 1996 has been
derived from the financial statements of Caterair as audited by Coopers &
Lybrand L.L.P., independent accountants. The information presented for the nine
months ended September 30, 1996 and 1997 has been derived from unaudited interim
financial statements of Caterair and, in the opinion of management, reflects a
fair presentation of Caterair's financial information. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements of
Caterair and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- ---------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Total revenues.............. $ $ $ $ 18,953 $ 77,958 $ 58,876 $ 56,415
Cost of operations.......... -- -- -- 7,649 30,416 24,082 22,207
-------- --------- ---------- --------- --------- --------- --------
Gross profit................ -- -- -- 11,304 47,542 34,794 34,208
Depreciation and
amortization............ -- -- -- 3,400 11,806 9,023 8,218
Selling, general and
administrative.......... -- -- -- 125 1,393 1,806 593
-------- --------- ---------- --------- --------- --------- --------
Operating income............ -- -- -- 7,779 34,343 23,965 25,397
Interest income........... -- -- -- (264) (208) (155) (372)
Interest expense.......... -- -- -- 4,979 18,450 14,308 13,443
Other (income) expense.... -- -- -- -- -- -- (611)
Income tax provision
(benefit)(2)............ -- -- -- (50,380) 8,044 3,527 3,622
-------- --------- ---------- --------- --------- --------- --------
Income from continuing
operations................ -- -- -- 53,444 8,057 6,285 9,315
Income (loss) from
discontinued
operations.............. (406) (251,745) (23,847) 27,244 1,682 2,837 (470)
Extraordinary loss, net of
tax(3).................. -- -- -- (4,319) -- -- (3,044)
-------- --------- ---------- --------- --------- --------- --------
Net income (loss)........... $ (406) $(251,745) $ (23,847) $ 76,369 $ 9,739 $ 9,122 $ 5,801
======== ========= ========= ========= ========= ========= ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets(4)............. $722,197 $ 498,734 $ 498,828 $ 194,277 $ 173,948 $ 184,139 $164,217
Total debt and capital lease
obligations(5)............ 432,342 407,968 416,714 225,542 211,031 214,509 205,864
Shareholder's equity
(deficit)................. 124,166 (129,558) (155,908) (111,752) (101,990) (102,630) (96,189)
OTHER FINANCIAL DATA:
EBITDA(6)................... $ -- $ -- $ -- $ 11,179 $ 46,149 $ 32,988 $ 33,615
EBITDA margin(7)............ -- -- -- 59.0% 59.2% 56.0% 59.6%
Adjusted EBITDA(8).......... $102,095 $ 46,218 $ 63,918 $ 63,235 $ 48,407 $ 35,335 $ 33,429
Adjusted EBITDA margin(7)... 9.2% 4.4% 6.2% 8.0% 44.4% 39.8% 56.4%
Net cash flows from:
Operating activities...... $ 47,905 $ 18,541 $ 29,403 $ (67,591) $ 31,665 $ 31,566 $ 16,710
Investing activities...... (23,037) (17,133) (34,611) 196,755 (7,848) (8,133) (13,178)
Financing activities...... (24,607) 5,330 8,554 (141,566) (17,601) (21,420) (10,244)
Cash interest expense(9).... -- -- -- 3,969 14,343 11,278 10,323
Capital expenditures(10).... -- -- -- 6,128 2,300 2,300 --
Ratio of EBITDA to cash
interest expense(9)....... -- -- -- 2.8x 3.2x 2.9x 3.3x
Ratio of earnings to fixed
charges(11)............... -- -- -- 1.4x 1.6x 1.5x 1.6x
</TABLE>
- ---------------
(1) In connection with the Combination, Caterair discontinued most of its
airline catering services business and engaged in the business of leasing,
subleasing and licensing domestic property to its affiliates, Sky Chefs and
CII. See "Certain Transactions -- The Combination." Accordingly, all
operations prior to September 30, 1995 have been reflected as discontinued.
Identifiable revenues and expenses from
27
<PAGE> 34
discontinued operations have been reclassified on the table above
presenting summary historical financial data from their historical
classification to separately identify them as discontinued operations for
the five years ended December 31, 1996, and the nine months ended September
30, 1996 and 1997, respectively. Discontinued operations include
allocations of general and administrative and interest expenses that were
determined to be directly related to such operations. Summary operating
results for the discontinued operations are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- -------- ------- ------- ------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues............... $1,103,746 $1,056,598 $1,023,143 $773,243 $31,169 $29,982 $2,872
Cost of operations........... 969,259 953,914 916,422 698,689 27,854 27,635 3,058
---------- ---------- ---------- -------- ------- ------- ------
Gross profit................. 134,487 102,684 106,721 74,554 3,315 2,347 (186)
Depreciation and
amortization............. 49,270 49,296 30,890 21,821 -- -- --
Selling, general and
administrative........... 32,392 46,055 42,803 27,698 1,057 -- --
Goodwill write-off and
restructuring charges.... -- 192,311 -- -- -- -- --
---------- ---------- ---------- -------- ------- ------- ------
Operating income............. 52,825 (184,978) 33,028 25,035 2,258 2,347 (186)
Interest expense, net...... 47,055 44,829 50,962 45,626 18 (13) 11
Other...................... 5,151 5,266 890 (674) 920 (1,003) 494
---------- ---------- ---------- -------- ------- ------- ------
Income (loss) before income
taxes...................... 619 (235,073) (18,824) (19,917) 1,320 1,331 (691)
Provision (benefit) for
income taxes............. 3,652 16,672 5,023 5,513 416 (262) (221)
Cumulative effect of change
in accounting
principle................ 2,627 -- -- -- -- -- --
---------- ---------- ---------- -------- ------- ------- ------
Income (loss) from
discontinued operations.... (406) (251,745) (23,847) (25,430) 904 1,593 (470)
Gain on disposition of
discontinued operations.... -- -- -- 52,674 778 1,244 --
---------- ---------- ---------- -------- ------- ------- ------
Income (loss) from
discontinued operations.... $ (406) $ (251,745) $ (23,847) $ 27,244 $ 1,682 $ 2,837 $ (470)
========= ========= ========= ======== ======= ======= ======
</TABLE>
Operating income in 1993 includes the impact of a $181.9 million impairment
of Caterair's goodwill related to United States operations and $10.4
million in charges for restructuring costs from a management reorganization
and kitchen consolidation, consisting primarily of severance and early
retirement expense.
(2) In connection with the Combination, Caterair evaluated the potential for
the realization of its deferred tax assets and subsequently recognized a
deferred income tax benefit of $50.5 million in 1995 for the realization of
a portion of the net deferred tax assets. The deferred benefit was offset
by $0.1 million of current tax expense.
(3) In connection with the Combination, Caterair repaid all of its indebtedness
outstanding prior to the Combination. Caterair recorded an extraordinary
loss of $4.3 million in 1995 consisting of the difference between amounts
paid to lenders for full extinguishment of debt and the carrying amounts of
debt including deferred financing costs and accrued interest. The
extraordinary loss of $3.0 million (net of a $1.2 million tax benefit) for
the nine months ended September 30, 1997 was due to the write off of
deferred financing fees as a result of the retirement of Caterair's term
loan indebtedness under the Old Credit Amendment.
(4) The decrease of $223.5 million in total assets in 1993 is primarily due to
the $181.9 million goodwill related to United States operations, a $9.4
million decrease in fixed assets due to the acceleration of depreciation
for six kitchen facilities resulting from a change in business conditions
at these locations, a $6.5 million increase in the provision for bad debt
expense resulting from the deteriorating financial position of certain
customers, as well as a $4.0 million write-off of development costs for two
international locations.
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<PAGE> 35
(5) Total debt and capital lease obligations represent current portion of
long-term debt, current portion of obligations under capital leases,
long-term debt, obligations under capital leases and the note payable by
Caterair to SCIS made in connection with the Combination. See "Certain
Transactions -- The Combination."
(6) EBITDA represents earnings from continuing operations before interest
expense, provision (benefit) for income taxes, depreciation and
amortization and other (income) expense. EBITDA is presented because
management believes it provides useful information regarding Caterair's
ability to incur and/or service debt. EBITDA should not be considered in
isolation or as a substitute for operating income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with generally accepted accounting principles or as a measure
of Caterair's profitability or liquidity.
(7) EBITDA margin represents EBITDA as a percentage of total revenues from
continuing operations. Adjusted EBITDA margin represents Adjusted EBITDA as
a percentage of total revenues from continuing operations and discontinued
operations.
(8) Adjusted EBITDA includes earnings from continuing and discontinued
operations (as presented in Note 1) before interest expense, provision for
income taxes, depreciation and amortization and other (income) expense, and
excludes other transition expenses associated with the Combination
including consulting, severance and other costs. Adjusted EBITDA is
presented because management believes it provides useful information
regarding Caterair's ability to incur and/or service debt. Adjusted EBITDA
should not be considered in isolation or as a substitute for operating
income, cash flows from operating activities and other income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of Caterair's profitability or liquidity.
Calculation of Adjusted EBITDA for the periods presented is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------ -------------------
1992 1993 1994 1995 1996 1996 1997
-------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA from continuing
operations...................... $ -- $ -- $ -- $11,179 $46,149 $32,988 $33,615
EBITDA from
discontinued operations......... 102,095 46,218 63,918 46,856 2,258 2,347 (186)
Adjustments:
Other transition expenses....... -- -- -- 5,200 -- -- --
-------- ------- ------- ------- ------- ------- -------
Adjusted EBITDA................... $102,095 $46,218 $63,918 $63,235 $48,407 $35,335 $33,429
======== ======= ======= ======= ======= ======= =======
</TABLE>
(9) Cash interest expense from continuing operations excludes the amortization
of deferred financing fees and interest expense on the note payable to SCIS
of $1.1 million and $4.1 million for the years ended December 31, 1995 and
1996, and $3.0 million and $3.1 million for the nine months ended September
30, 1996 and 1997, respectively. Cash interest expense included in income
(loss) from discontinued operations was $42.9 million, $40.8 million, $42.9
million and $39.6 million for the years ended December 31, 1992, 1993, 1994
and 1995, respectively.
(10) Capital expenditures from discontinued operations were $22.4 million,
$21.8 million, $34.6 million and $11.1 million for the years ended
December 31, 1992, 1993, 1994 and 1995, respectively.
(11) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings from continuing operations before income
taxes and fixed charges before capitalized interest. "Fixed charges"
consist of interest expense and the portion of operating lease rental
payments (29%) deemed representative of the interest factor. The ratio of
earnings to fixed charges excludes the guarantees by Caterair of
indebtedness of SCIS. See the Financial Statements of Caterair and notes
thereto included elsewhere in this Prospectus.
29
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The discussion and analysis below relates to (i) the historical
consolidated financial statements and results of operations of SCIS, (ii) the
historical consolidated financial statements and results of operations of
Caterair, which is not a subsidiary of SCIS, and (iii) the liquidity and capital
resources of SCIS and Caterair. The following discussion should be read in
conjunction with the Financial Statements and the notes thereto contained
elsewhere in this Prospectus.
On September 29, 1995, SCIS and Caterair consummated the Combination
pursuant to which SCIS and its subsidiaries acquired, licensed, leased or
subleased substantially all of the worldwide business and assets of Caterair.
See "Certain Transactions -- The Combination."
In connection with the Combination, pursuant to several leases (the
"Domestic Leases"), Sky Chefs and CII, a wholly-owned subsidiary of SCIS, leased
and subleased from Caterair substantially all of its domestic tangible assets
for a six-year term (expiring in 2001). In the event that Caterair's lease of
such assets was for less than six years, the applicable Domestic Lease is for
such shorter period. Sky Chefs and CII have options to purchase all or a portion
of the assets of Caterair covered by the Domestic Leases for amounts determined
under formulas in the Domestic Leases that were intended to result in exercise
prices equal to the estimated fair market value of such assets at the time or
times of exercise of any such options. The options are exercisable until the
date which is 30 days after termination of the applicable Domestic Lease. It is
not certain that such purchase options will be exercised. See "Certain
Transactions -- The Combination" and the Financial Statements and notes thereto
included elsewhere in this Prospectus.
In addition, in connection with the Combination, pursuant to license
agreements (the "License Agreements"), Sky Chefs and CII licensed Caterair's
rights under certain customer contracts for a six-year term (expiring in 2001).
Sky Chefs and CII each have options to purchase all or a portion of the customer
contract rights covered by the License Agreements for amounts determined under
formulas in the License Agreements that were intended to result in exercise
prices equal to the estimated fair market value of such rights at the time or
times of exercise of any such options. The options are exercisable until the
date which is 90 days after termination of the applicable License Agreement. It
is not certain that such purchase options will be exercised. See "Certain
Transactions -- The Combination" and the Financial Statements and notes thereto
included elsewhere in this Prospectus.
In addition, in connection with the Combination, pursuant to a non-compete
agreement, Caterair agreed not to compete with Sky Chefs in the airline catering
business for a six-year term (expiring in 2001) and Sky Chefs is obligated to
pay Caterair $4.0 million per year. See "Certain Transactions -- The
Combination" and the Financial Statements and notes thereto included elsewhere
in this Prospectus.
Over the past several years there has been a significant reduction in food
service levels on domestic flights which has affected all domestic airline
caterers, including the Company. Despite a decline in total airline food
expenditures in the United States since 1992, the Company has been able to
increase its revenues and profitability due to (i) increases in volume
attributable to passenger growth, (ii) new business awards, (iii) price
increases related to inflation and (iv) the implementation of its operating
improvement plan. In 1992, Sky Chefs implemented the Total Cycle Time(TM)
program and other programs, as part of an extensive operating improvement plan,
which reduced annual operating costs by approximately $47 million in 1994 as
compared with 1992. The Total Cycle Time(TM) program is a methodology designed
to raise efficiency levels. The program is based on measuring, monitoring and
improving the total cycle time (i.e., the time necessary to complete a business
process) of various processes throughout an organization -- the total elapsed
time from when work commences on a project through completion; such as the time
elapsed from taking the first steps to prepare a meal to delivery of the meal to
an airplane. The total cycle time approach was designed to enable the Company to
significantly increase the efficiency with which it utilizes labor and other
resources and to allow increased flexibility to react to customer needs. Due in
large part to its operating improvement plan, Sky Chefs increased EBITDA from
$29 million in 1992 to $59 million in 1994 and improved EBITDA as a percentage
of
30
<PAGE> 37
revenues from 6.1% to 12.6% over the same period. As part of the Combination
which was consummated on September 29, 1995, management estimated that
approximately $55 million of net cost savings on an annualized basis were
achievable by the end of the third year of combined operations of Sky Chefs and
Caterair. Management believes that as of September 30, 1997 a significant
portion of these net cost savings have been achieved as evidenced by an increase
in the combined companies' Adjusted EBITDA from $123 million for the year ended
December 31, 1994 to $176 million for the twelve months ended September 30, 1997
and an improvement in Adjusted EBITDA as a percentage of the combined companies'
revenues from 8.0% for the year ended December 31, 1994 to 11.0% for the twelve
months ended September 30, 1997. See Annex I -- Summary Unaudited Combined Pro
Forma Financial Data and "Selected Historical Financial Data." These net cost
savings have been achieved through, among other things, increasing labor
productivity and reducing labor and employee costs at certain of the Caterair
Kitchens; consolidating certain corporate level management and administrative
functions of Sky Chefs and Caterair; reducing food waste spoilage and shrinkage
at certain of the Caterair Kitchens; eliminating redundant kitchens; and
reducing other kitchen operating expenses at certain of the Caterair Kitchens.
In order to achieve these net cost savings, the Company incurred approximately
$52 million in non-recurring costs through September 1997 principally relating
to (i) severance payments and other employee costs, (ii) external consulting
services primarily associated with the implementation of labor savings programs
and (iii) other items in connection with the integration of the business of Sky
Chefs and Caterair. See "Business -- Strengths -- Low Cost Structure," "Selected
Historical Financial Data -- SCIS" and "Certain Transactions -- The
Combination."
Integration costs were primarily incurred as a result of the Combination
and the implementation of the Company's operating improvement plan at the
Caterair Kitchens. The severance payments, which were a portion of these
integration costs, included compensation paid to non-hourly management and
administrative employees whose jobs were terminated due to efficiencies
generated by the Company's operating improvement plan and to eliminate redundant
positions resulting from the Combination. Integration costs also related to the
movement of management personnel between Company locations. Further integration
costs included expenses relating to external consultants who provided services
in connection with the implementation of the Company's operating improvement
plan and the evaluation, training, and replacement of management employees. As a
result of the Combination, SCIS determined that certain of its idle facilities
would not be utilized in the future and accelerated the recognition of rent
expense relating to these facilities and wrote-down related property and
equipment. These items were also included in integration costs. Due to the large
number and geographic diversity of the Caterair Kitchens, the implementation of
the Company's operating improvement plan at the Caterair Kitchens has been a
lengthy process, conducted in various stages. Thus, integration costs have been
incurred since September 29, 1995, the date on which the Combination was
consummated. SCIS expects to incur approximately $2.3 million of additional
integration costs related to the Combination through December 31, 1997. As a
result of the implementation of the Company's operating improvement plan at the
Caterair Kitchens, SCIS has increased its general and administrative staff at
headquarters for training employees and increased expenditures for safety and
other operating programs. The costs associated with these matters will be
included in general and administrative expenses commencing with periods after
December 31, 1997.
RESULTS OF OPERATIONS OF SCIS
SCIS and CII, a wholly owned operating subsidiary of SCIS, were formed in
connection with the Combination. Sky Chefs (including its subsidiaries) was the
only direct subsidiary of SCIS which conducted substantial operations prior to
September 29, 1995. Thus, unless otherwise indicated, the discussion of results
of operations relates to the operations of Sky Chefs for periods prior to
September 29, 1995 and operations of SCIS and its subsidiaries thereafter. The
acquisition of substantially all of the foreign operations of Caterair,
Caterair's trade name and domestic working capital and the assumption of certain
Caterair liabilities in the Combination was accounted for using the purchase
method of accounting. Accordingly, the historical consolidated financial
statements for the period ended December 31, 1995 include the acquired assets
and liabilities and three months and one day of airline catering operations of
the business formerly conducted by Caterair. The Combination resulted in a
material change in the financial position of SCIS.
31
<PAGE> 38
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenues. Revenues for the first nine months of 1997 increased $56.1
million or by 4.9% to $1,198.2 million from $1,142.1 million for the nine months
ended September 30, 1996. This increase was primarily the result of $55.2
million in additional revenues generated during the first nine months of 1997
from new airline catering contracts and business, $10.2 million from additional
non-airline catering business and $13.0 million attributable to price increases.
In addition, revenues from two kitchens subleased/licensed from Caterair on May
31, 1996 increased $22.1 million in the first nine months of 1997 as compared to
the first nine months of 1996 as only four months of revenues from these
kitchens was included in the first nine months of 1996. This increase in
revenues was offset by a $44.4 million decline in revenues related to lost
business and other factors, including an $18.1 million decrease in revenues
relating to American's termination during 1997 of the Company's services at six
Caterair Kitchens due to the Company's failure to comply with quality standards
specified in Caterair's contract with American. Based on current service levels,
the Company estimates that the terminations by American at the six Caterair
Kitchens will result in a reduction of revenues on an annualized basis of
approximately $34.0 million. In September, 1997, Mr. Robert Crandall, the
Chairman and Chief Executive Officer of AMR, the parent of American, was
reported to have stated to financial analysts that in his opinion American's
contracts with the Company "[produce] a cost disadvantage relative to other
caterers" and that American will seek to eliminate its perceived cost
disadvantage. The Company and American periodically discuss issues surrounding
the terms of these contracts and such discussions have continued following Mr.
Crandall's remarks. The loss of the business with American, or a large portion
of such business, could have a material adverse effect on SCIS' financial
condition, results of operations and cash flows. See
"Business -- Customers -- Contracts."
Cost of Operations. Cost of operations increased $31.7 million or by 3.1%
to $1,046.5 million in the first nine months of 1997 from $1,014.8 million in
the first nine months of 1996. Cost of operations as a percentage of revenues
decreased from 88.9% for the first nine months of 1996 to 87.3% for the first
nine months of 1997 primarily as a result of a decrease in labor costs due to
SCIS' ongoing operating improvement plan.
Depreciation and Amortization. Depreciation and amortization expenses
increased $3.7 million or by 13.5% to $31.2 million for the first nine months of
1997 from $27.5 million for the first nine months of 1996. This increase is a
result of additional capital expenditures of $19.0 million made during the first
nine months of 1997 and amortization expenses of $0.7 million related to the
acquisition of kitchens in New Zealand.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.8 million or 5.0% to $37.6 million for the first nine
months of 1997 from $35.8 million for the first nine months of 1996 primarily as
a result of the inclusion of nine months of expenses in 1997 for two kitchens
subleased/licensed from Caterair on May 31, 1996 compared to only four months in
1996.
Integration Expenses. Integration expenses decreased $8.1 million or by
37.0% to $13.8 million for the first nine months of 1997 from $21.9 million for
the first nine months of 1996. The integration expenses were significantly
higher for the 1996 period as SCIS focused on integrating Caterair's operations
immediately following the Combination. See "-- General."
Other Costs and Expenses. Other costs and expenses decreased $5.2 million
or by 30.0% to $12.1 million for the first nine months of 1997 from $17.3
million for the first nine months of 1996.
Operating Income. Operating income increased $32.1 million to $57.0 million
for the first nine months of 1997 from $24.9 million for the first nine months
of 1996 primarily due to the integration of the businesses of SCIS and Caterair
and SCIS' operating improvement plan.
Interest Income. Interest and dividend income decreased $0.5 million to
$4.8 million for the first nine months of 1997 from $5.3 million for the first
nine months of 1996.
Interest Expense. Interest expense increased $0.7 million to $39.6 million
for the first nine months of 1997 from $38.9 million for the first nine months
of 1996.
Other Income (Expense). Other expenses for the first nine months of 1997
increased by $3.3 million to $8.1 million from $4.8 million for the first nine
months of 1996 primarily due to a $1.4 million increase in
32
<PAGE> 39
foreign exchange losses. Additionally, there was a $1.4 million increase in
minority interest expense resulting from the recapitalization of a subsidiary.
Earnings (Loss) Before Income Taxes. SCIS' income before income taxes
increased $27.6 million to $14.1 million for the first nine months of 1997
compared to a loss of $13.5 million for the first nine months of 1996 primarily
as a result of the factors discussed above.
Provision (Benefit) for Income Taxes. The provision for income taxes was
$11.2 million for the first nine months of 1997 compared to a benefit of $4.8
million for the first nine months of 1996. This fluctuation in income taxes was
primarily a result of the increase in operating income and operating losses
generated by certain foreign operations which SCIS has been unable to utilize to
offset income taxes relating to income generated by other operations. Management
expects to incur operating losses in the foreseeable future at certain foreign
locations for which it will not recognize tax benefits.
Extraordinary Loss. The extraordinary loss of $20.7 million for the nine
months ended September 30, 1997 was the result of the write off of $6.4 million
of deferred financing fees (net of a $4.3 million tax benefit) relating to the
retirement of the Existing Notes and SCIS' term loan indebtedness under the Old
Credit Agreement and the premium paid to retire the Existing Notes of $14.3
million (net of a $9.5 million tax benefit).
Net Income (Loss). SCIS' net loss increased $9.3 million to $17.9 million
for the first nine months of 1997 from $8.6 million for the first nine months of
1996 primarily as a result of the factors discussed above.
1996 COMPARED WITH 1995
Revenues. Revenues for 1996 increased $790.7 million or by 107.0% to
$1,529.8 million from $739.1 million in 1995. The primary reason for this
increase was the inclusion of revenues from the operations acquired, licensed,
leased and subleased from Caterair for a full year in 1996 versus only three
months in 1995. Also included in the 1996 revenue increase was $38.6 million
derived from two kitchens which were subleased/licensed from Caterair on May 31,
1996. Revenues from three domestic kitchens acquired from a subsidiary of LSG in
August and November 1995 (the "LSG Acquisition") increased $25.9 million in 1996
over 1995 primarily as a result of the inclusion of these operations for a full
year in 1996 versus only a partial year in 1995.
Cost of Operations. Cost of operations increased $718.0 million or by
113.2% to $1,352.4 million in 1996 from $634.4 million in 1995. The primary
reason for this increase was the inclusion of the cost of operations of the
business acquired, licensed, leased and subleased from Caterair for a full year
in 1996 versus only three months in 1995. In addition, costs of operations
increased $35.4 million in 1996 as compared to 1995 due to the inclusion of
operating costs associated with the two kitchens subleased/licensed from
Caterair on May 31, 1996. Further, operating costs of the three kitchens
acquired from LSG in 1995 increased $25.8 million in 1996 over 1995 primarily as
a result of the inclusion of these operations for a full year in 1996 versus
only a partial year in 1995.
Depreciation and Amortization. Depreciation and amortization expenses
increased $16.6 million or by 77.9% to $37.9 million in 1996 from $21.3 million
in 1995 primarily due to the inclusion for the full year of 1996 of depreciation
and amortization expenses for the assets acquired from Caterair versus only
three months in 1995. SCIS also incurred approximately $7.2 million of capital
expenditures related to the deferred maintenance of the assets acquired from
Caterair of which a portion was depreciated in 1996.
Selling, General and Administrative. Selling, general and administrative
expenses increased $20.9 million or by 74.0% to $49.0 million in 1996 from $28.1
million in 1995 primarily as a result of the inclusion of a full year of
operating expenses associated with the operations acquired, licensed, leased and
subleased from Caterair in 1996 versus only three months of 1995.
Integration Expenses. Integration expenses increased $1.8 million or by
6.3% to $30.4 million for 1996 from $28.6 million in 1995. The increase is
primarily due to a full year's expenses recognized in 1996 compared to only
three months in 1995. Offsetting the increase was a one-time charge to
integration expenses
33
<PAGE> 40
of $17.2 million in 1995 relating to the acceleration of the recognition of rent
expense relating to idle kitchens and the write-down of related fixed assets.
See "-- General."
Other Costs and Expenses. Other costs and expenses decreased $6.2 million
or by 20.7% to $23.7 million in 1996 from $29.9 million in 1995. Other costs and
expenses for 1995 reflect the inclusion of $18.0 million for a customer consent
fee related to the Combination. Excluding this fee, other costs and expenses
increased in 1996 primarily as a result of the inclusion of a full year of
operating expenses associated with the operations acquired, licensed, leased and
subleased from Caterair versus only three months in 1995.
Operating Income. SCIS' operating income increased $39.8 million to $36.6
million in 1996 from a $3.2 million loss in 1995 primarily as a result of the
factors discussed above.
Interest Income. Interest and dividend income increased $5.4 million to
$7.9 million in 1996 from $2.5 million in 1995 primarily as a result of interest
income on the $37.8 million loan made by SCIS to Caterair in connection with the
Combination and higher average investment balances throughout 1996.
Interest Expense. Interest expense increased $30.7 million to $50.4 million
in 1996 from $19.7 million in 1995 primarily as a result of increased debt
balances related to the Combination being outstanding for the entire year in
1996 versus only three months in 1995.
Other Income (Expense). Other expenses increased $2.6 million to $4.7
million in 1996 from $2.1 million in 1995 primarily as a result of the inclusion
of a full year of other expenses associated with the operations acquired,
licensed, leased and subleased from Caterair versus only three months in 1995.
Earnings (Loss) Before Income Taxes. SCIS' loss before income taxes
decreased $12.0 million to $10.6 million in 1996 as compared to a loss before
income taxes of $22.6 million in 1995 primarily as a result of the factors
discussed above.
Provision (Benefit) for Income Tax. The income tax expense for 1996 was
$0.4 million compared to an income tax benefit of $6.5 million in 1995. The
increase in income tax expense in 1996 versus 1995 is attributable to increased
pre-tax earnings in domestic United States operations and at certain foreign
subsidiaries, for which income taxes are payable and the expense has been
recorded, offset by losses in other foreign subsidiaries where SCIS has been
unable to recognize tax benefits. The majority of the foreign subsidiaries were
acquired at September 29, 1995, and therefore, their results are included for
three months of 1995 versus a full year in 1996. This limited ability to
recognize tax benefits results in a disproportionate increase in consolidated
income tax expense relative to the improvement in consolidated pre-tax earnings.
Net Income (Loss). SCIS' net loss decreased $5.0 million to $11.0 million
in 1996 as compared to a net loss of $16.0 million in 1995 primarily as a result
of the factors discussed above.
1995 COMPARED WITH 1994
Revenues. Revenues for 1995 increased $270.5 million or by 57.7% to $739.1
million from $468.6 million in 1994. Approximately $243.3 million or 89.9% of
this increase was due to the inclusion of revenues derived from the operations
acquired, licensed, leased or subleased from Caterair in connection with the
Combination for three months in 1995. An additional $29.0 million of this
increase was primarily due to the inclusion of revenues from the Sao Paulo,
Brazil kitchen which was acquired in October 1994 (the "Brazil Acquisition") for
a full year in 1995 versus only a partial year in 1994 and the inclusion of
revenues for a partial year in 1995 from the three domestic kitchens acquired by
SCIS in connection with the LSG Acquisition. This increase in revenues was
offset by a decrease in revenues derived from facilities operated by SCIS for
the full years of 1994 and 1995 of $1.8 million from $463.1 million in 1994 to
$461.3 million in 1995.
Costs of Operations. Costs of operations increased $246.1 million or by
63.4% to $634.4 million in 1995 from $388.3 million in 1994. This increase was
primarily associated with the operations acquired, licensed, leased and
subleased from Caterair in connection with the Combination. Other components of
the increase in costs of operations include a $31.1 million increase in
operating costs and expenses primarily due to increases in food costs, payroll
and other operating and administrative expenses associated with the kitchens
acquired by SCIS in the LSG Acquisition and the Brazil Acquisition. Costs of
operations for facilities owned by SCIS for the full years of 1994 and 1995
decreased by $23.7 million from $382.7 million in 1994 to $359.0 million in
1995, with a relatively flat revenue base, as a result of SCIS' operating
improvement plan.
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Depreciation and Amortization. Depreciation and amortization expenses
increased $5.8 million or by 37.4% to $21.3 million in 1995 from $15.5 million
in 1994 primarily due to the amortization of intangible and capital lease assets
acquired in the Combination and the Brazil Acquisition.
Selling, General and Administrative. Selling, general and administrative
expenses increased $11.0 million or by 64.3% to $28.1 million in 1995 from $17.1
million in 1994 primarily due to the inclusion of the operations acquired,
licensed, leased and subleased from Caterair in connection with the Combination.
Integration Expenses. SCIS incurred $28.6 million of Combination related
expenses in 1995. These integration expenses included employee relocation,
severance costs, the cost of implementing cycle time improvements at certain of
the Caterair Kitchens and $17.2 million relating to the acceleration of the
recognition of rent expense relating to idle kitchens and the write-down of
related fixed assets. No integration expenses were incurred in 1994.
Other Costs and Expenses. Other costs and expenses increased $25.6 million
to $29.9 million in 1995 from $4.3 million in 1994. This increase includes costs
associated with the operations acquired, licensed, leased and subleased from
Caterair and an $18.0 million charge for a consent fee payable to a major
customer in connection with the Combination.
Operating Income. SCIS' operating income decreased $46.6 million or by
107.4% to a $3.2 million loss in 1995 from $43.4 million in earnings in 1994
primarily as a result of integration expenses incurred in connection with the
Combination as well as the other factors discussed above.
Interest Income. Interest and dividend income increased $2.3 million to
$2.5 million in 1995 from $0.2 million in 1994.
Interest Expense. Interest expense increased $13.9 million to $19.7 million
in 1995 from $5.8 million in 1994 primarily as a result of higher debt balances
resulting from borrowings related to the Combination.
Other Income (Expense). Other expense increased by $0.9 million to $2.1
million in 1995 from $1.2 million in 1994 primarily as a result of an increase
in foreign exchange losses.
Earnings (Loss) Before Income Taxes. SCIS' loss before income taxes was
$22.6 million in 1995 compared to earnings before income taxes of $36.6 million
in 1994 primarily as a result of the factors discussed above.
Provision (Benefit) for Income Taxes. The income tax benefit for 1995 was
$6.5 million compared to income tax expense of $13.4 million in 1994. This
fluctuation in income taxes is a result of decreased income from operations and
operating losses generated by certain foreign operations which SCIS has been
unable to utilize to offset income taxes relating to income generated by other
operations.
Net Income (Loss). SCIS' net loss was $16.0 million in 1995 compared to net
income of $23.2 million in 1994 primarily as a result of the factors discussed
above.
RESULTS OF OPERATIONS OF CATERAIR
Caterair's discontinued operations for the reporting periods presented are
not readily comparable to one another. Fiscal year 1995 discontinued operations
reflect the termination of substantially all of Caterair's former domestic
airline catering operations and disposition of substantially all of Caterair's
former international airline catering operations and assets, its tradename and
domestic working capital in connection with the Combination effective September
29, 1995.
In connection with the Combination, Caterair sold, licensed, leased and
subleased substantially all of its worldwide business to SCIS and its
subsidiaries. Consequently, Caterair's principal source of revenues is the
receipt of rents, royalties and non-compete related payments from subsidiaries
of SCIS under the Domestic Leases, the License Agreements and the non-compete
agreement. See "-- General" and "Certain Transactions -- The Combination."
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NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Total Revenues. Total revenues for the nine months ended September 30,
1997 decreased $2.5 million to $56.4 million from $58.9 million for the nine
months ended September 30, 1996. This decrease in total revenues was primarily
due to a reduction in rental income under the Domestic Leases as certain leases
expired or lease terms changed.
Cost of Operations. Cost of operations for the nine months ended September
30, 1997 decreased $1.9 million to $22.2 million from $24.1 million for the nine
months ended September 30, 1996 primarily due to a reduction in the rent expense
for leased kitchens as certain leases expired or lease terms changed.
Selling, General and Administrative. Selling, general and administrative
expenses were $0.6 million for the nine months ended September 30, 1997 compared
to $1.8 million for the nine months ended September 30, 1996. These expenses
consist primarily of fees paid to SCIS for corporate and administrative
services.
Depreciation and Amortization. Depreciation and amortization expenses were
$8.2 million for the nine months ended September 30, 1997 compared to $9.0
million for the nine months ended September 30, 1996.
Operating Income. Operating income increased to $25.4 million for the nine
months ended September 30, 1997 from $23.9 million for the nine months ended
September 30, 1996 primarily as a result of the factors discussed above.
Interest Income. Interest income increased $0.2 million to $0.4 million
for the nine months ended September 30, 1997 from $0.2 million for the nine
months ended September 30, 1996.
Interest Expense. Interest expense decreased $0.9 million to $13.4 million
for the nine months ended September 30, 1997 from $14.3 million for the nine
months ended September 30, 1996.
Other (Income) Expense. Other income of $0.6 million for the nine months
ended September 30, 1997 was the result of the gain on the disposal of certain
fixed assets. No other income or expenses were realized during the nine months
ended September 30, 1996.
Income (Loss) from Discontinued Operations. Caterair incurred a $0.5
million loss on discontinued operations for the nine months ended September 30,
1997 compared to $2.8 million of income for the nine months ended September 30,
1996. Caterair realized approximately $1.6 million of income for the nine months
ended September 30, 1996 from the assumption by SCIS on May 31, 1996 of
liabilities associated with certain discontinued operations (consisting of the
two kitchens leased/licensed by SCIS) and approximately $1.5 million of gain on
the disposal of assets relating to discontinued operations. The remaining losses
from discontinued operations of $0.5 million and $0.2 million for the nine
months ended September 30, 1997 and the nine months ended September 30, 1996,
respectively, are related to Caterair's operations in Portugal which have been
discontinued.
Income Tax Provision (Benefit). The income tax provision increased
slightly to $3.6 million for the nine months ended September 30, 1997 from $3.5
million for the nine months ended September 30, 1996 as a result of increased
income from continuing operations.
Extraordinary Loss. The extraordinary loss of $3.0 million (net of a $1.2
million tax benefit) for the nine months ended September 30, 1997 was a result
of the write off of deferred financing fees relating to the retirement of
Caterair's indebtedness under the Old Credit Agreement in connection with the
Caterair Refinancing.
Net Income (Loss). Caterair's net income for the nine months ended
September 30, 1997 decreased $3.3 million to $5.8 million from $9.1 million for
the nine months ended September 30, 1996 primarily as a result of the factors
discussed above.
1996 COMPARED WITH 1995
Operating results for 1996 reflect a full year of leasing and licensing
operations. Operating results for 1995 include leasing and licensing operations
for only three months and one day, after the effective date of the
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Combination on September 29, 1995. The results for the first nine months of 1995
are presented as discontinued operations. As such, the operating results for
these two years are not comparable. Therefore, 1996 operating results presented
below are compared to the annualized results for 1995 as if the leasing and
licensing operations were in effect for the full year.
Total Revenues. Actual total revenues were $78.0 million in 1996 versus
actual total revenues of $19.0 million in 1995. Annualized total revenues for
1995 would have been $75.8 million. The increase in 1996 total revenues over
annualized 1995 total revenues was primarily due to payments received by
Caterair from SCIS in 1996 under the License Agreements relating to the
operations of two kitchens subleased/licensed by SCIS from Caterair on May 31,
1996.
Cost of Operations. Actual cost of operations increased to $30.4 million
in 1996 from $7.6 million in 1995. Annualized cost of operations for 1995 would
have been $30.6 million.
Selling, General and Administrative. Actual selling, general and
administrative expenses were $1.4 million in 1996 compared to $0.1 million in
1995. Annualized 1995 selling, general and administrative expenses would have
been $0.5 million. The increase in actual 1996 selling, general and
administrative expenses over the annualized 1995 selling, general and
administrative expenses was due to additional legal and consulting fees incurred
in 1996 related to the Combination.
Depreciation and Amortization. Actual depreciation and amortization
expenses increased to $11.8 million in 1996 from $3.4 million in 1995.
Annualized 1995 depreciation and amortization expenses would have been $13.6
million. The decrease in actual 1996 depreciation and amortization expenses from
annualized 1995 depreciation and amortization expenses is due to certain assets
of Caterair becoming fully depreciated during 1996.
Operating Income. Actual operating income increased to $34.3 million from
$7.8 million in 1995. Annualized operating income for 1995 would have been $31.1
million. The increase in actual 1996 operating income from annualized 1995
operating income is primarily attributable to increased revenues derived under
the License Agreements and lower depreciation and amortization expenses during
1996 than 1995 as certain assets of Caterair became fully depreciated during
1996.
Interest Income. Actual interest income decreased $0.1 million to $0.2
million in 1996 from $0.3 million in 1995.
Interest Expense. Actual interest expense increased to $18.5 million in
1996 from $5.0 million in 1995. Annualized 1995 interest expense would have been
$20.0 million. The decrease in actual interest expense in 1996 from annualized
interest expense for 1995 is a result of the reduction of outstanding debt due
to repayments made during 1996.
Income (Loss) from Discontinued Operations. Income from discontinued
operations decreased $25.5 million to $1.7 million in 1996 from $27.2 million in
1995. The decrease in income from discontinued operations is primarily the
result of the gain from the sale during 1995 of most of the net assets and
liabilities of Caterair in connection with the Combination.
Income Tax Provision (Benefit). The income tax provision for 1996 was $8.0
million compared to an income tax benefit of $50.4 million recorded in 1995.
Prior to the Combination, Caterair had a valuation allowance to fully reserve
for its gross deferred tax assets because of the uncertainties surrounding the
losses of operations to be sustained for income tax reporting purposes. In
connection with the Combination, Caterair evaluated the potential for the
realization of a portion or all of the deferred tax assets. Caterair determined,
based upon the weight of evidence, it was more likely than not that a portion of
the deferred tax assets would be realized. In the fourth quarter of 1995,
Caterair recognized an income tax benefit of $50.5 million for the realization
of a portion of the net deferred tax assets.
Net Income (Loss). Caterair's net income for 1996 decreased $66.6 million
to $9.7 million from $76.4 million primarily due to the factors discussed above.
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1995 COMPARED WITH 1994
Income from Continuing Operations. The results from operations for 1995
include three months of leasing and licensing activity. No leasing and licensing
activity was conducted in 1994, thus the results of operations for 1995 and 1994
are not comparable.
Income (Loss) from Discontinued Operations. In 1995, Caterair recorded a
$27.2 million gain on discontinued operations compared to a $23.8 million loss
in 1994. The gain on discontinued operations in 1995 is a result of the sale of
most of Caterair's assets and liabilities of the discontinued operations
included in the Combination. The loss in 1994 reflects the results of all of
Caterair's operations for a full year.
LIQUIDITY AND CAPITAL RESOURCES
SCIS
SCIS' principal sources of liquidity are expected to be cash flow from
operations and amounts available under the Revolving Credit Agreement. See
"Description of Certain Indebtedness -- Senior Bank Financing." It is
anticipated that SCIS' principal uses of liquidity will be to provide working
capital, to finance capital expenditures, to meet debt service requirements, to
fund non-recurring costs associated with the Combination and to pay for acquired
businesses. In addition, SCIS expects to use approximately $12.9 million in the
first quarter of 1998 and approximately $14.7 million in the first quarter of
1999 to fund management bonuses approved in the fourth quarter of 1997 by SCIS'
board of directors. There can be no assurances that these bonuses will be paid
or as to the amounts thereof.
As a result of the Combination, the Offering and the Senior Bank Financing,
including the Caterair Refinancing, SCIS is highly leveraged. At September 30,
1997, the aggregate amount of outstanding indebtedness of SCIS (including
borrowings and guarantees under the Senior Bank Financing but excluding advances
by Caterair to SCIS and $24.7 million of letters of credit) was approximately
$589.7 million. The Senior Bank Financing provides SCIS with up to $180.0
million of senior secured financing, consisting of $90.0 million of term loans
under the Term Loan Agreement and up to $90.0 million of availability under the
Revolving Credit Agreement (including up to $50.0 million of availability for
letters of credit) and provides Caterair with $160.0 million of senior secured
term loans under the Term Loan Agreement. SCIS guaranteed Caterair's obligations
under the Term Loan Agreement. As of September 30, 1997, approximately $24.7
million of letters of credit issued primarily to insurance carriers providing
workers' compensation coverage and related to surety bonds and leases was
outstanding under the Revolving Credit Agreement. As of September 30, 1997,
Caterair advanced $13.0 million to SCIS; this advance bears interest at the rate
of 8.25% per annum and SCIS anticipates that it will repay such advance prior to
December 31, 1997. During the twelve month period ending September 30, 1998,
SCIS expects to make approximately $68.0 million in capital expenditures, which
are more significant than in prior periods. The increase in capital expenditures
will primarily relate to the expansion, improvement and maintenance of SCIS'
kitchens, particularly those located at international gateway airports, and the
upgrade of SCIS' information systems, during 1998.
The Revolving Credit Agreement, which is the most restrictive of SCIS'
indebtedness agreements, the Indenture relating to the Notes as well as the Term
Loan Agreement contain a number of covenants that, among other things, restrict
the ability of SCIS and Caterair to dispose of assets, incur additional
indebtedness, guarantee obligations, repay indebtedness or amend debt
instruments, pay dividends, create liens on assets, make investments, make
acquisitions, engage in mergers or consolidations, make capital expenditures,
and otherwise restrict certain corporate activities. For a more detailed
description of the Senior Bank Financing, see "Description of Certain
Indebtedness -- Senior Bank Financing" and for a more detailed description of
the Indenture relating to the Notes, see "Description of Notes." The Senior Bank
Financing also contains provisions which limit Sky Chefs', CII's and the other
Guarantors' (excluding Caterair) ability to make distributions to SCIS other
than in the form of cash dividends and, under certain circumstances, capital
stock. SCIS does not expect that such provisions will have a material impact on
the ability of SCIS to meet its cash obligations. In addition, the Revolving
Credit Agreement requires compliance with specified financial tests based on the
combined financial position of SCIS and Caterair. Certain other agreements of
SCIS and the Guarantors require SCIS and/or the Guarantors to maintain certain
financial ratios and satisfy certain financial tests. Management believes SCIS
and the Guarantors are currently in compliance with all
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material covenants and restrictions contained in all material agreements to
which SCIS and/or a Guarantor is a party.
Based upon current levels of operations, SCIS believes that cash flow from
operations, together with available borrowings under the Revolving Credit
Agreement, will be adequate to meet anticipated requirements for working
capital, capital expenditures, debt service requirements, Combination-related
costs and to pay for acquired businesses. There can be no assurance, however,
that SCIS will continue to generate cash flow at or above current levels or SCIS
will be able to meet its anticipated needs for working capital, capital
expenditures, debt service, Combination-related costs or funding to pay for
acquired businesses.
SCIS expects to expend approximately $3.3 million in connection with the
implementation of a new management stock plan during 1998 and 1999. There can be
no assurances that the management stock plan will be implemented.
Net cash provided by (used in) operating activities for the nine months
ended September 30, 1997 declined to ($22.5) million from $44.3 million for the
nine months ended September 30, 1996 primarily as a result of lower than usual
levels of accounts payable and accrued expenses at December 31, 1995. Net cash
used in investing activities increased to $41.0 million during the nine months
ended September 30, 1997 from $14.9 million during the nine months ended
September 30, 1996 primarily as a result of acquisitions of businesses during
the nine months ended September 30, 1997. Net cash provided by (used in)
financing activities increased to $46.2 million during the nine months ended
September 30, 1997 from ($11.4) million during the nine months ended September
30, 1996.
CATERAIR
Caterair's principal sources of liquidity are expected to be cash flows
from rents, royalties and non-compete related payments from Sky Chefs and CII
under the Domestic Leases, the License Agreements and the non-compete agreement
described herein. It is anticipated that Caterair's principal uses of liquidity
will be to provide working capital, to meet debt service requirements and to
make lease payments.
As a result of the Combination, the Offering, and the Senior Bank
Financing, including the Caterair Refinancing, Caterair is highly leveraged. At
September 30, 1997, the aggregate amount of outstanding indebtedness of Caterair
(including borrowings and guarantees of SCIS' indebtedness but excluding the
loan by SCIS to Caterair and $24.7 million of letters of credit) was
approximately $551.8 million. In connection with the Combination, SCIS loaned
Caterair $37.8 million. This loan bears interest at the rate of 8.0% per annum
(payable-in-kind), matures in 2001 and is secured by a lien on all of Caterair's
assets, which is subordinated to the lien securing the obligations under the
Senior Bank Financing. As of September 30, 1997, the outstanding principal
amount of this loan was $44.1 million. In the third quarter of 1997, Caterair
advanced SCIS $13.0 million; this advance bears interest at the rate of 8.25%
per annum and SCIS anticipates that it will repay such advance prior to December
31, 1997. During the twelve months ending September 30, 1998, Caterair will be
required to make approximately $29.3 million in respect of lease payments.
Caterair anticipates that minimal capital expenditures will be made during the
next twelve months. See "Description of Certain Indebtedness -- Senior Bank
Financing," and the Financial Statements and notes thereto included elsewhere in
this Prospectus.
The continuation of Caterair's operations is substantially dependent upon
Sky Chefs' and CII's ability to make payments under the Domestic Leases, the
License Agreements and the non-compete agreement. The Term Loan Agreement under
the Senior Bank Financing provides Caterair with $160.0 million of senior
secured term loans, and the Senior Bank Financing provides SCIS with up to
$180.0 million of senior secured financing, consisting of $90.0 million of term
loans under the Term Loan Agreement and up to $90.0 million of availability
under the Revolving Credit Agreement (including up to $50.0 million of
availability for letters of credit). As of September 30, 1997, approximately
$24.7 million of letters of credit issued primarily to insurance carriers
providing workers' compensation coverage and related surety bonds and leases was
outstanding under the Revolving Credit Agreement. Caterair guaranteed SCIS'
obligations under the Senior Bank Financing and the Notes.
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Based upon the current levels of operations after the Combination, the
Offering, SCIS' Offer to Purchase and the Senior Bank Financing, including the
Caterair Refinancing, Caterair believes that cash flows from operations will be
adequate to meet anticipated requirements for working capital, debt service and
lease payments. There can be no assurance, however, that cash flows will be
sufficient to meet such obligations.
SEASONALITY
During 1996, the Company recognized 22.8%, 24.4%, 27.5% and 25.3% of its
food service revenues and (9.5)%, 9.9%, 66.9% and 32.7% of its operating income
during the first, second, third and fourth quarter, respectively.
IMPACT OF INFLATION
The Company's food, labor and other operating costs are affected by a
number of factors beyond the Company's control, including inflation. The Company
generally is able to recover increases in food costs due to inflation from its
customers. However, it may not be able to recover similar increases in labor or
other operating costs from such customers.
The Company operates in a number of countries that experience high rates of
inflation. The Company generally has been successful in mitigating the adverse
effects of such inflation through measures such as indexing contractual price
rates to inflation and providing for payments in local currencies. There can be
no assurance that the Company will always be successful in mitigating the risks
associated with inflation or that the Company may not be adversely affected when
it seeks to exchange funds in local currencies of countries with high rates of
inflation into United States currency.
RECENT ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
of an Enterprise and Related Information." Preliminary analysis of these new
standards by the Company indicates that the standards will not have a material
impact on the Company. The standards are effective for financial statements for
fiscal years beginning after December 15, 1997.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Issuer on August 28, 1997 (the "Issue
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Private Notes in the United States to
"qualified institutional buyers" ("QIBs"), as defined in Rule 144A under the
Securities Act ("Rule 144A"), in reliance on Rule 144A, and outside the United
States in compliance with Regulation S under the Securities Act. As a condition
to the sale of the Private Notes, the Issuer, the Guarantors and the Initial
Purchasers entered into the Registration Rights Agreement on the Issue Date.
Pursuant to the Registration Rights Agreement, each of the Issuer and the
Guarantors agreed that they would, at their cost, to the extent not prohibited
by any applicable law or applicable interpretation of the staff of the
Commission, (i) prepare and, on or prior to 45 days after the Issue Date, file
with the Commission a Registration Statement under the Securities Act with
respect to the Exchange Offer, (ii) use their reasonable best efforts to cause
the Registration Statement relating to the Exchange Offer to be declared
effective by the Commission under the Securities Act on or prior to 150 days
after the Issue Date, and (iii) commence the Exchange Offer and use their
reasonable best efforts to issue, on or prior to 195 days after the Issue Date,
the Exchange Notes. A copy of the Registration Rights Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The Registration Statement is intended to satisfy certain of the Issuer's and
the Guarantors' obligations under the Registration Rights Agreement and the
Purchase Agreement. See "-- Resale of the Exchange Notes."
Pursuant to the Registration Rights Agreement, if, (i) because of any
change in law or in currently prevailing interpretations of the staff of the
Commission, the Issuer and the Guarantors are not permitted to effect the
Exchange Offer, (ii) the Exchange Offer is not consummated within 195 days of
the Issue Date, (iii) in certain circumstances, certain holders of unregistered
Exchange Notes so request, or (iv) in the case of any holder of Private Notes
that participates in the Exchange Offer, such holder does not receive Exchange
Notes on the date of the exchange that may be sold without restriction under
state and federal securities laws (other than due solely to the status of such
holder as an affiliate of the Issuer within the meaning of the Securities Act),
then in each case, the Issuer and the Guarantors will (x) promptly deliver to
the holders of Private Notes and the Trustee under the Indenture written notice
thereof and (y) at their sole expense, (a) file a shelf registration statement
covering resales of the Private Notes (the "Shelf Registration Statement"), (b)
use their reasonable best efforts to cause the Shelf Registration Statement to
be declared effective under the Securities Act and (c) use their reasonable best
efforts to, subject to certain exceptions, keep effective the Shelf Registration
Statement until the earlier of two years after the Issue Date or such time as
all of the applicable Private Notes have been sold thereunder. Pursuant to the
Registration Rights Agreement, the Issuer will, in the event that a Shelf
Registration Statement is filed, provide to each holder of Private Notes copies
of the prospectus that is a part of the Shelf Registration Statement, notify
each such holder when the Shelf Registration Statement for the Private Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Private Notes. A holder of Private Notes that sells
Private Notes pursuant to the Shelf Registration Statement will be required to
be named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under Securities Act in connection with such sales and will be bound
by the provisions of the Registration Rights Agreement that are applicable to
such a holder (including certain indemnification rights and obligations).
Additional interest (the "Additional Interest") shall become payable by the
Issuer and the Guarantor in respect of the Private Notes:
(i) if (A) neither the Registration Statement relating to the Exchange
Offer (the "Exchange Offer Registration Statement") nor the Shelf
Registration Statement is filed with the Commission on or prior to the date
required by the Registration Rights Agreement or (B) notwithstanding that
the Issuer and the Guarantors have consummated or will consummate an
Exchange Offer, the Issuer and the Guarantors are required to file a Shelf
Registration Statement and such Shelf Registration Statement is not filed
on or prior to the date required by the Registration Rights Agreement, then
commencing on the day after either such required filing date, Additional
Interest shall accrue on the principal amount of the Private
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<PAGE> 48
Notes at a rate of 0.50% per annum for the first 90 days immediately
following each such filing date, such Additional Interest rate increasing
by an additional 0.50% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) the Exchange Offer Registration Statement is not declared
effective within 150 days after the Issue Date or a Shelf Registration
Statement is not declared effective by the Commission on or prior to 90
days after the filing thereof or (B) notwithstanding that the Issuer and
the Guarantors have consummated or will consummate an Exchange Offer, the
Issuer and the Guarantors are required to file a Shelf Registration
Statement and such Shelf Registration Statement is not declared effective
by the Commission on or prior to the 90th day following the date such Shelf
Registration Statement was filed, then, commencing on the day after the
date on which the applicable Registration Statement was required to be
declared effective, Additional Interest shall accrue on the principal
amount of the Private Notes at a rate of 0.50% per annum for the first 90
days immediately following such date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(iii) if (A) the Issuer and the Guarantors have not exchanged Exchange
Notes for all Private Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to the 195th day after the Issue Date or
(B) if applicable, the Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective at
any time prior to the second anniversary of the Issue Date (other than as
permitted by the Registration Rights Agreement or after such time as all
Private Notes have been disposed of thereunder), then Additional Interest
shall accrue on the principal amount of the Private Notes at a rate of
0.50% per annum for the first 90 days commencing on (x) the 195th day after
the Issue Date, in the case of (A) above, or (y) the day such Shelf
Registration Statement ceases to be effective in the case of (B) above
(other than as permitted by the Registration Rights Agreement), such
Additional Interest rate increasing by an additional 0.50% per annum at the
beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Private Notes may
not exceed at any one time in the aggregate 1.50% per annum; and provided,
further, that (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement (in the case of clause (i) above), (2) upon
the effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of Exchange Notes for all Private Notes tendered (in the case of clause
(iii)(A) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii)(B) above),
Additional Interest on the Private Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue and, in
any case, such Additional Interest shall not be payable in respect of more than
one of the preceding provisions at any one time.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and the Letter of Transmittal, the Issuer will accept any and all Private Notes
validly tendered and not withdrawn prior to the Expiration Date.
The Issuer will issue $1,000 principal amount of Exchange Notes in exchange
for each $1,000 principal amount of outstanding Private Notes validly tendered
pursuant to the Exchange Offer and not withdrawn prior to the Expiration Date.
Holders may tender some or all of their Private Notes pursuant to the Exchange
Offer; provided, however, that Private Notes may be tendered only in integral
multiples of $1,000. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being tendered for exchange.
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Private Notes except that the Exchange
Notes will have been registered under the Securities Act and, therefore, the
Exchange Notes will not bear legends restricting the transfer thereof and
holders of the Exchange Notes will not be entitled to any of the registration
rights of holders of Private Notes under the Registration Rights Agreement (or
related rights to certain interest payments upon the failure of the Issuer to
fulfill certain conditions set forth in the Registration Rights Agreement),
which rights will terminate upon the consummation of the Exchange Offer. The
Exchange Notes will evidence the same indebtedness as the Private Notes (which
they replace), and will be issued under, and be entitled to the benefits of, the
Indenture,
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<PAGE> 49
which also authorized the issuance of the Private Notes, such that both series
of Notes will be treated as a single class of debt securities under the
Indenture. See "-- Resale of the Exchange Notes."
Interest on each Exchange Note will accrue (A) from the later of (i) the
last interest payment date on which interest was paid on the Private Note
surrendered in exchange therefor or (ii) if the Private Note is surrendered for
exchange on a date in a period on or after the record date for an interest
payment date to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment date or (B) if no
interest has been paid on the Private Notes, from the Issue Date.
As of the date of this Prospectus, $300,000,000 aggregate principal amount
of the Private Notes is outstanding, all of which is registered in the name of
Cede & Co., as nominee of the Depositary. Only a registered holder of the
Private Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of DTC or the Trustee under the Indenture may
participate in the Exchange Offer. Solely for reasons of administration, the
Issuer has fixed the close of business on , 1998 as the record date
for the Exchange Offer for purposes of determining the persons to whom this
Prospectus and the Letter of Transmittal will be mailed initially. There will be
no fixed record date for determining registered holders of the Private Notes
entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or the
Indenture in connection with the Exchange Offer. The Issuer intends to conduct
the Exchange Offer in accordance with the provisions of the Registration Rights
Agreement and the applicable requirements of the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder.
The Issuer shall be deemed to have accepted validly tendered Private Notes
when, as and if the Issuer has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Issuer.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Issuer will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; TERMINATION
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Issuer, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuer will (i) notify the
Exchange Agent of any extension by oral or written notice and (ii) will make a
public announcement thereof (which shall include disclosure of the approximate
number of Private Notes deposited to date), each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
The Issuer expressly reserves the right, in its sole discretion, (i) to
delay accepting any Private Notes, (ii) to extend the Exchange Offer, (iii) if
any conditions set forth below under "-- Certain Conditions to the Exchange
Offer" shall not have been satisfied (or shall occur), to terminate the Exchange
Offer by giving oral or written notice of such delay, extension or termination
to the Exchange Agent or (iv) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a press release or other public
announcement thereof. If the Exchange Offer is amended in a manner determined by
the Issuer to constitute a material change, the Issuer will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders of Private Notes, and the Issuer will extend the Exchange
Offer for a period of five to ten business days, depending upon the significance
of the amendment and the manner of disclosure to such registered holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period. The rights reserved by the Issuer in this paragraph are in addition to
the Issuer's rights set forth below under the caption "-- Certain Conditions to
the Exchange Offer."
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<PAGE> 50
Without limiting the manner in which the Issuer may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Issuer shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
If the Issuer extends the period of time during which the Exchange Offer is
open, or if it is delayed in accepting for exchange of, or in issuing and
exchanging the Exchange Notes for, any Private Notes, or is unable to accept for
exchange of, or issue Exchange Notes for, any Private Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to the Issuer's rights
under the Exchange Offer, the Exchange Agent may, on behalf of the Issuer,
retain all Private Notes tendered, and such Private Notes may not be withdrawn
except as otherwise provided below in "-- Withdrawal of Tenders." The adoption
by the Issuer of the right to delay acceptance for exchange of, or the issuance
and the exchange of the Exchange Notes, for any Private Notes is subject to
applicable law, including Rule 14e-1(c) under the Exchange Act, which requires
that the Issuer pay the consideration offered or return the Private Notes
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of the Exchange Offer.
RESALE OF THE EXCHANGE NOTES
The Issuer is making the Exchange Offer in reliance on the interpretations
of the staff of the Commission as set forth in no-action letters issued to third
parties unrelated to the Issuer. However, the Issuer has not sought its own
no-action letter and there can be no assurance that the staff of the Commission
would make a similar determination with respect to the Exchange Offer as it has
in such no-action letters issued to such third parties. With respect to the
Exchange Notes, based upon these interpretations by the staff of the Commission,
the Issuer believes that a holder (other than (i) any person who is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act or (ii) a broker-dealer that purchases Notes from the Issuer to resell
pursuant to Rule 144A under the Securities Act or any other available exemption
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of its business and is not engaging, and has no intention to
engage, and has no arrangement or understanding with any person to participate,
in the distribution of the Exchange Notes, will be allowed to resell the
Exchange Notes without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Exchange Notes or is a broker-dealer,
such holder cannot rely on the position of the staff of the Commission described
above and must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction, unless an
exemption from registration is otherwise available. A broker-dealer that will
receive Exchange Notes for its own account in exchange for Private Notes, where
such Private Notes were acquired by such broker-dealer as a result of
market-making or other trading activities, may be deemed to be an "underwriter"
within the meaning of the Securities Act and must therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. Each such broker-dealer that receives Exchange
Notes for its own account in exchange for Private Notes, where such Private
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities, must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by such a
broker-dealer in connection with resales of any Exchange Notes received in
exchange for Private Notes acquired by such a broker-dealer for its own account,
as a result of market-making or other trading activities. Pursuant to the
Registration Rights Agreement, the Issuer has agreed to make this Prospectus, as
it may be amended or supplemented from time to time, available to any such
broker-dealer that requests copies of such Prospectus in the Letter of
Transmittal for use in connection with any such resale for a period of up to 90
days after the Expiration Date. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and complied with. The Issuer and the
Guarantors
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<PAGE> 51
have agreed, pursuant to the Registration Rights Agreement (subject to certain
specified limitations set forth therein), to use their reasonable best efforts
to register or qualify the Exchange Notes for offer or sale under the securities
or blue sky laws of such jurisdictions as any holder of the Notes reasonably
requests in writing.
PROCEDURES FOR TENDERING
Subject to the terms and conditions hereof and the Letter of Transmittal,
only a registered holder of Private Notes may tender such Private Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes must
complete, sign and date the Letter of Transmittal, or facsimile thereof, have
the signature thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes into the Exchange Agent's
account at DTC pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the holder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTATION TO THE EXCHANGE AGENT IS AT THE ELECTION AND
RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS
USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY
TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR
PRIVATE NOTES SHOULD BE SENT TO THE ISSUER. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute a binding agreement between such holder and the Issuer in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
Any beneficial owner of the Private Notes whose Private Notes are held
through a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact such intermediary promptly and instruct such
intermediary to tender on such beneficial owner's behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution unless the Private Notes tendered pursuant thereto
are tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the NASD, a
commercial bank or trust company having an office or correspondent in the United
States, or another "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (any of the foregoing, an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Notes (which term includes any participants in
DTC whose name appears on a security position listing as the owner of Private
Notes) or if delivery of the Notes is to be made to a person other than the
registered holder, such Private Notes must be endorsed or accompanied by a
properly completed bond power, in either case, signed by such registered holder
exactly as the name or names of such registered holder or holders name appear(s)
on such Private Notes with the signature on the Private Notes or the bond power
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Private Notes or assignments or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
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<PAGE> 52
representative capacity, such persons should so indicate when signing, and
unless waived by the Issuer, evidence satisfactory to the Issuer of their
authority to so act must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes, the Issuer's acceptance of
which would be unlawful. The Issuer also reserves the right to waive any
defects, irregularities or conditions of tender as to particular Private Notes.
The Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Issuer shall determine. Although the Issuer intends to request the Exchange
Agent to notify holders of defects or irregularities with respect to tenders of
Private Notes, neither the Issuer, the Exchange Agent nor any other person shall
incur any liability for failure to give such notification. Tenders of Private
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived.
While the Issuer has no present plan to acquire any Private Notes which are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes which are not tendered pursuant to the Exchange
Offer, the Issuer reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth herein under "-- Expiration Date; Extensions;
Termination" and "-- Certain Conditions to the Exchange Offer," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering Private Notes pursuant to the Exchange Offer and executing a
Letter of Transmittal, each holder of Private Notes will represent to and agree
with the Issuer that, among other things, (i) the Exchange Notes to be acquired
in connection with the Exchange Offer are being acquired in the ordinary course
of business of the person receiving such Exchange Notes, whether or not such
person is the holder, (ii) that neither the holder nor any such other person has
an arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale of the Exchange Notes
acquired by such person and cannot rely on the position of the staff of the
Commission set forth in certain no-action letters described herein, (iv) such
holder understands that a secondary resale transaction described in clause (iii)
above and any resales of Exchange Notes obtained by such holder in exchange for
Private Notes acquired by such holder directly from the Issuer should be covered
by an effective registration statement containing the selling securityholder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission, and (v) such holder or such other person is not an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act (or, if it is an affiliate, that such holder or other person will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable). If the holder is a broker-dealer that will receive
Exchange Notes for such holder's own account in exchange for Private Notes,
where such Private Notes were acquired by such broker-dealer as a result of
market-making or other trading activities, such holder must acknowledge in the
Letter of Transmittal that such holder will deliver a prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
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<PAGE> 53
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for exchange because of an
invalid tender, or due to the occurrence of certain other events set forth
herein or any other reason set forth in the terms and conditions of the Exchange
Offer or if Private Notes are withdrawn or are submitted for a greater principal
amount than the holders desire to exchange, such unaccepted, withdrawn or
nonexchanged Private Notes will be returned without expense to the tendering
holder thereof (or, in the case of Private Notes tendered by book-entry transfer
into the Exchange Agent's account at the Depositary pursuant to the book-entry
transfer procedures described below, such Private Notes will be credited to an
account maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's system may make book-entry
delivery of Private Notes by causing the Depositary to transfer such Private
Notes into the Exchange Agent's account at the Depositary in accordance with the
Depositary's procedures for transfer. However, although delivery of Private
Notes may be effected through book-entry transfer at the Depositary, the Letter
of Transmittal or facsimile thereof, with any required signature guarantees and
any other required documentation, must, in any case, be transmitted to and
received by the Exchange Agent at the address set forth below under "-- Exchange
Agent" on or prior to the Expiration Date or pursuant to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes (or
complete the procedures for book-entry transfer), the Letter of Transmittal or
any other required documentation to the Exchange Agent prior to the Expiration
Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Issuer (by
facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier), mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of such
Private Notes (if applicable) and the principal amount of Private Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or a facsimile thereof), together with the
certificate(s) representing the Private Notes in proper form for transfer
or a Book-Entry Confirmation, as the case may be, and any other
documentation required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or a facsimile
thereof), as well as the certificate(s) representing all tendered Private
Notes in proper form for transfer or a Book-Entry Confirmation, as the case
may be, and all other documentation required by the Letter of Transmittal
are received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
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<PAGE> 54
Any holder who has tendered Private Notes may withdraw the tender by
delivering written notice of withdrawal (which may be sent by facsimile
transmission (receipt confirmed by telephone and an original delivered by
guaranteed overnight courier) or hand delivery) to the Exchange Agent prior to
the Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein prior to the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having tendered the Private Notes to be withdrawn
(the "Depositor"), (ii) identify the Private Notes to be withdrawn (including
the certificate number or numbers and principal amount of such Private Notes),
(iii) be timely received and signed by the holder in the same manner as the
original signature on the Letter of Transmittal by which such Private Notes were
tendered or as otherwise set forth in the instructions to the Letter of
Transmittal (including any required signature guarantees), or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Private Notes pursuant to the terms of the
Indenture into the name of the person withdrawing the tender and (iv) specify
the name in which any such Private Notes are to be registered, if different from
that of the Depositor. If Private Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Private Notes or otherwise comply with the
book-entry transfer facility's procedures. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Issuer, in its sole discretion, whose determination shall be
final and binding on all parties. None of the Issuer, any Guarantor, any
employees, agents, affiliates or assigns of the Issuer, or any Guarantor, the
Exchange Agent or any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give such notification. Any Private Notes so withdrawn
will be deemed not to have been validly tendered for purposes of the Exchange
Offer and no Exchange Notes will be issued with respect thereto unless the
Private Notes so withdrawn are validly retendered. Properly withdrawn Private
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Issuer shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided herein before the acceptance of such Private
Notes, if any of the following events shall occur:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency which would be reasonably likely to
materially impair the ability of the Issuer to proceed with the Exchange
Offer or there shall have occurred any material adverse development in any
existing action or proceeding with respect to the Issuer or any of its
subsidiaries; or
(b) the Exchange Offer shall violate any applicable law, rule,
regulation or interpretation of the staff of the Commission; or
(c) any governmental approval which the Issuer shall deem necessary
for the consummation of the Exchange Offer as contemplated hereby shall
have not been obtained.
If the Issuer determines in its reasonable discretion that any of these
conditions are not satisfied (or any of such events shall have occurred), the
Issuer may (i) refuse to accept any Private Notes and return all tendered
Private Notes to the tendering holders and/or terminate the Exchange Offer, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Issuer will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Issuer will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
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<PAGE> 55
Holders may have certain rights and remedies against the Issuer under the
Registration Rights Agreement should the Issuer fail to consummate the Exchange
Offer, notwithstanding a failure of the conditions stated above. Such conditions
are not intended to modify those rights or remedies in any respect.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in the Issuer's reasonable discretion. The failure by the
Issuer at any time to exercise the foregoing rights shall not be deemed a waiver
of any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
TERMINATION OF CERTAIN RIGHTS
All registration rights under the Registration Rights Agreement of holders
of the Private Notes eligible to participate in the Exchange Offer (and all
rights to receive Additional Interest as described under "-- Purpose of the
Exchange Offer") will terminate upon consummation of the Exchange Offer except
with respect to the Issuer's continuing obligations (i) to indemnify the holders
(including any broker-dealers) and certain parties related to the holders
against certain liabilities (including liabilities under the Securities Act),
and (ii) for a period of up to 90 days after the Expiration Date, to use its
reasonable best efforts to keep the Registration Statement effective and to
provide copies of the latest version of the Prospectus to any broker-dealer that
requests copies of such Prospectus in the Letter of Transmittal for use in
connection with any resale by such broker-dealer of Exchange Notes received for
its own account pursuant to the Exchange Offer. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted pursuant to the
foregoing provisions, the Issuer has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance as well as all correspondence in
connection with the Exchange Offer and the Letter of Transmittal should be
addressed to the Exchange Agent, as follows:
<TABLE>
<S> <C> <C>
By Hand Or Overnight Delivery: Facsimile Transmissions: By Registered Or Certified Mail:
The Bank of New York (Eligible Institutions The Bank of New York
101 Barclay Street Only) 101 Barclay Street, 7E
Corporate Trust Services Window (212) 815-6339 New York, New York 10286
Ground Level Attention: Reorganization
Attention: Reorganization To Confirm by Telephone or Section
Section for Information Call: Odell Romeo
Odell Romeo (212) 815-6337
</TABLE>
Requests for additional copies of this Prospectus, the Letter of
Transmittal or the Notice of Guaranteed Delivery should be directed to the
Exchange Agent.
The Bank of New York also serves as Trustee under the Indenture.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuer. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile transmission, telephone or in person by officers and
regular employees of the Issuer, the Guarantors and their affiliates.
The Issuer has not retained any dealer-manager or other soliciting agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Issuer,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection with the Exchange Offer.
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<PAGE> 56
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuer and are estimated in the aggregate to be approximately
$550,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Issuer will pay all transfer taxes, if any, applicable to the transfer
of Private Notes to it or its order pursuant to the Exchange Offer. If, however,
a transfer tax is imposed for any reason other than the exchange of Private
Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder of
Private Notes.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
Private Notes that are not exchanged for the Exchange Notes pursuant to the
Exchange Offer will remain "restricted securities" within the meaning of Rule
144(a)(3)(iv) of the Securities Act. Accordingly, such Private Notes will remain
subject to the restrictions on transfer of such Private Notes as set forth in
the legend thereon and may not be offered, sold, pledged or otherwise
transferred except (i) to a person whom the seller reasonably believes is a QIB
purchasing for its own account or for the account of a QIB in a transaction
meeting the requirements of Rule 144A under the Securities Act, (ii) in an
offshore transaction complying with Rule 903 or Rule 904 of Regulation S under
the Securities Act, (iii) pursuant to an exemption from registration under the
Securities Act provided by Rule 144 thereunder (if available), (iv) pursuant to
an effective registration statement under the Securities Act or (v) pursuant to
another available exemption from the registration requirements of the Securities
Act, and, in each case, in accordance with all other applicable securities laws.
See "Risk Factors -- Consequences of Failure to Exchange Private Notes."
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Private Notes as reflected in the Issuer's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
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<PAGE> 57
THE AIRLINE CATERING INDUSTRY
Revenues of airline caterers are dependent primarily upon the number of
airline passengers, the number of airline flights served by caterers and the
level of food service (beverage, snack or meal) provided. Catering profitability
has historically been less volatile than airline profitability, due to the
catering business' highly variable cost structure. The primary operating cost
components of airline caterers are food and labor, both of which are highly
variable and more easily adjusted to business cycles than the airlines'
operating costs.
Since airline deregulation in 1978, the airline catering industry has
benefitted from the increase in total United States airline food expenditures
which have grown at a compound annual rate of approximately 6.9%. Beginning in
1992, airlines accelerated their efforts to reduce costs and improve
productivity as a response to cumulative losses incurred as a result of intense
ticket price competition. Airline cost reductions included downgrading the level
of food services, such as switching from hot meal service to snack service,
eliminating individual tray service in favor of bulk meal service and reducing
or eliminating food service on certain flights. The aggregate level of airline
food expenditures in the United States decreased from $2.7 billion in 1992 to
$2.4 billion in 1995 due primarily to the reduction in food expenditures per
passenger, offset partially by an increase in revenue passenger enplanements. In
1996, airline food expenditures in the United States remained constant at the
1995 level of $2.4 billion as declines in food expenditures per revenue
passenger slowed and increases in revenue passenger enplanements continued.
During the first quarter of 1997, airline food expenditures in the United States
increased 2.8% over the comparable period of 1996 as food expenditures per
revenue passenger declined slightly and revenue passenger enplanements
increased.
The following table sets forth revenue passenger enplanements, total food
expenditures and food expenditure per revenue passenger for the United States
airline industry from 1990 through 1996.
<TABLE>
<CAPTION>
TOTAL FOOD
REVENUE PASSENGER EXPENDITURES
ENPLANEMENTS (IN FOOD EXPENDITURES PER
YEAR ENDED DECEMBER 31, (IN MILLIONS) MILLIONS) REVENUE PASSENGER
- --------------------------------------------- ----------------- ------------ ---------------------
<S> <C> <C> <C>
1990......................................... 465 $2,419 $5.20
1991......................................... 453 2,528 5.58
1992......................................... 473 2,734 5.78
1993......................................... 479 2,528 5.28
1994......................................... 518 2,527 4.88
1995......................................... 545 2,418 4.44
1996......................................... 574 2,419 4.21
</TABLE>
- ---------------
Source: Department of Transportation -- Form 41
The following table sets forth revenue passenger enplanements, total food
expenditures and food expenditure per revenue passenger for the United States
airline industry for the three months ended March 31 for each of the years
presented below.
<TABLE>
<CAPTION>
TOTAL FOOD
REVENUE PASSENGER EXPENDITURES
ENPLANEMENTS (IN FOOD EXPENDITURES PER
THREE MONTHS ENDED MARCH 31, (IN MILLIONS) MILLIONS) REVENUE PASSENGER
- --------------------------------------------- ----------------- ------------ ---------------------
<S> <C> <C> <C>
1990......................................... 112 $550 $4.90
1991......................................... 105 554 5.27
1992......................................... 108 634 5.87
1993......................................... 113 623 5.49
1994......................................... 122 601 4.93
1995......................................... 130 562 4.32
1996......................................... 140 565 4.04
1997......................................... 144 581 4.03
</TABLE>
- ---------------
Source: Department of Transportation -- Form 41
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<PAGE> 58
The sources of potential future growth for the airline catering industry
include: (i) a growing demand for air transportation worldwide; (ii) the
increasing proportion of long-haul flights (greater than two and one-half hours)
in the United States and in international markets, which generally offer a
higher level of food service; and (iii) the worldwide trend towards outsourcing
of food service from captive caterers to independent caterers.
Growing Demand for Air Transportation. In the United States, air traffic,
as measured by revenue passenger enplanements, grew at a compound annual rate of
approximately 4.3%, from 267 million in 1978 to 574 million in 1996. Over the
same period, the number of revenue passenger enplanements increased each year,
with the exception of 1991 during which the Gulf War and the recession in the
United States economy caused the first reduction in airline traffic in the
post-deregulation era. In recent years, traffic has grown at higher rates
outside of North America. According to industry data, worldwide revenue
passenger miles are projected to grow at a compound rate of 5.5% from 1996 to
2006. According to 1997 Federal Aviation Administration Aviation Forecast data,
revenue passenger enplanements in the United States are projected to grow at a
compound annual rate of 4.1% through the year 2006.
Increasing Long-Haul Flights; Higher Levels of Food Service. From 1986 to
1996, the number of departing seats (as a measure of capacity) offered on
long-haul flights worldwide increased 97%, and expressed as a percentage of
departing seats on all flights, increased from 21% to 27%. Over the same period,
the number of departing seats offered on long-haul flights in the United States
increased 66%, and expressed as a percentage of departing seats on all flights,
increased from 21% to 30%. The growing proportion of long-haul flights benefits
the airline catering industry because food service levels are generally higher
on long-haul flights than on short-haul flights.
Trend Towards Outsourcing. The airline catering industry is comprised of
two distinct groups of caterers: (i) independent caterers, such as the Company,
which are not owned by an airline; and (ii) captive caterers, which are owned by
an airline. Although captive caterers were formerly a significant factor in the
United States airline catering industry, the Company believes that independent
caterers now provide substantially all of the meals served on flights in the
United States. Airline catering at most major airports outside the United States
has been traditionally dominated by the local flag carriers, which have
typically maintained their own catering operations to serve locations where they
have had a significant share of air passenger traffic. In recent years, however,
certain governments have begun to reduce their ownership stakes in local flag
carriers and increase the landing privileges of other airlines. The Company
expects that increasing airline competition in international markets will
precipitate more cost-consciousness among foreign airlines, accelerating the
trend towards catering outsourcing which has come to dominate the United States
market. As further evidence of this trend, the Company has entered into an
agreement with Air New Zealand to acquire its airline catering business at four
locations in New Zealand and to provide airline catering services to Air New
Zealand from these locations.
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<PAGE> 59
BUSINESS
INTRODUCTION
The Company believes that it is the world's largest provider of airline
catering services with food service revenues for the twelve months ended
December 31, 1996 of approximately $1.56 billion. Management believes that these
revenues are more than 50% higher than those of its next largest competitor in
the airline catering industry. The Company had Adjusted EBITDA for the twelve
months ended September 30, 1997 of approximately $176 million. See Annex
I -- Summary Unaudited Combined Pro Forma Financial Data and "Selected
Historical Financial Data." The Company currently operates, directly or through
joint ventures, 139 kitchens located at or adjacent to 117 airports in 28
countries. Approximately 60% of the Company's food service revenues for the
twelve months ended September 30, 1997 were derived from United States
operations and 40% from international operations. On a daily basis, the Company
services an average of approximately 7,000 domestic and international airline
flights and prepares an average of 650,000 meals. SCIS is a Delaware
corporation, incorporated in 1995 in connection with the transactions which
effectuated the combination of the businesses of Sky Chefs and Caterair. See
"Certain Transactions -- The Combination."
STRENGTHS
The Company believes that the following factors contribute to its position
as the world's market leader in the airline catering industry:
WORLDWIDE COVERAGE
The Company is the only airline caterer with a significant operating
presence in both the United States and international markets. Management
believes that the Company's global network of kitchens, strategically located to
service major international airlines, provides significant competitive
advantages. As a result, management believes the Company is well positioned to
take advantage of the anticipated growth in international airline traffic and
the higher and more stable food service levels provided on long-haul flights
(over two and one-half hours), some of which offer up to three meals. Management
also believes that the breadth of the global network operated by the Company and
its strategic marketing partner, LSG, provides a significant opportunity to
attract international airlines with a single supplier approach worldwide. The
Company currently operates kitchens at or adjacent to 25 international gateway
airports, including substantially all of the international gateway airports in
the United States, Latin America and Australia, and the Company or LSG also
operate kitchens at a significant number of international gateway airports in
Europe, including London, Paris, Frankfurt and Rome. See "-- Strategy -- Promote
Single Supplier Approach."
LSG STRATEGIC ALLIANCE
The Company's worldwide coverage is enhanced through a strategic marketing
alliance formed in 1993 with LSG, the airline catering subsidiary of Lufthansa.
The alliance creates an international marketing network with kitchens at or near
157 airports in 40 countries, including 29 international gateway airports. The
Company and LSG, while remaining separate companies, generally conduct
operations under the "LSG Lufthansa Service/SKY Chefs" name and logo and
organize their respective marketing activities with the goal of achieving a
coordinated approach to customers on a worldwide basis. The Company and LSG have
agreed to offer each other the right to participate in the development of
business in new geographic markets and not to compete with each other's catering
operations outside of the United States and the European Community. See "--
Strategy -- Promote Single Supplier Approach" and "Certain Transactions -- LSG
Lufthansa Service GmbH."
DIVERSE AND STABLE CUSTOMER BASE
The Company provides airline catering services to over 250 airlines,
comprising substantially all of the world's major airlines. The Company's five
largest North American customers are American, Delta, Northwest Airlines, United
Airlines and Canadian Airlines and the Company's five largest international
customers are Qantas Airways, British Airways, Japan Air Lines, Lufthansa and
Cathay Pacific Airlines. The
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<PAGE> 60
Company has conducted business with each of these customers for at least ten
years. Since its acquisition from AMR, the parent of American, in 1986, Sky
Chefs has provided services to American under long-term contracts. The current
Sky Chefs contract with American runs through the end of 2003 and, together with
Caterair's contract with American, which runs through the end of 2001, accounted
for approximately 30% of the Company's 1996 food service revenues. No other
customer of the Company accounted for more than six percent of its 1996 food
service revenues. See "Risk Factors -- Dependence on Key Customers" and "--
Customers -- Contracts."
LOW COST STRUCTURE
In 1992, Sky Chefs implemented an extensive operating improvement plan
which reduced annual operating costs by approximately $47 million in 1994 as
compared with 1992. Due in large part to its operating improvement plan, Sky
Chefs increased EBITDA from $29 million in 1992 to $59 million in 1994 and
improved EBITDA as a percentage of revenues from 6.1% to 12.6% over the same
period. As part of the Combination which was consummated on September 29, 1995,
management estimated that approximately $55 million of net cost savings on an
annualized basis were achievable by the end of the third year of combined
operations of Sky Chefs and Caterair. Management believes that as of September
30, 1997 a significant portion of these net cost savings have been achieved as
evidenced by an increase in the combined companies' Adjusted EBITDA from $123
million for the year ended December 31, 1994 to $176 million for the twelve
months ended September 30, 1997 and an improvement in Adjusted EBITDA as a
percentage of the combined companies' revenues from 8.0% for the year ended
December 31, 1994 to 11.0% for the twelve months ended September 30, 1997. See
Annex I -- Summary Unaudited Combined Pro Forma Financial Data and "Selected
Historical Financial Data." These net cost savings have been achieved through,
among other things, increasing labor productivity and reducing labor and
employee costs at certain of the Caterair Kitchens; consolidating certain
corporate level management and administrative functions of Sky Chefs and
Caterair; reducing food waste spoilage and shrinkage at certain of the Caterair
Kitchens; eliminating redundant kitchens; and reducing other kitchen operating
expenses at certain of the Caterair Kitchens. In order to achieve these net cost
savings, the Company incurred approximately $52 million in non-recurring costs
through September 1997 principally relating to (i) severance payments and other
employee costs, (ii) external consulting services primarily associated with the
implementation of labor savings programs and (iii) other items in connection
with the integration of the business of Sky Chefs and Caterair. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Selected Historical Financial Data -- SCIS" and "Certain
Transactions -- The Combination."
STRATEGY
The Company's business strategy is to: (i) promote a single supplier
approach to the marketing of services through the Company's worldwide network
with LSG; (ii) expand international operations by pursuing new business at
existing locations and by expanding to new locations at international gateway
airports; (iii) develop non-airline catering opportunities; and (iv) achieve
additional net cost savings, while maintaining service quality.
PROMOTE SINGLE SUPPLIER APPROACH
The Company and LSG, through their respective global kitchen networks,
intend to continue to promote the benefits that a global catering network can
offer to worldwide airlines. These benefits include enabling customers to
streamline planning for meals and service scheduling, as well as enhancing
communications with airline caterers and improving their capacity to monitor the
quality of catering services. This approach has enabled the Company and LSG to
obtain long-term contracts with Delta, Northwest Airlines and Canadian Airlines
and the Company and LSG intend to continue to pursue long-term contacts with
other existing and new customers. See "-- Strengths -- LSG Strategic Alliance"
and "Certain Transactions -- LSG Lufthansa Service GmbH."
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<PAGE> 61
EXPAND INTERNATIONAL OPERATIONS
The Company intends to continue to pursue an international market
development program by competing for new business at international gateway
airports where it currently operates, engaging in strategic acquisitions of
international airline caterers and stand-alone kitchens, and entering into joint
venture arrangements with airlines and other parties in markets outside the
United States. In particular, the Company plans to focus on the development of
opportunities at international gateway airports. Such a plan is expected to
provide the Company with the benefit of higher and more stable food service
levels from long-haul flights and greater access to international airline
traffic from such airports. During 1997, the Company acquired a 49% interest in
an airline catering business in Mexico and acquired the airline catering
business of Air New Zealand at Auckland, Wellington, Christchurch and Rarotonga.
Since September 1995, the Company has also acquired airline catering businesses
in Bogota, Colombia, Asuncion, Paraguay and Guayaquil, Ecuador through an
existing joint venture.
DEVELOP NON-AIRLINE CATERING OPPORTUNITIES
The Company is pursuing a strategy to sell food services to non-airline
customers in order to further diversify its revenue base. The Company will focus
on developing the business of preparing and delivering meals from its kitchens
to supermarkets and convenience stores in the United States and employee
cafeterias at industrial plants and office buildings in Latin America. The
Company currently produces fresh food products in two major geographic markets
for The Southland Corporation for sale in 7-Eleven stores and is operating a
pilot program with a subsidiary of The Sara Lee Corporation for the production
of home meal solutions. The United States market for supermarket and convenience
store home meal solutions was approximately $8 billion in 1996 and is expected
to grow rapidly as dual income families seek alternatives to in-home preparation
of meals and restaurant dining. The Company believes that these alternative
markets, particularly the United States home meal solutions market, represent
substantial future opportunities. See "-- Non-Airline Catering Operations."
ACHIEVE ADDITIONAL NET COST SAVINGS
The Company will continue to implement its operating improvement plan in an
effort to achieve additional net cost savings. See "-- Low Cost Structure."
HISTORICAL BACKGROUND
Sky Chefs. Sky Chefs was formed in 1941 as the captive airline catering
subsidiary of American and was acquired in 1986 from AMR, the parent of
American, by Onex Capital and members of Sky Chefs' management. Sky Chefs is a
corporation organized under the laws of the State of Delaware. Onex, based in
Toronto, Canada, is a publicly listed (on the Toronto Stock Exchange and the
Montreal Exchange) diversified holding company that operates through autonomous
subsidiaries and strategic partnerships. The principal executive offices of Sky
Chefs are located at 524 East Lamar Blvd., Arlington, Texas 76011 (telephone
number (817) 792-2123).
Caterair. Marriott founded the airline catering industry in 1937 when it
began providing meals on commercial airline flights in the Washington, D.C.
area. Caterair, a Delaware corporation formed in 1989, acquired Marriott's
airline catering business in December 1989 through a management-led buy-out. The
principal executive offices of Caterair are located at 524 East Lamar Blvd.,
Arlington, Texas 76011 (telephone number (817) 792-2123).
SCIS and CII. SCIS and CII are each Delaware corporations formed in 1989.
SCIS was formed in connection with the Combination to hold the capital stock of
Sky Chefs and CII. CII was formed in connection with the Combination to sublease
certain Caterair Kitchens, and license and purchase certain assets from
Caterair, and conduct operations at such Caterair Kitchens. CII constitutes a
separate operating company from Sky Chefs. The principal executive offices of
SCIS and CII are located at 524 East Lamar, Arlington, Texas 76011 (telephone
number (817) 792-2123) and 6550 Rock Spring Drive, Bethesda, Maryland, 20817
(telephone number (301) 897-7800), respectively.
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<PAGE> 62
On September 29, 1995, the Sky Chefs and Caterair businesses were combined.
See "Certain Transactions -- The Combination."
AIRLINE CATERING OPERATIONS
Catering Services. The Company conducts airline catering services out of
kitchens at or near airports for airline customers which include: (i) designing
and planning menus; (ii) purchasing food products, beverages and other items in
accordance with customer specifications; (iii) preparing and assembling
individual meals; (iv) stocking liquor and beverage service carts; (v) loading
meals and service carts onto trucks which transport them from the kitchen to the
airplane; (vi) unloading and cleaning plates, utensils and other accessories
from airplanes on which meals have been served; (vii) providing linens, ice and
duty free items; and (viii) providing inventory management and storing
airline-owned dining equipment, which includes plates, utensils, trays, carts,
glasses and various other items.
In the United States, a substantial portion of the food products,
non-alcoholic beverages and other items used by the Company is purchased under
contracts negotiated and specified by airlines and, generally, the cost of food
products, non-alcoholic beverages and such other items are passed through to
airline customers without profit. However, in its international operations, food
products, beverages and other items are generally purchased locally under
contracts negotiated by the Company.
For information relating to the amounts of revenues, operating profit or
loss and identifiable assets attributable to each of SCIS' and Caterair's
geographic areas, see the Financial Statements and notes thereto included
elsewhere in this Prospectus.
Domestic Operations. The Company is the largest provider of airline
catering services in the United States with 1996 food service revenues in the
United States of approximately $979 million. The Company conducts operations at
72 kitchens serving 56 airports in the United States, including 21 of the 25
busiest airports, as measured by passenger enplanements. According to industry
data, during 1996, these 21 airports accounted for approximately 63% of total
United States air traffic. The 56 United States airports at which the Company
operates account for approximately 84% of total United States air traffic. See
"-- Competition."
International Operations. Outside the United States, the Company currently
operates, directly or through joint ventures, 67 kitchens at or near 61 airports
in 27 countries, including England, France, Spain, Australia, Venezuela, Brazil,
Chile, Portugal, Argentina, Canada, Mexico, New Zealand and Russia and 26
kitchens in Central America and the Caribbean for which the Company has
technical services or management agreements. The Company generally initiates and
conducts its international operations through acquisitions of existing catering
businesses and joint ventures with airline carriers or other local partners,
including Qantas Airways in Australia, Aeroflot in Russia, Goddard Enterprises,
Ltd. in the Caribbean and parts of Central and South America, TAP in Portugal, a
consortium of Persian Gulf carriers in England and certain individuals in
Mexico.
A typical joint venture arrangement with an airline provides for initial
capital investments by the Company and its joint venture partner for
construction of a kitchen and for a long-term management agreement under which
the Company receives a fee for operating the kitchen as well as a long-term
catering contract with the customer/partner. The joint venture arrangement
permits the Company to service other carriers as well as its joint venture
partner. In most cases, the airline joint venture partner commits to purchase
all of its airline catering requirements from the Company at the airports
covered by the joint venture.
NON-AIRLINE CATERING OPERATIONS
The Company is also involved in non-airline catering operations which have
accounted for a relatively small portion of its food service revenues
historically (approximately 3.4% in 1996). Non-airline catering operations in
the United States involve primarily the preparation and delivery of meals to
convenience stores and supermarkets. These activities are conducted from the
Company's existing kitchens. Outside the United States, the Company principally
operates employee cafeterias at industrial plants, office buildings and other
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<PAGE> 63
facilities. In 1996, food service revenues from these activities outside the
United States totaled approximately $41.8 million, with the Company's activities
in South America representing the majority of such sales.
The Company is pursuing a strategy to sell food services to non-airline
customers in order to further diversify its revenue base. The Company will focus
on developing the business of preparing and delivering meals from its kitchens
to supermarkets and convenience stores in the United States and employee
cafeterias at industrial plants and office buildings in Latin America. The
Company currently produces fresh food products in two major geographic markets
for The Southland Corporation for sale in 7-Eleven stores and is operating a
pilot program with a subsidiary of The Sara Lee Corporation for the production
of home meal solutions. The United States market for supermarket and convenience
store home meal solutions was approximately $8 billion in 1996 and is expected
to grow rapidly as dual income families seek alternatives to in-home preparation
of meals and restaurant dining. The Company believes that these alternative
markets, particularly the United States home meal solutions market, represent
substantial future opportunities.
In connection with the formation of Caterair in 1989, Caterair Holdings and
Marriott International, Inc. entered into a non-competition agreement which
prohibits Caterair, subject to certain limited exceptions, from participating in
the food, beverage, merchandise and duty free shop businesses and similar
businesses operated in airport terminals or related facilities and certain food
and service management businesses conducted by Marriott International, Inc. in
1989, other than the airline catering service business, until December 15, 2001.
The Company does not believe that the non-competition agreement will materially
impair its ability to carry out its strategy of developing non-airline catering
opportunities. See "-- Strategy -- Develop Non-Airline Catering Opportunities,"
"-- Competition" and "Certain Transactions -- Caterair."
CUSTOMERS
The Company is the only airline caterer with a significant operating
presence in both the United States and international markets. The Company
provides airline catering services to over 250 airlines, comprising
substantially all of the world's major airlines. The Company's five largest
North American customers are American, Delta, Northwest Airlines, United
Airlines and Canadian Airlines and the Company's five largest international
customers are Qantas Airways, British Airways, Japan Air Lines, Lufthansa and
Cathay Pacific Airlines. The Company has conducted business with each of these
customers for at least ten years. Since its acquisition from AMR, the parent of
American, in 1986, Sky Chefs has provided services to American under long-term
contracts. The current Sky Chefs' contract with American runs through the end of
2003, subject to adjustment based on performance, and, together with Caterair's
contract with American, which runs through the end of 2001, accounted for
approximately 30% of the Company's 1996 food service revenues. No other customer
of the Company accounted for more than six percent of its 1996 food service
revenues.
The Company believes that its size and diversification, both in terms of
geography and customer base, reduce the impact that the failure of any one
airline or the reduction or elimination in food service by any one airline would
have on its overall profitability.
The Company's mix of customers outside of the United States and Canada is
substantially more diversified than in the United States and Canada. The
Company's five largest North American customers accounted for 72% of 1996 food
services revenues in the United States and Canada while its five largest
international customers accounted for only 33% of 1996 food services revenues
outside the United States and Canada.
Contracts. Sky Chefs has a catering services contract with American which
expires at the end of 2003, subject to adjustment based on performance. In 1992,
Sky Chefs negotiated a ten-year contract with American (which replaced a ten
year contract negotiated in 1986 in connection with the acquisition of Sky Chefs
from AMR) and in 1994, Sky Chefs obtained a two-year extension of this contract.
Caterair has a catering services contract with American which expires at the end
of 2001, subject to adjustment based on performance. In September, 1997, Mr.
Robert Crandall, the Chairman and Chief Executive Officer of AMR, the parent of
American, was reported to have stated to financial analysts that in his opinion
American's contracts with the Company "[produce] a cost disadvantage relative to
other caterers" and that American will seek to eliminate its perceived cost
disadvantage. The Company and American periodically discuss issues surrounding
the terms of these contracts and such discussions have continued following Mr.
Crandall's
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<PAGE> 64
remarks. From time to time the contracts with American have been amended and/or
extended, and such contracts may be further amended and/or extended in the
future. The contracts with American specify pricing and quality performance
standards; failure to comply with the quality standards may result in financial
penalties or termination of the contract at the affected airport (or in some
cases, at a comparable airport), and, in certain cases, the purchase of the
kitchen at the affected airport by American.
During 1997, American terminated the Company's services at six of the
Caterair Kitchens due to the Company's failure to comply with these quality
standards. Based on current service levels, the Company estimates that such
terminations will result in reductions of annual revenues of approximately $34
million. Despite the loss of these revenues, management estimates that the
Company continues to provide approximately 86% of American's domestic airline
catering requirements. The loss of the business with American or a significant
portion of such business would have a material adverse effect on the business of
the Company. See "Risk Factors -- Dependence on Key Customers," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Certain Transactions -- AMR and American."
In addition to the contracts with American, the Company has entered into
contracts with durations of five years or more with each of Canadian Airlines,
Delta, Northwest Airlines, United Airlines, USAir and Alaska Airlines, which in
the aggregate provided approximately 22% of the Company's 1996 food service
revenues.
COMPETITION
The airline catering industry is highly competitive. Several large United
States and international caterers, as well as a number of small caterers
operating at one or more locations and, at certain locations, airport terminal
concession operations, compete for airline catering business. The Company
competes primarily with other independent caterers, and to some extent with
captive caterers, on the basis of price, service and performance. The Company's
principal competitors in the United States are Dobbs International Services,
Inc., a subsidiary of Viad Inc, and Ogden Allied Aviation Services Division, a
subsidiary of Ogden Corporation. The Company's principal competitors outside the
United States are Alpha Airport Group PLC, Gate Gourmet, the airline catering
subsidiary of Swissair, and other captive caterers.
The busiest airports have numerous kitchens operated by major caterers. At
some of these airports, unutilized capacity exists, which leads to increased
competition among caterers and gives airlines leverage in negotiating contracts
with all caterers with facilities located there. On the other hand, some other
airports are serviced by only one caterer. For example, the Company is the only
airline caterer at Oklahoma City, Tucson, Phoenix, San Diego, Nashville, El Paso
and Milwaukee and various other airports. Competitive factors in the airports
where there is only one caterer include the airlines' ability to cater their
planes at other airports and the possibility that other caterers may be
encouraged to enter that particular airport if the existing caterer is not
competitive.
Airline catering at most major airports outside the United States was
traditionally dominated by the local flag carriers, which typically maintained
their own catering operations to serve locations where they had a significant
share of air passenger traffic. In recent years, however, governments generally
have reduced their control over local flag carriers and increased the landing
privileges of other airlines. The Company expects this trend, which is likely to
be reinforced by deregulation of the European market and the potential
privatization of captive airline catering companies, to continue and to make the
international catering business more accessible to independent caterers such as
the Company. However, there can be no assurance that such a trend will continue
or that the Company will be successful in obtaining additional operations in
international markets.
In connection with the formation of Caterair in 1989, Marriott and Caterair
Holdings entered into a non-competition agreement which prohibits Marriott,
subject to certain exceptions, from participating in the airline catering
business until December 15, 2001.
EMPLOYEES
At September 30, 1997, Sky Chefs had approximately 11,000 workers at 59
United States kitchens and its corporate headquarters, of which approximately
10,000 were unionized under the Railway Labor Act ("RLA"), the federal labor law
administered by the National Mediation Board governing labor relations for
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employees in the airline and railroad industries. Sky Chefs' foreign operations
include kitchens in Canada, Europe, and Latin America, and employ approximately
12,000 persons.
With respect to its operations in the United States, Sky Chefs has operated
for approximately 28 years under the RLA, which provides for a system-wide
bargaining unit and representation by a single union of covered hourly workers.
The Hotel Employees and Restaurant Employees International Union ("HEREIU")
represents all covered hourly Sky Chefs' employees at all United States kitchen
locations under a Master National Agreement ("MNA") which has been in existence
since 1969. Under the MNA, system-wide bargaining with HEREIU generally occurs
every five years (unless otherwise agreed), with local wage rates at individual
kitchens determined periodically through local wage supplements. In 1995, Sky
Chefs and HEREIU reached a five-year agreement to modify system-wide fringe
benefit provisions of the MNA relating to health and retirement coverage and to
implement cost-containment initiatives that management believes are advantageous
to the operations of Sky Chefs. Sky Chefs believes that its relations with its
employees and HEREIU are good, and that the prohibition on strikes, as well as
the stability and workplace practices provided for under the MNA, have
contributed significantly to the success of Sky Chefs' operations to date. Since
the purchase of Sky Chefs by Onex in 1986, Sky Chefs has not suffered any strike
or work stoppage by its employees. With respect to its foreign operations,
employees are unionized under host country foreign labor laws.
In 1995, SCIS created CII, a separate, wholly owned subsidiary, to operate
certain Caterair Kitchens. While CII and Sky Chefs have a common corporate
parent, each operates as an independent entity, with separate marketing, labor
and personnel functions. Upon the consummation of the Combination, 13 Caterair
Kitchens were acquired by CII. At September 30, 1997, CII had approximately
2,400 full-time domestic workers at 13 United States kitchens, of which 12
United States kitchens were represented by three different unions under the
National Labor Relations Act, the federal labor law administered by the National
Labor Relations Board governing a broad range of industries.
In July 1997, Sky Chefs acquired the Boston operations of CII and, in
October 1997, Sky Chefs acquired the Baltimore, Oakland and Salt Lake City
operations of CII. All kitchens acquired by Sky Chefs will be operated under the
RLA and the MNA with HEREIU. CII believes that its relations with its employees
and their unions are good, although there can be no assurance that objections to
the acquisition of CII operations by Sky Chefs, and the coverage of former CII
employees under the MNA and RLA, will not be raised by affected employees or
unions. SCIS is continuing to review other potential opportunities for
consolidation of Sky Chefs and CII operations.
PROPERTIES
United States Properties. At September 30, 1997, the Company operated 72
kitchens, which served 56 airports throughout the United States with
approximately 4.8 million square feet of building area. The Company owns four of
its kitchens; the remaining 68 are leased. The kitchens are located at or near
major airports and range in size from approximately 6,700 square feet to
approximately 209,800 square feet of building area and operate 20 to 24 hours a
day. The size and structure of the Company's kitchens vary depending upon the
number of meals to be produced by each kitchen. Most of the Company's kitchens
are leased on a long-term basis from airport authorities, American and another
third party (generally for initial terms of 15 to 20 years). The Caterair
Kitchens have been subleased by Caterair to Sky Chefs and CII pursuant to the
Domestic Leases. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions -- The
Combination."
The Company's leasehold improvements with respect to these properties
revert to the lessors upon termination of the leases. In the past, the Company
has not has experienced any difficulty in renewing leases for kitchens on
satisfactory terms, and the Company does not anticipate any significant problems
with respect to renewing leases expiring in the near future. However, there can
be no assurance that it will be successful in renewing any such leases.
Nearly all kitchen leases on airport property in the United States require
the Company to pay ground rent, which ranges from an annual rate of $0.10 to
$15.89 per square foot. Most kitchen leases with airport authorities require the
payment of a percentage concession or royalty fee generally ranging from 2.0% to
13.8%
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<PAGE> 66
of gross revenues, which is typically passed through to customers. Approximately
one-half of the Company's kitchen leases in the United States require the
payment of the greater of the percentage fee or the ground rent amount. Most of
the other kitchen leases require the payment of ground rent plus the percentage
fee. Many of the fixed rental kitchen leases have escalation clauses that
provide for periodic increases tied to the Consumer Price Index. The majority of
kitchen leases entered into by the Company during the past ten years provide for
periodic adjustment of ground rent which is either fixed or is based upon an
appraisal. The Company also pays building rent in connection with several of its
kitchen leases in the United States and expects that upon renewal of certain of
its kitchen leases, airport authorities will require the payment of building
rent in addition to ground rent. The Company is currently negotiating or
renegotiating certain of its kitchen leases.
The Company leases approximately 65,193 square feet at 524 East Lamar,
Arlington, Texas 76011, which houses SCIS', Sky Chefs' and Caterair's corporate
headquarters. This lease expires in March 2003. In addition, the Company leases
and subleases until 2004 approximately 44,500 square feet at 6550 Rock Spring
Drive, Bethesda, Maryland 20817, which houses CII's corporate headquarters.
The Company owns or leases, and operates, a fleet of approximately 1,250
special-purpose catering vehicles to deliver its catering services to airplanes
in the United States and approximately 475 utility vehicles, vans and cars.
The Company also owns or leases land or facilities at 21 locations that are
not in operation, of which four are currently being subleased.
International Properties. At September 30, 1997, the Company operated,
directly or through joint ventures, 67 kitchens at or near 61 airports in 27
foreign countries with approximately 2,400,000 square feet of building area. The
kitchens are located at or near airports and range in size from approximately
4,000 square feet to approximately 160,000 square feet of building area. Any
leases in connection with the land on or the buildings in which the kitchens are
located are generally with airport authorities under long-term leases (generally
for initial terms of 10 years or more).
The Company owns or leases, and operates, a fleet of approximately 580
special-purpose catering vehicles to deliver its catering services to airplanes
outside the United States and approximately 425 utility vehicles, vans and cars.
LEGAL PROCEEDINGS
The Company is involved in routine litigation, including a number of
workers' compensation and related claims, that have arisen in the ordinary
course of business. The Company does not believe that this routine litigation is
material to its financial condition or results of operations.
INSURANCE
The Company maintains insurance policies to cover public liabilities and is
effectively self-insured for workers' compensation liabilities. The Company
establishes reserves, which management believes are adequate, for uninsured
liabilities. Due to the unpredictable nature of events in many foreign
countries, the Company has maintained insurance against political risk in
certain countries and has added such other insurance as available and as
reasonably necessary to keep the Company adequately insured against such risk.
GOVERNMENT REGULATION
General. Each of the Company's United States kitchens is subject to
federal, state and local laws and regulations, governing health, sanitation,
safety, customs and security. In addition, the design and construction of new
kitchens are affected by federal, state and local laws and regulations regarding
food and health matters, environmental matters, zoning and land use. Kitchens
outside the United States are subject to various foreign laws and regulations.
None of these domestic and foreign laws and regulations has had a material
adverse effect on the Company's operations taken as a whole, and the Company has
not experienced any significant difficulties in obtaining material licenses and
approvals necessary to its operations. More stringent and varied laws,
regulations and requirements, however, could result in increases in the cost and
time required to open
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new kitchens, as well as increases in the cost of operating kitchens. In
addition, difficulties in obtaining necessary licenses or permits could cause
delays in the opening of, or limit the Company's ability to open, new kitchens.
There can be no assurance that the Company will in the future be able to obtain
necessary licenses and approvals or that it will remain in compliance with
applicable laws and regulations or that such laws and regulations will not have
a material adverse effect on the Company's operations.
Environmental. Under various federal, state and local laws and
regulations, a current or previous owner or operator, manager or developer of
real estate may be liable for the costs of removing and remediating certain
hazardous or toxic substances on the property. These laws often impose liability
without regard to whether the owner or operator knew of, or was responsible for,
the presence of the hazardous or toxic substances. The costs of removing or
remediating these substances may be substantial and the presence of these
substances, or the failure to remediate conditions affected by the substances
promptly, may adversely affect the owner's or operator's ability to sell or
lease the real estate or to borrow using the real estate as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removing or remediating the substances at the
disposal or treatment facility. Certain laws impose liability for the release of
asbestos into the air and owners or operators of real properties may be sued for
personal injury associated with alleged exposure to asbestos. In connection with
its ownership or leasing and operation of its properties, the Company may be
potentially liable for these costs. In addition, the presence of hazardous or
toxic substances at a site adjacent to or in the vicinity of a property could
require the property owner or user to participate in remediation activities in
certain cases or could have an adverse effect on the value of such property. The
Company believes that it is in substantial compliance in all material respects
with applicable federal, state and local regulations regarding hazardous or
toxic substances and is not subject to liability thereunder which would have a
material adverse effect on its business or financial condition.
The Company maintains underground storage tanks used to store fuel for its
trucks at a number of kitchens located in the United States and other countries.
Under federal and state regulations, the Company is subject to various
requirements applicable to underground fuel storage tanks, including
requirements for upgrading tanks, operating standards, release detection
requirements, and financial responsibility requirements. In the past, a number
of the Company's underground storage tanks have discharged fuel. The Company has
removed all tanks where it was aware of such discharges and remediated, or is in
the process of remediating, any contamination resulting from such discharges and
has removed all but one of its remaining underground storage tanks located in
the United States. The Company is not aware of any liability that it has in
connection with the existing or previous ownership or operation of underground
storage tanks that would have a material adverse effect on the Company's
business or financial condition.
Federal Regulation of Food Services. In addition to applicable state and
local regulations, the Company's domestic kitchens are subject to regulation and
inspection by the United States Food Drug and Administration (the "FDA"). Every
kitchen in the United States must meet the FDA's minimum standards relating to
the handling, preparation and delivery of food, including requirements relating
to the temperature of food and the cleanliness of the kitchen and the hygiene of
its personnel. Leftover and discarded food arriving in the United States on
incoming international flights must be disposed of in accordance with
requirements established by the United States Department of Agriculture
("USDA"), which has the right to inspect the Company's food disposal procedures.
Kitchens are also subject to USDA inspections.
Customs and Security. The Company and its operations are subject to
certain federal laws and regulations which are designed to prevent certain
criminal activities, primarily smuggling and terrorism. In an effort to prevent
such activities, the Federal Aviation Administration requires a five-year
background investigation of all employees of the Company who have access to the
airport ramps and loading docks from which meals are delivered and boarded onto
aircraft. The United States Customs Service, in addition to requiring a similar
background investigation, has the right to inspect all items removed from
incoming international flights, including food trays and related equipment.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position(s) of each person
who serves as an executive officer and/or director of SCIS or a Guarantor:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------------
<S> <C> <C>
Gerald W. Schwartz................. 55 Director of SCIS and Sky Chefs
Ewout Heersink..................... 47 Director of SCIS and Sky Chefs
Helmut Woelki...................... 47 Director of SCIS and Sky Chefs
Gunter Rothig...................... 61 Director of SCIS and Sky Chefs
Helmut Bleckmann................... 57 Director of SCIS and Sky Chefs
James J. O'Neill................... 63 Director of SCIS and CII, Vice Chairman of the
Board and Chief Executive Officer of SCIS and
Chairman of the Board of CII
Michael Z. Kay..................... 58 Director of SCIS and Sky Chefs and President and
Chief Executive Officer of Sky Chefs
Patrick W. Tolbert................. 52 Director, Executive Vice President and Chief
Financial and Administrative Officer of SCIS and
Sky Chefs
Randall C. Boyd.................... 39 Senior Vice President-Marketing and Customer
Service of Sky Chefs
William S. Woodside................ 75 Director of SCIS and Sky Chefs and Vice Chairman
of Sky Chefs
Daniel J. Altobello................ 56 Director and Chairman of the Board of SCIS and
Chief Executive Officer and President of Caterair
Thomas J. Lee...................... 45 Director-Financial Accounting of SCIS and Sky
Chefs
Eric J. Rosen...................... 36 Director of CII
J. Thomas Markley.................. 64 Director of CII
Aaron Gellman...................... 67 Director of CII
Anthony R. Melman.................. 50 Director of Caterair
Donald F. West..................... 59 Director of certain Guarantors
Norman J. Shuman................... 65 Director of certain Guarantors
</TABLE>
Gerald W. Schwartz has been a director, Chairman of the Board, President
and Chief Executive Officer of Onex and Onex Capital since their formation in
1983. Mr. Schwartz has been a director of OFSI and Sky Chefs since May 1986 and
a director of SCIS since its formation. Mr. Schwartz serves on the board of
directors of ProSource, Inc. and Alliance Communication Corporation.
Ewout Heersink has been Vice President and Chief Financial Officer of Onex
for the past six years and has held various positions at Onex since March 1987.
Mr. Heersink has been a director of OFSI and Sky Chefs since October 1992. Mr.
Heersink has been a director of SCIS since its formation. Mr. Heersink also
serves on the boards of directors of certain Guarantors which are indirectly
wholly-owned subsidiaries of SCIS.
Helmut Woelki has been Chairman of the Executive Board of LSG since April
1989. Mr. Woelki was elected to the boards of directors of OFSI and Sky Chefs in
August 1993. Mr. Woelki has been a director of SCIS since its formation.
Helmut Bleckmann has been Vice President Corporate Strategy/Business
Development of LSG for more than five years. Mr. Bleckmann was elected to the
boards of directors of SCIS, OFSI and Sky Chefs in October 1995.
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Gunter Rothig was appointed Vice Chairman of the Executive Board of LSG in
1989. Mr. Rothig was elected to the boards of directors of OFSI and Sky Chefs in
February 1994. Mr. Rothig has been a director of SCIS since its formation.
James J. O'Neill was named President of Sky Chefs in April 1980. He was
elected to the boards of directors of Sky Chefs and OFSI in May 1986. He was
named Chairman of the Board and Chief Executive Officer of Sky Chefs in March
1994. Prior to joining Sky Chefs, Mr. O'Neill served as Vice President--Data
Processing and Communication Services for American. Mr. O'Neill serves on the
Board of Trustees of the American Management Association, and is a member of the
Executive Committee and Board of Directors of the North Texas Commission. Mr.
O'Neill has been a director and the Chief Executive Officer of SCIS since its
formation. In September 1995, Mr. O'Neill resigned as director, Chief Executive
Officer and Chairman of the Board of Sky Chefs and was elected to the board of
directors and appointed Chairman of the Board of CII. Mr. O'Neill also serves on
the boards of directors of certain Guarantors which are indirectly wholly-owned
subsidiaries of SCIS.
Michael Z. Kay was named President and Chief Operating Officer, and became
a director, of Sky Chefs in September 1991. Mr. Kay was elected to the board of
directors of OFSI in September 1991. From June 1990 until joining Sky Chefs, Mr.
Kay served as Executive Vice President and management consultant for Charter
Medical Corporation. From January 1990 to April 1990, Mr. Kay was President and
Chief Operating Officer of Portman Hotel Company. Mr. Kay has been a director of
SCIS since its formation. Mr. Kay also serves on the board of directors of a
Guarantor which is an indirectly wholly-owned subsidiary of SCIS.
Patrick W. Tolbert was named Executive Vice President and Chief Financial
Officer, and became a director, of Sky Chefs in June 1992. Mr. Tolbert was
elected to the board of directors of OFSI in June 1992. Mr. Tolbert was
appointed Chief Financial and Administrative Officer of Sky Chefs in December
1992. From March 1990 through June 1992, Mr. Tolbert was Senior Vice President
and Chief Financial Officer of Sunbelt Beverage Corporation. Prior thereto, he
served in various executive capacities for The Sara Lee Corporation and several
of its subsidiaries and affiliates, including JP Foodservice, Inc., PYA/Monarch,
Booth Fisheries Corporation and The Electrolux Corporation. Mr. Tolbert has been
a director, and Executive Vice President and Chief Financial and Administrative
Officer, of SCIS since its formation. Mr. Tolbert also serves on the boards of
directors of certain Guarantors which are indirectly wholly-owned subsidiaries
of SCIS.
Randall C. Boyd was named Vice President-Marketing and Customer Service of
Sky Chefs in September 1989 and Mr. Boyd was named Senior Vice
President-Marketing and Customer Service of Sky Chefs in July 1991. Prior to
joining Sky Chefs, Mr. Boyd spent ten years with IBM Corporation in marketing,
strategic planning and sales.
William S. Woodside has been a director of OFSI and Sky Chefs, and Vice
Chairman of Sky Chefs, since May 1987. Mr. Woodside was formerly the Chairman
and Chief Executive Officer of American Can Company. Mr. Woodside serves as a
director of American Capital Mutual Funds. Mr. Woodside has been a director of
SCIS since its formation.
Daniel J. Altobello has been President of Caterair and Caterair Holdings
since December 1989. He has also served as Chief Executive Officer and Chairman
of the Board of Directors of Caterair and Caterair Holdings since December 1989.
Prior thereto, Mr. Altobello worked at Marriott, where he served as Executive
Vice President of Marriott and Chief Operating Officer of Marriott's airline
catering business. Mr. Altobello serves as a director of American Management
Systems, Inc. and as a member of the advisory board of Thayer Capital Partners.
As of September 29, 1995, Mr. Altobello was elected Chairman of the Board of
Directors of OFSI. Mr. Altobello also serves on the boards of directors of
certain Guarantors which are indirectly wholly-owned subsidiaries of SCIS.
Anthony R. Melman became the sole director of Caterair on September 29,
1995. Mr. Melman has been Vice President of Onex for more than five years and
has held various executive offices at Onex since its formation. Mr. Melman
serves on the board of directors of ProSource, Inc. Mr. Melman also serves on
the boards of directors of certain Guarantors which are indirectly wholly-owned
subsidiaries of SCIS.
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<PAGE> 70
Thomas J. Lee has been Director-Financial Accounting of Sky Chefs for more
than five years. Mr. Lee has been Director-Financial Accounting of SCIS since
its formation. Mr. Lee also serves on the boards of directors of certain
Guarantors which are indirectly wholly-owned subsidiaries of SCIS.
Aaron Gellman was named a director of CII on September 29, 1995. Since
January 1992, Mr. Gellman has been the Director of the Transportation Center at
Northwestern University. Since 1995, Mr. Gellman has been a member of the
Federal Aviation Administration Research, Engineering and Development Advisory
Committee. Mr. Gellman is also currently a Professor of Management and Strategy
at the J.L. Kellogg Graduate School of Management and a Professor of Industrial
Engineering at the Robert R. McCormick School of Engineering and Applied
Science. Mr. Gellman also serves on occasion as a consultant to various
companies in the United States and abroad in the areas of transportation and
technological change.
J. Thomas Markley was named a director of CII on September 29, 1995. Mr.
Markley is currently serving as President and Chief Executive Officer of XEL
Communications, Inc. and as Senior Vice President of SALIENT(3) Communications,
Inc., and has served in such capacities since October 1996 and July 1996,
respectively. From 1984 through July 1996, Mr. Markley was President and Chief
Executive Officer of JTM Inc., a consulting firm.
Eric J. Rosen was named a director of CII on September 29, 1995. Mr. Rosen
is currently Managing Director of Onex Investment Corp. and has been employed by
Onex since 1989. Prior thereto, Mr. Rosen worked at Kidder, Peabody & Co. in
both the mergers and acquisitions and merchant banking groups. Mr. Rosen is
currently on the boards of directors of Tower Automotive, Inc., Dura Automotive
Systems, Inc., Ripplewood Holdings L.L.C., Phoenix Pictures Inc. and Worldbridge
Broadland Services Inc.
Donald F. West is currently a tax consultant for Onex Management U.S. Inc.,
an affiliate of Onex, and has been employed in various capacities by Onex since
1989. Mr. West has served on the boards of directors of certain Guarantors which
are indirectly wholly-owned subsidiaries of SCIS since November 24, 1993.
Norman J. Shuman is a certified public accountant and has practiced with
the firm of Belfint, Lyons & Shuman, P.A. since 1958, and is currently a
Director and the President of such firm. Mr. Shuman has served on the boards of
directors of certain Guarantors which are indirectly wholly-owned subsidiaries
of SCIS since December 8, 1992.
Directors of SCIS, Sky Chefs, CII, Caterair and the other Guarantors are
elected at each annual meeting of stockholders of the relevant corporation to
serve for one year or until their successors are elected and qualified.
Executive officers hold their offices for such terms as determined by the board
of directors of the relevant corporation and until their respective successors
are chosen and qualified. Messrs. Woelki, Rothig and Bleckmann were selected to
serve on the board of directors of OFSI, SCIS and Sky Chefs by LSG pursuant to
the LSG Stockholders' Agreement. See "Certain Transactions -- LSG Lufthansa
Service GmbH."
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<PAGE> 71
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth information concerning
annual and long-term compensation (for 1996, 1995 and 1994) awarded to, earned
by, or paid to each of SCIS', Sky Chefs', CII's and Caterair's chief executive
officer and each of such entities' (and their subsidiaries') four most highly
compensated executive officers (other than the chief executive officer),
including certain former executive officers, whose total annual salary and bonus
for the year ended December 31, 1996 was in excess of $100,000 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- AWARD
OTHER ---------------
ANNUAL SECURITIES ALL OTHER
NAME AND SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION(S) YEAR(1) ($)(2) ($)(3) ($)(4) OPTIONS/SARS(5) ($)
- ---------------------------- ------- -------- -------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
James J. O'Neill 1996 495,000(10) 551,571 308,200(11) -0- 3,750(13)
Chief Executive 1995 495,000(10) 404,809 321,400(11) -0- 3,750(13)
Officer of SCIS and 1994 485,000(10) 391,180 331,000(11) -0- 4,620(13)
Chairman of the Board
of CII(6)
Michael Z. Kay 1996 600,000 670,929 86,000(11) -0- 3,750(13)
President and Chief 1995 395,000 328,309 61,000(11) -0- 3,750(13)
Operating Officer 1994 370,000 300,618 62,000(11) -0- 4,620(13)
of Sky Chefs(6)
Patrick W. Tolbert 1996 400,000(10) 485,929 38,400(11) -0- 3,750(13)
Executive Vice President 1995 245,000(10) 274,094 32,400(11) -0- 3,750(13)
and Chief Financial and 1994 230,000(10) 169,243 34,400(11) -0- 2,390(13)
Administrative Officer of
SCIS and Sky Chefs(6)
Randall C. Boyd 1996 275,000 369,571 20,800(11) -0- 3,750(13)
Senior Vice President- 1995 170,000 141,734 18,600(11) -0- 3,750(13)
Marketing and Customer 1994 160,000 116,243 19,600(11) -0- 2,165(13)
Service of Sky Chefs(6)
Thomas J. Lee 1996 78,269 31,367 -0- -0- 2,640(13)
Director - Financial 1995 75,989 25,836 -0- -0- 2,639(13)
Accounting of 1994 73,066 24,108 -0- -0- 1,827(13)
SCIS and Sky Chefs(6)
Daniel J. Altobello 1996 525,000 -0- 45,000 -0- 982,572(14)
Chief Executive 1995 414,306 -0- 37,130(12) -0- 1,503,822(15)
Officer and 1994 525,000 -0- 46,137(12) -0- -0-
President of Caterair(7)
Angelo D. Bizzarro 1996 295,000 481,732 22,650(12) -0- -0-
Former Executive 1995 295,000 -0- 25,000(12) 36.04 735,000(16)
Vice President and 1994 293,462 -0- 25,777(12) -0- -0-
Chief Operating
Officer of Caterair
and Former Chief Executive
Officer and President of
CII(8)
John C. Carr 1996 79,006 34,200 5,000(12) -0- 193,538(17)
Former Senior Vice 1995 119,404 -0- 16,154 10.81 135,000(18)
President and General 1994 130,688 -0- 18,262(12) -0- -0-
Counsel of Caterair and
Former General Counsel
of SCIS(9)
</TABLE>
- ---------------
(1) Prior to September 30, 1995, the Named Executive Officers other than
Messrs. Altobello, Bizzarro and Carr were employed and compensated by Sky
Chefs and Messrs. Altobello and Bizzarro were compensated by Caterair.
Prior to October 31, 1995, Mr. Carr was employed and compensated by
Caterair. See "Management -- Directors and Executive Officers." From
September 30, 1995, Mr. O'Neill was employed and compensated by SCIS and
CII, and Messrs. Tolbert and Lee were employed or compensated by SCIS and
Sky Chefs. For all periods shown, Messrs. Kay and Boyd were employed and
compensated by Sky Chefs. From October 1, 1995, Mr. Bizzarro was employed
and
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compensated by CII; however, he resigned in March 1997. From November 1,
1995, Mr. Carr was
employed by SCIS and Caterair and compensated by SCIS; however, he resigned
in June 1996. From October 1, 1995, Mr. Altobello was employed and
compensated by OFSI. No officer of any Guarantor (other than Sky Chefs, CII
and Caterair) receive compensation for serving in such capacity.
(2) Amounts shown include the dollar value of base salary (cash and noncash)
earned and received by the Named Executive Officers. Amounts shown for
Messrs. Altobello, Bizzarro and Carr include Caterair's contributions to
Caterair's Retirement Savings and Investment Plan (401(k) Plan) and
Executive Deferred Compensation Plan for periods during which such Named
Executive Officers were compensated by Caterair.
(3) Amounts shown include the dollar value of bonuses earned by the Named
Executive Officers during such year although a portion of such bonuses were
paid in the subsequent year. Such bonuses were determined in accordance
with Sky Chefs' Performance Reward Plan for periods during which the Named
Executive Officers were compensated by SCIS, Sky Chefs or CII.
(4) Amounts shown for the Named Executive Officers (other than for Messrs.
Altobello, Bizzarro and Carr) for all periods, and for Mr. Carr from
November 1, 1995 through June 1996, include reimbursement for automobile
allowance, country club membership fees and mortgage differential.
(5) Amounts shown indicate number of units granted to such individual pursuant
to the Phantom Stock Plan. See "-- Phantom Stock Plan" and "Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR
Values."
(6) Messrs. O'Neill, Kay, Tolbert, Boyd and Lee are parties to the Management
Shareholders' Agreement (the "Management Shareholders' Agreement"), dated
as of May 29, 1986, as amended, among OFSI, an affiliate of Onex and
certain employees, officers and directors of SCIS (the "Management
Shareholders"). See "Certain Transactions -- Management Shareholders'
Agreement."
(7) Includes compensation paid to Mr. Altobello through September 29, 1995 by
Caterair. Excludes $131,250 paid to Mr. Altobello from September 30, 1995
through December 31, 1995 by OFSI for services performed by Mr. Altobello
under his employment contract with OFSI. Subsequent to September 29, 1995,
Mr. Altobello has been compensated by OFSI. See "-- Employment
Agreements -- Daniel J. Altobello" and "Certain
Transactions -- Transactions with Certain Caterair Persons."
(8) Includes compensation paid to Mr. Bizzarro through September 29, 1995 by
Caterair. Mr. Bizzarro resigned from his positions with Caterair on
September 29, 1995 and entered into an employment agreement with CII which
became effective following the consummation of the Combination. See
"Certain Transactions -- Transactions with Certain Caterair Persons." From
October 1, 1995, Mr. Bizzarro was compensated by CII. Mr. Bizzarro resigned
from his positions with CII effective as of March 1997.
(9) From 1993 through March 1994, Mr. Carr was Vice President and Associate
General Counsel of Caterair. From April 1994 through June 1996, Mr. Carr
served as Senior Vice President and General Counsel of Caterair. From
September 29, 1995 through June 1996, Mr. Carr served as General Counsel of
SCIS. Mr. Carr was compensated by Caterair through October 31, 1995 and
from November 1, 1995 through June 1996 by SCIS. Mr. Carr resigned from his
positions with SCIS and Caterair effective as of June 1996.
(10) Amounts shown include a $60,000 fee for serving on OFSI's board of
directors.
(11) Includes the amounts accrued but not funded or paid with respect to the
Named Executive Officers under Sky Chefs Supplemental Retirement Plan. Such
amounts include $292,000, $307,000 and $306,000 for 1996, 1995 and 1994,
respectively, for Mr. O'Neill; $74,000, $49,000 and $50,000 for 1996, 1995
and 1994, respectively, for Mr. Kay; $27,000, $21,000 and $23,000 for 1996,
1995 and 1994, respectively, for Mr. Tolbert; and $10,000, $6,000 and
$7,000 for 1996, 1995 and 1994, respectively, for Mr. Boyd.
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<PAGE> 73
(12) All or a portion of amounts shown are for payments made under the Caterair
International Flexible Perquisite Plan and if applicable, include
Caterair's contributions to the Retirement Savings and Investment Plan
(401(k) Plan).
(13) Amounts shown include the contributions made to Sky Chefs' Retirement
Savings and Investment Plan (401(k) Plan).
(14) Includes a $978,822 payment made to Mr. Altobello by OFSI on January 1,
1996 in respect of severance payments otherwise due under Mr. Altobello's
former employment agreement with Caterair and $3,750 of contributions made
by SCIS pursuant to Sky Chefs' Retirement Savings and Investment Plan
(401(k) Plan). See "-- Employment Agreements -- Daniel J. Altobello,"
"-- Employee Plans" and "Certain Transactions -- Transactions with Certain
Caterair Persons."
(15) Includes (i) a $525,000 restructuring payment pursuant to the Caterair Key
Employee Retention Plan and (ii) a $978,822 severance payment under Mr.
Altobello's former employment contract with Caterair. See "-- Employment
Agreements -- Daniel J. Altobello," "-- Employee Plans" and "Certain
Transactions -- Transactions with Certain Caterair Persons."
(16) Includes a $440,000 severance payment and a $295,000 retention payment
pursuant to the Caterair Key Employee Retention Plan. See "-- Employee
Plans" and "Certain Transactions -- Transactions with Certain Caterair
Persons." Excludes any payment to be made under the Phantom Stock Plan.
See "-- Phantom Stock Plan" and "Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values."
(17) Includes a $160,000 payment pursuant to the Caterair Key Employee
Retention Plan and a $33,538 payment in respect of accrued but unused
vacation time through the date of termination of employment. See
"-- Employee Plans." Excludes any payment to be made under the Phantom
Stock Plan. See "-- Phantom Stock Plan" and "Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values."
(18) Includes a $135,000 retention payment pursuant to the Caterair Key
Employee Retention Plan. See " -- Employee Plans."
COMPENSATION OF DIRECTORS
The directors of SCIS and Sky Chefs do not receive any compensation for
serving as directors. However, Messrs. Woelki, Bleckmann and Rothig receive
annual compensation of $30,000, and Messrs. O'Neill and Tolbert receive annual
compensation of $60,000, for serving on OFSI's board of directors. Messrs.
Schwartz, Heersink, Kay, Woodside and Altobello do not receive any compensation
for serving on OFSI's board of directors. Directors of SCIS and Sky Chefs are
reimbursed by SCIS and Sky Chefs, respectively, for expenses incurred by them in
connection with board meetings.
Mr. Melman does not receive any compensation for serving on Caterair's
board of directors.
Mr. O'Neill does not receive any compensation for serving as a director of
CII. Messrs. Rosen, Markley and Gellman receive annual compensation of $50,000,
$15,000 and $15,000, respectively, for serving on CII's board of directors.
Messrs. Markley and Gellman also receive $1,000 for each board meeting they
attend. Directors of CII are reimbursed for expenses incurred by them in
connection with CII board meetings.
Except as described in the preceding paragraphs, the directors of the
Guarantors do not receive compensation for serving in such capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISION
The members of the compensation committee of each of SCIS and Sky Chefs
during the year ended December 31, 1996 were Messrs. Woodside, Heersink and
Rothig. No such person is or was an officer or employee of SCIS or Sky Chefs.
Such compensation committees are responsible for establishing the levels of
compensation and benefits for SCIS' and Sky Chefs' officers and employees.
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<PAGE> 74
No member of Caterair's board of directors during the year ended December
31, 1996 is or was an officer or employee of Caterair. The board of directors of
Caterair is responsible for establishing the levels of compensation and benefits
for Caterair's officers and employees.
No member of CII's board of directors during the year ended December 31,
1996, other than Mr. Bizzarro (who resigned in March 1997), is or was an officer
or employee of CII. The board of directors of CII is responsible for
establishing the levels of compensation and benefits for CII's officers and
employees. Mr. Bizzarro's compensation was determined pursuant to his employment
agreement and he did not participate in deliberations regarding any
discretionary components of his compensation. See "Certain
Transactions -- Transactions with Certain Caterair Persons."
EMPLOYMENT AGREEMENTS
James J. O'Neill. The employment agreement, dated as of January 1, 1997,
between James J. O'Neill and OFSI, provides that Mr. O'Neill shall receive an
annual salary of $250,000, certain benefits and a perquisites allowance of
$30,000. Mr. O'Neill's employment may be terminated by OFSI only for good cause
(as defined in the employment agreement) prior to January 31, 1999. Mr. O'Neill
is entitled to receive his salary through January 31, 1999 in the event that (i)
OFSI terminates Mr. O'Neill's employment other than for good cause or (ii) Mr.
O'Neill terminates his own employment due to a material violation or failure of
OFSI to perform a material provision of his employment agreement prior to
January 31, 1999 (approximately $373,333 if termination of employment had
occurred as of September 30, 1997). Mr. O'Neill also agreed not to compete with
SCIS for two years following termination of his employment.
Michael Z. Kay. The employment agreement, dated as of January 1, 1997,
between Michael Z. Kay and Sky Chefs provides that Mr. Kay, as President and
Chief Executive Officer of Sky Chefs, shall receive an annual salary of $600,000
(subject to increase), a bonus calculated in accordance with Sky Chefs'
incentive bonus plan, certain benefits and a perquisites allowance of $30,000.
The agreement expires on December 31, 2001. Mr. Kay is entitled to receive
during each year following termination, payment of his salary, payment of an
amount equal to the average of the annual incentive bonuses received by Mr. Kay
for the two years preceding the date of termination and certain benefits for a
period beginning on the date of termination and ending on December 31, 2001
(approximately $4,800,881 if termination of employment had occurred as of
September 30, 1997) ("Severance Payment") in the event that (i) Sky Chefs
terminates Mr. Kay's employment other than for good cause or (ii) Mr. Kay
terminates his own employment due to a material violation or failure of Sky
Chefs to perform a material provision of his employment agreement. On January 2,
2001, Sky Chefs and Mr. Kay are obligated to begin good faith negotiations for
the renewal or extension of Mr. Kay's employment. If mutually acceptable renewal
terms are not agreed upon by June 30, 2001, Mr. Kay is entitled to receive for
one year thereafter payments including components substantially the same as
those that would be included in his Severance Payment. The employment agreement
contains non-compete provisions.
Patrick W. Tolbert. The employment agreement, dated as of January 1, 1997,
between Patrick W. Tolbert and Sky Chefs provides that Mr. Tolbert, as Executive
Vice President and Chief Financial and Administrative Officer of Sky Chefs,
shall receive an annual salary of $340,000 (subject to increase), a bonus
calculated in accordance with Sky Chefs' incentive bonus plan, certain benefits
and a perquisites allowance of $30,000. The agreement expires on December 31,
2001. Mr. Tolbert is entitled to receive during each year following termination,
payment of his salary, an amount equal to the average of the annual incentive
bonuses received by Mr. Tolbert for the two years preceding the date of
termination and certain benefits for a period beginning on the date of
termination and ending on December 31, 2001 (approximately $3,442,549 if
termination of employment had occurred as of September 30, 1997) in the event
that (i) Sky Chefs terminates Mr. Tolbert's employment other than for good cause
or (ii) Mr. Tolbert terminates his own employment due to a material violation or
failure of Sky Chefs to perform a material provision of his employment
agreement. The employment agreement contains non-compete provisions.
Randall C. Boyd. The employment agreement, dated as of January 1, 1997,
between Randall C. Boyd and Sky Chefs provides that Mr. Boyd, as Senior Vice
President Marketing and Customer Services of Sky
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<PAGE> 75
Chefs, shall receive an annual salary of $275,000 (subject to increase), a bonus
calculated in accordance with Sky Chefs' incentive bonus plan, certain benefits
and a perquisites allowance of $30,000. The agreement expires on December 31,
2001. Mr. Boyd is entitled to receive during each year following termination,
payment of his salary, an amount equal to the average of the annual incentive
bonuses received by Mr. Boyd for the two years preceding the date of termination
and certain benefits for a period beginning on the date of termination and
ending on December 31, 2001 (approximately $2,382,775 if termination of
employment had occurred as of September 30, 1997) in the event that (i) Sky
Chefs terminates Mr. Boyd's employment other than for good cause or (ii) Mr.
Boyd terminates his own employment due to a material violation or failure of Sky
Chefs to perform a material provision of his employment agreement. The
employment agreement contains non-compete provisions.
Daniel J. Altobello. Mr. Altobello had an employment agreement with
Caterair which was terminated on September 29, 1995. Mr. Altobello received a
change of control payment of $525,000 pursuant to the Caterair Key Employee
Retention Plan and a severance payment of $978,822 under his former employment
agreement with Caterair upon the consummation of the Combination. In addition,
on January 1, 1996, Mr. Altobello received an additional $978,822 payment from
OFSI in respect of severance payments otherwise due under his former employment
agreement with Caterair. In connection with the Combination, Mr. Altobello
entered into a new employment agreement with OFSI. See "-- Employee Plans,"
"-- Summary Compensation Table" and "Certain Transactions -- Transactions with
Certain Caterair Persons."
EMPLOYEE PLANS
In September 1994, the board of directors of Caterair adopted the Caterair
Key Employee Retention Plan in order to provide an incentive to certain officers
and other key executive and management employees to remain in the employ of
Caterair while Caterair attempted to restructure its debt and equity. Each
eligible participant in the Caterair Key Employee Retention Plan was entitled to
receive certain severance benefits if (i) a change of control occurred, and (ii)
during the three years following such change of control, the participant was
terminated other than for cause or resigned with good reason. Severance benefits
for eligible persons ranged from six months to two years of the participant's
salary and benefits. Payments relating to severance under the Caterair Key
Employee Retention Plan, to the extent they exceeded amounts payable under any
participant's employment agreement, were in lieu of any payments due under such
employment agreement. The consummation of the Combination constituted a change
of control under the Caterair Key Employee Retention Plan. In connection with
the Combination, severance benefits in the aggregate amount of approximately
$2.7 million were paid by Caterair. As of September 30, 1997, the maximum
additional amount payable under the Caterair Key Employee Retention Plan was
$0.5 million (assuming all remaining eligible participants terminated their
employment prior to September 29, 1998 in a manner which would entitle them to
payments thereunder). All amounts payable under the Caterair Key Employee
Retention Plan were accrued as of September 30, 1997.
In connection with the Combination, retention payments to certain Caterair
employees in the aggregate amount of $2.8 million were paid by Caterair under
the Caterair Key Employee Retention Plan.
In July 1995, Caterair adopted the Caterair International Transition
Severance Plan in order to provide an incentive to key personnel to remain in
the employ of Caterair through the consummation of the Combination. Each
eligible participant in the Caterair International Transition Severance Plan who
remained an employee of Caterair until at least September 30, 1995 and whose
employment with Caterair was terminated before September 30, 1996 was entitled
to receive certain severance benefits. Caterair paid $0.9 million pursuant to
the Caterair International Transition Severance Plan.
PHANTOM STOCK PLAN
In 1995, certain officers, and other employees of Caterair received awards
under OFSI's Phantom Stock Plan for Management Employees (the "Phantom Stock
Plan") of a number of units equal to the quotient obtained by dividing (i) the
cost basis of the Caterair Holdings stock held by such participant by (ii) the
quotient obtained by dividing $425,000,000 by the number of shares of OFSI Class
A Common Stock
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<PAGE> 76
outstanding immediately prior to the Combination. The Phantom Stock Plan
provides that upon termination of employment of a participant, such participant
will be entitled to receive an amount per unit equal to the sum of (i) the
dividends paid on a share of OFSI Class A Common Stock during the period from
the date of the award of such unit through the end of the fiscal quarter
immediately prior to termination of employment, (ii) the net increase in
stockholders' equity (which shall be negative if stockholders' equity decreases)
attributable to a share of OFSI Class A Common Stock from the date of the award
of such unit through the end of the fiscal quarter immediately prior to
termination of employment and (iii) 100% of the initial value of the unit;
provided, that if before September 29, 1997, (x) the participant voluntarily
terminates his or her employment with OFSI or (y) the participant's employment
with OFSI is terminated "for cause" (as defined in the Phantom Stock Plan) such
participant will forfeit 50% of the initial value of such participant's units
and receive payments as if the references to "100%" in clause (iii) were "50%."
If a participant's employment is terminated at any time prior to September 29,
1997, payment for such participant's units shall not be made until November 29,
1997. In the event of a sale by Onex or certain affiliates thereof to a third
party purchaser of shares of OFSI Class A Common Stock, participants in the
Phantom Stock Plan are entitled to "tag-along" and subject to "drag-along"
rights.
Upon an initial public offering of OFSI, each participant would receive a
distribution in respect of each unit held thereby (in cash, OFSI stock or a
combination of both) having a value equal to the closing price of a share of
OFSI Class A Common Stock on the first day of trading following the
effectiveness of the registration statement relating to such initial public
offering, plus an amount equal to the dividends that were paid on a share of
OFSI Class A Common Stock during the period from the date of the award of such
unit to immediately prior to the initial public offering. Upon the dissolution
or liquidation of OFSI or certain business combinations involving OFSI, each
participant would receive in respect of each unit an amount equal to the sum of
(i) the dividends paid on a share of OFSI Class A Common Stock during the period
from the date of the award of such unit through the end of the fiscal quarter
immediately prior to such dissolution or liquidation or business combination
transaction, (ii) the net increase in stockholders' equity (which shall be
negative if stockholders' equity decreases) attributable to a share of OFSI
Class A Common Stock from the date of the award of such unit through the end of
the fiscal quarter immediately prior to such dissolution or liquidation or
business combination transaction and (iii) 100% of the initial value of such
unit.
The Phantom Stock Plan became effective as of September 29, 1995 and will
continue in effect until terminated or suspended by OFSI's board of directors.
However, no termination, modification or amendment of the Phantom Stock Plan by
OFSI's board of directors may adversely affect the accrued rights of a
participant thereunder. If not previously terminated, the Phantom Stock Plan
shall terminate ten business days following the closing of an initial public
offering of OFSI or 60 days after the closing of certain business combinations
and other events enumerated in the Phantom Stock Plan, all of which trigger
redemption of the units issued thereunder.
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<PAGE> 77
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-
SHARES VALUE (#) END($)
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME(1) EXERCISE(#) ($) UNEXERCISABLE(2)(3) UNEXERCISABLE
- --------------------------------------------- ----------- -------- ------------------- ---------------
<S> <C> <C> <C> <C>
Angelo D. Bizzaro
Former Executive Vice President and Chief
Operating Officer of Caterair and Chief
Executive Officer of CII................... -- -- 36.04(4) --
John C. Carr
Former Senior Vice President and General
Counsel of Caterair and Former General
Counsel of SCIS............................ -- -- 10.81(5) --
</TABLE>
- ---------------
(1) No Named Executive Officer other than Messrs. Bizzarro and Carr have been
granted any stock options (or tandem SARs) or freestanding SARs by SCIS or
any Guarantor.
(2) Amounts shown indicate number of units granted to such individual pursuant
to the Phantom Stock Plan. See "-- Phantom Stock Plan."
(3) None of the SARs were exercisable as of December 31, 1996.
(4) Mr. Bizzarro voluntarily terminated his employment with CII in March 1997.
Accordingly, Mr. Bizzarro received $38,105 on or about November 29, 1997 in
respect of the units held by him under the Phantom Stock Plan. See
"-- Phantom Stock Plan."
(5) Mr. Carr's employment with SCIS was terminated in June 1996. Accordingly,
Mr. Carr received $26,273 on or about November 29, 1997 in respect of the
units held by him under the Phantom Stock Plan. See " -- Phantom Stock
Plan."
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<PAGE> 78
SECURITY OWNERSHIP
The following table sets forth certain information regarding OFSI's
outstanding shares of Class A and Class B Common Stock which is beneficially
owned, as of September 30, 1997, by (i) each person who owns 5% or more of the
outstanding shares of OFSI Class A Common Stock or OFSI Class B Common Stock,
(ii) each current, and each nominee to become a, director of SCIS and each
Guarantor, (iii) each of the Named Executive Officers and (iv) all directors and
executive officers of SCIS and each Guarantor as a group.
<TABLE>
<CAPTION>
OFSI CLASS A COMMON OFSI CLASS B COMMON
STOCK(1) STOCK(1)
------------------------ ------------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
BENEFICIAL OWNER(2) SHARES OF CLASS SHARES OF CLASS
- ------------------------------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Onex (3)(4)(5)............................. 136,623.67 77.98% 12,753.50 100.00%
161 Bay Street
Toronto, Ontario
Canada
OnCap Holdings Corp.(5).................... 136,623.67 77.98% 12,753.50 100.00%
161 Bay Street
Toronto, Ontario
Canada
LSG(4)(6)(7)............................... 38,326.36 23.71% -- --
Am Holzweg 26
65830 Kriftel
Federal Republic of Germany
Gerald W. Schwartz(5)(8)................... 136,623.67 77.98% 12,753.50 100.00%
161 Bay Street
Toronto, Ontario
Canada
Helmut Woelki(9)(10)....................... 1,611.90 * -- --
Helmut Bleckmann(9)(11).................... 135.00 * -- --
Gunter Rothig.............................. -- -- -- --
Ewout Heersink............................. -- -- -- --
James J. O'Neill(9)(12).................... 3,442.62 2.13% 219.30 1.72%
Michael Z. Kay(9)(13)...................... 1,147.54 * 150.00 1.17%
Patrick W. Tolbert(9)(14).................. 918.03 * 120.00 *
Randall C. Boyd(9)(15)..................... 573.77 * -- --
William S. Woodside(9)(16)................. 2,295.08 1.42% -- --
Daniel J. Altobello(17).................... 14.81 * -- --
Thomas J. Lee(9)(18)....................... 160.66 * -- --
Eric J. Rosen.............................. -- -- -- --
J. Thomas Markley.......................... -- -- -- --
Aaron Gellman.............................. -- -- -- --
Anthony R. Melman.......................... -- -- -- --
Donald F. West............................. -- -- -- --
Norman J. Shuman........................... -- -- -- --
All directors and executive
officers of SCIS and each
Guarantor as a group..................... -- -- -- --
(18 persons as a group)(5)(8)(19)........ 136,623.67 77.98% 12,753.50 100.00%
</TABLE>
- ---------------
* Less than 1%
(1) Each holder of OFSI Class A Common Stock is entitled to one vote for each
share of OFSI Class A Common Stock held by such holder and each holder of
OFSI Class B Common Stock is entitled to one vote for every two shares of
OFSI Class B Common Stock held by such holder. The holders of all classes
of OFSI Common Stock (including OFSI Class AA Common Stock) vote together,
as one
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<PAGE> 79
class, on all matters submitted to a vote of the stockholders of OFSI,
except as otherwise required by the General Corporation Law of the State
of Delaware.
(2) Except as otherwise indicated, each beneficial owner has the sole power to
vote, and dispose of all shares of OFSI Class A Common Stock or OFSI Class
B Common Stock owned by such beneficial owner.
(3) Includes 103,442.71 shares of OFSI Class A Common Stock and 12,256.20
shares of OFSI Class B Common Stock which may be acquired from OnCap
Holdings Corp. and 13,586.99 shares of OFSI Class A Common Stock, subject
to adjustment, which an affiliate of Onex may acquire under the OFSI
Warrants at the price of $3,109 per share, subject to adjustment, until
September 29, 2000. See "Certain Transactions -- OFSI Securityholders'
Agreement."
(4) LSG and Onex, among others, are parties to the LSG Stockholders'
Agreement. See "Certain Transactions -- LSG Lufthansa Service GmbH."
(5) Includes 19,593.97 shares of OFSI Class A Common Stock (including 438.12
shares of OFSI Class A Common Stock which Management Shareholders are
entitled to sell to LSG) and 497.30 shares of OFSI Class B Common Stock
owned by Management Shareholders and over which Onex, OnCap Holdings Corp.
and Gerald W. Schwartz share voting control pursuant to the Management
Shareholders' Agreement. Includes up to 438.12 shares of OFSI Class A
Common Stock which may be sold by an affiliate of Onex to LSG in the event
Management Shareholders do not exercise their right to sell a like number
of shares to LSG. See "Certain Transactions -- LSG Lufthansa Service
GmbH."
(6) Excludes 4,474.22 additional shares of OFSI Class A Common Stock which LSG
has the right to acquire at an exercise price of $2,175.93 per share in
the event that the OFSI Warrants are exercised.
(7) LSG beneficially owns 38,326.36 shares of OFSI Class AA Common Stock which
represents 100% of the issued and outstanding OFSI Class AA Common Stock
and are presently convertible at the option of the holder into 38,326.36
shares of OFSI Class A Common Stock. Each share of OFSI Class AA Common
Stock is entitled to one vote for each share, and with the exception of
dividend rights, the designations, powers, preferences and relative rights
of shares of OFSI Class AA Common Stock are substantially the same as
those associated with the shares of OFSI Class A Common Stock.
(8) Includes shares beneficially owned by Onex and OnCap Holdings Corp., with
respect to which Mr. Schwartz may be deemed to be the beneficial owner.
(9) Certain Management Shareholders, including Messrs. Woelki, Bleckmann,
O'Neill, Kay, Tolbert, Boyd, Woodside and Lee, who own an aggregate of
19,593.97 shares of OFSI Class A Common Stock (including 438.12 shares of
OFSI Class A Common Stock which such Management Shareholders are entitled
to sell to LSG) and 497.30 shares of OFSI Class B Common Stock have
entered into the Management Shareholders' Agreement pursuant to which they
have agreed to vote their shares in the same manner as the shares of OFSI
Class A Common Stock and OFSI Class B Common Stock owned by Onex and its
affiliates are voted.
(10) Excludes 38,326.36 shares of OFSI Class A Common Stock (and 38,326.36
shares of OFSI Class AA Common Stock) beneficially owned by LSG as to
which Mr. Woelki, the Chairman of the Executive Board of LSG, disclaims
beneficial ownership. Includes 36.04 shares of OFSI Class A Common Stock
which Mr. Woelki has the right to sell to LSG.
(11) Excludes 38,326.36 shares of OFSI Class A Common Stock (and 38,326.36
shares of OFSI Class AA Common Stock) beneficially owned by LSG as to
which Mr. Bleckmann, the Vice President Corporate Strategy/Business
Development of LSG, disclaims beneficial ownership. Includes 3.01 shares
of OFSI Class A Common Stock which Mr. Bleckmann has the right to sell to
LSG.
(12) Includes 76.97 shares of OFSI Class A Common Stock which Mr. O'Neill has
the right to sell to LSG.
(13) Includes 25.66 shares of OFSI Class A Common Stock which Mr. Kay has the
right to sell to LSG.
(14) Includes 20.53 shares of OFSI Class A Common Stock which Mr. Tolbert has
the right to sell to LSG.
(15) Includes 12.83 shares of OFSI Class A Common Stock which Mr. Boyd has a
right to sell to LSG.
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<PAGE> 80
(16) Includes 51.31 shares of OFSI Class A Common Stock which Mr. Woodside has
the right to sell to LSG.
(17) Shares of OFSI Class A Common Stock held by Mr. Altobello (and certain of
his affiliates) are subject to the transfer restrictions set forth in the
Management Shareholders' Agreement. See "Certain
Transactions -- Management Shareholders' Agreement."
(18) Includes 3.59 shares of OFSI Class A Common Stock which Mr. Lee has the
right to sell to LSG.
(19) Includes 230.27 shares of OFSI Class A Common Stock which the directors
and executive officers of SCIS and each Guarantor as a group have the
right to sell to LSG.
OFSI is the sole stockholder of SCIS. OFSI has pledged all of the issued
and outstanding shares of SCIS to secure certain obligations under the Senior
Bank Financing. SCIS directly or indirectly owns all of the shares of capital
stock of each Guarantor other than Caterair. SCIS (or a subsidiary thereof) has
pledged all of the issued and outstanding shares of each such Guarantor to
secure certain obligations under the Senior Bank Financing. Caterair Holdings
owns 100% of the issued and outstanding shares of Caterair. Caterair Holdings
has pledged all of the issued and outstanding shares of Caterair to secure
certain obligations under the Senior Bank Financing.
All information with respect to beneficial ownership of OFSI's capital
stock has been furnished by the respective stockholders of OFSI.
In addition, as of November 20, 1997, Messrs. Schwartz, Melman, Rosen and
Heersink beneficially owned 13,251,878, 31,000, 108,972 and 33,500 subordinate
voting shares of Onex ("Subordinate Voting Shares"), respectively, representing
approximately 27.8% of the outstanding Subordinate Voting Shares in the case of
Mr. Schwartz, and less than 1% of the outstanding Subordinate Voting Shares in
the case of Messrs. Melman, Rosen and Heersink. All directors and executive
officers of SCIS, Sky Chefs, CII and Caterair as a group owned 13,425,350
Subordinate Voting Shares, representing approximately 28.1% of the outstanding
Subordinate Voting Shares. Subordinate Voting Shares beneficially owned includes
shares which Messrs. Schwartz (200,000), Melman (31,000), Rosen (63,000) and
Heersink (31,000) may have the right to acquire through the exercise of options
within 60 days (the options become exercisable in the event that the average
market price of the Subordinate Voting Shares exceeds the exercise price of the
options (Cdn. $13.25) by at least 25%). Mr. Schwartz also beneficially owns
100,000 multiple voting shares of Onex ("Multiple Voting Shares"), representing
all of the outstanding Multiple Voting Shares. Subordinate Voting Shares carry
one vote per share and as a class are entitled to 40% of the aggregate votes
attached to all voting shares of Onex, to elect 40% of Onex's Board of
Directors, and to appoint auditors. Multiple Voting Shares are entitled to elect
60% of Onex's Board of Directors and carry such number of votes in the aggregate
as represents 60% of the aggregate votes attached to all voting shares of Onex.
All information with respect to the beneficial ownership of Onex capital stock
has been furnished by the respective stockholders of Onex.
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<PAGE> 81
CERTAIN TRANSACTIONS
ONEX ADVISORY AND TRANSACTION FEES
In 1986, in connection with the acquisition of Sky Chefs by Onex and
certain members of management, Sky Chefs and Onex entered into an agreement
pursuant to which Sky Chefs is required to pay an annual management fee to Onex.
The management fees paid by Sky Chefs to Onex during 1994, 1995 and 1996 were
approximately $671,000, $694,000 and $1,500,000, respectively. The management
fee payable by Sky Chefs to Onex for 1997 will be $1.5 million. In connection
with rendering certain advisory services relating to the Combination, Sky Chefs
paid Onex a $4.0 million fee during 1995. Sky Chefs also repaid an $11.0 million
loan from OFSI during 1995. Sky Chefs paid interest on such loan at the rate of
LIBOR plus 1% per annum. In addition, certain officers of Onex and its
affiliates participate in Sky Chefs' employee benefit plans. During 1994, 1995
and 1996, Sky Chefs received reimbursements from Onex and its affiliates for the
cost of benefits provided aggregating approximately $14,000, $72,000 and
$61,000, respectively. The reimbursements received exceeded the costs of
benefits provided in each year.
THE COMBINATION
On September 29, 1995, OFSI, SCIS, Caterair and Caterair Holdings
consummated the Combination whereby (i) SCIS, through Sky Chefs and CII,
acquired, licensed, leased and subleased substantially all of the worldwide
business and assets of Caterair, (ii) OFSI and an affiliate thereof exchanged
common stock and OFSI Warrants for certain stock and debt held by Caterair
Holdings' shareholders and creditor, as a result of which OFSI and its affiliate
acquired more than 50% of the total outstanding voting shares, and 25% of the
total outstanding nonvoting shares, of Caterair Holdings, (iii) SCIS and
Caterair repaid approximately $392.3 million of Caterair's outstanding
indebtedness (excluding accrued interest) and SCIS and its subsidiaries assumed
certain other liabilities of Caterair, (iv) SCIS extended a $37.8 million loan
to Caterair (which will mature in 2001, bears interest at 8% per annum (payable
in kind) and is secured by a second priority lien), (v) Caterair Holdings'
indebtedness was restructured and (vi) Caterair agreed not to compete with Sky
Chefs in the airline catering business for a six-year term (expiring in 2001)
and Sky Chefs agreed to pay Caterair $4.0 million per year in respect of such
agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and notes thereto included
elsewhere in this Prospectus.
In connection with the Combination, pursuant to the Domestic Leases, Sky
Chefs and CII leased and subleased from Caterair substantially all of its
domestic tangible assets for a six-year term (expiring in 2001). In the event
that Caterair's lease of such assets was for less than six years, the applicable
Domestic Lease is for such shorter period. Sky Chefs and CII each have options
to purchase all or a portion of the assets of Caterair covered by the Domestic
Leases for amounts determined under formulas in the Domestic Leases that were
intended to result in exercise prices equal to the estimated fair market value
of such assets at the time or times of exercise of any such options. The options
are exercisable until the date which is 30 days after termination of the
applicable Domestic Lease. It is not certain that such purchase options will be
exercised. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and notes thereto included
elsewhere in this Prospectus.
In connection with the Combination, pursuant to the License Agreements, Sky
Chefs and CII licensed Caterair's rights under certain customer contracts for a
six-year term (expiring in 2001). Sky Chefs and CII each have options to
purchase all or a portion of the customer contract rights covered by the License
Agreements for amounts determined under formulas in the License Agreements that
were intended to result in exercise prices equal to the estimated fair market
value of such rights at the time or times of exercise of any such options. The
options are exercisable at any time until the date which is 90 days after
termination of the applicable License Agreement. It is not certain that such
purchase options will be exercised. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
notes thereto included elsewhere in this Prospectus.
In connection with the Combination, Caterair paid Marriott International,
Inc. $4.2 million to satisfy Caterair Holdings' obligations relating to accrued
payments under a non-competition agreement entered into in connection with the
acquisition of Caterair in 1989. In addition, Caterair and OFSI agreed to pay
approximately
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$4.8 million (plus interest thereon) to Marriott International, Inc. over a
six-year period, which is the balance of amounts payable under such
non-competition agreement. During 1995 and 1996, payments to Marriott
International, Inc. relating to the non-competition agreement were $4.2 million
and $1.0 million, respectively.
As part of the Combination, SCIS, Caterair, OFSI and Caterair Holdings
entered into the Old Credit Agreement with certain lenders. Caterair, Caterair
Holdings, OFSI (on a limited basis), an affiliate of OFSI (on a limited basis)
and certain subsidiaries of SCIS guaranteed SCIS' obligations under the Old
Credit Agreement and SCIS, Caterair Holdings, OFSI (on limited basis), an
affiliate of OFSI (on a limited basis) and certain of subsidiaries of SCIS
guaranteed Caterair's obligations thereunder. Additionally, Caterair (and Sky
Chefs and CII) guaranteed SCIS' obligations under the Existing Notes. Effective
as of December 29, 1995, SCIS entered into an interest rate swap agreement to
reduce interest rate exposure on long-term debt. The agreement covered a
notional amount of $351 million at December 31, 1996, and has a stated maturity
in 2001. Caterair assumed a ratable participating interest (based upon the
respective principal amounts of term loans outstanding under the Old Credit
Agreement) in SCIS' rights and obligations under the interest swap. This
agreement was terminated as of September 10, 1997.
Subsequent to the consummation of the Combination, Caterair continued to
provide airline catering services at certain kitchens where consents to the
Combination had not been obtained. Sky Chefs and Caterair entered into a
management services agreement with respect to the operations conducted at these
kitchens whereby Caterair continued to operate such kitchens using its own
employees with Sky Chefs providing management and administrative services in
exchange for a management fee equal to 4.0% of the net sales from such kitchens
and the reimbursement of expenses incurred in connection with the performance of
such services. However, during the second quarter of 1996, Caterair obtained the
necessary consents and on May 31, 1996 Sky Chefs leased/licensed such kitchens
from Caterair pursuant to the Domestic Leases and the License Agreements. During
1995 and 1996, Caterair paid Sky Chefs $0.6 million and $1.0 million,
respectively, under such agreement.
Subsequent to the consummation of the Combination, SCIS rendered certain
corporate and administrative services for Caterair. During 1995 and 1996,
Caterair paid SCIS $0.1 million and $0.5 million, respectively, for such
services.
During the third quarter of 1997, Caterair advanced $13.0 million to SCIS.
LSG LUFTHANSA SERVICE GMBH
The following paragraphs summarize certain material provisions of (i) the
Stockholders' Agreement, dated as of December 6, 1993, among Onex, OFSI, OnCap
Holdings U.S., Inc., OMI Quebec Inc., LSG and LSG Lufthansa Service USA
Corporation (the "LSG Stockholders' Agreement"), as amended, (ii) the Agreement,
dated as of October 5, 1993, among Onex, Lufthansa and LSG, (iii) the Agreement,
dated as of October 5, 1993, between LSG and Sky Chefs and (iv) the Arbitration
Agreement, dated as of October 5, 1993, among Onex, OFSI, OnCap Holdings U.S.,
Inc., OMI Quebec Inc., Sky Chefs, Lufthansa and LSG. The Company believes that
the following summary is accurate in all material respects.
In late 1993, OFSI, Sky Chefs and affiliated companies entered into a
series of transactions with LSG. Pursuant to a cooperation agreement, Sky Chefs
and LSG generally conduct operations under the "LSG Lufthansa Service/SKY Chefs"
name and logo and Sky Chefs and LSG agreed to cooperate in the marketing of
their services on a coordinated basis and to offer each other the right to
participate equally in the development of business in new geographic markets.
The parties also agreed to not compete with each others' existing catering
operations outside of the United States and the European Community. At the same
time in 1993, LSG purchased approximately 23.3% of the OFSI Class A Common Stock
from existing shareholders for a cash price of $75.0 million; of which $10.0
million was paid during 1996. LSG, OFSI and the principal stockholders of OFSI
entered into the LSG Stockholders' Agreement pursuant to which LSG and such
stockholders agreed to certain restrictions on the transfer of their shares of
OFSI common stock and LSG was provided representation on the board of directors
of OFSI. The LSG Stockholders Agreement requires that certain actions by OFSI
and its subsidiaries (including SCIS and Sky Chefs) be approved by at least one
of the LSG representatives on the OFSI board of directors and, subject to
certain limitations, that dividends be paid to LSG in stipulated amounts. OFSI
is also entitled to representation on the Supervisory Board of LSG.
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The parties also agreed to negotiate a merger of Sky Chefs and LSG if Lufthansa
is privatized on a basis satisfactory to Onex. Any such merger would be subject
to an initial public offering of the merged company upon consummation of the
merger on terms satisfactory to both Onex and Lufthansa. The German Federal
government has been proceeding with the privatization of Lufthansa. The
agreement terminates on December 31, 1997 and no negotiations with respect to a
merger of Sky Chefs and LSG are occurring.
In connection with the Combination, LSG was granted the option to acquire a
50% interest in the catering business acquired by SCIS from Caterair in Europe
for a price to be negotiated on a basis consistent with the valuation of the
entire Caterair business implicit in the Combination. This option has expired.
However, LSG and the Company are engaged in discussions with a view to reaching
agreement for the sale by the Company to LSG of 50% of the Company's European
catering business for a price estimated to be $50.0 million. There can be no
assurance that such sale will occur or if it does occur as to the timing, price
or other terms thereof.
Certain OFSI stockholders granted LSG the option to acquire 2,595.20 shares
of OFSI Class A Common Stock at an exercise price of $2,431.21 per share (the
"OFSI Stockholder Option"). OFSI also granted LSG the option to acquire 4,474.22
additional shares of OFSI Class A Common Stock, subject to adjustment, at an
exercise price of $2,175.93 per share in the event the OFSI Warrants are
exercised.
On March 29, 1996, LSG purchased the 2,595.20 shares of OFSI Class A Common
Stock subject to the OFSI Stockholder Option for an aggregate purchase price of
$6,441,354.59 (including certain interest payments). Pursuant to the Management
Shareholders' Agreement, Management Shareholders, including Messrs. Kay,
O'Neill, Woodside and Woelki, will be entitled to participate in such sale to
LSG by transferring a proportionate number of the shares of OFSI Class A Common
Stock owned thereby in exchange for a proportionate amount of the total
consideration received in connection with the exercise of the OFSI Stockholder
Option. Messrs. Kay, O'Neill, Woodside and Woelki may transfer 25.86, 76.97,
51.31 and 36.04 shares of OFSI Class A Common Stock, respectively, in exchange
for consideration of $64,185, $191,042, $127,353 and $89,452, respectively.
As of December 28, 1996, pursuant to an agreement with OFSI, LSG exchanged
its shares of OFSI Class A Common Stock for a like number of shares of OFSI
Class AA Common Stock. During 1997, OFSI paid a $1.8 million dividend to LSG in
respect of the OFSI Class AA Common Stock.
During 1994, 1995 and 1996, catering sales by Sky Chefs to Lufthansa were
approximately $10.3 million, $12.9 million and $22.3 million, respectively.
Accounts receivable due to Sky Chefs from Lufthansa were approximately $2.6
million at December 31, 1996.
In 1995, Sky Chefs purchased from LSG, for an aggregate purchase price of
approximately $5.1 million, assets associated with catering kitchens at San
Francisco International Airport, Miami International Airport and John F. Kennedy
International Airport.
AMR AND AMERICAN
During 1994, OFSI paid $19.0 million to AMR, the parent company of
American, to acquire for cancellation a warrant to purchase up to approximately
20% of the outstanding capital stock of OFSI, which was issued in connection
with the acquisition of Sky Chefs in 1986 and $1.0 million for a two-year
extension of Sky Chefs' catering agreement with American. During 1994, Sky Chefs
repaid $16.2 million in indebtedness owing to AMR under a promissory note by Sky
Chefs. Such note accrued interest at the rate of 9.5% per year. During 1994,
catering sales by Sky Chefs to American were approximately $347.9 million. See
"Business--Customers--Contracts." During 1994, Sky Chefs also paid $17.6 million
to American for the subleasing of certain flight kitchens and other properties
at Chicago-O'Hare, Raleigh-Durham, Nashville, Tulsa, Dallas/Fort Worth, Los
Angeles, and New York-John F. Kennedy.
OFSI SECURITYHOLDERS' AGREEMENT
In connection with the Combination, OFSI, an affiliate of OFSI and certain
Caterair Holdings' stockholders (the "Securityholders") who received OFSI Class
A Common Stock and warrants ("OFSI Warrants") to acquire OFSI Class A Common
Stock (including Host Marriott Corporation) entered into a securityholders
agreement (the "OFSI Securityholders' Agreement") which provided limitations on
transfera-
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bility, co-sale rights, "drag-along" obligations, registration rights and
put/call arrangements with respect to such OFSI Class A Common Stock and OFSI
Warrants. Prior to June 30, 1997, Onex U.S. LLC, an affiliate of OFSI and Onex,
purchased substantially all of the OFSI Class A Common Stock and OFSI Warrants
from such Securityholders and, subject to a limited exception, the OFSI
Securityholders' Agreement was terminated with respect to each Securityholder,
and Onex U.S. LLC became a party to the OFSI Securityholders' Agreement.
The OFSI Securityholders' Agreement provides Onex U.S. LLC with demand and
"piggy-back" registration rights relating to the OFSI Class A Common Stock and
OFSI Warrants acquired from the Securityholders in certain circumstances.
However, if Onex U.S. LLC exercises its right to demand a registration, in lieu
of acceding to such demand, OFSI may purchase the OFSI Class A Common Stock and
OFSI Warrants which are the subject of such demand at their fair market value
less an amount equal to certain selling expenses. In the event that as of
September 29, 2000 there has not been an initial public offering of OFSI's
equity securities meeting certain criteria, Onex U.S. LLC shall have the right
to cause OFSI to purchase all of the OFSI Class A Common Stock that Onex U.S.
LLC purchased from the Securityholders (excluding OFSI Class A Common Stock
acquired under OFSI Warrants) at the fair market value thereof less an amount
equal to certain selling expenses. If OFSI is unable to purchase all of the OFSI
Class A Common Stock which it would otherwise be required to purchase due to
covenants in the agreements relating to the debt of OFSI or SCIS (including the
Indenture), then OFSI will be obligated to purchase as many shares of OFSI Class
A Common Stock as it is then permitted to purchase and its obligations to
purchase any remaining shares will be deferred until such time as OFSI is
permitted to purchase such shares. Interest will accrue on the unpaid amounts at
a specified rate.
The OFSI Securityholders' Agreement terminates on the earlier of the date
on which Onex affiliates cease to hold 50% of the outstanding capital stock of
OFSI and December 31, 2002. Certain of the provisions thereof terminate upon the
occurrence of an initial public offering of OFSI's equity securities meeting
certain criteria.
Onex U.S. LLC acquired from the Securityholders OFSI Warrants to purchase
13,586.99 shares of OFSI Class A Common Stock, subject to adjustment. The
exercise price of the OFSI Warrants is $3,109 per share, subject to adjustment.
The OFSI Warrants expire on September 29, 2000.
OFSI LOANS
OFSI has provided financing to members of management and certain directors
of Sky Chefs, including Messrs. O'Neill, Kay, Tolbert, Boyd, Woodside, Woelki,
Bleckmann and Lee, for all or a portion of the purchase price for the
acquisition of shares of common stock from OFSI. Such loans are fully recourse
to the borrower, secured by the shares purchased and bear interest at the
prevailing federal funds rate.
MANAGEMENT SHAREHOLDERS' AGREEMENT
The following summarizes certain material provisions of the Management
Shareholders' Agreement, dated as of May 29, 1986, as amended, among OFSI, an
affiliate of Onex and certain employees and directors of SCIS and Sky Chefs. The
Company believes that the following summary is accurate in all material
respects.
The Management Shareholders' Agreement governs the manner and means by
which the OFSI common stock held by the Management Shareholders may be
transferred, voted and otherwise dealt with. Pursuant to such Agreement, at any
time after OFSI's capital stock is registered under the Exchange Act, a
Management Shareholder will be permitted, subject to specified time and volume
limitations, to sell shares of OFSI Class A Common Stock held by him through the
public market but such Management Shareholder must first offer OFSI the
opportunity to purchase such OFSI Common Stock. In the event a Management
Shareholder ceases to be a full-time employee of Sky Chefs or a subsidiary
thereof, Onex or an affiliate thereof shall purchase such Management
Shareholder's OFSI Class A Common Stock. In connection with such purchase, Onex
or its affiliates shall also have the option to purchase the OFSI Class B Common
Stock of such holder. Pursuant to the Management Shareholders' Agreement, each
Management Shareholder is required to vote his OFSI Common Stock in the same
manner as the shares of OFSI Common Stock owned by Onex and its
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affiliates are voted on the election of directors and on all other matters which
are submitted to a vote (or consent in lieu of voting) of OFSI's stockholders.
The Management Shareholders' Agreement also provides the Management
Shareholders with the option to participate on a pro rata basis with Onex and
its affiliates in sales to third parties of shares of OFSI Common Stock. The
Management Shareholders' Agreement provides Onex and its affiliates the right to
compel the participation of the Management Shareholders in sales of OFSI Common
Stock.
In addition to the above-described provisions, the Management Shareholders'
Agreement contains provisions which provide the Management Shareholders with
registration rights in certain circumstances as well as provisions which prevent
the dilution of the Management Shareholders' respective holdings of the OFSI
Common Stock in the event OFSI intends to sell additional equity securities to
Onex or its affiliates. Under the Management Shareholders' Agreement, OFSI may
not engage in certain business combination transactions unless certain
conditions are fulfilled.
The Management Shareholders' Agreement will terminate if Onex and its
affiliates cease to hold, in the aggregate, 30% of the outstanding capital stock
of OFSI and the provisions governing the voting of the Management Shareholders'
OFSI Common Stock terminate on December 3, 2003.
REPURCHASE OF OFSI CLASS B COMMON STOCK
During December 1995 and January 1996, OFSI repurchased shares of OFSI
Class B Common Stock from officers and employees of OFSI and its subsidiaries at
a price of $2,757 per share. Messrs. Woodside and Boyd sold 300.00 and 75.00
shares of OFSI Class B Common Stock in connection with such repurchase,
respectively, and received $827,100 and $206,775, respectively. During August
1997, OFSI repurchased 219.30 shares of OFSI Class B Common Stock from Mr.
O'Neill for an aggregate price of $1,176,764.
TRANSACTIONS WITH CERTAIN CATERAIR PERSONS
Daniel J. Altobello. Concurrently with the consummation of the
Combination, Daniel J. Altobello entered into an employment contract with OFSI.
Such employment agreement, as amended, expires on September 30, 2000. The
agreement, as amended, provides that Mr. Altobello, as Chairman of the Board of
OFSI and an officer of certain related companies, shall receive an annual salary
of $150,000 and certain fringe benefits. In connection with the consummation of
the Combination, Mr. Altobello received (i) from Caterair, on September 29,
1995, a $525,000 restructuring payment under Caterair's Key Employee Retention
Plan, (ii) from Caterair, on September 29, 1995, a $978,822 severance payment
pursuant to the change-of-control provision of his former employment agreement
with Caterair and (iii) from OFSI, on January 1, 1996, $978,822 in respect of
severance payments otherwise due under Mr. Altobello's former employment
agreement with Caterair.
In connection with the Combination, Mr. Altobello and the Altobello Family
Limited Partnership exchanged all of the shares of common and preferred stock of
Caterair Holdings held by them for 435.71 shares of OFSI Class A Common Stock.
Mr. Altobello's employment contract provides that Mr. Altobello shall hold such
shares subject to certain restrictions on transfer contained in the Management
Shareholders Agreement. On February 27, 1997, the Altobello Family Limited
Partnership (of which Mr. Altobello is the general partner) sold 420.90 shares
of OFSI Class A Common Stock to Onex U.S. LLC for $877,997.40.
Angelo D. Bizzarro. Prior to the consummation of the Combination, Angelo
D. Bizzarro was a director of each of Caterair and Caterair Holdings; in
connection with the Combination, he resigned from such positions and entered
into a three-year employment contract with CII to serve as President and Chief
Executive Officer of CII. Under such agreement, Mr. Bizzarro received an annual
salary of $295,000, an annual cash benefit allowance of $25,000, a bonus ranging
between 45% and 90% of his salary and certain benefits. Mr. Bizzarro resigned
during March 1997.
Frederic V. Malek. Prior to the consummation of the Combination, Frederic
V. Malek was a director of each of Caterair and Caterair Holdings; in connection
with the Combination, he resigned from such positions and entered into a
consulting agreement with SCIS. Such consulting agreement has a five-year term
and entitles Mr. Malek to an annual consulting fee of $100,000.
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CATERAIR
Caterair entered into various agreements with Marriott International, Inc.
in connection with the acquisition of its airline catering business in 1989,
including certain non-competition agreements and various service agreements. See
"Business -- Non-Airline Catering Operations" and "Business -- Competition."
Under a distribution agreement, Marriott International, Inc. purchased,
warehoused, distributed and sold to Caterair certain food, beverage and supply
products. The agreement required Caterair to make payments to Marriott
International, Inc. based on the cost incurred by Marriott International, Inc.
with respect to the goods and services provided, plus a percentage markup which
varied based on the type of product. Subsequent to the consummation of the
Combination, Marriott International, Inc. has provided these services under such
agreement to CII. The agreement will continue until terminated by either party.
Purchases by Caterair under this agreement in 1994 and 1995 totaled
approximately $13.4 million and $8.5 million, respectively, and purchases by CII
under this agreement in 1995 and 1996 totaled approximately $1.4 million and
$5.7 million, respectively. Amounts payable by CII to Marriott International,
Inc. thereunder through September 30, 1997 totaled $3.5 million. At the end of
1991, Caterair entered into a payroll services agreement with Marriott
International, Inc. Under this agreement, Marriott International, Inc. provided
payroll payment and information reporting services, beginning with the first pay
cycle of the 1992 tax calendar year. The agreement required Caterair to make
service fee payments based on the number of employees of Caterair and the amount
of service time. This agreement expired on December 31, 1996. Subsequent to the
consummation of the Combination, Marriott International, Inc. had been providing
services under such agreement to CII. Payments under such agreement by Caterair
to Marriott International, Inc. for 1994 and 1995 totaled $1.1 million and $1.0
million, respectively. CII made no payments to Marriott International, Inc.
thereunder for 1995, however, CII made payments under such agreement to Marriott
International, Inc. totaling $0.2 million for 1996.
Frederic V. Malek, a director of Caterair and Caterair Holdings until
September 29, 1995, is a director of Northwest Airlines and served as President
and Vice Chairman of Northwest Airlines from September 1989 until December 1991.
Sales to Northwest Airlines by Caterair were approximately $83.9 million, and
$76.1 million in 1994 and 1995, respectively.
In May 1993, Caterair retained American Management Systems, Inc. ("AMS"), a
software development and management consulting firm, to provide Caterair with
consulting services related to the implementation of a corporate information
technology strategy. Total services rendered by AMS to Caterair during 1994
amounted to approximately $0.6 million. Charles O. Rossotti, a director of
Caterair and Caterair Holdings until September 29, 1995, served as Chairman of
the board of directors of AMS. In addition, Messrs. Altobello and Malek (a
director of Caterair and Caterair Holdings until September 29, 1995) are both
members of the board of directors of AMS and have been granted stock options in
AMS, some of which are vested and exercisable. Mr. Malek also owns less than 5%
of the common stock of AMS.
The information set forth in this "Certain Transactions" section sets forth
information with regard to relationships of, and certain transactions between,
(A)(i) any director (or nominee for director) or executive officer of SCIS, Sky
Chefs, CII or Caterair, (ii) any securityholder who held beneficially or of
record more than five percent of any of SCIS', Sky Chefs', CII's or Caterair's
voting securities and (iii) any member of the immediate family of any of the
foregoing persons, on the one hand (each as "Interested Party"), and (B) SCIS,
Sky Chefs, CII or Caterair, on the other, only for those portions of the period
since January 1, 1994 that any such Interested Party was a director (or nominee
for director) or executive officer of SCIS, Sky Chefs, CII or Caterair, a
securityholder who held beneficially or of record more than five percent of
SCIS', Sky Chefs', CII's or Caterair's voting securities or was a member of the
immediate family of such a person, and only with respect to relationships of,
and certain transactions between, an Interested Party and the entity of which
such Interested Party was a director, executive officer or securityholder during
the relevant period.
The Company believes that each of the transactions involving SCIS, Sky
Chefs, CII or Caterair, as applicable, described under the caption "Certain
Transactions" were on terms no less favorable to SCIS, Sky Chefs, CII or
Caterair, as applicable, than could have been obtained with unrelated third
parties.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following description of the material anticipated federal income tax
consequences of the Exchange Offer is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the final, temporary and proposed
regulations promulgated thereunder, and administrative rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. Holders of Notes should note
the following description is not binding on the Internal Revenue Service (the
"Service") and there can be no assurance that the Service will take a similar
view with respect to the tax consequences described below. No ruling has been or
will be requested by the Issuer from the Service on any tax matters relating to
the Private Notes or the Exchange Notes. This description is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, financial institutions, insurance companies and tax-exempt
organizations, may be subject to special rules. ALL HOLDERS OF NOTES ARE ADVISED
TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES.
The exchange of the Exchange Notes for the Private Notes pursuant to the
Exchange Offer should not be treated as an "exchange" for federal income tax
purposes because Exchange Notes should not be considered to differ materially in
kind or extent from Private Notes. Rather, Exchange Notes received by a holder
should be treated as a continuation of Private Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to holders
exchanging Private Notes for the Exchange Notes pursuant to the Exchange Offer.
If, however, the exchange of the Private Notes for the Exchange Notes were
treated as an "exchange" for federal income tax purposes, such exchange would
constitute a recapitalization for federal income tax purposes. Holders
exchanging the Private Notes pursuant to such recapitalization would not
recognize any gain or loss upon the exchange.
TAX CONSIDERATIONS RELATING TO THE COMBINATION
THE FOLLOWING IS A DISCUSSION OF CERTAIN OF THE MORE SIGNIFICANT FEDERAL
INCOME TAX CONSEQUENCES OF THE COMBINATION TO SCIS AND ITS AFFILIATES AND TO
CATERAIR BASED ON THE TAX LAWS IN EFFECT AS OF THE DATE OF THIS PROSPECTUS.
THERE CAN BE NO ASSURANCE THAT THE SERVICE WILL NOT DISAGREE WITH ANY OR ALL OF
THE DESCRIPTIONS OF TAX CONSEQUENCES OF THE COMBINATION CONTAINED HEREIN, OR
THAT A CHALLENGE BASED ON SUCH A DISAGREEMENT, IF ASSERTED, WILL NOT BE
SUSTAINED. IF SUCH A CHALLENGE IS ASSERTED AND IS SUCCESSFUL, THE TAX LIABILITY
OF SCIS AND CATERAIR AND THEIR RESPECTIVE CONSOLIDATED GROUPS MAY BE
SIGNIFICANTLY GREATER THAN EXPECTED AND MAY REDUCE FUNDS AVAILABLE TO SCIS AND
TO CATERAIR FOR PAYMENT OF THEIR DEBT SERVICE OBLIGATIONS, INCLUDING PAYMENTS OF
PRINCIPAL, INTEREST AND PREMIUM, IF ANY, ON THE NOTES OR PAYMENTS OF THE
GUARANTORS UNDER THEIR RESPECTIVE GUARANTEES. MOREOVER, THE TAX CONSEQUENCES OF
CERTAIN ASPECTS OF THE COMBINATION ARE UNCERTAIN DUE TO THE LACK OF APPLICABLE
LEGAL PRECEDENT AND THE POSSIBILITY OF CHANGES IN LAW OR REGULATORY
INTERPRETATION. THE DISCUSSION AND CONCLUSIONS PRESENTED BELOW MAY BE AFFECTED
BY MATTERS NOT DISCUSSED THEREIN.
Characterization of the Combination. The Combination was structured so
that it would be treated, for federal income tax purposes, as a combination of
(i) a purchase by Sky Chefs and CII of certain assets of Caterair, (ii) a lease
by Sky Chefs and CII of Caterair's tangible property (both real and personal)
for a six-year term, together with an option to purchase those assets from
Caterair, and (iii) a license by Sky Chefs and CII of Caterair's customer
relationships and contracts with an option to purchase those intangible assets
from Caterair. Whether the characterization of components of the Combination as
a lease and a license will be respected for federal income tax purposes depends
on whether the purported lessor or licensor retained
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significant benefits and burdens of ownership. If significant benefits and
burdens of ownership were not retained, the Combination will be treated as a
current sale. In determining whether such benefits and burdens were retained, a
significant factor is whether the lease and license arrangements created an
economic compulsion, on Sky Chefs' and CII's part, to exercise the purchase
options. Whether a compulsion to exercise the purchase options existed depends
in large part on the relationships between the payments called for by the
Domestic Leases and the License Agreements to fair market rents and royalties,
respectively, and the relationships between the purchase option exercise prices
called for under the Domestic Leases and License Agreements and the expected
fair market value of the assets subject to those purchase options at the time of
exercise. If the rent and royalty payments were at present fair market value
levels and the purchase option exercise prices were at expected fair market
levels, then the treatment of the Combination as a true purchase, lease and
license (rather than solely as a purchase of Caterair's assets) is more assured.
Further, in this case, despite the existence of the 1995 loan by SCIS to
Caterair and the guarantee by SCIS, Sky Chefs and CII of Caterair's debt,
projections indicated that, at the end of the six-year lease term and license
term, Sky Chefs and CII would still have to make an investment decision as to
whether to exercise the purchase options and there is a significant possibility
that such options might not be exercised. SCIS received opinions from Price
Waterhouse LLP and Kaye, Scholer, Fierman, Hays & Handler, LLP to the effect
that, based on the assumptions and subject to the qualifications set forth in
such opinions, the Combination will more likely than not be treated as a
combination of purchase, license and lease rather than as a purchase of all of
Caterair's assets. If, notwithstanding such opinions, the Service successfully
challenges such treatment (whether premised on a challenge of the values upon
which the lease, license and purchase option payments were structured or on any
theory of law that conflicts with the theories relied on by SCIS and Caterair
and their advisors), SCIS and Caterair could be liable for significant federal
income taxes with respect to the Combination at an earlier time than projected
and may have substantially greater tax liability than projected which would
reduce funds available to SCIS and Caterair for payment of their debt service
obligations, including payments of principal, interest and premium, if any, on
the Notes or payment by the Guarantors under their respective Guarantees.
Section 382. Section 382 of the Internal Revenue Code of 1986, as amended,
limits a corporate taxpayer's use of its net operating loss carryovers ("NOLs")
in years following the occurrence of an "ownership change" with respect to that
corporation. An ownership change occurs when, over a three-year period, the
percentage interests in the value of the corporation held by shareholders each
of whom owns at least 5 percent of the value of the outstanding stock of the
corporation increases by more than 50 percentage points over the lowest
percentage interests for such shareholders during such period. In the case of an
ownership change, an annual limitation, calculated by multiplying the equity
value of the corporation immediately before the ownership change occurred by a
"long-term tax exempt rate" determined and published by the Internal Revenue
Service (which at the time of the Combination was 5.75 percent), is imposed on
the use of NOLs carried over from periods preceding the ownership change.
Caterair believes that the Combination did not result in the occurrence of
an ownership change because, although OFSI and an affiliate acquired 51 percent
of the voting common stock of Caterair Holdings, it and its affiliate acquired
significantly less than 50 percent of the value of the stock of Caterair
Holdings or of Caterair and the test for an ownership change is based solely on
value.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR BANK FINANCING
Concurrently with the Offering, SCIS and Caterair consummated the Senior
Bank Financing. Set forth below is a summary description of certain provisions
of the Senior Bank Financing. While the Company believes that the summary
contained herein of certain provisions of the Senior Bank Financing is accurate
in all material respects, it does not purport to be complete, is subject to, and
is qualified in its entirety by, all of the provisions of the documents
governing the Senior Bank Financing, copies of which have been filed as exhibits
to the Registration Statement of which this Prospectus is a part, and are
incorporated herein by reference.
Pursuant to the Senior Bank Financing, Bankers Trust Company, Morgan
Guaranty Trust Company of New York and certain other lenders provided (i) SCIS
with loans under the Revolving Credit Agreement in an amount up to $90.0 million
(including a sub-limit of $50.0 million for letters of credit) on a revolving
credit basis for working capital and general corporate purposes of SCIS,
Caterair and their respective subsidiaries (such Revolving Credit Agreement
expires on August 28, 2002), (ii) Caterair with a nine and one-half year term
loan under the Term Loan Agreement in an aggregate principal amount of $160.0
million for purposes of refinancing Caterair's indebtedness under the Old Credit
Agreement and funding payment of related transaction costs and (iii) SCIS with a
nine and one-half year term loan under the Term Loan Agreement in an aggregate
principal amount of $90.0 million for purposes of financing, in part, SCIS'
Offer to Purchase, funding payment of related transaction costs and general
corporate purposes.
All of the indebtedness under the Revolving Credit Agreement and the Term
Loan Agreement is senior secured indebtedness. The Revolving Credit Agreement
does not require scheduled amortization or scheduled commitment reductions. The
Term Loan Agreement requires scheduled amortization payments. Each of the
Revolving Credit Agreement and the Term Loan Agreement, under certain
circumstances, requires SCIS or Caterair, as the case may be, to make mandatory
prepayments and commitment reductions. In addition, each of SCIS and Caterair
may make optional prepayments and commitment reductions pursuant to the terms of
the Revolving Credit Agreement or the Term Loan Agreement, as the case may be.
Obligations under the Senior Bank Financing are jointly and severally
guaranteed by OFSI (on a limited basis), an affiliate of OFSI (on a limited
basis), SCIS, Caterair, Sky Chefs, CII and certain other domestic subsidiaries
of SCIS (including the Guarantors). In addition, obligations under the Senior
Bank Financing are secured by (i) first priority security interests in virtually
all tangible and intangible assets of SCIS, Caterair, and their respective
wholly-owned domestic subsidiaries (including the Guarantors) and (ii) pledges
of all capital stock of SCIS and Caterair and all capital stock and notes owned
by SCIS, Caterair and their respective domestic subsidiaries (limited in the
case of capital stock of foreign subsidiaries to 65% of such capital stock).
Each of the loans under the Senior Bank Financing bears interest at
specified margins over the applicable eurodollar rate or base rate.
The documents governing the Senior Bank Financing contain a number of
covenants that, among other things, restrict the ability of SCIS, Caterair and
their respective subsidiaries to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay indebtedness or amend debt
instruments, pay dividends, create liens on assets, make investments, make
acquisitions, engage in mergers or consolidations, make capital expenditures, or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. In addition, the documents governing the Senior
Bank Financing require compliance with financial tests based on combined results
for SCIS and Caterair.
Effective as of September 12, 1997, SCIS entered into an interest rate swap
agreement to reduce interest rate exposure on its long-term debt. The agreement
covers a notional amount of $90.0 million at September 12, 1997, and has a
stated maturity of September 15, 2002. Effective as of September 12, 1997,
Caterair entered into an interest swap agreement to reduce interest rate
exposure on its long-term debt. The agreement covers a notional amount of $160.0
million at September 12, 1997 and has a stated maturity of September 15, 2002.
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DESCRIPTION OF NOTES
The Private Notes were, and the Exchange Notes will be, issued under the
Indenture, dated as of August 15, 1997, by and among the Issuer, the Guarantors
and The Bank of New York, as Trustee (the "Trustee"), a copy of which has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. The following summary of the material provisions of the Indenture is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Indenture, which are hereby incorporated herein by reference, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. The
definitions of certain capitalized terms used in the following summary are set
forth below under "Certain Definitions." For purposes of this section and the
Indenture, references to the "Issuer" include only the Issuer and not its
subsidiaries.
The Notes are unsecured obligations of the Issuer, ranking subordinate in
right of payment to all Senior Debt of the Issuer and pari passu in right of
payment to existing and future senior subordinated indebtedness. The Notes are
guaranteed on a senior subordinated basis by the Guarantors.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Issuer may change
any Paying Agent and Registrar without notice to holders of the Notes (the
"Holders"). The Issuer will pay principal (and premium, if any) on the Notes at
the Trustee's corporate trust office in New York, New York. At the Issuer's
option, interest may be paid at the Trustee's corporate trust office or by check
mailed to the registered address of Holders.
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Private Notes except that the Exchange
Notes will have been registered under the Securities Act and, therefore, the
Exchange Notes will not bear legends restricting the transfer thereof and
holders of the Exchange Notes will not be entitled to any of the registration
rights of holders of the Private Notes under the Registration Rights Agreement
(or related rights to certain interest payments upon the failure of the Issuer
to fulfill certain conditions set forth in the Registration Rights Agreement),
which rights will terminate upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same indebtedness as the Private Notes (which
they replace), and will be issued under, and be entitled to the benefits of, the
Indenture. The Private Notes and the Exchange Notes will be considered
collectively to be a single class for all purposes under the Indenture,
including, without limitation, waivers, amendments, redemptions and offers to
purchase.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $300,000,000 and
will mature on September 1, 2007. Interest on the Notes accrues at the rate of
9 1/4% per annum and is payable semiannually in cash on each March 1 and
September 1, commencing on March 1, 1998, to the Persons who are registered
Holders at the close of business on the February 15 and August 15 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Issuer's option,
in whole at any time or in part from time to time, on and after September 1,
2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof)
(payable in
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cash) if redeemed during the twelve-month period commencing on September 1 of
the year set forth below, plus, in each case, accrued and unpaid interest to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------- ----------
<S> <C>
2002.................................................... 104.635%
2003.................................................... 103.476%
2004.................................................... 102.318%
2005.................................................... 101.159%
2006 and thereafter..................................... 100.000%
</TABLE>
Optional Redemption Upon Public Equity Offerings. At any time or from time
to time, on or prior to September 1, 2000, the Issuer may, at its option, use
the net cash proceeds of one or more Public Equity Offerings to redeem in the
aggregate up to $105 million in principal amount of the Notes at a redemption
price of 109.25% of the principal amount thereof (payable in cash) plus accrued
interest to the date of redemption; provided that (i) at least $195 million in
principal amount of the Notes remains outstanding immediately after any such
redemption and (ii) such redemption is effected not more than 60 days after the
consummation of such Public Equity Offering.
SELECTION AND NOTICE
In case of a partial redemption, selection of the Notes or portions thereof
for redemption shall be made by the Trustee by lot, pro rata or in such manner
as it shall deem appropriate and fair and in such manner as complies with any
applicable legal requirements; provided, however, that if a partial redemption
is made with the proceeds of a Public Equity Offering, selection of the Notes or
portion thereof for redemption shall be made by the Trustee only on a pro rata
basis, unless such method is otherwise prohibited. Notes may be redeemed in part
in multiples of $1,000 principal amount only. Notice of redemption will be sent,
by first class mail, postage prepaid, at least 30 days and not more than 60 days
prior to the date fixed for redemption to each Holder whose Notes are to be
redeemed at the last address for such Holder then shown on the registry books.
In order to effect a redemption with the proceeds of a Public Equity Offering,
the Issuer shall make such redemption not more than 60 days after the
consummation of any such Public Equity Offering. If any Note is to be redeemed
in part only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
Holder thereof upon cancellation of the original Note. On and after any
redemption date, interest will cease to accrue on the Notes or parts thereof
called for redemption as long as the Issuer has deposited with the Paying Agent
funds in satisfaction of the redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents (or such
payment shall be duly provided for to the satisfaction of the holders of the
Senior Debt) of all Obligations on the Senior Debt. Upon any payment or
distribution of assets of the Issuer of any kind or character, whether in cash,
property or securities, to creditors upon any total or partial liquidation,
dissolution, winding up, reorganization, assignment for the benefit of creditors
or marshaling of assets of the Issuer or in a bankruptcy, reorganization,
insolvency, receivership or other similar proceeding relating to the Issuer or
its property, whether voluntary or involuntary, all Obligations due or to become
due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents
(or such payment duly provided for to the satisfaction of the holders of the
Senior Debt) before any payment or distribution of any kind or character is made
on account of any Obligations on the Notes, or for the acquisition of any of the
Notes for cash or property or otherwise. If any default occurs and is continuing
in the payment when due, whether at maturity, upon any redemption, by
declaration or otherwise, of any principal of, interest on, unpaid drawings for
letters of credit issued in respect of, or regularly accruing fees with respect
to, any Senior Debt (including for this purpose any such default in payment by
Caterair or any other borrower under the Senior Bank Financing which is a
Subsidiary of the Issuer with respect to its Obligations under the Senior Bank
Financing
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or any Interest Swap Obligations related thereto), no payment of any kind or
character shall be made by or on behalf of the Issuer or any other Person on its
or their behalf with respect to any Obligations on the Notes or to acquire any
of the Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 180 days after
the delivery of such Default Notice (the "Blockage Period"), neither the Issuer
nor any other Person on its behalf shall (x) make any payment of any kind or
character with respect to any Obligations on the Notes or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 180 days from the
date such Blockage Period was commenced and only one such Blockage Period may be
commenced within any 360 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provision under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the liquidation or
insolvency of the Issuer, creditors of the Issuer who are not holders of Senior
Debt, including the Holders of the Notes, may recover less, ratably, than
holders of Senior Debt.
The Company has significant indebtedness. At September 30, 1997, the
Company had total combined indebtedness of approximately $591.5 million
(excluding the loan by SCIS to Caterair, advances by Caterair to SCIS,
guarantees of indebtedness and $24.7 million of letters of credit). In addition,
the Company may borrow additional amounts under the Revolving Credit Agreement
or otherwise. See "The Refinancing," "Capitalization," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," "Description of
Certain Indebtedness -- Senior Bank Financing" and the Financial Statements and
notes thereto included elsewhere in this Prospectus. At September 30, 1997, the
Issuer had approximately $250.0 million of Senior Debt (including borrowings and
guarantees under the Senior Bank Financing but excluding advances by Caterair to
SCIS and $24.7 million of letters of credit) and had approximately $65.3 million
available to be borrowed pursuant to the Senior Bank Financing, and the
Guarantors had approximately $31.5 million of Guarantor Senior Debt outstanding
(excluding the loan by SCIS to Caterair and the Guarantors' borrowings and
guarantees under the Senior Bank Financing). In addition, the Notes are
structurally subordinated to all liabilities of the subsidiaries of the Issuer
which are not Guarantors.
UNCONDITIONAL JOINT AND SEVERAL SENIOR SUBORDINATED GUARANTEES
Each Guarantor unconditionally guaranteed, jointly and severally, the
Issuer's obligations under the Notes on a senior subordinated unsecured basis
(the "Guarantees"). The Indebtedness represented by each Guarantee (including
the payment of Obligations on the Notes) is subordinated on the same basis to
Guarantor Senior Debt (defined with respect to the Indebtedness of a Guarantor
in the same manner as Senior Debt is defined with respect to the Issuer) as the
Notes are subordinated to Senior Debt. See "-- Subordination."
Upon (i) the release by the lenders under the Senior Bank Financing,
related documents and future refinancings thereof of all guarantees of a
Guarantor (other than Caterair) and all Liens on the property and assets of such
Guarantor relating to such Indebtedness, or (ii) the sale or disposition
(whether by merger, stock purchase, asset sale or otherwise) of a Guarantor (or
substantially all of its assets) to an entity which is not a Subsidiary of the
Issuer or Caterair (which sale or disposition is otherwise in compliance with
the
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Indenture), such Guarantor shall be deemed released from all of its obligations
under its Guarantee; provided, however, that any such termination shall occur
only to the extent that all obligations of such Guarantor under the Senior Bank
Financing and all of its guarantees of, and under all of its pledges of assets
or other security interests which secure, such Indebtedness of the Issuer shall
also terminate upon such release, sale or transfer.
Each Guarantor may consolidate with or merge into or sell all or
substantially all of its assets to the Issuer or another Guarantor (other than
Caterair) without limitation. The Indenture further provides that a Guarantor
may consolidate with or merge into or sell all or substantially all of its
assets to a corporation other than the Issuer or another Guarantor (whether or
not affiliated with such Guarantor, but subject to the provisions described in
the immediately preceding paragraph); provided that (a)(i) such transaction is
treated as an Asset Sale or Caterair Asset Sale, as the case may be, for
purposes of the "Limitation on Asset Sales" covenant or (ii) if the surviving
corporation is not such Guarantor, the surviving corporation agrees to assume
such Guarantor's obligations under its Guarantee and all of its obligations
under the Indenture and (b) such transaction does not (i) violate any covenants
set forth in the Indenture or (ii) result in a Default or Event of Default under
the Indenture immediately thereafter that is continuing.
The obligations of each Guarantor under its Guarantee are limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor (other than liabilities of such Guarantor under
Indebtedness which constitutes Subordinated Indebtedness with respect to its
Guarantee) and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the obligations of such Guarantor under such Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
In addition to Sky Chefs, CII and Caterair, the following indirectly
wholly-owned domestic subsidiaries of SCIS are Guarantors: Sky Chefs
International Corp., Arlington Services, Inc., Arlington Services Holding
Corporation, Bethesda Services, Inc., Caterair New Zealand Limited, Caterair
Consulting Services Corporation, JFK Caterers, Inc., Caterair St. Thomas
Holdings Corporation, Western Aire Chef, Inc., Caterair Airport Properties,
Inc., Sky Chefs Argentine, Inc., Onex Ohio Acceptance Corporation, Onex Ohio
Credit Corp., Onex Ohio Equity Corp., Onex Ohio Finance Corp., Onex Ohio Finance
Corp. II, Onex Ohio Capital Corp., Onex Ohio Fiscal Corp., Onex Ohio Funds
Corp., Onex Ohio Credit Corp. II, Onex Ohio Funds Corp. II, Onex Ohio Fiscal
Corp. II, Onex Ohio Equity Corp. II, Onex Ohio Capital Corp. II and Caterair
International Transition Corporation.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Issuer repurchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest to the date of repurchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Issuer covenants to (i) repay in full all Indebtedness under the Senior Bank
Financing (and terminate all commitments thereunder) and all other Senior Debt
the terms of which require repayment upon a Change of Control or offer to repay
in full all Indebtedness under the Senior Bank Financing (and terminate all
commitments thereunder) and all such other Senior Debt and to repay the
Indebtedness owed to (and terminate the commitments of) each lender which has
accepted such offer or (ii) obtain the requisite consents under the Senior Bank
Financing and all such other Senior Debt to permit the repurchase of the Notes
as provided below. The Issuer shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase Notes
pursuant to the provisions described below. The Issuer's failure to comply with
the covenant described in the immediately preceding sentence resulting in a
failure to mail the notice referred to below shall constitute an Event of
Default described in clause (iii) and not in clause (ii) under "Events of
Default" below.
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The Indenture provides that within 30 days following the date upon which
the Change of Control occurred, the Issuer must send, by first class mail, a
notice to each holder, with a copy to the Trustee, which notice shall govern the
terms of the Change of Control Offer. Such notice shall state, among other
things, the repurchase date, which must be no earlier than 30 days nor later
than 45 days from the date such notice is mailed, other than as may be required
by law (the "Change of Control Payment Date"). Holders electing to have a Note
repurchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third business day prior to the
Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer together with any other notes which the
Issuer may be obligated to purchase pursuant to change of control provisions in
agreements governing other senior subordinated Indebtedness of the Issuer. In
the event the Issuer is required to repurchase outstanding Notes pursuant to a
Change of Control Offer, the Issuer expects that it would seek third party
financing to the extent it does not have available funds to meet its repurchase
obligations. However, there can be no assurance that the Issuer would be able to
obtain such financing.
Neither the Board of Directors of the Issuer nor the Trustee may waive the
covenant relating to a Holder's right to require the Issuer to repurchase such
Holder's Notes upon a Change of Control. Restrictions in the Indenture described
herein on the ability of the Issuer and its Restricted Subsidiaries to incur
additional Indebtedness, to grant Liens on their respective properties, to make
Restricted Payments and to make Asset Sales may also make more difficult or
discourage a takeover of the Issuer, whether favored or opposed by the
management of the Issuer. Such restrictions and the restrictions on transactions
with Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Issuer or any of its Subsidiaries by the management
of the Issuer. While such restrictions cover a wide variety of arrangements
which have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Notes protection in all circumstances
from the adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
With respect to the sale of assets, the phrase "all or substantially all"
as used in the Indenture varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under relevant law and
is subject to judicial interpretation. Accordingly, in certain circumstances,
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of a Person and therefore it may be unclear whether a Change of Control
has occurred and whether Notes are subject to a Change of Control Offer.
The Issuer will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Issuer shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. The Issuer will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Issuer) on or in respect
of shares of the Issuer's Capital Stock to holders of such Capital Stock, (b)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Issuer or any warrants, rights or options to purchase or acquire shares of
any class of such Capital Stock, other than the exchange of such Capital Stock
or any warrants, rights or options to acquire shares of any class of such
Capital Stock for Qualified Capital Stock of
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the Issuer or warrants, rights or options to acquire such Qualified Capital
Stock, (c) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Issuer or its Restricted Subsidiaries that is subordinate or
junior in right of payment to the Notes, or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing, (ii) the
Issuer is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, or (iii) the aggregate amount of Restricted
Payments made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such property as
determined by the Board of Directors of the Issuer in good faith) shall exceed
the sum of: (x) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the Issuer
earned subsequent to the Issue Date and on or prior to the date the Restricted
Payment occurs (the "Reference Date") (treating such period as a single
accounting period); plus (y) 100% of the aggregate Net Cash Proceeds received by
the Issuer from any Person (other than a Subsidiary of the Issuer) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Issuer (including proceeds from the
issuance and sale of any securities of the Issuer convertible into or
exchangeable for Qualified Capital Stock of the Issuer to the extent such
securities are so converted or exchanged and including any additional proceeds
received by the Issuer upon such conversion or exchange); plus (z) without
duplication of any amounts included in clause (iii)(y) above, 100% of the
aggregate Net Cash Proceeds received by the Issuer as capital contributions
subsequent to the Issue Date and on or prior to the Reference Date.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or notice of such redemption if the dividend or
payment of the redemption price, as the case may be, would have been permitted
on the date of declaration or notice; (2) the acquisition of any shares of
Capital Stock of the Issuer or warrants, options or other rights to acquire
Capital Stock of the Issuer, either (i) solely in exchange for shares of
Qualified Capital Stock of the Issuer or warrants, options or other rights to
acquire such Qualified Capital Stock, or (ii) through the application of the net
proceeds of a substantially concurrent sale for cash (other than to a Subsidiary
of the Issuer) of shares of Qualified Capital Stock of the Issuer or warrants,
options or other rights to acquire such Qualified Capital Stock; (3) the
acquisition of Indebtedness of the Issuer that is subordinate or junior in right
of payment to the Notes, either (i) solely in exchange for shares of Qualified
Capital Stock of the Issuer or warrants, options or other rights to acquire such
Qualified Capital Stock or for Indebtedness of the Issuer which is subordinate
or junior in right of payment to the Notes, at least to the extent that the
Indebtedness being acquired is subordinated to the Notes, and has a Weighted
Average Life to Maturity no less than that of the Indebtedness being acquired or
(ii) through the application of the net proceeds of a substantially concurrent
sale for cash (other than to a Subsidiary of the Issuer) of shares of Qualified
Capital Stock of the Issuer or warrants, options or other rights to acquire such
Qualified Capital Stock or Indebtedness of the Issuer which is subordinate or
junior in right of payment to the Notes, at least to the extent that the
Indebtedness being acquired is subordinated to the Notes, and has a Weighted
Average Life to Maturity no less than that of the Indebtedness being refinanced;
(4) payments by the Issuer to OFSI to enable OFSI to pay a dividend to LSG (or a
Subsidiary thereof), in an aggregate amount not to exceed $2.5 million in any
12-month period; provided that any unused portion of such amount may be carried
over to any subsequent 12-month period; (5) payments by the Issuer to OFSI on or
after January 1, 1997 to enable OFSI to pay dividends to stockholders of OFSI
other than LSG (or a Subsidiary thereof), in an amount not to exceed $6 million
in any 12-month period; provided that any unused portion of such amount may be
carried over to any subsequent 12-month period; (6) payments by the Issuer or
any of its Subsidiaries to OFSI pursuant to the OFSI Tax Sharing Agreement; (7)
payments by the Issuer to OFSI sufficient to enable OFSI to (i) pay franchise
taxes and other fees and expenses necessary to maintain its corporate existence,
(ii) pay reasonable fees to its directors and (iii) perform accounting, legal,
corporate reporting and administrative functions in the ordinary course of
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business, other than those functions which are related exclusively to OFSI's
investments in Persons other than the Issuer and Subsidiaries of the Issuer; (8)
payments by the Issuer or any of its Subsidiaries to OFSI in an aggregate amount
not to exceed $6 million in any 12-month period, the proceeds of which are used
by OFSI to repurchase outstanding shares of OFSI's common stock from current or
former employees or directors of the Issuer or any of its Subsidiaries (A)
following the death, disability or termination of any such person or (B)
pursuant to one or more written plans approved by the Board of Directors of
OFSI; and (9) payments by the Issuer or any of its Subsidiaries to OFSI, the
proceeds of which are used by OFSI to fund payments under a plan implemented to
compensate management of the Issuer and its Subsidiaries based on the value of
OFSI's common stock; provided, however, that in the case of clauses (4), (5) and
(8)(B), no Default or Event of Default shall have occurred or be continuing at
the time of such payment or as a result thereof. In determining the aggregate
amount of Restricted Payments made subsequent to the Issue Date in accordance
with clause (iii) of the immediately preceding paragraph, (x) 100% of each of
the payments described in clauses (1), (4) and (5) above (to the extent such
expenditure is in the form of cash) and (y) 50% of the payments described in
clauses (8)(A) and (8)(B) above (to the extent such expenditure is in the form
of cash), other than amounts paid to the Issuer or a Subsidiary of the Issuer by
OFSI or such employee in satisfaction of loans or advances made by the Issuer or
such Subsidiary pursuant to clause (v) (A) of the definition of "Permitted
Investments" (which shall not be included in such calculation or in the
calculation of payments made pursuant to clause (8)), shall be included in such
calculation.
Caterair will not, and will not cause or permit any of its Subsidiaries to,
directly or indirectly, (a) declare or pay any dividend or make any distribution
on or in respect of shares of Caterair's Capital Stock to holders of such
Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of Caterair or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or
retire for value, prior to any scheduled final maturity, scheduled repayment or
scheduling sinking fund payment, any Indebtedness of Caterair or its
Subsidiaries that is subordinate or junior in right of payment to the Notes, or
(d) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to
as a "Caterair Restricted Payment").
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 30
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) payments by Caterair to Caterair
Holdings sufficient to enable Caterair Holdings to (i) pay franchise taxes and
other fees and expenses necessary to maintain its corporate existence, (ii) pay
reasonable fees to its directors and (iii) perform accounting, legal, corporate
reporting and administrative functions in the ordinary course of business; (3)
payments by Caterair or any of its Subsidiaries to Caterair Holdings pursuant to
the Caterair Tax Sharing Agreement; and (4) payments by Caterair or any
Subsidiary of Caterair to the Issuer or any Restricted Subsidiary of the Issuer.
Limitation on Incurrence of Additional Indebtedness. The Issuer will not,
and will not permit any of its Restricted Subsidiaries to, and Caterair will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, acquire, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, "incur") any Indebtedness (other than Permitted Indebtedness);
provided, however, that if no Default or Event of Default shall have occurred
and be continuing at the time or as a consequence of the incurrence of any such
Indebtedness, the Issuer, Caterair or any Restricted Subsidiary of the Issuer
may incur Indebtedness if on the date of the incurrence of such Indebtedness,
after giving effect to the incurrence thereof, the Consolidated Fixed Charge
Coverage Ratio of the Issuer is greater than 2.00 to 1.0.
Limitations on Transactions with Affiliates. The Issuer will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under the paragraph below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate; provided, however, that for a
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transaction or series of related transactions with an aggregate value of $5
million or more (i) such determination shall be made in good faith by a majority
of the disinterested members of the Board of Directors of the Issuer or (ii) the
Board of Directors of the Issuer shall have received an opinion from a
nationally recognized investment banking firm that such Affiliate Transaction is
on terms no less favorable than those that might reasonably have been obtained
in a comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate; and provided, further, that for a transaction or
series of related transactions with an aggregate value of $10 million or more,
the Board of Directors of the Issuer shall have received an opinion from a
nationally recognized investment banking firm that such Affiliate Transaction is
on terms no less favorable than those that might reasonably have been obtained
in a comparable transaction at such time on an arm's-length basis from a Person
that is not an Affiliate.
The restrictions set forth in the preceding paragraph shall not apply to
(1) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Issuer or any
Subsidiary of the Issuer as determined in good faith by the Issuer's Board of
Directors or senior management; (2) transactions between or among the Issuer or
any Restricted Subsidiary of the Issuer, on the one hand, and any Subsidiary of
the Issuer or other Person controlled (as such term is defined in the definition
of "Affiliate") by the Issuer, on the other hand, so long as no portion of the
remaining interest in such Subsidiary or other Person is owned by a Person who
controls (as such term is defined in the definition of "Affiliate") the Issuer,
or between or among such Subsidiaries and Persons, provided such transactions
are not otherwise prohibited by the Indenture; (3) any agreement as in effect as
of the Issue Date or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement is not
more disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (4) transactions between the Issuer or
any Restricted Subsidiary of the Issuer, on the one hand, and Caterair or any
Subsidiary of Caterair, on the other hand; and (5) Restricted Payments permitted
by the Indenture.
Caterair will not, and will not permit any of its Subsidiaries to, directly
or indirectly, enter into or permit to exist any transaction or series of
related transactions (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates.
The restrictions set forth in the preceding paragraph shall not apply to
(1) transactions between Caterair or any Subsidiary of Caterair, on the one
hand, and the Issuer or any Restricted Subsidiary of the Issuer, on the other
hand; (2) transactions between or among Caterair or any Subsidiary of Caterair,
on the one hand, and any Subsidiary of Caterair or other Person controlled (as
such term is defined in the definition of "Affiliate") by Caterair, on the other
hand, so long as no portion of the remaining interest in such Subsidiary or
other Person is owned by a Person who controls (as such term is defined in the
definition of "Affiliate") Caterair, or between or among such Subsidiaries and
Persons, provided such transactions are not otherwise prohibited by the
Indenture; (3) reasonable fees and compensation paid to and indemnity provided
on behalf of, officers, directors, employees or consultants of Caterair or any
Subsidiary of Caterair as determined in good faith by Caterair's Board of
Directors or senior management; (4) any agreement as in effect as of the Issue
Date or any amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto so long
as any such amendment or replacement agreement is not more disadvantageous to
the Holders in any material respect than the original agreement as in effect on
the Issue Date; and (5) Caterair Restricted Payments permitted by the Indenture.
Limitation on Liens. The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind against or upon any of its property or assets, or any proceeds
therefrom, except for (A) Liens securing Senior Debt and/or Guarantor Senior
Debt and (B) Permitted Liens, unless (i) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to the
Notes, the Notes are secured by a Lien on such property, assets or proceeds that
is senior in priority to such Liens and (ii) in all other cases, the Notes are
equally and ratably secured.
Caterair will not, and will not permit any of its Subsidiaries to, create,
incur, assume or suffer to exist any Liens of any kind against or upon any of
its property or assets, or any proceeds therefrom, except for
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(i) Permitted Liens, (ii) Liens securing Senior Debt and/or Guarantor Senior
Debt and (iii) Liens in favor of the Issuer or any Restricted Subsidiary of the
Issuer.
Prohibition on Incurrence of Senior Subordinated Debt. Neither the Issuer
nor any Guarantor will, directly or indirectly, incur any Indebtedness
(including Acquired Indebtedness) that is senior in right of payment to the
Notes or its Guarantee, as the case may be, and expressly subordinate in right
of payment to any other Indebtedness of the Issuer or such Guarantor, as the
case may be.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Issuer to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
to or pay any Indebtedness or other obligation owed to the Issuer or any other
Restricted Subsidiary of the Issuer; or (c) transfer any of its property or
assets to the Issuer or any other Restricted Subsidiary of the Issuer, except
for such encumbrances or restrictions existing under or by reason of: (1)
applicable law; (2) the Indenture; (3) customary non-assignment provisions of
any contract or any lease entered into in the ordinary course of business; (4)
any agreement or instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person so
acquired; (5) any agreement existing on the Issue Date (including, without
limitation, the Senior Bank Financing); (6) in the case of clause (c) above, (A)
restrictions on the transfer of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien and (B) restrictions on the
transfer of assets imposed by any agreement, lease or permit entered into or
obtained in the ordinary course of business in connection with the operation of
flight kitchens; (7) (A) restrictions imposed by any agreement to sell assets
permitted under the Indenture to any Person pending the closing of such sale,
(B) any agreement or instrument governing Capital Stock of any Person that is
acquired or (C) any joint venture, stockholder or similar agreements; (8)
encumbrances and restrictions imposed by any agreement or instrument governing
Indebtedness (including any collateral or related documents) of any Restricted
Subsidiary of the Issuer conducting substantially all of its business outside
the United States; provided, however, that such Restricted Subsidiaries of the
Issuer, in the aggregate, did not account for more than 10% of Consolidated
EBITDA of the Issuer (after giving pro forma effect to inclusion of any
additional Restricted Subsidiary proposing to enter into such an agreement or
instrument) during the four full fiscal quarter period ending immediately prior
to the date of determination thereof; or (9) an agreement effecting an
amendment, refinancing, replacement or substitution of Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2), (4) or
(5) above or any other agreement evidencing Indebtedness permitted under the
Indenture; provided, however, that the provisions relating to such encumbrance
or restriction contained in any such amendment, refinancing, replacement or
substitution agreement or any such other agreement are not less favorable to the
Issuer in any material respect as determined by the Board of Directors of the
Issuer than the provisions relating to such encumbrance or restriction contained
in agreements referred to in such clause (2), (4) or (5).
Caterair will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create or otherwise cause or permit to exist or become effective
any encumbrance or restriction on the ability of any Subsidiary of Caterair to
(a) pay dividends or make any other distributions on or in respect of its
Capital Stock; (b) make loans or advances or to pay any Indebtedness or other
obligation owed to Caterair or any other Subsidiary of Caterair; or (c) transfer
any of its property or assets to Caterair or any other Subsidiary of Caterair,
except for such encumbrances or restrictions existing under or by reason of: (1)
applicable law; (2) the Indenture; (3) customary non-assignment provisions of
any contract or any lease entered into in the ordinary course of business; (4)
any agreement or instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person so
acquired; (5) any agreement existing on the Issue Date (including, without
limitation, the Senior Bank Financing); (6) in the case of clause (c) above, (A)
restrictions on the transfer of assets subject to any Lien permitted under the
Indenture imposed by the holder of such Lien and (B) restrictions on the
transfer of assets imposed by any agreement, lease or permit entered into or
obtained in the ordinary course of business in connection with the operation of
flight kitchens; (7) restrictions imposed by
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any agreement to sell assets permitted under the Indenture to any Person pending
the closing of such sale; or (8) an agreement effecting an amendment, a
refinancing, replacement or substitution of Indebtedness issued, assumed or
incurred pursuant to an agreement referred to in clause (2), (4) or (5) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such amendment, refinancing, replacement or
substitution agreement are not less favorable to Caterair in any material
respect as determined by the Board of Directors of Caterair than the provisions
relating to such encumbrance or restriction contained in agreements referred to
in such clause (2), (4) or (5).
Limitation on Preferred Stock of Subsidiaries. The Issuer will not permit
any of its Restricted Subsidiaries to issue any Preferred Stock to any Person or
permit any Person to own any Preferred Stock of a Restricted Subsidiary of the
Issuer, unless the Issuer's percentage interest in the Preferred Stock of such
Restricted Subsidiary is equal to or greater than the Issuer's percentage
interest in the common equity of such Restricted Subsidiary.
Caterair will not permit any of its Subsidiaries to issue any Preferred
Stock (other than to the Issuer, a Wholly Owned Restricted Subsidiary of the
Issuer, Caterair or a Wholly Owned Subsidiary of Caterair) or permit any Person
(other than the Issuer, a Wholly Owned Restricted Subsidiary of the Issuer,
Caterair or a Wholly Owned Subsidiary of Caterair) to own any Preferred Stock of
any Subsidiary of Caterair.
Merger, Consolidation and Sale of Assets. The Issuer will not, in a single
transaction or a series of related transactions, consolidate with or merge with
or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets to, another Person or Persons or adopt a Plan of
Liquidation unless (i) either (A) the Issuer shall be the survivor of such
merger or consolidation or (B) the surviving or transferee Person is a
corporation, partnership or trust organized and existing under the laws of the
United States, any state thereof or the District of Columbia and such surviving
or transferee Person shall expressly assume all the obligations of the Issuer
under the Notes and the Indenture pursuant to a supplemental indenture; (ii)
except in the case of a transaction between the Issuer and a Guarantor,
immediately after giving effect to such transaction (on a pro forma basis,
including any Indebtedness incurred or anticipated to be incurred in connection
with such transaction), the Issuer or the surviving Person is able to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant; (iii) immediately before and immediately after giving effect to such
transaction (including any Indebtedness incurred or anticipated to be incurred
in connection with the transaction), no Default or Event of Default shall have
occurred and be continuing; and (iv) the Issuer has delivered to the Trustee an
Officers' Certificate and Opinion of Counsel, each stating that such
consolidation, merger or transfer complies with the Indenture, that the
surviving or transferee Person agrees pursuant to a supplemental indenture to be
bound thereby, and that all conditions precedent in the Indenture relating to
such transaction have been satisfied. For purposes of the foregoing, the
transfer (by lease, assignment, sale or otherwise, in a single transaction or
series of related transactions) of all or substantially all of the properties
and assets of one or more Subsidiaries of the Issuer, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the Issuer,
shall be deemed to be the transfer of all or substantially all of the properties
and assets of the Issuer.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Issuer or any adoption of a Plan of Liquidation by the
Issuer in accordance with the preceding paragraph, the surviving or transferee
Person shall succeed to, and be substituted for, and may exercise every right
and power of, the Issuer under the Indenture with the same effect as if such
surviving or transferee Person had been named as the Issuer therein; provided,
however, that solely for purposes of computing amounts described in clause (iii)
of the first paragraph of the "Limitation on Restricted Payments" covenant, any
such surviving or transferee Person shall only be deemed to have succeeded to
and be substituted for the Issuer with respect to periods subsequent to the
effective time of such merger, consolidation or transfer of assets.
Limitation on Asset Sales. The Issuer will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) other than
with respect to the Australian Assets, the Issuer or the applicable Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by
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the Issuer's Board of Directors); (ii) at least 75% of the consideration
received by the Issuer or such Restricted Subsidiary, as the case may be, from
such Asset Sale shall be cash or Cash Equivalents and is received at the time of
such disposition; and (iii) upon the consummation of an Asset Sale, the Issuer
shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 365 days of receipt thereof either (A) to
prepay (or, in the case of letters of credit or Eurodollar loans under the
Senior Bank Financing, cash collateralize) any Senior Debt or Guarantor Senior
Debt or, in the case of any Senior Debt or Guarantor Senior Debt under any
revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, (B) to reinvest in Productive Assets, or
(C) a combination of prepayment, reduction and investment permitted by the
foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or
such earlier date, if any, as the Board of Directors of the Issuer or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and/or (iii)(C) of
the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B)
and/or (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer
Amount") shall be applied by the Issuer or such Restricted Subsidiary to make an
offer to repurchase (the "Net Proceeds Offer") on a date not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis that amount of Notes equal to the excess, if
any, of (x) the Net Proceeds Offer Amount over (y) the amount of any such Net
Cash Proceeds required to be used by the Issuer or such Restricted Subsidiary to
repurchase any senior subordinated Indebtedness of the Issuer outstanding on the
Issue Date (other than Indebtedness evidenced by the Notes) at a price equal to
100% of the principal amount of the Notes to be repurchased, plus accrued
interest to the date of repurchase; provided, however, that if at any time any
non-cash consideration received by the Issuer or any Restricted Subsidiary of
the Issuer, as the case may be, in connection with any Asset Sale is converted
into or sold or otherwise disposed of for cash, then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10 million, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time as
such Net Proceeds Offer Amount plus the aggregate amount of all Net Proceeds
Offer Amounts arising subsequent to the Net Proceeds Offer Trigger Date relating
to such initial Net Proceeds Offer Amount from all Asset Sales by the Issuer and
its Restricted Subsidiaries aggregates at least $10 million, at which time the
Issuer or such Restricted Subsidiary shall apply all Net Cash Proceeds
constituting all Net Proceeds Offer Amounts that have been so deferred to make a
Net Proceeds Offer (the first date the aggregate of all such deferred Net
Proceeds Offer Amounts is equal to $10 million or more shall be deemed to be a
"Net Proceeds Offer Trigger Date").
Notwithstanding the two immediately preceding paragraphs, the Issuer and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Productive Assets and (ii) such
Asset Sale is for fair market value (as determined in good faith by the Board of
Directors of the Issuer); provided that the Net Cash Proceeds, if any, received
by the Issuer or any of its Restricted Subsidiaries in connection with any Asset
Sale permitted to be consummated under this paragraph shall constitute Net Cash
Proceeds subject to the provisions of the two preceding paragraphs.
Caterair will not, and will not permit any of its Subsidiaries to,
consummate a Caterair Asset Sale unless (i) Caterair or the applicable
Subsidiary, as the case may be, receives consideration at the time of such
Caterair Asset Sale at least equal to the fair market value of the assets sold
or otherwise disposed of (as determined in good faith by Caterair's Board of
Directors); (ii) at least 75% of the consideration received by Caterair or such
Subsidiary, as the case may be, from such Caterair Asset Sale shall be cash or
Cash Equivalents and is received at the time of such disposition; and (iii) upon
the consummation of a Caterair Asset Sale, Caterair shall apply, or cause such
Subsidiary to apply, the Net Cash Proceeds relating to such Caterair Asset Sale
within 365 days of receipt thereof either (A) to prepay any Guarantor Senior
Debt or, in the case of any Guarantor Senior Debt under any revolving credit
facility, effect a permanent reduction in the
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availability under such revolving credit facility, or, if there is no Guarantor
Senior Debt outstanding, to prepay Senior Debt or, in the case of any Senior
Debt under any revolving credit facility, effect a permanent reduction in the
availability under such revolving credit facility, (B) to repay the Caterair
Promissory Note; provided that the Issuer treats the proceeds received from such
repayment as proceeds of an Asset Sale by the Issuer in compliance with the
first paragraph of this covenant, (C) to reinvest in Productive Assets, or (D) a
combination of prepayment, repayment, reduction and investment permitted by the
foregoing clauses (iii)(A), (iii)(B) and (iii)(C). On the 366th day after a
Caterair Asset Sale or such earlier date, if any, as the Board of Directors of
Caterair or of such Subsidiary determines not to apply the Net Cash Proceeds
relating to such Caterair Asset Sale as set forth in clause (iii) of the next
preceding sentence (each, a "Caterair Net Proceeds Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which have not been applied on or before
such Caterair Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A),
(iii)(B), (iii)(C) and/or (iii)(D) of the next preceding sentence (each, a
"Caterair Net Proceeds Offer Amount") shall be applied by Caterair or such
Subsidiary to make an offer to repurchase (the "Caterair Net Proceeds Offer") on
a date not less than 30 nor more than 45 days following the applicable Caterair
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis that
amount of Notes equal to the excess, if any, of (x) the Caterair Net Proceeds
Offer Amount over (y) the amount of any such Net Cash Proceeds required to be
used by Caterair to repurchase any senior subordinated Indebtedness of the
Issuer outstanding on the Issue Date (other than Indebtedness evidenced by the
Notes) at a price equal to 100% of the principal amount of the Notes to be
repurchased, plus accrued interest to the date of repurchase; provided, however,
that if at any time any non-cash consideration received by Caterair or any
Subsidiary of Caterair, as the case may be, in connection with any Caterair
Asset Sale is converted into or sold or otherwise disposed of for cash, then
such conversion or disposition shall be deemed to constitute a Caterair Asset
Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance
with this covenant. Caterair shall not resell or otherwise dispose of any Notes
repurchased pursuant to a Caterair Net Proceeds Offer, other than to the Issuer
for cancellation.
Each Net Proceeds Offer or Caterair Net Proceeds Offer, as the case may be,
will be mailed to the record Holders as shown on the register of Holders within
25 days following the Net Proceeds Offer Trigger Date or Caterair Net Proceeds
Offer Trigger Date, as the case may be, with a copy to the Trustee, and shall
comply with the procedures set forth in the Indenture. Upon receiving notice of
the Net Proceeds Offer or Caterair Net Proceeds Offer, as the case may be,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount or Caterair Net
Proceeds Offer Amount, as the case may be, Notes of tendering Holders will be
repurchased on a pro rata basis (based on amounts tendered). A Net Proceeds
Offer or Caterair Net Proceeds Offer, as the case may be, shall remain open for
a period of 20 business days or such longer period as may be required by law.
The Issuer or Caterair, as the case may be, will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of Notes pursuant to a Net Proceeds
Offer or Caterair Net Proceeds Offer, as the case may be. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Issuer or Caterair, as the case may be, shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Asset Sale" provisions of the
Indenture by virtue thereof.
Guarantees of Certain Indebtedness. The Issuer will not permit any of its
domestic Restricted Subsidiaries, directly or indirectly, to incur, guarantee or
secure through the granting of Liens the payment of any Indebtedness under the
Senior Bank Financing or any refunding or refinancing thereof, in each case
unless such Restricted Subsidiary, the Issuer and the Trustee execute and
deliver a supplemental indenture evidencing such Restricted Subsidiary's
Guarantee, such Guarantee to be a senior subordinated unsecured obligation of
such Restricted Subsidiary. Neither the Issuer nor any such Guarantor shall be
required to make a notation on the Notes or the Guarantees to reflect any such
subsequent Guarantee. Nothing in this covenant shall be construed to permit any
Restricted Subsidiary of the Issuer to incur Indebtedness otherwise prohibited
by the "Limitation on Incurrence of Additional Indebtedness" covenant.
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Caterair will not permit any of its domestic Subsidiaries, directly or
indirectly, to incur, guarantee or secure through the granting of Liens the
payment of any Indebtedness under the Senior Bank Financing or any refunding or
refinancing thereof, in each case unless such Subsidiary, the Issuer and the
Trustee execute and deliver a supplemental indenture evidencing such
Subsidiary's Guarantee, such Guarantee to be a senior subordinated unsecured
obligation of such Subsidiary. Neither the Issuer nor any such Guarantor shall
be required to make a notation on the Notes or the Guarantees to reflect any
such subsequent Guarantee. Nothing in this covenant shall be construed to permit
any Subsidiary of Caterair to incur Indebtedness otherwise prohibited by the
"Limitation on Incurrence of Additional Indebtedness" covenant.
Conduct of Business of the Issuer and Its Restricted Subsidiaries. The
Issuer will not, and will not permit any of its Restricted Subsidiaries to,
engage in any business other than (i) the businesses in which the Issuer,
Caterair and their respective Subsidiaries and joint ventures are engaged on the
Issue Date; (ii) the businesses of (A) producing, distributing, selling or
delivering, or providing management or other services with respect to, meals or
other food products, (B) providing catering services, (C) providing goods or
services to Persons
engaged in providing transportation services, including, but not limited to,
Persons engaged in the airline or other passenger transportation business, or
(D) providing goods or services to or at, transportation terminals and other
facilities, including, but not limited to, airports, train stations, bus
stations or roadside service facilities (including, but not limited to,
providing goods or services to any Person who conducts operations at any such
facility); or (iii) any business which is determined in good faith by the
Issuer's board of directors to be similar, ancillary, complimentary or related
to, or an extension of, any business described in clause (i) or (ii) above.
Conduct of Business of Caterair. So long as any Caterair Lease or Caterair
License that is in effect on the Issue Date remains in effect, Caterair will
not, and will not permit any of its Subsidiaries to, engage in any business
other than the leasing of the Caterair Leased Property pursuant to the Caterair
Lease and the licensing of the Caterair Licensed Property pursuant to the
Caterair License; provided, however, that Caterair may continue to operate
certain of its flight kitchens if Caterair has not received as of the Issue Date
the requisite consents to lease such flight kitchens to the Issuer or a
Subsidiary of the Issuer.
Guarantor Capital Stock. The Issuer or a Subsidiary Guarantor will own all
of the Capital Stock of each Guarantor (other than Caterair).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due and
payable and the default continues for a period of 30 days (whether or not such
payment shall be prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay the principal on any Notes, when such principal becomes
due and payable, at maturity, upon redemption or otherwise (including the
failure to make a payment to repurchase Notes tendered pursuant to a Change of
Control Offer or a Net Proceeds Offer or a Caterair Net Proceeds Offer) (whether
or not such payment shall be prohibited by the subordination provisions of the
Indenture); (iii) a default in the observance or performance of any other
covenant or agreement contained in the Indenture which default continues for a
period of 45 days after the Issuer receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes; (iv)
the failure to pay at final stated maturity (giving effect to any extensions
thereof) the principal amount of any Indebtedness of (A) the Issuer, (B)
Caterair, (C) any Significant Subsidiary of the Issuer or Caterair or (D) any
combination of two or more Non-Significant Subsidiaries of the Issuer which at
the time of determination own on a combined basis more than 10% of the
consolidated assets of the Issuer (determined on a basis consistent with the
definition of "Significant Subsidiary") and such failure continues for a period
of 20 days or more, or the acceleration of the final stated maturity of any such
Indebtedness (which acceleration is not rescinded, annulled or otherwise cured
within 20 days of receipt by the Issuer, Caterair, such Significant Subsidiary
or such Non-Significant Subsidiaries, as the case may be, of notice of any such
acceleration) if, in either case, the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal at final stated maturity or which has
been accelerated, in each case with respect to which the 20-day period described
above has passed, aggregates $15
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million or more at any time; (v) one or more judgments in an aggregate amount in
excess of $15 million (which are not paid or covered by third-party insurance by
financially sound insurers that have not disclaimed coverage) shall have been
rendered against the Issuer, Caterair or any Significant Subsidiary of the
Issuer or Caterair and such judgments remain undischarged, unpaid or unstayed
for a period of 60 days after such judgment or judgments become final and
non-appealable; (vi) except as permitted by the Indenture, the Guarantee of
Caterair or of a Significant Subsidiary of the Issuer or Caterair shall be held
in any judicial proceeding to be unenforceable or invalid and such holding has
become final and non-appealable or the Guarantee of Caterair or of a Significant
Subsidiary of the Issuer or Caterair shall cease for any other reason to be in
full force and effect; and (vii) certain events of bankruptcy affecting the
Issuer, Caterair or any Significant Subsidiary of the Issuer or Caterair.
Upon the happening and during the continuance of any Event of Default
specified in the Indenture, the Trustee or the Holders of at least 25% in
principal amount of outstanding Notes may declare the principal of and accrued
interest on all the Notes to be due and payable by notice in writing to the
Issuer and the Trustee specifying the respective Event of Default and that it is
a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Senior Bank Financing, shall become immediately due and payable upon
the first to occur of an acceleration under the Senior Bank Financing or 5
business days after receipt by the Issuer and the Representative under the
Senior Bank Financing of such Acceleration Notice but only if such Event of
Default is then continuing. If an Event of Default with respect to bankruptcy
proceedings of the Issuer occurs and is continuing, then such amount shall ipso
facto become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holder of Notes.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Issuer has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an Officers' Certificate
and an Opinion of Counsel that such Event of Default has been cured or waived.
The holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
The Indenture provides that if a Default or Event of Default occurs and is
continuing and is known to the Trustee, the Trustee shall mail to each Holder of
the Notes notice of the uncured Default or Event of Default within 90 days after
it occurs. In certain circumstances, the Trustee may withhold notice if and so
long as its Board of Directors or a committee of its trust officers in good
faith determines that withholding notice is in the interest of the Holders of
the Notes. In addition, the Issuer and Caterair are each required to deliver to
the Trustee, within 120 days after the end of their respective fiscal year, a
certificate indicating whether the signers thereof know of any Default or Event
of Default that occurred during the previous year.
DEFEASANCE
The Indenture will cease to be of further effect as to all outstanding
Notes (except as to (i) rights of registration of transfer, substitution and
exchange of Notes, (ii) rights of Holders to receive payments of principal of,
premium, if any, and interest on the Notes and any other rights of the Holders
with respect to such amounts, (iii) the rights, obligations and immunities of
the Trustee under the Indenture and (iv) certain other specified provisions in
the Indenture (the foregoing exceptions (i) through (iv) are collectively
referred to as the "Reserved Rights")) if: (a) the Issuer irrevocably deposits,
or causes to be deposited, with the Trustee, in trust for the benefit of the
Holders pursuant to an irrevocable trust and security agreement in form and
substance reasonably satisfactory to the Trustee (i) U.S. Legal Tender, (ii)
U.S. Government Obligations
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or (iii) a combination thereof, in an amount sufficient after payment of all
federal, state and local taxes or other charges or assessments in respect
thereof payable by the Trustee, which through the payment of interest and
principal will provide, not later than one day before the due date of payment in
respect of the Notes, U.S. Legal Tender in an amount which, in the opinion of a
nationally recognized firm of independent certified public accountants expressed
in a written certification thereof (in form and substance reasonably
satisfactory to the Trustee) delivered to the Trustee, is sufficient to pay the
principal of, premium, if any, and interest on the Notes then outstanding on the
dates on which any such payments are due and payable in accordance with the
terms of the Indenture and of the Notes; provided that (i) the trustee of the
irrevocable trust shall have been irrevocably instructed to pay such money or
the proceeds of such U.S. Government Obligations to the Trustee and (ii) the
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said principal
and interest with respect to the Notes; (b) no Default or Event of Default shall
have occurred or be continuing on the date of such deposit and such deposit will
not result in a Default or Event of Default under the Indenture or a breach or
violation of, or constitute a default under, any other instrument to which the
Issuer or any Subsidiary of the Issuer is a party or by which it or its property
is bound; (c) the Issuer shall have delivered to the Trustee an Opinion of
Counsel from independent counsel reasonably satisfactory to the Trustee or a tax
ruling from the Internal Revenue Service to the effect that the holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance and will be subject to federal income tax in the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred; (d) the Issuer shall have
delivered to the Trustee an Opinion of Counsel to the effect that after the 91st
day following the deposit, such money or the proceeds of such U.S. Government
Obligations will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (e) the Issuer has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each in form and substance reasonably
satisfactory to the Trustee, each stating that all conditions precedent relating
to the satisfaction and discharge of the Indenture have been complied with. In
addition, the Issuer may terminate all of its obligations and the Guarantors'
obligations under the Indenture (except as to certain of the Reserved Rights)
when (i) all outstanding Notes theretofore authenticated have been delivered to
the Trustee for cancellation and the Issuer has paid or caused to be paid all
sums payable under the Indenture by the Issuer or (ii) the Issuer has called for
redemption pursuant to the Indenture all of the Notes under arrangements
satisfactory to the Trustee, the amounts described in clause (a) above have been
deposited as described therein, the conditions in clauses (i) and (ii) of the
proviso to such clause (a) have been satisfied and the certificate and opinion
described in clause (e) above have been delivered.
MODIFICATION OF THE INDENTURE
From time to time, the Issuer, the Guarantors and the Trustee, without the
consent of the Holders of the Notes, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies, so
long as such change does not, in the opinion of the Trustee, adversely affect
the rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an Opinion of
Counsel. Other modifications and amendments of the Indenture may be made with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that (i) without the
consent of each holder of the Notes affected thereby, no amendment may: (1)
reduce the amount of Notes whose holders must consent to an amendment; (2)
reduce the rate of or change or have the effect of changing the time for payment
of interest, including defaulted interest, on any Notes; (3) reduce the
principal of or change or have the effect of changing the fixed maturity of any
Notes, or, except with respect to the matters described in clause (ii)(1) below,
change the date on which any Notes may be subject to redemption or repurchase,
or reduce the redemption or repurchase price therefor; (4) make any Notes
payable in money other than that stated in the Notes; (5) make any change in
provisions of the Indenture protecting the right of each holder of a Note to
receive payment of principal of and interest on such Note on or after the due
date thereof or to bring suit to enforce such payment, or permitting holders of
a majority in principal amount of a class of Notes to waive Defaults or Events
of Default (other than Defaults or Events of Default with respect to the payment
of principal of or interest on the Notes); or (6) modify the subordination
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provisions of the Indenture to adversely affect the Holders of Notes, and (ii)
without the consent of the Holders of at least 75% in aggregate principal amount
of the then outstanding Notes issued under the Indenture, no amendment may: (1)
amend, change or modify the obligation of (A) the Issuer to make and consummate
a Change of Control Offer in the event of a Change of Control that has been
consummated or make and consummate a Net Proceeds Offer with respect to any
Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto or (B) Caterair to make and consummate a
Caterair Net Proceeds Offer with respect to any Caterair Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto; or (2) release Caterair or any other Guarantor which is a Significant
Subsidiary of the Issuer or Caterair from any of its obligations under its
Guarantee or the Indenture other than in accordance with the terms of such
Guarantee and the Indenture.
ADDITIONAL INFORMATION
The Indenture provides that the Issuer will deliver to the Trustee within
15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and of the information, documents and other
reports, if any, which the Issuer is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Issuer may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuer
will provide the Trustee, Holders and qualified institutional buyers (as defined
in Rule 144A under the Securities Act) which request such information from the
Issuer and indicate a bona fide interest in purchasing Notes with consolidated
financial statements of the Issuer and a related "Management's Discussion and
Analysis of Financial Condition and Results of Operations" comparable to those
which would have been required to appear in quarterly or annual reports of the
Issuer and, to holders of Private Notes, any other information set forth in Rule
144A(d)(4) or any successor provision under the Securities Act. In addition, the
Issuer will provide the Trustee and Holders with unaudited combined financial
data of the Issuer and the Guarantors, substantially in the form provided under
the caption "Summary -- Summary Unaudited Pro Forma Financial Data" (excluding
the information under the caption "Operating Statistics") in this Prospectus,
for each fiscal year of the Issuer and for the first three fiscal quarters of
each fiscal year of the Issuer. The Issuer will also comply with the other
provisions of TIA sec. 314(a).
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Issuer or a Subsidiary of Caterair, as the case may be, or at the time it
merges or consolidates with the Issuer or any Subsidiary of the Issuer or
Caterair or any Subsidiary of Caterair, as the case may be, or assumed in
connection with the acquisition of assets from such Person and not incurred by
such Person in connection with, or in anticipation or contemplation of, such
Person becoming a Restricted Subsidiary of the Issuer or a Subsidiary of
Caterair, as the case may be, or such acquisition, merger or consolidation.
"Adjusted Net Assets" of a Guarantor at any date means the lesser of the
amount by which (x) the fair value of the property of such Guarantor exceeds the
total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under its
Guarantee, of such Guarantor at such date and (y) the present fair salable value
of the assets of such Guarantor at such date exceeds the amount that will be
required to pay the probable liability of such Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of the obligations of such Subsidiary under the
Guarantee of such Guarantor), excluding Subordinated Indebtedness and debt in
respect of its Guarantee as they become absolute and matured.
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"Affiliate" means a Person who directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
another Person. The term "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract or
otherwise.
"Airline Catering Joint Venture" means any joint venture, partnership,
limited liability company or other Person engaged in the business of providing
airline catering services.
"Asset Acquisition" means (a) an Investment by the Issuer or any Restricted
Subsidiary of the Issuer in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Issuer or a Subsidiary of any Restricted
Subsidiary of the Issuer, or shall be merged with or into the Issuer or any
Restricted Subsidiary of the Issuer, or (b) the acquisition by the Issuer or any
Restricted Subsidiary of the Issuer of the assets of any Person which constitute
all or substantially all of the assets of such Person, any division or line of
business of such Person or any other properties or assets of such Person other
than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than pursuant to operating leases of real or personal
property entered into in the ordinary course of business), assignment or other
transfer for value by the Issuer or any Restricted Subsidiary of the Issuer
(including any Sale and Leaseback Transaction) to any Person other than the
Issuer or a Restricted Subsidiary of the Issuer of (a) any Capital Stock of any
Restricted Subsidiary of the Issuer or (b) any other property or assets of the
Issuer or any Restricted Subsidiary of the Issuer other than in the ordinary
course of business; provided, however, that an Asset Sale shall not include (i)
a transaction or series of related transactions for which the Issuer or its
Restricted Subsidiaries receive aggregate consideration of less than $1 million,
(ii) the sale or discount, in each case without recourse (other than recourse
for breach of a representation or warranty), of accounts receivable arising in
the ordinary course of business, but only in connection with the compromise or
collection thereof, (iii) the factoring or securitization of accounts receivable
arising in the ordinary course of business, (iv) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Issuer as permitted under the "Merger, Consolidation and Sale of Assets"
covenant and (v) the sale or other disposition in the ordinary course of
business of equipment or materials which, in the reasonable judgment of such
Person, are obsolete, worn out or otherwise no longer useful in the conduct of
such Person's business.
"Australian Assets" means any of the shares of Caterair Airport Services
Pty Limited owned by Caterair Australia Pty Limited which Qantas Flight Catering
Holdings Limited has the option to acquire pursuant to the exercise of the call
options respectively described in clauses 19A, 19B and 19C of the Restated
Shareholders Deed made on December 18, 1996 among Caterair Airport Services Pty
Limited, Caterair Australia Pty Limited, CII, OFSI, Qantas Airways Limited and
Qantas Flight Catering Holdings Limited.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required for financial reporting purposes to
be classified and accounted for as capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall be
the capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated) of corporate stock, including each class of common stock
and preferred stock of such Person and (ii) with respect to any Person that is
not a corporation, any and all partnership or other equity interests of such
Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard &
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Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (iv)
time deposits, certificates of deposit or bankers' acceptances (or, with respect
to foreign banks, similar instruments) maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $200 million; provided that instruments
issued by banks not having one of the two highest ratings obtainable from either
Standard & Poor's Corporation or Moody's Investors Services, Inc. shall not
constitute "Cash Equivalents" for purposes of the subordination provisions of
the Indenture; (v) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; (vi) except for purposes of the subordination provisions of the
Indenture, investments in money market funds substantially all of whose assets
are comprised of securities of the types described in clauses (i) through (v)
above; and (vii) overnight deposits and demand deposits maintained in the
ordinary course of business.
"Caterair Asset Sale" means any direct or indirect sale, issuance,
conveyance, transfer, lease (other than pursuant to operating leases of real or
personal property entered into in the ordinary course of business), assignment
or other transfer for value by Caterair or any Subsidiary of Caterair (including
any Sale and Leaseback Transaction) to any Person other than Caterair or a
Wholly Owned Subsidiary of Caterair of (a) any Capital Stock of any Subsidiary
of Caterair or (b) any other property or assets of Caterair or any Subsidiary of
Caterair other than in the ordinary course of business; provided, however, that
Caterair Asset Sale shall not include (i) a transaction or series of related
transactions for which Caterair or its Subsidiaries receive aggregate
consideration of less than $1 million, (ii) the sale or discount, in each case
without recourse (other than recourse for breach of a representation or
warranty), of accounts receivable arising in the ordinary course of business,
but only in connection with the compromise or collection thereof, (iii) the
factoring or securitization of accounts receivable arising in the ordinary
course of business, (iv) the sale or other disposition in the ordinary course of
business of equipment or materials which, in the reasonable judgment of such
Person, are obsolete, worn out or otherwise no longer useful in the conduct of
such Person's business and (v) the sale of assets to the Issuer or any
Restricted Subsidiary of the Issuer in connection with the exercise of the
purchase options for the Caterair Leased Property pursuant to the Caterair Lease
and the Caterair Licensed Property pursuant to the Caterair License.
"Caterair Lease" means collectively the lease and sublease agreements
pursuant to which the Caterair Leased Property is leased to the Issuer or
Subsidiaries of the Issuer.
"Caterair Leased Property" means (i) the property and assets listed on
Schedule 2.2(k) to the Master Agreement and (ii) all other property and assets
acquired by Caterair and substantially contemporaneously with such acquisition
leased by Caterair to the Issuer or Subsidiaries of the Issuer.
"Caterair License" means collectively the license agreements pursuant to
which the Caterair Licensed Property is licensed to the Issuer or Subsidiaries
of the Issuer.
"Caterair Licensed Property" means (i) the property and assets listed on
Schedule 2.2(o) to the Master Agreement and (ii) all other property and assets
acquired by Caterair and substantially contemporaneously with such acquisition
licensed by Caterair to the Issuer or Subsidiaries of the Issuer.
"Caterair Promissory Note" means the 8% Pay-in-Kind Promissory Note due
2001 of Caterair.
"Caterair Tax Sharing Agreement" means the Income Tax Sharing Agreement
dated December 15, 1989, among Marriott Corporation, Caterair Holdings and
Caterair.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Issuer or OFSI, as the case may be, to any Person or group of related Persons
for purposes of Section 13(d) of the Exchange Act (a "Group") (whether or not
otherwise in compliance with the provisions of the Indenture), other than a
Permitted Holder or Holders; or (ii) if the Permitted Holders do not own,
directly or indirectly, beneficially (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act) or of record, shares representing more than 50% of the
aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Issuer or OFSI, as the case may be, (A) any Person or
Group, other than a Permitted Holder or Holders, shall become the owner,
directly or indirectly, beneficially (as defined in Rules
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13d-3 and 13d-5 under the Exchange Act) or of record, of shares representing
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding Capital Stock of the Issuer or OFSI, as the case may be, or (B)
the replacement of a majority of the Board of Directors of either the Issuer or
OFSI, as the case may be, over a two-year period from the directors who
constituted the Board of Directors of such Person at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of such Person then still in office who
either were members of the Board of Directors of such Person at the beginning of
such period or whose election as a member of the Board of Directors of such
Person was previously so approved.
"Consolidated Amortization Expense" means, with respect to any Person for
any period, the consolidated amortization expense of such Person for such
period, determined on a consolidated basis for such Person and its Restricted
Subsidiaries (and, in the case of the Issuer, Caterair and its Subsidiaries) in
conformity with GAAP.
"Consolidated Depreciation Expense" means, with respect to any Person for
any period, the consolidated depreciation expense of such Person for such
period, determined on a consolidated basis for such Person and its Restricted
Subsidiaries (and, in the case of the Issuer, Caterair and its Subsidiaries) in
conformity with GAAP.
"Consolidated EBITDA" means, with respect to any Person for any period,
the sum, without duplication, of (i) Consolidated Net Income, (ii) to the extent
Consolidated Net Income has been reduced thereby, all income taxes of such
Person and its Restricted Subsidiaries (and, in the case of the Issuer, Caterair
and its Subsidiaries) paid or accrued in conformity with GAAP for such period
(other than income taxes attributable to extraordinary or nonrecurring gains or
losses), (iii) Consolidated Interest Expense, (iv) Consolidated Amortization
Expense, (v) Consolidated Depreciation Expense and (vi) Consolidated Non-cash
Charges.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness (excluding the incurrence of Indebtedness under
any revolving credit facility and including repayment of Indebtedness under any
revolving credit facility only to the extent that such repayment effects a
permanent reduction in the availability thereunder) of such Person or any of its
Restricted Subsidiaries (and, in the case of the Issuer, Caterair and its
Subsidiaries, other than Indebtedness between the Issuer or any Subsidiary of
the Issuer and Caterair or any Subsidiary of Caterair) (and the application of
the proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof) at any time subsequent to the first day of the Four Quarter
Period and on or prior to the Transaction Date, as if such incurrence or
repayment, as the case may be (and the application of the proceeds thereof),
occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of such Person or one of
its Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Securities Act)
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period and
on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition
(including the incurrence, assumption or liability for any such Indebtedness or
Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If
such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
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assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum (not in excess of the maximum possible rate if such
agreement is an interest rate cap, interest rate collar or similar agreement)
resulting after giving effect to the operation of such agreements; and (4) the
permanent retirement of any Indebtedness during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date shall be given effect as if it occurred at the beginning
of such Four Quarter Period.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(including amortization or write-off of debt issuance costs), plus (ii) the
product of (x) the amount of all dividend payments on any series of Preferred
Stock of such Person (other than dividends paid in common stock) paid, accrued
or scheduled to be paid or accrued during such period and (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person
expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of (i) the aggregate of all cash and
non-cash interest expense with respect to all outstanding Indebtedness of such
Person and its Restricted Subsidiaries (and, in the case of the Issuer, Caterair
and its Subsidiaries), including the net costs associated with Interest Swap
Obligations and capitalized interest, for such period determined on a
consolidated basis in conformity with GAAP; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such Person and its Restricted Subsidiaries (and, in the case of the
Issuer, Caterair and its Subsidiaries) during such period as determined on a
consolidated basis in accordance with GAAP. In addition, in calculating the
Consolidated Interest Expense of the Issuer, interest expense with respect to
Indebtedness between the Issuer or any Subsidiary of the Issuer and Caterair or
any Subsidiary of Caterair shall be excluded therefrom.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries (and, in
the case of the Issuer, Caterair) for such period on a consolidated basis,
determined in accordance with GAAP; provided that there shall be excluded
therefrom (a) gains and losses from Asset Sales (without regard to the $1
million limitation set forth in the definition thereof) and Caterair Asset Sales
(without regard to the $1 million limitation set forth in the definition
thereof) or abandonments or reserves relating thereto and the related tax
effects, (b) items classified as extraordinary or nonrecurring gains and losses,
and the related tax effects according to GAAP, (c) the net income (or loss) of
any Person acquired in a pooling of interests transaction accrued prior to the
date it becomes a Subsidiary of such first Person or is merged or consolidated
with such first Person or any Subsidiary of such first Person, (d) the net
income of any Subsidiary of such Person to the extent that the declaration of
dividends or similar distributions by that Subsidiary of that income is
restricted by contract, operation of law or otherwise, (e) the net loss of any
Person, other than a Restricted Subsidiary of such first Person and (f) the net
income of any Person, other than a Restricted Subsidiary of such first Person,
in which such first Person has an equity interest, except to the extent of cash
dividends or distributions paid to such first Person or a Restricted Subsidiary
of such first Person. Notwithstanding the foregoing, in calculating the
Consolidated Net Income of the Issuer, (i) charges incurred by the Issuer in
connection with the consummation of the transactions contemplated by the Master
Agreement (including, without limitation, (A) severance payments and other
employee costs and (B) external consulting services primarily associated with
the implementation of labor savings programs) shall not be deducted therefrom,
(ii) the goodwill and the increases in amortization and depreciation resulting
from the consummation of the transactions contemplated by the Master Agreement
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shall not be deducted therefrom and (iii) interest payments or accruals on the
Caterair Promissory Note shall not be taken into account.
"Consolidated Non-cash Charges" means, with respect to any Person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries (and, in the case of the Issuer,
Caterair and its Subsidiaries) reducing Consolidated Net Income of such Person
and its Restricted Subsidiaries (and, in the case of the Issuer, Caterair and
its Subsidiaries) for such period, determined on a consolidated basis in
conformity with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement to which the Issuer or any
Restricted Subsidiary of the Issuer or Caterair or any Subsidiary of Caterair,
as the case may be, is a party designed to protect the Issuer or any Restricted
Subsidiary of the Issuer or Caterair or any Subsidiary of Caterair, as the case
may be, against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Senior Bank Financing and (ii) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $10 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Issuer.
"Disqualified Capital Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event (other than an event which
would constitute a Change of Control), matures (excluding any maturity as the
result of an optional redemption by the issuer thereof) or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the sole option of the holder thereof (except, in each case, upon the
occurrence of a Change of Control), in whole or in part, on or prior to the
final maturity date of the Notes.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Guarantors" means (i) each of Sky Chefs, CII and Caterair, (ii) each
Restricted Subsidiary of the Issuer or Subsidiary of Caterair which becomes a
guarantor of the Notes in compliance with the provisions set forth under
"-- Certain Covenants -- Guarantees of Certain Indebtedness" and each Subsidiary
of the Issuer identified in the last paragraph under the caption "-- Guarantees"
and (iii) each Restricted Subsidiary of the Issuer or Subsidiary of Caterair
executing a supplemental indenture in which such Restricted Subsidiary or
Subsidiary, as the case may be, agrees to be bound by the terms of the Notes and
the Indenture.
"Indebtedness" means with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable and accrued expenses arising in
the ordinary course of business), (v) all obligations for the reimbursement of
any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such obligation being deemed to be the amount of
the obligation so secured, (viii) all obligations under currency agreements and
interest swap agreements of such
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Person, and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock. The amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations described above,
as such amount would be reflected on a balance sheet prepared in conformity with
GAAP, and the maximum liability at such date of such Person for any contingent
obligations described above.
"Interest Swap Obligations" means the obligations of any Person, pursuant
to any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount.
"Investment" means, with respect to any Person any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Issuer and its Restricted Subsidiaries and Caterair and its Subsidiaries on
commercially reasonable terms in accordance with normal trade practices of the
Issuer and its Restricted Subsidiaries or Caterair and its Subsidiaries, as the
case may be. In no event shall this definition of "Investment" include payments
by the Issuer to a trust established in connection with a Voluntary Employees'
Beneficiary Association (as referred to in Section 501(c)(9) of the Internal
Revenue Code of 1986). For the purposes of the "Limitation on Restricted
Payments" covenant, (i) an "Investment" shall include and be valued at the fair
market value of the net assets of any Restricted Subsidiary of the Issuer at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary of
the Issuer and shall exclude the fair market value of the net assets of any
Unrestricted Subsidiary of the Issuer at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Issuer and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Issuer or any Restricted Subsidiary of
the Issuer or Caterair or any Subsidiary of Caterair, as the case may be,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment, reduced by the
payment of dividends or distributions (including tax sharing payments) in
connection with such Investment or any other amounts received in respect of such
Investment, to the extent constituting a return on capital in conformity with
GAAP.
"Issue Date" means the date of first issuance of the Private Notes under
the Indenture.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest, but excluding operating leases of real or personal
property).
"Net Cash Proceeds" means, (i) with respect to any Asset Sale or Caterair
Asset Sale, as the case may be, the proceeds in the form of cash or Cash
Equivalents including payments in respect of deferred payment obligations when
received in the form of cash or Cash Equivalents (other than the portion of any
such deferred payment constituting interest) received by the Issuer or any
Restricted Subsidiary of the Issuer or Caterair or any Subsidiary of Caterair,
as the case may be, from such Asset Sale or Caterair Asset Sale, as the case may
be, net of (a) out-of-pocket expenses and fees relating to such Asset Sale or
Caterair Asset Sale, as the case may be (including, without limitation, legal,
accounting and investment banking fees and sales commissions), (b) any and all
taxes paid or payable after taking into account any reduction in consolidated
tax liability due to
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available tax credits or deductions and any tax sharing arrangements, (c)
repayment of Indebtedness that is required to be repaid in connection with such
Asset Sale or Caterair Asset Sale, as the case may be, (d) any portion of cash
proceeds which the Issuer or Caterair, as the case may be, determines in good
faith should be reserved for post-closing adjustments or indemnities, it being
understood and agreed that on the day that all such post-closing adjustments or
indemnities have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale or Caterair Asset Sale, as the case may be,
exceeds the actual post-closing adjustments or indemnities payable by the Issuer
or any Restricted Subsidiary of the Issuer or Caterair or any Subsidiary of
Caterair, as the case may be, shall constitute Net Cash Proceeds on such date or
(ii) with respect to the sale of Capital Stock by any Person not constituting an
Asset Sale or Caterair Asset Sale, as the case may be, the aggregate net cash
proceeds received by such Person after payment of expenses, commissions and
other similar charges incurred in connection therewith.
"Non-Significant Subsidiary" of any Person means any Restricted Subsidiary
of such Person which at the time of determination is not a Significant
Subsidiary of such Person.
"Obligations" means all obligations for, or guaranteeing the payment of,
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness, without duplication.
"OFSI Tax Sharing Agreement" means the Tax Sharing Agreement, dated the
Issue Date, among OFSI, the Issuer, Sky Chefs and CII.
"Permitted Holder" means (i) Lufthansa, (ii) LSG/Lufthansa, (iii) Gerald W.
Schwartz, (iv) Onex and/or (v) Oncap Holdings Corp.
"Permitted Indebtedness" means, without duplication, (i) the Notes, (ii)
the Guarantees, (iii) Indebtedness incurred pursuant to the Senior Bank
Financing, the aggregate outstanding principal amount of which shall not at any
time exceed the sum of the aggregate commitments pursuant to the Senior Bank
Financing as in effect on the Issue Date (A) less the amount of all mandatory
principal payments actually made in respect of the term loan thereunder and (B)
reduced by any required repayments (which are accompanied by a corresponding
permanent commitment reduction) thereunder actually effected in satisfaction of
the application of the Net Cash Proceeds requirement described under the
"Limitation on Asset Sales" covenant, (iv) other Indebtedness of the Issuer,
Caterair and their respective Subsidiaries outstanding on the Issue Date, (v)
Interest Swap Obligations covering Indebtedness of the Issuer, Caterair or any
of their respective Subsidiaries; provided that any Indebtedness to which any
such Interest Swap Obligations correspond is otherwise permitted to be incurred
under the Indenture; provided, further, that such Interest Swap Obligations are
entered into, in the judgment of the Issuer or Caterair, as the case may be, to
protect the Issuer or any Subsidiary of the Issuer or Caterair or any Subsidiary
of Caterair, as the case may be, from fluctuations in interest rates on their
respective outstanding Indebtedness, (vi) Indebtedness under Currency
Agreements, (vii) (A) intercompany Indebtedness owed by the Issuer to any Wholly
Owned Restricted Subsidiary of the Issuer or by any Restricted Subsidiary of the
Issuer to the Issuer or any Wholly Owned Restricted Subsidiary of the Issuer,
(B) intercompany Indebtedness owed by Caterair to any Wholly Owned Subsidiary of
Caterair or by any Subsidiary of Caterair to Caterair or any Wholly Owned
Subsidiary of Caterair and (C) Indebtedness between the Issuer or any Wholly
Owned Restricted Subsidiary of the Issuer, on the one hand, and Caterair or any
Wholly Owned Subsidiary of Caterair, on the other hand, (viii) Acquired
Indebtedness to the extent the Issuer could have incurred such Indebtedness in
accordance with the "Limitation on Incurrence of Additional Indebtedness"
covenant, (ix) (A) performance bonds, completion guarantees and similar
obligations (exclusive of obligations for the payment of borrowed money), (B)
guarantees pursuant to the "Guarantees of Certain Indebtedness" covenant and
(C)(1) guarantees by the Issuer or any Wholly Owned Restricted Subsidiary of the
Issuer of Indebtedness of Caterair or any Wholly Owned Subsidiary of Caterair,
(2) guarantees by Caterair or any Wholly Owned Subsidiary of Caterair of
Indebtedness of the Issuer or any Wholly Owned Restricted Subsidiary of the
Issuer, (3) guarantees by the Issuer and its Wholly Owned Restricted
Subsidiaries of each other's Indebtedness and (4) guarantees by Caterair and its
Wholly Owned Subsidiaries of each other's Indebtedness; provided that in the
case of each guarantee of Indebtedness pursuant to clauses(C)(1), (C)(2), (C)(3)
or (C)(4), such Indebtedness is incurred in accordance with the provisions of
the Indenture, (x) in addition to Capitalized Lease Obligations
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permitted under any other clause of this definition, purchase money Indebtedness
and Indebtedness evidenced by Capitalized Lease Obligations not to exceed an
aggregate of $10 million at any one time outstanding, (xi) any refinancing,
modification, replacement, renewal, restatement, refunding, deferral, extension,
substitution, supplement, reissuance or resale of existing or future
Indebtedness, including Capitalized Lease Obligations incurred after the
repayment of all or a portion of the Capitalized Lease Obligations outstanding
as of the Issue Date so long as the aggregate amount of Capitalized Lease
Obligations incurred and outstanding at any time pursuant to clause (iv) above
and this clause (xi) does not exceed the amount of Capitalized Lease Obligations
outstanding on the Issue Date, and any additional Indebtedness incurred to pay
premiums required by the instruments governing such existing or future
Indebtedness as in effect at the time of issuance thereof ("Required Premiums")
and fees in connection therewith; provided that any such event shall not (1)
result in an increase in the aggregate principal amount of Permitted
Indebtedness (except to the extent such increase is a result of a simultaneous
incurrence of additional Indebtedness (A) to pay Required Premiums and related
fees or (B) otherwise permitted to be incurred under the Indenture) of the
Issuer, Caterair and their respective Subsidiaries and (2) create Indebtedness
with a Weighted Average Life to Maturity at the time such Indebtedness is
incurred that is less than the Weighted Average Life to Maturity at such time of
the Indebtedness being refinanced, modified, replaced, renewed, restated,
refunded, deferred, extended, substituted, supplemented, reissued or resold
(except that this subclause (2) will not apply in the event the Indebtedness
being refinanced, modified, replaced, renewed, restated, refunded, deferred,
extended, substituted, supplemented, reissued or resold was originally incurred
in reliance upon clause (iii), (xi) or (xiii) of this definition), (xii)
Indebtedness incurred in connection with the exercise of the purchase options
for the Caterair Leased Property pursuant to the Caterair Lease and the Caterair
Licensed Property pursuant to the Caterair License; provided that any payment
made to Caterair in connection with the exercise of such options is used by
Caterair to prepay Guarantor Senior Debt or, if there is no Guarantor Senior
Debt outstanding, to prepay Senior Debt and/or to repay the Caterair Promissory
Note; provided that if Caterair elects to repay the Caterair Promissory Note,
the Issuer immediately uses the proceeds received from such repayment to prepay
Senior Debt, and (xiii) additional Indebtedness of the Issuer, Caterair and
Restricted Subsidiaries of the Issuer in an aggregate principal amount not to
exceed $75 million at any one time outstanding (which amount may, but need not,
be incurred in whole or in part under the Senior Bank Financing).
"Permitted Investments" means (i)(A) Investments by the Issuer or any
Restricted Subsidiary of the Issuer in, or for the benefit of, any Restricted
Subsidiary of the Issuer (whether existing on the Issue Date or created
thereafter and including Investments in any Person, if after giving effect to
such Investment, such Person would be a Restricted Subsidiary of the Issuer) and
Investments in, or for the benefit of, the Issuer by any Restricted Subsidiary
of the Issuer and (B) Investments by Caterair in, or for the benefit of, any
Wholly Owned Subsidiary of Caterair and Investments in, or for the benefit of,
Caterair by any Subsidiary of Caterair, (ii) cash and Cash Equivalents, (iii)
Investments existing on the Issue Date, except for Investments in Restricted
Subsidiaries of the Issuer which shall be governed by clause (i)(A) above, (iv)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers, (v) loans and advances by the
Issuer and its Subsidiaries to their respective employees (A) the proceeds of
which are used to purchase common stock of OFSI and which proceeds are
contributed by OFSI to the Issuer (which contribution shall not be included as a
capital contribution for purposes of clause (iii)(z) of the first paragraph of
the "Limitation on Restricted Payments" covenant) or (B) in the ordinary course
of business, which loans or advances do not exceed $3 million at any one time
outstanding, (vi) the Guarantees, (vii) any Investment that qualifies as
Permitted Indebtedness, (viii) Investments by the Issuer or any Restricted
Subsidiary of the Issuer in Unrestricted Subsidiaries of the Issuer or in other
Persons in an amount not to exceed $30 million at any one time outstanding,
(ix)(A) Investments by the Issuer or any Restricted Subsidiary of the Issuer in
Caterair or any Wholly Owned Subsidiary of Caterair and (B) Investments by
Caterair or any Subsidiary of Caterair in the Issuer or any Restricted
Subsidiary of the Issuer, (x) Investments received by the Issuer or any
Restricted Subsidiary of the Issuer or Caterair or any Subsidiary of Caterair,
as the case may be, as consideration for asset sales, including Asset Sales or
Caterair Asset Sales; provided that in the case of an Asset Sale or Caterair
Asset Sale, such Asset Sale or Caterair Asset Sale is effected in compliance
with the
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"Limitation on Asset Sales" covenant and (xi) in addition to Investments
permitted under clause (viii) above, Investments in Unrestricted Subsidiaries
that are engaged in the business of providing airline catering services and
Airline Catering Joint Ventures in an aggregate amount not to exceed $50 million
at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Issuer or its Restricted Subsidiaries or
Caterair or its Subsidiaries, as the case may be, shall have set aside on
its books such reserves as may be required in conformity with GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business, as well as deposits to secure
each of the foregoing, for sums not yet delinquent more than 60 days or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP for financial reporting
purposes shall have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Issuer
and its Restricted Subsidiaries, taken as a whole, or of Caterair and its
Subsidiaries, taken as a whole, as the case may be;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation and precautionary filings made for informational purposes in
connection with true leases, consignments and similar arrangements;
(vii) purchase money Liens to finance property or assets of the Issuer
or any Restricted Subsidiary of the Issuer or Caterair or any Subsidiary of
Caterair, as the case may be, acquired in the ordinary course of business;
provided, however, that (A) the related purchase money Indebtedness shall
not exceed the cost of such property or assets and shall not be secured by
any property or assets of the Issuer or any Restricted Subsidiary of the
Issuer or Caterair or any Subsidiary of Caterair, as the case may be, other
than the property and assets so acquired and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment, or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Issuer
or any Restricted Subsidiary of the Issuer or Caterair or any Subsidiary of
Caterair, as the case may be, including rights of offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
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(xiii) Liens existing on the Issue Date, together with any Liens
securing Indebtedness incurred in reliance on clause (xi) of the definition
of Permitted Indebtedness; provided that the Liens securing the refinancing
Indebtedness shall not extend to property other than that pledged under the
Liens securing the Indebtedness being refinanced;
(xiv) Liens securing Indebtedness incurred in reliance on clause
(xiii) of the definition of Permitted Indebtedness;
(xv) Liens in favor of the Trustee to secure the Issuer's payment
obligations to the Trustee; and
(xvi) non-consensual Liens which do not individually or in the
aggregate materially detract from the value or transferability of the
property or assets of the Issuer, any Restricted Subsidiary of the Issuer,
Caterair or any Subsidiary of Caterair, or materially impair the use of any
such property or assets in the operation of the respective businesses of
the Issuer, any Restricted Subsidiary of the Issuer, Caterair or any
Subsidiary of Caterair.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such Person.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Productive Assets" means assets of a kind used or usable in the businesses
of the Issuer and its Restricted Subsidiaries or Caterair and its Subsidiaries,
as the case may be, or similar, ancillary, complementary or related to such
businesses, as conducted on the date of the relevant Asset Sale or Caterair
Asset Sale, as the case may be including, without limitation, equity interests
and other assets the acquisition of which would constitute a "Permitted
Investment" under clause (i)(A) of the definition thereof.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock of OFSI or the Issuer pursuant to a registration statement filed
with the Commission in accordance with the Securities Act; provided that in the
event of a Public Equity Offering by OFSI, OFSI contributes to the capital of
the Issuer net cash proceeds of such Public Equity Offering in an amount
sufficient to redeem the Notes called for redemption in accordance with the
terms thereof.
"Qualified Capital Stock" means any stock that is not Disqualified Capital
Stock.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary of such
Person.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Issuer or a Restricted Subsidiary of the Issuer or Caterair or a
Subsidiary of Caterair, as the case may be, of any property, whether owned by
the Issuer or a Restricted Subsidiary of the Issuer or Caterair or a Subsidiary
of Caterair, as the case may be, at
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the Issue Date or later acquired, which has been or is to be sold or transferred
by the Issuer or a Restricted Subsidiary of the Issuer or Caterair or a
Subsidiary of Caterair, as the case may be, to such Person or to any other
Person from whom funds have been or are to be advanced by such Person on the
security of such Property.
"Senior Bank Financing" means the Term Loan Agreement, dated as of the
Issue Date, among each of SCIS and Caterair as borrowers, the guarantors
thereunder, the lenders party thereto from time to time in their capacities as
lenders thereunder and Morgan Guaranty Trust Company of New York, as
administrative agent, J.P. Morgan Securities Inc. and Bankers Trust Company, as
co-arrangers, and Bankers Trust Company, as syndication agent, and the Revolving
Credit Facility, dated as of the Issue Date, among the Issuer, as borrower, the
guarantors thereunder, the lenders party thereto from time to time in their
capacities as lenders thereunder, and Morgan Guaranty Trust Company of New York,
as administrative agent, J.P. Morgan Securities Inc. and Bankers Trust Company,
as co-arrangers, and Bankers Trust Company, as syndication agent, together, in
each case, with the related documents thereto (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, increasing the total commitment under, refinancing,
replacing or otherwise restructuring (including adding Restricted Subsidiaries
of the Issuer and Subsidiaries of Caterair as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under any such agreement or
any successor or replacement agreement to any thereof and whether by the same or
any other syndication agent, documentation agent, administrative agent, lender
or group of lenders.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other obligations with respect to, any Indebtedness of the Issuer, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes. Without limiting the generality of the foregoing, "Senior Debt" shall
also include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, (x) all monetary obligations of every nature of the Issuer
under the Senior Bank Financing, including, without limitation, (a) obligations
to pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities and (b) guarantees by the Issuer of
Obligations under the Senior Bank Financing where the direct borrower is
Caterair or a Subsidiary of the Issuer, (y) all Interest Swap Obligations and
(z) all obligations under Currency Agreements, in each case whether outstanding
on the Issue Date or thereafter incurred. Notwithstanding the foregoing, Senior
Debt shall not include (i) any Indebtedness, if the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior in right of payment to the Notes,
(ii) any Indebtedness of the Issuer to a Subsidiary of the Issuer, (iii)
Indebtedness to, or guaranteed on behalf of, any director, officer or employee
of the Issuer or any Subsidiary of the Issuer (including, without limitation,
amounts owed for compensation), (iv) Indebtedness to trade creditors and other
amounts incurred in connection with obtaining goods, materials or services, (v)
Indebtedness represented by Disqualified Capital Stock, (vi) any liability for
federal, state, local or other taxes owed or owing by the Issuer, (vii) that
portion of any Indebtedness incurred in violation of the Indenture provisions
set forth under the "Limitation on Incurrence of Additional Indebtedness"
covenant (but, as to any such obligation, no such violation shall be deemed to
exist for purposes of this clause (vii) if the holder(s) of such obligation or
their representative and the Trustee shall have received an Officers'
Certificate of the Issuer to the effect that the incurrence of such Indebtedness
does not (or, in the case of revolving credit Indebtedness, that the incurrence
of the entire committed amount thereof at the date on which the initial
borrowing thereunder is made) would not violate such provisions of the
Indenture); and (viii) any Indebtedness which is, by its express terms,
subordinated in right of payment to any other Indebtedness of the Issuer.
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"Significant Subsidiary" means, as of any date of determination, for any
Person, each Subsidiary of such Person (or, in the case of the Issuer, each
Restricted Subsidiary of the Issuer) which (i) for the most recent fiscal year
of such Person accounted for more than 10% of consolidated revenues or 10% of
Consolidated EBITDA of such Person or (ii) as at the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of such Person.
"Subordinated Indebtedness" means, with respect to any Guarantor,
Indebtedness of such Guarantor which is subordinated in right of payment to the
Guarantee of such Guarantor.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantors" means Sky Chefs, CII and any other Restricted
Subsidiary of the Issuer which was a Guarantor as of the Issue Date or becomes a
Guarantor of the Notes.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors of the Issuer may designate any Subsidiary of the Issuer
(including any newly acquired or newly formed Subsidiary), other than a
Subsidiary Guarantor, to be an Unrestricted Subsidiary of the Issuer unless such
Subsidiary of the Issuer owns any Capital Stock of, or owns or holds any Lien on
any property of, the Issuer or any other Subsidiary of the Issuer that is not a
Subsidiary of the Subsidiary to be so designated; provided that (x) the Issuer
certifies to the Trustee that such designation complies with the "Limitation on
Restricted Payments" covenant and (y) each Subsidiary of the Issuer to be so
designated and each of its Subsidiaries has not at the time of designation, and
does not thereafter, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable with respect to any Indebtedness pursuant to which
the lender has recourse to any of the assets of the Issuer or any of its
Restricted Subsidiaries. Notwithstanding the foregoing, the Issuer or a
Restricted Subsidiary of the Issuer may guarantee Indebtedness of an
Unrestricted Subsidiary of the Issuer if such guarantee is made in accordance
with the "Limitation on Restricted Payments" covenant. The Board of Directors of
the Issuer may designate any Unrestricted Subsidiary of the Issuer to be a
Restricted Subsidiary of the Issuer only if (x) immediately after giving effect
to such designation, the Issuer is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors of the Issuer shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than directors' qualifying shares) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than directors' qualifying
shares) are owned by such Person or any Wholly Owned Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by one or more permanent global certificates in definitive,
fully registered form (each a "Global Note"). Each Global Note will be deposited
upon issuance with, or on behalf of, DTC and registered in the name of a nominee
of DTC. Except as set forth below, each Global Note may be transferred, in whole
and not in part, only to another nominee of the Depositary or to a successor of
the Depositary or its nominee.
The Global Notes. The Issuer expects that pursuant to procedures
established by DTC (i) upon the issuance of a Global Note, DTC or its custodian
will credit, on its internal system, the principal amount of Exchange Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in a Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of Participants (as defined
herein)) and the records of Participants (with respect to interests of persons
other than Participants). Ownership of beneficial interests in a Global Note
will be limited to persons who have accounts with DTC ("Participants") or
persons who hold interests through Participants.
So long as DTC, or its nominee, is the registered owner or holder of
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture. No beneficial owner of an interest in a Global
Note will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Exchange Notes.
Payments of the principal of, premium (if any), and interest on, a Global
Note will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Issuer, 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 a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest on a Global Note, will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of a Global Note as
shown on the records of DTC or its nominee. The Issuer also expects that
payments by Participants to owners of beneficial interests in a Global Note held
through such Participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of
certificates for its Exchange Notes for any reason, including to sell Exchange
Notes to persons in states which require physical delivery of the Exchange
Notes, or to pledge such securities, such holder must transfer its interest in a
Global Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of Exchange Notes only at the direction of one or more
Participants to whose account the DTC interests in a Global Note are credited
and only in respect of such portion of the aggregate principal amount of
Exchange Notes as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under the Indenture,
DTC will exchange Global Notes for certificated securities, which it will
distribute to its Participants.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates.
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Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and certain other organizations. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuer nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for any Global Note and a successor depositary is not
appointed by the Issuer within 90 days, certificated securities will be issued
in exchange for such Global Note.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Private
Notes, where such Private Notes were acquired by such broker-dealer as a result
of market-making or other trading activities. The Issuer has agreed to make this
Prospectus, as it may be amended or supplemented from time to time, available to
any such broker-dealer that requests copies of this Prospectus in the Letter of
Transmittal for use in connection with any such resale for a period of up to 90
days after the Expiration Date. In addition, until , 1998, all
dealers effecting transactions in the Exchange Notes may be required to deliver
a prospectus.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes, or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker-dealer
that participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Issuer will promptly
send additional copies of this Prospectus or any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. The Issuer and the Guarantors have agreed to pay all expenses
incident to the Issuer's and the Guarantors' performance of, or compliance with,
the Registration Rights Agreement and will indemnify the holders of Private
Notes (including any broker-dealers), and certain parties related to such
holders, against certain liabilities, including liabilities under the Securities
Act.
See "The Exchange Offer" for additional information concerning the Exchange
Offer and interpretations of the staff of the Commission with respect to
prospectus delivery obligations of broker-dealers.
LEGAL MATTERS
The validity of the Exchange Notes and the Guarantees offered hereby will
be passed upon for the Issuer and the Guarantors by Kaye, Scholer, Fierman, Hays
& Handler, LLP.
EXPERTS
The consolidated financial statements of SCIS and its subsidiaries as of
December 31, 1996 and 1995 and for each of the three fiscal years in the period
ended December 31, 1996 included in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Caterair and its subsidiaries as
of December 31, 1996 and 1995 and for each of the two fiscal years in the period
ended December 31, 1996 included in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Caterair and its subsidiaries for
the year ended December 31, 1994 included in this Prospectus have been included
herein in reliance on the report of Arthur Andersen LLP, independent public
accountants, given on the authority of that firm as experts in accounting and
auditing.
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ADDITIONAL INFORMATION
The Issuer and the Guarantors have filed with the Commission a Registration
Statement on Form S-4 (which together with any amendments thereto is referred to
as the "Registration Statement") under the Securities Act with respect to the
Exchange Notes and Guarantees offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus, which is part of the
Registration Statement, omits certain information, exhibits and undertakings
contained in the Registration Statement. For further information with respect to
the Issuer, the Guarantors and the Exchange Notes and Guarantees offered hereby,
reference is made to the Registration Statement, including the exhibits thereto
and the financial statements, notes and schedules filed as a part thereof. With
respect to each contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each statement in this Prospectus
relating to any such contract, agreement or other document shall be deemed
qualified in its entirety by such reference.
The Issuer will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to the Issuer at 524 E. Lamar Blvd., Arlington, Texas 76011, telephone
number (817) 792-2281, attention: Thomas Lee.
The Registration Statement (and the exhibits and schedules thereto) may be
inspected and copied at the public reference section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Registration Statement (and the exhibits and
schedules thereto) can also be reviewed through the Commission's Electronic Data
Gathering, Analysis and Retrieval System, which is publicly available through
the Commission's Web Site (http://www.sec.gov).
The Indenture provides that the Issuer will deliver to the Trustee under
the Indenture within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents and
other reports, if any, which the Issuer is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Issuer may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Issuer
will provide the Trustee under the Indenture, holders of Notes and QIBs which
request such information from the Issuer and indicate a bona fide interest in
purchasing Notes with consolidated financial statements of the Issuer and a
related "Management's Discussion and Analysis of Financial Condition and Results
of Operations" comparable to those which would have been required to appear in
quarterly or annual reports of the Issuer and, to holders of Private Notes, any
other information set forth in Rule 144A(d)(4) or any successor provision under
the Securities Act. In addition, the Issuer will provide the Trustee under the
Indenture and holders of Notes with unaudited combined financial data of the
Issuer and the Guarantors, substantially in the form provided under the caption
"Summary -- Summary Unaudited Pro Forma Financial Data" (excluding the
information under the caption "Operating Statistics") in this Prospectus, for
each fiscal year of the Issuer and for the first three fiscal quarters of each
fiscal year of the Issuer. The Issuer will also comply with the other provisions
of TIA sec. 314(a).
115
<PAGE> 122
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SC INTERNATIONAL SERVICES, INC. PAGE
----
<S> <C>
Report of Independent Accountants (Coopers & Lybrand L.L.P.)......................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)........................................................................ F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-4
Consolidated Statements of Shareholder's Equity for each of the three years in the
period ended December 31, 1996 and the nine months ended September 30, 1997
(unaudited)........................................................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-6
Notes to Consolidated Financial Statements........................................... F-7
CATERAIR INTERNATIONAL CORPORATION
Report of Independent Accountants (Coopers & Lybrand L.L.P.)......................... F-43
Report of Independent Public Accountants (Arthur Andersen LLP)....................... F-44
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997
(unaudited)........................................................................ F-45
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-46
Consolidated Statements of Shareholder's Deficit for each of the three years in the
period ended December 31, 1996 and the nine months ended September 30, 1997
(unaudited)........................................................................ F-47
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1996 and the nine months ended September 30, 1996 and 1997
(unaudited)........................................................................ F-48
Notes to Consolidated Financial Statements........................................... F-49
</TABLE>
F-1
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
SC International Services, Inc.:
We have audited the accompanying consolidated balance sheets of SC
International Services, Inc. and Subsidiaries as of December 31, 1996 and 1995
and the related consolidated statements of operations, shareholder's equity and
cash flows for each of the three years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SC
International Services, Inc. and Subsidiaries as of December 31, 1996 and 1995
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
February 28, 1997
F-2
<PAGE> 124
SC INTERNATIONAL SERVICES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 54,829 $ 55,658 $ 38,327
Accounts and notes receivable (net of allowance for
doubtful accounts of $12,708 in 1995, $14,314 in
1996 and $12,949 at September 30, 1997)............. 136,519 148,409 178,604
Advances to affiliate.................................. 1,043 -- --
Tax refunds receivable from parent..................... 8,331 1,893 --
Inventories............................................ 16,985 18,150 19,049
Deferred income taxes.................................. 4,341 7,105 7,051
Prepaid expenses....................................... 14,526 17,104 18,727
-------- -------- --------
Total current assets........................... 236,574 248,319 261,758
Property and equipment, net.............................. 175,847 190,606 189,255
Deferred income taxes.................................... 42,600 45,806 61,226
Goodwill and intangible assets, net...................... 256,110 245,224 253,878
Loan to affiliate........................................ 38,544 41,634 44,075
Other assets............................................. 79,118 81,867 78,674
-------- -------- --------
Total assets................................... $828,793 $853,456 $ 888,866
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable....................................... $ 79,806 $ 81,253 $ 72,971
Accrued expenses....................................... 138,720 174,723 178,664
Payable to parent...................................... -- -- 6,363
Payable to affiliate................................... -- 4,505 18,327
Current portion of long-term debt...................... 14,416 15,682 7,737
Current portion of obligations under capital leases.... 650 634 400
-------- -------- --------
Total current liabilities...................... 233,592 276,797 284,462
Obligations under capital leases......................... 30,150 29,757 29,301
Long-term debt........................................... 346,843 334,156 392,278
Other long-term liabilities.............................. 154,160 156,397 144,638
-------- -------- --------
Total liabilities.............................. 764,745 797,107 850,679
-------- -------- --------
Minority interest........................................ 9,478 9,618 9,046
-------- -------- --------
Commitments and contingencies............................ -- -- --
Shareholder's equity:
Common stock, $.01 par value; 3,000 shares authorized,
100 shares issued and outstanding at December 31,
1995, 1996, and September 30, 1997.................. -- -- --
Additional paid-in capital............................. 59,579 59,579 59,579
Cumulative translation adjustment...................... (1,764) (3,797) (3,505)
Minimum pension liability adjustment................... (5,565) (330) (330)
Retained earnings (deficit)............................ 2,320 (8,721) (26,603)
-------- -------- --------
Total shareholder's equity..................... 54,570 46,731 29,141
-------- -------- --------
Total liabilities and shareholder's equity..... $828,793 $853,456 $ 888,866
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 125
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------- -----------------------
1994 1995 1996 1996 1997
-------- -------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................ $468,608 $739,102 $1,529,816 $1,142,102 $1,198,190
-------- -------- ---------- ---------- ----------
Costs and expenses:
Cost of operations.................... 388,276 634,375 1,352,359 1,014,782 1,046,467
Depreciation and amortization......... 15,503 21,338 37,928 27,504 31,245
Selling, general and administrative... 17,125 28,076 48,854 35,761 37,594
Integration expenses.................. -- 28,644 30,361 21,897 13,774
Other................................. 4,345 29,882 23,721 17,251 12,105
-------- -------- ---------- ---------- ----------
Total costs and expenses...... 425,249 742,315 1,493,223 1,117,195 1,141,185
-------- -------- ---------- ---------- ----------
Operating income (loss)................. 43,359 (3,213) 36,593 24,907 57,005
-------- -------- ---------- ---------- ----------
Other income (expense):
Interest income....................... 204 2,458 7,896 5,303 4,789
Interest expense...................... (5,748) (19,715) (50,431) (38,870) (39,589)
Other................................. (1,225) (2,099) (4,679) (4,785) (8,107)
-------- -------- ---------- ---------- ----------
Total other expense........... (6,769) (19,356) (47,214) (38,352) (42,907)
-------- -------- ---------- ---------- ----------
Earnings (loss) before income taxes..... 36,590 (22,569) (10,621) (13,445) 14,098
Provision (benefit) for income taxes.... 13,385 (6,525) 420 4,800 11,235
Extraordinary loss from early
extinguishment of debt, net of tax of
$13,830............................... -- -- -- -- (20,745)
-------- -------- ---------- ---------- ----------
Net Income (loss)....................... $ 23,205 $(16,044) $ (11,041) $ (8,645) $ (17,882)
======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 126
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK ADDITIONAL CUMULATIVE PENSION RETAINED
---------------- PAID-IN TRANSLATION LIABILITY EARNINGS
SHARES AMOUNT CAPITAL ADJUSTMENT ADJUSTMENT (DEFICIT) TOTAL
------ ------ ---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993............ 100 $ 10 $ 20,621 $ -- $ -- $ 5,624 $ 26,255
Net income............................ -- -- -- -- -- 23,205 23,205
------ ------ ---------- ---------- ---------- --------- --------
Balance, December 31, 1994............ 100 10 20,621 -- -- 28,829 49,460
Reorganization (Note 1)............... -- (10) 11 -- -- -- 1
Cash dividend to parent............... -- -- -- -- -- (10,465) (10,465)
Noncash capital contribution from
parent.............................. -- -- 38,947 -- -- -- 38,947
Net loss.............................. -- -- -- -- -- (16,044) (16,044)
Cumulative translation adjustment..... -- -- -- (1,764) -- -- (1,764)
Minimum pension liability
adjustment.......................... -- -- -- -- (5,565) -- (5,565)
------ ------ ---------- ---------- ---------- --------- --------
Balance, December 31, 1995............ 100 -- 59,579 (1,764) (5,565) 2,320 54,570
Cumulative translation adjustment..... -- -- -- (2,033) -- -- (2,033)
Minimum pension liability
adjustment.......................... -- -- -- -- 5,235 -- 5,235
Net loss.............................. -- -- -- -- -- (11,041) (11,041)
------ ------ ---------- ---------- ---------- --------- --------
Balance, December 31, 1996............ 100 -- 59,579 (3,797) (330) (8,721) 46,731
Cumulative translation adjustment
(unaudited)......................... -- -- -- 292 -- -- 292
Net loss (unaudited).................. -- -- -- -- -- (17,882) (17,882)
------ ------ ---------- ---------- ---------- --------- --------
Balance, September 30, 1997
(unaudited)......................... 100 $ -- $ 59,579 $ (3,505) $ (330) $(26,603) $ 29,141
====== ======= ========= ========== ========== ======== ========
</TABLE>
F-5
<PAGE> 127
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 23,205 $(16,044) $(11,041) $ (8,645) $(17,882)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 15,503 21,338 37,928 27,504 31,245
Deferred income taxes.................... (889) (8,610) (5,970) (8,000) (15,366)
Extraordinary loss from early
extinguishment of debt................. -- -- -- -- 10,825
Noncash integration and other expenses... -- 41,064 -- -- --
Bad debt expense......................... -- 931 1,765 327 374
Postretirement benefits in excess of cash
paid................................... 2,000 1,400 2,000 1,500 1,501
Interest payable in-kind from
affiliate.............................. -- -- (3,090) (2,267) (2,442)
Changes in assets and liabilities:
Decrease (increase) in working capital
items (Note 19)..................... (20,825) 23,744 21,661 31,181 (39,149)
Decrease (increase) in other assets.... (5,482) 8,550 (9,683) 8,787 22,199
Increase (decrease) in other noncurrent
liabilities......................... 7,647 (13,265) 5,612 (6,055) (13,829)
-------- -------- -------- -------- --------
Net cash provided by operating
activities........................ 21,159 59,108 39,182 44,332 (22,524)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Acquisition of businesses................... (10,582) (211,151) -- -- (35,900)
Purchase of property and equipment.......... (11,775) (9,575) (36,900) (20,699) (18,962)
Advances from (repayments to) affiliate..... -- (38,831) 5,548 5,833 13,823
Other....................................... (1,000) 412 -- --
-------- -------- -------- -------- --------
Net cash used in investing
activities........................ (23,357) (259,145) (31,352) (14,866) (41,039)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.... -- 225,000 -- -- 90,000
Proceeds from issuance of Notes............. -- 125,000 -- -- 300,000
Deferred financing costs.................... -- (17,337) -- -- (13,228)
Payment of long-term debt and obligations
under capital leases..................... (16,495) (38,190) (409) (160) (690)
Borrowing (repayments) under credit
agreement and foreign bank overdrafts.... 17,500 (15,998) (13,030) (8,896) (213,106)
Payment of Notes............................ -- -- -- -- (125,000)
Purchase of employee stock loans from an
affiliate................................ -- (6,661) -- -- --
Dividend payment to parent.................. -- (10,465) -- -- --
Net change in (payable to) and receivable
from parent.............................. 8,228 (18,938) 6,438 (2,299) 8,256
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities.............. 9,233 242,411 (7,001) (11,355) 46,232
-------- -------- -------- -------- --------
Increase in cash and cash equivalents......... 7,035 42,374 829 18,811 (17,331)
Cash and cash equivalents, beginning of
period...................................... 5,420 12,455 54,829 54,829 55,658
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period...... $ 12,455 $ 54,829 $ 55,658 $ 73,640 $ 38,327
======== ======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................. $ 12,584 $ 16,093 $ 45,053 $ 29,156 $ 38,107
Income taxes............................. 5,747 5,124 3,300 1,303 6,652
Supplemental disclosure of noncash financing
and investing activities:
Noncash capital contribution from parent.... -- 38,947 -- -- --
Business combination liabilities assumed.... -- 44,048 4,464 4,464 --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 128
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Consolidation and Presentation
SC International Services, Inc. ("SCIS" or the "Company") is a wholly-owned
subsidiary of Onex Food Services, Inc. ("OFSI" or the "Parent") and is engaged
primarily in providing airline catering services. SCIS owns 100% of two
operating subsidiaries, Sky Chefs, Inc. ("Sky Chefs") and Caterair
International, Inc. (II) ("CII"). SCIS and CII were formed to effect the
September 29, 1995 business combination of Sky Chefs and Caterair International
Corporation ("Caterair"). In conjunction with this transaction, OFSI contributed
all of the common shares of Sky Chefs to SCIS. Prior to the business
combination, Sky Chefs was primarily engaged in providing airline catering
services to airlines with flights originating in the United States. The business
combination between Sky Chefs and Caterair substantially expanded the Company's
operations, which are now conducted worldwide principally under the tradenames
of LSG Lufthansa Service/SKY Chefs and Caterair.
The accompanying consolidated financial statements include the accounts of
the Company and all wholly-owned and majority-owned subsidiaries. For all
periods presented prior to the incorporation of SCIS and the contribution of all
the common stock of Sky Chefs to SCIS, the consolidated financial statements
only reflect the consolidated financial position, results of operations and cash
flows of Sky Chefs. The equity method of accounting is used when the Company has
20% to 50% interest in other companies. Under the equity method, original
investments are recorded at cost and adjusted for the Company's share of
undistributed earnings or losses of these companies. All significant
intercompany transactions have been eliminated.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The consolidated balance sheet as of September 30, 1997, the consolidated
statement of shareholder's equity for the nine months then ended, and the
consolidated statements of operations and cash flows for the nine months ended
September 30, 1996 and 1997, have been prepared by the Company without audit. In
the opinion of management, all adjustments (which included only normal,
recurring adjustments) necessary to present fairly the financial position at
September 30, 1997, and the results of operations and cash flows for all periods
presented have been made. The results of operations for the interim periods are
not necessarily indicative of the operating results for the full year.
Revenue Recognition
Revenues are recognized at the time products are delivered to customers or
services are performed.
Cash and Cash Equivalents
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with an original maturity of three months or less are
considered to be cash equivalents. Cash flows from futures and swap transactions
are classified in the same category as the items being hedged.
Interest Rate Swap Agreements
The differential to be paid or received on interest rate swap agreements is
accrued as interest rates change and is recognized over the life of the
agreement.
F-7
<PAGE> 129
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
Inventories
Inventories are valued at the lower of cost (first-in, first-out basis) or
market and consist primarily of raw materials.
Property and Equipment
The provision for depreciation and amortization of property and equipment
is computed using the straight-line method. The estimated useful lives are as
follows:
<TABLE>
<S> <C>
Buildings............................... 20 years
Leasehold improvements.................. Term of the lease or estimated
useful life, whichever is less
Furniture and equipment................. 5 to 10 years
Vehicles................................ 5 to 10 years
</TABLE>
Gains and losses from disposals of property and equipment are reflected in
other income (expense) in the period of disposal.
Property and Equipment Under Capital Leases
Buildings under capital leases are amortized over the lives of the leases
which vary from 11 to 31 years. Equipment under capital leases is amortized over
the lives of the leases or the estimated useful lives of the equipment,
whichever is less.
Goodwill and Intangible Assets
Intangible assets are recorded at cost. Amortization is determined by the
straight-lined method. Goodwill represents the excess of cost over fair value of
net assets acquired. The estimated useful lives of these intangibles are as
follows:
<TABLE>
<S> <C>
Goodwill................................ 25 to 28 years
Trademark and tradenames................ 25 years
Beneficial lease and license rights..... Term of the lease or license or
estimated useful life whichever
is less, ranging from 6 to 32
years
Noncompete agreement.................... Term of the agreement, 6 years
</TABLE>
The Company periodically evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of intangibles may
warrant revision or that the remaining balance of intangibles may not be
recoverable. An impairment of intangibles is recognized when estimated
undiscounted future cash flows generated by acquired businesses are determined
to not be sufficient to recover intangibles. The amount of impairment, if any,
is measured based on projected discounted cash flows using a discount rate
reflecting the Company's average cost of funds.
On March 31, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted this standard effective January 1, 1996, which did not have
a material impact on the Company's financial position or results of operations.
F-8
<PAGE> 130
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
Deferred Financing Costs
Costs incurred related to the issuance of debt are deferred and amortized
over the life of the related debt using the effective interest rate method.
Amortization of deferred financing costs amounted to $525 and $2,916 for the
years ended December 31, 1995 and 1996, respectively. There were no deferred
financing costs or amortization thereof in 1994.
Income Taxes
The accounts of the Company are included in the consolidated federal income
tax return of OFSI. Current and deferred income taxes are allocated to the
Company as if it were a separate taxpayer.
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities.
Management does not believe that it has significant tax liability related
to undistributed earnings, of approximately $33,230 of foreign subsidiaries at
December 31, 1996 as it believes the U.S. income tax effect on any repatriated
amounts would be minimal, and management considers the remainder to be
permanently invested.
Foreign Currency Translation
Assets and liabilities of most foreign operations are translated into U.S.
dollars using current exchange rates and the effect of translation reduces or
increases equity directly. For operations in countries with highly inflationary
economies (principally Venezuela in 1996 and principally Argentina, Brazil, and
Venezuela in 1995 and 1994), nonmonetary items are translated using historical
rates, while monetary items are translated at current rates, and the effects of
translation are included in operations. The U.S. dollar effects of exchange rate
changes included in other income and net assets determined in highly
inflationary currencies were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net foreign exchange..................................... $ -- $ 748 $1,525
====== ====== =====
Net assets denominated in highly inflationary
currencies............................................. $ (500) $2,890 $ 315
====== ====== =====
</TABLE>
Preopening Costs
Preopening costs, which consist primarily of payroll expenses, are expensed
as incurred.
Reclassification of Prior Period Amounts
Certain prior period amounts have been reclassified to conform to the
current year presentation.
Recent Accounting Standards
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
of an Enterprise and Related Information." Preliminary analysis of these new
standards by the Company indicates that the standards will not have a material
impact on the Company. The standards are effective for financial statements for
fiscal years beginning after December 15, 1997.
2. BUSINESS COMBINATIONS
On September 29, 1995, the Company, OFSI, Caterair and its parent, Caterair
Holdings Corporation ("Holdings"), consummated transactions with the
shareholders and creditor of Holdings (the "Transac-
F-9
<PAGE> 131
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
tions") whereby OFSI and an affiliate of OFSI exchanged common stock and
warrants of OFSI for certain stock and debt held by Holdings' shareholders and
creditor, as a result of which OFSI and its affiliate acquired more than 50% of
the total outstanding voting shares of Holdings and more than 25% of the total
outstanding nonvoting shares of Holdings. In addition, the Company and its
subsidiaries acquired, licensed, leased and subleased substantially all of the
worldwide business and assets of Caterair. However, after the consummation of
the Transactions Caterair retained certain operations relating to customer
contracts for which consents to assignment were not obtained. Such consents with
respect to these operations were obtained during the second quarter of 1996 and
such operations were leased, subleased and licensed to SCIS and its
subsidiaries.
The aggregate purchase price for substantially all of the foreign
operations of Caterair, Caterair's tradename and working capital and the
assumption of certain Caterair liabilities was approximately $247,247 (not
including $15,054 of fees relating to the Transactions) which consisted of
$208,300 in cash and approximately $38,947 in common stock and warrants of OFSI.
In connection with the Transactions, OFSI contributed capital to SCIS in an
amount equal to the consideration paid to Holdings' shareholders and creditor.
The purchase price was allocated based on the estimated fair values of the
assets acquired at the date of acquisition. The Transactions resulted in
goodwill of approximately $131,680 which is being amortized over 25 years.
The Company accounted for this acquisition described in the preceding
paragraph using the purchase method of accounting. The results of operations and
cash flows are included in the consolidated statements of operations and cash
flows from the date of acquisition.
Prior to the Transactions, the Company and Caterair had idle kitchens at
airports which were expected to be utilized in operations in the future. The
Company expensed costs associated with these facilities as incurred. Subsequent
to the Transactions, the Company reviewed its inventory of idle kitchens and
reevaluated its plans to operate these kitchens in the future. The Company
determined that certain of these idle facilities will not be utilized in
operations in the future. Therefore, the Company accrued costs representing the
net present value of future minimum rentals less expected sublease income of
$32,832 at the date of the acquisition. The accrued costs relating to former
Caterair facilities of $13,342 (net of taxes of $8,352) are reflected as an
increase in goodwill. The accrued costs relating to former Sky Chefs' facilities
of $11,138 were charged to income and are included in integration expenses. In
addition, the carrying value of $6,091 at December 31, 1995, for Sky Chefs'
property and equipment (principally leasehold improvements) was charged against
income and included in integration expenses. In the opinion of management, the
remaining carrying values of idle facilities are not in excess of net realizable
value. As of December 31, 1996, accrued costs of $6,000 were included in accrued
expenses and $23,470 were included in other long-term liabilities. At December
31, 1995 accrued costs of $6,000 were included in accrued expenses and $25,672
were included in other long-term liabilities.
The Company is currently in the process of consolidating kitchen operations
at airports where excess kitchen capacity exists. This consolidation process has
resulted in the closing of certain kitchen facilities and a reduction in the
number of personnel. Additional liabilities for kitchen closings and severance
resulting from additional consolidations will be recognized as expense in the
period incurred.
A pre-tax charge of $18,000 was recorded in other costs and expenses during
1995 for a fee payable to a major customer in connection with obtaining its
consent to the Transactions and its revocation of a notice of nonperformance of
contract previously issued by the customer to Caterair.
Shown below are unaudited pro forma results of operations for the years
ended December 31, 1995 and 1994, respectively, as though the Transactions
occurred at the beginning of each period presented. The pro forma information
set forth below does not purport to be indicative of the results which would
actually have
F-10
<PAGE> 132
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
been attained had the Transactions been consummated as of the dates set forth
below or indicative of results which may be achieved in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 1,529,185 $ 1,520,987
========= =========
Net loss.................................................... $ (5,720) $ (7,782)
========= =========
</TABLE>
In August and November 1995, Sky Chefs acquired three domestic kitchen
operations from an affiliate of LSG Lufthansa Service USA Corp., a minority
shareholder, for a cash purchase price of $5,146 and recorded goodwill of $3,151
which is being amortized over 25 years.
After the Transactions, the Company evaluated its investment in ServCater,
a Brazilian in-flight food service company. The Company determined the
investment acquired in October 1994 was partially impaired since the projected
undiscounted cash flows would be insufficient to recover goodwill and other
advances. Accordingly, the Company recognized a charge of $3,215 in 1995 which
is included in integration expenses.
3. PREPAID EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid employee healthcare......................... $ 7,141 $ 7,141 $ 7,141
Other............................................... 7,385 9,963 11,586
------- ------- -------
$14,526 $17,104 $18,727
======= ======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Property and equipment, at cost:
Land............................................ $ 9,110 $ 9,339 $ 8,805
Buildings and leasehold improvements............ 137,962 143,245 146,642
Machinery and equipment......................... 92,250 99,887 112,576
Construction in progress........................ 8,234 26,327 23,669
-------- -------- --------
247,556 278,798 291,692
Less accumulated depreciation and
amortization................................. 78,916 98,747 111,906
-------- -------- --------
168,640 180,051 179,786
-------- -------- --------
Property and equipment under capital leases:
Buildings and improvements...................... 8,228 8,228 8,228
Machinery and equipment......................... 14,946 20,212 19,790
-------- -------- --------
23,174 28,440 28,018
Less accumulated amortization................... 15,967 17,885 18,549
-------- -------- --------
7,207 10,555 9,469
-------- -------- --------
$175,847 $190,606 $ 189,255
======== ======== ========
</TABLE>
F-11
<PAGE> 133
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
5. GOODWILL AND INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill.......................................... $156,574 $158,067 $ 168,188
Trademarks and tradenames......................... 75,000 75,000 75,000
Noncompete agreements............................. 18,781 18,781 28,781
Beneficial lease and license rights............... 29,624 31,444 31,670
-------- -------- --------
279,979 283,292 303,639
Less accumulated amortization................... 23,869 38,068 49,761
-------- -------- --------
$256,110 $245,224 $ 253,878
======== ======== ========
</TABLE>
6. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid employee healthcare............................ $ 33,333 $ 29,645 $21,174
Deferred financing costs, net of accumulated
amortization of $525, $3,441, and $106 at December
31, 1995, 1996, and September 30, 1997,
respectively......................................... 16,812 13,993 13,122
Investments in joint ventures and unconsolidated
affiliates........................................... 11,513 12,800 20,502
Other.................................................. 17,460 25,429 23,876
------- ------- -------
$ 79,118 $ 81,867 $78,674
======= ======= =======
</TABLE>
7. ACCOUNTS PAYABLE
Accounts payable includes $11,461, $17,659, and $11,116 at December 31,
1995 and 1996, and September 30, 1997, respectively, representing checks
outstanding in excess of bank deposits. Accounts payable at December 31, 1995
and 1996, and September 30, 1997 includes $4,525, $2,916, and $4,633
respectively, of short-term foreign bank loans used primarily for overdraft and
working capital purposes.
8. ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll........................................... $ 59,037 $ 72,409 $ 72,564
Insurance......................................... 10,932 4,218 4,060
Employee benefits................................. 9,349 13,148 13,569
Provisions relating to idle facilities and other
acquisition related costs....................... 16,790 20,022 22,099
Other............................................. 42,612 64,926 66,372
-------- -------- --------
$ 138,720 $ 174,723 $ 178,664
======== ======== ========
</TABLE>
In connection with the Transactions, the Company had accrued $95,393 as of
December 31, 1995, for provisions relating to idle facilities and other
acquisition related costs included in accrued expenses and other long-term
liabilities. The Company made payments relating to the provisions for idle
facilities of $5,528 and
F-12
<PAGE> 134
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
$2,891 for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively. Additionally, the Company made payments relating to the
provisions for other acquisition costs, principally deferred customer consent
fees and non-compete payments, of $3,580 and $5,709 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively. In 1996,
the Company completed an analysis of excess kitchen capacity, which resulted in
a pre-tax charge of $2,611 for costs representing the net present value of
future minimum rentals less expected sublease income for kitchens at airports
where excess kitchen capacity existed.
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Credit Agreement:
A-1 Term Loan, bearing interest at 2.50% above the
Eurodollar borrowing rate or 1.50% above the
lender's prime rate, due in quarterly
installments of $750 beginning in December 1997
through September 2000......................... $ 8,989 $ 8,989 $ --
A-2 Term Loan, bearing interest at 2.50% above the
Eurodollar borrowing rate or 1.50% above the
lender's prime rate, due in various quarterly
amounts beginning in March 1996 through
September 2000................................. 49,941 41,201 --
B Term Loan, bearing interest at 3.00% above the
Eurodollar borrowing rate or 2.00% above the
lender's prime rate, due in various quarterly
amounts beginning in March 1996 through
September 2002................................. 135,839 134,091 --
C Term Loan, bearing interest at 3.25% above the
Eurodollar borrowing rate or 2.25% above the
lender's prime rate, due in various quarterly
amounts beginning in March 1996 through
September 2003................................. 29,964 29,465 --
Term Loan bearing interest at 1.50% above the
Eurodollar borrowing rate or 0.50% above the
lender's prime rate, due in quarterly installments
of $225 of principal beginning in December 1997
through December 2006, with a final maturity
payment of $81,675 in March 2007.................. -- -- 90,000
13% Senior Subordinated Notes due 2005 with interest
payable semi-annually beginning April 1996........ 125,000 125,000 --
9.25% Senior Subordinated Notes due 2007 with
interest payable semi-annually beginning March 1,
1998.............................................. -- -- 300,000
Australian $8,175 credit facility, bearing interest
at 9.85% through October 1998 and lender's prime
rate plus 1.87% thereafter, with scheduled
repayment commencing in 1998 through 2001......... 5,017 4,855 2,997
French Term Loans, bearing interest at three month
LIBOR plus 0.85% to 1.32%, principal and interest
payable quarterly through October 1998............ 4,266 2,718 2,055
Other foreign debt.................................. 2,243 3,519 4,963
--------- --------- -----------
Total debt................................ 361,259 349,838 400,015
Less current portion of long-term debt.... 14,416 15,682 7,737
--------- --------- -----------
Long-term debt............................ $ 346,843 $ 334,156 $ 392,278
======== ======== =========
</TABLE>
F-13
<PAGE> 135
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
In connection with the Transactions, SCIS, Caterair and Holdings entered
into a $500,000 Senior Secured Credit Agreement with a consortium of lenders
(the "Credit Agreement"). The Credit Agreement provided SCIS with up to $315,000
of financing consisting of $225,000 of term loans and up to $90,000 of revolving
loans (including up to $50,000 available for letters of credit). SCIS had
$224,773, and $213,746 of term loan borrowings outstanding at December 31, 1995
and 1996, respectively. No revolving loan borrowings were outstanding at
December 31, 1995 and 1996. The Credit Agreement also provided Caterair with
$185,000 of term loans. Caterair had $185,000 and $167,500 borrowings
outstanding under the Credit Agreement at December 31, 1995 and 1996,
respectively. A portion of the initial borrowings of SCIS and Caterair under the
Credit Agreement was used to repay certain indebtedness of Caterair.
In connection with the Transactions, SCIS issued $125,000 of 13% Senior
Subordinated Notes due October 1, 2005 (the "Notes"). The Notes were guaranteed
on a joint and several senior subordinated basis by Sky Chefs, CII and Caterair.
On August 28, 1997, SCIS consummated an offering of $300,000 of its 9.25%
Senior Subordinated Notes (the "New Notes") in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Offering"). The price to investors of the New Notes was $299,600 in the
aggregate. The New Notes are guaranteed on a joint and several senior
subordinated basis by Sky Chefs, CII, certain other wholly-owned domestic
subsidiaries of SCIS and Caterair. The New Notes (and the related guarantees)
are subordinate to payment of all senior debt (as described in the Indenture
relating thereto) of SCIS and the guarantors of the New Notes. The New Notes may
be redeemed at the option of SCIS commencing on September 1, 2002 at various
premiums above face value. Up to $105,000 of the New Notes may also be redeemed
with proceeds obtained through certain public equity offerings of capital stock
of OFSI or SCIS. The Indenture for the New Notes contains covenants which, among
other things, limit SCIS', the guarantors' and Caterair's ability to pay
dividends, make stock repurchases, incur additional indebtedness, engage in or
use the proceeds of asset sales, create liens or engage in certain other
transactions.
The net proceeds to SCIS from the Offering, after deduction of discounts
and offering expenses, were approximately $289,900. SCIS used $209,400 of the
net proceeds to repay and retire all of its outstanding term loan indebtedness
under the Credit Agreement.
On August 25, 1997, SCIS commenced a tender offer for all of the Notes. In
connection therewith, SCIS offered to purchase all of the Notes at a price equal
to 117% of the principal amount thereof plus accrued and unpaid interest to the
date of purchase and solicited consents to certain amendments (the "Existing
Indenture Amendments") to the Indenture relating to the Notes from the holders
thereof (collectively, the "Offer to Purchase"). Holders of the Notes who
consented to the Existing Indenture Amendments received a payment equal to 2% of
the principal amount of the Notes from which a consent was delivered.
The Offer to Purchase expired on September 24, 1997. All of the Notes were
tendered by the holders thereof and accepted for payment by SCIS in connection
with the Offer to Purchase. SCIS paid $148,750 (excluding $7,850 of accrued
interest) in the aggregate in consideration of the repurchase of the Notes and
the related consents. SCIS used approximately $80,500 of the net proceeds from
the Offering and approximately $68,250 of borrowings under the Term Loan
Agreement (as defined herein) to fund such payments.
On August 28, 1997, SCIS, certain other parties and certain lenders entered
into a senior secured revolving credit agreement (the "Revolving Credit
Agreement"), and Caterair, SCIS, certain other parties and certain lenders
entered into a senior secured credit agreement (the "Term Loan Agreement," and
together with the Revolving Credit Agreement, the "Senior Bank Financing").
F-14
<PAGE> 136
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
Concurrently with the Offering, Caterair repaid and retired all of its
outstanding indebtedness under the Credit Agreement (approximately $155,900)
with borrowings under the Term Loan Agreement.
Pursuant to the Senior Bank Financing, Bankers Trust Company, Morgan
Guaranty Trust Company of New York and certain other lenders provided (i) SCIS
with loans under the Revolving Credit Agreement in an amount up to $90,000
(including a sub-limit of $50,000 for letters of credit) on a revolving credit
basis for working capital and general corporate purposes of SCIS, Caterair and
their respective subsidiaries (such Revolving Credit Agreement expires on August
28, 2002), (ii) Caterair with a nine and one-half year term loan under the Term
Loan Agreement in an aggregate principal amount of $160,000 for purposes of
refinancing Caterair's indebtedness under the Credit Agreement and funding
payment of related transaction costs and (iii) SCIS with a nine and one-half
year term loan under the Term Loan Agreement in an aggregate principal amount of
$90,000 for purposes of financing, in part, SCIS' Offer to Purchase, funding
payment of related transaction costs and general corporate purposes.
All of the indebtedness under the Revolving Credit Agreement and the Term
Loan Agreement is senior secured indebtedness. The Revolving Credit Agreement
does not require scheduled amortization or scheduled commitment reductions. The
Term Loan Agreement requires scheduled amortization payments. Each of the
Revolving Credit Agreement and the Term Loan Agreement, under certain
circumstances, require SCIS or Caterair, as the case may be, to make mandatory
prepayments and commitment reductions. In addition, each of SCIS and Caterair
may make optional prepayments and commitment reductions pursuant to the terms of
the Revolving Credit Agreement or the Term Loan Agreement, as the case may be.
SCIS' obligations under the Senior Bank Financing are jointly and severally
guaranteed by OFSI (on a limited basis), an affiliate of OFSI (on a limited
basis), Caterair, Sky Chefs, CII and certain other domestic subsidiaries of SCIS
(including the guarantors of the New Notes). Caterair's obligations under the
Senior Bank Financing are jointly and severally guaranteed by OFSI (on a limited
basis), an affiliate of OFSI (on a limited basis), SCIS, Sky Chefs, CII and
certain other domestic subsidiaries of SCIS (including the guarantors of the New
Notes). In addition, obligations under the Senior Bank Financing are secured by
(i) first priority security interests in virtually all tangible and intangible
assets of SCIS, Caterair, and their respective wholly-owned domestic
subsidiaries (including the guarantors of the New Notes) and (ii) pledges of all
capital stock of SCIS and Caterair and all capital stock and notes owned by
SCIS, Caterair and their respective domestic subsidiaries (limited in the case
of capital stock of foreign subsidiaries to 65% of such capital stock).
SCIS' indebtedness under the Term Loan Agreement bears interest at 1.50%
above the Eurodollar borrowing rate ("Eurodollar Base Borrowing Rate") or 0.5%
above the lender's base rate. SCIS' indebtedness under the Revolving Credit
Agreement bear interest at 1.0% above the Eurodollar Base Borrowing Rate or the
lender's base rate. The actual rate charged on each credit instrument is
dependent on the selection of either the 30, 60, 90 or 180 day Eurodollar
borrowing rate or the base rate. Interest is payable quarterly for all loans and
also at the end of each interest period for Eurodollar borrowings. The interest
rate in effect at September 30, 1997 for SCIS' indebtedness under the Senior
Bank Financing was 7.25%.
Effective September 12, 1997, SCIS entered into an interest rate swap
agreement to reduce interest rate exposure on long-term debt. The agreement
covers a notional amount of $90,000 at September 30, 1997, and has a stated
maturity of September 15, 2002.
The documents governing the Senior Bank Financing contain a number of
covenants that, among other things, restrict the ability of SCIS, Caterair and
their respective subsidiaries to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay indebtedness or amend debt
instruments, pay dividends, create liens on assets, make investments, make
acquisitions, engage in mergers or consolidations,
F-15
<PAGE> 137
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
make capital expenditures, or engage in certain transactions with subsidiaries
or affiliates or otherwise engage in certain corporate activities. In addition,
the documents governing the Senior Bank Financing require compliance with
financial tests based on combined results of SCIS and Caterair. SCIS and
Caterair were in compliance with these financial covenant requirements at
September 30, 1997.
At September 30, 1997, approximately $24,728 of bank letters of credit were
issued and outstanding under the Revolving Credit Agreement (approximately
$24,653 issued on behalf of SCIS and approximately $75 for the benefit of
Caterair) primarily to collateralize insurance carriers providing workers'
compensation coverage as well as for surety bonds, leases and requirements of
Caterair for environmental remediation of certain assets previously sold.
The Revolving Credit Agreement requires the payment of .375% on the unused
portion of the revolving credit facility as well as various fees for the
issuance and maintenance of letters of credit.
As of September 30, 1997 the combined aggregate amount of maturities for
all long-term borrowings of the Company for each of the next five years and
thereafter is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1997............................................................ $ 580
1998............................................................ 7,505
1999............................................................ 1,998
2000............................................................ 1,722
2001............................................................ 2,035
Thereafter...................................................... 386,175
========
$400,015
========
</TABLE>
10. OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued postretirement benefit liability............. $ 31,251 $ 33,361 $ 34,861
Accrued rent......................................... 15,769 19,066 19,974
Accrued pension obligation........................... 7,287 -- 2,261
Accrued insurance.................................... 9,111 18,253 16,254
Provisions relating to idle facilities and other
acquisition related costs.......................... 78,603 68,874 58,197
Other................................................ 12,139 16,843 13,091
-------- -------- --------
$154,160 $156,397 $ 144,638
======== ======== ========
</TABLE>
F-16
<PAGE> 138
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
11. INCOME TAXES
The components of earnings (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Domestic............................................ $37,090 $(19,763) $(27,699)
Foreign............................................. (500) (2,806) 17,078
------- --------- ---------
$36,590 $(22,569) $(10,621)
======= ========= =========
</TABLE>
Income tax provision (benefit) reflected in the consolidated statements of
operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Federal:
Current expense (benefit)........................... $12,162 $(1,870) $ 2,571
Deferred benefit.................................... (242) (5,190) (9,230)
------- ------- -------
Total federal............................... 11,920 (7,060) (6,659)
------- ------- -------
Foreign:
Current expense..................................... -- 4,199 6,696
Deferred expense (benefit).......................... -- (2,614) 989
------- ------- -------
Total foreign............................... -- 1,585 7,685
------- ------- -------
State and local:
Current expense (benefit)........................... 2,112 (245) 374
Deferred benefit.................................... (647) (805) (980)
------- ------- -------
Total state and local....................... 1,465 (1,050) (606)
------- ------- -------
Total provision (benefit) for income
taxes..................................... $13,385 $(6,525) $ 420
======= ======= =======
</TABLE>
The effective income tax rate varies from the blended federal, state and
local statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
---- ----- -----
<S> <C> <C> <C>
Blended statutory rate....................................... 38.3% (38.5)% (38.5)%
Amortization of nondeductible goodwill....................... 0.5 2.7 20.0
Tax credits.................................................. 0.1 0.3 --
Effect of foreign taxes...................................... -- 7.0 4.0
Corporate-owned life insurance investments................... (1.8) (2.1) (3.7)
Foreign losses not benefited................................. -- 4.8 21.7
Other items.................................................. (0.5) (3.1) 0.4
---- ----- -----
Effective income tax rate.......................... 36.6% (28.9)% 3.9%
==== ===== =====
</TABLE>
F-17
<PAGE> 139
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
The components of deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Net current deferred tax asset (liability):
Bad debt expense.............................................. $ 1,223 $ 2,436
Restructuring charge.......................................... (322) (329)
Vacation and other employee benefits.......................... 3,174 3,082
Other......................................................... 266 1,916
-------- --------
$ 4,341 $ 7,105
======== ========
Net noncurrent deferred tax asset (liability):
Depreciation and amortization................................. $ 613 $ 7,303
Capital leases................................................ 3,658 3,962
Workers' compensation benefits................................ 8,288 10,112
Prepaid healthcare benefits................................... (13,032) (13,497)
Postretirement benefits....................................... 13,144 13,344
Pension....................................................... 2,784 (1,744)
Purchase deferred tax assets.................................. 26,045 21,200
Other......................................................... (231) 662
Credit and net operating carryforwards........................ 5,126 8,685
-------- --------
46,395 50,027
Less valuation allowance........................................ 3,795 4,221
-------- --------
$ 42,600 $ 45,806
======== ========
</TABLE>
The Company has recorded a total net deferred tax asset of $52,911 as of
December 31, 1996. Realization is dependent on generating sufficient taxable
income. Although realization is not assured, management believes it is more
likely than not the net deferred tax asset will be realized. The amount of the
deferred asset considered realizable, however, could be reduced in the near term
if estimates of future taxable income are reduced.
The Company had income tax refunds of $10,156 and $1,893 included in
advances to parent at December 31, 1995 and 1996, respectively.
At December 31, 1996, the Company had foreign tax credit carryforwards in
the amount of $2,455, which expire in 2011. The Company had U.S. operating loss
carryforwards of $2,828 which expire in 2001 and foreign operating losses of
$17,119 which expire as follows:
<TABLE>
<CAPTION>
YEAR OF
EXPIRATION
----------------------------------------------------------
<S> <C>
1997.................................................... $ 3,092
1998.................................................... 3,143
1999.................................................... 3,482
2000.................................................... 3,752
2001.................................................... 2,924
Indefinite.............................................. 726
---------
$17,119
========
</TABLE>
F-18
<PAGE> 140
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
12. LEASES
The Company leases various types of property, including airline catering
kitchens and equipment, vehicles and office facilities. Rent expense for all
operating leases was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Minimum rent............................................ $16,177 $31,131 $58,688
Contingent rent......................................... 16,956 26,934 38,872
Less sublease rent...................................... (1,201) (1,489) (542)
------ ------ ------
Total rent expense............................ $31,932 $56,576 $97,018
====== ====== ======
</TABLE>
Contingent rent represents percentage rent based on gross revenues in
excess of minimum levels.
The future minimum lease payments required under capital leases (together
with the present value of minimum lease payments) and future minimum lease
payments required under operating leases that have an initial or remaining lease
term in excess of one year as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
- ------------ ------- ---------
<S> <C> <C>
1997............................................................ $ 2,936 $ 50,104
1998............................................................ 2,629 47,863
1999............................................................ 2,566 46,083
2000............................................................ 2,521 44,378
2001............................................................ 2,813 48,508
Thereafter...................................................... 46,954 128,729
------- ---------
Total minimum lease payments.......................... 60,419 $ 365,665
========
Less imputed interest........................................... 30,028
-------
Present value of minimum lease payments......................... 30,391
Less current portion............................................ 634
-------
Long-term portion of minimum lease payments..................... $29,757
=======
</TABLE>
Other than the Caterair leases described below, most leases have initial
terms of from 10 to 20 years and contain one or more renewal options.
Leases for idle kitchens are included in the preceding table of operating
leases. Future minimum lease payments associated with these facilities of
$29,470 at December 31, 1996 do not represent future operating expenses as they
have been accrued as part of the Transactions (see Note 2).
In accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," certain leases for kitchen facilities at airports owned
by government unit or authority are being accounted for as operating leases
because special provisions in the lease agreements make the economic life of
such facilities essentially indeterminate.
In connection with the Transactions, pursuant to several leases (the
"Domestic Leases"), Sky Chefs and CII leased and subleased from Caterair
substantially all of its domestic tangible assets for a six-year term. In the
event that Caterair's lease of such assets was for less than six years, the
applicable Domestic Lease is for such shorter period. Sky Chefs and CII have the
option to purchase the assets of Caterair covered by the
F-19
<PAGE> 141
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
Domestic Leases for an amount determined under formulas in the Domestic Leases
that were intended to result in an exercise price equal to the estimated fair
market value of such assets at the time of exercise of such option. The option
is exercisable until the date which is 30 days after termination of the
applicable Domestic Lease. The Company is not certain whether such options will
be exercised. Total amounts payable to Caterair at December 31, 1995 and 1996,
which are included in the above schedule of future minimum operating lease
payments, are approximately $171,185, and $135,117 respectively, of which
approximately $57,498 and $47,500, respectively, relates to lease payments for
leasehold improvements and equipment.
13. RELATED PARTY TRANSACTIONS
In connection with the Transactions, SCIS and its subsidiaries licensed
Caterair's rights under certain customer contracts for a six-year period (the
"License Agreements"). However, after the consummation of such Transactions,
Caterair retained certain operations relating to customer contracts for which
consents to assignment were not obtained. Such consents with respect to these
operations were obtained during the second quarter of 1996 and such operations
were leased, subleased and licensed to SCIS and its subsidiaries. Sky Chefs and
CII each have the option to purchase the customer contract rights covered by the
License Agreements for an amount determined under formulas in the License
Agreements that were intended to result in an exercise price equal to the
estimated fair market value of such rights at the time of the exercise of such
option. The option is exercisable at any time until the date which is 90 days
after the termination of the applicable License Agreement. The Company is not
certain whether such options will be exercised. Caterair agreed, subject to
certain exceptions, not to compete with Sky Chefs in the airline catering
business for a six-year term and Sky Chefs is obligated to pay Caterair $4,000
per year. Lease, license and noncompete related expense for these arrangements
with Caterair for the periods ended December 31, 1995 and 1996 included in cost
of operations amounted to $18,953 and $77,816, respectively.
The Company loaned Caterair approximately $37,788 in connection with the
Transactions. The loan matures in 2001, bears interest at 8% per annum (payable
in-kind) and is collateralized by a subordinated lien on the assets of Caterair
representing collateral under the Credit Agreement and the Senior Bank
Financing. The cumulative amounts due under this loan were $38,544 and $41,634
at December 31, 1995 and 1996, respectively. Interest income related to this
loan of $756 and $3,090 is included in interest income for the years ended
December 31, 1995 and 1996, respectively. In 1995, the Company also paid $7,147
of fees related to the Transactions on behalf of Caterair, which were included
in advances to affiliates at December 31, 1995. Caterair repaid these fees to
the Company in 1996.
The Company was unable to obtain certain consents to the Transactions with
respect to certain of Caterair's kitchens at which one airline is the major
customer. Such consents with respect to these operations were obtained during
the second quarter of 1996 and such operations were leased, subleased and
licensed to SCIS and its subsidiaries. Prior to acquiring this consent, the
Company and Caterair entered into a management agreement for the operations at
these kitchens whereby Caterair operated them with Caterair employees with the
Company providing management and administration support services in exchange for
a management fee equivalent to 4% of the kitchen's net sales. Management fees
earned under this arrangement amounted to $604 and $1,057 for the periods ended
December 31, 1995 and 1996, respectively, and are included in revenues.
In 1993, LSG Lufthansa Service GmbH ("LSG"), a subsidiary of Lufthansa
German Airlines, acquired a minority interest in OFSI from existing shareholders
through the purchase of OFSI Class A common stock by LSG's U.S. subsidiary. The
parties also entered into other agreements including joint marketing and
international development agreements. The Company had accounts receivable from
Lufthansa German
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SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
Airlines of $1,541 and $2,597 at December 31, 1995 and 1996, respectively. Sales
to Lufthansa German Airlines in 1995 and 1996 were $12,881 and $22,289,
respectively.
In connection with the Combination, LSG was granted the option to acquire a
50% interest in the catering business acquired by SCIS from Caterair in Europe
for a price to be negotiated on a basis consistent with the valuation of the
entire Caterair business implicit in the Combination. This option has expired.
However, LSG and the Company are engaged in discussions with a view to reaching
agreement for the sale by the Company to LSG of 50% of the Company's European
catering business for a price estimated to be $50,000. There can be no assurance
that such sale will occur or if it does occur as to the timing, price or other
terms thereof.
All costs incurred on the Company's behalf by OFSI and by Onex Corporation,
the indirect parent of OFSI, are reflected in the Company's income statements
through management fees paid to OFSI and to Onex Corporation or through direct
reimbursement. The results of operations of the Company would not differ
materially had the Company operated on a stand alone basis. The Company paid
management fees to OFSI in 1994, 1995 and 1996 of $671, $694, and $1,500,
respectively. During 1995 the Company repaid a $10,607 loan from OFSI with
interest at LIBOR plus 1%, and also paid to Onex Corporation an advisory service
fee relating to the Transactions of $4,000.
14. GEOGRAPHIC AND CUSTOMER INFORMATION
Information concerning operations by geographic area is presented below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- ----------
<S> <C> <C> <C>
Net sales:
United States..................................... $463,059 $572,566 $ 952,009
Europe............................................ -- 65,729 243,895
Other............................................. 5,549 100,807 333,912
-------- -------- ----------
$468,608 $739,102 $1,529,816
======== ======== =========
Operating income (loss):
United States..................................... $ 43,778 $ (4,803) $ 11,699
Europe............................................ -- 1,208 (5,282)
Other............................................. (419) 382 30,176
-------- -------- ----------
$ 43,359 $ (3,213) $ 36,593
======== ======== =========
Identifiable assets:
United States..................................... $224,098 $648,174 $ 674,076
Europe............................................ -- 74,754 67,692
Other............................................. 18,918 105,865 106,187
-------- -------- ----------
$243,016 $828,793 $ 847,955
======== ======== =========
</TABLE>
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SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
American Airlines is the only customer that accounted for 10% or more of
the Company's total revenue in any of the last three years. Sales to, and
accounts receivable from, American Airlines for the last three years ended
December 31 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales to American Airlines:
United States...................................... $ 347,948 $ 380,825 $ 412,147
Europe............................................. -- 8,288 31,200
Other.............................................. -- 4,934 26,663
--------- --------- ---------
$ 347,948 $ 394,047 $ 470,010
======== ======== ========
Accounts Receivable from American Airlines......... $ 18,000 $ 34,787 $ 18,142
======== ======== ========
</TABLE>
Although the Company's exposure to credit risk associated with nonpayment
by American Airlines is affected by conditions or occurrences within the airline
industry, trade receivables from American Airlines are considered fully
collectible as of December 31, 1996.
15. EMPLOYEE BENEFITS
In connection with the Transactions, Sky Chefs and CII, respectively, hired
approximately 6,000 and 3,000 domestic employees of Caterair on October 1, 1995.
Prior to the Transactions, Sky Chefs employed approximately 6,000 full-time
domestic employees. The employee participants' share of plan assets in the
Caterair Retirement Savings and Investment Plan as of September 29, 1995, was
transferred to the Sky Chefs and CII plans.
Retirement Benefit Plans
Sky Chefs sponsors two noncontributory pension plans, one for union and one
for non-union employees having at least one year of service and who are eligible
to participate. Effective June 30, 1995, for the union employee plan and
September 30, 1995, for the non-union employee plan, Sky Chefs amended the plans
to exclude from participation in these plans any new employees hired by Sky
Chefs subsequent to the dates of amendment. The plans provide defined benefits
based upon wages or a fixed amount multiplied by years of service. The plans
provide for disability and death benefits after meeting specified age and
service requirements.
Sky Chefs has elected to contribute to these plans an amount which is
within the range of the Employee Retirement Income Security Act ("ERISA")
minimum and maximum contributions deductible for federal income tax purposes.
The components of pension expense related to these qualified pension plans
are reflected below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Service cost.......................................... $ 3,589 $ 3,392 $ 4,853
Interest cost......................................... 5,835 6,175 7,628
Actual return on plan assets.......................... 1,807 (20,066) (9,466)
Net amortization and deferral......................... (10,871) 11,147 165
-------- -------- -------
Net pension expense......................... $ 360 $ 648 $ 3,180
======== ======== =======
</TABLE>
F-22
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SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
The following table sets forth the funding status of the plans and amounts
recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation.................................. $ 89,679 $ 93,397
========= =========
Accumulated benefit obligation............................... $ 93,605 $ 96,951
========= =========
Projected benefit obligation................................. $(107,315) $(107,024)
Plan assets at fair value.................................... 88,839 101,151
--------- ---------
Plan assets less projected benefit obligation................ (18,476) (5,873)
Actuarial gains and losses and effects of assumption
changes.................................................... 24,801 13,973
Unrecognized net transition asset established January 1,
1987, to be recognized over 11 years....................... (2,594) (1,263)
Unrecognized prior service cost.............................. (45) 477
Additional minimum liability................................. (8,453) --
--------- ---------
Prepaid pension cost (liability)................... $ (4,767) $ 7,314
========= =========
</TABLE>
The discount rates and rates of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligation
were and 7.25% and 4.25%, respectively, at December 31, 1995 and 7.75% and 4.5%,
respectively, at December 31, 1996. The expected long-term rate of return on
assets was 10.6% for the years ended December 31, 1995 and 1996, respectively.
Plan assets at December 31, 1995 and 1996 consisted primarily of cash and
marketable securities.
In addition, Sky Chefs sponsors a Supplemental Executive Retirement Plan
("SERP") for certain key executive officers. This plan has not been funded by
Sky Chefs. Amounts charged to expense for this plan are $424, $418, and $431,
for 1994, 1995 and 1996, respectively. The projected unfunded liability is
approximately $2,845 and $3,032 at December 31, 1995 and 1996, respectively.
In accordance with Statement of Financial Accounting Standards No. 87, Sky
Chefs has recorded an additional minimum pension liability for underfunded plans
of $7,287 and $707 at December 31, 1995 and 1996, respectively, representing the
excess of unfunded accumulated benefit obligations over previously recorded
pension cost liabilities. A corresponding amount is recognized as an intangible
asset except to the extent that these additional liabilities exceed related
unrecognized prior service cost and net transition obligation, in which case the
increase in liabilities is charged directly to shareholders' equity. For 1995
and 1996, respectively, $5,565 and $330 of the excess minimum pension liability
resulted in a charge to equity, net of income taxes of $3,484 and $255.
Prepaid Employee Healthcare
The Company maintains two Voluntary Employee Benefit Association ("VEBA")
trusts, one for union and one for non-union domestic employees. Amounts held in
the trust, consisting primarily of money market funds, were $40,474 and $36,786
at December 31, 1995 and 1996, respectively, and are included in prepaid
expenses and other assets.
Postretirement Healthcare and Life Insurance Benefits
In addition to pension benefits, Sky Chefs provides certain healthcare and
life insurance benefits for retired domestic employees. Effective, June 30,
1995, for union employees and September 30, 1995, for non-
F-23
<PAGE> 145
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
union employees, Sky Chefs amended the plans to exclude from participation new
union employees hired by Sky Chefs subsequent to the date of amendment and
reduced substantially the postretirement healthcare and life insurance benefits
for non-union employees hired by Sky Chefs subsequent to the date of amendment.
Qualified domestic employees become eligible for benefits upon attainment of age
55 and completion of 10 years service. Such healthcare and life insurance
benefits are provided through VEBA trusts and by insurance companies, with
insurance premiums based on the benefits paid. The cash payments for providing
benefits were $1,539, $1,634, and $1,885, for the years ended December 31, 1994,
1995 and 1996, respectively.
Net postretirement benefit cost included in cost of operations for the
years ended December 31, 1994, 1995 and 1996 consists of the following
components:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Service cost............................................. $1,015 $ 838 $ 861
Interest cost............................................ 2,524 2,196 2,174
Amortization of prior service cost....................... -- -- (59)
------ ------ ------
Net pension expense............................ $3,539 $3,034 $2,976
====== ====== ======
</TABLE>
The following sets forth the postretirement benefit plan's funded status
reconciled with amounts reported in the consolidated balance sheets as of
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO")
Retirees....................................................... $21,279 $23,313
Fully eligible active plan participants........................ 4,511 4,417
Other active plan participants................................. 5,078 5,043
------- -------
Total APBO....................................................... 30,868 32,773
Plan assets at fair value........................................ -- --
------- -------
Accumulated postretirement benefit obligation in excess of plan
assets......................................................... 30,868 32,773
Unrecognized net actuarial gains................................. 1,883 2,088
------- -------
Accrued postretirement benefit liability......................... 32,751 34,861
Less amount classified as current (included in accrued
expenses)...................................................... 1,500 1,500
------- -------
Noncurrent liability (included in other long-term liabilities)... $31,251 $33,361
======= =======
</TABLE>
An 8% and 7% annual rate of increase in the per capita costs of covered
healthcare benefits was assumed for 1995 and 1996, respectively, gradually
decreasing to 5% by the year 1999. Increasing the assumed healthcare cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation by $1,303 and $1,657 as of December 31, 1995
and 1996, respectively, and increase the aggregate of the service cost and
interest cost components of net periodic postretirement benefit cost for 1994,
1995 and 1996 by $151, $183 and, $208, respectively. A discount rate of 7.25%
and 7.75% was used to determine the APBO at December 31, 1995 and 1996,
respectively.
Retirement Savings Plans
Sky Chefs has established a retirement savings plan for its domestic
employees which allows participants to make contributions through salary
reduction pursuant to Section 401(k) of the Internal Revenue Code. In
F-24
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SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
1995, Sky Chefs amended its retirement savings plan to provide a minimum 1% of
eligible employee compensation contribution to the plan for those participants
not eligible for participation in Sky Chefs' defined benefit plans. In addition,
Sky Chefs may elect to match certain portions of employee contributions. The
employer matching contribution was $655 and $1,210 for 1994 and 1995,
respectively.
CII established a retirement savings plan for its domestic employees hired
from Caterair on September 29, 1995, which allows participants to make
contributions from 1% to 10% of their compensation or select a fixed dollar
amount to be deducted during each pay period. CII makes a matching contribution
on the first 6% of each employee's pre-tax or after tax contributions, the
amount of which will be determined before the start of each year. The employer
matching contributions for the periods ended December 31, 1995 and 1996 were
$576 and $472, respectively.
Employee Stock Options
Options to purchase 62.74 and 46.24 of Class A shares of OFSI capital stock
were held by management employees of the Company at December 31, 1995 and 1996,
respectively. The option price for the Class A shares is equal to the book value
(adjusted for changes in generally accepted accounting principles subsequent to
May 29, 1986) at the end of the fiscal quarter immediately preceding the
exercise date. These options only become exercisable upon the occurrence of
certain future events, as defined in the employee stock purchase agreement.
Periodically, management employees have been given the opportunity to purchase
OFSI shares in exchange for the cancellation of their outstanding OFSI options.
Stock-Based Compensation Plan
SCIS sponsors a book value stock purchase plan for selected management
employees (the "Book Value Plan") and applies Accounting Principles Board
Opinion No. 25 ("APB 25") and related interpretations in accounting for this
Plan. In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123") which, if fully adopted, would change the methods the Company
applies in recognizing the cost of this Plan. Adoption of the cost recognition
provisions of SFAS 123 is optional and the Company has decided not to elect
these provisions. However, pro forma disclosures as if the Company adopted the
cost recognition provisions of SFAS 123 in 1995 are required by SFAS 123 and are
discussed below.
SCIS adopted the Book Value Plan in 1986. Under the Book Value Plan, SCIS
is authorized to issue Class A shares of common stock to its full-time
management employees, nearly all of whom are eligible to participate. The
purchase price of the shares is equal to the book value (adjusted for changes in
accounting principles employed by the Company subsequent to May 29, 1986) at the
end of the fiscal quarter immediately preceding the purchase date. The number of
shares outstanding under the Plan at December 31, 1996, are described in Note 18
to these financial statements. Shares are purchased at 100% of the book value of
the shares on the date of the purchase. Accordingly, the accounting charge for
these shares purchased determined under APB 25 and SFAS 123 is zero.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995.
Deferred Compensation Plan
The Company provides its key employees with the opportunity to participate
in an unfunded deferred compensation program. There were 15 and 19 participants
in the program at December 31, 1995 and 1996, respectively. Under the program,
participants may defer up to 75% of their annual base salary and up to 100%
F-25
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SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
of their annual bonuses otherwise payable in cash. The amounts deferred are
contributed by the Company together with additional corporate funds into a
trust. The amounts deferred by participants are used to purchase investments at
the direction of the Plan Administration Committee. The amounts contributed to
the trust by OFSI are utilized to purchase life insurance policies on qualifying
participants and to fund administrative expenses. Upon the death of an insured
participant, the proceeds of such a policy are payable to OFSI. Account
balances, which are equal to compensation deferred and related earnings, are
payable to participants or their beneficiaries upon the earlier of termination
of employment, retirement, death, permanent disability or a lump sum on a
specific date selected in the future. The Company has guaranteed the
participants a fixed rate of return of 8% through December 31, 1999 at which
time the rate will be reset but will never be less than 5%. Any differences
between the fixed rate and the rate of return earned by the trust will affect
the amount of corporate funds necessary to administer the plan.
The program is not qualified under Section 401 of the Internal Revenue
Code. Amounts contributed to the plan through December 31, 1995 and 1996
amounted to $1,650 and $2,103, respectively.
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
The carrying amounts of cash and cash equivalents, accounts and notes
receivable, accounts payable and accrued expenses and other liabilities are
reasonable estimates of their fair values. Letters of credit are included in the
estimated fair value of accrued expenses and other liabilities. The estimated
fair values and carrying amounts of other financial instruments at December 31,
1995 and 1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1995 1996
--------------------- ---------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE AMOUNT FAIR VALUE AMOUNT
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Assets:
Senior subordinated note due from
affiliate(a)............................. $ 39,073 $ 38,544 $ 41,634 $ 41,634
Interest rate swap agreement(c)............. -- -- 2,119 --
Liabilities:
Term loans(b)............................... 224,773 224,733 213,746 213,746
13% senior subordinated notes(b)............ 131,562 125,000 140,938 125,000
Other long-term debt(b)..................... 11,526 11,526 11,092 11,092
Interest rate swap agreement(c)............. 2,778 -- -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument.
(a) SENIOR SUBORDINATED NOTE DUE FROM AFFILIATE
The Company's Senior Subordinated Note due from Caterair in 2001 bears a
fixed rate of interest of 8% (payable in-kind) and was executed September 29,
1995 in connection with the Transactions. This note is with a related party and
as such there is no market activity. Accordingly, the carrying values
approximate estimated fair value.
F-26
<PAGE> 148
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
(b) LONG-TERM DEBT
The Company's long-term debt securities can be segregated into three
categories: (i) term loans and the revolving credit facility: (ii) 13% senior
subordinated notes, and (iii) other long-term debt. There is no active market
for the Company's other long-term debt and, consequently, no quoted prices are
available.
(i) Term Loans and the Revolving Credit Facility
The fair value of the term loans and revolving credit facility
approximates the carrying value since interest rates are variable.
(ii) 13% Senior Subordinated Notes
The fair value of the Notes is based upon quoted market prices for
the Company's and other financial instruments of similar rating and
risk.
(iii) Other Long-Term Debt
The Company's other long-term debt is comprised principally of
foreign subsidiary bank borrowings with interest and repayment terms
that are not significantly different from current market rates.
Accordingly, the carrying values approximate estimated fair value.
(c) INTEREST RATE SWAP AGREEMENTS
At December 31, 1995 and 1996, the Company had interest rate swap
instruments (used for hedging purposes) which were not included in the Company's
consolidated balance sheet. The estimated fair value of this swap agreement was
negative (representing a liability) to the Company at December 31, 1995 and
positive (representing an asset) at December 31, 1996, as a result of
fluctuations in projected futures interest rate swap transaction values
subsequent to the trade date of December 27, 1995.
These disclosures relate to financial instruments only. The fair value
assumptions were based upon estimates of market conditions and perceived risks
of the financial instruments at December 31, 1995 and 1996.
17. DISCLOSURES OF SIGNIFICANT RISKS AND UNCERTAINTIES
The Company's financial instruments expose the Company to market and credit
risks and may at times be concentrated with certain counterparties or groups of
counterparties. The credit worthiness of counterparties is subject to continuing
review and full performance is anticipated unless otherwise specifically
disclosed.
Concentration of Cash Equivalents
Cash and cash equivalents of $20,581 and $19,898 at December 31, 1995 and
1996, respectively, were in foreign locations; a portion of which is restricted
from repatriation under various foreign tax laws and regulations.
The Company follows the policy of investing all idle domestic cash balances
in a money market fund with one money market fund manager. The invested balances
amounted to $16,740 and $20,499 at December 31, 1995 and 1996, respectively.
Dependence on Key Customers
As described in Note 1 and Note 2, the Company is engaged in providing
catering services to airlines in the U.S. and internationally (see Note 14 for
geographic and customer concentration information). The Company provides these
services to its airline customers on an open account unsecured basis. Prior to
the
F-27
<PAGE> 149
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
Transactions described in Note 2, approximately 76% of the Company's revenue was
derived from business with American Airlines under a long-term catering
agreement that expires at the end of 2003. In 1996, business with American
Airlines accounted for approximately 31% of the Company's business with no other
customer providing more than 10% of total annual revenues. The business
combination with Caterair substantially expanded the Company's base of
operations and reduced substantially its concentration of customer risk.
Dependence on Airline Industry Trends
The Company's revenues are largely dependent upon the number of passengers
who travel on airlines, the number of airline flights serviced by the Company
and the level of meal service provided to passengers. As a result, a decline in
the number of airline flights or in passenger traffic, or a reduction or
downgrading of airline meal services, as has been the case in recent years in
North America, could have a severe financial impact on the Company.
In the past several years, a number of United States airlines have merged
with other airlines, sought protection under federal bankruptcy laws or ceased
operating altogether. To the extent the Company has a significant business
relationship with an airline that reduces or ceases operations or seeks
protection under federal bankruptcy laws, the Company's revenues may be
materially adversely affected and the Company's realization of its investments
in kitchen facilities, accounts receivable and other assets related to such
customers may be negatively impacted.
Repatriation and Currency Risks
A significant portion of the Company's operations are outside the United
States. International operations are subject to a number of special risks. These
special risks include currency exchange rate fluctuations, trade barriers, and
political and economic risks in less developed countries such as hyperinflation,
governmental expropriation and exchange controls, and other governmental
restrictions that may limit the ability to repatriate earnings of foreign
subsidiaries.
Caterair Operations Restructuring
In 1993 and 1994, the business formerly operated by Caterair lost over
$42,000 (excluding one-time charges for asset write-downs, provisions for
kitchen closures and other nonrecurring charges). The Company is currently in
the process of consolidating kitchen operations at airports where excess kitchen
capacity exists. This consolidation process has resulted in the closing of
certain kitchen facilities and a reduction in the number of personnel. In
addition to $8,200 which was charged to income and included in integration
expenses in 1995, the Company incurred approximately $30,361 of costs in 1996
associated with integration, restructuring and improving its combined
operations. Additional liabilities for kitchen closings and severance resulting
from additional consolidations will be recognized as expense in the period
incurred.
18. COMMITMENTS AND CONTINGENCIES
On June 23, 1995, the Company settled, for a payment of $3,700, a claim
asserted by American Airlines, Inc. (American), for rent payable by the Company
under facility subleases with American and occupancy costs reimbursed by
American under its catering agreements with the Company. The settlement resulted
in a pre-tax charge to 1995 income of $100.
In connection with the sale of OFSI Class A common shares to employees,
OFSI has a commitment to repurchase such shares (based on adjusted book value
per share, as defined) in connection with an employee's termination from the
Company or its subsidiaries. As of December 31, 1996, 18,925.81 Class A and
719.38 Class B shares of OFSI's outstanding capital shares were held by
employees of the Company and its subsidiaries. In order to provide a reasonable
long-term incentive plan for management, the Company may
F-28
<PAGE> 150
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
repurchase portions of stock from existing management stockholders and
redistribute the stock to key management in proportion to their leadership
position in the Company.
In the normal course of business, the Company is from time to time named a
defendant in litigation and is currently a defendant in several actions.
However, in the opinion of management, the outcome of such litigation will not
result in a material adverse effect on the consolidated financial position or
results of operations of the Company.
The Company is continually upgrading its equipment and facilities in order
to provide the most efficient service to its customers. As such, management
estimates that approximately $32,000 of capital expenditures will be incurred in
1997.
19. CHANGES IN WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ----------------------
1994 1995 1996 1996 1997
-------- ------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(Increase) decrease in accounts
and notes receivable............ $ (1,015) $ 5,606 $(13,655) $(21,163) $ (30,569)
(Increase) decrease in
inventories..................... 20 1,234 (1,165) (1,177) (899)
Increase in prepaid expenses...... (1,134) (1,819) (2,578) (2,614) (1,623)
Increase (decrease) in accounts
payable and accrued expenses.... (18,696) 18,723 39,059 56,135 (6,058)
-------- ------- -------- -------- -----------
Decrease in working capital
items........................ $(20,825) $23,744 $ 21,661 $ 31,181 $ (39,149)
======== ======= ======== ======== =========
</TABLE>
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS
The separate financial statements of Sky Chefs, CII and certain other
indirectly wholly-owned domestic subsidiaries of SCIS which are guarantors of
the New Notes (the "Subsidiary Guarantors") are not included herein because the
Subsidiary Guarantors are wholly-owned consolidated subsidiaries of the Company
and are jointly, severally and unconditionally liable for the obligations
represented by the New Notes on a senior subordinated basis. The Company
believes that the condensed consolidating financial information for the Company,
the combined Subsidiary Guarantors and the subsidiaries of SCIS which are not
guarantors of the New Notes (the "Non-Guarantor Subsidiaries") provide
Noteholders with information that is more meaningful to them in understanding
the financial position of the Subsidiary Guarantors than separate financial
statements of the Subsidiary Guarantors. Therefore, the separate financial
statements of the Subsidiary Guarantors are not deemed material to investors.
Investments in subsidiaries are accounted for by the parent on the equity
method for purposes of the presentation set forth below. Earnings of
subsidiaries are therefore reflected in the parent's investment accounts and
earnings. The principal elimination entries set forth below eliminate
investments in subsidiaries and intercompany balances and transactions.
Set forth below is consolidating financial information for (i) the combined
Subsidiary Guarantors, (ii) the combined Non-Guarantor Subsidiaries, (iii) the
Company (on a parent only basis), (iv) an elimination column for adjustments to
arrive at the information for the Company and its subsidiaries on a consolidated
basis and (v) the Company and its subsidiaries on a consolidated basis as of
September 30, 1997 and December 31, 1996 and 1995, for the nine months ended
September 30, 1997 and 1996 and for each of the three years in the period ended
December 31, 1996.
F-29
<PAGE> 151
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 2,061 $ 14,709 $ 21,557 $ -- $ 38,327
Accounts and notes receivable,
net.............................. 94,088 70,295 15,567 (1,346) 178,604
Advance to affiliate............... -- -- 219,743 (219,743) --
Tax refund receivable from
parent........................... -- -- -- -- --
Inventories........................ 9,432 9,617 -- -- 19,049
Deferred income taxes.............. 6,361 -- 998 (308) 7,051
Prepaid expenses................... 10,664 8,061 2 -- 18,727
------------ ------------- ---------------- ----------- ------------
Total current assets........ 122,606 102,682 257,867 (221,397) 261,758
Property and equipment, net.......... 106,620 82,498 137 -- 189,255
Deferred income taxes................ 39,099 -- 23,172 (1,045) 61,226
Goodwill and intangible assets,
net................................ 276,027 1,733 8,333 (32,215) 253,878
Investment in affiliates............. 196,647 15,569 87,674 (279,388) 20,502
Loan to affiliate.................... -- -- 44,075 -- 44,075
Other assets......................... 32,578 1,162 20,415 3,997 58,172
------------ ------------- ---------------- ----------- ------------
Total assets................ $773,577 $ 203,664 $441,673 $(530,048) $888,866
=========== ============= =============== ========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................... $ 39,481 $ 25,615 $ 1,267 $ 6,608 $ 72,971
Accrued expenses................... 127,839 50,825 -- -- 178,664
Payable to parent.................. 6,363 -- -- 6,363
Payable to affiliate............... 190,983 50,659 13,037 (236,352) 18,327
Current portion of long-term
debt............................. -- 17,778 900 (10,941) 7,737
Current portion of obligations
under capital losses............. 151 249 -- -- 400
------------ ------------- ---------------- ----------- ------------
Total current liabilities... 358,454 151,489 15,204 (240,685) 284,462
Obligations under capital leases..... 26,994 2,307 -- -- 29,301
Long-term debt....................... 18,578 3,178 389,100 (18,578) 392,278
Deferred income taxes................ -- 1,353 -- (1,353) --
Other long-term liabilities.......... 143,638 1,937 8,228 (9,165) 144,638
------------ ------------- ---------------- ----------- ------------
Total liabilities........... 547,664 160,264 412,532 (269,781) 850,879
------------ ------------- ---------------- ----------- ------------
Minority interest.................... 9,371 (325) -- -- 9,046
------------ ------------- ---------------- ----------- ------------
Commitments and contingencies........ -- -- -- -- --
Shareholder's equity:
Common stock....................... 10 -- -- (10) --
Additional paid-in capital......... 181,788 12,398 59,570 (234,029) 59,579
Cumulative translation
adjustment....................... (1,355) (2,150) (3,505) 3,505 (3,505)
Minimum pension liabilities
adjustment....................... (330) -- (330) 330 (330)
Retained earnings (deficit)........ 36,429 33,477 26,603 (55,045) (26,603)
------------ ------------- ---------------- ----------- ------------
Total shareholder's
equity:................... 216,542 43,725 29,141 (288,048) 29,141
------------ ------------- ---------------- ----------- ------------
Total liabilities and
shareholder's
equity............... $773,577 $ 203,664 $441,673 $(530,048) $888,866
=========== ============= =============== ========== ===========
</TABLE>
F-30
<PAGE> 152
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 1,399 $ 21,517 $ 32,742 $ -- $ 55,658
Accounts and notes receivable,
net............................. 87,807 57,837 4,525 (1,760) 148,409
Advance to affiliate.............. -- -- 237,527 (237,527) --
Tax refund receivable from
parent.......................... 1,893 -- -- -- 1,893
Inventories....................... 10,204 7,008 938 -- 18,150
Deferred income taxes............. 6,167 938 -- -- 7,105
Prepaid expenses.................. 10,698 6,406 -- -- 17,104
-------- -------- -------- --------- --------
Total current assets....... 118,168 93,706 275,732 (239,287) 248,319
Property and equipment, net......... 103,839 86,673 94 -- 190,606
Deferred income taxes............... 39,816 -- 9,343 (3,353) 45,806
Goodwill and intangible assets,
net............................... 282,379 498 -- (37,653) 245,224
Investment in affiliates............ 197,376 1,144 45,558 (231,278) 12,800
Loan to affiliate................... -- -- 41,634 -- 41,634
Other assets........................ 43,125 2,906 19,440 3,596 69,067
-------- -------- -------- --------- --------
Total assets............... $784,703 $ 184,927 $391,801 $(507,975) $853,456
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.................. $ 46,607 $ 27,403 $ 1,048 $ 6,195 $ 81,253
Accrued expenses.................. 121,504 53,219 -- -- 174,723
Payable to affiliate.............. 208,761 24,371 -- (228,627) 4,505
Current portion of long-term
debt............................ -- 15,836 10,787 (10,941) 15,682
Current portion of obligations
under capital leases............ 387 247 -- -- 634
-------- -------- -------- --------- --------
Total current
liabilities.............. 377,259 121,076 11,835 (233,373) 276,797
Obligations under capital leases.... 26,950 2,807 -- -- 29,757
Long-term debt...................... 18,697 6,197 327,959 (18,697) 334,156
Deferred income taxes............... -- 3,353 -- (3,353) --
Other long-term liabilities......... 157,104 8,631 5,276 (14,614) 156,397
-------- -------- -------- --------- --------
Total liabilities.......... 580,010 142,064 345,070 (270,037) 797,107
-------- -------- -------- --------- --------
Minority interest................... 9,618 (365) -- -- 9,618
-------- -------- -------- --------- --------
Commitments and contingencies....... -- -- -- -- --
Shareholder's equity:
Common stock...................... 10 -- -- (10) --
Additional paid-in capital........ 175,023 11,187 59,579 (186,210) 59,579
Cumulative translation
adjustment...................... (807) (2,990) (3,797) 3,797 (3,797)
Minimum pension liability
adjustment...................... (330) -- (330) 330 (330)
Retained earnings (deficit)....... 21,179 34,666 (8,721) (55,845) (8,721)
-------- -------- -------- --------- --------
Total shareholder's
equity................... 195,075 42,863 46,731 (237,938) 46,731
-------- -------- -------- --------- --------
Total liabilities and
shareholder's equity..... $784,703 $ 184,927 $391,801 $(507,975) $853,456
======== ======== ======== ========= ========
</TABLE>
F-31
<PAGE> 153
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEETS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 24,820 $ 17,135 $ 12,874 $ -- $ 54,829
Accounts and notes receivable,
net.......................... 90,769 51,827 3,465 (9,542) 136,519
Advances to affiliates.......... 1,043 -- 291,179 (291,179) 1,043
Tax refund receivable from
parent....................... 8,331 -- -- -- 8,331
Inventories..................... 10,477 6,508 -- -- 16,985
Deferred income taxes........... 7,830 -- 18 (3,507) 4,341
Prepaid expenses................ 10,436 3,566 -- 524 14,526
-------- -------- -------- ---------- --------
Total current assets.... 153,706 79,036 307,536 (303,704) 236,574
Property and equipment, net....... 86,648 89,199 -- -- 175,847
Deferred income taxes............. 30,336 3,825 8,439 -- 42,600
Goodwill and intangible assets,
net............................. 304,311 -- -- (48,201) 256,110
Investment in affiliates.......... 199,815 -- 42,276 (230,578) 11,513
Loan to affiliate................. -- -- 38,544 -- 38,544
Other assets...................... 39,179 2,875 16,645 8,906 67,605
-------- -------- -------- ---------- --------
Total assets............ $813,995 $ 174,935 $ 413,440 $ (573,577) $828,793
======== ======== ======== ========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................ $ 60,993 $ 30,549 $ 317 $ (12,053) $ 79,806
Accrued expenses................ 85,725 47,439 5,556 -- 138,720
Payable to affiliates........... 254,552 12,160 -- (266,712) --
Deferred income taxes........... -- 3,507 -- (3,507) --
Current portion of long-term
debt......................... -- 16,824 8,533 (10,941) 14,416
Current portion of obligations
under capital leases......... 425 225 -- -- 650
-------- -------- -------- ---------- --------
Total current
liabilities........... 401,695 110,704 14,406 (293,213) 233,592
Obligations under capital
leases.......................... 27,370 2,780 -- -- 30,150
Long-term debt.................... 18,884 5,643 341,200 (18,884) 346,843
Other long-term liabilities....... 161,599 11,006 3,264 (21,709) 154,160
-------- -------- -------- ---------- --------
Total liabilities....... 609,548 130,133 358,870 (333,806) 764,745
-------- -------- -------- ---------- --------
Minority interest................. 9,307 171 -- -- 9,478
-------- -------- -------- ---------- --------
Commitments and contingencies
Shareholder's equity:
Common stock.................... 10 -- -- (10) --
Additional paid-in capital...... 175,015 14,662 59,579 (189,677) 59,579
Cumulative translation
adjustment................... 112 (3,590) (1,764) 3,478 (1,764)
Minimum pension liability
adjustment................... (5,565) -- (5,565) 5,565 (5,565)
Retained earnings............... 25,568 33,559 2,320 (59,127) 2,320
-------- -------- -------- ---------- --------
Total shareholder's
equity................ 195,140 44,631 54,570 (239,771) 54,570
-------- -------- -------- ---------- --------
Total liabilities and
shareholder's
equity................ $813,995 $ 174,935 $ 413,440 $ (573,577) $828,793
======== ======== ======== ========== ========
</TABLE>
F-32
<PAGE> 154
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $802,795 $ 423,802 $ -- $ (28,407) $ 1,198,190
-------- -------- -------- -------- --------
Costs and expenses:
Cost of operations.............. 661,972 384,326 169 -- 1,046,467
Depreciation and amortization... 22,399 8,835 11 -- 31,245
Selling, general and
administrative............... 21,271 12,485 3,838 -- 37,594
Integration expenses............ 10,436 3,338 -- -- 13,774
Other........................... 36,398 4,114 -- (28,407) 12,105
-------- -------- -------- -------- --------
Total costs and
expenses.............. 752,476 413,098 4,018 (28,407) 1,141,185
-------- -------- -------- -------- --------
Operating income (loss)........... 50,319 10,704 (4,018) -- 57,005
-------- -------- -------- -------- --------
Other income (expense):
Interest income................. 436 6,399 3,877 (5,923) 4,789
Interest expense................ (16,814) (8,492) (20,206) 5,923 (39,589)
Equity in earnings (loss)....... 2,242 (1,891) 13,114 (14,061) (596)
Other........................... (5,235) (2,276) (6,260) -- (7,511)
-------- -------- -------- -------- --------
Total other expense..... (19,371) (6,260) (3,215) (14,061) (42,907)
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................... 30,948 4,444 (7,233) (14,061) 14,098
Provision (benefit) for income
taxes........................... 15,698 5,633 (10,096) -- 11,235
Extraordinary loss, net of
taxes........................... -- -- (20,745) -- (20,745)
-------- -------- -------- -------- --------
Net Income (loss)................. $ 15,250 $ (1,189) $(17,882) $ (14,061) $ (17,883)
======== ======== ======== ======== ========
</TABLE>
F-33
<PAGE> 155
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $722,252 $ 419,850 $ -- $ -- $ 1,142,102
-------- -------- -------- -------- --------
Costs and expenses:
Cost of operations.............. 635,032 379,551 199 -- 1,014,782
Depreciation and amortization... 16,829 10,675 -- -- 27,504
Selling, general and
administrative............... 28,815 4,078 2,868 -- 35,761
Integration expenses............ 18,605 3,092 -- -- 21,897
Other........................... 7,651 9,383 207 -- 17,251
-------- -------- -------- -------- --------
Total costs and
expenses.............. 707,142 406,779 3,274 -- 1,117,195
-------- -------- -------- -------- --------
Operating income (loss)........... 15,110 13,071 (3,274) -- 24,907
-------- -------- -------- -------- --------
Other income (expense):
Interest income................. 2,053 8,184 2,667 (7,601) 5,303
Interest expense................ (21,851) (10,895) (14,295) 7,601 (38,870)
Equity in earnings (loss)....... -- (147) (794) 794 (147)
Other........................... (4,167) (471) -- -- (4,638)
-------- -------- -------- -------- --------
Total other expense..... (23,395) (3,329) (12,422) 794 (38,352)
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................... (8,285) 9,742 (15,696) 794 (13,445)
Provision (benefit) for income
taxes........................... (1,081) 3,332 (7,051) -- (4,800)
-------- -------- -------- -------- --------
Net Income (loss)................. $ (7,204) $ 6,410 $ (8,645) $ 794 $ (8,645)
======== ======== ======== ======== ========
</TABLE>
F-34
<PAGE> 156
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION TOTAL SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ -------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 1,007,155 $ 563,678 $ -- $ (41,017) $ 1,529,816
-------- -------- --------- -------- ----------
Costs and expenses:
Cost of operations........ 851,877 500,283 199 -- 1,352,359
Depreciation and
amortization........... 23,638 14,289 1 -- 37,928
Selling, general and
administrative......... 32,984 11,209 4,661 -- 48,854
Integration expenses...... 25,095 5,266 -- -- 30,361
Other..................... 53,893 10,638 207 (41,017) 23,721
-------- -------- --------- -------- ----------
Total costs and
expenses........ 987,487 541,685 5,068 (41,017) 1,493,223
-------- -------- --------- -------- ----------
Operating income (loss)..... 19,668 21,993 (5,068) -- 36,593
-------- -------- --------- -------- ----------
Other income (expense):
Interest income........... 2,249 11,257 4,173 (9,783) 7,896
Interest expense.......... (24,681) (14,371) (21,162) 9,783 (50,431)
Equity in earnings
(loss)................. 1,313 (8,453) 3,282 3,282 (576)
Other..................... (139) (3,964) -- -- (4,103)
-------- -------- --------- -------- ----------
Total other
expense......... (21,258) (15,531) (13,707) 3,282 (47,214)
-------- -------- --------- -------- ----------
Income (loss) before income
taxes..................... (1,590) 6,462 (18,775) 3,282 (10,621)
Provision (benefit) for
income taxes.............. 2,799 5,355 (7,734) -- 420
-------- -------- --------- -------- ----------
Net income (loss)........... $ (4,389) $ 1,107 $(11,041) $ 3,282 $ (11,041)
======== ======== ========= ======== ==========
</TABLE>
F-35
<PAGE> 157
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $596,253 $ 161,522 $ -- $ (18,673) $739,102
------------ ------------- ---------------- ----------- ------------
Costs and expenses:
Cost of operations.............. 487,881 146,494 -- -- 634,375
Depreciation and amortization... 17,682 3,656 -- -- 21,338
Selling, general and
administrative............... 18,612 9,233 231 -- 28,076
Integration expenses............ 28,644 -- -- -- 28,644
Other........................... 48,342 213 -- (18,673) 29,882
------------ ------------- ---------------- ----------- ------------
Total costs and
expenses.............. 601,161 159,596 231 (18,673) 742,315
------------ ------------- ---------------- ----------- ------------
Operating income (loss)........... (4,908) 1,926 (231) -- (3,213)
------------ ------------- ---------------- ----------- ------------
Other income (expense):
Interest income................. 6,243 325 6,213 (10,323) 2,458
Interest expense................ (14,075) (5,916) (10,047) 10,323 (19,715)
Equity in earnings (loss)....... 4,515 (921) (13,551) 9,180 (777)
Other........................... (6,402) 5,080 -- -- (1,322)
------------ ------------- ---------------- ----------- ------------
Total other income
(expense)............. (9,719) (1,432) (17,385) 9,180 (19,356)
------------ ------------- ---------------- ----------- ------------
Income (loss) before income
taxes........................... (14,627) 494 (17,616) 9,180 (22,569)
Provision (benefit) for income
taxes........................... (5,739) 786 (1,572) -- (6,525)
------------ ------------- ---------------- ----------- ------------
Net income (loss)................. $ (8,888) $ (292) $(16,044) $ 9,180 $(16,044)
========= =========== ============ ======== =========
</TABLE>
F-36
<PAGE> 158
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $463,059 $ 24,228 $ -- $ (18,679) $468,608
------------ ------------- ---------------- ----------- ------------
Costs and expenses:
Cost of operations.............. 382,637 5,639 -- -- 388,276
Depreciation and amortization... 15,312 191 -- -- 15,503
Selling, general and
administrative............... 17,103 22 -- -- 17,125
Other........................... 22,871 153 -- (18,679) 4,345
------------ ------------- ---------------- ----------- ------------
Total costs and
expenses.............. 437,923 6,005 -- (18,679) 425,249
------------ ------------- ---------------- ----------- ------------
Operating income (loss)........... 25,136 18,223 -- -- 43,359
------------ ------------- ---------------- ----------- ------------
Other income (expense):
Interest income................. 177 829 -- (802) 204
Interest expense................ (6,367) (183) -- 802 (5,748)
Equity in earnings (loss)....... 11,999 -- -- (11,999) --
Other........................... (1,147) (78) -- -- (1,225)
------------ ------------- ---------------- ----------- ------------
Total other income
(expense)............. 4,662 568 -- (11,999) (6,769)
------------ ------------- ---------------- ----------- ------------
Income (loss) before income
taxes........................... 29,798 18,791 -- (11,999) 36,590
Provision for income taxes........ 6,593 6,792 -- -- 13,385
------------ ------------- ---------------- ----------- ------------
Net income (loss)................. $ 23,205 $ 11,999 $ -- $ (11,999) $ 23,205
========= =========== ============ ======== =========
</TABLE>
F-37
<PAGE> 159
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities: $ 22,300 $ (746) $ (44,078) $ -- $ (22,524)
-------- -------- --------- -------- ---------
Cash flows from investing
activities:
Acquisition of businesses....... -- -- (35,900) -- (35,900)
Purchase of property and
equipment.................... (12,207) (6,701) (54) -- (18,962)
Advances from (to) affiliates... (15,885) (1,113) 30,821 -- 13,823
Other........................... -- -- -- -- --
-------- -------- --------- -------- ---------
Net cash used in
investing
activities............ (28,092) (7,814) (5,133) -- (41,039)
-------- -------- --------- -------- ---------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt............... -- -- 90,000 -- 90,000
Proceeds from issuance of
Notes........................ -- -- 300,000 -- 300,000
Deferred financing costs........ -- -- (13,228) -- (13,228)
Payment of Notes................ -- -- (125,000) -- (125,000)
Payment of long-term debt and
obligations under capital
leases....................... (311) (379) -- -- (690)
Borrowing (repayments) under
credit agreement............. -- 640 (213,746) -- (213,106)
Purchase of employee stock loans
from an affiliate............ -- -- -- -- --
Dividend payment to parent...... -- -- -- -- --
Net change in (payable to) and
receivable from parent....... 6,765 1,491 -- -- 8,256
-------- -------- --------- -------- ---------
Net cash provided by
(used in) financing
activities............ 6,454 1,752 38,206 -- 46,232
-------- -------- --------- -------- ---------
Increase in cash and cash
equivalents..................... 662 (6,808) (11,185) -- (17,331)
Cash and cash equivalents,
beginning of period............. 1,399 21,517 32,742 -- 55,658
-------- -------- --------- -------- ---------
Cash and cash equivalents, end of
period.......................... $ 2,061 $ 14,709 $ 21,557 $ -- $ 38,327
======== ======== ========= ======== =========
</TABLE>
F-38
<PAGE> 160
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION TOTAL SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities...................... $ 48,813 $ 7,050 $(11,531) $-- $ 44,332
-------- ------- -------- --- --------
Cash flows from investing
activities:
Acquisition of businesses....... -- -- -- -- --
Purchase of property and
equipment.................... (15,705) (4,933) (61) -- (20,699)
Advances from (to) affiliates... (59,581) 7,528 57,886 -- 5,833
Other........................... -- -- -- -- --
-------- ------- -------- --- --------
Net cash used in
investing
activities............ (75,286) 2,595 57,825 -- (14,866)
-------- ------- -------- --- --------
Cash flows from financing
activities:
Proceeds from issuance of
long-term debt............... -- -- -- -- --
Proceeds from issuance of
Notes........................ -- -- -- -- --
Deferred financing costs........ -- -- -- -- --
Payment of long-term debt and
obligations under capital
leases....................... (291) 8,920 (8,789) -- (160)
Borrowing (repayments) under
credit agreement............. -- (8,896) -- -- (8,896)
Purchase of employee stock loans
from an affiliate............ -- -- -- -- --
Dividend payment to parent...... 3,941 (3,941) -- -- --
Net change in (payable to) and
receivable from parent....... -- (2,299) -- -- (2,299)
-------- ------- -------- --- --------
Net cash provided by
(used in) financing
activities............ 3,650 (6,216) (8,789) -- (11,355)
-------- ------- -------- --- --------
Increase in cash and cash
equivalents..................... (22,823) 3,429 37,505 -- 18,111
Cash and cash equivalents,
beginning of period............. 24,820 17,135 12,874 -- 54,829
-------- ------- -------- --- --------
Cash and cash equivalents, end of
period.......................... $ 1,997 $20,564 $ 50,379 $-- $ 72,940
======== ======= ======== === ========
</TABLE>
F-39
<PAGE> 161
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities...................... $ 43,063 $ 3,255 $ 30,949 $ (38,085) $ 39,182
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Acquisition of business......... -- -- -- -- --
Purchase of property and
equipment.................... (31,477) (5,329) (94) -- (36,900)
Advances from (to) affiliates... (38,310) 5,773 -- 38,085 5,548
Other........................... -- -- -- -- --
-------- -------- -------- -------- --------
Net cash used in investing
activities................. (69,787) 444 (94) 38,085 (31,352)
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Payment of long-term debt and
obligations under capital
leases....................... (645) 236 -- -- (409)
Borrowing (repayments) under
credit agreement............. -- (2,043) (10,987) -- (13,030)
Dividend payment to parent...... 3,948 (3,948) -- -- --
Net change in (payable to) and
receivable from parent....... -- 6,438 -- -- 6,438
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing activities... 3,303 683 (10,987) -- (7,001)
-------- -------- -------- -------- --------
Increase in cash and cash
equivalents..................... (23,421) 4,382 19,868 -- 829
Cash and cash equivalents,
beginning of period............. 24,820 17,135 12,874 -- 54,829
-------- -------- -------- -------- --------
Cash and cash equivalents, end of
period.......................... $ 1,399 $ 21,517 $ 32,742 $ -- $ 55,658
======== ======== ======== ======== ========
</TABLE>
F-40
<PAGE> 162
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operations:... $ 45,351 $ 21,623 $ 2,635 $ (10,501) $ 59,108
-------- -------- --------- -------- ---------
Cash flows from investing activities:
Acquisition of businesses.............. (41,219) (173,811) 3,879 -- (211,151)
Purchase of property and equipment..... (7,180) (2,395) -- -- (9,575)
Advances from (to) affiliates.......... 51,242 206,524 (307,098) 10,501 (38,831)
Other.................................. 412 -- -- -- 412
-------- -------- --------- -------- ---------
Net cash provided by (used in)
investing activities............... 3,255 30,318 (303,219) 10,501 (259,145)
-------- -------- --------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term
debt and notes....................... -- -- 350,000 -- 350,000
Deferred financing costs............... -- -- (17,337) -- (17,337)
Payment of debt and capital lease
obligations.......................... (292) (37,631) (267) -- (38,190)
Repayment under credit agreement....... (17,500) 1,502 -- -- (15,998)
Purchase of employee stock loans from
affiliate............................ (6,661) -- -- -- (6,661)
Net change in payable to and receivable
from parent.......................... -- -- (18,938) -- (18,938)
Dividend payment to parent............. (10,465) -- -- -- (10,465)
-------- -------- --------- -------- ---------
Net cash provided by (used in)
financing activities:.............. (34,918) (36,129) 313,458 -- 242,411
-------- -------- --------- -------- ---------
Increase in cash and cash equivalents.... 13,688 15,812 12,874 -- 42,374
Cash and cash equivalents, beginning of
period................................. 11,132 1,323 -- -- 12,455
-------- -------- --------- -------- ---------
Cash and cash equivalents, end of
period................................. $ 24,820 $ 17,135 $ 12,874 $ -- $ 54,829
======== ======== ========= ======== =========
</TABLE>
F-41
<PAGE> 163
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA;
INFORMATION SUBSEQUENT TO FEBRUARY 28, 1997 IS UNAUDITED)
20. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
--------------------------------------------------------------------------------
COMBINED COMBINED SC INTERNATIONAL TOTAL
GUARANTOR NON-GUARANTOR SERVICES, INC. ELIMINATION SCIS
SUBSIDIARIES SUBSIDIARIES (PARENT ONLY) ENTRIES CONSOLIDATED
------------ ------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in) operations:... $ 20,382 $ 24,606 $ -- $ (23,829) $ 21,159
------- ------- ------- -------- ----------
Cash flows from investing activities:
Acquisition of business................ -- (10,582) -- -- (10,582)
Purchase of property and equipment..... (11,456) (319) -- -- (11,775)
Advance from (to) affiliates........... (11,836) (11,993) -- 23,829 --
Other.................................. (1,000) -- -- -- (1,000)
------- ------- ------- -------- ----------
Net cash provided by (used in)
investing activities............... (24,292) (22,894) -- 23,829 (23,357)
------- ------- ------- -------- ----------
Cash flows from financing activities:
Borrowing under credit agreement....... 17,500 -- -- -- 17,500
Payment of debt and capital
obligations.......................... (16,106) (389) -- -- (16,495)
Net increase in payable to parent...... 8,228 -- -- -- 8,228
------- ------- ------- -------- ----------
Net cash provided by (used in)
financing activities............... 9,622 (389) -- -- 9,233
------- ------- ------- -------- ----------
Increase in cash and cash equivalents.... 5,712 1,323 -- -- 7,035
Cash and cash equivalents, beginning of
period................................. 5,420 -- -- -- 5,420
------- ------- ------- -------- ----------
Cash and cash equivalents, end of
period................................. $ 11,132 $ 1,323 $ -- $ -- $ 12,455
======= ======= ======= ======== ==========
</TABLE>
F-42
<PAGE> 164
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Caterair International Corporation:
We have audited the accompanying consolidated balance sheets of Caterair
International Corporation and Subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of operations, shareholder's deficit and
cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Caterair
International Corporation and Subsidiaries as of December 31, 1996 and 1995 and
the consolidated results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
March 5, 1997
F-43
<PAGE> 165
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Caterair International Corporation:
We have audited the accompanying consolidated statements of operations,
shareholder's deficit and cash flows of Caterair International Corporation (a
Delaware corporation) and Subsidiaries for the year ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Caterair
International Corporation and Subsidiaries for the year ended December 31, 1994,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
September 28, 1995
F-44
<PAGE> 166
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 631 $ 6,847 $ 135
Accounts receivable (net of allowance for doubtful
accounts of $355 in 1995, $994 in 1996, and $999 at
September 30, 1997)................................. 13,854 11,143 10,771
Current portion of amount due from affiliate under non-
compete agreement................................... 3,193 3,130 3,037
Advances to affiliate, net............................. -- 4,505 18,327
Deferred income taxes.................................. 8,200 920 921
Prepaid expenses and other............................. 2,950 1,312 1,178
-------- -------- ---------
Total current assets........................... 28,828 27,857 34,369
Property and equipment, net.............................. 88,623 79,395 71,129
Deferred income taxes.................................... 39,663 38,458 37,439
Deferred financing cost, net............................. 5,892 4,875 2,636
Due from affiliate under non-competition agreement....... 15,588 12,458 10,473
Net assets of discontinued operations.................... -- 1,399 1,211
Other assets............................................. 15,683 9,506 6,960
-------- -------- ---------
Total assets................................... $ 194,277 $ 173,948 $ 164,217
======== ======== =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accrued interest....................................... $ 668 $ 1,159 $ 1,458
Payable to affiliate................................... 1,043 -- --
Other payables and accrued liabilities................. 30,248 23,682 17,099
Current portion of deferred revenue under
non-competition agreement........................... 3,193 3,130 3,037
Current portion of long-term debt...................... 17,507 17,206 1,601
Current portion of obligations under capital leases.... 95 105 110
-------- -------- ---------
Total current liabilities...................... 52,754 45,282 23,305
Obligations under capital leases......................... 1,893 1,788 1,678
Long-term debt........................................... 167,503 150,298 158,400
Note payable to affiliate................................ 38,544 41,634 44,075
Deferred revenue under non-competition agreement with
affiliate.............................................. 14,805 11,738 9,483
Net liabilities of discontinued operations............... 1,540 -- --
Other long-term liabilities.............................. 28,990 25,198 23,465
-------- -------- ---------
Total liabilities.............................. 306,029 275,938 260,406
Commitments and contingencies............................ -- -- --
Shareholder's deficit:
Common stock, $.01 par value; 10,000 shares authorized
and issued.......................................... -- -- --
Additional paid-in capital............................. 173,596 173,596 173,596
Advance to parent...................................... (38,947) (38,947) (38,947)
Cumulative translation adjustment...................... -- 23 23
Accumulated deficit.................................... (246,401) (236,662) (230,861)
-------- -------- ---------
Total shareholder's deficit.................... (111,752) (101,990) (96,189)
-------- -------- ---------
Total liabilities and shareholder's deficit.... $ 194,277 $ 173,948 $ 164,217
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-45
<PAGE> 167
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- ----------------------
1994 1995 1996 1996 1997
-------- -------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues from affiliates:
License income.......................... $ -- $ 8,001 $34,349 $25,599 $24,903
Rental income........................... -- 10,169 40,479 30,929 29,164
Income under non-competition
agreement............................ -- 783 3,130 2,348 2,348
--------- ------- ------ ------ -------
Total revenues.................. -- 18,953 77,958 58,876 56,415
--------- ------- ------ ------ -------
Operating expenses:
Cost of operations...................... -- 7,649 30,416 24,082 22,207
Selling, general and administrative..... -- 125 1,393 1,806 593
Depreciation and amortization........... -- 3,400 11,806 9,023 8,218
--------- ------- ------ ------ -------
Total operating expenses........ -- 11,174 43,615 34,911 31,018
--------- ------- ------ ------ -------
Operating income.......................... -- 7,779 34,343 23,965 25,397
Interest income........................... -- (264) (208) (155) (372)
Interest expense.......................... -- 4,979 18,450 14,308 13,443
Other (income) expense.................... -- -- -- -- (611)
--------- ------- ------ ------ -------
Income from continuing operations before
income taxes............................ -- 3,064 16,101 9,812 12,937
Income tax provision (benefit)............ -- (50,380) 8,044 3,527 3,622
--------- ------- ------ ------ -------
Income from continuing operations....... -- 53,444 8,057 6,285 9,315
--------- ------- ------ ------ -------
Discontinued operations, net of taxes:
Income (loss) from discontinued
operations........................... (23,847) (25,430) 904 1,593 (470)
Gain on disposition of discontinued
operations........................... -- 52,674 778 1,244 --
--------- ------- ------ ------ -------
Income (loss) from discontinued
operations......................... (23,847) 27,244 1,682 2,837 (470)
--------- ------- ------ ------ -------
Income (loss) before extraordinary item... (23,847) 80,688 9,739 9,122 8,845
Extraordinary loss from early
extinguishment of debt, net of tax of
$1,175 in 1997.......................... -- (4,319) -- -- (3,044)
--------- ------- ------ ------ -------
Net income (loss)............... $(23,847) $ 76,369 $ 9,739 $ 9,122 $ 5,801
========= ======= ====== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-46
<PAGE> 168
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S DEFICIT
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ADVANCE CUMULATIVE
---------------- PAID-IN TO TRANSLATION ACCUMULATED
SHARES AMOUNT CAPITAL PARENT ADJUSTMENT DEFICIT TOTAL
------ ------ ---------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993... 10,000 $ -- $173,596 $ -- $ -- $(298,853) $(125,257)
Net loss..................... -- -- -- -- -- (23,847) (23,847)
------ ------ ---------- -------- --- ----------- ---------
Balance, December 31, 1994... 10,000 -- 173,596 -- -- (322,700) (149,104)
Net income................... -- -- -- -- -- 76,369 76,369
Dividend..................... -- -- -- -- -- (70) (70)
Advance to parent............ -- -- -- (38,947) -- -- (38,947)
------ ------ ---------- -------- --- ----------- ---------
Balance, December 31, 1995... 10,000 -- 173,596 (38,947) -- (246,401) (111,752)
Cumulative translation
adjustment................. -- -- -- -- 23 -- 23
Net income................... -- -- -- -- -- 9,739 9,739
------ ------ ---------- -------- --- ----------- ---------
Balance, December 31, 1996... 10,000 -- 173,596 (38,947) 23 (236,662) (101,990)
Net income (unaudited)....... -- -- -- -- -- 5,801 5,801
------ ------ ---------- -------- --- ----------- ---------
Balance, September 30, 1997
(unaudited)................ 10,000 $ -- $173,596 $(38,947) $ 23 $(230,861) $ (96,189)
====== ======= ========= ========= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-47
<PAGE> 169
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ----------------------
1994 1995 1996 1996 1997
-------- --------- -------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(23,847) $ 76,369 $ 9,739 $ 9,122 $ 5,801
Adjustments to reconcile net income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization.......................... -- 3,400 11,806 9,023 8,218
Deferred income taxes.................................. -- (50,480) 8,485 3,513 1,018
Interest on note payable to affiliate settled in
kind................................................. -- 756 3,090 2,267 2,442
Noncash interest expense............................... -- 254 1,017 678 678
Extraordinary loss from early extinguishment of debt... -- 4,319 -- -- 4,219
Gain on sale of fixed assets........................... -- -- -- -- (492)
Gain on disposition of discontinued operations......... -- (52,674) (778) (1,244) --
Change in working capital items (Note 13)................ -- (9,852) (744) 5,240 (3,793)
Change in other assets and liabilities................... -- -- -- 4,737 (1,569)
Proceeds from insurance carrier from loss on capital
assets................................................. -- -- 1,200 -- --
Net effect of discontinued operations.................... 53,250 (39,683) (2,150) (1,770) 188
-------- --------- -------- -------- ---------
Net cash provided by (used in) operating
activities....................................... 29,403 (67,591) 31,665 31,566 16,710
-------- --------- -------- -------- ---------
Cash flows from investing activities:
Capital expenditures..................................... -- (6,128) (2,300) (2,300) --
Proceeds from sale of discontinued operations............ -- 208,300 -- -- --
Proceeds from sale of fixed assets....................... -- -- -- -- 645
(Advances to) repayments from affiliates................. -- -- (5,548) (5,833) (13,823)
Net effect of discontinued operations.................... (34,611) (5,417) -- -- --
-------- --------- -------- -------- ---------
Net cash provided by (used in) investing
activities....................................... (34,611) 196,755 (7,848) (8,133) (13,178)
-------- --------- -------- -------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on the revolving credit
facility............................................... 7,500 (62,500) -- -- --
Borrowings of long-term debt............................. 13,774 185,000 -- -- 160,000
Repayments of long-term debt............................. (5,667) (301,854) (17,601) (13,300) (167,608)
Deferred financing costs................................. -- -- -- -- (2,636)
Proceeds from note payable to affiliate.................. -- 37,788 -- -- --
Net effect of discontinued operations.................... (6,537) -- -- -- --
Other.................................................... (516) -- -- (8,120) --
-------- --------- -------- -------- ---------
Net cash provided by (used in) financing
activities....................................... 8,554 (141,566) (17,601) (21,420) (10,244)
-------- --------- -------- -------- ---------
Increase (decrease) in cash and cash equivalents........... 3,346 (12,402) 6,216 2,013 (6,712)
Cash and cash equivalents, beginning of period............. 9,687 13,033 631 631 6,847
-------- --------- -------- -------- ---------
Cash and cash equivalents, end of period................... $ 13,033 $ 631 $ 6,847 $ 2,644 $ 135
======== ========= ======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................... $ 24,255 $ 67,610 $ 15,268 $11,944 $ 10,749
Income taxes........................................... 5,411 6,945 -- -- --
Supplemental disclosure of noncash financing and investing
activities:
Liabilities assumed by purchaser upon disposition of
discontinued operations................................ $ -- $ 44,048 $ 4,464 $ 4,464 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-48
<PAGE> 170
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business and Basis of Consolidation
Caterair International Corporation ("Caterair" or the "Company") is a
wholly-owned subsidiary of Caterair Holdings Corporation ("Holdings"). On
September 29, 1995, the Company, Holdings, SC International Services, Inc. and
its subsidiaries ("SCIS") and its parent, Onex Food Services, Inc. ("OFSI")
consummated transactions with the shareholders and creditor of Holdings (the
"Transactions") whereby OFSI and an affiliate of OFSI exchanged common stock and
warrants of OFSI, valued in the aggregate amount of $38,947, for certain stock
and debt held by Holdings' shareholders and creditor, as a result of which OFSI
and its parent acquired more than 50% of the total outstanding voting shares of
Holdings and approximately 25% of the total outstanding nonvoting shares of
Holdings. In addition, as part of the Transactions, SCIS acquired, licensed,
leased and subleased most of the worldwide business and assets of the Company
(other than with respect to certain operations which have been temporarily
retained as described in Note 2). The proceeds from the Transactions were
approximately $247,247 which consisted of $208,300 in cash and approximately
$38,947 in common stock and warrants of OFSI (See Note 2). The Company
recognized a $52,674 gain, net of transaction fees, on the disposition of
discontinued operations. There was no tax effect on this gain.
Prior to the Transactions, the Company was principally engaged in providing
international and domestic airline catering services. Subsequent to the
Transactions (other than with respect to certain operations which have been
temporarily retained as described in Note 2), the Company is principally engaged
in the business of leasing, subleasing and licensing domestic property to SCIS
and its subsidiaries. The accompanying consolidated financial statements include
the accounts of the Company and all remaining wholly-owned and majority owned
subsidiaries. All significant intercompany transactions have been eliminated.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
The consolidated balance sheet as of September 30, 1997, the consolidated
statement of shareholder's deficit for the nine months then ended, and the
consolidated statements of operations and cash flows for the nine months ended
September 30, 1996 and 1997, have been prepared by the Company without audit. In
the opinion of management, all adjustments (which included only normal,
recurring adjustments) necessary to present fairly the financial position at
September 30, 1997, and the results of operations and cash flows for all periods
presented have been made. The results of operations for the interim periods are
not necessarily indicative of the operating results for the full year.
Revenue Recognition
License income is recognized as services are provided under the various
license agreements. Rental income is recognized on a straight-line basis over
the lease period.
F-49
<PAGE> 171
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
Cash and Cash Equivalents
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with an original maturity of three months or less are
considered to be cash equivalents. Cash flows from swap transactions are
classified in the same category as the items being hedged.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
in such accounts.
Interest Rate Swap Agreements
The differential to be paid or received on interest rate swap agreements is
accrued as interest rates change and is recognized over the life of the
agreement.
Property and Equipment
The provision for depreciation and amortization of property and equipment
is computed using the straight-line method. The estimated useful lives are as
follows:
<TABLE>
<S> <C>
Buildings................................. 25 years
Leasehold improvements.................... Term of the lease or estimated useful
life, whichever is less
Furniture and equipment................... 4 to 10 years
Vehicles.................................. 4 to 10 years
</TABLE>
Gains and losses from disposals of property and equipment are reflected in
the results of operations in the period of disposal.
Property and equipment under capital leases are amortized over the lives of
the leases or the estimated useful lives of the assets, whichever is less.
Intangible Assets
Intangible assets consisting primarily of rights, licenses and
non-competition agreements are recorded at cost. These assets are being
amortized over their estimated useful lives using the straight-line method.
On March 31, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The Company adopted this standard effective January 1, 1996, which did not have
a material impact on the Company's financial position.
Non-Competition Agreements
Revenues under a non-competition agreement are recognized ratably over the
terms of the agreement.
Deferred Financing Costs
Costs incurred related to the issuance of debt are deferred and amortized
over the life of the related debt using the effective interest rate method.
Deferred financing costs related to debt outstanding prior to the Transactions
(described in Note 2) were written off as a component of the extraordinary loss
from early extinguishment of debt. Deferred financing costs related to the
Transactions (described in Note 2) amounted to $6,147. The Company amortized
$255 and $1,017 of these costs in 1995 and 1996, respectively, which are
reflected in interest expense.
F-50
<PAGE> 172
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
Income Taxes
The accounts of the Company are included in the consolidated federal income
tax return of Holdings. Current and deferred income taxes are allocated to the
Company as if it were a separate taxpayer.
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities.
Reclassification of Prior Period Amounts
Certain prior period amounts have been reclassified to conform to the
current year presentation.
Recent Accounting Standards
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
of an Enterprise and Related Information." Preliminary analysis of these new
standards by the Company indicates that the standards will not have a material
impact on the Company. The standards are effective for financial statements for
fiscal years beginning after December 15, 1997.
2. DISCONTINUED OPERATIONS:
As described in Note 1, the Company consummated the Transactions on
September 29, 1995 whereby it discontinued most of its airline catering services
business and primarily engaged in the business of leasing, subleasing and
licensing domestic property to affiliates, Sky Chefs, Inc. ("Sky Chefs") and
Caterair International, Inc. (II) ("CII"), both wholly-owned subsidiaries of
SCIS. Accordingly, all operations prior to September 30, 1995 have been
reflected as discontinued.
The Company was unable to obtain certain consents to the Transactions with
respect to certain of the Company's kitchens at which one airline is the major
customer. Such consents with respect to these operations were obtained during
the second quarter of 1996 and such operations were leased, subleased and
licensed to SCIS and its subsidiaries. Prior to acquiring this consent, the
Company and SCIS entered into a management agreement for the operations at these
kitchens whereby the Company continued to operate them with its employees and
SCIS provided management and administration support services in exchange for a
management fee equivalent to 4% of the kitchen's net sales. Management fees paid
under this arrangement amounted to $604 and $1,057 for the period ended December
31, 1995 and 1996, respectively.
In connection with the Transactions, SCIS and its subsidiaries licensed
Caterair's rights under certain customer contracts for a six-year period (the
"License Agreements"). However, after the consummation of such Transactions, the
Company retained certain operations relating to customer contracts for which
consents to assignment were not obtained. Such consents with respect to these
operations were obtained during the second quarter of 1996 and such operations
were leased, subleased and licensed to SCIS and its subsidiaries. Sky Chefs and
CII each have the option to purchase the customer contract rights covered by the
License Agreements for an amount calculated to equal the estimated fair market
value of such rights at the time of the exercise of such option. The option is
exercisable at any time until the date which is 90 days after the termination of
the applicable License Agreement. The Company is not certain whether such
options will be exercised. Caterair agreed, subject to certain exceptions, not
to compete with Sky Chefs in the airline catering business for a six-year term
and Sky Chefs is obligated to pay Caterair $4.0 million per year. At December
31, 1995 and 1996 the non-competition agreement was valued at $18,781 and
$15,588, respectively, representing the present value of payments discounted at
8.25%.
F-51
<PAGE> 173
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
Concurrent with the Transactions, the Company borrowed $185,000 from a
consortium of lenders and $37,788 from SCIS (see Note 5). The borrowings, as
well as the cash proceeds ($208,300, net) from the Transactions, were utilized
to repay indebtedness outstanding under the Company's prior credit agreement,
senior notes and debentures in the aggregate amount of approximately $364,000
plus accrued interest, and to pay certain expenses relating to the Transactions.
The Company recorded an extraordinary loss of $4,319 consisting of the
difference between amounts paid to lenders for full extinguishment of debt and
carrying amounts of debt including deferred financing costs and accrued
interest. There was no tax effect on this extraordinary loss.
Identifiable revenues and expenses from discontinued operations have been
reclassified on the accompanying consolidated statements of operations from
their historical classification to separately identify them as discontinued
operations. Summary operating results for discontinued operations follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- --------------------
1994 1995 1996 1996 1997
---------- -------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $1,023,143 $773,243 $31,169 $29,982 $2,872
Cost of operations................. 916,422 698,689 27,854 27,635 3,058
Selling, general and administrative
expenses......................... 42,803 27,698 1,057 -- --
Depreciation and amortization...... 30,890 21,821 -- -- --
---------- -------- ------- ------- ------
Operating income................... 33,028 25,035 2,258 2,347 (186)
Interest expense................... 50,962 45,626 18 (13) 11
Other.............................. 890 (674) 920 (1,003) 494
---------- -------- ------- ------- ------
Income (loss) before income
taxes............................ (18,824) (19,917) 1,320 1,331 (691)
Provision for income taxes......... 5,023 5,513 416 (262) (221)
---------- -------- ------- ------- ------
Income (loss) from discontinued
operations....................... $ (23,847) $(25,430) $ 904 $ 1,593 $ (470)
========= ======== ======= ======= ======
</TABLE>
The identifiable assets and liabilities of discontinued operations have
been reclassified on the accompanying consolidated balance sheet at December 31,
1995 and 1996 from their historical classification to separately identify them
as net assets or liabilities of discontinued operations. The remaining
identifiable assets and liabilities of discontinued operations at December 31,
1995 relate to certain kitchens which were unable to be leased, subleased or
licensed to Sky Chefs at the time of consummation of the Transactions. The
Company leased, subleased or licensed these operations to Sky Chefs during the
second quarter of 1996. The following represents assets and liabilities relating
to discontinued operations:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets..................................... $ 4,476 $ 3,019 $ 2,405
Property and equipment, net........................ -- (7) (116)
Other current liabilities.......................... (5,148) (1,509) (1,075)
Noncurrent......................................... (868) (104) (3)
-------- -------- --------
Net assets (liabilities) of discontinued
operations............................. $(1,540) $ 1,399 1,211
======== ======== ========
</TABLE>
F-52
<PAGE> 174
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
Information concerning operations by geographic area is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995 1996
---------- -------- --------
<S> <C> <C> <C>
Net sales:
United States..................................... $ 533,016 $384,677 $ 26,859
International..................................... 490,127 388,566 4,310
---------- -------- --------
$1,023,143 $773,243 $ 31,169
========= ======== ========
Operating income (loss):
United States..................................... $ 21,651 $ 18,413 $ 2,562
International..................................... 11,377 6,622 (304)
---------- -------- --------
$ 33,028 $ 25,035 $ 2,258
========= ======== ========
Identifiable assets:
United States..................................... $ 197,102 $ 2,180 $ 1,654
International..................................... 301,726 2,296 1,358
---------- -------- --------
$ 498,828 $ 4,476 $ 3,012
========= ======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Land................................................. $ 305 $ 305 $ 10
Buildings and leasehold improvements................. 115,430 117,687 120,170
Machinery and equipment.............................. 59,233 60,330 59,115
Construction in progress............................. 3,663 2,532 40
-------- -------- --------
178,631 180,854 179,335
Less accumulated depreciation and
amortization............................. 90,008 101,459 108,206
-------- -------- --------
$ 88,623 $ 79,395 $ 71,129
======== ======== ========
</TABLE>
As of September 30, 1997, substantially all property and equipment has been
leased or subleased to Sky Chefs and CII.
4. OTHER ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Casualty insurance loss deposits....................... $ 12,410 $ 8,051 $ 5,848
Lease deposits......................................... 1,644 144 144
Intangible assets acquired............................. 1,584 1,137 825
Other.................................................. 45 174 143
-------- ------- -----------
$ 15,683 $ 9,506 $ 6,960
======= ====== =========
</TABLE>
F-53
<PAGE> 175
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
5. LONG-TERM DEBT AND NOTE PAYABLE TO AFFILIATE:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
------------------- 30,
1995 1996 1997
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Credit Agreement:
A Term Loan, bearing interest at 2.50% above the
Eurodollar borrowing rate, or 1.50% above the
lender's prime rate, due in quarterly installments
of $4,000 beginning in March 1996 through
September 2000.................................... $ 76,000 $ 60,000 $ --
B Term Loan, bearing interest at 3.00% above the
Eurodollar borrowing rate, or 2.00% above the
lender's prime rate, due in various quarterly
amounts beginning in March 1996 through September
2001.............................................. 109,000 107,500 --
Term Loan bearing interest at 1.50% above the
Eurodollar borrowing rate, or 0.50% above the
lender's prime rate, due in quarterly installments of
$400 of principal beginning in December 1997 through
December 2006, with a final maturity payment of
$145,200 in March 2007............................... -- -- 160,000
Other long-term debt................................... 10 4 1
-------- -------- --------
Total debt................................... 185,010 167,504 160,001
Less current portion of long-term debt............... 17,507 17,206 1,601
-------- -------- --------
Long-term debt....................................... $167,503 $150,298 $158,400
======== ======== ========
Senior Subordinated Note due SCIS in 2001............ $ 38,544 $ 41,634 $ 44,075
======== ======== ========
</TABLE>
In connection with the Transactions, the Company, OFSI, SCIS and Holdings
entered into a $500,000 Senior Secured Credit Agreement with a consortium of
lenders (the "Credit Agreement"). The Credit Agreement provided the Company with
$185,000 of term loans and provides SCIS with $315,000 of financing consisting
of $225,000 of term loans and up to $90,000 of revolving loans (including up to
$50,000 available for letters of credit). Caterair had $185,000 and $167,000 of
term loan borrowings outstanding at December 31, 1995 and 1996, respectively.
SCIS' borrowings outstanding under the Credit Agreement as of December 31, 1995
and 1996 were $224,733 and $213,746, respectively. SCIS paid $6,147 of fees
related to the Transactions on behalf of the Company. These fees were recorded
as deferred financing costs in the Company's financial statements. Caterair
repaid these fees to SCIS in 1996.
In connection with the Transactions, SCIS issued $125,000 of 13% Senior
Subordinated Notes due October 1, 2005 (the "Notes"). The Notes were guaranteed
on a joint and several senior subordinated basis by Sky Chefs, CII and the
Company.
On August 28, 1997, SCIS consummated an offering of $300,000 of its 9.25%
Senior Subordinated Notes (the "New Notes") in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Offering"). The price to investors of the New Notes was $299,600 in the
aggregate. The New Notes are guaranteed on a joint and several senior
subordinated basis by Sky Chefs, CII, certain other wholly-owned domestic
subsidiaries of SCIS and the Company. The New Notes (and the related guarantees)
are subordinate to payment of all senior debt (as described in the Indenture
relating thereto) of SCIS and the guarantors of the New Notes (including the
Company). The New Notes may be redeemed at the option of SCIS commencing on
September 1, 2002 at various premiums above face value. Up to $105,000 of the
New Notes may also be redeemed with proceeds obtained through certain public
equity offerings of capital stock of OFSI or SCIS. The Indenture for the New
Notes contains covenants which, among other things, limit SCIS',
F-54
<PAGE> 176
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
the guarantors' and the Company's ability to pay dividends, make stock
repurchases, incur additional indebtedness, engage in or use the proceeds of
asset sales, create liens or engage in certain other transactions.
The net proceeds to SCIS from the Offering, after deduction of discounts
and offering expenses, were approximately $289,900. SCIS used $209,400 of the
net proceeds to repay and retire all of its outstanding term loan indebtedness
under the Credit Agreement.
On August 25, 1997, SCIS commenced a tender offer for all of the Notes. In
connection therewith, SCIS offered to purchase all of the Notes at a price equal
to 117% of the principal amount thereof plus accrued and unpaid interest to the
date of purchase and solicited consents to certain amendments (the "Existing
Indenture Amendments") to the Indenture relating to the Notes from the holders
thereof (collectively, the "Offer to Purchase"). Holders of the Notes who
consented to the Existing Indenture Amendments received a payment equal to 2% of
the principal amount of the Notes from which a consent was delivered.
The Offer to Purchase expired on September 24, 1997. All of the Notes were
tendered by the holders thereof and accepted for payment by SCIS in connection
with the Offer to Purchase. SCIS paid $148,750 (excluding $7,850 of accrued
interest) in the aggregate in consideration of the repurchase of the Notes and
the related consents. SCIS used approximately $80,500 of the net proceeds from
the Offering and approximately $68,250 of borrowings under the Term Loan
Agreement (as defined herein) to fund such payments.
On August 28, 1997, SCIS, certain other parties and certain lenders entered
into a senior secured revolving credit agreement (the "Revolving Credit
Agreement"), and the Company, SCIS, certain other parties and certain lenders
entered into a senior secured credit agreement (the "Term Loan Agreement," and
together with the Revolving Credit Agreement, the "Senior Bank Financing").
Concurrently with the Offering, the Company repaid and retired all of its
outstanding indebtedness under the Credit Agreement (approximately $155,900)
with borrowings under the Term Loan Agreement.
Pursuant to the Senior Bank Financing, Bankers Trust Company, Morgan
Guaranty Trust Company of New York and certain other lenders provided (i) SCIS
with loans under the Revolving Credit Agreement in an amount up to $90,000
(including a sub-limit of $50,000 for letters of credit) on a revolving credit
basis for working capital and general corporate purposes of SCIS, the Company
and their respective subsidiaries (such Revolving Credit Agreement expires on
August 28, 2002), (ii) the Company with a nine and one-half year term loan under
the Term Loan Agreement in an aggregate principal amount of $160,000 for
purposes of refinancing the Company's indebtedness under the Credit Agreement
and funding payment of related transaction costs and (iii) SCIS with a nine and
one-half year term loan under the Term Loan Agreement in an aggregate principal
amount of $90,000 for purposes of financing, in part, SCIS' Offer to Purchase,
funding payment of related transaction costs and general corporate purposes.
All of the indebtedness under the Revolving Credit Agreement and the Term
Loan Agreement is senior secured indebtedness. The Revolving Credit Agreement
does not require scheduled amortization or scheduled commitment reductions. The
Term Loan Agreement requires scheduled amortization payments. Each of the
Revolving Credit Agreement and the Term Loan Agreement, under certain
circumstances, require SCIS or the Company, as the case may be, to make
mandatory prepayments and commitment reductions. In addition, each of SCIS and
the Company may make optional prepayments and commitment reductions pursuant to
the terms of the Revolving Credit Agreement or the Term Loan Agreement, as the
case may be.
SCIS' obligations under the Senior Bank Financing are jointly and severally
guaranteed by OFSI (on a limited basis), an affiliate of OFSI (on a limited
basis), the Company, Sky Chefs, CII and certain other domestic subsidiaries of
SCIS (including the guarantors of the New Notes). The Company's obligations
under the Senior Bank Financing are jointly and severally guaranteed by OFSI (on
a limited basis), an
F-55
<PAGE> 177
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
affiliate of OFSI (on a limited basis), SCIS, Sky Chefs, CII and certain other
domestic subsidiaries of SCIS (including the guarantors of the New Notes). In
addition, obligations under the Senior Bank Financing are secured by (i) first
priority security interests in virtually all tangible and intangible assets of
SCIS, the Company, and their respective wholly-owned domestic subsidiaries
(including the guarantors of the New Notes) and (ii) pledges of all capital
stock of SCIS and the Company and all capital stock and notes owned by SCIS, the
Company and their respective domestic subsidiaries (limited in the case of
capital stock of foreign subsidiaries to 65% of such capital stock).
The Company's obligations under the Term Loan Agreement bear interest at
1.50% above the Eurodollar borrowing rate ("Eurodollar Base Borrowing Rate") or
0.5% above the lender's base rate. The actual rate charged on each credit
instrument is dependent on the Company's selection of either the 30, 60, 90 or
180 day Eurodollar borrowing rate or the base rate. Interest is payable
quarterly for all loans and also at the end of each interest period for
Eurodollar borrowings. The interest rate in effect at September 30, 1997 on the
Company's indebtedness under the Term Loan Agreement was 7.25%.
Effective September 12, 1997, the Company entered into an interest rate
swap agreement to reduce interest rate exposure on long-term debt. The agreement
covers a notional amount of $160,000 at September 30, 1997 and has a stated
maturity of September 15, 2002.
The documents governing the Senior Bank Financing contain a number of
covenants that, among other things, restrict the ability of the Company, SCIS
and their respective subsidiaries to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay indebtedness or amend debt
instruments, pay dividends, create liens on assets, make investments, make
acquisitions, engage in mergers or consolidations, make capital expenditures or
engage in certain transactions with subsidiaries or affiliates or otherwise
engage in certain corporate activities. In addition, the documents governing the
Senior Bank Financing require compliance with financial tests based on combined
results of the Company and SCIS. The Company and SCIS were in compliance with
these financial covenant requirements at September 30, 1997.
At September 30, 1997, approximately $24,653 of bank letters of credit were
issued under the Revolving Credit Agreement to SCIS (on behalf of the Company)
and approximately $75 issued directly to the Company, to primarily collateralize
the Company's insurance carriers providing workers' compensation coverage as
well as for surety bonds, leases and requirements of the Company for
environmental remediation of certain assets previously sold.
SCIS loaned Caterair approximately $37,788 in connection with the
Transactions. The loan matures in 2001, bears interest at 8% per annum (payable
in-kind) and is collateralized by a second lien on the assets of Caterair
representing collateral under the Credit Agreement. The cumulative amounts due
under this loan were $38,544 and $41,634 at December 31, 1995 and 1996,
respectively. Interest expense related to this loan of $756 and $3,090 is
included in interest expense for the years ended December 31, 1995 and 1996,
respectively.
F-56
<PAGE> 178
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
As of September 30, 1997, the combined aggregate amounts of maturities for
all long-term borrowings, excluding the Subordinated Secured Note due to SCIS,
for each of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------
<S> <C>
1997........................................................... $ 401
1998........................................................... 1,600
1999........................................................... 1,600
2000........................................................... 1,600
2001........................................................... 1,600
Thereafter..................................................... 153,200
---------
$ 160,001
========
</TABLE>
6. OTHER LONG-TERM LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Casualty insurance losses............................. $ 10,125 $ 10,159 $ 8,497
Deferred gain on TriNet sale and leaseback............ 12,375 11,824 11,457
Other................................................. 6,490 3,215 3,511
------- ------- -------
$ 28,990 $ 25,198 $ 23,465
======= ======= =======
</TABLE>
In 1993, the Company sold 12 of its off-airport fee-owned properties to
TriNet Corporate Capital ("TriNet") and simultaneously entered into a lease with
TriNet on those properties with a primary term of 25 years and with four renewal
options of five years each. These leases are classified as operating leases and
are included in the properties subleased to Sky Chefs and CII. The gain on the
sale of approximately $13,800 was deferred and is being amortized over the life
of the operating leases as a reduction of operating lease rental expense.
7. LEASES:
The Company leases various types of property, including airline catering
kitchens and equipment, vehicles and office facilities, most of which have been
subleased to Sky Chefs and CII in connection with the Transactions.
Rent expense for all operating leases from continuing operations for the
period September 30, 1995 through December 31, 1995 and for the periods ended
December 31, 1996 was comprised of the following:
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Minimum rent....................................................... $3,298 $30,922
Contingent rent.................................................... 4,489 --
Less deferred gain on sale and leaseback........................... (138) (506)
------ -------
Total rent expense....................................... $7,649 $30,416
====== =======
</TABLE>
Contingent rent represents percentage rent based on gross revenue in excess
of minimum levels.
F-57
<PAGE> 179
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
The future minimum lease payments required under capital leases (together
with the present value of the minimum lease payments) and future minimum lease
payments required under operating leases that have an initial or remaining lease
term in excess of one year as of December 31, 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
----------------------------------------------------------------- ------- ---------
<S> <C> <C>
1997.......................................................... $ 240 $ 19,600
1998.......................................................... 237 19,272
1999.......................................................... 240 18,577
2000.......................................................... 236 18,624
2001.......................................................... 238 17,656
Thereafter.................................................... 1,695 164,834
------- ---------
Total minimum lease payments........................ 2,886 $ 258,563
========
Less imputed interest......................................... 993
-------
Present value of minimum lease payments....................... 1,893
Less current portion.......................................... 105
-------
Long-term portion of minimum lease payments................... $ 1,788
======
</TABLE>
Most leases have initial terms of from 10 to 20 years and contain one or
more renewal options.
In accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," certain leases for kitchen facilities at airports owned
by governmental units of authorities are being accounted for as operating leases
because special provisions in the lease agreements make the economic life of
such facilities essentially indeterminate.
In connection with the Transactions, pursuant to several leases (the
"Domestic Leases"), Sky Chefs and CII leased and subleased from Caterair
substantially all of its domestic tangible assets for a six-year term. In the
event that Caterair's lease of such assets was for less than six years, the
applicable Domestic Lease is for such shorter period. Sky Chefs and CII have the
option to purchase the assets of Caterair covered by the Domestic Leases for an
amount determined under formulas in the Domestic Leases that were intended to
result in an exercise price equal to the estimated fair market value of such
assets at the time of exercise of such option. The option is exercisable until
the date which is 30 days after termination of the applicable Domestic Lease.
The Company is not certain whether such options will be exercised. Total amounts
receivable by the Company are approximately $126,583 of which approximately
$47,500 relates to lease payments for leasehold improvements and equipment.
The minimum rental income amounts, excluding contingent rents based on
sales, under the above noted operating leases from Sky Chefs and CII as of
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED OPERATING
DECEMBER 31, LEASES
------------------------------------------------------------------ ---------
<S> <C>
1997............................................................ $ 27,076
1998............................................................ 26,438
1999............................................................ 25,202
2000............................................................ 24,450
2001............................................................ 23,417
Thereafter...................................................... --
---------
Total minimum rental income............................. $ 126,583
========
</TABLE>
F-58
<PAGE> 180
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
8. INCOME TAXES:
Taxes on income are based on income from continuing operations before
income taxes. The components of the income tax provision (benefit) for the
periods ended December 31, 1995 and 1996, respectively, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- ------
<S> <C> <C>
Current:
Federal........................................................ $ -- $ 325
State and local................................................ 100 --
-------- ------
100 325
-------- ------
Deferred:
Federal........................................................ (44,170) 6,754
State and local................................................ (6,310) 965
-------- ------
(50,480) 7,719
-------- ------
Total income tax provision (benefit)................... $(50,380) $8,044
======== ======
</TABLE>
Components of deferred tax assets and liabilities of continuing operations
recognized in the consolidated financial statements as of December 31, 1995 and
1996, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- --------
<S> <C> <C>
Benefit of federal and state net operating loss carryforwards..... $42,038 $ 31,343
Property and equipment............................................ 979 3,977
Intangible assets acquired........................................ 7,422 4,039
Payroll accruals.................................................. 4,528 154
Casualty insurance................................................ 6,259 6,918
Benefit of federal targeted jobs tax credit carryforwards......... 653 978
Reserves.......................................................... -- 1,803
Other items....................................................... (4,079) 1,415
------- --------
57,800 50,627
Valuation allowance............................................... (9,723) (10,936)
------- --------
Total deferred tax assets, net of valuation allowance... 48,077 39,691
Deferred tax liabilities.......................................... (214) (313)
------- --------
Net deferred tax asset.................................. $47,863 $ 39,378
======= ========
</TABLE>
At December 31, 1994, the Company had a valuation allowance of $68,349 to
fully reserve for its gross deferred tax assets because of the uncertainties
surrounding the losses on operations to be sustained for income tax reporting
purposes. Subsequent to the Transactions, the Company evaluated the potential
for realization of a portion or all of the deferred tax assets. The Company
determined, based upon the weight of evidence, it is more likely than not that a
portion of the deferred tax assets would be realized. The valuation allowance
for deferred tax assets increased by $1,213 in 1996 due to the changes in the
Company's gross deferred tax assets and liabilities. The valuation allowance for
deferred tax assets decreased by $58,626 in 1995 due to the changes in the
Company's gross deferred tax assets and liabilities and the realization of a
portion of the Company's net deferred tax assets.
F-59
<PAGE> 181
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
The Company has the following NOL and tax credit carryforwards available to
offset future U.S. Federal taxable income and income tax:
<TABLE>
<CAPTION>
YEAR AMOUNT OF YEAR OF
GENERATED NOL CREDITS EXPIRATION
- --------- --------- ------- ----------
<S> <C> <C> <C>
1990............................................ $14,831 $ 11 2005
1991............................................ 15,490 243 2006
1992............................................ 4,148 161 2007
1993............................................ -- 146 2008
1994............................................ 35,267 92 2009
1995............................................ 9,526 -- 2010
1996............................................ -- 325 2011
--------- -------
Total................................. $79,262 $ 978
======== =====
</TABLE>
The Company had a payable to its parent for income taxes of $165 included
in other payables and accrued liabilities at December 31, 1995 and 1996.
A reconciliation of the U.S. Federal income tax statutory rate and the
provision for income taxes on income from continuing operations for the periods
ended December 31, 1995 and 1996, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- -------
<S> <C> <C>
Tax at statutory rate............................................ $ 1,226 $ 6,440
State taxes...................................................... 100 --
Permanent differences............................................ -- 391
Utilization of NOL............................................... (1,226) --
Change in valuation allowance.................................... (50,480) 1,213
-------- -------
Provision (benefit) for income taxes............................. $(50,380) $ 8,044
======== ======
</TABLE>
9. EMPLOYEE SEVERANCE:
In September 1994, the Company implemented the Caterair International
Corporation Key Employee Retention Plan (the "Plan"). The Plan was designed to
ensure the Company of the continued employment and attention to duty of certain
key employees while the Company pursued a financial restructuring or the sale of
the Company. As a result of the Transactions, $2,843 in bonuses were paid in
1995. Except for employees in airport kitchens temporarily retained by the
Company (see Note 2), all employees of the Company were terminated on September
29, 1995 in connection with the Transactions. The employees temporarily retained
by Caterair were terminated in the second quarter of 1996. Most of the employees
terminated by Caterair were subsequently hired by SCIS. Additional severance
benefits accrued relative to the Plan may be paid in future periods upon the
termination of key employees.
In July 1995, the Company adopted the Caterair International Transition
Severance Plan (the "Severance Plan"). Benefits were paid to eligible employees
who continued working for the Company or SCIS, until at least September 30,
1995, and to employees whose employment with the Company or SCIS was
involuntarily terminated between October 1, 1995 and September 30, 1996. Total
severance charges under this plan of $1,800 were included in discontinued
operations in 1995.
The Company's retirement savings and investment plan was a voluntary
defined contribution plan that was fully funded at September 29, 1995 through an
insurance company. In accordance with the terms of the Transactions, the plan
was transferred along with substantially all of the Company participants to
subsidiaries of SCIS and the Company has no further obligations with respect to
this plan.
F-60
<PAGE> 182
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES:
Taxes
The Company is involved in a number of claims from taxing authorities,
including sales tax assessments, value added tax assessments and other related
claims. The Company believes the ultimate resolution of those claims will not
have a material adverse effect on the operating results, financial position or
cash flows of the Company.
Litigation
The Company is involved in routine litigation, including a number of
worker's compensation and related claims, that arise in the ordinary course of
its business. The Company does not believe that any of this litigation is
material to its financial position, results of operations or cash flows.
On June 3, 1991, the Teamsters Union (the "Union") went on strike at the
Company's three Los Angeles kitchens, and the Company hired replacement workers.
On August 26, 1992, a National Labor Relations Board ("NLRB") Administrative Law
Judge ("ALJ") ruled against the Company on unfair labor practice charges,
including refusal to bargain with the Union on the grounds that it no longer
represented a majority of the employees. On December 15, 1992, the NLRB in
Washington, D.C., adopted, without substantive modification or comment, the
ALJ's Recommended Decision and Order. In 1994, the ruling was reviewed by the
U.S. Court of Appeals, which supported the ALJ's Recommended Decision and Order.
The U.S. Supreme Court refused to hear the case in November 1994. The NLRB's
compliance officer is in the process of determining the back pay due the
affected employees. While the Company reinstated striking employees to the
extent reasonably possible, the Company estimates that the liability for back
pay and related losses is approximately $6,400. In accordance with the Statement
of Financial Accounting Standards No. 5 "Accounting for Contingencies" the
Company accrued this liability. The amount payable to settle this liability in
full was subsequently determined to be approximately $4,500 and payment was made
in early 1997. The remaining $1,900 was credited to discontinued operations in
1996.
Environmental Costs
At December 31, 1996 and 1995 Caterair had a $800 provision for the
estimated environmental remediation costs of all known contaminated properties
and the estimated costs for removal of all underground fuel tanks. Caterair is
unable to determine the cost, if any, of remediation actions that might be
necessary if there has been contamination resulting from other underground fuel
tanks.
Casualty Insurance Losses
Casualty insurance losses were charged to operating expenses of
discontinued operations as incurred. The losses are being paid out over several
years. The Company reflects the discounted value of the estimated unpaid losses
as a liability. At December 31, 1996 and 1995, the discount rate used was 7% and
the unpaid balance amounted to $15,056 and $14,829, respectively.
11. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure related to the estimated fair-value of financial
instruments has been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Company could realize in a current market
exchange.
The carrying amounts of cash and cash equivalents, accounts receivable,
other payables and accrued liabilities are reasonable estimates of their fair
values. Letters of credit are included in the estimated fair value
F-61
<PAGE> 183
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
of accrued expenses and other liabilities. The estimated fair values and
carrying amount of other financial instruments at December 31, 1995 and 1996 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1996
---------------------- ----------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE AMOUNT FAIR VALUE AMOUNT
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Assets:
Interest rate swap agreement(a)........... $ -- $ -- $ 1,661 $ --
Liabilities:
Term loans(b)............................. 185,000 185,000 167,500 167,500
Senior subordinated note due to
affiliate(c)........................... 39,073 38,544 41,634 41,634
Interest rate swap agreement(a)........... 1,253 -- -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument.
(a) INTEREST RATE SWAP AGREEMENT
At December 31, 1996 and 1995 the Company had interest rate swap
instruments (used for hedging purposes) which were not included in the Company's
consolidated balance sheet. The estimated fair value of this swap agreement was
positive (representing an asset) to the Company at December 31, 1996 and
negative (representing a liability) to the Company at December 31, 1995, as a
result of fluctuations projected futures interest rate swap transaction values
subsequent to the trade date of December 27, 1995.
(b) TERM LOANS
The fair value of the term loans and revolving credit facility approximates
the carrying value since interest rates are variable.
(c) SENIOR SUBORDINATED NOTE DUE TO AFFILIATE
The Company's senior subordinated note due to SCIS in 2001 bears a fixed
rate of interest of 8% (payable in-kind) and was executed September 29, 1995 in
connection with the Transactions. This note is with a related party and as such
there is no market activity. Accordingly, the carrying values approximate
estimated fair value.
These disclosures relate to financial instruments only. The fair value
assumptions were based upon estimates of market conditions and perceived risks
of the financial instruments at December 31, 1996.
12. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES:
The Company's financial instruments expose the Company to market and credit
risks and may at times be concentrated with certain counterparties or groups of
counterparties. The credit worthiness of counterparties is subject to continuing
review and full performance is anticipated unless otherwise specifically
disclosed.
Dependence on Key Customers
As described in Note 2, the Company's revenues subsequent to September 29,
1995, are principally derived from rents, royalties and income under a
non-competition agreement from SCIS and as such the Company is dependent upon
SCIS's financial performance. In addition, the Company has guaranteed certain
indebtedness of SCIS as more fully described in Note 5.
F-62
<PAGE> 184
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS; INFORMATION SUBSEQUENT TO MARCH 5, 1997 IS UNAUDITED)
13. CHANGES IN WORKING CAPITAL ITEMS:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
-------- -------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(Increase) decrease in accounts
receivable........................... $ -- $ (4,352) $ 2,711 $ 2,771 $ 2,357
Decrease in prepaid expenses and
other................................ -- 4,891 2,009 958 134
Increase (Decrease) in other payables
and accrued liabilities.............. -- (10,391) (5,464) 1,511 (6,284)
-------- -------- ------- -------- --------
Change in working capital items... $ -- $ (9,852) $ (744) $ 5,240 $ (3,793)
======== ======== ======= ======= =======
</TABLE>
F-63
<PAGE> 185
ANNEX I
SUMMARY UNAUDITED COMBINED PRO FORMA FINANCIAL DATA
The following summary unaudited combined pro forma financial data of SCIS
(including consolidated financial data for Sky Chefs and CII) and Caterair for
the periods set forth below are based on the historical financial statements of
SCIS and Caterair. The information under the caption Offering Pro Forma Data has
been adjusted to give effect to the Offering and the application of the net
proceeds therefrom, SCIS' Offer to Purchase and the Senior Bank Financing,
including the Caterair Refinancing, as if such transactions had occurred on
January 1, 1996. See "The Refinancing" and "Capitalization." Management believes
that the following presentation will assist potential investors in evaluating
the ability of SCIS and the Guarantors to meet debt service requirements and
other obligations. Capitalized terms used but not defined herein have the
meanings set forth in the Prospectus.
The summary unaudited combined pro forma financial data does not
necessarily reflect the results of operations or the financial position of SCIS
and the Guarantors that actually would have resulted had the Offering, SCIS'
Offer to Purchase and the Senior Bank Financing, including the Caterair
Refinancing, been consummated as of the date referred to above. Accordingly,
such data should not be viewed as fully representative of the past performance
of SCIS and the Guarantors or indicative of future results. See "The
Refinancing," "Capitalization," "Selected Historical Financial Data" and
"Certain Transactions -- The Combination" and the Financial Statements and notes
thereto included elsewhere in the Prospectus.
THE SUMMARY UNAUDITED COMBINED PRO FORMA FINANCIAL DATA HAS NOT BEEN
PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
<TABLE>
<CAPTION>
TWELVE
MONTHS ENDED
YEAR ENDED NINE MONTHS SEPTEMBER
DECEMBER 31, ENDED SEPTEMBER 30, 30,
------------ ------------------------- ------------
1996 1996 1997 1997
------------ ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
SUMMARY FINANCIAL DATA:
Food service revenues(1).................................. $1,559,555 $1,172,084 $1,200,687 $1,588,158
EBITDA(2)(3).............................................. 119,628 85,398 119,331 153,561
Adjusted EBITDA(2)(3)..................................... 149,989 107,295 133,105 175,799
Net cash flows from:
Operating activities.................................... 70,847 75,898 (5,814) (10,865)
Investing activities.................................... (39,200) 6,733 (54,217) (70,418)
Financing activities.................................... 3,891 (2,566) (7,763) (1,306)
Depreciation and amortization............................. 46,434 34,179 37,115 48,608
Capital expenditures...................................... 39,200 23,100 19,000 35,100
OFFERING PRO FORMA DATA(4):
Cash interest expense(5).................................. $ 57,643 $ 43,283 $ 44,550 $ 58,910
Ratio of Adjusted EBITDA to cash interest expense(5)...... 2.6x 2.5x 3.0x 2.9x
Ratio (deficiency) of earnings to fixed charges(6)........ 1.2x 1.1x 1.5x 1.4x
Net combined debt(7)...................................... -- -- -- $ 553,043
Ratio of net combined debt to Adjusted EBITDA............. -- -- -- 3.2x
OPERATING STATISTICS(8):
Number of flights serviced (000's)........................ 2,567 1,936 1,901 2,532
Number of airports served at end of period................ 102 102 117 117
</TABLE>
- ---------------
(1) Represents pro forma revenues of SCIS and Caterair (including revenues from
discontinued operations of Caterair resulting from the Combination) and
excludes lease, license and other revenues of the Guarantors of $79.4
million for the year ended December 31, 1996, $58.9 million and $56.8
million for the nine months ended September 30, 1996 and 1997, and $77.3
million for the twelve months ended September 30, 1997, respectively.
(2) EBITDA represents earnings before interest expense, provision (benefit) for
income taxes, depreciation and amortization and other (income) expense.
Adjusted EBITDA excludes costs associated with the Combination including
consulting, transfer, severance and relocation costs and other transition
costs. EBITDA and Adjusted EBITDA are presented because management believes
they provide useful information regarding SCIS' and the Guarantors' ability
to incur and/or service debt. Neither EBITDA nor Adjusted EBITDA should be
considered in isolation nor as a substitute for operating income, cash
I-1
<PAGE> 186
flows from operating activities and other income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of SCIS' and the Guarantors' profitability or liquidity.
Calculation of Adjusted EBITDA for the periods presented is as follows:
<TABLE>
<CAPTION>
TWELVE
MONTHS ENDED
YEAR ENDED NINE MONTHS ENDED SEPTEMBER
DECEMBER 31, SEPTEMBER 30, 30,
------------ --------------------- ------------
1996 1996 1997 1997
------------ -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
EBITDA................................................. $119,628 $ 85,378 $119,331 $153,561
Adjustments:
Integration expenses................................. 30,361 21,897 13,774 22,238
-------- -------- -------- --------
Adjusted EBITDA........................................ $149,989 $107,295 $133,105 $175,799
======== ======== ======== ========
</TABLE>
(3) EBITDA and Adjusted EBITDA reflect pro forma adjustments for combined
operations which are not reflected in the historical financial information
of SCIS and Caterair included elsewhere in the Prospectus. Net pro forma
adjustments of $(3.3) million for the year ended December 31, 1996, $(2.3)
million for each of the nine month periods ended September 30, 1996 and
1997, and $(3.3) million for the twelve months ended September 30, 1997,
respectively, reflect the exclusion of non-compete payments made by SCIS to
Caterair, reductions in rent expense related to certain facilities which in
January 1996 were deemed to be redundant as a result of the Combination and
increases in cost of operations attributable to the restructuring of a joint
venture agreement.
(4) Data set forth under the caption Offering Pro Forma Data has been adjusted
to give effect to the Offering and the application of the proceeds
therefrom, SCIS' Offer to Purchase (pursuant to which all of the $125.0
million in aggregate principal amount of the Existing Notes were tendered
and retired) and the Senior Bank Financing, including the Caterair
Refinancing, as if such transactions had occurred on January 1, 1996. See
"The Refinancing" and "Capitalization."
(5) Excludes amortization of deferred financing fees and other noncash interest
expense of $1.5 million for the year ended December 31, 1996, $1.1 million
and $1.6 million for the nine months ended September 30, 1996 and 1997, and
$2.0 million for the twelve months ended September 30, 1997, respectively.
(6) For purposes of computing the ratio (deficiency) of earnings to fixed
charges, "earnings" consist of the combined earnings (loss) before income
taxes and fixed charges before capitalized interest of SCIS and Caterair.
"Fixed charges" consist of the combined interest expense and the combined
portion of operating lease rental payments (29%) deemed representative of
the interest factor of SCIS and Caterair.
(7) Net combined debt of SCIS and Caterair includes $560.0 million in combined
debt of SCIS and Caterair, $31.5 million in combined capital lease
obligations of SCIS and Caterair less $38.5 million of combined cash of SCIS
and Caterair. Net combined debt excludes $24.7 million of letters of credit,
a loan from SCIS to Caterair of $44.1 million at September 30, 1997,
advances by Caterair to SCIS of $13.0 million at September 30, 1997 and
SCIS' and its subsidiaries' guarantees of Caterair's indebtedness and
Caterair's guarantees of SCIS' indebtedness.
(8) Operating statistics are management estimates for the periods presented.
I-2
<PAGE> 187
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE ISSUER OR ANY OF THE GUARANTORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR THE EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE ISSUER OR ANY OF THE GUARANTORS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---
<S> <C>
Special Note Regarding Forward-Looking
Statements........................... (iii)
Summary................................ 1
Risk Factors........................... 17
Use of Proceeds........................ 23
The Refinancing........................ 23
Capitalization......................... 24
Selected Historical Financial Data..... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 30
The Exchange Offer..................... 41
The Airline Catering Industry.......... 51
Business............................... 53
Management............................. 62
Executive Compensation................. 65
Security Ownership..................... 72
Certain Transactions................... 75
Certain Federal Income Tax
Considerations....................... 81
Description of Certain Indebtedness.... 83
Description of Notes................... 84
Book-Entry; Delivery and Form.......... 112
Plan of Distribution................... 114
Legal Matters.......................... 114
Experts................................ 114
Additional Information................. 115
Index to Financial Statements.......... F-1
Annex I -- Summary Unaudited Combined
Pro Forma Financial Data............. I-1
</TABLE>
UNTIL , (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
SELLING EXCHANGE NOTES RECEIVED IN EXCHANGE FOR PRIVATE NOTES HELD FOR THEIR OWN
ACCOUNT. SEE "PLAN OF DISTRIBUTION."
======================================================
======================================================
[LSG LUFTHANSA SERVICE LOGO]
[CATERAIR INTERNATIONAL LOGO]
[SCIS LOGO]
SC INTERNATIONAL SERVICES, INC.
OFFER TO EXCHANGE
9 1/4% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES B
FOR ALL OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES A
------------------------------------------
PROSPECTUS
------------------------------------------
, 1997
======================================================
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or complete action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a Delaware corporation similarly may indemnify
any such person serving in any such capacity who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor,
against expenses actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or such other court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
SCIS' and each of the Guarantors' Certificate of Incorporation provides
that its directors shall not be liable to the Issuer or its stockholders for
monetary damages for breach of fiduciary duty as a director except to the extent
that exculpation from liabilities is not permitted under the DGCL as in effect
at the time such liability is determined. Each such Certificate of Incorporation
further provides that the Issuer or such Guarantor, as applicable, shall
indemnify its directors and officers to the fullest extent permitted by the
DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling any of the
registrants pursuant to the foregoing provisions, the registrants have been
informed that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Securities Act, and is therefore
unenforceable.
Pursuant to the Indenture, the holders of the Private Notes, respectively,
have agreed to waive and release all liability of the directors, officers and
controlling persons of each registrant which may arise in connection with any
obligations of the registrants in connection with the Private Notes or the
Indenture.
Pursuant to section 7 of the Registration Rights Agreement, dated August
28, 1997, among the Issuer, the Guarantors and the Initial Purchasers, the
holders of the Private Notes and the related guarantees have agreed to indemnify
the directors, officers and controlling persons of the registrants against
certain liabilities,
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costs, and expenses that may be incurred in connection with the registration of
such securities, to the extent that such liabilities, costs and expenses arise
from an omission or untrue statement contained in information provided to the
registrants by the holders of such securities.
The Purchase Agreement, dated August 22, 1997, between the Issuer, the
Guarantors and the Initial Purchasers contains provisions by which the Initial
Purchasers agreed to indemnify the Issuer, the Guarantors and their affiliates
(including their officers, directors, employees, agents and controlling persons)
against certain liabilities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
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2.1 Master Agreement, dated as of April 26, 1995, among Onex Food Services, Inc.,
Caterair Holdings Corporation and Caterair International Corporation.
Incorporated by reference to Exhibit 2.1 of SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No. 33-94572.
2.1.1 Amendment No. 1 to Master Agreement, dated as of September 29, 1995, among
Onex Food Services, Inc., Caterair Holdings Corporation and Caterair
International Corporation. Incorporated by reference to Exhibit 2.2 of SC
International Services, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995.
2.2 Sublease Agreement, dated as of September 29, 1995, between Sky Chefs, Inc.
and Caterair International Corporation, together with Schedule of additional
Subleases between such parties. Incorporated by reference to Exhibit 10.26 of
SC International Services, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1995.
2.3 Sublease Agreement, dated as of September 29, 1995, between Caterair
International, Inc. (II) and Caterair International Corporation, together
with Schedule of additional Subleases between such parties. Incorporated by
reference to Exhibit 10.27 of SC International Services, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1995.
2.4 License Agreement, dated as of September 29, 1995, between Sky Chefs, Inc.
and Caterair International Corporation. Incorporated by reference to Exhibit
10.24 of SC International Services, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1995.
2.5 License Agreement, dated as of September 29, 1995, between Caterair
International, Inc. (II) and Caterair International Corporation. Incorporated
by reference to Exhibit 10.25 of SC International Services, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1995.
3.1 Certificate of Incorporation of SC International Services, Inc. Incorporated
by reference to Exhibit 3.1 of SC International Services, Inc.'s Registration
Statement on Form S-1, Registration No. 33-94572.
3.2 Amended and Restated Bylaws of SC International Services, Inc.*
3.3 Amended and Restated Certificate of Incorporation of Sky Chefs, Inc.
Incorporated by reference to Exhibit 3.3 of Amendment No. 3 to SC
International Services, Inc.'s Registration Statement on Form S-1,
Registration No. 33-94572.
3.4 Bylaws of Sky Chefs, Inc. Incorporated by reference to Exhibit 3.4 of
Amendment No. 3 to SC International Services, Inc.'s Registration Statement
on Form S-1, Registration No. 33-94572.
3.5 Certificate of Incorporation of Caterair International, Inc. (II).
Incorporated by reference to Exhibit 3.5 of SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No. 33-94572.
3.6 Bylaws of Caterair International, Inc. (II). Incorporated by reference to
Exhibit 3.6 of SC International Services, Inc.'s Registration Statement on
Form S-1, Registration No. 33-94572.
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3.7 Certificate of Incorporation of Caterair International Corporation.
Incorporated by reference to Exhibit 3.1 of Caterair International
Corporation's Registration Statement on Form S-1, Registration No. 33-30918.
3.8 Bylaws of Caterair International Corporation. Incorporated by reference to
Exhibit 3.2 of Caterair International Corporation's Registration Statement on
Form S-1, Registration No. 33-30918.
3.9 Certificate of Incorporation of Arlington Services, Inc.*
3.10 Bylaws of Arlington Services, Inc.*
3.11 Certificate of Incorporation of Arlington Services Holding Corporation.*
3.12 Bylaws of Arlington Services Holding Corporation.*
3.13 Certificate of Incorporation of JFK Caterers, Inc.*
3.14 Bylaws of JFK Caterers, Inc.*
3.15 Certificate of Incorporation of Caterair Consulting Services Corporation.*
3.16 Bylaws of Caterair Consulting Services Corporation.*
3.17 Certificate of Incorporation of Western Aire Chef, Inc.*
3.18 Bylaws of Western Aire Chef, Inc.*
3.19 Certificate of Incorporation of Bethesda Services, Inc.*
3.20 Bylaws of Bethesda Services, Inc.*
3.21 Certificate of Incorporation of Caterair New Zealand Limited.*
3.22 Bylaws of Caterair New Zealand Limited.*
3.23 Certificate of Incorporation of Onex Ohio Finance Corp.*
3.24 Bylaws of Onex Ohio Finance Corp.*
3.25 Certificate of Incorporation of Onex Ohio Finance Corp. II.*
3.26 Bylaws of Onex Ohio Finance Corp. II.*
3.27 Certificate of Incorporation of Onex Ohio Equity Corp.*
3.28 Bylaws of Onex Ohio Equity Corp.*
3.29 Certificate of Incorporation of Onex Ohio Equity Corp. II.*
3.30 Bylaws of Onex Ohio Equity Corp. II.*
3.31 Certificate of Incorporation of Onex Ohio Credit Corp.*
3.32 Bylaws of Onex Ohio Credit Corp.*
3.33 Certificate of Incorporation of Onex Ohio Credit Corp. II.*
3.34 Bylaws of Onex Ohio Credit Corp. II.*
3.35 Certificate of Incorporation of Onex Ohio Acceptance Corporation.*
3.36 Bylaws of Onex Ohio Acceptance Corporation.*
3.37 Certificate of Incorporation of Onex Ohio Capital Corp.*
3.38 Bylaws of Onex Ohio Capital Corp.*
3.39 Certificate of Incorporation of Onex Ohio Capital Corp. II.*
3.40 Bylaws of Onex Ohio Capital Corp. II.*
3.41 Certificate of Incorporation of Onex Ohio Fiscal Corp.*
3.42 Bylaws of Onex Ohio Fiscal Corp.*
3.43 Certificate of Incorporation of Onex Ohio Fiscal Corp. II.*
3.44 Bylaws of Onex Ohio Fiscal Corp. II.*
3.45 Certificate of Incorporation of Onex Ohio Funds Corp.*
3.46 Bylaws of Onex Ohio Funds Corp.*
3.47 Certificate of Incorporation of Onex Ohio Funds Corp. II.*
3.48 Bylaws of Onex Ohio Funds Corp. II.*
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3.49 Certificate of Incorporation of Caterair International Transition
Corporation.*
3.50 Bylaws of Caterair International Transition Corporation.*
3.51 Certificate of Incorporation of Sky Chefs International Corp.*
3.52 Bylaws of Sky Chefs International Corp.*
3.53 Certificate of Incorporation of Caterair Airport Properties, Inc.*
3.54 Bylaws of Caterair Airport Properties, Inc.*
3.55 Certificate of Incorporation of Caterair St. Thomas Holdings Corporation.*
3.56 Bylaws of Caterair St. Thomas Holdings Corporation.*
3.57 Certificate of Incorporation of Sky Chefs Argentine Inc.*
3.58 Bylaws of Sky Chefs Argentine Inc.*
4.1 Indenture, dated August 28, 1997, among SC International Services, Inc., as
Issuer, The Bank of New York, as Trustee, and the Guarantors named therein.*
4.2 Form of Exchange Note (included in Exhibit 4.1)*
4.3 Form of Guarantee (included in Exhibit 4.1)*
5. Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP.*
8.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP.*
8.2 Opinion of Price Waterhouse LLP.*
10.1 Purchase Agreement, dated as of August 22, 1997, among SC International
Services, Inc., the Guarantors named therein, and BT Securities Corporation,
J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation, Goldman,
Sachs & Co., Smith Barney, Inc. and Bankers Trust International PLC, as
Initial Purchasers.*
10.2 Registration Rights Agreement, dated as of August 28, 1997, among SC
International Services, Inc., the Guarantors named therein, and BT Securities
Corporation, J.P. Morgan Securities Inc., Credit Suisse First Boston
Corporation, Goldman, Sachs & Co., Smith Barney, Inc., and Bankers Trust
International PLC.*
10.3 Dealer Manager Agreement, dated August 25, 1997, among SC International
Services, Inc., Sky Chefs, Inc., Caterair International, Inc. (II), Caterair
International Corporation and BT Securities Corporation.*
10.4 Depositary Agreement, dated as of August 25, 1997, between SC International
Services, Inc. and The Bank of New York, as Depositary.*
10.5 Form of Exchange Agent Agreement between SC International Services, Inc. and
The Bank of New York, as Exchange Agent.*
10.6 Noncompetition Agreement, dated as of December 15, 1989, among Marriott
Corporation, Host International, Inc., Caterair Holdings Corporation and
Caterair International Corporation. Incorporated by reference to Exhibit
10.25 of Caterair International Corporation's Registration Statement on Form
S-1, Registration No. 33-31309.
10.7 Consulting Agreement, dated as of September 29, 1995, between Frederic V.
Malek and SC International Services, Inc. Incorporated by reference to
Exhibit 10.1 of SC International Services, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1995.
10.8 Agreement, dated as of October 5, 1993, among Onex Corporation, Deutsche
Lufthansa Aktiengesellschaft and LSG Lufthansa Service GmbH. Incorporated by
reference to Exhibit 10.2 of SC International Services, Inc.'s Registration
Statement on Form S-1, Registration No. 33-94572.
10.9 Cooperation Agreement, dated as of October 5, 1993, between LSG Lufthansa
Service GmbH and Sky Chefs, Inc. Incorporated by reference to Exhibit 10.3 of
SC International Services, Inc.'s Registration Statement on Form S-1,
Registration No. 33-94572.
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10.10 Consent Agreement, dated as of April 20, 1995, among Onex Corporation, Onex
Food Services, Inc., OnCap Holdings U.S., Inc., Sky Chefs, Inc. and LSG
Lufthansa Service GmbH. Incorporated by reference to Exhibit 10.3.1 of
Amendment No. 2 to SC International Services, Inc.'s Registration Statement
on Form S-1, Registration No. 33-94572.
10.11 Consent Agreement, dated as of April 20, 1995, among OnCap Holdings U.S.,
Inc., OMI Quebec Inc., Onex Food Services, Inc. and LSG Lufthansa Service
GmbH. Incorporated by reference to Exhibit 10.4.1 of Amendment No. 2 to SC
International Services, Inc.'s Registration Statement on Form S-1,
Registration No. 33-94572.
10.12 Consent Agreement, dated as of April 20, 1995, among Onex Corporation, Onex
Food Services, Inc., OnCap Holdings U.S., Inc., Sky Chefs, Inc. and LSG
Lufthansa Service GmbH. Incorporated by reference to Exhibit 10.4.2 of
Amendment No. 2 to SC International Services, Inc.'s Registration Statement
on Form S-1, Registration No. 33-94572.
10.13 Exchange Agreement and Amendment to Stockholders' Agreement, dated as of
December 28, 1996, among Onex Food Services, Inc., LSG Lufthansa Service GmbH
and LSG Lufthansa Service USA Corporation.*
10.14 Stockholders' Agreement, dated as of December 6, 1993, among Onex
Corporation, Onex Food Services, Inc., OnCap Holdings U.S., Inc., OMI Quebec
Inc., LSG Lufthansa Service GmbH and LSG Lufthansa Service USA Corporation.
Incorporated by reference to Exhibit 10.4 of SC International Services,
Inc.'s Registration Statement on Form S-1, Registration No. 33-94572.
10.15 Arbitration Agreement, dated as of October 5, 1993, among Onex Corporation,
Onex Food Services, Inc., OnCap Holdings U.S., Inc., OMI Quebec Inc., Sky
Chefs, Inc., Deutsche Lufthansa Aktiengesellschaft and LSG Lufthansa Service
GmbH. Incorporated by reference to Exhibit 10.5 of SC International Services,
Inc.'s Registration Statement on Form S-1, Registration No. 33-94572.
10.16 Master National Agreement, dated August 22, 1969, between Sky Chefs, Inc. and
Hotel Employees and Restaurant Employees International Union. Incorporated by
reference to Exhibit 10.8 of Amendment No. 1 to SC International Services,
Inc.'s Registration Statement on Form S-1, Registration No. 33-94572.
10.17 Sky Chefs, Inc. Supplemental Executive Retirement Plan. Incorporated by
reference to Exhibit 10.13 of SC International Services, Inc.'s Registration
Statement on Form S-1, Registration No. 33-94572.
10.18 Sky Chefs, Inc. Performance Reward Plan. Incorporated by reference to Exhibit
10.13 of Amendment No. 1 to SC International Services, Inc.'s Registration
Statement on Form S-1, Registration No. 33-94572.
10.19 Employment Agreement, dated as of January 1, 1997, between James J. O'Neill
and Onex Food Services, Inc.*
10.20 Employment Agreement, dated as of January 1, 1997, between Michael Z. Kay and
Sky Chefs, Inc.*
10.21 Employment Agreement, dated as of January 1, 1997, between Patrick W. Tolbert
and Sky Chefs, Inc.*
10.22 Employment Agreement, dated as of January 1, 1997, between Randall C. Boyd
and Sky Chefs, Inc.*
10.23 Caterair Key Employee Retention Plan. Incorporated by reference to Exhibit
10.11 of SC International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572.
10.23.1 Amendment No. 1 to Caterair Key Employee Retention Plan. Incorporated by
reference to Exhibit 10.11.1 of SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No. 33-94572.
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10.24 Caterair International Corporation Transition Severance Plan. Incorporated by
reference to Exhibit 10.26 of Amendment No. 2 to SC International Services,
Inc.'s Registration Statement on Form S-1, Registration No. 33-94572.
10.25 Phantom Stock Plan for Management Employees of Onex Food Services, Inc. and
its Subsidiaries. Incorporated by reference to Exhibit 10.6 of Caterair
International Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995.
10.26 Management Advisory Agreement, dated as of September 29, 1995, between OMI
Partnership Holdings Ltd. and SC International Services Inc.*
10.27 Lease Agreement, dated as of May 15, 1993, between TriNet Essential
Facilities X, Inc. and Caterair International Corporation, together with
Schedule of additional Lease Agreements between such parties.*
10.27.1 First Amendment to Lease Agreement, dated as of September 22, 1995, between
TriNet Essential Facilities X, Inc. and Caterair International Corporation.*
10.27.2 Second Amendment to Lease Agreement, dated as of December 1, 1995, between
TriNet Essential Facilities X, Inc. and Caterair International Corporation.*
10.27.3 Third Amendment to Lease Agreement, dated as of June 1, 1996, between TriNet
Essential Facilities X, Inc. and Caterair International Corporation.*
10.27.4 Fourth Amendment to Lease Agreement, dated as of December 23, 1996, between
TriNet Essential Facilities X, Inc. and Caterair International Corporation.*
10.27.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997, between TriNet
Essential Facilities X, Inc. and Caterair International Corporation.*
10.27.6 Sixth Amendment to Lease Agreement, dated as of August 22, 1997, between
TriNet Essential Facilities X, Inc. and Caterair International Corporation.*
10.27.7 Limited Waiver dated as of August 22, 1997, by TriNet Essential Facilities X,
Inc. in favor of Caterair International Corporation.*
10.28 Lease Agreement, dated as of May 15, 1993, between TriNet Essential
Facilities VIII R, Inc. and Caterair International Corporation, together with
Schedule of additional Lease Agreements between such parties.*
10.28.1 First Amendment to Lease Agreement, dated as of September 22, 1995, between
TriNet Essential Facilities VIII R, Inc. and Caterair International
Corporation.*
10.28.2 Second Amendment to Lease Agreement, dated as of December 1, 1995, between
TriNet Essential Facilities VIII R, Inc. and Caterair International
Corporation.*
10.28.3 Third Amendment to Lease Agreement, dated as of June 1, 1996, between TriNet
Essential Facilities VIII R, Inc. and Caterair International Corporation.*
10.28.4 Fourth Amendment to Lease Agreement, dated as of December 23, 1996, between
TriNet Essential Facilities VIII R, Inc. and Caterair International
Corporation.*
10.28.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997, between TriNet
Essential Facilities VIII R, Inc. and Caterair International Corporation.*
10.28.6 Sixth Amendment to Lease Agreement, dated as of August 22, 1997, between
TriNet Essential Facilities VIII R, Inc. and Caterair International
Corporation.*
10.28.7 Limited Waiver, dated as of August 22, 1997, by TriNet Essential Facilities
VIII R, Inc. in favor of Caterair International Corporation.*
10.29 Guaranty, dated as of September 22, 1995, by SC International Services, Inc.,
Sky Chefs, Inc., Onex Food Services, Inc. and Caterair International, Inc.
(II) for the benefit of TriNet Essential Facilities VIII R, Inc.*
10.30 Guaranty, dated as of September 22, 1995, by SC International Services, Inc.,
Sky Chefs, Inc., Onex Food Services, Inc. and Caterair International, Inc.
(II) for the benefit of TriNet Essential Facilities X, Inc.*
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10.31 Tax Sharing Agreement, dated as of December 15, 1989, among Caterair Holdings
Corporation, Caterair International Corporation and Marriott Corporation.
Incorporated by reference to Exhibit 10.25 of SC International Services,
Inc.'s Registration Statement on Form S-1, Registration No. 33-94572.
10.32 Noncompetition Agreement, dated as of September 29, 1995, between Caterair
International Corporation and Sky Chefs, Inc. Incorporated by reference to
Exhibit 10.16 of Caterair International Corporation's Annual Report on Form
10-K for the year ended December 31, 1995.
10.33 Promissory Note, dated September 29, 1995, by Caterair International
Corporation payable to the order of SC International Services, Inc.
Incorporated by reference to Exhibit 10.18 of Caterair International
Corporation's Annual Report on Form 10-K for the year ended December 31,
1995.
10.34 Credit Agreement, dated as of September 29, 1995, and amended and restated as
of August 28, 1997, among SC International Services, Inc., as borrower, Onex
Food Services, Inc., Caterair Holdings Corporation, Caterair International
Corporation, the guarantors named therein, the lenders party thereto from
time to time, Bankers Trust Company and J.P. Morgan Securities, Inc., as
co-arrangers, Bankers Trust Company, as syndication agent, The Bank of New
York, as co-agent, and Morgan Guaranty Trust Company of New York, as
administrative agent.*
10.35 Term Loan Agreement, dated as of August 28, 1997, among Caterair
International Corporation and SC International Services, Inc., as borrowers,
the guarantors named therein, the lenders party thereto from time to time,
Bankers Trust Company and J.P. Morgan Securities Inc., as co-arrangers,
Bankers Trust Company, as syndication agent, and Morgan Guaranty Trust
Company of New York, as administrative agent.*
10.36 Tax Sharing Agreement, dated as of September 29, 1995, among Onex Food
Services, Inc., Sky Chefs, Inc. and Caterair International, Inc. (II).
Incorporated by reference to Exhibit 10.22 of SC International Services,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995.
10.37 Shareholders' Agreement, dated as of May 29, 1986, as amended, among Onex
Food Services, Inc., an affiliate of Onex Corporation and certain employees
of Sky Chefs, Inc.*
10.38 Acquisition Agreement, dated as of November 30, 1995, between LSG Lufthansa
Service USA Corporation and Sky Chefs, Inc.*
10.39 Acquisition Agreement, dated as of August 14, 1995, between LSG Lufthansa
Service USA Corporation and Sky Chefs, Inc.*
10.40 Acquisition Agreement, dated July 18, 1997, between Caterair International,
Inc. (II) and Sky Chefs, Inc.*
10.40.1 Acquisition Agreement, dated as of August 29, 1997, between Caterair
International, Inc. (II) and Sky Chefs, Inc.*
10.41 Noncompetition Agreement, dated as of December 15, 1989, among Marriott
Corporation, Host International, Inc., Caterair Holdings Corporation and
Caterair International Corporation. Incorporated by reference to Caterair
International Corporation's Registration Statement on Form S-1, Registration
No. 33-31309.
10.42 Securityholder's Agreement, dated as of September 29, 1995, among Onex Food
Services, Inc., Onex U.S. LLC and OnCap Holdings U.S., Inc. Incorporated by
reference to Exhibit 10.20 of SC International Services, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1995.
10.43 Warrant Agreement, dated as of September 29, 1995, between Onex Food
Services, Inc., and the holders of warrants issued thereunder. Incorporated
by reference to Exhibit 10.21 of SC International Services, Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1995.
12.1 SC International Services, Inc. and Subsidiaries Computation of Ratio of
Earnings to Fixed Charges.*
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12.2 Caterair International Corporation and Subsidiaries Computation of Ratio of
Earnings to Fixed Charges.*
12.3 SC International Services, Inc. and Subsidiaries and Caterair International
Corporation and Subsidiaries Computation of Combined Pro Forma Ratio of
Earnings to Fixed Charges.*
21.1 Subsidiaries of the Registrants.*
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP. Incorporated by
reference to Exhibit 5.*
23.3 Consent of Price Waterhouse, LLP. Incorporated by reference to Exhibit 8.2.*
23.4 Consent of Arthur Andersen LLP.
24.1 Power of Attorney for SC International Services, Inc. (included with
signature pages of SC International Services, Inc. set forth in the
Registration Statement filed on October 9, 1997 at page II-11).
24.2 Power of Attorney for Sky Chefs, Inc. (included with signature pages of Sky
Chefs, Inc. set forth in the Registration Statement filed on October 9, 1997
at page II-13).
24.3 Power of Attorney for Caterair International, Inc. (II) (included with
signature pages of Caterair International, Inc. (II) set forth in the
Registration Statement filed on October 9, 1997 at page II-14).
24.4 Power of Attorney of Caterair International Corporation (included with
signature pages of Caterair International Corporation set forth in the
Registration Statement filed on October 9, 1997 at page II-15).
24.5 Power of Attorney for Arlington Services, Inc. (included with signature pages
of Arlington Services, Inc. set forth in the Registration Statement filed on
October 9, 1997 at page II-16).
24.6 Power of Attorney for Arlington Services Holding Corporation (included with
signature pages of Arlington Services Holding Corporation set forth in the
Registration Statement filed on October 9, 1997 at page II-17).
24.7 Power of Attorney for JFK Caterers, Inc. (included with signature pages of
JFK Caterers, Inc. set forth in the Registration Statement filed on October
9, 1997 at page II-20).
24.8 Power of Attorney for Caterair Consulting Services Corporation (included with
signature pages of Caterair Consulting Services Corporation set forth in the
Registration Statement filed on October 9, 1997 at page II-21).
24.9 Power of Attorney for Western Aire Chef, Inc. (included with signature pages
of Western Aire Chef, Inc. set forth in the Registration Statement filed on
October 9, 1997 at page II-22).
24.10 Power of Attorney for Bethesda Services, Inc. (included with signature pages
of Bethesda Services, Inc. set forth in the Registration Statement filed on
October 9, 1997 at page II-18).
24.11 Power of Attorney for Caterair New Zealand Limited (included with signature
pages of Caterair New Zealand Limited set forth in the Registration Statement
filed on October 9, 1997 at page II-19).
24.12 Power of Attorney for Onex Ohio Finance Corp. (included with signature pages
of Onex Ohio Finance Corp. set forth in the Registration Statement filed on
October 9, 1997 at page II-28).
24.13 Power of Attorney for Onex Ohio Finance Corp. II (included with signature
pages of Onex Ohio Finance Corp. II set forth in the Registration Statement
filed on October 9, 1997 at page II-29).
24.14 Power of Attorney for Onex Ohio Equity Corp. (included with signature pages
of Onex Ohio Equity Corp. set forth in the Registration Statement filed on
October 9, 1997 at page II-30).
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24.15 Power of Attorney for Onex Ohio Equity Corp. II (included with signature
pages of Onex Ohio Equity Corp. II set forth in the Registration Statement
filed on October 9, 1997 at page II-31).
24.16 Power of Attorney for Onex Ohio Credit Corp. (included with signature pages
of Onex Ohio Credit Corp. set forth in the Registration Statement filed on
October 9, 1997 at page II-32).
24.17 Power of Attorney for Onex Ohio Credit Corp. II (included with signature
pages of Onex Ohio Credit Corp. II set forth in the Registration Statement
filed on October 9, 1997 at page II-33).
24.18 Power of Attorney for Onex Ohio Acceptance Corporation (included with
signature pages of Onex Ohio Acceptance Corporation set forth in the
Registration Statement filed on October 9, 1997 at page II-34).
24.19 Power of Attorney for Onex Ohio Capital Corp. (included with signature pages
of Onex Ohio Capital Corp. set forth in the Registration Statement filed on
October 9, 1997 at page II-35).
24.20 Power of Attorney for Onex Ohio Capital Corp. II (included with signature
pages of Onex Ohio Capital Corp. II set forth in the Registration Statement
filed on October 9, 1997 at page II-36).
24.21 Power of Attorney for Onex Ohio Fiscal Corp. (included with signature pages
of Onex Ohio Fiscal Corp. set forth in the Registration Statement filed on
October 9, 1997 at page II-37).
24.22 Power of Attorney for Onex Ohio Fiscal Corp. II (included with signature
pages of Onex Ohio Fiscal Corp. II set forth in the Registration Statement
filed on October 9, 1997 at page II-38).
24.23 Power of Attorney for Onex Ohio Funds Corp. (included with signature pages of
Onex Ohio Funds Corp. set forth in the Registration Statement filed on
October 9, 1997 at page II-39).
24.24 Power of Attorney for Onex Ohio Funds Corp. II (included with signature pages
of Onex Ohio Funds Corp. II set forth in the Registration Statement filed on
October 9, 1997 at page II-40).
24.25 Power of Attorney for Caterair International Transition Corporation (included
with signature pages of Caterair International Transition Corporation set
forth in the Registration Statement filed on October 9, 1997 at page II-24).
24.26 Power of Attorney for Sky Chefs International Corp. (included with signature
pages of Sky Chefs International Corp. set forth in the Registration
Statement filed on October 9, 1997 at page II-27).
24.27 Power of Attorney for Caterair Airport Properties, Inc. (included with
signature pages of Caterair Airport Properties, Inc. set forth in the
Registration Statement filed on October 9, 1997 at page II-26).
24.28 Power of Attorney for Caterair St. Thomas Holdings Corporation (included with
signature pages of Caterair St. Thomas Holdings Corporation set forth in the
Registration Statement filed on October 9, 1997 at page II-23).
24.29 Power of Attorney for Sky Chefs Argentine, Inc. (included with signature
pages of Sky Chefs Argentine, Inc. set forth in the Registration Statement
filed on October 9, 1997 at page II-25).
25.1 Statement of Eligibility on Form T-1 of Trustee under the Indenture.*
27.1 Financial Data Schedules for SC International Services, Inc. and consolidated
subsidiaries for the fiscal year ended December 31, 1996, the nine-months
ended September 30, 1997, and the nine-months ended September 30, 1996.*
27.2 Financial Data Schedules for Caterair International Corporation and
consolidated subsidiaries for the fiscal year ended December 31, 1996, the
nine-months ended September 30, 1997 and the nine-months ended September 30,
1996.*
</TABLE>
II-9
<PAGE> 197
<TABLE>
<C> <S>
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
</TABLE>
- ---------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable or the required information is included in the
financial statements or notes thereto and, therefore, have been omitted.
ITEM 22. 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 registrants pursuant to the foregoing provisions, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of 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 registrants hereby undertake:
(1) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(2) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering rate may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(c) (1) The undersigned registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer
II-10
<PAGE> 198
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(2) The registrants undertake that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
II-11
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
SC INTERNATIONAL SERVICES, INC.
By: *
------------------------------------
Name: Patrick W. Tolbert
Title: Executive Vice President and
Chief Financial and
Administrative Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
* Director, Chief Executive December 15, 1997
- ------------------------------------------ Officer and Vice Chairman
James J. O'Neill of the Board (principal
executive officer)
* Director, Executive Vice December 15, 1997
- ------------------------------------------ President and Chief
Patrick W. Tolbert Financial and
Administrative Officer
(principal financial
officer)
* Director and Chairman of the December 15, 1997
- ------------------------------------------ Board
Daniel J. Altobello
* Director December 15, 1997
- ------------------------------------------
Gerald W. Schwartz
* Director December 15, 1997
- ------------------------------------------
Ewout Heersink
Director
- ------------------------------------------
Helmut Woelki
Director
- ------------------------------------------
Gunther Rothig
Director
- ------------------------------------------
Helmut Bleckmann
* Director December 15, 1997
- ------------------------------------------
Michael Z. Kay
* Director December 15, 1997
- ------------------------------------------
William S. Woodside
Director -- Financial December 15, 1997
- ------------------------------------------ Accounting (principal
Thomas J. Lee accounting officer)
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
SKY CHEFS, INC.
By: *
------------------------------------
Name: Patrick W. Tolbert
Title: Executive Vice President and
Chief Financial and
Administrative Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
* Director, President and December 15, 1997
- ------------------------------------------ Chief Executive Officer
Michael Z. Kay (principal executive
officer)
* Director, Executive Vice December 15, 1997
- ------------------------------------------ President and Chief
Patrick W. Tolbert Financial and
Administrative Officer
(principal financial
officer)
* Director December 15, 1997
- ------------------------------------------
Gerald W. Schwartz
* Director December 15, 1997
- ------------------------------------------
Ewout Heersink
Director
- ------------------------------------------
Helmut Woelki
Director
- ------------------------------------------
Gunther Rothig
Director
- ------------------------------------------
Helmut Bleckmann
* Director December 15, 1997
- ------------------------------------------
William S. Woodside
Director -- Financial December 15, 1997
- ------------------------------------------ Accounting (principal
Thomas J. Lee accounting officer)
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-13
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
CATERAIR INTERNATIONAL, INC. (II)
By: *
------------------------------------
Name: James J. O'Neill
Title: Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
* Director and Chairman of the December 15, 1997
- ------------------------------------------ Board (principal
James J. O'Neill executive, financial and
accounting officer)
* Director December 15, 1997
- ------------------------------------------
Eric J. Rosen
* Director December 15, 1997
- ------------------------------------------
J. Thomas Markley
Director
- ------------------------------------------
Aaron Gellman
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-14
<PAGE> 202
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
CATERAIR INTERNATIONAL CORPORATION
By: *
------------------------------------
Name: Daniel J. Altobello
Title: President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
* President and Chief Executive December 15, 1997
- ------------------------------------------ Officer (principal
Daniel J. Altobello executive, financial and
accounting officer)
* Director December 15, 1997
- ------------------------------------------
Anthony R. Melman
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-15
<PAGE> 203
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ARLINGTON SERVICES, INC.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE Director and President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director, Vice President December 15, 1997
- ------------------------------------------ and Treasurer
Norman J. Shuman
* Director and Secretary December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-16
<PAGE> 204
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ARLINGTON SERVICES HOLDING
CORPORATION
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE Director and President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director, Vice President and December 15, 1997
- ------------------------------------------ Treasurer
Norman J. Shuman
* Director and Secretary December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-17
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
BETHESDA SERVICES, INC.
By: *
------------------------------------
Name: Donald F. West
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
* Director, President and December 15, 1997
- ------------------------------------------ Secretary (principal
Donald F. West executive, financial and
accounting officer)
* Director, Vice President and December 15, 1997
- ------------------------------------------ Treasurer
Norman J. Shuman
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-18
<PAGE> 206
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
CATERAIR NEW ZEALAND LIMITED
By: *
------------------------------------
Name: Donald F. West
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
* Director, President and December 15, 1997
- ------------------------------------------ Secretary (principal
Donald F. West executive, financial and
accounting officer)
* Director, Vice President and December 15, 1997
- ------------------------------------------ Treasurer
Norman J. Shuman
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-19
<PAGE> 207
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
JFK CATERERS, INC.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE Director and President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
II-20
<PAGE> 208
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
CATERAIR CONSULTING SERVICES
CORPORATION
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE Director and President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
II-21
<PAGE> 209
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
WESTERN AIRE CHEF, INC.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Daniel J. Altobello
* Director December 15, 1997
- ------------------------------------------
Patrick W. Tolbert
* Director December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-22
<PAGE> 210
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
CATERAIR ST. THOMAS HOLDINGS
CORPORATION
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ THOMAS J. LEE Director and President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
II-23
<PAGE> 211
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
CATERAIR INTERNATIONAL TRANSITION
CORPORATION
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ THOMAS J. LEE Director and President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
II-24
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
SKY CHEFS ARGENTINE, INC.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Patrick W. Tolbert
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-25
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
CATERAIR AIRPORT PROPERTIES, INC.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- --------------------------------------------- (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ---------------------------------------------
Daniel J. Altobello
* Director and Vice President December 15, 1997
- ---------------------------------------------
Patrick W. Tolbert
* Director and Secretary December 15, 1997
- ---------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ---------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-26
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
SKY CHEFS INTERNATIONAL CORP.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
Michael Z. Kay
* Director and Vice President December 15, 1997
- ------------------------------------------
Patrick W. Tolbert
* Director and Vice President December 15, 1997
- ------------------------------------------
James J. O'Neill
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-27
<PAGE> 215
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO FINANCE CORP.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-28
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO FINANCE CORP. II
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President (principal December 15, 1997
- ------------------------------------------ executive, financial and
Thomas J. Lee accounting officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-29
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO EQUITY CORP.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President (principal December 15, 1997
- ------------------------------------------ executive, financial and
Thomas J. Lee accounting officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-30
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO EQUITY CORP. II
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Ewout Heersink
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-31
<PAGE> 219
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO CREDIT CORP.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-32
<PAGE> 220
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO CREDIT CORP. II
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Ewout Heersink
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-33
<PAGE> 221
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO ACCEPTANCE CORPORATION
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-34
<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO CAPITAL CORP.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President (principal December 15, 1997
- ------------------------------------------ executive, financial and
Thomas J. Lee accounting officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-35
<PAGE> 223
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO CAPITAL CORP. II
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Ewout Heersink
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-36
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO FISCAL CORP.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- ------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-37
<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO FISCAL CORP. II
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Ewout Heersink
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-38
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO FUNDS CORP.
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Anthony Melman
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-39
<PAGE> 227
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Arlington, State
of Texas, on the 15th day of December, 1997.
ONEX OHIO FUNDS CORP. II
By: /s/ THOMAS J. LEE
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------- -------------------
<C> <S> <C>
/s/ THOMAS J. LEE President December 15, 1997
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
* Director December 15, 1997
- ------------------------------------------
Ewout Heersink
* Director, Vice President, December 15, 1997
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
* Director and Vice President December 15, 1997
- ------------------------------------------
Donald F. West
*By: THOMAS J. LEE
- ------------------------------------------
Thomas J. Lee
Attorney-in-Fact
</TABLE>
II-40
<PAGE> 228
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
<C> <S> <C>
2.1 Master Agreement, dated as of April 26, 1995, among Onex Food
Services, Inc., Caterair Holdings Corporation and Caterair
International Corporation. Incorporated by reference to Exhibit
2.1 of SC International Services, Inc.'s Registration Statement
on Form S-1, Registration No. 33-94572. .........................
2.1.1 Amendment No. 1 to Master Agreement, dated as of September 29,
1995, among Onex Food Services, Inc., Caterair Holdings
Corporation and Caterair International Corporation. Incorporated
by reference to Exhibit 2.2 of SC International Services, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1995. ...........................................................
2.2 Sublease Agreement, dated as of September 29, 1995, between Sky
Chefs, Inc. and Caterair International Corporation, together with
Schedule of additional Subleases between such parties.
Incorporated by reference to Exhibit 10.26 of SC International
Services, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995. ..............................................
2.3 Sublease Agreement, dated as of September 29, 1995, between
Caterair International, Inc. (II) and Caterair International
Corporation, together with Schedule of additional Subleases
between such parties. Incorporated by reference to Exhibit 10.27
of SC International Services, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1995. ...........................
2.4 License Agreement, dated as of September 29, 1995, between Sky
Chefs, Inc. and Caterair International Corporation. Incorporated
by reference to Exhibit 10.24 of SC International Services,
Inc.'s Annual Report on Form 10-K for the year ended December 31,
1995. ...........................................................
2.5 License Agreement, dated as of September 29, 1995, between
Caterair International, Inc. (II) and Caterair International
Corporation. Incorporated by reference to Exhibit 10.25 of SC
International Services, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1995. ...................................
3.1 Certificate of Incorporation of SC International Services, Inc.
Incorporated by reference to Exhibit 3.1 of SC International
Services, Inc.'s Registration Statement on Form S-1, Registration
No. 33-94572. ...................................................
3.2 Amended and Restated Bylaws of SC International Services,
Inc.* ...........................................................
3.3 Amended and Restated Certificate of Incorporation of Sky Chefs,
Inc. Incorporated by reference to Exhibit 3.3 of Amendment No. 3
to SC International Services, Inc.'s Registration Statement on
Form S-1, Registration No. 33-94572. ............................
3.4 Bylaws of Sky Chefs, Inc. Incorporated by reference to Exhibit
3.4 of Amendment No. 3 to SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No.
33-94572. .......................................................
3.5 Certificate of Incorporation of Caterair International, Inc.
(II). Incorporated by reference to Exhibit 3.5 of SC
International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572. .................................
3.6 Bylaws of Caterair International, Inc. (II). Incorporated by
reference to Exhibit 3.6 of SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No.
33-94572. .......................................................
3.7 Certificate of Incorporation of Caterair International
Corporation, Incorporated by reference to Exhibit 3.1 of Caterair
International Corporation's Registration Statement on Form S-1,
Registration No. 33-30918. ......................................
</TABLE>
<PAGE> 229
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
<C> <S> <C>
3.8 Bylaws of Caterair International Corporation. Incorporated by
reference to Exhibit 3.2 of Caterair International Corporation's
Registration Statement on Form S-1, Registration No.
33-30918. .......................................................
3.9 Certificate of Incorporation of Arlington Services, Inc.* .......
3.10 Bylaws of Arlington Services, Inc.* .............................
3.11 Certificate of Incorporation of Arlington Services Holding
Corporation.* ...................................................
3.12 Bylaws of Arlington Services Holding Corporation.* ..............
3.13 Certificate of Incorporation of JFK Caterers, Inc.* .............
3.14 Bylaws of JFK Caterers, Inc.* ...................................
3.15 Certificate of Incorporation of Caterair Consulting Services
Corporation.* ...................................................
3.16 Bylaws of Caterair Consulting Services Corporation.* ............
3.17 Certificate of Incorporation of Western Aire Chef, Inc.* ........
3.18 Bylaws of Western Aire Chef, Inc.* ..............................
3.19 Certificate of Incorporation of Bethesda Services, Inc.* ........
3.20 Bylaws of Bethesda Services, Inc.* ..............................
3.21 Certificate of Incorporation of Caterair New Zealand
Limited.* .......................................................
3.22 Bylaws of Caterair New Zealand Limited.* ........................
3.23 Certificate of Incorporation of Onex Ohio Finance Corp.* ........
3.24 Bylaws of Onex Ohio Finance Corp.* ..............................
3.25 Certificate of Incorporation of Onex Ohio Finance Corp. II.* ....
3.26 Bylaws of Onex Ohio Finance Corp. II.* ..........................
3.27 Certificate of Incorporation of Onex Ohio Equity Corp.* .........
3.28 Bylaws of Onex Ohio Equity Corp.* ...............................
3.29 Certificate of Incorporation of Onex Ohio Equity Corp. II.* .....
3.30 Bylaws of Onex Ohio Equity Corp. II.* ...........................
3.31 Certificate of Incorporation of Onex Ohio Credit Corp.* .........
3.32 Bylaws of Onex Ohio Credit Corp.* ...............................
3.33 Certificate of Incorporation of Onex Ohio Credit Corp. II.* .....
3.34 Bylaws of Onex Ohio Credit Corp. II.* ...........................
3.35 Certificate of Incorporation of Onex Ohio Acceptance
Corporation.* ...................................................
3.36 Bylaws of Onex Ohio Acceptance Corporation.* ....................
3.37 Certificate of Incorporation of Onex Ohio Capital Corp.* ........
3.38 Bylaws of Onex Ohio Capital Corp.* ..............................
3.39 Certificate of Incorporation of Onex Ohio Capital Corp. II.* ....
3.40 Bylaws of Onex Ohio Capital Corp. II.* ..........................
3.41 Certificate of Incorporation of Onex Ohio Fiscal Corp.* .........
3.42 Bylaws of Onex Ohio Fiscal Corp.* ...............................
3.43 Certificate of Incorporation of Onex Ohio Fiscal Corp. II.* .....
3.44 Bylaws of Onex Ohio Fiscal Corp. II.* ...........................
3.45 Certificate of Incorporation of Onex Ohio Funds Corp.* ..........
3.46 Bylaws of Onex Ohio Funds Corp.* ................................
3.47 Certificate of Incorporation of Onex Ohio Funds Corp. II.* ......
3.48 Bylaws of Onex Ohio Funds Corp. II.* ............................
</TABLE>
<PAGE> 230
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
<C> <S> <C>
3.49 Certificate of Incorporation of Caterair International Transition
Corporation.* ...................................................
3.50 Bylaws of Caterair International Transition Corporation.* .......
3.51 Certificate of Incorporation of Sky Chefs International
Corp.* ..........................................................
3.52 Bylaws of Sky Chefs International Corp.* ........................
3.53 Certificate of Incorporation of Caterair Airport Properties,
Inc.* ...........................................................
3.54 Bylaws of Caterair Airport Properties, Inc.* ....................
3.55 Certificate of Incorporation of Caterair St. Thomas Holdings
Corporation.* ...................................................
3.56 Bylaws of Caterair St. Thomas Holdings Corporation.* ............
3.57 Certificate of Incorporation of Sky Chefs Argentine Inc.* .......
3.58 Bylaws of Sky Chefs Argentine Inc.* .............................
4. Indenture, dated August 28, 1997, among SC International
Services, Inc., as Issuer, The Bank of New York, as Trustee and
the Guarantors named therein.* ..................................
5. Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP.* ........
8.1 Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP.* ........
8.2 Opinion of Price Waterhouse LLP.* ...............................
10.1 Purchase Agreement, dated as of August 22, 1997, among SC
International Services, Inc., the Guarantors named therein, and
BT Securities Corporation, J.P. Morgan Securities Inc., Credit
Suisse First Boston Corporation, Goldman, Sachs & Co., Smith
Barney, Inc. and Bankers Trust International PLC, as Initial
Purchasers.* ....................................................
10.2 Registration Rights Agreement, dated as of August 28, 1997, among
SC International Services, Inc., the Guarantors named therein,
and BT Securities Corporation, J.P. Morgan Securities Inc.,
Credit Suisse First Boston Corporation, Goldman, Sachs & Co.,
Smith Barney, Inc., and Bankers Trust International PLC, as
Initial Purchasers.* ............................................
10.3 Dealer Manager Agreement, dated August 25, 1997, among SC
International Services, Inc., Sky Chefs, Inc., Caterair
International, Inc. (II), Caterair International Corporation and
BT Securities Corporation.* .....................................
10.4 Depositary Agreement, dated as of August 25, 1997, between SC
International Services, Inc. and The Bank of New York, as
Depositary.* ....................................................
10.5 Form of Exchange Agent Agreement between SC International
Services, Inc. and The Bank of New York, as Exchange Agent.* ....
10.6 Marriott Noncompetition Agreement, dated as of December 15, 1989,
among Marriott Corporation, Host International, Inc., Caterair
Holdings Corporation and Caterair International Corporation.
Incorporated by reference to Exhibit 10.25 of Caterair
International Corporation's Registration Statement on Form S-1,
Registration No. 33-31309. ......................................
10.7 Consulting Agreement, dated as of September 29, 1995, between
Frederic V. Malek and SC International Services, Inc.
Incorporated by reference to Exhibit 10.1 of SC International
Services, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1995. ..............................................
</TABLE>
<PAGE> 231
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
<C> <S> <C>
10.8 Agreement, dated as of October 5, 1993, among Onex Corporation,
Deutsche Lufthansa Aktiengesellschaft and LSG Lufthansa Service
GmbH. Incorporated by reference to Exhibit 10.2 of SC
International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572. .................................
10.9 Cooperation Agreement, dated as of October 5, 1993, between LSG
Lufthansa Service GmbH and Sky Chefs, Inc. Incorporated by
reference to Exhibit 10.3 of SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No.
33-94572. .......................................................
10.10 Consent Agreement, dated as of April 20, 1995, among Onex
Corporation, Onex Food Services, Inc., OnCap Holdings U.S., Inc.,
Sky Chefs, Inc. and LSG Lufthansa Service GmbH. Incorporated by
reference to Exhibit 10.3.1 of Amendment No. 2 to SC
International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572. .................................
10.11 Consent Agreement, dated as of April 20, 1995, among OnCap
Holdings U.S., Inc., OMI Quebec Inc., Onex Food Services, Inc.
and LSG Lufthansa Service GmbH. Incorporated by reference to
Exhibit 10.4.1 of Amendment No. 2 to SC International Services,
Inc.'s Registration Statement on Form S-1, Registration No.
33-94572. .......................................................
10.12 Consent Agreement, dated as of April 20, 1995, among Onex
Corporation, Onex Food Services, Inc., OnCap Holdings U.S., Inc.,
Sky Chefs, Inc. and LSG Lufthansa Service GmbH. Incorporated by
reference to Exhibit 10.4.2 of Amendment No. 2 to SC
International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572. .................................
10.13 Exchange Agreement and Amendment to Stockholders' Agreement,
dated as of December 28, 1996, among Onex Food Services, Inc.,
LSG Lufthansa Service GmbH and LSG Lufthansa Service USA
Corporation.* ...................................................
10.14 Stockholders' Agreement, dated as of December 6, 1993, among Onex
Corporation, Onex Food Services, Inc., OnCap Holdings U.S., Inc.,
OMI Quebec Inc., LSG Lufthansa Service GmbH and LSG Lufthansa
Service USA Corporation. Incorporated by reference to Exhibit
10.4 of SC International Services, Inc.'s Registration Statement
on Form S-1, Registration No. 33-94572. .........................
10.15 Arbitration Agreement dated as of October 5, 1993, among Onex
Corporation, Onex Food Services, Inc., OnCap Holdings U.S., Inc.,
OMI Quebec Inc., Sky Chefs, Inc., Deutsche Lufthansa
Aktiengesellschaft and LSG Lufthansa Service GmbH. Incorporated
by reference to Exhibit 10.5 of SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No.
33-94572. .......................................................
10.16 Master National Agreement, dated August 22, 1969, between Sky
Chefs, Inc. and Hotel Employees and Restaurant Employees
International Union. Incorporated by reference to Exhibit 10.8 of
Amendment No. 1 to SC International Services, Inc.'s Registration
Statement on Form S-1, Registration No. 33-94572. ...............
10.17 Sky Chefs, Inc. Supplemental Executive Retirement Plan.
Incorporated by reference to Exhibit 10.13 of SC International
Services, Inc.'s Registration Statement on Form S-1, Registration
No. 33-94572. ...................................................
10.18 Sky Chefs, Inc. Performance Reward Plan. Incorporated by
reference to Exhibit 10.13 of Amendment No. 1 to SC International
Services, Inc.'s Registration Statement on Form S-1, Registration
No. 33-94572. ...................................................
</TABLE>
<PAGE> 232
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
<C> <S> <C>
10.19 Employment Agreement, dated as of January 1, 1997, between James
J. O'Neill and Onex Food Services, Inc.* ........................
10.20 Employment Agreement, dated as of January 1, 1997, between
Michael Z. Kay and Sky Chefs, Inc.* .............................
10.21 Employment Agreement, dated as of January 1, 1997, between
Patrick W. Tolbert and Sky Chefs, Inc.* .........................
10.22 Employment Agreement, dated as of January 1, 1997, between
Randall C. Boyd and Sky Chefs, Inc.* ............................
10.23 Caterair Key Employee Retention Plan. Incorporated by reference
to Exhibit 10.11 of SC International Services, Inc.'s
Registration Statement on Form S-1, Registration No.
33-94572. .......................................................
10.23.1 Amendment No. 1 to Caterair Key Employee Retention Plan.
Incorporated by reference to Exhibit 10.11.1 of SC International
Services, Inc.'s Registration Statement on Form S-1, Registration
No. 33-94572. ...................................................
10.24 Caterair International Corporation Transition Severance Plan.
Incorporated by reference to Exhibit 10.26 of Amendment No. 2 to
SC International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572. .................................
10.25 Phantom Stock Plan for Management Employees of Onex Food
Services, Inc. and its Subsidiaries. Incorporated by reference to
Exhibit 10.6 of Caterair International Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995. .......
10.26 Management Advisory Agreement, dated as of September 29, 1995,
between OMI Partnership Holdings Ltd, and SC International
Services Inc.* ..................................................
10.27 Lease Agreement, dated as of May 15, 1993, between TriNet
Essential Facilities X, Inc. and Caterair International
Corporation, together with Schedule of substantially similar
Lease Agreements between such parties.* .........................
10.27.1 First Amendment to Lease Agreement, dated as of September 22,
1995, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation.* .....................................
10.27.2 Second Amendment to Lease Agreement, dated as of December 1,
1995, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation.* .....................................
10.27.3 Third Amendment to Lease Agreement, dated as of June 1, 1996,
between TriNet Essential Facilities X, Inc. and Caterair
International Corporation.* .....................................
10.27.4 Fourth Amendment to Lease Agreement, dated as of December 23,
1996, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation.* .....................................
10.27.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997,
between TriNet Essential Facilities X, Inc. and Caterair
International Corporation.* .....................................
10.27.6 Sixth Amendment to Lease Agreement, dated as of August 22, 1997,
between TriNet Essential Facilities X, Inc. and Caterair
International Corporation.* .....................................
10.27.7 Limited Waiver dated as of August 22, 1997, by TriNet Essential
Facilities X, Inc., in favor of Caterair International
Corporation.* ...................................................
</TABLE>
<PAGE> 233
<TABLE>
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EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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10.28 Lease Agreement, dated as of May 15, 1993, between TriNet
Essential Facilities VIII R, Inc. and Caterair International
Corporation, together with Schedule of substantially similar
Lease Agreements between such parties.* .........................
10.28.1 First Amendment to Lease Agreement, dated as of September 22,
1995, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation.* ............................
10.28.2 Second Amendment to Lease Agreement, dated as of December 1,
1995, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation.* ............................
10.28.3 Third Amendment to Lease Agreement, dated as of June 1, 1996,
between TriNet Essential Facilities VIII R, Inc. and Caterair
International Corporation.* .....................................
10.28.4 Fourth Amendment to Lease Agreement, dated as of December 23,
1996, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation.* ............................
10.28.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997,
between TriNet Essential Facilities VIII R, Inc. and Caterair
International Corporation.* .....................................
10.28.6 Sixth Amendment to Lease Agreement, dated as of August 22, 1997,
between TriNet Essential Facilities VIII R, Inc. and Caterair
International Corporation.* .....................................
10.28.7 Limited Waiver, dated as of August 22, 1997, by TriNet Essential
Facilities VIII R, Inc., in favor of Caterair International
Corporation.* ...................................................
10.29 Guaranty, dated as of September 22, 1995, by SC International
Services, Inc., Sky Chefs, Inc., Onex Food Services, Inc. and
Caterair International, Inc. (II) for the benefit of TriNet
Essential Facilities VIII R, Inc.* ..............................
10.30 Guaranty, dated as of September 22, 1995, by SC International
Services, Inc., Sky Chefs, Inc., Onex Food Services, Inc. and
Caterair International, Inc. (II) for the benefit of TriNet
Essential Facilities X, Inc.* ...................................
10.31 Tax Sharing Agreement, dated as of December 15, 1989, among
Caterair Holdings Corporation, Caterair International Corporation
and Marriott Corporation. Incorporated by reference to Exhibit
10.25 of SC International Services, Inc.'s Registration Statement
on Form S-1, Registration No. 33-94572. .........................
10.32 Noncompetition Agreement, dated as of September 29, 1995, between
Caterair International Corporation and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.16 of Caterair
International Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995. ...................................
10.33 Promissory Note, dated September 29, 1995, by Caterair
International Corporation payable to the order of SC
International Services, Inc. Incorporated by reference to Exhibit
10.18 of Caterair International Corporation's Annual Report on
Form 10-K for the year ended December 31, 1995. .................
</TABLE>
<PAGE> 234
<TABLE>
<CAPTION>
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NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
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10.34 Credit Agreement, dated as of September 29, 1995, and amended and
restated as of August 28, 1997, among SC International Services,
Inc., as borrower, Onex Food Services, Inc., Caterair Holdings
Corporation, Caterair International Corporation, the guarantors
named therein, the lenders party thereto from time to time,
Bankers Trust Company and J.P. Morgan Securities, Inc., as
co-arrangers, Bankers Trust Company, as syndication agent, the
Bank of New York, as co-agent, and Morgan Guaranty Trust Company
of New York, as administrative agent.* ..........................
10.35 Term Loan Agreement, dated as of August 28, 1997, among Caterair
International Corporation and SC International Services, Inc., as
borrowers, the guarantors named therein, the lenders party
thereto from time to time, Bankers Trust Company and J.P. Morgan
Securities Inc., as co-arrangers, Bankers Trust Company, as
syndication agent, and Morgan Guaranty Trust Company of New York,
as administrative agent.* .......................................
10.36 Tax Sharing Agreement, dated as of September 29, 1995, among Onex
Food Services, Inc., Sky Chefs, Inc. and Caterair International,
Inc. (II). Incorporated by reference to Exhibit 10.22 of SC
International Services, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1995. ...................................
10.37 Shareholders' Agreement, dated as of May 29, 1986, as amended,
among Onex Food Services, Inc., an affiliate of Onex Corporation
and certain employees of Sky Chefs, Inc.* .......................
10.38 Acquisition Agreement, dated as of November 30, 1995, between LSG
Lufthansa Service USA Corporation and Sky Chefs, Inc.* ..........
10.39 Acquisition Agreement, dated as of August 14, 1995, between LSG
Lufthansa Service USA Corporation and Sky Chefs, Inc.* ..........
10.40 Acquisition Agreement, dated July 18, 1997, between Caterair
International, Inc. (II) and Sky Chefs, Inc.* ...................
10.40.1 Acquisition Agreement, dated as of August 29, 1997, between
Caterair International, Inc. (II) and Sky Chefs, Inc.* ..........
10.41 Caterair Noncompetition Agreement, dated as of December 15, 1989,
among Marriott Corporation, Host International, Inc., Caterair
Holdings Corporation and, Caterair International Corporation.
Incorporated by International Corporation Registration Statement
on Form S-1, Registration No. 33-31309. .........................
12.1 SC International Services, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges.* ............................
12.2 Caterair International Corporation and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges.* .........................
12.3 SC International Services, Inc. and Subsidiaries and Caterair
International Corporation and Subsidiaries Computation of
Combined Pro Forma Ratio of Earnings to Fixed Charges.* .........
21.1 Subsidiaries of the Registrants.* ...............................
23.1 Consent of Coopers & Lybrand L.L.P. .............................
23.2 Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP.
Incorporated by reference to Exhibit 5.* ........................
23.3 Consent of Price Waterhouse, LLP. Incorporated by reference to
Exhibit 8.2.* ...................................................
23.4 Consent of Arthur Andersen LLP. .................................
</TABLE>
<PAGE> 235
<TABLE>
<CAPTION>
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EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
<C> <S> <C>
24.1 Power of Attorney for SC International Services, Inc. (included
with signature pages of SC International Services, Inc. at page
II-11)* .........................................................
24.2 Power of Attorney for Sky Chefs, Inc. (included with signature
pages of Sky Chefs, Inc. at page II-13)* ........................
24.3 Power of Attorney for Caterair International, Inc. (II) (included
with signature pages of Caterair International, Inc. (II) at page
II-14)* .........................................................
24.4 Power of Attorney of Caterair International Corporation (included
with signature pages of Caterair International Corporation at
page II-15)* ....................................................
24.5 Power of Attorney for Arlington Services, Inc. (included with
signature pages of Arlington Services, Inc. at page II-16).* ....
24.6 Power of Attorney for Arlington Services Holding Corporation
(included with signature pages of Arlington Services Holding
Corporation at page II-17).* ....................................
24.7 Power of Attorney for JFK Caterers, Inc. (included with signature
pages of JFK Caterers, Inc. at page II-20).* ....................
24.8 Power of Attorney for Caterair Consulting Services Corporation
(included with signature pages of Caterair Consulting Services
Corporation at page II-21).* ....................................
24.9 Power of Attorney for Western Aire Chef, Inc. (included with
signature pages of Western Aire Chef, Inc. at page II-22).* .....
24.10 Power of Attorney for Bethesda Services, Inc. (included with
signature pages of Bethesda Services, Inc. at page II-18).* .....
24.11 Power of Attorney for Caterair New Zealand Limited (included with
signature pages of Caterair New Zealand Limited at page
II-19).* ........................................................
24.12 Power of Attorney for Onex Ohio Finance Corp. (included with
signature pages of Onex Ohio Finance Corp. at page II-28).* .....
24.13 Power of Attorney for Onex Ohio Finance Corp. II (included with
signature pages of Onex Ohio Finance Corp. II at page
II-29).* ........................................................
24.14 Power of Attorney for Onex Ohio Equity Corp. (included with
signature pages of Onex Ohio Equity Corp. at page II-30).* ......
24.15 Power of Attorney for Onex Ohio Equity Corp. II (included with
signature pages of Onex Ohio Equity Corp. II at page II-31).* ...
24.16 Power of Attorney for Onex Ohio Credit Corp. (included with
signature pages of Onex Ohio Credit Corp. at page II-32).* ......
24.17 Power of Attorney for Onex Ohio Credit Corp. II (included with
signature pages of Onex Ohio Credit Corp. II at page II-33).* ...
24.18 Power of Attorney for Onex Ohio Acceptance Corporation (included
with signature pages of Onex Ohio Acceptance Corporation at page
II-34).* ........................................................
24.19 Power of Attorney for Onex Ohio Capital Corp. (included with
signature pages of Onex Ohio Capital Corp. at page II-35).* .....
24.20 Power of Attorney for Onex Ohio Capital Corp. II (included with
signature pages of Onex Ohio Capital Corp. II at page
II-36).* ........................................................
24.21 Power of Attorney for Onex Ohio Fiscal Corp. (included with
signature pages of Onex Ohio Fiscal Corp. at page II-37).* ......
24.22 Power of Attorney for Onex Ohio Fiscal Corp. II (included with
signature pages of Onex Ohio Fiscal Corp. II at page II-38).* ...
</TABLE>
<PAGE> 236
<TABLE>
<CAPTION>
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EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
--------- ----------------------------------------------------------------- ------------
<C> <S> <C>
24.23 Power of Attorney for Onex Ohio Funds Corp. (included with
signature pages of Onex Ohio Funds Corp. at page II-39).* .......
24.24 Power of Attorney for Onex Ohio Funds Corp. II (included with
signature pages of Onex Ohio Funds Corp. II at page II-40).* ....
24.25 Power of Attorney for Caterair International Transition
Corporation (included with signature pages of Caterair
International Transition Corporation at page II-24).* ...........
24.26 Power of Attorney for Sky Chefs International Corp. (included
with signature pages of Sky Chefs International Corp. at page
II-27).* ........................................................
24.27 Power of Attorney for Caterair Airport Properties, Inc. (included
with signature pages of Caterair Airport Properties, Inc. at page
II-26).* ........................................................
24.28 Power of Attorney for Caterair St. Thomas Holdings Corporation
(included with signature pages of Caterair St. Thomas Holdings
Corporation at page II-23).* ....................................
24.29 Power of Attorney for Sky Chefs Argentine, Inc. (included with
signature pages of Sky Chefs Argentine, Inc. at page II-25).* ...
25.1 Statement of Eligibility on Form T-I of Trustee under the
Indenture.* .....................................................
27.1 Financial Data Schedules for SC International Services, Inc. and
consolidated subsidiaries for the fiscal year ended December 31,
1996, the six-months ended June 30, 1997 and the six-months ended
June 30, 1996.* .................................................
27.2 Financial Data Schedules for Caterair International Corporation
and consolidated subsidiaries for the fiscal year ended December
31, 1996, the six-months ended June 30, 1997 and the six-months
ended June 30, 1996.* ...........................................
99.1 Form of Letter of Transmittal.* .................................
99.2 Form of Notice of Guaranteed Delivery.* .........................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated February 28, 1997, on our audits of the consolidated financial
statements of SC International Services, Inc. and Subsidiaries. We also consent
to the references to our firm under the captions "Experts," "Summary Historical
Financial Data" and "Selected Historical Financial Data."
We consent to the inclusion in this registration statement on Form S-4 of our
report dated March 5, 1997, on our audits of the consolidated financial
statements of Caterair International Corporation and Subsidiaries. We also
consent to the references to our firm under the captions "Experts," "Summary
Historical Financial Data" and "Selected Historical Financial Data."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Dallas, Texas
December 16, 1997
<PAGE> 1
EXHIBIT 23.4
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
December 16, 1997
