<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
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(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission File Number: 333-37475
SC INTERNATIONAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
----------------------
For information regarding Additional Registrants,
see "Additional Registrants"
----------------------
Delaware 72-2607219
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
524 East Lamar Boulevard, Arlington, Texas 76011
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (817) 792-2123
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes|X| No
[Cover page 1 of 5 pages]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant. The aggregate market value
shall be computed by reference to the price at which the common equity was sold,
or the average bid and asked prices of such common equity, as of a specified
date within 60 days prior to the date of the filing.
Not applicable.
As of March 30, 1998, the Registrant had outstanding 100 shares of common
stock, $.01 par value per share.
Documents incorporated by reference: None.
[Cover page 2 of 5 pages]
<PAGE> 3
ADDITIONAL REGISTRANTS (1)
<TABLE>
<CAPTION>
State or other Address, including zip code,
jurisdiction of I.R.S. Employer and telephone number, including
Exact name of registrant incorporation or Identification area code, of Additional Registrant's
as specified in its charter organization Number principal executive offices
<S> <C> <C> <C>
Sky Chefs, Inc. Delaware 13-1318367 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Caterair International, Inc. (II) Delaware 75-2607218 6550 Rock Spring Drive
Bethesda, MD 20817
(301) 897-7800
Arlington Services, Inc. Delaware 51-0344713 300 Delaware Avenue
Third Floor, Suite 315
Wilmington, DE 19801
(302) 427-7860
Arlington Services Holding Delaware 51-0368977 300 Delaware Avenue
Corporation Third Floor, Suite 315
Wilmington, DE 19801
(302) 427-7860
JFK Caterers, Inc. Delaware 52-1312557 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Caterair Consulting Services Delaware 52-0936585 524 East Lamar Boulevard
Corporation Arlington, TX 76011
(817) 792-2123
Western Aire Chef, Inc. Delaware 52-0974724 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Bethesda Services, Inc. Delaware 51-0369138 300 Delaware Avenue
Third Floor, Suite 315
Wilmington, DE 19801
(302) 427-7863
Caterair New Zealand Limited Delaware 51-0369139 300 Delaware Avenue
Third Floor, Suite 315
Wilmington, DE 19801
(302) 427-7863
Onex Ohio Finance Corp. Delaware 75-2184952 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
</TABLE>
[Cover page 3 of 5 pages]
<PAGE> 4
<TABLE>
<CAPTION>
State or other Address, including zip code,
jurisdiction of I.R.S. Employer and telephone number, including
Exact name of registrant incorporation or Identification area code, of Additional Registrant's
as specified in its charter organization Number principal executive offices
<S> <C> <C> <C>
Onex Ohio Finance Corp. II Delaware 75-2228384 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Equity Corp. Delaware 75-2184952 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Equity Corp. II Delaware 75-2641451 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Credit Corp. Delaware 75-2137074 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Credit Corp. II Delaware 75-2641443 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Acceptance Corporation Delaware 75-2137075 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Capital Corp. Delaware 75-2344670 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Capital Corp. II Delaware 75-2641452 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Fiscal Corp. Delaware 75-2273325 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Fiscal Corp. II Delaware 75-2641448 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Funds Corp. Delaware 75-2272625 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Onex Ohio Funds Corp. II Delaware 75-2641444 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
</TABLE>
[Cover page 4 of 5 pages]
<PAGE> 5
<TABLE>
<CAPTION>
State or other Address, including zip code,
jurisdiction of I.R.S. Employer and telephone number, including
Exact name of registrant incorporation or Identification area code, of Additional Registrant's
as specified in its charter organization Number principal executive offices
<S> <C> <C> <C>
Caterair International Delaware 52-1947041 524 East Lamar Boulevard
Transition Corporation Arlington, TX 76011
(817) 792-2123
Sky Chefs International Corp. Delaware 13-3800220 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Caterair Airport Properties, Inc. Delaware 52-1047952 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
Caterair St. Thomas Holdings Delaware 52-1805211 524 East Lamar Boulevard
Corporation Arlington, TX 76011
(817) 792-2123
Sky Chefs Argentine Inc. Delaware 52-1689276 524 East Lamar Boulevard
Arlington, TX 76011
(817) 792-2123
</TABLE>
(1) The Additional Registrants listed above are wholly-owned consolidated
subsidiaries of SC International Services, Inc. and are guarantors of
SC International Services, Inc.'s 9 1/4% Senior Subordinated Notes due
2007. This Annual Report on Form 10-K is being filed on behalf of each
of the Additional Registrants as well as on behalf of SC International
Services, Inc.
[Cover page 5 of 5 pages]
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INDEX
<TABLE>
Page
<S> <C> <C>
PART I
Item 1. Business........................................................................................1
Item 2. Properties......................................................................................7
Item 3. Legal Proceedings...............................................................................8
Item 4. Submission of Matters to a Vote of Security Holders.............................................8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...........................8
Item 6. Selected Financial Data.........................................................................9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........10
Item 8. Financial Statements and Supplementary Financial Data..........................................18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........18
PART III
Item 10. Directors and Officers of the Company..........................................................18
Item 11. Executive Compensation.........................................................................22
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................28
Item 13. Certain Relationships and Related Transactions.................................................31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................35
</TABLE>
<PAGE> 7
PART I
Item 1. Business.
Introduction
SC International Services, Inc. ("SCIS") believes that it is the world's
largest provider of airline catering services with food service revenues for the
year ended December 31, 1997 of approximately $1.6 billion. See "Selected
Financial Data." SCIS is a Delaware corporation, incorporated in 1995 in
connection with the Combination (as defined) which effectuated the combination
of the businesses of Sky Chefs, Inc. ("Sky Chefs") and Caterair International
Corporation ("Caterair"). See "Certain Relationships and Related Transactions --
The Combination." Unless otherwise indicated, the "Company" or "SCIS" refers to,
(i) subsequent to September 29, 1995, the combined businesses of SCIS (comprised
of the operations of its wholly-owned subsidiaries, Sky Chefs and Caterair
International, Inc. (II) ("CII") (and their respective subsidiaries), including
the business acquired, licensed, leased or subleased from Caterair in connection
with the Combination), and (ii) until September 29, 1995, the business of Sky
Chefs. The Company currently operates or manages, directly or through joint
ventures, 141 kitchens located at or adjacent to 118 airports in 28 countries.
Approximately 63% of the Company's food service revenues for the year ended
December 31, 1997 was derived from United States operations and 37% 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 624,000 meals.
Historical Background
Sky Chefs. Sky Chefs was formed in 1941 as the captive airline catering
subsidiary of American Airlines, Inc. ("American") and was acquired in 1986 from
AMR Corporation, the parent of American ("AMR"), by an affiliate of Onex
Corporation ("Onex") 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.
Caterair. Marriott Corporation ("Marriott") founded the airline catering
industry in 1937 when it began providing meals on commercial airline flights in
the Washington, DC area. Caterair, a Delaware corporation formed in 1989,
acquired Marriott's airline catering business in December 1989 through a
management-led buy-out.
SCIS and CII. SCIS and CII are each Delaware corporations formed in 1995.
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 (as defined) and lease, license and purchase certain
assets from Caterair, and conduct operations at such Caterair Kitchens. CII
constitutes a separate operating company from Sky Chefs.
On September 29, 1995, SCIS, Onex Food Services, Inc., the parent of the
Company ("OFSI"), Caterair and Caterair Holdings Corporation, the parent of
Caterair ("Caterair Holdings"), consummated various transactions (the
"Combination") contemplated by the Master Agreement, dated April 26, 1995, among
OFSI, Caterair Holdings and Caterair, as amended. As part of the Combination,
(i) OFSI and an affiliate thereof exchanged shares of common stock and warrants
of OFSI for certain Caterair Holdings stock and debt held by Caterair Holdings'
shareholders and creditor, as a result of which OFSI and such affiliate acquired
approximately 51% of the outstanding voting capital stock and approximately 25%
of the outstanding non-voting capital stock of Caterair Holdings and certain
indebtedness of Caterair Holdings and (ii) Sky Chefs and CII leased, subleased,
licensed and acquired substantially all of the worldwide business and operations
of Caterair. See "Certain Relationships and Related Transactions -- The
Combination."
<PAGE> 8
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 the Company's 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 the Company's geographic
areas for the last three fiscal years, see the Financial Statements and notes
thereto included elsewhere in this Annual Report on Form 10-K.
Domestic Operations. The Company believes that it is the largest provider
of airline catering services in the United States with 1997 revenues of
approximately $1.0 billion. The Company conducts or manages operations at 73
kitchens serving 56 airports in the United States.
International Operations. Outside the United States, the Company currently
operates or manages, directly or through joint ventures, 68 kitchens at or near
62 airports in 27 countries, including England, France, Spain, Australia,
Venezuela, Brazil, Chile, Portugal, Argentina, Canada, Mexico, New Zealand and
Russia; and 13 kitchens in Central America and the Caribbean for which the
Company has technical services or management agreements. The Company generally
initiates and conducts international operations through acquisitions of existing
catering businesses and joint ventures with airline carriers or other local
partners, including Qantas Airlines in Australia, Aeroflot in Russia, Goddard
Enterprises Ltd. in the Caribbean and parts of Central and South America, TAP in
Portugal, and 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.
The Company's worldwide coverage is enhanced through a strategic marketing
alliance formed in 1993 with LSG Lufthansa Service GmbH ("LSG"), the airline
catering subsidiary of Lufthansa German Airlines ("Lufthansa"). The alliance
creates an international marketing network with kitchens at or near 158 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 "Certain Relationships and Related
Transactions -- LSG Lufthansa Service GmbH."
A significant portion of the Company's earnings is generated outside the
United States. Accordingly, the Company's cash flows and consequent ability to
meet its obligations will depend to a significant extent upon the earnings of
the Company's foreign operations and the availability of those earnings to the
Company by way of
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dividends, distributions, payment of fees or repayment of advances.
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.
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.
Further, many of the Company's foreign operations are conducted through
joint ventures, over which the Company may not have operational or financial
control.
Non-Airline Catering Operations
The Company is also involved in non-airline catering operations which have
accounted for a relatively small portion of its sales (approximately 4.0% in
1997). 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 facilities. In 1997, revenues from
these activities outside of the United States totaled approximately $50 million,
with the Company's activities in South America representing the majority of such
revenues.
The Company is pursuing a strategy to increase services to non-airline
customers in order to further diversify its revenue base. The Company will focus
on further 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.
There can be no assurances that such strategy will be successful.
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 services 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 "Certain
Relationships and Related Transactions -- The Combination."
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 Air Lines ("Delta"), Northwest
Airlines, United Airlines and Canadian Airlines International 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 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 29% of the Company's 1997 revenues. No other customer of the
Company accounted for more than six percent of its 1997 revenues.
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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. However, 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. 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.
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 approximately 73%
of the Company's 1997 revenues in the United States and Canada while its five
largest international customers accounted for only 33% of the Company's 1997
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, which was
licensed to Sky Chefs and CII. 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. 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 also specify pricing and
quality performance standards; failure to comply with these standards may result
in financial penalties or termination of the contract at the affected airport
(or in some cases, at a comparable airport), and, under certain circumstances,
the purchase of the kitchen at the affected airport by American.
During 1997, American terminated the Company's services at six of the
kitchens operated by Caterair prior to consummation of the Combination (all of
the kitchens operated by Caterair prior to the consummation of the Combination
are referred to herein as the "Caterair Kitchens") due to the Company's failure
to comply with these quality standards. The Company estimates that such
terminations will result in a reduction 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 "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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
International, Delta, Northwest Airlines, United Airlines, US Airways and Alaska
Airlines, which in the aggregate, provided approximately 21% of the Company's
1997 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. 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, 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.
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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 the anticipated 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 or business 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.
Acquisitions
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, New Zealand. Since
September 1995, the Company has also acquired airline catering businesses in
Bogata, Columbia, Asuncion, Paraguay and Guyaquil, Ecuador
through an existing joint venture.
On March 6, 1998, Sky Chefs entered into a non-binding letter of intent
with a third party pursuant to which Sky Chefs agreed to purchase the airline
catering operations conducted by such third party. The consummation of such
acquisition is subject to the completion of legal, business and financial due
diligence, receipt of any necessary government and other third party approvals,
and the negotiation and execution by the parties of a mutually acceptable
definitive acquisition agreement. Sky Chefs currently expects to fund the
purchase price for such operations through additional borrowings. There is no
assurance that such acquisition (or related borrowings) will be consummated and,
if consummated, as to the terms and conditions upon which such transaction (or
related borrowings) will be effected.
Employees
At December 31, 1997, Sky Chefs had approximately 12,000 workers at 66
United States kitchens and its corporate headquarters, of which approximately
11,000 were unionized under the Railway Labor Act ("RLA"), the federal labor law
administered by the National Mediation Board governing labor relations for
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
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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, 14 Caterair
Kitchens were acquired by CII. At December 31, 1997, CII had approximately 1,600
full-time domestic workers at 10 United States kitchens, which 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. In February, 1998, Sky Chefs acquired the Los Angeles,
Ontario and Santa Ana, California operations of CII. In March 1998, Sky Chefs
and CII entered into an acquisition agreement pursuant to which Sky Chefs agreed
to acquire CII's operations at John F. Kennedy International Airport and
LaGuardia International Airport in New York. 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.
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 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.
6
<PAGE> 13
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 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.
Item 2. Properties.
United States Properties. At December 31, 1997, the Company operated or
managed 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 site 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 lease basis from airport authorities, American and
other third parties (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 (as defined). See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- General" and "Certain
Relationships and Related 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 experienced any difficulty in renewing leases for kitchens on
satisfactory terms satisfactory to it, 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% of gross revenues. 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
7
<PAGE> 14
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
Boulevard, Arlington, Texas 76011, which houses SCIS' and Sky Chefs' 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 also 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 26 locations that
are not in operation, of which five are currently being subleased.
International Properties. At December 31, 1997, the Company operated,
directly or through joint ventures, 66 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.
Insurance
The Company maintains insurance policies to cover liability and is
effectively self-insured for workers' compensation liabilities. The Company
establishes reserves, which management believes to be 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.
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
There is no established public trading market for SCIS' common stock, $.01
par value per share, or for the capital stock of any of the Additional
Registrants. As of March 30, 1998, all the outstanding and issued shares of
SCIS' common stock were held by OFSI and all the issued and outstanding shares
of capital stock of each Additional Registrant were held by SCIS or a direct or
indirect wholly-owned subsidiary of SCIS.
No dividends were paid by SCIS in 1996 and 1997 on its capital stock. Each
of (i) the Credit Agreement, dated as of September 29, 1995, and amended and
restated as of August 28, 1997, by and among Caterair Holdings, Caterair,
8
<PAGE> 15
OFSI, SCIS, the guarantors named therein, the lenders party thereto, Bankers
Trust Company, Morgan Guaranty Trust Company of New York and Goldman, Sachs &
Co., as Co-Arrangers, Goldman, Sachs & Co., as Documentation Agent, Bankers
Trust Company, as Syndication Agent, Morgan Guaranty Trust Company of New York,
as Administrative Agent, and The Bank of New York, as Co-Agent (as amended, the
"Revolving Credit Agreement") and (ii) the Term Loan Agreement, dated as of
August 28, 1997, among Caterair and SCIS, 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 (the "Term Loan Agreement"), and (iii) the Indenture, dated
as of August 15, 1997, among SCIS, as Issuer, and the Additional Registrants and
Caterair, as Guarantors, and The Bank of New York, as Trustee (the "Indenture"),
the most restrictive of the Company's borrowing agreements, limit the Company's
and the Additional Registrants' ability to pay dividends on its capital stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
9
<PAGE> 16
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1993 1994 1995(1) 1996(1) 1997(1)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues $ 458,317 $ 468,608 $ 739,102 $ 1,529,816 $ 1,602,823
Cost of Operations 397,336 392,621 664,257 1,376,080 1,444,189
Gross Profit 60,981 75,987 74,845 153,736 158,634
----------- ----------- ----------- ----------- -----------
Depreciation and amortization 17,144 15,503 21,338 37,928 42,192
Selling, general and administrative 16,085 17,125 28,078 48,854 52,397
Integration expenses -- -- 28,644 30,361 17,990
Operating income (loss) 27,752 43,359 (3,213) 36,593 46,055
Interest Income (507) (204) (2,458) (7,896) (6,549)
Interest Expense 6,703 5,748 19,715 50,431 52,357
Other (income) expenses 948 1,225 2,099 4,679 11514
----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes 20,608 36,590 (22,569) (10,621) (11,267)
Provision (benefit) for income taxes 7,033 13,385 (6,525) 420 5,273
Extraordinary loss, net tax (2) -- -- -- -- (20,745)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 13,575 $ 23,205 $ (16,044) $ (11,041) $ (37,285)
=========== =========== =========== =========== ===========
Balance Sheet Data
Total Assets $ 211,903 $ 243,016 $ 820,695 $ 841,115 $ 859,919
Total debt and capital lease obligations 44,582 46,370 392,059 380,229 426,904
Stockholder's equity 26,255 49,460 54,570 46,731 7,422
Cash dividends 10,700 -- 10,465 -- --
</TABLE>
(1) Results for the years ended December 31, 1995, 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 Relationships and Related Transactions -- The
Combination."
(2) The extraordinary loss of $20.7 million for the year ended December 31,
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 the
Company's term loan indebtedness under the Old Credit Agreement (as
defined) and the Old Notes (as defined) and the premium paid to retire the
Old Notes of $14.3 million (net of a $9.5 million tax benefit).
10
<PAGE> 17
Item 7. 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 and its
subsidiaries for the periods presented below and (ii) the liquidity and capital
resources of SCIS. The following discussion should be read in conjunction with
the Financial Statements and notes thereto included elsewhere in this Annual
Report on Form 10-K.
On September 29, 1995, the Company, OFSI, Caterair and its parent,
Caterair Holdings, consummated the Combination pursuant to which SCIS and its
subsidiaries acquired, licensed, leased and subleased substantially all of the
worldwide business and assets of Caterair. 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 below 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 tradename
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 financial
reporting periods after September 29, 1995 include the acquired assets and
liabilities and airline catering operations of the business formerly conducted
by Caterair. The Combination resulted in a material change in the financial
position of SCIS. See "Certain Relationships and Related Transactions -- The
Combination."
In connection with the Combination, 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 (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 Relationships and Related
Transactions -- The Combination."
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
11
<PAGE> 18
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
Relationships and Related Transactions -- The Combination."
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.
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 from 1992 to 1996, 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 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 (from the
combined business of Sky Chefs and the business formerly conducted by Caterair)
were achievable by the end of the third year of combined operations of Sky Chefs
and Caterair. Management believes that as of December 31, 1997 a significant
portion of these net cost savings have been achieved. See "Selected 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 $57 million in non-recurring costs through December 31,
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 "Selected Financial
Data" and "Certain Relationships and Related 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. 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
12
<PAGE> 19
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
1997 Compared with 1996
Revenues. Revenues for 1997 increased $73.0 million or by 4.8% to $1,602.8
million from $1,529.8 million in 1996. This increase was primarily the result of
$69.4 million in additional revenues generated during 1997 from new airline
catering contracts and business, $13.6 million from additional non-airline
catering business and $13.2 million attributable to price increases. In
addition, revenues from two kitchens subleased/licensed from Caterair on May 31,
1996 increased revenue by $22.1 million in 1997 as compared to 1996 as only
seven months of revenues from these kitchens was included in 1996. This increase
in revenues was offset by a $45.3 million decline in revenues related to lost
business and other factors, including a $27.2 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 (which was licensed to Sky Chefs
and CII). 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 $68.1 million or by 4.9%
to $1,444.2 million in 1997 from $1,376.1 million in 1996, primarily as a result
of increased business activities and a $25.1 million one-time charge incurred in
1997 relating to bonuses expected to be paid during 1998 and 1999 to certain
Company employees and officers. Cost of operations as a percentage of revenues
increased to 90.1% in 1997 from 90.0% in 1996. Without the expense relating to
the bonus program, cost of operations as a percentage of revenues would have
decreased to 88.5% of revenue in 1997 from 90.0% in 1996, primarily as a result
of a decrease in labor costs due to the Company's ongoing operating improvement
plan.
Depreciation and Amortization. Depreciation and amortization expenses
increased $4.3 million or by 11.3% to $42.2 million for 1997 from $37.9 million
in 1996. This increase is a result of additional capital expenditures of $33.6
million made during 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased $3.5 million or by 7.2% to $52.4 million for 1997 from $48.9
million in 1996. The Company incurred an additional $1.3 million of selling,
general and administrative costs related to the inclusion of a full year of
expenses in 1997 for two kitchens subleased/licensed from Caterair on May 31,
1996 compared to only seven months in 1996. In 1997, the Company also incurred
$1.3 million of costs related to acquisitions and $0.8 million in consulting
fees related to year 2000 information system conversion issues.
Integration Expenses. Integration expenses decreased $12.4 million or by
40.8% to $18.0 million for 1997 from $30.4 million in 1996. The integration
expenses were significantly higher for 1996 as SCIS focused on integrating
Caterair's operations immediately following the Combination. See "-- General."
Operating Income. Operating income increased $9.5 million or by 26.0% to
$46.1 million for 1997 from $36.6 million in 1996, primarily as a result of the
factors discussed above.
Interest Income. Interest and dividend income decreased $1.4 million to
$6.5 million for 1997 from $7.9 million in 1996.
13
<PAGE> 20
Interest Expense. Interest expense increased $2.0 million to $52.4 million
for 1997 from $50.4 million in 1996.
Minority Interest. Minority interest expense increased $2.6 million to
$5.6 million in 1997 from $3.0 million in 1996, primarily as a result of the
recapitalization of a subsidiary and increased profits in the Company's
Australian operations.
Other Income (Expense). Other expenses for 1997 increased by $4.2 million
to $5.9 million from $1.7 million in 1996. This increase is primarily due to a
$3.8 million increase in foreign exchange losses.
Earnings (Loss) Before Income Taxes. The Company's loss before income
taxes increased by $0.7 million to $11.3 million for 1997 from $10.6 million in
1996 primarily as a result of the factors discussed above.
Provision (Benefit) for Income Taxes. The provision for income taxes was
$5.3 million for 1997 compared to $0.4 million in 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 the Company 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 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 Old Notes and SCIS'
term loan indebtedness under the Old Credit Agreement and the premium paid to
retire the Old Notes of $14.3 million (net of a $9.5 million tax benefit).
Net Income (Loss). SCIS' net loss increased $26.3 million to $37.3 million
for 1997 from $11.0 million in 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 $711.8 million or by
107.2% to $1,376.1 million in 1996 from $664.3 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
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<PAGE> 21
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 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."
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.
Minority Interest. Minority interest expense increased $1.9 million to
$3.0 million in 1996 from $1.1 million in 1995, primarily as a result of the
inclusion of a full year of operations held by minority interests acquired from
Caterair versus only three months in 1995.
Other Income (Expense). Other expenses increased $0.7 million to $1.7
million in 1996 from $1.0 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.
Liquidity and Capital Resources
On August 28,1997, SCIS and certain subsidiaries and affiliates thereof
issued (the "Offering"), $300.0 million principal amount of SCIS' 9 1/4% Senior
Subordinated Notes due 2007, Series A (the "Private Notes"), and related
guarantees to BT Securities Corporation, J.P. Morgan & Co., Credit Suisse First
Boston, Goldman, Sachs & Co., Smith Barney, Inc. and Bankers Trust International
PLC (the "Initial Purchasers"), pursuant to a Purchase Agreement, dated August
22, 1997, between SCIS, the Guarantors (as defined) and the Initial Purchasers,
in a transaction exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act"), in reliance upon Rule 144A and
Regulation S promulgated by the Securities and Exchange Commission thereunder.
On February 4, 1998,
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<PAGE> 22
as required pursuant to a Registration Rights Agreement entered into by SCIS in
connection with the Offering, SCIS consummated an exchange offer (the "Exchange
Offer") pursuant to which $297.8 million of SCIS' 9 1/4% Senior Subordinated
Notes due 2007, Series B (the "Exchange Notes" and together with the Private
Notes, the "Notes"), which Exchange Notes have substantially identical terms as
the Private Notes, are guaranteed on a joint and several basis by the
Guarantors, and were registered under the Securities Act, were exchanged for a
like principal amount of Private Notes. Such Exchange Offer was made solely by
means of a prospectus.
The registration statement (Registration No. 333-37475) relating to the
Exchange Offer (and $300.0 million principal amount of Exchange Notes and the
related guarantees of the Guarantors) became effective under the Securities Act,
on December 19, 1997. The Exchange Offer commenced on December 31, 1997 and was
consummated at 5:00 p.m. on February 4, 1998. No underwriter was involved in the
Exchange Offer. From the effective date of the registration statement through
December 31, 1997, approximately $200,000 of expenses were incurred by SCIS and
the Guarantors in connection with the issuance and distribution of the Exchange
Notes (and the related guarantees). No such expenses were paid, directly or
indirectly, to directors or officers of SCIS or any Additional Registrant or any
of their respective associates, or to any person owning 10% or more of any class
of equity securities of SCIS or any Additional Registrant. No underwriting
discounts or commissions, finders fees or other expenses were paid to
underwriters in connection with the Exchange Offer.
The net proceeds to SCIS from the Offering, after the deduction of
discounts and offering expenses, were approximately $289.9 million. The
aggregate offering price to investors of the Private Notes was $299.6 million
and the aggregate Initial Purchasers' discount was approximately $8.4 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, 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% at August 21, 1997).
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 SCIS,
at any time on or after September 1, 2002, at prices ranging from 104.635%
(during the 12-month period beginning September 1, 2002) to 100% (on or after
September 1, 2006) of the outstanding principal amount thereof, together with
accrued interest, if any, to the date of redemption. In addition, on or prior to
September 1, 2000, SCIS may redeem in the aggregate up to $105 million in
principal amount of the Notes with the net cash proceeds of certain public
equity offerings by SCIS or OFSI at a redemption price of 109.25% of the
principal amount of such Notes, plus accrued interest, if any, to the date of
redemption; provided that at least $195 million in principal amount of the Notes
remains outstanding immediately after any such redemption. The Notes are jointly
and severally guaranteed by Caterair, Sky Chefs, CII and the other Additional
Registrants (collectively, the "Guarantors").
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 "Old
Notes"). In connection therewith, SCIS offered to purchase all of the Old 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 "Old Indenture Amendments") to the Indenture relating to the Old Notes from
the holders thereof (collectively, the "Offer to Purchase"). Holders of Old
Notes who consented to the Old Indenture Amendments received a payment equal to
2% of the principal amount of the Old Notes for which a consent was delivered.
Holders of Old Notes were not permitted to tender their Old Notes without
consenting to the Old Indenture Amendments or to consent to the Old Indenture
Amendments without tendering their Old Notes.
The Offer to Purchase expired on September 24, 1997. All of the Old Notes
were tendered by the holders thereof and accepted for payment by SCIS in
connection with the Offer to Purchase. SCIS paid $148.8 million (excluding $7.9
million of accrued interest) in the aggregate in consideration of the repurchase
of the Old Notes and the related consents. SCIS used approximately $80.5 million
of the net proceeds from the Offering and $68.3 million of borrowings under the
Term Loan Agreement to fund such payments.
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<PAGE> 23
In connection with the Offering, SCIS, certain other parties and certain
lenders entered into the senior secured Revolving Credit Agreement, and
Caterair, SCIS, certain other parties and certain lenders entered into the
senior secured Term Loan Agreement, (the Term Loan Agreement and the Revolving
Credit Agreement, are collectively referred to as the "Senior Bank Financing").
Concurrently with the Offering, Caterair, 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").
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 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
the payment of related transaction costs (such loan has a final maturity in
2007) and (iii) SCIS with a term loan under the Term Loan Agreement in an
aggregate principal amount of $90.0 million for purposes of financing, in part,
the Offer to Purchase the Old Notes, funding payment of related transaction
costs and general corporate purposes (such loan has a final maturity in 2007).
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 does require 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 and the Term Loan Agreement, as the case may be.
Obligations of SCIS 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 and obligations of Caterair 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 domestic subsidiaries of
SCIS. 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 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 bear interest at
specified margins over the applicable eurodollar rate or base rate.
Effective, September 12, 1997, SCIS entered into an interest swap
agreement to reduce interest rate exposure on its long-term debt. The agreement
covers a notional amount of $89.8 million at December 31, 1997 and has a stated
maturity of September 15, 2002.
SCIS' principal sources of liquidity are expected to be cash flow from
operations and amounts available under the Revolving Credit Agreement. 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 $11.6 million in the
second quarter of 1998 and approximately $13.5 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 assurance that these bonuses will be paid or
as to the amounts thereof.
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<PAGE> 24
As a result of the Combination, the Offering, and the Senior Bank
Financing, SCIS is highly leveraged. At December 31, 1997, the aggregate amount
of outstanding indebtedness of SCIS (including borrowings and guarantees under
the Senior Bank Financing, but excluding $22.0 million of letters of credit) was
approximately $586.1 million. As of December 31, 1997, approximately $22.0
million of letters of credit, issued primarily to insurance carriers providing
worker's compensation coverage and related to surety bonds and leases, was
outstanding under the Revolving Credit Agreement. During 1998 SCIS expects to
make approximately $62.5 million in capital expenditures, which are more
significant than in prior periods. This 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.
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 thing, 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. 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 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 use approximately $3.3 million in connection with the
implementation of a new management stock plan. There can be no assurance that
the management stock plan will be implemented.
Net cash provided by operating activities for 1997 declined to $18.4
million from $35.6 million in 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 $69.4 million during 1997 from $31.4
million during 1996, primarily as a result of acquisitions of businesses during
the twelve months ended December 31, 1997. Net cash provided by (used in)
financing activities increased to $30.9 million during 1997 from ($10.4) million
during 1996, primarily as a result of the Senior Bank Financing.
In connection with the Combination, LSG was granted the option to acquire a
50% interest in the catering business acquired by the Company from Caterair in
Europe for a price to be negotiated on a basis to be 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 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.
On March 6, 1998, Sky Chefs entered into a non-binding letter of intent
with a third party pursuant to which Sky Chefs agreed to purchase the airline
catering operations conducted by such third party. The consummation of such
acquisition is subject to the completion of legal, business and financial due
diligence, receipt of any necessary government and other third party approvals,
and the negotiation and execution by the parties of a mutually acceptable
definitive acquisition agreement. Sky Chefs currently expects to fund the
purchase price for such operations through additional borrowings. There is no
assurance that such acquisition (or related borrowings) will be consummated and,
if consummated, as to the terms and conditions upon which such transaction (or
related borrowings) will be effected.
Seasonality
During 1997, the Company recognized 23.4%, 24.9%, 26.4% and 25.3% of its
revenues and 18.1%, 41.0%, 64.6% and (23.7)% of its operating income during the
first, second, third and fourth quarter, respectively.
During 1996, the Company recognized 22.6%, 24.5%, 27.5% and 25.4% of its
revenues and (10.1)%, 10.5%, 66.9% and 32.7% of its operating income during the
first, second, third and fourth quarter, respectively.
Impact of Inflation
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SCIS' food, labor and other operating costs are affected by a number of
factors beyond SCIS' control, including inflation. SCIS 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.
SCIS operates in a number of countries that experience high rates of
inflation. SCIS 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 SCIS will 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 Standard No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," effective for financial statements for fiscal years
beginning after December 15, 1997. SFAS 130 mandates that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will adopt SFAS
130 beginning January 1, 1998.
Also during June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
of an Enterprise and Related Information," effective for financial statements
for fiscal years beginning after December 15, 1997. Preliminary analysis of this
new standard by the Company indicates that the standard will not have a material
impact on the Company's financial statements.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132 ("SFAS 132"), "Employers'
Disclosures About Pensions and Other Postretirement Benefits," effective for
financial statements for fiscal years beginning after December 15, 1997. This
statement significantly changes current financial statement disclosure
requirements for pensions and other postretirement benefits. The Company will
adopt SFAS 132 effective January 1, 1998.
Year 2000 Issue
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. The
Company has established a team to complete an awareness program and assessment
project to address the Year 2000 issue. Such assessment has been completed with
respect to the Company's corporate systems, and the Company has determined that
it will be required to modify or replace portions of such computer programs so
that its computer systems will properly utilize dates beyond December 31, 1999.
In certain instances, the Company had existing plans to replace or upgrade such
computer programs for corporate purposes not related to the Year 2000 issue. The
Company expects to achieve Year 2000 compliance with respect to its corporate
systems by December 1998. The Company presently believes that the total cost to
become Year 2000 compliant with respect to its corporate systems will be between
$2.5 million and $3.0 million (excluding between $0.5 million and $0.8 million
relating to computer system upgrades not directly related to Year 2000
compliance issues). With respect to non-corporate systems located at the
Company's domestic and international kitchens, an assessment of Year 2000
compliance has not yet been completed; the Company anticipates that such
assessment will be completed no later than April, 1998.
The Company presently believes that with modifications to existing
software and conversions to new software, the Year 2000 issue can be mitigated,
and the Company does not anticipate any material costs, problems or
uncertainties associated with becoming Year 2000 compliant. However, until the
Company's assessment of Year 2000 compliance with respect to software at its
domestic and international kitchens has been completed, there can be no
assurance that significant efforts or expenditures will not be required to
ensure Year 2000 compliance. Further, there can be no assurance that the systems
of other companies on which the Company may rely will be timely converted or
that the failure to convert by another company would not have an adverse effect
on the Company. Failure of the Company to adequately address the Year 2000
issue; could materially and adversely affect the Company's business operations,
however, the Company does not anticipate such result.
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Item 8. Financial Statements and Supplementary Financial Data.
The financial statements and supplementary data set forth in the Index to
Financial Statements on page F-1 are filed as part of this Annual Report on Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Officers of the Company.
The following table sets forth the name, age and position of each person
who serves as an executive officer or director of SCIS or an Additional
Registrant:
Name Age Position
- ---- --- --------
Gerald W. Schwartz 56 Director of SCIS and Sky Chefs
Ewout Heersink 47 Director of SCIS and Sky Chefs and
certain Additional Registrants
Helmut Woelki 48 Director of SCIS and Sky Chefs
Helmut Bleckmann 57 Director of SCIS and Sky Chefs
Gunter Rothig 62 Director of SCIS and Sky Chefs
James J. O'Neill 63 Director of SCIS and CII and certain
Additional Registrants, Acting Chairman
of the Board and Chief Executive
Officer of SCIS and Chairman, President
and Chief Executive Officer 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 and
Director of certain Additional
Registrants
Randall C. Boyd 40 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 of SCIS and certain Additional
Registrants
Thomas J. Lee 45 Director - Financial Accounting of SCIS
and Sky Chefs and Director of certain
Additional Registrants
Eric J. Rosen 36 Director of CII
J. Thomas Markley 64 Director of CII
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Name Age Position
- ---- --- --------
Aaron Gellman 67 Director of CII
Anthony Melman 50 Director of certain Additional
Registrants
Donald F. West 59 Director of certain Additional
Registrants
Norman J. Shuman 65 Director of certain Additional
Registrants
Gerald W. Schwartz has been a director, Chairman of the Board, President
and Chief Executive Officer of Onex and Onex Capital Corporation, affiliates of
SCIS, since their formation in 1983. Mr. Schwartz has been a director of OFSI
and Sky Chefs since May 1986. Mr. Schwartz has been 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
Corporation for the past six years and has held various positions at Onex
Corporation since March, 1987, the date of its formation. 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 Additional Registrants which are indirect 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 board of directors of OFSI and Sky Chefs in
August 1993. Mr. Woelki has been a director of SCIS since its formation.
Gunter Rothig was appointed Vice Chairman of the Executive Board of LSG in
1989. Mr. Rothig was elected to the board of directors of OFSI and Sky Chefs in
February 1994. Mr. Rothig 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 has been a member of
the board of directors of SCIS, OFSI and Sky Chefs since October, 1995.
James J. O'Neill was named President of Sky Chefs in April 1980. He was
elected to the board 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 from his positions as 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. On October 1,
1997, Mr. O'Neill assumed the positions of Acting Chairman of the Board of OFSI
and SCIS. Mr. O'Neill also serves on the boards of directors of certain
Additional Registrants which are indirect 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. In September 1995, Mr. Kay became
Chief Executive Officer, and resigned from his position as Chief Operating
Officer, of Sky Chefs. 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 boards of directors of an
Additional Registrant which is an indirect 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
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<PAGE> 28
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 Additional Registrants which are indirect
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 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 Corporation, where he served as
Executive Vice President of Marriott Corporation and Chief Operating Officer of
Marriott Corporation's airline catering business. Mr. Altobello serves as a
director of American Management Systems, Inc., Colorado Prime Corp. and Blue
Cross Blue Shield of Maryland, as a member of the advisory board of Thayer
Capital Partners and as a trustee of Loyola Foundation, Inc., Mt. Holyoke
College, Suburban Hospital Foundation, Inc. and the Woodstock Theological Center
at Georgetown University. From September 29, 1995 through September 30, 1997,
Mr. Altobello was Chairman of the Board of Directors of OFSI and SCIS. Mr.
Altobello has been a director of OFSI and SCIS since September 29, 1995. Mr.
Altobello also serves on the board of directors of certain Additional
Registrants which are indirect wholly-owned subsidiaries of SCIS.
Anthony 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 Additional Registrants which are indirect wholly-owned
subsidiaries of SCIS.
Thomas J. Lee has been Director - Financial Accounting of Sky Chefs for
the past 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
Additional Registrants which are indirect 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.
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<PAGE> 29
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 Additional
Registrants which are indirect 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 Additional Registrants which are indirect wholly-owned
subsidiaries of SCIS since December 8, 1992.
Directors of SCIS, Sky Chefs, CII, Caterair and the other Additional
Registrants 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 Relationships and
Related Transactions -- LSG Lufthansa Service GmbH."
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<PAGE> 30
Item 11. Executive Compensation.
The following Summary Compensation Table sets forth information concerning
annual and long-term compensation (for 1997, 1996 and 1995) awarded to, earned
by, or paid to each of SCIS', Sky Chefs' and CII's chief executive officer and
each of SCIS', Sky Chefs' and CII's (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, 1997 was in excess of $100,000 (the "Named
Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation Award
------------------
Name and Annual Securities All Other
Principal Salary Bonus Compensation Underlying Compensation
Position(s) Year(1) ($) (2) ($) (3) ($)(4) Options/SARS ($)
- ----------- ------- ------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
James J. O'Neill 1997 310,000(7) -0- 30,000 -0- 276,000(9)(10)
Chief Executive 1996 495,000(7) 551,571 16,200 -0- 295,750(10)
Officer and Acting 1995 495,000(7) 404,809 16,200 -0- 310,750(10)
Chairman of the Board
of SCIS and
Chairman of the Board
of CII(5)
Michael Z. Kay 1997 600,000 185,625 30,000 -0- 240,000(9)(10)
President and Chief 1996 600,000 670,929 12,000 -0- 77,750(10)
Executive Officer of 1995 395,000 328,309 12,000 -0- 53,620(10)
Sky Chefs (5)
Patrick W. Tolbert 1997 400,000(7) 122,610 30,000 -0- 56,000(9)(10)
Executive Vice 1996 400,000(7) 485,929 11,400 -0- 30,750(10)
President and Chief 1995 245,000(7) 274,094 11,400 -0- 24,750(10)
Financial and
Administrative Officer
of SCIS and Sky
Chefs(5)
Randall C. Boyd 1997 275,000 75,627 30,000 -0- 24,000(9)(10)
Senior Vice President/ 1996 275,000 369,571 12,600 -0- 13,750(10)
Marketing and Customer 1995 170,000 141,734 12,600 -0- 9,750(10)
Service of Sky Chefs(5)
Thomas J. Lee 1997 81,399 20,791 -0- -0- - (9)
Director -- Financial 1996 78,269 31,367 -0- -0- 2,640(10)
Accounting of SCIS and 1995 75,989 25,836 -0- -0- 2,639(10)
Sky Chefs(5)
Angelo D. Bizzarro 1997 78,289 -0- 9,523(8) -0- 50,039(11)
Former Chief Executive 1996 295,000 481,732 22,650(8) -0- -0-
Officer and 1995 295,000 -0- 25,000(8) 36.04 735,000(12)
President of CII(6)
</TABLE>
(1) Prior to September 29, 1995, the Named Executive Officers, other than Mr.
Bizzaro were employed and compensated by Sky Chefs and Mr. Bizzaro was
compensated by Caterair. From September 30, 1995, Mr. O'Neill was employed
and compensated by SCIS and CII, and Messrs. Tolbert and Lee were employed
and 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 compensated by CII; however he resigned in
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<PAGE> 31
March 1997. No officer of any Additional Registrant (other than Sky Chefs
and CII) receives 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.
(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 (the "PRP") for periods
during which the Named Executive Officers were employed by SCIS, Sky Chefs
or CII. Mr. Lee's 1997 bonus includes a $5,209 projected year-end PRP
award which is expected to be paid by SCIS in March 1998 and a $7,259
special bonus paid to Mr. Lee by SCIS in 1997. See " --Bonus Plans."
(4) Amounts shown for the Named Executive Officers (other than Mr. Bizzarro)
include reimbursement for perquisites, including automobile allowance,
country club membership fees and mortgage differential.
(5) 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
Corporation and certain employees, officers and directors of SCIS and its
subsidiaries that own shares of the capital stock of OFSI (the "Management
Shareholders"). See "Certain Relationships and Related Transactions --
Management Shareholders' Agreement." The number and value of the aggregate
restricted stock holdings at the end of 1997 are as follows: Mr. O'Neill -
3,442.62 shares of OFSI Class A Common Stock and 219.3 shares of OFSI
Class B Common Stock with an aggregate value of $1,415,494.41; Mr. Kay -
1,147.54 shares of OFSI Class A Common Stock and 150 shares of OFSI Class
B Common Stock with an aggregate value of $843,873.67; Mr. Tolbert -
918.03 shares of OFSI Class A Common Stock and 120 shares of OFSI Class B
Common Stock with an aggregate value of $674,933.48; Mr. Boyd - 573.77
shares of OFSI Class A Common Stock with an aggregate value of
$58,983.56; and Mr. Lee - 160.66 shares of OFSI Class A Common Stock
with an aggregate value of $16,515.85. See "Security Ownership of Certain
Beneficial Owners and Management." The value per share of common stock was
determined as of December 31, 1997, in accordance with the Management
Shareholders' Agreement. See "Certain Relationships and Related
Transactions -- Management Shareholders' Agreement."
(6) Includes compensation paid to Mr. Bizzarro through September 29, 1995 by
Caterair. Mr. Bizzaro 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 Relationships and Related Transactions -- Transactions with
Certain Caterair Persons." From October 1, 1995, Mr. Bizzaro was
compensated by CII. Mr. Bizzarro resigned from his positions with CII
effective as of March 1997.
(7) Amounts shown include a $60,000 annual fee for serving on OFSI's board of
directors. See "-- Compensation of Directors.
(8) Amounts shown for periods prior to September 29, 1995 are for payments
made to Mr. Bizzarro under Caterair's Caterair International Flexible
Perquisite Plan, and amounts shown for periods subsequent to September 29,
1995 are for payments made to Mr. Bizzarro pursuant to CII's Caterair
International Flexible Perquisite Plan.
(9) Excludes contributions which will be made by SCIS pursuant to Sky Chefs'
Retirement Savings and Investment Plan (401(k) Plan); the Company has
not yet determined 1997 contributions.
(10) Amounts shown include the contributions made by SCIS pursuant to Sky
Chefs' Retirement Savings and Investment Plan (401(k) Plan). See "--
Defined Contribution Plans -- Sky Chefs 401(k) Plan." Also includes the
amounts accrued but not funded or paid with respect to the Named Executive
Officers under Sky Chefs Supplemental Executive Retirement Plan. Such
amounts include $276,000, $292,000 and $307,000 for 1997, 1996 and 1995,
respectively, for Mr. O'Neill; $240,000, $74,000 and $49,000 for 1997,
1996 and 1995, respectively, for Mr. Kay; $56,000, $27,000 and $21,000 for
1997, 1996 and 1995, respectively, for Mr. Tolbert; and $24,000,
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<PAGE> 32
$10,000 and $6,000 for 1997, 1996 and 1995, respectively, for Mr. Boyd.
See "-- Defined Contribution Plans -- Supplemental Executive Retirement
Plan." Excludes above-market interest in the following amounts earned by
Messrs. O'Neill, Kay, Tolbert and Boyd in 1995, 1996 and 1997, on amounts
deferred by such Named Executive Officers pursuant to OFSI's Executive
Deferred Compensation Plan: $6,787, $18,767 and $7,570 for Mr. O'Neill on
amounts deferred in 1995, 1996 and 1997, respectively; $2,703, $7,291 and
$2,956 for Mr. Kay on amounts deferred in 1995, 1996 and 1997,
respectively; $2,632, $5,413 and $1,669 for Mr. Tolbert on amounts
deferred in 1995, 1996 and 1997, respectively; and $1,370, $1,613 and $356
for Mr. Boyd on amounts deferred in 1995, 1996 and 1997, respectively.
(11) Includes a $45,583 payment made to Mr. Bizzaro under the Phantom Stock
Plan, $2,044 in respect of CII's contributions to CII's Retirement Savings
and Investment Plan (401(k) Plan) and $2,411 of reserved vacation pay. See
"-- Phantom Stock Plan" and "Aggregated Option/SAR Exercises in Last
Fiscal Year and Fiscal Year-End Option/SAR Values" and "Defined
Contribution Plans."
(12) 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 Relationships and Related Transactions -- Transactions
with Certain Caterair Persons."
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 and Woodside 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. 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 each 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
Additional Registrants 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, 1997 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.
No member of CII's board of directors during the year ended December 31,
1997, 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 Relationships and
Related 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 (subject to increase), 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 prior to January 31, 1999 (approximately $368,333 if termination of
employment had occurred as
26
<PAGE> 33
of December 31, 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 $4,233,108 if termination of employment had occurred as of
December 31, 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 $2,937,078 if
termination of employment had occurred as of December 31, 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 Service of Sky 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 $2,110,396 if termination of employment had occurred as of
December 31, 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.
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
27
<PAGE> 34
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 December 31, 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 December 31, 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.
BONUS PLANS
Performance Reward Plan. Sky Chefs' PRP is intended to reward
participating employees for outstanding performance and provide motivation in
order to further the Company's corporate purposes. The day-to-day administration
of the PRP is overseen by the compensation committee of the board of directors
of Sky Chefs (the "Sky Chefs Compensation Committee") (which is appointed by the
executive committee of the board of directors of Sky Chefs (the "Sky Chefs
Executive Committee")). Prior to the beginning of each fiscal year, the
compensation committee of the board of directors of OFSI, upon the
recommendation of the Sky Chefs Executive Committee sets incentive performance
factors, and schedules, formulae, and other indicia for determining incentive
compensation awards under the PRP; provided, that in determining incentive
awards, the Sky Chefs Compensation Committee, with the approval of the Sky Chefs
Executive Committee, has discretion to make adjustments to take into account
extraordinary conditions and situations to more accurately reflect performance.
Eligibility for participation in the PRP is limited to those individuals whose
responsibilities have a significant bearing on the success of the Company.
Awards under the PRP are dependent on the impact of each participant's
contribution to the overall performance of the Company, and a participant's
award is also a function of his or her job responsibilities. Eligibility for
participation in the PRP is determined by the Executive Committee upon the
recommendation of the Compensation Committee.
The PRP is an annual plan with quarterly payouts. The total of all
incentive payouts for a particular fiscal year is subject to the approval of the
compensation committee of the board of directors of OFSI. Subject to limited
exceptions, in the event a participant is discharged or resigns before the end
of the quarter or fiscal year, any incentive compensation earned but not paid
for that period will be forfeited. In the event of a participant's retirement,
death or disability, incentive compensation earned for the quarter and fiscal
year in which the participant retires, dies or becomes disabled will be
calculated on a pro-rata basis for the time the participant was employed.
DEFERRED COMPENSATION PLAN
Senior executives of the Company are provided with the opportunity to
participate in OFSI's Executive Deferred Compensation Plan, an unfunded deferred
compensation program (the "Deferred Compensation Plan"). Under the Deferred
Compensation Plan, participants may elect each year to defer up to 75% of their
annual base salary and up to 100% of their annual bonuses otherwise payable in
cash. The amounts deferred at the option of the participant are contributed,
together with additional corporate funds, into a trust, and are used to purchase
investments at the direction of the Plan Administration Committee appointed by
OFSI. A participant may elect that his or her account balance for a particular
year, which is equal to such participant's aggregate compensation deferred for
such year and related earnings, be paid to such participant or his or her
beneficiaries upon (i) (w) termination of employment, (x) retirement, (y) death,
or (z) permanent disability; or (ii) a lump sum distribution on a specific date
selected by the participant which is no less than five years from the year in
which such compensation is deferred but no later than the payment date
immediately after the participant's 72nd birthday; provided, that, if permitted
for a particular year, a participant may elect to receive payment upon the
earlier to occur of an event referred to in clause (i) and the date specified
pursuant to clause (ii). Early withdrawal of a participant's account balance
other than in the event of a hardship (as defined in the Deferred Compensation
Plan and determined by the Plan Administration Committee in its sole discretion)
results in forfeiture by such participant of 6% of such participant's account
balance as of such date. The Company has guaranteed the participants in the
Deferred Compensation Plan a fixed rate of return of 8.0% per annum through
December 31, 1999, at which time the rate will be reset; provided, however, that
at no time will such rate be less than 5.0% per annum; provided, further, that
in any given year, the Plan Administration Committee has discretion to set a
premium rate in the event that it determines that such increased rate is
appropriate under the circumstances. Any shortfall between such guaranteed fixed
rate and the rate of return earned by the trust on its investments will affect
the amount of corporate funds OFSI must contribute to administer the plan.
Certain amounts contributed to the trust by OFSI are used 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.
Additionally, under the Deferred Compensation Plan, each participant
who retires from the Company while eligible to receive benefits under certain
pension or retirement plans maintained by Sky Chefs will receive a payment from
OFSI equal to the difference between (i) the actuarial lump sum value of the
benefit provided to such participant under that pension or retirement plan and
(ii) the acturial lump sum value of the benefit that such participant would have
been provided under such pension or retirement plan if amounts deferred by such
participant under the Deferred Compensation Plan were taken into account as
compensation under such pension or retirement plan.
DEFINED CONTRIBUTION PLANS
Sky Chefs' 401(k) Plan. The Company maintains the Sky Chefs' 401(k)
Money$mart Savings and Retirement Plan (the "Sky Chefs 401(k) Plan"), a defined
contribution retirement plan with a cash or deferral arrangement as described in
Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
The Sky Chefs 401(k) Plan is intended to be qualified under Section 401(a) of
the Code. All regular employees who are at least 21 years old, work at least
1,000 hours a year and are not excluded by a bargaining agreement are eligible
to participate in the Sky Chefs 401(k) Plan. The Sky Chefs 401(k) Plan provides
that each participant may elect to make pre-tax elective contributions from 1.0%
to 15.0% of his or her compensation, subject to statutory limits. With respect
to union employees who were hired subsequent to June 30, 1995, are not eligible
to participate in the Sky Chefs HEREIU Pension Plan (as defined) and satisfy
certain other eligibility criteria, Sky Chefs will make a contribution equal to
1.0% of such union employee's compensation for such year. With respect to
non-union employees, who were hired subsequent to September 30, 1995, are not
eligible to participate in the Sky Chefs Non-Union Pension Plan (as defined) and
satisfy certain other eligibility criteria, Sky Chefs will make a contribution
equal to 1.0% of such non-union employee's compensation for such year or such
other percentage as may be determined by Sky Chefs' Plan Administration
Committee for such year. All contributions made by participants are fully vested
and are not subject to forfeiture. Generally, subject to limited exceptions, a
participant vests in 50% of any contributions made by the Company after three
years of completed service, in 75% of such Company contributions following four
years of completed service and in 100% of such Company contributions following
five years or more of completed service. Each participant's entire Sky Chefs
401(k) Plan account is distributed to the participant or his or her beneficiary,
without regard to vesting, upon retirement, death, disability, or termination of
employment with the Company after the completion of four years of service. The
trustee under the Sky Chefs 401(k) Plan, at the direction of each participant,
invests such participant's share of the assets of the Sky Chefs 401(k) Plan in a
number of investment options.
28
<PAGE> 35
CII 401(k) Plan. CII also maintains a separate retirement savings plan
for its domestic employees hired from Caterair on September 29, 1995 (the "CII
401(k) Plan"). Such plan is a defined contribution retirement plan with a cash
or deferral arrangement as described in Section 401(k) of the Code. The CII
401(k) Plan is intended to be qualified under Section 401(a) of the Code. All
regular employees who are at least 21 years old, work at least 1,000 hours a
year and are not excluded by a bargaining agreement are eligible to participate
in the CII 401(k) Plan. The CII 401(k) Plan provides that each participant may
make pre-tax elective contributions from 1.0% to 10.0% of his or her
compensation or select a fixed dollar amount to be deducted from such
participant's pay, subject to statutory limits. CII makes a matching
contribution on the first 6.0% of each participant's contribution. The trustee
under the CII 401(k) Plan, at the direction of each participant, invests such
participant's share of the assets of the CII 401(k) Plan in a number of
investment options.
In connection with the Combination, Sky Chefs and CII, respectively,
hired approximately 6,000 and 3,000 domestic employees of Caterair on October 1,
1995. Such employees' respective shares of plan assets in the Caterair
Retirement Savings and Investment Plan (401(k) plan) as of September 29, 1995,
were transferred to the Sky Chefs 401(k) Plan or the CII 401(k) Plan, as
applicable.
Supplemental Executive Retirement Plan. The Code imposes certain
limitations on the amount of contributions that an employee can make in any year
to the Sky Chefs 401(k) Plan and CII 401(k) Plan, and the amount of Company
contributions that can be made for an employee. In addition, the Code limits the
amount of an employee's annual compensation that can be taken into account in
computing benefits ($150,000 for 1996 and $160,000 for 1997). The Company
maintains the Sky Chefs, Inc. Supplemental Executive Retirement Plan, a
nonqualified supplemental executive retirement plan (the "SERP"), pursuant to
which the Company pays certain key executive officers of the Company (and such
other participating employees as may be designated) an amount out of its general
assets intended to be substantially equal to the difference between the amount
that, in the absence of the Code limitations, would have been allocated to such
employee under certain pension and retirement plans maintained by the Company,
and the amount actually allocated. In general, participating employees are
entitled to a distribution from the SERP at the same time that such employee
receives a distribution from the Company's retirement and pension plans.
Although participating employees have accrued payments under the SERP, Sky Chefs
has not funded the SERP, and no amounts have been paid to participating
employees thereunder.
PENSION PLANS
The Retirement Plan of Sky Chefs for Officers, Management and
Specialists and Non-Management NonUnion Personnel (the "Sky Chefs Non-Union
Pension Plan") and the Retirement Plan of Sky Chefs for Employees Represented by
the Hotel Employees and Restaurant Employees International Union AFL-CIO (the
"Sky Chefs HEREIU Pension Plan," and together with the Sky Chefs Non-Union
Pension Plan, the "Pension Plans") are tax-qualified defined benefit pension
plans. The Sky Chefs HEREIU Pension Plan and the Sky Chefs Non-Union Pension
Plan cover all of the Company's union and non-union employees, respectively, who
were employed by the Company prior to July 1, 1995 (in the case of union
employees) and who were employed by the Company prior to September 30, 1995 (in
the case of non-union employees). Each Pension Plan is funded through a
tax-exempt trust into which contributions are made as necessary based on
actuarial funding analysis. The Company's funding policy is to contribute an
amount not less than the minimum funding requirements under the Code, nor more
than the maximum deductible amount for income tax purposes.
Each Pension Plan provides for the payment of benefits upon retirement,
early retirement, death and termination of employment. Both plans have several
competing formulas pursuant to which the benefits payable thereunder are
determined; the predominant formula in each such plan is based on a combination
of a participant's years of credited service and compensation. Participants in
both Pension Plans may elect from several optional forms of benefit
distribution.
PENSION PLAN TABLE
SKY CHEFS NON-UNION PENSION PLAN WITH SERP*
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-------------------------
FINAL AVERAGE
COMPENSATION (5 YEARS) 15 20 25 30 35
---------------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $ 33,887 $ 45,169 $ 52,596 $ 62,513 $ 72,931
150,000 41,377 51,948 62,513 75,015 88,896
175,000 48,206 58,727 73,409 89,701 106,396
200,000 55,706 67,117 85,909 104,701 123,896
225,000 63,206 77,117 98,409 119,701 141,396
250,000 70,706 87,117 110,909 134,701 158,896
300,000 85,706 107,117 135,909 164,701 193,896
350,000 100,706 127,117 160,909 194,701 228,896
400,000 115,706 147,117 185,909 224,701 263,896
450,000 130,706 167,117 210,909 254,701 298,896
500,000 145,706 187,117 235,909 284,701 333,896
550,000 160,706 207,117 260,909 314,701 368,896
</TABLE>
------------------------------
* The above Pension Plan Table presents the indicated information
regarding employees of the Company who participate in both the Sky
Chefs Non-Union Pension Plan and the SERP. See " --Defined
Contribution Plans -- Supplemental Executive Retirement Plan." Messrs.
O'Neill, Tolbert and Boyd participate in both the Sky Chefs Non-Union
Pension Plan and the SERP.
29
<PAGE> 36
PENSION PLAN TABLE
SKY CHEFS NON-UNION PENSION PLAN ONLY*
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-------------------------
FINAL AVERAGE
COMPENSATION (5 YEARS) 15 20 25 30 35
---------------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $ 33,887 $ 45,169 $ 52,596 $ 62,513 $ 72,931
150,000 41,377 51,948 62,513 75,015 88,896
175,000 41,977 52,748 63,346 76,015 90,296
200,000 41,977 52,748 63,346 76,015 90,296
225,000 41,977 52,748 63,346 76,015 90,296
250,000 41,977 52,748 63,346 76,015 90,296
300,000 41,977 52,748 63,346 76,015 90,296
330,000 41,977 52,748 63,346 76,015 90,296
400,000 41,977 52,748 63,346 76,015 90,296
450,000 41,977 52,748 63,346 76,015 90,296
500,000 41,977 52,748 63,346 76,015 90,296
550,000 41,977 52,748 63,346 76,015 90,296
</TABLE>
------------------------------
* The above Pension Plan Table sets forth the indicated information
regarding employees of the Company who participate in the Sky Chefs
Non-Union Pension Plan only, and do not participate in the SERP.
Messrs. Kay and Lee participate in the Sky Chefs Non-Union Pension
Plan only, and do not participate in the SERP.
The named executive officers (other than Mr. Bizzarro) have been
credited with the following years of service under the Sky Chefs Non-Union
Pension Plan Pension Plan: James J. O'Neill - 23.50; Michael Z. Kay - 5.33;
Patrick W. Tolbert - 4.50; Randall C. Boyd - 7.25 and Thomas J. Lee - 18.67.
While employed by the Company, Angelo Bizzarro did not participate in any
defined Pension Plan. The Sky Chefs Non-Union Pension Plan defines
"Compensation" as cash remuneration to an employee for services rendered,
constituting an employee's regular salary or wages, plus amounts applied to
purchase benefits pursuant to a salary reduction agreement under any other Plan
described in code Section 401(k), but excluding any overtime pay, premium pay or
shift differential, bonuses, approved expenses and other allowances and special
remuneration. For each named executive officer who participates in the Sky Chefs
Non-Union Pension Plan, the covered compensation, as determined under the Sky
Chefs Non-Union Pension Plan, is, in the aggregate, not substantially different
than the amount reflected with respect to such named executive officer in the
annual compensation column of the summary compensation table set forth above.
The estimates of annual retirement benefits reflected in the above table are
based on payment in the form of a straight-life annuity and are not subject to
any deduction for social security or other offset amounts.
The maximum recognizable compensation under both the Sky Chefs HEREIU
Pension Plan and the Sky Chefs Non-Union Pension Plan for 1997 was $160,000.
The Company provides Michael Z. Kay with a supplemental executive
benefit plan that is designed to provide Mr. Kay upon his retirement following
at least ten years of service with the Company, for the remainder of his life,
with an annual payment equal to 50% of his base compensation as in effect at the
time of retirement. Although the terms of this plan provide that benefits
payable to Mr. Kay under this plan shall be paid from out of the general assets
of the Company, the Company has established and intends in the future to fund a
"rabbi trust" out of which retirement benefits payable to Mr. Kay under such
plan will be paid. Benefits payable to Mr. Kay under such plan are reduced
dollar-for-dollar to the extent that Mr. Kay receives retirement benefits under
the Sky Chefs Non-Union Pension Plan. An additional payment will be made to Mr.
Kay under such plan to cover any income tax payable by him with respect to his
retirement benefit. Mr. Kay has 5.33 years of credited service under this plan.
Currently, Mr. Kay's estimated annual benefit upon retirement at normal
retirement age is $337,000.
30
<PAGE> 37
The Company provides an additional non-funded nonqualified pension plan
(the "Supplemental Pension Plan") for Messrs. O'Neill, Tolbert and Boyd.
Pursuant to such plan, each participant is provided a benefit at retirement for
life which is equal to 2.0% of such participant's highest five consecutive years
of bonuses for each year of service.
PENSION PLAN TABLE
SUPPLEMENTAL PENSION PLAN*
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
-------------------------
FINAL AVERAGE
BONUSES (5 YEARS) 15 20 25 30 35
---------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$125,000 $ 37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
225,000 67,500 90,000 112,500 135,000 157,500
250,000 75,000 100,000 125,000 150,000 175,000
300,000 90,000 120,000 150,000 180,000 210,000
330,000 105,000 140,000 175,000 210,000 245,000
400,000 120,000 160,000 200,000 240,000 280,000
450,000 135,000 180,000 225,000 270,000 315,000
500,000 150,000 200,000 250,000 300,000 350,000
550,000 165,000 220,000 275,000 330,000 385,000
</TABLE>
-------------
* Messrs O'Neill, Tolbert and Boyd each participate in the Supplemental
Pension Plan.
The Named Executive Officers who participate in the Supplemental Pension
Plan have been credited with the following years of service thereunder: James J.
O'Neill - 23.50; Patrick W. Tolbert - 4.50; and Randall C. Boyd - 7.25. The
Supplemental Pension Plan describes "compensation" only as bonuses paid to an
employee under the PRP. As so defined, such compensation is not substantially
different from the bonuses shown in the Bonus column of the Summary Compensation
Table set forth above. The estimate of benefits from the Supplemental Pension
Plan are based upon a straight life annuity at retirement and are not subject to
any deduction for social security benefits or other offset amounts.
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 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 transactions 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 termination 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
31
<PAGE> 38
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.
Aggregated Option/SAR Exercises in
Last Fiscal Year and Fiscal Year-End Option SAR Values
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying in-the-Money
Unexercised Options/SARs
Option/SARs at Fiscal
Shares at Fiscal Year-
Acquired Value Year-End End ($)
on Realized (#)Exercisable/ Exercisable/
Name(1) Exercise(#) ($) Unexercisable(2) Unexercisable
- ------------------------------------- ----------- --- ---------------- -------------
<S> <C> <C> <C> <C>
Angelo D. Bizzarro
Former Chief Executive Officer of CII --- --- 35.79(3) ---
</TABLE>
- -------------
(1) No Named Executive Officer other than Mr. Bizzarro has been granted any
stock options (or tandem SARs) or freestanding SARs by SCIS or any
Additional Registrant.
(2) Amounts shown indicate number of units granted to Mr. Bizzarro pursuant to
the Phantom Stock Plan. See "-- Phantom Stock Plan."
(3) Mr. Bizzarro voluntarily terminated his employment with CII in March 1997.
Accordingly, Mr. Bizzarro received $45,583 on or about November 29, 1997
in respect of the units held by him under the Phantom Stock Plan. See "--
Phantom Stock Plan."
32
<PAGE> 39
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding OFSI's
outstanding shares of Class A and Class B Common Stock which was beneficially
owned, as of December 31, 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
Additional Registrant, (iii) each of the Named Executive Officers and (iv) all
directors and executive directors of SCIS and the Additional Registrants as a
group.
<TABLE>
<CAPTION>
OFSI Class A OFSI Class B
Common Common
Stock (1) Stock (1)
--------------------- ----------------------
Number Percentage Number Percentage
Beneficial Owner (2) of Shares of Class of Shares of Class
- -------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Onex (3)(4)(5)............ 136,716.62 78.06% 12,753.5 100.00%
161 Bay Street
Toronto, Ontario
Canada
OnCap Holdings Corp. (5).. 136,716.62 78.06% 12,753.5 100.00%
161 Bay Street
Toronto, Ontario
Canada
LSG (4)(6)(7)............. 38,326.36 23.72% -- --
Am Holzweg 26
65830 Kriftel
Federal Republic of
Germany
Gerald W. Schwartz
(3)(4)(5)(8).............. 136,716.6 78.06% 12,753.5 100.00%
161 Bay Street
Toronto, Ontario
Canada
Helmut Woelki (9)(10)..... 1,611.9 * -- --
Helmut Bleckmann (9)(11).. 135 * -- --
Gunter Rothig............. -- -- -- --
Ewout Heersink............ -- -- -- --
James J. O'Neill (9)(12).. 3,442.62 2.13% 219.3 1.72%
Michael Z. Kay (9)(13).... 1,147.54 * 150 1.17%
Patrick W. Tolbert (9)(14) 918.03 * 120 *
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.......... -- -- -- --
</TABLE>
33
<PAGE> 40
<TABLE>
<CAPTION>
OFSI Class A OFSI Class B
Common Common
Stock (1) Stock (1)
--------------------- ----------------------
Number Percentage Number Percentage
Beneficial Owner (2) of Shares of Class of Shares of Class
- -------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
All directors and executive
officers of SCIS and the
Additional Registrant as
a group................... -- -- -- --
(18 persons as a group) 136,716.62 78.06% 12,753.5 100.00%
(5)(8)(19)
</TABLE>
- -----------
* Less than 1%
(1) Each holder of OFSI Class A Common Stock is entitled to one vote for each
share 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 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 (as defined) at the price of $3,109 per share, subject to
adjustment, until September 29, 2000. See "Certain Relationships and
Related Transactions -- OFSI Securityholders' Agreement."
(4) LSG and Onex, among others, are parties to the LSG Stockholders'
Agreement. See "Certain Relationships and Related 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 Relationships and Related 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 convertible at the option of the holder, subject to certain
limitations, 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,
34
<PAGE> 41
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.
(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 Relationships and Related
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 the Additional Registrants 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 Term Loan
and the Revolving Credit Agreement. SCIS directly or indirectly owns all of the
shares of capital stock of each Additional Registrant. SCIS (or a subsidiary
thereof) has pledged all of the issued and outstanding shares of each such
Additional Registrant to secure certain obligations under the Term Loan
Agreement and the Revolving Credit Agreement.
As a result of the foregoing relationships, Onex and its affiliates
indirectly effectively control the affairs of OFSI, SCIS, Caterair, Sky Chefs,
CII and the Additional Registrants. Therefore, Onex and its affiliates have the
ability to determine the outcome of most corporate actions requiring stockholder
approval (subject to LSG's rights under the LSG Stockholders' Agreement),
including, among other things, the election of the board of directors of OFSI,
SCIS and Caterair, the adoption of amendments to OFSI's, SCIS', Caterair's, Sky
Chefs', CII's and each of the Additional Registrants' respective certificates of
incorporation and the approval of mergers and sales of all or substantially all
of OFSI's, 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 over Onex and its affiliates and, therefore, effectively controls
(subject to LSG's rights under the LSG Stockholders' Agreement) the affairs of
OFSI, SCIS and Caterair.
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 March 30, 1998, Messrs. Schwartz, Rosen and Heersink
beneficially owned 12,889,716, 108,972 and 2,500 subordinate voting shares of
Onex ("Subordinate Voting Shares"), respectively, representing approximately
27.2% 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. Rosen and Heersink. All directors and executive officers of SCIS, Sky
Chefs, CII and Caterair as a group owned 13,001,188 Subordinate Voting Shares,
representing approximately 27.4% of the outstanding Subordinate Voting Shares.
Subordinate Voting Shares beneficially owned includes shares which Mr. Rosen
(63,000) 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.
35
<PAGE> 42
Item 13. Certain Relationships and Related Transactions.
Onex Advisory and Transaction Fees
In 1986, in connection with the acquisition of Sky Chefs from AMR 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 fee paid by Sky Chefs to Onex during 1997 was $1.5 million. In
addition, certain officers of Onex and its affiliates participate in Sky Chefs'
employee benefit plans; during 1997, Sky Chefs received reimbursements from Onex
and its affiliates for the cost of benefits provided aggregating approximately
$37,000. The reimbursements received exceed the costs of benefits provided.
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 Annual Report on Form 10-K.
However, after consummation of the Combination, 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.
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 Annual Report on Form 10-K.
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 Annual Report on Form 10-K.
36
<PAGE> 43
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 $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 1997, payments to Marriott International, Inc.
relating to the non-competition agreement were $0.7 million.
At the time of the Combination, Caterair Holdings had approximately $343.4
million of outstanding indebtedness owing to Host Marriott Corporation,
including a $280.0 million debenture (the "Holdings Debenture") issued in
connection with the acquisition of Caterair in 1989. In connection with the
consummation of the Combination, the Holdings Debenture was restructured to
consist of a $236.2 million senior secured note (the "Holdings Secured Note")
and an unsecured senior debenture (the "Holdings Unsecured Debenture") in an
amount equal to $43.8 million. The Holdings Secured Note was secured by a bank
certificate of deposit owned by Caterair Holdings in an amount sufficient to
provide for the payment of the interest on and the principal of such Note.
Following this restructuring, OFSI purchased the Holdings Unsecured Debenture
and the unsecured debentures ("Interest Debentures") previously issued in
payment of interest on the Holdings Debenture (approximately $63.4 million at
June 30, 1995) from Host Marriott Corporation in exchange for 8,497.66 shares of
OFSI Class A Common Stock and 8,937.56 OFSI Warrants. OFSI pledged the Holdings
Unsecured Debenture to the lenders under the Senior Bank Financing as security
for outstanding obligations of SCIS and its subsidiaries thereunder.
In December 1995, OFSI sold the Holdings Unsecured Debenture and all of
the then outstanding Interest Debentures to Renex Corporation ("Renex") for a
purchase price of $4,181,100. Renex paid $250,000 in cash and $3,931,100 by
issuing to OFSI a promissory note with a maturity date of December 15, 2001.
Renex pledged the Holdings Unsecured Debenture to OFSI as security for its
obligations under such promissory note. Contemporaneously with the sale of the
Holdings Unsecured Debenture to Renex, Caynex, Inc., an affiliate of OFSI
("Caynex"), purchased, for a price of $310,000, an option to purchase the
Holdings Unsecured Debenture from Renex at an exercise price of $4,675,000. Such
option is exercisable by Caynex at any time until November 15, 2001. As security
for its obligations to Caynex in connection with such option, Renex granted to
Caynex a security interest in the Holdings Unsecured Debenture subordinate to
the security interest held by OFSI in connection with the promissory note.
On August 28, 1997, SCIS, Caterair, OFSI and Caterair Holdings entered
into the Senior Bank Financing with certain lenders. Caterair, OFSI (on a
limited basis), an affiliate of OFSI (on a limited basis) and certain
subsidiaries of SCIS guaranteed SCIS' obligations under the Senior Bank
Financing and SCIS, 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, CII and the other Additional
Registrants) guaranteed SCIS' obligations under the Private Notes and the
Exchange Notes. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
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.
Subsequent to the consummation of the Combination, SCIS rendered certain
corporate and administrative services for Caterair. During 1997, Caterair paid
SCIS $0.5 million for such services.
LSG Lufthansa Service GmbH
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The following paragraphs summarize certain provisions of (i) the LSG
Stockholders' Agreement, (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, OMI Quebec Inc., Sky Chefs, Lufthansa
and LSG. SCIS 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, the
Company 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 OFSI shareholders for a cash price of up
to $75.0 million (all of which has been paid). 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 and certain registration and preemptive rights. 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 annual dividends be paid to LSG in stipulated amounts. OFSI is
also entitled to representation on the Supervisory Board of LSG.
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 SCIS are engaged in discussions with a view to reaching
agreement for the sale by SCIS to LSG of 50% of SCIS' 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
plus interest on the sale price from January 1, 1996 to March 29, 1996 (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 the same percentage of the shares of OFSI Class A Common
Stock owned thereby as the percentage of shares of OFSI Class A Common Stock
held by Onex and its affiliates sold to LSG 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.
During 1997, OFSI paid an aggregate of $3,997,000 in dividends to LSG in
respect of the OFSI Class AA Common Stock owned by LSG.
During 1997, catering sales by Sky Chefs to Lufthansa were approximately
$31.1 million. Accounts receivable due to Sky Chefs from Lufthansa were
approximately $3.4 million at December 31, 1997.
OFSI Securityholders' Agreement
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<PAGE> 45
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
entered into a securityholders agreement (the "OFSI Securityholders' Agreement")
which provided limitations on transferability, 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 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, 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 11,367.36 shares of OFSI
Class A Common Stock and OFSI Warrants to purchase an aggregate of 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
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 applicable
federal 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.
SCIS 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 Securities Exchange Act
of 1934, as amended, 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
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<PAGE> 46
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 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 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 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.
The Company believes that each of the transactions involving OFSI, SCIS,
Sky Chefs or CII, as applicable, described under the caption "Certain
Relationships and Related Transactions" were on terms no less favorable to OFSI,
SCIS, Sky Chefs or CII, as applicable, than could have been obtained with
unrelated third parties.
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PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. and 2. Financial Statements.
The financial statements set forth in the Index to Financial Statements on
page F-1 are filed as part of this Annual Report on Form 10-K. All
schedules are omitted since the required information is not present, or is
not present in amounts sufficient to require submission of the schedules,
or because the information required is included in the consolidated
financial statements and notes thereto.
3. See subitem (c) below.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the last quarter of the
period covered by this Annual Report on Form 10-K.
(c) List of Exhibits.
Exhibit
Number Description of Exhibit
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-l, Registration No. 33-94572.
2.1.1 Amendment No. 1, dated as of September 29, 1995, to 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
2.1.1 of SC International Services, Inc.'s Registration
Statement on Form S-l, Registration No. 33-94572.
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.
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Exhibit
Number Description of Exhibit
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-l,
Registration No. 33-94572.
3.2 Amended and Restated Bylaws of SC International Services, Inc.
Incorporated by reference to Exhibit 3.2 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
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-l, 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-l, 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-l, 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-l, Registration No. 33-94572.
3.7 Certificate of Incorporation of Arlington Services, Inc.
Incorporated by reference to Exhibit 3.9 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.8 Bylaws of Arlington Services, Inc. Incorporated by reference to
Exhibit 3.10 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.9 Certificate of Incorporation of Arlington Services Holding
Corporation. Incorporated by reference to Exhibit 3.11 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.10 Bylaws of Arlington Services Holding Corporation. Incorporated
by reference to Exhibit 3.12 of SC International Services,
Inc.'s Registration Statement on Form S-4, Registration Number
333-37475.
3.11 Certificate of Incorporation of JFK Caterers, Inc. Incorporated
by reference to Exhibit 3.13 of SC International Services,
Inc.'s Registration Statement on Form S-4, Registration Number
333-37475.
3.12 Bylaws of JFK Caterers, Inc. Incorporated by reference to
Exhibit 3.14 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.13 Certificate of Incorporation of Caterair Consulting Services
Corporation. Incorporated by reference to Exhibit 3.15 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.14 Bylaws of Caterair Consulting Services Corporation.
Incorporated by reference to Exhibit 3.16 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
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Exhibit
Number Description of Exhibit
3.15 Certificate of Incorporation of Western Aire Chef, Inc.
Incorporated by reference to Exhibit 3.17 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.16 Bylaws of Western Aire Chef, Inc. Incorporated by reference to
Exhibit 3.18 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.17 Certificate of Incorporation of Bethesda Services, Inc.
Incorporated by reference to Exhibit 3.19 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.18 Bylaws of Bethesda Services, Inc. Incorporated by reference to
Exhibit 3.20 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.19 Certificate of Incorporation of Caterair New Zealand Limited.
Incorporated by reference to Exhibit 3.21 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.20 Bylaws of Caterair New Zealand Limited. Incorporated by
reference to Exhibit 3.22 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.21 Certificate of Incorporation of Onex Ohio Finance Corp.
Incorporated by reference to Exhibit 3.23 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.22 Bylaws of Onex Ohio Finance Corp. Incorporated by reference to
Exhibit 3.24 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.23 Certificate of Incorporation of Onex Ohio Finance Corp. II.
Incorporated by reference to Exhibit 3.25 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.24 Bylaws of Onex Ohio Finance Corp. II. Incorporated by reference
to Exhibit 3.26 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.25 Certificate of Incorporation of Onex Ohio Equity Corp.
Incorporated by reference to Exhibit 3.27 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.26 Bylaws of Onex Ohio Equity Corp. Incorporated by reference to
Exhibit 3.28 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.27 Certificate of Incorporation of Onex Ohio Equity Corp. II.
Incorporated by reference to Exhibit 3.29 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
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Exhibit
Number Description of Exhibit
3.28 Bylaws of Onex Ohio Equity Corp. II. Incorporated by reference
to Exhibit 3.30 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.29 Certificate of Incorporation of Onex Ohio Credit Corp.
Incorporated by reference to Exhibit 3.31 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.30 Bylaws of Onex Ohio Credit Corp. Incorporated by reference to
Exhibit 3.32 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.31 Certificate of Incorporation of Onex Ohio Credit Corp. II.
Incorporated by reference to Exhibit 3.33 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.32 Bylaws of Onex Ohio Credit Corp. II. Incorporated by reference
to Exhibit 3.34 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.33 Certificate of Incorporation of Onex Ohio Acceptance
Corporation. Incorporated by reference to Exhibit 3.35 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.34 Bylaws of Onex Ohio Acceptance Corporation. Incorporated by
reference to Exhibit 3.36 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.35 Certificate of Incorporation of Onex Ohio Capital Corp.
Incorporated by reference to Exhibit 3.37 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.36 Bylaws of Onex Ohio Capital Corp. Incorporated by reference to
Exhibit 3.38 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.37 Certificate of Incorporation of Onex Ohio Capital Corp. II.
Incorporated by reference to Exhibit 3.39 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.38 Bylaws of Onex Ohio Capital Corp. II. Incorporated by reference
to Exhibit 3.40 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.39 Certificate of Incorporation of Onex Ohio Fiscal Corp.
Incorporated by reference to Exhibit 3.41 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.40 Bylaws of Onex Ohio Fiscal Corp. Incorporated by reference to
Exhibit 3.42 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
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Exhibit
Number Description of Exhibit
3.41 Certificate of Incorporation of Onex Ohio Fiscal Corp. II.
Incorporated by reference to Exhibit 3.43 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.42 Bylaws of Onex Ohio Fiscal Corp. II. Incorporated by reference
to Exhibit 3.44 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.43 Certificate of Incorporation of Onex Ohio Funds Corp.
Incorporated by reference to Exhibit 3.45 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.44 Bylaws of Onex Ohio Funds Corp. Incorporated by reference to
Exhibit 3.46 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.45 Certificate of Incorporation of Onex Ohio Funds Corp. II.
Incorporated by reference to Exhibit 3.47 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.46 Bylaws of Onex Ohio Funds Corp. II. Incorporated by reference
to Exhibit 3.48 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.47 Certificate of Incorporation of Caterair International
Transition Corporation. Incorporated by reference to Exhibit
3.49 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.48 Bylaws of Caterair International Transition Corporation.
Incorporated by reference to Exhibit 3.50 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.49 Certificate of Incorporation of Sky Chefs International Corp.
Incorporated by reference to Exhibit 3.51 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.50 Bylaws of Sky Chefs International Corp. Incorporated by
reference to Exhibit 3.52 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.51 Certificate of Incorporation of Caterair Airport Properties,
Inc. Incorporated by reference to Exhibit 3.53 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.52 Bylaws of Caterair Airport Properties, Inc. Incorporated by
reference to Exhibit 3.54 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.53 Certificate of Incorporation of Caterair St. Thomas Holdings
Corporation. Incorporated by reference to Exhibit 3.55 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
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Exhibit
Number Description of Exhibit
3.54 Bylaws of Caterair St. Thomas Holdings Corporation.
Incorporated by reference to Exhibit 3.56 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.55 Certificate of Incorporation of Sky Chefs Argentine Inc.
Incorporated by reference to Exhibit 3.57 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.56 Bylaws of Sky Chefs Argentine Inc. Incorporated by reference to
Exhibit 3.58 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
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. Incorporated by reference to
Exhibit 4.1 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
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. Incorporated by reference to Exhibit 10.1 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
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.
Incorporated by reference to Exhibit 10.2 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
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. Incorporated by reference to
Exhibit 10.3 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.4 Depositary Agreement, dated as of August 25, 1997, between SC
International Services, Inc. and The Bank of New York, as
Depositary. Incorporated by reference to Exhibit 10.4 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
10.5 Exchange Agent Agreement , dated December 29, 1997, 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-l, 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.
46
<PAGE> 53
Exhibit
Number Description of Exhibit
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-l, 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-l, 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-l, 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-l, 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-l, 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. Incorporated by reference to Exhibit 10.13 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
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-l, 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-l, 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-l, 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-l,
Registration No. 33-94572.
47
<PAGE> 54
Exhibit
Number Description of Exhibit
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-l, Registration No. 33-94572.
10.19 Employment Agreement, dated as of January 1, 1997, between
James J. O'Neill and Onex Food Services, Inc. Incorporated by
reference to Exhibit 10.19 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.20 Employment Agreement, dated as of January 1, 1997, between
Michael Z. Kay and Sky Chefs, Inc. Incorporated by reference to
Exhibit 10.20 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.21 Employment Agreement, dated as of January 1, 1997, between
Patrick W. Tolbert and Sky Chefs, Inc. Incorporated by
reference to Exhibit 10.21 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.22 Employment Agreement, dated as of January 1, 1997, between
Randall C. Boyd and Sky Chefs, Inc. Incorporated by reference
to Exhibit 10.22 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.23 Management Advisory Agreement, dated as of September 29, 1995,
between OMI Partnership Holdings Ltd. and SC International
Services Inc. Incorporated by reference to Exhibit 10.26 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
10.24 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.
Incorporated by reference to Exhibit 10.34 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.25 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. Incorporated by
reference to Exhibit 10.35 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.26 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.
10.27 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.
Incorporated by reference to Exhibit 10.37 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
48
<PAGE> 55
Exhibit
Number Description of Exhibit
10.28 Acquisition Agreement, dated as of November 30, 1995, between
LSG Lufthansa Service USA Corporation and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.38 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.29 Acquisition Agreement, dated as of August 14, 1995, between LSG
Lufthansa Service USA Corporation and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.39 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.30 Acquisition Agreement, dated July 18, 1997, between Caterair
International, Inc. (II) and Sky Chefs, Inc. Incorporated by
reference to Exhibit 10.40 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.31 Acquisition Agreement, dated as of August 29, 1997, between
Caterair International, Inc. (II) and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.41 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.32 Acquisition Agreement, dated as of January 23, 1998, between
Caterair International, Inc. (II) and Sky Chefs, Inc.
10.33 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.
10.34 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.
10.35 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. Incorporated by reference to
Exhibit 10.27 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.1 First Amendment to Lease Agreement, dated as of September 22,
1995, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.1 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 33-37475.
10.35.2 Second Amendment to Lease Agreement, dated as of December 1,
1995, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.2 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.3 Third Amendment to Lease Agreement, dated as of June 1, 1996,
between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.3 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
49
<PAGE> 56
Exhibit
Number Description of Exhibit
10.35.4 Fourth Amendment to Lease Agreement, dated as of December 23,
1996, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.4 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997,
between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.5 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.6 Sixth Amendment to Lease Agreement, dated as of August 22,
1997, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.6 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.7 Limited Waiver, dated as of August 22, 1997, by TriNet
Essential Facilities VIII R, Inc., in favor of Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.7 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration No. 333-37475.
10.36 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. Incorporated by reference to
Exhibit 10.28 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.36.1 First Amendment to Lease Agreement, dated as of September 22,
1995, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.1 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.2 Second Amendment to Lease Agreement, dated as of December 1,
1995 between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.2 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.3 Third Amendment to Lease Agreement, dated as of June 1, 1996,
between TriNet Essential Facilities VIII R, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.28.3 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.36.4 Fourth Amendment to Lease Agreement, dated as of December 23,
1996, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.4 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997,
between TriNet Essential Facilities VIII R, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.28.5 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
50
<PAGE> 57
Exhibit
Number Description of Exhibit
10.36.6 Sixth Amendment to Lease Agreement, dated as of August 22,
1997, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.6 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.7 Limited Waiver, dated as of August 22, 1997, by TriNet
Essential Facilities VIII R, Inc. in favor of Caterair
International Corporation. Incorporated by reference to Exhibit
10.28.7 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.37 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. Incorporated by reference to
Exhibit 10.29 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.38 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. Incorporated by reference to
Exhibit 10.30 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.39 Indenture, dated as of September 15, 1995, among SC
International Services, Inc., as Issuer, the guarantors named
therein, and The Bank of New York, as trustee, relating to SC
International Services, Inc.'s 13% Senior Subordinated Notes
due 2005, with form of Senior Subordinated Note and Guarantee
included therewith. Incorporated by reference to Exhibit No.
10.23 of SC International Services, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
10.40 Phantom Stock Plan for Management Employees of Onex Food
Services, Inc. and its Subsidiaries. Incorporated by reference
to Exhibit 10.16 of SC International Services, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31,
1995.
10.41 Promissory Note, dated September 29, 1995, by Caterair
International Corporation payable to the order of SC
International Services, Inc. Incorporated by reference to
Exhibit 10.29 of SC International Services, Inc's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
10.42 Noncompetition Agreement, dated as of September 29, 1995,
between Caterair International Corporation and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.28 of SC International
Services, Inc's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
10.43 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.
10.44 Amendment No. 1 to Caterair Key Employee Retention Plan.
Incorporated by reference to Exhibit No. 10.11.1 of SC
International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572.
51
<PAGE> 58
Exhibit
Number Description of Exhibit
10.45 Caterair International Corporation Transition Severance Plan.
Incorporated by reference to Exhibit 10.26 of SC International
Services, Inc.'s Registration Statement on Form S-1,
Registration No. 33-94572.
10.46 Caterair 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 24 of
Caterair International Corporation's Registration Statement on
Form S-1, Registration Statement No. 33-31309.
10.47 Acquisition Agreement, dated as of March 19, 1998, between
Caterair International, Inc. (II) and Sky Chefs, Inc.
21.1 Subsidiaries of the Registrants. Incorporated by reference to
Exhibit 21.1 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Statement No. 333-37475.
27.1 Financial Data Schedules for SC International Services, Inc.
and consolidated subsidiaries for the fiscal year ended
December 31, 1997.
99 Item 8 of Caterair International Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 on pages F-1
through F-22 thereof.
52
<PAGE> 59
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
No annual report to security-holders covering the registrant's last
fiscal year or proxy statement, form of proxy or other soliciting
materials with respect to any annual or other meeting of
securityholders has been sent to any of the registrant's
securityholders.
53
<PAGE> 60
INDEX TO FINANCIAL STATEMENTS
Page
----
SC International Services, Inc. and Subsidiaries:
Report of Independent Accountants for the three years in
the period ended December 31, 1997.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996..... F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997........................... F-4
Consolidated Statements of Shareholder's Equity for each of the
three years in the period ended December 31, 1997............... F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997........................... F-6
Notes to Consolidated Financial Statements....................... F-7
F-1
<PAGE> 61
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, 1997 and 1996 and the related
consolidated statements of operations, shareholder's equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our 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, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Dallas, Texas
February 12, 1998, except for Note 20, as to which the date is March 6, 1998.
F-2
<PAGE> 62
SC INTERNATIONAL SERVICES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 23,210 $ 43,317
Accounts and notes receivable (net of allowance for doubtful
accounts of $14,365 in 1997 and $14,314 in 1996) 161,471 148,409
Tax refunds receivable from parent -- 1,893
Inventories 19,761 18,150
Deferred income taxes 8,915 7,105
Prepaid expenses 18,406 17,104
--------- ---------
Total current assets 231,763 235,978
Property and equipment, net 196,138 190,606
Goodwill and intangible assets, net 249,142 245,224
Loan to affiliate 44,965 41,634
Deferred income taxes 58,554 45,806
Other assets 79,357 81,867
--------- ---------
Total assets $ 859,919 $ 841,115
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 68,493 $ 68,912
Accrued expenses 179,015 174,723
Taxes payable to parent 1,402 --
Payable to affiliate 3,970 4,505
Current portion of long-term debt 5,214 15,682
Current portion of obligations under capital leases 383 634
--------- ---------
Total current liabilities 258,477 264,456
Obligations under capital leases 29,829 29,757
Long-term debt 391,478 334,156
Other long-term liabilities 162,327 156,397
--------- ---------
Total liabilities 842,111 784,766
--------- ---------
Minority interest 10,386 9,618
--------- ---------
Commitments and contingencies -- --
Shareholder's equity:
Common stock, $.01 par value; 3,000 shares authorized, 100 shares issued and -- --
outstanding at December 31, 1997 and 1996
Additional paid-in capital 59,579 59,579
Cumulative translation adjustment (5,437) (3,797)
Minimum pension liability adjustment (714) (330)
Accumulated deficit (46,006) (8,721)
--------- ---------
Total shareholder's equity 7,422 46,731
--------- ---------
Total liabilities and shareholder's equity $ 859,919 $ 841,115
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 63
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Revenues $ 1,602,823 $ 1,529,816 $ 739,102
----------- ----------- ---------
Costs and expenses:
Cost of operations 1,444,189 1,376,080 664,257
Depreciation and amortization 42,192 37,928 21,338
Selling, general and administrative 52,397 48,854 28,076
Integration expenses 17,990 30,361 28,644
----------- ----------- ---------
Total costs and expenses 1,556,768 1,493,223 742,315
----------- ----------- ---------
Operating income (loss) 46,055 36,593 (3,213)
----------- ----------- ---------
Other income (expense):
Interest income 6,549 7,896 2,458
Interest expense (52,357) (50,431) (19,715)
Minority interest (5,643) (3,013) (1,117)
Other (5,871) (1,666) (982)
----------- ----------- ---------
Total other expense (57,322) (47,214) (19,356)
----------- ----------- ---------
Loss before income taxes and extraordinary item (11,267) (10,621) (22,569)
Provision (benefit) for income taxes 5,273 420 (6,525)
Extraordinary loss from early extinguishment of debt, net of
tax of $13,830 (20,745) -- --
----------- ----------- ---------
Net loss $ (37,285) $ (11,041) $ (16,044)
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 64
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Minimum Retained
Common Stock Additional Cumulative Pension Earnings
--------------------- Paid-In Translation Liability (Accumulated
Shares Amount Capital Adjustment Adjustment Deficit) Total
------ ------ ------- ---------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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 -- -- -- (1,640) -- -- (1,640)
Minimum pension liability
adjustment -- -- -- -- (384) -- (384)
Net loss -- -- -- -- -- (37,285) (37,285)
--- ---- ------- ------- ------- -------- --------
Balance, December 31, 1997 100 $-- $59,579 $(5,437) $ (714) $(46,006) $ 7,422
=== ==== ======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 65
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (37,285) $(11,041) $ (16,044)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 42,192 37,928 21,338
Deferred income taxes (14,558) (5,970) (8,610)
Deferred financing fees 2,305 2,916 525
Extraordinary loss from extinguishment of debt 10,825 -- --
Noncash integration and other expenses 6,575 3,074 41,064
Bad debt expense 1,992 1,765 931
Postretirement benefits in excess of cash paid 2,000 2,000 1,400
Interest payable in-kind from affiliate (3,331) (3,090) --
Changes in assets and liabilities:
Decrease (increase) in working capital items (Note 19) (11,814) 14,653 18,411
Decrease (increase) in other assets 17,142 (12,599) 8,025
Increase (decrease) in other noncurrent liabilities 2,354 5,953 (13,265)
--------- -------- ---------
Net cash provided by operating activities 18,397 35,589 53,775
--------- -------- ---------
Cash flows from investing activities:
Acquisition of businesses (35,273) -- (211,151)
Purchase of property and equipment (33,551) (36,900) (9,575)
Advances from (repayments to) affiliate (535) 5,548 (38,831)
Other -- -- 412
--------- -------- ---------
Net cash used in investing activities (69,359) (31,352) (259,145)
--------- -------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 90,000 -- 225,000
Proceeds from issuance of notes 300,000 -- 125,000
Payment of long-term debt and obligations under capital leases (218,325) (11,830) (55,690)
Payment of notes (125,000) -- --
Borrowings (repayments) of foreign bank overdrafts (1,312) (1,609) 1,502
Purchase of employee stock loans from an affiliate -- -- (6,661)
Dividends (4,180) (3,415) (10,465)
Deferred financing costs (13,623) -- (17,337)
Net change in (payable to) and receivable from parent 3,295 6,438 (18,938)
--------- -------- ---------
Net cash provided by (used in) financing activities 30,855 (10,416) 242,411
--------- -------- ---------
Increase (decrease) in cash and cash equivalents (20,107) (6,179) 37,041
Cash and cash equivalents, beginning of period 43,317 49,496 12,455
--------- -------- ---------
Cash and cash equivalents, end of period $ 23,210 $ 43,317 $ 49,496
========= ======== =========
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest $ 42,276 $ 45,053 $ 16,093
Income taxes 8,742 3,300 5,124
Supplemental disclosure of noncash financing and investing activities:
Noncash capital contribution from parent -- -- 38,947
Business combination liabilities assumed -- 4,464 44,048
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE> 66
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
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/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, except when the subsidiaries ability to
pay dividends is uncertain. 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.
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.
FOREIGN EXCHANGE CONTRACTS
The Company enters into foreign exchange contracts as a hedge against
the effect of exchange rate fluctuations on the carrying value of its
investment in marketable securities. Market value gains and losses are
recognized and the resulting credit or debit is reflected in equity.
F-7
<PAGE> 67
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
INVENTORIES
Inventories, consisting primarily of food products, 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:
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
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 25 to 30 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 the
assets are as follows:
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, 3 to 6
years
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. If those events or circumstances
have occurred, 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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
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> 68
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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 $2,305, $2,916 and $525 for the years ended December 31, 1997, 1996
and 1995, respectively.
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 $43,803 of foreign
subsidiaries at December 31, 1997. Management believes the U.S. income
tax effect on any repatriated amounts would be minimal and 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 1997 and 1996
and principally Argentina, Brazil and Venezuela in 1995), 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 denominated in highly
inflationary currencies were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net foreign exchange gains (losses) $(1,924) $1,525 $ 748
======= ====== ======
Net assets (liabilities) denominated in highly inflationary currencies $(1,345) $ 315 $2,890
======= ====== ======
</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.
F-9
<PAGE> 69
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES--(Continued)
RECENT ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 130 ("SFAS 130"),
"Reporting Comprehensive Income," effective for financial statements
for fiscal years beginning after December 15, 1997. This Statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt SFAS 130 effective
January 1, 1998.
Also during June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures About
Segments of an Enterprise and Related Information," effective for
financial statements for fiscal years beginning after December 15,
1997. Preliminary analysis of this new standard by the Company
indicates that the standard will not have a material impact on its
financial statements.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 132 ("SFAS 132"),
"Employers' Disclosures about Pensions and Other Postretirement
Benefits," effective for financial statements for fiscal years
beginning after December 15, 1997. This statement significantly changes
current financial statement disclosure requirements for pensions and
other postretirement benefits. The Company will adopt SFAS 132
effective January 1, 1998.
2. BUSINESS COMBINATIONS
In 1997, the Company, through its subsidiaries, made two acquisitions
of businesses for a total investment of $35,273. In April 1997, the
Company purchased 49% of the common shares of a Mexican in-flight food
service company. This investment is included in other assets in the
Company's consolidated balance sheet and is accounted for using the
equity method. The terms of the acquisition included a non-competition
agreement which is included in goodwill and intangible assets and is
being amortized over three years. In August 1997, CII purchased
substantially all of the catering assets of a New Zealand in-flight
food service company. This purchase covered kitchen operations at four
different locations in New Zealand. For financial accounting purposes,
the assets, liabilities, results of operations and cash flows of these
purchased assets are included in the Company's consolidated financial
statements from the date of acquisition. The acquisition resulted in
goodwill which is being amortized over 25 years.
On September 29, 1995, OFSI, the Company, Caterair and its parent,
Caterair Holdings Corporation ("Holdings"), 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 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 and
approximately 25% of the total outstanding nonvoting shares, and
certain indebtedness, 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 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 the Company and its subsidiaries.
The aggregate purchase price of 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 the Company in an amount equal to the
consideration paid to Holdings' shareholders and creditors. The
purchase price was allocated based on the estimated fair values of the
assets acquired at
F-10
<PAGE> 70
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
2. BUSINESS COMBINATIONS--(Continued)
the date of acquisition. The Transactions resulted in goodwill of
approximately $131,680 which is being amortized over 25 years. Also, in
connection with the Transactions, OFSI issued 11,482.67 shares of its
Class A Common Stock valued at $2,538 per share; warrants to purchase
13,871.09 shares of its Class A Common Stock valued at $707 per share;
and options to purchase 19,896.75 shares of its Class A Common Stock;
15,422.53 of the stock options expired unexercised.
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.
A pre-tax charge of $18,000 was recorded in cost of operations 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 year
ended December 31, 1995 as though the Transactions occurred at the
beginning of the period presented. The pro forma information does not
purport to be indicative of the results which would actually have been
attained had the Transactions been completed as of such date.
<TABLE>
<CAPTION>
1995
(Unaudited)
-----------
<S> <C>
Revenues $ 1,520,987
===========
Net loss $ (10,103)
===========
</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,
------------
1997 1996
------- -------
<S> <C> <C>
Prepaid employee healthcare $ 5,800 $ 7,141
Other 12,606 9,963
------- -------
$18,406 $17,104
======= =======
</TABLE>
F-11
<PAGE> 71
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
Property and equipment, at cost:
<S> <C> <C>
Land $ 8,189 $ 9,339
Buildings and leasehold improvements 151,043 143,245
Machinery and equipment 115,570 99,887
Construction in progress 30,200 26,327
-------- --------
305,002 278,798
Less accumulated depreciation and amortization 118,056 98,747
-------- --------
186,946 180,051
-------- --------
Property and equipment under capital leases:
Buildings and improvements 8,616 8,614
Machinery and equipment 19,176 19,826
-------- --------
27,792 28,440
Less accumulated amortization 18,600 17,885
-------- --------
9,192 10,555
-------- --------
$196,138 $190,606
======== ========
</TABLE>
5. GOODWILL AND INTANGIBLE ASSETS
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Goodwill $167,971 $158,067
Trademarks and tradenames 75,000 75,000
Noncompete agreement 28,781 18,781
Beneficial lease and license rights 31,228 31,444
-------- --------
302,980 283,292
Less accumulated amortization 53,838 38,068
-------- --------
$249,142 $245,224
======== ========
</TABLE>
6. OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Prepaid employee healthcare $ 23,115 $ 29,645
Deferred financing costs, net of accumulated amortization of $457 and $3,441
at December 31, 1997 and 1996, respectively 13,166 13,993
Investments in joint ventures and unconsolidated affiliates 21,375 12,800
Other 21,701 25,429
-------- --------
$ 79,357 $ 81,867
======== ========
</TABLE>
F-12
<PAGE> 72
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
7. ACCOUNTS PAYABLE
Accounts payable include $2,093 and $5,318 at December 31, 1997 and
1996, respectively, representing checks outstanding in excess of bank
deposits. Accounts payable at December 31, 1997 and 1996 also include
$1,604 and $2,916, respectively, of short-term foreign bank loans used
primarily for overdraft and working capital purposes.
8. ACCRUED EXPENSES
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Payroll $ 65,699 $ 72,409
Insurance 3,976 4,218
Employee benefits 14,676 13,148
Provisions relating to idle facilities and other acquisition
related costs 22,099 20,022
Other 72,565 64,926
-------- --------
$179,015 $174,723
======== ========
</TABLE>
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) were reflected
as an increase in goodwill. The accrued costs relating to former Sky
Chefs' facilities of $11,138 were charged to income as 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 as integration expenses. As of
December 31, 1997 and 1996, accrued costs of $7,760 were included in
accrued expenses and $21,745 and $20,683, respectively, were included
in other long-term liabilities. The Company made payments relating to
the provisions for idle facilities of $3,876 and $5,365 for the years
ended December 31, 1997 and 1996, respectively. Additionally, in 1997
and 1996, the Company completed analyses of excess kitchen capacity,
resulting in pre-tax charges of $4,938 and $2,611, respectively, for
costs representing the net present value of future minimum rentals less
expected sublease income for kitchens at airports where excess kitchen
capacity existed.
In connection with the Transactions, the Company had accrued $64,033 as
of December 31, 1995, for provisions relating to acquisition related
costs included in accrued expenses and other long-term liabilities. The
Company made payments relating to the provisions for other acquisition
costs, principally deferred customer consent fees and non-compete
payments, of $4,445 and $2,020 for the years ended December 31, 1997
and 1996, respectively.
F-13
<PAGE> 73
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
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 $ 89,775 $ --
9.25% Senior Subordinated Notes due 2007 with interest payable semi-
annually beginning March 1, 1998 300,000 --
Austrailian $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 2,603 4,855
French Term Loans, bearing interest at three month LIBOR plus 0.85%
to 1.32%, principal and interest payable quarterly through October 1998 1,202 2,718
Other foreign debt 3,112 3,519
Term Loans retired in 1997 -- 213,746
13% Senior Subordinated Notes due 2005 retired in 1997 -- 125,000
-------- --------
Total debt 396,692 349,838
Less current portion of long-term debt 5,214 15,682
-------- --------
Long-term debt $391,478 $334,156
======== ========
</TABLE>
F-14
<PAGE> 74
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
9. LONG-TERM DEBT--(Continued)
In connection with the Transactions, OFSI, 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). No revolving loan-borrowings
were outstanding at December 31, 1997. The Credit Agreement also
provided Caterair with $185,000 of term loans. 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, the Company consummated an offering of $300,000 of
its 9.25% Senior Subordinated Notes due 2007 (the "New Notes") in a
transaction exempt from the registration requirements of the Securities
Act of 1933, as amended (the "Offering"). The New Notes are guaranteed
on a joint and several senior subordinated basis by Sky Chefs, CII and
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 to the New
Notes) 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
prices ranging from 104.635% to 100% of face value plus accrued and
unpaid interest. 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 the Company from the Offering, after deduction of
discounts and offering expenses, were approximately $289,900. The
Company 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, the Company commenced a tender offer for all for
the Notes. In connection therewith, the Company 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 "Existing Notes 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 for which a
consent was delivered.
The Existing Notes Offer to Purchase expired on September 24, 1997. All
of the Notes were tendered by the holders thereof and accepted for
payment by the Company in connection with the Existing Notes Offer to
Purchase. The Company paid $148,750 (excluding $7,850 of accrued
interest) in the aggregate in consideration of the repurchase of the
Notes and the related consents. The Company 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.
F-15
<PAGE> 75
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
9. LONG-TERM DEBT--(Continued)
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").
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 loan under the Term Loan Agreement in an aggregate principal
amount of $160,000 (and with a final maturity in 2007) for purposes of
refinancing Caterair's indebtedness under the Credit Agreement and
funding payment of related transaction costs and (iii) SCIS with a loan
under the Term Loan Agreement in an aggregate principal amount of
$90,000 (and with a final maturity in 2007) for purposes of financing,
in part, the Existing Notes Offer to Purchase, funding payment of
related transaction costs and general corporate purposes. SCIS and
Caterair had $89,775 and $159,600, respectively, of borrowings
outstanding under the Term Loan Agreement at December 31, 1997. At
December 31, 1997, approximately $21,986 of bank letters of credit were
issued and outstanding under the Revolving Credit Agreement
(approximately $21,911 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.
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.
The Company'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), 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 collateralized 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).
F-16
<PAGE> 76
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
9. LONG-TERM DEBT--(Continued)
The Company's 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. The Company's
indebtedness under the Revolving Credit Agreement bears 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 December 31, 1997 for SCIS' indebtedness
under the Senior Bank Financing was 7.44%.
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 $89,775 at December 31, 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, 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 requires compliance with financial tests based on
combined results of SCIS and Caterair. SCIS and Caterair were in
compliance with these financial covenant requirements at December 31,
1997.
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.
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>
1998 $ 5,214
1999 1,940
2000 1,722
2001 1,640
2002 900
Thereafter 385,276
----------
$ 396,692
==========
</TABLE>
10. OTHER LONG-TERM LIABILITIES
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Accrued postretirement benefit liability $ 35,361 $ 33,361
Accrued rent 22,619 18,423
Accrued insurance 16,254 18,254
Provisions relating to idle facilities and other acquisition
related costs 57,879 70,934
Other 30,214 15,425
-------- --------
$162,327 $156,397
======== ========
</TABLE>
F-17
<PAGE> 77
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
11. INCOME TAXES
The components of earnings (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Domestic $(15,207) $(27,699) $(19,763)
Foreign 3,940 17,078 (2,806)
-------- -------- --------
$(11,267) $(10,621) $(22,569)
======== ======== ========
</TABLE>
Income tax provision (benefit) reflected in the consolidated statements
of operations consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Federal:
Current expense (benefit) $ 11,395 $ 2,571 $(1,870)
Deferred benefit (11,601) (9,230) (5,190)
-------- ------- -------
Total federal (206) (6,659) (7,060)
-------- ------- -------
Foreign:
Current expense 8,228 6,696 4,199
Deferred expense (benefit) (1,739) 989 (2,614)
-------- ------- -------
Total foreign 6,489 7,685 1,585
-------- ------- -------
State and local:
Current expense (benefit) 208 374 (245)
Deferred benefit (1,218) (980) (805)
-------- ------- -------
Total state and local (1,010) (606) (1,050)
-------- ------- -------
Total provision (benefit) for income taxes $ 5,273 $ 420 $(6,525)
======== ======= =======
</TABLE>
The effective income tax rate varies from the federal, state and local
statutory rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory rate (40.0)% (40.0)% (40.0)%
State taxes (4.1) (0.3) 1.8
Amortization of nondeductible goodwill 22.4 20.8 2.8
Foreign taxability differences (3.1) 4.1 7.6
Corporate-owned life insurance investments (4.1) (3.8) (2.2)
Foreign losses not benefited 51.0 22.5 5.0
Other items 24.7 0.6 (3.9)
------ ------ ------
Effective income tax rate 46.8% 3.9% (28.9)%
====== ====== ======
</TABLE>
F-18
<PAGE> 78
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
11. INCOME TAXES--(Continued)
The components of deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Net current deferred tax asset (liability):
Bad debt expense $ (621) $ 2,436
Restructuring charge (322) (329)
Vacation and other employee benefits 8,140 3,082
Other 1,718 1,916
-------- --------
$ 8,915 $ 7,105
======== ========
Net noncurrent deferred tax asset (liability):
Depreciation and amortization $ 7,667 $ 7,303
Capital leases 4,221 3,962
Workers' compensation benefits 8,941 10,112
Prepaid healthcare benefits (9,803) (13,497)
Postretirement benefits 14,745 13,344
Pension 462 (1,744)
Acquisition related reserves and accruals 20,443 21,200
Other employee benefits 5,356 --
Credit and net operating carryforwards 13,855 8,685
Other (659) 662
-------- --------
65,228 50,027
Less valuation allowance 6,674 4,221
-------- --------
$ 58,554 $ 45,806
======== ========
</TABLE>
The Company has recorded a total net deferred tax asset of $67,469 as
of December 31, 1997. 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 valuation allowance increased by $2,453
in 1997 due to the changes in the Company's gross deferred tax assets
and liabilities.
The Company had an income tax payable of $1,402 included in taxes
payable to parent at December 31, 1997 and an income tax receivable of
$1,893 included in tax refunds receivable from parent at December 31,
1997.
At December 31, 1997, the Company had foreign tax credit carryforwards
in the amount of $3,562, which expire in 2011. The Company had U.S.
operating loss carryforwards of $2,828 which expire in 2001 and foreign
operating losses of $24,032 which expire as follows:
<TABLE>
<CAPTION>
Year of Amount of
Expiration Loss
---------- ----
<S> <C>
1998 $ 2,981
1999 3,224
2000 3,376
2001 2,599
2002 4,818
2004 1,581
Indefinite 5,453
============
$ 24,032
============
</TABLE>
F-19
<PAGE> 79
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
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,
-----------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Minimum rent $ 58,525 $ 58,688 $ 31,131
Contingent rent 45,623 38,872 26,934
Less sublease rent (465) (542) (1,489)
--------- -------- --------
Total rent expense $ 103,683 $ 97,018 $ 56,576
========= ======== ========
</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, 1997 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------ ------
Year ending December 31,
<S> <C> <C>
1998 $ 2,694 $ 46,989
1999 2,678 44,674
2000 2,632 44,520
2001 2,873 38,709
2002 2,341 13,288
Thereafter 49,037 120,274
------- --------
Total minimum lease payments 62,255 $308,454
========
Less imputed interest 32,043
--------
Present value of minimum lease payments 30,212
Less current portion 383
--------
Long-term portion of minimum lease payments $29,829
========
</TABLE>
Other than the Domestic 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 $32,422 at December 31, 1997 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.
F-20
<PAGE> 80
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
12. LEASES -- (CONTINUED)
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 payable to Caterair at December 31, 1997 and
1996, which are included in the above schedule of future minimum
operating lease payments, are approximately $108,958 and $135,117,
respectively, of which approximately $37,500 and $47,500, respectively,
relates to lease payments for leasehold improvements and equipment.
13. RELATED PARTY TRANSACTIONS
In connection with the Transactions, the Company licensed most of
Caterair's rights under certain customer contracts for a six-year
period (the "License Agreements"). However, after 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 the Company 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 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. It 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, 1997, 1996 and 1995
included in total expenses, amounted to $75,832, $77,816 and $18,953
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 Senior Bank
Financing. The cumulative amounts due under this loan were $44,965 and
$41,634 at December 31, 1997 and 1996, respectively. Interest income
related to this loan of $3,331, $3,090 and $756 is included in interest
income for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company was initially 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 the Company and its
subsidiaries. Prior to acquiring the consent, SCIS and Caterair entered
into a management agreement for the operations at these kitchens
whereby Caterair continued to operate them with Caterair employees with
SCIS 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 $1,057
and $604 for the periods ended December 31, 1996 and 1995,
respectively, and are included in revenues.
F-21
<PAGE> 81
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
13. RELATED PARTY TRANSACTIONS -- (CONTINUED)
To facilitate the various transactions with Caterair, SCIS performs
certain management and support functions on behalf of Caterair.
Caterair paid management fees to SCIS for these services of $500, $500
and $125 for the periods ended December 31, 1997, 1996 and 1995,
respectively which were 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 Airlines, the
parent of LSG, of $3,403 and $2,597 at December 31, 1997 and 1996,
respectively. Sales to Lufthansa German Airlines in 1997, 1996 and 1995
were $31,098, $22,289 and $12,881, respectively.
During 1995 in connection with the Transactions, LSG acquired an option
to acquire 4,474.22 shares of OFSI Class A Common Stock at $2,175.93
per share. This option is not exercisable until the warrants issued by
OFSI in connection with the Transactions are exercised.
In connection with the Transactions, LSG was granted the option to
acquire a 50% interest in the catering business acquired by the Company
from Caterair in Europe for a price to be negotiated on a basis to be
consistent with the valuation of the entire Caterair business implicit
in the Transactions. This option has expired. However, LSG and OFSI are
engaged in discussions with a view to reaching agreement for the sale
by OFSI to LSG of 50% of OFSI'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 Onex, the
indirect parent of OFSI, are reflected in the Company's statements of
operations through management fees paid to OFSI and 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 for the periods ended
December 31, 1997, 1996 and 1995 of $1,500, $1,500 and $694,
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.
F-22
<PAGE> 82
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
14. GEOGRAPHIC AND CUSTOMER INFORMATION
Information concerning operations by geographic area is presented
below:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
Net revenues:
<S> <C> <C> <C>
United States $ 1,007,784 $ 952,009 $ 572,566
Europe 243,763 243,895 65,729
Other 351,276 333,912 100,807
----------- ----------- ---------
$ 1,602,823 $ 1,529,816 $ 739,102
=========== =========== =========
Operating income (loss):
United States $ 33,776 $ 11,699 $ (4,803)
Europe (6,336) (5,282) 1,208
Other 18,615 30,176 382
----------- ----------- ---------
$ 46,055 $ 36,593 $ (3,213)
=========== =========== =========
Identifiable assets:
United States $ 683,242 $ 667,236 $ 642,841
Europe 69,744 67,692 74,754
Other 106,933 106,187 105,865
----------- ----------- ---------
$ 859,919 $ 841,115 $ 823,460
=========== =========== =========
</TABLE>
American Airlines, Inc. ("American") 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 for
the last three years ended December 31 were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996 1995
---- ---- ----
Net sales to American:
<S> <C> <C> <C>
United States $401,076 $412,147 $380,825
Europe 32,461 31,200 8,288
Other 31,213 26,663 4,934
-------- -------- --------
$464,750 $470,010 $394,047
======== ======== ========
Accounts receivable from American $ 24,481 $ 18,142 $ 34,787
======== ======== ========
</TABLE>
Although the Company's exposure to credit risk associated with
nonpayment by American is affected by conditions or occurrences within
the airline industry, trade receivables from American are considered
fully collectible as of December 31, 1997.
F-23
<PAGE> 83
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
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>
December 31,
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 4,618 $ 4,853 $ 3,392
Interest cost 8,132 7,628 6,175
Actual return on plan assets (18,341) (9,466) (20,066)
Net amortization and deferral 7,772 165 11,147
-------- ------- --------
Net pension expense $ 2,181 $ 3,180 $ 648
======== ======= ========
</TABLE>
F-24
<PAGE> 84
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
15. EMPLOYEE BENEFITS -- (CONTINUED)
The following table sets forth the funding status of the plans and
amounts recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ 103,620 $ 93,397
========= =========
Accumulated benefit obligation $ 105,286 $ 96,951
========= =========
Projected benefit obligation $(121,423) $(107,024)
Plan assets at fair value 112,116 101,151
--------- ---------
Plan assets less projected benefit obligation (9,307) (5,873)
Actuarial gains and losses and effects of assumption changes 12,222 13,973
Unrecognized net transition asset established January 1,
1987, to be recognized over 11 years (702) (1,263)
Unrecognized prior service cost 435 477
Additional minimum liability -- --
--------- ---------
Prepaid pension cost $ 2,648 $ 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 7.25% and 4.5%, respectively, at December 31,
1997 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, 1997 and 1996. Plan assets at December 31, 1997 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 were
$619, $431, and $418 for 1997, 1996, and 1995, respectively. The
projected unfunded liability is approximately $4,582 and $3,032 at
December 31, 1997 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 $1,287 and $707 at December 31, 1997 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 1997 and 1996, respectively, the excess minimum pension liability
reflected in equity was $714 and $330, net of income taxes of $475 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 $28,915 and $36,786 at December 31, 1997 and 1996,
respectively, and are included in prepaid expenses and other assets.
F-25
<PAGE> 85
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
15. EMPLOYEE BENEFITS--(Continued)
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-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 $1,798, $1,885 and $1,634 for the years
ended December 31, 1997, 1996 and 1995, respectively.
Net postretirement benefit cost included in cost of operations for the
years ended December 31, 1997, 1996 and 1995 consists of the following
components:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost $ 897 $ 861 $ 838
Interest cost 2,446 2,174 2,196
Amortization of prior service cost (59) (59) --
------- ------- ------
Net pension expense $ 3,284 $ 2,976 $3,034
======= ======= ======
</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, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
------- -------
Accumulated postretirement benefit obligation ("APBO")
<S> <C> <C>
Retirees $24,530 $23,313
Fully eligible active plan participants 5,328 4,417
Other active plan participants 5,208 5,043
------- -------
Total APBO 35,066 32,773
Plan assets at fair value -- --
------- -------
Accumulated postretirement benefit obligation in excess of plan assets 35,066 32,773
Unrecognized net actuarial gains 1,795 2,088
------- -------
Accrued postretirement benefit liability 36,861 34,861
Less amount classified as current (included in accrued expenses) 1,500 1,500
------- -------
Noncurrent liability (included in other long-term liabilities) $35,361 $33,361
======= =======
</TABLE>
F-26
<PAGE> 86
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
15. EMPLOYEE BENEFITS--(Continued)
A 7% annual rate of increase in the per capita costs of covered
healthcare benefits was assumed for 1997 and 1996, gradually decreasing
to 5% by the year 1999. Increasing the assumed healthcare cost trend
rates one percentage point in each year would increase the accumulated
postretirement benefit obligation by $1,312 and $1,657 as of December
31, 1997 and 1996, respectively, and increase the aggregate of the
service cost and interest cost components of net periodic
postretirement benefit cost for 1997, 1996 and 1995 by $143, $208 and
$183, respectively. A discount rate of 7.25% and 7.75% was used to
determine the APBO at December 31, 1997 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 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 $2,667 and $1,210 for the periods ended December 31,
1996 and 1995, respectively. The contribution for 1997 has not yet been
determined.
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 pretax 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, 1996 and 1995 were $472 and $576,
respectively. The contribution for 1997 has not yet been determined.
EMPLOYEE STOCK OPTIONS
Options to purchase 46.24 shares of OFSI Class A Common Stock were held
by management employees of the Company at December 31, 1996. The option
price for the shares of OFSI Class A Common Stock was 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 shares of OFSI
Common Stock in exchange for the cancellation of their outstanding OFSI
options. These options expired on or before September 30, 1997.
STOCK-BASED COMPENSATION PLAN
OFSI 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.
F-27
<PAGE> 87
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
15. EMPLOYEE BENEFITS--(Continued)
OFSI adopted the Book Value Plan in 1986. Under the Book Value Plan,
OFSI is authorized to issue shares of OFSI Class A 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 of OFSI (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. In connection with the
sale of OFSI Class A Common Stock 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, 1997, 17,617.4 outstanding
shares of OFSI Class A Common Stock and 497.3 outstanding shares of
OFSI Class B Common Stock were held by employees of the Company and its
subsidiaries. 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.
In October 1997, OFSI's board of directors approved the establishment
in 1998 of a fair value stock purchase plan and a stock option plan for
selected management employees. The Company expects to repurchase
portions of stock held by management under the current Book Value Plan
to provide shares for distribution under this new fair value stock
purchase plan.
DEFERRED COMPENSATION PLAN
The Company provides its key employees with the opportunity to
participate in an unfunded deferred compensation program. There were 21
and 19 participants in the program at December 31, 1997 and 1996,
respectively. Under the program, participants may defer up to 75% of
their annual base salary and up to 100% 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, 1997
amounted to $1,982.
MANAGEMENT INCENTIVES
The board of directors of the Company has approved a management bonus
pool for prior service rendered to the Company relating to improvements
in earnings performance over the past several years. The bonus pool
will be allocated to individual employees and officers on the basis of
their relative contribution to achieving the improved level of
earnings. The creation of this bonus pool resulted in a before tax
charge to cost of operations of $25,145 in 1997.
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.
F-28
<PAGE> 88
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(Continued)
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, 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
December 31, 1997
------------------------
Estimated Carrying
Fair Value Amount
---------- --------
<S> <C> <C>
Assets:
Senior subordinated note due from affiliate (a) $ 44,965 $ 44,965
Liabilities:
Term loans (b) 89,775 89,775
9.25% senior subordinated notes (b) 310,890 300,000
Other long-term debt (b) 6,917 6,917
Interest rate swap agreement (c) 2,586 --
</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.
(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)
9.25% 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) 9.25% 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 value.
F-29
<PAGE> 89
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(Continued)
(c) INTEREST RATE SWAP AGREEMENTS
At December 31, 1997 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, 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, 1997.
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 creditworthiness 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 $20,303 and $19,898 at December 31, 1997
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 $11,134 and $20,499 at December 31, 1997
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 Transactions described in Note 2,
approximately 76% of the Company's revenue was derived from business
with American under a long-term catering agreement that expires at the
end of 2003. In connection with the Transactions, CII and Sky Chefs
licensed Caterair's rights under Caterair's contract with American
which runs through the end of 2001. In 1997, business with American
accounted for approximately 29% 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.
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.
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. During 1997, American terminated the Company's services at
certain 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
F-30
<PAGE> 90
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
17. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES--(Continued)
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.
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). In connection
with the Transactions, the Company consolidated kitchen operations at
airports where excess kitchen capacity existed. This consolidation
process 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 $17,990 and $30,361 of costs in 1997 and
1996, respectively, associated with integrating, restructuring and
improving its combined operations.
18. COMMITMENTS AND CONTINGENCIES
On June 23, 1995, the Company settled, for a payment of $3,700, a claim
asserted by 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 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.
F-31
<PAGE> 91
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
19. CHANGES IN WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(Increase) decrease in accounts receivable $(14,086) $(13,655) $ 5,606
(Increase) decrease in inventories (1,611) (1,165) 1,234
Increase in prepaid expenses (1,302) (2,578) (1,819)
Increase (decrease) in accounts payable 893 (3,952) 1,233
Increase in accrued expenses 4,292 36,003 12,157
-------- -------- --------
(Increase) decrease in working capital items $(11,814) $ 14,653 $ 18,411
======== ======== ========
</TABLE>
20. SUBSEQUENT EVENT
On March 6, 1998, Sky Chefs entered into a non-binding letter of
intent with a third party pursuant to which Sky Chefs agreed to
purchase the airline catering operations conducted by such third
party. The consummation of such acquisition is subject to the
completion of legal, business and financial due diligence, receipt of
any necessay government and other third party approvals, and the
negotiation and execution by the parties of a mutually acceptable
definitive acquisition agreement. Currently, Sky Chefs intends to fund
the purchase price for such operations through additional borrowings.
There is no assurance that such acquisition (or related borrowings)
will be consummated and, if consummated, as to the terms and
conditions upon which such transactions (or related borrowings) will
be effected.
21. 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 investment 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 basis only), (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 for each of the
three years in the period ended December 31, 1997.
F-32
<PAGE> 92
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONSOLIDATING BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------------
Combined Combined SC International
Guarantor Non-Guarantor Services, Inc. Elimination
ASSETS Subsidiaries Subsidiaries (Parent Only) Entries
------------ ------------- ---------------- -----------
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,693 $ 5,423 $ 15,094 $ --
Accounts and notes receivable, net 87,072 75,469 291 (1,361)
Advance to affiliate -- 265,713 (265,713)
Tax refund receivable from parent -- -- -- --
Inventories 10,225 9,536 -- --
Deferred income taxes 11,872 -- -- (2,957)
Prepaid expenses 9,271 9,135 -- --
--------- --------- --------- ---------
Total current assets 121,133 99,563 281,098 (270,031)
Property and equipment, net 114,609 81,372 157 --
Deferred income taxes 47,790 2,305 8,459 --
Goodwill and intangible assets, net 270,424 1,620 7,500 (30,402)
Investment in affiliates 175,375 65,033 60,687 (279,720)
Loan to affiliate -- -- 44,965 --
Other assets 30,423 2,707 20,418 4,434
--------- --------- --------- ---------
Total assets $ 759,754 $ 231,709 $ 423,284 $ 554,823
========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 42,828 $ 19,361 $ 343 $ 5,961
Accrued expenses 98,241 63,270 17,504 --
Taxes payable to parent 1,402 -- -- --
Payable to affiliate 220,156 93,407 -- (309,593)
Current portion of long-term debt -- 15,255 900 (10,941)
Current portion of obligations
under capital leases 152 231 -- --
--------- --------- --------- ---------
Total current liabilities 362,779 191,524 18,747 (314,573)
Obligations under capital leases 27,745 2,084 -- --
Long-term debt 18,180 2,603 388,875 (18,180)
Deferred income taxes -- 2,957 -- (2,957)
Other long-term liabilities 156,511 4,295 8,240 (6,719)
--------- --------- --------- ---------
Total liabilities 565,215 203,463 415,862 (342,429)
--------- --------- --------- ---------
Minority interest 3,312 7,074 -- --
--------- --------- --------- ---------
Commitments and contingencies -- -- -- --
Shareholder's equity:
Common stock 10 -- -- (10)
Additional paid-in capital 181,788 14,745 59,579 (196,533)
Cumulative translation adjustment (559) (4,878) (5,437) 5,437
Minimum pension liability adjustment (714) -- (714) 714
Retained earnings (deficit) 10,702 32,196 (46,006) (42,898)
--------- --------- --------- ---------
Total shareholder's equity 191,227 21,172 7,422 (212,399)
--------- --------- --------- ---------
Total liabilities and shareholder's equity $ 759,754 $ 231,709 $ 423,284 $(554,528)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Total
SCIS
ASSETS Consolidated
------------
Current assets:
<S> <C>
Cash and cash equivalents $ 23,210
Accounts and notes receivable, net 161,471
Advance to affiliate --
Tax refund receivable from parent --
Inventories 19,761
Deferred income taxes 8,915
Prepaid expenses 18,406
---------
Total current assets 231,763
Property and equipment, net 196,138
Deferred income taxes 58,554
Goodwill and intangible assets, net 249,142
Investment in affiliates 21,375
Loan to affiliate 44,965
Other assets 57,982
---------
Total assets $ 859,919
=========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 68,493
Accrued expenses 179,015
Taxes payable to parent 1,402
Payable to affiliate 3,970
Current portion of long-term debt 5,214
Current portion of obligations
under capital leases 383
---------
Total current liabilities 258,477
Obligations under capital leases 29,829
Long-term debt 391,478
Deferred income taxes --
Other long-term liabilities 162,327
---------
Total liabilities 842,111
---------
Minority interest 10,386
---------
Commitments and contingencies --
Shareholder's equity:
Common stock --
Additional paid-in capital 59,579
Cumulative translation adjustment (5,437)
Minimum pension liability adjustment (714)
Retained earnings (deficit) (46,006)
---------
Total shareholder's equity 7,422
---------
Total liabilities and shareholder's equity $ 859,919
=========
</TABLE>
F-33
<PAGE> 93
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Combined Combined SC International
Guarantor Non-Guarantor Services, Inc. Elimination
ASSETS Subsidiaries Subsidiaries (Parent Only) Entries
------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,399 $ 9,862 $ 32,056 $ --
Accounts and notes receivable, net 87,807 57,837 4,525 (1,760)
Advance to affiliate -- 237,527 (237,527)
Tax refund receivable from parent 1,893 -- -- --
Inventories 10,204 7,008 938 --
Deferred income taxes 6,167 938 -- --
Prepaid expenses 10,698 6,406 -- --
--------- --------- --------- ---------
Total current assets 118,168 82,051 275,046 (239,287)
Property and equipment, net 103,839 86,673 94 --
Deferred income taxes 39,816 -- 9,343 (3,353)
Goodwill and intangible assets, net 282,379 498 -- (37,653)
Investment in affiliates 197,376 1,144 45,558 (231,278)
Loan to affiliate -- -- 41,634 --
Other assets 43,125 2,906 19,440 3,596
--------- --------- --------- ---------
Total assets $ 784,703 $ 173,272 $ 391,115 $(507,975)
========= ========= ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 46,607 $ 15,748 $ 362 $ 6,195
Accrued expenses 121,504 53,219 -- --
Taxes payable to parent -- -- -- --
Payable to affiliate 208,761 24,371 -- (228,627)
Current portion of long-term debt -- 15,836 10,787 (10,941)
Current portion of obligations
under capital leases 387 247 -- --
--------- --------- --------- ---------
Total current liabilities 377,259 109,421 11,149 (233,373)
Obligations under capital leases 26,950 2,807 -- --
Long-term debt 18,697 6,197 327,959 (18,697)
Deferred income taxes -- 3,353 -- (3,353)
Other long-term liabilities 157,104 8,631 5,276 (14,614)
--------- --------- --------- ---------
Total liabilities 580,010 130,409 344,384 (270,037)
--------- --------- --------- ---------
Minority interest 9,618 -- -- --
--------- --------- --------- ---------
Commitments and contingencies -- -- -- --
Shareholder's equity:
Common stock 10 -- -- (10)
Additional paid-in capital 175,023 11,187 59,579 (186,210)
Cumulative translation adjustment (807) (2,990) (3,797) 3,797
Minimum pension liability adjustment (330) -- (330) 330
Retained earnings (deficit) 21,179 34,666 (8,721) (55,845)
--------- --------- --------- ---------
Total shareholder's equity 195,075 42,863 46,731 (237,938)
--------- --------- --------- ---------
Total liabilities and shareholder's equity $ 784,703 $ 173,272 $ 391,115 $(507,975)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Total
SCIS
ASSETS Consolidated
------------
<S> <C>
Current assets:
Cash and cash equivalents $ 43,317
Accounts and notes receivable, net 148,409
Advance to affiliate --
Tax refund receivable from parent 1,893
Inventories 18,150
Deferred income taxes 7,105
Prepaid expenses 17,104
---------
Total current assets 235,978
Property and equipment, net 190,606
Deferred income taxes 45,806
Goodwill and intangible assets, net 245,224
Investment in affiliates 12,800
Loan to affiliate 41,634
Other assets 69,067
---------
Total assets $ 841,115
=========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 68,912
Accrued expenses 174,723
Taxes payable to parent --
Payable to affiliate 4,505
Current portion of long-term debt 15,682
Current portion of obligations
under capital leases 634
---------
Total current liabilities 264,456
Obligations under capital leases 29,757
Long-term debt 334,156
Deferred income taxes --
Other long-term liabilities 156,397
---------
Total liabilities 784,766
---------
Minority interest 9,618
---------
Commitments and contingencies --
Shareholder's equity:
Common stock --
Additional paid-in capital 59,579
Cumulative translation adjustment (3,797)
Minimum pension liability adjustment (330)
Retained earnings (deficit) (8,721)
---------
Total shareholder's equity 46,731
---------
Total liabilities and shareholder's equity $ 841,115
=========
</TABLE>
F-34
<PAGE> 94
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 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 $ 1,063,221 $ 577,615 $ -- $(38,013) $ 1,602,823
----------- --------- -------- -------- -----------
Costs and expenses:
Cost of operations 953,552 528,418 232 (38,013) 1,444,189
Depreciation and amortization 31,091 11,087 14 -- 42,192
Selling, general and administrative 26,946 19,439 6,012 -- 52,397
Integration expenses 11,087 6,903 -- -- 17,990
----------- --------- -------- -------- -----------
Total costs and expenses 1,022,676 565,847 6,258 (38,013) 1,556,768
----------- --------- -------- -------- -----------
Operating income (loss) 40,545 11,768 (6,258) -- 46,055
----------- --------- -------- -------- -----------
Other income (expense):
Interest income 799 8,418 5,299 (7,967) 6,549
Interest expense (22,310) (11,741) (26,273) 7,967 (52,357)
Minority interest (2,056) (3,587) -- -- (5,643)
Other (1,865) (2,432) (14,521) 12,947 (5,871)
----------- --------- -------- -------- -----------
Total other expense (25,432) (9,342) (35,495) 12,947 (57,322)
----------- --------- -------- -------- -----------
Income (loss) before income taxes 15,113 2,426 (41,753) 12,947 (11,267)
Provision (benefit) for income taxes 4,845 4,896 (4,468) -- 5,273
Extraordinary loss, net of income taxes -- -- (20,745) -- (20,745)
----------- --------- -------- -------- -----------
Net Income (loss) $ 10,268 $ (6,159) $(58,030) $ 12,947 $ (37,285)
=========== ========= ======== ======== ===========
</TABLE>
F-35
<PAGE> 95
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
<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>
Revenues $ 1,007,155 $ 563,678 $ -- $(41,017) $ 1,529,816
----------- --------- -------- -------- -----------
Costs and expenses:
Cost of operations 905,770 510,921 406 (41,017) 1,376,080
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
----------- --------- -------- -------- -----------
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)
Minority interest (220) (2,793) -- -- (3,013)
Other 1,394 (9,624) 3,282 3,282 (1,666)
----------- --------- -------- -------- -----------
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
Extraordinary loss, net of income taxes -- -- -- -- --
----------- --------- -------- -------- -----------
Net Income (loss) $ (4,389) $ 1,107 $(11,041) $ 3,282 $ (11,041)
=========== ========= ======== ======== ===========
</TABLE>
F-36
<PAGE> 96
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONSOLIDATING STATEMENTS OF OPERATIONS
<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 536,223 146,707 -- (18,673) 664,257
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
--------- --------- -------- -------- ---------
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)
Minority interest -- (1,127) -- -- (1,117)
Other (1,887) 5,276 (13,551) 9,180 (982)
--------- --------- -------- -------- ---------
Total other 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)
Extraordinary loss, net of income taxes -- -- -- -- --
--------- --------- -------- -------- ---------
Net Income (loss) $ (8,888) $ (292) $(16,044) $ 9,180 $ (16,044)
========= ========= ======== ======== =========
</TABLE>
F-37
<PAGE> 97
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------------------------------------
Combined Combined SC International
Guarantor Non-Guarantor Services, Inc. Elimination
Subsidiaries Subsidiaries (Parent Only) Entries
------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities: $ 4,969 $ 4,260 $ 9,168 $ --
-------- -------- --------- ---------
Cash flows from investing activities:
Acquisition of businesses -- -- (35,273) --
Purchase of property and equipment (23,771) (9,703) (77) --
Advances from (to) affiliates 13,288 14,363 (28,186) --
Other -- -- -- --
-------- -------- --------- ---------
Net cash used in investing activities (10,483) 4,660 (63,536) --
-------- -------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- -- 90,000 --
Proceeds from issuance of notes -- -- 300,000 --
Payment of long-term debt and obligations under
capital leases 43 (4,397) (213,971) --
Payment of notes -- -- (125,000)
Borrowing (repayments) of foreign bank overdrafts -- (1,312) -- --
Purchase of employee stock loans from an affiliate -- -- -- --
Dividends -- (4,180) -- --
Deferred financing costs -- -- (13,623) --
Net change in (payable to) and receivable from parent 6,765 (3,470) -- --
-------- -------- --------- ---------
Net cash provided by (used in) financing activities 6,808 (13,359) 37,406 --
-------- -------- --------- ---------
Increase in cash and cash equivalents 1,294 (4,439) (16,962) --
Cash and cash equivalents, beginning of period 1,399 9,862 32,056 --
-------- -------- --------- ---------
Cash and cash equivalents, end of period $ 2,693 $ 5,423 $ 15,094 $ --
======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------
Total
SCIS
Consolidated
------------
<S> <C>
Cash flows from operating activities: $ 18,397
---------
Cash flows from investing activities:
Acquisition of businesses (35,273)
Purchase of property and equipment (33,551)
Advances from (to) affiliates (535)
Other --
---------
Net cash used in investing activities (69,359)
---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 90,000
Proceeds from issuance of notes 300,000
Payment of long-term debt and obligations under
capital leases (218,325)
Payment of notes (125,000)
Borrowing (repayments) of foreign bank overdrafts (1,312)
Purchase of employee stock loans from an affiliate --
Dividends (4,180)
Deferred financing costs (13,623)
Net change in (payable to) and receivable from parent 3,295
---------
Net cash provided by (used in) financing activities 30,855
---------
Increase in cash and cash equivalents (20,107)
Cash and cash equivalents, beginning of period 43,317
---------
Cash and cash equivalents, end of period $ 23,210
=========
</TABLE>
F-38
<PAGE> 98
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1996
-----------------------------------------------
Combined Combined SC International
Guarantor Non-Guarantor Services, Inc.
Subsidiaries Subsidiaries (Parent Only)
------------ ------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities: $ 43,063 $ 348 $ 30,263
-------- -------- --------
Cash flows from investing activities:
Acquisition of businesses -- -- --
Purchase of property and equipment (31,477) (5,329) (94)
Advances from (to) affiliates (38,310) 5,773 --
Other -- -- --
-------- -------- --------
Net cash used in investing activities (69,787) 444 (94)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- -- --
Proceeds from issuance of notes -- -- --
Payment of long-term debt and obligations under
capital leases (645) (198) (10,987)
Payment of notes -- -- --
Borrowing (repayments) of foreign bank overdrafts -- (1,609) --
Purchase of employee stock loans from an affiliate -- -- --
Dividends 3,948 (7,363) --
Deferred financing costs -- -- --
Net change in (payable to) and receivable from parent -- 6,438 --
-------- -------- --------
Net cash provided by (used in) financing activities 3,303 (2,732) (10,987)
-------- -------- --------
Increase in cash and cash equivalents (23,421) (1,940) 19,182
Cash and cash equivalents, beginning of period 24,820 11,802 12,874
-------- -------- --------
Cash and cash equivalents, end of period $ 1,399 $ 9,862 $ 32,056
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------
Total
Elimination SCIS
Entries Consolidated
----------- ------------
<S> <C> <C>
Cash flows from operating activities: $(38,085) $ 35,589
-------- --------
Cash flows from investing activities:
Acquisition of businesses -- --
Purchase of property and equipment -- (36,900)
Advances from (to) affiliates 38,085 5,548
Other -- --
-------- --------
Net cash used in investing activities 38,085 (31,352)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- --
Proceeds from issuance of notes -- --
Payment of long-term debt and obligations under
capital leases -- (11,830)
Payment of notes --
Borrowing (repayments) of foreign bank overdrafts -- (1,609)
Purchase of employee stock loans from an affiliate -- --
Dividends -- (3,415)
Deferred financing costs -- --
Net change in (payable to) and receivable from parent -- 6,438
-------- --------
Net cash provided by (used in) financing activities -- (10,416)
-------- --------
Increase in cash and cash equivalents -- (6,179)
Cash and cash equivalents, beginning of period -- 49,496
-------- --------
Cash and cash equivalents, end of period $ -- $ 43,317
======== ========
</TABLE>
F-39
<PAGE> 99
SC INTERNATIONAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
21. GUARANTOR CONSOLIDATING FINANCIAL STATEMENTS - (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-------------------------------------------------------------
Combined Combined SC International
Guarantor Non-Guarantor Services, Inc. Elimination
Subsidiaries Subsidiaries (Parent Only) Entries
------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities: $ 45,351 $ 16,290 $ 2,635 $(10,501)
-------- --------- --------- --------
Cash flows from investing activities:
Acquisition of businesses (41,219) (173,811) 3,879 --
Purchase of property and equipment (7,180) (2,395) -- --
Advances from (to) affiliates 51,242 206,524 (307,098) 10,501
Other 412 -- -- --
-------- --------- --------- --------
Net cash used in investing activities 3,255 30,318 (303,219) 10,501
-------- --------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- -- 225,000 --
Proceeds from issuance of notes -- -- 125,000 --
Payment of long-term debt and obligations under
capital leases (17,792) (37,631) (267) --
Payment of notes -- -- -- --
Borrowing (repayments) of foreign bank overdrafts -- 1,502 -- --
Purchase of employee stock loans from an affiliate (6,661) -- -- --
Dividends (10,465) -- -- --
Deferred financing costs -- -- (17,337) --
Net change in (payable to) and receivable from parent -- -- (18,938) --
-------- --------- --------- --------
Net cash provided by (used in) financing activities (34,918) (36,129) 313,458 --
-------- --------- --------- --------
Increase in cash and cash equivalents 13,688 10,479 12,874 --
Cash and cash equivalents, beginning of period 11,132 1,323 -- --
-------- --------- --------- --------
Cash and cash equivalents, end of period $ 24,820 $ 11,802 $ 12,874 $ --
======== ========= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
----------------------------
Total
SCIS
Consolidated
------------
<S> <C>
Cash flows from operating activities: $ 53,775
---------
Cash flows from investing activities:
Acquisition of businesses (211,151)
Purchase of property and equipment (9,575)
Advances from (to) affiliates (38,831)
Other 412
---------
Net cash used in investing activities (259,145)
---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 225,000
Proceeds from issuance of notes 125,000
Payment of long-term debt and obligations under
capital leases (55,690)
Payment of notes --
Borrowing (repayments) of foreign bank overdrafts 1,502
Purchase of employee stock loans from an affiliate (6,661)
Dividends (10,465)
Deferred financing costs (17,337)
Net change in (payable to) and receivable from parent (18,938)
---------
Net cash provided by (used in) financing activities 242,411
---------
Increase in cash and cash equivalents 37,041
Cash and cash equivalents, beginning of period 12,455
---------
Cash and cash equivalents, end of period $ 49,496
=========
</TABLE>
F-40
<PAGE> 100
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SC INTERNATIONAL SERVICES, INC.
Date: March 26, 1998 By: /s/ Patrick W. Tolbert
------------------------------------
Patrick W. Tolbert
Executive Vice President and Chief
Financial and Administrative Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James J. O'Neill Director, Chief March 26, 1998
- ------------------------- Executive Officer
James J. O'Neill and Acting Chairman of
the Board (principal
executive officer)
/s/ Patrick W. Tolbert Director, Executive Vice March 26, 1998
- ------------------------- President and Chief
Patrick W. Tolbert Financial and
Administrative Officer
(principal financial
officer)
/s/ Daniel J. Altobello Director March 23, 1998
- -------------------------
Daniel J. Altobello
/s/ Gerald W. Schwartz Director March 25, 1998
- -------------------------
Gerald W. Schwartz
/s/ Ewout Heersink Director March 25, 1998
- --------------------------
Ewout Heersink
/s/ Helmut Woelki Director March 30, 1998
- --------------------------
Helmut Woelki
/s/ Gunther Rothig Director March 30, 1998
- --------------------------
Gunther Rothig
/s/ Helmut Bleckman Director March 30, 1998
- --------------------------
Helmut Bleckman
/s/ Michael Z. Kay Director March 26, 1998
- --------------------------
Michael Z. Kay
<PAGE> 101
Signature Title Date
--------- ----- ----
/s/ William S. Woodside Director March 25, 1998
- -------------------------
William S. Woodside
/s/ Thomas J. Lee Director -- Financial March 20, 1998
- ------------------------- Accounting
Thomas J. Lee (principal accounting
officer)
<PAGE> 102
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SKY CHEFS, INC.
March 26, 1998 By:
/s/ Patrick W. Tolbert
------------------------------------
Name: Patrick W. Tolbert
Title: Executive Vice President and
Chief
Financial and Administrative
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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/ Michael Z. Kay Director, President and March 26, 1998
- --------------------------------------------------- Chief Executive Officer
Michael Z. Kay (principal executive
officer)
/s/ Patrick W. Tolbert Director, Executive Vice March 26, 1998
- --------------------------------------------------- President and Chief
Patrick W. Tolbert Financial and
Administrative Officer
(principal financial
officer)
/s/ Gerald W. Schwartz Director March 25, 1998
- ---------------------------------------------------
Gerald W. Schwartz
/s/ Ewout Heersink Director March 25, 1998
- ---------------------------------------------------
Ewout Heersink
/s/ Helmut Woelki Director March 30, 1998
- ---------------------------------------------------
Helmut Woelki
/s/ Gunther Rothig Director March 30, 1998
- ---------------------------------------------------
Gunther Rothig
/s/ Helmut Bleckmann Director March 30, 1998
- ---------------------------------------------------
Helmut Bleckmann
/s/ William S. Woodside Director March 27, 1998
- ---------------------------------------------------
William S. Woodside
/s/ Thomas J. Lee Director -- Financial March 20, 1998
- --------------------------------------------------- Accounting (principal
Thomas J. Lee accounting officer)
</TABLE>
<PAGE> 103
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATERAIR INTERNATIONAL, INC. (II)
March 26, 1998 By: /s/ James J. O'Neill
------------------------------------
Name: James J. O'Neill
Title: Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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/ James J. O'Neill Director and Chairman of the March 26, 1998
- ------------------------------------------ Board (principal executive,
James J. O'Neill financial and accounting
officer)
/s/ Eric J. Rosen Director March 18, 1998
- ------------------------------------------
Eric J. Rosen
/s/ J. Thomas Markley Director March 17, 1998
- ------------------------------------------
J. Thomas Markley
/s/ Aaron Gellman Director March 22, 1998
- ------------------------------------------
Aaron Gellman
</TABLE>
<PAGE> 104
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ARLINGTON SERVICES, INC.
March 20, 1998 By: /s/ Thomas J. Lee
-----------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Norman J. Shuman Director, Vice President March 18, 1998
- ------------------------------------------ and Treasurer
Norman J. Shuman
/s/ Donald F. West Director and Secretary March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ARLINGTON SERVICES HOLDING CORPORATION
March 20, 1998 By: /s/ Thomas J. Lee
-----------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Norman J. Shuman Director, Vice President and March 18, 1998
- ------------------------------------------ Treasurer
Norman J. Shuman
/s/ Donald F. West Director and Secretary March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 106
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BETHESDA SERVICES, INC.
March 20, 1998 By: /s/ Donald F. West
------------------------------------
Name: Donald F. West
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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/ Donald F. West Director, President and March 20, 1998
- ------------------------------------------ Secretary (principal
Donald F. West executive, financial and
accounting officer)
/s/ Norman J. Shuman Director, Vice President and March 18, 1998
- ------------------------------------------ Treasurer
Norman J. Shuman
</TABLE>
<PAGE> 107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATERAIR NEW ZEALAND LIMITED
March 20, 1998 By: /s/ Donald F. West
------------------------------------
Name: Donald F. West
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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/ Donald F. West Director, President and Secretary March 20, 1998
- ------------------------------------------ (principal executive, financial
Donald F. West and accounting officer)
/s/ Norman J. Shuman Director, Vice President and March 18, 1998
- ------------------------------------------ Treasurer
Norman J. Shuman
</TABLE>
<PAGE> 108
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JFK CATERERS, INC.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
<PAGE> 109
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATERAIR CONSULTING SERVICES
CORPORATION
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
<PAGE> 110
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
WESTERN AIRE CHEF, INC.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Daniel J. Altobello Director March 23, 1998
- ------------------------------------------
Daniel J. Altobello
/s/ Patrick W. Tolbert Director March 26, 1998
- ------------------------------------------
Patrick W. Tolbert
/s/ Donald F. West Director March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 111
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATERAIR ST. THOMAS HOLDINGS
CORPORATION
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
<PAGE> 112
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATERAIR INTERNATIONAL TRANSITION
CORPORATION
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
</TABLE>
<PAGE> 113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SKY CHEFS ARGENTINE, INC.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 executive, March 20, 1998
Thomas J. Lee financial and accounting
officer)
/s/ Patrick W. Tolbert Director March 26, 1998
- ------------------------------------------
Patrick W. Tolbert
</TABLE>
<PAGE> 114
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CATERAIR AIRPORT PROPERTIES, INC.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- --------------------------------------------- (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Daniel J. Altobello Director March 23, 1998
- ---------------------------------------------
Daniel J. Altobello
/s/ Patrick W. Tolbert Director and Vice President March 26, 1998
- ---------------------------------------------
Patrick W. Tolbert
/s/ Donald F. West Director and Secretary March 20, 1998
- ---------------------------------------------
Donald F. West
</TABLE>
<PAGE> 115
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SKY CHEFS INTERNATIONAL CORP.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Michael Z. Kay Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
Michael Z. Kay
/s/ Patrick W. Tolbert Director and Vice President March 26, 1998
- ------------------------------------------
Patrick W. Tolbert
/s/ James J. O'Neill Director and Vice President March 26, 1998
- ------------------------------------------
James J. O'Neill
</TABLE>
<PAGE> 116
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO FINANCE CORP.
March 20, 1998 By: /s/ Thomas J. Lee
-----------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 117
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO FINANCE CORP. II
March 20, 1998 By: /s/ Thomas J. Lee
-----------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ executive, financial and
Thomas J. Lee accounting officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 118
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO EQUITY CORP.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ executive, financial and
Thomas J. Lee accounting officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 119
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO EQUITY CORP. II
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Ewout Heersink Director March 25, 1998
- ------------------------------------------
Ewout Heersink
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 120
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO CREDIT CORP.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO CREDIT CORP. II
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Ewout Heersink Director March 25, 1998
- ------------------------------------------
Ewout Heersink
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 122
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO ACCEPTANCE CORPORATION
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 123
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO CAPITAL CORP.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 124
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO CAPITAL CORP. II
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Ewout Heersink Director March 25, 1998
- ------------------------------------------
Ewout Heersink
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 125
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO FISCAL CORP.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 126
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO FISCAL CORP. II
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Ewout Heersink Director March 25, 1998
- ------------------------------------------
Ewout Heersink
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 127
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO FUNDS CORP.
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Ewout Heersink Director March 25, 1998
- ------------------------------------------
Ewout Heersink
/s/ James J. O'Neill Director, Vice President, March 28, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 128
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ONEX OHIO FUNDS CORP. II
March 20, 1998 By: /s/ Thomas J. Lee
------------------------------------
Name: Thomas J. Lee
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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 March 20, 1998
- ------------------------------------------ (principal executive,
Thomas J. Lee financial and accounting
officer)
/s/ Anthony Melman Director March 19, 1998
- ------------------------------------------
Anthony Melman
/s/ James J. O'Neill Director, Vice President, March 26, 1998
- ------------------------------------------ Treasurer and Secretary
James J. O'Neill
/s/ Donald F. West Director and Vice President March 20, 1998
- ------------------------------------------
Donald F. West
</TABLE>
<PAGE> 129
EXHIBIT INDEX
-------------
Exhibit
Number Description of Exhibit
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-l, Registration No. 33-94572.
2.1.1 Amendment No. 1, dated as of September 29, 1995, to 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
2.1.1 of SC International Services, Inc.'s Registration
Statement on Form S-l, Registration No. 33-94572.
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.
<PAGE> 130
Exhibit
Number Description of Exhibit
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-l,
Registration No. 33-94572.
3.2 Amended and Restated Bylaws of SC International Services, Inc.
Incorporated by reference to Exhibit 3.2 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
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-l, 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-l, 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-l, 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-l, Registration No. 33-94572.
3.7 Certificate of Incorporation of Arlington Services, Inc.
Incorporated by reference to Exhibit 3.9 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.8 Bylaws of Arlington Services, Inc. Incorporated by reference to
Exhibit 3.10 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.9 Certificate of Incorporation of Arlington Services Holding
Corporation. Incorporated by reference to Exhibit 3.11 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.10 Bylaws of Arlington Services Holding Corporation. Incorporated
by reference to Exhibit 3.12 of SC International Services,
Inc.'s Registration Statement on Form S-4, Registration Number
333-37475.
3.11 Certificate of Incorporation of JFK Caterers, Inc. Incorporated
by reference to Exhibit 3.13 of SC International Services,
Inc.'s Registration Statement on Form S-4, Registration Number
333-37475.
3.12 Bylaws of JFK Caterers, Inc. Incorporated by reference to
Exhibit 3.14 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.13 Certificate of Incorporation of Caterair Consulting Services
Corporation. Incorporated by reference to Exhibit 3.15 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.14 Bylaws of Caterair Consulting Services Corporation.
Incorporated by reference to Exhibit 3.16 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
<PAGE> 131
Exhibit
Number Description of Exhibit
3.15 Certificate of Incorporation of Western Aire Chef, Inc.
Incorporated by reference to Exhibit 3.17 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.16 Bylaws of Western Aire Chef, Inc. Incorporated by reference to
Exhibit 3.18 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.17 Certificate of Incorporation of Bethesda Services, Inc.
Incorporated by reference to Exhibit 3.19 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.18 Bylaws of Bethesda Services, Inc. Incorporated by reference to
Exhibit 3.20 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.19 Certificate of Incorporation of Caterair New Zealand Limited.
Incorporated by reference to Exhibit 3.21 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.20 Bylaws of Caterair New Zealand Limited. Incorporated by
reference to Exhibit 3.22 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.21 Certificate of Incorporation of Onex Ohio Finance Corp.
Incorporated by reference to Exhibit 3.23 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.22 Bylaws of Onex Ohio Finance Corp. Incorporated by reference to
Exhibit 3.24 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.23 Certificate of Incorporation of Onex Ohio Finance Corp. II.
Incorporated by reference to Exhibit 3.25 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.24 Bylaws of Onex Ohio Finance Corp. II. Incorporated by reference
to Exhibit 3.26 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.25 Certificate of Incorporation of Onex Ohio Equity Corp.
Incorporated by reference to Exhibit 3.27 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.26 Bylaws of Onex Ohio Equity Corp. Incorporated by reference to
Exhibit 3.28 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.27 Certificate of Incorporation of Onex Ohio Equity Corp. II.
Incorporated by reference to Exhibit 3.29 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
<PAGE> 132
Exhibit
Number Description of Exhibit
3.28 Bylaws of Onex Ohio Equity Corp. II. Incorporated by reference
to Exhibit 3.30 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.29 Certificate of Incorporation of Onex Ohio Credit Corp.
Incorporated by reference to Exhibit 3.31 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.30 Bylaws of Onex Ohio Credit Corp. Incorporated by reference to
Exhibit 3.32 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.31 Certificate of Incorporation of Onex Ohio Credit Corp. II.
Incorporated by reference to Exhibit 3.33 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.32 Bylaws of Onex Ohio Credit Corp. II. Incorporated by reference
to Exhibit 3.34 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.33 Certificate of Incorporation of Onex Ohio Acceptance
Corporation. Incorporated by reference to Exhibit 3.35 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.34 Bylaws of Onex Ohio Acceptance Corporation. Incorporated by
reference to Exhibit 3.36 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.35 Certificate of Incorporation of Onex Ohio Capital Corp.
Incorporated by reference to Exhibit 3.37 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.36 Bylaws of Onex Ohio Capital Corp. Incorporated by reference to
Exhibit 3.38 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.37 Certificate of Incorporation of Onex Ohio Capital Corp. II.
Incorporated by reference to Exhibit 3.39 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.38 Bylaws of Onex Ohio Capital Corp. II. Incorporated by reference
to Exhibit 3.40 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.39 Certificate of Incorporation of Onex Ohio Fiscal Corp.
Incorporated by reference to Exhibit 3.41 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.40 Bylaws of Onex Ohio Fiscal Corp. Incorporated by reference to
Exhibit 3.42 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
<PAGE> 133
Exhibit
Number Description of Exhibit
3.41 Certificate of Incorporation of Onex Ohio Fiscal Corp. II.
Incorporated by reference to Exhibit 3.43 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.42 Bylaws of Onex Ohio Fiscal Corp. II. Incorporated by reference
to Exhibit 3.44 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.43 Certificate of Incorporation of Onex Ohio Funds Corp.
Incorporated by reference to Exhibit 3.45 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.44 Bylaws of Onex Ohio Funds Corp. Incorporated by reference to
Exhibit 3.46 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.45 Certificate of Incorporation of Onex Ohio Funds Corp. II.
Incorporated by reference to Exhibit 3.47 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.46 Bylaws of Onex Ohio Funds Corp. II. Incorporated by reference
to Exhibit 3.48 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.47 Certificate of Incorporation of Caterair International
Transition Corporation. Incorporated by reference to Exhibit
3.49 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
3.48 Bylaws of Caterair International Transition Corporation.
Incorporated by reference to Exhibit 3.50 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.49 Certificate of Incorporation of Sky Chefs International Corp.
Incorporated by reference to Exhibit 3.51 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.50 Bylaws of Sky Chefs International Corp. Incorporated by
reference to Exhibit 3.52 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.51 Certificate of Incorporation of Caterair Airport Properties,
Inc. Incorporated by reference to Exhibit 3.53 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
3.52 Bylaws of Caterair Airport Properties, Inc. Incorporated by
reference to Exhibit 3.54 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
3.53 Certificate of Incorporation of Caterair St. Thomas Holdings
Corporation. Incorporated by reference to Exhibit 3.55 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
<PAGE> 134
Exhibit
Number Description of Exhibit
3.54 Bylaws of Caterair St. Thomas Holdings Corporation.
Incorporated by reference to Exhibit 3.56 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.55 Certificate of Incorporation of Sky Chefs Argentine Inc.
Incorporated by reference to Exhibit 3.57 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
3.56 Bylaws of Sky Chefs Argentine Inc. Incorporated by reference to
Exhibit 3.58 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
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. Incorporated by reference to
Exhibit 4.1 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
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. Incorporated by reference to Exhibit 10.1 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
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.
Incorporated by reference to Exhibit 10.2 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
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. Incorporated by reference to
Exhibit 10.3 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.4 Depositary Agreement, dated as of August 25, 1997, between SC
International Services, Inc. and The Bank of New York, as
Depositary. Incorporated by reference to Exhibit 10.4 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
10.5 Exchange Agent Agreement , dated December 29, 1997, 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-l, 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.
<PAGE> 135
Exhibit
Number Description of Exhibit
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-l, 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-l, 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-l, 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-l, 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-l, 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. Incorporated by reference to Exhibit 10.13 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
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-l, 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-l, 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-l, 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-l,
Registration No. 33-94572.
<PAGE> 136
Exhibit
Number Description of Exhibit
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-l, Registration No. 33-94572.
10.19 Employment Agreement, dated as of January 1, 1997, between
James J. O'Neill and Onex Food Services, Inc. Incorporated by
reference to Exhibit 10.19 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.20 Employment Agreement, dated as of January 1, 1997, between
Michael Z. Kay and Sky Chefs, Inc. Incorporated by reference to
Exhibit 10.20 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.21 Employment Agreement, dated as of January 1, 1997, between
Patrick W. Tolbert and Sky Chefs, Inc. Incorporated by
reference to Exhibit 10.21 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.22 Employment Agreement, dated as of January 1, 1997, between
Randall C. Boyd and Sky Chefs, Inc. Incorporated by reference
to Exhibit 10.22 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.23 Management Advisory Agreement, dated as of September 29, 1995,
between OMI Partnership Holdings Ltd. and SC International
Services Inc. Incorporated by reference to Exhibit 10.26 of SC
International Services, Inc.'s Registration Statement on Form
S-4, Registration Number 333-37475.
10.24 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.
Incorporated by reference to Exhibit 10.34 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.25 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. Incorporated by
reference to Exhibit 10.35 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.26 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.
10.27 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.
Incorporated by reference to Exhibit 10.37 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
<PAGE> 137
Exhibit
Number Description of Exhibit
10.28 Acquisition Agreement, dated as of November 30, 1995, between
LSG Lufthansa Service USA Corporation and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.38 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.29 Acquisition Agreement, dated as of August 14, 1995, between LSG
Lufthansa Service USA Corporation and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.39 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.30 Acquisition Agreement, dated July 18, 1997, between Caterair
International, Inc. (II) and Sky Chefs, Inc. Incorporated by
reference to Exhibit 10.40 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.31 Acquisition Agreement, dated as of August 29, 1997, between
Caterair International, Inc. (II) and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.41 of SC International
Services, Inc.'s Registration Statement on Form S-4,
Registration Number 333-37475.
10.32 Acquisition Agreement, dated as of January 23, 1998, between
Caterair International, Inc. (II) and Sky Chefs, Inc.
10.33 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.
10.34 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.
10.35 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. Incorporated by reference to
Exhibit 10.27 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.1 First Amendment to Lease Agreement, dated as of September 22,
1995, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.1 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 33-37475.
10.35.2 Second Amendment to Lease Agreement, dated as of December 1,
1995, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.2 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.3 Third Amendment to Lease Agreement, dated as of June 1, 1996,
between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.3 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
<PAGE> 138
Exhibit
Number Description of Exhibit
10.35.4 Fourth Amendment to Lease Agreement, dated as of December 23,
1996, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.4 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997,
between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.5 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.6 Sixth Amendment to Lease Agreement, dated as of August 22,
1997, between TriNet Essential Facilities X, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.6 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.35.7 Limited Waiver, dated as of August 22, 1997, by TriNet
Essential Facilities VIII R, Inc., in favor of Caterair
International Corporation. Incorporated by reference to Exhibit
10.27.7 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration No. 333-37475.
10.36 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. Incorporated by reference to
Exhibit 10.28 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.36.1 First Amendment to Lease Agreement, dated as of September 22,
1995, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.1 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.2 Second Amendment to Lease Agreement, dated as of December 1,
1995 between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.2 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.3 Third Amendment to Lease Agreement, dated as of June 1, 1996,
between TriNet Essential Facilities VIII R, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.28.3 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.36.4 Fourth Amendment to Lease Agreement, dated as of December 23,
1996, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.4 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.5 Fifth Amendment to Lease Agreement, dated as of June 23, 1997,
between TriNet Essential Facilities VIII R, Inc. and Caterair
International Corporation. Incorporated by reference to Exhibit
10.28.5 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
<PAGE> 139
Exhibit
Number Description of Exhibit
10.36.6 Sixth Amendment to Lease Agreement, dated as of August 22,
1997, between TriNet Essential Facilities VIII R, Inc. and
Caterair International Corporation. Incorporated by reference
to Exhibit 10.28.6 of SC International Services, Inc.'s
Registration Statement on Form S-4, Registration Number
333-37475.
10.36.7 Limited Waiver, dated as of August 22, 1997, by TriNet
Essential Facilities VIII R, Inc. in favor of Caterair
International Corporation. Incorporated by reference to Exhibit
10.28.7 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.37 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. Incorporated by reference to
Exhibit 10.29 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.38 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. Incorporated by reference to
Exhibit 10.30 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Number 333-37475.
10.39 Indenture, dated as of September 15, 1995, among SC
International Services, Inc., as Issuer, the guarantors named
therein, and The Bank of New York, as trustee, relating to SC
International Services, Inc.'s 13% Senior Subordinated Notes
due 2005, with form of Senior Subordinated Note and Guarantee
included therewith. Incorporated by reference to Exhibit No.
10.23 of SC International Services, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
10.40 Phantom Stock Plan for Management Employees of Onex Food
Services, Inc. and its Subsidiaries. Incorporated by reference
to Exhibit 10.16 of SC International Services, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31,
1995.
10.41 Promissory Note, dated September 29, 1995, by Caterair
International Corporation payable to the order of SC
International Services, Inc. Incorporated by reference to
Exhibit 10.29 of SC International Services, Inc's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
10.42 Noncompetition Agreement, dated as of September 29, 1995,
between Caterair International Corporation and Sky Chefs, Inc.
Incorporated by reference to Exhibit 10.28 of SC International
Services, Inc's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
10.43 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.
10.44 Amendment No. 1 to Caterair Key Employee Retention Plan.
Incorporated by reference to Exhibit No. 10.11.1 of SC
International Services, Inc.'s Registration Statement on Form
S-1, Registration No. 33-94572.
<PAGE> 140
Exhibit
Number Description of Exhibit
10.45 Caterair International Corporation Transition Severance Plan.
Incorporated by reference to Exhibit 10.26 of SC International
Services, Inc.'s Registration Statement on Form S-1,
Registration No. 33-94572.
10.46 Caterair 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 24 of
Caterair International Corporation's Registration Statement on
Form S-1, Registration Statement No. 33-31309.
10.47 Acquisition Agreement, dated as of March 19, between Caterair
International, Inc. (II) and Sky Chefs, Inc.
21.1 Subsidiaries of the Registrants. Incorporated by reference to
Exhibit 21.1 of SC International Services, Inc.'s Registration
Statement on Form S-4, Registration Statement No. 333-37475.
27.1 Financial Data Schedules for SC International Services, Inc.
and consolidated subsidiaries for the fiscal year ended
December 31, 1997.
99 Item 8 of Caterair International Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997 on pages F-1
through F-21 thereof.
(d) See subitem (a) above.
<PAGE> 1
EXHIBIT 10.5
SC INTERNATIONAL SERVICES, INC.
524 East Lamar Blvd.
Arlington, Texas 76011
(817) 792-2123
(817) 792-2222 (Facsimile)
December 29, 1997
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street
Floor 21 West
New York, New York 10286
Re: EXCHANGE AGENT AGREEMENT
Ladies and Gentlemen:
SC International Services, Inc., a Delaware corporation (the "Issuer"),
and the Guarantors (the "Guarantors") identified in the Registration Statement
(as defined herein) propose to make an offer (the "Exchange Offer") to exchange
up to $300,000,000 aggregate principal amount of the Issuer's 9 1/4% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes") (and the related
guarantees of the Guarantors) for a like principal amount of the Issuer's
outstanding 9 1/4% Senior Subordinated Notes due 2007, Series A (the "Private
Notes") (and the related guarantees of the Guarantors). The terms and conditions
of the Exchange Offer are set forth in a prospectus (the "Prospectus") included
in the Issuer's and the Guarantors' registration statement on Form S-4 (File No.
333-37475), as amended (the "Registration Statement"), filed with the Securities
and Exchange Commission (the "Commission"), and proposed to be distributed to
all record holders of the Private Notes. The Private Notes and the Exchange
Notes are collectively referred to herein as the "Notes." Capitalized terms used
herein and not defined shall have the respective meanings ascribed to them in
the Prospectus or the Letter of Transmittal which constitutes part of the
Prospectus.
The Issuer hereby appoints The Bank of New York to act as exchange
agent (the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Issuer on or
about December 31, 1997. The Letter of Transmittal accompanying the Prospectus
is to be used by the holders of the Private Notes to accept the Exchange Offer,
and contains instructions with respect to the delivery of Private Notes
tendered.
<PAGE> 2
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
February 4, 1998, or on such later date or time to which the Issuer may extend
the Exchange Offer (the "Expiration Date"). Subject to the terms and conditions
set forth in the Prospectus, the Issuer expressly reserves the right to extend
the Exchange Offer from time to time, and may extend the Exchange Offer by
giving notice (such notice if given orally, to be confirmed in writing) to you
before 9:00 A.M., New York City time, on the next New York Stock Exchange
trading day after the previously scheduled Expiration Date.
The Issuer expressly reserves the right, in its sole discretion, to
amend or terminate the Exchange Offer, and not to accept for exchange any
Private Notes not theretofore accepted for exchange. The Issuer will give notice
(such notice if given orally, to be confirmed in writing) of any amendment,
termination or nonacceptance to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange
Offer," in the Letter of Transmittal accompanying the Prospectus, or as
specifically set forth herein; provided, however, that in no way will
your general duty to act in good faith and without gross negligence or
willful misconduct be limited by the foregoing.
2. You will establish an account with respect to the Private Notes at The
Depository Trust Company (the "Book-Entry Transfer Facility") for
purposes of the Exchange Offer within two New York Stock Exchange
trading days after the date of the Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of the Private Notes by causing
the Book-Entry Transfer Facility to transfer such Private Notes into
your account in accordance with the Book-Entry Transfer Facility's
procedures for such transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Private Notes (and confirmation of book-entry transfers of Private
Notes into your account at the Book-Entry Transfer Facility) and any
other documents delivered or mailed to you by or for holders of the
Private Notes, to ascertain whether: (i) the Letters of Transmittal,
certificates and any such other documents are duly executed and
properly completed in accordance with instructions set forth therein
and that such book-entry confirmations are in due and proper form and
contain the information required to be set forth therein, and (ii) the
Private Notes have otherwise been properly tendered. In each case where
the Letter of Transmittal or any other document has been improperly
completed or executed, or where book-entry confirmations are not in due
and proper form or omit certain information, or any of the certificates
for Private Notes are not in proper form for transfer or some other
irregularity in connection with the acceptance of the Exchange Offer
exists, you will endeavor to inform the presenters of the need for
fulfillment of all requirements and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected.
2
<PAGE> 3
4. With the approval of the Chairman, the President, the Executive Vice
President, Senior Vice President or any of the Vice Presidents of the
Issuer (such approval, if given orally, to be confirmed in writing) or
any other person designated by such an officer in writing, you are
authorized to waive any irregularities in connection with any tender of
Private Notes pursuant to the Exchange Offer.
5. Tenders of Private Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The
Exchange Offer--Procedures for Tendering," and Private Notes shall be
considered properly tendered to you only when tendered in accordance
with the procedures set forth therein. Notwithstanding the provisions
of this paragraph 5, Private Notes which the Chairman, the President,
the Executive Vice President, the Senior Vice President or any of the
Vice Presidents of the Issuer or any other officer of the Issuer
designated by any such person shall approve as having been properly
tendered shall be considered to be properly tendered (such approval, if
given orally, shall be confirmed in writing).
6. You shall advise the Issuer with respect to any Private Notes received
subsequent to the Expiration Date and accept its instructions with
respect to disposition of such Private Notes.
7. You shall accept tenders:
(a) in cases where the Private Notes are registered in two or more
names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter
of Transmittal) is acting in a fiduciary or a representative
capacity only when proper evidence of his or her authority so
to act is submitted; and
(c) from persons other than the registered holder of Private Notes
provided that customary transfer requirements, including those
regarding any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Private Notes when so indicated and
as permitted in the Letter of Transmittal and deliver certificates for Private
Notes to the transfer agent for split-up and return any untendered Private Notes
to the holder (or such other person as may be designated in the Letter of
Transmittal) as promptly as practicable after expiration or termination of the
Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Issuer will notify you (such notice if given orally, to be
confirmed in writing) of its acceptance, promptly after the Expiration
Date, of all Private Notes properly tendered and you, on behalf of the
Issuer, will exchange such Private Notes for Exchange Notes and cause
such Private Notes to be canceled. Delivery of Exchange Notes will be
made on behalf of the Issuer by you at the rate of $1,000 principal
amount of Exchange Notes for each $1,000 principal
3
<PAGE> 4
amount of the Private Notes tendered promptly after notice (such notice
if given orally, to be confirmed in writing) of acceptance of said
Private Notes by the Issuer; provided, however, that in all cases,
Private Notes tendered pursuant to the Exchange Offer will be exchanged
only after timely receipt by you of certificates for such Private Notes
(or confirmation of book-entry transfer into your account at the
Book-Entry Transfer Facility), a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) with any required
signature guarantees and any other required documents. Unless otherwise
instructed by the Issuer, you shall issue Exchange Notes only in
denominations of $1,000 or any integral multiple thereof.
9. Tenders, pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the
Prospectus and the Letter of Transmittal, Private Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time on or prior
to the Expiration Date in accordance with the terms of the Exchange
Offer.
10. The Issuer shall not be required to exchange any Private Notes tendered
if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Issuer not to exchange any Private Notes
tendered shall be given (and confirmed in writing) by the Issuer to
you.
11. If, pursuant to the Exchange Offer, the Issuer does not accept for
exchange all or part of the Private Notes tendered because of an
invalid tender, the occurrence of certain other events set forth in the
Prospectus or otherwise, you shall as soon as practicable after the
expiration or termination of the Exchange Offer return those
certificates for unaccepted Private Notes (or effect appropriate
book-entry transfer), together with any related required documents and
the Letters of Transmittal relating thereto that are in your
possession, to the persons who deposited them (or effected such
book-entry transfer).
12. All certificates for reissued Private Notes, unaccepted Private Notes
or for Exchange Notes (other than those effected by book-entry
transfer) shall be forwarded by first-class mail.
13. You are not authorized to pay or offer to pay any concessions,
commissions or other solicitation fees to any broker, dealer,
commercial bank, trust company or other nominee or to engage or use any
person to solicit tenders.
14. As Exchange Agent hereunder, you:
(a) shall have no duties or obligations other than those
specifically set forth in the Prospectus, the Letter of
Transmittal or herein, or as may be subsequently agreed to in
writing by you and the Issuer;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or
genuineness of any of the certificates for the Private Notes
deposited with you pursuant to the Exchange Offer, and will
not be required
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<PAGE> 5
to and will make no representation as to the validity, value
or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder
which might in your reasonable judgment involve any expense or
liability, unless you shall have been furnished with
reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice,
letter, telegram or other document or security delivered to
you and reasonably believed by you to be genuine and to have
been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as
to its due execution and validity and effectiveness of its
provisions, but also as to the truth and accuracy of any
information contained therein, which you shall in good faith
believe to be genuine or to have been signed or represented by
a proper person or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from any officer of the Issuer;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities, and the opinion
of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted
to be taken by you hereunder in good faith and in accordance
with the opinion of such counsel; and
(h) shall not advise any person tendering Private Notes pursuant
to the Exchange Offer as to whether to tender or refrain from
tendering all or any portion of Private Notes or as to the
market value, decline or appreciation in market value of any
Private Notes that may or may not occur as a result of the
Exchange Offer or as to the market value of the Exchange
Notes;
provided, however, that in no way will your general duty to act in good faith
and without gross negligence or willful misconduct be limited by the foregoing.
15. You shall take such action as may from time to time be requested by the
Issuer or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal
and the Notice of Guaranteed Delivery (as described in the Prospectus)
or such other forms as may be approved from time to time by the Issuer
to all persons requesting such documents and to accept and comply with
telephone requests for information relating to the Exchange Offer;
provided, that such information shall relate only to the procedures for
accepting (or withdrawing from) the Exchange Offer. The Issuer will
furnish you with copies of such documents at your request.
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<PAGE> 6
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to Thomas Lee, Director-Financial
Accounting of the Issuer (telephone number (817) 792-2281, facsimile
number (817) 792-2458) and such other person or persons as the Issuer
may request, daily (and more frequently during the week immediately
preceding the Expiration Date and if otherwise requested), up to and
including the Expiration Date, as to the aggregate principal amount of
Private Notes which have been duly tendered pursuant to the Exchange
Offer and the items received by you pursuant to the Exchange Offer and
this Agreement, separately reporting and giving cumulative totals as to
items properly received and items improperly received. In addition, you
will also inform, and cooperate in making available to, the Issuer or
any such other person or persons upon oral request made from time to
time prior to the Expiration Date of such other information as it or he
or she reasonably requests. Such cooperation shall include, without
limitation, the granting by you to the Issuer and such person as the
Issuer may request of access to those persons on your staff who are
responsible for receiving tenders, in order to ensure that immediately
prior to the Expiration Date the Issuer shall have received information
in sufficient detail to enable it to decide whether to extend the
Exchange Offer. You shall prepare a final list of all persons whose
tenders were accepted, the aggregate principal amount of Private Notes
tendered, the aggregate principal amount of Private Notes accepted and
the identity of any broker-dealer if you have knowledge that such
person is a broker-dealer who will receive Exchange Notes for its own
account in exchange for Private Notes and the aggregate principal
amount of Exchange Notes delivered to each, and deliver said list to
the Issuer.
17. Letters of Transmittal, book-entry confirmations and Notices of
Guaranteed Delivery received by you shall be preserved by you for a
period of time at least equal to the period of time you preserve other
records pertaining to the transfer of securities, or two years,
whichever is longer, and thereafter shall be delivered by you to the
Issuer. You shall dispose of unused Letters of Transmittal and other
surplus materials as instructed by the Issuer.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any,
borrowed by the Issuer, or any of its subsidiaries or affiliates
pursuant to any loan or credit agreement with you or for compensation
owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached
hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of
them. Any inconsistency between this Agreement, on the one hand, and
the Prospectus and the Letter of Transmittal (as they may be amended
from time to time), on the other hand, shall be resolved in favor of
the latter two documents, except with respect to the duties,
liabilities and indemnification of you as Exchange Agent, which shall
be controlled by this Agreement.
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<PAGE> 7
21. The Issuer covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability,
cost or expense, including reasonable attorneys' fees and expenses
arising out of or in connection with any act, omission, delay or
refusal made by you in reliance upon any signature, endorsement,
assignment, certificate, order, request, notice, instruction or other
instrument or document reasonably believed by you to be valid, genuine
and sufficient and in accepting any tender or effecting any transfer of
Private Notes reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any
tenders or effect any transfer of Private Notes; provided, however,
that anything in this Agreement to the contrary notwithstanding, the
Issuer shall not be liable for indemnification or otherwise for any
loss, liability, cost or expense to the extent arising out of your
gross negligence or willful misconduct. In no case shall the Issuer be
liable under this indemnity with respect to any claim against you
unless the Issuer shall be notified by you, by letter or cable or by
facsimile which is confirmed by letter, of the written assertion of a
claim against you or of any other action commenced against you,
promptly after you shall have received any such written assertion or
notice of commencement of action. The Issuer shall be entitled to
participate, at its own expense, in the defense of any such claim or
other action, and, if the Issuer so elects, the Issuer may assume the
defense of any pending or threatened action against you in respect of
which indemnification may be sought hereunder, in which case the Issuer
shall not thereafter be responsible for the subsequently incurred fees
and disbursements of legal counsel for you under this paragraph, so
long as the Issuer shall retain counsel reasonably satisfactory to you
to defend such action, and unless the Issuer is also a party to such
proceeding and you have reasonably determined in good faith that joint
representation would be inappropriate. You understand and agree that
the Issuer shall not be liable under this paragraph for the fees and
expenses of more than one legal counsel for you; provided, however,
that this sentence shall not be construed to prohibit you from engaging
successor counsel to continue to represent you in connection with a
proceeding under this paragraph in the event that you have terminated
counsel initially chosen by you or such counsel has terminated its
representation of you.
22. You shall arrange to comply with all requirements under the tax laws of
the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the
Internal Revenue Service. The Issuer understands that you are required,
in certain instances, to deduct thirty-one percent (31%) with respect
to interest paid on the Exchange Notes and proceeds from the sale,
exchange, redemption or retirement of the Exchange Notes from holders
who have not supplied their correct Taxpayer Identification Numbers or
required certification. Such funds will be turned over to the Internal
Revenue Service in accordance with applicable regulations.
23. You shall notify the Issuer of the amount of any transfer taxes payable
in respect of the exchange of Private Notes and, upon receipt of a
written approval from the Issuer, shall deliver or cause to be
delivered, in a timely manner to each governmental authority to which
any transfer taxes are payable in respect of the exchange of Private
Notes, your check in the amount of all transfer taxes so payable, and
the Issuer shall reimburse you for the amount of
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<PAGE> 8
any and all transfer taxes payable in respect of the exchange of
Private Notes; provided, however, that you shall reimburse the Issuer
for amounts refunded to you in respect of your payment of any such
transfer taxes, at such time as such refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of
New York applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of law principles.
25. This Agreement shall be binding upon and inure solely to the benefit of
each party hereto and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
Without limitation of the foregoing, the parties hereto expressly agree
that no holder of Private Notes or Exchange Notes shall have any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
26. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement.
27. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
28. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in part, except by
a written instrument signed by a duly authorized representative of the
party to be charged.
29. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party,
addressed to it, at its address or telecopy number set forth below:
If to the Issuer, to:
SC International Services, Inc.
524 East Lamar Boulevard
Arlington, Texas 76011-3999
Telephone: (817) 792-2123
Telecopy: (817) 792-2222
Attention: Patrick W. Tolbert
Executive Vice President and
Chief Financial and Administrative Officer
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<PAGE> 9
with a copy to:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, NY 10022
Telephone: (212) 836-8201
Telecopy: (212) 836-7152
Attention: Joel I. Greenberg, Esq.
If to the Exchange Agent, to:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, NY 10286
Telephone: (212) 815-5375
Telecopy: (212) 815-5915
Attention: Corporate Trust Trustee Administration
30. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, paragraphs 17, 19, 21, 23 and 24 shall survive the
termination of this Agreement. Upon any termination of this Agreement,
you shall promptly deliver to the Issuer any certificates for Notes,
funds or property then held by you as Exchange Agent under this
Agreement.
31. This Agreement shall be binding and effective as of the date hereof.
Please acknowledge receipt of this Agreement and confirm the arrangements herein
provided by signing and returning the enclosed copy.
SC INTERNATIONAL SERVICES, INC.
By: /s/ Thomas J. Lee
-------------------------------------
Name: Thomas J. Lee
Title: Authorized Signatory
Accepted as of the date first above written:
THE BANK OF NEW YORK, as Exchange Agent
By: /s/ Walter N. Gitlin
---------------------------------
Name: Walter N. Gitlin
Title: Vice President
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<PAGE> 10
SCHEDULE I
FEE SCHEDULE FOR EXCHANGE AGENT SERVICES
$2,500 plus $500 per extension.
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<PAGE> 1
EXHIBIT 10.32
ACQUISITION AGREEMENT,
DATED AS OF JANUARY 23, 1998
BETWEEN
CATERAIR INTERNATIONAL, INC. (II)
AND
SKY CHEFS, INC.
<PAGE> 2
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT (this "Agreement"), dated as of January 23, 1998,
by and between CATERAIR INTERNATIONAL, INC. (II), a Delaware corporation
("CII"), and SKY CHEFS, INC., a Delaware corporation ("Sky Chefs"). Each of CII
and Sky Chefs may be referred to herein as a "Party" and both may be referred to
herein as the "Parties".
WHEREAS, CII operates three flight kitchen catering facilities (each a
"Kitchen" and, collectively, the "Kitchens") at Los Angeles International
Airport in Los Angeles, California, Ontario International Airport in Ontario,
Canada, and John Wayne Airport, in Orange County, California (each an "Airport"
and, collectively, the "Airports") from which CII provides airline catering and
other services to airlines and other customers; and
WHEREAS, CII desires to sell all of its business and the related assets
at the Kitchens to Sky Chefs and Sky Chefs desires to acquire all of CII's
business and assets at the Kitchens, all upon the terms and subject to the
conditions set forth herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS AND OTHER MATTERS
1.1 Certain Definitions.
"Accountants" shall have the meaning ascribed to such term in Section
2.3(b) of this Agreement.
"Acquired Agreements" shall mean all customer contracts, contracts with
suppliers, other contracts, leases, licenses, permits, commitments or any other
agreements (written or oral) related to, necessary for, or entered into in
connection with, the operation of any of the Kitchens, in which CII has any
rights, under which CII is subject to any obligation or liability, or by which
any of the assets owned or used by CII in connection with the operation of any
of the Kitchens are bound, including, without limitation, the Acquired Kitchens
CIC License Agreement Rights, the CIC Sublease Agreements, the Customer
Agreements and the other agreements listed on Schedule 1 hereto, but excluding
the Excluded Assets.
"Acquired Assets" shall mean all privileges, rights, interests and
claims, real and personal, tangible, and intangible, of every type and
description that are owned, leased, used or held for use by CII in connection
with the operation of any of the Kitchens, in which CII has any right, title or
interest, including, without limitation, (i) the Acquired Agreements, (ii)
accounts receivable arising on or prior to the Closing Date associated with any
of the Kitchens and the business and operations
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conducted thereat, (iii) that portion of the net working capital of CII that is
allocable to the Kitchens and the business and operations conducted thereat,
(iv) that portion of the goodwill of CII that is attributable to the Kitchens
and the business and operations conducted thereat and (v) those items listed on
Schedule 1 hereto, but excluding the Excluded Assets.
"Acquired Kitchens CIC License Agreement Rights" shall mean any and all
of the rights licensed by CII from Caterair pursuant to the CIC License
Agreement in any of the "Customer Contracts" (as such term is defined in the CIC
License Agreement) pursuant to which CII has provided, is providing or has the
right to provide goods, products or services to any airline or other customer at
or from any of the Airports or otherwise utilizing any of the Kitchens.
"Agreement" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Assignment Agreement" shall mean an Assignment Agreement, dated the
Closing Date, executed by each of Sky Chefs and CII, in substantially the form
attached as Exhibit D hereto.
"Assumed Liabilities" shall have the meaning ascribed to such term in
Section 2.2 of this Agreement.
"Assumption Agreement" shall mean an Assumption Agreement, dated the
Closing Date, executed by each of Sky Chefs and CII, in substantially the form
attached as Exhibit E hereto.
"Bill of Sale" shall mean a Bill of Sale, dated the Closing Date,
executed by each of Sky Chefs and CII, in substantially the form attached as
Exhibit C hereto.
"Kitchens Net Working Capital" shall have the meaning ascribed to such
term in Section 2.3(a) of this Agreement.
"Caterair" shall mean Caterair International Corporation, a Delaware
corporation.
"CIC License Agreement" shall mean that certain License Agreement,
dated as of September 29, 1995, between CII and Caterair.
"CIC Sublease Agreements" shall mean those certain Sublease Agreements,
each dated as of September 29, 1995, between CII and Caterair pursuant to which
CII subleases from Caterair certain real and personal property associated with
the Kitchens.
"CII" shall have the meaning ascribed to such term in the introductory
paragraph of this Agreement.
"Closing" shall have the meaning ascribed to such term in Section 3.1
of this Agreement.
"Closing Date" shall have the meaning ascribed to such term in Section
3.1 of this Agreement.
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<PAGE> 4
"Closing Date Kitchens Net Working Capital Statement" shall have the
meaning ascribed to such term in Section 2.3(b) of this Agreement.
"Customer Agreements" shall mean all contracts, agreements, commitments
or other arrangements (whether written or oral) between CII, on the one hand,
and any airline or other customer of CII, on the other hand, pursuant to which
CII provides to such airline or other customer goods, products or services at or
from any of the Airports or otherwise utilizing any of the Kitchens, together
with all customer lists, financial and accounting records (including, without
limitation, sales records and sales histories) related thereto.
"Damages" shall have the meaning ascribed to such term in Section 8.2
of this Agreement.
"Excluded Assets" shall mean (i) any and all collective bargaining
agreements or other arrangements, commitments or understandings arising under
any collective bargaining agreements or otherwise related to any collective
bargaining agreements or any other commitments, plans, arrangements or
understandings regarding terms and conditions of employment for any individuals
employed by CII at any of the Airports or at any of the Kitchens in effect at
any time (collectively, the "CBAs"), (ii) all assets of CII other than the
Acquired Assets (i.e., those assets of CII (or portion thereof) not owned,
leased, used or held for use by CII in connection with the operation of any of
the Kitchens) and (iii) if applicable, that part, portion, or other subdivision
of any Acquired Asset that does not (and only to the extent that such part,
portion, or other subdivision does not) relate to any of the Kitchens, any of
the Airports and the business and operations conducted thereat or therefrom,
which Excluded Assets of CII are expressly not being transferred by CII to Sky
Chefs in connection with the transactions being effected hereby, and will be
retained by CII.
"Excluded Liabilities" shall mean (i) any contingent liabilities of CII
(whether or not related to or arising in connection with the Acquired Assets)
that arise, or relate to events which occurred, prior to the Closing Date
(excluding trade payables and accounts payable arising in the ordinary course of
business consistent with past practice), (ii) any liabilities of CII arising at
any time in connection with any Excluded Asset, (iii) any liabilities or
obligations in any way related to, or arising in connection with any CBAs or
under any Federal, state or local law or regulation governing the status of CII
as an employer at any of the Kitchens, (iv) any liability or obligation of CII
to any union representative of any employees at any of the Kitchens, and (v) any
employment-related liabilities, obligations or commitments of CII arising in
connection with, or which in any manner related to, the conduct or operations of
any of the Kitchens prior to the Closing Date related to (A) any claims,
grievances, charges, arbitrations, litigations or other claims or actions,
including, without limitation, those against CII, that in any manner relate to
terms and conditions of employment at any of the Kitchens or individuals
employed at any of the Kitchens and (B) compensation and other benefits due
individuals employed at any of the Kitchens.
"Kitchens" shall have the meaning ascribed to such term in the first
WHEREAS clause of this Agreement.
"Kitchens Net Working Capital" shall have the meaning ascribed to such
term in Section 2.3(a) of this Agreement.
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<PAGE> 5
"Net Working Capital" shall have the meaning ascribed to such term in
Section 2.3(a) of this Agreement.
"Party" shall have the meaning ascribed to such term in the
introductory paragraph of the Agreement.
"Purchase Price" shall have the meaning ascribed to such term in
Section 2.1 of this Agreement.
"Receipt" shall mean a Receipt, dated the Closing Date, executed by
each of Sky Chefs and CII, in substantially the form attached as Exhibit B
hereto.
"Related Agreements" shall mean the Assumption Agreement, the
Assignment Agreement, the Sublease Assignments, the Bill of Sale and the
Receipt, and any other agreements, instruments or certificates delivered
hereunder or in connection with the transactions contemplated by a Party.
"Required Consents" shall mean the consents of any airline or other
customers of CII or other third parties that are required in connection with the
transactions contemplated hereby and in order for the Acquired Assets to be
properly transferred to Sky Chefs, including, without limitation, the consents
listed on Schedule 2 hereto.
"Required Notices" shall mean any notices required to be given to any
airline or other customers of CII or other third parties in connection with the
transactions contemplated hereby and in order for the Acquired Assets to be
properly transferred to Sky Chefs, including, without limitation, the notices
listed on Schedule 2 hereto.
"Revised Purchase Price" shall have the meaning ascribed to such term
in Section 2.3(b) of this Agreement.
"Revised Purchase Price Statement" shall have the meaning ascribed to
such term in Section 2.3(b) of this Agreement.
"Sky Chefs" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"Sublease Assignments" shall mean Assignment Agreements, each in
substantially the form of Exhibit A hereto, dated the Closing Date, assigning
the CIC Sublease Agreements from CII to Sky Chefs.
1.2 Proviso Relating To System-Wide or Multi-Location Contracts.
Notwithstanding anything to the contrary contained in any definition or
other provision of this Agreement, if pursuant to any Acquired Agreement CII has
provided, does provide or enjoys the right to provide goods, products or
services to any airline or other customer or enjoys any other benefit at other
locations in addition to one of the Airports or otherwise utilizing any of the
Kitchens, then the rights enjoyed by CII with respect to such Acquired Agreement
shall be deemed to be an
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<PAGE> 6
Acquired Agreement only to the extent that such rights or benefits relate to the
provision of goods, products or services to an airline or other customer or
other benefit enjoyed by CII at or from the Kitchens or at or from the relevant
Airport or otherwise utilizing the Kitchens (and not at the other locations),
and it is only such rights and benefits that are being transferred by CII to Sky
Chefs in connection with the transactions contemplated hereby.
ARTICLE II
ACQUISITION OF ASSETS; ASSUMPTION OF LIABILITIES
2.1 Purchase and Sale of Assets
Upon the terms and subject to the conditions set forth herein, on the
Closing Date, in consideration of (i) $1,539,706 (the "Purchase Price") to be
paid by Sky Chefs to CII on the Closing Date by wire transfer of immediately
available funds to an account designated by CII or by such other method as may
be designated by CII and (ii) the assumption by Sky Chefs of the liabilities
described in Section 2.2 hereof, CII shall grant, sell, convey, assign, transfer
and deliver to Sky Chefs, and Sky Chefs shall purchase and accept from CII, all
right, title and interest of CII in the Acquired Assets.
2.2 Assumption of Liabilities.
Upon the terms and subject to the conditions set forth herein, on the
Closing Date, Sky Chefs shall assume all liabilities and obligations associated
with the business and operations conducted at the Kitchens and with the Acquired
Assets, whether arising on, prior to or after the Closing Date, other than the
Excluded Liabilities (the "Assumed Liabilities").
2.3 Adjustment.
(a) Each of Sky Chefs and CII hereby acknowledge and agree that the
aggregate Net Working Capital associated with the business and operations at the
Kitchens (the "Kitchens Net Working Capital") as of December 31, 1997 was
$873,111. For the purposes of this Agreement, "Net Working Capital" is defined
as the difference between current assets and current liabilities each as would
be set forth on a balance sheet prepared in accordance with GAAP.
(b) CII shall prepare in good faith, and deliver to Sky Chefs, on or
before the date that is sixty (60) days following the Closing Date, a statement
setting forth the Kitchens Net Working Capital as of the Closing Date (which
statement shall set forth in reasonable detail the computation of such amount
including a listing of the assets and liabilities included in the Kitchens Net
Working Capital as of the Closing Date) (the "Closing Date Kitchens Net Working
Capital Statement"). If within thirty (30) days following delivery of the
Closing Date Kitchens Net Working Capital Statement, Sky Chefs does not give
notice to CII of its objection to the computation of the Kitchens Net Working
Capital as of the Closing Date (which notice must contain a statement of the
basis of any objection), then the calculation of the Kitchens Net Working
Capital as of the Closing Date set forth in the Closing Date Kitchens Net
Working Capital Statement shall be final and binding on all
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<PAGE> 7
Parties. If a notice of objection is given, then the Parties will attempt to
settle the issues in dispute within fifteen (15) days thereafter. If they are
unable to resolve such issues, any open items will be submitted to a nationally
recognized accounting firm selected by Sky Chefs and reasonably acceptable to
CII (the "Accountants") for resolution. If issues in dispute are submitted to
the Accountants for resolution, (i) each Party will furnish to the Accountants
such work papers and other documents and information relating to the disputed
issues as the Accountants may request and are available to that Party, and will
be afforded the opportunity to present to the Accountants any material relating
to the determination and to discuss the determination with the Accountants; (ii)
the determination by the Accountants, as set forth in a notice delivered to each
of CII and Sky Chefs, will be binding and conclusive on the Parties; and (iii)
Sky Chefs, on the one hand, and CII, on the other hand, will each bear 50% of
the fees of the Accountants for such determination.
(c) On or before the third business day following the final
determination of the Kitchens Net Working Capital as of the Closing Date, (i) in
the event that the Kitchens Net Working Capital as of the Closing Date is
greater than the Kitchens Net Working Capital as of December 31, 1997, Sky Chefs
shall pay to CII the amount of such excess, by wire transfer of immediately
available funds, to an account designated by CII and (ii) in the event that the
Kitchens Net Working Capital as of the Closing Date is less than the Kitchens
Net Working Capital as of December 31, 1997, CII shall pay to Sky Chefs the
amount of such deficiency, by wire transfer of immediately available funds, to
an account designated by Sky Chefs.
ARTICLE III
CLOSING
3.1 Closing.
Subject to the satisfaction (or waiver) of the conditions set forth in
Article V of this Agreement, the closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Kaye, Scholer, Fierman, Hays
& Handler, LLP, on or about February 27, 1998 (the "Closing Date"), or at such
other place and on such other date as the Parties shall agree.
3.2 Delivery Obligations of CII.
At the Closing, CII shall deliver to Sky Chefs:
(a) the Sublease Assignments, executed by a duly authorized officer on
behalf of CII, transferring to Sky Chefs all of CII's right, title and interest
in and under the CIC Subleases;
(b) the Bill of Sale, executed by a duly authorized officer on behalf
of CII;
(c) the Receipt, executed by a duly authorized officer on behalf of
CII;
(d) the Assignment Agreement, executed by a duly authorized officer on
behalf of CII;
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<PAGE> 8
(e) the Assumption Agreement, executed by a duly authorized officer on
behalf of CII;
(f) to the extent that Required Consents and Required Notices are
required to be given and/or received, documents reasonably satisfactory to Sky
Chefs evidencing the receipt of such Required Consents and the giving of such
Required Notices; and
(g) such other agreements, instruments, certificates or assignments as
Sky Chefs may reasonably request to transfer good and valid title of the
Acquired Assets to Sky Chefs on the Closing Date.
3.3 Delivery Obligations of Sky Chefs.
At the Closing, Sky Chefs shall deliver to CII:
(a) the Purchase Price, as provided in Section 2.1 of this Agreement;
(b) the Sublease Assignments, executed by a duly authorized officer on
behalf of Sky Chefs;
(c) the Receipt, executed by a duly authorized officer on behalf of Sky
Chefs;
(d) the Bill of Sale, executed by a duly authorized officer on behalf
of Sky Chefs;
(e) the Assignment Agreement, executed by a duly authorized officer on
behalf of Sky Chefs; and
(f) the Assumption Agreement, executed by a duly authorized officer on
behalf of Sky Chefs.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 Representations and Warranties of CII.
CII represents, warrants and covenants to Sky Chefs, with respect to
the transactions contemplated herein that:
(a) Organization and Authority of CII. CII is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into and perform
this Agreement and the Related Agreements to which it is a party and the
transactions herein and therein contemplated.
(b) Authorization of Agreement. The execution, delivery and performance
by CII of this Agreement and the Related Agreements to which it is a party have
been duly authorized by all requisite corporate action. This Agreement and the
Related Agreements to which it is a party have
8
<PAGE> 9
been duly executed and delivered by CII and constitute and will constitute a
legal, valid and binding obligation of CII enforceable against CII in accordance
with their terms, except as may be limited by bankruptcy or similar laws
affecting creditors' rights generally and general principles of equity.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Related Agreements to which it is a party by CII do not
violate or conflict with (i) the certificate of incorporation or bylaws of CII
or (ii) any judicial, administrative or regulatory order, judgment or decree or
arbitration award to which CII is a party or by which it or its properties or
any of the Acquired Assets is bound.
(d) Acquired Assets. The Acquired Assets to be sold, transferred, or
assigned to Sky Chefs hereunder include all of the assets of CII used at, in
connection with, or in the operation of, the Kitchens and the business of CII
conducted thereat or therefrom and at the Airports.
(e) No Restrictions. Upon the consummation of the transactions
contemplated by this Agreement and the Related Agreements and the payment of the
Purchase Price by Sky Chefs to CII, Sky Chefs shall acquire good and valid title
to all of the Acquired Assets, free and clear of all restrictions on transfer.
(f) Severance . Except as set forth on Schedule 4.1(f) hereto, CII is
not liable for any severance payments or other payments on account of the
termination of any officer employee or shall be liable for any such payments as
a result of this Agreement.
(g) Collective Bargaining Agreements. Except as set forth on Schedule
4.1(g) hereto, CII is not a party to any CBAs in connection with the business
and operations conducted at any of the Kitchens.
(h) Labor Disputes. Except as set forth on Schedule 4.1(h) hereto,
there are no strikes, material work stoppages or material disputes pending or,
to the best knowledge of the management of CII, threatened between CII and any
groups of its employees employed in connection with the business and operations
conducted at any of the Kitchens.
(i) Unions. Except as set forth on Schedule 4.1(i) hereto, no labor
union or other collective bargaining unit represents any of the employees of CII
employed in connection with the business and operations conducted at any of the
Kitchens.
(j) Organizational Efforts. Except as set forth on Schedule 4.1(j)
hereto, to the best knowledge of the management of CII, no organizational effort
by any labor union or other collective bargaining unit currently is under way or
threatened with respect to any employees of CII employed in connection with the
business and operations conducted at any of the Kitchens.
(k) Certain Proceedings. Except as set forth on Schedule 4.1(k) hereto
with respect to the business and operations conducted by CII at any of the
Kitchens, there are no (i) material grievances or arbitration proceedings
arising out of or under any CBA, (ii) representation proceedings by any group of
CII's employees employed in connection with the business and operations
conducted at any of the Kitchens, (iii) unfair labor practice charges or
complaints pending
9
<PAGE> 10
before the National Labor Relations Board or any similar foreign, state or local
agency or (iv) charges, claims or litigations pending before any local, state or
Federal agency regarding any employment matter in connection with the operation
of any of the Kitchens or any wages or compensation payable to any employee or
third party in connection with the operation of any of the Kitchens.
(l) No Brokers. CII has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees or commissions in
connection with the transactions contemplated by this Agreement.
4.2 Representations and Warranties of Sky Chefs.
Sky Chefs represents, warrants and covenants to CII, with respect to
the transactions contemplated herein that:
(a) Organization and Authority of Sky Chefs. Sky Chefs is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to enter into and
perform this Agreement and the Related Agreements to which it is a party and the
transactions herein and therein contemplated.
(b) Authorization of Agreement. The execution, delivery and performance
by Sky Chefs of this Agreement and the Related Agreements to which it is a party
have been duly authorized by all requisite corporate action. This Agreement and
the Related Agreements to which it is a party have been duly executed and
delivered by Sky Chefs and constitute and will constitute a legal, valid and
binding obligation of Sky Chefs enforceable against Sky Chefs in accordance with
their terms, except as may be limited by bankruptcy or similar laws affecting
creditors' rights generally and general principles of equity.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Related Agreements to which it is a party by Sky Chefs do not
violate or conflict with (i) the certificate of incorporation or bylaws of Sky
Chefs or (ii) any judicial, administrative or regulatory order, judgment or
decree or arbitration aware to which Sky Chefs is a party or by which it or its
properties is bound.
(d) Condition of Acquired Assets. Sky Chefs hereby acknowledges that
all the Acquired Assets are being conveyed on an "as is - where is" basis, and
CII makes no representation or warranty as to the condition of the Acquired
Assets.
(e) No Brokers. Sky Chefs has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees or commissions in
connection with the transactions contemplated by this Agreement.
(f) Transfer Taxes. Sky Chefs shall pay any Federal, state or local
sales, transfer, stamp or like taxes payable in connection with the transfer of
the Acquired Assets and the other transactions contemplated hereby.
10
<PAGE> 11
ARTICLE V
CONDITIONS
5.1 Conditions to Obligations of Sky Chefs and CII.
Sky Chefs and CII's respective obligations to consummate the
transactions contemplated hereby are subject to the satisfaction on or prior to
the Closing Date of each of the following conditions (unless expressly waived by
Sky Chefs and CII at the Closing):
(a) all Required Consents be obtained and all Required Notices
be given, and that Sky Chefs shall have received written evidence thereof
reasonably satisfactory to Sky Chefs. If the Closing shall have occurred and any
Required Consent shall not have been obtained and/or any Required Notice shall
not have been given, the transfer effected hereby shall not be effective with
respect to the Acquired Asset the transfer of which required such Required
Notice to be given and/or Required Consent to be obtained; provided, however,
that the Parties shall use their respective reasonable efforts to obtain such
Required Consent or cause such Required Notice to be given as soon as is
reasonably practicable following the Closing Date and the related Acquired Asset
to be effectively transferred to Sky Chefs promptly thereafter. With respect to
any such Acquired Asset that cannot be assigned to Sky Chefs as of the date
hereof because of the failure or inability to obtain any Required Consent or to
give any Required Notice or for any other reason, CII hereby agrees, from and
after the date hereof and prior to the date of the proper and effective
assignment of such Acquired Asset to Sky Chefs in accordance with the
immediately preceding sentence, to cooperate with Sky Chefs in any reasonable
arrangement designed to provide to Sky Chefs the benefits and obligations
associated with such Acquired Asset (notwithstanding its non-assignment in
accordance with the second sentence of this subparagraph). Sky Chefs agrees
that, so long as Sky Chefs is receiving the benefits of any such Acquired Asset,
Sky Chefs will perform CII's obligations in connection therewith;
(b) there shall not be in effect any injunction or order of
any court prohibiting the consummation of the transactions contemplated hereby;
(c) the other Party shall have performed in all material
respects all of its obligations under this Agreement to be performed prior to or
at the Closing; and
(d) there shall not be in effect any work stoppage, boycott,
strike, disruption or other interference, whether occasioned by any labor
organization or any employee or third party, directed at the operations and/or
business of any of the Kitchens or any other kitchen operated by Sky Chefs or
CII, or the operations and/or business of any customer of Sky Chefs or CII or
any customer of CII or Sky Chefs.
5.2 Conditions to Obligations of CII.
11
<PAGE> 12
CII's obligations to consummate the transactions contemplated
hereby are subject to the satisfaction on or prior to the Closing Date of each
of the following conditions (unless expressly waived by CII at the Closing):
(a) Each of the representations and warranties of Sky Chefs in
this Agreement shall be true and correct in all material respects as of the date
hereof and as of the Closing with the same effect as though such representations
and warranties had been made at and as of such time, other than representations
and warranties that speak as of a specific date or time (which need only be true
and correct in all material respects as of such date or time).
(b) Sky Chefs shall have performed in all material respects
all obligations required to be performed or complied with by Sky Chefs under
this Agreement at or prior to Closing.
5.3 Conditions to Obligations of Sky Chefs.
Sky Chefs' obligations to consummate the transactions
contemplated hereby are subject to the satisfaction on or prior to the Closing
Date of the following conditions (unless expressly waived by Sky Chefs on the
Closing Date):
(a) Each of the representations and warranties of CII in this
Agreement shall be true and correct in all material respects as of the date
hereof and as of the Closing with the same effect as though such representations
and warranties had been made at and as of such time, other than representations
and warranties that speak as of a specific date or time (which need only be true
and correct in all material respects as of such date or time).
(b) CII shall have performed in all material respects all
obligations required to be performed or complied with by CII under this
Agreement at or prior to Closing.
(c) there shall be no material adverse change in the business,
operations, prospects and operations of any of the Kitchens or CII (including,
without limitation, any material change in the terms and conditions of employees
at any of the Kitchens).
ARTICLE VI
EMPLOYEE MATTERS
6.1 Employee Matters.
(a) Prior to the Closing, CII shall notify all employees at the
Kitchens, and with respect to any employees represented by any labor
organization, the appropriate representative of such organization, that CII will
discontinue operations at the Kitchens effective as of the Closing Date and that
the employment of any individuals employed by CII shall cease effective as of
the Closing Date.
12
<PAGE> 13
(b) With respect to its operation of the Kitchens, after the Closing,
Sky Chefs shall be (i) entitled to set such terms and conditions of employment
with respect to the post-Closing operations of the Kitchens as Sky Chefs, in its
sole discretion, deems appropriate and (ii) undertake such recruiting and hiring
measures as it, in its sole discretion, deems appropriate.
6.2 Cooperation in Labor Matters.
Prior to the Closing Date, CII shall permit, to the extent requested by
Sky Chefs, reasonable access to the Kitchens and its employees by
representatives of Sky Chefs for purposes of recruitment and/or hiring, and CII
and Sky Chefs shall provide each other with such information regarding labor and
employment matters as each may reasonably request in order to consummate the
transactions contemplated hereby.
ARTICLE VII
CONTINUITY OF CUSTOMER SERVICE
Sky Chefs shall use its reasonable best efforts to ensure that the
airlines and other CII customers being serviced from the Kitchens receive
uninterrupted and high quality catering services on and following the Closing
Date. If necessary to provide such services, Sky Chefs shall provide such
services from another facility for such period of time as may be necessary to
ensure such uninterrupted and high quality services.
ARTICLE VIII
INDEMNIFICATION; SURVIVAL
8.1 Survival
The representations and warranties of the parties to this Acquisition
Agreement shall survive the closing for a period of one (1) year from the
Closing Date.
8.2 Indemnification by CII
CII shall indemnify and hold harmless Sky Chefs and Sky Chefs'
affiliates from, and shall reimburse Sky Chefs and Sky Chefs' affiliates for all
losses, liabilities, deficiencies, penalties, claims, damages or expenses
(including, but not limited to, costs of investigation and defense and
reasonable attorneys' fees) (collectively "Damages") arising out of or in
connection with:
(a) any material inaccuracy in any representation or warranty by CII
set forth in this Agreement;
(b) any material failure by CII to perform or comply with any agreement
or covenant contained in this Agreement; and
13
<PAGE> 14
(c) the Excluded Liabilities.
Notwithstanding anything to the contrary set forth herein, CII shall not
indemnify Sky Chefs for Damages arising out of the gross negligence or willful
misconduct of Sky Chefs. Sky Chefs hereby waives and releases any claims against
CII for consequential or similar damages.
8.3 Indemnification by Sky Chefs
Sky Chefs shall indemnify and hold harmless CII and CII's affiliates
from, and shall reimburse CII and CII's affiliates for all Damages arising out
of or in connection with:
(a) any material inaccuracy in any representation or warranty by Sky
Chefs set forth in this Agreement;
(b) any material failure by Sky Chefs to perform or comply with any
agreement or covenant contained in this Agreement; and
(c) any Assumed Liabilities and the post-closing operation by Sky Chefs
of the Acquired Assets
Notwithstanding anything to the contrary set forth herein, Sky Chefs shall not
indemnify CII in connection with any Damages arising as a result of the gross
negligence or willful misconduct of CII. CII hereby waives and releases any
claims against Sky Chefs for consequential or similar damages.
8.4 Procedure for Indemnification
In the event that any claim to be indemnified by the other hereunder is
made by CII or Sky Chefs, the Party seeking indemnification hereunder shall give
prompt written notice thereof to the indemnifying Party and the indemnifying
Party shall assume control of, and all expense with respect to, the defense,
settlement, adjustment or compromise of such claim; provided, that (i) the
indemnified Party may, if it so desires, employ counsel at its own expense to
assist in the handling of such claim and (ii) the indemnifying Party shall
obtain the prior written approval of the indemnified Party, which approval shall
not be unreasonably withheld, before entering into any settlement, adjustment or
compromise of such claim or ceasing to defend against such claim, if pursuant
thereto or as a result thereof there would be imposed injunctive or other relief
against the indemnified Party other than monetary damages fully indemnified by
the indemnifying Party. The rights and obligations under this Section will
survive the termination or expiration of this Agreement for any reason.
14
<PAGE> 15
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement; Amendment.
This Agreement (together with the Exhibits and Schedules hereto)
constitutes the entire agreement between the Parties with respect to the subject
matter contained herein, supersedes all prior oral or written agreements,
commitments or understandings between the parties with respect thereto, and
cannot be amended, supplemented or otherwise modified except in a writing
executed by each of the Parties.
9.2 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflicts of laws.
9.3 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9.4 Successors and Assigns.
This Agreement is intended for the exclusive benefit of the parties
hereto and their respective successors and assigns. Nothing contained in this
Agreement shall be construed as granting any rights or benefits in or to any
third party, and no person shall assert any rights as third-party beneficiary
hereunder.
9.5 Captions.
The captions in this Agreement are for convenience of reference only
and shall not be given any effect in the interpretation of this Agreement.
9.6 Further Assurances.
On or after the date hereof, CII and Sky Chefs hereby agree to promptly
execute, acknowledge and deliver any other assurances, instruments, agreements,
certificates or other documents and take any other action reasonably requested
by the other party hereto to effect the transactions contemplated hereby.
15
<PAGE> 16
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their officers or other duly authorized representatives as of the
date first above written.
SKY CHEFS, INC.
By: /s/ Harold A. Michel, Jr.
------------------------------------
Name: Harold A. Michel, Jr.
Title: Vice President
CATERAIR INTERNATIONAL,
INC. (II)
By: /s/ Terry W. Roueche
------------------------------------
Name: Terry W. Roueche
Title: Assistant Secretary
<PAGE> 17
Schedule 1
ACQUIRED ASSETS
17
<PAGE> 18
01/29/98 CATERAIR INTERNATIONAL, INC. (S002X) CODA-IAS 06.73.094 U143
10:42:42 Browse balances - List NXP
<TABLE>
<CAPTION>
DEC 1997
Subaccount Title BALANCE
<S> <C> <C>
02 AE Adds/Debt Issues 0.00
95MU107114 COMPRESSOR-COPELAND 0.00
95MU005012 SEWER LINE REPLACE. 25,055.90
96MU031031 PARKING LOT 8,182.00
96MU381012 PHONE SYSTEM 16,077.18
97MU381002 POWERFONES 121 2,535.36
96MU381011 MOTOROLA RADIO 10,105.96
96MU054054 HAND SINKS W/PEDAL 2,569.00
97MU381001 COMPUTER SETUP 562.00
96MU381010 PENTIUM COMPUTER 4,352.49
96MU381014 COMPUTER SYSTEM 0.00
97MU381005 COMPUTER 3,057.89
97MU381003 AMS SOFTWARE LICENSE 1,500.00
96MU381013 CARGO VAN 7,008.75
61,006.53
</TABLE>
<PAGE> 19
01/29/98 CATERAIR INTERNATIONAL, INC. (SOO2X) CODA-IAS v6.73.094 U143
10:41:12 Browse balances - List NXP
<TABLE>
<CAPTION>
Subaccount Title DEC 1997
BALANCE
<S> <C> <C>
02 AE Adds/Debt Issues 0.00
97MU383002 COMPUTER 2,288.77
97MU383001 COMPUTER SETUP 5.44
96MU383001 PHONE SYSTEM 11,304.05
97MU383004 AUTO SCRUBBER 9,989.75
97MU383005 NEXTEL CELLULAR 2,360.99
96MU014014 CAMCORDER 678.72
96MU016017 COMPUTER & PRINTER 5,401.32
97MU383001 COMPUTER SETUP 574.50
96MU383002 NOTEBOOK PC 2,673.53
96MU383003 COMPUTER SYSTEM 2,823.00
97MU383003 AMS SOFTWARE LICENSE 1,500.00
39,600.07
</TABLE>
<PAGE> 20
01/29/98 CATERAIR INTERNATIONAL, INC. (S002X) CODA-IAS v6.73.094 U143
10:36:56 Browse balances - List NXP
<TABLE>
<CAPTION>
DEC 1997
Subaccount Title BALANCE
<S> <C> <C>
02 AZ Adds/Debt Issues 0.00
97MU607017 DISHROOM FLOOR 54,000.00
96MU006006 PARKING LOT 4,533.00
96MU049049 FENCE 1,197.25
97MU607001 LOADING DOCK 39,727.00
96MU025025 REFRIGERATION REPAIR 15,875.00
95MU008015 DISHROOM FLOOR IMPRO 9,830.00
96MU026026 HALLWAY IMPROVEMENT 9,444.00
96MU004004 ELEVATOR IMPROVEMENT 5,770.00
96MU050050 2-WAY RADIOS 14,238.13
96MU023023 BOOSTER-DISH MACHINE 4,177.33
95MU004011 SKILLET 2,165.00
96MU607011 DIGITAL CAMERA 1,538.55
96MU607012 EXTRUDER ENCLOSURE 203,181.95
97MU607012 LOCKER ROOMS 32,096.00
96MU050050 2-WAY RADIOS 622.44
97MU607018 COUNTER UNIT 7,563.43
96MU607013 INTERCOM SYSTEM 7,300.96
97MU607011 DRAPES 6,271.50
96MU607014 A/C RELOCATING 8,350.00
97MU607002 NEW CARPETING 8,238.25
96MU607011 DIGITAL CAMERA 3,360.09
96MU607010 PHONE SYSTEM 32,515.30
95MU004011 SKILLET 0.00
97MU607013 COMPUTER 2,764.00
96MU607016 COMPUTER SYSTEM 3,223.00
97MU607002 NEW CARPETING 8,238.25
96MU607011 DIGITAL CAMERA 610.67
96MU045045 COMPUTER UPGRADE 6,935.88
97MU607015 AMS SOFTWARE LICENSE 1,500.00
96MU607015 WATER SYSTEM 6,514.78
17300 SAC-LBI 128,105.77 DISHROOM FLOOR
629,907.56
</TABLE>
<PAGE> 21
Schedule 2
REQUIRED CONSENTS & REQUIRED NOTICES
1. Consent of the County of Orange pursuant to that certain License -
Airline Related Services, dated November 1, 1995, between the County of
Orange and Caterair International, Inc.
2. Consent of the City of Los Angeles, Department of Airports pursuant to
that certain Lease No. ONT-5147 between the City of Los Angeles,
Department of Airports and Caterair International Corporation.
3. Consent of the City of Los Angeles, Department of Airports pursuant to
that certain Lease No. LAA-2351, between the City of Los Angeles,
Department of Airports and Caterair International Corporation.
4. Consent of Continental Airlines, pursuant to that certain Catering
Agreement, dated as of January 1, 1985, between Marriott Corporation
and Continental Airlines, Inc. with respect to the Ontario Kitchen.
5. Consent of the City of Los Angeles, Department of Airports, pursuant to
that certain Motor Vehicle Operating Permit for Los Angeles
International Airport, dated July 13, 1995, in favor of Caterair
International Corporation.
6. Prior written notice to Trans World Airlines in which Caterair agrees
in writing to remain liable for and guarantees the full, faithful and
complete performance of the matters to be performed under the Catering
Agreement, dated March 29, 1995, between Trans World Airlines and
Caterair International Corporation with respect to the Ontario Kitchen
and the Santa Ana Kitchen.
7. Consent of Alaska Airlines, Inc. pursuant to that certain Global
Catering Agreement, dated as of June 8, 1993, between Alaska Airlines,
Inc. and Caterair International Corporation with respect to each of the
Kitchens.
8. Consent of United Airlines, Inc. pursuant to that certain Master
Catering Agreement, dated February 10, 1989, between Marriott Inflite
Services and United Airlines, Inc. with respect to the Ontario Kitchen
and the Santa Ana Kitchen.
9. Consent of USAir, Inc. pursuant to that certain Catering Agreement
between Caterair International, Inc. and USAir, Inc. with respect to
the Santa Ana Kitchen.
18
<PAGE> 22
Schedule 4.1(f)
Severance
1. Caterair International, Inc. (II) Severance Policy Applicable to
Management Employees.
19
<PAGE> 23
Schedule 4.1(g)
Collective Bargaining Agreements
1. Agreement between Caterair International, Inc. (LAX) with International
Brotherhood of Teamsters Local 572, in effect through October 9, 2000.
2. Agreement between Caterair International, Inc. (Santa Ana) with
International Brotherhood of Teamsters Local 572, in effect through
January 17, 2000.
3. Agreement between Caterair International, Inc. (Ontario) with
International Brotherhood of Teamsters Local 572, in effect through
September 29, 1998.
20
<PAGE> 24
Schedule 4.1(h)
Labor Disputes
None.
21
<PAGE> 25
Schedule 4.1(i)
Unions
International Brotherhood of Teamsters Local 572.
22
<PAGE> 26
Schedule 4.1(j)
Organizational Efforts
None.
23
<PAGE> 27
Schedule 4.1(k)
Certain Proceedings
Pending EEOC Charges
1. Raymundo Valentin v. Caterair (Santa Ana) (Citizenship Status).
2. Carolyn Green v. Caterair (LAX) (Race/Sex/Age).
3. Delfina Haro v. Caterair (LAX) (Sexual Harassment).
4. Charles Williams v. Caterair (Ontario) (Race).
Union Grievances
IBT Local 572 (LAX) (Grieving elimination of job classification and change in
job class qualifications concerning four employees.)
24
<PAGE> 28
Exhibit A
FORM OF
ASSIGNMENT OF SUBLEASES
(Attached hereto)
25
<PAGE> 29
[607 LAX]
[381 Santa Ana]
[383 Ontario]
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "Agreement"), dated as of February 27,
1998, is between CATERAIR INTERNATIONAL, INC. (II) ("CII"), a Delaware
corporation, and SKY CHEFS, INC. ("Sky Chefs"), a Delaware corporation.
WHEREAS, CII and Sky Chefs are a party to that certain Acquisition
Agreement (the "Acquisition Agreement"), dated as of January 30, 1998, pursuant
to which CII has agreed to sell all of its business and the related assets at
CII's flight kitchen catering facilities (the "Kitchens") at
__________________________________________________________________ to Sky Chefs,
and Sky Chefs has agreed to acquire all of CII's business and assets at the
Kitchens;
WHEREAS, CII is a party to that certain Sublease Agreement (the
"Caterair Sublease"), dated as of September 29, 1995, between CII and Caterair
International Corporation ("Caterair"), regarding the subleasing of certain
facilities located in ______________, which facilities are leased by Caterair
from _____________ pursuant to a ___________ dated _________ __, 199_;
WHEREAS, CII desires to assign all of its right, title and interest in
the Caterair Sublease to Sky Chefs;
WHEREAS, Sky Chefs will assume all of CII's obligations and liabilities
under the Caterair Sublease; and
WHEREAS, this is an "Assignment of Sublease" contemplated by Sections
3.2(a) and 3.3(a) of the Acquisition Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
As of the date hereof, CII hereby grants, conveys and assigns to Sky
Chefs all of CII's right, title and interest in and to the Caterair Sublease and
Sky Chefs hereby accepts such assignment and assumes all duties, obligations and
liabilities arising therefrom from the date hereof, as if Sky Chefs were an
original party thereto.
In the event of a conflict between the provisions of this Assignment
Agreement and the provisions of the Acquisition Agreement, the parties hereby
agree that the provisions of the Acquisition Agreement shall control and shall
be dispositive.
This Assignment Agreement may be executed in one or more counterparts,
each of which shall be considered an original but all of which together shall
constitute one and the same instrument.
26
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Assignment Agreement
effective as of October ___, 1997.
CATERAIR INTERNATIONAL, INC. (II)
By:
-------------------------------------
Name:
Title:
SKY CHEFS, INC.
By:
-------------------------------------
Name:
Title:
Accepted and agreed as of
this ___ day of October, 1997
CATERAIR INTERNATIONAL CORPORATION
By:
---------------------------------
Name:
Title:
27
<PAGE> 31
Exhibit B
FORM OF RECEIPT
(Attached hereto)
28
<PAGE> 32
CROSS RECEIPT
Reference is hereby made to that certain Acquisition Agreement (the
"Acquisition Agreement"), dated as of January 23, 1998, between Sky Chefs, Inc.
("Sky Chefs") and Caterair International, Inc. (II) ("CII"). Capitalized terms
used but not defined herein shall have the respective meanings ascribed to them
in the Acquisition Agreement.
Sky Chefs hereby acknowledges receipt, on the date hereof, of the
Acquired Assets referenced in Section 2.1 of the Acquisition Agreement.
CII hereby acknowledges receipt, on the date hereof, of $1,539,706, in
respect of the Purchase Price for Sky Chefs' acquisition of the Acquired Assets,
as referenced in Section 2.1 of the Acquisition Agreement.
Date: February 27, 1998
SKY CHEFS, INC.
By:
-------------------------------------
Name:
Title:
CATERAIR INTERNATIONAL, INC. (II)
By:
-------------------------------------
Name:
Title:
29
<PAGE> 33
Exhibit C
FORM OF
BILL OF SALE
(Attached hereto)
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BILL OF SALE
Reference is hereby made to that certain Acquisition Agreement (the
"Acquisition Agreement"), dated as of January 23, 1998, between Sky Chefs, Inc.
("Sky Chefs") and Caterair International, Inc. (II) ("CII"). Capitalized terms
used but not defined herein shall have the respective meanings ascribed to them
in the Acquisition Agreement.
CII, for and in consideration of the representations, warranties and
agreements set forth in the Acquisition Agreement, and the payment by Sky Chefs
of the Purchase Price, as referenced in Section 2.1 of the Acquisition
Agreement, and other good and valuable consideration paid to the CII, the
receipt and sufficiency of which are hereby acknowledged, has bargained and sold
and by these presents do grant and convey, pursuant to the Agreement, unto Sky
Chefs, all of CII's right, title and interest in and to all of the Acquired
Assets.
IN WITNESS WHEREOF, the undersigned have duly executed this
Bill of Sale as of this 27th day of February 1998.
SKY CHEFS, INC.
By:
------------------------------------
Name:
Title:
CATERAIR INTERNATIONAL, INC. (II)
By:
------------------------------------
Name:
Title:
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Exhibit D
FORM OF
ASSIGNMENT OF CONTRACTS
(Attached hereto)
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ASSIGNMENT AGREEMENT
Assignment Agreement, dated as of February 27, 1998, between Caterair
International, Inc. (II), a Delaware corporation ("CII") and Sky Chefs, Inc., a
Delaware corporation.
Reference is hereby made to that certain Acquisition Agreement, dated
as of January 23, 1998 (as amended from time to time, the "Acquisition
Agreement"), between Sky Chefs and CII. Capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Acquisition Agreement.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged and subject to the terms and conditions set forth
in the Acquisition Agreement, CII hereby transfers, assigns, grants, transfers
and otherwise conveys and delivers to Sky Chefs, and Sky Chefs hereby accepts
all of CII's right, title and interest in, to and under the Acquired Agreements.
IN WITNESS WHEREOF, the undersigned have duly executed this Assumption
Agreement as of the date first written above.
SKY CHEFS, INC.
By:
-------------------------------------
Name:
Title:
CATERAIR INTERNATIONAL, INC. (II)
By:
-------------------------------------
Name:
Title:
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Exhibit E
FORM OF
ASSUMPTION AGREEMENT
(Attached hereto)
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ASSUMPTION AGREEMENT
Assumption Agreement, dated as of February 27, 1998, by Sky Chefs,
Inc., a Delaware corporation ("Sky Chefs").
Reference is hereby made to that certain Acquisition Agreement, dated
as of January 23, 1998 (as amended from time to time, the "Acquisition
Agreement"), between Sky Chefs and Caterair International, Inc. (II).
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Acquisition Agreement.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Sky Chefs hereby assumes and agrees to pay,
perform and discharge when due all of the Assumed Liabilities (but not any of
the Excluded Liabilities) subject to the terms and conditions set forth in the
Acquisition Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Assumption
Agreement as of the date first written above.
SKY CHEFS, INC.
By:
--------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.47
ACQUISITION AGREEMENT,
DATED AS OF MARCH 19, 1998
BETWEEN
CATERAIR INTERNATIONAL, INC. (II)
AND
SKY CHEFS, INC.
<PAGE> 2
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT (this "AGREEMENT"), dated as of March 19, 1998,
by and between CATERAIR INTERNATIONAL, INC. (II), a Delaware corporation
("CII"), and SKY CHEFS, INC., a Delaware corporation ("SKY CHEFS"). Each of CII
and Sky Chefs may be referred to herein as a "PARTY" and both may be referred to
herein as the "PARTIES".
WHEREAS, CII operates three flight kitchen catering facilities (each a
"KITCHEN" and, collectively, the "KITCHENS"), two of which are located at John
F. Kennedy International Airport, and one of which is located at LaGuardia
International Airport in New York (each an "AIRPORT" and, collectively, the
"AIRPORTS") from which CII provides airline catering and other services to
airlines and other customers; and
WHEREAS, CII desires to sell all of its business and the related assets
at the Kitchens to Sky Chefs and Sky Chefs desires to acquire all of CII's
business and assets at the Kitchens, all upon the terms and subject to the
conditions set forth herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS AND OTHER MATTERS
1.1 CERTAIN DEFINITIONS.
"ACCOUNTANTS" shall have the meaning ascribed to such term in Section
2.3(b) of this Agreement.
"ACQUIRED AGREEMENTS" shall mean all customer contracts, contracts with
suppliers, other contracts, leases, licenses, permits, commitments or any other
agreements (written or oral) related to, necessary for, or entered into in
connection with, the operation of any of the Kitchens, in which CII has any
rights, under which CII is subject to any obligation or liability, or by which
any of the assets owned or used by CII in connection with the operation of any
of the Kitchens are bound, including, without limitation, the Acquired Kitchens
CIC License Agreement Rights, the CIC Sublease Agreements, the Customer
Agreements and the other agreements listed on Schedule 1 hereto, but excluding
the Excluded Assets.
"ACQUIRED ASSETS" shall mean all privileges, rights, interests and
claims, real and personal, tangible, and intangible, of every type and
description that are owned, leased, used or held for use by CII in connection
with the operation of any of the Kitchens, in which CII has any right, title or
interest, including, without limitation, (i) the Acquired Agreements, (ii)
accounts receivable arising
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on or prior to the Closing Date associated with any of the Kitchens and the
business and operations conducted thereat, (iii) that portion of the net working
capital of CII that is allocable to the Kitchens and the business and operations
conducted thereat, (iv) that portion of the goodwill of CII that is attributable
to the Kitchens and the business and operations conducted thereat and (v) those
items listed on Schedule 1 hereto, but excluding the Excluded Assets.
"ACQUIRED KITCHENS CIC LICENSE AGREEMENT RIGHTS" shall mean any and all
of the rights licensed by CII from Caterair pursuant to the CIC License
Agreement in any of the "CUSTOMER CONTRACTS" (as such term is defined in the CIC
License Agreement) pursuant to which CII has provided, is providing or has the
right to provide goods, products or services to any airline or other customer at
or from any of the Airports or otherwise utilizing any of the Kitchens.
"AGREEMENT" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"ASSIGNMENT AGREEMENT" shall mean an Assignment Agreement, dated the
Closing Date, executed by each of Sky Chefs and CII, in substantially the form
attached as Exhibit D hereto.
"ASSUMED LIABILITIES" shall have the meaning ascribed to such term in
Section 2.2 of this Agreement.
"ASSUMPTION AGREEMENT" shall mean an Assumption Agreement, dated the
Closing Date, executed by each of Sky Chefs and CII, in substantially the form
attached as Exhibit E hereto.
"BILL OF SALE" shall mean a Bill of Sale, dated the Closing Date,
executed by each of Sky Chefs and CII, in substantially the form attached as
Exhibit C hereto.
"KITCHENS NET WORKING CAPITAL" shall have the meaning ascribed to such
term in Section 2.3(a) of this Agreement.
"CATERAIR" shall mean Caterair International Corporation, a Delaware
corporation.
"CIC LICENSE AGREEMENT" shall mean that certain License Agreement,
dated as of September 29, 1995, between CII and Caterair.
"CIC SUBLEASE AGREEMENTS" shall mean those certain Sublease Agreements,
each dated as of September 29, 1995, between CII and Caterair pursuant to which
CII subleases from Caterair certain real and personal property associated with
the Kitchens.
"CII" shall have the meaning ascribed to such term in the introductory
paragraph of this Agreement.
"CLOSING" shall have the meaning ascribed to such term in Section 3.1
of this Agreement.
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"CLOSING DATE" shall have the meaning ascribed to such term in Section
3.1 of this Agreement.
"CLOSING DATE KITCHENS NET WORKING CAPITAL STATEMENT" shall have the
meaning ascribed to such term in Section 2.3(b) of this Agreement.
"CUSTOMER AGREEMENTS" shall mean all contracts, agreements, commitments
or other arrangements (whether written or oral) between CII, on the one hand,
and any airline or other customer of CII, on the other hand, pursuant to which
CII provides to such airline or other customer goods, products or services at or
from any of the Airports or otherwise utilizing any of the Kitchens, together
with all customer lists, financial and accounting records (including, without
limitation, sales records and sales histories) related thereto.
"DAMAGES" shall have the meaning ascribed to such term in Section 8.2
of this Agreement.
"EXCLUDED ASSETS" shall mean (i) any and all collective bargaining
agreements or other arrangements, commitments or understandings arising under
any collective bargaining agreements or otherwise related to any collective
bargaining agreements or any other commitments, plans, arrangements or
understandings regarding terms and conditions of employment for any individuals
employed by CII at any of the Airports or at any of the Kitchens in effect at
any time (collectively, the "CBAS"), (ii) all assets of CII other than the
Acquired Assets (i.e., those assets of CII (or portion thereof) not owned,
leased, used or held for use by CII in connection with the operation of any of
the Kitchens) and (iii) if applicable, that part, portion, or other subdivision
of any Acquired Asset that does not (and only to the extent that such part,
portion, or other subdivision does not) relate to any of the Kitchens, any of
the Airports and the business and operations conducted thereat or therefrom,
which Excluded Assets of CII are expressly not being transferred by CII to Sky
Chefs in connection with the transactions being effected hereby, and will be
retained by CII.
"EXCLUDED LIABILITIES" shall mean (i) any contingent liabilities of CII
(whether or not related to or arising in connection with the Acquired Assets)
that arise, or relate to events which occurred, prior to the Closing Date
(excluding trade payables and accounts payable arising in the ordinary course of
business consistent with past practice), (ii) any liabilities of CII arising at
any time in connection with any Excluded Asset, (iii) any liabilities or
obligations in any way related to, or arising in connection with any CBAs or
under any Federal, state or local law or regulation governing the status of CII
as an employer at any of the Kitchens, (iv) any liability or obligation of CII
to any union representative of any employees at any of the Kitchens, and (v) any
employment-related liabilities, obligations or commitments of CII arising in
connection with, or which in any manner related to, the conduct or operations of
any of the Kitchens prior to the Closing Date related to (A) any claims,
grievances, charges, arbitrations, litigations or other claims or actions,
including, without limitation, those against CII, that in any manner relate to
terms and conditions of employment at any of the Kitchens or individuals
employed at any of the Kitchens and (B) compensation and other benefits due
individuals employed at any of the Kitchens.
"KITCHENS" shall have the meaning ascribed to such term in the first
WHEREAS clause of this Agreement.
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"KITCHENS NET WORKING CAPITAL" shall have the meaning ascribed to such
term in Section 2.3(a) of this Agreement.
"NET WORKING CAPITAL" shall have the meaning ascribed to such term in
Section 2.3(a) of this Agreement.
"PARTY" shall have the meaning ascribed to such term in the
introductory paragraph of the Agreement.
"PURCHASE PRICE" shall have the meaning ascribed to such term in
Section 2.1 of this Agreement.
"RECEIPT" shall mean a Receipt, dated the Closing Date, executed by
each of Sky Chefs and CII, in substantially the form attached as Exhibit B
hereto.
"RELATED AGREEMENTS" shall mean the Assumption Agreement, the
Assignment Agreement, the Sublease Assignments, the Bill of Sale and the
Receipt, and any other agreements, instruments or certificates delivered
hereunder or in connection with the transactions contemplated by a Party.
"REQUIRED CONSENTS" shall mean the consents of any airline or other
customers of CII or other third parties that are required in connection with the
transactions contemplated hereby and in order for the Acquired Assets to be
properly transferred to Sky Chefs, including, without limitation, the consents
listed on Schedule 2 hereto.
"REQUIRED NOTICES" shall mean any notices required to be given to any
airline or other customers of CII or other third parties in connection with the
transactions contemplated hereby and in order for the Acquired Assets to be
properly transferred to Sky Chefs, including, without limitation, the notices
listed on Schedule 2 hereto.
"REVISED PURCHASE PRICE" shall have the meaning ascribed to such term
in Section 2.3(b) of this Agreement.
"REVISED PURCHASE PRICE STATEMENT" shall have the meaning ascribed to
such term in Section 2.3(b) of this Agreement.
"SKY CHEFS" shall have the meaning ascribed to such term in the
introductory paragraph of this Agreement.
"SUBLEASE ASSIGNMENTS" shall mean Assignment Agreements, each in
substantially the form of Exhibit A hereto, dated the Closing Date, assigning
the CIC Sublease Agreements from CII to Sky Chefs.
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<PAGE> 6
1.2 PROVISO RELATING TO SYSTEM-WIDE OR MULTI-LOCATION CONTRACTS.
Notwithstanding anything to the contrary contained in any definition or
other provision of this Agreement, if pursuant to any Acquired Agreement CII has
provided, does provide or enjoys the right to provide goods, products or
services to any airline or other customer or enjoys any other benefit at other
locations in addition to one of the Airports or otherwise utilizing any of the
Kitchens, then the rights enjoyed by CII with respect to such Acquired Agreement
shall be deemed to be an Acquired Agreement only to the extent that such rights
or benefits relate to the provision of goods, products or services to an airline
or other customer or other benefit enjoyed by CII at or from the Kitchens or at
or from the relevant Airport or otherwise utilizing the Kitchens (and not at the
other locations), and it is only such rights and benefits that are being
transferred by CII to Sky Chefs in connection with the transactions contemplated
hereby.
ARTICLE II
ACQUISITION OF ASSETS; ASSUMPTION OF LIABILITIES
2.1 PURCHASE AND SALE OF ASSETS
Upon the terms and subject to the conditions set forth herein, on the
Closing Date, in consideration of (i) $4,810,413 (the "PURCHASE PRICE") to be
paid by Sky Chefs to CII on the Closing Date by wire transfer of immediately
available funds to an account designated by CII or by such other method as may
be designated by CII and (ii) the assumption by Sky Chefs of the liabilities
described in Section 2.2 hereof, CII shall grant, sell, convey, assign, transfer
and deliver to Sky Chefs, and Sky Chefs shall purchase and accept from CII, all
right, title and interest of CII in the Acquired Assets.
2.2 ASSUMPTION OF LIABILITIES.
Upon the terms and subject to the conditions set forth herein, on the
Closing Date, Sky Chefs shall assume all liabilities and obligations associated
with the business and operations conducted at the Kitchens and with the Acquired
Assets, whether arising on, prior to or after the Closing Date, other than the
Excluded Liabilities (the "ASSUMED LIABILITIES").
2.3 ADJUSTMENT.
(a) Each of Sky Chefs and CII hereby acknowledge and agree that the
aggregate Net Working Capital associated with the business and operations at the
Kitchens (the "KITCHENS NET WORKING CAPITAL") as of March 4, 1998 was
$4,068,207. For the purposes of this Agreement, "NET WORKING CAPITAL" is defined
as the difference between current assets and current liabilities each as would
be set forth on a balance sheet prepared in accordance with GAAP.
(b) CII shall prepare in good faith, and deliver to Sky Chefs, on or
before the date that is sixty (60) days following the Closing Date, a statement
setting forth the Kitchens Net Working
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Capital as of the Closing Date (which statement shall set forth in reasonable
detail the computation of such amount including a listing of the assets and
liabilities included in the Kitchens Net Working Capital as of the Closing Date)
(the "CLOSING DATE KITCHENS NET WORKING CAPITAL STATEMENT"). If within thirty
(30) days following delivery of the Closing Date Kitchens Net Working Capital
Statement, Sky Chefs does not give notice to CII of its objection to the
computation of the Kitchens Net Working Capital as of the Closing Date (which
notice must contain a statement of the basis of any objection), then the
calculation of the Kitchens Net Working Capital as of the Closing Date set forth
in the Closing Date Kitchens Net Working Capital Statement shall be final and
binding on all Parties. If a notice of objection is given, then the Parties will
attempt to settle the issues in dispute within fifteen (15) days thereafter. If
they are unable to resolve such issues, any open items will be submitted to a
nationally recognized accounting firm selected by Sky Chefs and reasonably
acceptable to CII (the "ACCOUNTANTS") for resolution. If issues in dispute are
submitted to the Accountants for resolution, (i) each Party will furnish to the
Accountants such work papers and other documents and information relating to the
disputed issues as the Accountants may request and are available to that Party,
and will be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with the
Accountants; (ii) the determination by the Accountants, as set forth in a notice
delivered to each of CII and Sky Chefs, will be binding and conclusive on the
Parties; and (iii) Sky Chefs, on the one hand, and CII, on the other hand, will
each bear 50% of the fees of the Accountants for such determination.
(c) On or before the third business day following the final
determination of the Kitchens Net Working Capital as of the Closing Date, (i) in
the event that the Kitchens Net Working Capital as of the Closing Date is
greater than the Kitchens Net Working Capital as of March 4, 1998, Sky Chefs
shall pay to CII the amount of such excess, by wire transfer of immediately
available funds, to an account designated by CII and (ii) in the event that the
Kitchens Net Working Capital as of the Closing Date is less than the Kitchens
Net Working Capital as of March 4, 1998, CII shall pay to Sky Chefs the amount
of such deficiency, by wire transfer of immediately available funds, to an
account designated by Sky Chefs.
ARTICLE III
CLOSING
3.1 CLOSING.
Subject to the satisfaction (or waiver) of the conditions set forth in
Article V of this Agreement, the closing of the transactions contemplated hereby
(the "CLOSING") shall take place at the offices of Kaye, Scholer, Fierman, Hays
& Handler, LLP, on or about April 17, 1998 (the "CLOSING DATE"), or at such
other place and on such other date as the Parties shall agree.
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3.2 DELIVERY OBLIGATIONS OF CII.
At the Closing, CII shall deliver to Sky Chefs:
(a) the Sublease Assignments, executed by a duly authorized officer on
behalf of CII, transferring to Sky Chefs all of CII's right, title and interest
in and under the CIC Subleases;
(b) the Bill of Sale, executed by a duly authorized officer on behalf
of CII;
(c) the Receipt, executed by a duly authorized officer on behalf of
CII;
(d) the Assignment Agreement, executed by a duly authorized officer on
behalf of CII;
(e) the Assumption Agreement, executed by a duly authorized officer on
behalf of CII;
(f) to the extent that Required Consents and Required Notices are
required to be given and/or received, documents reasonably satisfactory to Sky
Chefs evidencing the receipt of such Required Consents and the giving of such
Required Notices; and
(g) such other agreements, instruments, certificates or assignments as
Sky Chefs may reasonably request to transfer good and valid title of the
Acquired Assets to Sky Chefs on the Closing Date.
3.3 DELIVERY OBLIGATIONS OF SKY CHEFS.
At the Closing, Sky Chefs shall deliver to CII:
(a) the Purchase Price, as provided in Section 2.1 of this Agreement;
(b) the Sublease Assignments, executed by a duly authorized officer on
behalf of Sky Chefs;
(c) the Receipt, executed by a duly authorized officer on behalf of Sky
Chefs;
(d) the Bill of Sale, executed by a duly authorized officer on behalf
of Sky Chefs;
(e) the Assignment Agreement, executed by a duly authorized officer on
behalf of Sky Chefs; and
(f) the Assumption Agreement, executed by a duly authorized officer on
behalf of Sky Chefs.
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ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 REPRESENTATIONS AND WARRANTIES OF CII.
CII represents, warrants and covenants to Sky Chefs, with respect to
the transactions contemplated herein that:
(a) Organization and Authority of CII. CII is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into and perform
this Agreement and the Related Agreements to which it is a party and the
transactions herein and therein contemplated.
(b) Authorization of Agreement. The execution, delivery and performance
by CII of this Agreement and the Related Agreements to which it is a party have
been duly authorized by all requisite corporate action. This Agreement and the
Related Agreements to which it is a party have been duly executed and delivered
by CII and constitute and will constitute a legal, valid and binding obligation
of CII enforceable against CII in accordance with their terms, except as may be
limited by bankruptcy or similar laws affecting creditors' rights generally and
general principles of equity.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Related Agreements to which it is a party by CII do not
violate or conflict with (i) the certificate of incorporation or bylaws of CII
or (ii) any judicial, administrative or regulatory order, judgment or decree or
arbitration award to which CII is a party or by which it or its properties or
any of the Acquired Assets is bound.
(d) Acquired Assets. The Acquired Assets to be sold, transferred, or
assigned to Sky Chefs hereunder include all of the assets of CII used at, in
connection with, or in the operation of, the Kitchens and the business of CII
conducted thereat or therefrom and at the Airports.
(e) No Restrictions. Upon the consummation of the transactions
contemplated by this Agreement and the Related Agreements and the payment of the
Purchase Price by Sky Chefs to CII, Sky Chefs shall acquire good and valid title
to all of the Acquired Assets, free and clear of all restrictions on transfer.
(f) Severance . Except as set forth on Schedule 4.1(f) hereto, CII is
not liable for any severance payments or other payments on account of the
termination of any officer employee or shall be liable for any such payments as
a result of this Agreement.
(g) Collective Bargaining Agreements. Except as set forth on Schedule
4.1(g) hereto, CII is not a party to any CBAs in connection with the business
and operations conducted at any of the Kitchens.
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(h) Labor Disputes. Except as set forth on Schedule 4.1(h) hereto,
there are no strikes, material work stoppages or material disputes pending or,
to the best knowledge of the management of CII, threatened between CII and any
groups of its employees employed in connection with the business and operations
conducted at any of the Kitchens.
(i) Unions. Except as set forth on Schedule 4.1(i) hereto, no labor
union or other collective bargaining unit represents any of the employees of CII
employed in connection with the business and operations conducted at any of the
Kitchens.
(j) Organizational Efforts. Except as set forth on Schedule 4.1(j)
hereto, to the best knowledge of the management of CII, no organizational effort
by any labor union or other collective bargaining unit currently is under way or
threatened with respect to any employees of CII employed in connection with the
business and operations conducted at any of the Kitchens.
(k) Certain Proceedings. Except as set forth on Schedule 4.1(k) hereto
with respect to the business and operations conducted by CII at any of the
Kitchens, there are no (i) material grievances or arbitration proceedings
arising out of or under any CBA, (ii) representation proceedings by any group of
CII's employees employed in connection with the business and operations
conducted at any of the Kitchens, (iii) unfair labor practice charges or
complaints pending before the National Labor Relations Board or any similar
foreign, state or local agency or (iv) charges, claims or litigations pending
before any local, state or Federal agency regarding any employment matter in
connection with the operation of any of the Kitchens or any wages or
compensation payable to any employee or third party in connection with the
operation of any of the Kitchens.
(l) No Brokers. CII has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees or commissions in
connection with the transactions contemplated by this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF SKY CHEFS.
Sky Chefs represents, warrants and covenants to CII, with respect to
the transactions contemplated herein that:
(a) Organization and Authority of Sky Chefs. Sky Chefs is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to enter into and
perform this Agreement and the Related Agreements to which it is a party and the
transactions herein and therein contemplated.
(b) Authorization of Agreement. The execution, delivery and performance
by Sky Chefs of this Agreement and the Related Agreements to which it is a party
have been duly authorized by all requisite corporate action. This Agreement and
the Related Agreements to which it is a party have been duly executed and
delivered by Sky Chefs and constitute and will constitute a legal, valid and
binding obligation of Sky Chefs enforceable against Sky Chefs in accordance with
their terms,
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except as may be limited by bankruptcy or similar laws affecting creditors'
rights generally and general principles of equity.
(c) No Conflicts. The execution, delivery and performance of this
Agreement and the Related Agreements to which it is a party by Sky Chefs do not
violate or conflict with (i) the certificate of incorporation or bylaws of Sky
Chefs or (ii) any judicial, administrative or regulatory order, judgment or
decree or arbitration aware to which Sky Chefs is a party or by which it or its
properties is bound.
(d) Condition of Acquired Assets. Sky Chefs hereby acknowledges that
all the Acquired Assets are being conveyed on an "as is - where is" basis, and
CII makes no representation or warranty as to the condition of the Acquired
Assets.
(e) No Brokers. Sky Chefs has not incurred any obligation or liability,
contingent or otherwise, for brokers' or finders' fees or commissions in
connection with the transactions contemplated by this Agreement.
(f) Transfer Taxes. Sky Chefs shall pay any Federal, state or local
sales, transfer, stamp or like taxes payable in connection with the transfer of
the Acquired Assets and the other transactions contemplated hereby.
ARTICLE V
CONDITIONS
5.1 CONDITIONS TO OBLIGATIONS OF SKY CHEFS AND CII.
Sky Chefs and CII's respective obligations to consummate the
transactions contemplated hereby are subject to the satisfaction on or prior to
the Closing Date of each of the following conditions (unless expressly waived by
Sky Chefs and CII at the Closing):
(a) all Required Consents be obtained and all Required Notices
be given, and that Sky Chefs shall have received written evidence thereof
reasonably satisfactory to Sky Chefs. If the Closing shall have occurred and any
Required Consent shall not have been obtained and/or any Required Notice shall
not have been given, the transfer effected hereby shall not be effective with
respect to the Acquired Asset the transfer of which required such Required
Notice to be given and/or Required Consent to be obtained; provided, however,
that the Parties shall use their respective reasonable efforts to obtain such
Required Consent or cause such Required Notice to be given as soon as is
reasonably practicable following the Closing Date and the related Acquired Asset
to be effectively transferred to Sky Chefs promptly thereafter. With respect to
any such Acquired Asset that cannot be assigned to Sky Chefs as of the date
hereof because of the failure or inability to obtain any Required Consent or to
give any Required Notice or for any other reason, CII hereby agrees, from and
after the date hereof and prior to the date of the proper and effective
assignment of such Acquired Asset to Sky Chefs in accordance with the
immediately preceding sentence, to cooperate
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with Sky Chefs in any reasonable arrangement designed to provide to Sky Chefs
the benefits and obligations associated with such Acquired Asset
(notwithstanding its non-assignment in accordance with the second sentence of
this subparagraph). Sky Chefs agrees that, so long as Sky Chefs is receiving the
benefits of any such Acquired Asset, Sky Chefs will perform CII's obligations in
connection therewith;
(b) there shall not be in effect any injunction or order of
any court prohibiting the consummation of the transactions contemplated hereby;
(c) the other Party shall have performed in all material
respects all of its obligations under this Agreement to be performed prior to or
at the Closing; and
(d) there shall not be in effect any work stoppage, boycott,
strike, disruption or other interference, whether occasioned by any labor
organization or any employee or third party, directed at the operations and/or
business of any of the Kitchens or any other kitchen operated by Sky Chefs or
CII, or the operations and/or business of any customer of Sky Chefs or CII or
any customer of CII or Sky Chefs.
5.2 CONDITIONS TO OBLIGATIONS OF CII.
CII's obligations to consummate the transactions contemplated
hereby are subject to the satisfaction on or prior to the Closing Date of each
of the following conditions (unless expressly waived by CII at the Closing):
(a) Each of the representations and warranties of Sky Chefs in
this Agreement shall be true and correct in all material respects as of the date
hereof and as of the Closing with the same effect as though such representations
and warranties had been made at and as of such time, other than representations
and warranties that speak as of a specific date or time (which need only be true
and correct in all material respects as of such date or time).
(b) Sky Chefs shall have performed in all material respects
all obligations required to be performed or complied with by Sky Chefs under
this Agreement at or prior to Closing.
5.3 CONDITIONS TO OBLIGATIONS OF SKY CHEFS.
Sky Chefs' obligations to consummate the transactions
contemplated hereby are subject to the satisfaction on or prior to the Closing
Date of the following conditions (unless expressly waived by Sky Chefs on the
Closing Date):
(a) Each of the representations and warranties of CII in this
Agreement shall be true and correct in all material respects as of the date
hereof and as of the Closing with the same effect as though such representations
and warranties had been made at and as of such time, other than representations
and warranties that speak as of a specific date or time (which need only be true
and correct in all material respects as of such date or time).
12
<PAGE> 13
(b) CII shall have performed in all material respects all
obligations required to be performed or complied with by CII under this
Agreement at or prior to Closing.
(c) there shall be no material adverse change in the business,
operations, prospects and operations of any of the Kitchens or CII (including,
without limitation, any material change in the terms and conditions of employees
at any of the Kitchens).
ARTICLE VI
EMPLOYEE MATTERS
6.1 EMPLOYEE MATTERS.
(a) Prior to the Closing, CII shall notify all employees at the
Kitchens, and with respect to any employees represented by any labor
organization, the appropriate representative of such organization, that CII will
discontinue operations at the Kitchens effective as of the Closing Date and that
the employment of any individuals employed by CII shall cease effective as of
the Closing Date.
(b) With respect to its operation of the Kitchens, after the Closing,
Sky Chefs shall be (i) entitled to set such terms and conditions of employment
with respect to the post-Closing operations of the Kitchens as Sky Chefs, in its
sole discretion, deems appropriate and (ii) undertake such recruiting and hiring
measures as it, in its sole discretion, deems appropriate.
6.2 COOPERATION IN LABOR MATTERS.
Prior to the Closing Date, CII shall permit, to the extent requested by
Sky Chefs, reasonable access to the Kitchens and its employees by
representatives of Sky Chefs for purposes of recruitment and/or hiring, and CII
and Sky Chefs shall provide each other with such information regarding labor and
employment matters as each may reasonably request in order to consummate the
transactions contemplated hereby.
ARTICLE VII
CONTINUITY OF CUSTOMER SERVICE
Sky Chefs shall use its reasonable best efforts to ensure that the
airlines and other CII customers being serviced from the Kitchens receive
uninterrupted and high quality catering services on and following the Closing
Date. If necessary to provide such services, Sky Chefs shall provide such
services from another facility for such period of time as may be necessary to
ensure such uninterrupted and high quality services.
13
<PAGE> 14
ARTICLE VIII
INDEMNIFICATION; SURVIVAL
8.1 SURVIVAL
The representations and warranties of the parties to this Acquisition
Agreement shall survive the closing for a period of one (1) year from the
Closing Date.
8.2 INDEMNIFICATION BY CII
CII shall indemnify and hold harmless Sky Chefs and Sky Chefs'
affiliates from, and shall reimburse Sky Chefs and Sky Chefs' affiliates for all
losses, liabilities, deficiencies, penalties, claims, damages or expenses
(including, but not limited to, costs of investigation and defense and
reasonable attorneys' fees) (collectively "DAMAGES") arising out of or in
connection with:
(a) any material inaccuracy in any representation or warranty by CII
set forth in this Agreement;
(b) any material failure by CII to perform or comply with any agreement
or covenant contained in this Agreement; and
(c) the Excluded Liabilities.
Notwithstanding anything to the contrary set forth herein, CII shall not
indemnify Sky Chefs for Damages arising out of the gross negligence or willful
misconduct of Sky Chefs. Sky Chefs hereby waives and releases any claims against
CII for consequential or similar damages.
8.3 INDEMNIFICATION BY SKY CHEFS
Sky Chefs shall indemnify and hold harmless CII and CII's affiliates
from, and shall reimburse CII and CII's affiliates for all Damages arising out
of or in connection with:
(a) any material inaccuracy in any representation or warranty by Sky
Chefs set forth in this Agreement;
(b) any material failure by Sky Chefs to perform or comply with any
agreement or covenant contained in this Agreement; and
(c) any Assumed Liabilities and the post-closing operation by Sky Chefs
of the Acquired Assets
Notwithstanding anything to the contrary set forth herein, Sky Chefs shall not
indemnify CII in connection with any Damages arising as a result of the gross
negligence or willful misconduct of CII. CII hereby waives and releases any
claims against Sky Chefs for consequential or similar damages.
14
<PAGE> 15
8.4 PROCEDURE FOR INDEMNIFICATION
In the event that any claim to be indemnified by the other hereunder is
made by CII or Sky Chefs, the Party seeking indemnification hereunder shall give
prompt written notice thereof to the indemnifying Party and the indemnifying
Party shall assume control of, and all expense with respect to, the defense,
settlement, adjustment or compromise of such claim; provided, that (i) the
indemnified Party may, if it so desires, employ counsel at its own expense to
assist in the handling of such claim and (ii) the indemnifying Party shall
obtain the prior written approval of the indemnified Party, which approval shall
not be unreasonably withheld, before entering into any settlement, adjustment or
compromise of such claim or ceasing to defend against such claim, if pursuant
thereto or as a result thereof there would be imposed injunctive or other relief
against the indemnified Party other than monetary damages fully indemnified by
the indemnifying Party. The rights and obligations under this Section will
survive the termination or expiration of this Agreement for any reason.
ARTICLE IX
MISCELLANEOUS
9.1 ENTIRE AGREEMENT; AMENDMENT.
This Agreement (together with the Exhibits and Schedules hereto)
constitutes the entire agreement between the Parties with respect to the subject
matter contained herein, supersedes all prior oral or written agreements,
commitments or understandings between the parties with respect thereto, and
cannot be amended, supplemented or otherwise modified except in a writing
executed by each of the Parties.
9.2 GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to principles of
conflicts of laws.
9.3 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
9.4 SUCCESSORS AND ASSIGNS.
This Agreement is intended for the exclusive benefit of the parties
hereto and their respective successors and assigns. Nothing contained in this
Agreement shall be construed as granting any rights or benefits in or to any
third party, and no person shall assert any rights as third-party beneficiary
hereunder.
15
<PAGE> 16
9.5 CAPTIONS.
The captions in this Agreement are for convenience of reference only
and shall not be given any effect in the interpretation of this Agreement.
9.6 FURTHER ASSURANCES.
On or after the date hereof, CII and Sky Chefs hereby agree to promptly
execute, acknowledge and deliver any other assurances, instruments, agreements,
certificates or other documents and take any other action reasonably requested
by the other party hereto to effect the transactions contemplated hereby.
16
<PAGE> 17
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their officers or other duly authorized representatives as of the
date first above written.
SKY CHEFS, INC.
By: /s/ Jamie Rafftesaeth
-----------------------------
Name: Jamie Rafftesaeth
Title: Assistant Secretary
CATERAIR INTERNATIONAL,
INC. (II)
By: /s/ Terry Roueche
-----------------------------
Name: Terry Roueche
Title: Assistant Secretary
17
<PAGE> 18
Schedule I
ACQUIRED ASSETS
18
<PAGE> 19
Schedule 2
REQUIRED CONSENTS & REQUIRED NOTICES
1. The Consent of the Port Authority of New York and New Jersey (the "Port
Authority"), pursuant to that certain Permit, issued to Marriott
Corporation, dated March 31, 1967, bearing Port Authority
Identification No. AY-837, and covering certain privileges at John F.
Kennedy International Airport, as subsequently assigned by Marriott
Corporation to Caterair Holdings Corporation, pursuant to an Assignment
of Permit with Assumption and Consent Agreement, made as of December
15, 1989, by and among the Port Authority, Caterair Holdings
Corporation and Marriott Corporation, as subsequently assigned by
Caterair Holdings Corporation to Caterair International Corporation
pursuant to an Assignment of Permit with Assumption and consent
Agreement, made as of December 16, 1989, by and among the Port
Authority, Caterair Holdings Corporation and Caterair International
Corporation, as subsequently assigned by Caterair International
Corporation to Caterair International, Inc. (II), pursuant to an
Assignment of Permit with Assumption and Consent Agreement, dated as of
September 29, 1995, by and among the Port Authority, Caterair
International Corporation and Caterair International, Inc. (II).
2. The Consent of the Port Authority pursuant to that certain Permit,
issued to Marriott Corporation, dated March 31, 1967, bearing Port
Authority Identification No. AG-557, and covering certain privileges at
LaGuardia International Airport, as subsequently assigned by Marriott
Corporation to Caterair Holdings Corporation, pursuant to an Assignment
of Permit with Assumption and Consent Agreement, made as of December
15, 1989, by and among the Port Authority, Caterair Holdings
Corporation and Marriott Corporation, as subsequently assigned by
Caterair Holdings Corporation to Caterair International Corporation
pursuant to an Assignment of Permit with Assumption and consent
Agreement, made as of December 16, 1989, by and among the Port
Authority, Caterair Holdings Corporation and Caterair International
Corporation, as subsequently assigned by Caterair International
Corporation to Caterair International, Inc. (II), pursuant to an
Assignment of Permit with Assumption and Consent Agreement, dated as of
September 29, 1995, by and among the Port Authority, Caterair
International Corporation and Caterair International, Inc. (II).
3. The Consent of the Port Authority pursuant to that certain Agreement of
Lease, between the Port Authority and Marriott Corporation, dated as of
October 18, 1986, bearing Port Authority Identification No. AYB-834
covering certain premises, rights and privileges at and in respect to
John F. Kennedy International Airport, as subsequently assigned by
Marriott Corporation to Caterair Holdings Corporation pursuant to an
Assignment of Lease with Assumption and Consent Agreement and
Supplemental Agreement No. 1, made as of December 15, 1989, by and
among the Port Authority, Caterair Holdings Corporation and Marriott
Corporation, as subsequently assigned by Caterair Holdings Corporation
to Caterair International Corporation, pursuant to an Assignment of
Lease with Assumption and Consent Agreement and Supplemental Agreement
No. 2, made as of December 15, 1989, by and among the Port Authority,
Caterair Holdings Corporation and Caterair International Corporation,
which is the subject of that certain Sublease Agreement, dated as of
September
19
<PAGE> 20
29, 1995, between Caterair International, Inc. (II) and Caterair
International Corporation, as consented to by the Port Authority
pursuant to that certain Consent to Sublease Agreement, dated as of
September 29, 1995, among Caterair International Corporation, Caterair
International, Inc. (II) and the Port Authority.
4. Consent of US Air, Inc., pursuant to that certain Catering Agreement,
dated as of September 21, 195, between Caterair International, Inc. and
US Air, Inc.
5. Consent of United Air Lines, Inc., pursuant to [(i)] that certain
Catering Agreement, dated December 31, 1993, between Caterair
International Corporation and United Air Lines, Inc., as subsequently
licensed to Caterair International, Inc. (II) pursuant to that certain
License Agreement, dated as of September 29, 1995, between Caterair
International Corporation and Caterair International, Inc. (II) and
(ii) that certain Master Catering Agreement, dated February 10, 1989,
between United Air Lines, Inc. and Marriot Inflite Services, as
subsequently assigned by Marriott Inflite Catering Services to Caterair
International Corporation and subsequently licensed by Caterair
International Corporation to Caterair International, Inc. (II) pursuant
to that certain License Agreement, dated as of September 29, 1995,
between Caterair International, Inc. (II) and Caterair International
Corporation.
6. Consent of Industrial Associates, pursuant to that certain Lease, dated
October 18, 1993, between Industrial Associates and JFK Caterers, Inc.,
as subsequently assigned by JFK Caterers, Inc. to Caterair
International Corporation on September 29, 1995, and subsequently
subleased by Caterair International Corporation, pursuant to that
certain Sublease Agreement, dated as of September 29, 1995, between
such parties.
20
<PAGE> 21
Schedule 4.1(f)
SEVERANCE
1. Caterair International, Inc. (II) Severance Policy Applicable to
Management Employees
21
<PAGE> 22
Schedule 4.1(g)
COLLECTIVE BARGAINING AGREEMENTS
1. Agreement between Caterair International, Inc. (JFK #370, 378, LGA
#351) and International Association of Machinists and Aerospace
Workers, AFL-CIO and its Local Lodge 2750, expiring on December 31,
1998.
22
<PAGE> 23
Schedule 4.1(h)
LABOR DISPUTES
None
23
<PAGE> 24
Schedule 4.1(i)
UNIONS
1. International Association of Machinists and Aerospace Workers, AFL-CIO,
Local Lodge 2750.
24
<PAGE> 25
Schedule 4.1(j)
ORGANIZATIONAL EFFORTS
None
25
<PAGE> 26
Schedule 4.1(k)
CERTAIN PROCEEDINGS
Pending EEO Charges
1. Coleman v. Caterair (LGA) (Religion)
2. Jiles v. Caterair (LGA) (Race/Sex/National Origin)
3. Alexis V. Caterair (JFK #378) (Race/National Origin)
4. Arjun v. Caterair (JFK #370) (Race/Sex)
5. Cancinos v. Caterair (JFK #370) (National Origin)
6. Cotto v. Caterair (LGA) (Race/Sex/National Origin)
Union Grievances
1. IAM Local 2750 (JFK #370) (Grieving implementation of new attendance
policy)
2. David Britt (JFK #378) (Grieving discharge for possession of alcohol)
3. Segundo Crespo (JFK #378) (Grieving discharge related to prescription
drugs)
4. Osama Mohamed (JFK #378) (Grieving discharge related to drugs)
26
<PAGE> 27
EXHIBIT A
FORM OF
ASSIGNMENT OF SUBLEASES
(Attached hereto)
27
<PAGE> 28
[370 JFK]
[378 JFK]
[351 LAG]
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT (this "AGREEMENT"), dated as of ________ __,
1998, is between CATERAIR INTERNATIONAL, INC. (II) ("CII"), a Delaware
corporation, and SKY CHEFS, INC. ("SKY CHEFS"), a Delaware corporation.
WHEREAS, CII and Sky Chefs are a party to that certain Acquisition
Agreement (the "ACQUISITION AGREEMENT"), dated as of March 19, 1998, pursuant to
which CII has agreed to sell all of its business and the related assets at CII's
flight kitchen catering facilities (the "KITCHENS") at John F. Kennedy
International Airport and LaGuardia International Airport to Sky Chefs, and Sky
Chefs has agreed to acquire all of CII's business and assets at the Kitchens;
WHEREAS, CII is a party to that certain Sublease Agreement (the
"CATERAIR SUBLEASE"), dated as of September 29, 1995, between CII and Caterair
International Corporation ("CATERAIR"), regarding the subleasing of certain
facilities located in ______________, which facilities are leased by Caterair
from _____________ pursuant to a ___________ dated _________ __, 199_;
WHEREAS, CII desires to assign all of its right, title and interest in
the Caterair Sublease to Sky Chefs;
WHEREAS, Sky Chefs will assume all of CII's obligations and liabilities
under the Caterair Sublease; and
WHEREAS, this is an "Assignment of Sublease" contemplated by Sections
3.2(a) and 3.3(a) of the Acquisition Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
As of the date hereof, CII hereby grants, conveys and assigns to Sky
Chefs all of CII's right, title and interest in and to the Caterair Sublease and
Sky Chefs hereby accepts such assignment and assumes all duties, obligations and
liabilities arising therefrom from the date hereof, as if Sky Chefs were an
original party thereto.
In the event of a conflict between the provisions of this Assignment
Agreement and the provisions of the Acquisition Agreement, the parties hereby
agree that the provisions of the Acquisition Agreement shall control and shall
be dispositive.
This Assignment Agreement may be executed in one or more counterparts,
each of which shall be considered an original but all of which together shall
constitute one and the same instrument.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Assignment Agreement
effective as of _______ ___, 1998.
CATERAIR INTERNATIONAL, INC. (II)
By:_____________________________________
Name:
Title:
SKY CHEFS, INC.
By:_____________________________________
Name:
Title:
Accepted and agreed as of
this ___ day of _______, 1998
CATERAIR INTERNATIONAL CORPORATION
By:______________________________
Name:
Title:
29
<PAGE> 30
EXHIBIT B
FORM OF RECEIPT
(Attached hereto)
30
<PAGE> 31
CROSS RECEIPT
Reference is hereby made to that certain Acquisition Agreement (the
"ACQUISITION AGREEMENT"), dated as of March 19, 1998, between Sky Chefs, Inc.
("SKY CHEFS") and Caterair International, Inc. (II) ("CII"). Capitalized terms
used but not defined herein shall have the respective meanings ascribed to them
in the Acquisition Agreement.
Sky Chefs hereby acknowledges receipt, on the date hereof, of the
Acquired Assets referenced in Section 2.1 of the Acquisition Agreement.
CII hereby acknowledges receipt, on the date hereof, of $__________
respect of the Purchase Price for Sky Chefs' acquisition of the Acquired Assets,
as referenced in Section 2.1 of the Acquisition Agreement.
Date: ________ __, 1998
SKY CHEFS, INC.
By:____________________________________
Name:
Title:
CATERAIR INTERNATIONAL, INC. (II)
By:_____________________________________
Name:
Title:
31
<PAGE> 32
EXHIBIT C
FORM OF
BILL OF SALE
(Attached hereto)
32
<PAGE> 33
BILL OF SALE
Reference is hereby made to that certain Acquisition Agreement (the
"ACQUISITION AGREEMENT"), dated as of March 19, 1998, between Sky Chefs, Inc.
("SKY CHEFS") and Caterair International, Inc. (II) ("CII"). Capitalized terms
used but not defined herein shall have the respective meanings ascribed to them
in the Acquisition Agreement.
CII, for and in consideration of the representations, warranties and
agreements set forth in the Acquisition Agreement, and the payment by Sky Chefs
of the Purchase Price, as referenced in Section 2.1 of the Acquisition
Agreement, and other good and valuable consideration paid to the CII, the
receipt and sufficiency of which are hereby acknowledged, has bargained and sold
and by these presents do grant and convey, pursuant to the Agreement, unto Sky
Chefs, all of CII's right, title and interest in and to all of the Acquired
Assets.
IN WITNESS WHEREOF, the undersigned have duly executed this Bill of
Sale as of this __th day of ________ 1998.
SKY CHEFS, INC.
By:____________________________________
Name:
Title:
CATERAIR INTERNATIONAL, INC. (II)
By:_____________________________________
Name:
Title:
33
<PAGE> 34
EXHIBIT D
FORM OF
ASSIGNMENT OF CONTRACTS
(Attached hereto)
34
<PAGE> 35
ASSIGNMENT AGREEMENT
Assignment Agreement, dated as of ________ __, 1998, between Caterair
International, Inc. (II), a Delaware corporation ("CII") and Sky Chefs, Inc., a
Delaware corporation.
Reference is hereby made to that certain Acquisition Agreement, dated
as of March 19, 1998 (as amended from time to time, the "ACQUISITION
AGREEMENT"), between Sky Chefs and CII. Capitalized terms used but not otherwise
defined herein shall have the respective meanings ascribed to such terms in the
Acquisition Agreement.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged and subject to the terms and conditions set forth
in the Acquisition Agreement, CII hereby transfers, assigns, grants, transfers
and otherwise conveys and delivers to Sky Chefs, and Sky Chefs hereby accepts
all of CII's right, title and interest in, to and under the Acquired Agreements.
IN WITNESS WHEREOF, the undersigned have duly executed this Assumption
Agreement as of the date first written above.
SKY CHEFS, INC.
By:____________________________________
Name:
Title:
CATERAIR INTERNATIONAL, INC. (II)
By:_____________________________________
Name:
Title:
35
<PAGE> 36
EXHIBIT E
FORM OF
ASSUMPTION AGREEMENT
(Attached hereto)
36
<PAGE> 37
ASSUMPTION AGREEMENT
Assumption Agreement, dated as of ________ __, 1998, by Sky Chefs,
Inc., a Delaware corporation ("SKY CHEFS").
Reference is hereby made to that certain Acquisition Agreement, dated
as of March 19, 1998 (as amended from time to time, the "ACQUISITION
AGREEMENT"), between Sky Chefs and Caterair International, Inc. (II).
Capitalized terms used but not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Acquisition Agreement.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Sky Chefs hereby assumes and agrees to pay,
perform and discharge when due all of the Assumed Liabilities (but not any of
the Excluded Liabilities) subject to the terms and conditions set forth in the
Acquisition Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Assumption
Agreement as of the date first written above.
SKY CHEFS, INC.
By:______________________________
Name:
Title:
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SC INTERNATIONAL SERVICES, INC. SET FORTH
IN THE ANNUAL REPORT ON FORM 10-K TO WHICH THIS SCHEDULE IS AN EXHIBIT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.*
</LEGEND>
<CIK> 0000948064
<NAME> SC INTERNATIONAL SERVICES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,201
<SECURITIES> 0
<RECEIVABLES> 13,344
<ALLOWANCES> 523
<INVENTORY> 0
<CURRENT-ASSETS> 42,950
<PP&E> 179,175
<DEPRECIATION> 110,393
<TOTAL-ASSETS> 160,504
<CURRENT-LIABILITIES> 18,815
<BONDS> 0
0
0
<COMMON> 173,596
<OTHER-SE> (270,613)
<TOTAL-LIABILITY-AND-EQUITY> 160,504
<SALES> 75,832
<TOTAL-REVENUES> 75,832
<CGS> 30,185
<TOTAL-COSTS> 30,185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,376
<INCOME-PRETAX> 18,387
<INCOME-TAX> 8,751
<INCOME-CONTINUING> 9,636
<DISCONTINUED> (444)
<EXTRAORDINARY> (4,219)
<CHANGES> 0
<NET-INCOME> 4,973
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
____________
* The co-registrants include Caterair International, Inc. (II), Sky Chefs, Inc.,
and each of the other co-registrants named in the table of additional
registrants included in the Annual Report on Form 10-K. The consolidated
financial statements of SC International Services, Inc. include the accounts
of SC International Services, Inc. and all of the other co-registrants.
</TABLE>
<PAGE> 1
EXHIBIT 99
INDEX TO FINANCIAL STATEMENTS
Page
----
Caterair International Corporation and Subsidiaries:
Report of Independent Accountants for the three years in
the period ended December 31, 1997.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996..... F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1997........................... F-4
Consolidated Statements of Shareholder's Equity for each of the
three years in the period ended December 31, 1997............... F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1997........................... F-6
Notes to Consolidated Financial Statements....................... F-7
F - 1
<PAGE> 2
EXHIBIT 99
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, 1997 and 1996 and
the related consolidated statements of operations, shareholder's deficit and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our 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, 1997 and 1996 and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Dallas, Texas
February 12, 1998
F - 2
<PAGE> 3
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31,
-----------------------
ASSETS 1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 21,201 $ 6,847
Accounts receivable (net of allowance for doubtful accounts of
$523 and $994 in 1997 and 1996, respectively) 12,821 15,874
Current portion of amount due from affiliate under non-competition agreement 3,037 3,130
Advances to affiliate 3,970 4,505
Deferred income taxes 785 920
Prepaid expenses and other 1,136 1,312
--------- ---------
Total current assets 42,950 32,588
Property and equipment, net 68,782 79,395
Deferred income taxes 30,235 38,458
Deferred financing cost, net 2,549 4,875
Due from affiliate under non-competition agreement 9,752 12,458
Other assets 6,236 9,506
--------- ---------
Total assets $ 160,504 $ 177,280
========= =========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 14,068 $ 24,841
Current portion of deferred revenue under non-competition agreement 3,037 3,130
Current portion of long-term debt 1,600 17,206
Current portion of obligations under capital leases 110 105
--------- ---------
Total current liabilities 18,815 45,282
Obligations under capital leases 1,678 1,788
Long-term debt 158,000 150,298
Note payable to affiliate 44,965 41,634
Deferred revenue under non-competition agreement with affiliate 8,701 11,738
Net liabilities of discontinued operations 3,419 3,332
Other long-term liabilities and deferred credit 21,943 25,198
--------- ---------
Total liabilities 257,521 279,270
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
Advance to parent (38,947) (38,947)
Cumulative translation adjustment 23 23
Accumulated deficit (231,689) (236,662)
--------- ---------
Total shareholder's deficit (97,017) (101,990)
--------- ---------
Total liabilities and shareholder's deficit $ 160,504 $ 177,280
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 3
<PAGE> 4
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues from affiliates:
License income $ 32,545 $ 34,349 $ 8,001
Rental income 40,157 40,479 10,169
Income under non-competition agreement 3,130 3,130 783
-------- -------- --------
Total revenues 75,832 77,958 18,953
-------- -------- --------
Operating expenses:
Cost of operations 30,185 30,416 7,649
Selling, general and administrative 713 1,393 125
Depreciation and amortization 10,676 11,806 3,400
-------- -------- --------
Total operating expenses 41,574 43,615 11,174
-------- -------- --------
Operating income 34,258 34,343 7,779
Interest income (741) (208) (264)
Interest expense 17,376 18,450 4,979
Other income (764) -- --
-------- -------- --------
Income from continuing operations before income taxes 18,387 16,101 3,064
Income tax provision (benefit) 8,751 8,044 (50,380)
-------- -------- --------
Income from continuing operations 9,636 8,057 53,444
-------- -------- --------
Discontinued operations, net of taxes:
Income (loss) from discontinued operations (444) 904 (25,430)
Gain on disposition of discontinued operations -- 778 52,674
-------- -------- --------
Income (loss) from discontinued operations (444) 1,682 27,244
-------- -------- --------
Income before extraordinary item 9,192 9,739 80,688
Extraordinary loss from early extinguishment of debt (4,219) -- (4,319)
-------- -------- --------
Net income $ 4,973 $ 9,739 $ 76,369
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 4
<PAGE> 5
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, 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 -- -- -- -- -- 4,973 4,973
------ --------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 10,000 $ -- $ 173,596 $ (38,947) $ 23 $(231,689) $ (97,017)
====== ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
<PAGE> 6
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,973 $ 9,739 $ 76,369
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 10,676 11,806 3,400
Deferred income taxes 8,358 8,485 (50,480)
Interest on note payable to affiliate settled in-kind 3,331 3,090 756
Noncash interest expense 771 1,017 254
Extraordinary loss from early extinguishment of debt 4,219 -- 4,319
Bad debt expense (476) 994 --
Gain on sale of fixed assets (764) -- --
Gain on disposition of discontinued operations -- (778) (52,674)
Change in working capital items (Note 14) (7,068) (6,469) (9,852)
Change in other assets and liabilities (262) -- --
Proceeds from insurance carrier from loss on capital assets -- 1,200 --
Net effect of discontinued operations 87 2,581 (39,683)
--------- --------- ---------
Net cash provided by (used in) operating activities 23,845 31,665 (67,591)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures -- (2,300) (6,128)
Proceeds from sale of discontinued operations -- -- 208,300
Proceeds from sale of fixed assets 619 -- --
(Advances to) repayments from affiliates 535 (5,548) --
Net effect of discontinued operations -- -- (5,417)
--------- --------- ---------
Net cash provided by (used in) investing activities 1,154 (7,848) 196,755
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 160,000 -- 185,000
Repayments of long-term debt and capital lease obligations (168,009) (17,601) (301,854)
Repayments on the revolving credit facility -- -- (62,500)
Proceeds from note payable to affiliate -- -- 37,788
Deferred financing costs (2,636) -- --
--------- --------- ---------
Net cash used in financing activities (10,645) (17,601) (141,566)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 14,354 6,216 (12,402)
Cash and cash equivalents, beginning of period 6,847 631 13,033
--------- --------- ---------
Cash and cash equivalents, end of period $ 21,201 $ 6,847 $ 631
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 16,186 $ 15,268 $ 67,610
Income taxes -- -- 6,945
Supplemental disclosure of noncash financing and investing
activities:
Liabilities assumed by purchaser upon disposition of
discontinued operations $ -- $ 4,464 $ 44,048
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 6
<PAGE> 7
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 were 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 were 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.
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.
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.
F - 7
<PAGE> 8
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF
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.
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. The Company amortized $771, $1,017 and $254 of
these costs in 1997, 1996 and 1995, respectively, which are reflected
in interest expense.
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.
F - 8
<PAGE> 9
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 ("SFAS 130"),
"Reporting Comprehensive Income," effective for financial statements
for fiscal years beginning after December 15, 1997. This Statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt SFAS 130 effective
January 1, 1998.
Also during June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information," effective for
financial statements for fiscal years beginning after December 15,
1997. Preliminary analysis of this new standard by the Company
indicates that the standard will not have a material impact on its
financial statements.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 ("SFAS 132"),
"Employers' Disclosures about Pensions and Other Postretirement
Benefits," effective for financial statements for fiscal years
beginning after December 15, 1997. This statement significantly changes
current financial statement disclosure requirements for pensions and
other postretirement benefits. The Company will adopt SFAS 132
effective January 1, 1998.
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 obtaining 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 $1,057 and $604 for the
period ended December 31, 1996 and 1995, respectively.
F - 9
<PAGE> 10
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. DISCONTINUED OPERATIONS--(CONTINUED)
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. 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 discontinued operations follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues $ 3,837 $ 31,169 $ 773,243
Cost of operations 4,080 27,854 698,689
Selling, general and administrative expenses 38 1,057 27,698
Depreciation and amortization -- -- 21,821
--------- --------- ---------
Operating income (loss) (281) 2,258 25,035
Interest expense, net 15 18 45,626
Other 444 920 (674)
--------- --------- ---------
Income (loss) before income taxes (740) 1,320 (19,917)
Income provision (benefit) (296) 416 5,513
--------- --------- ---------
Income (loss) from discontinued operations $ (444) $ 904 $ (25,430)
========= ========= =========
</TABLE>
The identifiable assets and liabilities of discontinued operations have
been reclassified on the accompanying consolidated balance sheet at
December 31, 1997 and 1996 from their historical classification to
separately identify them as net assets or liabilities of discontinued
operations. 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,
----------------------
1997 1996
------- -------
<S> <C> <C>
Current assets $ 531 $ 333
Other current liabilities (3,947) (3,662)
Noncurrent liabilities (3) (3)
------- -------
Net liabilities of discontinued operations $(3,419) $(3,332)
======= =======
</TABLE>
F - 10
<PAGE> 11
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. DISCONTINUED OPERATIONS--(CONTINUED)
Information concerning operations by geographic area is presented
below:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales:
United States $ -- $ 26,859 $ 384,677
International 3,837 4,310 388,566
--------- --------- ---------
$ 3,837 $ 31,169 $ 773,243
========= ========= =========
Operating income (loss):
United States $ -- $ 2,562 $ 18,413
International (281) (304) 6,622
--------- --------- ---------
$ (281) $ 2,258 $ 25,035
========= ========= =========
Identifiable assets:
United States $ -- $ -- $ 2,180
International 531 333 2,296
--------- --------- ---------
$ 531 $ 333 $ 4,476
========= ========= =========
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
Land $ 10 $ 305
Buildings and leasehold improvements 120,170 117,687
Machinery and equipment 58,955 60,330
Construction in progress 40 2,532
-------- --------
179,175 180,854
Less accumulated depreciation and amortization 110,393 101,459
-------- --------
$ 68,782 $ 79,395
======== ========
</TABLE>
As of December 31, 1997 and 1996, substantially all property and
equipment has been leased or subleased to Sky Chefs and CII.
F - 11
<PAGE> 12
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
4. OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
------ ------
<S> <C> <C>
Casualty insurance loss deposits $5,239 $8,051
Lease deposits 144 144
Intangible assets acquired 853 1,137
Other -- 174
------ ------
$6,236 $9,506
====== ======
</TABLE>
5. LONG-TERM DEBT AND NOTE PAYABLE TO AFFILIATE
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
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 $159,600 $ --
Term loans retired in 1997 -- 167,500
Other long-term debt -- 4
-------- --------
Total debt 159,600 167,504
Less current portion of long-term debt 1,600 17,206
-------- --------
Long-term debt $158,000 $150,298
======== ========
Senior Subordinated Note due SCIS in 2001 $ 44,965 $ 41,634
======== ========
</TABLE>
F - 12
<PAGE> 13
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. LONG-TERM DEBT AND NOTE PAYABLE TO AFFILIATE--(CONTINUED)
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
provides 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). 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 Caterair.
On August 28, 1997, SCIS consummated an offering of $300,000 of its
9.25% Senior Subordinated Notes due 2007 (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 and
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. The New Notes may
be redeemed at the option of SCIS commencing on September 1, 2002 at
prices ranging from 104.635% to 100% of face value plus accrued and
unpaid interest. 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
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 "Existing Notes" 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.
F - 13
<PAGE> 14
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. LONG-TERM DEBT AND NOTE PAYABLE TO AFFILIATE--(CONTINUED)
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 (and with final
maturity in 2007) 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 (and with final maturity in 2007) for purposes of financing, in
part, SCIS' Offer to Purchase, funding payment of related transaction
costs and general corporate purposes. Caterair and SCIS had $159,600
and $89,775, respectively, of borrowings outstanding under the Term
Loan Agreement at December 31, 1997. At December 31, 1997,
approximately $21,911 of bank letters of credit were issued under the
Revolving Credit Agreement to SCIS (on behalf of the Company) and
approximately $75 were 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.
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'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), 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
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 or 0.5% above the lender's
base rate. The actual rate charged on each credit instrument is
dependent on the selection of either the 30, 60, 90, 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 December 31, 1997 on the
Company's indebtedness under the Term Loan Agreement was 7.44%.
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 December 31, 1997 and
has a stated maturity of September 15, 2002.
F - 14
<PAGE> 15
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. LONG-TERM DEBT AND NOTE PAYABLE TO AFFILIATE--(CONTINUED)
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 requires 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 December 31,
1997.
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 and the
Senior Bank Financing. The cumulative amounts due under this loan were
$44,965 and $41,634 at December 31, 1997 and 1996, respectively.
Interest expense related to this loan of $3,331, $3,090 and $756, is
included in interest expense for the years ended December 31, 1997,
1996 and 1995, respectively.
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>
1998 $ 1,600
1999 1,600
2000 1,600
2001 1,600
2002 1,600
Thereafter 151,600
--------
$159,600
========
</TABLE>
6. OTHER LONG-TERM LIABILITIES AND DEFERRED CREDIT
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
Casualty insurance losses $ 5,055 $ 7,103
Deferred gain on TriNet sale and leaseback 11,319 11,824
Other 5,569 6,271
------- -------
$21,943 $25,198
======= =======
</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.
F - 15
<PAGE> 16
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 periods ended December 31, 1997, 1996 and 1997 was comprised of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Minimum rent $ 30,691 $ 30,922 $ 3,298
Contingent rent -- -- 4,489
Less deferred gain on sale and leaseback (506) (506) (138)
-------- -------- --------
Total rent expense $ 30,185 $ 30,416 $ 7,649
======== ======== ========
</TABLE>
Contingent rent represents percentage rent based on gross revenue in
excess of minimum levels.
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, 1997, are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- --------
<S> <C> <C>
Year ending December 31,
1998 $ 254 $ 19,475
1999 256 18,859
2000 253 18,929
2001 254 17,656
2002 254 15,468
Thereafter 1,578 149,366
-------- --------
Total minimum lease payments 2,849 $239,753
========
Less imputed interest 1,061
--------
Present value of minimum lease payments 1,788
Less current portion 110
--------
Long-term portion of minimum lease payments $ 1,678
========
</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.
F - 16
<PAGE> 17
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. LEASES--(CONTINUED)
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 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 the termination of the applicable Domestic
Lease. The Company is not certain whether such options will be
exercised. Total future revenues under the Domestic Leases at December
31, 1997 and 1996, were approximately $108,958 and $135,117,
respectively, of which approximately $37,500 and $47,500, respectively,
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 SkyChefs and CII as
of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Period ended December 31,
1998 $ 29,729
1999 29,115
2000 29,182
2001 20,932
2002 --
Thereafter --
--------
Total minimum rental income $108,958
========
</TABLE>
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 years ended December 31, 1997 and 1996, respectively, are as
follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 393 $ 325 $ --
State and local -- -- 100
-------- -------- --------
393 325 100
-------- -------- --------
Deferred:
Federal 7,313 6,754 (44,170)
State and local 1,045 965 (6,310)
-------- -------- --------
8,358 7,719 (50,480)
-------- -------- --------
Total income tax provision (benefit) $ 8,751 $ 8,044 $(50,380)
======== ======== ========
</TABLE>
F - 17
<PAGE> 18
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. INCOME TAXES--(CONTINUED)
Components of deferred tax assets and liabilities of continuing
operations recognized in the consolidated financial statements as of
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Benefit of federal and state net operating loss carryforwards $ 29,395 $ 31,343
Property and equipment 6,045 3,977
Intangible assets acquired 4,136 4,039
Payroll accruals 79 154
Casualty insurance 6,577 6,918
Benefit of federal targeted jobs tax credit carryforwards 1,075 978
Reserves -- 1,803
Other items 1,048 1,415
-------- --------
48,355 50,627
Valuation allowance (14,147) (8,319)
-------- --------
Total deferred tax assets, net of valuation allowance 34,208 42,308
Deferred tax liabilities (3,188) (2,930)
-------- --------
Net deferred tax asset $ 31,020 $ 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 $5,828 and $1,213 in 1997 and 1996, respectively,
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.
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 $18,584 $ 11 2005
1991 15,490 243 2006
1992 4,148 161 2007
1993 -- 146 2008
1994 35,267 92 2009
1995 -- -- 2010
1996 -- 307 2011
1997 -- 115 2012
------- -------
Total $73,489 $ 1,075
======= =======
</TABLE>
F - 18
<PAGE> 19
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. INCOME TAXES--(CONTINUED)
A reconciliation of the U.S. Federal income tax statutory rate and the
provision for income taxes on income from continuing operations for the
year ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Tax at statutory rate $ 7,355 $ 6,440 $ 1,226
State taxes -- -- 100
Permanent differences (2,432) 391 --
Utilization of NOL (312) -- (1,226)
Change in valuation allowance 4,140 1,213 (50,480)
-------- -------- --------
Provision (benefit) for income taxes $ 8,751 $ 8,044 $(50,380)
======== ======== ========
</TABLE>
9. RELATED PARTY TRANSACTIONS
In connection with the Transactions, the Company licensed to SCIS most
of its rights under certain customer contracts for a six-year period
(the "License Agreements"). 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. 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 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.
It 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 revenues for these arrangements with Caterair for the
periods ended December 31, 1997, 1996 and 1995 included in total
expenses, amounted to $75,832, $77,958 and $18,953 respectively.
To facilitate the various transactions with Caterair, SCIS performs
certain management and support functions on behalf of Caterair.
Caterair paid management fees to SCIS for these services of $500, $500
and $125 for the periods ended December 31, 1997, 1996 and 1995,
respectively, which were included in selling, general and
administrative expenses.
10. 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.
F - 19
<PAGE> 20
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. EMPLOYEE SEVERANCE--(CONTINUED)
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.
11. 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.
One 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.
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, 1997 and 1996,
the discount rate used was 7% and the unpaid balance amounted to $7,650
and $15,056, respectively.
12. 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.
F - 20
<PAGE> 21
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
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 of accrued expenses and other liabilities. The estimated fair
values and carrying amount of other financial instruments at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997
---------------------
Estimated Carrying
Fair Value Amount
---------- --------
<S> <C> <C>
Assets:
Interest rate swap agreement (a) $ 1,415 $ --
Liabilities:
Term loan (b) 159,600 159,600
Senior subordinated note due to affiliate (c) 44,965 44,965
</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, 1997 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, 1997 and 1996, as a result of fluctuations in projected
futures interest rate swap transaction values subsequent to the trade
date of December 27, 1995.
(b) TERM LOAN
The fair value of the term loan approximates the carrying value since
the interest rate is 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, 1997.
13. 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.
F - 21
<PAGE> 22
CATERAIR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES--(CONTINUED)
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.
14. CHANGES IN WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(Increase) decrease in accounts receivable $ 3,529 $ (3,014) $ (4,352)
Decrease in prepaid expenses and other 176 2,009 4,891
Decrease in accounts payable and accrued liabilities (10,773) (5,464) (10,391)
-------- -------- --------
Change in working capital items $ (7,068) $ (6,469) $ (9,852)
======== ======== ========
</TABLE>
F - 22
