<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Third Quarter Ended Commission File Number
September 30, 1996 33-92752
IN-FLIGHT PHONE CORPORATION
One Tower Lane
Oakbrook Terrace, IL 60181
(630) 573-2660
Delaware 36-3733319
- ------------------------ -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
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
--- ---
At September 30, 1996, Registrant had outstanding 2,339,754 shares of $0.01 par
value common stock.
<PAGE> 2
IN-FLIGHT PHONE CORPORATION
(A Subsidiary of IFP Holdings, Inc.)
INDEX TO FORM 10-Q
Page No.
--------
COVER 1
INDEX 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet as of
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statement of Operations for the
nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 1996 and 1995 5
Condensed Consolidated Statement of Changes in
Stockholder's Deficit 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceeding 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
FINANCIAL DATA SCHEDULE 17
<PAGE> 3
IN-FLIGHT PHONE CORPORATION
(A Subsidiary of IFP Holdings, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 8,478 $ 47,918
Restricted cash 1,750 --
Short-term investments at fair value 3,500 28,123
Other current assets 615 103
-------- --------
Total current assets 14,343 76,144
-------- --------
Fixed assets 105,485 104,511
Other noncurrent assets 9,606 19,245
-------- --------
Total assets $129,434 $199,900
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Accounts payable and accrued liabilities $ 22,079 $ 32,746
Notes payable and lease obligations-current portions 2,163 1,684
-------- --------
Total current liabilities 24,242 34,430
-------- --------
Senior discount notes 214,371 191,591
Notes payable-related parties 24,964 24,964
Interest payable-related parties 6,448 3,118
Other long-term liabilities 4,823 6,058
-------- --------
Total long-term liabilities 250,606 225,731
-------- --------
Exchangeable, mandatorily redeemable preferred stock 42,974 37,434
Warrants 27,387 27,387
Stockholder's deficit:
Common stock and paid in capital $.01 par value, 10,000,000
shares authorized; 2,339,754 shares issued and outstanding
at September 30, 1996 and December 31, 1995 154,064 159,604
Accumulated deficit (369,953) (285,080)
Unrealized gain on investments 114 394
-------- --------
Total stockholder's deficit (215,775) (125,082)
-------- --------
Total liabilities and stockholder's deficit $129,434 $199,900
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
IN-FLIGHT PHONE CORPORATION
(A Subsidiary of IFP Holdings, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
FlightLink system revenue 2,519 1,128 5,531 $ 2,407
Other revenue 154 91 220 166
-------- -------- -------- --------
2,673 1,219 5,751 2,573
-------- -------- -------- --------
EXPENSES
Direct operating costs 3,069 11,339 6,959 13,495
Cost of equipment sold -- 47 -- 94
Research and development 3,021 980 5,695 3,319
Selling, general and administrative 11,107 23,136 36,017 35,047
Depreciation and amortization 6,376 5,115 15,766 12,460
-------- -------- -------- --------
23,573 40,617 64,437 64,415
-------- -------- -------- --------
Loss from operations (20,900) (39,398) (58,686) (61,842)
Interest expense (9,573) (10,307) (28,000) (19,543)
Interest income 353 1,942 1,813 3,223
-------- -------- -------- --------
Loss before income taxes (30,120) (47,763) (84,873) (78,162)
Income taxes -- -- -- --
-------- -------- -------- --------
Net loss before extraordinary item (30,120) (47,763) (84,873) (78,162)
Extraordinary item -- -- -- (5,090)
-------- -------- -------- --------
Net loss $(30,120) $(47,763) $(84,873) $(83,252)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 5
IN-FLIGHT PHONE CORPORATION
(A Subsidiary of IFP Holdings, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows used for operating activities:
Net loss $(84,873) $(83,252)
Extraordinary loss 5,090
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 15,766 12,460
Amortization of financing fees and discounts 24,290 12,934
Employee stock option plan expense 791
Reserve for accounts receivable-affiliate 1,036
Write-off of fixed assets 6,515 14,915
Change in assets and liabilities:
Restricted cash (1,750) --
Other current assets (513) (63)
Inventory -- 35
Other noncurrent assets 6,000 --
Accounts payable and accrued liabilities (10,673) 14,553
Accounts payable-affiliate -- (574)
Interest payable 3,344 1,154
Other long-term liabilities 198 175
Other-net 393 (184)
-------- --------
Net cash used for operating activities (41,303) (20,930)
-------- --------
Cash flows provided by (used in) investing activities:
Purchase of short term investments (35,840) (66,654)
Proceeds from maturity and sale of short term
investments 59,782 --
Other noncurrent assets 2,067 (9,353)
Additions to fixed assets (23,192) (77,694)
-------- --------
Net cash provided (used) by investing activities 2,817 (153,701)
-------- --------
Cash flows provided by (used in) financing activities:
Advances from (repayment to) parent -- (3,297)
Proceeds from issuance of debt -- 190,001
Deferred financing fees -- (9,911)
Repayment of debt -- (1,000)
Repayments to related parties -- (1,471)
Repayments under capital leases (954) (1,424)
Proceeds from issuance of exchangeable preferred stock 40,000
-------- --------
Net cash provided (used) by financing activities (954) 212,898
-------- --------
Net increase (decrease) in cash and cash equivalents (39,440) 38,267
Cash and cash equivalents at beginning of period 47,918 5,777
-------- --------
Cash and cash equivalents at end of period $ 8,478 $ 44,044
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 6
IN-FLIGHT PHONE CORPORATION
(A Subsidiary of IFP Holdings, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
(amounts in thousands except share data)
<TABLE>
<CAPTION>
Common Stock
-------------------
Number Accumulated Unrealized Gain Stockholder's
of Shares Amount Deficit (Loss) on Investments Deficit
--------- ------ ----------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 2,339,754 $159,604 $(285,080) $394 $(125,082)
Dividends and accretion of exchangeable
mandatorily redeemable preferred
stock (unaudited) (5,540) (5,540)
Net loss for nine months ended September 30,
1996 (unaudited) (84,873) (84,873)
Unrealized loss on investments (unaudited) (280) (280)
--------- -------- --------- ---- ---------
Balance at September 30, 1996
(unaudited) 2,339,754 $154,064 $(369,953) $114 $(215,775)
========= ======== ========= ==== =========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 7
IN-FLIGHT PHONE CORPORATION
(A Subsidiary of IFP Holdings, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, all normal recurring adjustments necessary
for a fair presentation of the results for the unaudited interim
periods have been included in the accompanying condensed consolidated
financial statements. These condensed consolidated financial statements
should be read in conjunction with the Company's financial statements and
notes thereto for the year ended December 31, 1995. The consolidated
financial statements have been prepared assuming the Company will continue
as a going concern. See discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
2. Fixed assets at September 30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
(unaudited)
(in thousands)
<S> <C> <C>
FlightLink system $ 81,863 $ 50,685
Equipment held for installation 57,403 76,124
Assets under capital lease 4,842 4,994
Furniture, fixtures, equipment
and leasehold improvements 7,387 3,976
-------- --------
151,495 135,779
Less accumulated depreciation (46,010) (31,268)
-------- --------
$105,485 $104,511
======== ========
</TABLE>
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RELATIONS WITH CONTINENTAL AIRLINES, INC.
On October 28, 1996 the Company received a notice of default from
Continental Airlines, Inc. ("Continental") regarding the Company's
performance under its contract with Continental. At October 28, the Company
had installed its FlightLink II system on 118 of 249 Continental aircraft,
and the Company has continued to install the FlightLink system on an
additional seven aircraft since receipt of notice. The Default cited the
Company's failure to make payments to Continental as specified in the
contract, and the Company's failure to supply and install equipment in
accordance with the provisions of the contract. Concurrent with the notice
of default, Continental filed a lawsuit in Houston, Texas seeking both,
relief from the contract and damages from the Company.
On November 22, 1996, the Company and Continental executed an amendment
to the Telecommunications System Agreement (the "Agreement") such that
Continental withdrew its notice of default and dismissed its pending lawsuit.
In return, the Company agreed to (i) obtain certain financing commitments by
January 1, 1997 and certain financing proceeds by January 31, 1997, a specific
portion of which will be dedicated to the completion of, and maintenance to
the Continental fleet, and (ii) provide to Continental on a continuous basis,
written assurances that inventory necessary to install the FlightLink systems
on the newly delivered aircraft to Continental's fleet after January 1, 1998,
is available at least three months in advance of the scheduled delivery date
from the aircraft manufacturer. The amendment also included mutual releases
for any damages arising from prior performance of the Agreement.
Contemporaneously with the execution of the amendment, the Company made the
required payments to Continental in accordance with the amendment.
If the financing commitment is not obtained by January 1, 1997 or the
closing does not occur by January 31, 1997, (i) Continental would have the
right to install other air-to-ground telecommunications and information
systems in any or all of its aircraft (whether currently operated or to be
operated in the future) on which the FlightLink system is not then installed,
(ii) subject to (iii) below, Continental would have the right to install
entertainment equipment other than the Company's live video system on any of
its aircraft, and (iii) the Company would have the right, but not the
obligation, to install its live video on all Continental's aircraft, which
right would expire on December 31, 1998. There can be no assurance that the
Company can obtain the required financial resources to meet the contractual
commitments. (See "Liquidity and Capital Resources")
RELATIONS WITH AMERICA WEST AIRLINES, INC.
On November 26, 1996 the Company received a notice of default from
America West Airlines, Inc. ("America West") regarding the Company's
failure to make payments of not less than $215,428 of guaranteed commissions
due to America West for the period January 1, 1995 to December 31, 1995, as
specified in accordance with the provisions of the contract. The Company
agrees that America West is owed guaranteed commissions for such period. The
Company has withheld payment to America West pending a final accounting of
the amount due and for unresolved claims for amounts owed by America West to
the Company for services rendered by the Company.
Under the contract, the Company has 60 days to cure the default. The
Company and America West have already entered into discussions in an attempt
to resolve the amounts owed, the timing of any payment, and other matters.
There can be no assurance that such discussions will result in a mutually
acceptable agreement.
RELATIONS WITH HARRIS CORPORATION
Harris Corporation ("Harris") sent letters to the Company dated November
1, 1996 and November 6, 1996 claiming that the Company was required to
increase the amount of the Letter of Credit provided to Harris pursuant to the
Broadcast System Agreement dated May 20, 1996 by and among the Company and
Harris (the "Harris Agreement") by $500,000 to $1,500,000 on October 30,
1996, and that Harris would proceed to terminate the Harris Agreement if such
failure is not cured by December 2, 1996. On November 5, 1996, Harris sent
an invoice to the Company claiming that a payment of $1,204,836 is due on or
before November 19, 1996. The Company has not made this payment and has not
received a notice of default from Harris with respect to its failure to make
this payment. The Company does not dispute its obligation to increase the
amount of the Letter of Credit although it believes that this obligation did
not arise until November 5, 1996 or to make the payment invoiced by Harris.
The Company has made a proposal to Harris which would defer the Company's
obligation to increase the Letter of Credit and make such payment until after
it has completed its financing. (See "Relations With Continental Airlines,
Inc.") The Company expects to receive Harris' response to its proposal
shortly. There can be no assurances that Harris will accept the Company's
proposal to defer these obligations.
FINANCIAL STATEMENTS
The financial statements of the Company as of December 31, 1995 have
been audited by the Company's independent public accountants. The financial
data as of and for the three and nine months ended September 30, 1996 and
September 30, 1995, as presented herein, have been prepared by management and
are unaudited. This unaudited data reflects all adjustments, consisting
primarily of normal recurring adjustments, which, in the opinion of
management, are necessary to present fairly the financial position, results
of operations and cash flows of the Company for the periods then ended.
These interim statements are condensed and do not include all the information
required by generally accepted accounting principles in a full set of
financial statements. These interim statements should be read in conjunction
with the Company's audited financial statements for the year ended December
31, 1995 and the notes thereto.
The results of operations for the three and nine months ended September
30, 1996 are not necessarily indicative of the results to be expected for the
full year.
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995 the Company had an excess of current assets over
current liabilities of $41.7 million, including cash of $47.9 million and
short-term investments of $28.1 million. In the third quarter of 1996, the
Company completed the installation of the FlightLink system on 34 aircraft
bringing the total of aircraft installed with the FlightLink system to 204
The Company incurred a net loss for the nine month period ended September 30,
1996 of $84.9 million compared to a net loss of $83.3 million for the same
period in 1995. At September 30, 1996, the Company had an excess of current
liabilities over current assets of $9.9 million, including cash of $10.2
million of which $1.8 million is restricted and short-term investments of
$3.5 million. At November 13, 1996, the Company had $7.8 million in cash and
short-term investments, of which $1.75 million is restricted. In addition,
at November 1, 1996 the Company has open purchase order commitments in excess
of $19.0 million and accrued cancellation fees to vendors resulting
primarily from the cancellation of the USAir contract of approximately $5.0
million.
Subject to obtaining sufficient additional financing, the Company plans
to complete substantially all installations of the basic FlightLink system on
aircraft subject to existing contracts during 1996 and 1997. The Company has
experienced significant delays in installations of the aircraft remaining
under contract. Original aircraft installation schedules have not been met
for a number of reasons including aircraft not being made available by the
Company's airline customers on scheduled dates, delays by the Company's
suppliers in providing components, and revised and unanticipated maintenance
programs and campaigns by airline customers which result in the delay of
delivery of aircraft. There can be no assurance that such delays will not
continue to occur. Additionally, under one airline agreement, the Company has
committed to maintaining technological competitiveness of the FlightLink
system, including installation of live television capability during 1997, the
technology for which is currently in development. These commitments will
require significant capital expenditures.
Although the Company continues to meet its contractual reliability
requirements, the Company experienced problems associated with the
reliability of the FlightLink system. As a result, the Company has incurred
unanticipated costs for additional research and development necessary to
improve the design and integration of its on-board systems. Further, to keep
the FlightLink system in compliance with contractual requirements, the
Company has been required to expend considerable resources on increased
on-going maintenance and for the implementation of system improvements into
the existing installed fleet. Since March 31, 1996 the Company has
implemented improvements including a new ground network system including ISDN
and call hand off capability, and has begun installing five watt
amplification capability and upgraded cabin server units in contracted
aircraft. These system improvements have required post implementation
adjustments such that the FlightLink system has been improved significantly
in recent weeks, but has not realized the full benefit of the improvements.
Further, the cost of the installation of the FlightLink system on contracted
aircraft has exceeded the amount previously estimated.
Passenger utilization of the FlightLink system has not increased to the
usage levels anticipated by management. The Company is addressing the system
utilization issue with a variety of actions including alternative pricing
structures and various marketing initiatives. Usage levels for telephone
services in particular, have begun to increase in
<PAGE> 10
recent weeks and not yet to levels anticipated. The Company believes that
these initiatives and system improvements, when fully implemented, will
continue to have a positive effect on system utilization, but there can be
no assurance such increases will continue.
Based on the above, management believes that the Company will not have
sufficient cash resources to meet its existing capital expenditure
requirements, to continue operations, or to meet the obligations of the
Company's Senior Discount Notes due in the year 2002, (the "Senior Discount
Notes") and will, therefore, require additional financing. The Company is
developing a plan for acquiring such additional financing and has retained
the services of an investment banking firm. However, there can be no
assurance that additional financing will be available or that it will be
available on terms acceptable to the Company. In addition, the Indenture
relating to the Senior Discount Notes (the "Indenture") restricts the amount
of additional indebtedness which the Company may incur.
RESULTS OF OPERATIONS
For the three months ended September 30, 1996, the Company incurred a
loss of approximately $30.1 million, which was approximately $17.6 million
lower than the loss for the corresponding period in 1995.
Three Months Ended September 30, 1996 and Three Months Ended September
30, 1995
Revenues
Revenues increased to $2.7 million in the third quarter of 1996 from
$1.2 million for the same period in 1995. At September 30, 1996, the Company
had installed 204 aircraft with the FlightLink system compared to 172
aircraft at September 30, 1995. In addition, part of the $1.5 million
increase is due to higher telephone revenues from the implementation of a
user set up fee and higher per minute charges, partially offset by lower
usage per aircraft. The remainder of the increase is due to increased
pricing for games, a 12% higher game usage than for the same period last
year, and higher revenue from other services.
Direct Operating Costs
Direct operating expenses decreased by $8.2 million from $11.3 million
to $3.1 million. In 1995, the Company accrued a retrofit reserve of $10.0
million in the third quarter. This difference was partially offset in 1996
by higher guaranteed commissions and higher expenses associated with call
hand-off.
Research and Development Expense
Research and development expenses increased by $2.0 million to $3.0
million due to the increased expense associated with the development of live
television.
Selling, General and Administrative Expense
Selling, general and administrative expense decreased by $12.0 million
from $23.1 in 1995 to $11.1 million in 1996. In the third quarter of 1995,
the Company took a writedown of assets of $13.9 million due to the
cancellation of the USAir contract. The other increases in 1996 are due to
higher marketing related expense for trade
<PAGE> 11
shows and airline promotion, higher salary expense to support the higher
levels of head count and consultant fees partially offset by lower
professional fees and contract labor.
Depreciation and Amortization
Depreciation and amortization expense increased to $6.4 million from
$5.1 million for the same period in 1995. This increase of $1.3 million
resulted from the higher cost of the installed FlightLink equipment, increase
in ground system assets and increase in capital assets to support the
Company's infrastructure.
Net Interest Expense
Net interest expense increased to $9.2 million from $8.4 million for the
same period in 1995. The increase was primarily the result of the accrued
interest (non-cash) on the Company's Senior Discount Notes, issued in May
1995.
Extraordinary Loss
In April 1995, the Company incurred an extraordinary loss of $5.1
million relating to the extinguishment of debt in connection with the 1995
Financing Plan.
Income Tax
The Company has not recorded a provision for income taxes since
inception due to the net losses incurred. The Company has substantial net
operating loss carryovers and expects to incur additional losses. While
utilization of such losses on a carryover basis will be limited to the extent
that the Company undergoes one or more ownership changes, the occurrence and
timing of such changes may be subject to factual and legal uncertainties. No
net deferred tax asset has been recorded due to the uncertainties associated
with the realization of the Company's deferred tax assets.
Nine Month Period Ended September 30, 1996 and Nine Months Ended
September 30, 1995
Revenues
Revenues increased to $5.8 million during the first nine months of 1996
from $2.6 million for the same period in 1995. At September 30, 1996, the
Company had installed 204 aircraft with the FlightLink system compared to 172
aircraft at September 30, 1995. In addition, part of the $3.2 million
increase is due to higher telephone revenues from the implementation of a
user set up fee and higher per minute charges, partially offset by lower
usage rates per aircraft. The remainder of the increase is due to higher
pricing for games, as promotional pricing for games was terminated June 30,
1995, partially offset by year to date lower game usage, and higher revenue
from other service.
Direct Operating Costs
Direct operating expenses decreased by $6.5 million from $13.5 million
to $7.0 million attributable to the absense in 1996 of the retrofit reserve
of $10.0 million in
<PAGE> 12
1995, partially offset by the increase in guaranteed commissions and higher
costs related to call hand-off.
Research and Development Expense
Research and development expenses increased by $2.4 million to $5.7
million due to the increased expense associated with live television.
Selling, General and Administrative Expense
Selling, general and administrative expense increased to $36.0 million
from $35.0 million for the same period in 1995. In 1995, the Company took a
$13.9 million write down of assets related to the cancellation of the USAir
contract. Offsetting the absence of this charge in 1996 were revised
estimates for asset write-offs, higher consultant and outside labor expenses,
increased salary expense to support the higher levels of head count and
lower cancellation expenses.
Depreciation and Amortization
Depreciation and amortization expense increased to $15.7 million from
$12.5 million for the same period in 1995. This increase of $3.2 million
resulted from the higher cost of the installed FlightLink equipment, increase
in ground system expenditures and increase in capital assets to support the
Company's infrastructure.
Net Interest Expense
Net interest expense increased to $26.2 million from $16.3 million for
the same period in 1995. The increase was primarily the result of the
accrued interest (non-cash) on the Senior Discount Notes, issued in May,
1995.
Income Tax
The Company has not recorded a provision for income taxes since
inception due to the net losses incurred. The Company has substantial net
operating loss carryovers and expects to incur additional losses. While
utilization of such losses on a carryover basis will be limited to the extent
that the Company undergoes one or more ownership changes, the occurrence and
timing of such changes may be subject to factual and legal uncertainties. No
net deferred tax asset has been recorded due to the uncertainties associated
with the realization of the Company's deferred tax assets.
Impairment of Assets
In 1995, the Financial Accounting Standards Board ("FASB") issued
Statement on Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Measurement of any impairment loss of
long-lived assets that an entity expects to hold and use should be based on
the fair value of the assets.
<PAGE> 13
Based on current estimates, the Company believes that it will recover the
carrying amount of its fixed assets from future operations subject to
successful completion of remaining installations. Such installations are
dependent upon the Company obtaining the required financing (See "Liquidity
and Capital Resources"). However, given the difficulties with the company's
airline customers and its brief operating history, the Company has not met its
anticipated installation schedules and levels of revenue, expense and capital
expenditures. Consequently, the Company's estimate that it will recover the
carrying amount of its fixed assets from future operations may change in the
near term and as a result the carrying value of the fixed assets could be
reduced materially.
PART II.
ITEM 1. - LEGAL PROCEEDINGS
USAir Litigation
On December 6, 1995, the Company commenced litigation against USAir for
wrongful termination of the USAir Agreement. The complaint was filed in the
Circuit Court of Cook County, Illinois, and seeks declaratory and injunctive
relief, or damages for breach of contract in excess of $186 million. The
complaint alleges that USAir breached its obligations under the USAir Agreement
by failing and refusing to cooperate with the Company during the 30-day period
to cure defaults under the USAir Agreement and by defeating the Company's right
to a cure period. On December 7, 1995, the Company sought a restraining order,
enjoining USAir from acting to effect a termination of the USAir Agreement
before the Company had been given the opportunity to cure. This motion was
denied. On December 14, 1995, the Company's motion for a preliminary
injunction, seeking similar injunction relief, was also denied. USAir answered
the complaint on December 13, 1995, generally denying the allegations in the
complaint. No counterclaims were asserted against the Company in the answer.
On January 12, 1996, the court ordered that the litigation be transferred from
the Chancery Division to the Law Division, and on March 15, 1996 the case was
placed on the commercial calendar. In September, 1996, USAir filed a motion
for summary judgment. On November 14, 1996, the USAir motion for summary
judgment was denied. The Company is planning to be begin discovery activity in
December, 1996.
<PAGE> 14
Continental Litigation
On October 28, 1996, Continental filed a complaint against the Company in
the District Court of Harris County, Texas alleging that the Company had failed
to (i) make a $750,000 payment to Continental required pursuant to the April 5,
1996 amendment to the contract, (ii) pay guaranteed commissions to Continental
as specified in the contract, (iii) supply and install equipment in accordance
with the provisions of the contract, (iv) use funds of the Company's private
debt placement as were needed to perform under the contract and (v) use
reasonable skill and competence in modifying Continental's aircraft while
installing the FlightLink II system. Concurrent with the execution of the
amendment to the Telecommunication System Agreement, Continental dismissed
without prejudice, its lawsuit. (See "Relations with Continental
Airlines, Inc.")
Epson Litigation
At the time of the USAir contract cancellation, the Company had been invoiced
by Epson America, Inc. ("Epson") $683,000 for seatback screens for the
FlightLink II system. During the ensuing months, the Company attempted to
negotiate a settlement of the invoiced amount as well as $3.3 million alleged
by Epson to be owing for future
<PAGE> 15
deliveries. Epson submitted the dispute to arbitration before the
American Arbitration Association in Los Angeles, California. In October, 1996
in United States District Court Central District of California Epson sought a
writ of attachment against the assets of the Company located in California, to
expedite collection of the $683,000. On November 8 the court granted the writ
requested subject to entry of a final order and posting of a bond by Epson.
Upon issuance of the final order and the posting of the bond, Epson will have a
right to a possesory security interest in the Company's assets in California as
security for payment of a favorable judgment award arising from the pending
arbitration. The security interest, if taken, might result in the Company being
in violation of a covenant in the Indenture under which the Senior Discount
Notes were issued which limit the nature and amount of liens on the Company's
assets. If such a lien would constitute a violation of such covenants, with
notice and lapse of time without cure, an Event of Default would occur under
such Indenture. The Company intends to pursue settlement discussions with Epson
to resolve the disputed amounts but no assurances can be given that a
satisfactory settlement will be achieved.
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The Exhibits listed in the "Exhibit Index" are filed as a part of
this report.
b) Reports on Form 8-K.
No reports on Form 8-K were filed during the period covered by
this Form 10-Q.
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
IN-FLIGHT PHONE CORPORATION
Date: November 27, 1996 By: /s/ Michael K. Nissenbaum
--------------------------------------
Michael K. Nissenbaum
Chief Financial Officer
Vice President - Finance & Administration
Secretary & Treasurer
Duly Authorized Officer and
Principal Financial Officer.
<PAGE> 18
EXHIBIT INDEX
DESIGNATION DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, as filed May 15, 1995 (incorporated by reference to
Exhibit 3.1 to Amendment No. 3 to the Company's Registration
Statement on Form S-4 dated November 13, 1995, file
number 33-92752).
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit
3.2 to Amendment No. 3 to the Company's Registration Statement
on Form S-4 dated November 13, 1995, file number 33-92752).
4.1 Indenture, dated as of May 9, 1995, between the Registrant
and Marine Midland Bank, as Trustee (incorporated by reference
to Exhibit 4.1 to Amendment No. 3 to the Company's Registration
Statement on Form S-4 dated November 13, 1995, file
number 33-92752).
4.2 Warrant Agreement, dated as of May 9, 1995, between the
Registrant and Marine Midland Bank, as Warrant Agent
(incorporated by reference to Exhibit 4.2 to Amendment No. 3 to
the Company's Registration Statement on Form S-4 dated November
13, 1995, file number 33-92752).
4.3 Unit Agreement, dated as of May 9, 1995, between the Registrant
and Marine Midland Bank, as Unit Agent (incorporated by
reference to Exhibit 4.3 to Amendment No. 3 to the Company's
Registration Statement on Form S-4 dated November 13, 1995, file
number 33-92752).
4.4 Warrant Agreement, dated May 9, 1995, between the Registrant and
MCI (incorporated by reference to Exhibit 10.8 to Amendment No.
3 to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
4.5 Form of 14% Series B Senior Discount Notes due 2002 of the
Registrant (incorporated by reference to Exhibit 4.5 to
Amendment No. 3 to the Company's Registration Statement on Form
S-4 dated November 13, 1995, file number 33-92752).
4.6 Warrant Agreement, dated as of April 4, 1995 between the
Registrant and IFPC Funding, Inc. (incorporated by reference to
Exhibit 4.3 of Form S-1 dated May 1, 1996, file number
333-4292).
10.1 Telephone and interactive Data Services System Agreement, dated
March 6, 1993, between the Registrant and USAir, Inc.
(incorporated by reference to Exhibit 10.1 to Amendment No. 3
to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.2 Telephone System Agreement, dated June 7, 1994, between the
Registrant and Continental Airlines, Inc. ("Continental"), as
amended (incorporated by reference to Exhibit 10.2 to Amendment
No. 3 to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.21 Letter Agreement, dated March 29, 1995 between the Registrant
and Continental amending the terms of the Telephone System
Agreement, dated June 7, 1994, between the Registrant and
Continental (incorporated by reference to Exhibit 10.2 of Form
S-1 dated May 1, 1996, file number 333-4292).
10.22 Letter Agreement, dated April 5, 1996 between the Registrant and
Continental amending the terms of the Telephone System
Agreement, dated June 7, 1994 between the Registrant and
Continental (incorporated by reference to Exhibit 10.2 of Form
S-1 dated May 1, 1996, file number 333-4292).
10.3 Standby Operating Agreement, dated June 7, 1994, among
Continental, MCI Telecommunications Corporation ("MCI") and the
Registrant (the "Standby Operating Agreement") (incorporated by
reference to Exhibit 10.3 to Amendment No. 3 to the Company's
Registration Statement on Form S-4 dated November 13, 1995, file
number 33-92752).
10.4 Financial Guaranty, dated June 7, 1994, between MCI and
Continental (the "Financial Guaranty") (incorporated by
reference to Exhibit 10.4 to Amendment No. 3 to the Company's
Registration Statement on Form S-4 dated November 13, 1995,
file number 33-92752).
<PAGE> 19
DESIGNATION DESCRIPTION
- ----------- -----------
10.5 Agreement as to compensation under the Standby Operating
Agreement dated June 7, 1994 between the Registrant and MCI
(incorporated by reference to Exhibit 10.5 to Amendment No. 3 to
the Company's Registration Statement on Form S-4 dated November
13, 1995, file number 33-92752).
10.6 Agreement concerning payments under the MCI Financial Guaranty,
dated June 7, 1994 among the Registrant, Holdings, and MCI
(incorporated by reference to Exhibit 10.6 to Amendment No. 3 to
the Company's Registration Statement on Form S-4 dated November
13, 1995, file number 33-92752).
10.7 Air-to-Ground Telecommunications Agreement, dated November 24,
1993, between the Registrant and America West Air Lines, Inc.
(incorporated by reference to Exhibit 10.7 to Amendment No. 3 to
the Company's Registration Statement on Form S-4 dated November
13, 1995, file number 33-92752).
10.71 Agreement dated November 2, 1995 among the Registrant, America
West Air Lines, Inc. and MCI Telecommunications Corporation
(incorporated by reference to Exhibit 10.71 to Amendment No. 3
to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.8 Subordinated Notes Due July 1, 2003 issued by the Registrant to
John Hancock Mutual Life Insurance Company ("Hancock") in the
aggregate principal amount of $18,780,753.39 (incorporated by
reference to Exhibit 10.9 to Amendment No. 3 to the Company's
Registration Statement on Form S-4 dated November 13, 1995, file
number 33-92752).
10.9 Subordinated Note Due July 1, 2003 issued by the Registrant to
the State Treasurer of the State of Michigan, Custodian of the
Michigan Public School Employees' Retirement System, State
Employees' Retirement System and Michigan Judges Retirement
System in the principal amount of $6,182,684.57 (incorporated by
reference to Exhibit 10.10 to Amendment No. 3 to the Company's
Registration Statement on Form S-4 dated November 13, 1995, file
number 33-92752).
10.10 Shareholders Agreement, dated April 4, 1995, among MCI, Hancock
and Dearborn Financial Inc., and certain of its affiliates
(incorporated by reference to Exhibit 10.11 to Amendment No. 3
to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.11 Tax Sharing Agreement, dated April 4, 1995, between the
Registrant and Holdings (incorporated by reference to Exhibit
10.12 to Amendment No. 3 to the Company's Registration Statement
on Form S-4 dated November 13, 1995, file number 33-92752).
10.12 Employment Agreement among the Registrant, Holdings and Phil
Bakes (incorporated by reference to Exhibit 10.13 to Amendment
No. 3 to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.13 Employment Agreement between the Registrant and Neal F. Meehan
(incorporated by reference to Exhibit 10.14 to Amendment No. 3
to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.14 Consulting Agreement among the Registrant, Holdings and Sojourn
Enterprises, Inc. (incorporated by reference to Exhibit 10.15 to
Amendment No. 3 to the Company's Registration Statement on Form
S-4 dated November 13, 1995, file number 33-92752).
10.15 Registrant's 1995 Bonus Plan (incorporated by reference to
Exhibit 10.16 to Amendment No. 3 to the Company's Registration
Statement on Form S-4 dated November 13, 1995, file number
33-92752).
10.16 Holdings' 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.17 to Amendment No. 3 to the Company's Registration
Statement on Form S-4 dated November 13, 1995, file number
33-92752).
10.17 Employment Agreement between the Registrant and Edward F.
Upton (incorporated by reference to Exhibit 10.18 to Amendment
No. 3 to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.18 Employment Agreement between the Registrant and Michael K.
Nissenbaum (incorporated by reference to Exhibit 10.19 to
Amendment No. 3 to the Company's Registration Statement on Form
S-4 dated November 13, 1995, file number 33-92752).
<PAGE> 20
DESIGNATION DESCRIPTION
- ----------- -----------
10.19 Employment Agreement between the Registrant and Anand B. Malani
(incorporated by reference to Exhibit 10.20 to Amendment No. 3
to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
10.23 Letter Agreement among the Registrant, MCI Telecommunications
Corporation and Continental Airlines, Inc., incorporated as
Exhibit 10.23 on Form 10-Q dated November 26, 1996, file number
33-92752 (1)
23.1 Consent of Rogers & Wells (contained in opinion filed as Exhibit
5.1) (incorporated by reference to Exhibit 23.1 to Amendment No.
3 to the Company's Registration Statement on Form S-4 dated
November 13, 1995, file number 33-92752).
23.2 Consent of Price Waterhouse LLP (incorporated by reference to
Exhibit 23.2 to Amendment No. 3 to the Company's Registration
Statement on Form S-4 dated November 13, 1995, file number
33-92752).
27 Financial Data Schedule
- --------------------
(1) Certain confidential information has been deleted from the
public filing of this document. A request for confidential
treatment of this information has been filed with the
Commission.
<PAGE> 1
CONTINENTAL AIRLINES, INC.
2929 ALLEN PARKWAY, SUITE 2010
HOUSTON, TEXAS 77019
November 22, 1996
In-Flight Phone Corporation
One Tower Lane
Oakbrook Terrace, Illinois 60181
Attention: Chief Executive Officer
MCI Telecommunications Corporation
1801 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: General Counsel
Ladies and Gentlemen:
This letter agreement shall amend the Telecommunications System Agreement
dated as of June 7, 1994 by and between In-Flight Phone Corporation, a Delaware
corporation ("IFPC"), and Continental Airlines, Inc., a Delaware corporation
("Continental"), as amended by letter agreement dated March 29, 1995 and by
letter agreement dated as of April 5, 1996 (as so amended, the "Agreement"), as
specified below. This letter agreement is executed below by MCI
Telecommunications Corporation, a Delaware corporation ("MCI"), solely to agree
to the provisions of Sections 4 and 5 below, and to acknowledge and consent to
the modifications to and amendments of the Agreement evidenced hereby.
Capitalized terms used herein without definition are defined in the Agreement
and are used herein with the meanings ascribed thereto in the Agreement.
Notwithstanding anything to the contrary contained in the Agreement or in any
ancillary documents related thereto, the parties hereto agree as follows:
1. If (i) IFPC does not receive by January 1, 1997 (and deliver a copy
thereof to Continental) a firm written commitment from a nationally recognized
investment banking firm or commercial bank, or other institution reasonably
acceptable to Continental, for financing of IFPC on terms reasonably acceptable
to Continental in an amount of not less than [ ] of net proceeds to
IFPC, of which [ ] of such net proceeds are to be used by IFPC solely
for the procurement and installation of, and of which [ ] of such net
proceeds are to be used by IFPC solely for the maintenance and direct operating
costs of, air-to-ground telecommunications and information equipment on
Continental's jet aircraft fleet in accordance with the Agreement (the
"Financing Commitment"), or (ii) IFPC does so receive the Financing Commitment,
but the closing of such financing contemplated thereby (including receipt of
the funds by IFPC in an amount of not less than [ ] with no
restrictions on the use of [ ] of the net proceeds thereof for the
procurement and installation of, and no restrictions on the use of [ ]
of the net proceeds thereof for the maintenance and direct operating costs of,
air-to-ground telecommunications and information equipment on Continental's jet
aircraft fleet in accordance with the Agreement) (the "Closing") is not
consummated by January 31, 1997, then Continental
<PAGE> 2
shall have the right to install air-to-ground telecommunications and
information systems in any or all of its aircraft (whether currently operated
or to be operated in the future) on which the Equipment is not installed on
January 1, 1997, if the Financing Commitment is not received by then, or
January 31, 1997, if the Financing Commitment is so received but the Closing
has not occurred by January 31, 1997 ("Other Aircraft"), and IFPC shall have no
right to install any such equipment, or any other form of telecommunications,
information or (except as specified in clauses (A) and (B) of Section 3 below)
entertainment equipment, on the Other Aircraft, and all of IFPC's rights and
obligations (and all of Continental's rights and obligations) with respect
thereto shall terminate and be of no force and effect. Pending receipt by IFPC
of the Financing Commitment and the occurrence of the Closing, Continental
shall have the right to solicit and contract (subject to (i) IFPC not receiving
the Financing Commitment by January 1, 1997 or the Closing not occurring by
January 31, 1997, and (ii) IFPC's rights pursuant to clauses (A) and (B) of
Section 3 below) with other providers of air-to-ground telecommunications and
information systems (as to Other Aircraft and any aircraft on which IFPC
telecommunications and information systems equipment is, in the future,
removed), and with other providers of entertainment systems (as to all
aircraft), to provide such systems with respect to the applicable aircraft.
If the Closing occurs by January 31, 1997, IFPC covenants to use sufficient
proceeds therefrom solely for the procurement and installation of air-to-ground
telecommunications and information equipment on Continental's jet aircraft
fleet in accordance with the installation schedule attached hereto as Appendix
1 (which, if the Closing occurs by January 31, 1997, shall be deemed to replace
Exhibit D to the Agreement from and after such date) and in accordance with the
Agreement, and to segregate at all times on its books and records and use
solely for the procurement, installation, maintenance and direct operating
costs of air-to-ground telecommunications and information equipment on
Continental's jet aircraft fleet in accordance with the Agreement an amount
equal to [ ] segregated into [ ] for procurement and
installation and [ ] for maintenance and direct operating costs as
described above) less amounts expended for such procurement, installation,
maintenance and direct operating costs from and after the date of Closing (it
being understood that, if IFPC timely completes all installations set forth on
Appendix 1 as being completed by September 30, 1997, then IFPC may use any
funds then remaining from such [ ] for its general corporate purposes,
except for an aggregate of [ ] which shall remain segregated on its
books and records and used solely for the procurement and installation of
air-to-ground telecommunications and information equipment on Continental's jet
aircraft fleet in accordance with the Agreement during the fourth quarter of
1997); provided that IFPC shall have no right or obligation to install
air-to-ground telecommunications or information equipment or entertainment
equipment on (i) any of Continental's DC 10-10 and DC 10-30 aircraft, any
Boeing 757 aircraft with BusinessFirst configuration, and any other of
Continental's aircraft which are used primarily in international routes and
(ii) any Embraer 145 aircraft operated by Continental or Continental Express,
Inc. (collectively, the "Excluded Aircraft"), and in each case Continental
shall have the right, without liability or obligation to IFPC, to have
installed on the Excluded Aircraft any air-to-ground telecommunications or
information equipment and any entertainment systems which Continental selects
in its sole discretion.
2
<PAGE> 3
Continental and IFPC agree that the provisions of the Agreement relating to
the provisions by IFPC of SATCOM services are hereby terminated and shall be of
no force and effect.
If the Closing occurs by January 31, 1997, then from and after December 31,
1997, IFPC shall procure, or have cash segregated on its books at all times in
an amount sufficient (and to be used solely) to procure (and, on a monthly
basis with respect to applicable aircraft, certify to Continental in writing,
signed by a senior officer of IFPC, such procurement or cash segregation and
compliance with this paragraph), sufficient air to ground telecommunications
and information equipment to satisfy at all times the next following [
] installations of such equipment on the jet aircraft of Continental (other
than the Excluded Aircraft) to be delivered to Continental under its then
current new aircraft delivery orders. Continental will promptly notify IFPC in
writing of any changes in anticipated new jet aircraft delivery dates (other
than with respect to Excluded Aircraft), and IFPC shall have [
] to comply with the foregoing
provisions of this paragraph with respect to such aircraft. If IFPC fails to
so timely procure such equipment (or so segregate cash) and certify thereto as
describe above, then Continental shall notify IFPC of such failure in wiritng
and provide IFPC a [ ] period in which to cure such failure. If such
failure continues after such [ ] cure period then, from and after the
expiration of such [ ] cure period, IFPC shall have no right to
install any such equipment, or any other form of telecommunications,
information or (except as specified in clauses (A) and (B) of Section 3 below)
entertainment equipment, on any of Continental's jet aircraft fleet to be
delivered after the date of such notice for which, at the conclusion of such [
] cure period, IFPC has not procured such equipment (or so segregated cash),
and all of IFPC's rights and obligations (and all of Continental's rights and
obligations) with respect thereto shall terminate and be of no force and
effect. IFPC shall thereafter continue to maintain and operate the Equipment
on the Continental aircraft on which the Equipment is installed on the date of
expiration of such [ ] cure period, and continue to maintain and operate
the ATG System and ATG Services, in accordance with the provisions of the
Agreement throughout the term of the Agreement, shall timely pay to Continental
all commissions and other revenues under the Agreement with respect thereto
(including guaranteed minimum Commissions set forth in Section 4.2(c) of the
Agreement), and shall duly perform all its other obligations under the
Agreement (as amended hereby).
2. If the Financing Commitment is not received by January 1, 1997, or if the
Financing Commitment is so received but the Closing does not occur by January
31, 1997, IFPC shall continue to maintain and operate the Equipment on the
Continental aircraft on which the Equipment is installed on January 1, 1997, if
the Financing Commitment is not received by then, or January 31, 1997, if the
Financing Commitment is so received but the Closing has not occurred by January
31, 1997 ("Current Aircraft"), and continue to maintain and operate the ATG
System and ATG Services, in accordance with the provisions of the Agreement
throughout the term of the Agreement, shall timely pay to Continental all
commissions and other revenues under the Agreement with respect thereto
(including guaranteed minimum Commissions set forth in Section 4.2(c) of the
Agreement), and shall duly perform all its other obligations under the
Agreement (as amended hereby).
3
<PAGE> 4
3. Whether or not the Financing Commitment is timely received or the Closing
timely occurs, (A) IFPC shall have the right [ ] to install in accordance
with the Agreement live video on the Current Aircraft (other than any
Excluded Aircraft) in accordance with an installation schedule to be
mutually agreed upon [
] and (B) IFPC shall also have the right [
] to install live video on Other Aircraft (other than Excluded
Aircraft) in accordance with an installation schedule to be mutually agreed
upon, subject to (i) in the case of clause (B), negotiation and timely payment
by IFPC to Continental of mutually agreed upon commissions and minimum
commissions with respect thereto [
] (ii) in the case of both clause (A)
and clause (B), which live video being integrated (in a manner reasonably
satisfactory to Continental) with whatever in-flight entertainment systems are
then installed or to be installed in the applicable aircraft, and (iii) in the
case of both clause (A) and clause (B), satisfaction by IFPC of the
operational, safety, regulatory and other requirements applicable to live
video systems under the Agreement and applicable law. [
]
[
]
Notwithstanding the foregoing or any provision of the Agreement to the
contrary, IFPC shall not be obligated to install live video on any of
Continental's aircraft (except, as to any individual aircraft, if IFPC has
commenced the installation of live video on such aircraft, in which case IFPC
shall be obligated to complete such installation), and Continental shall be
free to install in its aircraft any in-flight entertainment systems it selects,
without any liability or obligation to IFPC whatsoever [
4
<PAGE> 5
].
4. [
].
5. (a) Upon the execution and delivery hereof by the parties hereto,
Continental shall take a non-suit to dismiss without prejudice that certain
Cause styled Continental Airlines v. In-Flight Phone Corporation, in the
District Court of Harris County, Texas, 269th Judicial District (No. 96-54448).
(b) Continental, for itself and all persons claiming by, through or under
it, hereby fully, finally and forever releases, discharges, quitclaims, and
covenants not to sue on any claim or cause of action, whether known or unknown,
against IFPC or MCI, or any of their respective officers, directors, agents,
employees, representatives, subsidiaries, affiliates or successors in interest,
that exists or has ever existed prior to the date hereof, that Continental now
has or may have and that is based on or relates to the timeliness (or lack
thereof) of installation
5
<PAGE> 6
of equipment by IFPC pursuant to the Agreement or any of the ancillary
agreements or any related costs, expenses or damages; provided, however, that
nothing in the foregoing or elsewhere in this letter agreement shall in any way
release or affect any party's obligations under this letter agreement or under
the Agreement and the ancillary agreements, as amended hereby, from and after
the date hereof.
(c) Each of IFPC and MCI, for itself and all persons claiming by, through
or under it, hereby fully, finally and forever releases, discharges,
quitclaims, and covenants not to sue on any claim or cause of action, whether
known or unknown, against Continental, or any of its officers, directors,
agents, employees, representatives, subsidiaries, affiliates or successors in
interest, that exists or has ever existed prior to the date hereof, that IFPC
or MCI now have or may have and that is based on or relates to the timeliness
(or lack thereof) of installation of equipment by IFPC pursuant to the
Agreement or any of the ancillary agreements or any related costs, expenses or
damages; provided, however, that nothing in the foregoing or elsewhere in this
letter agreement shall in any way release or affect any party's obligations
under this letter agreement or under the Agreement and the ancillary
agreements, as amended hereby, from and after the date hereof.
(d) [
]
Continental and IFPC agree that the Agreement is deemed modified and amended
by the provisions of this letter agreement (whether or not such provisions
specifically amend one or more provisions of the Agreement), and that if any of
the provisions hereof conflict with any provision of the Agreement (prior to
its amendment hereby), the terms of this letter agreement shall govern. MCI
acknowledges and consents to the modifications to and amendments of the
Agreement evidenced hereby. The Agreement, as amended and modified hereby,
remains in full force and effect, and Continental hereby withdraws and
terminates any and all notices of default with respect to the Agreement given
by Continental.
Please confirm your agreement to the foregoing by executing the enclosed
copy of this letter agreement as indicated below and returning a copy to our
attention at the above address. MCI is executing this letter agreement solely
to agree to the provisions of Sections 4 and 5 hereof and to acknowledge and
consent to the modifications to and amendments of the Agreement evidenced
hereby.
6
<PAGE> 7
Very truly yours,
CONTINENTAL AIRLINES, INC.
By: /s/ Lawrence W. Kellner
------------------------
Lawrence W. Kellner
Senior Vice President
Accepted and agreed to:
IN-FLIGHT PHONE CORPORATION
By: /s/ Philip J. Bakes
---------------------
Philip J. Bakes
President and Chief Executive Officer
Executed solely to agree to the provisions of Sections 4 and 5 above and to
acknowledge and consent to the modifications to and amendments of the Agreement
evidenced hereby:
MCI TELECOMMUNICATIONS CORPORATION
By: /s/ Michael J. Rowny
--------------------
Name: Michael J. Rowny
Title: Executive Vice President
7
<PAGE> 8
Appendix 1
Revised Installation Schedule
[
]
8
<PAGE> 9
[
]
9
<PAGE> 10
[
10
<PAGE> 11
Appendix 2
]
[
]
11
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 10,228
<SECURITIES> 3,500
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,343
<PP&E> 151,495
<DEPRECIATION> 46,010
<TOTAL-ASSETS> 129,434
<CURRENT-LIABILITIES> 24,242
<BONDS> 245,783
42,974
0
<COMMON> 154,064
<OTHER-SE> (369,953)
<TOTAL-LIABILITY-AND-EQUITY> 129,434
<SALES> 5,751
<TOTAL-REVENUES> 5,751
<CGS> 0
<TOTAL-COSTS> 6,959
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> (84,873)
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<CHANGES> 0
<NET-INCOME> (84,873)
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