SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
Commission File Number 0-26582
World Airways, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1358276
(State of incorporation) (I.R.S. Employer Identification Number)
13873 Park Center Road, Suite 490, Herndon, VA 20171
(Address of Principal Executive Offices)
(703) 834-9200
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Convertible Senior Subordinated Debentures due 2004
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
State 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. __________
The aggregate market value of the Common Stock held by non-affiliates of the
registrant on March 15, 2000, was approximately $3,244,000.
The number of shares of the registrant's Common Stock outstanding on March 15,
2000 was 6,446,416.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of World Airways, Inc.'s Notice of Annual Stockholder's Meeting and
Proxy Statement, to be filed within 120 days after the end of the registrant's
fiscal year, are incorporated into Part III of this Report.
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WORLD AIRWAYS, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Securities Holders
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
Item 6. Selected Financial Data
Item 7. Management's Discussions and Analysis of Financial
Condition and Results of Operations
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplemental Data
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
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Item 10 Directors and Executive Officers of the Registrant
Item 11 Executive Compensation
Item 12 Security Ownership of Certain Beneficial Owners and Management
Item 13 Certain Relationships and Related Transactions
PART IV
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Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
<PAGE>
PART I
Item 1. Business
World Airways, Inc. ("World Airways" or the "Company") was organized in 1948 and
is a U.S. certificated air carrier. Airline operations account for 100% of the
Company's operating revenue. World Airways provides long-range passenger and
cargo charter air transportation, serving the U.S. Government, international
passenger and cargo air carriers, tour operators, major international freight
forwarders and cruise ship companies. The principal executive offices of World
Airways are located near Washington Dulles International Airport in The Hallmark
Building, 13873 Park Center Road, Herndon, Virginia 20171 and the Company's
telephone number is (703) 834- 9200. See Ownership.
In August 1997 the Company issued $50.0 million of 8% Convertible Senior
Subordinated Debentures (the "Debentures") due in 2004. Net proceeds of the
Debentures were used to purchase 4 million shares of Common Stock for $30.6
million, repay certain indebtedness aggregating approximately $3.8 million,
increase working capital and for general corporate purposes. During 1999 $1.2
million of the Debentures were converted into Common Stock and the Company
purchased $8.2 million principal amount of Debentures at a discount of
approximately 75% for a combination of cash and treasury stock. Also during
1999, the Company hired CIBC World Markets Corp. ("CIBC") as financial advisor
to assist the Company with a restructuring and recapitalization of the Company's
balance sheet. As part of those efforts CIBC initiated contact with Debenture
holders and other parties on strengthening the Company financially. Although in
February 2000 CIBC suspended further talks with the holders of the Debentures,
they will continue to explore other alternatives for strengthening the Company
financially.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Therefore, this
report contains forward looking statements that are subject to risks and
uncertainties, including, but not limited to, the reliance on key strategic
alliances, fluctuations in operating results and other risks detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
These risks could cause the Company's actual results to differ materially from
those expressed in any forward looking statements made by, or on behalf of, the
Company.
Ownership
The Company became a wholly-owned subsidiary of WorldCorp, Inc. ("WorldCorp") in
a holding company reorganization in 1987. In 1994 WorldCorp sold 24.9% of its
ownership of the Company to Naluri Berhad ("Naluri") (formerly known as MHS
Berhad), a Malaysian aviation company. In October 1995, the Company became a
publicly owned company following the completion of an initial public offering in
which 2,000,000 shares and 900,000 shares of Common Stock were sold by the
Company and WorldCorp, respectively.
In 1997 and 1998 the Company purchased 4 million shares of its Common Stock from
WorldCorp and Naluri from the proceeds of the Debentures issued in 1997 in
accordance with a shareholders agreement. In 1998 the Company also acquired
150,000 of its Common Stock from WorldCorp for approximately $682,000 as payment
towards principal, interest and expenses of a loan to WorldCorp. Also, in 1998
the Company acquired 80,000 shares of its Common Stock in open market purchases.
On February 12, 1999 WorldCorp filed a petition for protection from its
creditors under Chapter 11 of the U. S. Bankruptcy laws in the United States
Bankruptcy Court for the District of Delaware. In August 1999 the Company
concluded an agreement with WorldCorp to settle a secured loan and other amounts
totaling approximately $1.8 million that WorldCorp owed the Company when
WorldCorp filed for bankruptcy protection. In connection with the agreement,
that was approved by the Bankruptcy Court overseeing WorldCorp's bankruptcy
proceedings, WorldCorp returned 1,069,000 shares of the Company's Common Stock
(based on market value at date of settlement) it owned in exchange for the $1.8
million owed.
Under an agreement among World Airways, WorldCorp and Naluri, if at any time
after October 30, 1996 World Airways registers additional Common Stock under the
Securities Act of 1933, Naluri has the right to demand the registration of its
shares of the Company's Common Stock. Under a shareholders agreement, Naluri has
the right to nominate two members to the Company's Board of Directors and
WorldCorp has agreed to vote its shares of Common Stock to elect such nominees.
Also, if without the prior written consent of Naluri: (1) World Airways sells
all or substantially all of its business; or (2) World Airways fundamentally
changes its line of business, then Naluri has the option to require WorldCorp to
purchase all or part of Naluri's shares at fair market value. Fair market value
is defined to be not less than the aggregate of the costs borne by Naluri in
acquiring and holding its World Airways shares. Management has indicated that it
does not have any current intent to take any such actions without the prior
consent of Naluri or the directors nominated by Naluri.
The shareholders agreement also provides that if WorldCorp's ownership interest
in the Company falls below 51% of the outstanding shares of Common Stock, then
Naluri may either sell its shares to a third party or require WorldCorp to sell
a pro rata number of shares held by Naluri to the party purchasing WorldCorp's
shares. Naluri has not taken any action to exercise its rights as a result of
WorldCorp's ownership falling below 51% in 1999. Naluri also has a right of
first refusal to purchase shares of Common Stock issued by the Company or sold
by WorldCorp and to purchase additional shares of Common Stock to maintain its
ownership percentage in the Company.
At February 29, 2000, WorldCorp and Naluri own 38.5% and 18.9%, respectively, of
the outstanding Common Stock of World Airways, with the balance publicly traded.
Except as limited by contractual arrangements with Naluri, the beneficial owner
of WorldCorp's interest in the Company is in a position to have significant
influence over the outcome of many issues effecting World Airways' stockholders,
including the election of members of World Airways' Board of Directors, adoption
of amendments to World Airways' Certificate of Incorporation, and approval of
mergers.
On March 16, 2000, WorldCorp, and its wholly-owned subsidiary WorldCorp
Acquisition Corp., filed a proposed plan of liquidation in the bankruptcy court
that calls for all of their shares of World Airways Common Stock to be sold or
distributed to creditors. In order to facilitate such a sale or distribution,
the Company intends to register those shares under the Securities Act of 1933.
In addition, a group of investors that includes members of the Company's
management and Board of Directors are negotiating to purchase some or all of the
shares. Any such sale will be subject to approval by the bankruptcy court and
to higher and better offers from competing bidders.
WorldCorp's proposed plan of liquidation also calls for the shareholders
agreement with Naluri to be rejected, meaning that WorldCorp will not perform
its obligations under the agreement and the agreement will not be binding on the
purchasers of the shares of Common Stock. The WorldCorp plan of liquidation is
currently being considered by creditors and is scheduled to be presented to the
bankruptcy court for approval on April 26, 2000. WorldCorp's rejection of the
shareholders agreement could have the effect of reducing or eliminating any
continuing obligations of the Company under that agreement.
Overview & Operating Environment
For more than 51 years World Airways has been a global provider of long-range
passenger and cargo air transportation services to the U.S. Air Force ("USAF"),
major international airlines, major international freight forwarders,
international leisure tour operators and, more recently, cruise ship companies.
As of February 29, 2000 the Company's operations employ ten wide-body long-range
aircraft that are operated under two types of fixed-rate contracts - ACMI or
Full Service.
Historically most of the Company's contracts have required the Company to supply
aircraft, crew, maintenance and insurance ("ACMI" or "wet lease"), while the
Company's customers have been responsible for other operating costs, including
fuel. In recent years the Company has begun to operate its aircraft under 'full
service" contracts whereby, in addition to ACMI costs, the Company is
responsible for most other costs associated with flight operations including
landing, handling and fuel. Under both types of contracts the customer bears the
risk of filling the aircraft's passenger and cargo capacity. World Airways'
airline customers have determined that outsourcing a portion of their wide-body
passenger and cargo requirements can be less expensive, and offer greater
operational and financial flexibility, than expanding their aircraft fleet.
Although the Company's customers bear the financial risk of filling the
Company's aircraft with passengers or cargo, the Company can be affected
adversely if its customers are unable to operate the Company's aircraft
profitably, or if one or more of the Company's customers experience a material
adverse change in their market demand, financial condition or results of
operations. Under these circumstances, the Company can be adversely affected by
receiving delayed or partial payments or by receiving customer demands for rate
and utilization reductions, flight cancellations, and/or early termination of
their agreements.
World Airways focuses its marketing efforts on the U.S. Air Force Air Mobility
Command ("AMC"), cruise ship companies, international leisure tour operators,
freight operators and international airlines operating in countries where rapid
economic development drives demand for the Company's services. The Company
believes that its modern fleet of aircraft is well suited to the needs of its
customers and provides superior economics as compared to other popular aircraft.
The Company increases its potential customer base by being able to serve both
passenger and cargo customers. The Company flies passenger, cargo and
passenger/cargo convertible aircraft that permits it to target more
opportunities.
The Company generally charges customers on a block hour basis rather than on a
per seat, per pound or seat mile basis. "Block hours" are defined as the elapsed
time from the moment the aircraft first moves under its own power at the point
of origin to the time it comes to rest at its final destination. "Seat miles"
are defined as the number of miles an aircraft flies times the number of seats
on the aircraft. The Company generally charges a lower rate per block hour for
ACMI contracts than full service contracts, although it does not necessarily
earn a lower profit.
Factors that affect the Company's ability to achieve high utilization of its
aircraft include the compatibility of the Company's aircraft with customer needs
and the Company's ability to react on short notice to customer requirements
(which can be unpredictable due to changes in traffic rights, aircraft delivery
schedules and aircraft maintenance requirements). Other factors that affect the
Company include domestic and foreign regulatory requirements, as well as a trend
toward aviation deregulation that is increasing alliances and code share
arrangements.
The market for passenger and cargo ACMI and full service charter business is
highly competitive. Certain of the passenger and cargo air carriers that the
Company competes with have substantially greater financial resources and more
extensive facilities and equipment than the Company. The Company believes that
the most important basis for competition in the charter business include the age
of the aircraft fleet, the passenger, range and payload capacities of the
aircraft, in addition to the price, flexibility, quality and reliability of the
air transportation service provided. Competitors in the passenger charter market
include Martinair, Tower Air, Omni Air International and American Trans Air and
in the cargo charter market include all-cargo carriers, Atlas Air, Gemini Air
Cargo, Polar Air Cargo and Kitty Hawk, and scheduled and non-scheduled passenger
carriers that have substantial belly capacity. The ability of the Company to
compete depends, in part, upon its success in convincing major international
airlines and tour operators that outsourcing some portion of their air passenger
and cargo business is cost-effective.
The Company operates in a challenging business environment. The air
transportation industry is highly sensitive to general economic conditions.
Since a substantial portion of passenger airline travel (both business and
personal) is discretionary, the industry tends to experience adverse financial
results during general economic downturns and can be adversely affected by
unexpected global political developments. The financial results of air cargo
carriers are also adversely affected by general economic downturns that result
in reduced demand for air cargo transportation.
Prior to 1999 the Company derived a significant percentage of its revenues and
block hours from its operations in the Pacific Rim region. In 1997 through 1999
these operations were adversely effected by economic conditions in Malaysia,
Indonesia and other countries in the Asia Pacific Region. Those conditions
included national liquidity crises, significant depreciation in the value of the
ringgit and rupiah, higher domestic interest rates, reduced opportunity for
refinancing or refunding of maturing debts, and a general reduction in spending
throughout the region. However, management now believes these conditions have
started to improve and will provide new opportunities to wet lease aircraft to
airline customers, particularly those who have deferred or canceled new aircraft
orders but are still in need of providing additional airlift.
Similarly to other airlines, the Company's business is affected by seasonal
factors. During the early part of the first quarter, the Company typically
experiences lower levels of utilization and revenue per block hour ("yield"),
due to lower demand relative to other times of the year. The Company experiences
higher levels of utilization and yields in the later part of the first quarter
continuing into the second quarter, principally due to higher demand for
commercial passenger services associated with the annual Hadj pilgrimage.
Because the Islamic calendar is a lunar-based calendar, the Hadj pilgrimage
occurs approximately 10 to 12 days earlier each year relative to the Western
(Gregorian) calendar. In 2000, the Company's flight operations associated with
the Hadj pilgrimage will occur from February 14 to April 14.
Due to the high fixed costs of leasing and maintaining aircraft and costs for
cockpit crewmembers and flight attendants, the Company's aircraft must have high
utilization at attractive rates in order for the Company to operate profitably.
Although World Airways' preferred strategy is to enter into long-term contracts
with customers, the terms of existing customer contracts are shorter than the
terms of the Company's lease obligations with respect to its aircraft. There is
no assurance that the Company will be able to enter into additional contracts
with new or existing customers or that it will be able to obtain enough
additional business to fully utilize each aircraft. World Airways' financial
position and results of operations could be materially adversely affected even
by relatively brief periods of low aircraft utilization and yields.
World Airways' current operating philosophy is to build on its existing
relationships to achieve a strong platform for future growth while at the same
time grow its full service and cargo business. The Company's strategy is based,
first and foremost, upon providing the highest level of service to its
customers, thereby maintaining and expanding the amount of business being done
with existing customers. The Company perceives a number of opportunities for its
charter business created by a growing global economy, particularly long-term
growth in second and third world economies where the demand for airlift exceeds
capacity, notwithstanding economic problems faced by some developing countries
in recent years. World Airways attempts to maximize profitability by combining
ACMI contracts with full service agreements that meet the peak seasonal
requirements of its customers. The Company can respond to rapidly changing
market conditions and requirements because its fleet of aircraft can be deployed
in a variety of configurations.
Consistent with prior years, the Company has unsold capacity in the third and
fourth quarters of 2000 and beyond, however, historically it has been successful
in obtaining new business to utilize such capacity. Although there can be no
assurance that it will be able to secure additional business to utilize this
unsold capacity, the Company is actively seeking additional business for 2000
and beyond. The Company's financial results and financial condition would be
affected adversely if the Company is unable to secure business to utilize its
unsold capacity.
Customers
Over the years, the Company has had long-term business relationships with
several major international airlines and with the AMC of the USAF.
In 1999, the Company's principal customers were the USAF and Malaysian Airline
System Berhad ("Malaysia Airlines" or "MAS"). For the year ended December 31,
1999, these customers provided approximately 51.0%, and 9.0%, respectively, of
the Company's revenues and 35.1%, and 11.1%, respectively, of total block hours
flown. In 1998, the Company's principal customers were the USAF, MAS, and P.T.
Garuda Indonesia ("Garuda"). For 1998, these customers provided approximately
40.9%, 18.6%, and 11.7%, respectively, of revenues and 27.1%, 18.2%, and 12.8%,
respectively, of total block hours flown. In 1997, the USAF, MAS and Garuda
provided approximately 25.4%, 21.0%, and 9.9%, respectively, of the Company's
revenues and 15.8%, 22.6%, and 10.8%, respectively, of total block hours flown.
A contract with Philippine Airlines, which expired in February 1998, provided
31% of revenues and 34% of block hours flown in 1997.
U.S. Air Force. The Company has provided air transportation services,
principally on an international basis, to the USAF since 1956. In exchange for
requiring pledges of aircraft to the Civil Reserve Aircraft Fleet ("CRAF") for
use in times of national emergency, the USAF grants awards to CRAF participants
for peacetime transportation of personnel and cargo. The overall downsizing of
the U.S. military places a premium on the mobility of the U.S. armed forces.
The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft made available to
CRAF. The Company utilizes teaming arrangements to maximize the value of
potential awards. Until 1999 the Company lead a contractor teaming arrangement
that enjoyed a large market share of the USAF's overall commercial airlift
requirement. During a period in which the U.S. military downsized substantially,
the Company's portion of the fixed USAF award increased from $15.6 million for
the government's 1992-93 fiscal year, to $86 million for the government's
1998-99 fiscal year. The Company's teaming agreement negotiations for fiscal
year October 1999 to September 2000 resulted in a substantially reduced share of
the USAF's fixed commercial airlift requirement - $27 million compared to the
$86 million for 1998-1999. However, the Company believes it will be in a
position to obtain an increased share of expansion flying which is customarily
awarded by the USAF over and above the fixed contract flying. In calendar year
1999, the Company's revenue from the fixed award was $94 million and its AMC
expansion revenue was $40.5 million. In December 1999, the Company was requested
by AMC to operate passenger charter flights from January 28, 2000 through April
2000 to replace another carrier that had previously been awarded a contract for
the flying. The value of the additional flying is approximately $13.5 million.
The Company cannot determine how future military spending budgets, airlift
requirements, and national security considerations for a continued strong and
balanced CRAF and the instability of other countries will combine to affect
future business with the USAF.
Malaysia Airlines. World Airways has provided wet lease services to Malaysia
Airlines since 1981 for MAS' scheduled passenger and cargo operations as well as
transporting passengers for annual Hadj pilgrimages. Naluri, which owns 18.9% of
World Airways' Common Stock, also owns 28% of MAS. In 1999 and 1998, the Company
received approximately $7.3 million and $19.5 million, respectively, in revenue
associated with minimum guarantee payments from MAS. Effective October 1999 the
Company ceased operating for MAS as a result of the cessation of monthly
payments by MAS for the remaining aircraft being operated for them. MAS has
taken the position that its obligations to make payments for the aircraft ceased
on September 30, 1999. The Company deployed the aircraft elsewhere following
MAS's cessation of payments.
Renaissance Cruises. The Company began flying one aircraft for Renaissance
Cruises ("Renaissance") in August 1999, providing exclusive air service to
Athens, Greece, and Istanbul, Turkey, from New York. Subsequently in 1999 the
Company and Renaissance agreed to a three-year extension of the original
agreement. The Company expects to dedicate a second aircraft to serving
Renaissance later in 2000 and a third aircraft in 2001. The additional aircraft
will expand the current service and provide additional service to Lisbon,
Portugal, and Barcelona, Spain. Although Renaissance only accounted for 4.2% of
revenues and 3.5% or block hours in 1999, the Company expects that Renaissance
will become one of the Company's more significant customers in future years.
Garuda. The Company has flown for Garuda periodically since 1973. In 1997,
approximately 40,000 of the 200,000 Indonesians who traveled to Jeddah for the
Hadj pilgrimage flew on the Company's aircraft and the Company operated six
aircraft for Garuda during the 1998 pilgrimage. The Company did not operate any
aircraft for Garuda for the 1999 Hadj; however, the Company will be operating
four aircraft for Garuda for the 2000 Hadj.
STAF. In April 1998, the Company entered into an agreement with Servicios De
Transportes Aereos Fueguinos ("STAF") to provide one cargo aircraft for a
three-year term that began in May 1998.
The Company had an overall contract backlog at December 31, 1999 of $370
million, compared to $237 million at December 31, 1998. Approximately $148
million of the backlog relates to operations during 2000. The Company's backlog
for each contract is determined by multiplying the minimum number of block hours
guaranteed under the applicable contract by the specified hourly rate under such
contract. Approximately 70.1% and 7.6% of the backlog relates to its contracts
with Renaissance and the USAF, respectively.
See Note 13 of the Company's "Notes to Financial Statements" in Item 8 for
additional information regarding major customers and foreign source revenue.
Information concerning the classification of the Company's revenues comprising
10% or more of total operating revenues is presented in the following table (in
millions):
Year Ended December 31,
1999 1998 1997
Passenger Charter Operations $ 195.6 $ 221.9 $ 267.3
Cargo Charter Operations 67.6 47.7 39.5
Aircraft Fleet
As of February 29, 2000 the Company's operating fleet consisted of eight MD-11
and two DC-10-30 aircraft, all of which are leased under operating leases. The
MD-11 aircraft include five passenger aircraft (two of which are long-range
versions), one freighter aircraft and two convertible aircraft. The DC10-30
aircraft include one passenger aircraft and one convertible aircraft.
Maintenance
Airframe and engine maintenance costs that account for most of the Company's
maintenance expenses typically increase as the aircraft fleet ages. The Company
outsources major airframe maintenance and engine work to several suppliers. The
Company has a contract expiring in April 2003 with United Technologies
Corporation's Pratt & Whitney Group for all off-wing maintenance on the PW 4462
engines that power its MD-11 aircraft. Under this contract, the manufacturer
agreed to provide such maintenance services at a cost not to exceed specified
rates per flight hour during the term of the contract. The Company presently
does not expect its maintenance costs per flight hour to exceed the rates
specified in the contract.
Aviation Fuel
The Company's source of aviation fuel is primarily from major oil companies,
under delivery contracts, at often frequented commercial locations, and from
United States military organizations at military bases. The Company's current
fuel purchasing policy consists of the purchase of fuel within seven days in
advance of all flights based on current prices set by individual suppliers. More
than one supplier is under contract at several locations. The Company purchases
no fuel under long-term contracts nor does the Company enter into futures or
fuel swap contracts.
The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel have not had a significant impact on the
Company's operations in recent years because, in general, the Company's
contracts with its customers limit the Company's exposure to increases in fuel
prices. However, a substantial increase in the price or the unavailability of
aviation fuel could have a material adverse effect on the air transportation
industry in general and on the financial condition and results of operations of
the Company.
Regulatory Matters
Since it was founded in 1948, the Company has been authorized to engage in
commercial air transportation by the U.S. Department of Transportation ("DOT")
or its predecessor agencies. The Company is currently authorized to engage in
scheduled and charter air transportation to provide combination (persons,
property and mail) and all-cargo services between all points in the U.S., its
territories and possessions. It also holds worldwide charter authority for both
combination and all-cargo operations. In addition, the Company is authorized to
conduct scheduled combination services to the foreign points listed in its DOT
certificate. The Company also holds certificates of authority to engage in
scheduled all-cargo services to a limited number of foreign destinations.
The Company is subject to the jurisdiction of the Federal Aviation
Administration ("FAA") with respect to aircraft maintenance and operations,
including flight operations, equipment, aircraft noise, ground facilities,
dispatch, communications, training, weather observation, flight time, crew
qualifications, aircraft registration and other matters affecting air safety.
The FAA requires air carriers to obtain an operating certificate and operations
specifications authorizing the carriers to operate to particular airports on
approved international routes using specified equipment. These certificates and
specifications are subject to amendment, suspension, revocation or termination
by the FAA. In addition, all of the Company's aircraft must have and maintain
certificates of airworthiness issued or approved by the FAA. The Company
currently holds an FAA air carrier operating certificate and operations
specifications under Part 121 of the Federal Aviation Regulations. The FAA has
the authority to suspend temporarily or revoke permanently the authority of the
Company or its licensed personnel for failure to comply with regulations
promulgated by the FAA and to assess civil penalties for such failures.
Under the Airport Noise and Capacity Act of 1990 and related FAA regulations,
the Company's aircraft fleet must comply with certain Stage 3 noise
restrictions. All of the Company's aircraft meet the Stage 3 noise reduction
requirement, which is currently the most stringent FAA noise requirement. FAA
regulations also require compliance with the Traffic Alert and Collision
Avoidance System ("TCAS"), approved airborne windshear warning system and aging
aircraft regulations, all of which the Company is currently in compliance with.
In 1999 the FAA issued a notice of proposed rulemaking concerning an
Airworthiness Directive ("AD") that will require the replacement of insulation
blankets on the Company's MD-11aircraft. It is expected the FAA will issue a
final AD in 2000 that will require the replacement of the blankets to be
accomplished within four years. The Company presently estimates that the cost of
the replacement, including labor, material and out-of-service costs will total
approximately $4.9 million per aircraft. The Company has not yet determined how
the cost of replacing the blankets will be financed. The ultimate resolution of
this matter could have a material adverse effect on the Company's financial
condition and results of operations.
As of December 31, 1999, the FAA has also issued two modification requirements
and proposed one that will require the Company to make future modifications to
its aircraft. The first requirement provides that lower cargo compartments of
aircraft have fire suppression systems installed by March 2001. All of the
Company's aircraft except one currently comply with this requirement. The
estimated cost of modifying the one aircraft is approximately $0.4 million. The
second requirement provides that all aircraft have expanded recording
capabilities by August 2001 through the installation of Digital Flight Data
Recorders. The Company estimates the cost of installing such recorders in its
fleet will be approximately $0.5 million. It is also expected that the FAA will
issue a rule prior to December 21, 2000 that will require the Company to install
Enhanced Ground Proximity Warning Systems in its aircraft. The Company currently
estimates the cost of such installation will be approximately $65,000 per
aircraft.
In March 2000, the FAA issued an AD that will require the Company to make
modifications to the control system for the automatic cargo loading system on
five of the Company's MD-11 aircraft. The Company expects it will be able to
comply with the AD at minimal cost and with no disruption to flight operations.
Additional laws and regulations have been proposed from time to time which could
significantly increase the cost of airline operations by imposing additional
requirements or restrictions on operations. Laws and regulations have been
considered from time to time that would prohibit or restrict the ownership and
transfer of airline routes or slots. There is no assurance that laws and
regulations currently enacted or enacted in the future will not adversely affect
the Company's ability to maintain its current level of operations.
Several aspects of airline operations are subject to regulation or oversight by
Federal agencies other than the DOT or FAA. For instance, labor relations in the
air transportation industry are generally regulated under the Railway Labor Act,
which vests in the National Mediation Board certain regulatory powers with
respect to disputes between airlines and labor unions arising under collective
bargaining agreements. In addition, the Company is subject to the jurisdiction
of other governmental entities, including (i) the Federal Communications
Commission ("FCC") regarding its use of radio facilities pursuant to the Federal
Communications Act of 1934, as amended, (ii) the Commerce Department, the
Customs Service, the Immigration and Naturalization Service, and the Animal and
Plant Health Inspection Service of the Department of Agriculture regarding the
Company's international operations, (iii) the Environmental Protection Agency
(the "EPA") regarding compliance with standards for aircraft exhaust emissions
and (iv) the Department of Justice regarding certain merger and acquisition
transactions. The EPA regulates operations, including air carrier operations,
which affect the quality of air in the U.S. The Company has made all necessary
modifications to its operating fleet to meet fuel-venting requirements and smoke
emissions standards issued by the EPA.
The Company's international operations are generally governed by a network of
bilateral civil air transport agreements providing for the exchange of traffic
rights between governments which then select and designate air carriers
authorized to exercise such rights. In the absence of a bilateral agreement,
such international air services are governed by principles of comity and
reciprocity. Bilateral provisions pertaining to the wet lease services in which
the Company is engaged vary considerably depending on the particular country.
Most bilateral agreements into which the U.S. has entered permit either country
to terminate the agreement with one year's notification to the other. In the
event a bilateral agreement is terminated, international air service between the
affected countries is governed by the principles of comity and reciprocity.
Certain airports served by the Company are subject to slot allocations
administered by the governments of the countries in which such airports are
located or by coordinating committees comprising airline representatives. A
"slot" is an authorization to take off or land at the designated airport within
a specified time window. In the past, the Company has generally been successful
in obtaining the slots it needs in order to conduct its operations. There can be
no assurance, however, that it will be able to do so in the future because,
among other factors, government policies regulating the distribution of slots,
both in the U.S., and in foreign countries, are subject to change.
Pursuant to federal law, no more than 25% of the voting interest in the Company
may be owned or controlled by foreign citizens. In addition, under existing
precedent and policy, actual control must reside in U.S. citizens. As a matter
of regulatory policy, the DOT has stated that it would not permit aggregate
equity ownership of a domestic air carrier by foreign citizens in an amount in
excess of 49%. The Company believes it fully complies as of the date hereof with
these U.S. citizen ownership requirements.
Due to its participation in the CRAF program of the USAF, the Company is subject
to inspections approximately every two years by the military as a condition of
retaining its eligibility to perform military charter flights. The last such
inspection was undertaken in 1998 and the next is anticipated to occur in April
2000. As a result of such inspections, the Company has been required to
implement measures, such as the establishment of a crew resource management
course, beyond those required by the DOT, FAA and other government agencies. The
USAF may terminate its contract with the Company if the Company fails to pass
such inspection or otherwise fails to maintain satisfactory performance levels,
if the Company loses its airworthiness certificate or if the aircraft pledged to
the contracts lose their U.S. registry or are leased to unapproved carriers.
The Company believes it is in compliance in all material respects with all
requirements necessary to maintain in good standing its operating authority
granted by the DOT and its air carrier operating certificate issued by the FAA.
A modification, suspension or revocation of any of the Company's DOT or FAA
authorizations or certificates could have a material adverse effect upon the
Company. The Company also is subject to state and local laws and regulations at
locations where it operates and the regulations of various local authorities,
which operate the airports it serves. Certain airport operations have adopted
local regulations that, among other things, impose curfews and noise abatement
regulations. While the Company believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by the Company therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the Company.
Employees
As of February 29, 2000, the Company had 849 full time equivalent employees
classified as follows:
Number of
Full-Time
Classification Employees
-------------- ---------
Management 15
Administrative and Operations 270
Cockpit Crew 232
Flight Attendants 332
------
Total Employees 849
======
The Company's cockpit crewmembers, approximately 27% of the Company's employees,
who are represented by the International Brotherhood of Teamsters (the
"Teamsters"), are subject to a collective bargaining agreement that will be
amendable June 30, 2003.
The Company's flight attendants, approximately 39% of the Company's employees,
who are also represented by the Teamsters, are subject to a four-year collective
bargaining agreement that will be amendable June 30, 2000. The Company's flight
attendants have argued the "scope clause" of the collective bargaining agreement
has been violated by the Company and have challenged the use of foreign flight
attendant crews on the Company's flights for Garuda Indonesia which has
historically been the Company's operating procedure. In certain instances the
Company is contractually obligated to permit its customers to deploy their own
flight attendants. While the arbitrator in this matter denied in 1997 the
Union's request for back pay to affected flight attendants for flying relating
to the 1994 Hadj, the arbitrator concluded that the Company's contract with its
flight attendants requires the Company to first actively seek profitable
business opportunities that require using the Company's flight attendants,
before the Company may accept wet lease business opportunities that use the
flight attendants of the Company's customers. In 1997, the flight attendants
filed "scope clause" grievances with respect to four separate wet-lease
contracts and in January 2000 they filed another "scope clause" grievance with
respect to the 2000 Garuda Hadj agreement. An adverse decision on one or more of
the grievances could have a material adverse impact on the financial condition
or results of operations of World Airways.
The Company's aircraft dispatchers, who are represented by the Transport Workers
Union (the "TWU") are subject to a collective bargaining agreement that will be
amendable December 31, 2003. Fewer than 12 Company employees are covered by this
collective bargaining agreement.
The Company is unable to predict whether any of its employees not currently
represented by a labor union will elect to be represented by a labor union or
collective bargaining unit. The Company is not aware of any parties or group of
employees who have indicated any intent of petitioning for such an election. The
election by such employees of representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.
Item 2. Properties
Flight Equipment
At December 31, 1999, the Company's operating fleet consisted of 10 leased
aircraft as follows:
Capacity
---------------------
Passenger Cargo
Aircraft(a) (Seats)(b) (Tons) Total
----------------------------- ---------- ------ -----
McDonnell Douglas MD-11 409 -- 3
McDonnell Douglas MD-11F -- 95 1
McDonnell Douglas MD-11CF 410 90 2
McDonnell Douglas MD-11ER 409 -- 2
McDonnell Douglas DC10-30 355 -- 1
McDonnell Douglas DC-10-30CF 380 65 1
-----
Total 10
Notes
(a) "F" aircraft are freighters; "CF" are convertible freighters and may
operate in either passenger or freight configurations. "ER" aircraft have
extended-range capabilities.
(b) Based on maximum operating configurations. Other configurations are
occasionally used.
The lease terms for the MD-11 aircraft expire between 2005 and 2020 (assuming
the exercise of a 12-year lease extension for the two MD-11ER aircraft). In
1999, in conjunction with amending the leases, the lessors obtained the right,
based on a failure of the Company to meet certain financial performance
requirements, that allow them to cancel the lease of any aircraft with 12 months
notice. To date, the Company has not been notified of any intent of the lessors
to cancel lease. If the Company fails to achieve a certain annual net income
level in 2000 and subsequent years, the lessors have similar termination rights.
The termination rights for the two MD-11ER aircraft extend into 2006 and the
termination rights for the other six MD-11 aircraft extend through 2001.
The lease term on the DC-10-30CF aircraft expires in January 2003. The lease
term for the other DC-10-30 aircraft is cancelable by the Company with 90 days
notice. The Company presently intends to operate the aircraft through the
balance of 2000.
Ground Facilities
The Company leases office space located near Washington Dulles International
Airport, which houses its corporate headquarters and substantially all of the
administrative employees of the Company. In addition, the Company leases
additional office and warehouse space in New York, New York; Wilmington,
Delaware; Los Angeles, California; Yokota, Japan; and Frankfurt, Germany.
Additional small office and maintenance material storage space is leased at
often frequented airports to provide administrative and maintenance support for
commercial and military contracts.
Item 3. Legal Proceedings
In connection with the discontinuance of World Airways' scheduled service
operations in 1996, the Company has been subject to claims by various third
parties and may be subject to further claims in the future. A claim has been
filed in Germany against the Company by a tour operator seeking approximately
$3.5 million in compensation related to the cancellation of a summer program in
1996. The Company believes it has substantial defenses to this action, although
no assurance can be given of the eventual outcome of this litigation.
In addition, World Airways is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by the Company
to be likely to have a material adverse effect on the financial condition and
results of operations of the Company.
Item 4. Submission Of Matters To A Vote Of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters
The Company's Common Stock trades on the Nasdaq SmallCap Market of The
Nasdaq-Amex Market GroupSM under the symbol: WLDA. The high and low bid prices
of the Company's Common Stock, as reported by Nasdaq, for each quarter in the
last two fiscal years are as follows:
Common Stock
--------------------------
High Low
-------- ------
1999
Fourth Quarter 1 3/16 3/4
Third Quarter 1 5/8 1
Second Quarter 2 1/4 1
First Quarter 1 1/2 1
1998
Fourth Quarter 2 1/4 7/8
Third Quarter 3 15/16 1
Second Quarter 5 7/8 3 7/8
First Quarter 6 13/16 5 1/8
The Company has not declared or paid any cash dividends or distributions on its
Common Stock since 1992. The Company currently intends to retain future earnings
to fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. Any future
decision concerning the payment of dividends on its Common Stock will depend
upon the results of operations, financial condition, capital expenditure plans
of the Company, provisions of certain financing instruments as well as such
other factors as the Board of Directors, in its sole discretion, may consider
relevant.
A Credit Agreement with GMAC Financial Corporation (the "Credit Agreement")
contains restrictions on the Company's ability to pay dividends or make any
distributions of Common Stock in excess of 5% of the total aggregate outstanding
amount of stock, except that the Company may make quarterly dividends so long as
in any six month period, such dividends do not exceed 50% of the Company's
aggregate net income for the previous six months.
WorldCorp is subject to the provisions of an indenture, expiring in 2004, which
causes the Company not to pay dividends upon the occurrence of any events of
default by WorldCorp under the indenture. In WorldCorp's February 1999
bankruptcy filing it disclosed that interest payments due on debentures issued
pursuant to the indenture were not made in 1998 which would constitute an event
of default. However, the indenture is not applicable to World Airways if
WorldCorp's ownership percentage is below 50% of the issued and outstanding
shares of Common Stock. WorldCorp now owns less than 50% of the Company's
outstanding Common Stock and is not expected to increase its ownership above 50%
in the future.
The approximate number of shareholders of record at February 29, 2000 is 95, and
does not include those shareholders who hold shares in street name accounts.
Item 6. Selected Financial Data
WORLD AIRWAYS, INC.
Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Results of operations:
Operating revenues $ 263,998 $ 271,149 $ 309,412 $ 309,587 $ 242,386
Operating expenses 274,247 274,317 292,555 287,942 226,488
Operating income (loss) (10,249) (3,168) 16,857 21,645 15,898
Earnings (loss) from continuing
operations before income taxes
and extraordinary item (13,653) (10,905) 12,230 19,032 14,748
Earnings (loss) from continuing operations,
before extraordinary item (13,653) (11,032) 11,967 18,353 14,146
Discontinued operations -- -- (515) (32,375) (5,250)
Extraordinary item 6,030 -- -- -- --
Net earnings (loss) (7,623) (11,032) 11,452 (14,022) 8,896
Cash dividends -- -- -- -- --
Basic earnings (loss) per common share:
Continuing operations (2.04) (1.54) 1.16 1.55 1.35
Discontinued operations -- -- (0.05) (2.74) (0.50)
Extraordinary item 0.90 -- -- -- --
Net earnings (loss) (1.14) (1.54) 1.11 (1.19) 0.85
Weighted average Common Stock outstanding 6,692 7,161 10,302 11,806 10,477
Diluted earnings (loss) per common share:
Continuing operations (2.04) (1.54) 1.09 1.55 1.34
Discontinued operations -- -- (0.05) (2.74) (0.50)
Extraordinary item 0.90 -- -- -- --
Net earnings (loss) (1.14) (1.54) 1.04 (1.19) 0.84
Weighted average Common Stock and common
equivalent shares outstanding 6,692 7,161 12,279 11,806 10,572
Financial Position:
Cash and short-term investments $ 12,406 $ 16,893 $ 25,887 $ 8,075 $ 26,180
Total assets 109,736 116,437 149,148 127,524 130,695
Notes payable and long-term obligations including
current maturities 63,287 80,492 88,966 50,538 37,112
Stockholders' equity (deficiency) (29,838) (23,627) (4,771) 8,362 30,340
</TABLE>
<PAGE>
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways as
reflected in its financial statements.
Results Of Operations
- ---------------------
Operating Losses
While the Company generated operating income in 1995 through 1997, it sustained
operating losses in 1998 and 1999. For 1996, the Company had a net loss which
resulted from losses incurred in the Company's scheduled service operations that
were discontinued in 1996. For 1998 the Company had an operating loss of $3.2
million and a net loss of $11.0 million. For 1999 the Company had an operating
loss of $10.2 million and a loss before extraordinary item of $13.7 million. The
Company's net loss after extraordinary gains on the extinguishment of debt of
$6.0 million was $7.6 million. There can be no assurance that the Company will
be able to generate income in 2000 or future years.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total block hours decreased 1,938 hours, or 5.5%, to 33,595 hours in 1999 from
35,533 hours in 1998, with an average of 10.9 available aircraft per day in 1999
compared to 12 in 1998. Average daily utilization (block hours flown per day per
aircraft) increased to 8.4 hours in 1999 from 8.1 hours in 1998. In 1999, the
Company continued to obtain a higher percentage of its revenues under wet lease
contracts as opposed to full service contracts. In 1999, full service contracts
accounted for 40.1% of total block hours compared with 27.6% in 1998.
Operating Revenues. Operating revenues decreased $7 million, or 2.6%, to $264
million in 1999 from $271 million in 1998. This decrease was primarily
attributable to the decrease in block hours flown, partially offset by a shift
in business from ACMI flying to full service flying. Also, in 1999 the Company
received approximately $7.3 million in revenue associated with minimum guarantee
payments from MAS versus approximately $19.5 million in 1998.
Operating Expenses. Total operating expenses were flat year over year, $274.2
million in 1999 compared to $274.3 million in 1998
Flight expenses include all expenses related directly to the operation of the
aircraft other than aircraft rent, fuel and maintenance. Also included are
expenses related to flight dispatch and flight operations administration. Flight
expenses increased $10.6 million, or 15.3%, in 1999 to $79.9 million from $69.3
million in 1998. This increase resulted primarily from increases in flight
attendant costs and passenger food due to the shift to more full service flying.
Maintenance expenses decreased $3.2 million, or 5.7%, in 1999 to $54.1 million
from $57.3 million in 1998. This decrease resulted primarily from a decrease in
the average number of aircraft from 12 to 10.9 and the reduction in hours flown.
This was partially offset by the normal increase in maintenance costs generally
experienced with aging aircraft. In addition, the Company experienced an
increase in costs associated with the MD-11 aircraft and related engines as a
result of certain manufacturer guarantees and warranties that were fully expired
in 1998 and maintenance costs that increased pursuant to contractual agreements.
The Company expects its maintenance expense to increase further in future years
as its aircraft fleet gets older.
Aircraft costs decreased $8.7 million, or 10.4%, in 1999 to $76 million from
$84.7 million in 1998. This decrease principally reflects reductions in the
lease rates for the fleet of MD-11 aircraft and the return of two DC 10-30
aircraft in 1999.
Fuel expenses increased $4 million, or 21%, in 1999 to $23 million from $19.0
million in 1998. This increase reflects the increase in full service block hours
flown partially offset by a decrease in average fuel prices from $0.85 in 1998
to $0.68 in 1999. The Company is generally able to pass fuel cost increases
through to its customers.
Commissions decreased $2.3 million in 1999 to $6.6 million from $8.9 million in
1998. This decrease resulted from the end of the Philippine Airlines contract in
February 1998 and reduced expenses incurred in connection with reduced revenues
relating to a decrease in AMC flying.
Depreciation and amortization decreased $0.3 million, or 4%, in 1999 to $8.2
million from $8.5 million in 1998. This decrease resulted primarily from a
decrease in both the depreciation of DC-10 leasehold improvements and
amortization of other assets, partially offset by an increase in the
depreciation of owned engines.
Sales, general and administrative expenses decreased $1.4 million, or 5.5%, in
1999 to $23.9 million from $25.3 million in 1998. This decrease principally
reflects a $1.3 million decrease in general insurance costs.
Interest expense decreased $1.1 million in 1999 to $6.3 million from $7.4 in
1998. This decrease resulted from reductions in the average amount of debt
outstanding during the two periods.
Other non-operating income includes gains of approximately $2 million on the
sale of the Company's interest in an unaffiliated communications company. There
were no comparable gains in 1998.
Extraordinary Gain. In 1999 the Company acquired $8.2 million of the outstanding
8% Debentures for cash and other considerations at a discount of approximately
75% resulting in extraordinary gains of $6 million.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total block hours decreased 8,247 hours, or 18.8%, to 35,533 hours in 1998 from
43,780 hours in 1997, with an average of 12 available aircraft per day in 1998
compared to 12.9 in 1997. Average daily utilization decreased to 8.1 hours in
1998 from 9.3 hours in 1997. In 1998, the Company continued to obtain a higher
percentage of its revenues under wet lease contracts as opposed to full service
contracts. In 1998, wet lease contracts accounted for 70.0% of total block hours
compared with 81.2% in 1997.
Operating Revenues. Operating revenues decreased $38.3 million, or 12.4%, to
$271 million in 1998 from $309 million in 1997. This decrease was primarily
attributable to the decrease in block hours flown, partially offset by a shift
in business from ACMI flying to full service flying. Also, in 1998 the Company
received approximately $19.5 million in revenue associated with minimum
guarantee payments from Malaysia Airlines versus approximately $14.2 million
from Malaysian Airlines and another customer in 1997.
Operating Expenses. Total operating expenses decreased $18.1 million, or 6.2%,
in 1998 to $274 million from $293 million in 1997.
Flight expenses include all expenses related directly to the operation of the
aircraft other than aircraft cost, fuel and maintenance. Also included are
expenses related to flight dispatch and flight operations administration. Flight
expenses decreased $2.5 million, or 3.6%, in 1998 to $69.3 million from $71.8
million in 1997. This decrease resulted primarily from a decrease in cockpit
headcount partially offset by an increase in flight attendant costs and
passenger food due to the shift to more full service flying. Also, in 1997 the
Company accrued profit sharing expenses as a result of earnings experienced
during that period. No such accrual was made in 1998.
Maintenance expenses decreased $8.7 million, or 13.1%, in 1998 to $57.3 million
from $66.0 million in 1997. This decrease resulted primarily from a decrease in
the average number of aircraft from 12.9 to 12 and the reduction in hours flown.
This was partially offset by an additional maintenance accrual of $1.4 million
relating to an engine overhaul in the first quarter of 1998 and the normal
increase in maintenance costs generally experienced with aircraft fleets as the
aircraft get older. In addition, the Company experienced an increase in costs
associated with the MD-11 aircraft and related engines as a result of certain
manufacturer guarantees and warranties that were fully expired in 1998.
Aircraft costs decreased $6.7 million, or 7.3%, in 1998 to $84.7 million from
$91.4 million in 1997. This decrease reflects the return of one MD-11 aircraft,
one DC 10-30 aircraft and two engines in 1997. It also reflects a reduction in
insurance policy rates.
Fuel expenses increased $1.4 million, or 7.9%, in 1998 to $19.0 million from
$17.6 million in 1997. This increase reflects the increase in full service block
hours flown partially offset by a decrease in average fuel prices.
Commissions decreased $0.7 million in 1998 to $8.9 million from $9.6 million in
1997. This decrease resulted primarily from the end of the Philippine Airlines
contract in February 1998 partially offset by expenses incurred in connection
with increased revenues relating to increased AMC flying.
Depreciation and amortization decreased $0.2 million, or 1.7%, in 1998 to $8.5
million from $8.7 million in 1997. This decrease resulted primarily from a
decrease in both the depreciation of DC-10 leasehold improvements and
amortization of other assets, offset by an increase in the depreciation of owned
engines.
Sales, general and administrative expenses increased $0.5 million, or 2.1%, in
1998 to $25.4 million from $24.9 million in 1997. This increase reflects
increases in general insurance costs and a $1.1 million allowance for bad debts
offset by reductions in wages and fringes, legal expenses, property taxes and
FAA fines.
Interest expense increased $2.0 million in 1998 to $7.4 million from $5.4 in
1997. This increase resulted primarily from the issuance of $50 million of 8%
Convertible Senior Subordinated Debentures (the "Debentures") in August 1997.
Liquidity And Capital Resources
- -------------------------------
World Airways' cash and short-term and long-term marketable investments at
December 31, 1999 totaled $14.1 million. As is common in the airline industry,
the Company operates with a working capital deficit. At December 31, 1999, World
Airways' current assets were $30.3 million and current liabilities were $55.2
million.
World Airways is highly leveraged. The Company incurred substantial debt and
lease commitments in connection with its acquisition of MD-11 aircraft and
related spare parts. As of December 31, 1999, the Company had outstanding
long-term debt and capital leases of $52.1 million, and notes payable and
current maturities of long-term obligations of $11.2 million. In addition, the
Company has significant long-term obligations relating to operating leases for
aircraft.
The Company has historically financed working capital and capital expenditure
requirements out of cash flow from operating activities, sales of Common Stock,
secured borrowings, and other financings from banks and other lenders. The
degree to which the Company is leveraged could have important consequences
including: (i) World Airways' ability to obtain additional financing in the
future for working capital, capital expenditures or other purposes may be
limited; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness;
(iii) World Airways' degree of leverage and related debt service obligations, as
well as its obligations under operating leases, may make it more vulnerable than
some of its competitors in a prolonged economic downturn; and (iv) World
Airways' financial position may restrict its ability to pursue new business
opportunities and limit its flexibility in responding to changing business
conditions.
During 1999, the Company hired CIBC World Markets Corp. ("CIBC") as financial
advisor to assist the Company with a restructuring and recapitalization of the
Company's balance sheet. As part of those efforts CIBC initiated contact with
debenture holders and other parties to pursue options for strengthening the
Company financially. Although in February 2000 CIBC suspended further talks with
the holders of the Debentures, they will continue to explore other alternatives
for strengthening the Company financially.
Although there can be no assurances, World Airways believes that the combination
of its existing contracts and additional business which it expects to obtain,
along with its existing cash, planned cost cutting efforts, unencumbered assets
that can be utilized to generate cash and other financing arrangements, will be
sufficient to allow the Company to meet its cash requirements related to
operating and capital requirements for 2000. In February 2000, the Company
received $6.1 million from the sale/leaseback of an aircraft engine.
Also, in February 2000, the Company implemented an 18-month salary exchange
program for most of its employees. Under the program, participating employees
will exchange 10% of wages, in excess of $25,000, as defined, for Common Stock
on the basis of one share of stock for each $1.19375 of wages. The exchange rate
was determined from average stock prices coinciding to when the Board of
Directors approved the program. It is expected the program will produce total
cash savings of approximately $5.0 million during the 18-month program and
result in the issuance of approximately 4.1 million shares of Common Stock.
Approximately 3.8 million shares will be issued as restricted shares following
the beginning of the program. The recipients will be able to vote the shares
received but will not be able to sell the shares until the end of the program.
Expense associated with the value of the shares will be recognized over the
18-month period. If an employee leaves the Company during the program, a
pro-rata portion of the shares will be returned to the Company.
Cash Flows from Operating Activities
Operating activities provided $7.8 million in cash for the year ended December
31, 1999 compared to $10.4 million in 1998. This decrease in cash in 1999
resulted primarily from the greater operating loss incurred in 1999 compared to
1998.
Cash Flows from Investing Activities
Investing activities used $3.1 million in cash for the year ended December 31,
1999, compared to $2.5 million in 1998. In 1999, $2.1 million of cash was used
for the acquisition of aircraft parts and $2.5 million was used to purchase
marketable securities. In 1998 cash was used primarily for the purchase of parts
to support the aircraft fleet and leasehold improvements on the corporate
headquarters.
Cash Flows from Financing Activities
Financing activities used $9.9 million in cash for the year ended December 31,
1999 compared to using $16.9 million in 1998. In 1999, cash was principally used
for the repayment of debt. In 1998 cash was used primarily for a net reduction
in debt of approximately $8.7 million, for the purchase of shares of the
Company's Common Stock aggregating approximately $6.6 million and for a loan to
WorldCorp of $1.4 million, net.
Capital Commitments/Financing Developments
World Airways' capital expenditures for 2000 are currently expected to be
approximately $1 million, principally for the purchase of aircraft related
assets which it expects to finance from working capital.
In 1999, the FAA issued a notice of proposed rulemaking concerning an
Airworthiness Directive ("AD") that will require the replacement of insulation
blankets on the Company's aircraft. It is expected the FAA will issue a final AD
in 2000 that will require the replacement of the blankets to be accomplished
within four years. The Company presently estimates that the cost of the
replacement, including labor, material and out-of-service costs will total
approximately $4.9 million per aircraft. The Company has not yet determined how
the cost of replacing the blankets will be financed.
In the event that World Airways enters into leases for additional aircraft, the
Company may have to make expenditures for deposits and additional spare engines
and parts. No assurances can be given, however, that the Company will obtain all
of the financing required for such capital expenditures.
In March 1996, in conjunction with the lease of two MD-11ER aircraft the Company
agreed to assume existing leases of up to two additional MD-11F freighter
aircraft for the remainder of their 24-year leases which commenced in November
and December 1995, in the event that the existing lessee terminates its lease
with the lessor. As of the date hereof, the Company does not know if the
existing lessee intends to terminate the existing lease or not. As part of the
agreement for the aircraft, the lessor provided spare parts financing of $9.0
million of which approximately $7.9 million has been received.
Other Matters
- -------------
Year 2000
Prior to 2000, the Company incurred approximately $200,000 of incremental costs
to address "year 2000" issues. The Company has not incurred any operational
problems in 2000.
Inflation
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
Item 7a. Quantitative And Qualitative Disclosures About Market Risk
World Airways does not have any material exposure to market risks.
With respect to interest rate risks, at December 31, 1999 interest rates on all
of the Company's long-term debt and capitalized lease obligations aggregating
$58.2 million are fixed. Borrowings under the Company's Credit Agreement, $5.1
million at December 31, 1999, bear interest at prime plus 1%. Based on the
average outstanding month-end balances during 1999 each 1% change in the prime
rate would have increased or decreased the Company's interest cost by
approximately $69,000. Based on the balance outstanding at December 31, 1999
each 1% change in the prime rate will increase or decrease the Company's
interest cost by approximately $51,000 on an annual basis. See Notes 7 and 8 of
"Notes to Financial Statements" in Item 8. The Company has not entered into any
obligations for trading purposes.
With respect to foreign currency exchange rate risks, although a significant
percentage of the Company's revenues are derived from foreign customers, all
revenues and substantially all expenses are denominated in U.S. dollars. The
Company maintains minimal balances in foreign bank accounts to facilitate the
payment of expenses. See Note 13 of "Notes to Financial Statements" in Item 8.
The Company is not exposed to commodity price risks except with respect to the
purchase of aviation fuel. However, fluctuations in the price of fuel have not
had a significant impact on the Company's operations in recent years because, in
general, the Company's contracts with its customers limit the Company's exposure
to increases in fuel prices. The Company purchases no fuel under long-term
contracts nor does the Company enter into futures or swap contracts.
<PAGE>
Item 8. Financial Statements And Supplementary Data
WORLD AIRWAYS, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents, including restricted cash of $2,387
at December 31, 1999 and $22 at December 31, 1998 $ 11,725 $ 16,893
Short-term marketable investments 681 --
Accounts receivable, less allowance for doubtful accounts
of $1,848 in 1999 and $1,560 in 1998 11,225 7,876
Prepaid expenses and other current assets 6,647 3,580
------- -------
Total current assets 30,278 28,349
Equipment and property
Flight and other equipment 90,150 89,878
Equipment under capital leases 10,262 12,266
------- -------
100,412 102,144
Less: accumulated depreciation and amortization 38,306 33,433
------- -------
Net equipment and property 62,106 68,711
------- -------
Assets held for sale 1,315 1,609
Long-term operating deposits 13,414 15,855
Marketable investments 1,688 --
Other assets and deferred charges, net of amortization of
$624 in 1999 and $2,663 in 1998 935 1,913
------- -------
Total assets $ 109,736 $ 116,437
======= =======
</TABLE>
<PAGE>
WORLD AIRWAYS, INC.
BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
--------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Notes payable $ 5,079 $ 5,213
Current maturities of long-term obligations 6,096 7,710
Accounts payable 19,453 16,494
Unearned revenue 4,152 2,329
Accrued maintenance in excess of reserves paid 7,923 8,928
Accrued salaries and wage 8,510 6,972
Accrued taxes 2,835 2,205
Other accrued liabilities 1,127 1,480
------- -------
Total current liabilities 55,175 51,331
------- -------
Long-term obligations, net of current maturities 52,112 67,569
Other liabilities
Deferred gain from sale-leaseback transactions, net of accumulated
amortization of $22,269 in 1999 and $21,212 in 1998 3,083 4,140
Accrued maintenance in excess of reserves paid 14,884 8,460
Accrued post-retirement benefits 2,907 2,794
Deferred rent 11,413 5,770
------- -------
Total other liabilities 32,287 21,164
------- -------
Total liabilities 139,574 140,064
------- -------
Stockholders' deficiency
Preferred stock, $.001 par value (5,000,000 shares
authorized and no shares issued or outstanding) -- --
Common Stock, $.001 par value (40,000,000 shares authorized;
12,147,141 shares issued and 6,446,416 outstanding at December 31, 1999
and 12,000,064 shares issued and 7,000,064
outstanding at December 31, 1998) 12 12
Additional paid-in capital 46,857 45,522
Accumulated deficit (35,972) (28,434)
Receivables--WorldCorp -- (1,346)
Treasury stock, at cost (Common Stock--5,700,725 shares at
December 31, 1999 and 5,000,000 shares at December 31, 1998) (40,735) (39,381)
-------- --------
Total stockholders' deficiency (29,838) (23,627)
-------- --------
Commitments and contingencies
Total liabilities and stockholders' deficiency $ 109,736 $ 116,437
======== =======
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1999 1998 1997
----------- --------- ----------
<S> <C> <C> <C>
Operating revenues
Flight operations $ 263,156 $ 269,637 $ 306,800
Other 842 1,512 2,612
-------- ------- -------
Total operating revenue 263,998 271,149 309,412
-------- ------- -------
Operating expenses
Flight 79,903 69,280 71,845
Maintenance 54,080 57,333 65,972
Aircraft costs 75,951 84,738 91,422
Fuel 22,986 19,012 17,615
Flight operations subcontracted to other carriers 2,650 1,295 2,603
Commissions 6,629 8,884 9,569
Depreciation and amortization 8,165 8,503 8,651
Sales, general, and administrative 23,883 25,272 24,878
-------- -------- -------
Total operating expenses 274,247 274,317 292,555
-------- -------- -------
Operating income (loss) (10,249) (3,168) 16,857
Other income (expense)
Interest expense (6,299) (7,363) (5,379)
Interest income 917 873 1,506
Other, net 1,978 (1,247) (754)
-------- -------- -------
Total other, net (3,404) (7,737) (4,627)
-------- -------- -------
Earnings (loss) from continuing operations before
income taxes and extraordinary item (13,653) (10,905) 12,230
Income tax expense -- (127) (263)
-------- -------- -------
Earnings (loss) from continuing operations before
extraordinary item (13,653) (11,032) 11,967
Discontinued operations - loss on disposal -- -- (515)
Earnings (loss) before extraordinary item
Extraordinary item - gain on extinguishment of debt 6,030 -- --
-------- -------- -------
Net earnings (loss) $ (7,623) $(11,032) $ 11,452
======== ======= =======
Basic earnings (loss) per share:
Continuing operations $ (2.04) $ (1.54) $ 1.16
Discontinued operations -- -- (0.05)
Extraordinary item 0.90 -- --
-------- ------- -------
Net earnings (loss) $ (1.14) $ (1.54) $ 1.11
======== ======= =======
Weighted average shares outstanding 6,692 7,161 10,302
======== ======= =======
Diluted earnings (loss) per share:
Continuing operations $ (2.04) $ (1.54) $ 1.09
Discontinued operations -- -- (0.05)
Extraordinary item 0.90 -- --
-------- ------- -------
Net earnings (loss) $ (1.14) $ (1.54) $ 1.04
======== ======= =======
Weighted average shares outstanding 6,692 7,161 12,279
======== ======= =======
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIENCY
Years ended December 31, 1999, 1998, and 1997
(in thousands except share amounts)
<TABLE>
<CAPTION>
Additional ESSOP Treasury Total
Common Paid-In Accumulated Guaranteed Stock, Receivables Stockholders'
Stock Capital Deficit Bank Loan at Cost WorldCorp Deficiency
-------- ---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 $ 12 $ 45,522 $ (29,006) $ (805) $ (7,361) $ -- $ 8,362
Common Stock
purchases (3,279,000
shares) -- -- -- -- (25,163) -- (25,163)
ESSOP Guaranteed
Bank Loan Payments -- -- -- 578 -- -- 578
Net earnings -- -- 11,452 -- -- -- 11,452
------- ------- -------- ------- -------- ------- -------
Balance at
December 31, 1997 12 45,522 (17,554) (227) (32,524) -- (4,771)
Common Stock purchases
(1,003,000 shares) -- -- -- -- (6,857) -- (6,857)
Issuance of note receivable-
WorldCorp, net -- -- 152 -- -- (1,346) (1,194)
ESSOP Guaranteed Bank
Loan Payments -- -- -- 227 -- -- 227
Net loss --- -- (11,032) -- -- -- (11,032)
------- ------- -------- ------- -------- ------- --------
Balance at
December 31, 1998 12 45,522 (28,434) -- (39,381) (1,346) (23,627)
8% Debentures converted
into 137,000 shares
of Common Stock -- 1,207 -- -- -- -- 1,207
Reclassification of
WorldCorp receivables -- -- 85 -- -- (399) (314)
Settlement of receivables-
WorldCorp, net
(1,069,000 shares of
Common Stock received) -- -- -- -- (1,745) 1,745 --
Exercise of 10,000 stock
options -- 10 -- -- -- -- 10
Amortization of warrants -- 118 -- -- -- -- 118
Treasury stock (368,000
shares) issued to acquire
8% Debentures -- -- -- -- 391 -- 391
Net loss -- -- (7,623) -- -- -- (7,623)
------- ------ -------- ------- -------- ------ --------
Balance at
December 31, 1999 $ 12 $ 46,857 $ (35,972) $ -- $ (40,735) $ -- $ (29,838)
======= ====== ======== ======= ======== ====== ========
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year $ 16,893 $ 25,887 $ 7,028
Cash flows from operating activities
Net earnings (loss) (7,623) (11,032) 11,452
Adjustments to reconcile net earnings (loss) to cash provided (used) by
operating activities:
Depreciation and amortization 8,165 8,503 8,651
Deferred gain recognition (1,057) (1,055) (1,057)
Extraordinary gain (6,030) -- --
(Gain) loss on sale of property and equipment -- -- 108
Writedown of assets held for sale -- 1,160 500
Provision for doubtful accounts 450 1,129 565
Other 533 469 18
Increase (decrease) in cash resulting from changes in operating assets and
liabilities:
Accounts receivable (3,799) 10,698 5,050
Restricted short-term investments -- -- 1,047
Deposits, prepaid expenses and other assets (626) 4,872 (298)
Accounts payable, accrued expenses and other liabilities 15,963 (4,168) (3,385)
Unearned revenue 1,823 (157) (560)
-------- -------- --------
Net cash provided by operating activities 7,799 10,419 22,091
-------- -------- --------
Cash flows from investing activities
Additions to equipment and property (2,103) (3,234) (5,467)
Proceeds from disposals of equipment and property 1,398 698 1,183
Purchase of marketable investments (2,458) -- --
Maturities of marketable investments 85 -- --
-------- --------- ---------
Net cash used by investing activities (3,078) (2,536) (4,284)
-------- --------- ---------
Cash flows from financing activities
(Decrease) increase in line of credit, net (134) 5,212 (9,354)
Issuance of debt -- -- 54,495
Repayment of debt (9,765) (13,933) (17,333)
Issuance of note receivable to WorldCorp, net -- (1,416) --
Acquisition of Common Stock, at cost -- (6,635) (25,163)
Proceeds from exercise of stock options 10 -- --
Debt issuance costs -- (105) (1,593)
-------- --------- ---------
Net cash provided (used) by financing activities (9,889) (16,877) 1,052
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents (5,168) (8,994) 18,859
--------- -------- --------
Cash and cash equivalents at end of year $ 11,725 $ 16,893 $ 25,887
======== ======== ========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE>
WORLD AIRWAYS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies
Organization
World Airways, Inc. ("World Airways" or the "Company") was organized in 1948 and
is a U.S. certificated air carrier. Airline operations account for 100% of the
Company's operating revenue. World Airways provides long- range passenger and
cargo charter air transportation, serving the U.S. Government, international
passenger and cargo air carriers, tour operators and cruise ship companies (see
Note 13).
Financial Statement Reclassifications
Certain items in prior year financial statements included herein have been
reclassified to conform to the 1999 financial statement presentation.
Segment Information
World Airways operates within one industry, air transportation, therefore no
segment information is provided.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers all highly
liquid investments purchased with an original maturity of ninety days or less to
be cash equivalents.
Cash includes prepayments from customers that the Company classifies as
restricted cash. Such prepayments are generally for flights that are scheduled
to be flown within 30 days or less subsequent to the balance sheet date.
Marketable Investment Securities
Investments generally consist of commercial paper and municipal debt that the
Company accounts for as "available for sale" in accordance with Statement of
Financial Accounting Standards No. 115 (SFAS 115). At December 31, 1999, the
investments' carrying value approximated market value. Investments that mature
within 12 months are classified as current assets. All investments mature within
three years.
Revenue Recognition
Contract flight revenues are recognized as the services are provided.
Income Taxes
The Company provides for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Earnings (Loss) Per Common Share
Basic earnings (loss) per Common Share is computed by dividing net earnings
(loss) by the weighted average number of Common Shares outstanding during the
period. Diluted earnings (loss) per Common Share also includes the effect of
common equivalent shares outstanding during the period. The Company's common
equivalent shares consist of shares issuable for stock options, convertible
debentures and warrants (see Note 11).
Equipment and Property
Equipment and property are stated at cost or, if acquired under capital leases,
at the present value of minimum lease payments.
Provisions for depreciation and amortization of equipment and property are
computed over estimated useful lives or the term of the lease, if shorter, for
capital leases, by the straight-line method, with estimated salvage values of 0
- - 15%. Estimated useful lives of equipment and property are as follows:
DC10 and MD-11 flight equipment 15-16 years
Other equipment and property 5-10 years
Major modifications including those performed in response to Airworthiness
Directives issued by the Federal Aviation Administration are capitalized at
cost. Routine maintenance and repairs are expensed as incurred.
Deferred gains realized in connection with sale-leasebacks of aircraft and
equipment are amortized over the periods of the respective leases.
Aircraft Maintenance
Airframe maintenance and engine overhauls are expensed using the accrual method
of accounting. The accrual method provides for estimating the cost of overhauls
and accruing the cost, based on an hourly rate, over the estimated life of the
overhaul. At that time, the actual cost of overhaul is charged to the accrual.
Accrual rates and accumulated balances are reviewed periodically for adequacy
and adjusted as appropriate. Certain of the Company's leases require the Company
to make monthly payments to the lessor for maintenance costs to be incurred.
Assets Held for Sale
Assets Held for Sale are recorded at the lower of cost or estimated net
realizable value. Net realizable value is based on the estimated fair value
(measured by using a current selling price for similar assets) less estimated
selling costs.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. To the extent that the future undiscounted net cash flows expected
to be generated from an asset are less than the carrying amount of the asset, an
impairment loss will be recognized based on the difference between the asset's
carrying amount and its estimated fair market value.
Other Assets and Deferred Charges
Debt issuance costs are amortized on a straight-line basis over the period the
related debt is expected to be outstanding.
Post-retirement Benefits Other Than Pensions
World Airways' cockpit crewmembers and eligible dependents are covered under
post-retirement health care benefits to age 65. The Company accounts for the
benefit costs in accordance with Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions"
("FAS No. 106"). The Company funds the benefit costs on a pay-as-you-go (cash)
basis (see Note 10).
Accounting for Stock-Based Compensation
The Company applies the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, by recording
compensation expense on the date of grant if the current market price of the
underlying Common Stock exceeds the exercise price. The company provides the pro
forma disclosures of FAS No. 123, Accounting for Stock-Based Compensation, by
providing pro forma net earnings (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-value-based method
of FAS No. 123 had been applied.
2. Operating Environment
At December 31, 1999 cash and cash equivalents and short-term marketable
investments totaled $12.4 million, the working capital deficit was $24.9 million
and the Company had long-term obligations, net of current maturities of $52.1
million. The Company also has significant future long-term obligations under its
aircraft leases. The Company anticipates that its capital expenditures in 2000
will approximate $1 million.
The Company has historically financed working capital and capital expenditure
requirements out of cash flow from operating activities, sales of its Common
Stock, secured borrowings, and other financing from banks and other lenders. The
degree to which the Company is leveraged could have important consequences
including: (i) World Airways' ability to obtain additional financing in the
future for working capital, capital expenditures or other purposes may be
limited; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness;
(iii) World Airways' degree of leverage and related debt service obligations, as
well as its obligations under operating leases, may make it more vulnerable than
some of its competitors in a prolonged economic downturn; and (iv) World
Airways' financial position may restrict its ability to pursue new business
opportunities and limit its flexibility in responding to changing business
conditions.
Factors that affect the Company's ability to achieve high utilization of its
aircraft include the compatibility of the Company's aircraft with customer needs
and the Company's ability to react on short notice to customer requirements
(which can be unpredictable due to changes in traffic rights, aircraft delivery
schedules and aircraft maintenance requirements). Other factors that affect the
Company include domestic and foreign regulatory requirements, as well as a trend
toward aviation deregulation that is increasing alliances and code share
arrangements.
Due to the large capital costs of leasing and maintaining aircraft and costs for
cockpit crewmembers and flight attendants, the Company's aircraft must have high
utilization at attractive rates in order for the Company to operate
profitably.Although World Airways' preferred strategy is to enter into long-term
contracts with customers, the terms of existing customer contracts are shorter
than the terms of the Company's lease obligations with respect to its aircraft.
There is no assurance that the Company will be able to enter into additional
contracts with new or existing customers or that it will be able to obtain
enough additional business to fully utilize each aircraft. World Airways'
financial position and results of operations could be materially adversely
affected even by relatively brief periods of low aircraft utilization and
yields.
World Airways' current operating philosophy is to build on its existing
relationships to achieve a strong platform for future growth while at the same
time grow its full service and cargo business. The Company's strategy is based,
first and foremost, upon providing the highest level of service to its
customers, thereby maintaining and expanding the amount of business being done
with existing customers. The Company perceives a number of opportunities for its
charter business created by a growing global economy, particularly long-term
growth in second and third world economies where the demand for airlift exceeds
capacity, notwithstanding economic problems faced by some developing countries
in recent years. World Airways attempts to maximize profitability by combining
ACMI contracts with full service agreements that meet the peak seasonal
requirements of its customers. The Company can respond to rapidly changing
market conditions and requirements because its fleet of aircraft can be deployed
in a variety of configurations.
Consistent with prior years, the Company has unsold capacity in the third and
fourth quarters of 2000 and beyond, however, historically it has been successful
in obtaining new business to utilize such capacity. Although there can be no
assurance that it will be able to secure additional business to utilize this
unsold capacity, the Company is actively seeking additional business for 2000
and beyond. The Company's financial results and financial condition would be
affected adversely if the Company is unable to secure business to utilize its
unsold capacity.
Although the Company's customers bear the financial risk of filling the
Company's aircraft with passengers or cargo, the Company can be affected
adversely if its customers are unable to operate the Company's aircraft
profitably, or if one or more of the Company's customers experience a material
adverse change in their market demand, financial condition or results of
operations. Under these circumstances, the Company can be adversely affected by
receiving delayed or partial payments or by receiving customer demands for rate
and utilization reductions, flight cancellations, and/or early termination of
their agreements.
Prior to 1999 the Company derived a significant percentage of its revenues and
block hours from its operations in the Pacific Rim region. In 1997 through 1999
these operations were adversly effected by economic conditions in Malaysia,
Indonesia and other countries in the Asia Pacific Region. These conditions
included national liquidity crises, significant depreciation in the value of the
ringgit and rupiah, higher domestic interest rates, reduced opportunity for
refinancing or refunding of maturing debts, and a general reduction in spending
throughout the region. However, management now believes these conditions have
started to improve and will provide new opportunities to wet lease aircraft to
airline customers, particularly those who have deferred or canceled new aircraft
orders but are still in need of providing additional airlift.
Although there can be not assurances, the Company believes that the combination
of its existing contracts and additional business which it expects to obtain for
2000, along with its existing cash, planned cost cutting efforts, unencumbered
assets that can be utilized to generate cash and other financing arrangements,
will be sufficient to allow the Company to meet its cash requirements related to
operating and capital requirements for 2000. In January 2000, the Company
entered into a sale and six-year leaseback of an engine and received $6.1
million.
Also, in February 2000, the Company implemented an 18-month salary exchange
program for most of its employees. Under the program, participating employees
will exchange 10% of wages, in excess of $25,000, as defined, for Common Stock
on the basis of one share of stock for each $1.19375 of wages. The exchange rate
was determined from average stock prices coinciding to when the Board of
Directors approved the program. It is expected the program will produce total
cash savings of approximately $5.0 million during the 18-month program and
result in the issuance of approximately 4.1 million shares of Common Stock.
Approximately 3.8 million shares will be issued as restricted shares following
the beginning of the program. The recipients will be able to vote the shares
received but will not be able to sell the shares until the end of the program.
Expense associated with the value of the shares will be recognized over the
18-month period. If an employee leaves the Company during the program, a
pro-rata portion of the shares will be returned to the Company.
3. WorldCorp and Naluri Ownership & Transactions
The Company became a wholly-owned subsidiary of WorldCorp, Inc. ("WorldCorp") in
a holding company reorganization in 1987. In 1994 WorldCorp sold 24.9% of its
ownership of the Company to Naluri Berhad (formerly known as MHS
Berhad)("Naluri"), a Malaysian aviation company. In October 1995, the Company
became a publicly owned company following the completion of an initial public
offering in which 2,000,000 and 900,000 shares of Common Stock were sold by the
Company and WorldCorp, respectively.
In 1997 and 1998 the Company purchased 4 million shares of its Common Stock from
WorldCorp and Naluri from the proceeds of Debentures issued in 1997 (see Note 8)
in accordance with a shareholders agreement. In 1998 the Company also acquired
150,000 of its Common Stock from WorldCorp valued at $682,000 as payment towards
principal, interest and expenses of a loan to WorldCorp.
On February 12, 1999 WorldCorp filed a petition for protection from its
creditors under Chapter 11 of the U. S. Bankruptcy laws in the United States
Bankruptcy Court for the District of Delaware. In August 1999 the Company
concluded an agreement with WorldCorp to settle a secured loan and other amounts
totaling approximately $1.8 million that WorldCorp owed the Company when
WorldCorp filed for bankruptcy protection. In connection with the agreement,
that was approved by the Bankruptcy Court overseeing WorldCorp's bankruptcy
proceedings, WorldCorp returned 1,069,000 shares of the Company's Common Stock
(based on market value on the date of settlement) it owned in exchange for the
$1.8 million owed.
In April 1998 WorldCorp entered into a series of transactions that resulted in
the shares of World Airways it owned being transfered to what became an 80%
owned subsidiary. In November 1999, as the result of a settlement approved by
the Bankruptcy Court, the WorldCorp subsidiary that owned the World Airways
shares became a wholly-owned subsidiary of WorldCorp again.
Under an agreement among World Airways, WorldCorp and Naluri, if at any time
after October 30, 1996 World Airways registers additional Common Stock under the
Securities Act of 1933, Naluri has the right to demand the registration of its
shares of the Company's Common Stock. Under a shareholders agreement, Naluri has
the right to nominate two members to the Company's Board of Directors and
WorldCorp has agreed to vote its shares of Common Stock to elect such nominees.
Also, if without the prior written consent of Naluri: (1) World Airways sells
all or substantially all of its business; or (2) World Airways fundamentally
changes its line of business, then Naluri has the option to require WorldCorp to
purchase all or part of Naluri's shares at fair market value. Fair market value
is defined to be not less than the aggregate of the costs borne by Naluri in
acquiring and holding its World Airways shares. Management has indicated that it
does not have any current intent to take any such actions without the prior
consent of Naluri or the directors nominated by Naluri.
The shareholders agreement also provides that if WorldCorp's ownership interest
in the Company falls below 51% of the outstanding shares of Common Stock, then
Naluri may either sell its shares to a third party or require WorldCorp to sell
a pro rata number of shares held by Naluri to the party purchasing WorldCorp's
shares. Naluri has not taken any action to exercise its rights as a result of
WorldCorp's ownership falling below 51% in 1999. Naluri also has a right of
first refusal to purchase shares of Common Stock issued by the Company or sold
by WorldCorp and to purchase additional shares of Common Stock to maintain its
ownership percentage in the Company.
At February 29, 2000, WorldCorp and Naluri own 38.5% and 18.9%, respectively, of
the outstanding Common Stock of World Airways, with the balance publicly traded.
Except as limited by contractual arrangements with Naluri, the beneficial owner
of WorldCorp's interest in the Company is in a position to have significant
influence over the outcome of many issues effecting World Airways' stockholders,
including the election of members of World Airways' Board of Directors, adoption
of amendments to World Airways' Certificate of Incorporation, and approval of
mergers (see Note 19).
4. Transactions with Malaysia Airlines
World Airways provided service to Malaysian Airline System Berhad ("Malaysia
Airlines" or "MAS") from 1981 to September 1999 for scheduled passenger, cargo
and charter operations. MAS has been one of the Company's largest customers (see
Note 13). Naluri owns approximately 28% of Malaysia Airlines at December 31,
1999.
In 1994, the Company entered into a series of multi-year contracts, with
expiration dates that ranged from 1997 to 2000, to provide aircraft to MAS. The
Company also entered into a 32-month agreement for year-round operations with
MAS whereby the Company was providing two passenger aircraft on an ACMI basis to
MAS's charter division through May 1999. The Company agreed to a five-month and
a three-month reduction in the utilization of one aircraft during 1997 and 1998,
respectively, and the aircraft was redeployed in other activity. The Company
provided three aircraft for 1997 Hadj operations. The Company provided two
aircraft to fly in the 1998 Indian Hadj on behalf of a contract entered into by
MAS.
The Company also has a long-term contract to operate three MD-11 cargo aircraft
for MAS. However, beginning in July 1996, as mutually agreed by the parties,
World Airways redeployed two cargo aircraft, which had been operating under
these contracts, into another contract that expired in February 1998. Effective
October 1999 the Company ceased operating any aircraft for MAS as a result of
the cessation of monthly payments by MAS for the remaining aircraft being
operated for them. MAS has taken the position that its obligations to make
payments for the aircraft ceased on September 30, 1999. The Company issued a
Notice of Default and deployed the aircraft elsewhere following MAS's cessation
of payments. As of December 31, 1999 the Company had a minimal net amount due
from MAS. In 1999 and 1998, the Company received approximately $7.3 million and
$19.5 million, respectively, in revenue associated with minimum guarantees for
aircraft not operated.
From 1995 to 1999, the Company leased four DC10-30 passenger aircraft from
Malaysia Airlines. Two aircraft were returned to MAS after World Airways
discontinued scheduled service, with the leases terminated effective December
31, 1996. In 1997, one of these aircraft was leased again for approximately
three months to support the 1997 Hadj program, and returned to MAS. The third
aircraft lease was terminated effective May 1999, and the fourth aircraft was
returned to MAS in July 1999. Rent and maintenance reserve payments related to
these aircraft amounted to $2.2 million, $5.8 million, and $6.6 million in 1999,
1998, and 1997, respectively.
5. Supplemental Information -- Statements Of Cash Flows
Additional information pertaining to certain cash payments and non-cash
investing and financing activities is as follows (in thousands):
Year Ended December 31,
----------------------------------------
1999 1998 1997
--------- --------- ---------
Cash paid for:
Interest $ 5,755 $ 6,819 $ 3,641
Income taxes -- -- 462
In 1999 the Company acquired 1,069,000 shares of the Company's Common Stock
owned by WorldCorp as settlement of all amounts owed to the Company by WorldCorp
(see Note 3). Also in 1999, the Company issued 368,000 shares of Treasury Stock
with a fair market value of $391,000 as consideration given to acquire $1.5
million of the Company's outstanding 8% Debentures and $1.2 of the 8% Debentures
were converted by the holders into 137,000 shares of Common Stock.
In 1998 the Company acquired 150,000 shares of the Company's Common Stock valued
at $682,000 owned by WorldCorp as payment towards principal and interest on a
loan to WorldCorp (see Note 3). Also in 1998 the Company financed the
acquisition of approximately $152,000 of office furniture.
In 1997 the Company financed 85% of the acquisition cost of an aircraft engine
by the issuance of a note payable for approximately $6.3 million. Also in 1997
the Company entered into a capital lease for equipment valued at $0.8 million.
6. Prepaid Expenses And Other Current Assets
Prepaid expenses and other current assets consist of the following (in
thousands):
December 31,
-------------------------
1999 1998
--------- ---------
Prepaid rent $ 3,465 $ 3,420
Deposits 2,465 37
Other 717 123
-------- -------
Total $ 6,647 $ 3,580
======= ======
7. Notes Payable
The Company has a Credit Agreement with GMAC Financial Corporation ("GMAC")
expiring in March 2001. The Agreement has a borrowing capacity of up to $25.0
million, subject to borrowing base amounts related to receivables and spare
parts inventory, as defined, and borrowings are collateralized by certain
receivables, inventory, and equipment. The Agreement provides for an unused
facility fee of 1/4 of 1% and interest on borrowings outstanding at prime plus
1%. Prime was 8 1/2 % at December 31, 1999. Further, the receivables facility
allows for the issuing of Letters of Credit to a sub-limit of $4 million for an
issuance fee and interest of 1/8 of 1%. The Agreement as amended in March 1999
contains dividend and borrowing restrictions as well as covenants related to the
Company's financial condition and operating results. At December 31, 1999 the
outstanding balance under the Agreement was $5.1 million. At that date the
Company did not have any additional borrowing capacity under this Agreement,
other than outstanding Letters of Credit aggregating approximately $1.4 million,
principally for deposits for facility leases.
8. Long-term Obligations
Long-Term Debt
<TABLE>
<CAPTION>
The Company's long-term obligations at December 31 are as follows (in thousands): 1999 1998
<S> <C> <C>
-------- --------
Convertible senior subordinated debentures due 2004 --with interest at 8% payable
semi-annually $ 40,545 $ 50,000
Note payable due January 1999--with principal and interest at 7.25% payable monthly -- 3,300
Note payable due 2003--with principal and interest at 9.98% payable monthly,
collateralized by one Pratt and Whitney PW4462 engine 4,048 4,705
Note payable due 2004--with interest at 8.18% payable monthly, with a final payment of
$2.2 million due June 2004, collateralized by one Pratt & Whitney PW4462 engine 4,757 5,338
Spare parts loan due 2003--with principal and interest at 10% payable monthly,
collateralized by certain MD-11 spare parts 3,848 5,061
Spare parts loan due 2003--with principal and interest at 8.5% payable monthly,
collateralized by certain MD-11 spare parts 1,492 1,886
Capital lease obligations 2,996 4,247
Other 522 811
Less: debt discount -- (69)
------- -------
Total 58,208 75,279
Less: current maturities 6,096 7,710
------- -------
Total long-term obligations, net of current maturities $ 52,112 $ 67,569
======= ========
</TABLE>
The estimated fair value of the 8% Convertible Senior Subordinated Debentures
(the "Debentures") at December 31, 1999 approximated $7.1 million. The Company
believes that the carrying values of its other outstanding debt approximates
fair value.
In 1999 the Company acquired $8.2 million of the outstanding 8% Debentures for
$1.8 million and Treasury Stock with a fair market value of $0.4 million
resulting in extraordinary gains of $6 million. Additionally, $1.2 million of
the 8% Debentures were converted into 137,000 shares of Common Stock.
The Debentures are unsecured obligations, convertible into shares of the
Company's Common Stock at $8.90 per share, subject to adjustment in certain
events, and subordinated to all present and future senior indebtedness of the
Company. In certain circumstances including the Company's Common Stock being
delisted from trading and a change in control of the Company, as defined, the
holders of the Debentures could require the Company to repurchase the
outstanding Debentures. The Debentures are not redeemable by the Company prior
to August 26, 2000.
The Company has $1.1 million available for additional borrowings at December 31,
1999 under the 10% spare parts loan due 2003.
The following table shows the aggregate annual amount of scheduled principal
maturities (in thousands) of debt outstanding at December 31, 1999, excluding
capital lease obligations.
2000 $ 3,190
2001 3,082
2002 2,995
2003 2,966
2004 42,979
-------
Total $ 55,212
=======
Capital Leases
The present value of the obligations under capital leases at December 31, 1999
is calculated using rates ranging from 9.25% to 10.0%. The following are
remaining scheduled minimum capital lease payments (in thousands) due, together
with the present value of such obligations:
2000 $ 2,961
2001 92
---------
Total minimum lease payments 3,053
Less: imputed interest 57
---------
Present value of obligations
under capital lease $ 2,996
Property under capital leases consists of equipment leases and is amortized over
the lease terms or expected useful lives of the assets. Accumulated amortization
under capital leases was $4.8 million and $5.5 million at December 31, 1999 and
1998, respectively. Amortization expense of property under capital leases
totaled approximately $0.9 million for each 1999 and $0.6 million for 1998 and
1997.
Operating Leases
The Company's operating fleet consists of eight MD-11 and two DC10-30 aircraft,
all of which are leased under operating leases. The MD-11 aircraft included five
passenger aircraft (two of which are long-range versions), one freighter
aircraft and two convertible aircraft. The DC10-30 aircraft included one
passenger aircraft and one convertible aircraft.
The lease terms for the MD-11 aircraft expire between 2005 and 2020 (assuming
the exercise of a 12-year lease extension for the two MD-11ER aircraft). In
1999, in conjunction with amending the leases to reduce future costs, the
lessors obtained the right, in the event the Company is unable to meet certain
financial requirements, that allow them to cancel the lease of any aircraft with
12 months notice. While certain financial requirements were not achieved in
1999, the Company has not been notified of any intent of the lessors to cancel
the aircraft leases. If the Company fails to achieve a certain annual net income
level in 2000 and subsequent years, the lessors have similar termination rights.
The termination rights for the two MD-11ER aircraft extend into 2006 and the
termination rights for the other six MD-11 aircraft extend through 2001. In
addition, the Company granted warrants to each of the two lessors to purchase up
to one million shares of Common Stock (see Note 9). The value of the warrants
are being amortized to rent expense over the remaining terms of the related
aircraft lease agreements.
The lease term on the DC-10-30CF aircraft expires in January 2003. The lease
term for the other DC-10-30 aircraft is cancelable by the Company with 90 days
notice. The Company presently intends to operate the aircraft through the
balance of 2000.
Rental expense, primarily relating to aircraft leases, totaled approximately
$74.4 million, $81.5 million, and $87.7 million for the years ended December 31,
1999, 1998 and 1997, respectively.
As of December 31, 1999, future annual minimum lease payments required under
operating leases that have initial or remaining lease terms in excess of one
year were as follows (in thousands):
2000 $ 66,133
2001 66,176
2002 66,214
2003 60,481
2004 61,574
Thereafter 311,539
-------
Total $ 632,117
=======
9. Capital Stock
At December 31, 1999, 10,996,000 shares of Common Stock are reserved for
issuance pursuant to outstanding warrants, convertible debt and stock option
plans. The Company also announced the implementation of an Employee Salary
Exchange Program in 2000 pursuant to which it is expected that up to 5,000,000
shares of Common Stock may be issued.
In 1999, pursuant to amendments to lease agreements for the Company's MD-11
aircraft, the Company granted warrants to each of two lessors to purchase up to
1,000,000 shares of Common Stock at an exercise price of $2.50 per share. The
warrants were vested and fully exercisable at the date of grant. One million
warrants expire in August 2004 and the other million expire in March 2005. The
per share weighted-average fair value of the warrants was $0.90 on the date of
grant using the Black Scholes option-pricing model with the following
assumptions: expected dividend yield of 0.0%, risk free interest rate of 5.735%,
expected lief of 5 years and expected volatility of 78%.
At December 31, 1999 the Company's outstanding Debentures are convertible into
an aggregate of 4,556,000 shares of Common Stock at $8.90 per share, subject to
adjustment in certain events.
Stock Option Plans
An aggregate of 4,440,000 shares of Common Stock are reserved for stock option
plans.
Pursuant to a 1995 Stock Option Plan, as amended, (the "1995 Plan") adopted in
1995 members of the Company's Board of Directors, employees, and consultants to
the Company or its affiliates are eligible to receive stock options. The Company
has reserved 3,290,000 shares of Common Stock for issuance upon the exercise of
options granted to participants under the 1995 Plan. These options expire at the
earlier of the stated expiration, which shall not exceed ten years from the date
of grant, or one year after the termination of the participant's employment with
the Company. Stock options are granted with an exercise price that shall not be
less than 85% of the fair market value of the Common Stock on the date of grant.
The stock options have terms ranging from seven years and seven months to ten
years and become vested and fully exercisable at various times through August
2007.
Pursuant to a Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
adopted in 1995, non-affiliate directors will be offered options to purchase
10,000 shares of Common Stock upon election or appointment to the Board of
Directors of the Company. Up to 250,000 shares of Common Stock may be issued
under the Directors' Plan, subject to certain adjustments. On the third
anniversary of the initial award, each such director will be offered an option
to purchase an additional 5,000 shares of Common Stock. Options granted under
the Directors' Plan are exercisable in equal monthly installments during the 36
months following the award, as long as the individual remains a director of the
Company. The exercise price of all such options is the average closing price of
the Common Stock during the 30 trading days immediately preceding the date of
grant.
Pursuant to a 1999 Chief Executive Stock Option Plan (the "CEO Plan") adopted in
1999, the Chief Executive Officer (the "CEO") of the Company was granted an
option to purchase up to 900,000 shares of Common Stock at an exercise price of
$1.00 per share in conjunction with the CEO's acceptance of an offer of
employment in 1999. The option was granted at fair market value and will expire
April 1, 2007. Options become exercisable on January 1, 2007 or prior to that
date in increments when the fair market value of the Company's Common Stock
exceeds certain pre-defined amounts ranging from $2.00 to $10.00.
The per share weighted-average fair value of stock options granted during 1999,
1998 and 1997 was $1.15, $2.13 and $4.67, respectively, on the date of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions:
1999 1998 1997
----------- ----------- ----------
Expected dividend yield 0% 0% 0%
Risk-free interest rate 6.6% - 6.7% 4.8% - 4.9% 5.7% - 5.8%
Expected life (in years) 7 - 8 6 - 8 3 - 10
Expected volatility 61% 78% 53% - 61%
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost is recognized for stock options in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under FAS No. 123, the
Company's net income (loss) would have been changed to the pro forma amounts
indicated below (amounts in thousands, except per share data):
1999 1998 1997
--------- --------- ---------
Net earnings (loss) As reported $ (7,623) $ (11,032) $ 11,452
Pro forma (8,636) (12,084) 10,502
Basic earnings (loss) As reported $ (1.14) $ (1.54) $ 1.11
per common share Pro forma (1.29) (1.69) 1.02
Diluted earnings (loss) As reported $ (1.14) $ (1.54) $ 1.04
per common share Pro forma (1.29) (1.69) 0.97
Stock option activity during the last three years is as follows (in thousands):
Number of Weighted
Options Average
Outstanding Exercise Prices
----------- ---------------
Balance at December 31, 1996 811 11.00
Granted 773 7.61
Forfeited (114) 11.00
-------
Balance at December 31, 1997 1,470 9.20
Granted 255 2.75
Forfeited (302) 11.00
-------
Balance at December 31, 1998 1,423 7.66
Granted 2,170 1.18
Exercised (10) 1.00
Forfeited (464) 6.69
-------
Balance at December 31, 1999 3,119 3.31
=======
At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.87--$12.50 and 5.3
years, respectively. The following table summarizes the stock options
outstanding and exercisable at December 31, 1999 (in thousands except per share
amounts)
<TABLE>
<CAPTION>
Outstanding Exercisable
----------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Life Average Number Average
Exercise Price of Options Months Price of Options Price
------------------ ---------- --------------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 0.00 - 0.99 50 95 $ 0.870 10 $ 0.870
1.00 - 1.99 2,175 77 1.174 512 1.133
2.00 - 3.00 35 79 2.130 7 2.130
5.00 - 5.99 20 77 5.160 10 5.160
6.00 - 6.99 68 73 6.529 47 6.556
7.00 - 7.99 330 13 7.210 180 7.281
8.00 - 9.00 48 28 12.947 48 8.259
10.00 - 10.99 10 41 10.250 10 10.250
11.00 - 11.99 377 30 11.007 198 11.014
12.00 - 13.00 6 41 12.500 6 12.500
------ ------
3,119 1,028
====== ======
</TABLE>
At December 31, 1999, 1998 and 1997, the number of options exercisable was
1,028,000; 444,000; and 661,000, respectively, and the weighted-average exercise
price of those options was $4.89, $8.01 and $9.79, respectively.
10. Employee Benefit Plans
The World Airways' Crewmembers Target Benefit Plan is a defined contribution
plan covering cockpit crewmembers with contributions based upon wages, as
defined. It is a tax-qualified retirement plan under Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). Pension expense for the
Target Benefit plan totaled $1.5 million, $1.7 million, and $1.9 million for the
years ended December 31, 1999, 1998, and 1997, respectively.
The Company's flight attendants participate in a pension plan maintained by the
International Brotherhood of Teamsters ("Teamsters"). Pension contributions made
to the Teamsters on behalf of the flight attendants totaled $0.5 million in 1999
and $0.3 million in 1998 and 1997.
In 1996 the Company implemented an Employee Savings and Stock Ownership Plan
(the "ESSOP"). It is a tax-qualified retirement plan under the Code. The ESSOP
was intended to allow employees not covered by collective bargaining agreements,
as well as employees of certain affiliated companies, to acquire ownership in
the Company on a tax-favored basis. The ESSOP was an amendment and continuation
of a similar plan previously maintained by WorldCorp. A loan guaranteed by the
ESSOP and World Airways was paid off in 1998. The ESSOP was amended and changed
to The Employee 401(k) Savings Plan (the "401(k) Plan") in 1998 and the Company
stock purchase feature of the former plan was eliminated. The 401(k) Plan
continues to hold the shares of WorldCorp and World Airways Common Stock that
were allocated to the participants' accounts prior to termination of the stock
purchase feature.
Under the 401(k) Plan, employees may elect to invest salary deferrals in
selected investment funds. The Company contributes matching funds to the 401(k)
Plan equal to 33% of a participants voluntary deferrals up to $10,000. The
Company expensed approximately $0.2 million for its contributions to the 401(k)
Plan during 1999, 1998 and 1997.
In 1994 the Company adopted the World Airways, Inc. Retroactivity and Profit
Sharing Bonus Plan (the "1994 Profit Sharing Plan"). It is not a tax-qualified
plan under the Code. Distributions under the 1994 Profit Sharing Plan are equal
to 20% of earnings, as defined, subject to an annual limitation of 10% of the
total annual aggregate compensation of World Airways employees participating in
the 1994 Profit Sharing Plan in that year. The Company distributed approximately
$2.6 million in 1998 pertaining to 1997 results.
World Airways' cockpit crewmembers and eligible dependents are covered under a
post-retirement health care benefits plan to age 65. The Company accrues for the
cost of health benefits in accordance with FAS No. 106 but funds the benefit
costs on a pay-as-you-go (cash) basis.
A summary of the net periodic post-retirement benefit costs for the years ended
December 31, 1999, 1998, and 1997 is as follows (in thousands):
1999 1998 1997
------ ------- -------
Service cost $ 162 $ 144 $ 157
Interest cost on accumulated
post-retirement benefit obligation 105 98 103
Net amortized gain (54) (64) (53)
---- ---- ----
Net periodic post-retirement benefit cost $ 213 $ 178 $ 207
==== ==== ====
The reconciliation of the Company's accumulated post-retirement benefit
obligation for 1999 and 1998 was as follows (in thousands):
1999 1998
----------- -----------
Accumulated post-retirement benefit
obligation, beginning of year $ 1,758 $ 1,520
Service cost 162 144
Interest cost 105 98
Benefits paid (150) (100)
Actuarial (gain) loss 14 96
------ -------
Accumulated post-retirement benefit
obligation, end of year $ 1,889 $ 1,758
====== =======
The reconciliation of the Company's accrued post-retirement benefits of December
31, 1999 and 1998 was as follows (in thousands):
1999 1998
----------- -----------
Unfunded status $ 1,889 $ 1,758
Unrecognized net gain 1,018 1,036
----- -----
Accrued post-retirement benefits $ 2,907 $ 2,794
The assumed discount rate used to measure the accumulated post-retirement
benefit obligation for 1999 and 1998 was 7.75% and 6.25%, respectively. The
medical cost trend rate in 2000 was 8.0% trending down to an ultimate rate in
2027 of 4.0%. A one percentage point increase in the assumed health care cost
trend rates for each future year would have increased the aggregate of the
service and interest cost components of 1999 net periodic post-retirement
benefit cost by $28,000 and would have increased the accumulated post-retirement
benefit obligation as of December 31, 1999 by $144,000. A one percentage point
decrease in the assumed health care cost trend rates for each future year would
have decreased the aggregate of the service and interest cost components of 1999
net periodic post-retirement benefit cost by $25,000 and would have decreased
the accumulated post-retirement benefit obligation as of December 31, 1999 by
$128,000.
In order to ensure the performance of certain key functions, in December 1998
the Company adopted a plan which provides for the payment of retention
incentives to encourage certain members of management to remain in the
employment of the Company through the year 2000. If all participants remain with
the Company the obligation for retention payments is estimated to be
approximately $1.8 million, which the Company is accruing on a current basis.
The plan also provides for the payment of certain severance benefits in the
event there is a change in control of the Company, as defined, and employment of
a participant in the plan is terminated within 24 months of the occurrence of a
change in control.
11. Earnings Per Share
Earnings per common equivalent share for the year ended December 31, 1997 is
computed as follows (amounts in thousands except per share data):
1997
Net earings (loss) from continuing operations $ 11,967
Effect of Dilutive Securities
8% convertible debentures 1,375
Stock options --
Net earnings (loss) from continuing
operations - diluted $ 13,342
======
Weighted average common shares
outstanding 10,302
Incremental shares related to:
8% convertible debentures 1,970
Stock options 7
Weighted average common shares
outstanding - diluted 12,279
======
Earnings (loss) per share from continuing
operations
Basic $ 1.16
Diluted $ 1.09
12. Federal And State Income Taxes
Income tax expense consists of (in thousands):
Years ended December 31,
---------------------------------------------
1999 1998 1997
---------- ----------- -----------
U.S. Federal $ -- $ -- $ 203
State -- 127 60
------- ------- ------
Income tax expense $ -- $ 127 $ 263
======= ======= ======
There is no deferred tax expense or benefit for the years ended December 31,
1999, 1998, and 1997.
Income tax expense attributable to earnings (loss) from continuing operations
before extraordinary item differed from the statutory income tax rate as a
result of the following (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------
1999 1998 1997
------------- ------------- --------------
<S> <C> <C> <C>
Expected Federal income tax expense (benefit)
at the statutory rate $ (4,779) $ (3,861) $ 4,188
Generation (Utilization) of the net operating
loss carryforward 3,791 2,828 (5,304)
Alternative minimum and environmental taxes -- -- 203
State income tax expense, net of Federal benefit -- 83 39
Other:
Meals and entertainment 773 850 911
Other 215 227 226
-------- ------- -------
Income tax expense $ -- $ 127 $ 263
======== ======== =======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 24,951 $ 29,581
Recognition of sales/leaseback gains 1,048 1,449
Accrued maintenance in excess of reserves paid, primarily
due to accrual for financial statement purposes 7,963 9,201
Accrued post-retirement benefit obligation, due to accrual
or financial statement purposes 988 978
Compensated absences, primarily due to accrual for
financial statement purposes 1,220 887
Accrued rent 3,880 2,019
Alternative minimum tax credit carryforward 2,790 2,790
Investment tax credit carryforward -- 187
Other 182 215
------- --------
Gross deferred tax assets 43,022 47,307
Less: valuation allowance 30,419 35,362
------- --------
Net deferred tax assets 12,603 11,945
Deferred tax liabilities:
Property and equipment 12,603 11,945
Other -- --
------- --------
Gross deferred tax liabilities 12,603 11,945
------- --------
Net deferred income taxes $ -- $ --
======= ========
</TABLE>
The net changes in the total valuation allowance for the years ended December
31, 1999 and 1998 were due to the generation or expiration of net operating loss
("NOL") carryforwards, tax credit carryforwards and the realization of other
deferred tax assets. In assessing the realizability of the deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
(including reversals of deferred tax liabilities) during the periods in which
those temporary differences will become deductible. Management believes it is
not likely that the deferred tax assets will be realized.
The availability of NOL carryforwards, alternative minimum tax credits and
investment tax credit carryforwards to reduce the Company's future federal
income tax liability is subject to limitations under section 382 of the Code.
Generally, these limitations restrict the availability of NOL and investment tax
credit carryforwards upon certain changes in stock ownership by five percent
shareholders which, in aggregate, exceed 50 percentage points in value in a
three-year period ("Ownership Change").
As of December 31, 1999, the Company had NOL carryforwards for federal income
tax purposes of $73.4 million. Of this amount, approximately $8.1 million is
subject to a $6.9 million annual limitation resulting from a 1991 Ownership
Change. The Company's NOL's expire as follows (in millions):
2000 $ 10.2
2004 4.0
2007 20.4
2008 5.9
2009 17.9
2011 2.8
2018 7.7
2019 4.5
-------
$ 73.4
Use of the Company's NOL carryforwards in future years could be further limited
if another Ownership Change were to occur. While the Company believes that as of
December 31, 1999, no Ownership Change has occurred since the 1991 Ownership
Change, the application of the Code in this area is subject to interpretation by
the Internal Revenue Service. The NOLs are subject to examination by the IRS
and, thus, are subject to adjustment or disallowance resulting from any such IRS
examination. In addition, conversion of the Debentures (see Note 8) or future
transactions in the Company's Common Stock or the Common Stock of the Company's
stockholders, including conversions of a portion of outstanding WorldCorp
debentures into Common Stock or other changes that may result from the WorldCorp
bankruptcy may cause an Ownership Change, which could result in a substantial
reduction in the annual availability of the NOLs and the subsequent loss of a
substantial portion of the NOLs available to the Company.
13. Major Customers
The Company operates in one business segment, the air transportation industry.
Information concerning customers for years in which their revenues comprised 10%
or more of the Company's operating revenues is presented in the following table
(in thousands):
Years ended December 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
U.S. Department of Defense
(including U.S. Air Force) $ 134,601 $ 110,912 $ 78,896
Malaysia Airlines (see Note 4) 23,824 50,319 64,995
P.T. Garuda Indonesia -- 31,790 30,627
Philippine Airlines -- 7,264 95,427
U.S. Air Force. The Company has provided air transportation services,
principally on an international basis, to the USAF since 1956. In exchange for
requiring pledges of aircraft to the Civil Reserve Aircraft Fleet ("CRAF") for
use in times of national emergency, the U.S. Air Force grants awards to CRAF
participants for peacetime transportation of personnel and cargo. The overall
downsizing of the U.S. military places a premium on the mobility of the U.S.
armed forces.
The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft made available to
CRAF. The Company utilizes teaming arrangements to maximize the value of
potential awards. Until 1999 the Company lead a contractor teaming arrangement
that enjoyed a large market share of the USAF's overall commercial airlift
requirement. During a period in which the U.S. military downsized substantially,
the Company's portion of the fixed USAF award increased from $15.6 million for
the government's 1992-93 fiscal year, to $86 million for the government's
1998-99 fiscal year. The Company's teaming agreement negotiations for fiscal
year October 1999 to September 2000 resulted in a substantially reduced share of
the USAF's fixed commercial airlift requirement - $27 million compared to the
$86 million for 1998-1999. However, the Company believes it will be in a
position to obtain an increased share of expansion flying which is customarily
awarded by the USAF over and above the fixed contract flying. In calendar year
1999, the Company's revenue from the fixed award was $94 million and its AMC
expansion revenue was $40.5 million. In December 1999, the Company was requested
by AMC to operate passenger charter flights from January 28, 2000 through April
2000 to replace another carrier that had previously been awarded a contract for
the flying. The value of the additional flying is approximately $13.5 million.
The Company cannot determine how future military spending budgets, airlift
requirements, and national security considerations for a continued strong and
balanced CRAF and the instability of other countries will combine to affect
future business with the USAF.
Garuda. The Company has flown for Garuda periodically since 1973. In 1997,
approximately 40,000 of the 200,000 Indonesians who traveled to Jeddah for the
Hadj pilgrimage flew on the Company's aircraft and the Company operated six
aircraft for Garuda during the 1998 pilgrimage. The Company did not operate any
aircraft for Garuda for the 1999 Hadj; however, the Company will be operating
four aircraft for Garuda for the 2000 Hadj.
Philippine Airlines. The Company had agreements with Philippine Airlines to
operate four passenger aircraft until November 1997. As a result of the economic
distress experienced in the Philippines, the agreements for two of the aircraft
were terminated in August 1997, and the Company received monthly termination
payments totaling $3.0 million through the original end of the agreements in
November 1997. The contracts on the remaining two aircraft were extended until
February 1998 when the contract expired.
The Company derives a significant percentage of its revenues and block hours
from its operations in the Pacific Rim region. Any further economic decline or
any military or political disturbance in this area may interfere with the
Company's ability to provide service in this area and could have a material
adverse effect on the financial condition or results of operations of the
Company. See Note 2 for further discussion. All contracts are denominated in
U.S. dollars as are substantially all of the related expenses. The
classification between domestic and export revenues is based on entity
definitions prescribed in the economic regulations of the Department of
Transportation. Information concerning the Company's export revenues from
continuing operations is presented in the following table (in thousands):
Years Ended December 31,
----------------------------------------------
1999 1998 1997
----------- ----------- ----------
Operating Revenues:
Domestic $ 201,779 $ 142,948 $ 97,469
Export - Malaysia 33,749 50,319 64,995
- Philippines -- 7,264 95,427
- Indonesia -- 31,790 30,627
- Belgium -- 3,597 15,407
- United Kingdom 1,659 24,032 --
- Other 26,811 11,199 5,487
------- ------- -------
Total $ 263,998 $ 271,149 $ 309,412
======= ======= =======
14. Related Party Transactions
At December 31, 1999, WorldCorp owned approximately 38.5% of the outstanding
Common Stock of World Airways. Transactions between World Airways and WorldCorp
are described in Note 3.
At December 31, 1999, Naluri owned approximately 18.9% of the outstanding Common
Stock of World Airways and approximately 28% of the outstanding Common Stock of
Malaysian Airlines. See Notes 4 and 13 for further information about the
Company's transactions with Naluri and Malaysian Airlines.
In 1997, the Company paid T. Coleman Andrews, the then Chairman of WorldCorp and
World Airways, $175,000 in salary for his services as Chairman of the Board of
Directors of World Airways.
15. Discontinued Operations
In 1996 the Company discontinued scheduled service operations and accrued
substantially all of the costs it expected to incur in connections with the
discontinued operations in the year ended December 31, 1996. However, the
Company recognized an additional $0.5 million of expense in the fourth quarter
of 1997 in connection with the discontinued operations. The Company is also
subject to certain claims arising as a result of the discontinuance of the
scheduled service operations (see Note 16).
16. Commitments and Contingencies
The Company's flight attendants, approximately 35% of the Company's employees,
who are also represented by the Teamsters, are subject to a four-year collective
bargaining agreement that will be amendable June 30, 2000. The Company's flight
attendants have argued the "scope clause" of the collective bargaining agreement
has been violated by the Company and have challenged the use of foreign flight
attendant crews on the Company's flights for Garuda Indonesia which has
historically been the Company's operating procedure. In certain instances the
Company is contractually obligated to permit its customers to deploy their own
flight attendants. While the arbitrator in this matter denied in 1997 the
Union's request for back pay to affected flight attendants for flying relating
to the 1994 Hadj, the arbitrator concluded that the Company's contract with its
flight attendants requires the Company to first actively seek profitable
business opportunities that require using the Company's flight attendants,
before the Company may accept wet lease business opportunities that use the
flight attendants of the Company's customers. In 1997, the flight attendants
filed "scope clause" grievances with respect to four separate wet-lease
contracts and in January 2000 they filed another "scope clause" grievance with
respect to the 2000 Garuda Hadj agreement. An adverse decision on one or more of
the grievances could have a material adverse impact on the financial condition
or results of operations of World Airways.
In connection with the discontinuance of World Airways' scheduled service
operations in 1996, World Airways is subject to claims by various third parties
and may be subject to further claims in the future. One claim has been filed in
Germany against the Company by a tour operator seeking approximately $3.5
million in compensation related to the cancellation of a summer program in 1996.
The Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial condition.
In 1993 the Company returned certain DC10-30 aircraft to the lessor. As a result
of this early lease termination, the Company is responsible, until 2004 for one
aircraft and 2005 for the second aircraft, for one-third of any deficit in rent
incurred in future leases of the aircraft, up to $100,000 monthly per plane,
with an overall combined cap of $1,850,000. The Company incurred $984,000 for
rent shortfalls through December 1996. The Company's remaining contingent
liability related to this matter approximates $866,000.
17. Valuation and Qualifying Accounts (in thousands)
Allowances
for Doubtful Deferred
Accounts Tax Assets
----------- -----------
Balance at December 31, 1996 $ 413 $ 43,258
Additions charged to expense 565 --
Amounts charged to allowance (5) (5,002)
------- -------
Balance at December 31, 1997 973 38,256
Additions charged to expense 1,129 --
Amounts charged to allowance (542) (2,894)
------- -------
Balance at December 31, 1998 1,560 35,362
Additions charged to expense 450 --
Amounts charged to allowance (162) (4,943)
------ -------
Balance at December 31, 1999 $ 1,848 $ 30,419
====== =======
18. Unaudited Quarterly Results
The results of the Company's quarterly operations (unaudited) for 1999 and 1998
are as follows (in thousands except share data):
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
1999 Mar 31 Jun 30 Sep 30 Dec 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues $ 65,326 $ 67,492 $ 67,517 $ 63,663
Operating income (loss) (2,189) (1,724) (1,904) (4,432)
Earnings (loss) before extraordinary item (2,706) (3,093) (3,125) (4,729)
Extraordinary item -- 4,176 -- 1,854
Net earnings (loss) (2,706) 1,083 (3,125) (2,875)
Basic earnings (loss) per common share:
Before extraordinary item (0.39) (0.44) (0.47) (0.74)
Extraordinary item -- 0.59 -- 0.29
--------- --------- -------- ---------
Net earnings (loss) (0.39) 0.15 (0.47) (0.45)
========= ========= ======== =========
Diluted earnings (loss) per common equivalent share:
Before extraordinary item (0.39) (0.44) (0.47) (0.74)
Extraordinary item -- 0.59 -- 0.29
--------- --------- -------- ---------
Net earnings (loss) (0.39 0.15 (0.47) (0.45)
========= ========= ======== =========
1998
Operating revenues $ 69,222 $ 71,629 $ 67,456 $ 62,842
Operating income (loss) (1,592) (1,185) 832 (1,223)
Net loss (2,987) (3,163) (1,497) (3,385)
========= ======== ======== =========
Basic loss per common share (0.40) (0.44) (0.21) (0.49)
Diluted loss per common equivalent share (0.40) (0.44) (0.21) (0.49)
</TABLE>
19. Subsequent Events
On March 16, 2000, WorldCorp, and its wholly-owned subsidiary WorldCorp
Acquisition Corp., filed a proposed plan of liquidation in the bankruptcy court
that calls for all of their shares of World Airways Common Stock to be sold or
distributed to creditors. In order to facilitate such a sale or distribution,
the Company intends to register those shares under the Securities Act of 1933.
In addition, a group of investors that includes members of the Company's
management and Board of Directors are negotiating to purchase some or all of the
shares. Any such sale will be subject to approval by the bankruptcy court and
to higher and better offers from competing bidders.
WorldCorp's proposed plan of liquidation also calls for the shareholders
agreement with Naluri to be rejected, meaning that WorldCorp will not perform
its obligations under the agreement and the agreement will not be binding on the
purchasers of the shares of Common Stock. The WorldCorp plan of liquidation is
currently being considered by creditors and is scheduled to be presented to the
bankruptcy court for approval on April 26, 2000. WorldCorp's rejection of the
shareholders agreement could have the effect of reducing or eliminating any
continuing obligations of the Company under that agreement.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders World Airways, Inc.:
We have audited the accompanying balance sheets of World Airways, Inc. ("World
Airways") as of December 31, 1999 and 1998, and the related statements of
operations, changes in stockholders' deficiency and cash flows for each of the
years in the three-year period ended December 31, 1999. These financial
statements are the responsibility of World Airways' 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 financial position of World Airways as of December
31, 1999 and 1998, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1999, in conformity
with generally accepted accounting principles.
KPMG LLP
McLean, Virginia
February 11, 2000, except as to Note 19, which is as of March 16, 2000
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The Company incorporates herein by reference the information concerning
directors contained in its Notice of Annual Stockholder's Meeting and Proxy
Statement to be filed within 120 days after the end of the Company's fiscal year
(the "2000 Proxy Statement").
Executive Officers
The following table sets forth the names and ages of all executive officers of
the Company and all positions and offices within the Company presently held by
such executive officers:
Hollis L. Harris 68 Chairman of the Board and Chief Executive Officer
Andrew G. Morgan, Jr. 43 President and Chief Operating Officer
Gilberto M. Duarte, Jr. 55 Chief Financial Officer
John E. Ellington 65 Deputy Chief Operating Officer
Randy J. Martinez 44 Chief Information Officer
Cathy Sigalas 47 General Counsel and Secretary
Hollis L. Harris currently serves as Chairman and Chief Executive Offier of the
Company having been appointed Chairman, President and CEO on May 1, 1999. Prior
to joining World Airways, Mr. Harris was Chairman, President and CEO of HLH
Corporation from November 1998. From August 1996 to May 1998 he was Chairman and
CEO of CalJet Airline. From 1992 to 1996 Mr. Harris served as Vice Chairman,
Chairman, President and CEO of Air Canada. From September 1990 to October 1991
Mr. Harris served as Chairman, President and CEO of Continental Airlines and
President and CEO of Continental Holdings, Inc. Prior to joining Continental
Airlines Mr. Harris worked with Delta Airlines for 36 years, last serving as
President and Chief Operating Officer for several years.
Andrew G. Morgan, Jr. joined the Company as President and Chief Operating
Officer effective June 1, 1999. From February 1998 until he joined World Airways
Mr. Morgan served as regional director and general manager for Delta Air Lines.
From 1993 until 1998 Mr. Morgan worked for AirTran Airlines and its predecessor,
ValuJet, serving as Vice President for Engineering and Quality Assurance and
Vice President for Contracts. From 1980 until 1993 Mr. Morgan worked at Delta
Airlines in a number of managerial positions and he served in the engineering
department of Southern Airways from 1975 through 1979.
Gilberto M. Duarte, Jr. serves as Chief Financial Officer. He joined the company
in August 1998 as Vice President and Controller and was named Chief Financial
Officer, effective December 1998. Mr. Duarte's career spans 30 years in the
airline industry having held positions with Eastern Airlines as Division
Controller and Vice President of Airport Operations. From 1992 - 1995 he served
as Executive Vice President of Universal Aviation Services. From 1995 - 1997 he
served as Executive Vice President of BWIA International, based in Trinidad &
Tobago. Prior to joining World Airways, Gil served as President for Inktel
Marketing from 1997 - 1998.
John E. Ellington, currently serving as Deputy Chief Operating Officer, joined
the Company in June 1999 as Vice President and Director of Flight Operations.
From September 1997 through March 1999 Mr. Ellington served as Executive
Director, Smyrna-Rutherford County Airport Authority. Prior to that he served as
Vice President and Director of Flight Operations of American Trans Air from
December 1995 to June 1997. Before 1995 Mr. Ellington served as a line pilot and
held numerous managerial positions within flight operations for Delta Airlines
for 32 years.
Randy J. Martinez joined the Company in October 1998 and was named Chief
Information Officer in 1999. Prior to joining the Company Mr. Martinez served
with the United States Air Force for 21 years and retired as a Colonel.
Cathy Sigalas has served as General Counsel and Corporate Secretary since her
appointment in September 1999. She joined the Company in August 1995 as
Assistant General Counsel, after having served as Assistant General Counsel for
WorldCorp for one year, and from 1991 through 1993 in various managerial and
sales positions with US Order, the predecessor to InteliData, an affiliate of
the Company. Prior to joining US Order, Ms. Sigalas worked for the law firm of
Jackson & Campbell, PC in Washington, DC, the Vice Chairman of the Fairfax
County Board of Supervisors and the Legislative Affairs Office at NASA
Headquarters. She obtained her J.D. from George Mason University School of Law
in 1984.
Beneficial Ownership Reporting
The Company incorporates herein by reference the information required by Item
405 of Regulation S-K contained in its 2000 Proxy Statement.
Item 11. Executive Compensation
The Company incorporates herein by reference the information concerning
executive compensation contained in the 2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The Company incorporates herein by reference the information concerning security
ownership of certain beneficial owners and management contained in the 1999
Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The Company incorporates herein by reference the information concerning certain
relationships and related transactions contained in the 2000 Proxy Statement.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)The following documents are filed as part of this report:
(1)Financial Statements
The following financial statements of World Airways, Inc. are filed herewith:
- Balance Sheets, December 31, 1999 and 1998
- Statements of Operations, Years Ended December 31, 1999, 1998 and 1997
- Statements of Changes in Stockholders' Deficiency, Years Ended
December 31, 1999, 1998 and 1997
- Statements of Cash Flows, Years Ended December 31, 1999, 1998 and 1997
- Notes to Financial Statements
- Independent Auditors' Report
(2) Financial Statement Schedules
NOTE: All schedules are omitted because the requisite information is either
presented in the financial statements or notes thereto or is not
present in amounts sufficient to require submission of the schedules.
(3) Index to Exhibits
No. Description
3.1 Amended and Restated Certificate of Incorporation (Exhibit 3.1
to the Company's Registration Statement on Form S-1, Commission
file no. 33-95488, filed August 8, 1995) *
3.2 Amended and Restated Bylaws (Exhibit 3.2 to the Company's
Registration Statement on Form S-1, Commission file no.
33-95488, filed August 8, 1995) *
4.1 Article IV of the Amended and Restated Certificate of
Incorporation and Section 6 of the Amended and Restated Bylaws
(Exhibits 3.1 and 3.2 to the Company's Registration Statement on
Form S-1, Commission file no. 33-95488, filed August 8, 1995) *
4.2 Stock Purchase Agreement among Malaysian Helicopter Services
Berhad, WorldCorp, Inc., and the Company (Exhibit 10.1 to the
Current Report on Form 8-K of WorldCorp, Inc., Commission
file no. 1-9591, filed March 14, 1994) *
4.3 Stock Registration Rights Agreement between Malaysian Helicopter
Services Berhad and the Company (Exhibit 10.2 to the Current
Report on Form 8-K of WorldCorp, Inc., Commission file no.
1-9591, filed March 14, 1994) *
4.4 Shareholders Agreement among Malaysian Helicopter Services
Berhad, WorldCorp, Inc., and the Company, as amended
(Exhibits 10.3 and 10.4 to the Current Report on Form 8-K of
WorldCorp, Inc., Commission file no. 1-9591, filed March 14, 1994) *
4.5 Indenture between the Company and First Union National Bank,
as Trustee (Exhibit 4.1 to the Company's Registration
Statement on Form S-3, Commission file no. 333-39673, filed
November 6, 1997) *
4.6 Form of 8% Convertible Subordinated Debenture due 2003,
included in the Indenture (Exhibit 4.1 to the Company's
Registration Statement on Form S-3, Commission file no.
333-39673, filed November 6, 1997) *
4.7 Registration Rights Agreement among the Company and the Initial
Purchasers of the Debentures (Exhibit 4.3 to the Company's
Registration Statement on Form S-3, Commission file no. 333-
39673, filed November 6, 1997) *
4.8 Purchase Agreement among the Company and the Initial Purchasers
of the Debentures (Exhibit 4.4 to the Company's Registration
Statement on Form S-3, Commission file no. 333-39673, filed
November 6, 1997) *
10.1 Restated and Amended Accounts Receivable Management
and Security Agreement dated as of March 23, 1998
between the Company and BNY Financial Corporation Filed Herewith
10.2 Amendment (No. 1) dated as of August 1, 1998 to Restated
and Amended Accounts Receivable Management and Security
Agreement between the Company and BNY Financial
Corporation Filed Herewith
10.3 Amendment (No. 2) dated as of March 1, 1999 to Restated
and Amended Accounts Receivable Management and Security
Agreement between the Company and BNY Financial
Corporation Filed Herewith
10.4 Amendement (No. 3) dated as of September 3, 1999 to
Restated and Amended Accounts Receivable Management
and Security Agreement between the Company and BNY
Financial Coporation Filed Herewith
10.5 Amended and Restated Employment Agreement dated July 8,
1999 between Hollis L. Harris and the Company (Exhibit
10.14 to the Company's Quarterly Report on Form 10-Q
filed August 16, 1999) *
10.6 Employment Agreement dated June 1, 1999 between Andrew
Gilbert Morgan, Jr. and the Company (Exhibit 10.20 to the
Company's Quarterly Report on Form 10-Q filed August 16, 1999) *
10.7 Amended and Restated Employment Agreement dated January 22,
1999 between Gilberto M. Duarte, Jr. and the Company (Exhibet
10.16 to the Company's Quarterly Report on Form 10-Q
filed May 10, 1999) *
10.8 Employment Agreement dated September 1, 1999
between Randy J. Martinez and the Company Filed Herewith
10.9 Employment Agreement dated September 1, 1999
between Cathy Sigalas and the Company Filed Herewith
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule for the Year Ended December 31, 1999
- -----------------------
* Incorporated by reference pursuant to Rule 12b-32.
(b) Reports on Form 8-K
None
Status of Prior Documents
World Airways' Annual Report on Form 10-K for the year ended December 31, 1999,
at the time of filing with the Securities and Exchange Commission, shall modify
and supersede all prior documents filed pursuant to Sections 13, 14, and 15(d)
of the Securities Exchange Act of 1934 for purposes of any offers or sales of
any securities after the date of such filing pursuant to any Registration
Statement or Prospectus filed pursuant to the Securities Act of 1933, as
amended, which incorporates by reference such Annual Report on Form 10-K.
* * * * * * * * * * * * *
<PAGE>
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.
World Airways, Inc.
/s/ Gilberto M. Duarte, Jr.
By: Gilberto M. Duarte, Jr.
Chief Financial 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/ Hollis L. Harris. Chairman and Chief
Hollis L. Harris Executive Officer March 29, 2000
/s/ Andrew G. Morgan, Jr. President and Chief
Andrew G. Morgan, Jr. Operating Officer March 29, 2000
/s/ Gilberto M. Duarte, Jr. Chief Financial Officer March 29, 2000
Gilberto M. Duarte, Jr.
/s/ Daniel J. Altobello Director March 29, 2000
Daniel J. Altobello
/s/ A. Scott Andrews Director March 29, 2000
A. Scott Andrews
/s/ Mark M. Feldman Director March 29, 2000
Mark M. Feldman
/s/ Ronald R. Fogleman Director March 29, 2000
Ronald R. Fogleman
/s/ Wan Malek Ibrahim Director March 29, 2000
Wan Malek Ibrahim
/s/ Gordon C. McCormick Director March 29, 2000
Gordon C. McCormick
/s/ Russell L. Ray, Jr. Director March 29, 2000
Russell L. Ray, Jr.
____________________ Director
Wilbur L. Ross, Jr.
/s/ Peter M. Sontag Director March 29, 2000
Peter M. Sontag
/s/ Lim Kheng Yew Director March 29, 2000
Lim Kheng Yew
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors and Stockholders
World Airways Inc:
We consent to incorporation by reference in the registration statements (No.
333-13575, No. 333-14461 and No. 333-14457) on Form S-8 and registration
statements (No. 333-14455, No. 333-39673 and No. 333-42681) on Form S-3 of World
Airways, Inc. of our report dated February 11, 2000, except as to Note 19 which
is as of March 16, 2000, relating to the balance sheets of World Airways, Inc.
as of December 31, 1999 and 1998, and the related statements of operations,
changes in stockholders' deficiency, and cash flows for each of the years in the
three-year period ended December 31, 1999, which report appears in the December
31, 1999 annual report on form 10-K of World Airways, Inc.
KPMG LLP
McLean, Virginia
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
World Airways FDS
</LEGEND>
<CIK> 0000949240
<NAME> World Airways, Inc.
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1.0
<CASH> 11,725
<SECURITIES> 681
<RECEIVABLES> 11,225
<ALLOWANCES> 1,848
<INVENTORY> 0
<CURRENT-ASSETS> 30,278
<PP&E> 62,106
<DEPRECIATION> 38,306
<TOTAL-ASSETS> 109,736
<CURRENT-LIABILITIES> 55,175
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> (29,850)
<TOTAL-LIABILITY-AND-EQUITY> 109,736
<SALES> 0
<TOTAL-REVENUES> 263,998
<CGS> 0
<TOTAL-COSTS> 274,247
<OTHER-EXPENSES> (3,404)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,299)
<INCOME-PRETAX> (13,653)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,653)
<DISCONTINUED> 0
<EXTRAORDINARY> 6,030
<CHANGES> 0
<NET-INCOME> (7,623)
<EPS-BASIC> (1.14)
<EPS-DILUTED> (1.14)
</TABLE>
EMPLOYMENT AGREEMENT
This Employment Agreement between World Airways, Inc., a Delaware
corporation ("World" or the "Company") and Randy Martinez "Martinez") is entered
into this 1st day of September, 1999.
WHEREAS, Martinez has agreed to serve as World's Chief Information Officer
as of September 1, 1999.
NOW, THEREFORE, World and Martinez, in consideration of the foregoing and
other mutual covenants and promises contained herein, the sufficiency of which
are hereby acknowledged, hereby agree as follows:
1. ACCEPTANCE OF EMPLOYMENT. Subject to the terms and conditions set forth
below, World agrees to employ Martinez and Martinez accepts such employment.
2. TERM. The period of employment shall be from September 1, 1999, through
September 30, 2002, unless further extended or sooner terminated as hereinafter
set forth. In the absence of notice, this Agreement shall be renewed on the same
terms and conditions for one year from the date of expiration. Not later than
February 15, 2002, Martinez shall initiate discussions with the Chairman of the
Board (hereinafter "Chairman") regarding the renewal of this Agreement. At that
time, if Martinez wishes to renew this Agreement on different terms, Martinez
shall give written notice to the Chairman. If the Chairman does not wish to
renew this Agreement at its expiration, or wishes to renew on different terms,
the Chairman shall give written notice to Martinez no later than February 28,
2002.
3. POSITION AND DUTIES. Martinez shall continue to serve as Chief
Information Officer with the duties performed as of September 1, 1999. The
Chairman will have reasonable latitude to make changes in Martinez'
responsibilities, except that Martinez' responsibilities may not be modified in
a way that would be inconsistent with the status of Chief Information Officer.
Following a Change of Control (as hereinafter defined), Martinez'
responsibilities may not be changed without mutual agreement. Martinez agrees to
render his services to the best of his abilities and will comply with all
policies, rules and regulations of the company and will advance and promote to
the best of his ability the business and welfare of the Company. Martinez shall
devote all of his working time, attention, knowledge and skills solely to the
business and interests of World. Martinez may not accept any other engagement
with or without compensation which would affect his ability to devote all of his
working time and attention to the business and affairs of World without the
prior written approval of the Chairman of the Board. Martinez agrees to accept
assignments on behalf of World or affiliated companies commensurate with his
responsibilities hereunder, except that the terms and conditions of assignments
exceeding 60 consecutive days outside the Washington, DC metropolitan area will
require mutual agreement.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. Martinez shall receive a minimum salary of $175,000
per annum payable in accordance with the payroll procedures for World's salaried
employees in effect during the term of this Agreement. Martinez agrees to
participate equally, on a percentage basis, in any across the board salary
reductions approved by senior management.
(b) PERFORMANCE STOCK OPTIONS. Martinez has been granted 62,000 options
to purchase World's Common Stock, par value $.001 per share ("World Airways
Common Stock") pursuant to the 1995 World Airways Stock Option Plan (the "Plan")
as set forth in the Stock Option Agreements between World and Martinez dated
April 7, June 22, and August 9, 1999 (together, the "Options" and the "Option
Agreement"). In the event of a Change in Control as defined below, all Options
shall be immediately exercisable.
(c) BUSINESS EXPENSES. Martinez shall be entitled to reimbursement of
reasonable business related expenses from time to time consistent with World's
policies, including, without limitation, submitting in a timely manner
appropriate documentation of such expenses.
(d) FRINGE BENEFITS. Martinez shall be entitled to participate in all
employee benefit plans made available from time to time to all executives of
World in accordance with the terms of such plans. In the event this Agreement is
terminated by either party for any reason other than death or for cause,
Martinez may participate in World's health and other benefit programs for a
period of one year from the date of Martinez' termination, or until Martinez
obtains comparable coverage, whichever is earlier.
(e) PERSONNEL POLICIES, CONDITIONS AND BENEFITS. Except as otherwise
provided herein, Martinez' employment shall be subject to the personnel policies
and benefits plans which apply generally to World's employees as the same may be
interpreted, adopted, revised or deleted from time to time, during the term of
this Agreement, by World in its sole discretion. While this Agreement is in
effect, Martinez shall accrue vacation at the rate of one month per year and
such vacation shall be taken in accordance with the Company's procedures.
(f) INDEMNIFICATION; D&O INSURANCE. Subject to Section 6(b) of this
Agreement, World shall provide (or cause to be provided) to Martinez
indemnification against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlements in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including an action by or in the right of World) by reason of
his being or having been an officer, director or employee of World or any
affiliated entity, advance expenses (including attorneys' fees) incurred by
Martinez in defending any such civil, criminal, administrative or investigative
action, suit or proceeding and maintain directors' and officers' liability
insurance coverage (including coverage for securities-related claims) upon
substantially the same terms and conditions as set forth in the Indemnification
Agreement dated September 1, 1999, between Martinez and World Airways, Inc. (the
"Indemnity Agreement").
5. TERMINATION OF EMPLOYMENT.
(a) DEATH. Martinez' employment hereunder shall terminate upon his
death, in which event World shall have no further obligation to Martinez or his
estate with respect to compensation, other than the disposition of life
insurance and related benefits and accrued and unpaid base salary and incentive
compensation, if any, for periods prior to the date of termination pursuant to
the terms of the respective employee benefits and incentive compensation plans
then in effect.
(b) BY WORLD FOR DISABILITY. If Martinez is unable, or fails, to
perform services pursuant to this agreement through illness or physical or
mental disability and such failure or disability shall exist for twelve (12)
consecutive months, then World may terminate this Agreement upon written notice
to Martinez, in which event World shall have no obligation to Martinez with
respect to compensation under Section 4(a) of this Agreement. If Martinez
becomes entitled to Social Security benefits payable on account of disability,
he will be deemed conclusively to be disabled for purposes of this Agreement.
(c) BY WORLD FOR CAUSE.
(i) Except under the circumstances set forth in 5(c)(ii) below,
the Chairman of the Board may terminate this Agreement for Cause.
"Cause" shall be defined as (A) sustained performance deficiencies
which are communicated to Martinez in written performance
appraisals and/or other written communications (including, but not
limited to memos and/or letters) by the Chairman, (B) gross
misconduct, including significant acts or omissions constituting
dishonesty, intentional wrongdoing or malfeasance, whether or not
relating to the business of World, (C) commission of a felony or
any crime involving fraud or dishonesty, or (D) a material breach
of this Agreement.
(ii) In the event of a Change of Control, as defined below,
Martinez may only be terminated for Cause pursuant to a resolution
duly adopted by the affirmative vote of a majority of the entire
membership of the Board, at a meeting of the Board finding that,
in the good faith opinion of the Board, Martinez was guilty of
conduct set forth in 5(c)(i)(A), or (B), provided, however, that
Martinez may not be terminated for Cause hereunder unless: (1)
Martinez receives prior written notice of World's intention to
terminate this Agreement for Cause and the specific reasons
therefore; and (2) Martinez has an opportunity to be heard by
World's Board and be given, if the acts are correctable, a
reasonable opportunity to correct the act or acts (or non-action)
giving rise to such written notice. If the Board, by resolution
duly adopted by the affirmative vote of a majority of the entire
membership of the Board, finds that Martinez fails to make such
correction after reasonable opportunity to do so, this Agreement
may be terminated for Cause.
(d) BY WORLD FOR OTHER THAN CAUSE. In the event the Board terminates
this Agreement for reasons other than Cause or Disability as defined in
sub-paragraph (c) above, World will pay to Martinez within ten (10) days of
notice of termination (or, in the case of incentive bonus compensation, if any,
within ten (10) days of determination of amounts payable under the applicable
bonus plan) eighteen months base salary, in each case including deferred salary
and/or bonus compensation, if any, payable under this Agreement. In addition,
all granted but unvested Options under the Option Agreements shall become
immediately exercisable. In the event that any payment to Martinez under this
paragraph is subject to any federal or state excise tax, World shall pay to
Martinez an additional amount equal to the excise tax imposed including
additional federal and state income and excise taxes as a result of the payments
under this paragraph, and such payment will be made when the excise tax and
income taxes are due; provided, however, that Martinez agrees to assist World
Airways by using his best efforts to structure matters so that any payment to
Martinez under this paragraph is not subject to any federal or state excise tax.
Whether an excise tax is payable, and the amount of the excise tax and
additional income taxes payable, shall be determined by World's accountants and
World shall hold Martinez harmless from any and all taxes, penalties, and
interest that may become due as a result of the failure to properly determine
that an excise tax is payable or the correct amount of the excise tax and
additional income taxes, together with all legal and accounting fees reasonably
incurred by Martinez in connection with any dispute with any taxing authority
with respect to such determinations and/or payments.
(e) BY MARTINEZ FOR GOOD REASON. Martinez may terminate his employment
hereunder (for purposes of this Agreement "Good Reason") after giving at least
30 days notice in the event that, without Martinez' consent,
(i) World relocates its general and administrative offices or
Martinez' place of employment to an area other than the
Washington, D.C. Standard Metropolitan Statistical Area,
(ii) he is assigned any duties substantially inconsistent with
Section 3 hereof,
(iii) World reduces his annual base salary as in effect on the
date hereof or as the same may be increased from time to time,
except as provided in Section 4(a) above;
(iv) World fails, without Martinez' consent, to pay Martinez any
portion of his current compensation, or to pay him any portion of
an installment of deferred compensation under any deferred
compensation program of World, within seven (7) days of the date
such compensation is due;
(v) World fails to continue in effect any compensation plan in
which Martinez participates which is material to Martinez' total
compensation, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect
to such plan, or to continue Martinez' participation therein (or
in such substitute or alternative Plan) on a basis not materially
less favorable, both in terms of the amount of benefits provided
and the level of Martinez' participation relative to other
participants;
(vi) World fails to continue to provide Martinez with benefits
substantially similar to those enjoyed by Martinez under any of
World's pension, life insurance, medical, health and accident, or
disability plans in which Martinez was participating, World takes
any action which would directly or indirectly materially reduce
any of such benefits or deprive Martinez of any material fringe
benefit enjoyed by Martinez;
(vii) World terminates, or proposes to terminate, Martinez'
employment hereunder contrary to the requirements of Section 5(c)
hereof (for purposes of this Agreement, no such termination or
purported termination shall be effective); or
(viii) the Board approves the liquidation or dissolution of World
prior to the end of this Agreement. In the event that Martinez
decides to terminate this Agreement and his employment with World
or any successor in interest in accordance with the provisions of
this Section 5(e), World shall have the same obligations as set
forth in Section 5(d) hereof. Any other payments due or actions
required under this paragraph shall be made as lump sums or taken
within 10 days of termination of the Agreement.
(f) BY MARTINEZ FOR OTHER THAN GOOD REASON. Notwithstanding the above,
Martinez may upon giving reasonable notice, not to be less than 30 days,
terminate this Agreement without further obligation on the part of Martinez or
World.
(g) CHANGES OF CONTROL. For purposes of this Agreement, a "Change of
Control" includes the occurrence of any one or more of the following events:
(i) any Person, other than the Company, is or becomes the
Beneficial Owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), directly
or indirectly, of securities of World representing more than 50%
of the combined voting power of World's then outstanding
securities; or
(ii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board of World
and any new director (other than a director designated by a Person
who has entered into an agreement with World to effect a
transaction described in clause (i), (iii) or (iv) or this Section
5 (f)) whose election by the Board of World or nomination for
election by the stockholders of World was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(iii) the shareholders of World approve a merger or consolidation
of World with any other corporation, other than (A) a merger or
consolidation which would result in the voting securities of World
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or being converted into voting
securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of World or any of its affiliates,
at least 50% of the combined voting power of the voting securities
of World or such surviving entity outstanding immediately after
such merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of World (or similar
transaction) in which no Person acquires more than 50% of the
combined voting power of World's then outstanding securities; or
(iv) the shareholders of World approve a plan of complete
liquidation of World or an agreement for the sale or disposition
by World of all or substantially all of World's assets.
(h) "PERSON" DEFINED. For purposes of this Section, "Person" shall have
the meaning given in Section (3)(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i)
World or WorldCorp, Inc. or any of their subsidiaries or affiliates; (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
World or WorldCorp, Inc. or any of their subsidiaries; (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities; or
(iv) a corporation owned, directly or indirectly, by the stockholders of World
or WorldCorp, Inc. in substantially the same proportions as their ownership of
stock of World or WorldCorp, Inc.
(i) NOTICE OF TERMINATION. Termination of this Agreement by World or
termination of this Agreement by Martinez shall be communicated by written
notice to the other party hereto, specifically indicating the termination
provision relied upon.
(j) COMPANY PROPERTY. At the termination of Martinez' employment,
whether voluntary or involuntary, Martinez shall return all company property,
including without limitation all electronic and paper files and documents and
all copies thereof.
6. CONFIDENTIALITY.
(a) Martinez recognizes and acknowledges that he will acquire during
his employment with World information that is confidential to World and that
represents valuable, special and unique assets of World ("Confidential
Information"). Such Confidential Information (whether or not reduced to tangible
form) includes, but is not limited to: trade secrets; financing documents and
information; financial data; new product information; copyrights; information
relating to schedules and locations; cost and pricing information; performance
features; business techniques; business methods; business and marketing plans or
strategies; business dealings and arrangements; business objectives; customer
information; sales information; acquisition, merger or business development
plans or strategies; research and development projects; legal documents and
information; personnel information; and any and all other information concerning
World's business and business practices that is not generally known or made
available to the public or to World's competitors or is not readily
ascertainable by other means, which, if misused or disclosed, could adversely
affect the business of World. Martinez agrees that he will not, during
employment with World and for a period of two (2) years following termination of
employment for any reason, whether voluntary or involuntary, with or without
Cause, directly or indirectly:
(i) disclose any Confidential Information to any person, company
or other entity (other than authorized persons employed by or
affiliated with World who, in the interest of World, have a
business need to know such information), or
(ii) use any Confidential Information in any way, except as
required by his duties to World or by law, unless he obtains
World's prior written approval of such disclosure or use. World's
rights under this Section shall be cumulative to, and shall not
limit, World's rights under the Virginia Uniform Trade Secrets Act
or any other state or federal trade secret or unfair competition
statute or law. The parties hereto stipulate that as between them,
the foregoing matters are important, material, and confidential
and gravely affect the successful conduct of the business of
World, and World's good will, and that any breach of the terms of
this paragraph shall be a material breach of this Agreement.
(b) Section 4(f) of this Agreement and any other indemnity agreements
between Martinez and World shall not apply to actions, suits or proceedings to
enforce World's rights under, or that otherwise relate to, this Agreement,
including without limitation, this Section 6.
(c) References in this Section 6 to "World" include World Airways, Inc.
and any and all of its current or future parents, subsidiaries, affiliated
companies, and divisions.
7. BENEFICIARY. The Beneficiary of any payment due and payable at the time
of Martinez' death, or otherwise due upon his death, shall be such person or
persons as Martinez shall designate in writing to World. If no such beneficiary
shall survive Martinez, any such payments shall be made to his estate.
8. INTELLECTUAL PROPERTY.
(a) Any improvements, new techniques, processes, inventions, works,
discoveries, products or copyrightable or patentable materials made or conceived
by Martinez, either solely or jointly with other person(s), (1) during Martinez'
period of employment by World, during working hours; (2) during the period after
termination of his employment during which he is retained by World as a
consultant; or (3) with use of World's intellectual property or Confidential
Information, shall be the sole and exclusive property of World without royalty
or other consideration to Martinez.
(b) Martinez agrees to inform World promptly and in full of such
intellectual property by a full written report setting forth in detail the
procedures used and the results achieved.
(c) Martinez shall at World's request and expense execute any and all
applications, assignments, or other instruments which World shall deem necessary
to apply for, register, and/or obtain copyrights or Letters Patent of the United
States or of any foreign country, or to otherwise protect World's interests in
such intellectual property.
(d) Martinez shall assign and does hereby assign to World all interests
and rights, including but not limited to copyrights, in any such intellectual
property.
9. NO WAIVER. The failure of either party at any time to enforce any
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided for herein, or to require the performance by the other party
of any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.
10. GOVERNING LAW. All questions concerning the construction, validity,
application and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of Virginia without giving
effect to any choice of law or conflict of law provision or rule (whether of
Virginia or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than Virginia. Martinez agrees to submit to personal
jurisdiction in the State of Virginia.
11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
12. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon World, its successors and assigns, including any corporation or other
business entity which may acquire all or substantially all of World's assets or
business, or within which World may be consolidated or merged, or any surviving
corporation in a merger involving World.
13. WAIVER OF MODIFICATION OF AGREEMENT. No waiver or modification of this
Agreement shall be valid unless in writing and duly executed by both parties.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
WORLD AIRWAYS, INC.
By: __________________________________________
Hollis L. Harris
Chairman and CEO
_______________________________________________
Randy Martinez
EMPLOYMENT AGREEMENT
This Employment Agreement between World Airways, Inc., a Delaware
corporation ("World" or the "Company") and Cathy Sigalas ("Sigalas") is entered
into this 1st day of September, 1999.
WHEREAS, Sigalas has agreed to serve as World's General Counsel and
Corporate Secretary as of September 1, 1999.
NOW, THEREFORE, World and Sigalas, in consideration of the foregoing and
other mutual covenants and promises contained herein, the sufficiency of which
are hereby acknowledged, hereby agree as follows:
1. ACCEPTANCE OF EMPLOYMENT. Subject to the terms and conditions set forth
below, World agrees to employ Sigalas and Sigalas accepts such employment.
2. TERM. The period of employment shall be from September 1, 1999, through
September 30, 2002, unless further extended or sooner terminated as hereinafter
set forth. In the absence of notice, this Agreement shall be renewed on the same
terms and conditions for one year from the date of expiration. Not later than
February 15, 2002, Sigalas shall initiate discussions with the Chairman of the
Board (hereinafter "Chairman") regarding the renewal of this Agreement. At that
time, if Sigalas wishes to renew this Agreement on different terms, Sigalas
shall give written notice to the Chairman. If the Chairman does not wish to
renew this Agreement at its expiration, or wishes to renew on different terms,
the Chairman shall give written notice to Sigalas no later than February 28,
2002.
3. POSITION AND DUTIES. Sigalas shall continue to serve as General Counsel
and Corporate Secretary with the duties performed as of September 1, 1999. The
Chairman will have reasonable latitude to make changes in Sigalas'
responsibilities, except that Sigalas' responsibilities may not be modified in a
way that would be inconsistent with the status of General Counsel and Corporate
Secretary. Following a Change of Control (as hereinafter defined), Sigalas'
responsibilities may not be changed without mutual agreement. Sigalas agrees to
render her services to the best of her abilities and will comply with all
policies, rules and regulations of the company and will advance and promote to
the best of her ability the business and welfare of the Company. Sigalas shall
devote all of her working time, attention, knowledge and skills solely to the
business and interests of World. Sigalas may not accept any other engagement
with or without compensation which would affect her ability to devote all of her
working time and attention to the business and affairs of World without the
prior written approval of the Chairman of the Board. Sigalas agrees to accept
assignments on behalf of World or affiliated companies commensurate with her
responsibilities hereunder, except that the terms and conditions of assignments
exceeding 60 consecutive days outside the Washington, DC metropolitan area will
require mutual agreement.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. Sigalas shall receive a minimum salary of $175,000 per
annum payable in accordance with the payroll procedures for World's salaried
employees in effect during the term of this Agreement. Sigalas agrees to
participate equally, on a percentage basis, in any across the board salary
reductions approved by senior management.
(b) PERFORMANCE STOCK OPTIONS. Sigalas has been granted 50,000 options
to purchase World's Common Stock, par value $.001 per share ("World Airways
Common Stock") pursuant to the 1995 World Airways Stock Option Plan (the "Plan")
as set forth in the Stock Option Agreements between World and Sigalas dated
December 23, 1997, and April 7, and September 1, 1999 (together, the "Options"
and the "Option Agreement"). In the event of a Change in Control as defined
below, all Options shall be immediately exercisable.
(c) BUSINESS EXPENSES. Sigalas shall be entitled to reimbursement of
reasonable business related expenses from time to time consistent with World's
policies, including, without limitation, submitting in a timely manner
appropriate documentation of such expenses.
(d) FRINGE BENEFITS. Sigalas shall be entitled to participate in all
employee benefit plans made available from time to time to all executives of
World in accordance with the terms of such plans. In the event this Agreement is
terminated by either party for any reason other than death or for cause, Sigalas
may participate in World's health and other benefit programs for a period of one
year from the date of Sigalas' termination, or until Sigalas obtains comparable
coverage, whichever is earlier.
(e) PERSONNEL POLICIES, CONDITIONS AND BENEFITS. Except as otherwise
provided herein, Sigalas' employment shall be subject to the personnel policies
and benefits plans which apply generally to World's employees as the same may be
interpreted, adopted, revised or deleted from time to time, during the term of
this Agreement, by World in its sole discretion. While this Agreement is in
effect, Sigalas shall accrue vacation at the rate of one month per year and such
vacation shall be taken in accordance with the Company's procedures.
(f) INDEMNIFICATION; D&O INSURANCE. Subject to Section 6(b) of this
Agreement, World shall provide (or cause to be provided) to Sigalas
indemnification against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlements in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including an action by or in the right of World) by reason of
her being or having been an officer, director or employee of World or any
affiliated entity, advance expenses (including attorneys' fees) incurred by
Sigalas in defending any such civil, criminal, administrative or investigative
action, suit or proceeding and maintain directors' and officers' liability
insurance coverage (including coverage for securities-related claims) upon
substantially the same terms and conditions as set forth in the Indemnification
Agreement dated July 12, 1999, between Sigalas and World Airways, Inc. (the
"Indemnity Agreement").
5. TERMINATION OF EMPLOYMENT.
(a) DEATH. Sigalas's employment hereunder shall terminate upon her
death, in which event World shall have no further obligation to Sigalas or her
estate with respect to compensation, other than the disposition of life
insurance and related benefits and accrued and unpaid base salary and incentive
compensation, if any, for periods prior to the date of termination pursuant to
the terms of the respective employee benefits and incentive compensation plans
then in effect.
(b) By World for Disability. If Sigalas is unable, or fails, to perform
services pursuant to this agreement through illness or physical or mental
disability and such failure or disability shall exist for twelve (12)
consecutive months, then World may terminate this Agreement upon written notice
to Sigalas, in which event World shall have no obligation to Sigalas with
respect to compensation under Section 4(a) of this Agreement. If Sigalas becomes
entitled to Social Security benefits payable on account of disability, she will
be deemed conclusively to be disabled for purposes of this Agreement.
(c) BY WORLD FOR CAUSE.
(i) Except under the circumstances set forth in 5(c)(ii) below,
the Chairman of the Board may terminate this Agreement for Cause.
"Cause" shall be defined as (A) sustained performance deficiencies
which are communicated to Sigalas in written performance
appraisals and/or other written communications (including, but not
limited to memos and/or letters) by the Chairman, (B) gross
misconduct, including significant acts or omissions constituting
dishonesty, intentional wrongdoing or malfeasance, whether or not
relating to the business of World, or (C) commission of a felony
or any crime involving fraud or dishonesty, or (D) a material
breach of this Agreement.
(ii)In the event of a Change of Control, as defined below, Sigalas
may only be terminated for Cause pursuant to a resolution duly
adopted by the affirmative vote of a majority of the entire
membership of the Board, at a meeting of the Board finding that,
in the good faith opinion of the Board, Sigalas was guilty of
conduct set forth in 5(c)(i)(A), or (B), provided, however, that
Sigalas may not be terminated for Cause hereunder unless: (1)
Sigalas receives prior written notice of World's intention to
terminate this Agreement for Cause and the specific reasons
therefore; and (2) Sigalas has an opportunity to be heard by
World's Board and be given, if the acts are correctable, a
reasonable opportunity to correct the act or acts (or non-action)
giving rise to such written notice. If the Board, by resolution
duly adopted by the affirmative vote of a majority of the entire
membership of the Board, finds that Sigalas fails to make such
correction after reasonable opportunity to do so, this Agreement
may be terminated for Cause.
(d) BY WORLD FOR OTHER THAN CAUSE. In the event the Board terminates
this Agreement for reasons other than Cause or Disability as defined in
sub-paragraph (c) above, World will pay to Sigalas within ten (10) days of
notice of termination (or, in the case of incentive bonus compensation, if any,
within ten (10) days of determination of amounts payable under the applicable
bonus plan) eighteen months base salary, in each case including deferred salary
and/or bonus compensation, if any, payable under this Agreement. In addition,
all granted but unvested Options under the Option Agreements shall become
immediately exercisable. In the event that any payment to Sigalas under this
paragraph is subject to any federal or state excise tax, World shall pay to
Sigalas an additional amount equal to the excise tax imposed including
additional federal and state income and excise taxes as a result of the payments
under this paragraph, and such payment will be made when the excise tax and
income taxes are due; provided, however, that Sigalas agrees to assist World
Airways by using her best efforts to structure matters so that any payment to
Sigalas under this paragraph is not subject to any federal or state excise tax.
Whether an excise tax is payable, and the amount of the excise tax and
additional income taxes payable, shall be determined by World's accountants and
World shall hold Sigalas harmless from any and all taxes, penalties, and
interest that may become due as a result of the failure to properly determine
that an excise tax is payable or the correct amount of the excise tax and
additional income taxes, together with all legal and accounting fees reasonably
incurred by Sigalas in connection with any dispute with any taxing authority
with respect to such determinations and/or payments.
(e) BY SIGALAS FOR GOOD REASON. Sigalas may terminate her employment
hereunder (for purposes of this Agreement "Good Reason") after giving at least
30 days notice in the event that, without Sigalas' consent, (i) World relocates
its general and administrative offices or Sigalas' place of employment to an
area other than the Washington, D.C. Standard Metropolitan Statistical Area,
(ii) she is assigned any duties substantially inconsistent with Section 3
hereof, (iii) World reduces her annual base salary as in effect on the date
hereof or as the same may be increased from time to time, except as provided in
Section 4(a) above; (iv) World fails, without Sigalas' consent, to pay Sigalas
any portion of her current compensation, or to pay her any portion of an
installment of deferred compensation under any deferred compensation program of
World, within seven (7) days of the date such compensation is due; (v) World
fails to continue in effect any compensation plan in which Sigalas participates
which is material to Sigalas' total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or to continue Sigalas' participation therein
(or in such substitute or alternative Plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level of
Sigalas' participation relative to other participants; (vi) World fails to
continue to provide Sigalas with benefits substantially similar to those enjoyed
by Sigalas under any of World's pension, life insurance, medical, health and
accident, or disability plans in which Sigalas was participating, World takes
any action which would directly or indirectly materially reduce any of such
benefits or deprive Sigalas of any material fringe benefit enjoyed by Sigalas;
(vii) World terminates, or proposes to terminate, Sigalas' employment hereunder
contrary to the requirements of Section 5(c) hereof (for purposes of this
Agreement, no such termination or purported termination shall be effective); or
(viii) the Board approves the liquidation or dissolution of World prior to the
end of this Agreement. In the event that Sigalas decides to terminate this
Agreement and her employment with World or any successor in interest in
accordance with the provisions of this Section 5(e), World shall have the same
obligations as set forth in Section 5(d) hereof. Any other payments due or
actions required under this paragraph shall be made as lump sums or taken within
10 days of termination of the Agreement.
(f) BY SIGALAS FOR OTHER THAN GOOD REASON. Notwithstanding the above,
Sigalas may upon giving reasonable notice, not to be less than 30 days,
terminate this Agreement without further obligation on the part of Sigalas or
World.
(g) CHANGES OF CONTROL. For purposes of this Agreement, a "Change
of Control" includes the occurrence of any one or more of the following events:
(i) any Person, other than the Company, is or becomes the
Beneficial Owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")), directly or indirectly, of securities of World
representing more than 50% of the combined voting power of
World's then outstanding securities; or
(ii)during any period of two (2) consecutive years (not
including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board of World and any new director (other than
a director designated by a Person who has entered into an
agreement with World to effect a transaction described in
clause (i), (iii) or (iv) or this Section 5 (f)) whose
election by the Board of World or nomination for election by
the stockholders of World was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so
approved, cease for any reason to constitute a majority
thereof; or
(iiithe shareholders of World approve a merger or
consolidation of World with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of World outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or
being converted into voting securities of the surviving
entity), in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit
plan of World or any of its affiliates, at least 50% of the
combined voting power of the voting securities of World or
such surviving entity outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation
effected to implement a recapitalization of World (or similar
transaction) in which no Person acquires more than 50% of the
combined voting power of World's then outstanding securities;
or
(iv)the shareholders of World approve a plan of complete
liquidation of World or an agreement for the sale or
disposition by World of all or substantially all of World's
assets.
(h) "PERSON" DEFINED. For purposes of this Section, "Person" shall have
the meaning given in Section (3)(a)(9) of the Exchange Act, as modified and used
in Sections 13(d) and 14(d) thereof; however, a Person shall not include (i)
World or WorldCorp, Inc. or any of their subsidiaries or affiliates; (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
World or WorldCorp, Inc. or any of their subsidiaries; (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities; or
(iv) a corporation owned, directly or indirectly, by the stockholders of World
or WorldCorp, Inc. in substantially the same proportions as their ownership of
stock of World or WorldCorp, Inc.
(i) NOTICE OF TERMINATION. Termination of this Agreement by World or
termination of this Agreement by Sigalas shall be communicated by written notice
to the other party hereto, specifically indicating the termination provision
relied upon.
(j) COMPANY PROPERTY. At the termination of Sigalas's employment,
whether voluntary or involuntary, Sigalas shall return all company property,
including without limitation all electronic and paper files and documents and
all copies thereof.
6. CONFIDENTIALITY.
(a) Sigalas recognizes and acknowledges that she will acquire during
her employment with World information that is confidential to World and that
represents valuable, special and unique assets of World ("Confidential
Information"). Such Confidential Information (whether or not reduced to tangible
form) includes, but is not limited to: trade secrets; financing documents and
information; financial data; new product information; copyrights; information
relating to schedules and locations; cost and pricing information; performance
features; business techniques; business methods; business and marketing plans or
strategies; business dealings and arrangements; business objectives; customer
information; sales information; acquisition, merger or business development
plans or strategies; research and development projects; legal documents and
information; personnel information; and any and all other information concerning
World's business and business practices that is not generally known or made
available to the public or to World's competitors or is not readily
ascertainable by other means, which, if misused or disclosed, could adversely
affect the business of World. Sigalas agrees that she will not, during
employment with World and for a period of two (2) years following termination of
employment for any reason, whether voluntary or involuntary, with or without
Cause, directly or indirectly:
(i) disclose any Confidential Information to any person, company
or other entity (other than authorized persons employed by or
affiliated with World who, in the interest of World, have a
business need to know such information), or
(ii) use any Confidential Information in any way, except as
required by his duties to World or by law, unless she obtains
World's prior written approval of such disclosure or use. World's
rights under this Section shall be cumulative to, and shall not
limit, World's rights under the Virginia Uniform Trade Secrets Act
or any other state or federal trade secret or unfair competition
statute or law. The parties hereto stipulate that as between them,
the foregoing matters are important, material, and confidential
and gravely affect the successful conduct of the business of
World, and World's good will, and that any breach of the terms of
this paragraph shall be a material breach of this Agreement.
(b) Section 4(f) of this Agreement and any other indemnity agreements
between Sigalas and World shall not apply to actions, suits or proceedings to
enforce World's rights under, or that otherwise relate to, this Agreement,
including without limitation, this Section 6.
(c) References in this Section 6 to "World" include World Airways, Inc.
and any and all of its current or future parents, subsidiaries, affiliated
companies, and divisions.
7. BENEFICIARY. The Beneficiary of any payment due and payable at the time
of Sigalas' death, or otherwise due upon her death, shall be such person or
persons as Sigalas shall designate in writing to World. If no such beneficiary
shall survive Sigalas, any such payments shall be made to her estate.
8. INTELLECTUAL PROPERTY.
(a) Any improvements, new techniques, processes, inventions, works,
discoveries, products or copyrightable or patentable materials made or conceived
by Sigalas, either solely or jointly with other person(s), (1) during Sigalas'
period of employment by World, during working hours; (2) during the period after
termination of his employment during which he is retained by World as a
consultant; or (3) with use of World's intellectual property or Confidential
Information, shall be the sole and exclusive property of World without royalty
or other consideration to Sigalas.
(b) Sigalas agrees to inform World promptly and in full of such
intellectual property by a full written report setting forth in detail the
procedures used and the results achieved.
(c) Sigalas shall at World's request and expense execute any and all
applications, assignments, or other instruments which World shall deem necessary
to apply for, register, and/or obtain copyrights or Letters Patent of the United
States or of any foreign country, or to otherwise protect World's interests in
such intellectual property.
(d) Sigalas shall assign and does hereby assign to World all interests
and rights, including but not limited to copyrights, in any such intellectual
property.
9. NO WAIVER. The failure of either party at any time to enforce any
provisions of this Agreement or to exercise any remedy, option, right, power or
privilege provided for herein, or to require the performance by the other party
of any of the provisions hereof, shall in no way be deemed a waiver of such
provision at the same or at any prior or subsequent time.
10. GOVERNING LAW. All questions concerning the construction, validity,
application and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of Virginia without giving
effect to any choice of law or conflict of law provision or rule (whether of
Virginia or any other jurisdiction) that would cause the application of the law
of any jurisdiction other than Virginia. Sigalas agrees to submit to personal
jurisdiction in the State of Virginia.
11. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not be deemed to affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
12. SUCCESSORS. This Agreement shall inure to the benefit of and be binding
upon World, its successors and assigns, including any corporation or other
business entity which may acquire all or substantially all of World's assets or
business, or within which World may be consolidated or merged, or any surviving
corporation in a merger involving World.
13. WAIVER OF MODIFICATION OF AGREEMENT. No waiver or modification of this
Agreement shall be valid unless in writing and duly executed by both parties.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which together will constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
WORLD AIRWAYS, INC.
By: ________________________________________
Hollis L. Harris
Chairman and CEO
________________________________________
Cathy Sigalas
RESTATED AND AMENDED
ACCOUNTS RECEIVABLE MANAGEMENT
AND SECURITY AGREEMENT
This Restated and Amended Accounts Receivable Management and Security Agreement
is made as of March 23, 1998 by and between BNY FINANCIAL CORPORATION
("Lender"), having offices at 1290 Avenue of the Americas, New York, New York
10104 and World Airways, Inc. ("Borrower"), having its principal office of
business at 13873 Park Center Road, #490, Herndon, VA 22071. This Restated and
Amended Accounts Receivable Management and Security Agreement restates, amends
and replaces in its entirety without break-in-continuity, that certain Accounts
Receivable Management and Security Agreement in effect between the parties
hereto dated December 7, 1993, as amended and supplemented from time to time
(the "Original Agreement").
WHEREAS, the Borrower has requested that Lender make loans and advances
available to Borrower; and
WHEREAS, Lender has agreed to make such loans and advances to Borrower, as
Borrower's sole Lender, on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings and
the terms and conditions contained herein, the parties hereto agree as follows:
1. (A) General Definitions. When used in this Agreement the following terms
shall have the following meanings:
"Advance Rates" means the Receivables Advance Rate and the Spare Parts Inventory
Advance Rate.
"Affiliate" of any Person means (a) any Person (other than a Subsidiary) which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such Person, or (b) any Person who is a director or officer (i) of
such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above. For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (i) to vote 5% or more of the
securities having ordinary voting power for the election of directors of such
Person, or (ii) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"Aircraft" means all aircraft owned by Borrower, whether characterized as
Inventory or Equipment, together with all assets and properties of the Borrower
installed in, affixed to, customarily kept within or used in connection with
such aircraft, whether now existing or hereafter acquired or created, wherever
located and whether or not affixed thereto, including (without limitations all
accessions, accessories, additions, air frame components, appliances,
attachments, Avionics, engines, equipment, fixtures, furnishings, instruments,
log books, flyaway kits, maintenance records, manuals, parts and replacements.
"Aircraft Lease" means each and every current or future lease, rental agreement
or other arrangement by which any Aircraft is used by anyone other than the
Borrower, if any, as the same may be renewed, modified, amended or restated from
time to time in the manner provided therein.
"Aircraft Parts Security Agreement" means the security agreement executed by
Borrower in favor of Lender with respect to the Spare Parts Inventory dated
December 7, 1993.
"Alternate Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Rate in
effect on such day plus 1/2 of 1%.
"Alternate Base Rate Loan" shall mean any interest bearing Obligations at any
time bearing interest based on the Alternate Base Rate.
"Alternate Base Rate Margin" means (i) zero percent (0%) with respect to
outstanding Revolving Credit Advances (other than Spare Part Inventory
Advances); and (ii) one-half of one percent (.5%) with respect to outstanding
Spare Parts Inventory Advances.
"Ancillary Agreements" means all agreements, instruments, and documents
including, without limitation, the mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, trust
agreements, the Letter of Credit Supplement Agreement, (including but not
limited to any such documents executed, in effect or relating to the Original
Agreement, ((other than specific amendments to the original Agreement))),
whether heretofore, concurrently, or hereafter executed by or on behalf of
Borrower or delivered to Lender, relating to this Agreement or to the
transactions contemplated by this Agreement.
"Applicable Sublimits" means the Spare Parts Inventory Sublimit and/or the
Letter of Credit Sublimit.
"Average-Monthly LIBOR Rate" means, as to any one interest period, the average
one month LIBOR as published in The Wall Street Journal over the course of such
one month period.
"Avionics" means any and all communication, computing, navigation, radar and
other electronic equipment installed in, affixed or appurtenant to, customarily
kept within or used or delivered for use in connection with any Aircraft,
whether now existing or hereafter or created, wherever located and whether or
not affixed thereto, including (without limitation) the equipment listed on
Schedule (B) hereto.
"Bank" means The Bank of New York.
"Business Day" means any day other than a day on which commercial banks in New
York are authorized or required by law to close.
"Change of Ownership" means (a) any transfer (whether in one or more
transactions) of ownership of not less than 50% of the common stock of Borrower
held by the Original Owners (including for the purposes of the calculation of
percentage ownership, any shares of common stock into which any capital stock of
Borrower held by any of the Original Owners is convertible or for which any such
shares of the capital stock of Borrower or of any other Person may be exchanged
and any shares of common stock issuable to such Original Owners upon exercise of
any warrants, options or similar rights which may at the time of calculation be
held by such Original Owners) to a Person who is neither an original owner nor
an Affiliate of an original owner or (b) any merger, consolidation or sale of
substantially all of the property or assets of Borrower; provided however, that
it shall not be deemed to be a Change of Ownership if a transfer of capital
stock is made, if after such transfer, the Original Owner retains a material
interest (not to be less than 27% of all outstanding voting capital stock
("Material Ownership")) and the other shares of such capital stock were sold to
the general public and no one owner or affiliated group of owners, (other than
an airline existing under the laws of the United States with its shares listed
on the New York Stock Exchange or the American Stock Exchange or any other
entity acceptable to Lender) of such transferred shares of capital stock owns a
block of shares equal to or larger than the amount of shares retained by the
Original Owner.
"Closing Date" means March ___ , 1998 or such other date as may be agreed upon
by the parties hereto.
"Collateral" means and includes all presently owned or hereafter acquired:
(A) all inventory (including Spare Parts Inventory);
(B) all Equipment;
(C) all General Intangibles;
(D) all Receivables;
(E) all Aircraft (excluding any Aircraft listed on Exhibit X hereof);
(F) all Aircraft Leases;
(G) all books, records, ledger cards, files, correspondence, computer programs,
tapes, disks and related data processing software (owned by Borrower or in which
it has an interest) which at any time evidence or contain information relating
to (A), (B), (C) (D), (E) and (F) above or are otherwise necessary or helpful in
the collection thereof or realization thereupon;
(H) documents of title, policies and certificates of insurance, securities,
chattel paper, other documents or instruments evidencing or pertaining to (A),
(B), (C), (D), (E), (F) and (G) above;
(I) all guaranties, liens on real or personal property, leases, and other
agreements (including but not limited to any contract rights) and property which
in any way secure or relate to (A), (B), (C), (D), (E), (F), (G) and (H) above,
or are acquired for the purpose of securing and enforcing any item thereof;
(J) (i) all cash held by Lender or its parent, subsidiaries or affiliates as
cash collateral to the extent not otherwise constituting Collateral, all other
cash or property at any time on deposit with or held by Lender for the account
of Borrower (whether for safekeeping, custody, pledge, transmission or
otherwise), (ii) all present or future deposit accounts (whether time or demand
or interest or non-interest bearing) of Borrower with Lender or its parent,
subsidiaries, or affiliates including those to which any such cash may at any
time and from time to time be credited, (iii) all investments and reinvestments
(however evidenced) of amounts from time to time credited to such accounts, and
(iv) all interest, dividends, distributions and other proceeds payable on or
with respect to (x) such investments and reinvestments and (y) such accounts;
and
(K) all products and proceeds of (A), (B), (C), (D), (E), (F), (G), (H), (I) and
(J) above (including, but not limited to, all claims to items referred to in
(A), (B), (C), (D), (E), (F), (G), (H), (I) and (J) above) and all claims of
Borrower against third parties (x) for (i) loss of, damage to, or destruction
of, and (ii) payments due or to become due under leases, rentals and hires of,
any or all of (A), (B), (C), (D), (E), (F), (G), (H), (I) and (J) above and (y)
proceeds payable under, or unearned premiums with respect to policies of
insurance in whatever form.
"Contingent Event of Default" means any act or event, which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Contract Rate" means an interest rate per annum equal to the (i) Alternate Base
Rate plus (ii) the Alternate Base Rate Margin or (i) LIBOR Rate plus (ii) the
LIBOR Rate Margin, respectively.
"Credit Risk" means the risk of loss resulting solely and exclusively from a
Customer's financial inability to pay at maturity with respect to any Receivable
purchased hereunder.
"Customer" means and includes the account debtor with respect to any Receivable
and/or the prospective purchaser of goods, services or both with respect to any
contract or contract right, and/or any party who enters into or proposes to
enter into any contract or other arrangement with Borrower, pursuant to which
Borrower is to deliver any personal property or perform any services.
"Debt Coverage Ratio" means the ratio obtained by dividing EBITDA by an amount
equal to all interest expenses plus scheduled debt payments due and payable for
the period of such calculation.
"Default Rate" means an interest rate per annum equal to (i) the Contract Rate
plus (ii) two (2%) percent.
"Dissolute" means any cause asserted for nonpayment of Receivables, including,
without limitation, any alleged defense, counterclaim, offset, dispute or other
claim (real or merely asserted) whether arising from or relating to the sale of
goods or rendition of services or arising from or relating to any other
transaction or occurrence.
"Early Termination Fee" shall mean $250,000 during the first year of the Term,
$100,000 during the second year of the Term and $50,000 during the third year.
"Eligible Inventory" means Spare Parts Inventory presently consisting of DC-10,
MD-11 and aircraft parts (including but not limited to any Fly Away Kits), which
Lender, in its sole discretion, commercially reasonably applied, determines: (a)
is subject to the security interest of Lender and is subject to no other liens
or encumbrances whatsoever (other than Permitted Liens except Liens listed on
Schedule D); (b) is in good condition and meets all standards imposed by any
governmental agency, or department or division thereof having regulatory
authority over such Inventory, its use or sale including but not limited to the
Federal Fair Labor Standards Act of 1938 as amended, and all rules, regulations
and orders thereunder; (c) is currently either usable or salable in the normal
course of Borrower's business; (d) is not located in
Malaysia; and (e) is not determined to be ineligible for any other reason.
"Eligible Receivables" means and includes each Receivable which conforms to the
following criteria: (a) shipment of the merchandise or the rendition of services
has been completed; (b) no return, rejection or repossession of the merchandise
has occurred; (c) merchandise or services shall not have been rejected or
disputed by the Customer and there shall not have been asserted any offset,
defense, counterclaim, or Dispute; (d) such Receivable continues to be in full
conformity with the representations and warranties made by Borrower to Lender
with respect thereto; (e) Lender is, and continues to be, satisfied with the
credit standing of the Customer in relation to the amount of credit extended,
(f) such Receivable is documented by an invoice in the form of Exhibit Y hereto
or in such other form as is approved by Lender and shall not be unpaid more than
(i) ninety (90) days from invoice date or (ii) sixty (60) days from due date;
(g) less than 50% of the unpaid amount of invoices due from such Customer
remains unpaid more than sixty (60) days from due date; (h) such Receivable is
not evidenced by chattel paper or an instrument of any kind with respect to or
in payment of such Receivable unless such instrument is duly endorsed to and in
possession of Lender or represents a check in payment of a Receivable; (i) such
Receivable is not subject to any lien, other than Permitted liens; (j) such
Receivable does not arise out of transactions with any employee, officer, agent,
director, stockholder or Affiliate of Borrower, provided however that subject to
any limits which may be imposed by the Lender in its sole discretion,
Receivables outstanding at any time arising from arms-length transactions with
Malaysian Airlines may be eligible if such Receivables meet all other criteria
set forth herein; (k) such Receivable is payable to Borrower; (l) such
Receivable does not arise out of a billing prior to rendering of services and,
if the Receivable arises out of a sale to any Person to which Borrower is
indebted, the amount of such indebtedness, and any anticipated indebtedness, is
deducted in determining the face amount of such Receivable; (m) such Receivable
is net of any returns, discounts, claims, credits and allowances; (n) if the
Receivable arises out of contracts between Borrower and the United States, any
state, or any department, agency or instrumentality of any of them, Borrower has
so notified Lender, and, if Lender so requests, there has been compliance with
any governmental notice or approval requirements, including without limitation,
compliance with the Federal Assignment of Claims Act; (o) such Receivable is a
good and valid account representing an undisputed bona fide indebtedness
incurred by the Customer therein named, for a fixed sum as set forth in the
invoice relating thereto with respect to an unconditional sale and delivery upon
the stated terms of goods sold by Borrower, or work, labor and/or services
rendered by Borrower; and (p) Receivables from International Lease Finance
Company or GATX Inc. which are acceptable to Lender, in its sole discretion
provided there is a no-offset letter in effect with respect to either such
party); and (q) such Receivable is otherwise satisfactory to Lender as
determined in good faith by Lender in its reasonable credit judgment.
"Environmental Complaint" shall have the meaning set forth in Section 12(e)(3).
"Equipment" means and includes all of Borrower's now owned or hereafter acquired
equipment, machinery and goods (excluding Inventory), whether or not
constituting fixtures, including, without limitation: plant and office
equipment, tools dies, parts, data processing equipment, furniture and trade
fixtures, trucks, trailers, loaders and other vehicles and all replacements and
substitutions therefore and all accessions thereto, but Equipment shall exclude
everything listed on Exhibit X.
"Equity Infusion" means any equity cash infusion whereby cash will be exchanged
for the common stock of the Borrower.
"ERISA" shall have the meaning set forth in Section 12 (f) .
"Event of Default" means the occurrence of any of the events and the expiration
of the related grace period, if any, set forth in Section 18.
"FAA" means the United States Federal Aviation Administration, the Administrator
thereof and any agency or instrumentality of the Federal government of the
United States succeeding to their functions.
"Federal Aviation Act" means the Federal Aviation Act of 1958, as amended, or
any subsequent legislation that amends, supplements or supersedes the Federal
Aviation Act and any reference to a provision or provisions of such Act shall
also mean and refer to any successor provisions, however designated or
distributed.
"Federal Funds Rate" means, for any day, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or if such rate is not so published for any day which is a
Business Day, the average of quotations for such day on such transactions
received by the Bank from three Federal funds brokers of recognized standing
selected by the Bank.
"Formula Amount" shall have the meaning set forth in paragraph 2 (d) .
"GAAP" means generally accepted accounting principles, practices and procedures
in effect from time to time.
"General Intangibles" means and includes all of Borrower's now owned or
hereafter acquired general intangibles as said term is defined in the Uniform
Commercial Code in effect in the State of New York including, without
limitation, trademarks, trade names, tradestyles, trade secrets, equipment
formulation, manufacturing procedures, quality control procedures, product
specifications, patents, patent applications, copyrights, registrations,
contract rights, choses in action, causes of action, corporate or other business
records, inventions, designs, goodwill, claims under guarantees, licenses,
franchises, tax refunds, tax refund claims, computer programs, computer data
bases, computer program flow diagrams, source codes, object codes and all other
intangible property of every kind and nature, but General Intangibles shall
exclude everything listed on Exhibit X.
"Hazardous Discharge" shall have the meaning set forth in Section 12(e)(iii).
"Hazardous Substance" means, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated byphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances or related materials
as defined in CERCLA, the Hazardous Materials Transportation Act, as amended (49
U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of the New York State
Environmental Conservation Law or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.
"Indebtedness" of a Person at a particular date shall mean all obligations of
such Person which in accordance with GAAP would be classified upon a balance
sheet as liabilities (except capital stock and surplus earned or otherwise) and
in any event, without limitation by reason of enumeration, shall include all
indebtedness (whether installment, serial maturity, sinking fund payment or
otherwise), debt and other similar monetary obligations of such Person whether
direct or guaranteed, and all premiums, if any, due at the required prepayment
dates of such indebtedness, and all indebtedness secured by a Lien on assets
owned by such Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person. Any indebtedness of such Person
resulting from the acquisition by such Person of any assets subject to any Lien
shall be deemed, for the purposes hereof, to be the equivalent of the creation,
assumption and incurring of the indebtedness secured thereby, whether or not
actually so created, assumed or incurred.
"Inventory" means and includes all of Borrower's now owned or hereafter acquired
goods, merchandise and other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in Borrower's
business or used in selling or furnishing such goods, merchandise and other
personal property, and all documents of title or other documents representing
them but Inventory shall exclude everything listed on Exhibit X.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien, charge, claim or encumbrance, or
preference, priority or other security agreement or preferential arrangement in
respect of any asset of any kind or nature whatsoever including, without
limitation, any conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement under the Uniform
Commercial Code or comparable law any jurisdiction.
"Letter(s) of Credit" means all letters of credit issued or facilitated by the
Lender for the account of the Borrower pursuant to the terms of the Letter of
Credit Agreement
"Letter of Credit Agreement" means the letter of credit financing supplement to
this agreement dated of even date with this agreement as such agreement may
hereafter be amended, modified, supplemented, extended, renewed or replaced.
"Letter of Credit Sublimit" means the aggregate of all face amounts due under
Letters of Credit issued under or in connection with the Letter of Credit
Agreement, not to exceed at any one time, a maximum aggregate amount of
$4,000,000.
"LIBOR Rate" means for each month the rate per annum equal to the Average
Monthly LIBOR Rate in effect during such month. Whenever subsequent to the date
hereof, the average monthly LIBOR Rate is increased or decreased, the LIBOR Rate
shall similarly be changed without notice or demand of any kind, by an equal
amount in such change in the Average Monthly LIBOR Rate during the time such
changes remain in effect.
"LIBOR Rate Loan" shall mean any interest bearing Obligations at any time
bearing interest based on the LIBOR Rate.
"LIBOR Rate Margin" means (i) two and one-half percent (2.5%) with respect to
outstanding Revolving Credit Advances (other than Spare Part Inventory
Advances); and (ii) three percent (3%) with respect to outstanding Spare Parts
Inventory Advances.
"Loans" means the Revolving Credit Advances, Spare Parts Inventory Advances and
all other extensions of credit hereunder.
"Matured Funds" means collected funds in excess of any outstanding Obligations
under this Agreement.
"Matured Funds Rate" means the rate of interest, announced by Lender from time
to time, as the rate applicable to matured funds, such rate to be adjusted
automatically on the effective date of any change in such rate as announced by
Lender.
"Maximum Revolving Amount" means $25,000,000.00 .
"Net Face Amount" of Receivables means the gross face invoice amount thereof,
less returns, discounts (the calculation of which shall be determined by Lender
where optional terms are given), or any other unilateral deductions taken by
Customers, and credits and allowances to Customers of any nature.
"Net Worth" at a particular date means (a) the aggregate amount of all assets of
Borrower as may be properly classified as such in accordance with GAAP
consistently applied less (b) the aggregate amount of all liabilities of the
Borrower as may be properly classified as such in accordance with GAAP
consistently applied.
"Obligations" means and includes all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Borrower to Lender (or any
corporation that directly or indirectly controls or is controlled by or is under
common control with Lender) of every kind and description (whether or not
evidenced by any note or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including, without limitation, any debt,
liability or obligation owing from Borrower to others which Lender may have
obtained by assignment or otherwise and further including, without limitation,
all interest, charges or any other payments Borrower is required to make by law
or otherwise arising under or as a result of this Agreement and the Ancillary
Agreements, together with all reasonable expenses and reasonable attorneys' fees
chargeable to Borrower's account or incurred by Lender in connection with
Borrower's account whether provided for herein or in any Ancillary Agreement.
"Orderly Liquidation Value" shall mean 72.5% of the fair market value of
Borrower's Eligible Inventory.
"Original Owners" means WorldCorp, Inc.
"Overadvance Rate" means a rate equal to one-half percent (1/2%) per annum in
excess of the Contract Rate.
"Permitted Liens" means (i) liens of carriers, warehousemen, mechanics and
materialmen incurred in the ordinary course of business securing sums (a) not
overdue or (b) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of Borrower in
conformity with GAAP,; (ii) liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (a) not
overdue or (b) being diligently contested in good faith provided that adequate
reserves with respect thereto are maintained on the books of Borrower in
conformity with GAAP, (iii) liens in favor of Lender, (iv) liens for taxes (a)
not yet due or (b) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of Borrower
in conformity with GAAP and (v) liens specified on Schedule 1 (D) hereto.
"Person" means an individual, partnership, corporation, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
"Prime Rate" means the prime commercial lending rate of the Bank as publicly
announced in New York, New York to be in effect from time to time, such rate to
be adjusted automatically, without notice, on the effective date of any change
in such rate. This rate of interest is determined from time to time and is
neither tied to any external rate of interest or index nor does it necessarily
reflect the lowest rate of interest actually charged to any particular class or
category of customers.
"Receivables" means and includes all of Borrower's now owned or hereafter
acquired accounts and contract rights, instruments, insurance proceeds (unless
related to property listed on Exhibit X), documents, chattel paper (unless
related to property listed on Exhibit X), letters of credit (unless related to
property listed on Exhibit X) and Borrower's rights to receive payment
thereunder, any and all rights (unless related to property listed on Exhibit X)
to the payment or receipt of money or other forms of consideration of any kind
at any time now or hereafter owing or to be owing to Borrower, all proceeds
thereof and all files in which Borrower has any interest whatsoever containing
information identifying or pertaining to any of Borrower's Receivables, together
with all of Borrower's rights to any merchandise which is represented thereby,
and all Borrower's right, title, security and guaranties with respect to each
Receivable, including, without limitation, all rights of stoppage in transit,
replevin and reclamation and all rights as an unpaid vendor, but Receivables
shall exclude everything listed on Exhibit X.
"Receivables Advance Rate" shall have the meaning set forth in the definition of
Receivables Availability.
"Receivables Availability" means 85% ("Receivables Advance Rate") of the net
face amount of Borrower's Eligible Receivables.
"Reports" shall have the meaning set forth in Section 14.
"Retained Goods" shall have the meaning set forth in Section 8(h).
"Revolving Credit Advances" shall have the meaning set forth in paragraph 2(d).
"Revolving Receivables Advance(s)" shall have the meaning set forth paragraph
2(d).
"Settlement Date" means one (1) Business Day after the day on which the
applicable Receivable is actually collected by Lender.
"Spare Parts Inventory" means any Aircraft engines presently owned or hereafter
acquired by Borrower and parts thereof, DC 10 and MD 11 parts, including MD 11
Fly Away Kits owned by the Borrower listed on Schedule III to the Aircraft Parts
Security Agreement as amended as of this date and such Spare Parts Inventory
listed on the monthly inventory report acceptable to Lender, in its sole
discretion, exercised in a commercially reasonable manner.
"Spare Parts Inventory Advance Rate" shall have the meaning set forth in the
definition of Spare Parts Inventory Availability.
"Spare Parts Inventory Advances" shall have the meaning set forth in paragraph
2(d).
"Spare Parts Inventory Availability" means the lesser of (a) the Spare Parts
Inventory Sublimit or (b) 70%; ("Spare Parts Inventory Advance Rate") of the
Orderly Liquidation Value of Borrower's Eligible Inventory, as reported on a
monthly inventory designation submitted and certified by the Borrower
substantially in the form attached hereto as Exhibit Z.
"Spare Parts Inventory Sublimit" shall mean $11,000,000.00.
"Subsidiary" of any Person means a corporation or other entity of whose shares
of stock or other ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Tangible Net Worth" means Net Worth and subordinated debt less intangibles.
"Term" means the Closing Date through the third anniversary date of this
Restated and Amended Accounts Receivable Management and Security Agreement
subject to acceleration upon the occurrence of an Event of Default hereunder or
other termination hereunder.
"Unused Facility Fee" means an annual fee of one-quarter of one percent (.25%)
payable monthly by the Borrower to the Lender, calculated on the amount of the
difference between the average daily amount of Loans outstanding during each
month and the amount of $25,000,000.00 if such average amount of outstanding
Loans during such month is less than $25,000,000.00
(B) Accounting Terms. Any accounting terms used in this Agreement which are not
specifically defined shall have the meanings customarily given them in
accordance with GAAP.
(C) Other Terms. All other terms used in this Agreement and defined in the
Uniform Commercial Code as adopted in the State of New York, shall have the
meaning given therein unless otherwise defined herein.
2. Sale of Receivables; Purchase Price; Accounts Receivables Management; Loans.
(a) Borrower hereby assigns and sells to Lender, as absolute owner, and Lender
hereby purchases from Borrower all Receivables existing on and created after the
date hereof, which arise from Borrower's sale of merchandise or rendition of
services.
(b) Lender shall not assume the Credit Risk on any Receivables. Accordingly, all
Receivables shall be purchased by Lender with full recourse to Borrower in the
event of non-payment thereof for any reason whatsoever and Lender may charge
back to Borrower's account the amount of any Receivable that is not paid on its
due date. The procedure manual Lender has delivered to Borrower describes
Lender's current practices and procedures regarding its accounts receivable
management and record keeping services. Lender reserves the right to vary such
practices and procedures from time to time in its sole discretion. Lender's
liability to Borrower for any alleged failure on Lender's part to provide
adequate accounts receivable management and record keeping services shall be
expressly limited to a refund of commissions paid by Borrower, if any, during
the period of such alleged failure and Lender shall have no liability of any
kind whatsoever for consequential or other damages or penalties based upon any
such alleged failure on Lender's part.
(c) The purchase price of Receivables shall be the Net Face Amount. The purchase
price will be credited to Borrower's account on the Settlement Date. Lender may
in its reasonable discretion deduct from the amount payable to Borrower on any
Settlement Date reserves for all Obligations then chargeable to Borrower's
account and Obligations which in Lender's reasonable discretion may be
chargeable to Borrower's account thereafter.
(d) Subject to the terms and conditions set forth herein and in the Ancillary
Agreements, Lender shall make revolving credit advances, consisting of Revolving
Receivable Advances and Spare Parts Inventory Advances (hereinafter jointly
referred as "Revolving Credit Advances") to Borrower from time to. time during
the Term and issue or facilitate the issuance of Letters of Credit for the
account of the Borrower as follows:
(i) Revolving receivable advances ("Revolving Receivable Advances") which in the
aggregate at any time outstanding, will not exceed the lesser of (x) the Maximum
Revolving Amount, less all outstanding Spare Parts Inventory Advances, less the
face amount of all outstanding Letters of Credit or (y) an amount equal to the
sum of:
(A) Receivables Availability, less
(b) such reserves as Lender may reasonably deem proper and necessary from time
to time.
(ii) Spare parts inventory advances ("Spare Parts Inventory Advances") to
Borrower from time to time during the Term, which in the aggregate at any time
outstanding, will not exceed the lesser of (x) the $11,000,000.00 (y) an amount
equal to the sum of:
(a) Spare Parts Inventory Availability, less
(b) such reserves as Lender may reasonably deem proper and necessary from time
to time.
(iii) Facilitate the opening of Letters of Credit for the account of the
Borrower from time to time during the Term which in the aggregate will have a
face amount not exceeding at any time the sum of $4,000,000.00.
Provided, however, that at no time shall the outstanding amounts of Revolving
Receivable Advances plus Spare Parts Inventory Advances and the face amount of
any outstanding Letters of Credit exceed the Maximum Revolving Amount or any
Applicable Sublimits (including but not limited to the Spare Parts Inventory
Sublimit or the Letter of Credit Sublimit.)
The maximum amounts available for Revolving Credit Advances shall be referred to
as the Formula Amount.
(e) Notwithstanding the limitations set forth above, Lender retains the right to
lend Borrower from time to time such amounts in excess of such limitations as
Lender may determine in its sole discretion.
(f) Borrower acknowledges that the exercise of Lender's rights (discretionary or
otherwise) hereunder may result during the term of this Agreement in one or more
increases or decreases in the Advance Rates and Borrower hereby consents to any
such increases or decreases which may limit or restrict advances requested by
Borrower.
(g) If Borrower does not pay any interest, fees, costs, charges or commissions
to Lender when due, Borrower shall thereby be deemed to have requested, and
Lender is hereby authorized at its discretion to make and charge to Borrower's
account, a Revolving Credit Advance to Borrower as of such date in an amount
equal to such unpaid interest, fees, costs, charges or commissions. Borrower
hereby acknowledges that Lender may charge to Borrower's account all amounts
owing to Lender hereunder when the same are due.
(h) Any sums expended by Lender due to Borrower's failure to perform or comply
with its obligations under this Agreement, including but not limited to the
payment of taxes, insurance premiums or leasehold obligations, shall be charged
to Borrower's account as a Revolving Credit Advance and added to the
obligations, provided however that Lender will use its best efforts to give the
Borrower two Business Days advance notice of its intent to expend such sums.
(i) Lender will account to Borrower monthly with a statement of all Loans and
other advances, charges and payments made pursuant to this Agreement, and such
account rendered by Lender shall be deemed final, binding and conclusive unless
Lender is notified by Borrower in writing to the contrary within thirty (30)
days-of-the date each account was rendered specifying the item or items to which
objection is made.
(j) During the Term, Borrower may borrow, prepay at par and reborrow Revolving
Credit Advances, all in accordance with the terms and conditions hereof.
(k) The aggregate balance of Loans outstanding at any time shall not exceed the
Maximum Revolving Amount or any Applicable Sublimits. The aggregate balance of
Revolving Credit Advances outstanding at any time shall not exceed the Formula
Amount.
(l) Any payments made by Customers constituting advances or deposits which do
not correspond to any Receivable purchased hereunder and which have been
indicated by the Borrower as an advance or deposit, shall be paid by Lender to
Borrower on the same Business Day as such collection (if practical) and
otherwise on the next Business Day after such collection.
(m) As long as no Event of Default exists, Matured Funds shall be paid by Lender
to Borrower at Borrower's request.
(n) Lender will use its best efforts to notify Borrower promptly of any change
in Advance Rates, eligibility of Collateral and reserves.
(o) Lender will use its best efforts to provide the Borrower, upon Borrower's
request, with an account status report reflecting the amount, if any, available
for borrowing hereunder provided that such report shall be subject to Lenders
customary disclaimer.
(p) Any amounts drawn under outstanding Letters of Credit shall be automatically
converted and deemed to be Revolving Receivable Advances as of the date of such
payment.
3. Repayment of Loans/Application of Certain Proceeds.
(a) Borrower shall be required to (i) make a mandatory prepayment hereunder at
any time that the aggregate outstanding principal balance of the Loans made by
Lender to Borrower hereunder is in excess of the Formula Amount in an amount
equal to such excess, and (ii) reuay on the expiration of the Term (x) the then
aggregate outstanding principal balance of Revolving Credit Advances made by
Lender to Borrower hereunder together with accrued and unpaid interest, fees,
charges and commissions and (y) all other amounts owed Lender under this
Agreement and the Ancillary Agreements including but not limited to all
obligations.
(b) Any proceeds from the sale of Spare Parts Inventory shall be applied first
towards the repayment of any outstanding Spare Parts Inventory Advances. Any
excess shall than be applied to any outstanding Revolving Receivables Advances
and to any other Obligations outstanding.
4. Procedure for Revolving Credit Advances
(a) The Borrower may request a borrowing of Revolving Credit Advances prior to
1:00 P.M. New York time on the Business Day of its request to incur, on that
day, a Revolving Credit Advance. All Revolving Credit Advances shall be
disbursed from whichever office or other place Lender may designate from time to
time and, together with any and all other Obligations of Borrower to Lender,
shall be charged to the Borrower's account on Lender's books. The proceeds of
each Revolving Credit Advance made by the Lender shall be made available to the
Borrower on the day so requested by way of credit to the Borrower's operating
account maintained with such bank as Borrower designated to Lender by Federal
Funds Wire. Any and all Obligations due and owing hereunder may be charged to
Borrower's account and shall constitute Revolving Credit Advances.
(b) Borrower may request that a Revolving Credit Advance be, (subject to
availability and other limitations contained herein, including but not limited
to any Applicable Sublimits), a Revolving Receivable Advance or a Spare Parts
Inventory Advance. Borrower may also, from time to time, request that the
Revolving Credit Advances be made as a Alternate Base Rate Loan or a LIBOR Rate
Loan or the Borrower may request treat an outstanding Alternate Base Rate Loan
be converted to a LIBOR Rate Loan or that a LIBOR Rate Loan be converted to an
Alternate Base Rate Loan. Any of the foregoing requests shall be in writing,
shall be irrevocable and with respect to any conversions shall be effective as
of the first day of the month immediately following the month in which written
notice is received by the Lender. Provided with respect to any conversion that
the Lender shall receive such written notice at least two (2) business days
prior to the last Business Day of such month. Except that the Borrower shall
have no right to request a LIBOR Rate Loan or to convert any Alternate Base Rate
Loan to a LIBOR Rate Loan in the event that an Event of Default exists or has
occurred or is continuing. If any of the foregoing conditions shall exist, then
any request by the Borrower for a LIBOR Rate Loan may be made by the Lender as &
Alternate Base Rate Loan upon giving proper notice to the Borrower of its
decision to do so. Notwithstanding anything to the contrary contained herein,
the Lender shall not be required to purchase United States Dollar deposits in
the London Interbank Market or other applicable LIBOR market to fund any LIBOR
Rate Loans, but the provisions of this agreement shall be deemed to apply as if
the Lender had purchased such deposits to fund the LIBOR Rate Loans;
(c) any LIBOR Rate Loans shall, at Lender's option convert to Alternate Base
Rate Loans in the event that (i) an Event of Default shall have occurred or is
continuing or (ii) this agreement shall terminate and not be renewed.
(d) Notwithstanding anything to the contrary contained herein, all LIBOR Rate
Loans shall upon notice by the Lender to the Borrower convert to Alternate Base
Rate Loans in the event that, (i) any change in applicable law, treaty or
regulation (or the interpretation or administration thereof), shall either (A)
make it unlawful for the Lender or the Bank to make or maintain LIBOR Rate Loans
or to comply with the terms hereof in connection with the LIBOR Rate Loans or
(B) shall result in increased costs to the Lender or the Bank of making or
maintaining any LIBOR Rate Loans by an amount deemed by the Lender to be
material or (C) reduce the amounts received or receivable by the Lender, in
respect thereof, by an amount deemed by the Lender to be material or (ii) the
cost to the Lender or the Bank of making or maintaining any LIBOR Rate Loan
shall otherwise increase by an amount deemed by the Lender to be material. The
Borrower shall pay to the Lender, upon demand by the Lender,( or the Lender may
at its option charge the Borrower's account) any amounts required to compensate
Lender or the Bank for any loss (including loss of anticipated profits), cost or
expense incurred by such Person as a result of the foregoing events, including
without limitations any such loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Person
to make or maintain the LIBOR Rate Loans or any portion thereof. A certificate
from the Lender setting forth the basis for the determination of such amount
necessary to compensate the Lender as aforesaid shall be delivered to the
Borrower and shall be conclusive, absent manifest error.
5. Interest; Fees
(a) Interest.
(i) Except as modified by Section 5(a)(iii) below, interest on Revolving Credit
Advances shall be payable in arrears on the last day of each month. Interest
payments hereunder may, at Lender's option be charged by Lender to Borrower's
account. Interest charges shall be computed on the unpaid balance of the
Revolving Credit Advances for each day they are outstanding at a rate per annum
equal to the Contract Rate. In the event the aggregate amount of Revolving
Credit Advances exceeds the Formula Amount for ten (10) or more days in any
during the Term, the average daily balance of Revolving Credit Advances in that
month shall bear interest at the Overadvance Rate.
(ii) Interest shall be computed on the basis of actual days elapsed over a
360-day year.
(iii) Upon the occurrence and during the continuance of an Event of Default
described in Section 18(a) interest shall be payable at the Default Rate on the
amount overdue.
(iv) Notwithstanding the foregoing, in no event shall interest exceed the
maximum rate permitted under any applicable law or regulation, and if any
provision of this Agreement or an Ancillary Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to provide for
interest at said maximum rate and any excess amount shall either be applied, at
Lender's option, to the outstanding Loans in such order as Lender shall
determine or refunded by Lender to Borrower.
(v) Borrower shall pay principal, interest and all other amounts payable
hereunder, or under any Ancillary Agreement, without any deduction whatsoever,
including, but not limited to, any deduction for any set-off or counterclaim
(b) Fees.
(i) Audit Fee. Upon Lender's performance of any collateral monitoring - namely
any field examination, collateral analysis or other business analysis, the need
for which is to be determined by Lender and which monitoring is undertaken by
Lender or for Lender's benefit, an amount equal to $600.00 per day, per person,
for each person employed to perform such monitoring together with all reasonable
out-of-pocket costs, disbursements and expenses incurred by the Lender and the
person performing such collateral monitoring shall be charged to Borrower's
account provided that such charges shall not exceed $25,000.00 annually.
(ii) Unused Facility Fee. Borrower shall pay to the Lender monthly, the Unused
facility fee.
(iii) Letter of Credit Fees. The Borrower shall pay to the Lender an issuance
fee of one-eighth of one percent (.125%) of the face amount for every Letter of
Credit and a monthly availability fee of one-eighth of one percent (.125%) per
month calculated on the face amount of any Letter of Credit. The Borrower shall
pay to the Lender a minimum issuance of $75.00 per Letter of Credit.
(iv) Administrative/Collateral Monitoring Fee. Borrower shall pay to the Lender
monthly a $5,000.00 administrative/collateral monitoring fee.
(c) Increased Costs. In the event that a change shall occur after the Closing
Date in any applicable law, treaty or governmental regulation, or in the
interpretation or application thereof, or compliance by Lender (for purposes of
this Section 5(c), the term "Lender" shall include Lender and any corporation or
bank controlling Lender) with any request or directive (whether or not having
the force of law) from any central bank or other financial, monetary or other
authority, if such request results from such a change, shall:
(i) subject Lender to any stamp, documentary or similar tax with respect to this
Agreement or any Ancillary Agreements;
(ii) impose, modify or hold applicable with respect to the Loans any reserve,
special deposit, assessment, or similar requirement against assets held by, or
deposits in or for the account of, advances or loans by, or other credit
extended by, any office of Lender, including (without limitation) pursuant to
Regulation D of the Board of Governors of the Federal Reserve System; or
(iii) impose on Lender any other condition with respect to this Agreement or any
Ancillary Agreements;
and the result of any of the foregoing is to increase the cost to Lender of
making, renewing or maintaining its Loans hereunder by an amount that Lender
deems to be material or to reduce the amount of any payment (whether of
principal, interest or otherwise) in respect of any of the Loans by an amount
that Lender deems to be material, then, in any case Borrower shall promptly pay
Lender, upon its demand, such additional amount as will compensate Lender for
such additional cost or such reduction, as the case may be. Lender shall certify
the amount and method of calculation of such additional cost or reduced amount
to Borrower, and such certification shall be conclusive absent manifest error.
Lender shall take such reasonable steps, as Borrower may request and at
Borrower's expense, to minimize such costs provided such steps have no adverse
effect on Lender.
(d) Capital Adequacy.
(i) In the event that a change after the Closing Date in any applicable law,
rule, regulation or guideline regarding capital adequacy, or in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Lender (for purposes of this Section 5(d), the term
"Lender" shall include Lender and any corporation or bank controlling Lender)
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency,
which request or directive results from such a change, has the effect of
reducing the rate of return on Lender's capital as a consequence of its
obligations hereunder to a level below that which Lender could have achieved but
for such adoption, change or compliance (taking into consideration Lender's
general policies with respect to capital adequacy) by an amount deemed by Lender
to be material, then, from time to time, Borrower shall pay upon demand to
Lender such additional amount or amounts as will compensate Lender for such
reduction. In determining such amount or amounts, Lender may use any reasonable
averaging or attribution methods. The protection of this Section shall be
available to Lender regardless of any possible contention of invalidity or
inapplicability with respect to the applicable 1aw, regulation or condition.
Lender shall take such reasonable steps, as Borrower may request and at
Borrower's expense, to minimize such costs provided such steps have no adverse
effect on Lender.
(ii) A certificate of Lender setting forth such amount or amounts as shall be
necessary to compensate Lender with respect to Section 5(d) hereof and the
method of calculation thereof when delivered to Borrower shall be conclusive
absent manifest error. (iii) impose on Lender any other condition with respect
to this Agreement or any Ancillary Agreements;
and the result of any of the foregoing is to increase the cost to Lender of
making, renewing or maintaining its Loans hereunder by an amount that Lender
deems to be material or to reduce the amount of any payment (whether of
principal, interest or otherwise) in respect of any of the Loans by an amount
that Lender deems to be material, then, in any case Borrower shall promptly pay
Lender, upon its demand, such additional amount as will compensate Lender of
such additional cost or such reduction, as the case may be. Lender shall certify
the amount and method of calculation of such additional cost or reduced amount
to Borrower, and such certification shall be conclusive absent manifest error.
Lender shall take such reasonable steps, as Borrower may request and at
Borrower's expense, to minimize such costs provided such steps have no adverse
effect on Lender.
(d) Capital Adequacy.
(i) In the event that a change after the Closing Date in any applicable law,
rule, regulation or guideline regarding capital adequacy, or in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Lender (for purposes of this Section 5(d), the term
"Lender" shall include Lender and any corporation or bank controlling Lender)
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency,
which request or directive results from such a change, has the effect of
reducing the rate of return on Lender's capital as a consequence of its
obligations hereunder to a level below that which Lender could have achieved but
for such adoption, change or compliance (taking into consideration Lender's
general policies with respect to capital adequacy) by an amount deemed by Lender
to be material, then, from time to time, Borrower shall pay upon demand to
Lender such additional amount or amounts as will compensate Lender for such
reduction. In determining such amount or amounts, Lender may use any reasonable
averaging or attribution methods. The protection of this Section shall be
available to Lender regardless of any possible contention of invalidity or
inapplicability with respect to the applicable law, regulation or condition
Lender shall take such reasonable steps, as Borrower may request and at
Borrower's expense, to minimize such costs provided such steps have no adverse
effect on the Lender
(ii) A certificate of Lender setting forth such amount or amounts as shall be
necessary to compensate Lender with respect to Section 5(d) hereof and the
method of calculation thereof when delivered to Borrower shall be conclusive
absent manifest error.
(e) Matured Funds. On the last day of each month during the Term, Lender shall
credit Borrower's account with interest at the Matured Funds Rate in effect
during such month on the average daily balance during such month of any amounts
payable by Lender to Borrower hereunder which are not drawn by Borrower on the
Settlement Date.
6. Security Interest
(a) To secure the prompt payment to Lender of Obligations, Borrower hereby
assigns, pledges and grants to Lender a continuing security interest in and to
the Collateral, whether now owned or existing or hereafter acquired or arising
and wheresoever located (whether or not the same is subject to Article 9 of the
Uniform Commercial Code). All of the Borrower's ledger sheets, files, records,
books of account, business papers and documents relating to the Collateral
shall, until delivered to or removed by Lender, be kept by Borrower in trust for
Lender until all Obligations have been paid in full. Each confirmatory
assignment schedule or other form of assignment hereafter executed by Borrower
shall be deemed to include the foregoing grant, whether or not the same appears
therein.
(b) Lender may file one or more financing statements disclosing Lender's
security interest in the Collateral without Borrower's signature appearing
thereon or Lender may sign on Borrower's behalf as provided in paragraph 13
hereof. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement. If any Receivable
becomes evidenced by a promissory note or any other instrument for the payment
of money, Borrower will immediately deliver such instrument to Lender
appropriately endorsed.
7. Representation Concerning The Collateral. Borrower represents and warrants
(each of which such representations and warranties shall be deemed repeated upon
the making of each request for a Revolving Credit Advance and made as of the
time of each and every Revolving Credit Advance.
(a) all the Collateral (i) is owned by Borrower free and clear of all claims,
liens, security interests and encumbrances (including without limitation any
claims of infringement) except (A) those in Lender's favor and (B) Permitted
Liens and (ii) is not subject to any agreement prohibiting the granting of a
security interest or requiring notice of or consent to the granting of a
security interest;
(b) all receivable except those with respect to which Borrower has notified
Lender at the time of assignment were not to be treated as Eligible Receivable
(i) represent complete bona fide transactions which require no further act under
any circumstances on Borrower's part to make such Receivables payable by
customers, (ii) to the best of Borrower's knowledge, are not subject to any
present, future or contingent Disputes and (iii) do not represent bill and hold
sales, consignment sales, guaranteed sales, sale or return or other similar
understandings or obligations of any Affiliate or Subsidiary of Borrower.
8. Covenants Concerning the Collateral During the Term, Borrower covenants that
it shall:
(a) not dispose of any of the Collateral whether by sale, lease or otherwise
except for (i) the sale of Inventory in the ordinary course of business, (ii)
the sale of Spare Parts Inventory, (iii) the disposition or transfer of obsolete
and worn-out Equipment in the ordinary course of business during any fiscal year
having an aggregate -fair market value of not more than $200,000 and, if in
excess of said amount, only to the extent that (x) the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Lender's first priority security interest or (y) the proceeds of which are
remitted to Lender in reduction of the Obligations and (iv) disposition of
General Intangibles in the ordinary course of business;
(b) not encumber, mortgage, pledge, assign or grant any security interest in any
Collateral to anyone other than Lender except as set forth on Schedule l(B)
attached hereto and made a part hereof;
(c) place notations upon Borrower's books of account: and any financial
statement prepared by Borrower to disclose Lender's security interest in the
Collateral;
(d) defend the Collateral against the claims and demands of all parties;
(e) keep and maintain the Equipment in good operating condition, except for
ordinary wear and tear, and shall make all necessary repairs and replacements
thereof so that the value and operating efficiency shall at all times be
maintained and preserved, ordinary-wear and tear excepted. Borrower shall not
permit any such items to become a fixture to real estate or accessions to other
personal property;
(f) not extend the payment terms of any Receivable without prompt notice thereof
to Lender;
(g) perform all other steps requested by Lender to create and maintain in
Lender's favor a valid perfected first. security interest in all Collateral; and
(h) Borrower shall promptly provide Lender with duplicate originals of all
credits which Borrower issues to its Customers and immediately notify Lender of
any merchandise returns or Disputes. Borrower shall settle all Disputes at no
cost or expense to Lender. Should Lender so elect, during the continuation of
any Event of Default, Lender may at any time in its discretion (i) withdraw
Borrower's authority to issue credits to its Customers without Lender's prior
written consent; (ii) litigate Disputes or settle them directly with Customers
on terms acceptable to Lender; or (iii) direct Borrower to set aside and
identify as Lender's property any returned or repossessed merchandise or other
goods which by sale resulted in Receivables theretofore assigned to Lender
("Retained Goods"). All Retained Goods (and the proceeds thereof) shall be (A)
held by Borrower in trust for Lender as Lender's property, (B) subject to
Lender's security interest hereunder and (C) disposed of only in accordance with
Lender's express written instructions.
9. Collection and Maintenance of Collateral and Re cords. Lender may at any time
verify Borrower's Receivables utilizing an audit control company or any other
agent of Lender, provided however, that absent an Event of Default, or a reason
to suspect fraud such action may only be taken during normal business hours upon
one Business Day's notice to the Borrower. Lender or Lender's designee may, but
only while an Event of Default in continuing, notify Customers, at any time at
Lender's sole discretion, of Lender's security interest in Receivables, collect
them directly and charge the collection costs and expenses to Borrower's
account, but, unless and until Lender does so or gives Borrower other
instructions, Borrower shall instruct all of its Customers to make payments on
account of Receivables to an account under Lender's dominion or control at such
bank as Lender may designate, as provided by the terms of Section 23. To the
extent Borrower receives any payments on account of Receivables, it shall hold
such payments for Lender's benefit in trust as Lender's trustee and immediately
deliver them to Lender in their original form with all necessary endorsements
or, as directed by Lender, deposit such payments as directed by Lender pursuant
to Section 22 hereof. Lender will credit (conditional upon final collection) all
such payments to Borrower's account on the Settlement Date. Once each week
Borrower shall provide Lender with schedules describing all Receivables created
or acquired by Borrower during the preceding seven days and shall execute and
deliver confirmatory written assignments of such Receivables in the form of
Schedule 9 to Lender, but Borrower's failure to execute and deliver such
schedules or written confirmatory assignments of such Receivables shall not
affect or limit Lender's security interest or other rights in and to the
Receivables. Borrower shall furnish, at Lender's request, copies of contracts
(including but not limited to any government or governmental agency contracts),
invoices or the equivalent, and any original shipping and delivery receipts for
all merchandise sold or services rendered and such other related documents and
information as Lender may require. All of Borrower's invoices shall bear the
payment terms stated on the applicable customer order, and no change from the
original payment terms of such customer order shall be made without the prior
written consent Lender. Borrower shall provide Lender on a monthly (within
twenty (20) days after the end of each month), or more frequent basis, as
requested by Lender, a summary report of Borrower's current Spare Parts
Inventory, certified as true and accurate by Borrower's President or Chief
Financial Officer. Borrower shall provide Lender, as requested by Lender, such
other schedules, documents and/or information regarding the Collateral as Lender
may reasonably require.
10. Inspections and Appraisals. At all times during normal business hours,
Lender shall have the right to (a) visit and inspect Borrower's properties and
the Collateral, (b) inspect, audit and make extracts from Borrower's relevant
books and records, including, but not limited to, management letters prepared by
independent accountants, and (c) discuss with Borrower's principal officers, and
independent accountants, Borrower's business, assets, liabilities, financial
condition, results of operations and business prospects provided that absent an
Event of Default or a reason to suspect fraud, such action may be taken only
upon one Business Day's notice to the Borrower. Borrower will deliver to Lender
any instrument necessary for Lender to obtain records from any service bureau
maintaining records for Borrower. Lender may, at its option, once annually, at
Borrower's expense, undertake or have undertaken a professional appraisal of the
Spare Parts Inventory.
In addition to the foregoing, Borrower shall also provide Lender, at Lender's
request, with an aging of accounts payable, in a format acceptable to and at
intervals, as may be requested by the Lender.
11. Financial Information. Borrower shall provide Lender (a) as soon as
available, but in any event within ninety (90) days after the end of each of
Borrower's fiscal years, Borrower's balance sheet as at the end of such fiscal
year and the related statements of income, retained earnings and statement of
cash flow for such fiscal year, setting forth in comparative form the figures as
at the end of and for the previous fiscal year, which shall have been reported
on by Peat Marwick & Co. or such other independent certified public accountants
who shall reasonably satisfactory to Lender and shall be accompanied by an
unqualified audit report issued by such independent certified public
accountants; (b) as soon as available, drafts of Borrower's balance sheet as at
the end of each of Borrower's fiscal years and the related statements of income,
retained earnings and statement of cash flow for such fiscal year, which have
been internally prepared by Borrower; (c) as soon as available, but in any event
within forty-five (45) days after the end of each quarter, Borrower's balance
sheet as at the end of such quarter and the related statements of income,
retained earnings and statement of cash flow for such quarter, setting forth in
comparative form the figures as at the end of and for the previous quarter,
which shall have been internally prepared by Borrower and certified as being
prepared in accordance with GAAP, subject to year-end adjustments by its Chief
Financial Officer; (d) as soon as available, but in any event within thirty (30)
days after the close of each month, the balance sheet as at the end of such
month and the related statements of income, retained earnings and statement of
cash flow for such month, which have been internally prepared by Borrower and
certified by its Chief Financial officer as being prepared in accordance with
GAAP, subject to year-end adjustments. All financial statements required under
(a), (b), (c) and (d) above shall be prepared in accordance with GAAP, subject
to year-end adjustments in the case of monthly and quarterly statements. At the
times the financial statements are furnished pursuant to (a), (b), (c) and (d)
above, a certificate of Borrower's President or Chief Financial Officer shall be
delivered to Lender stating that, based on an examination sufficient to enable
him to make an informed statement, no Event of Default or Contingent Event of
Default exists, or, if such is not the case, specifying such Event of Default or
Contingent Event of Default and its nature, when it occurred, whether it is
continuing and the steps being taken by Borrower with respect to such event. If
any internally prepared financial information, including that required under
this paragraph, is unsatisfactory in any manner to Lender, and an. Event of
Default is continuing Lender may at its own expense request that Borrower's
independent certified public accountants review same.
In addition to the foregoing financial statements, Borrower shall furnish Lender
(i) no less than thirty (30) days after the close of each month a borrowing base
certificate in the form of Schedule 11 and (ii) no less than thirty (30) days
prior to the beginning of each fiscal year, or such other reasonable intervals
as may be requested by Lender, commencing with fiscal year 1998, a month by
month projected operating budget and cash flow for such fiscal year (including
an income statement for each month and a balance sheet as at the end of the last
month in each fiscal quarter), such projections to be accompanied by a
certificate signed by Borrower's President or Chief Financial officer to the
effect that such projections have been prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and that
such officer has no reason to question the reasonableness of any material
assumptions on which such projections we're prepared. If any such projections
are unsatisfactory in any manner to Lender, and an Event of Default exists and
is continuing, Lender may at Borrower's expense request that Borrower's
independent certified public accountants compile or review same. Borrower shall
also furnish, upon Lender's request, as long as the Original Owner retains at
least a Material Ownership interest in the Borrower copies of the 10Q, 10K and
8K Statements of WorldCorp, Inc.
12. Additional Representations, Warranties and Covenants. Borrower represents
and warrants (each of which such representations and warranties shall be deemed
repeated upon the making of a request for a Revolving Credit Advance and made as
of the time of each Revolving Credit Advance made hereunder), and covenants
that:
(a) Borrower is a corporation duly organized and validly existing under the laws
of the State of Delaware and duly qualified and in good standing in every other
state or jurisdiction in which the nature of Borrower's business requires such
qualification;
(b) the execution, delivery and performance of this Agreement and the Ancillary
Agreements (i) have been duly authorized, (ii) are not in contravention of
Borrower's certificate of incorporation, by-laws or of any indenture, agreement
or undertaking to which Borrower is a party or by which borrower is bound and
(iii) are within Borrower's corporate powers;
(c) this Agreement and the Ancillary Agreements executed and delivered by
Borrower are Borrower's legal, valid and binding obligations, enforceable in
accordance with their terms;
(d) it keeps and will continue to keep all of its books and records concerning
the Collateral at Borrower's executive offices located at the address set forth
in the introductory paragraph of this Agreement and will not move such books and
records without giving Lender at least thirty (30) days prior written notice;
(e) (i) the operation of Borrower's business is and will continue to be in
compliance in all material respects with all applicable federal, state and local
laws, including but not limited to all applicable environmental laws and
regulations.
(ii) In the event the Borrower obtains, gives or receives notice of any release
or threat of release of a reportable quantity of any Hazardous Substances on its
property (any such event being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation, request for information or
notification that it is potentially responsible for investigation or cleanup of
environmental conditions on its property, demand letter or complaint, order,
citation, or other written notice with regard to any Hazardous Discharge or
violation of any environmental laws affecting its property or Borrower's
interest therein (any of the foregoing is referred to herein as an
"Environmental Complaint") from any Person or entity, including any state agency
responsible in whole or in part for environmental matters in the state in which
such property is located or the United States Environmental Protection Agency
(any such person or entity hereinafter the "Authority"), then the Borrower
shall, within five (5) Business Days, give written notice of same to the Lender
detailing facts and circumstances of which the Borrower is aware giving rise to
the Hazardous Discharge or Environmental Complaint and periodically inform
Lender of the status of the matter. Such information is to be provided to allow
the Lender to protect its security interest in the Collateral and is not
intended to create nor shall it create any obligation upon the Lender with
respect thereto.
(iii) Borrower shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral to any lien, charge,
claim or encumbrance. If Borrower shall fail to respond promptly to any
Hazardous Discharge or Environmental Complaint or Borrower shall fail to comply
with any of the requirements of any environmental laws, the Lender may, but
without the obligation do so, for the sole purpose of protecting the Lender's
interest in Collateral: (A) give such notices or (B) enter onto Borrower's
property (or authorize third parties to enter onto such property) and take such
actions as the Lender (or such third parties as directed by the Lender) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by the Lender (or such third parties) in
the exercise of any such rights, including any sums paid in connection with any
judicial or administrative investigation or proceedings, fines and penalties,
together with interest thereon from the date expended at the Default Rate for
Revolving Credit Advances shall be paid upon demand by the Borrower, and until
paid shall be added to and become a part of the obligations secured by the Liens
created by the terms of this Agreement or any other agreement between Lender and
Borrower.
(iv) Borrower shall defend and indemnify the Lender and hold the Lender harmless
from and against all loss, liability, damage and expense, claims, costs, fines
and penalties, including reasonable attorney's fees, suffered or incurred by the
Lender under or on account of any environmental laws, including, without
limitation, the assertion of any lien thereunder, with respect to any Hazardous
Discharge by Borrower or on its property, the presence of any Hazardous
Substances affecting Borrower's property, whether or not the same originates or
emerges from Borrower's property or any contiguous real estate, including any
loss of value of the Collateral as a result of the foregoing except to the
extent such loss, liability, damage and expense is attributable to any Hazardous
Discharge resulting from actions on the part of the Lender. The Borrower's
obligations under this paragraph 12(e) shall arise upon the discovery of the
presence of any Hazardous Substances on the Borrower's property, whether or not
any federal, state, or local' environmental agency has taken or threatened any
action in connection with the presence of any hazardous substances. The
Borrower's obligation and the indemnifications hereunder shall survive the
termination of this Agreement.
(v) For purposes of Paragraph 12(e) all references to Borrower's property shall
be deemed to include all of Borrower's right, title and interest in and to all
owned and/or leased premises;
(f) based upon the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the regulations and published interpretations thereunder: (i)
Borrower has not engaged in any Prohibited Transactions as defined in paragraph
406 of ERISA and paragraph 4975 of the Internal Revenue Code, as amended; (ii)
Borrower has met all applicable minimum funding requirements under paragraph 302
of ERISA in respect of its plans; (iii) Borrower has no knowledge of any event
or occurrence which would cause the Pension Benefit Guaranty Corporation to
institute proceedings under Title IV of ERISA to terminate any employee benefit
plan(s); (iv) Borrower has no fiduciary responsibility for investments with
respect to any plan existing for the benefit of persons other than Borrower's
employees; and (v) since September, 1986 Borrower has not withdrawn, completely
or partially, from any multi-employer pension plan so as to incur liability
under the Multi employer Pension Plan Amendments Act of 1980;
(g) it has capital sufficient to carry on its business and all businesses in
which it is about to engage
(h) except as described in Borrower's financial statements which have been
delivered to Lender, there is no pending or threatened litigation, actions or
proceeding which involve the possibility of materially and adversely affecting
the Borrower's business, assets, operations, condition or prospects, financial
or otherwise, or the Collateral or the ability of Borrower to perform this
Agreement;
(i) all balance sheets and income statements which have been delivered to Lender
fairly, present Borrower's financial condition on a basis consistent with that
of previous financial statements and there has been no material adverse change
in Borrower's financial condition as reflected in its September 30, 1997 (unless
such financial statements for the fiscal year ending 12/31/97 are available
prior to the Closing Date, in which case such 12/31/97 financial statements
shall be deemed to be the financial statements against which any material
adverse change shall be calculated by) financial statements since the date
thereof and such statements do not fail to disclose any fact or facts which
materially and adversely affect Borrower's financial condition;
(j) (x) it possesses all of the licenses, patents, copyrights, trademarks, trade
names and permits necessary to conduct its material business, (y) there has been
no assertion claim of violation or infringement with respect thereof which would
have a material adverse affect on the Borrower's business and (z) all such
licenses, patents, copyrights, trademarks, trade names and permits are listed on
Schedule 12(j);
(k) it will pay or discharge when due all taxes, assessments and governmental
charges or levies imposed upon it unless such tax, charge or levy is being
diligently contested in good faith provided that adequate reserves with respect
thereto are maintained on the books of Borrower in conformity with GAAP;
(l) it will promptly inform Lender in writing of: (i) the commencement of all
proceedings and investigations by or before and/or the receipt of any notices
from, any governmental or nongovernmental body and all actions and proceedings
in any court or before any arbitrator against or in any way concerning any of
Borrower's properties, assets or business, which might singly or in the
aggregate, have a materially adverse effect on Borrower; (ii) any amendment of
Borrower's certificate of incorporation or by-laws; (iii) any change in
Borrower's business, assets, liabilities, condition (financial or otherwise),
results of operations or business prospects which has had or might have a
materially adverse effect on Borrower; (iv) any Event of Default or Contingent
Event of Default; (v) any default or any event which with the passage of time or
giving of notice or both would constitute a default under any agreement for the
payment of money to which Borrower is a party or by which Borrower or any of
Borrower's properties may be bound which would have a material adverse effect on
Borrower's business, operations, property or condition (financial or otherwise)
or Collateral; (vi) any change in the location of Borrower's executive offices;
(vii) any change in the location of Borrower's Spare Parts Inventory from the
locations listed on Schedule 12 (l), attached hereto, (viii) any change in
Borrower's corporate name; (ix) any material delay in Borrower's performance of
any of its obligations to any Customer and of any assertion of any material
claims, offsets, counterclaims or Disputes by any Customer and any allowances,
credits and/or other monies granted by it to any Customer; (x) furnish to and
inform Lender of all material adverse information relating to the financial
condition of any account debtor owing more than $100,000 to Borrower with
respect to which Borrower has actual knowledge; and (xi) any material return of
goods;
(m) it will not (i) create, incur, assume or suffer exist any Indebtedness in
excess of $1,000,000.00 (exclusive of trade debt) whether secured or unsecured
other than (A) capital leases or purchase money security interests which do not
exceed an aggregate amount of $50,000,000.00 and (B) Borrower's Indebtedness to
Lender and as set forth on Schedule 12(m) attached hereto and made a part
hereof; (ii) declare, pay or any dividend or distribution on any shares of the
common stock or preferred stock of Borrower or apply any of its funds, property
or assets to the purchase, redemption or other retirement of any common or
preferred stock of Borrower, in excess of five percent (5%) of the total
aggregate outstanding amount of such stock of the Borrower, (provided however,
that any such repurchase of Borrower's stock in excess of five percent (5%) may
be made with the prior written consent of the Lender) except that Borrower may
make quarterly dividends so long as in any six month period such dividends do
not exceed 50% of Borrower's aggregate net income for the previous six months
and; (iii) directly or indirectly, prepay any Indebtedness (other than to
Lender), or repurchase, redeem, retire or otherwise acquire any indebtedness of
Borrower except without the prior written approval of the Lender which
concurrence shall not be unreasonably withheld; (iv) makes advances, loans or
extensions of credit in excess of $100,000.00 to any Person; (v) become either
directly or contingently liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise; (vi) enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a portion of the assets or stock of any Person or permit any
other Person to consolidate with or merge with it except with the prior written
consent of the Lender; (vii) form any Subsidiary or enter into any partnership,
joint venture or similar arrangement provided that Borrower may do so as long as
its aggregate loans and investments to such entities do not exceed $500,000-00
in each fiscal year; (viii) materially change the nature of the business in
which it is presently engaged; (ix) change its fiscal year or make any changes
in accounting treatment and reporting practices without prior written notice to
Lender except as required by GAAP or in the tax reporting treatment or except as
required by law; (x) enter into any transaction with any Affiliate, except in
ordinary course on arms-length terms; or (xi) bill Receivables under any name
except the present name of the Borrower;
(n) it shall not permit its Tangible Net Worth to be less than the following
amounts at any time during the following periods provided that (A) each such
amount shall be decreased by the cumulative amount of dividends paid in
accordance herewith and (B) upon an Equity Infusion, each such amount shall be
increased by the amount of such Equity Infusion:
Quarter Ending Amount
- -------------- ---------------
3/31/98 $ 36,000,000.00
6/30/98 $ 38,000,000.00
9/30/98 $ 42,000,000.00
12/31/98 $ 43,000,000.00
3/31/99 $ 40,000,000.00
6/30/99 $ 40,000,000.00
9/30/00 $ 44,000,000.00
12/31/99 $ 47,000,000.00
3/31/00 $ 47,000,000.00
6/30/00 $ 47,000,000.00
9/30/00 $ 51,000,000.00
12/31/00 $ 54,000,000.00
(o) it shall not permit its net income, before taxes, to be less than the
following amounts for the following periods:
Date Amount
- -------- ----------------
3/31/98 $ (3,000,000.00)
6/30/98 $ 1,000,000.00
9/30/98 $ 3,700,000.00
12/31/98 $ 2,000,000.00
3/31/99 $ 2,000,000.00)
6/30/99 $ 1,000,000.00
9/30/00 $ 3,800,000.00
12/31/99 $ 2,000,000.00
3/31/00 $ 1,000,000.00
6/30/00 $ 1,000,000.00
9/30/00 $ 3,000,000.00
12/31/00 $ 1,500,000.00
provided that in any quarter that the net income exceeds the applicable amount
set forth above, such excess may be applied to the consecutive quarter for
purposes of this Section 12(o).
(p) it will maintain a Debt Coverage Ratio, of at least 1.00 to 1.00. at all
times, of at least 1.00 to 1.00
(q) all financial projections of Borrower's performance prepared by Borrower or
at Borrower's direction and delivered to Lender will represent, at the time of
delivery to Lender, Borrower's best estimate of Borrower's future financial
performance and will be based upon assumptions which are reasonable in light of
Borrower's past performance and then current business conditions;
(r) Deliberately left blank.
(s) none of the proceeds of the Loans hereunder will be used directly or
indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness
incurred to "purchase" or "carry" "margin stock" within the respective meanings
of each of the quoted-terms under Regulation G of the Board of Governors of the
Federal Reserve System as now and from time to time hereafter in effect; and
(t) it will bear the full risk of loss from any loss of any nature whatsoever
with respect to the Collateral. At its own cost and expense in amounts and with
carriers used by companies engaged in business similar to Borrowers, it shall
(i) keep all its insurable properties and properties in which it has an interest
insured against the hazards of fire, flood, sprinkler leakage, those hazards
covered by extended coverage insurance and such other hazards, and for such
amounts, as is customary in the case of companies engaged in businesses similar
to Borrower's; (ii) maintain a bond in such amounts as is customary in the case
of companies engaged in businesses similar to Borrower's insuring against
larceny, embezzlement or other criminal misappropriation of insured's officers
and employees who may either singly or jointly with others at any time have
access to the assets or funds of Borrower either directly or through authority
to draw upon such funds or to direct generally the disposition of such assets;
(iii) maintain public and product liability insurance against claims for bodily
injury, death or property damage suffered by others; (iv) maintain all such
workmen's compensation or similar insurance as may be required under the laws of
any state or jurisdiction in which Borrower is engaged in business; (v) furnish
Lender with copies of certificates of insurance evidencing the maintenance of
such policies at least thirty (30) days before any expiration date, and (y)
appropriate loss payable endorsements in form and substance satisfactory to
Lender, naming Lender as loss payee and providing that as to Lender the
insurance coverage shall not be impaired or invalidated by any act or neglect of
Borrower and the insurer will provide Lender with at least thirty (30) days
notice prior to cancellation. Borrower shall instruct the insurance carriers
that in the event of any loss thereunder, the carriers shall make payment for
such loss to Borrower and Lender jointly. Upon an Event of Default, if any
insurance losses are paid by check, draft or other instrument payable to
Borrower and Lender jointly, Lender may endorse Borrower's name thereon and do
such other things as Lender may deem advisable to reduce the same to cash. Upon
an Event of Default, Lender is hereby authorized to adjust and compromise
claims. All loss recoveries received by Lender upon any such insurance may be
applied to the obligations, in such order as Lender in its sole discretion shall
determine. Any surplus shall be paid by Lender to Borrower or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by Borrower to
Lender, on demand.
(u) without Lender's prior written consent, it shall not acquire any interest
other than leasehold interests in any Aircraft, airframe or engine unless at
Borrower's expense (i) Borrower grants a first priority perfected security
interest therein to Lender, (ii) executes and delivers to Lender an amendment to
the Aircraft Security Agreement with respect to such Aircraft, airframe or
engine, in form and substance satisfactory to, and approved in writing by,
Lender, (iii) causes such agreement to be immediately filed for recording with
the FAA pursuant to the Federal Aviation Act and (iv) Borrower delivers to
Lender an opinion of counsel satisfactory, in form and substance to Lender with
respect to the acquisition of such Aircraft, airframe or engine, Borrower's
title thereto, the validity and perfection of the security interest of Lender
therein, and such other matters as may reasonably be requested by Lender,
provided however, that if Borrower is able to make any such acquisitions as
described in the first to third lines of this paragraph, at financing rates or
terms more favorable to Borrower than Lender would have been willing to offer to
the Borrower for such acquisitions, then after being given written notice of
intent by the Borrower of such terms, evidenced by a written proposal from a
refutable financing company, Lender after receiving such notice does not agree
to match such terms, then Lender's consent to such acquisitions shall not be
unreasonably withheld.
(v) Schedule 1(A) sets forth a list of each engine owned by Borrower that
comprises Spare Parts inventory, together with the serial number of each such
engine and the book value of each such engine. No further action, including any
filing or recording of any document, is necessary or advisable in order to
establish and perfect Borrower's title to the engines owned by Borrower,
respectively, as against any other Person. Except for the filing for recordation
pursuant to the Federal Aviation Act of the Aircraft Security Agreement, no
further action, including any filing or recordation of any document (including,
without limitation, any financing statement in respect thereof under Article 9
of the Uniform commercial Code), is necessary or advisable in order to create
and perfect the security interest created under the Aircraft Security Agreement
in favor of the Lender in engines listed on Schedules 1(A).
(w) it shall no later than thirty days after the Closing Date take all steps
necessary to protect Lender's interest in Borrower's Receivables under the
Federal Assignment of Claims Act or other applicable state or local statutes or
ordinances and deliver to Lender appropriately endorsed, any instrument or
chattel paper connected with any Receivable arising out of contracts between it
and the United States, any state or any department, agency, instrumentality or
any of them.
13. Power of Attorney . Borrower hereby appoints Lender or any other Person whom
Lender may designate as Borrower's attorney, with power to: (i) endorse
Borrower's name on any checks, notes, acceptances, money orders, drafts or other
forms of payment or security that may come into Lender's possession; (ii) sign
Borrower's name on any invoice or bill of lading relating to any Receivables,
drafts against Customers, schedules and assignments of Receivables, notices of
assignment, financing statements and other public records, verifications of
account and notices to or from Customers; (iii) verify the validity, amount or
any other matter relating to any Receivable by mail, telephone, telegraph or
otherwise with Customers provided that so long as no Event of Default is
continuing, Lender will use its best efforts not to disclose any aspect of this
Agreement or any Ancillary Agreements to any Customer; (iv) execute customs
declarations and such other documents as may be required to clear Inventory
through Customs; (v) while an Event of Default is continuing, do all things
necessary to carry out this Agreement, any Ancillary Agreement and all related
documents; and (vi) on or after the occurrence and continuation of an Event of
Default, should Lender determine that Borrower is not cooperating with Lender,
notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, and to receive, open and
dispose of all mail addressed to Borrower. Borrower hereby ratifies and approves
all acts of the attorney executed as aforesaid. Absent gross negligence, neither
Lender nor the attorney will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable so long as any Receivable which is assigned to Lender
or in which Lender has a security interest remains unpaid and until the
Obligations have been fully satisfied.
14. Expenses. Borrower shall pay all of Lender's reasonable out-of-pocket costs
and expenses, including without limitation reasonable fees and disbursements of
counsel retained or employed by Lender and appraisers, in connection with the
preparation, execution, administration and delivery of this Agreement and the
Ancillary Agreements, and in connection with the prosecution or defense of any
action, contest, dispute, suit, or proceeding concerning any matter in any way
arising out of, related to or connected with this Agreement or any Ancillary
Agreement. Borrower shall also pay all of Lender's reasonable out-of-pocket
costs and expenses, including without limitation reasonable fees and
disbursements of counsel retained or employed by Lender, in connection with (a)
the preparation, execution and delivery of any waiver, any amendment thereto or
consent proposed or executed in connection with the transactions contemplated by
this Agreement or the Ancillary Agreements, if requested by Borrower, (b)
Lender's obtaining performance of the Obligations under this Agreement and any
Ancillary Agreements, including, not limited to, the enforcement or defense of
Lender's security interests, assignments of rights and liens hereunder as valid
perfected security interests, and (c) subject to any limitations contained in
this Agreement any attempt to inspect or verify any Collateral and (d) if an
Event of Default is continuing, the protection, collection, sale liquidation or
other disposition of Collateral. Borrower shall also pay Lender's then standard
price for furnishing Borrower or its designees copies of any statements,
records, files or other data (collectively, "Reports") requested by Borrower or
its designees, other than reports of the kind furnished to Borrower and Lender's
other borrowers on a regular, periodic basis in the ordinary course of Lender's
business. Borrower shall also pay Lender's customary bank charges, including,
without limitation, all wire transfer fees incurred by Lender, for all bank
services Performed or caused to be performed by Lender for Borrower at
Borrower's request. All such costs and expenses together with all filing,
recording and search fees, taxes and interest payable by Borrower to Lender
shall be payable on demand and shall be secured by the Collateral. Borrower
hereby acknowledges that Lender shall-not be liable in any manner whatsoever for
any selling expenses, orders, purchases or contracts of any kind resulting from
any transaction between Borrower and any other Person and Borrower hereby
indemnifies and holds Lender harmless with respect thereto, which indemnity
shall survive termination of this Agreement.
15. Assignment By Lender. In the event of a sale of its assets or stock, Lender
may assign any or all of the Obligations together with any or all of the
security therefor and any transferee shall succeed to all of Lender's rights
with respect thereto. Upon such transfer, Lender shall be released from all
responsibility for the Collateral to the extent same is assigned to any
transferee. Lender may from time to time sell or otherwise grant participation
in any of the Obligations but only if Lender retains full decision making
authority and administrative responsibility for the transactions contemplated
hereby and the holder of any such participation shall, subject to the terms of
any agreement between Lender and such holder, be entitled to the same benefits
as Lender with respect to any security for the obligations in which such holder
is a participant. Borrower agrees that each such holder may exercise any and all
rights of banker's lien, set-off and counterclaim with respect to its
participation in the Obligations as fully as though Borrower were directly
indebted to such holder in the amount of such participation.
16. Waivers. Except as expressly provided herein, Borrower waives presentment
and protest of any instrument and notice thereof, notice of default and all
other notices to which Borrower might otherwise be entitled.
17. Term of Agreement. This Agreement shall continue in full force until the
expiration of the Term. If Lender receives written notice from the Borrower of
its request to extend the Term 60 days prior to the last day of the initial Term
or any renewal Term, and Lender agrees to do so, the Term shall be extended for
a period of one year from the expiration date of such Term. The Borrower may
terminate this Agreement effective as of any time during the Term by (a) giving
Lender sixty (60) days, prior written notice (via certified mail, return receipt
requested) and (b) paying Lender, in addition to all other obligations, the
Early Termination Fee. Upon termination of this Agreement and full satisfaction
of all Obligations Lender shall at Borrower's request and expense execute
documents terminating the lien of this Agreement and the Ancillary Agreements
and reselling to Borrower all Receivables at their original purchase price from
Borrower.
18. Events of Default. The occurrence of any of following shall constitute an
Event of Default:
(a) failure to make payment of any of the Obligations when required hereunder if
such failure continues for five (5) days;
(b) failure to pay any taxes for 20 days after being due unless such taxes are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been provided on Borrower's books;
(c) failure to perform under and/or committing any breach of this Agreement or
any Ancillary Agreement or any other agreement between Borrower and Lender and
such Failure or breach is not cured within 10 days of Lender's notice thereof to
Borrower;
(d) occurrence of a default under any agreement to which Borrower is a party
with third parties which default has a material adverse affect upon Borrower's
business, operations, property or condition (financial or otherwise) including
all leases for any premises where Inventory or Equipment is located;
(e) any representation, warranty or statement made by Borrower hereunder, in any
Ancillary Agreement, any certificate, statement or document delivered pursuant
to the terms hereof, or in connection with the transactions contemplated by this
Agreement should at any time be false or misleading in any material respect and
has not been cured within 10 days of Lender's notice thereof to Borrower;
(f) an attachment or levy is made upon any of Borrower's assets and such
attachment or levy is for an aggregate value in excess of $500,000.00 or a
judgment is rendered against Borrower or any of Borrower's property involving a
liability of more than $500,000, which shall not have been vacated, discharged,
stayed or bonded pending appeal within thirty (30) days from the entry thereof;
(g) any change in Borrower's condition or affairs (financial or otherwise) which
in Lender's good faith opinion impairs the Collateral or the ability of Borrower
to perform its Obligations;
(h) Subject to liens permitted hereunder, any lien created hereunder or under
any Ancillary Agreement for any reason ceases to be or is not a valid and
perfected lien having a first priority interest and such deficiency has not been
cured within 10 days of Lender's notice thereof to Borrower;
(i) if Borrower shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property, (ii) make a general assignment
for the benefit of creditors, (iii) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (iv) be adjudicated a bankrupt
or insolvent, (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) acquiesce to, or fail to have
dismissed, within sixty (60) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing;
(j) Borrower shall admit in writing its inability, or be generally unable to pay
its debts as they become due or cease operations of its present business;
(k) as long as Original Owner retains ownership of at: least an interest equal
to Material ownership of the Borrower, then if the Original Owner or any
Subsidiary of the Borrower shall (i) apply for or consent to the appointment of,
or the taking possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property, (ii) admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business, (iii) make a general assignment for
the benefit of creditors, (iv) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt
or insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within sixty (60) days, any petition filed against it in any
involuntary case under such bankruptcy laws, (viii) take any action for the
purpose of effecting any of the foregoing;
(1) Borrower directly or indirectly sells, assigns, transfers, conveys, or
suffers or permits to occur any sale, assignment, transfer or conveyance of any
assets of Borrower which are subject to Lender's security interest of lien or
any interest therein with an aggregate value of more than $1,000,000.00 except
as permitted herein;
(m) Lender shall in good faith deem itself insecure or unsafe or shall fear
diminution in value, removal or waste of the Collateral in an amount in excess
of $500,000.00 as measured from the Closing Date;
(n) a default by Borrower in the payment, when due, any principal of or interest
on any indebtedness for money borrowed in excess of the aggregate amount of
$1,000,000.00;
(p) any Change of Ownership;
(q) merger by the Borrower with any other entity or Person without the prior
written consent by the Lender.
19. Remedies. (a) upon the occurrence of an Event of Default pursuant to Section
18(i) herein, all Obligations shall be immediately due and payable and this
Agreement shall be deemed terminated; upon the occurrence and continuation of
any other the Events of Default, Lender shall have the right to demand repayment
in full of all Obligations, whether or not otherwise due. Until all Obligations
have been fully satisfied, Lender shall retain its security interest in all
Collateral. Lender shall have, in addition to all other rights provided herein,
the rights and remedies of a secured party under the Uniform Commercial Code,
and under other applicable law, all other legal and equitable rights to which
Lender may be entitled, including without limitation, the right to take
immediate possession of the Collateral, to require Borrower to assemble the
Collateral, at Borrower's expense, and to make it available to Lender at a place
designated by Lender which is reasonably convenient to both parties and to enter
any of the premises of Borrower or wherever the Collateral shall be located,
with or without force or process of law, and to keep and store the same on said
premises until sold (and if said premises be the property of Borrower, Borrower
agrees not to charge Lender for storage thereof for a period up to at least
sixty (60) days after sale or disposition of said Collateral). Further, Lender
may, at any time or times after default by Borrower, sell and deliver all
Collateral held for or by Lender at public or private sale for cash, upon credit
or otherwise, at such prices and upon such terms as Lender, in Lender's sole
discretion, deems advisable or Lender may otherwise recover upon the Collateral
in any commercially reasonable manner as Lender, in its sole discretion, deems
advisable. Except as to that part of the Collateral which is perishable or
threatens to decline speedily in nature or is of a type customarily sold on a
recognized market, the requirement of reasonable notice shall be met if such
notice is received by Borrower at Borrower's address as set forth herein, at
least ten (10) days before the time of the event of which notice is being given.
Lender may be the purchaser at any sale, if it is public. In connection with the
exercise of the foregoing remedies, Lender is granted permission to use all of
Borrower's trademarks, tradenames, tradestyles, patents, patent applications,
licenses, franchises and other proprietary rights which are used in connection
with (a) Inventory for the purpose of disposing of such Inventory and (b)
Equipment for the purpose of completing the manufacture of unfinished goods. The
proceeds of sale shall be applied first to all costs and expenses of sale,
including attorneys, fees, and second to the payment (in whatever order Lender
elects) of all Obligations. Lender will return any excess to Borrower and
Borrower shall remain liable to Lender for any deficiency.
20. Waiver; Cumulative Remedies. Failure by Lender to exercise any right, remedy
or option under this Agreement or any supplement hereto or any other agreement
between Borrower and Lender or delay by Lender in exercising the same, will not
operate as a waiver; no waiver by Lender will be effective unless it is in
writing and then only to the extent specifically stated. Lender's rights and
remedies under this Agreement will be cumulative and not exclusive of any other
right or remedy which Lender may have.
21. Application of Payments. Borrower irrevocably waives the right to direct the
application of any and all payments at any time or times hereafter received by
Lender or on Borrower's behalf and Borrower hereby irrevocably agrees that
Lender shall have the continuing exclusive right to apply and reapply any and
all payments received at any time or times hereafter against Borrower's
obligations hereunder in such manner as Lender may deem advisable
notwithstanding any entry by Lender upon any of Lender's books and records.
22. Depository Accounts. Any payment received by Borrower on account of any
Receivables or Spare Parts Inventory shall be held by Borrower in trust for
Lender and Borrower shall promptly deliver same in kind to Lender or deposit all
such payments into a cash collateral account at such bank as Lender may
designate for application to payment of the Obligations.
23. Lock Box Accounts. Borrower shall, at Lender's request, instruct all of its
Customers to make such payments on account of Receivables to an account under
Lender's dominion and control at such bank in the United States as Lender may
designate.
24. Revival. Borrower further agrees that to the extent Borrower makes a payment
or payments to Lender, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any ocher party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent of such payment or repayment, the obligation or part thereof intended
to be satisfied shall be revived and continued in full force and effect as if
said payment had not been made.
25. Notices. Any notice or request (except a request under Section 4 hereof)
hereunder may be given to Borrower or Lender at the respective addresses set
forth below or as may hereafter be specified in a notice designated as a change
of address under this paragraph. Any notice or request (except a request under
Section 4 hereof) hereunder shall be given by registered or certified mail,
return receipt requested, or by overnight mail or by telecopy (confirmed by
mail). Notices and requests shall be, in the case of those by mail or overnight
mail, deemed to have been given when received
Notices shall be provided as follows:
If to the Lender:
BNY Financial Corporation
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato
Telephone: (212) 408-7292
Telecopy: (212) 408-4384
If to the Borrower:
WORLD AIRWAYS, INC.
13873 Park Center Rd. Suite 490
Herndon, VA 22071
Attention: James Douglas, CFO
Telephone: (703) 834-9200
Telecopy: (703) 834-9211
26. Governing Law and Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT TAKING INTO ACCOUNT THE CONFLICT OF LAWS PROVISIONS THEREOF. LENDER
SHALL HAVE THE RIGHTS AND REMEDIES OF A SECURED PARTY UNDER APPLICABLE LAW
INCLUDING, BUT NOT LIMITED TO, THE UNIFORM COMMERCIAL CODE OF NEW YORK. BORROWER
AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT OR ANY ANCILLARY AGREEMENT OR ANY OTHER OBLIGATIONS SHALL BE LITIGATED
IN THE FEDERAL DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK AND THAT SUCH
COURTS ARE CONVENIENT FORUMS AND BORROWER SUBMITS TO THE PERSONAL JURISDICTION
OF SUCH COURTS. BORROWER WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS SERVICE
OF PROCESS UPON BORROWER MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, DIRECTED TO BORROWER AT BORROWER'S ADDRESS APPEARING ON
LENDER'S RECORDS, AND SERVICE SO MADE SHALL BE DEEMED COMPLETED WHEN RECEIVED BY
BORROWER. BOTH PARTIES HERETO WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BETWEEN BORROWER AND LENDER AND BORROWER WAIVES THE RIGHT TO
ASSERT IN ANY ACTION OR PROCEEDING INSTITUTED BY LENDER WITH REGARD TO THIS
AGREEMENT OR ANY OF THE OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS WHICH IT MAY
HAVE.
27. Limitation of Liability. Borrower acknowledges and understands that in order
to assure repayment of the Obligations hereunder Lender may be required to
exercise any and all of Lender's rights and remedies hereunder and agrees that
neither Lender nor any of Lender's agents shall be liable for acts taken or
omissions made in connection herewith or therewith except for actual bad faith
or gross negligence.
28. Entire Understanding. This Agreement and the Ancillary Agreements contain
the entire understanding between Borrower and Lender and any promises,
representations, warranties or guarantees not herein contained shall have no
force and effect unless in writing, signed by the Borrower's and Lender's
respective officers. Neither this Agreement, the Ancillary Agreements, nor any
portion or provisions thereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged.
29. Modification. This Agreement and the Ancillary Agreements constitute the
complete agreement between the parties with respect to the subject matter hereof
and thereof and may not be modified, altered or amended except by an agreement
in writing signed by the parties hereto and thereto.
30. Severability. Wherever possible each provision of this Agreement or the
Ancillary Agreements shall be interpreted in such manner as to be effective and
valid under applicable but if any provision of this Agreement or the Ancillary
Agreements shall be prohibited by or invalid under applicable law such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions
thereof.
31. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
32. Counterparts. This Agreement may be executed in one or more counterparts,
each of which taken together shall constitute one and the same instrument.
33. Construction. The parties acknowledge that each party and its counsel have
reviewed this Agreement and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any amendments, schedules or
exhibits thereto.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year
first above written.
WORLD AIRWAYS, INC
By:/s/ James D. Douglas, CFO
Name:
Title:
[CORPORATE SEAL]
BNY FINANCIAL CORPORATION
By: /s/ Frank Imperato
Name:
Title
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK - FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK. N.Y. 10104
212-408-7000
August 13, 1998
World Airways, Inc.
13873 Park Center Road Suite 490
Herndon, VA 22071
RE: Restated and Amended Accounts Receivable Management and Security Agreement
Gentlemen:
Reference is made to the Restated and Amended Accounts Receivable Management and
Security Agreement in effect between us with an effective date of March 23,
1998, as supplemented and amended from time to time (the "Agreement"). Initially
capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Agreement.
1. You have advised us that you were in default of certain financial covenants
under the Agreement as of the end of your fiscal quarter ending on June 30, 1998
as stated below, and you have requested that we waive the default of such
covenants for the fiscal quarter ending June 30, 1998.
a) Specifically you have advised us that you were in default of Section 12(n) of
the Agreement (the "Tangible Net Worth Covenant") for the fiscal quarter ending
June 30, 1998. The Tangible Net Worth Covenant for the fiscal quarter ending
June 30, 1998, required you to have a Tangible Net Worth of $38,000,000.00, but
your actual Tangible Net Worth at the end of such fiscal quarter was
$32,787,000.00.
b) You have also advised us that you were in default of Section 12(o) of the
Agreement (the "Net Income Covenant") for the fiscal quarter ending June 30,
1998. The Net Income Covenant for the fiscal quarter ending June 30, 1998
required you to have a net income of $1,000,000.00 but your actual net income
for such fiscal quarter was ($3,163,000.00).
c) You further advised us that you were in default of Section 12(p) of the
Agreement (the "Debt Coverage Covenant") for the fiscal quarter ending June 30,
1998. The Debt Coverage Covenant for the fiscal quarter ending June 30, 1998
required you to have a Debt Coverage ratio of 0.60 to 1.00 but your actual Debt
Coverage Ratio for such fiscal quarter was 0.10 to 1.00.
We hereby waive your defaults under the financial covenants referred to in
Section 1(a), 1(b) and 1(c) above for the specific fiscal quarter stated above
provided that the actual figures for such fiscal quarter are not less than as
stated in 1(a), 1(b) and 1(c) above as your actual figures for such fiscal
quarter.
In consideration of our waiver as outlined in the immediately preceding
paragraph, you agree to pay us a waiver fee of $35,000.00 and you hereby
authorize us to automatically charge your account with us with the amount of
such waiver fee.
2. It is hereby further agreed by and between us that effective as of August 1,
1998, (the "Amendment Effective Date,") the Agreement shall be amended as
follows:
(a) the definition of "Alternate Base Rate Margin" as stated in Section 1(A) of
the Agreement shall be deleted in its entirety and replaced by the following:
"Alternate Base Rate Margin" means one percent (1%)."
(b) "The definition of "Ancillary Agreements" as stated in Section 1(a) of the
Agreement shall be amended by deleting the last three lines of such definition
and replacing it with the following:
"hereafter executed by or on behalf of the Borrower and delivered to Lender,
relating to this agreement or to the transactions contemplated by this
agreement. It is the intent that all Ancillary Agreements as herein defined
which have been executed and delivered by the Borrower to the Lender relating to
the Original Agreement shall remain in full force and effect and apply equally
to this Restated and Amended Accounts Receivable Management and Security
Agreement."
(c) the definition of "Overadvance Rate" as stated in Section 1(A) of the
Agreement shall be deleted in its entirety and replaced by the following:
"Overadvance Rate" means a rate equal to one (1%) percent per annum in excess of
the Contract Rate."
(d) the definition of "Spare Parts Inventory Availability" as stated in Section
1(A) of the Agreement shall be deleted in its entirety and replaced by the
following:
"Spare Parts Inventory Availability" means the lesser of (a) the Spare Parts
Inventory Sublimit or (b) 40% of the Orderly Liquidation Value of Borrower's
Eligible Inventory, as reported on a monthly inventory designation submitted and
certified by the Borrower substantially in the form attached hereto as Exhibit Z
("Spare Parts Inventory Advance Rate")."
(e) the definition of "Spare Parts Inventory Sublimit" as stated in Section l(A)
of the Agreement shall be deleted in its entirety and replaced by the following:
"Spare Parts Inventory Sublimit" shall mean $5,500,000.00."
(f) the Agreement is hereby amended by deleting Section 5(b)(i) of the Agreement
in its entirety and replacing with the following:
"(i) Audit Fee. Upon Lender's performance of any collateral monitoring - namely
any field examination, collateral analysis or other business analysis, the need
for which is to be determined by Lender and which monitoring is undertaken by
Lender or for Lender's benefit, an amount equal to $750.00 per day, per person,
for each person employed to perform such monitoring together with all reasonable
out-of-pocket costs, disbursements and expenses incurred by the Lender and the
person performing such collateral monitoring shall be charged to Borrower's
account," such fee subject to a cap of $40,000 per annum provided Borrower is
not in default.
(g) the Agreement is hereby amended by deleting the figures of "$42,000,000.00"
and "$43,000,000.00" appearing in the "Amount" column in Section 12(n) of the
Agreement opposite the fiscal quarters ending on September 30, 1998 and December
31, 1998 and replacing such figures with the following figures respectively:
"$29,750,000.00
$22,600,000.00"
(h) the Agreement is hereby amended by deleting the figures of "$3,700,000.00"
and "$2,000,000.00" appearing in the "Amount" column in Section 12(o) of the
Agreement opposite the 1998 and replacing such figures with the following
figures respectively:
"($2,750,000.00)
($7,500,000.00)"
(i) Section 12(p) of the Agreement is hereby amended to provide that the
Borrower shall maintain the following Debt Coverage Ratio for each of the
following fiscal quarters all as stated below:
"9/30/98 0.25 to 1.00
12/31/98 (1.25) to 1.00
3/31/99 0.20 to 1.00
6/30/99 1.00 to 1.00
9/30/99 1.00 to 1.00
12/31/99 1.00 to 1.00
3/31/00 0.60 to 1.00
6/30/00 and at all
times thereafter 1.00 to 1.00
(j) the Agreement is hereby amended by deleting Section 18(k) of the Agreement
in its entirety and replacing it with the following:
"(k) Deliberately left blank."
(k) "Change in Ownership" shall not be deemed an Event of Default, provided that
such Change in Ownership is not made to a party with which United States persons
would not be permitted to conduct business or against which the United States
Government shall have imposed sanctions provided that the parties to which a
Change in Ownership is made shall be otherwise acceptable to the Lender and the
Lender shall have given its prior written approval to such Change in Ownership,
which approval shall not be unreasonably withheld.
(1) the Agreement is hereby further amended so as to remove the option of the
Borrower to designate any Revolving Credit Advance or Loan to be a LIBOR Rate
Loan. After the Amendment Effective Date, all Loans under the Agreement shall be
Alternate Base Rate Loans.
(m) in addition to all other remedies available to the Lender pursuant to
Section 19 of the Agreement at law or under the terms of the Agreement, all of
Lender's obligations to make Loans, including but not limited to Revolving
Credit Advances, to the Borrower shall terminate upon the occurrence of a
Contingent Event of Default or an Event of Default.
Our waiver of your defaults of the financial covenants under the agreement as
described hereinabove shall .apply only to and be made only with respect to the
specific financial covenants listed here and above and only with respect to the
fiscal quarter ending on June 30, 1998. No other waiver with respect to any
other default or any other provision, covenant or Section of the Agreement or
with respect to any other period is hereby made or given, nor shall any such
other waiver be implied, by anything contained in this letter agreement. We
reserve any and all rights and remedies which we may have under the Agreement
and/or the Amendment contained herein other than as they relate to the specific
waivers herein given.
Except as herein specifically amended, the Agreement shall remain in full force
and effect in accordance with its Original terms, except as previously amended.
If the foregoing accurately reflects our understanding, kindly sign the enclosed
copy of this letter and return it to our office as soon as practicable.
Very truly yours ,
BNY FINANCIAL CORPORATION
By: ____________________
Title: ____________________
AGREED AND ACCEPTED:
WORLD AIRWAYS, INC.
By: ___________________
Title: ___________________
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK - FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK. N.Y. 10104
212-408-7000
March 25, 1999
World Airways, Inc.
13873 Park Center Road, Suite 490
Herndon, VA 22071
Gentlemen:
Reference is made to the Restated and Amended Accounts Receivable Management and
Security Agreement in effect between us with an effective date of March 23,
1998, as supplemented and amended from time to time (the "Agreement"). Initially
capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Agreement.
It is hereby agreed here and between us that the Agreement is hereby amended
effective as of March 1, 1999 as follows:
1. Section 12(n) of the agreement is amended by deleting the amounts in the
amount column commencing with the amount for the quarter ending 3/31/99 and
replacing it with the following amounts and adding amounts for the quarters
ending 3/31/01 through 12/31/01.
"Quarter Ending Amount
3/31/99 $23,547,000
6/30/99 $20,385,000
9/30/99 $17,255,000
12/31/99 $11,357,000
3/31/00 $ 9,031,000
6/30/00 $ 7,869,000
9/30/00 $ 9,739,000
12/31/00 $ 6,341,000
3/31/01 $ 5,515,000
6/30/01 $ 6,353,000
9/30/01 $10,223,000
12/31/01 $11,325,000"
2. Section 12(o) of the Agreement is amended by deleting the amounts in the
amount column commencing with the amount for this quarter ending 3/31/99 and
replacing it with the following amounts and adding amounts for the quarters
ending 3/31/01 through 12/31/01:
"Quarter Ending Amount
3/31/99 ($2,826,000)
6/30/99 ($3,162,900)
9/30/99 ($3,130,000)
12/31/99 ($5,898,000)
3/31/00 ($2,326,000)
6/30/00 ($1,162,000)
9/30/00 $1,870,000
12/31/00 ($3,398,000)
3/31/01 ($826,000)
6/30/01 $838,000
9/30/01 $3,870,000
12/31/01 $1,102,000"
3. Section 12(p) (as previously amended) of the Agreement is amended by deleting
the ratios in the ratio column commencing with the ratio for the quarter ending
3/31/99 and replacing it with the following ratios.
"Quarter Ending Ratio
3/31/99 0.28 to 1.00
6/30/99 0.10 to 1.00
9/30/99 0.14 to 1.00
12/31/99 (0.76) to 1.00
3/31/00 0.21 to 1.00
6/30/00 0.80 to 1.00
9/30/00 1.00 to 1.00
12/31/00 0.02 to 1.00
3/31/01 0.90 to 1.00
6/30/01 1.00 to 1.00
9/30/01 1.00 to 1.00
12/31/01 1.00 to 1.00"
4. In consideration of the foregoing, you agree to pay us an amendment fee of
$50,000 which fee shall be in addition to any other fees, charges or interest
payable by you to us under the Agreement and you hereby authorize us to charge
your account with the amount of such fee as of the date hereof.
Except as herein specifically amended, the Agreement shall remain in full force
and effect in accordance with its original terms, except as previously amended.
If the foregoing accurately reflects our understanding, kindly sign the enclosed
copy of this letter and return it to our office as soon as practicable.
Very truly yours,
BNY FINANCIAL CORPORATION
By: _______________________
Title: _______________________
AGREED AND ACCEPTED:
WORLD AIRWAYS, INC.
By: ______________________
Title: Gilberto M. Duarte, Jr.
Chief Financial Officer
GMAC
COMMERCIAL CREDIT LLC
1290 AVENUE OF THE AMERICAS - NEW YORK, NY 10104
212-408-7000
September 3, 1999
World Airways, Inc.
13873 Park Center Road, Suite 490
Herndon, VA 22071
Gentlemen:
Reference is made to the Restated and Amended Accounts Receivable Management and
Security Agreement in effect between us with an effective date of March 23,
1998, as supplemented and amended from time to time (the "Agreement"). Initially
capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Agreement.
It is hereby agreed by and between us that effective, as of the date hereof, the
Agreement is hereby amended as follows:
Exhibit X to the Agreement is hereby amended by deleting the following phrase:
"1. MD11 spare parts and engines, except those listed on the Spare Parts
Eligible Inventory Form.", and replacing it with the following phrase "1. MD11
spare parts and engines, except those listed on the monthly Spare Parts Eligible
Inventory Form submitted monthly by the Borrower to the Lender" pursuant to the
Agreement.
Except as herein specifically amended, the Agreement shall remain in full force
and effect in accordance with its original terms, except as previously amended.
If the foregoing accurately reflects our understanding, kindly sign the enclosed
copy of this letter and return it to our office as soon as practicable.
Very truly yours,
GMAC COMMERCIAL CREDIT LLC
(successor by merger to BNY FINANCIAL CORPORATION)
By: ___________________
Title: ___________________
AGREED AND ACCEPTED:
WORLD AIRWAYS, INC.
By: ___________________
Title: ___________________
