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The security firm that screens passengers at Atlanta’s Hartsfield International Airport hopes to fend off its court-ordered sale until a congressional conference committee approves pending airline security legislation. Cleveland-based International Total Services Inc. proposes to auction only the assets of its commercial security division in hopes of satisfying a New York Bankruptcy Court judge who had ordered the company to find a buyer by Dec. 12. The commercial security division offers security services to businesses, among them hospitals, restaurants and private firms. ITS filed for Chapter 11 bankruptcy protection Sept. 13, two days after the terrorist attacks on New York and Washington, D.C. ITS executives have said repeatedly that the company’s bankruptcy filing was not related to the attacks or their aftermath. ITS President Mark D. Thompson says the company’s survival depends on the language in Congress’ final bill. A Senate bill would federalize airport security by making all security functions the responsibility of the federal government. That version of the bill would eliminate the need for ITS’ current security contracts, which are paid for by the airlines. A House version, supported by President George W. Bush, would leave airport security in private hands while providing more federal oversight. It would make costly functions such as training, security testing, employment screening and some supervisory roles a federal responsibility. And the government, rather than airlines, would contract with private firms like ITS to provide airport security. The shape of the final bill is critical, Thompson says. “Pre-board screening represents in excess of 50 percent of our aviation-related business. So, obviously we are big supporters of the House proposal, which would allow private contracting of the screening function to continue.” ITS is one of four security companies that have lobbied Congress through the Airline Security Association to allow airport security to stay in private hands. Thompson says he doesn’t know how much money ITS has spent on the lobbying effort so far. ITS STANDS OUT As currently written, the House bill may benefit ITS in other ways. It requires that the federal government contract only with American-owned security firms. Four firms hold virtually all of the security contracts at U.S. airports, and only ITS is American owned. Last year, Atlanta-based Argenbright Security merged with Securicor, a British company. The other top airport security firms are Swedish-owned Globe Aviation Securities Corp. and Dutch-owned Huntleigh Inc. ITS was not tainted by the Sept. 11 hijackings, Thompson notes, which could make the company more attractive to a buyer or the U.S. Department of Transportation. The House bill designates that department to handle airport security contracts. Hijackers on Sept. 11 passed through checkpoints manned by Argenbright, Huntleigh and Globe at Logan, Dulles and Newark airports, Thompson says. “Each of the other three had the misfortune of having someone going through their checkpoint,” Thompson says. Lawrence A. Larose, a King & Spalding attorney in New York who represents ITS, says the company’s two largest creditors, Bank One N.A. and The Provident Bank, have agreed not to force the company’s sale until after Congress passes the airline security bill. If the conference committee adopts the provisions of the House bill, “A company like ITS would stay in business and be working for the government rather than the airlines,” Larose says. SAVING STOCKHOLDERS? If the House version of the security bill passes the firm might find a buyer who wants its airport contracts. The company also might convince the New York bankruptcy judge to allow it to continue operating. Right now, company founder and majority stockholder Robert A. Weitzel is engaged in a battle for control with ITS’ directors and is competing with a Cleveland investment house to buy the troubled enterprise. In October, the company persuaded U.S. Bankruptcy Judge Conrad B. Duberstein of the Eastern District of New York to block a shareholders’ meeting after Weitzel threatened to use his voting power to remove company directors at a critical juncture in negotiations with the banks for interim financing. The company has been in financial trouble for at least three years, according to its reports to the U.S. Securities and Exchange Commission. When ITS declared bankruptcy in September, it held an estimated $23 million in assets, most of it in airline security contracts, but owed more than $48 million. ITS has lost money steadily since 1999. According to the company’s SEC reports, revenue dropped from $226.7 million in fiscal 1999 to $186.2 million in fiscal 2001. Net losses increased from $7.4 million in fiscal 1999 to $35.9 million in 2001. In return for first-priority claim to all of ITS’ assets, Bank One and Provident have extended the company a $28.5 million interim revolving loan through Dec. 14 to cover operating expenses and payroll. However, more than $25.9 million of that loan includes funds that ITS owed to the banks prior to declaring bankruptcy, according to Duberstein’s order. That has left about $2.6 million in new money to pool with ITS’ monthly revenue to pay operating expenses and the salaries of 11,200 full-time and part-time employees through Dec. 14, Larose says. More than half of that estimated $2.6 million balance was spent to keep the company afloat during September and October. ITS’ airport contracts provide security for its loans and make up the bulk of the firm’s assets, Thompson says. “In a staffing services business, the traditional form of transaction is to treat contracts as assets that are being sold,” he says. “Very seldom does a transaction take the form of a stock deal. It’s almost always an asset deal. The major assets are the contracts.” The company won’t sell off its contracts piecemeal, Thompson says. ITS “will not contemplate bidding on individual contracts,” Thompson says. “We are not going to send out a list of 100 contracts and say, ‘Here, pick and choose.’” ITS negotiated with at least two bidders, both from Cleveland, before it filed for bankruptcy. One is Brantley Partners IV — a venture capital and investment firm affiliated with several other private equity partnerships and a publicly held company, Brantley Capital Corp. The second bidder is Weitzel. Brantley is made up of institutional investors, among them pension funds, insurance companies and banks. It was founded by Robert P. Pinkas, a former Wall Street attorney at Simpson Thacher & Bartlett. Brantley has been negotiating to purchase ITS for more than a year. In September, says Thompson, Brantley signed a letter of intent to acquire the security firm for $10 million. Brantley planned to partner with Service Management Systems Inc., a Nashville, Tenn., mall janitorial and commercial maintenance service. ITS continues to negotiate with Brantley, Thompson says. Brantley had agreed to invest in ITS before, only to withdraw. Last February, Brantley agreed to invest $10 million in ITS, and Thompson says the deal would have kept the company out of bankruptcy court. But Brantley called off the investment when Weitzel raised concerns. Weitzel “was unwilling to tell them he wasn’t going to sue everybody,” Thompson says. Weitzel says that Brantley also offered to buy his stock. He owns more than 3 million shares, slightly over half of the shares outstanding, and recently regained control of the stake after placing it in a company-controlled trust when he retired. Weitzel says his deal with Brantley fell through because ITS management didn’t cooperate. In counter suits now in U.S. Bankruptcy Court in New York, Weitzel and ITS directors have sued each other for $25 million, alleging that mishandling of company funds by the opposing parties caused stock prices to plunge to less than a dime a share and forced the firm into insolvency. The 66-year-old Weitzel, who founded ITS after working for the National Security Agency in military intelligence operations, says he submitted a bid Oct. 22 to buy the company. Weitzel says he offered $2 million for the remaining stock and assets and assume the company’s $28.5 million debt to Bank One and Provident. The bankruptcy judge will determine whether the Weitzel or Brantley bids are viable. SEPT. 11 EFFECTS ON CHAPTER 11 “All of the fallout of Sept. 11 made a difficult situation even more difficult,” Thompson says. “Right out of the gate, we faced some difficulties when airports closed down for several days. Our people were out of work. … It’s difficult for people at those wage levels to unexpectedly miss a bunch of work. A lot of them, for their families’ sake, have to go look elsewhere in pretty short order. We had staffing difficulties right away. And we had to deal with the usual Chapter 11 issues of reassuring employees and reassuring customers.” The terrorist attacks created an additional difficulty when it turned a media spotlight on what Thompson describes as “really a pretty quiet industry that doesn’t get a lot of scrutiny. … No one has suggested that any pre-board screener did anything wrong or contrary to regulations on Sept. 11. But our industry has become the whipping post. I think that is somewhat unfair.” One matter on which all those connected to ITS agree is that Congress will determine the firm’s future. Since the firm filed for bankruptcy, Congress’ “lack of clarity” on who will control pre-board passenger screening at the nation’s airports “has not helped us,” Thompson says. Brantley Partners is “understandably concerned.” Federalizing airport security employees now working for private firms could cause ITS to lose as much as $75 million in contracts, Thompson says. “The House proposals are more in line with traditional staffing companies which provide contract employees in many other industries,” he says. The House bill also would offer financial stability to companies like ITS. “If, in fact, the government determines to appropriate a larger bundle of resources, including funds for hiring employees,” he says, “We are better off.”

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