<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 333-42607
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GEOLOGISTICS CORPORATION
FORMERLY KNOWN AS
INTERNATIONAL LOGISTICS LIMITED
AND OTHER REGISTRANTS*
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4731 22-3438013
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
13952 DENVER WEST PARKWAY, GOLDEN, COLORADO 80401
(303) 704-4400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------------
GARY S. HOLTER
GEOLOGISTICS CORPORATION
330 SOUTH MANNHEIM ROAD
HILLSIDE, ILLINOIS 60162
(708) 547-3154
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
--------------------------
COPY TO:
Eric H. Schunk, Esq.
Milbank, Tweed, Hadley & McCloy
601 S. Figueroa Street, 30th Floor
Los Angeles, California 90017
(213) 892-4000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding Company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
(CONTINUED ON NEXT PAGE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
*OTHER REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING ZIP
STATE OR OTHER PRIMARY STANDARD I.R.S. CODE, AND TELEPHONE NUMBER,
JURISDICTION OF INDUSTRIAL EMPLOYER INCLUDING AREA CODE OF
EXACT NAME OF REGISTRANT AS INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION REGISTRANT'S PRINCIPAL REGISTRATION
SPECIFIED IN ITS CHARTER ORGANIZATION NUMBERS NUMBER EXECUTIVE OFFICES NO.
- ---------------------------- ---------------- ------------------- -------------- ----------------------------- ---------------
<S> <C> <C> <C> <C> <C>
The Bekins Company.......... Delaware 4731 95-4106021 330 South Mannheim Road 333-42607-13
Hillside, Illinois 60162
(708) 547-2000
Bekins Van Lines, Co........ Nebraska 4731 36-2193916 330 South Mannheim Road 333-42607-09
Hillside, Illinois 60162
(708) 547-2000
LEP Profit International,
Inc....................... Delaware 4731 95-2920613 1950 Spectrum Circle 333-42607-03
Marietta, Georgia 30067
(770) 951-8100
LEP Fairs, Inc.............. Georgia 4731 58-1666904 1950 Spectrum Circle 333-42607-02
Marietta, Georgia 30067
(770) 951-8100
Air Freight Consolidators
International, Inc........ New York 4731 11-2826590 1950 Spectrum Circle 333-42607-01
Marietta, Georgia 30067
(770) 951-8100
Matrix International
Logistics, Inc............ Delaware 4731 54-1378078 200 Connecticut Avenue 333-42607-04
Norwalk, Connecticut 06859
(203) 854-5797
Bay Area Matrix, Inc........ Delaware 4731 54-1521288 200 Connecticut Avenue 333-42607-05
Norwalk, Connecticut 06859
(203) 854-5797
L.A. Matrix, Inc............ Delaware 4731 52-1744031 200 Connecticut Avenue 333-42607-06
Norwalk, Connecticut 06859
(203) 854-5797
Southwest Matrix, Inc....... Delaware 4731 54-1840752 200 Connecticut Avenue 333-42607-07
Norwalk, Connecticut 06859
(203) 854-5797
Matrix CT., Inc............. Delaware 4731 54-1513202 200 Connecticut Avenue 333-42607-08
Norwalk, Connecticut 06859
(203) 854-5797
LIW Holdings Corp........... Delaware 4731 36-4215966 330 South Mannheim Road 333-42607-12
Hillside, Illinois 60162
(708) 547-2000
ILLCAN, INC................. Delaware 4731 22-3471988 330 South Mannheim Road 333-42607-10
Hillside, Illinois 60162
(708) 547-2000
ILLSCOT, INC................ Delaware 4731 22-3471990 330 South Mannheim Road 333-42607-11
Hillside, Illinois 60162
(708) 547-2000
</TABLE>
<PAGE>
SUBJECT TO COMPLETION DATED APRIL 24, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
$110,000,000 OFFER TO EXCHANGE
9 3/4% SENIOR NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
9 3/4% SENIOR NOTES DUE 2007
OF GEOLOGISTICS CORPORATION
(FORMERLY KNOWN AS INTERNATIONAL LOGISTICS LIMITED)
GUARANTEED BY:
AIR FREIGHT CONSOLIDATORS INTERNATIONAL, INC.,
LEP FAIRS, INC.,
LEP PROFIT INTERNATIONAL, INC.,
MATRIX INTERNATIONAL LOGISTICS, INC.,
BAY AREA MATRIX, INC.,
L.A. MATRIX, INC.,
SOUTHWEST MATRIX, INC.,
MATRIX, CT., INC.,
BEKINS VAN LINES CO.,
ILLCAN, INC.,
ILLSCOT, INC.,
LIW HOLDINGS CORP. AND
THE BEKINS COMPANY
THE EXCHANGE OFFER (AS DEFINED HEREIN) WILL EXPIRE ON , 1998.
THE EXCHANGE OFFER WILL REMAIN IN EFFECT FOR A MAXIMUM OF DAYS FROM THE DATE
THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
INTEREST PAYABLE APRIL 15 AND OCTOBER 15 DUE OCTOBER 15, 2007
------------------------
GeoLogistics Corporation (the "Company") hereby offers (the "Exchange
Offer"), pursuant to a registration statement (the "Registration Statement"), of
which this Prospectus constitutes a part, and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange its issued 9 3/4% Senior
Notes Due 2007 (the "Old Notes") of which an aggregate of $110,000,000 principal
amount is outstanding as of the date hereof, for an equal amount of newly issued
9 3/4% Senior Notes Due 2007 (the "New Notes" and together with the Old Notes
the "Notes").
(CONTINUED ON NEXT PAGE)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
THE OLD NOTES (THE "NOTEHOLDERS" OR "HOLDERS") PRIOR TO TENDERING THEIR OLD
NOTES IN THE EXCHANGE OFFER OR BY A PROSPECTIVE INVESTOR BEFORE PURCHASING THE
NEW NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 12.
EACH BROKER-DEALER THAT RECEIVES NEW NOTES FOR ITS OWN ACCOUNT PURSUANT TO
THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A PROSPECTUS IN
CONNECTION WITH ANY RESALE OF SUCH NEW NOTES. THE LETTER OF TRANSMITTAL STATES
THAT BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A BROKER-DEALER WILL
NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE
SECURITIES ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME
TO TIME, MAY BE USED BY A BROKER-DEALER IN CONNECTION WITH RESALES OF NEW NOTES
RECEIVED IN EXCHANGE FOR OLD NOTES WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH
BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES. THE COMPANY HAS AGREED THAT, FOR A PERIOD OF 180 DAYS AFTER THE
EXPIRATION DATE (AS DEFINED HEREIN), IT WILL MAKE THIS PROSPECTUS AVAILABLE TO
ANY BROKER-DEALER FOR USE IN CONNECTION WITH ANY SUCH RESALE. SEE "PLAN FOR
DISTRIBUTION."
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
The New Notes will mature on October 15, 2007 and are fully and
unconditionally guaranteed (the "Subsidiary Guaranties"), jointly and severally,
on an unsecured senior basis by the Subsidiary Guarantors (as defined). The New
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after October 15, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time and from time to time prior to October 15, 2000, the
Company may redeem, at its option, up to an aggregate of 35% of the original
principal amount of the New Notes with the proceeds received by the Company from
one or more Public Equity Offerings (as defined) at 109.75% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the redemption
date, provided that at least 65% of the original principal amount of the New
Notes remains outstanding after each such redemption. Upon a Change of Control
(as defined), each holder of the New Notes will have the right to require the
Company to repurchase such holder's New Notes in whole or in part at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. See "Description of the New Notes."
The New Notes and the Subsidiary Guaranties will be unsecured senior
obligations of the Company and of the Restricted Subsidiaries (as defined) that
execute Subsidiary Guaranties (each a "Subsidiary Guarantor" and collectively
the "Subsidiary Guarantors"), respectively, and will rank PARI PASSU with all
existing and future unsecured senior indebtedness of the Company and the
Subsidiary Guarantors, respectively, and will be effectively subordinated to all
existing and future Secured Indebtedness (as defined) of the Company and the
Subsidiary Guarantors, respectively, to the extent of the value of the assets
securing such indebtedness. The New Notes and the Subsidiary Guaranties will be
effectively subordinated to all indebtedness and other liabilities (including
trade payables) of the Company's subsidiaries other than those of the Subsidiary
Guarantors. The New Notes and the Subsidiary Guaranties will rank senior in
right of payment to any Subordinated Obligations (as defined) of the Company and
the Subsidiary Guarantors, respectively. As of December 31, 1997, the Company
had $0.8 million of outstanding Secured Indebtedness and the Subsidiary
Guarantors had approximately $0.4 million of outstanding Secured Indebtedness to
which the New Notes and the Subsidiary Guaranties are effectively subordinated
to the extent of the value of the assets securing such indebtedness, and the
Company's non-guarantor subsidiaries had approximately $99.6 million of
indebtedness and other liabilities (including trade payables) outstanding to
which the New Notes and the Subsidiary Guaranties would be effectively
subordinated. See "New Credit Facility" and "Description of the New Notes."
The New Notes are being offered hereby in order to satisfy certain
obligations of the Company under a registration rights agreement, dated October
29, 1997 (the "Registration Rights Agreement"), between the Company and Credit
Suisse First Boston Corporation, BT Alex. Brown Incorporated, Smith Barney Inc.
and ING Baring (U.S.) Securities, Inc. (collectively, the "Initial Purchasers").
The form and terms of the New Notes will be substantially identical to those of
the Old Notes except that the New Notes will have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and hence are not
subject to certain transfer restrictions, registration rights and related
liquidated damages provisions applicable to the Old Notes. The Old Notes were
issued and sold to the Initial Purchasers pursuant to Section 4(2) of the
Securities Act. The Initial Purchasers were advised by the Company that, until
such time as the Old Notes have been exchanged for New Notes or the sale of Old
Notes has been registered under the Securities Act, subsequent resales of the
Old Notes must be made in accordance with Rule 144A under the Securities Act or
another applicable exemption from the registration and prospectus delivery
requirements of the Securities Act. The New Notes will evidence the same debt as
the Old Notes and will be entitled to the benefits of the indenture (the
"Indenture"), dated as of October 29, 1997, by and between the Company and U.S.
Bank Trust, a national association (formerly First Trust National Association),
as trustee (the "Trustee"). The Indenture provides for the issuance of both the
Old Notes and the New Notes.
Holders of Old Notes not tendered, or tendered and not accepted, in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and preferences, and subject to the limitations, applicable thereto
under the Indenture. Following consummation of the Exchange Offer, Noteholders
of Old Notes not tendered, or tendered and not accepted, in the Exchange Offer
will continue to be subject to the existing restrictions upon transfer thereof
and the Company will have no further obligation to such Noteholders to provide
for the registration under the Securities Act of the Old Notes held by them. To
the extent that Old Notes are tendered and accepted in the Exchange Offer, the
market for untendered and tendered but unaccepted Old Notes could be adversely
affected. See "Risk Factors--Restrictions Upon Transfer of and Limited Trading
Market for Old Notes."
ii
<PAGE>
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all expenses incident to the Exchange Offer (which shall not
include the expenses of any holder in connection with resales of the New Notes).
The Company will accept for exchange any and all validly tendered Old Notes on
or prior to 5:00 p.m. New York City time, on , 1998 (such date and
time, if and as extended, the "Expiration Date"). Tender of the Old Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. Old Notes may be tendered only in integral multiples of $1,000.
This Prospectus, together with the Letter of Transmittal, is first being
sent on or about , 1998 to all holders of the Old Notes known to the
Company.
Based on interpretations contained in no-action letters of the Securities
and Exchange Commission (the "Commission"), the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for resale, resold, and otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchased the Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person who is an affiliate of the Company (within the
meaning of Rule 405 under the Securities Act)), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the New Notes in its ordinary course of business
and is not participating, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes. The Noteholders
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. Each broker-dealer that receives the New Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will deliver
a Prospectus in connection with any resale of such New Notes. This Prospectus
has been prepared for use in connection with the Exchange Offer and may be used
by the Initial Purchasers in connection with offers and sales related to market-
making transactions in the Old Notes. The Initial Purchasers may act as a
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. The Letter of
Transmittal states that by so acknowledging and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the New Notes received in exchange for the Old Notes where such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will use
its best efforts to make this Prospectus available to any broker-dealer for use
in connection with any such resale for such period of time as such persons may
be required to comply with the prospectus delivery requirements of the
Securities Act (which period shall not exceed one year from the date the
Registration Statement becomes effective). See "Plan of Distribution." EXCEPT AS
DESCRIBED IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR AN OFFER TO
RESELL, RESALE OR OTHER TRANSFER OF NEW NOTES.
Prior to this Exchange Offer, there has been no public market for the New
Notes. However, the Initial Purchasers are not obligated to make a market in the
New Notes, and may discontinue such market-making activities at any time without
notice. In addition, there can be no assurance that an active market for the New
Notes will develop. To the extent that a market for the New Notes does develop,
the market value of the New Notes will depend on many factors, including, among
other things, prevailing interest rates, market conditions, general economic
conditions, the Company's results of operations and financial condition, the
market for similar securities, and other conditions. Such conditions might cause
the New Notes, to the extent that they are actively traded, to trade at a
significant discount from face value. See "Risk Factors--Absence of Public
Trading Market."
iii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT INDICATES OTHERWISE,
ALL REFERENCES HEREIN TO THE "COMPANY" REFER TO GEOLOGISTICS CORPORATION AND ITS
CONSOLIDATED SUBSIDIARIES. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. SEE "RISK FACTORS" FOR CERTAIN FACTORS
THAT A PROSPECTIVE INVESTOR SHOULD CONSIDER IN EVALUATING THE COMPANY BEFORE
PURCHASING THE NOTES. THE COMPANY IS A DELAWARE CORPORATION. ITS PRINCIPAL
EXECUTIVE OFFICES ARE LOCATED AT 13952 DENVER WEST PARKWAY, GOLDEN, COLORADO
80401 AND ITS TELEPHONE NUMBER IS (303) 704-4400.
THE COMPANY
The Company is one of the largest non-asset-based providers of worldwide
logistics and transportation services headquartered in the United States, based
on revenues for 1997 and after giving pro forma effect to the LIW Acquisition
(as defined). The Company's primary business operations involve obtaining
shipment or material orders from customers, creating and delivering a wide range
of logistics solutions to meet customers' specific requirements for
transportation and related services, and arranging and monitoring all aspects of
material flow activity utilizing advanced information technology systems. These
logistics solutions include domestic and international freight forwarding and
door-to-door delivery services using a wide range of transportation modes,
including air, ocean, truck and rail. The Company also provides value-added
services such as warehousing, inventory management, assembly, customs brokerage,
distribution and installation for manufacturers and retailers of commercial and
consumer products such as copiers, computers, pharmaceutical supplies, medical
equipment, consumer durables and aviation products. The Company also specializes
in arranging for the worldwide transportation of goods for major infrastructure
projects, such as power plants, oil refineries, oil fields and mines, to lesser
developed countries and remote geographic locations. In addition, the Company
provides international and domestic relocation services through the household
goods ("HHG") divisions of Matrix International Logistics, Inc. ("Matrix") and
The Bekins Company ("Bekins"), two of its subsidiaries. On a pro forma basis
after giving effect to the LIW Acquisition, the Company generated approximately
$1.5 billion of revenues and $21.3 million of EBITDA (as defined) for the year
ended December 31, 1997.
As a non-asset-based logistics services provider, the Company arranges for
and subcontracts services on a non-committed basis to airlines, truck lines, van
lines, express companies, steamship lines, rail lines and warehousing and
distribution operators. By concentrating on network-based solutions, the Company
avoids competition with logistics services providers that offer dedicated
outsourcing solutions for single elements of the supply chain. Such dedicated
logistics companies typically provide expensive, customized infrastructure and
systems for a customer's specific application and, as a result, dedicated
solutions that are generally asset-intensive, inflexible and invariably
localized to address only one or two steps in the supply chain. Conversely,
network-based services leverage common infrastructure and technology systems so
that solutions are scaleable, replicable and require a minimum amount of
customization (typically only at the interface with the customer). This
non-asset ownership approach maximizes the Company's flexibility in creating and
delivering a wide range of end-to-end logistics solutions on a global basis
while simultaneously allowing the Company to exercise significant control over
the quality and cost of the transportation services provided.
As of December 31, 1997 the Company serviced over 75,000 active customers
through a global network of 75 countries consisting of operations located in 33
countries and strategic alliance partners located in 42 countries. Some of the
Company's major customers include Lucent Technologies Inc., Cisco Systems, Inc.,
Williams-Sonoma, Inc. and Danka Business Systems plc (formerly the office
imaging technology division of Eastman Kodak Company).
Formed in 1996 by investment entities managed by William E. Simon & Sons,
LLC ("WESS") and Oaktree Capital Management, LLC ("Oaktree"), and Roger E.
Payton, the Company's President and
1
<PAGE>
Chief Executive Officer, the Company has created a global network that provides
a broad range of transportation and logistics services through points of service
in both industrialized and developing nations and a strong local presence in
North America, Europe and Asia. The Company built its network through a series
of acquisitions of transportation and logistics providers (the "Subsidiary
Acquisitions") beginning with Bekins in May 1996, Matrix in November 1996 and,
in a series of transactions beginning in October 1996, the Company acquired all
of the equity securities of LEP International Worldwide Limited (U.K.) ("LIW")
and all of the equity interests of LIW's North American subsidiaries (the "LEP
Sale"), LEP Profit International, Inc. ("LEP-USA") and LEP International Co.
("LEP-Canada" and, together with LEP-USA, "LEP"). See "Risk
Factors--Uncertainties Relating to Operations and Acquisition of LIW" and
"Recent Acquisitions."
The U.S. logistics services industry generated approximately $25.0 billion
in revenues in 1996, having experienced an average annual growth rate of
approximately 20.0% from 1992 to 1996. The Company believes that the global
logistics services industry is three to four times the size of the U.S.
logistics services industry. Within the logistics services and freight
forwarding industries, the Company targets specific markets in which the Company
believes it has a competitive advantage. For example, in the freight forwarding
market, the Company arranges transportation for shipments of heavy cargo that
are generally larger than shipments handled by integrated carriers, such as
United Parcel Service of America and Federal Express Corporation. In the
logistics market, the Company provides specialized combinations of services that
traditional freight forwarders cannot cost-effectively provide, including
time-definite delivery requirements, direct-to-store distribution and
merge-in-transit movement of products from various vendors in a single
coordinated delivery and/or installation to the end-user.
The Company has developed a business strategy to increase revenue and expand
profit margins by: (i) continuing to develop and implement higher margin and
greater value-added logistics services to fulfill customers' end-to-end supply
chain requirements, (ii) maintaining and enhancing the Company's existing
technological position to ensure on-time delivery, real-time inventory
management and efficient overall transportation services, (iii) strengthening
and expanding the Company's global network through the opening of new offices
and making strategic acquisitions and (iv) growing the Company's overall
business by further penetrating and expanding its existing customer base as well
as increasing its share of specialized niche transportation and logistics
services.
BUSINESS STRENGTHS
The Company believes that its primary business strengths include the
following:
ESTABLISHED GLOBAL NETWORK WITH STRONG LOCAL PRESENCE. The Company has an
established global network of freight handling operations in 75 countries
throughout the world which serviced over 75,000 active customers as of December
31, 1997. The Company offers its customers a wide range of logistics and
transportation solutions through over 693 Company- and agent-owned locations in
33 countries staffed with approximately 6,388 employees worldwide as of December
31, 1997 (excluding employees of agents). The Company's strategic alliances with
partners in South Africa, South America, the Middle East, Latin America and the
Indian subcontinent provide the Company with service capability in 42 additional
countries with approximately 382 locations. The Company is particularly
well-positioned in three major economic regions of the world with operations in
approximately 465 locations in North America, 161 locations in 17 European
countries and 67 locations in 14 Asian countries, as of December 31, 1997. The
Company's HHG relocation business maintains a strong domestic presence with 284
Bekins service centers throughout the United States as of December 31, 1997 and,
through Matrix, provides international relocation services to and from North
America and between other countries.
ADVANCED INFORMATION SYSTEMS. The Company believes the proprietary FAST 400
and the MATRAK information systems are the most technologically advanced
information systems in the global logistics industry. FAST 400 is a real-time,
multi-modal, multi-currency, multi-lingual system that provides global
transportation and logistics information and detailed job costing analysis.
MATRAK is an advanced system
2
<PAGE>
for global project logistics. The Company's existing information technology
system currently supports logistics management applications such as warehouse
management systems, inventory management systems and transportation management
and is scaleable to support additional business and product lines. The Company
believes that planned system upgrades and expenditures, a significant part of
which relates to enhancement of the Company's financial reporting,
communications and inventory tracking systems, will complement the technological
advantages of FAST 400. The Company expects to spend approximately $30.0 million
over the next three years to conclude the global implementation and integration
of FAST 400 and its related BUSINESS 400 systems, purchase additional
information systems equipment and software upgrades and integrate the system
capabilities of the Company's subsidiaries. The Company anticipates that, upon
the completion of the planned expenditures, all of the Companies' subsidiaries
will be operating on a single, FAST 400-based system.
FLEXIBLE NON-ASSET-BASED OPERATIONS. As a non-asset-based provider of
transportation and logistics services, the Company has access to a network of
freight handling providers but does not own a fleet of aircraft or steamships
and owns only 208 road vehicles. As a result of the Company's ability to
subcontract transportation and distribution services on a non-committed basis to
airlines, truck lines, van lines, express companies, steamship lines and rail
lines as well as warehousing and distribution operators, the Company is able to
create and deliver a wide range of logistics solutions while retaining
significant control over the quality of service provided. In addition, the
Company is able to control the costs of transportation services provided as the
large volume of cargo shipped by the Company permits the Company to negotiate
reduced shipping rates with a variety of transportation providers. Moreover,
unlike the asset-intensive nature of integrated transportation providers such as
Burlington Air Express, Inc. and Emery Air Freight Corp., the Company's network
requires a relatively low level of capital expenditures for transportation
equipment.
WELL POSITIONED TO BENEFIT FROM INDUSTRY AND WORLD TRADE TRENDS. Because of
its global position, broad service offerings and technologically-advanced
information systems, the Company believes it is well-positioned to participate
in the growing trend for large corporations to outsource logistics,
transportation and distribution services. From 1992 to 1996, the United States
logistics services industry grew approximately 20.0% per year to $25.0 billion
and it is expected to continue to grow at comparable levels through the end of
the year 2000. Businesses are increasingly striving to minimize the cost of
carrying inventory by decreasing the cycle-time in delivery of products,
minimizing costs of manufacturing by performing manufacturing and assembly
operations in different locations and reducing the overall costs associated with
the distribution and movement of goods. As a result, companies are increasingly
seeking third-party service providers to assist in increasing profitability by
reducing costs of carrying inventory and distribution. In conformity with
industry trends, many of the Company's existing customers are seeking end-to-end
logistics services from capable service providers such as the Company. In
addition, the Company believes that continuing reductions in tariffs, increases
in open trade policies and globalization of the world's economies will cause
manufacturers and distributors of products around the world, and in particular
U.S. multi-national companies, to become increasingly more dependent on the type
of shipping, customs and inventory management services that the Company
currently offers to its customers.
EXPERIENCED MANAGEMENT. The Company's management team is led by Roger E.
Payton, President and Chief Executive Officer. Mr. Payton has over 20 years of
experience in transportation and logistics operations and services. The
Company's senior operating executives also have an average of approximately 20
years of experience in transportation and logistics operations and services. As
of April 6, 1998, the Company's employees owned approximately 10.7% of the
currently outstanding shares of common stock of the Company, par value $.001 per
share ("Common Stock"), and, assuming such employees exercise all of their
warrants to purchase Common Stock, such employees would own approximately 25.8%
of the shares of Common Stock on a fully diluted basis, including, in each case,
shares of Common Stock held by the Company's Deferred Plan (as defined) for the
account of certain employees.
3
<PAGE>
THE EXCHANGE OFFER
The form and terms of the New Notes will be substantially identical to those
of the Old Notes except that the New Notes will have been registered under the
Securities Act, and hence will not be subject to certain transfer restrictions,
registration rights and related liquidated damages provisions applicable to the
Old Notes.
<TABLE>
<S> <C>
The Exchange Offer................ The Company is offering to exchange an aggregate of
$110.0 million principal amount of the New Notes for a
like principal amount of the Old Notes. The Old Notes
may be exchanged only in multiples of $1,000 principal
amount. The Company will issue the New Notes on or
promptly after the Expiration Date. See "The Exchange
Offer."
Issuance of the Old Notes;
Registration Rights............. The Old Notes were issued and sold on October 29, 1997
to the Initial Purchasers. In connection therewith, the
Company executed and delivered for the benefit of the
Noteholders the Registration Rights Agreement, pursuant
to which the Company agreed (i) to commence an exchange
offer under which the New Notes, registered under the
Securities Act with terms substantially identical to
those of the Old Notes, will be exchanged for the Old
Notes pursuant to an effective registration statement
(the "Exchange Offer Registration Statement") or (ii)
cause the Old Notes to be registered under the
Securities Act pursuant to a resale shelf registration
statement (the "Shelf Registration Statement"). If the
Company does not comply with its obligations under the
Registration Rights Agreement, it will be required to
pay certain liquidated damages that will accrue and be
payable semiannually. See "The Exchange Offer--Purpose
of the Exchange Offer; Registration Rights."
Expiration Date................... The Exchange Offer will expire at 5:00 pm., New York
City time, on , 1998, unless extended in
which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is
extended. , 1998 is the latest date through
which the Exchange Offer may be extended.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain conditions,
which may be waived by the Company in whole or in part
and from time to time in its sole discretion. See "The
Exchange Offer--Certain Conditions to the Exchange
Offer." The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes being
tendered for exchange.
Procedures for Tendering
Old Notes....................... Each Noteholder desiring to accept the Exchange Offer
must complete and sign the Letter of Transmittal, have
the signature thereon guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver the
Letter of Transmittal, together with the Old Notes or a
Notice of Guaranteed Delivery and any other required
documents (such as evidence of authority to act
satisfactory to the Company in its sole discretion, if
the Letter of Transmittal is signed by someone acting in
a fiduciary or representative capacity), to the Exchange
Agent (as defined) at
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
the address set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. Any beneficial
owner of the Old Notes whose Old Notes are registered in
the name of a nominee, such as a broker, dealer,
commercial bank or trust company and who wishes to
tender the Old Notes in the Exchange Offer, should
instruct such entity or person to promptly tender on
such beneficial owner's behalf. See "The Exchange
Offer-- Procedures for Tendering the Old Notes."
Guaranteed Delivery Procedures.... Noteholders who wish to tender their Old Notes and (i)
whose Old Notes are not immediately available or (ii)
who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date (or complete
the procedure for book-entry transfer on a timely
basis), may tender their Old Notes according to the
guaranteed delivery procedures set forth in the Letter
of Transmittal. See "The Exchange Offer--Guaranteed
Delivery Procedures." The Letter of Transmittal provides
that each Noteholder (other than participating
broker-dealers) will represent to the Company that,
among other things, the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New
Notes, that neither such Noteholder nor any such other
person has an arrangement or understanding with any
person to participate in the distribution of such New
Notes and that neither the holder nor any such person is
an "affiliate" of the Company, as defined in Rule 405
under the Securities Act. Any tendered Old Notes not
accepted for exchange for any reason will be returned
promptly after the expiration or termination of the
Exchange Offer. See "The Exchange Offer."
Withdrawal Rights................. Tenders of the Old Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer--Withdrawal Rights."
Acceptance of the Old Notes and
Delivery of the New Notes....... The Company will accept for exchange any and all Old
Notes which are properly tendered in the Exchange Offer
prior to the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Resales under the Shelf
Registration Statement.......... If a Holder notifies the Company within 30 days after
the commencement of the Exchange Offer that such Holder
may not resell New Notes acquired by it to the public
without delivery of a prospectus and that the prospectus
contained in the Exchange Offer Registration Statement
is not appropriate or available for such resales by such
Holder, then in lieu conducting the Exchange Offer, the
Company has agreed to file a Shelf Registration
Statement covering resales of the Old Notes or the New
Notes, as the case may be. See "The Exchange Offer--
Purpose of the Exchange Offer--Registration Rights."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Resales of the New Notes.......... Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the New Notes
issued pursuant to the Exchange Offer in exchange for
the Old Notes may be offered for resale, resold and
otherwise transferred by any Noteholder thereof (other
than any such Noteholder which is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the
ordinary course of such Noteholder's business and that
such Noteholder has no arrangement or understanding with
any person to participate in the distribution of such
New Notes, and provided, further, that each broker-
dealer that receives the New Notes for its own account
in exchange for the Old Notes must acknowledge that it
will deliver a Prospectus in connection with any resale
of such New Notes. See "Plan of Distribution." If a
Noteholder does not exchange such Old Notes for New
Notes pursuant to the Exchange Offer, such Old Notes
will continue to be subject to the restrictions on
transfer contained in the legend thereon. In general,
the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to
an exception from, or in a transaction not subject to,
the Securities Act and applicable state securities laws.
See "The Exchange Offer--Consequences of Failure to
Exchange."
Consequences of Failure
to Exchange..................... Noteholders who do not exchange their Old Notes for the
New Notes pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of such
Old Notes as set forth in the legend thereon. In
general, the Old Notes may not be offered or sold,
except pursuant to a registration statement under the
Securities Act or any exemption from registration
thereunder and in compliance with applicable state
securities laws. In the event the Company completes the
Exchange Offer, the Noteholders will have no further
rights to registration or liquidated damages pursuant to
the Registration Rights Agreement.
Certain Tax Considerations........ There will be no Federal income tax consequences to
Noteholders exchanging the Old Notes for the New Notes
pursuant to the Exchange Offer and a Noteholder will
have the same adjusted basis and holding period in the
New Notes as in the Old Notes immediately before the
exchange.
Registration Rights Agreement..... The Exchange Offer is intended to satisfy the
registration rights of Noteholders under the
Registration Rights Agreement, which rights terminate
upon consummation of the Exchange Offer.
Exchange Agent.................... U.S. Bank Trust (formerly First Trust National
Association) is the Exchange Agent. The address and
telephone number of the Exchange Agent are set forth in
"The Exchange Offer-- Exchange Agent."
</TABLE>
6
<PAGE>
DESCRIPTION OF THE NEW NOTES
<TABLE>
<S> <C>
New Notes......................... $110,000,000 principal amount of 9 3/4% Senior Notes Due
2007 (the "New Notes").
Maturity Date..................... October 15, 2007.
Interest Payment Dates............ April 15 and October 15, commencing April 15, 1998.
Optional Redemption............... The New Notes may be redeemed at the option of the
Company, in whole or in part, at any time after October
15, 2002 at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time and from time to
time prior to October 15, 2000, the Company may redeem
up to an aggregate of 35% of the original principal
amount of the Notes, with the net cash proceeds of one
or more Public Equity Offerings (as defined) at 109.75%
of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date; provided,
however, that at least $71.5 million aggregate principal
amount of Notes remain outstanding immediately after
each such redemption. See "Description of the New
Notes--Optional Redemption."
Change of Control................. Upon a Change of Control (as defined), each holder of
the New Notes may require the Company to repurchase such
holder's New Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid
interest, if any, to the repurchase date. There can be
no assurance that the Company will have sufficient funds
to purchase all of the New Notes in the event of a
Change in Control. See "Risk Factors--Change of Control"
and "Description of the New Notes--Change of Control."
Ranking........................... The New Notes and the Subsidiary Guaranties (as defined)
will be unsecured senior obligations of the Company and
the Subsidiary Guarantors (as defined), respectively,
and will rank PARI PASSU in right of payment with all
existing and future senior unsecured indebtedness of the
Company and the Subsidiary Guarantors, respectively. The
New Notes and the Subsidiary Guaranties will be
effectively subordinated to all existing and future
Secured Indebtedness (as defined) of the Company and the
Subsidiary Guarantors, respectively, to the extent of
the value of the assets securing such indebtedness. The
New Notes and the Subsidiary Guaranties will be
effectively subordinated to all indebtedness and other
liabilities (including trade payables) of the Company's
subsidiaries other than the Subsidiary Guarantors. The
New Notes and the Subsidiary Guaranties will rank senior
in right of payment to any Subordinated Obligations (as
defined) of the Company and the Subsidiary Guarantors,
respectively. As of December 31, 1997, the Company had
$0.8 million of outstanding Secured Indebtedness and the
Subsidiary Guarantors had approximately $0.4 million of
outstanding Secured Indebtedness to which the New Notes
and the Subsidiary Guaranties are effectively
subordinated to the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
extent of the value of the assets securing such
indebtedness, and the Company's non-guarantor
subsidiaries had approximately $99.6 million of
indebtedness and other liabilities (including trade
payables) outstanding to which the New Notes and the
Subsidiary Guaranties are effectively subordinated. See
"Description of the New Notes--Ranking."
Subsidiary Guaranties............. The New Notes will be guaranteed (the "Subsidiary
Guaranties") on a senior unsecured basis by the
Company's domestic Restricted Subsidiaries (as defined)
that are or become obligors or guarantors with respect
to the New Credit Facility (the "Subsidiary
Guarantors"). See "Description of the New
Notes--Subsidiary Guaranties."
Certain Covenants................. The indenture under which the New Notes will be issued
(the "Indenture") will contain certain covenants that,
among other things, will limit the ability of the
Company and its Restricted Subsidiaries to (i) incur
additional indebtedness, (ii) incur liens, (iii) pay
dividends or make certain other restricted payments,
(iv) make investments, (v) enter into transactions with
affiliates, (vi) make certain asset dispositions and
(vii) merge or consolidate with, or transfer
substantially all of its assets to, another person. The
Indenture will also limit the ability of the Company's
Restricted Subsidiaries to create restrictions on the
ability of such Restricted Subsidiaries to pay dividends
or make any other distributions. In addition, the
Company will be obligated, under certain circumstances,
to offer to repurchase New Notes at a purchase price
equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of
repurchase, with the net cash proceeds of certain sales
or other dispositions of assets. However, all of these
limitations and prohibitions are subject to a number of
important qualifications. See "Description of the New
Notes--Certain Covenants."
Exchange Rights................... Holders of New Notes are not entitled to any exchange
rights with respect to the New Notes. Holders of Old
Notes are entitled to certain exchange rights pursuant
to the Registration Rights Agreement. Under the
Registration Rights Agreement, the Company is required
to offer to exchange the Old Notes for new notes having
substantially identical terms which have been registered
under the Securities Act. This Exchange Offer is
intended to satisfy such obligation. Once the Exchange
Offer is consummated, the Company will have no further
obligations to register any of the Old Notes not
tendered by the Holders for exchange, except pursuant to
a shelf registration statement to be filed under certain
limited circumstances specified in "The Exchange
Offer--Purposes of the Exchange Offer." See "Risk
Factors--Consequences to Non-Tendering Holders of Old
Notes."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Absence of a Public Market for the The New Notes will be a new issue of securities with no
New Notes....................... established market. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the New Notes.
Use of Proceeds................... The Company will not receive any proceeds in connection
with the Exchange Offer. In consideration for issuing
the New Notes in exchange for the Old Notes as described
in this Prospectus, the Company will receive the Old
Notes that will be retired and canceled.
</TABLE>
EXCHANGE RATES
Certain financial data of LIW has been translated from British Pounds
Sterling to U.S. Dollars using the average exchange rate in effect for results
of operations and cash flow data and the period end rate for balance sheet data
for the respective periods presented. The following table reflects the exchange
rates used as well as other information for the benefit of the reader. The
Company does not represent that the British Pound Sterling amounts shown in this
Prospectus would have been converted into U.S. Dollars at the quoted exchange
rates.
<TABLE>
<CAPTION>
PERIOD PERIOD
END AVERAGE
------ -------
($ PER L1.00)
<S> <C> <C>
Year Ended December 31, 1997 1.6508 1.6411
Nine Months Ended September 30, 1997.... 1.6185 1.6305
January 24, 1996 to December 31, 1996... 1.7123 1.5607
January 24, 1996 to September 30,
1996.................................. 1.5650 1.5373
January 1, 1996 to January 23, 1996..... 1.5135 1.5377
Year Ended December 31, 1995............ 1.5530 1.5785
Year Ended December 31, 1994............ 1.5603 1.5319
Year Ended December 31, 1993............ 1.4794 1.5016
Year Ended December 31, 1992............ 1.5145 1.7642
</TABLE>
RISK FACTORS
Holders of the Old Notes and prospective purchasers of New Notes should
consider carefully all of the information set forth in this Prospectus, and in
particular the information set forth under "Risk Factors" before tendering their
Old Notes in the Exchange Offer or making an investment in the New Notes. These
risks include, without limitation, restrictions upon transfer of and limited
trading market for Old Notes, the limited operating history and net losses of
the Company, leverage and debt service obligations of the Company, the holding
company structure of the Company and certain restrictions imposed on the Company
by the terms of the outstanding indebtedness of the Company. See "Risk Factors."
9
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
The following table presents summary unaudited pro forma condensed financial
data derived from the Unaudited Pro Forma Condensed Combined Statement of
Operations included elsewhere in this Prospectus. The summary pro forma data
gives effect to the Old Notes Offering and the execution of the Company's new
$100.0 million revolving credit facility (the "New Credit Facility"), as well as
the acquisition of LIW as if such events had occurred on January 1, 1997.
The Unaudited Pro Forma Condensed Combined Statement of Operations does not
purport to present the actual results of operations of the Company had the
transactions and events assumed therein in fact occurred on January 1, 1997, nor
are they necessarily indicative of the results of operations that may be
achieved in the future. The Unaudited Pro Forma Condensed Combined Statement of
Operations is based on certain assumptions and adjustments described in the
notes to the Unaudited Pro Forma Condensed Combined Statement of Operations and
should be read in conjunction therewith and with "Recent Acquisitions" and the
Consolidated Financial Statements of the Company and LIW and the related notes
thereto included elsewhere in this Prospectus.
Financial data of LIW has been translated from British Pounds Sterling to
U.S. Dollars using the average exchange rate in effect for results of operations
and cash flow data and the December 31, 1997 rate for balance sheet data.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER
31,
1997(1)(2)
-----------
(UNAUDITED)
<S> <C>
Revenues.................................................... $1,525,162
Transportation and other direct costs....................... 1,146,889
-----------
Net revenues................................................ 378,273
Other operating expenses.................................... 355,276
Depreciation and amortization............................... 32,153
-----------
Operating loss.............................................. (9,156)
Interest expense, net and amortization of debt issuance
costs..................................................... 12,987
Share of loss in equity investments......................... 1,078
Other expense, net.......................................... 13
-----------
Loss before income taxes and minority interests............. (23,234)
Income tax benefit.......................................... (7,050)
-----------
Loss before minority interests.............................. (16,184)
Minority interests.......................................... (1,433)
-----------
Net loss.................................................... $ (17,617)
-----------
-----------
BASIC LOSS PER COMMON SHARE:
Net loss.................................................. $ (8.60)
DILUTED LOSS PER COMMON SHARE:
Net loss.................................................. $ (8.60)
Weighted average number of common shares outstanding........ 2,049,800
OTHER FINANCIAL DATA:
EBITDA(3)................................................. $ 21,283
Cash (advances to) affiliates, net........................ $ (1,701)
Cash interest expense(4).................................. $ 9,653
Capital expenditures...................................... $ 13,312
Net cash from operating activities........................ $ 13,815
Net cash from investing activities........................ $ (14,707)
Net cash from financing activities........................ $ 1,215
Ratio of earnings to fixed charges(5)(6).................. $ --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
BALANCE SHEET DATA:
Current assets............................................................................... $ 319,732
Property and equipment, net.................................................................. 51,807
Total assets................................................................................. 485,766
Current liabilities.......................................................................... 301,809
Long-term debt (including current portion)................................................... 115,370
Other noncurrent liabilities................................................................. 46,647
Minority interest............................................................................ 1,601
Stockholders' equity......................................................................... 22,919
</TABLE>
- ------------------------
(1) For a description of LIW purchase accounting and pro forma adjustments, see
the notes to the Unaudited Pro Forma Condensed Combined Statement of
Operations included elsewhere herein.
(2) Certain amounts of LIW and its predecessor have been adjusted to conform to
U.S. GAAP.
(3) "EBITDA" represents earnings before interest, income taxes, depreciation and
amortization, and other non-cash items such as share of loss in equity
investments and minority interests. EBITDA also includes other income and
expenses and cash advances to and cash dividends received from companies
accounted for under the equity method or consolidated subsidiaries in which
LIW has a controlling interest. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet
its future debt service, capital expenditure and working capital
requirements. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs. See the Consolidated Statements of Cash Flows of the
Company and of LIW and the related notes thereto included in this
Prospectus. EBITDA is included herein because management believes that
certain investors find it to be a useful tool for measuring the ability to
service debt, EBITDA as used herein is consistent with the definition used
in the Indenture and is calculated as follows:
<TABLE>
<S> <C>
Operating loss..................................... $ (9,156)
Add: depreciation and amortization................. 32,153
Subtract:
Other expense, net............................... (13)
Cash advances to affiliates...................... (1,701)
---------
EBITDA............................................. $ 21,283
---------
---------
</TABLE>
(4) "Cash interest expense" represents interest expense recorded in the
statement of operations less amortization of deferred financing costs. Total
debt and cash interest expense give effect to the Old Notes Offering and
other interest bearing debt after application of proceeds from the Old Notes
Offering. See "Use of Proceeds" and "Consolidated Capitalization."
(5) For purposes of this computation, fixed charges consist of interest expense
and amortization of deferred financing costs and the estimated portion of
rental expense attributable to interest. Earnings consist of loss before
income taxes excluding losses from equity investments plus fixed charges.
(6) Pro forma earnings were inadequate to cover pro forma fixed charges by
$22,143 for the year ended December 31, 1997.
11
<PAGE>
RISK FACTORS
THE NOTEHOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION
TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE TENDERING THEIR OLD
NOTES IN THE EXCHANGE OFFER.
RESTRICTIONS UPON TRANSFER OF AND LIMITED TRADING MARKET FOR OLD NOTES
The New Notes will be issued in exchange for the Old Notes only after timely
receipt by the Exchange Agent of tenders of such Old Notes. Therefore,
Noteholders desiring to tender such Old Notes in exchange for the New Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company is under any duty to give notification of defects or
irregularities with respect to tenders of the Old Notes for exchange. The Old
Notes that are not tendered or are tendered but not accepted will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. In addition, any holder of the Old Notes who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Notes will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer who receives New Notes for its own account in
exchange for the Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a Prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." To the extent
that the Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected. See "The Exchange Offer."
LIMITED OPERATING HISTORY; NET LOSSES
The Company was incorporated on February 14, 1996 and acquired (i) Bekins in
May 1996, (ii) LEP and a 33.3% minority interest in LIW in October 1996, (iii)
Matrix in November 1996, (iv) an additional 41.9% interest in the common equity
of LIW in September 1997 and (v) the remainder of LIW in December 1997.
Accordingly, the Company has only a limited combined operating history upon
which an evaluation of the Company and its prospects can be based. After giving
effect to certain purchase accounting adjustments made in connection with the
acquisitions of Bekins, LEP and Matrix, which resulted in approximately $104.0
million in intangible assets, the Company incurred net losses of $9.2 million
for its first year of operations and net losses of $19.7 million for the year
ended December 31, 1997. On the same basis, for the year ended December 31,
1997, pro forma earnings were inadequate to cover fixed charges by $22.1
million. Net losses for the period ended December 31, 1996 and the year ended
December 31, 1997 included amortization expenses of $14.8 million and $25.8
million, respectively, relating to intangible assets. There can be no assurances
that the Company will achieve profitability, will improve EBITDA or will be able
to meet fixed charges. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company has substantial fixed debt service in addition to operating
expenses. The Company used the net proceeds from the Old Notes Offering to repay
all amounts outstanding under the Company's old credit facility (the "Old Credit
Facility") and, concurrently with the closing of the Old Notes Offering, entered
into the New Credit Facility. See "New Credit Facility." As of December 31,
1997, the Company's total consolidated indebtedness was $115.4 million,
consisting of the Old Notes and $5.4 million of other indebtedness, and the
Company's ratio of pro forma EBITDA to cash interest expense for the year ended
December 31, 1997 was 2.20 to 1.0.
The Company's ability to make scheduled payments of principal of, or
interest on, or to refinance its indebtedness will depend on the availability of
funding under its New Credit Facility and on future operating performance and
cash flow, which are subject to prevailing economic conditions, prevailing
12
<PAGE>
interest rate levels and financial, competitive, business and other factors
beyond the Company's control. The degree to which the Company is leveraged could
have important consequences to the holders of the New Notes, including the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or other purposes
may be impaired, (ii) the Company's flexibility in planning for or reacting to
changes in market conditions may be limited, (iii) the Company's vulnerability
in the event of a downturn in its business and (iv) the Company's ability to
finance contingencies related to tax and regulatory matters and payments due
under incentive and stock repurchase arrangements. See "Business--Litigation"
and "Management--Incentive Compensation Plans-- Employee Stock Ownership." The
refinancing effected by the application of the proceeds of the Old Notes
Offering reduced the Company's obligation to make principal repayments pursuant
to the terms of the Company's indebtedness outstanding prior to the issuance of
the Old Notes and the application of the net proceeds thereof; however, under
the terms of the Indenture and the New Credit Facility, the Company may continue
to incur additional indebtedness, including indebtedness that may be incurred to
fund future distributions to stockholders of the Company. The Company believes
that, based on anticipated levels of operations, it should be able to meet its
debt service obligations, including interest payments on the Notes, when due.
If, however, the Company cannot generate sufficient cash flow from operations to
meet its obligations, the Company might be required to refinance its
indebtedness or dispose of assets to obtain funds for such purpose. There is no
assurance that any such refinancing or asset dispositions could be effected on
satisfactory terms, if at all, or would be permitted by the terms of the New
Credit Facility or the Indenture pursuant to which the Old Notes were issued and
the New Notes will be issued. In the event that the Company is unable to
refinance the New Credit Facility or raise funds through asset sales, sales of
equity or otherwise, its ability to pay principal of and interest on the New
Notes would be materially adversely affected.
HOLDING COMPANY STRUCTURE; SUBSIDIARY OPERATIONS
The Company conducts its operations through subsidiaries. Substantially all
of the assets of the Company are owned by its subsidiaries and the Company has
no significant assets of its own other than cash, cash equivalents and equity
interests in subsidiaries of the Company. As a holding company, the Company is
dependent on distributions or other intercompany transfers of funds from its
subsidiaries to meet its debt service and other obligations, including the
payment of principal of and interest on the New Notes. The Company does not own
all of the equity interests of certain of its subsidiaries, and consequently
must share profits with certain minority shareholders. See "Business--Ownership
of LIW Subsidiaries." Distributions and intercompany transfers from the
Company's subsidiaries to the Company may be restricted by covenants contained
in debt agreements and other agreements to which such subsidiaries may be
subject and may be restricted by other agreements entered into in the future and
by applicable law. There can be no assurance that the operating results of the
Company's subsidiaries at any given time will be sufficient to make
distributions to the Company. The Company's right and the rights of its
creditors, including holders of New Notes, to participate in the distribution of
assets of any subsidiary of the Company upon such subsidiary's liquidation or
recapitalization will be subject to the prior claims of such subsidiary's
creditors.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The New Credit Facility and the Indenture contain certain restrictive
covenants including, among other things, limitations on the ability of the
Company and its Restricted Subsidiaries to incur additional indebtedness, create
liens and other encumbrances, make certain payments and investments, enter into
transactions with affiliates, sell or otherwise dispose of assets and merge or
consolidate with another entity. There can be no assurance that such covenants
will not adversely affect the Company's ability to finance future operations or
capital needs or engage in other activities which may be in the interest of the
Company. The Company is required under the New Credit Facility to maintain
certain financial ratios. The Company's ability to comply with such provisions
will be dependent upon its future performance, which
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will be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond the Company's control. Accordingly,
no assurance can be given that the Company will maintain a level of operating
cash flow that will permit it to service its obligations and to satisfy the
financial covenants in the New Credit Facility. A breach of any of these
covenants or the inability of the Company to comply with the required financial
ratios could result in a default under the New Credit Facility, which would
entitle the lenders thereunder to accelerate the maturity of the New Credit
Facility, and could result in cross-defaults permitting the acceleration of
other indebtedness of the Company, including the New Notes. Such an event would
materially adversely affect the Company's ability to make payments on the New
Notes. See "New Credit Facility" and "Description of the New Notes."
ENFORCEABILITY OF THE SUBSIDIARY GUARANTIES; FRAUDULENT CONVEYANCE
CONSIDERATIONS
The Subsidiary Guarantors will guarantee the Company's obligations under the
New Notes. Initially, the Subsidiary Guarantors will consist of Bekins, LEP-USA,
Matrix, three special-purpose direct domestic subsidiaries, the sole assets of
which are LEP-Canada and LIW and the active first-tier domestic subsidiaries of
each of the foregoing. See "Description of the New Notes--Subsidiary
Guaranties." Under applicable provisions of the federal bankruptcy law or
comparable provisions of state law, if any Subsidiary Guarantor is insolvent at
the time it incurs its Subsidiary Guaranty, such Subsidiary Guaranty could be
voided, or claims in respect of such Subsidiary Guaranty could be subordinated
to all other debts of such Subsidiary Guarantor. The measures of insolvency will
vary depending upon the law applied in any such proceeding. Generally, however,
the Subsidiary Guarantors may be considered insolvent if the sum of their debts,
including contingent liabilities, is greater than the fair market value of all
of their assets at a fair valuation or if the present fair market value of their
assets is less than the amount that would be required to pay their probable
liability on their existing debts, including contingent liabilities, as they
become absolute and mature. See "Description of the New Notes--Ranking."
The incurrence by the Company or the Subsidiary Guarantors of indebtedness
such as the New Notes or the Subsidiary Guaranties, respectively, may be subject
to review under relevant U.S. federal and state fraudulent conveyance laws if a
bankruptcy case or a lawsuit (including in circumstances where bankruptcy is not
involved) is commenced by or on behalf of unpaid creditors of the Company or the
Subsidiary Guarantors. Under these laws, if a court were to find that, at the
time the New Notes were issued, either (a) any of the Company or the Subsidiary
Guarantors incurred debt represented by the New Notes or Subsidiary Guaranties,
respectively, with the intent of hindering, delaying or defrauding creditors or
(b) any of the Company or the Subsidiary Guarantors received less than
reasonably equivalent value or consideration for incurring the indebtedness
represented by the New Notes or such Subsidiary Guaranties, respectively, and
(i) was insolvent or was rendered insolvent by reason of such transaction, (ii)
was engaged in a business or transaction for which the assets remaining with
such entity constituted unreasonably small capital or (iii) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court may subordinate the New Notes or such Subsidiary
Guaranty to presently existing and future indebtedness of such entity, void the
issuance of the New Notes or any Subsidiary Guaranty or direct the repayment of
any amounts paid thereunder to such entity or to a fund for the benefit of such
entity's creditors or take other action detrimental to the holders of the New
Notes. Because substantially all of the Company's obligations (including trade
payables) are at the subsidiary level, any such voiding of the New Notes or the
Subsidiary Guaranties would effectively subordinate the New Notes and such
Subsidiary Guaranties, respectively, to such obligations.
The Company believes that it and each Subsidiary Guarantor will receive
equivalent value at the time the indebtedness represented by the New Notes and
the Subsidiary Guaranties, respectively, is incurred. In addition, the Company
does not believe that it, as a result of the issuance of the New Notes, or any
Subsidiary Guarantor as a result of the issuance of the Subsidiary Guaranties,
(i) will be insolvent or rendered insolvent under the foregoing standards, (ii)
will be engaged in a business or transaction for which its remaining assets
constitute unreasonably small capital or (iii) intends to incur, or believes
that it
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will incur, debts beyond its ability to pay such debts as they mature. These
beliefs are based on the Company's and each Subsidiary Guarantor's operating
history and net worth and management's analysis of internal cash flow
projections and estimated values of assets and liabilities of each such entity
at the time of the Old Notes Offering. There can be no assurance, however, that
a court passing on these issues would make the same determination. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds."
UNCERTAINTIES RELATING TO OPERATIONS AND ACQUISITION OF LIW
In January 1996, certain members of the senior management of LEP Group plc
formed LIW and acquired the freight forwarding business of LEP Group plc. LEP
Group plc and its operating subsidiaries, including the freight forwarding
business, had experienced substantial financial difficulties, and, immediately
following the management buy-out of the freight forwarding business, LEP Group
plc was placed into an administrative receivership. Notwithstanding the
separation of LIW from LEP Group plc, LIW's reputation, business and operations
have been adversely affected by LEP Group plc's historical financial
difficulties.
In addition, certain of LIW's operating subsidiaries have incurred
historical operating losses that have threatened such subsidiaries' solvency and
certain of the LIW operating subsidiaries' credit facility providers have
withdrawn financing to such subsidiaries or have indicated that outstanding
indebtedness must be refinanced or restructured. LIW incurred a net loss of L3.0
million ($4.6 million) for the period from January 24, 1996 (the date on which
the management buy-out was consummated) to December 31, 1996 and a net loss of
L2.8 million ($4.4 million) for the nine months ended September 30, 1997.
Furthermore, LIW has faced and is encountering numerous other challenges
relating to the worldwide integration of its financial and operating systems,
increased competition resulting from deregulation, and various customs and tax
matters in dispute involving approximately L11.9 million ($19.5 million). See
"Business--Litigation." Moreover, the purchase obligation for the minority
equity interests not owned by LIW in its Italian affiliate will require payments
totaling approximately L.6 million (approximately $1.0 million) prior to July
1999, and minority shareholders in certain of LIW's foreign subsidiaries hold
significant interests in the profits of such subsidiaries and have a significant
say in management and control issues related to such subsidiaries. Successful
integration of such entities may depend on maintaining satisfactory
relationships with such minority shareholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business-- Ownership of LIW Subsidiaries." While the Company
believes that it will be able to integrate LIW successfully and improve its
results of operations, there can be no assurances that future operations of LIW
will be profitable or that the operations of LIW will not have a material
adverse effect on the Company as a whole.
INTEGRATION OF ACQUISITIONS
The Company has experienced significant growth in the past through the
Subsidiary Acquisitions. The Company's future operations and earnings will be
largely dependent upon the Company's ability to continue to integrate the
operations of the companies acquired in the Subsidiary Acquisitions,
particularly LIW, into the current operations of the Company. Although the
Company believes that the Subsidiary Acquisitions, and in particular the
recently consummated LIW Acquisition, offer opportunities for long-term
efficiencies in operations and that the combined operations of Bekins, Matrix,
LEP and LIW should positively affect future results of the operations of the
Company, such acquisitions may materially adversely affect the Company's
financial performance in 1998 and beyond until such time as the Company is able
to realize the positive effect of expected long-term efficiencies of such
acquisitions. As a result of the Subsidiary Acquisitions, the combined companies
are more complex and diverse than the stand-alone operations of the Company
prior to the Subsidiary Acquisitions. The combination and continued operation of
the businesses of the Company's subsidiaries may present significant challenges
for the Company's
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management due to the increased time and resources required to properly
integrate management, employees, information systems, accounting controls,
personnel and administrative functions of such businesses. There can be no
assurance that the Company will be able to successfully integrate and streamline
overlapping functions with respect to any or all of such entities, or, if
successfully accomplished, that such integration will not be more costly to
accomplish than presently contemplated by the Company. The difficulties of such
integration may be increased by the necessity of coordinating geographically
separate organizations. The continued integration of certain operations of the
Company's subsidiaries will require the dedication of management resources which
may distract attention from the day-to-day business of the combined companies in
the short- and long-term. Failure to effectively and completely accomplish the
integration of operations of the Company's subsidiaries could have a material
adverse effect on the Company's results of operations and financial condition.
COMPETITION
The transportation and logistics services industry is highly competitive.
The Company competes against other integrated logistics companies and third
party carriers offering logistics services. The Company also competes with truck
lines for the services of fleet contractors and drivers. Competition is based
primarily on freight rates, quality of service, reliability, transit times and
scope of operations. Several other logistics companies, third party brokers and
numerous carriers have substantially greater financial and other resources and
are more established than the Company. Additionally, the Company competes
against carriers' internal sales forces and shippers' transportation
departments.
As the Company expands its international operations, it expects to encounter
increased competition from those service providers that have a predominantly
international focus, including Air Express International Corporation, Expeditors
International of Washington, Inc., Fritz Companies Inc., Circle International
Group, Inc., Kuehne & Nagel, Panalpina and NFC plc, as well as from its
competitors for domestic freight forwarding such as Burlington Air Express,
Inc., Eagle USA Air Freight Inc. and Emery Air Freight Corp. Many of these
competitors have substantially greater financial resources than the Company. The
Company also encounters competition from regional and local air freight
forwarders and HHG relocaters such as North American Van Lines, Allied Van Lines
Inc., Atlas Van Lines Inc. and UniGroup, Inc. (United Van Lines, Inc. and
Mayflower Transit, Inc.), cargo sales agents and brokers, surface freight
forwarders and carriers, and associations of shippers organized for the purpose
of consolidating their members' shipments to obtain lower freight rates from
carriers. Deregulation has also increased competitive pressures on pricing. The
intense competition to which the Company is subject could materially adversely
affect the Company's operating margins. See "Business--Competition and Business
Conditions."
RANKING
The Indenture permits the Company and its Restricted Subsidiaries to incur
additional senior indebtedness provided certain financial or other conditions
are met. The New Notes and the Subsidiary Guaranties will be senior unsecured
obligations and will rank PARI PASSU in right of payment with all existing and
future senior unsecured indebtedness of the Company and the Subsidiary
Guarantors, respectively. In addition, the New Notes and the Subsidiary
Guaranties will be effectively subordinated to all existing and future Secured
Indebtedness of the Company and the Subsidiary Guarantors, respectively, to the
extent of the value of the assets securing such indebtedness and all existing
and future indebtedness and other liabilities (including trade payables) of the
Company's non-guarantor subsidiaries. As of December 31, 1997, (i) the Company
had $0.8 million of outstanding Secured Indebtedness and the Subsidiary
Guarantors had approximately $0.4 million of outstanding Secured Indebtedness to
which the New Notes and the Subsidiary Guaranties are effectively subordinated
to the extent of the value of the assets securing such indebtedness, (ii) all
indebtedness and other liabilities (including trade payables) of the Company's
non-guarantor subsidiaries was approximately $99.6 million, to which the New
Notes and
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the Subsidiary Guaranties are effectively subordinated and (iii) the Company and
the Subsidiary Guarantors had $30.0 million of outstanding indebtedness ranking
PARI PASSU with the New Notes and the Subsidiary Guaranties (consisting of trade
accounts payable of the Company and the Subsidiary Guarantors). The New Credit
Facility is secured by certain assets of the Company and its Restricted
Subsidiaries and therefore, the New Notes and the Subsidiary Guaranties are
effectively subordinated to the New Credit Facility to the extent of the value
of the assets securing such indebtedness. Holders of existing or future Secured
Indebtedness of the Company and its Restricted Subsidiaries permitted under the
Indenture, including the New Credit Facility, and holders of existing or future
indebtedness of the Company's non-guarantor subsidiaries will have claims with
respect to certain assets of the Company and such subsidiaries that are prior to
the claims of holders of the New Notes. See "Description of the New Notes--
Ranking."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
After giving pro forma effect to the Subsidiary Acquisitions, the Company
derived approximately 63.4% and 58.0% of its total revenue from sales outside
the United States in the fiscal year ended December 31, 1996 and the year ended
December 31, 1997, respectively. As of December 31, 1997, the Company had
operations in 33 countries, utilizing the services of approximately 1,673
employees in the United States and approximately 4,715 employees in other
countries and maintained strategic alliance partnerships with 57 partners in 42
additional countries. International operations are subject to a number of risks,
including longer accounts receivable collection periods and greater difficulty
in accounts receivable collections in certain geographic regions, unexpected
changes in regulatory requirements, import and export restrictions, delays and
tariffs, difficulties and costs of staffing and managing international
operations, potentially adverse tax consequences, political instability, share
ownership restrictions on foreign operations, currency fluctuations, the burdens
of complying with multiple, potentially conflicting laws and the impact of
business cycles and economic instability. There can be no assurance that the
geographic, time zone, language and cultural differences between the Company's
international personnel and operations will not result in problems that
materially adversely affect the Company's business, operating results and
financial condition.
After giving pro forma effect to the Subsidiary Acquisitions, the Company
derived approximately 23.8% and 23.7% of its total revenue from sales in Asia in
the fiscal years ended December 31, 1996 and 1997, respectively. The Company is
exposed to risks associated with the current economic and currency crisis in
Asia. The Company has not experienced any permanent impairment to its Asian
operations to date and has taken steps to establish a foreign exchange risk
management program to minimize the volatility of certain currencies against
results of operations. See "Management's Discussion and Analysis of financial
Condition--Company Historical--Foreign Currency Risk Management." However, a
sustained economic slowdown and/or currency crisis in Asia could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company expects to commit additional time and resources to expanding its
worldwide sales and marketing activities, globalizing its products in selected
markets and developing local sales and support channels. There can be no
assurance that such efforts will be successful. Failure to sustain international
revenue could have a material adverse effect on the Company's business,
operating results and financial condition. The Company may also experience an
operating loss in one or more regions of the world for one or more periods. The
Company's ability to manage such operational fluctuations and to maintain
adequate long-term strategies in the face of such developments will be critical
to the Company's continued growth and profitability. See "Management's
Discussion and Analysis of Financial Condition and the Results of Operations"
and "Business--Marketing."
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EXPOSURE TO CURRENCY FLUCTUATIONS
Prior to the LIW Acquisition, the Company's revenue from international
operations has primarily been denominated in U.S. Dollars. After giving pro
forma effect to the LIW Acquisition, the proportion of revenues and expenses
denominated in currencies other than U.S. Dollars will increase dramatically. As
of December 31, 1997, 41.9%, 11.6%, 10.8% and 5.1% of the Company's accounts
receivable were denominated in U.S. Dollars, British Pounds Sterling, German
Deutschemarks and Canadian Dollars, respectively. The remainder of the Company's
accounts receivable were denominated in various other European and Asian
currencies of the countries in which LIW operates. In addition, a portion of the
borrowings under the New Credit Facility may be denominated in British Pounds
Sterling, Canadian Dollars and other foreign currencies to the extent permitted
by the New Credit Facility. As a result, fluctuations in the values of the
respective currencies relative to the other currencies in which the Company
generates revenue could materially adversely affect its business, operating
results and financial condition. Adoption of the new European currency may
affect the fluctuations. Fluctuations in currencies relative to the U.S. Dollar
will affect period-to-period comparisons of the Company's reported results of
operations. Due to the constantly changing currency exposures and the volatility
of currency exchange rates, there can be no assurance that the Company will not
experience currency losses in the future, nor can the Company predict the effect
of exchange rate fluctuations upon future operating results. The Company has not
in the past undertaken hedging transactions due to the previously limited
exposure and impact of currency fluctuations on financial results. The Company
may choose to hedge a portion of its currency exposure in the future as it deems
appropriate. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
IMPLEMENTATION AND INTEGRATION OF MANAGEMENT INFORMATION SYSTEMS; YEAR 2000
SOLUTIONS
The Company utilizes FAST 400, a proprietary system for the real-time
management of shipments on a multi-modal, multi-currency and multi-lingual
basis, in certain of its operations. The Company believes that FAST 400 is the
most advanced information system of its type currently in use in the global
freight forwarding industry. The Company expects to spend approximately $30.0
million over the next three years to conclude the implementation and integration
of FAST 400 and its related BUSINESS 400 systems globally, purchase additional
information systems equipment and software upgrades and integrate the system
capabilities of its Company's subsidiaries. The Company plans to fund these
expenditures through a combination of cash provided from operations and from
borrowings under the New Credit Facility. The failure of the Company's
management information systems to adapt to the Company's business needs or the
failure of the Company to successfully implement these systems could have a
material adverse effect on the Company.
The planned expenditures for information systems include significant costs
during the next two to three years to address the inability of certain
information systems, primarily computer software programs, to properly recognize
and process date sensitive information after December 31, 1999 (the "Year 2000
Problem"). The Company has completed an assessment of its information systems
and has developed a specific workplan to address the Year 2000 Problem through
the introduction of new financial software for all of its subsidiaries. Of the
$30.0 million required to implement and integrate the FAST 400 and related
BUSINESS 400 systems globally, approximately $6.0 million will be spent to
complete the upgrade and integration of the Company's North American
subsidiaries' accounting systems and simultaneously address the Year 2000
Problem. Such costs may have a material adverse effect on the Company's results
of operation in the near future. The Company believes it will be able to modify
or replace its affected systems to minimize any detrimental effect that the Year
2000 Problem may have on the Company's long-term results of operations,
liquidity or consolidated financial position. However, no assurance can be given
that the Year 2000 Problem will be resolved without any future disruption or
that the Company will not incur significant expense in resolving the issue. See
"Business--Information Systems."
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As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000 problem.
The Company is currently engaged in a comprehensive project to upgrade its
information technology, including hardware and software systems that will
consistently and properly recognize the Year 2000. Many of the Company's systems
include new hardware and packaged software recently purchased from large vendors
who have represented that these systems are already Year 2000 compliant. The
Company is in the process of obtaining assurances from vendors that timely
updates will be made available to make all remaining purchased software Year
2000 compliant.
The Company will utilize both internal and external resources to reprogram
or replace and test all of its software for Year 2000 compliance, and the
Company expects to complete the project in late 1999 but before any operational
impact. The estimated cost for this project could range as high as $1.1 million,
excluding the cost of new systems which will be capitalized. This cost is being
funded through a combination of cash provided from operations and borrowings
under the New Credit Facility. Failure by the Company and/or vendors and
customers to complete Year 2000 compliance work in a timely manner could have a
material adverse effect on certain of the Company's operations.
PRINCIPAL AND CONTROLLING STOCKHOLDERS
As of April 6, 1998, TCW Special Credits Fund V--The Principal Fund (the
"Principal Fund") and OCM Principal Opportunities Fund, L.P. (the "Opportunities
Fund" and together with the Principal Fund, the "Oaktree Entities") owned
1,295,575 shares of Common Stock, representing approximately 60.9% of the
outstanding shares of Common Stock (or 45.2% on a fully-diluted basis). As of
April 6, 1998, Logistical Simon, L.L.C. ("Logistical Simon") owned 469,532
shares of Common Stock (and warrants to purchase 125,000 shares of Common Stock)
representing approximately 22.1% of the outstanding shares of Common Stock (or
20.7% on a fully-diluted basis). The Oaktree Entities and Logistical Simon are
parties to a Stockholders Agreement (the "Stockholders Agreement") pursuant to
which the parties thereto have agreed to elect a board of directors consisting
of (i) two individuals appointed by the Opportunities Fund, (ii) one individual
appointed by the Principal Fund, (iii) three individuals appointed by WESS, (iv)
the Chief Executive Officer of the Company and (v) William E. Myers, Jr.
Currently the Stockholders Agreement provides that, except with respect to
the daily affairs and operations of the Company arising in the ordinary course
of business, no action may be taken, securities issued, monies borrowed, sum
expended, decision made or obligation incurred by or on behalf of the Company
with respect to any matter unless approved by at least six members of the
Company's Board of Directors or by all of the members of the Executive Committee
of the Board of Directors. As a result, because of concentration of ownership of
Common Stock of the Company by the Oaktree Entities and Logistical Simon and the
provisions of the Stockholders Agreement, the Oaktree Entities and Logistical
Simon may be in a position to influence the Company at both the Board of
Directors and stockholder levels. As of April 6, 1998, the Oaktree Entities and
Logistical Simon owned 83.0% of the Common Stock of the Company and are
therefore able to take certain actions without obtaining the approval of the
remaining stockholders of the Company. There can be no assurance that the
Oaktree Entities and Logistical Simon will exercise their power over the Common
Stock in a manner that is consistent with, or that will not have a material
adverse effect on, the interests of the holders of the New Notes. See "Principal
Stockholders" and "Certain Relationships and Related Transactions."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its future success will be highly dependent upon
its ability to attract and retain skilled managers and other personnel,
including Roger E. Payton, the Company's other executive officers and its
regional managers. The loss of the services of such managers and personnel could
have a material adverse effect on the Company. The Company maintains a $15
million key man life insurance policy on Mr. Payton.
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RELIANCE ON INDEPENDENT AGENTS
The Company relies in part upon the services of independent agents to market
its transportation services, to act as intermediaries with customers and to
provide services on behalf of the Company. Although the Company believes its
relationship with its agents is satisfactory, there can be no assurance that the
Company will continue to be successful in retaining its agents or that agents
who terminate their contracts can be replaced by equally qualified companies.
Because the agents occasionally have the primary relationship with customers,
some customers could be expected to terminate their relationship with the
Company if a particular agent were to terminate his or her relationship with the
Company. See "Business--Operations."
CHARACTERISTICS OF THE LOGISTICS INDUSTRY
As a participant in the global logistics services industry, the Company's
business is dependent upon a number of factors including the availability of
transportation equipment and warehousing and distribution facilities at
cost-effective rates and on reasonable terms and conditions. Such services and
facilities are often provided by independent third parties. Shortages of cargo
space are most likely to develop in and around the holiday season and in
exceptionally heavy transportation lanes. Shortages in available space could
also be triggered by economic conditions, transportation strikes, regulatory
changes and other factors beyond the control of the Company. The future
operating results of the Company could be materially adversely affected by
significant shortages of suitable cargo space and associated increases in rates
charged by passenger airlines and other providers of such cargo space. In
addition, if the Company were unable to secure sufficient equipment or attract
and retain sufficient personnel drivers and owner-operators to meet its
customers' needs, its results of operations could be materially adversely
affected. Finally, the Company's operating results would be materially adversely
affected if the Company were unable to arrange suitable warehousing and
distribution facilities to support its customers' logistics services needs
because the Company's production would be limited to transportation-based
services which are typically lower margin and subject to greater competitive
pressures than logistics services. See "Business-- Competition and Business
Conditions."
From time to time, third parties, including the Internal Revenue Service
("IRS") and state authorities, have sought to assert, and at times have been
successful in asserting, that independent owner-operators in the transportation
industry, including those of the type utilized in connection with the Company's
local pick-up and delivery operations, are "employees," rather than "independent
contractors." Although the Company believes that the independent owner-operators
utilized by it are not employees, there can be no assurance that the IRS and
state authorities or others will not challenge this position, or that federal
and state tax or other applicable laws, or interpretations thereof, will not
change. If they do, the Company could incur additional employee benefit related
expenses and could be liable for additional taxes, penalties and interest for
prior periods and additional taxes for future periods. See
"Business--Employees."
VULNERABILITY TO ECONOMIC CONDITIONS
The Company's future operating results may be dependent on the economic
environments in which it operates. Demand for the Company's services could be
materially adversely affected by economic conditions in the industries of the
Company's customers. Interest rate fluctuations, economic recession, customers'
business cycles, availability of qualified drivers, changes in fuel prices and
supply, increases in fuel or energy taxes and the transportation costs of third
party carriers are all economic factors over which the Company has little or no
control. Increased operating expenses incurred by transportation carriers can be
expected to result in higher transportation costs, and the Company's operating
margins would be materially adversely affected if it were unable to pass through
to its customers the full amount of increased transportation costs. Economic
recession or a downturn in customers' business cycles, particularly in
industries in which the Company has a large number of customers, could also have
a material adverse effect on the Company's operating results due to reduced
volume of loads shipped. The Company expects
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that demand for the Company's services (and, consequently, its results of
operations) will continue to be sensitive to domestic and, increasingly, global
economic conditions and other factors beyond its control including a sustained
economic slowdown and/or currency crisis in Asia.
GOVERNMENT REGULATION
The Company's operations are subject to various state, local, federal and
foreign regulations that in many instances require permits and licenses. The
Company was issued a license by the Interstate Commerce Commission (the "ICC")
permitting the Company to act as a broker in arranging for the transportation,
by motor vehicle, of general commodities between points in the United States and
as a motor carrier and freight forwarder. In 1996, the ICC was dissolved and
responsibility for oversight of motor carriers, brokers and freight forwarders
was assumed by the Surface Transportation Board (the "STB") and the Federal
Highway Administration (the "FHWA") both of which are part of the Department of
Transportation (the "DOT"). The FHWA prescribes qualifications for acting in
this capacity, including certain surety bonding requirements. In its ocean
freight forwarding business, the Company is licensed as an ocean freight
forwarder and as a non-vessel operating common carriers ("NVOCC") by the Federal
Maritime Commission. The Company's domestic customs brokerage agents are
licensed by the United States Department of the Treasury and are regulated by
the United States Customs Service. The Company's air freight forwarding business
is subject to regulation, as an indirect air cargo carrier, under the Federal
Aviation Act by the DOT. The Company's motor carrier operations are subject to
safety regulations of the FHWA related to such matters as hours of service by
drivers, equipment inspection and equipment maintenance. The Company is also
subject to similar regulations by the regulatory authorities of foreign
jurisdictions in which the Company operates. The Company is also a common
carrier and a contract motor carrier regulated by the STB and various state
agencies. The Company is subject to various foreign and U.S. environmental laws.
Numerous jurisdictions in Asia prohibit or restrict United States ownership of
local logistics operations, and although the Company believes its ownership
structure in Asia conforms to such laws, the matter is often subject to
considerable regulatory discretion and there can be no assurance local
authorities would agree with the Company.
Any violation of the laws and regulations discussed above could increase
claims and/or liability, including claims for uninsured punitive damages.
Violations also could subject the Company to fines or, in the event of a serious
violation, suspension, revocation of operating authority or criminal penalties.
All of these regulatory authorities have broad powers generally governing
activities such as authority to engage in motor carrier operations, rates and
charges, and certain mergers, consolidations and acquisitions. Although
compliance with these regulations has not had a material adverse effect on the
Company's operations or financial condition in the past, there can be no
assurance that such regulations or changes thereto will not materially adversely
impact the Company's operations in the future. See "Business-- Regulation."
Certain federal officials have announced that they are considering
implementing increased security measures with respect to air cargo. There can be
no assurance as to what, if any, regulations will be adopted or what, if
adopted, their ultimate effect on the Company will be. Failure of the Company to
maintain required permits or licenses, or to comply with applicable regulations,
could result in substantial fines or revocation of the Company's operating
authorities. See "Business--Regulation."
PICK-UP AND DELIVERY CLAIMS EXPOSURE
The Company utilizes the services of a significant number of drivers in
connection with its local pick-up and delivery operations and from time to time
such drivers are involved in accidents. Although most of these drivers are
independent contractors, there can be no assurance that the Company will not be
held liable for the actions of such drivers. The Company currently carries, or
requires its independent owner-operators to carry, liability insurance in
varying amounts, depending on the country in which operations are being
conducted, for each such accident. However, there can be no assurance that
claims against the
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Company will not exceed the amount of coverage. If the Company were to
experience a material increase in the frequency or severity of accidents,
liability claims or workers' compensation claims, or unfavorable resolutions of
claims, the Company's operating results and financial condition could be
materially adversely affected. In addition, significant increases in insurance
costs could reduce the Company's profitability.
CHANGE OF CONTROL
In the event of a Change of Control of the Company, the Company will be
required, subject to certain conditions, to offer to purchase all outstanding
New Notes at a price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase. Certain events involving a Change
of Control may be an event of default under other indebtedness of the Company.
Moreover, the exercise by the holders of the New Notes of their right to require
the Company to purchase the New Notes may cause a default under such other
indebtedness, even if the Change of Control does not. Finally, there can be no
assurance that the Company will have the financial resources necessary to
repurchase the New Notes upon a Change of Control. See "Description of the New
Notes--Change of Control."
ABSENCE OF PUBLIC TRADING MARKET
Prior to this Exchange Offer, there has been no public market for the Old
Notes which were sold pursuant to an exemption from registration under
applicable securities laws. Like the Old Notes, the New Notes constitute a new
issue of securities, have no established trading market and may not be widely
distributed. The Initial Purchasers have informed the Company that they
currently intend to make a market in the New Notes following the effectiveness
of the Registration Statement; however, the Initial Purchasers are not obligated
to do so and may discontinue such market-making activities at any time without
notice.
If the New Notes are traded after their initial issuance, they may trade at
a discount from their initial offering price, depending on prevailing interest
rates, the market for similar securities and other factors, including general
economic conditions and the financial condition of, performance of and prospects
for the Company. There can be no assurance as to the development of any market
or liquidity of any market that may develop for the New Notes. If a market does
develop, the price of the New Notes may fluctuate and liquidity may be limited.
If a market for the New Notes does not develop, purchasers of the New Notes may
be unable to resell such securities for an extended period of time, if at all.
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the form and terms of which are the same in all material
respects as the form and terms of the New Notes except that the New Notes have
been registered under the Securities Act and hence do not include certain rights
to registration thereunder and do not contain transfer restrictions or terms
with respect to special interest payments applicable to the Old Notes. The Old
Notes surrendered in exchange for New Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
any increase in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes were
approximately $103.4 million (after deducting discounts to the Initial
Purchasers and other expenses). Of the net proceeds of the Old Notes Offering
(i) approximately $75.8 million was used to repay all indebtedness outstanding
under the Company's Old Credit Facility, (ii) approximately $8.0 million was
used by the Company to repay certain outstanding indebtedness of LIW's
subsidiaries, (iii) approximately $10.0 million was used to finance the
22
<PAGE>
purchase price paid by the Company for the acquisition of certain shares of LIW
capital stock and preference shares, (iv) approximately $4.5 million was used to
pay expenses relating to the LIW Acquisition, (v) approximately $2.2 million was
used to pay commitment fees and other fees and expenses associated with the
execution of the Company's New Credit Facility, and (vi) approximately $2.9
million is expected to be used for general working capital purposes. See "Recent
Acquisitions--Acquisition of LIW," "New Credit Facility," "Unaudited Pro Forma
Condensed Combined Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
23
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1997. See "Use of Proceeds" and "Selected Consolidated
Financial Data of the Company." This table should be read in conjunction with
the more detailed information and financial statements appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
Cash and cash equivalents................................................... $ 37,909
<S> <C>
--------------
--------------
Long-term debt (including current portion):
Other indebtedness (including capital leases)............................. $ 5,370
New Credit Facility....................................................... --
9 3/4% Senior Notes Due 2007.............................................. 110,000
--------------
Total debt.............................................................. 115,370
--------------
Stockholders' equity:
Common stock.............................................................. 2
Additional paid-in capital................................................ 52,291
Accumulated deficit....................................................... (28,902)
Notes receivable from stockholders........................................ (357)
Cumulative translation adjustment......................................... (115)
--------------
Total stockholders' equity.................................................. 22,919
--------------
Total capitalization.................................................... $ 138,289
--------------
--------------
</TABLE>
24
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The following Unaudited Pro Forma Condensed Combined Statement of Operations
gives effect to the LIW Acquisition, the issuance of the Old Notes and the New
Credit Facility (the "Pro Forma Adjustments") as if they had occurred January 1,
1997.
The Unaudited Pro Forma Condensed Combined Statement of Operations does not
purport to present the actual results of operations of the Company had the
transactions and events assumed therein in fact occurred on the date specified,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. The Unaudited Pro Forma Condensed Combined Statement of
Operations is based on certain assumptions and adjustments described in the
notes to the Unaudited Pro Forma Condensed Combined Statement of Operations and
should be read in conjunction therewith and with "Recent Acquisitions" and the
Consolidated Financial Statements of the Company and LIW and the related notes
thereto included elsewhere in this Prospectus.
25
<PAGE>
GEOLOGISTICS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LIW(1)
NINE MONTHS ENDED
SEPTEMBER 30, PRO FORMA PRO FORMA
COMPANY 1997 ADJUSTMENTS COMBINED
--------- ------------------ ---------------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 978,249 $ 828,798 $ (281,885)(2) $ 1,525,162
Transportation and other direct costs... 759,049 670,284 (282,444 (3) 1,146,889
--------- -------- ---------------- -----------
Net revenues............................ 219,200 158,514 559 378,273
Other operating expenses................ 204,733 156,813 (6,270 (3) 355,276
Depreciation and amortization........... 30,398 615 1,140(3) 32,153
--------- -------- ---------------- -----------
Operating income (loss)................. (15,931) 1,086 5,689 (9,156)
Interest expense, net................... 8,576 830 3,581(4) 12,987
Share of loss in equity investments..... 151 927 1,078
Other (income) expense.................. 60 404 (451 (5) 13
--------- -------- ---------------- -----------
Income (loss) before income taxes,
minority interest and extraordinary
loss.................................. (24,718) (1,075 ) 2,559 (23,234)
Income tax provision (benefit).......... (8,420) 2,251 (881 (6) (7,050)
Income (loss) before minority interests
and extraordinary loss................ (16,298) (3,326 ) 3,440 (16,184)
Minority interests...................... (1,067) (366 ) -- (1,433)
Extraordinary loss on early
extinguishment of debt, net of tax
benefit of $1,528(11)................. (2,293) -- 2,293 --
--------- -------- ---------------- -----------
Net income (loss)....................... $ (19,658) $ (3,692 ) $ 5,733 $ (17,617)
--------- -------- ---------------- -----------
--------- -------- ---------------- -----------
BASIC LOSS PER COMMON SHARE:
Net loss.............................. $ (8.60)
DILUTED LOSS PER COMMON SHARE:
Net loss.............................. $ (8.60)
Weighted average number of common shares
outstanding........................... 2,049,800
Other Financial Data:
EBITDA(7)............................. $ 14,337 $ (334 ) $ 7,280 $ 21,283
Cash (advances to) dividends from
affiliates, net..................... $ (70) $ (1,631 ) $ -- $ (1,701)
Cash interest expense(8).............. $ 7,715 $ 830 $ 1,108 $ 9,653
Capital expenditures.................. $ 11,744 $ 1,568 $ -- $ 13,312
Net cash from operating activities.... $ 13,815
Net cash from investing activities.... $ (14,707)
Net cash from financing activities.... $ 1,215
Ratio of earnings to fixed
charges(9)(10)...................... --
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Statements of
Operations.
26
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) Amounts for LIW have been translated from British Pounds Sterling into
U.S. Dollars using the average exchange rate for 1997 and adjusted to conform to
U.S. GAAP. Amounts include only the first nine months of the year as the last
three months after the LIW Acquisition have been included in the Company's
numbers. See Notes 24 and 25 to the Combined and Consolidated Financial
Statements of LIW, Note 8 to the Unaudited Interim Consolidated Financial
Statements of LIW and "Prospectus Summary--Exchange Rates" included elsewhere
herein.
(2) Reflects primarily the elimination of (a) intercompany transactions
between the Company and LIW, and (b) duties and value-added tax paid on behalf
of customers which are subsequently invoiced to customers. Duties and
value-added tax paid on behalf of customers are recorded by the Company net of
invoiced amounts while LIW records the revenue and cost components separately.
Therefore, such amounts have been removed to conform LIW's historical financial
information to the Company's accounting procedures. The following represents the
effect of such eliminations on both revenues and transportation and other direct
costs:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Duty, value-added tax and other................................................ $ (200,060)
Intercompany................................................................... (81,825)
-------------
Total...................................................................... $ (281,885)
-------------
-------------
</TABLE>
(3) Reflects adjustments as if the LIW Acquisition was completed January 1,
1997 as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Administrative costs and expenses (eliminated) created as a result of the
acquisitions:
Transportation and other direct costs......................................... $ (559)
------------
------------
Corporate office expenses..................................................... $ (880)
Insurance..................................................................... (624)
Adjustment to reverse LIW reserve captured in purchase accounting............... (4,762)
Other......................................................................... (4)
------------
Total other operating expense adjustment.................................... $ (6,270)
------------
------------
Additional depreciation as a result of the LIW Acquisition...................... $ 1,140
------------
------------
</TABLE>
Additional depreciation relates to the excess of purchase cost over book
value of net assets acquired of $22.8 million which is allocated to property and
equipment and depreciated on a straight-line basis using an average useful life
of approximately 20 years.
The LIW reserve captured in purchase accounting represents the reversal of
expenses included in LIW's results of operations (required under UK GAAP) for
the nine months ended September 30, 1997 relating to terminations and shut down
costs of the corporate headquarters of LIW following the LIW
27
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
Acquisition. These costs have been reversed and recorded as part of the purchase
accounting adjustments consistent with U.S. GAAP at September 30, 1997.
(4) Reflects adjustments to interest expense for the Old Notes Offering as
if such offering was completed January 1, 1997 as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Interest on the Old Notes at 9.75%.............................................. $ 10,725
Amortization of deferred financing costs related to the Old Notes and the New
Credit Facility............................................................... 1,100
------------
Pro forma interest expense for the Old Notes Offering........................... 11,825
------------
Pro forma interest expense on other debt........................................ 1,162
------------
Total pro forma interest expense.............................................. 12,987
Less interest expense on retired debt........................................... (5,727)
Less amortization of deferred financing costs of retired debt................... (547)
Less interest expense and amortization of deferred financing costs of new debt
already included in interest expense.......................................... (1,970)
Less interest expense on other debt............................................. (1,162)
------------
Interest expense for year ended December 31, 1997............................... (9,406)
------------
Net adjustment.................................................................. $ 3,581
------------
------------
</TABLE>
Amortization of deferred financing costs includes costs related to the Old
Notes Offering and New Credit Facility of approximately $6,600 and $2,200
amortized over a period of 10 and 5 years, respectively.
(5) Reflects adjustment to gain on the October 31, 1996 sale of LEP-USA and
LEP-Canada to the Company recorded by LIW.
(6) Reflects the tax effect of Pro Forma Adjustments.
(7) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization, and other non-cash items such as share of loss in equity
investments, extraordinary loss and minority interests. EBITDA also includes
other income and expenses and cash advances to and cash dividends received from
companies accounted for under the equity method or consolidated subsidiaries in
which LIW has a controlling interest. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet its
future debt service, capital expenditure and working capital requirements.
EBITDA is not necessarily a measure of the Company's ability to fund its cash
needs. See the Consolidated Statement of Cash Flows of the Company and LIW and
the related notes thereto included in this Prospectus. EBITDA is included herein
because management believes that certain
28
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS (CONTINUED)
(DOLLARS IN THOUSANDS)
investors find it to be a useful tool for measuring the ability to service debt.
EBITDA as used herein is consistent with the definition used in the Indenture.
EBITDA is calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Operating loss..................................................................... $ (9,156)
Add: depreciation and amortization................................................. 32,153
Subtract:
Other expense, net............................................................... (13)
Cash advances to affiliates...................................................... (1,701)
---------
EBITDA............................................................................. $ 21,283
---------
---------
</TABLE>
(8) "Cash interest expense" represents interest expense recorded in the
statement of operations less amortization of deferred financing costs. Total
debt and cash interest expense give effect to the Old Notes Offering and other
interest bearing debt after application of proceeds from the Old Notes Offering
as if such transactions had occurred at January 1, 1997. See "Use of Proceeds"
and "Consolidated Capitalization."
(9) Pro forma earnings were inadequate to cover pro forma fixed charges by
$22,143 for the year ended December 31, 1997.
(10) For purposes of this computation, fixed charges consist of interest
expense and amortization of deferred financing costs and the estimated portion
of rental expense attributable to interest. Earnings consist of income (loss)
before income taxes excluding equity investment losses plus fixed charges.
(11) On October 29, 1997, the Company applied a portion of the proceeds from
the sale of the Old Notes to retire the Indebtedness outstanding under the Old
Credit Facility. In connection with such transaction, the Company recorded an
extraordinary loss of $3,821 ($2,293 net of taxes) related to the write-off of
unamortized deferred financing costs.
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table summarizes certain selected consolidated financial data,
which should be read in conjunction with the Company's consolidated financial
statements and notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein. The
selected consolidated financial data have been derived from the audited
consolidated financial statements of the Company and Bekins (the "Company
Predecessor").
<TABLE>
<CAPTION>
COMPANY PREDECESSOR(1) COMPANY
--------------------------------------------------- ----------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED MARCH 31,(2) APRIL 1, MAY 2, 1996 YEAR ENDED
-------------------------------------- 1996 TO MAY TO DECEMBER DECEMBER 31,
1993 1994 1995 1996 1, 1996(2) 31, 1996(3) 1997(3)
-------- -------- -------- -------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $244,353 $238,812 $242,966 $231,752 $17,458 $225,793 $978,249
Transportation and
other direct costs... 192,530 186,570 191,278 179,611 13,634 181,208 759,049
-------- -------- -------- -------- ----------- ------------ -------------
Net revenues......... 51,823 52,242 51,688 52,141 3,824 44,585 219,200
Other operating
expenses............. 40,853 40,799 43,008 42,810 3,309 37,554 204,733
Depreciation and
amortization......... 6,085 6,054 5,675 4,194 337 16,310 30,398
-------- -------- -------- -------- ----------- ------------ -------------
Operating income
(loss)............. 4,885 5,389 3,005 5,137 178 (9,279) (15,931)
Interest expense,
net.................. 3,552 1,758 2,252 2,397 230 2,981 8,576
Share of loss in equity
investments.......... -- -- -- -- -- -- 151
Other (income)
expense.............. 32 (26) (259) 34 (73) -- 60
-------- -------- -------- -------- ----------- ------------ -------------
Income (loss) before
income taxes,
minority interest
and extraordinary
loss............... 1,301 3,657 1,012 2,706 21 (12,260) (24,718)
Income tax provision
(benefit)............ 628 1,880 816 1,508 48 (4,013) (8,420)
-------- -------- -------- -------- ----------- ------------ -------------
Income (loss) before
minority interest
and extraordinary
loss............... 673 1,777 196 1,198 (27) (8,247) (16,298)
Minority interest...... -- -- -- -- -- -- (1,067)
Extraordinary loss on
early extinguishment
of debt, net of tax
benefit of $664 and
$1,528(4)............ -- -- -- -- -- (997) (2,293)
-------- -------- -------- -------- ----------- ------------ -------------
Net income (loss).... $ 673 $ 1,777 $ 196 $ 1,198 $ (27) $ (9,244) $(19,658)
-------- -------- -------- -------- ----------- ------------ -------------
-------- -------- -------- -------- ----------- ------------ -------------
Basic loss per share
before extraordinary
loss................... -- -- -- -- -- $ (6.58) $ (8.47)
Extraordinary loss..... -- -- -- -- -- $ (.79) $ (1.12)
Net loss............... -- -- -- -- -- $ (7.37) $ (9.59)
Diluted loss per share
before extraordinary
loss................... -- -- -- -- -- $ (6.58) $ (8.47)
Extraordinary loss..... -- -- -- -- -- $ (.79) $ (1.12)
Net loss............... -- -- -- -- -- $ (7.37) $ (9.59)
Weighted average number
of common shares
outstanding............ 1,254,200 2,049,800
OTHER FINANCIAL DATA:
EBITDA(5).............. $ 10,938 $ 11,469 $ 8,939 $ 9,297 $ 588 $ 7,031 $ 14,337
Capital expenditures... $ 3,055 $ 3,210 $ 3,251 $ 3,175 $ 130 $ 1,369 $ 11,744
Cash from operating
activities........... $ (9,559) $ 6,377 $ 671 $ 9,266 $(2,667) $ 2,427 $ (7,749)
Cash from investing
activities........... $ (3,073) $ (2,963) $ (4,542) $ (469) $ (146) $(106,949) $(18,669)
Cash from financing
activities........... $ 11,717 $ (2,073) $ 3,826 $ (9,343) $ 2,485 $103,476 $ 38,320
Ratio of earnings to
fixed
charges(6)(7)........ 1.3x 2.5x 1.3x 1.9x 1.1x -- --
BALANCE SHEET DATA:
Current assets......... $ 39,115 $ 38,437 $ 35,389 $ 33,313 $32,834 $135,036 $319,732
Property and equipment,
net.................. $ 14,285 $ 12,011 $ 10,080 $ 8,266 $ 8,143 $ 11,781 $ 51,807
Total assets........... $ 81,264 $ 74,604 $ 71,276 $ 64,476 $63,845 $236,684 $485,766
Current liabilities.... $ 44,099 $ 57,223 $ 36,799 $ 48,188 $48,798 $123,144 $301,809
Long-term debt
(including current
portion)............. $ 22,911 $ 18,861 $ 21,049 $ 11,915 $15,634 $ 66,314 $115,370
Other noncurrent
liabilities.......... $ 11,431 $ 10,219 $ 7,423 $ 7,768 $ 6,567 $ 11,117 $ 46,647
Minority interest...... $ 1,601
Stockholders' equity... $ 4,487 $ 6,264 $ 6,879 $ 8,137 $ 8,112 $ 40,619 $ 22,919
</TABLE>
See accompanying Notes to Selected Consolidated Financial Data of the Company.
30
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
(DOLLARS IN THOUSANDS)
(1) On May 2, 1996, the Company acquired all of the outstanding shares of
the Company Predecessor. See "Recent Acquisitions" and Note 3 to the Company's
Consolidated Financial Statements.
(2) Includes the operating results of Bekins Moving and Storage division
("BMS"). Upon acquisition of Bekins by the Company on May 2, 1996, BMS was
treated as discontinued with the net assets of BMS recorded as a current
asset--see Note 3 to the Company's Consolidated Financial Statements. The
following is selected financial information of BMS:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1993 1994 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................................ $ 54,491 $ 52,880 $ 53,948 $ 47,264
Net revenues.................................... 18,327 18,803 19,564 17,855
Depreciation and amortization................... 1,447 1,413 1,453 1,237
Operating income................................ 7 440 470 243
OTHER FINANCIAL DATA:
EBITDA.......................................... $ 1,454 $ 1,853 $ 1,923 $ 1,480
Capital expenditures............................ 561 1,817 1,216 608
</TABLE>
(3) Includes the accounts of LEP-USA and LEP-Canada since November 1, 1996
when acquired from LIW, the accounts of Matrix since its acquisition on November
7, 1996 and the accounts of LIW since September 30, 1997. See "Recent
Acquisitions" and Note 3 to the Company's Consolidated Financial Statements.
(4) On October 31, 1996, the Company applied proceeds from the Old Credit
Facility to repay certain indebtedness incurred to finance the acquisition of
Bekins. In connection with such transaction, the Company recorded an
extraordinary loss of $1,661 ($997 net of tax) related to the write-off of
unamortized deferred financing costs.
On October 29, 1997, the Company applied proceeds from the sale of the Old
Notes to repay the indebtedness outstanding under the Old Credit Facility. In
connection with such transaction, the Company recorded an extraordinary loss of
$3,821 ($2,293 net of taxes) related to the write-off of unamortized deferred
financing costs.
(5) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization, and other non-cash terms such as share of loss in equity
investments, extraordinary loss and minority interests. EBITDA also includes
other income and expenses and cash advances to and cash dividends received from
companies accounted for under the equity method or consolidated subsidiaries in
which LIW has a controlling interest. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than cash
flow from operating activities, which are determined in accordance with
generally accepted accounting principles, it is included herein to provide
additional information with respect to the ability of the Company to meet its
future debt service, capital expenditure and working capital requirements.
EBITDA is not necessarily a measure of the Company's ability to fund its cash
needs. See the Consolidated Statement of Cash Flows of the Company and the
related Notes thereto included in this Prospectus. EBITDA is included herein
because management believes that certain investors find it to
31
<PAGE>
be a useful tool for measuring the ability to service debt. EBITDA as used
herein is consistent with the definition used in the Indenture. EBITDA has been
calculated as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED MARCH 31, PERIOD FROM MAY 2, 1996 YEAR ENDED
------------------------------------------ APRIL 1, 1996 TO DECEMBER DECEMBER 31,
1993 1994 1995 1996 TO MAY 1, 1996 31, 1996 1997
--------- --------- --------- --------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA Reconciliation..............
Operating income (loss).......... $ 4,885 $ 5,389 $ 3,005 $ 5,137 $ 178 $ (9,279) $ (15,931)
Depreciation and amortization.... 6,085 6,054 5,675 4,194 337 16,310 30,398
Other (income) expense........... 32 (26) (259) 34 (73) -- 60
Cash (advances to) dividends from
affiliates, net................ -- -- -- -- -- -- (70)
--------- --------- --------- --------- ----- ------------- -------------
EBITDA............................. $ 10,938 $ 11,469 $ 8,939 $ 9,297 $ 588 $ 7,031 $ 14,337
--------- --------- --------- --------- ----- ------------- -------------
--------- --------- --------- --------- ----- ------------- -------------
</TABLE>
(6) For purposes of this computation, fixed charges consist of interest
expense and amortization of deferred financing costs and the estimated portion
of rental expense attributable to interest. Earnings consists of income (loss)
before income taxes plus fixed charges.
(7) Earnings were inadequate to cover fixed charges by $12,260 and $24,507
for the period from May 2, 1996 to December 31, 1996 and for the year ended
December 31, 1997, respectively.
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF LIW
The following table summarizes certain selected financial data, which should
be read in conjunction with LIW's financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein. The selected consolidated financial data
as of December 31, 1992, 1993, 1994 and 1995 and for the periods from January 1,
1996 to January 23, 1996 and January 24, 1996 to December 31, 1996, set forth in
U.K. GAAP in British Pounds Sterling, has been derived from the audited combined
and consolidated financial statements of LIW and the LIW Predecessor. The data
for the nine months ended September 30, 1997, has been derived from LIW's
accounting records and the unaudited interim consolidated financial statements
of LIW. In the opinion of LIW management, the unaudited interim consolidated
financial statements for the nine months ended September 30, 1997 have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial position and the results of operations as of such
dates and for such periods. With respect to the nine months ended September 30,
1996, the financial statements of LIW have been derived from management reports.
Management has made such adjustments to these reports as they believe are
necessary for a fair presentation of the statement of operations with respect to
the nine months ended September 30, 1996. However, there can be no assurances
that such financial statements are as reliable or accurate as financial
statements that were prepared using normal interim period or year-end financial
reporting procedures. The combined and consolidated financial statements of LIW
and its predecessor have been prepared in accordance with U.K. GAAP, which
differs in certain significant respects from U.S. GAAP. See Notes 24 and 25 to
the Combined and Consolidated Financial Statements of LIW and Note 8 to the
Unaudited Interim Consolidated Financial Statements of LIW included elsewhere
herein. The selected financial data for the period from January 1, 1996 to
January 23, 1996, for the period from January 24, 1996 to December 31, 1996 and
(unaudited) for the periods from January 24, 1996 to September 30, 1996 and the
nine months ended September 30, 1997, set forth in U.S. GAAP in U.S. Dollars,
has been derived from the audited and unaudited consolidated financial
statements of LIW and its predecessor and adjusted for differences between U.K.
GAAP and U.S. GAAP.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF LIW (CONTINUED)
<TABLE>
<CAPTION>
U.K. GAAP IN U.K. POUNDS (POUNDS IN THOUSANDS)
---------------------------------------------------------------------------------------------------------
LIW
LIW PREDECESSOR(1)(2) -------------------------------------------
----------------------------------------------------------- PERIOD FROM
PERIOD FROM PERIOD FROM JANUARY 24,
JANUARY 1, JANUARY 24, 1996 TO NINE MONTHS
YEAR ENDED DECEMBER 31, 1996 TO 1996 TO SEPTEMBER ENDED
---------------------------------------------- JANUARY 23, DECEMBER 31, 30, SEPTEMBER 30,
1992 1993 1994 1995 1996 1996(2) 1996(2) 1997
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues.......... L1,073,681 L1,032,689 L1,096,377 L1,106,223 L 68,362 L958,864 L748,900 L505,026
Transportation and
other direct
costs........... 876,873 831,319 900,700 906,743 55,618 778,897 613,406 408,436
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
Net revenues.... 196,808 201,370 195,677 199,480 12,744 179,967 135,494 96,590
Other operating
expenses........ 199,437 192,661 188,176 204,840 11,948 180,039 136,281 95,000
Depreciation and
amortization.... 6,632 5,654 4,670 4,234 244 3,424 2,690 1,554
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
Operating income
(loss)........ (9,261) 3,055 2,831 (9,594) 552 (3,496) (3,477) 36
Interest expense,
net............. 2,843 2,478 1,985 2,741 98 1,227 1,046 506
Share of (income)
loss in equity
investments..... 145 (135) (14) 1,021 86 1,283 612 565
Other (income)
expense......... -- 1,769(3) -- -- -- (5,800)(3) -- 275
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
Income (loss)
before income
taxes and
minority
interests....... (12,249) (1,057) 860 (13,356) 368 (206) (5,135) (1,310)
Income tax
provision
(benefit)....... (32) 2,809 1,780 5,987 168 2,420 1,431 1,246
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
Income (loss)
before minority
interests....... (12,217) (3,866) (920) (19,343) 200 (2,626) (6,566) (2,556)
Minority
interests....... (324) (221) (353) (397) (26) (386) (461) (223)
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
Net income
(loss)........ L (12,541) L (4,087) L (1,273) L (19,740) L 174 L (3,012) L (7,027) L (2,779)
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
---------- ---------- ---------- ---------- ----------- ------------ ------------ -------------
OTHER FINANCIAL
DATA:
EBITDA(4)......... L (2,859) L 7,061 L 7,284 L (4,925) L 796 L 5,035 L (817) L 321
Cash (advances to)
dividends
received from
equity
investments..... 3 269 17 670 -- (410) 58 (954)
Cash (advances to)
dividends
received from
minority
interests....... (233) (148) (234) (235) -- (283) (88) (40)
Capital
expenditures.... 3,255 1,202 1,935 2,981 -- 1,758 1,249 955
Ratio of earnings
to fixed
charges(5)(6)... -- 1.1x 1.2x -- 3.3x -- -- 0.6x
BALANCE SHEET DATA:
Current assets.... L 172,674 L 169,816 L 171,024 L 181,889 L181,320 L127,531 L171,508 L122,739
Property and
equipment,
net............. 45,559 34,603 33,904 33,580 31,621 22,306 28,996 20,488
Total assets...... 231,174 215,214 215,973 224,860 216,842 152,206 203,804 146,963
Current
liabilities..... 174,307 155,587 165,734 186,304 178,240 122,376 170,751 121,839
Long-term debt
(including
current
portion)........ 33,223 23,394 24,726 39,383 39,768 11,239 28,056 9,690
Other noncurrent
liabilities..... 12,510 14,238 14,704 18,256 18,209 15,414 20,628 15,210
Minority
interest........ 1,668 1,651 1,479 1,455 1,481 1,447 1,815 1,485
Stockholders'
equity.......... 30,974 32,296 29,306 15,035 15,081 11,122 8,447 7,240
</TABLE>
See accompanying Notes to Selected Consolidated Financial Data of LIW.
34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF LIW (CONTINUED)
<TABLE>
<CAPTION>
U.S. GAAP IN U.S. DOLLARS
(DOLLARS IN THOUSANDS)(8)
------------------------------------------
LIW
------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 24, NINE MONTHS
1996 TO 1996 TO ENDED
JANUARY 23, DECEMBER 31, SEPTEMBER 30,
1996 1996(2) 1997
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
INCOME STATEMENT
DATA:
Revenues.......... $105,120 $1,496,499 $823,445
Transportation and
other direct
costs........... 85,524 1,215,625 665,955
----------- ------------ -------------
Net revenues.... 19,596 280,874 157,490
Other operating
expenses........ 18,288 280,178 154,221
Depreciation and
amortization.... 341 3,616 611
----------- ------------ -------------
Operating income
(loss)........ 967 (2,920) 2,658
Interest expense,
net............. 151 1,915 825
Share of (income)
loss in equity
investments..... 132 2,002 921
Other (income)
expense......... -- (14,337)(3) 401
----------- ------------ -------------
Income (loss)
before income
taxes and
minority
interests....... 684 7,500 511
Income tax
provision
(benefit)....... 286 5,573 2,932
----------- ------------ -------------
Income (loss)
before minority
interests....... 398 1,927 (2,421)
Minority
interests....... (40) (602) (364)
----------- ------------ -------------
Net income
(loss)........ $ 358 $ 1,325 $ (2,785)
----------- ------------ -------------
----------- ------------ -------------
OTHER FINANCIAL
DATA:
EBITDA(4)......... $ 1,308 $ 13,951 $ 1,248
Cash (advances to)
dividends
received from
equity
investments..... -- (640) (1,555)
Cash (advances to)
dividends
received from
minority
interests....... -- (442) (65)
Capital
expenditures.... -- 2,744 1,557
Ratio of earnings
to fixed
charges(5)(7)... 3.5x -- 1.7x
BALANCE SHEET DATA:
Current assets.... $274,428 $ 218,371 $198,653
Property and
equipment,
net............. 26,373 27,505 13,773
Total assets...... 307,127 251,119 228,917
Current
liabilities..... 269,766 209,544 197,196
Long-term debt
(including
current
portion)........ 60,189 19,245 15,683
Other noncurrent
liabilities..... 28,290 27,505 24,399
Minority
interests....... 2,241 2,478 2,403
Stockholders'
equity.......... 1,031 8,430 2,557
</TABLE>
See accompanying Notes to Selected Consolidated Financial Data of LIW.
35
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA OF LIW
(DOLLARS AND POUNDS IN THOUSANDS)
(1) On January 24, 1996, the LIW Predecessor was purchased by LIW together
with LEP International A/S, LIW's Danish affiliate.
(2) Includes the accounts of LEP-USA and LEP-Canada until October 31, 1996
when sold to the Company. See "Recent Acquisitions" and Note 1 to the LIW
consolidated financial statements.
(3) For the year ended December 31, 1993, amount represents loss on sale of
property in Cologne, Germany. For the period January 24, 1996 to December 31,
1996 amount represents gain on sale of LEP-USA and LEP-Canada to the Company.
See Note 2 above and Note 21(a) to the Consolidated Financial Statements of LIW.
(4) "EBITDA" represents earnings before interest, income taxes, depreciation
and amortization, and other non cash items such as share of loss in equity
investments, extraordinary loss and minority interest. EBITDA is further
adjusted to include other income and expenses and cash advances to and cash
dividends received from companies accounted for under the equity method or
consolidated subsidiaries in which LIW has a controlling interest. While EBITDA
should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with generally accepted accounting principles, it is
included herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and working
capital requirements. EBITDA is not necessarily a measure of the Company's
ability to fund its cash needs. See the Consolidated Statement of Cash Flows of
LIW and the related Notes thereto included in this Prospectus. EBITDA is
included herein because management believes that certain investors find it to be
a useful tool for measuring the ability to service debt. EBITDA as used herein
is consistent with the definition used in the Indenture. EBITDA is calculated as
follows:
<TABLE>
<CAPTION>
U.S. GAAP IN U.S. DOLLARS
------------------------------------------
LIW
------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, JANUARY 24, NINE MONTHS
1996 TO 1996 TO ENDED
JANUARY 23, DECEMBER 31, SEPTEMBER 30,
1996 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
EBITDA Reconciliation
Operating income (loss)........................ $ 967 $ (2,920) $ 2,658
Depreciation and amortization.................. 341 3,616 611
Other (income) expense......................... -- (14,337) 401
Cash (advances to) dividends from affiliates,
net.......................................... -- (1,082) (1,620)
------ ------------ -------------
EBITDA........................................... $ 1,308 $ 13,951 $ 1,248
------ ------------ -------------
------ ------------ -------------
</TABLE>
(5) For purposes of this computation, fixed charges consist of interest
expense and amortization of deferred financing costs and the estimated portion
of rental expense attributable to interest. Earnings consists of income (loss)
before income taxes excluding equity investment losses and excludes items
referred to in note (3) above plus fixed charges.
(6) Earnings were inadequate to cover fixed charges by L12,104, L12,335 and
L4,723 for the years ended December 31, 1992 and 1995, and for the period from
January 24, 1996 to December 31, 1996, respectively.
(7) Earnings were inadequate to cover fixed charges by $5,554 for the period
from January 24, 1996 to December 31, 1996.
(8) Amounts shown as of and for the year ended December 31, 1995 and all
subsequent periods have been converted into U.S. GAAP based on the information
disclosed in Notes 24 and 25 to the LIW Consolidated Financial Statements and
Note 8 to the Unaudited Interim Consolidated Financial Statements of LIW
included elsewhere herein with amounts for all periods shown translated into
U.S. Dollars at average rates for the respective period. See also "Prospectus
Summary--Exchange Rates".
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY," "SELECTED CONSOLIDATED
FINANCIAL DATA OF LIW," THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND
THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS OF LIW INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INCLUDE RISKS AND OTHER
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A
DIFFERENCE INCLUDE THOSE DISCUSSED BELOW, AS WELL AS GENERAL ECONOMIC AND
BUSINESS CONDITIONS, COMPETITION AND OTHER FACTORS DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
GENERAL
The Company commenced operation on May 2, 1996 in connection with its
acquisition of Bekins. On October 31, 1996, the Company acquired LEP and
securities representing 33.3%, in the aggregate, of the common equity of LIW. On
November 7, 1996, the Company acquired Matrix. On September 30, 1997, the
Company acquired an additional 41.9% of the common equity of LIW and on December
15, 1997, the Company completed the acquisition of all of the remaining equity
securities of LIW. All of such acquisitions were accounted for by the purchase
method of accounting, and accordingly, the book values of the assets and
liabilities of the acquired companies were adjusted to reflect their estimated
values at the dates of acquisition.
The Company is one of the largest non-asset-based providers of worldwide
logistics and transportation services headquartered in the United States based
on revenues for 1997 and after giving pro forma effect to the LIW Acquisition.
The Company's primary business operations involve obtaining shipment or material
orders from customers, creating and delivering a wide range of logistics
solutions to meet customers' specific requirements for transportation and
related services, and arranging and monitoring all aspects of material flow
activity utilizing advanced information technology systems. The logistics
solutions include domestic and international freight forwarding and door-to-door
delivery services using a wide range of transportation modes, including air,
ocean, truck and rail. The Company also provides value-added services such as
warehousing, inventory management, assembly, customs brokerage, distribution and
installation for manufacturers and retailers of commercial and consumer products
such as copiers, computers, pharmaceutical supplies, medical equipment, consumer
durables and aviation products. The Company also specializes in arranging for
the worldwide transportation of goods for major infrastructure projects, such as
power plants, oil refineries, oil fields and mines, to lesser developed
countries and remote geographic locations. In addition, the Company provides
international and domestic relocation services through the HHG divisions of
Bekins and Matrix.
The portion of the Company's business that is focused on traditional
transportation and logistics services normally experiences a higher percentage
of its revenues and operating income in the fourth calendar quarter as volumes
increase for the holiday season. Conversely, the Company's domestic household
goods relocation business experiences approximately half of its revenue between
June and September. In addition, Matrix has a significant project logistics
business which is cyclical due to its dependence upon the timing of shipment
volumes for large, one-time projects.
Through the Subsidiary Acquisitions, the Company has created a global
network that provides a broad range of transportation and logistics services
through points of service in both industrialized and developing nations with a
strong local presence in North America, Europe and Asia. Because of its global
position, broad service offerings and technologically-advanced information
systems, the Company believes it is well-positioned to participate in the
growing trend for large corporations to outsource logistics and transportation
distribution services. The United States logistics services industry generated
approximately $25.0 billion in revenues in 1996, having experienced an average
annual growth rate of approximately 20.0% from
37
<PAGE>
1992 to 1996. The Company believes that the global logistics service industry is
three to four times the size of the U.S. logistics services industry. The
Company's future operating results will be dependent on the economic
environments in which it operates. Demand for the Company's services will also
be affected by economic conditions in the industries of the Company's customers.
The Company's principal businesses are directly impacted by the volume of
domestic and international trade between the United States and foreign nations
and among foreign nations.
38
<PAGE>
COMPANY HISTORICAL
The following discussion and analysis relates to the results of operations
for the Company as reported for the period May 2, 1996 to December 31, 1996 and
the year ended December 31, 1997, and should be read in conjunction with the
consolidated financial statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
LIW/LEP.................................................................. $ 82,752 $ 712,398
Bekins:HVP/Logistics..................................................... 56,487 91,694
HHG............................................................... 78,933 108,513
Matrix................................................................... 7,621 65,644
----------------- --------
Consolidated........................................................... $ 225,793 $ 978,249
----------------- --------
----------------- --------
Net Revenues:
LIW/LEP.................................................................. $ 16,899 $ 162,852
Bekins:HVP/Logistics..................................................... 11,542 21,152
HHG............................................................... 13,746 18,908
Matrix................................................................... 2,398 16,288
----------------- --------
Consolidated........................................................... 44,585 219,200
----------------- --------
Other Operating Expenses:
LIW/LEP.................................................................. 15,957 157,541
Bekins:HVP/Logistics..................................................... 7,250 13,432
HHG............................................................... 10,765 14,323
Matrix................................................................... 2,726 13,649
Corporate................................................................ 856 5,788
----------------- --------
Consolidated........................................................... 37,554 204,733
Depreciation and Amortization.............................................. 16,310 30,398
----------------- --------
Operating Loss............................................................. (9,279) (15,931)
Interest Expense, Net...................................................... 2,981 8,576
Other Expense.............................................................. -- 211
Income Tax Benefit......................................................... (4,013) (8,420)
Minority Interests......................................................... -- (1,067)
----------------- --------
Loss before Extraordinary Item............................................. (8,247) (17,365)
Extraordinary Loss on Early Extinguishment of Debt--
Net of Tax Benefit ($664 and $1,528, respectively)....................... (997) (2,293)
----------------- --------
Net Loss................................................................... $ (9,244) $ (19,658)
----------------- --------
----------------- --------
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OTHER DATA:
EBITDA:
LIW/LEP.................................................................. $ 942 $ 5,266
Bekins:HVP/Logistics..................................................... 4,292 7,716
HHG............................................................... 2,981 4,507
Matrix................................................................... (328) 2,639
Corporate................................................................ (856) (5,791)
----------------- --------
Consolidated........................................................... $ 7,031 $ 14,337
----------------- --------
----------------- --------
EBITDA/Net Revenues:
LIW/LEP.................................................................. 5.6% 3.2%
Bekins: HVP/Logistics.................................................... 37.2% 36.5%
HHG............................................................... 21.7% 23.8%
Matrix................................................................... 13.7% 16.2%
Consolidated............................................................. 15.8% 6.5%
Net cash from operating activities......................................... $ 2,427 $ (7,749)
Net cash from investing activities......................................... $ (106,949) $ (18,669)
Net cash from financing activities......................................... $ 103,476 $ 38,320
</TABLE>
YEAR ENDED DECEMBER 31, 1997 VERSUS PERIOD FROM MAY 2, 1996 TO DECEMBER 31, 1996
REVENUES. The Company's revenues increased by approximately $752.4 million,
to $978.2 million for the year ended December 31, 1997 from $225.8 million for
the period ended December 31, 1996. Approximately $250.0 million of the increase
related to the LIW Acquisition and the full year operations of 1996 acquisitions
accounted for $502.4 million of the increase. The majority of the remaining
increase was volume related with only minimal gains relating to price increases
in 1997.
NET REVENUES. Net revenues increased by approximately $174.6 million, to
$219.2 million for the year ended December 31, 1997 from $44.6 million for the
period ended December 31, 1996. Net revenues as a percentage of revenues
increased to 22.4% from 19.7% for the same period in 1996 primarily due to a
shift in product offerings to higher margin value-added services in LIW. Net
revenues increases are primarily the result of the LIW Acquisition ($62.0
million) and full year operating results for the 1996 acquisitions of $112.6
million.
OTHER OPERATING EXPENSES. Other operating expenses increased by
approximately $167.1 million, to $204.7 million for the year ended December 31,
1997 from $37.6 million for the period ended December 31, 1996. Other operating
expenses as a percentage of net revenues 1997 increased to 93.4% from 84.2% for
the same period in 1996 due to the higher expenses of LIW compared to net
revenues (96.7%). Operating expenses relating to the LIW Acquisition amounted to
$58.1 million of the change for 1996. The remaining $109.0 million increase was
due to a full year of expenses for 1996 acquisitions.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 86.4% to $30.4 million for the year ended December 31, 1997 compared
to $16.3 million for the period ended December 31, 1996 as a result of higher
amortization relating to intangible assets acquired in the 1996 acquisitions now
included for a full year in the results of operations. In connection with the
Subsidiary Acquisitions, the Company incurred a significant amount of goodwill
and other intangible assets of which approximately $14.2 million and $23.9
million was amortized in the Company's financial statements for the periods
ended December 31, 1996 and 1997, respectively. The Company believes that
amortization expense should decrease to $3.1 million in fiscal 1998 because the
portion of the intangible assets from the
40
<PAGE>
Subsidiary Acquisitions with twelve to twenty-four month amortization periods
will have been substantially expensed.
OPERATING LOSS. The Company recorded a $15.9 million loss for the year
ended December 31, 1997 as compared to $9.3 million for the period ended
December 31, 1996 due to an increase in charges for depreciation and
amortization expense relating primarily to the 1996 acquisitions and an increase
in other operating expenses. Operating income was also negatively affected by
certain non-recurring items which amounted to $.5 million and $3.7 million in
the 1996 and 1997 periods, respectively. Substantially all of such charges
related to redundancy costs and severance expenses.
INTEREST EXPENSE, NET. Interest expense, net, increased by approximately
$5.6 million, to $8.6 million for 1997 from $3.0 million for the period ended
December 31, 1996. The increase was associated with higher levels of working
capital-related borrowings, a full year of expense relating to borrowings in
1996 to finance acquisitions and the Old Notes Offering which was completed in
October 1997.
SHARE OF INCOME (LOSS) IN EQUITY INVESTMENT. The share of loss in equity
investment represents the Company's portion of losses incurred by LIW's Italian
affiliate. LIW's portion of such losses was approximately $0.2 million for the
three months ended December 31, 1997, the period of LIW ownership by the
Company.
INCOME TAX PROVISION. Income tax benefit changed by approximately $4.4
million, to a tax benefit of $8.4 million for 1997, from $4.0 million for the
period ended December 31, 1996. The tax benefit for 1997 produced an effective
benefit rate of 32.7% which was comparable to the period ended December 31,
1996.
MINORITY INTERESTS. Interests held by minority shareholders in certain
subsidiaries of LIW increased by $1.1 million, for the three months ended
December 31, 1997, the period of LIW ownership by the Company.
NET LOSS. Net loss increased by $10.5 million to $19.7 million for 1997
compared to $9.2 million for the period ended December 31, 1996. This increase
is due primarily to higher other operating expenses, depreciation and
amortization, and interest expense partially offset by an increase in the tax
benefit.
LIQUIDITY AND CAPITAL RESOURCES
The increases in working capital of $6.0 million and the net increase in
indebtedness of $49.1 million are primarily the result of the LIW Acquisition.
The principal impact upon the Company's capital structure over the period
resulted from the issuance of the Old Notes, the repayment of amounts
outstanding under the Old Credit Facility and the execution of the New Credit
Facility. Stockholders' equity was primarily affected by the net loss of $19.7
million, which was partially offset by $2.3 million of additional paid-in
capital from the sales of stock to employees.
Within North America, the Company has utilized cash flows from operations
and borrowings under its credit facilities to meet working capital requirements
and to fund capital expenditures principally related to the improvement of
existing information systems. Since May 2, 1996, the Company has received an
aggregate of $9.0 million in net cash proceeds from the disposition of certain
assets of BMS. At December 31, 1997, the Company had a working capital borrowing
base under the New Credit Facility of $95.8 million with no outstanding working
capital related borrowings and outstanding letter of credit commitments of $27.5
million. In addition to the Old Notes as of December 31, 1997, the Company had
$5.4 million of capital lease commitments and other indebtedness outstanding. In
connection with the LIW Acquisition and the Old Notes Offering, the Company
applied certain of the proceeds of the Old Notes Offering to repay all amounts
outstanding under the Old Credit Facility and enter into the New Credit
Facility. See "New Credit Facility" and "Use of Proceeds."
41
<PAGE>
Total borrowings of LIW at December 31, 1997 were approximately $3.6
million, representing a combination of short and long-term borrowings and
capital leases in local currencies in countries where LIW operates. Funding
requirements have historically been satisfied by revenues from operations and
borrowings under various bank credit facilities. In connection with the LIW
Acquisition and the New Credit Facility, a certain amount of borrowing capacity
is provided to LIW based upon the level of accounts receivable in the United
Kingdom. The Company believes that this borrowing ability and revenues from
operations will be sufficient to meet the liquidity needs of LIW in the future.
Approximately $75.8 million of the proceeds from the Old Notes Offering was
used to repay the debt of the Company under the Old Credit Facility. In
addition, $10.0 million of the proceeds was used to complete the acquisition of
all outstanding LIW equity securities. See "Recent Acquisitions--LIW
Acquisition." The balance of the proceeds of the Old Notes Offering was used to
pay transaction costs, as well as for general corporate purposes and to repay
$8.0 million of debt of certain LIW subsidiaries. See "Use of Proceeds."
The Company expects that its future liquidity needs will be primarily for
debt service obligations, working capital and capital expenditures. The
Company's primary sources of liquidity are cash flows from operations and
borrowings under the New Credit Facility. In October 1997, the Company entered
into the New Credit Facility which provides for up to $100.0 million of
borrowing capacity, based upon the level of the Company's accounts receivable.
Up to $30.0 million of the total commitment under the New Credit Facility may be
derived from eligible accounts receivable of LEP International Ltd., a
subsidiary of LIW ("LEP UK"). In addition to the increase in borrowing capacity
provided by the New Credit Facility and the Notes, the Company intends to
improve the efficiency of existing cash management consistent with systems
currently used by other multinational corporations in order to reduce the need
for external borrowing and to improve liquidity. The Company's capital
expenditures for 1997 were $11.7 million and are estimated to be $25.4 million
for 1998. Of these amounts, $8.7 million and $15.4 million, respectively, relate
to information technology projects. The Company also will be required to pay
$1.0 million prior to July 1999 to purchase the remainder of its Italian
affiliate and may have to fund undetermined amounts in connection with the
ultimate resolution of tax, customs and similar matters and in connection with
stock repurchase and other incentive compensation. See "Management--Incentive
Compensation Plans-- Employee Stock Ownership." See "Business--Litigation." The
Company believes that funds provided from operations, cash available from
proceeds of the Old Notes Offering, improved cash management and borrowings
under the New Credit Facility will be sufficient to meet planned financial
commitments and anticipated future needs.
As of December 31, 1997, the Company had $110.0 million of debt relating to
the Notes, $5.4 million of other funded indebtedness outstanding and no
borrowings under the New Credit Facility. The Company had approximately $27.5
million in letters of credit outstanding under the New Credit Facility, leaving
approximately $68.3 million of unused credit commitment under such facility.
FOREIGN CURRENCY RISK MANAGEMENT. The Company's objective in managing the
exposure to foreign currency fluctuations is to reduce earnings and cash flow
volatility associated with foreign exchange rate changes and allow management to
focus its attention on its core business issues and challenges. Accordingly, the
Company enters into various contracts which change in value as foreign exchange
rates change to protect certain of its existing foreign assets, liabilities,
commitments and anticipated foreign earnings. The Company may use a combination
of financial instruments to manage these risks, including forward contracts or
option related instruments. The principal currencies hedged are the British
pound, German mark, Canadian dollar and some Asian currencies such as the Hong
Kong dollar, and Singapore dollar. By policy, the Company maintains hedge
coverage between minimum and maximum percentages of its anticipated foreign
exchange exposures for the next year. The gains and losses on these contracts
are offset by changes in the value of the related exposures.
42
<PAGE>
It is the Company's policy to enter into foreign currency transactions only
to the extent considered necessary to meet its objectives as stated above. The
Company does not enter into foreign currency transactions for speculative
purposes.
YEAR 2000. As is the case with most other companies using computers in
their operations, the Company is in the process of addressing the Year 2000
problem. The Company is currently engaged in a comprehensive project to upgrade
its information technology including hardware and software that will
consistently and properly recognize the Year 2000. Many of the Company's systems
include new hardware and packaged software recently purchased from large vendors
who have represented that these systems are already Year 2000 compliant. The
Company is in the process of obtaining assurances from vendors that timely
updates will be made available to make all remaining purchased software Year
2000 compliant.
The Company will utilize both internal and external resources to reprogram
or replace and test all of its software for Year 2000 compliance, and the
Company expects to complete the project in late 1999 but before any operational
impact. The estimated cost for this project could range as high as $1 million,
excluding the cost of new systems which will be capitalized. This cost is being
funded through a combination of cash provided from operations and borrowings
under the New Credit Facility. Failure by the company and/or vendors and
customers to complete Year 2000 compliance work in a timely manner could have a
material adverse effect on certain of the Company's operations.
43
<PAGE>
COMPANY PREDECESSOR
GENERAL
Following the acquisition of Bekins on May 2, 1996, Bekins changed its
fiscal year-end from March 31 to December 31. The results of Bekins are
presented in three principal operating units: HVP/Logistics, HHG and BMS. The
Company has pursued a strategy of converting the Company-owned BMS service
centers into centers owned by independent moving and storage agents, which have
or will become part of the Bekins HHG agent network. Since the acquisition of
Bekins, BMS has been treated as a discontinued operation, with its net assets
recorded on the balance sheet; however, the results are included in the Company
Predecessor financial statements. See "Notes to Consolidated Financial
Statements of the Company--Note 3."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
contribution to income and expense of the HVP/Logistics division, HHG division
and BMS division.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
HVP/Logistics.............................................................. $ 70,711 $ 76,736 $ 80,970
HHG........................................................................ 115,221 112,282 103,518
BMS........................................................................ 52,880 53,948 47,264
---------- ---------- ----------
Consolidated............................................................. $ 238,812 $ 242,966 $ 231,752
---------- ---------- ----------
---------- ---------- ----------
Net Revenues:
HVP/Logistics.............................................................. $ 13,440 $ 14,279 $ 15,521
HHG........................................................................ 19,999 17,845 18,765
BMS........................................................................ 18,803 19,564 17,855
---------- ---------- ----------
Consolidated............................................................. 52,242 51,688 52,141
Other Operating Expenses:
HVP/Logistics.............................................................. 9,269 10,402 11,820
HHG........................................................................ 14,580 14,965 14,615
BMS........................................................................ 16,950 17,641 16,375
---------- ---------- ----------
Consolidated............................................................. 40,799 43,008 42,810
Depreciation and Amortization................................................ 6,054 5,675 4,194
---------- ---------- ----------
Operating Income............................................................. 5,389 3,005 5,137
Interest Expense, Net........................................................ 1,758 2,252 2,397
Other (Income) Expense....................................................... (26) (259) 34
Income Tax Provision......................................................... 1,880 816 1,508
---------- ---------- ----------
Net Income................................................................... $ 1,777 $ 196 $ 1,198
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------------
1994 1995 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
EBITDA:
HVP/Logistics.............................................................. $ 4,171 $ 3,877 $ 3,701
HHG........................................................................ 5,445 3,139 4,116
BMS........................................................................ 1,853 1,923 1,480
---------- ---------- ----------
Consolidated............................................................. $ 11,469 $ 8,939 $ 9,297
---------- ---------- ----------
---------- ---------- ----------
EBITDA/Net Revenues:
HVP/Logistics.............................................................. 31.0% 27.1% 23.8%
HHG........................................................................ 27.2% 17.6% 21.9%
BMS........................................................................ 9.9% 9.8% 8.3%
Consolidated............................................................. 21.9% 17.3% 17.8%
Net cash from operating activities......................................... $ 6,377 $ 671 $ 9,266
Net cash from investing activities......................................... $ (2,963) $ (4,542) $ (469)
Net cash from financing activities......................................... $ (2,073) $ 3,826 $ (9,343)
</TABLE>
FISCAL YEAR ENDED MARCH 31, 1996 VERSUS FISCAL YEAR ENDED MARCH 31, 1995
REVENUES. Revenues decreased by approximately $11.2 million, or 4.6%, to
$231.8 million for the year ended March 31, 1996 from $243.0 million for the
year ended March 31, 1995. Revenues of the HVP/ Logistics division increased by
approximately $4.3 million, or 5.5%, to $81.0 million for the year ended March
31, 1996 from $76.7 million for the year ended March 31, 1995. Such increase was
attributable primarily to growth in the value-added logistics services business
which was partially offset by an intentional reduction of low-margin truckload
business.
Revenues of the HHG division decreased by approximately $8.8 million, or
7.8%, to $103.5 million for the year ended March 31, 1996 from $112.3 million
for the year ended March 31, 1995. This decrease was primarily attributable to a
program initiated by Bekins' HHG management to strengthen the profitability of
the HHG division. Specific HHG strategies were developed to eliminate lower
margin national account business and create a geographic balance of tonnage,
thereby also providing operational efficiencies. Such balance was achieved
through the creation of a zoned pricing matrix which allowed the management of
spot pricing by region for non-contract customers.
Revenues of the BMS division decreased by approximately $6.6 million, or
12.4%, to $47.3 million for the year ended March 31, 1996 from $53.9 million for
the year ended March 31, 1995. The BMS division revenue was also substantially
impacted by the new HHG strategy, particularly as it related to the national
balance of tonnage, with the majority of BMS revenue derived from the Southwest
region of the United States.
NET REVENUES. Net revenues increased by approximately $0.4 million, or
0.9%, to $52.1 million for the year ended March 31, 1996 from $51.7 million for
the year ended March 31, 1995. In the HVP/ Logistics division, net revenues as a
percentage of revenue increased to 19.2% for the year ended March 31, 1996 from
18.6% for the year ended March 31, 1995 due to an increased focus on generating
higher prices per shipment and providing more value-added services such as
inventory management and home delivery.
In the HHG division, net revenues as a percentage of revenues increased to
18.1% for the year ended March 31, 1996 from 15.9% for the year ended March 31,
1995. The increase in net revenues for the HHG division was primarily
attributable to more efficient operations resulting from the improved geographic
balance of tonnage.
45
<PAGE>
In the BMS division, the $1.7 million net revenue decrease was attributable
to a decrease in revenue, partially offset by a favorable change in the product
mix. Net revenues as a percentage of revenue increased to 37.8% for the year
ended March 31, 1996 from 36.3% for the year ended March 31, 1995.
OTHER OPERATING EXPENSES. Other operating expenses remained virtually
unchanged, decreasing by approximately $0.2 million, or 0.5%, to $42.8 million
for the year ended March 31, 1996 from $43.0 million for the year ended March
31, 1995. The other operating expenses of the HVP/Logistics division increased
along with the growth in revenue, because incremental resources were employed to
manage the future revenue growth and introduce more value-added services, while
other operating expenses of the HHG and BMS divisions decreased as a result of
the lower revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased by approximately $1.5 million, or 26.1%, to $4.2 million for the year
ended March 31, 1996 from $5.7 million for the year ended March 31, 1995. This
decline was attributable primarily to a shift from ownership and depreciation of
trailers to leasing of trailers.
OPERATING INCOME. Operating income increased by approximately $2.1 million,
or 70.9%, to $5.1 million for the fiscal year ended March 31, 1996 from $3.0
million for the fiscal year ended March 31, 1995. This increase was primarily
due to the reduction in depreciation and amortization noted above together with
improvements in net revenues and improved management of other operating expenses
primarily in the HHG and BMS divisions.
EBITDA. EBITDA increased by approximately $0.4 million, or 4.0%, to $9.3
million for the year ended March 31, 1996 from $8.9 million for the year ended
March 31, 1995. EBITDA as a percentage of net revenues increased to 17.8% from
17.3%. The increase was primarily attributable to improvements in operating
leverage and cost controls implemented in the HHG and BMS divisions. EBITDA for
the HVP/ Logistics division fell slightly as the pace of infrastructure
investment exceeded revenue growth to enable the division to harness future
growth opportunities.
INTEREST EXPENSE, NET. Interest expense, net increased by approximately
$0.1 million, or 6.4%, to $2.4 million for the fiscal year ended March 31, 1996
from $2.3 million for the fiscal year ended March 31, 1995. This increase was
primarily due to an increase in the weighted average interest rate during the
period to 8.6% from 7.3%. This increase in rate was partially offset by a
reduction in borrowings, primarily in the fourth fiscal quarter of the fiscal
year ended March 31, 1996, to $10.9 million from $19.5 million at March 31,
1995, due to improved working capital management and the disposition of certain
BMS assets.
INCOME TAX PROVISION. Income taxes increased by approximately $0.7 million
to $1.5 million for the fiscal year ended March 31, 1996 from $0.8 million for
the fiscal year ended March 31, 1995. The effective tax rate was 56.0% for the
fiscal year ended March 31, 1996 compared to 81.0% for the fiscal year ended
March 31, 1995. This decrease in effective tax rate was related to the overall
increase in earnings resulting in less of an impact of non-deductible intangible
asset amortization.
NET INCOME. Net income increased by approximately $1.0 million to $1.2
million for the fiscal year ended March 31, 1996 from $0.2 million for the
fiscal year ended March 31, 1995. This improvement was attributable to increased
net revenues achieved through operating improvements and reduced depreciation
and amortization expense.
FISCAL YEAR ENDED MARCH 31, 1995 VERSUS FISCAL YEAR ENDED MARCH 31, 1994
REVENUES. Revenues increased by approximately $4.2 million, or 1.7%, to
$243.0 million for the fiscal year ended March 31, 1995 from $238.8 million for
the fiscal year ended March 31, 1994.
Revenues of the HVP/Logistics division increased by approximately $6.0
million, or 8.5%, to $76.7 million for the year ended March 31, 1995 from $70.7
million for the year ended March 31, 1994. This increase was primarily
attributable to growth in the HVP/Logistics division and its entry into the home
delivery market.
46
<PAGE>
Revenues of the HHG division decreased by approximately $2.9 million, or
2.6%, to $112.3 million for the year ended March 31, 1995 from $115.2 million
for the year ended March 31, 1994. The HHG division revenues declined as a
result of insufficient hauling capacity related to a nationwide imbalance of
tonnage during the peak summer months. Significant revenue was rejected by the
HHG division due to its inability to service the tonnage during the summer of
1994.
Revenues of the BMS division increased by approximately $1.0 million, or
2.0%, to $53.9 million for the year ended March 31, 1995 from $52.9 million for
the year ended March 31, 1994. This increase was primarily a result of increased
volume in BMS's California locations due to the January 1994 earthquake which
caused significant storage activity in the spring and summer of 1994.
NET REVENUES. Net revenues decreased by approximately $0.6 million, or
1.1%, to $51.7 million for the fiscal year ended March 31, 1995 from $52.2
million for the fiscal year ended March 31, 1994. Net revenue of the
HVP/Logistics division increased by approximately $0.8 million, or 6.2%, to
$14.3 million for the year ended March 31, 1995 from $13.4 million for the year
ended March 31, 1994. Such increase was attributable to the increase in revenue,
partially offset by higher costs and lower margins related to the new home
delivery business segment. Net revenue as a percentage of revenue decreased to
18.6% for the year ended March 31, 1995 from 19.0% for the year ended March 31,
1994.
Net revenues of the HHG division decreased $2.2 million, or 10.8%, to $17.8
million for the fiscal year ended March 31, 1995 from $20.0 million for the
fiscal year ended March 31, 1994. Net revenues of the HHG division as a
percentage of revenue decreased to 15.9% for the year ended March 31, 1995 from
17.4% for the year ended March 31, 1994. This decrease was primarily
attributable to increased operational costs in the HHG division related to the
geographic imbalance of tonnage.
Net revenue of the BMS division as a percentage of revenue increased to
36.3% for the year ended March 31, 1995 from 35.6% for the year ended March 31,
1994. The increase in net revenue in the BMS division was attributable to an
increase in revenue, and a favorable change in product offerings to a higher
percentage of storage revenue.
OTHER OPERATING EXPENSES. Other operating expenses increased by
approximately $2.2 million, or 5.4%, to $43.0 million for the fiscal year ended
March 31, 1995 from $40.8 million for the fiscal year ended March 31, 1994. This
increase was principally due to customer service and operational control costs
associated with the growth and development in the HVP/Logistics business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased by $0.4 million, or 6.3%, to $5.7 million for the year ended March 31,
1995 from $6.1 million for the year ended March 31, 1994. This decrease was
primarily attributable to a shift from ownership and depreciation of trailers to
leasing of trailers.
OPERATING INCOME. Operating income decreased by approximately $2.4 million,
or 44.2%, to $3.0 million for the fiscal year ended March 31, 1995 from $5.4
million for the fiscal year ended March 31, 1994. This decrease was primarily
due to decreases in the HHG division revenues combined with higher other
operating expenses.
EBITDA. EBITDA decreased by approximately $2.6 million, or 22.1%, to $8.9
million for the fiscal year ended March 31, 1995 from $11.5 million for the
fiscal year ended March 31, 1994. This decrease was principally due to the HHG
division imbalance of tonnage and the resultant operational inefficiencies and
the increase in other operating expenses of the HVP/Logistics division. As a
percentage of net revenues, EBITDA decreased to 17.3% for the fiscal year ended
March 31, 1995 from 21.9% for the fiscal year ended March 31, 1994.
INTEREST EXPENSE, NET. Interest expense, net increased by approximately
$0.4 million, or 28.1%, to $2.2 million for the fiscal year ended March 31,
1995, from $1.8 million for the fiscal year ended March 31, 1994. This increase
in interest expense was due to a slightly higher level of borrowings during the
year ended March 31, 1995 and an increase in the weighted average interest rate
to 7.3% from 5.4%.
47
<PAGE>
INCOME TAX PROVISION. Income taxes decreased by approximately $1.1 million
to $0.8 million for the fiscal year ended March 31, 1995 from $1.9 million for
the fiscal year ended March 31, 1994. The effective tax rate was 81% for the
fiscal year ended March 31, 1995 compared to 51% for the fiscal year ended March
31, 1994. The increase in effective rate was related to the overall decrease in
earnings and the resulting larger impact that the non-deductible intangible
asset amortization had on the effective tax rate.
NET INCOME. Net income decreased by approximately $1.6 million to $0.2
million for the fiscal year ended March 31, 1995 from $1.8 million for the
fiscal year ended March 31, 1994. This decrease was attributable to lower net
revenues, increases in other operating expenses and higher interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at April 30, 1996 totaled $1.1 million compared to
$1.4 million at March 31, 1996. All available cash was used to reduce the debt
balances under the $35 million revolving credit facility. The debt balance at
April 30, 1996 totaled $13.4 million, which was an approximately $1.5 million
increase from the $11.9 million debt balance at March 31, 1996. This debt
increase was primarily a result of a sharp reduction in accrued liabilities. The
working capital deficit at April 30, 1996 was $16.0 million as a result of the
classification of the Company's revolving credit facility of $13.9 million as a
current liability because of the expiration date of July 31, 1996. At March 31,
1996, the working capital deficit was $14.9 million. On May 2, 1996, Bekins was
acquired by the Company, and all outstanding debt was paid in full.
Cash and cash equivalents at March 31, 1996 totaled $1.4 million compared to
$1.9 million at March 31, 1995. All available cash was used to reduce the debt
balances under the $35.0 million revolving credit facility. The debt balance at
March 31, 1996 totaled $11.9 million, which was an approximately $9.1 million
reduction from the $21.0 million debt balance at March 31, 1995. This debt
reduction was primarily a result of cash flow from operations of approximately
$5.9 million and improvements in management of working capital of approximately
$3.1 million. The working capital deficit at March 31, 1996 was $14.9 million as
a result of the classification of the Company's revolving credit facility of
$10.9 million as a current liability due to the July 31, 1996 expiration date.
At March 31, 1995, the working capital deficit was $1.4 million.
Cash and cash equivalents at March 31, 1995 totaled $1.9 million compared to
$2.0 million at March 31, 1994. The debt balance at March 31, 1995 totaled $21.0
million, which was an increase of approximately $2.1 million from the $18.9
million debt balance at March 31, 1994. The increase was primarily a result of
growth in the Company. At March 31, 1995, the working capital deficit was $1.4
million compared to $19.2 million at March 31, 1994. This was primarily as a
result of the Company's revolving credit facility of $16.6 million being
re-classified as a long-term liability in January 1995, due to an extension of
the maturity date.
48
<PAGE>
LIW
GENERAL
LIW was founded in 1849 and is one of the leading European-based
international freight forwarding companies. In October 1996, the Company
acquired LEP from LIW, acquired a 33.3% interest in LIW and entered into
long-term agreements with LIW to continue to operate LEP and the remaining LIW
operations as an integrated network. The net proceeds to LIW resulting from the
LEP Sale were used to restructure certain operations that had been generating
operating losses in LIW's European operations. In September 1997, the Company
exercised options and warrants with respect to equity of LIW which increased the
Company's ownership position in LIW from 33.3% to 75.2% of LIW's outstanding
ordinary shares. The remainder of common and preference shares were acquired in
the fourth quarter.
With respect to the nine months ended September 30, 1996, the financial
statements of LIW have been derived from management reports. Management has made
such adjustments to these reports as they believe are necessary for a fair
presentation of the Statement of Operations with respect to the nine months
ended September 30, 1996. However, there can be no assurances that such
financial statements are as reliable or accurate as financial statements that
were prepared using normal interim period or year-end financial reporting
procedures. In addition, such financial statements have not been subject to
independent review of the independent accountants of LIW or the Company.
49
<PAGE>
RESULTS OF LIW EUROPE, LIW ASIA/PACIFIC AND LEP OPERATIONS
The following table sets forth, for the periods indicated, the relative
contribution to income and expense of LIW Europe, LIW Asia/Pacific and LEP. The
Company acquired LEP on October 31, 1996 and the results of operations for LIW
following such date do not include results of operations of LEP.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------------
(POUNDS IN THOUSANDS) 1995 1996 1996 1997
- ---------------------------------------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues(a):
LIW Europe............................ L 556,188 L 543,409 L402,722 L370,710
LIW Asia/Pacific...................... 180,754 180,690 139,587 134,316
LEP................................... 369,281 303,127 274,953 --
------------ ------------ ---------- ---------
Consolidated........................ L1,106,223 L1,027,226 L817,262 L505,026
------------ ------------ ---------- ---------
------------ ------------ ---------- ---------
Net Revenues:
LIW Europe............................ L 103,181 L 100,385 L 71,813 L 65,065
LIW Asia/Pacific...................... 37,156 41,967 30,924 31,525
LEP................................... 59,143 50,359 45,501 --
------------ ------------ ---------- ---------
Consolidated........................ 199,480 192,711 148,238 96,590
------------ ------------ ---------- ---------
Other Operating Expenses:
LIW Europe............................ 110,847 101,751 72,880 63,998
LIW Asia/Pacific...................... 33,202 37,297 27,838 27,361
LEP................................... 57,942 50,278 45,343 --
Corporate............................. 2,849 2,661 2,167 3,641
------------ ------------ ---------- ---------
Consolidated........................ 204,840 191,987 148,228 95,000
Depreciation and Amortization........... 4,234 3,668 2,935 1,554
------------ ------------ ---------- ---------
Operating Income (Loss)................. (9,594) (2,944) (2,925) 36
Interest Expense, Net................... 2,741 1,325 1,144 506
Share of Loss in Equity Investments..... 1,021 1,369 698 565
Other (Income) Expense.................. -- (5,800) -- 275
------------ ------------ ---------- ---------
Income (Loss) Before Income Taxes and
Minority Interests.................... (13,356) 162 (4,767) (1,310)
Income Tax Provision.................... 5,987 2,588 1,599 1,246
------------ ------------ ---------- ---------
Loss Before Minority Interests.......... (19,343) (2,426) (6,366) (2,556)
Minority Interests...................... (397) (412) (487) (223)
------------ ------------ ---------- ---------
Net Loss................................ L (19,740) L (2,838) L (6,853) L (2,779)
------------ ------------ ---------- ---------
------------ ------------ ---------- ---------
OTHER DATA:
EBITDA:
LIW Europe............................ L (6,996) L (1,833) L (1,067) L 113
LIW Asia/Pacific...................... 3,719 4,444 3,056 4,124
LEP................................... 1,201 81 158 --
Corporate............................. (2,849) 3,139 (2,168) (3,916)
------------ ------------ ---------- ---------
Consolidated........................ L (4,925) L 5,831 L (21) L 321
------------ ------------ ---------- ---------
------------ ------------ ---------- ---------
EBITDA/Net Revenues:
LIW Europe............................ (6.8)% (1.8)% (1.5)% 0.2%
LIW Asia/Pacific...................... 10.0% 10.5% 9.9% 13.1%
LEP................................... 2.0% 0.2% 0.3% --%
Consolidated........................ (2.5)% 3.0% --% 0.3%
Net cash from operating activities.... L (15,281) L (3,101) L (5,020) L 2,526
Net cash from investing activities.... L (539) L 12,335 L 6,220 L (2,123)
Net cash from financing activities.... L 19,423 L (12,493) L (8,682) L (1,330)
</TABLE>
- --------------------------
(a) Revenues include intercompany balances between LIW and LEP as well as duties
and value-added tax paid on behalf of customers and subsequently invoiced to
customers.
50
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1996
REVENUES. Revenues decreased by approximately L312.3 million to L505.0
million for the nine months ended September 30, 1997 from L817.3 million for the
nine months ended September 30, 1996. This decrease was primarily attributable
to the sale of LEP to the Company on October 31, 1996, (the "LEP Sale") which
reduced overall revenues by L275.0 million between the two periods. In addition,
currency fluctuations accounted for L67.5 million of the decrease over the
period. Exclusive of currency fluctuations, the combined revenues of LIW Europe
and LIW Asia/Pacific (the "Retained Businesses") increased by L30.2 million, or
5.6%, with LIW Europe accounting for L21.0 million of the increase and LIW
Asia/Pacific for L9.2 million. These increases were due in part to increased air
and ocean volumes of the export-oriented manufacturers served by LIW in the
growth economies of the Asia/Pacific region.
NET REVENUES. Net revenues decreased by approximately L51.6 million to
L96.6 million for the nine months ended September 30, 1997 from L148.2 million
for the nine months ended September 30, 1996. This decrease was primarily
attributable to the LEP Sale, which reduced net revenues by L45.5 million. In
addition, currency fluctuations accounted for L12.5 million of the decrease.
Exclusive of currency fluctuations, the net revenues of the Retained Businesses
increased by L6.3 million, or 5.6%. LIW Europe increased by L2.3 million and LIW
Asia/Pacific increased by L2.0 million. Net revenues as a percentage of revenues
increased to 19.1% for the nine months ended September 30, 1997, from 18.1% for
the nine months ended September 30, 1996.
OTHER OPERATING EXPENSES. Other operating expenses decreased by
approximately L53.2 million to L95.0 million for the nine months ended September
30, 1997 from L148.2 million for the nine months ended September 30, 1996. This
decrease was primarily attributable to the LEP Sale which resulted in a decrease
of L45.3 million in other operating expenses. Currency fluctuations accounted
for L12.2 million of the reduction in these expenses. Exclusive of the impact of
currency fluctuations, other operating expenses of the Retained Businesses
increased slightly by L4.3 million. Other operating expenses as a percentage of
net revenues improved to 98.3% to September 30, 1997 from 99.6% in the first
nine months of 1996. Redundancy/restructuring charges were included in other
operating expenses for each of the 1997 and 1996 periods were L1,563 and L1,560,
respectively.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased by approximately L1.4 million to L1.5 million for the nine months
ended September 30, 1997 from L2.9 million for the nine months ended September
30, 1996. This decrease was primarily attributable to the reduction in
depreciable assets associated with the LEP Sale.
OPERATING INCOME (LOSS). Operating income increased by approximately L3.0
million to a profit of L0.1 million for the nine months ended September 30, 1997
from a loss of L2.9 million for the nine months ended September 30, 1996. This
increase was partially attributable to (i) the LEP Sale which removed losses of
L0.9 million, (ii) an increase of L2.3 million in the profits of LIW Europe and
(iii) an increase of L1.1 million in the profits of LIW Asia/Pacific. None of
the foregoing factors were impacted by currency fluctuations.
EBITDA. EBITDA increased by approximately L0.3 million to L0.3 million in
the nine months ended September 30, 1997 from a breakeven for the nine months
ended September 30, 1996. This increase was primarily attributable to an
increase in the net revenues of the Retained Businesses and the LEP Sale which
removed the losses associated with LEP. As a result of these factors, EBITDA
expressed as a percentage of net revenues, improved to 0.3% for the nine months
ended September 30, 1997 from zero for the nine months ended September 30, 1996.
INTEREST EXPENSE, NET. Interest expense, net decreased by approximately
L0.6 million to L0.5 million for the nine months ended September 30, 1997 from
L1.1 million for the nine months ended September 30,
51
<PAGE>
1996. This decrease was primarily due to lower average outstanding debt balances
following the L17.3 million reduction in borrowings which were repaid in 1996
from the proceeds of the LEP Sale.
SHARE OF INCOME (LOSS) IN EQUITY INVESTMENT. The Company's share of losses
in equity investments decreased by approximately L0.1 million for the nine
months ended September 30, 1997 to L0.6 million from L0.7 million for the nine
months ended September 30, 1996. This decrease is due to reduced losses from
LIW's 50% equity interest in its Italian affiliate.
INCOME TAX PROVISION. The provision for income tax decreased by
approximately L0.4 million to L1.2 million for the nine months ended September
30, 1997 from L1.6 million for the nine months ended September 30, 1996. The
decrease is primarily attributable to the LEP Sale. In both periods, LIW was a
net payer of taxes on a worldwide basis as a result of a corporate structure
wherein losses in one country cannot be offset against profits in another
country.
MINORITY INTERESTS. Interests of minority shareholders in certain
subsidiaries of LIW decreased by approximately L0.3 million to L0.2 million for
the nine months ended September 30, 1997 from L0.5 million for the nine months
ended September 30, 1996. The decrease is primarily due to the impact of foreign
currency fluctuations in those Asian subsidiaries which have minority interests.
NET INCOME (LOSS). Net loss decreased by approximately L4.1 million to a
loss of L2.8 million for the nine months ended September 30, 1997 from a net
loss of L6.9 million for the nine months ended September 30, 1996. The
improvement is primarily attributable to the factors affecting the
aforementioned increase in operating income in combination with reductions in
depreciation expense and interest expense occasioned by the LEP Sale.
FISCAL YEAR ENDED DECEMBER 31, 1996 VERSUS FISCAL YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues decreased by approximately L79.0 million, or 7.1%, to
L1,027.2 million for the fiscal year ended December 31, 1996 from L1,106.2
million for the fiscal year ended December 31, 1995. This decrease was primarily
attributable to the LEP Sale on October 31, 1996, which reduced revenues by
L68.7 million. Currency fluctuations accounted for an additional L6.0 million of
the reduction. Exclusive of currency fluctuations, revenues of the Retained
Businesses decreased by L4.3 million reflecting increased pricing pressure
within continental Europe and decreases in the revenues of the Australian
business.
NET REVENUES. Net revenues decreased by approximately L6.8 million, or
3.4%, to L192.7 million for the fiscal year ended December 31, 1996 from L199.5
million for the fiscal year ended December 31, 1995. Currency fluctuations
accounted for L1.1 million of the decrease in net revenues while the LEP Sale
contributed L9.2 million to the decrease. Exclusive of currency fluctuations,
net revenues of the Retained Businesses increased by L3.5 million. The L1.4
million decrease in net revenues of Europe was more than offset by increases of
L4.9 million in LIW Asia/Pacific. Net revenue as a percentage of revenue for the
period increased to 18.8% in 1996 from 18.0% in 1995.
OTHER OPERATING EXPENSES. Other operating expenses decreased by
approximately L12.8 million, or 6.3%, to L192.0 million for the fiscal year
ended December 31, 1996 from L204.8 million for the fiscal year ended December
31, 1995. This decrease was primarily attributable to the LEP Sale, which
reduced other operating expenses by L8.0 million. Currency fluctuations
accounted for L1.3 million of the decrease. Exclusive of currency fluctuations,
other operating expenses of the Retained Businesses decreased by L3.5 million
over the period, as LIW Europe decreased by L7.6 million and LIW Asia/Pacific
increased by L4.1 million. Redundancy/restructuring charges were reflected in
other operating expenses for the fiscal years ended December 31, 1995 and 1996.
The decline in expense levels in LIW Europe reflects the benefits of certain
restructuring efforts and administrative personnel reductions undertaken in 1995
and 1996, while increases in other operating expenses of LIW Asia/Pacific were
consistent with the growth of
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business in that region. Other operating expenses as a percentage of net
revenues for the period improved to 99.6% in 1996 from 102.7% in 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased by approximately L0.5 million, or 13.4%, to L3.7 million for the
fiscal year ended December 31, 1996, from L4.2 million for the fiscal year ended
December 31, 1995. This decrease was primarily attributable to the decrease in
depreciable assets associated with the LEP Sale.
OPERATING INCOME (LOSS). Operating loss improved by approximately L6.7
million to a loss of L2.9 million for the year ended December 31, 1996 from a
loss of L9.6 million for the year ended December 31, 1995. This improvement was
attributable to reduced losses, net of currency fluctuations, in LIW Europe of
L6.7 million as a result of a decrease in other operating expenses while LIW
Asia/Pacific also improved by L0.7 million. This was offset by a decrease in
income due to the divestiture of LEP of L0.9 million. In addition, depreciation
and amortization decreased by L0.5 million, while currency fluctuations had no
significant impact on the operating loss results.
EBITDA. EBITDA increased by approximately L10.7 million to L5.8 million for
the year ended December 31, 1996 from a loss of L4.9 million for the year ended
December 31, 1995. This increase was primarily attributable to reductions in
other operating expenses partially offset by a decrease in consolidated net
revenues. While this EBITDA improvement includes the gain on the LEP Sale of
L5.8 million, LIW Europe reported a L5.2 million improvement in EBITDA.
INTEREST EXPENSE, NET. Interest expense, net decreased by approximately
L1.4 million, or 52%, to L1.3 million for the fiscal year ended December 31,
1996 from L2.7 million for the fiscal year ended December 31, 1995. This
decrease was due to the reduction of borrowings from the proceeds from the sales
of a minority interest in a Swiss freight forwarding business in the beginning
of 1996, and the reduction of L17.3 million of borrowings which were repaid in
1996 from the proceeds of the LEP Sale.
SHARE OF INCOME (LOSS) IN EQUITY INVESTMENT. LIW's share of losses in
equity investments increased by approximately L0.4 million to L1.4 million for
the year ended December 31, 1996 from L1.0 million for the year ended December
31, 1995. LIW's principal investment is a 50% share in its Italian affiliate,
where LIW's share of such entity's loss was unchanged at a loss of L1.4 million.
In 1995, LIW reported a profit of L0.4 million from its 33% interest in a Swiss
freight forwarding business which was sold at the start of 1996.
INCOME TAX PROVISION. The provision for income tax decreased by L3.4
million to L2.6 million for the year ended December 31, 1996 from L6.0 million
for the year ended December 31, 1995. The 1995 provision includes a general
provision of L2.5 million recorded to provide for contingent tax liabilities in
a number of countries. The improvement in profit before taxation has little
impact on the tax charge as a result of losses being reduced, and also as the
profit on the LEP Sale was not subject to significant taxes.
MINORITY INTEREST. There was no change in the minority share of profit of
L0.4 million.
NET INCOME (LOSS). Net loss decreased by approximately L16.9 million to a
net loss of L2.8 million for the year ended December 31, 1996 from a net loss of
L19.7 million for the year ended December 31, 1995. This reduction was
attributable to the factors affecting the aforementioned increase in operating
income in conjunction with reductions in depreciation expense and interest
expense occasioned by the LEP Sale. In addition, a gain on the sale of LEP of
L5.8 million was recorded in other income in the 1996 period.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the LEP Sale, LIW's net working capital was reduced by
L10.7 million and the cash position of LIW was improved as a result of the
removal of L14.4 million of loans and borrowings. The cash proceeds of L6.0
million received by LIW from the LEP Sale were applied by LIW to repay L2.9
million of
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borrowings in Europe and Australia and L2.3 million for restructuring costs
primarily in Germany. At September 30, 1997, LIW had borrowings of L9.7 million
and cash balances of L13.7 million.
For the fiscal year ended December 31, 1996, the principal sources of cash
for LIW were L6.0 million from the LEP Sale, L5.4 million from the sale of
shares in a freight forwarding business in Switzerland, and L2.7 million from
the sale of fixed assets, including L1.9 million from the sale of certain real
estate and assets in the United Kingdom. Operating losses of L2.9 million were
offset by L3.7 million of depreciation. Interest costs amounted to L1.8 million,
which includes interest costs of L1.2 million in respect of the borrowings of
the North American business prior to the LEP Sale. Tax charges of L2.4 million
were paid as operating losses in certain countries were not able to shelter
taxable income in profitable countries. Capital expenditures totalled L1.8
million in the period.
During the fiscal year ended December 31, 1995, cash inflows consisted of
L5.2 million of capital contributed to LIW by its sole shareholder, L6.3 million
in commercial loans and L6.7 million in overdraft facilities. Cash outflows
consisted of losses of L5.4 million, net of depreciation, additional working
capital investment of L4.0 million, interest costs of L2.7 million, tax charges
of L3.0 million and capital expenditures of L3.0 million including L0.9 million
on FAST 400 software development.
In the nine months ending September 30, 1997 cash of L1.3 million was
generated from operations and L2.4 million was generated by reduced working
capital of which L0.8 million was used to fund income tax charges.
At September 30, 1997, LIW had loan facilities with a number of banks in the
countries in which it operates. Such facilities aggregate to L34.0 million of
which L23.0 million relate to customs and other guarantees integral to LIW's
freight forwarding operations. The remaining L11.0 million is available in
overdraft/revolver facilities, on which the utilization varies. Additional
facilities include mortgage loans of L1.4 million secured by property in Germany
and Portugal. The remainder of the facilities are normally fully utilized over
the course of an average month, however, the degree and timing of utilization
varies by region. For LIW Europe, peak utilization is normally in the middle of
the month as customs duties and excise taxes are paid. In LIW Asia/Pacific peak
utilization varies among countries depending on local terms of trade.
SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
The combined and consolidated financial statements have been prepared in
accordance with UK GAAP, which differ in certain significant respects from US
GAAP. A description of the relevant accounting principles which differ
materially is given below:
GOODWILL AND OTHER ACQUISITION ACCOUNTING ADJUSTMENTS
Under UK GAAP the Group has written off purchased goodwill (as well as
negative goodwill arising on purchases of businesses) against reserves. US GAAP
requires that any remaining goodwill after the allocation of purchase price to
separately identifiable intangible assets and the fair value of net tangible
assets acquired and liabilities assumed be capitalised as an intangible asset
and amortised over a period not in excess of 40 years. Furthermore, US GAAP
requires that any negative goodwill arising from a purchase transaction be
allocated to the assigned fair values of identifiable tangible and intangible
assets until these are reduced to a carrying amount of zero with the remainder
recorded as a deferred credit and amortised to income over a period not in
excess of 40 years.
PENSION COSTS
UK GAAP and US GAAP are conceptually similar in respect of accounting for
pension costs. However, US GAAP is more specific in its requirements as to the
selection of discount rates which must reflect current market conditions at each
balance sheet date. In addition, the amortisation of unrecognised
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gains and losses arising from changes in assumptions and actuarial experience,
under US GAAP is affected through a corridor approach.
TAXES ON INCOME
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystalise in the foreseeable
future. Under US GAAP, deferred taxes are accounted for on all timing
differences and a valuation allowance is established in respect of those
deferred tax assets where it is more likely than not that some portion will
remain unrealised. Deferred tax also arises in relation to the tax effect of the
other US GAAP adjustments.
REVALUATION OF PROPERTY AND PROPERTY DEPRECIATION
Under UK GAAP property is carried either at original cost or at subsequent
valuation less related depreciation, calculated on the revalued amount where
applicable. Revaluation surpluses are taken directly to shareholders' funds,
while deficits below cost, less any related depreciation, are included in
attributable profit.
Under US GAAP revaluations of properties are not permitted in the accounts.
As a result, when a property is disposed of, a greater profit or lower loss is
generally recorded under US GAAP than under UK GAAP. Depreciation is based on
the historical cost.
DIVIDENDS
Under UK GAAP, dividends are provided for in the year in respect of which
they are declared or proposed. Under US GAAP, dividends and the related advance
corporation tax are given effect only in the period in which dividends are
formally declared.
The effects of these differing accounting principles are shown below:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED NINE MONTH ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------- --------------------
1995 1996 1996 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
ADJUSTMENT TO NET INCOME
(Loss)/profit attributable to shareholders in accordance with
UK GAAP............................................................. L(19,740) L(2,838) L(6,853) L(2,779)
US GAAP adjustments:
Fixed asset revaluations excess depreciation.......................... 351 22 -- --
Depreciation adjustments.............................................. -- 1,129 1,081 1,179
Profit on sale of fixed assets........................................ -- 482 209 29
Disposal of North American operations................................. -- 2,904 -- --
Pension scheme charges................................................ 351 573 380 415
Taxation effect on the above items.................................... (116) (1,147) (599) (536)
Deferred taxation..................................................... -- (22) (16) (16)
---------- --------- --------- ---------
Approximate net income in accordance with US GAAP..................... L(19,154) L1,103 L(5,798) L(1,708)
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
55
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BUSINESS
HISTORY
The Company was formed in 1996 by Oaktree, WESS and Roger E. Payton, the
Company's President and Chief Executive Officer who has over 20 years experience
in the logistics industry, with the objective of developing a leading provider
of global logistics services for major multinational companies. The Company
believes that it can accomplish its objective by offering comprehensive
logistics and freight forwarding services that fulfill the individual
requirements of multinational customers that outsource their logistics needs. In
furtherance of the Company's strategy, the Company has assembled, through a
series of strategic acquisitions, a core platform of leading domestic and
international logistics companies that serve the niche markets that the Company
has targeted for future growth.
On May 2, 1996, the Company acquired Bekins. Founded in 1891, Bekins has
historically been a provider of HHG hauling and storage services. In recent
years, Bekins has expanded its service offerings to include inventory
management, distribution, specialized truck transportation and TimeLok, a
network-based transportation and warehouse logistics operation which services
manufacturers and distributors of high value products ("HVP"). As of December
31, 1997 Bekins operated through a United States network of 92 HVP Logistics
service centers and 284 HHG service centers, all of which were owned by
independent agents.
On October 31, 1996, the Company acquired LEP-USA and LEP-Canada from LIW in
the first step of the overall acquisition of LIW. Founded in 1973, LEP-USA is a
non-asset-based freight forwarder serving niche transport segments of both the
United States and international freight forwarding and logistics markets. As of
December 31, 1997, LEP-USA operated 56 full service offices throughout the
United States and Puerto Rico, 26 of which were owned by the Company, with the
remainder owned and operated by agents. Founded in 1930, LEP-Canada operates 12
offices located throughout Canada and provides international freight forwarding
and logistics services, focusing on inbound transportation, customs clearance
activities and trade fairs and exhibitions.
On November 7, 1996, the Company acquired Matrix. Founded in 1986, Matrix
offers specialized international relocation services for executives of
multinational companies and government agencies and project cargo logistics
services for major infrastructure development projects. Matrix provides its
services through five offices in the United States, one minority partnership in
Holland, one exclusive agent in Canada and eight joint venture offices in the
Commonwealth of Independent States (the former Soviet Union).
In September 1997, the Company expanded its international operations by
acquiring a controlling interest in the common equity of LIW and in December
1997 the Company increased its ownership to all of LIW's outstanding equity and
LIW became a wholly-owned subsidiary of the Company. See "Recent
Acquisitions--Acquisition of LIW." Founded in 1849, LIW provided complete
freight forwarding and logistics services through 196 branches in 26 countries,
as of December 31, 1997. In Europe, LIW operates a pan-European transportation
network and has offices in 12 countries including one of the largest freight
forwarding businesses in the United Kingdom. In the Asia Pacific region, LIW
maintains locations in 14 countries and is particularly well-established in the
Hong Kong, Singapore and Philippines markets. Additionally, through strategic
alliances in South Africa, the Indian sub-continent, Latin America and the
Middle East, LIW provided freight forwarding and logistics services in an
additional 42 countries as of December 31, 1997.
The Company believes that the acquisition of LIW completed its efforts to
create a global network with a strong local presence in North America, Europe
and Asia, capable of providing logistics and transportation solutions to
multinational companies. Moreover, the LIW Acquisition afforded the Company
ownership of FAST 400, LIW's proprietary system for the real-time management of
transportation shipments on a multi-modal, multi-currency and multi-lingual
basis. The Company believes that FAST 400
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is the most advanced information system of its type currently in use in the
global freight forwarding and logistics industries. See "Business--Information
Systems".
For a more detailed discussion of the Subsidiary Acquisitions, see "Recent
Acquisitions."
OVERVIEW
The Company is one of the largest non-asset-based providers of worldwide
logistics and transportation services headquartered in the United States, based
on revenues for 1997 and after giving pro forma effect to the LIW Acquisition.
The Company's primary business operations involve obtaining shipment or material
orders from customers, creating and delivering a wide range of logistics
solutions to meet customers' specific requirements for transportation and
related services, and arranging and monitoring all aspects of material flow
activity utilizing advanced information technology systems. These logistics
solutions include domestic and international freight forwarding and door-to-door
delivery services using a wide range of transportation modes, including air,
ocean, truck and rail. The Company also provides value-added services such as
warehousing, inventory management, assembly, customs brokerage, distribution and
installation for manufacturers and retailers of commercial and consumer products
such as copiers, computers, pharmaceutical supplies, medical equipment, consumer
durables and aviation products. The Company also specializes in arranging for
the worldwide transportation of goods for major infrastructure projects, such as
power plants, oil refineries, oil fields and mines, to lesser developed
countries and remote geographic locations. In addition, the Company provides
international and domestic relocation services through the HHG divisions of
Bekins and Matrix. On a pro forma basis after giving effect to the Subsidiary
Acquisitions, the Company generated approximately $1.5 billion of revenues and
$21.3 million of EBITDA for the year ended December 31, 1997.
As a non-asset-based logistics services provider, the Company arranges for
and subcontracts services on a non-committed basis to airlines, truck lines, van
lines, express companies, steamship lines, rail lines and warehousing and
distribution operators. By concentrating on network-based solutions, the Company
avoids competition with logistics services providers that offer dedicated
outsourcing solutions for single elements of the supply chain. Such dedicated
logistics companies typically provide expensive, customized infrastructure and
systems for a customer's specific application and, as a result, dedicated
solutions that are generally asset-intensive, inflexible and invariably
localized to address only one or two steps in the supply chain. Conversely,
network-based services leverage common infrastructure and technology systems so
that solutions are scaleable, replicable and require a minimum amount of
customization (typically only at the interface with the customer). This
non-asset ownership approach maximizes the Company's flexibility in creating and
delivering a wide range of end-to-end logistics solutions on a global basis
while simultaneously allowing the Company to exercise significant control over
the quality and cost of the transportation services provided.
Through the Subsidiary Acquisitions the Company has created a global network
that provides a broad range of transportation and logistics services through
points of service in both industrialized and developing nations with a strong
local presence in North America, Europe and Asia. As of December 31, 1997, the
Company serviced over 75,000 active customers through a global network of 75
countries consisting of operations located in 33 countries and strategic
alliance partners located in 42 countries. Some of the Company's major customers
include Lucent Technologies Inc., Cisco Systems, Inc., Williams-Sonoma, Inc. and
Danka Business Systems plc (formerly the office imaging technology division of
Eastman Kodak Company). See "Recent Acquisitions."
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The U.S. logistics services industry generated approximately $25.0 billion
in revenues in 1996, having experienced an average annual growth rate of
approximately 20.0% from 1992 to 1996. The Company believes that the global
logistics services industry is three to four times the size of the U.S.
logistics services industry. Within the logistics services and freight
forwarding industries, the Company targets specific markets in which the Company
believes it has a competitive edge. For example, in the freight forwarding
market, the Company arranges transportation for shipments of heavy cargo that
are generally larger than shipments handled by integrated carriers, such as
United Parcel Service of America and Federal Express Corporation. In the
logistics market, the Company provides specialized combinations of services that
traditional freight forwarders cannot cost-effectively provide, including
time-definite delivery requirements, direct-to-store distribution and
merge-in-transit movement of products from various vendors in a single
coordinated delivery and/or installation to the end-user.
BUSINESS STRATEGY
The Company has developed a business strategy designed to increase revenues
and expand profit margins which includes the following principal elements:
EMPHASIZE END-TO-END LOGISTICS SERVICES. The Company intends to continue to
develop and market higher-margin, value-added logistics services. The Company
believes that it differentiates itself from its competitors by providing its
customers with superior service and added value through a global end-to-end
logistics network. The Company is increasingly providing end-to-end logistics
programs for a number of major customers in which the Company implements
solutions addressing the customers' transportation, customs clearance,
warehousing and distribution activities. For example, the Company manages
purchase order requests from customers of a computer component manufacturer,
selects optimal transportation modes to the United States, United Kingdom and
Europe for such computer components, tests equipment to ensure that such
equipment is in working order prior to delivery to the customer and delivers the
product to the customer on a just-in-time basis. These logistics programs are
specifically tailored to solve sourcing and distribution challenges of customers
within targeted industries, including life sciences (health-care and
pharmaceuticals), office technology, medical equipment and products, aviation
and defense and retail. The implementation of these programs often includes the
integration of the Company's information systems with those of its customers,
and, in some cases, the stationing of Company personnel at the customers'
offices.
MAINTAIN AND ENHANCE TECHNOLOGICAL LEADERSHIP POSITION. The Company
believes that the ability to provide accurate, up-to-date information on the
status of shipments to ensure on-time delivery, real-time visibility of
inventory on a global basis and efficient operations provides competitive
advantages in the logistics services industry. The Company believes that it is a
leader in information processing for transportation logistics and that
maintaining and strengthening its leadership position will be critical to its
continued success. The Company utilizes FAST 400, a proprietary system for the
real-time management of shipments on a multi-modal, multi-currency and
multi-lingual basis, in certain of its operations. The Company believes that
FAST 400 is the most advanced information system of its type currently in use in
the global freight forwarding industry. The Company believes that planned system
upgrades and expenditures, a significant part of which relate to enhancement of
the Company's financial reporting, communications and inventory tracking
systems, will complement the technological advantages of FAST 400. The Company
expects to spend approximately $30.0 million over the next three years to
conclude the implementation and integration of FAST 400 and its related BUSINESS
400 systems globally, purchase additional information systems equipment and
software upgrades and integrate the systems capabilities of its subsidiaries.
The Company anticipates that, upon the completion of the planned expenditures,
all the Company's subsidiaries will be operating on a single, FAST 400-based
system.
INCREASE PENETRATION OF EXISTING CUSTOMERS. The Company's broad range of
services, dedication to excellent customer service and efforts to develop
integrated transportation logistics programs have
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fostered customer loyalty, enabling the Company to expand sales and services to
existing customers. The use of specialized teams of marketing and operational
personnel enables the Company to better analyze its customers' transportation
logistics requirements and develop more complete end-to-end logistics solutions.
For example, the Company services an apparel manufacturer through the
development of a centralized European distribution center that receives delivery
of products from 8 points of origin around the world and makes delivery of
products to approximately 26 different ultimate points of destination in Europe
on a demand basis. In addition, the Company's dedicated marketing staff for
major accounts enables it to maintain close contact with its major customers on
an ongoing basis. The Company believes that the combination of its knowledge of
customer needs, proven level of service, quality and ability to develop
customized logistics solutions continues to give the Company the opportunity to
expand its business significantly within its existing customer base.
EXPAND CUSTOMER BASE. The Company intends to increase the number of major
corporations worldwide for which it provides transportation and logistics
services. Through industry specialization teams, the Company believes that it
can further penetrate certain targeted industries such as life sciences (health
care and pharmaceuticals), office technology, medical equipment and products,
aviation and defense and retail. For example, the Company recently developed a
customized logistics solution for one of the world's leading pharmaceutical
companies which required a complete logistics program to support sales sample
distribution including temperature control facilities, inventory management,
individual item tracking and management control for U.S. Food and Drug
Administration compliance. The Company believes that the combination of its
global network, high-quality service and ability to develop customized
end-to-end logistics solutions will make its services attractive to potential
new customers. In addition, the Company believes that its efforts to strengthen
its international office network will enhance its ability to add major customers
throughout the world.
STRENGTHEN THE COMPANY'S GLOBAL NETWORK. The Company has a global network
spanning 75 countries which includes offices in 33 countries and strategic
partnerships in 42 countries. The Company intends to continue to strengthen its
network of Company-owned offices by opening new offices and, to the extent the
Company is able to identify appropriate acquisition opportunities, making
selective acquisitions. Such expansion is expected to occur in major commercial
centers in both the United States and abroad. As more countries with closed or
highly-controlled economies have moved toward free market systems, the
opportunity for international trade with emerging growth regions has improved
significantly. Consequently, the Company continuously monitors and evaluates
opportunities in developing nations and plans to expand its operations in Latin
America, the Indian sub-continent and the Commonwealth of Independent States to
meet the needs of customers that are serving the evolving consumer economies in
such areas. The Company believes that such expansion will enhance its ability to
offer uniform services on a worldwide basis, thereby enabling it to earn
increased revenue from existing and new customers, particularly with respect to
shipments originating in countries other than the United States. See "Risk
Factors-- Risks Associated with International Operations."
EXPAND PRESENCE IN NICHE MARKETS. The Company intends to expand its
presence in selected niche markets which utilize the Company's existing
transportation and logistics services and provide high marginal profits. In
particular, the Company is focused on expanding its niche in project cargo
logistics involving large-scale governmental and commercial projects. The
Company's project logistics services include multiple-origin transportation
planning and evaluation, vendor compliance, risk/opportunity assessment,
performance measurement, procedure documentation, and forwarding of heavy
material and equipment and its attendant logistics information from multiple
points of origins to project locations. The Company believes that the addition
of LIW's Asian and European operations to the Company's existing logistics
capabilities will allow the Company to continue to expand its position in the
market for complex, project cargo logistics solutions.
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INDUSTRY OVERVIEW
GENERAL. As business requirements for efficient and cost-effective
distribution services have increased, so has the importance and complexity of
effectively managing freight transportation. Businesses increasingly strive to
minimize inventory levels, perform manufacturing and assembly operations in
lowest cost locations and distribute their products to numerous global markets.
As a result, companies frequently desire expedited or time-definite shipment
services. To assist in accomplishing these tasks, many businesses turn to
freight forwarders and logistics providers. A freight forwarder procures
shipments from customers, makes arrangements for transportation of the cargo on
a carrier and may arrange both for pick-up from the shipper to the carrier and
for delivery of the shipment from the carrier to the recipient. A logistics
provider moves and manages goods from suppliers to end customers with the goal
of meeting specific customer requirements, working capital objectives and
overall customer satisfaction.
Historically, most transportation services have been provided by companies
with capabilities in only one or a very limited number of modes. The Company
believes it has differentiated itself by providing traditional transportation
services in virtually every mode, as well as by combining these services with
value-added logistics services, including pick-and-pack services,
merge-in-transit, inventory management, warehousing, reverse logistics,
dedicated trucking and regional and local distribution. The Company's logistics
managers have the ability to utilize a portfolio of transportation products and
design optimal transportation solutions for its customers. The Company believes
that it has a competitive advantage resulting from the experience and knowledge
of its logistics managers and in the market information it possesses from its
diverse client base.
Shippers increasingly use computer technology to control inventory carrying
costs and improve customer service by decreasing shipping time through
just-in-time delivery systems. The complex distribution systems that result
require not only selection of the proper mode to transport freight, but also
hands-on management to minimize overall logistics costs. At the same time, in an
effort to reduce overhead costs and introduce the expertise necessary to manage
their distribution systems, many shippers have sought to downsize their
transportation departments by outsourcing all or a portion of the traffic
function.
FREIGHT FORWARDING. Freight forwarding services are provided through the
following modes of transportation:
- AIR FREIGHT. The air freight forwarding industry is highly fragmented.
Many industry participants are capable of meeting only a portion of their
customers' required transportation service needs. Some national domestic
air freight forwarders rely on networks of terminals operated by
franchisees or non-exclusive agents. The Company believes that the
development and operation of Company-owned and exclusive agent-owned
service centers under the supervision of the Company's management have
enabled it to provide a higher degree of financial and operational control
and service assurance than that offered by franchise-based networks.
- OCEAN. The ocean freight forwarding industry is highly fragmented,
consisting of dedicated freight forwarders, private owners and operators
of shipping fleets, and state-controlled shipping companies. The demand
for ocean freight forwarding services is largely a factor of the level of
worldwide economic activity and the distance between major trade areas.
Freight rates are determined in a highly competitive global market and
have been characterized by a steady decline since the early 1990s.
- TRUCKING. The largest segment of the non-local trucking industry is
comprised of private fleets owned and operated by shippers. This segment
has been gradually shrinking since 1980 as truckload carriers have become
more service oriented in a deregulated environment. The shipper's focus on
profitability has driven a trend toward outsourcing of private fleets. The
next largest segment, for-hire truckload, is comprised primarily of
specialized niches such as household goods, temperature-controlled flats
and tanks. Truckload carriers have traditionally focused on providing
services within
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only one of these niches, with few dominating any particular niche or
operating equipment in multiple niches. Less than truckload services are
provided by a large number of carriers who specialize in consolidating
smaller shipments into truckload quantities for transportation across
regional and national networks. Freight forwarders such as the Company
have been able to capitalize on these trends in the trucking industry by
purchasing excess capacity at reduced rates and by providing incremental
freight business to truckload carriers in regions where the marketing
presence of the truckload carriers may not be as strong as the freight
forwarders.
LOGISTICS SERVICES. The U.S. logistics services industry generated
approximately $25.0 billion in revenues in 1996, having experienced an average
annual growth rate of approximately 20.0% from 1992 to 1996. The Company
believes that the global logistics services industry is three to four times the
size of the U.S. logistics services industry. Such growth is a result of
increasing demands by traditional freight forwarding customers for more than the
simple movement of freight from their transportation suppliers. To meet these
needs, suppliers, such as the Company, seek to customize their services by,
among other things, providing information on the status of materials, components
and finished goods through the logistics pipeline and providing performance
reports on and proof of delivery for each shipment. The growing emphasis of some
manufacturers on just-in-time manufacturing and production practices has also
added to the demand for rapid deliveries that are available through air freight.
As a result of these developments, many companies are realizing that they
perform freight transportation management and logistics functions less
effectively than third-party providers, such as the Company, and are relying
increasingly on partial or complete outsourcing of these functions. At the same
time, major shippers are seeking to utilize fewer firms to service their
transportation management and logistics needs. The Company believes that the
continuing trend toward outsourcing and the continuing concentration of
transportation suppliers by major shippers offers significant opportunities for
those forwarders, such as the Company, with extensive, well-managed global
networks and advanced logistics information systems.
RELOCATION SERVICES. The top 15 HHG carriers, which accounted for
approximately 83.0% of total revenues generated by the 61 carriers who filed
with the STB according to the American Movers Conference, generated
approximately $3.2 billion of revenues in 1996, an increase of 5.5% over 1995.
The domestic HHG relocation services market is competitive and highly
fragmented. The Company competes with approximately 2,000 carriers for the
domestic interstate transportation of household goods. These carriers are
generally van lines that use the services of independent moving and storage
agencies that contractually affiliate with the carrier, although some carriers
own and operate company-owned branches. The relocation services industry
generally markets to three distinct customer groups: (i) corporate accounts who
pay for the relocations of their employees, (ii) private transferees paying for
their own moves and (iii) the U.S. Government, which pays for both civilian and
military relocations of their personnel. The Motor Carrier Act of 1980 (the
"Motor Carrier Act") reduced regulation in the trucking industry and provided
the opportunity for increased competition which has resulted in generally low
profit margins due to the escalation of discounts against tariffs within the HHG
industry.
The international HHG relocation services market has grown due to increasing
globalization of economics and the advent of free trade. International
relocation services are principally offered by specialist companies that
generally provide services through non-exclusive agents at the destination
locations around the world. There are a few larger companies that own and
operate their own businesses in major markets, although that is the exception
rather than the rule. A significant number of domestic HHG carriers offer
international relocation services through wholly-owned subsidiaries or separate
departments that specialize in international relocation services.
GLOBAL NETWORK
As of December 31, 1997, the Company operated a global network in 75
countries consisting of 693 locations in 33 countries and strategic partnerships
in 42 countries with 382 locations. Within this
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network of over 1,000 locations, the Company maintains a strong local presence
in North America, Europe and Asia/Pacific.
NORTH AMERICA. As of December 31, 1997, the Company had 35 Company-owned
offices located in 35 cities with approximately 1,673 employees and had 339
agents covering an additional 408 locations in the United States. The Company
developed its North American network through the acquisition and integration of
Bekins in May 1996 and LEP in October 1996. The Company has successfully
integrated the major road transportation and logistics services hubs of Bekins
and LEP-USA in Columbus, Ohio. The Company believes that this combined system,
which supports the Bekins TimeLok System and LEP-USA's Profitnet Logistics
System, is one of the largest of its type in the United States. The Company
expects the synergy benefits of the combined system to be (i) reduced fixed
costs, (ii) better utilization of linehaul equipment between the hub and service
centers, (iii) improved cycle time for Bekins customers, (iv) the ability to
offer improved service schedules and time-definite service and (v) combination
of the previously separate operating networks of Bekins and LEP-USA, which
enable the Company to view its U.S.-domestic business as an integrated product
offering. In addition, as of December 31, 1997, LEP-USA and LEP-Canada provided
international freight forwarding, customs brokerage, and logistics services
through 68 offices located throughout the United States, Puerto Rico and Canada.
Matrix provides project cargo and HHG relocation services through five offices
located in the United States.
EUROPE. LIW is a major provider of freight forwarding and transportation
and logistics services throughout Europe. As of December 31, 1997, LIW employed
approximately 2,617 employees in 156 locations in 11 European countries. Through
its U.K. subsidiary, LIW is one of the largest freight forwarders in the United
Kingdom, with approximately 43 locations with 884 employees as of December 31,
1997. Matrix maintains international operations through eight joint venture
offices in the former Soviet Union and numerous non-exclusive and unaffiliated
HHG agents worldwide.
ASIA/PACIFIC. As of December 31, 1997, LIW had 55 locations in 14 countries
in the Asia/Pacific region with approximately 1,862 employees. LIW is a major
participant in the freight forwarding markets of Hong Kong, Singapore and the
Philippines. In March 1997, LIW's Asia/Pacific operations were recognized by
CARGONEWS ASIA as one of the top two multi-modal forwarders in 1996 and received
a total of three Asian Freight Industry Awards which were awarded by CARGONEWS
ASIA based on input from its 13,000 readers.
SERVICES PROVIDED
The Company's services can be broadly classified into the following
categories:
FREIGHT FORWARDING SERVICES. The Company offers domestic and international
air, ocean, road and rail freight forwarding for shipments of heavy cargo that
are generally larger than shipments handled by integrated carriers of primarily
small parcels such as Federal Express Corporation and United Parcel Service of
America. The Company's basic freight forwarding business includes the following
services which are complemented by numerous value-added, customized and
information technology-based options to meet customers' specific needs:
- International door-to-door shipment of freight, including service to
remote destinations, lesser developed countries and locations which are
difficult to reach.
- One-, two- and five-day express transport service within the United States
and between the United States and Puerto Rico.
- Value-added complementary services including customs brokerage, full
tracking of goods in transit, warehousing, packing/unpacking and
insurance.
LOGISTICS SERVICES. Logistics services involve taking responsibility for
several or all steps in the supply chain of products. The Company's access to
worldwide distributions systems, together with its experience
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in coordinating deliveries from various supply sources and its advanced
information systems have enabled the Company to capitalize on outsourcing of
distribution functions by manufacturers and retailers and other companies.
Shippers that avail themselves of the Company's logistics services often realize
financial savings due to reduced fixed costs associated with outsourcing
distribution, the Company's volume discounts and information base and the
Company's ability to reliably and efficiently perform complex, multi-phased
distribution projects. The Company's logistics services provide value to the
Company's customers by providing reliable access to low cost materials and
product sources, reducing distribution times and facilitating rapid movement and
integration of products and materials. For example, the Company currently
provides the following logistics-based management services:
- Pharmaceutical distributions including high-speed, time-definite
distributions of sales samples to pharmaceutical companies' sales forces
to enable their pharmaceutical customers to comply with United States
federal regulations. The Company's distribution systems permit the Company
to deliver pharmaceutical samples to over 3,000 distribution points in a
24- to 48-hour period with 2-hour delivery windows.
- Direct to store logistics for retail clients involving coordination of
product receipt directly from manufacturers and dividing large shipments
from the manufacturer into numerous smaller shipments for delivery
directly to retail outlets or distribution centers to meet time-definite
product launch dates.
- Merge-in-transit logistics involving movement of products from various
vendors at multiple locations to a Company facility and the subsequent
merger of the various deliveries into a single coordinated delivery to the
final destinations. For example, such services are useful to technology
manufacturers and resellers where major installations are organized to
meet a customer's need to minimize disruptions to its clients' businesses
and maximize the efficiency of the customer's technical support
staff/field engineers.
- Value-added, high-speed, time-definite, total-destination programs that
include packaging, transportation, unpacking and placement of a new
product. The Company will also package and remove the old equipment that
is being replaced by the equipment that the Company delivers.
- Packaging, transportation, unpacking and stand installation for domestic
and international trade shows and major expositions.
- Global project cargo logistics for major infrastructure developments,
including shipments of equipment to prepare a site for the development,
materials used in construction of the project and final products
manufactured following construction of the project.
- Reverse logistics involving the return of products from end users to
manufacturers, retailers, resellers or remanufacturers, including
verification of working order, defect analysis, serial number tracking,
inventory management and disposal of sensitive materials in accordance
with regulations. An example of such services is the removal of an old
photocopying system for reuse, recycling or remanufacture at the time of
delivery of a new photocopying system.
RELOCATION SERVICES. The Company's domestic and international relocation
services are generally provided through the Bekins and Matrix subsidiaries in
the United States. The domestic business is generally handled by Bekins and
offers a full range of relocation services within the United States focusing on
the corporate account, private transferee and government/military sectors. As of
December 31, 1997, Bekins operated through a network of 245 independent agents
covering 284 locations. Based on 1996 revenue data filed with the STB, Bekins is
the sixth largest carrier of household goods.
The Company's international relocation services are provided primarily
through Matrix from its New York, Virginia and California offices. The Company's
principal customers for international relocation services are U.S.-based
multi-national corporations, various United States government agencies and the
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United Nations. The Company handles relocations from the United States to other
countries, relocations from other countries to the United States and relocations
between two international destinations on behalf of its customers. The Company
uses a number of non-exclusive HHG agents in the countries in which it provides
services.
OPERATIONS
As of December 31, 1997, the Company provided transportation and logistics
services in 75 countries through the following facilities:
<TABLE>
<CAPTION>
NUMBER OF
LOCATIONS
-----------
<S> <C>
Company-owned offices............................................................. 268
Agent-owned offices............................................................... 425
Offices owned by strategic partners............................................... 382(1)
-----
Total........................................................................... 1,075
-----
-----
</TABLE>
- ------------------------
(1) Approximate number.
COMPANY LOCATIONS. Offices operated by Company employees rather than agents
are generally structured as stand-alone business units that operate in largely
the same manner as the independent, exclusive agents. Customers and carriers
generally do not distinguish between agent locations and Company-owned locations
as both must display, utilize and promote the Company's image, information
technology systems and processes.
EXCLUSIVE AGENTS. The Company's contracts with its agents have terms
ranging from 30 days to as much as 10 years. Short-term cancelable contracts are
the exception rather than the norm, particularly for larger agents, and the
majority of the Company's contracts with agents range from 3 to 5 years.
Contracts with agents call for exclusive representation of the Company in
respect of the services provided by the Company. Agents are required to utilize
the logo, image and information systems of the Company. Each agent operates as
an independent business responsible for all costs associated with sales,
operations, billing and any related overhead for these items and are compensated
by sharing in the revenue generated by the business handled by such agent. An
agent can (i) generate sales which generally result in a sales commission or
sharing of the gross profit produced and (ii) provide services on behalf of the
Company such as origin, destination or other transportation services for which
the agent is compensated based on a prescribed revenue distribution formula.
STRATEGIC ALLIANCE PARTNERS. Arrangements with LIW's strategic alliance
partners are generally less stringent than with independent agents but generally
involve exclusive representation by the strategic partner on behalf of the
Company. Although strategic alliance partners are encouraged to utilize the logo
and image of the Company, they are required to acknowledge that they have no
rights to the Company's trademarks and use it only with the Company's
permission. Strategic alliance partners are encouraged to utilize the Company's
information technology systems but are not required to do so. Strategic alliance
agreements are generally not for a specified period and are terminable by either
party providing various periods of notice.
NON-EXCLUSIVE AGENTS. In countries where the Company does not have
Company-owned operations, exclusive agents or strategic alliance partners, the
Company utilizes the services of non-exclusive agents. Non-exclusive agents have
no contractual commitment to the Company and do not use its name, logo or
systems.
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EQUIPMENT. As of December 31, 1997, the Company owned approximately 208
vehicles and 843 trailers and leased approximately 63 vehicles and 325 trailers.
Approximately 65 vehicles and 903 trailers are located in the United States, 29
vehicles and 257 trailers are located in Europe, 39 vehicles and 8 trailers are
located in Puerto Rico and 138 vehicles are located in Asia. Such equipment is
used for transportation of freight by the Company and its agents.
INFORMATION SYSTEMS
The Company believes that its ability to provide its customers with timely
access to accurate information regarding the status of cargo in transit is a
point of differentiation from its competitors and is a critical factor to
customer retention and expansion on a multi-modal basis of the Company's
customer base and services provided to existing customers. The Company also
believes that the ability to monitor all purchased transportation costs and
compare them to anticipated costs on a job-by-job basis is critical to
maintaining and growing margins. The Company utilizes FAST 400, a global,
multi-modal, multi-currency and multi-lingual integrated freight forwarding and
job costing system that provides international tracking, custom services,
document preparation, document transmittal and electronic data interchange
("EDI") interfaces with customers and carriers. FAST 400 is currently installed
in the majority of the Company's operations in Europe, the United States and key
locations in Asia. The Company plans to install FAST 400 at its facilities
worldwide. The Company's Purchase Order Management System ("POMS") provides item
level tracking at the purchase order level and links multiple purchase orders to
fulfill customer service requirements. POMS is currently installed in the
Company's operations in Europe and the Company plans to extend use of POMS to
its facilities worldwide. BUSINESS 400 is a financial system that is fully
integrated with FAST 400 and is utilized in the Company's operations in parts of
Europe and part of Asia and the Company plans to extend the use of BUSINESS 400
throughout Europe and Asia. The Company's Bekins operations currently utilize
the BECOM System, a mainframe system that provides ground transportation,
warehouse and reverse logistic information services including a nationwide
asset/inventory tracking and shipment monitoring systems which feature
state-of-the-art barcoding technology. The Company's Matrix operations currently
utilize MATRAK. The Company's LEP-USA subsidiary utilizes FAST 400 for all
international shipments, and for its domestic business it uses a proprietary
system called PACER. The Company intends to integrate the LEP PACER domestic
system and the Bekins BECOM domestic logistics system into a single domestic
system, based on the FAST 400 international system prior to the end of the year
2000, which will result in a single global system that processes all of the
Company's business on a common platform. The Company expects to spend
approximately $30.0 million, which it plans to fund through a combination of
cash provided by operations and borrowings under the New Credit Facility, over
the next three years to expand its existing FAST 400 system to all of its
facilities and improve its existing information technology to ensure that the
Company remains competitive with other logistics providers.
The Company believes that its information systems that integrate independent
agents and select strategic alliance partners with the Company's operations are
a competitive advantage and provide an incentive for the Company's independent
agents and strategic alliance partners to continue to do business with the
Company. The information technology systems result in increased efficiencies and
reduced costs by providing direct interface between the Company, its customers,
agents and strategic alliance partners.
MARKETING
An important part of the Company's business strategy is its approach to a
single global brand and identity, its treatment of distinct customer segments
and its emphasis on vertical industry know-how and logistics services. The
Company's strategy of providing network-based global logistics requires that all
operating units and agent-managed operations reflect the same corporate brand.
In March 1998, the Company introduced the "Geologistics" global brand name and
initiated its program to market all of its services under the Geologistics brand
name. The Company believes that its business and operations will be
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positively affected by the new company-wide brand name because it will encourage
all of its employees, suppliers, agents, partners and customers to share the
same perception of the Company's business strategy, products, values and
culture.
The Company believes that its target customer base consists of: buyers of
traditional transportation services that are motivated by cost and transit-time
considerations and buyers of logistics management services that are seeking
operating efficiencies, increased revenues and improved customer service
resulting from the end-to-end management of inventory. To enjoy the benefits of
both customer segments, the Company has organized its sales and marketing
efforts along two lines: global/national sales personnel and a global logistics
solutions team. Global and national sales personnel focus their sales efforts on
senior transportation executives, financial officers and materials managers of
companies that are complex users of international transportation logistics
services. The Company's goal is to provide such customers with effective
transportation programs that reduce the customers' total cost of shipping goods.
Because multi-national companies increasingly require complex analysis of
their logistics activities, the Company is currently organizing a Global
Logistics Solutions Team to perform consulting, transportation management,
inventory management and order fulfillment services that enhance the Company's
traditional transportation services. The Global Logistics Solutions Team will
operate as an independent division that works in partnership with global account
representatives who are primarily responsible for clients, and will be
responsible for the implementation of the clients' logistics solutions. The
Company intends to offer global solutions programs on a three to five year
contractual basis and may feature incentive pricing based on performance,
resulting in increased margins when the Company's performance exceeds client
expectations.
The Company has determined that its customers are increasingly seeking
logistics answers and services tailored to specific industries. Accordingly, the
Company believes that service providers that organize sales, marketing and
product development along industry lines will have a competitive advantage over
providers that address the transportation and logistics needs of all industries
similarly. The Company is organizing product development and marketing groups
for life sciences (health care and pharmaceuticals), office technology, medical
equipment and products, aviation and defense and retail. The Company believes
that if it achieves recognition as an industry-based expert in logistics, it
will develop longer-lasting client relationships with customers in targeted
industries and secure higher-margin business from such customers.
COMPETITION AND BUSINESS CONDITIONS
The Company's principal businesses are directly impacted by the volume of
domestic and international trade. The volume of such trade is influenced by many
factors, including economic and political conditions in the United States and
abroad, major work stoppages, exchange controls, currency fluctuations, war and
other armed conflicts, and United States and international laws relating to
tariffs, trade restrictions, foreign investments and taxation.
The global logistics services and transportation services industries are
intensively competitive and are expected to remain so for the foreseeable
future. The Company competes against other integrated logistics companies, as
well as transportation services companies, consultants and information
technology vendors. The Company also competes against carriers' internal sales
forces and shippers' transportation departments. This competition is based
primarily on freight rates, quality of service (such as damage-free shipments,
on-time delivery and consistent transit times), reliable pickup and delivery and
scope of operations.
The Company also competes with transportation services companies for the
services of independent agents, and with trucklines for the services of
independent contractors and drivers. The Company encounters competition from a
large number of firms with respect to the services provided by the Company. Much
of this competition comes from local or regional firms which have only one or a
small
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number of offices and do not offer the breadth of services and integrated
approach offered by the Company. However, some of this competition comes from
major United States and foreign-owned firms which have networks of offices and
offer a wide variety of services. The Company believes that quality of service,
including information systems capability, global network capacity, reliability,
responsiveness, expertise and convenience, scope of operations, customized
program design and implementation and price are important competitive factors in
its industry.
Competition within the domestic freight forwarding industry is intense.
Although the industry is highly fragmented, with a large number of participants,
the Company competes most often with a relatively small number of freight
forwarders with nationwide networks and the capability to provide the breadth of
services offered by the Company and with fully integrated carriers focusing on
heavy cargo, including Burlington Air Express, Inc., Eagle USA Freight Inc. and
Emery Air Freight Corp. The Company also encounters competition from passenger
and cargo air carriers, trucking companies and others. As the Company expands
its international operations, it expects to encounter increased competition from
those freight forwarders that have a predominantly international focus,
including Air Express International Corporation, Expeditors International of
Washington, Inc., Fritz Companies Inc. and Circle International Group. Many of
the Company's competitors have substantially greater financial resources than
the Company.
The Company also encounters competition from regional and local air freight
forwarders, cargo sales agents and brokers, surface freight forwarders and
carriers and associations of shippers organized for the purpose of consolidating
their members' shipments to obtain lower freight rates from carriers. As an
ocean freight forwarder, the Company encounters strong competition in every
country in which it operates. This includes competition from steamship companies
and both large forwarders with multiple offices and local and regional
forwarders with one or a small number of offices. As an air freight forwarder,
the Company encounters strong competition from other air freight forwarders in
the United States and overseas. The Company believes that quality of service,
including reliability, responsiveness, expertise and convenience, scope of
operations, information technology and price are the most important competitive
factors in its industry.
Competition for the domestic interstate transportation of household goods is
intense and long-term relationships with corporate accounts are difficult to
obtain and retain. In the HHG market, the Company encounters competition from
larger van lines such as north American Van Lines Inc., Allied Van Lines Inc.,
Atlas Van Lines, Inc. and UniGroup, Inc. (United Van Lines, Inc. and Mayflower
Transit, Inc.). Based on revenue data filed with the STB, Bekins has been the
sixth largest HHG carrier in the United States for more than a decade. According
to reports filed with STB, 1996 operating revenues aggregated approximately $3.2
billion for the 15 largest HHG carriers, of which approximately 79.0% was
accounted for by the six largest carriers and approximately 6.0% was accounted
for by the Company. The Motor Carrier Act reduced regulation in the trucking
industry, and provided the opportunity for increased competition, which resulted
in generally lower profit margins within the domestic HHG relocation industry.
The international relocations services industry is competitive and much more
highly fragmented than the domestic HHG business. Matrix competes with a large
number of specialized competitors although the Company believes that Matrix
differentiates its service offerings from many of its competitors by focusing on
"high-end" executive relocation services for leading multinational companies and
organizations.
REGULATION
The Company's domestic air freight forwarding business is subject to
regulation, as an indirect air cargo carrier, under the Federal Aviation Act by
the DOT, the successor to the Civil Aeronautics Board, although Part 296 of the
DOT's Economic Aviation Regulations exempts air freight forwarders from most of
such act's requirements. The Company's foreign air freight forwarding operations
are subject to similar regulation by the regulatory authorities of the
respective foreign jurisdictions. The air freight forwarding industry is subject
to regulatory and legislative changes which can affect the economics of the
industry by
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requiring changes in operating practices or influencing the demand for, and the
costs of providing, services to customers. In its ocean freight forwarding
business, the Company is licensed as an ocean freight forwarder by the Federal
Maritime Commission ("FMC"). The FMC does not regulate the level of Company's
fees in any material respect. The Company's ocean freight NVOCC business is
subject to regulation as an NVOCC under the FMC tariff filing and surety bond
requirements, and under the Shipping Act of 1984, particularly those terms
proscribing rebating practices.
In the United States, the Company is subject to federal, state and local
provisions relating to the discharge of materials into the environment or
otherwise for the protection of the environment. Similar laws apply in many
foreign jurisdictions in which the Company presently operates or may operate in
the future. Although the Company's current operations have not been
significantly affected by compliance with these environmental laws, governments
are becoming increasingly sensitive to environmental issues, and the Company
cannot predict what impact future environmental regulations may have on its
business. The Company does not anticipate making any material capital
expenditures for environmental control purposes during the remainder of the
current or succeeding fiscal years.
Certain federal officials are considering implementing increased security
measures with respect to air cargo. There can be no assurance as to what, if
any, regulations will be adopted or, if adopted, as to their ultimate effect on
the Company. The Company does not believe that costs of regulatory compliance
have had a material adverse impact on its operations to date. However, failure
of the Company to comply with the applicable regulations or to maintain required
permits or licenses could result in substantial fines or revocation of the
Company's operating permits or authorities. There can be no assurance as to the
degree or cost of future regulations on the Company's business.
As a customs broker operating in the United States, the Company is licensed
by the United States Department of the Treasury and regulated by the United
States Customs Service. The Company's fees for acting as a customs broker are
not regulated.
The Company's local pick-up and delivery operations are subject to various
state and local regulations and, in many instances, require registrations with
state authorities. In addition, certain of the Company's local pick-up and
delivery operations are regulated by the STB and FHWA. Federal authorities have
broad power to regulate the delivery of certain types of shipments and
operations within certain geographic areas, and the STB has the power to
regulate motor carrier operations, approve certain rates, charges and accounting
systems and require periodic financial reporting. Interstate motor carrier
operations are also subject to safety requirements prescribed by the FHWA. In
some potential locations for the Company's delivery operations, state and local
registrations may be difficult to obtain.
The Company is regulated as a motor carrier of property by the FHWA,
previously the ICC, by which the Company is registered as both a common carrier,
freight forwarder and a property broker. For dispatch purposes, the Company also
holds Federal Communications Commission radio licenses. Certain of the Company's
offshore operations are subject to similar regulation by the regulatory
authorities of the respective foreign jurisdictions. Certain of the Company's
warehouse operations are licensed as container freight stations, public bonded
warehouses and customs examination sites by the United States and other
sovereign countries' customs services.
Traditionally, HHG pricing had been based upon tariffs accepted by the ICC
for each class of goods hauled by an interstate carrier. These tariffs are
generally based upon the weight of the shipment, distance traveled, type of
goods transported and points of origin and destination. Most HHG moves are now
priced significantly below tariffs through individual discount programs, binding
estimates negotiated between the carrier and individual residential customers or
on the basis of a contract between the carrier and a corporate customer. HHG
carriers participate in rate bureaus through which competitors jointly establish
and publish tariffs and rates. The Company is currently a member of the
Household Goods Carrier Bureau, which is comprised of approximately 2,000 other
common carriers of household goods, including the ten largest carriers in the
industry. The Motor Carrier Act permits certain collective ratemaking
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activities through rate bureaus by exempting such ratemaking from the antitrust
laws. Management believes prices in the industry are determined by market
forces.
The Company operates nationwide as an interstate common carrier through its
subsidiary, Bekins, that holds Certificates of Public Convenience and Necessity
that were granted by the ICC. These certificates authorize Bekins to transport
various classes of goods and products. The Company's subsidiaries also operate
as contract carriers, pursuant to contract authority originally granted by the
ICC. The Company is required to comply with STB and FHWA regulations. In
addition, the FHWA regulates the hours of service of the Company's drivers and
other safety related aspects of operations.
The Company is also subject to similar and other laws in the foreign
jurisdictions in which it operates. Numerous jurisdictions in Asia prohibit or
restrict United States ownership of local logistics operations, and although the
Company believes its ownership structure in Asia conforms to such laws, the
matter is often subject to considerable regulatory discretion and there can be
no assurance local authorities would agree with the Company.
A failure by the Company to comply with the foregoing laws, rules and
regulations could subject it to suspension or revocation of its operating
authority or civil or criminal liabilities, or any combination of such penalties
or both. In addition, the Company-owned service centers hold intrastate
operating authority which subjects them to the jurisdiction of various state
regulatory commissions. See "Risk Factors-- Government Regulation."
From time to time, U.S. tax authorities have sought to assert that
owner-operators in the trucking industry are employees, rather than independent
contractors. No such claim has been successfully made with respect to
owner-operators serving the Company, and management is confident the
owner-operators of the Company could not be properly characterized as employees
of the Company under existing interpretations of federal and state tax law.
However, there can be no assurance that tax authorities will not successfully
challenge this position, or that such interpretations will not change, or that
the tax laws will not change. See "Risk Factors--Characteristics of the
Logistics Industry; Seasonality."
TRADEMARKS
The Company has registered trademarks on a number of variations of the
Bekins name and corporate logo in the United States. Depending on the
jurisdiction of registration, trademarks are generally protected for ten to
twenty years (if they are in continuous use during that period) and are
renewable. These trademarks are material to the Company in the marketing of its
services because of the high name recognition possessed by Bekins in the
transportation services industry. In connection with the acquisitions by the
Company, LEP-USA and LEP-Canada entered into certain Trademark License
Agreements whereby they obtained the non-exclusive right to use LEP trademarks
in their North American operations for a period of at least ten years. With the
recent acquisition of LIW, the Company obtained ownership of the LEP trademarks
with numerous variations and in the vast majority of countries in which LEP
operates. See "Recent Acquisitions." Additionally, the Company has recently
applied for trademark registration in various classes of the GeoLogistics name
and a related "G" logo in the countries in which the Company operates.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries had approximately
6,388 employees, excluding employees of agents and strategic alliance partners.
Management believes that it has good relationships with its employees. In the
United States, a total of approximately 184 employees at five LEP-USA locations
are members of collective bargaining units affiliated with the teamsters, out of
a total of approximately 1,658 employees in the United States as of December 31,
1997. Two of the five collective bargaining contracts expired on August 31, 1997
and two other collective bargaining contracts expired on March 31, 1998. Each of
such expired collective bargaining contracts has been extended to April 30,
1998. The Company is currently renegotiating the terms of these four contracts
and hopes to reach a settlement
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with the unions on the remaining issues. The Company believes that any action
resulting from a failure to reach a settlement with the unions is unlikely to
have a material adverse effect on the Company; however, there can be no
assurance that the Company's operations would not be materially adversely
affected if the Company is unable to reach such a settlement.
PROPERTIES
The properties used in the Company's operations consist principally of
freight forwarding offices and warehouse and distribution facilities. As of
December 31, 1997, the Company had 130 office facilities, 11 of which were owned
and 119 of which were leased, and 171 warehouse facilities, 27 of which were
owned and 144 of which were leased, constituting, in the aggregate,
approximately 624,714 square feet of office space and 4.2 million square feet of
warehouse space in 33 countries. The Company is headquartered in Golden,
Colorado at an approximately 6,500 square foot facility leased through March,
2002. The Company operates a major distribution center of approximately 300,000
square feet in Columbus, Ohio which serves as the national cross-docking
facility for Bekins TimeLok and LEP-USA's Profitnet Logistics system where the
Company sorts freight originating from across the United States.
The following table sets forth certain information relating to the Company's
domestic and foreign properties as of December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF FACILITIES
---------------------------------------
<S> <C> <C> <C>
OWNED LEASED TOTAL
------------- ----------- -----------
U.S............................................................... -- 49 49
Canada............................................................ 1 12 13
Asia/Pacific...................................................... 5 56 61
Europe............................................................ 32 146 178
--
--- ---
Total........................................................... 38 263 301
--
--
--- ---
--- ---
</TABLE>
The Company believes that its office and warehouse facilities are generally
well-maintained, are suitable to support the Company's business and are adequate
for the Company's present needs.
OWNERSHIP OF LIW SUBSIDIARIES
Certain countries in which LIW operates have regulations limiting foreign
ownership of freight forwarders. To comply with such regulations, the Company
has established trust or nominee relationships in certain countries, including
Malaysia, Philippines, Taiwan and Thailand. As a result of such arrangements,
the Company has legal ownership of only 30%, 30%, 33% and 49% of the LIW
operations in Malaysia, Philippines, Taiwan and Thailand, respectively. The
Company reports such subsidiaries as consolidated for financial reporting
purposes. See "Selected Consolidated Financial Data of LIW."
Certain LIW subsidiaries, including the principal Hong Kong subsidiary, have
minority shareholders who have rights to participate in the profits and cash
flows of such subsidiaries and who have rights which limit LIW's ability to take
certain actions without the consent of the minority holder. For certain
subsidiaries, such events include changes in the capital structure, changes in
allocation of net profits, liquidation, merger, disposal of a material part of
the assets, capital expenditures and contracts with related parties.
LIW currently owns 50.0% of the outstanding shares, and has entered into an
agreement to purchase the remaining 50.0% of the outstanding shares, of its
Italian partner. The purchase agreement requires the Company to pay installments
aggregating approximately L593,000 (approximately $960,000) plus an amount equal
to 24.0% of the proceeds derived from the sale of certain assets specified in
the purchase agreement and sold during the term of the agreement. Payment of the
final installment is due and payable on or before July 31, 1999. Upon payment of
the fifth installment on or before July 31, 1998, the holder of
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<PAGE>
the other 50.0% of the outstanding shares must transfer to LIW a number of
shares equal to the proportion of the consideration paid, but will retain a
security interest in such shares to guarantee the remaining payments. Until
completion of the sale, most significant business decisions require the
unanimous written consent of all shareholders. Since 1996, LIW has committed
additional funds for the purpose of supporting the Italian operations and in
return for such commitment, LIW has been allowed broad authority to manage the
day-to-day operations and finances of such subsidiary.
LITIGATION
LIW is currently defending a claim brought by Danish Customs and Excise for
payment of customs duties and excise taxes of approximately L2.9 million ($4.7
million) related to alleged irregularities in connection with a number of
shipments of freight out of Denmark. Additionally, LIW is subject to a challenge
by German tax authorities relating to approximately L2.0 million ($3.2 million)
of alleged liabilities relating to the status of LIW's historical tax filings.
LIW has other tax disputes, including non-deduction, under-valuation,
non-provision, disallowance, transfer, and non-compliance matters relating to
value added taxes, payroll taxes, income taxes, custom duties and property taxes
which, in the aggregate, involve amounts of L7.0 million ($11.6 million). The
Company believes it has a number of defenses to the alleged tax liabilities and
it intends to defend the tax claims vigorously. LIW has not recorded any
reserves for the Danish customs matters but believes it has established adequate
reserves for the remaining total alleged tax liabilities. Any adverse decision
relating to such tax claims could materially adversely affect the Company's
liquidity and capital resources.
The Company and its subsidiaries are also defendants in legal proceedings
arising in the ordinary course of business and are subject to certain claims.
Although the outcome of the proceedings cannot be determined, it is the opinion
of management, that the resolution of these matters will not have a material
adverse effect on the Company.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the directors, executive officers and certain
key management personnel of the Company and certain of its subsidiaries as of
April 1, 1998. Members of the Board of Directors are elected annually and hold
office from the time of their election and qualification until the annual
meeting of stockholders at which their term expires or their successor is
elected and qualified or until their earlier resignation or removal. Executive
officers are elected by and serve at the discretion of the Board of Directors
until their successors are duly chosen and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Roger E. Payton(1)................................... 42 President, Chief Executive Officer and Director
Gary S. Holter....................................... 43 Chief Financial Officer
Luis F. Solis........................................ 40 Executive Vice President of Strategic Marketing
Larry Tieman......................................... 49 Chief Information Officer
Ronald Jackson....................................... 45 Vice President, Secretary and General Counsel
Terry G. Clarke...................................... 42 Vice President--Treasurer
Kenneth R. Batko..................................... 47 Vice President--Corporate Controller
William E. Simon, Jr.(2)............................. 46 Chairman of the Board
Vincent J. Cebula(1)(2).............................. 34 Director
Richard J. Goldstein(2).............................. 32 Director
Stephen A. Kaplan(2)................................. 39 Director
Michael B. Lenard(1)(2).............................. 42 Director
Conor T. Mullett(2).................................. 31 Director
William E. Myers, Jr................................. 38 Director
</TABLE>
- ------------------------
(1) Member of Executive Committee of the Board of Directors.
(2) Pursuant to the Stockholders Agreement, Logistical Simon has the right to
designate three members to the Board of Directors, the Opportunities Fund
has the right to designate two members of the Board of Directors and the
Principal Fund has the right to designate one member of the Board of
Directors. Messrs. Simon, Lenard and Mullett are designees of Logistical
Simon, Messrs. Cebula and Goldstein are designees of the Opportunities Fund
and Mr. Kaplan is the designee of the Principal Fund.
ROGER E. PAYTON has been a director of the Company and the President and
Chief Executive Officer of the Company since May 1996. From 1982 to 1995 Mr.
Payton was the Chief Executive Officer of the following subsidiaries of NFC plc,
a logistics company: (i) Pickfords Industrial Ltd. (1982 to 1984), a U.K.-based
industrial and manufacturing services company providing transport, shipping,
installation and electrical and mechanical services, (ii) Merchants Home
Delivery Services Inc. (1985 to 1987 and 1991 to 1995), a U.S.-based delivery
and logistics services company providing logistics-related services to United
States and Canadian home furnishing retailers and manufacturers, and (iii)
Allied Van Lines Inc. (1988 to 1990), a U.S.-based van line offering relocation
services, high value product logistics services, international shipping and
freight forwarding services and insurance products to a wide array of industries
and consumers.
GARY S. HOLTER has been Chief Financial Officer of the Company since January
1997. From February 1995 through December 1996, he was Executive Vice President
and Chief Financial Officer of Bekins. From 1989 to 1995, Mr. Holter served as
Executive Vice President and Chief Operating Officer of Knapp Shoes Inc., a
manufacturing and distribution company. From 1986 to 1988, Mr. Holter was the
Executive Vice President of Finance at Simmons Airlines, Inc. a publicly held
regional transportation carrier. Mr. Holter is a certified public accountant.
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<PAGE>
LUIS F. SOLIS has been the Executive Vice President of Strategic Marketing
of the Company since March 1997. From May 1996 to February 1997, Mr. Solis was
Vice President of Business Development of GE Capital Logistics, a logistics
services venture of GE Capital Corporation. Prior to joining GE, Mr. Solis
served as Vice President of Strategic Marketing, Global Strategies for Skyway
Freight Systems, a third-party logistics subsidiary of Union Pacific
Corporation, from 1994 to 1996. Mr. Solis served as Vice President of Global
Marketing for Circle International, a global freight forwarder, from 1991 to
1994.
LARRY TIEMAN has been Chief Information Officer of the Company since March
1997. He was Chief Information Officer for GE Capital Logistics from May 1996 to
February 1997. Prior thereto, Mr. Tieman was Senior Vice President and Chief
Information Officer for Schneider National Incorporated, a logistics company,
from October 1993 to May 1996, and the Chief Technology Officer of the Nielson
division of Dunn & Bradstreet, a market research company, from 1990 to 1993.
RONALD JACKSON has been Vice President and General Counsel of the Company
since September 1997. Mr. Jackson was Legal Director and Secretary of LIW from
January 1996 to September 1997 and was Group Legal Advisor for LEP Group plc
from October 1989 to December 1995.
TERRY G. CLARKE has been Vice President--Treasurer of the Company since
September 1997. From October 1995 to November 1996, Mr. Clarke was Assistant
Treasurer with the M.A. Hanna Company, a Cleveland based chemicals company.
Prior to that, Mr. Clarke served as Director of Planning and Control of B.F.
Goodrich's ("Goodrich") Water Systems Group, was Director, Finance and Banking
for Goodrich and held various other management positions in the United States
and Canada for Goodrich from 1988 to 1995.
KENNETH R. BATKO has been Vice President-Corporate Controller since November
1997. From 1994 to 1997, Mr. Batko was Assistant Controller with Anixter
International Inc., a supplier of wiring systems and networking products. From
1982 to 1993, Mr. Batko was the Director of Financial Reporting for Anixter
Inc., a subsidiary of Anixter International. Mr. Batko is a certified public
accountant.
WILLIAM E. SIMON, JR. has been the Chairman of the Board of Directors of the
Company since May 1996. Mr. Simon has been the Executive Director of WESS since
1988. In addition, Mr. Simon is a director of William E. Simon & Sons (Asia),
LDC, WESS's affiliate merchant bank based in Hong Kong. Mr. Simon also serves on
the boards of directors of Hanover Compressor Co. and various private companies.
VINCENT J. CEBULA has been a director of the Company since May 1996. He is
also a Managing Director of Oaktree, where he has worked since 1995. Pursuant to
a subadvisory agreement with TCW Asset Management Company ("TCW"), the general
partner of the Principal Fund, Oaktree provides investment management services
to the Principal Fund. Mr. Cebula was a Senior Vice President of Trust Company
of the West and TCW from 1994 to 1995. Prior thereto, Mr. Cebula was Executive
Assistant to the Vice Chairman of Brooke Group Ltd. where he was responsible for
the coordination of financing and investment banking activities. Mr. Cebula also
serves on the boards of directors of various private companies.
RICHARD J. GOLDSTEIN has been a director of the Company since May 1996 and
is a Senior Vice President of Oaktree where he has worked since 1995. Mr.
Goldstein was an Assistant Vice President of Trust Company of the West and TCW
from 1994 to 1995. Prior thereto, Mr. Goldstein was an Associate in the
Corporate Finance Department of Jefferies & Company, Inc. Mr. Goldstein also
serves on the boards of directors of Decorative Home Accents, Inc. and various
private companies.
STEPHEN A. KAPLAN has been a director of the Company since May 1996 and is a
principal of Oaktree. Prior to joining Oaktree in June 1995, Mr. Kaplan was a
Managing Director of Trust Company of the West and TCW. Prior to joining TCW in
1993, Mr. Kaplan was a partner in the law firm of Gibson, Dunn & Crutcher. Mr.
Kaplan serves on the boards of directors of Acorn Products, Inc., Chief Auto
Parts Inc., KinderCare Learning Centers, Inc., Roller Bearing Holding Company,
Inc. and various private companies.
73
<PAGE>
MICHAEL B. LENARD has been a director of the Company since April 1996 and is
a Managing Director and the Counsellor of WESS. In addition, Mr. Lenard is a
director of William E. Simon & Sons (Asia), LDC, WESS affiliate merchant bank
based in Hong Kong, and the President of WESSHIP, Inc., the general partner of
certain WESS affiliated limited partnerships that have invested in the shipping
industry. Prior to joining WESS in early 1993, Mr. Lenard was a partner in the
international law firm of Latham & Watkins. Mr. Lenard is also a director of
various private companies.
CONOR T. MULLETT has been a director of the Company since May 1996 and is a
Senior Vice President of WESS. From 1996 to 1998 Mr. Mullet was a Vice President
of WESS and from 1994 to 1996 Mr. Mullett was an Associate at WESS. From 1993 to
1994 Mr. Mullett was an Associate at GE Capital Corporation. Mr. Mullett is also
a director of various private companies.
WILLIAM E. MYERS, JR. has been a director of the Company since May 1996 and,
for more than five years, has been Chairman of the Board and Chief Executive
Officer of W.E. Myers & Co., a private merchant bank. Mr. Myers is also a
director of Aftermarket Technology Corp. and Roller Bearing Holding Company,
Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Executive Committee (the "Executive
Committee"). The Executive Committee is composed of Messrs. Cebula, Payton and
Lenard. Pursuant to the terms of the Stockholders Agreement, the Executive
Committee is authorized to take any action on behalf of the Board of Directors
in between meetings of the Board of Directors upon the unanimous approval of the
Executive Committee. In addition, the bylaws of the Company provide for an audit
committee (the "Audit Committee") which is responsible for reviewing the scope
of the Company's independent auditors' examination of the Company's financial
statements and reviewing their reports, and a compensation committee (the
"Compensation Committee"), which is responsible for determining the Company's
policies with respect to the nature and amount of all compensation to be paid to
the Company's executives and administering the Company's benefit plans. The
Audit Committee and Compensation Committee will consist of two members, Messrs.
Cebula and Mullett.
COMPENSATION OF DIRECTORS
Non-employee directors are not currently compensated for their services, but
receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with board meetings or director-related activities. The Stockholders
Agreement does, however, provide that certain members of the Board of Directors
will be entitled to receive compensation if directors who are employees of the
Company or directors who were admitted after November 7, 1996 receive additional
compensation in their capacity as directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The Summary Compensation Table below sets forth
the annual base salary and other annual compensation earned in 1996 and 1997 by
Mr. Payton the four other most highly-
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<PAGE>
paid executive officers of the Company whose cash salary and bonus compensation
exceeded $100,000 in 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------
------------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR $ $ $ # $
- ----------------------------------- ----------- ------------ --------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger E. Payton.................... 1997 349,726 100,000 -- -- 41,623(3)
Director, President and Chief 1996 165,416(1) 75,000 -- 175,000 19,432(3)
Executive Officer
Gary S. Holter..................... 1997 212,500 62,500 -- 37,500 21,818(4)
Chief Financial Officer 1996 160,000(2) 100,000 -- -- 12,219(4)
Luis F. Solis...................... 1997 208,340(1) 62,500 -- 37,500 22,159(5)
Executive Vice President of
Strategic Marketing
Larry Tieman....................... 1997 208,340(1) 62,500 -- 37,500 16,839(6)
Chief Information Officer
Ronald Jackson..................... 1997 42,500(1) -- 8,000 14,309(7)
Vice President, Secretary and
General Counsel
</TABLE>
- ------------------------
(1) Mr. Payton began his employment with the Company in May 1996. Messrs. Solis
and Tieman began their employment with the Company in March 1997 and Mr.
Jackson began his employment with the Company in October 1997.
(2) Mr. Holter was Executive Vice President and Chief Financial Officer of
Bekins during 1996.
(3) Mr. Payton received an automobile allowance of $6,500 and $12,000 in 1996
and 1997, respectively. Additionally, the Company paid $4,965 and $23,198 in
premiums for a life insurance policy for Mr. Payton in 1996 and 1997,
respectively, and contributed $7,967 and $6,425 in 1996 and 1997,
respectively, as a matching payment to the account established for Mr.
Payton's benefit pursuant to the Deferred Plan (as defined).
(4) Mr. Holter received an automobile allowance of $6,600 and $11,100 in 1996
and 1997, respectively. Additionally, in 1996 and 1997 the Company paid $537
and $1,145, respectively, in premiums for a life insurance policy for Mr.
Holter and contributed $5,082 and $9,573 in 1996 and 1997, respectively, as
matching payments to accounts established for Mr. Holter's benefit pursuant
to the Deferred Plan and the Company's 401(k) plan.
(5) Mr. Solis received an automobile allowance of $10,000 in 1997. Additionally,
in 1997 the Company paid $909 in premiums for a life insurance policy for
Mr. Solis and contributed $11,250 as matching payments to an account
established for Mr. Solis' benefit pursuant to the Deferred Plan.
(6) Mr. Tieman received an automobile allowance of $10,000 in 1997.
Additionally, in 1997 the Company paid $2,151 in premiums for a life
insurance policy for Mr. Tieman and contributed $4,688 as matching payments
to an account established for Mr. Tieman's benefit pursuant to the Deferred
Plan.
(7) Mr. Jackson received an automobile allowance of $3,000 in 1997.
Additionally, in 1997 the Company paid $1,116 in premiums for a life
insurance policy for Mr. Jackson, and reimbursed $10,193 of relocation
expenses.
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<PAGE>
WARRANT GRANTS IN 1997. The following table contains information concerning
the grant of warrants made during the year ended December 31, 1997 to the Named
Executive Officers. The table also lists potential realizable value of such
warrants on the basis of assumed annual compounded stock appreciation rights of
5% and 10% over the life of the warrants, which is set for a maximum of ten
years.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
----------------------------------
NUMBER OF PRICE APPRECIATION
SECURITIES PERCENT OF TOTAL FOR
UNDERLYING WARRANTS GRANTED TO EXERCISE OF WARRANT TERM
WARRANTS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------------- ------------- ------------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary S. Holter.................. 7,500 6.2% $ 52.00 3/3/07 (1) $ 193,592
7,500 6.2% 55.00 3/3/07 (1) 171,092
7,500 6.2% 60.00 3/3/07 (1) 133,592
5,000 4.1% 48.00 3/3/07 $ 4,334 149,061
5,000 4.1% 50.00 3/3/07 (1) 139,061
5,000 4.1% 55.00 3/3/07 (1) 114,061
Luis F. Solis................... 12,500 10.4% 52.00 3/3/07 (1) 322,653
12,500 10.4% 55.00 3/3/07 (1) 285,153
12,500 10.4% 60.00 3/3/07 (1) 222,653
Larry Tieman.................... 12,500 10.4% 52.00 3/3/07 (1) 322,653
12,500 10.4% 55.00 3/3/07 (1) 285,183
12,500 10.4% 60.00 3/3/07 (1) 222,653
Ronald Jackson.................. 2,668 2.2% 52.00 9/30/07 (1) 68,867
2,666 2.2% 55.00 9/30/07 (1) 60,817
2,666 2.2% 60.00 9/30/07 (1) 47,487
</TABLE>
- ------------------------
(1) The potential realizable value at a 5% assumed annual rate of stock price
appreciation is below zero.
FISCAL YEAR END WARRANT VALUES. The following table sets forth information
concerning the fiscal year-end value of unexercised warrants held by Mr. Payton
and the Named Executive Officers. There were no warrants exercised during 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED WARRANTS IN THE MONEY WARRANTS
AT 12/31/97 AT 12/31/97
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/NONEXERCISABLE
- ------------------------------------------------------------- ------------------------ ------------------------
<S> <C> <C>
Roger E. Payton.............................................. 43,750/131,250 $ 156,250/$343,750
Gary S. Holter............................................... 0/37,500 (1)
Luis F. Solis................................................ 0/37,500 (1)
Larry Tieman................................................. 0/37,500 (1)
Ronald Jackson............................................... 0/8,000 (1)
</TABLE>
- ------------------------
(1) None are in-the-money.
EMPLOYMENT AGREEMENTS
Mr. Payton entered into an employment agreement with the Company effective
as of April 30, 1996 which terminates on April 30, 2000 (the "Payton
Agreement"). The Payton Agreement provides for a base salary of not less than
$315,000, with annual increases and bonuses at the discretion of the Board of
Directors. In November 1996, Mr. Payton's base salary was increased to $365,000
per year. The Payton
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<PAGE>
Agreement also provides for the payment by the Company of the premium on one of
Mr. Payton's personal life insurance policies and an automobile allowance in the
amount of $12,000 per year. The Payton Agreement may be terminated by the
Company for "cause" (as defined in the Payton Agreement) or upon the death or,
under certain circumstances, disability of Mr. Payton. In the event that the
Company terminates the Payton Agreement without cause or if a constructive
discharge has occurred, Mr. Payton is entitled to receive his salary for the
lesser of a period of two years from the date of termination or the remaining
term under the Payton Agreement, but in no event less than one year's salary.
Pursuant to the terms of the Payton Agreement, a constructive termination will
have occurred if there has been a substantial diminution in Mr. Payton's duties
and responsibilities with the Company as directed by the Board of Directors
since April 30, 1996. During the term of the Payton Agreement and any period
during which Mr. Payton receives severance pay, Mr. Payton is prohibited from
competing with the Company and is precluded from engaging in any form of
solicitation of the Company's customers or employees. If the Payton Agreement
has not been renewed on or before the expiration date and Mr. Payton's
employment with the Company terminates pursuant to the terms of the employment
agreement on the expiration date, Mr. Payton is entitled to receive his salary
for a period of one year from the expiration date.
Mr. Holter entered into an employment agreement with the Company effective
as of March 1, 1997 which terminates on March 1, 2000 (the "Holter Agreement").
The Holter Agreement provides for a base salary of not less than $200,000 per
year and provides that Mr. Holter may receive performance-based cash bonus
compensation and performance-based equity compensation if certain financial and
other defined management objectives to be agreed upon annually between the
executive and the Company at the beginning of each fiscal year are satisfied. In
October 1997, Mr. Holter's base salary was increased to $250,000 per year. If
the equity incentive objectives are not fully achieved for any fiscal year, the
equity compensation may still be granted at the discretion of the Board. On
March 1, 1998, the Company granted Mr. Holter warrants to purchase an aggregate
of 5,000 shares of Common Stock at $45.00 per share as performance-based equity
compensation for 1997. The Holter Agreement also provides for an automobile
allowance of $12,000 per year. The Holter Agreement may be terminated by the
Company for "cause" (as defined in the Holter Agreement) or upon the death or,
under certain circumstances, the disability of Mr. Holter. The employment
agreement provides for constructive discharge if there has been a substantial
diminution in Mr. Holter's duties and responsibilities as directed by the Board
since the date of the Holter Agreement. In the event that the Company terminates
the Holter Agreement without cause or if there has been a constructive
discharge, Mr. Holter is entitled to receive his salary for a period of one year
from the date of termination and a proportionate share of the cash bonus
compensation due to him for the fiscal year in which the date of termination has
occurred. During the term of the Holter Agreement and for one year thereafter,
Mr. Holter is prohibited from competing with the Company and is precluded from
engaging in any form of solicitation of the Company's customers or employees.
Mr. Tieman entered into an employment agreement with the Company effective
as of March 3, 1997 which terminates on March 3, 2000 (the "Tieman Agreement").
The Tieman Agreement provides for a base salary of not less than $250,000 per
year and provides that Mr. Tieman may receive performance-based cash bonus
compensation and performance-based equity compensation if certain financial and
other defined management objectives to be agreed upon annually between the
executive and the Company at the beginning of each fiscal year are satisfied. If
the equity incentive objectives are not fully achieved for any fiscal year, the
equity compensation may still be granted at the discretion of the Board. On
March 1, 1998, the Company granted Mr. Tieman warrants to purchase an aggregate
of 5,000 shares of Common Stock at $45.00 per share as performance-based equity
compensation for 1997. The Tieman Agreement also provides for an automobile
allowance of $12,000 per year. The Tieman Agreement may be terminated by the
Company for "cause" (as defined in the Tieman Agreement) or upon the death or,
under certain circumstances, the disability of Mr. Tieman. The employment
agreement provides for constructive discharge if there has been a substantial
diminution in Mr. Tieman's duties and responsibilities as directed by the Board
since the date of the Tieman Agreement. In the event that the Company terminates
the Tieman Agreement without cause or if there has been a constructive
discharge, Mr. Tieman is entitled to receive
77
<PAGE>
his salary for a period of one year from the termination date and a
proportionate share of the cash bonus compensation due to him for the fiscal
year in which the date of termination has occurred. During the term of the
Tieman Agreement and for one year thereafter, Mr. Tieman is prohibited from
competing with the Company and is precluded from engaging in any form of
solicitation of the Company's customers or employees.
Mr. Solis entered into an employment agreement with the Company effective as
of March 3, 1997 which terminates on March 3, 2000 (the "Solis Agreement"). The
Solis Agreement provides for a base salary of not less than $250,000 per year
and provides that Mr. Solis may receive performance-based cash bonus
compensation and performance-based equity compensation if certain financial and
other defined management objectives to be agreed upon annually between the
executive and the Company at the beginning of each fiscal year are satisfied. If
the equity incentive objectives are not fully achieved for any fiscal year, the
equity compensation may still be granted at the discretion of the Board. On
March 1, 1998, the Company granted Mr. Solis warrants to purchase an aggregate
of 5,000 shares of Common Stock at $45.00 per share as performance-based equity
compensation for 1997. The Solis Agreement also provides for an automobile
allowance of $12,000 per year. The Solis Agreement may be terminated by the
Company for "cause" (as defined in the Solis Agreement) or upon the death or,
under certain circumstances, disability of Mr. Solis. The Solis Agreement
provides for constructive discharge if there has been a substantial diminution
in Mr. Solis's duties and responsibilities as directed by the Board since the
date of the employment agreement. In the event that the Company terminates the
Solis Agreement without cause or if there has been a constructive discharge, Mr.
Solis is entitled to receive his salary through March 3, 2000 and a
proportionate share of the cash bonus compensation due to him for the fiscal
year in which the date of termination has occurred. During the term of the Solis
Agreement and for one year thereafter, Mr. Solis is prohibited from competing
with the Company and is precluded from engaging in any form of solicitation of
the Company's customers or employees.
Mr. Jackson entered into a five-year employment agreement with the Company
effective upon the occurrence of each of (i) the acquisition by the Company of a
majority of the outstanding ordinary shares of LIW stock (including all interest
exchangeable therefor or convertible thereto) and (ii) the delivery to the
Company of all warrants to purchase LIW ordinary shares and other equity
interests of LIW held by Mr. Jackson (the "Jackson Agreement"). The Jackson
Agreement provides for a base salary of not less than $170,000 per year and
provides that Mr. Jackson may receive performance-based cash compensation if
certain financial and other defined management objections to be agreed upon
annually between the executive and the Company at the beginning of each fiscal
year are achieved. The Jackson Agreement also provides for an automobile
allowance of $12,000 per year. The Jackson Agreement may be terminated by the
Company for "cause" (as defined in the Jackson Agreement) or upon the death or,
under certain circumstances, disability of Mr. Jackson. In the event that the
Company terminates the Jackson Agreement without cause, Mr. Jackson is entitled
to receive his salary for a period of one year from the termination date. During
the term of the Jackson Agreement and for one year thereafter, Mr. Jackson is
prohibited from competing with the Company and is precluded from engaging in any
form of solicitation of the Company's customers or employees.
The Company has agreements with certain other significant employees. See
"Recent Acquisitions."
INCENTIVE COMPENSATION PLANS
EMPLOYEE STOCK PURCHASE PLAN. The Company's Employee Stock Purchase Plans
(the "Purchase Plans") provide certain employees of the Company with the right
to purchase any or all of such employee's allocated portion, as determined by
the Board of Directors of the Company, of an aggregate of 8,500 shares of Common
Stock of the Company at a purchase price of $20.00 per share and 150,000 shares
of Common Stock at a purchase price of $30.00 per share. The right to acquire
shares of Common Stock under the first two Purchase Plans has terminated. The
third Purchase Plan makes an aggregate of 75,000 shares of Common Stock
available for purchase by certain employees of the Company and expires on
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December 31, 1998. As of April 6, 1998, 29 employees of the Company had
purchased an aggregate of 52,434 shares of Common Stock under the third Purchase
Plan. The Board of Directors has the right under the third Purchase Plan to
increase the purchase price per share for unsold shares. As of April 6, 1998, a
total of 61 employees had purchased an aggregate of 107,493 shares of Common
Stock pursuant to the Purchase Plans.
The Purchase Plans provide that, if at any time prior to an initial public
offering, an employee who has purchased shares under the Purchase Plans is
terminated for any reason whatsoever, including without limitation, death,
disability, resignation, retirement or termination with or without cause, (i)
the Company has an option (a "call") to repurchase, in whole or in part, the
shares of Common Stock of the Company that are then owned by such employee or
any transferee which were acquired pursuant to the Purchase Plans and (ii) the
terminated employee has an option (a "put"), to sell to the Company, in whole or
in part, the shares of Common Stock then owned by such employee which were
acquired pursuant to the Purchase Plans. The purchase price for the exercise of
either the call or the put option is based on the Company's earnings for the
most recent fiscal quarter prior to termination and the number of shares of
Common Stock outstanding and subject to options and warrants to the extent such
options and warrants are in the money.
DEFERRED COMPENSATION PLAN. Effective April 28, 1997 the Company adopted
the International Logistics Deferred Compensation Plan (the "Deferred Plan") to
acknowledge and reward certain key employees of the Company. The Deferred Plan
permits certain key employees to elect to reduce their regular compensation
and/or bonus compensation on a pre-tax basis by a fixed percentage up to a
maximum specified amount. The Company may, in its sole discretion, make an
allocation on behalf of employees who meet certain requirements. Each
participant in the Deferred Plan may designate one or more of the funds
specified in the Deferred Plan for the purpose of attributing investment
experience to his accounts. Upon eligibility for retirement, death or
disability, a participant, or his beneficiary, will have a 100% vested interest
in such participant's accounts. Upon termination of employment for any other
reason, a participant will be vested with respect to (i) 100% of that portion of
his account attributable to his voluntary deferral allocations and any
applicable investment experience credited to such allocation and (ii) a
percentage of the portion of his account attributable to Company discretionary
allocations based on years of service. Notwithstanding the foregoing, the
committee which administers the Deferred Plan may, in its sole discretion,
accelerate any specified vesting period. The Company has established a trust
with Key Trust Company as trustee (the "Trustee") to hold and invest amounts
contributed pursuant to the Deferred Plan. The Company may from time to time, at
its sole discretion, direct the Trustee to purchase shares of the Company's
common stock (the "Plan Shares"). The Company may, by written action, designate
which employees are entitled to receive Plan Shares. If at any time prior to an
initial public offering, a participant's employment is terminated for any reason
whatsoever, the Company has the option to repurchase any Plan Shares held in
such participant's account. As of December 31, 1997, 3,168 Plan Shares were held
by the Trustee on behalf of participants under the Deferred Plan.
EMPLOYEE STOCK OWNERSHIP. In addition to shares of Common Stock issued to
employees under the Purchase Plans and the Deferred Plan, certain shares of
Common Stock and warrants to purchase shares of Common Stock held by employees
are required to be repurchased by the Company under certain circumstances. An
aggregate of 46,712 shares of Common Stock and warrants to purchase 175,000
shares of Common Stock held by employees of the Company are subject to put and
call options on substantially the same terms as the shares of Common Stock
purchased pursuant to the Purchase Plans described above. Warrants to purchase
an additional 318,500 shares of Common Stock, or shares purchased upon exercise
thereof, held by employees of the Company are subject to repurchase by the
Company pursuant to the terms of such warrants upon the termination of
employment of any holder of such warrants prior to an initial public offering of
the Company's Common Stock. The repurchase price depends upon, among other
factors, the circumstances surrounding termination of employment, the fair
market value of the Common Stock on the date of termination and the purchase
price paid by the employee.
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PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 1, 1998 certain information
regarding the shares of Common Stock beneficially owned by (i) each stockholder
who is known by the Company to beneficially own in excess of 5% of the
outstanding shares of Common Stock, (ii) each director, Named Executive Officer
and New Executive Officer and (iii) all executive officers and directors as a
group. Unless otherwise indicated, each of the stockholders shown in the table
below has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES(2) CLASS
- ------------------------------------------------------------------------------------------ ---------- -------------
<S> <C> <C>
Oaktree Capital Management, LLC(3)........................................................ 1,295,575 60.9%
The TCW Group, Inc.(4).................................................................... 695,575 32.7
TCW Special Credits Fund V--The Principal Fund............................................ 695,575 32.7
OCM Principal Opportunities Fund, L.P..................................................... 600,000 28.2
Logistical Simon, L.L.C.(5)............................................................... 544,532 24.7
Stephen A. Kaplan(6)...................................................................... 1,295,575 60.9
Vincent J. Cebula(6)...................................................................... 1,295,575 60.9
Richard J. Goldstein(6)................................................................... 1,295,575 60.9
William E. Simon, Jr.(7).................................................................. 544,532 24.7
Michael B. Lenard(7)...................................................................... 544,532 24.7
Conor T. Mullett(7)....................................................................... 544,532 24.7
Roger E. Payton(8)........................................................................ 110,000 5.0
William E. Myers(9)....................................................................... 59,938 2.7
Luis F. Solis(10)......................................................................... 24,500 1.1
Gary S. Holter(10)........................................................................ 27,500 1.3
Larry Tieman(10).......................................................................... 18,500 *
Ronald Jackson............................................................................ 0 *
Executive Officers and Directors as a Group (12 persons)(11).............................. 2,080,545 86.6
</TABLE>
- ------------------------
* Less than one percent
(1) The address of The TCW Group, Inc. and the Principal Fund is 865 South
Figueroa Street, Los Angeles, California 90017. The address of Oaktree
Capital Management, LLC, the Opportunities Fund, Mr. Kaplan, Mr. Goldstein
and Mr. Cebula is 550 Hope Street, 22nd Floor, Los Angeles, California
90071. The address of Logistical Simon, L.L.C., Mr. Simon and Mr. Lenard is
10990 Wilshire Boulevard, Suite 500, Los Angeles, California 90024. The
address of Mr. Mullett is 310 South Street, P.O. Box 1913, Morristown, New
Jersey 07692.
(2) As used in the table above, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship, or otherwise has or shares (i) the power to
vote, or direct the voting, of such security or (ii) investment power which
includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of
such security within 60 days.
(3) All such shares are owned by the Principal Fund and the Opportunities Fund.
Pursuant to a subadvisory agreement with TCW Asset Management Company
("TAMCO"), the general partner of the Principal Fund, Oaktree manages the
investments and assets of the Principal Fund. In such capacity, Oaktree
shares voting and dispositive power with TAMCO, a wholly-owned subsidiary
of the TCW Group, Inc., as to shares owned by the Principal Fund. Oaktree
also manages the investments and assets of the Opportunities Fund.
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(4) All such shares are owned by the Principal Fund. TAMCO is the general
partner of the Principal Fund. TAMCO is a wholly-owned subsidiary of TCW
Group, Inc.
(5) Includes 75,000 shares of Common Stock issuable upon exercise of warrants
which are currently exercisable.
(6) All such shares are owned by the Principal Fund and the Opportunities Fund
and are also shown as beneficially owned by Oaktree. To the extent Mr.
Kaplan, Mr. Cebula or Mr. Goldstein, on behalf of Oaktree, participates in
the process to vote or dispose of any such shares, they may be deemed under
such circumstances for the purpose of Section 13 of the Exchange Act to be
the beneficial owner of such shares. Each of Mr. Kaplan, Mr. Cebula and Mr.
Goldstein disclaims beneficial ownership of such shares.
(7) All such shares are owned by Logistical Simon. To the extent Mr. Simon, Mr.
Lenard or Mr. Mullett, on behalf of Logistical Simon, participates in the
process to vote or dispose of any such shares, they may be deemed under
such circumstances for the purpose of Section 13 of the Exchange Act to be
the beneficial owner of such shares. Each of Mr. Simon, Mr. Lenard and Mr.
Mullett disclaims beneficial ownership of such shares.
(8) Includes 2,488 shares held by the Deferred Plan for the benefit of Roger E.
Payton and 87,500 shares of Common Stock issuable upon exercise of warrants
which are currently exercisable.
(9) Includes 59,938 shares of Common Stock issuable upon exercise of warrants
which are currently exercisable.
(10) Includes 17,500 shares of Common Stock issuable upon exercise of warrants
which are currently exercisable.
(11) See notes (6)-(9).
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1996, Mr. Payton purchased a total of 22,500 shares of Common Stock for
the aggregate purchase price of $450,000. In 1996 and 1997, Mr. Holter purchased
a total of 10,000 shares of Common Stock for the aggregate purchase price of
$250,000. In June 1997, Mr. Solis purchased a total of 7,000 shares of Common
Stock for the aggregate purchase price of $210,000 and Mr. Tieman purchased a
total of 1,000 shares of Common Stock for the aggregate purchase price of
$30,000. The Company loaned money to Messrs. Payton and Solis to finance the
purchase of certain shares of Common Stock by such individuals. Messrs. Payton
and Solis executed promissory notes in the amounts of $150,240 and $157,500,
respectively, in favor of the Company and pledged their shares of Common Stock
as collateral for such promissory notes pursuant to a stock pledge agreement.
The promissory notes executed by Messrs. Payton and Solis bear interest at rates
of 8% and 10% per annum, respectively, and mature on April 30, 2000 and March 1,
1998, respectively. Mr. Solis repaid his note in full in January 1998. The
aggregate principal amount outstanding as of March 1, 1998 on the promissory
note executed by Mr. Payton was $150,240. In addition, pursuant to the terms of
the promissory note, Mr. Payton will make additional mandatory prepayments on
his promissory note equal to (i) 80% of the after-tax amount of any dividend or
distribution made by the Company with respect to the shares of Common Stock
subject to the pledge agreement as a mandatory prepayment of principal and
interest on the promissory note executed by Mr. Payton and (ii) 75% of the
after-tax amount of any cash bonus paid to him prior to maturity of the
promissory note. The Company has waived the obligation for Mr. Payton to apply
amounts received as a bonus for 1997 as a mandatory prepayment of his promissory
note.
On October 31, 1996, WESS and the Company entered into an executive
management agreement (the "WESS Management Agreement") pursuant to which WESS
agreed to provide executive management services to the Company, including
consultation, advice and direct management assistance with respect to
operations, strategic planning, financing and other aspects of the business of
the Company. The WESS Management Agreement terminates on May 2, 2000, subject to
earlier termination upon the occurrence of specified events, and provides that
the Company will pay WESS a management fee equal to $350,000 per year so long as
there is no continuing or uncured material event of default under the material
terms of indebtedness of the Company. The Company also agreed to reimburse WESS
for reasonable out-of-pocket expenses incurred by WESS or its personnel in
connection with performance of services under the WESS Management Agreement. The
Company paid WESS management fees in the aggregate amount of $350,000 for
services provided by WESS in 1997. The Company has entered into a management
agreement with the Oaktree Entities which has substantially the same terms as
the WESS Management Agreement and paid Oaktree management fees in the aggregate
amount of $57,000 for services provided to Oaktree in 1997. In addition, each of
WESS and the Opportunities Fund received a $750,000 transaction fee upon
consummation of the Company's 1996 acquisition of LEP and Matrix. The Company
paid a total of $2.5 million in transaction fees to WESS and the Oaktree
Entities in connection with the 1997 LIW Acquisition, the Old Notes Offering and
the New Credit Facility.
On September 29, 1995, WESS executed agreements (the "Myers Agreement") with
W.E. Myers & Co. ("WEMCO"), a company formed by William E. Myers, Jr., a
director of the Company ("Myers"), entitling WEMCO to receive a $50,000 per year
retainer and cash and equity compensation upon the consummation, during the one
year term of the Myers Agreement and for a period of two years following the
termination thereof, of acquisitions of companies introduced by WEMCO to WESS or
its affiliates. The amount of cash fees payable and warrants to purchase Common
Stock issuable to WEMCO is based on the value of any consummated transaction. On
February 29, 1996, WESS delivered notice to WEMCO terminating the Myers
Agreement. In 1996, the Company paid WEMCO fees in the amount of $697,000,
$574,000 and $300,000 in connection with the acquisition of Bekins, LEP and
Matrix, respectively, in consideration for consulting services provided by WEMCO
to the Company in connection with such acquisitions. The Company did not make
any payments to WEMCO in 1997 under the Myers Agreement.
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The Company and the holders of all of the Company's issued and outstanding
shares of Common Stock and warrants to purchase Common Stock have executed an
amended and restated Stockholders Agreement. Each of the parties to the
Stockholders Agreement has agreed to vote the Company securities held by such
party to elect a Board of Directors consisting of three directors nominated by
Logistical Simon, two directors nominated by the Opportunities Fund, one
director nominated by the Principal Fund, the Chief Executive Officer of the
Company and William E. Myers, Jr. (the "Initial Voting Agreement"). The Initial
Voting Agreement will terminate upon (i) consummation of an initial public
offering by the Company, (ii) certain sales of Company securities by Logistical
Simon, (iii) failure of the Oaktree Entities or Logistical Simon to purchase
Common Stock under certain circumstances, (iv) the occurrence of a deadlock of
the Board of Directors in the event of a default by the Company with respect to
certain of its indebtedness or the acceleration of certain of the Company's
indebtedness, a bankruptcy of the Company or the entry of a judgement exceeding
a specified level against the Company and (v) May 2, 2002. Each of the parties
to the Stockholders Agreement has agreed that, following the termination of the
Initial Voting Agreement for any reason other than an initial public offering,
it will vote its Company securities to elect a Board of Directors consisting of
five directors. Under such circumstances, the number of directors that the
Oaktree Entities and Logistical Simon may nominate will depend on the percentage
of voting stock of the Company held by the Oaktree Entities. Prior to
termination of the Initial Voting Agreement, the approval of six members of the
Board of Directors is required for the Company to issue securities, borrow
money, spend money, incur any obligation or take any action, except with respect
to the daily affairs and operations of the Company arising in the ordinary
course of business. In addition, prior to termination of the Initial Voting
Agreement, the Executive Committee of the Board of Directors, which consists of
one director nominated by the Oaktree Entities, one director nominated by
Logistical Simon and the Chief Executive Officer of the Company, may take any
action on behalf of the Board of Directors upon unanimous approval of the
Executive Committee. Prior to the termination of the Initial Voting Agreement,
the Audit Committee and Compensation Committee are to be comprised of one member
designated by the Oaktree Entities and one member designated by WESS. Finally,
prior to the termination of the Initial Voting Agreement, all actions taken by
the holders of Common Stock require the approval of the holders of at least 80%
of the issued and outstanding shares entitled to vote. The Stockholders
Agreement also contains certain rights of first refusal with respect to
transfers of Company securities, preemptive rights with respect to future
issuances of Common Stock or securities convertible into Common Stock by the
Company, and tag-along and drag-along rights.
RECENT ACQUISITIONS
ACQUISITION OF BEKINS
On May 2, 1996 the Company acquired Bekins for an aggregate cash payment of
$32.2 million and an aggregate of 45,560 shares of the Common Stock pursuant to
an Agreement and Plan of Merger dated April 10, 1996. The Company financed the
Bekins' acquisition with a portion of the $18.5 million in proceeds received by
the Company from the issuance of an aggregate of 923,440 of shares of Common
Stock and an aggregate of approximately $32.0 million of borrowings under the
Company's $50.0 million credit facility.
ACQUISITION OF LEP-USA AND LEP-CANADA
On October 31, 1996, the Company acquired all of the issued and outstanding
capital stock of LEP-USA, a subsidiary of LIW, for an aggregate purchase price
of $4.5 million and LEP-Canada, a subsidiary of LIW, for an aggregate purchase
price of $6.5 million. The purchase price for the acquisition of LEP-USA and
LEP-Canada was financed with borrowings made pursuant to a $110.0 million credit
facility syndicated by the banks acting as agents under Bekins' previous credit
facility (the "Loan Agreement").
The Company's acquisitions of LEP-USA and LEP-Canada were the initial steps
in the Company's acquisition of LIW. In August 1996, the Company advanced LIW
$1.0 million in the form of a demand note
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(the "LIW Note"). In exchange for extending such advance, LIW issued a warrant
to the Company to purchase 420,000 ordinary shares, par value L.01 per share of
LIW capital stock ("Ordinary Shares"). In addition, concurrently with the
Company's acquisition of LEP-USA and LEP-Canada, (i) the Company released LIW
from its obligations pursuant to the LIW Note, (ii) LIW cancelled the warrant to
purchase Ordinary Shares that had been previously issued to the Company, (iii)
LIW issued 100 Ordinary Shares to the Company; (iv) LIW issued a warrant to the
Company to purchase 419,900 Ordinary Shares (the "LIW Warrant"), and (v) certain
holders of Ordinary Shares and warrants to purchase Ordinary Shares entered into
stockholder agreements and option agreements relating to the transfer of such
securities for the three year period ending on October 31, 1999. As a result of
such transactions, the Company held a 33.3% interest in LIW's fully-diluted
equity and appointed two of its executives to serve as members of the LIW Board
of Directors. In connection with the acquisition of LEP-USA and LEP-Canada, the
Company entered into two operational working agreements providing that, for a
term of seven years, each of LEP-USA, LEP-Canada and LIW will operate their
respective freight forwarding businesses as part of global network with shared
information systems platforms based on LIW's FAST 400 system software.
ACQUISITION OF MATRIX
On November 7, 1996, the Company purchased all of the issued and outstanding
capital stock of Matrix for the aggregate consideration of approximately $19.2
million in cash and 96,000 shares of Common Stock. In connection with the
acquisition of Matrix, the Company entered into a stock purchase agreement with
the minority holder of equity securities of certain subsidiaries of Matrix. The
aggregate consideration paid by the Company to acquire the minority interests of
the Matrix subsidiaries was $754,988 in cash and 4,000 shares of Common Stock.
The Company financed the acquisition of Matrix with borrowings made pursuant to
the Loan Agreement and the proceeds from the sale of equity securities to the
Principal Fund, the Opportunities Fund, Logistical Simon and an affiliate of one
of the Company's lenders. See "Certain Relationships and Related Transactions."
In connection with the acquisition, the Company entered into employment
agreements with each of the four selling stockholders of Matrix. On December 31,
1997, employment agreements with three of the Matrix selling stockholders were
terminated and replaced with new employment agreements (the "New Agreements")
and the employment agreement with one of the Matrix selling stockholders was
terminated pursuant to a Separation Agreement and Mutual Release (the
"Separation Agreement").
The Separation Agreement provides for the resignation and termination of the
executive's employment with Matrix as of December 31, 1997 and the mutual
release of all claims, including claims under the terminated employment
agreement and claims arising from the Company's acquisition of Matrix. The
Separation Agreement requires the Company to pay the terminated executive an
aggregate of $1,000,000 in quarterly installments beginning in January 1998 and
ending in July 2000 so long as the executive does not breach certain
non-competition and non-solicitation provisions of the Separation Agreement. All
shares of Common Stock owned by the terminated executive are subject to put
rights of the executive at a purchase price equal to the fair market value of
the shares of Common Stock; provided, however, that if the executive exercises
his put right within 30 days of June 30, 2000 and is not in material breach of
certain non-competition and non-solicitation provisions of the Separation
Agreement, the purchase price will be equal to the higher of fair market value
or $75.00 per share. In addition, shares of Common Stock owned by the terminated
executive are subject to call rights of the Company at a purchase price equal to
the fair market value of the shares of Common Stock. The Company's call option
is exercisable beginning on the earlier of December 31, 2001 and the date on
which the terminated executive materially breaches the Separation Agreement. The
put and call options expire upon the first to occur of (i) a public offering of
Common Stock with proceeds to the Company or its stockholders in excess of
$30,000,000, (ii) listing of the Common Stock on the Nasdaq National Market
System or on the New York or American Stock Exchange and (iii) an exercise of
the put or call option.
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Each New Agreement terminates on December 31, 2001 and provides that the
Company will pay the Matrix executive who is a party to such agreement a base
salary of $347,725 per year. Pursuant to the terms of the New Agreements, the
Company agreed to issue warrants to purchase 4,800 shares of Common Stock to
each such executive. Such warrants have an exercise price of $60.00 per share,
expire on November 7, 2007 and vest in equal installments on April 1, 1999, 2000
and 2001 if the Company achieves specified EBITDA targets for 1998, 1999 and
2000, respectively. In addition, each New Agreement provides that the Company
will issue 14,400 shares of Common Stock to the Matrix executive who is a party
to such agreement upon the first to occur of (i) such executive's employment
being terminated pursuant to a constructive discharge or for reasons other than
a voluntary resignation, termination for cause or death or disability of such
executive and (ii) a registered public offering of the Company's Common Stock
with aggregate offering proceeds to the Company or any of its stockholders in
excess of $20,000,000 and which results in the Common Stock being listed on the
Nasdaq Stock Market or the New York or American Stock Exchange. The New
Agreements provide that the executives will be elected to the board of directors
of Matrix. Pursuant to the terms of the New Agreements, shares of Common Stock
issued to each of the three continuing executives in consideration for the
acquisition by the Company of the Matrix capital stock and shares of Common
Stock issued to each of the three continuing Matrix executives are subject to
certain put rights of such executive in the event of a termination of such
executive's employment by Matrix under certain circumstances. The purchase price
for such put and call options is subject to and based upon the circumstances
under which such executive's employment was terminated.
ACQUISITION OF LIW
In the period from May 1997 through September 1997, the Company entered into
option agreements (the "LIW Options") with all of the holders of Ordinary Shares
and warrants to purchase Ordinary Shares of LIW. The LIW Options provided for
the future acquisition of all of LIW's outstanding Ordinary Shares (other than
shares previously acquired by the Company in October 1996). On September 30,
1997, the Company exercised four of the LIW Options for consideration consisting
of L4,500 ($7,539) and warrants to purchase an aggregate of 19,045 shares of
Common Stock at an initial exercise price of $45.00 per share (the "Company
Warrants"). The Company Warrants are exercisable prior to December 31, 2007.
Additionally, on September 30, 1997, the Company exercised the LIW Warrant for
L4,199 ($7,036) and exercised warrants to purchase 306,000 Ordinary Shares of
LIW for aggregate consideration of L253,980 ($418,614). As a result of the
foregoing transactions, the Company owned 726,120 Ordinary Shares, or 75.2% of
LIW's issued and outstanding Ordinary Shares as of September 30, 1997 (the "LIW
Acquisition"). On October 1, 1997, certain employees of LIW returned their
warrants to purchase Ordinary Shares to LIW for cancellation and entered into
employment agreements with LIW. In October 1997, the Company purchased warrants
to purchase Ordinary Shares held by a former Company employee for $35,000
pursuant to the terms of a pre-existing agreement. In December 1997, the Company
exercised all remaining LIW Options for an aggregate exercise price of L462,467
($763,533). Upon exercise of such remaining LIW Options, the Company became the
holder of 100% of LIW's issued and outstanding voting Ordinary Shares.
In connection with the LIW Acquisition, the Company entered into an option
agreement to acquire all 50,000 of LIW's issued and outstanding LIW preference
shares (the "Preference Shares") for an aggregate purchase price of L5.3 million
($8.8 million). The Company exercised said option in December 1997. Upon
exercise of the Preference Shares option in December 1997, LIW became a
wholly-owned subsidiary of the Company.
The LIW Options contain limited representations and warranties and only
three of the LIW Options relating to Ordinary Shares entitle the Company to
receive indemnification for breaches of representations, warranties and
covenants of the transferring holders. In addition, the three LIW Options that
contain indemnification provisions limit the indemnity that the Company may
receive from the transferring holder to $400,000 and provide that the Company
may not recover under the indemnification provisions
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unless the losses suffered by the Company exceed $50,000 in the aggregate. Such
LIW Options contain similar provisions relating to the indemnity obligations of
the Company. The options relating to the acquisition of the Preference Shares do
not contain any provisions relating to indemnification obligations of the
Company or the transferring holders of the Preference Shares.
In connection with the LIW Acquisition, LIW entered into employment
agreements with three of its executives, who were also selling stockholders. The
agreements have terms ranging from three to five years and provide for salaries
ranging from L125,000 ($208,000) to L200,000 ($333,000) per year and benefits
consistent with such executives' historic employment arrangements with LIW.
Certain of these agreements provide for annual performance based cash bonus
compensation of up to 70% of such executive's annual salary payable upon
satisfaction of certain financial targets and other clearly defined management
objectives to be agreed upon by LIW and such executive. The executives are
entitled to receive minimum bonuses aggregating approximately $2.6 million over
the terms of such agreements. Subject to the continuing employment of the
relevant executive, such bonuses may be paid in specified installments over the
term of such agreements. The employment agreements provide that, under certain
circumstances, bonuses must be refunded to the Company upon termination of
employment or other events. Each employment agreement requires the executive to
be bound by noncompetition and nonsolicitation provisions similar to those of
other executives of the Company.
In connection with the execution of the LIW Options, the Company issued and
delivered warrants (the "Performance Warrants") to purchase a total of 73,000
shares of Common Stock at an exercise price of $45.00 per share to entities (the
"Performance Warrant Holders") related to selling stockholders who are also
executives of LIW. The shares of Common Stock that may be purchased by the
Performance Warrant Holders pursuant to the terms of the Performance Warrants
vest in annual installments over periods of three to five years based upon
achievement of specified annual consolidated EBITDA targets by certain
subsidiaries of LIW. The vesting of shares of Common Stock subject to each of
the Performance Warrants is subject to acceleration in the event of a change of
control of the Company or termination of employment of the relevant executive by
the Company without cause or as a result of constructive discharge. The Company
has agreed, subject to limitations contained in the Company's debt and equity
financing arrangements, to purchase the Performance Warrants and shares of
Common Stock issued upon the exercise of the Performance Warrants in the event
of a termination of the relevant executive dependent upon the circumstances
giving rise to such termination or, in certain circumstances, if the Company has
not completed an initial public offering of its Common Stock prior to specified
dates.
NEW CREDIT FACILITY
GENERAL
In connection with the Old Notes Offering, certain of the Company's direct
subsidiaries (the "Borrowers"), the Company and certain other direct and
indirect subsidiaries of the Company (including LEP-Canada), as guarantors, and
LEP UK, the Company's indirect U.K. subsidiary, as a foreign borrower, entered
into the New Credit Facility with ING (U.S.) Capital Corporation ("ING"), as
agent. The New Credit Facility consists of a revolving credit facility in an
aggregate principal amount of $100.0 million (the "Loans"). The New Credit
Facility includes a $60.0 million sub-limit for letters of credit, a $30.0
million sub-limit for British Pounds Sterling borrowings by LEP UK and a $5.0
million sub-limit for the issuance of letters of credit in Canadian Dollars. The
obligations of the Borrowers under the New Credit Facility are joint and
several. The obligations of LEP UK under the New Credit Facility are several to
LEP UK. The Loans will mature in October 2002.
Indebtedness under the New Credit Facility, including the Loans to LEP UK,
is secured by a first priority security interest upon all of the Company's, the
Borrowers' and their domestic subsidiaries' accounts receivable, 100% of the
stock of each domestic active subsidiary of the Company, including LEP-Canada
(except in the case of foreign subsidiaries, in which case only 66% of the stock
of such foreign
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subsidiaries will be pledged), and certain intercompany obligations. In
addition, LEP UK secured its borrowings under the New Credit Facility by a first
priority security interest upon all of its accounts receivable.
REVOLVING CREDIT FACILITY
The New Credit Facility consists of a revolving credit facility in an
aggregate principal amount of $100.0 million. The Borrowers are entitled to draw
amounts under the New Credit Facility, subject to availability pursuant to a
borrowing base formula based upon eligible accounts receivable, in order to meet
the Company's working capital requirements and for general corporate purposes.
Loans are available to LEP UK upon the release of certain liens and claims of
the holder of the Preference Share against the assets of LEP UK and its
subsidiaries.
GUARANTIES
The loans are guaranteed by the Company. In addition, certain indirect
domestic subsidiaries of the Company, guaranteed the Loans, including the Loans
to LEP UK. LEP UK is only responsible for its own obligations under the New
Credit Facility. The direct subsidiary that holds the stock of LIW pledged 66%
of that stock.
INTEREST RATES
At the Company's option, interest will accrue on the Loans with reference to
either the average of prime commercial lending (or equivalent) rates publicly
announced by certain banks (the "Prime Rate") or the offered rate for deposits
in dollars in the London interbank eurodollar market ("LIBOR"), plus the
applicable interest margin. The Prime Rate is defined as, on any date, the
arithmetic average of the prime rates in effect from time to time as announced
by the Chase Manhattan Bank, Citibank and Morgan Guaranty Trust Company. LIBOR
is defined as the London Interbank Offered Rate, as adjusted to include any
reserve requirement of the Lenders. The applicable interest margin will be 0.5%
until March 31, 1998 for Prime Rate loans and 2.0% for LIBOR loans. Between
April 1, 1998 and October 27, 1998, the applicable interest margin will be the
lower of (i) the foregoing margins or (ii) a percentage which will fluctuate
between 0.0% and 1.0% for Prime Rate loans and between 1.5% and 2.5% for LIBOR
loans, based on the ratio of the Company's funded indebtedness to EBITDA (as
defined in the New Credit Facility) (the "Floating Margin"). From October 28,
1998, the Floating Margin will determine the applicable interest margin.
MANDATORY AND OPTIONAL PREPAYMENT
With the exception of mandatory prepayments in connection with certain
change of control events and certain asset dispositions involving a borrowing
base reduction, the New Credit Facility does not contain any mandatory
prepayment provisions as long as the aggregate amount of the Loans does not
exceed the level of borrowing base availability or the commitments under the New
Credit Facility. The New Credit Facility provides that the Company may prepay
Loans in whole or in part without penalty, subject to reimbursement of the
lender's breakage and redeployment costs in the case of prepayment of LIBOR
loans. The definition of Change of Control in the New Credit Facility in certain
circumstances is be more restrictive than that contained in the Indenture.
COVENANTS
The New Credit Facility contains certain covenants and other requirements of
the Company and its subsidiaries. In general, the affirmative covenants provide
for mandatory reporting by the Company of financial and other information to the
agent and notice by the Company to the agent upon the occurrence of certain
events, maintenance of its properties and compliance with regulation.
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The New Credit Facility also contains certain negative covenants and
restrictions on actions by the Company including, without limitation,
restrictions on indebtedness, liens, guarantee obligations, mergers, creation or
dissolution of subsidiaries, asset dispositions not in the ordinary course of
business, investments, acquisitions, loans, advances, dividends and other
restricted junior payments, transactions with affiliates, sale and leaseback
transactions, prepayment of or amendments to junior obligations, entering other
lines of business and amendments of other indebtedness. The New Credit Facility
requires the Company to meet certain financial covenants including minimum
EBITDA (as defined in the New Credit Facility) and, in certain circumstances,
interest coverage tests.
EVENTS OF DEFAULT
The New Credit Facility specifies certain customary events of default
including, without limitation, nonpayment of principal, interest or fees,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities, material
adverse pension plan events and unenforceability of certain documents under the
New Credit Facility, determination that any subordinated obligation is not
subordinated and change of control. The events of default under the New Credit
Facility are substantially similar to the events of default under the Indenture
except for the following material differences: (i) the Company's failure to pay
other indebtedness or judgments entered against the Company, including failure
to pay amounts due with respect to the New Notes, trigger a cross-default under
the New Credit Facility at lower dollar amounts than in the Indenture and
without the requirement of actual acceleration by the holders of such
indebtedness; (ii) the creation of liens on or failure of any security interest
in collateral securing the New Credit Facility trigger a default under the New
Credit Facility and (iii) the New Credit Facility generally has shorter grace
periods and lower default thresholds.
The description of the New Credit Facility set forth above is qualified in
its entirety to the complete text of the documents entered into in connection
therewith.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER; REGISTRATION RIGHTS
The Old Notes were sold by the Company on October 29, 1997 (the "Closing
Date") to Credit Suisse First Boston Corporation, BT Alex. Brown Incorporated,
Smith Barney Inc. and ING Baring (U.S.) Securities, Inc. (collectively, the
"Initial Purchasers"). As a condition to the sale of the Old Notes, the Company
and the Initial Purchasers entered into the Registration Rights Agreement on the
Closing Date. The Registration Statement, of which this Prospectus is part, is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement summarized below. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes where such Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. See "Plan of Distribution."
The Company has agreed pursuant to the Registration Rights Agreement with
the Initial Purchasers, for the benefit of the Holders, that the Company will,
at its cost, (i) within 60 days after the date of original issue of the Old
Notes, file the Exchange Offer Registration Statement with the SEC with respect
to a registered exchange offer (the "Registered Exchange Offer") to exchange the
Old Notes for the New Notes having terms substantially identical in all material
respects to the Old Notes (except that the New Notes will not contain terms with
respect to transfer restrictions) and (ii) use all reasonable efforts to cause
the Exchange Offer Registration Statement to be declared effective under the
Securities Act within 195 days after the date of original issue of the Old
Notes. Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer the New Notes in exchange for surrender of the Old Notes. The
Registration Rights Agreement provides that the Company is required to keep the
Registered Exchange Offer open for not less than 30 days (or longer if required
by applicable law) after the date notice of the Registered Exchange Offer is
mailed to the Holders. For each Old Note surrendered to the Company pursuant to
the Registered Exchange Offer, the Holder of such Old Note will receive a New
Note having a principal amount equal to that of the surrendered Old Note.
Interest on each New Note will accrue from the last interest payment date on
which interest was paid on the Old Note surrendered in exchange therefor or, if
no interest has been paid on such Old Note, from the date of its original issue.
Under existing SEC interpretations, the New Notes will be freely transferable by
Holders other than affiliates of the Company after the Registered Exchange Offer
without further registration under the Securities Act if the Holder of the New
Notes represents that it acquired the New Notes in the ordinary course of its
business, that it has no arrangement or understanding with any person to
participate in the distribution of the New Notes and that it is not an affiliate
of the Company, as such terms are interpreted by the SEC; PROVIDED, HOWEVER,
that broker-dealers ("Participating Broker-Dealers") receiving New Notes in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such New Notes. Under similar SEC interpretations,
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to New Notes (other than a resale of an unsold allotment from the
original sale of the Old Notes) with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement the
Company is required to allow Participating Broker-Dealers and other persons, if
any, with similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such New Notes.
A Holder (other than certain specified holders) who wishes to exchange such
Old Notes for New Notes in the Registered Exchange Offer will be required to
represent, among other things, that any New Notes to be received by it will be
acquired in the ordinary course of its business, that at the time of the
commencement of the Registered Exchange Offer it has no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of the New Notes and that it is not an
"affiliate" of the Company, as defined in Rule 405 under the Securities Act, or
if it is an affiliate,
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that it will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
In the event that (i) applicable law or interpretations of the staff of the
SEC do not permit the Company to effect such a Registered Exchange Offer, (ii)
if for any other reason the Registered Exchange Offer is not consummated within
230 days of the date of the original issue of the Old Notes, or (iii) any Holder
notifies the Company within 30 days after commencement of the Registered
Exchange Offer that such holder (x) is prohibited by applicable law or SEC
policy from participating in the Registered Exchange Offer, (y) may not resell
New Notes acquired by it to the public without delivery of a prospectus and that
the prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (z) is a
broker-dealer and holds Old Notes acquired directly from the Company or an
affiliate of the Company, then in lieu of conducting the Registered Exchange
Offer, the Company will, at its cost, (a) as promptly as practicable, file a
Shelf Registration Statement covering resales of the Old Notes or the New Notes,
as the case may be, (b) use all reasonable efforts to cause the Shelf
Registration Statement to be declared effective under the Securities Act and (c)
keep the Shelf Registration Statement effective until two years from the date of
its effectiveness or such shorter period that will terminate when all of the Old
Notes covered by the Shelf Registration Statement have been disposed of pursuant
to the Shelf Registration Statement. The Company is required to in the event a
Shelf Registration Statement is filed, among other things, provide to each
Holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is a part of the Shelf Registration Statement, notify each such
Holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the Old
Notes or the New Notes, as the case may be. A Holder selling such Old Notes or
New Notes pursuant to the Shelf Registration Statement generally would be
required to be named as a selling security Holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such Holder (including certain indemnification obligations). In
addition, each Holder of the Old Notes or New Notes to be registered under the
Shelf Registration Statement is required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time period set forth in the
Registration Rights Agreement in order to have such Holder's Old Notes or New
Notes included in the Shelf Registration Statement and to benefit from the
provisions regarding additional interest set forth in the following paragraph.
If (i) by December 28, 1997, the Exchange Offer Registration Statement has
not been filed with the SEC; (ii) by June 16, 1998, neither the Registered
Exchange Offer is consummated nor, within the time period specified in the
Registration Rights Agreement, the Shelf Registration Statement is declared
effective; or (iii) after either the Exchange Offer Registration Statement or
the Shelf Registration Statement is declared effective, such Registration
Statement thereafter ceases to be effective or usable (subject to certain
exceptions) in connection with resales of Old Notes or New Notes in accordance
with and during the periods specified in the Registration Rights Agreement (each
such event referred to in clauses (i) through (iii), a "Registration Default"),
additional interest ("Special Interest") will accrue on the Old Notes and the
New Notes from and including the date on which any such Registration Default
shall occur to but excluding the date on which all Registration Defaults have
been cured. Special Interest will accrue at a rate of 0.25% per annum during the
90-day period following the occurrence of any Registration Default and shall
increase by 0.25% per annum at the beginning of each subsequent 90-day period,
but in no event shall such rate exceed 1.0% per annum. Special Interest is
payable in addition to any other interest payable from time to time with respect
to the Old Notes and the New Notes.
If the Company effects the Registered Exchange Offer, it is entitled to
close the Registered Exchange Offer 30 days after the commencement thereof
provided that it has accepted all Old Notes theretofore validly tendered in
accordance with the terms of the Registered Exchange Offer.
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The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
TRANSFER RESTRICTED SECURITIES
For purposes of the foregoing, "Transfer Restricted Securities" means each
Old Note until (i) the date on which such Old Note has been exchanged by a
person other than a broker-dealer for a New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of an Old Note
for a New Note, the date on which such New Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Old Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iv)
the date on which such Old Note may be distributed to the public pursuant to
Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under
the Securities Act or another applicable resale exemption under the Securities
Act.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all the Old
Notes validly tendered and not withdrawn prior to the Expiration Date. As of the
date of this Prospectus, $110.0 million aggregate principal amount of the Old
Notes is outstanding. This Prospectus, together with the Letter of Transmittal,
is first being sent on or about [ ], 1998, to all Noteholders known to
the Company. The Company's obligation to accept the Old Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions as set forth
under "--Certain Conditions to the Exchange Offer" below. The Company will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of outstanding Old Notes accepted in the Exchange Offer. Noteholders may
tender some or all of their Old Notes pursuant to the Exchange Offer. See
"--Consequences of Failure to Exchange." However, the Old Notes may be tendered
only in integral multiples of $1,000.
The New Notes will evidence the same debt as the Old Notes for which they
are exchanged, and are entitled to the benefits of the Indenture. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
except that the New Notes have been registered under the Securities Act and
hence will not bear legends restricting the transfer thereof.
Noteholders do not have any appraisal or dissenters' rights under the
Indenture in connection with the Exchange Offer. The Company intends to conduct
the Exchange Offer in accordance with the applicable requirements of Regulation
14E under the Exchange Act.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering
Noteholders for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, such unaccepted tenders of Old Notes will be returned, without
expense to the Noteholder thereof, as promptly as practicable after the
Expiration Date.
Noteholders whose Old Notes are not tendered or are tendered but not
accepted in the Exchange Offer will continue to hold such Old Notes and will be
entitled to all the rights and preferences and subject to the limitations
applicable thereto under the Indenture. Following consummation of the Exchange
Offer, the Noteholders will continue to be subject to the existing restrictions
upon transfer thereof and the Company will have no further obligation to such
Noteholders to provide for the registration under the Securities Act of the Old
Notes held by them. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be
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adversely affected. See "Risk Factors--Restrictions Upon Transfer of and Limited
Trading Market for Old Notes."
Noteholders who tender Old Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses; Solicitation of Tenders."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
[ ], 1998, unless the Company extends the Exchange Offer, in which
case the term "Expiration Date" shall mean the date and time to which the
Exchange Offer is extended. , 1998 is the latest date through which
the Exchange Offer may be extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice, mail to the registered
Noteholders an announcement thereof and will make a release to the Dow Jones
News Services each prior to 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
The Company reserves the right at its sole discretion (i) to delay accepting
any Old Notes, (ii) to extend the Exchange Offer, (iii) to terminate the
Exchange Offer and not accept the Old Notes not previously accepted if any of
the conditions set forth below under "--Certain Conditions to the Exchange
Offer" shall have occurred and shall not have been waived by the Company, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent, or (iv) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
Noteholders. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, the Company will promptly disclose such
amendment by means of a Prospectus supplement that will be distributed to all
Noteholders, and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Noteholders, if the Exchange Offer would otherwise
expire during such five to ten business day period. During any extension of the
Expiration Date, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company.
The Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
Interest accrues on the New Notes at the rate of 9 3/4% per annum and will
be payable in cash semiannually in arrears on each April 1 and October 15,
commencing April 15, 1998. No interest will be payable on the Old Notes on the
date of the exchange for the New Notes and therefore no interest will be paid
thereon to the Noteholders at such time.
PROCEDURES FOR TENDERING THE OLD NOTES
The tender to the Company of the Old Notes by a beneficial owner thereof as
set forth below and the acceptance by the Company thereof will constitute a
binding agreement between the tendering Noteholder and the Company upon the
terms and subject to the conditions set forth in this Prospectus and the Letter
of Transmittal.
Except as set forth below, a Noteholder who wishes to tender the Old Notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes into the
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Exchange Agent's account at the Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the Noteholder must comply with the guaranteed delivery procedures
described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE NOTEHOLDERS. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Noteholder who has not
completed the box entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" in the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such guarantee must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States or otherwise an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Old Notes are registered in the
name of a person other than the person signing the Letter of Transmittal, the
Old Notes surrendered for exchange must be endorsed by, or be accompanied by, a
written instrument or instruments of transfer or exchange, in satisfactory form
as determined by the Company in its sole discretion, duly executed by the
registered Noteholder with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal is signed by a person or persons other than the
registered Noteholder or Noteholders, such Old Notes must be endorsed by the
registered Noteholder with signature guaranteed by an Eligible Institution or
accompanied by appropriate powers of attorney with signature guaranteed by an
Eligible Institution, in either case signed exactly as the name or names of the
registered Noteholder or Noteholders that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of its authority so to act
must be submitted with the Letter of Transmittal.
By crediting Old Notes to the Exchange Agent's Account at DTC in accordance
with DTC's Automated Tender Offer Program ("ATOP") and by complying with
applicable ATOP procedures with respect to the Exchange Offer, including
transmitting an Agent's Message to the Exchange Agent in which the holder of Old
Notes acknowledges and agrees to be bound by the terms of the Letter of
Transmittal, the participant in ATOP confirms on behalf of itself and the
beneficial owners as if it had completed the information required therein and
executed and transmitted the Letter of Transmittal to the Exchange Agent. The
term "Agent's Message" means a message transmitted by DTC to and received by the
Exchange Agent and forming a part of a book-entry confirmation, which states
that DTC has received an express acknowledgment from the tendering participant,
which acknowledgment of Transmittal (including the representations contained
therein) and that the Company may enforce the Letter of Transmittal against such
participant.
By tendering, each Noteholder will represent to the Company that, among
other things, (i) the New Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the Noteholder, (ii) neither the
Noteholder nor any such other person has an arrangement or understanding with
any person to participate in the distribution of such New Notes, (iii) if the
Noteholder is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for the Old Notes, neither the
Noteholder nor any such other person is engaged in or intends to participate in
the distribution of such New Notes and
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(iv) neither the Noteholder nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of the Company. If the tendering
Noteholder is a broker-dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, it will be required to acknowledge that
it will deliver a Prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY OR THE COMPANY DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right in its
sole discretion to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any
Noteholder who seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and instructions thereto) by the Company shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with the tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."
ACCEPTANCE OF THE OLD NOTES FOR EXCHANGE; DELIVERY OF THE NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "--Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, and if the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of the New Notes for the Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted for
any reason set forth in the terms and conditions of the Exchange Offer or if
certificates representing the Old Notes are submitted for a greater principal
amount than the Noteholder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Noteholder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
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BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's systems
may make book-entry delivery of the Old Notes by causing the Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's Automated Tender Offer Program ("ATOP") procedures for transfer.
However, the exchange for the Old Notes so tendered will only be made after
timely confirmation of such book-entry transfer of Old Notes into the Exchange
Agent's account, and timely receipt by the Exchange Agent of an Agent's Message
(as such term is defined in the next sentence) and any other documents required
by the Letter of Transmittal on or prior to the Expiration Date or pursuant to
the guaranteed delivery procedures described below. The term "Agent's Message"
means a message, transmitted by the Book-Entry Transfer Facility and received by
the Exchange Agent and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgement
from a participant tendering Old Notes that are the subject of such Book-Entry
Confirmation that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal, and that the Company may enforce such
agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered Noteholder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
Noteholder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Noteholder and the amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that within five New York Stock
Exchange ("NYSE") trading days after the date of execution of the Notice of
Guaranteed Delivery, the certificates of all physically tendered Old Notes, in
proper form for transfer, or a Book-Entry Confirmation, as the case may be, and
any other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing Noteholder.
If certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Noteholder must also submit the serial numbers of the particular certificates to
be withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Noteholder is an Eligible Institution. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer
described above, any note of withdrawal must specify the name and number of the
account at the Book-
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Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the Noteholder thereof without cost to such Noteholder (or, in
the case of Old Notes tendered by book-entry transfer procedures described
above, such Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for Tendering the Old Notes" above at any time on or
prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, there shall be threatened, instituted or pending any
action or proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental regulatory or
administrative agency or commission (i) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof, or (ii) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes pursuant
to the Exchange Offer; or any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed applicable
to the Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any government or governmental authority, domestic or foreign, or any
action shall have been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign, that in the sole
judgment of the Company might directly or indirectly result in any of the
consequences referred to in clause (i) or (ii) above or, in the sole judgment of
the Company, might result in the holders of New Notes having obligations with
respect to resales and transfers of New Notes which exceed those described
herein, or would otherwise make it inadvisable to proceed with the Exchange
Offer.
If the Company determines in good faith that any of the conditions are not
met, the Company may (i) refuse to accept any Old Notes and return all tendered
Old Notes to exchanging Noteholders, (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Noteholders to withdraw such Old Notes (see
"--Withdrawal Rights") or (iii) waive certain of such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn or revoked. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver by
means of a Prospectus supplement that will be distributed to all Noteholders.
Noteholders have certain rights and remedies against the Company under the
Registration Rights Agreement, including liquidated damages of up to 1.0% per
annum, should the Company fail to consummate the Exchange Offer within a certain
period of time.
The foregoing conditions are for the benefit of the Company and may be
asserted by the Company in good faith regardless of the circumstances giving
rise to such condition or may be waived by the Company in whole or in part at
any time and from time to time in its discretion. The failure by the Company at
any time to exercise the foregoing rights shall not be deemed a wavier of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
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EXCHANGE AGENT
U.S. Bank Trust (formerly First Trust National Association) has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal should be directed to the Exchange Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL; BY OVERNIGHT COURIER; OR BY HAND.
U.S. Bank Trust
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Specialized Finance Department
Telephone: (612) 244-1215
Facsimile: (612) 244-1537
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES; SOLICITATION OF TENDERS
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be $450,000 which
includes fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, certificates
representing the New Notes or the Old Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered Noteholders
tendered, or if a transfer tax is imposed for any reason other than the exchange
of the Old Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering Noteholder. If satisfactory evidence of payment
of such taxes or exemption therefrom is not submitted to the Exchange Agent, the
amount of such transfer taxes will be billed directly to such tendering
Noteholder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) Noteholders in any jurisdiction in which the
making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
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ACCOUNTING TREATMENT
The New Notes will be recorded by the Company at the same carrying value as
the Old Notes, which is face value, as recorded in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The costs of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Noteholders who do not exchange their Old Notes for New Notes pursuant to
the Exchange Offer will continue to be subject to the restrictions on transfer
of such Old Notes as set forth in the legend thereon. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not intend
to register the Old Notes under the Securities Act. The Company believes that,
based upon interpretations contained in no-action letters issued to third
parties by the staff of the Commission, the New Notes issued pursuant to the
Exchange Offer in exchange for the Old Notes may be offered for resale, resold
or otherwise transferred by Noteholders thereof (other than any such Noteholder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such Noteholders' business and such Noteholders have no
arrangement with any person to participate in the distribution of such Old
Notes, and provided, further, that each broker-dealer that receives New Notes
for its own account in exchange for Old Notes must acknowledge that it will
deliver a Prospectus in connection with any resale of such New Notes. See "Plan
of Distribution." If any Noteholder (other than a broker-dealer described in the
preceding sentence) has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Noteholder (i) could not rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdiction or an
exemption from registration or qualification is available and is complied with.
DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued and the New Notes are to be issued under the
Indenture, dated as of October 29, 1997 (the "Indenture"), among the Company,
the Subsidiary Guarantors and U.S. Bank Trust (formerly First Trust National
Association), as Trustee (the "Trustee"). The form and terms of the New Notes
will be substantially identical to those of the Old Notes except that the New
Notes will have been registered under the Securities Act and hence are not
subject to certain transfer restrictions, registration rights and related
liquidated damages applicable to the Old Notes. The Old Notes and the New Notes
are referred to collectively as the "Notes."
The following is a summary of certain provisions of the Indenture and the
New Notes, a copy of which Indenture and the form of New Notes is available upon
request to the Company. The following summary of certain provisions of the
Indenture and the New Notes, does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Indenture and the New Notes, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. As used in this "Description of the New Notes" section, references to
the "Company" include only International Logistics Limited and not its
Subsidiaries.
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office or
agency of the Company in the Borough of Manhattan, The
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City of New York, which initially shall be the corporate trust office of the
Trustee's agent, at First Trust New York, 100 Wall Street, 20th Floor, New York,
New York 10005, except that, at the option of the Company, payment of interest
may be made by check mailed to the address of the Holders as such address
appears in the Note register.
The New Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. See "--Book
Entry, Delivery and Form." No service charge shall be made for any registration
or exchange of the New Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
TERMS OF THE NEW NOTES
The New Notes will be unsecured senior obligations of the Company, limited
to $110.0 million aggregate principal amount, and will mature on October 15,
2007. The New Notes will bear interest at the rate per annum shown on the cover
page hereof from October 29, 1997, or from the most recent date to which
interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on the April 1 or October 1 immediately
preceding the interest payment date on April 15 and October 15 of each year,
commencing April 15, 1998. The Company will pay interest on overdue principal
and, to the extent permitted by applicable law, on overdue installments of
interest borne by the New Notes. Interest on the New Notes will be computed on
the basis of a 360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the New Notes will not be
redeemable at the option of the Company prior to October 15, 2002. Thereafter,
the New Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address, at
the following redemption prices (expressed in percentages of principal amount),
plus accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
October 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. 104.875%
2003............................................................................. 103.250
2004............................................................................. 101.625
2005 and thereafter.............................................................. 100.000
</TABLE>
In addition, at any time and from time to time prior to October 15, 2000,
the Company may redeem in the aggregate up to 35% of the original principal
amount of the New Notes with the proceeds of one or more Public Equity
Offerings, at a redemption price (expressed as a percentage of principal amount)
of 109.75% plus accrued interest to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); PROVIDED, HOWEVER, that at least $71.5 million
aggregate principal amount of the Notes must remain outstanding after each such
redemption.
In the case of any partial redemption, selection of the New Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
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to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.
SUBSIDIARY GUARANTIES
Each of the Company's Restricted Subsidiaries that is organized and existing
under the laws of any State of the United States or the District of Columbia and
that is an obligor or guarantor with respect to the New Credit Facility will
irrevocably and unconditionally Guarantee, as a primary obligor and not merely
as a surety, on an unsecured senior basis the performance and punctual payment
when due, whether at Stated Maturity, by acceleration or otherwise, of all
obligations of the Company under the Indenture and the New Notes, whether for
payment of principal of or interest on the New Notes, expenses, indemnification
or otherwise (all such obligations guaranteed by the Subsidiary Guarantors being
herein called the "Guaranteed Obligations"). The Subsidiary Guarantors will
agree to pay, in addition to the amount stated above, any and all expenses
(including reasonable counsel fees and expenses) incurred by the Trustee or the
Holders in enforcing any rights under the Subsidiary Guaranties. Each Subsidiary
Guaranty will be limited in amount to an amount not to exceed the maximum amount
that can be Guaranteed by the applicable Subsidiary Guarantor without rendering
such Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. After the Issue Date, the Company will cause each
Restricted Subsidiary that is organized and existing under the laws of any State
of the United States or the District of Columbia and that becomes an obligor or
guarantor with respect to any of the obligations under one or more of the Bank
Credit Agreements to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee on an unsecured
senior basis the payment of the New Notes. See "Certain Covenants--Future
Subsidiary Guarantors" below.
Each Subsidiary Guaranty is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Subsidiary Guarantor and (c) inure to the benefit of
and be enforceable by the Trustee, the Holders and the successors, transferees
and assigns thereof. Each Subsidiary Guarantor may consolidate with, or merge
into, or sell its assets to the Company or another Subsidiary Guarantor that is
a Wholly Owned Subsidiary of the Company without limitation, or with other
Persons upon the terms and conditions set forth in the Indenture. See "--Certain
Covenants--Merger and Consolidation." A Subsidiary Guaranty will be released
upon the sale of all the Capital Stock, or all or substantially all of the
assets, of the applicable Subsidiary Guarantor if such sale is made in
compliance with the Indenture.
RANKING
The indebtedness evidenced by the New Notes and the Subsidiary Guaranties
will be senior unsecured obligations of the Company and the Subsidiary
Guarantors, respectively, ranking PARI PASSU with all other senior unsecured
Indebtedness of the Company and the Subsidiary Guarantors, respectively, and
senior to all Subordinated Obligations. The New Notes and the Subsidiary
Guaranties will also be effectively subordinated to all Secured Indebtedness of
the Company and the Subsidiary Guarantors, respectively, to the extent of the
value of the assets securing such Indebtedness and to all Indebtedness and other
obligations (including trade payables) of the Company's Subsidiaries other than
the Subsidiary Guarantors.
As of December 31, 1997, the Company had $0.8 million of outstanding Secured
Indebtedness, the Subsidiary Guarantors had approximately $0.4 million of
outstanding Secured Indebtedness and the Company's Subsidiaries other than the
Subsidiary Guarantors had approximately $100.1 million of Indebtedness and other
obligations (including trade payables) outstanding. Although the Indenture
contains limitations on the amount of additional Indebtedness that the Company
and its Restricted Subsidiaries may incur, under certain circumstances the
amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Secured Indebtedness. See "--Certain Covenants--Limitation
on Indebtedness."
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BOOK-ENTRY, DELIVERY AND FORM
The New Notes sold will be issued in the form of a Global Note. The Global
Note will be deposited with, or on behalf of, the Depository and registered in
the name of the Depository or its nominee. Except as set forth below, the Global
Note may be transferred, in whole and not in part, only to the Depository or
another nominee of the Depository. Investors may hold their beneficial interests
in the Global Note directly through the Depository if they have an account with
the Depository or indirectly through organizations which have accounts with the
Depository.
New Notes that are issued as described below under "Certificated New Notes"
will be issued in definitive certificated form. Upon the transfer of a New Note
in definitive certificated form to a QIB, such New Note will, unless the Global
Note has previously been exchanged for New Notes in definitive certificated
form, be exchanged for an interest in the Global Note representing the principal
amount of New Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the New
Notes represented by such Global Note to the accounts of participants. The
accounts to be credited shall be designated by the Initial Purchasers of such
New Notes. Ownership of beneficial interests in the Global Note will be limited
to participants or persons that may hold interests through participants.
Ownership of beneficial interests in the Global Note will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to participants' interest) and such
participants (with respect to the owners of beneficial interests in the Global
Note other than participants). The laws of some jurisdictions may require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related New Notes for
all purposes of such New Notes and the Indenture. Except as set forth below,
owners of beneficial interests in the Global Note will not be entitled to have
the New Notes represented by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated New Notes in
definitive form and will not be considered to be the owners or holders of any
New Notes under the Global Note. The Company understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Note desires to take any action that the Depository, as the holder of the Global
Note, is entitled to take, the Depository would authorize the participants to
take such action, and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
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Payment of principal of and interest on New Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NEW NOTES
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in definitive form of like tenor as such New Notes in
denominations of $1,000 and integral multiples thereof if (i) the Depository
notifies the Company that it is unwilling or unable to continue as Depository
for the Global Note or if at any time the Depository ceases to be a clearing
agency registered under the Exchange Act or (ii) the Company in its discretion
at any time determines not to have all of the New Notes represented by the
Global Note. Any New Note that is exchangeable pursuant to the preceding
sentence is exchangeable for certificated New Notes issuable in authorized
denominations and registered in such names as the Depository shall direct.
Subject to the foregoing, the Global Note is not exchangeable, except for a
Global Note of the same aggregate denomination to be registered in the name of
the Depository or its nominee. In addition, such certificates will bear
substantially the legend referred to under "Transfer Restrictions" (unless the
Company determines otherwise in accordance with applicable law) subject, with
respect to such New Notes, to the provisions of such legend.
Neither the Company nor the Trustee will be liable for any delay by the
Depository or its nominee in indemnifying the beneficial owners of the New
Notes, and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Depository or its nominee for all
purposes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's New Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date):
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(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that for purposes of this clause (i) such person shall be deemed
to have "beneficial ownership" of all shares that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
voting power of the then outstanding Voting Stock of the Company; PROVIDED,
HOWEVER, that for purposes of this clause (i), the Permitted Holders shall
be deemed to beneficially own any Voting Stock of a corporation (the
"specified corporation") held by any other corporation (the "parent
corporation") so long as the Permitted Holders beneficially own (as so
defined), directly or indirectly, in the aggregate a majority of the voting
power of the Voting Stock of the parent corporation;
(ii) during any period of two consecutive years after the Company's
initial Public Equity Offering, individuals who at the beginning of such
period constituted the Board of Directors (together with any new directors
whose election by such Board of Directors or whose nomination for election
by the shareholders of the Company was approved by a vote of 66 2/3% of the
directors of the Company then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of
the Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the sale
of all or substantially all the assets of the Company to another Person (in
each case other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of the
Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation or a parent corporation that owns all of the capital
stock of such corporation that represent immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation or such parent corporation, as the case may be.
Within 30 days following any Change of Control, unless notice of redemption
of the New Notes has been given pursuant to the provisions of the Indenture
described under "--Optional Redemption" above, the Company shall mail a notice
to the Trustee and to each Holder stating: (1) that a Change of Control has
occurred and that such Holder has the right to require the Company to purchase
such Holder's New Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control; (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its New Notes purchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of New Notes pursuant to the covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of
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Control, although it is possible that the Company would decide to do so in the
future. Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings or
other recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company and its Restricted Subsidiaries to
incur additional Indebtedness are contained in the covenant described under
"--Certain Covenants--Limitation on Indebtedness." Such restrictions can only be
waived with the consent of the Holders of a majority in principal amount of the
New Notes then outstanding. Except for the limitations contained in such
covenants, however, the Indenture will not contain any covenants or provisions
that may afford Holders protection in the event of a highly leveraged
transaction.
If a Change of Control offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the New Notes that might be delivered by Holders seeking to accept the Change
of Control offer. The failure of the Company to make or consummate the Change of
Control offer or pay the purchase price when due will give the Trustee and the
Holders the rights described under "--Defaults."
The existence of a Holder's right to require the Company to offer to
repurchase such Holder's New Notes upon a Change of Control may deter a third
party from acquiring the Company in a transaction which constitutes a Change of
Control.
The New Credit Facility contains, and future indebtedness of the Company may
contain, prohibitions on the occurrence of certain events that would constitute
a Change of Control or require such indebtedness to be repaid or repurchased
upon a Change of Control. Moreover, the exercise by the Holders of their right
to require the Company to repurchase the New Notes will cause a default under
the New Credit Facility, and could cause a default under such other
indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Holders following the occurrence of a Change of
Control may be limited by the Company's then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases. The provisions under the Indenture relating to
the Company's obligation to make an offer to repurchase the New Notes as a
result of a Change of Control may be waived or modified with the written consent
of the Holders of a majority in principal amount of the New Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS. (a) (i) The Company shall not Incur, directly
or indirectly, any Indebtedness unless, on the date of such Incurrence, the
Consolidated Coverage Ratio exceeds 2.25 to 1.0 and (ii) none of the Restricted
Subsidiaries of the Company shall Incur, directly or indirectly, any
Indebtedness unless, on the date of such Incurrence, the Consolidated Coverage
Ratio exceeds 2.50 to 1.0.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1)
Indebtedness (including reimbursement obligations in respect of letters of
credit outstanding under the Bank Credit Agreement that are Indebtedness)
Incurred pursuant to any Bank Credit Agreement or any other credit or loan
agreement in an aggregate principal
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amount which, when taken together (without duplication) with the principal
amount of all other Indebtedness Incurred pursuant to this clause (1) and then
outstanding, does not exceed $100.0 million; (2) Indebtedness of the Company or
any Restricted Subsidiary owed to and held by the Company or any Restricted
Subsidiary; PROVIDED, HOWEVER, that any subsequent issuance or transfer of any
Capital Stock which results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any subsequent transfer of such Indebtedness (other
than to another Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the Company or such Restricted
Subsidiary; (3) the Notes, the Subsidiary Guaranties or any Indebtedness, the
proceeds of which are used to Refinance the Notes in full; (4) Indebtedness
(including reimbursement obligations in respect of letters of credit or
guaranties outstanding under Foreign Credit Agreements that are Indebtedness)
Incurred pursuant to any Foreign Credit Agreement; provided, that the aggregate
principal amount of all such Indebtedness outstanding at any time under all such
Foreign Credit Agreements, shall not exceed $30.0 million; (5) Indebtedness
outstanding on the Issue Date (other than Indebtedness described in clause (1),
(2), (3) or (4) of this covenant); (6) Refinancing Indebtedness in respect of
Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3), (5)
or this clause (6); (7) Indebtedness in respect of customs duties guarantees,
equipment leases, performance bonds, bankers' acceptances, letters of credit and
surety or appeal bonds entered into by the Company or any Restricted Subsidiary
in the ordinary course of business; (8) Hedging Obligations consisting of
Interest Rate Agreements directly related to Indebtedness permitted to be
Incurred by the Company or any Restricted Subsidiary pursuant to the Indenture;
(9) Indebtedness of the Company or any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets by the Company or any Restricted Subsidiary
permitted under the Indenture; (10) Indebtedness incurred by the Company or any
Restricted Subsidiary, constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation claims, self-
insurance or similar matters, or other Indebtedness with respect to
reimbursement obligations regarding workers' compensation claims, PROVIDED,
HOWEVER, that upon the drawing of such letters of credit or the Incurrence of
such Indebtedness, such obligations are reimbursed within 30 days following such
drawing or Incurrence; and (11) Indebtedness in an aggregate principal amount
which, together with all other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (10) above or paragraph (a)), does not exceed
$15.0 million at any one time outstanding.
(c) Notwithstanding the foregoing, neither the Company nor any Restricted
Subsidiary shall Incur any Indebtedness pursuant to the foregoing paragraph (b)
if the proceeds thereof are used, directly or indirectly, to Refinance any
Subordinated Obligations unless such Indebtedness shall be subordinated to the
Notes or the Subsidiary Guaranties, as applicable, to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining compliance with the covenant entitled
"--Limitation on Indebtedness," (i) in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described
above, the Company, in its sole discretion, will classify such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of the above clauses and (ii) an item of Indebtedness may be
divided and classified in more than one of the types of Indebtedness described
above.
LIMITATION ON LIENS. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien upon any of its property or assets, now owned or hereafter acquired,
securing any obligation unless concurrently with the creation of such Lien
effective provision is made to secure the Notes and the Subsidiary Guaranties
equally and ratably with such obligation for so long as such obligation is so
secured; PROVIDED, THAT, if such obligation is a Subordinated Obligation, the
Lien securing such obligation shall be subordinated and junior to the Lien
securing the Notes and the Subsidiary Guaranties with the same or lesser
relative priority as such Subordinated
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Obligation shall have been with respect to the Notes and the Subsidiary
Guaranties. The preceding restriction shall not require the Company or any
Restricted Subsidiary to secure the Notes or the Subsidiary Guaranties if the
Lien consists of the following:
(a) Liens on accounts receivable of the Company and its Restricted
Subsidiaries to secure Indebtedness permitted to be incurred pursuant to
paragraph (a) or clause (7) or (10) of paragraph (b) of the covenant
described under "--Limitation on Indebtedness;"
(b) Liens created by the Indenture, Liens under any Bank Credit
Agreement, Liens under any Foreign Credit Agreement and Liens existing as of
the Issue Date;
(c) Permitted Liens;
(d) Liens to secure Indebtedness issued by the Company or a Restricted
Subsidiary for the purpose of financing all or a part of the purchase price
of assets or property acquired or constructed in the ordinary course of
business after the Issue Date; PROVIDED, HOWEVER, that (i) the aggregate
principal amount (or accreted value in the case of Indebtedness issued at a
discount) of Indebtedness so issued shall not exceed the lesser of the cost
or fair market value, as determined in good faith by the Board of Directors
of the Company, of the assets or property so acquired or constructed, (ii)
the Indebtedness secured by such Liens shall have been permitted to be
Incurred under the "--Limitation on Indebtedness" covenant and (iii) such
Liens shall not encumber any other assets or property of the Company or any
of its Restricted Subsidiaries other than such assets or property or any
improvement on such assets or property and shall attach to such assets or
property within 90 days of the construction or acquisition of such assets or
property;
(e) Liens on the assets or property of a Restricted Subsidiary existing
at the time such Restricted Subsidiary becomes a Restricted Subsidiary and
not issued as a result of (or in connection with or in anticipation of) such
Restricted Subsidiary becoming a Restricted Subsidiary; PROVIDED, HOWEVER,
that such Liens do not extend to or cover any other property or assets of
the Company or any of its other Restricted Subsidiaries;
(f) Liens securing Capital Lease Obligations Incurred in accordance with
the "--Limitation on Indebtedness" covenant;
(g) Liens with respect to Sale/Leaseback Transactions or other
Indebtedness permitted by clause (b)(11) of the "--Limitation on
Indebtedness" covenant;
(h) Liens securing Indebtedness issued to Refinance Indebtedness which
has been secured by a Lien permitted under the Indenture and is permitted to
be Refinanced under the Indenture; PROVIDED, HOWEVER, that such Liens do not
extend to or cover any property or assets of the Company or any of its
Restricted Subsidiaries not securing the Indebtedness so Refinanced; or
(i) Liens on assets of the Company, or any of its Restricted
Subsidiaries, securing Indebtedness in an aggregate principal amount not to
exceed $10.0 million.
LIMITATION ON SALE/LEASEBACK TRANSACTIONS. The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into any Sale/Leaseback
Transaction with respect to any property unless (i) the Company or such
Restricted Subsidiary would be (A) in compliance with the covenants described
under "--Limitation on Indebtedness" immediately after giving effect to such
Sale/ Leaseback Transaction and (B) entitled to create a Lien on such property
securing the Attributable Debt with respect to such Sale/ Leaseback Transaction
without securing the Notes pursuant to the covenant described under
"--Limitation on Liens," (ii) the net proceeds received by the Company or any
Restricted Subsidiary in connection with such Sale/Leaseback Transaction are at
least equal to the fair market value (as determined by the Board of Directors of
the Company) of such property and (iii) the Company or such Restricted
Subsidiary applies the proceeds of such transaction in compliance with the
covenant described under "--Limitation on Sales of Assets and Subsidiary Stock."
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LIMITATION ON RESTRICTED PAYMENTS. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes, and
after giving effect to, the proposed Restricted Payment: (i) a Default shall
have occurred and be continuing (or would result therefrom); (ii) the Company or
such Restricted Subsidiary, as applicable, is not able to Incur an additional
$1.00 of Indebtedness pursuant to clause (i) or clause (ii), as applicable, of
paragraph (a) of the covenant described under "--Limitation on Indebtedness"; or
(iii) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter immediately following the
fiscal quarter during which the Notes are originally issued to the end of the
most recently ended fiscal quarter for which financial statements are available
at the time of such Restricted Payment (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit); (B) the aggregate Net Cash
Proceeds received by the Company from capital contributions or the issuance or
sale of its Capital Stock (other than Disqualified Stock) subsequent to the
Issue Date (other than an issuance or sale to a Subsidiary of the Company); (C)
the amount by which Indebtedness of the Company is reduced on the Company's
balance sheet upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Issue Date, of any Indebtedness of the Company or a
Restricted Subsidiary for Capital Stock (other than Disqualified Stock) of the
Company (less the amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or exchange), whether pursuant
to the terms of such Indebtedness or pursuant to an agreement with a creditor to
engage in an equity for debt exchange; and (D) an amount equal to the sum of (i)
the net reduction in Investments in Unrestricted Subsidiaries resulting from the
receipt of dividends, repayments of loans or advances or other transfers of
assets or proceeds from the disposition of Capital Stock or other distributions
or payments, in each case to the Company or any Restricted Subsidiary from, or
with respect to, interests in Unrestricted Subsidiaries, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of an Unrestricted Subsidiary at the time such
Unrestricted Subsidiary is designated a Restricted Subsidiary; PROVIDED,
HOWEVER, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary subsequent to the Issue Date.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than (A) Disqualified
Stock or (B) Capital Stock issued or sold to a Subsidiary of the Company) or out
of the proceeds of a substantially concurrent capital contribution to the
Company; PROVIDED, HOWEVER, that (x) such purchase, capital contribution or
redemption shall be excluded in the calculation of the amount of Restricted
Payments and (y) the Net Cash Proceeds from such sale of Capital Stock or
capital contribution shall be excluded from clause (iii)(B) of paragraph (a)
above; (ii) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness"; PROVIDED, HOWEVER, that
such purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments; (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividend would have
complied with this covenant; PROVIDED, HOWEVER, that such dividend shall be
included in the calculation of the amount of Restricted Payments; (iv) the
repurchase of Capital Stock of the Company from directors, officers or employees
of the Company pursuant to the terms of an employee benefit plan or employment
or other agreement; provided that the aggregate amount of all such repurchases
shall not exceed $3.0 million in any fiscal year, and $10.0 million in total;
(v) up to an aggregate of $10.0 million of Restricted Payments by the Company,
so long as after giving effect to any such Restricted Payment on a pro forma
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basis the Company could incur an additional $1.00 of Indebtedness pursuant to
clause (i) of paragraph (a) of the covenant described under "--Limitation on
Indebtedness"; and (vi) Investments in Unrestricted Subsidiaries or joint
ventures in an amount not to exceed $10.0 million at any time outstanding.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) to make any loans or advances to the Company or (c) to transfer
any of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to any Bank Credit Agreement, any Foreign Credit Agreement
or any other agreement in effect at or entered into on the Issue Date; (ii) any
encumbrance or restriction with respect to a Restricted Subsidiary pursuant to
an agreement relating to any Indebtedness Incurred by such Restricted Subsidiary
on or prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than Indebtedness Incurred as consideration in, or to provide all
or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such Restricted
Subsidiary became a Restricted Subsidiary or was acquired by the Company) and
outstanding on such date; (iii) any encumbrance or restriction pursuant to an
agreement effecting Refinancing Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of this covenant or this clause (iii) or
contained in any amendment to an agreement referred to in clause (i) or (ii) of
this covenant or this clause (iii); PROVIDED, HOWEVER, that the encumbrances and
restrictions with respect to any such Restricted Subsidiary contained in any
such refinancing agreement or amendment are no less favorable to the Noteholders
than encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction (A)
consisting of customary non-assignment provisions in leases to the extent such
provisions restrict the subletting, assignment or transfer of the lease or the
property leased thereunder or in purchase money financings or (B) by virtue of
any Indebtedness, transfer, option or right with respect to, or any Lien on, any
property or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture; (v) in the case of clause (c) above, restrictions
contained in security agreements or mortgages securing Indebtedness of a
Restricted Subsidiary to the extent such restrictions restrict the transfer of
the property subject to such security agreements or mortgages; (vi) encumbrances
or restrictions imposed by operation of any applicable law, rule, regulation or
order; (vii) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition and (viii) any restriction
imposed during an event of default under an agreement governing Indebtedness of
any Foreign Subsidiary so long as such Indebtedness is permitted by the covenant
entitled "--Limitation on Indebtedness."
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition, and at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash or cash equivalents and (ii) an amount equal to 100% of the
Net Available Cash from such Asset Disposition is applied by the Company (or
such Restricted Subsidiary, as the case may be) (A) FIRST, to either (i) prepay,
repay, redeem or purchase (and permanently reduce the commitments under)
Indebtedness under any Bank Credit Agreement or any Foreign Credit Agreement or
that is otherwise secured by its assets subject to such Asset Disposition within
one year from the later of the date of such Asset Disposition or the receipt of
such Net Available Cash (the "Receipt Date") or (ii) to the extent the Company
elects, to acquire Additional Assets; PROVIDED, HOWEVER, that the Company shall
be required to commit such Net Available Cash to the acquisition of Additional
Assets within one year from the later of the date of such Asset Disposition or
the Receipt Date and shall be required to consummate the
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acquisition of such Additional Assets within 18 months from the Receipt Date;
(B) SECOND, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to make an offer pursuant to
paragraph (b) below to the Holders to purchase Notes pursuant to and subject to
the conditions contained in the Indenture; and (C) THIRD, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A) or (B) to any other application or use not prohibited by the Indenture.
Notwithstanding the foregoing provisions of this paragraph, the Company and the
Restricted Subsidiaries shall not be required to apply the Net Available Cash in
accordance with this paragraph except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this paragraph exceeds $5.0 million (at which time, the entire unutilized
Net Available Cash, and not just the amount in excess of $5.0 million, shall be
applied pursuant to this paragraph). Pending application of Net Available Cash
pursuant to this covenant, such Net Available Cash shall be invested in
Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the express assumption of Indebtedness of the Company or
any Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are converted by the Company or such
Restricted Subsidiary into cash within 90 days of closing the transaction.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes pursuant to clause (a)(ii)(B) above, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes at a
purchase price of 100% of their principal amount (without premium) plus accrued
but unpaid interest in accordance with the procedures (including prorating in
the event of oversubscription) set forth in the Indenture. If the aggregate
purchase price of Notes tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(C)
above. The Company shall not be required to make such an offer to purchase Notes
pursuant to this covenant if the Net Available Cash available therefor is less
than $5.0 million (which lesser amount shall be carried forward for purposes of
determining whether such an offer is required with respect to any subsequent
Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. (a) The Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction
(including the purchase, sale, lease or exchange of any property or the
rendering of any service) with any Affiliate of the Company other than the
Company or a Restricted Subsidiary (an "Affiliate Transaction") unless the terms
thereof (1) are no less favorable to the Company or such Restricted Subsidiary
than those that could be obtained at the time of such transaction in a
comparable transaction in arm's-length dealings with a Person who is not such an
Affiliate, (2) if such Affiliate Transaction involves an amount in excess of
$2.0 million, (i) are set forth in writing and (ii) have been approved by a
majority of the members of the Board of Directors having no material personal
financial stake in such Affiliate Transaction and (3) if such Affiliate
Transaction involves an amount in excess of $7.5 million, have been determined
by a nationally recognized investment banking firm to be fair, from a financial
standpoint, to the Company or its Restricted Subsidiary, as the case may be.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Permitted Investment or Restricted Payment permitted to be made pursuant to the
covenant described under "--Limitation on Restricted Payments," or any payment
or transaction specifically excepted from the definition of Restricted
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Payment, (ii) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, collective bargaining arrangements, employee benefit plans, health
and life insurance plans, deferred compensation plans, directors' and officers'
indemnification agreements, retirement or savings plans, stock options and stock
ownership plans or any other similar arrangement heretofore or hereafter entered
into in the ordinary course of business and approved by the board of directors
of the Company or any Restricted Subsidiary, (iii) the grant of stock options or
similar rights to employees and directors pursuant to plans approved by the
Board of Directors or the board of directors of the relevant Restricted
Subsidiary, (iv) loans or advances to officers, directors or employees in the
ordinary course of business or pursuant to compensation plans or employment
agreements approved by the board of directors of the Company or any Restricted
Subsidiary, (v) the payment of reasonable fees to directors of the Company and
its Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries, (vi) any transaction between the Company and a
Restricted Subsidiary or between Restricted Subsidiaries, (vii) the purchase of
or the payment of Indebtedness of or monies owed by the Company or any of its
Restricted Subsidiaries for goods or materials purchased, or services received,
in the ordinary course of business, (viii) management agreements between the
Company or any of its Restricted Subsidiaries and one or more Permitted Holders,
or any of their respective Affiliates providing for management fees not to
exceed $350,000 per year to WESS or any of its Affiliates and $350,000 per year
to Oaktree or any of its Affiliates; (ix) transaction fees to WESS, Oaktree, or
any of their respective Affiliates for services provided in connection with the
LIW Acquisition, the New Credit Facility and the Old Notes Offering in an amount
not to exceed $2.5 million in the aggregate and (x) the performance of the
agreement between WESS, W.E. Myers & Co. and William E. Myers, Jr. as in effect
on the Issue Date.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock to any person (other than to the Company or a Wholly
Owned Subsidiary) or permit any Person (other than the Company or a Wholly Owned
Subsidiary) to own any Capital Stock of a Restricted Subsidiary, if in either
case as a result thereof such Restricted Subsidiary would no longer be a
Restricted Subsidiary; PROVIDED, HOWEVER, this provision shall not prohibit (x)
the Company or any Restricted Subsidiary from selling, leasing or otherwise
disposing of all of the Capital Stock of any Restricted Subsidiary or (y) the
designation of a Restricted Subsidiary as an Unrestricted Subsidiary in
compliance with the Indenture. The foregoing shall not apply to any Lien granted
on the Capital Stock of a Restricted Subsidiary.
MERGER AND CONSOLIDATION. (a) The Company shall not, and shall not cause or
permit any Subsidiary Guarantor to, and no Subsidiary Guarantor (other than any
Subsidiary Guarantor whose Subsidiary Guaranty is to be released in accordance
with the terms of the Subsidiary Guaranty and the Indebtedness in connection
with the provisions of "--Certain Covenants--Limitation on Sale of Assets and
Subsidiary Stock") shall consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, its assets
substantially as an entirety to, any Person (other than, in the case of a
Subsidiary Guarantor, to the Company or any other Subsidiary Guarantor), unless:
(i) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company or, in the case of a Subsidiary Guarantor, the Company or a
Subsidiary Guarantor) shall expressly assume, by an indenture supplemental
thereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture or
of a Subsidiary Guarantor under the applicable Subsidiary Guaranty, as
applicable; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Subsidiary as a result of such transaction as having been Incurred by
such Successor Company or such Subsidiary at the time of such transaction), no
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Successor
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Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a)(i) in the case of the Company or paragraph (a)(ii) in the case of
a Subsidiary Guarantor of the covenant described under "--Certain
Covenants--Limitation on Indebtedness"; (iv) immediately after giving effect to
such transaction, the Successor Company shall have Consolidated Net Worth in an
amount that is not less than the Consolidated Net Worth of the Company or such
Subsidiary Guarantor, as applicable, prior to such transaction minus any costs
incurred in connection with such transaction; and (v) the Company or such
Subsidiary Guarantor, as applicable, shall have delivered to the Trustee an
officer's certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company shall be the successor to the Company or the
Subsidiary Guarantor, as applicable, and shall succeed to, and be substituted
for, and may exercise every right and power of, the Company or the Subsidiary
Guarantor, as applicable, under the Indenture, but the predecessor company, only
in the case of a conveyance, transfer or lease, shall not be released from the
obligation to pay the principal of and interest on the Notes.
Notwithstanding the foregoing, (i) any Restricted Subsidiary may consolidate
with, merge into or transfer all or part of its properties and assets to the
Company and (ii) the Company may merge with an Affiliate incorporated for the
purpose of reincorporating the Company in another jurisdiction to realize tax or
other benefits.
FUTURE SUBSIDIARY GUARANTORS. The Company shall cause each Restricted
Subsidiary that is organized and existing under the laws of any State of the
United States or the District of Columbia and that at any time becomes an
obligor or guarantor with respect to any obligations under one or more Bank
Credit Agreements to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the Notes
on the same terms and conditions as those set forth in the Indenture. Each
Subsidiary Guaranty will be limited in amount to an amount not to exceed the
maximum amount that can be Guaranteed by the applicable Subsidiary Guarantor
without rendering such Subsidiary Guaranty voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SEC REPORTS. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the SEC (unless the SEC will not accept such a
filing) and provide within 15 days to the Trustee and Noteholders such annual
reports and such information, documents and other reports as are specified in
Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal on any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon acceleration or otherwise,
(iii) the failure by the Company to comply with its obligations under "--Certain
Covenants--Merger and Consolidation" above, (iv) the failure by the Company to
comply for 30 days after notice with any of its obligations in the covenants
described above under "Change of Control" (other than a failure to purchase
Notes) or under "--Certain Covenants--Limitation on Indebtedness," "--Limitation
on Restricted Payments," "--Limitation on Sales of Assets and Subsidiary Stock,"
or "--Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries," (v) the failure by the Company to comply for 60 days after the
Company receives written notice with its other agreements contained in the
Indenture, (vi) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the Holders thereof because of a default and the total amount of such
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Indebtedness unpaid or accelerated exceeds $10.0 million (the "cross
acceleration provision"), (vii) certain events of bankruptcy, insolvency or
reorganization of the Company or any Significant Subsidiary (the "bankruptcy
provisions") or (viii) any judgment or decree for the payment of money in excess
of $10.0 million is entered against the Company or any Significant Subsidiary,
remains outstanding for a period of 60 days following entry of such judgment and
is not discharged, bonded, waived or stayed within 30 days after notice (the
"judgment default provision"). However, a default under clause (iv) or (v) will
not constitute an Event of Default until the Trustee or the Holders of 25% in
principal amount of the outstanding Notes notify the Company of the default and
the Company does not cure such default within the time specified after receipt
of such notice.
If an Event of Default (other than the bankruptcy provisions relating to the
Company) occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes may declare the principal of and
accrued but unpaid interest on all the Notes to be due and payable. Upon such a
declaration, such principal and interest shall be due and payable immediately.
If an Event of Default relating to the bankruptcy provisions relating to the
Company occurs and is continuing, the principal of and interest on all the Notes
will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders. The Holders
of a majority in principal amount of the outstanding Notes may by notice to the
Trustee rescind any acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing Events of Default
have been cured or waived except non-payment of principal or interest that has
become due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Notes have not given the Trustee
a direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in principal amount of the
outstanding Notes are given the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,
may refuse to follow any direction that conflicts with law or the Indenture or
that the Trustee determines is unduly prejudicial to the rights of any other
Holder or that would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Trustee may withhold notice if and
so long as the board of directors, the executive committee or a committee of its
trust officers determines that withholding notice is not opposed to the interest
of the Holders. In addition, the Company is required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company also is required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action the Company is taking
or proposes to take in respect thereof.
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AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment may (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "--Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) impair the right of any Holder to receive payment of principal of
and interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes, (vii) make any change in the amendment provisions which require
each Holder's consent or in the waiver provisions or (viii) affect the ranking
of the Notes in any material respect.
Without the consent of any Holder, the Company and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Notes, to secure the Notes, to add
to the covenants of the Company for the benefit of the Holders or to surrender
any right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment. However,
the failure to give such notice to all Holders, or any defect therein, will not
impair or affect the validity of the amendment.
TRANSFER
The New Notes will be issued in registered form and will be transferable
only upon the surrender of the New Notes being transferred for registration of
transfer. The Company may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges. The Company is not required to transfer or exchange any
New Note selected for redemption or repurchase or to transfer or exchange any
New Note for a period of 15 days prior to selection of New Notes to be redeemed
or repurchased.
DEFEASANCE
The Company at its option at any time may terminate all of its obligations
under the Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes. In addition, the Company at its option at any time may terminate its
obligations under "Change of Control" and under the covenants described under
"Certain Covenants" (other than the covenant described under "--Merger and
Consolidation") (and any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes), the
operation of the cross acceleration provision, the bankruptcy
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provisions with respect to Significant Subsidiaries and the judgment default
provision described under "--Defaults" above and the limitations contained in
clauses (iii) and (iv) of the first paragraph under "--Certain Covenants--Merger
and Consolidation" above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "--Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) of the first
paragraph under "--Certain Covenants--Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal of and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel to
the effect that Holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and defeasance and will be
subject to Federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when: (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (b) all Notes not theretofore delivered to the
Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee an amount in
United States dollars sufficient to pay and discharge the entire indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for the
principal of, premium, if any, and interest to the date of deposit; (ii) the
Company has paid or caused to be paid all other sums payable under the Indenture
by the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the Notes or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of the Company in the Indenture, or in any of the Notes or
because of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, stockholder, officer, director, employee or
controlling person of the Company or any successor Person thereof. Each Holder,
by accepting the Notes, waives and releases all such liability. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the SEC that such waiver is against public policy.
CONCERNING THE TRUSTEE
U.S. Bank Trust (formerly First Trust National Association) is to be the
Trustee under the Indenture and has been appointed by the Company as Registrar
and Paying Agent with regard to the Notes. Such bank may also act as a
depository of funds for, or make loans to and perform other services for, the
Company or its affiliates in the ordinary course of business in the future. The
corporate trust office of the Trustee is located at First Trust New York, 100
Wall Street, 20th Floor, New York, New York, 10005.
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The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture. The Trustee may resign at any
time or may be removed by the Company. If the Trustee resigns, is removed or
becomes incapable of acting as Trustee or if a vacancy occurs in the office of
the Trustee for any cause, a successor Trustee shall be appointed in accordance
with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and the Indenture. The Indenture also
contains certain limitations on the right of the Trustee, as a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below are certain definitions used in the section entitled
"Description of the New Notes."
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; PROVIDED, HOWEVER, that any such Restricted
Subsidiary described in clause (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger or
consolidation (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary), (ii) all
or substantially all the assets (other than Capital Stock of an Unrestricted
Subsidiary) of any division or line of business of the Company or any Restricted
Subsidiary or (iii) any other assets (other than Capital Stock of an
Unrestricted Subsidiary) of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted Subsidiary
(other than, in the case of (i), (ii) and (iii) above, (x) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary and (y) for purposes of the covenant
described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" only, a disposition that
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constitutes a Restricted Payment permitted by the covenant described under
"--Certain Covenants-- Limitation on Restricted Payments" or a disposition
specifically excepted from the definition of Restricted Payment); PROVIDED,
HOWEVER, that Asset Disposition shall not include (a) a transaction or series of
related transactions for which the Company or its Restricted Subsidiaries
receive aggregate consideration less than or equal to $1.0 million, (b) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted under "--Certain Covenants--Merger
and Consolidation" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" or (c) the disposition of assets of the Company or any
Restricted Subsidiary for aggregate non-cash consideration not in excess of
$20.0 million so long as the pro forma Consolidated Coverage Ratio after giving
effect to any such disposition is at least 2.5 to 1.0. The foregoing shall not
apply to any Lien granted on the Capital Stock of a Restricted Subsidiary.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreement" means the credit agreement, dated as of the Issue
Date, among the Company, ING (U.S.) Capital Corporation, as agent, and the other
financial institutions party thereto, as such agreement, in whole or in part,
may be amended, renewed, extended, increased (but only so long as such increase
is permitted under the terms of the Indenture), substituted, refinanced,
restructured, replaced (including, without limitation, any successive renewals,
extensions, increases, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing).
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such Person, including any Preferred Stock,
but excluding any debt securities convertible into such equity.
"Change of Control" has the meaning ascribed thereto under the heading
entitled "Description of the New Notes--Change of Control" herein.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less than 45
days after the end of such fiscal quarter, ending as of the date the
consolidated financial statements of the Company shall be available) prior to
the date of such determination to (ii) Consolidated Interest Expense for such
four fiscal quarters; PROVIDED, HOWEVER, that (1) if the Company or any
Restricted Subsidiary (x) has Incurred any Indebtedness (other than Indebtedness
Incurred for working capital purposes under a Bank Credit Agreement) since the
beginning of such period that remains outstanding or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence
of Indebtedness, or both, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period or (y) has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of the period that is no longer outstanding on such date of
determination, or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio involves a discharge of Indebtedness, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
effect to such discharge of such Indebtedness, including with the proceeds of
such new Indebtedness, as if such discharge had occurred on the first day of
such period (except that, in making such computation, the amount of Indebtedness
under any revolving credit facility shall be computed based upon the average
daily balance of such Indebtedness during such four quarter period), (2) if
since the beginning of such period the Company or any Restricted Subsidiary
shall have made any Asset Disposition, the EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive) directly attributable to
the assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the EBITDA (if negative) directly attributable
thereto for such period and Consolidated Interest Expense for such period shall
be reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such period the
Company or any Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any acquisition of
assets occurring in connection with a transaction requiring a calculation to be
made hereunder, which constitutes all or substantially all of an operating unit
of a business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first day
of such period or (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, Investment or acquisition of assets that would
have required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition occurred
on the first day of such period. For purposes of this definition, whenever pro
forma effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting officer of the Company. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest on such Indebtedness
shall be calculated as if the rate in effect on the date of determination had
been the applicable rate for the entire period (taking into account any Interest
Rate
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Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount
and debt issuance costs, (iii) capitalized interest, (iv) non-cash interest
expense, (v) commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing, (vi) net costs
associated with Hedging Obligations (including amortization of fees), (vii)
dividends paid or payable in respect of any Disqualified Stock of the Company,
(viii) cash dividends paid or payable by the Company and all dividends paid or
payable by Restricted Subsidiaries, in each case in respect of all Preferred
Stock held by Persons other than the Company or a Wholly Owned Subsidiary, (ix)
interest incurred in connection with Investments in discontinued operations and
(x) interest accruing on any Indebtedness of any other Person to the extent such
Indebtedness is Guaranteed by the Company or any Restricted Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; PROVIDED, HOWEVER, that there shall
not be included in such Consolidated Net Income: (i) any net income of any
Person if such Person is not a Restricted Subsidiary, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) with respect to the calculation of EBITDA only, the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income up to the aggregate amount
invested by the Company or any Restricted Subsidiary in such Person during such
period; (ii) any net income (or loss) of any Person acquired by the Company or a
Subsidiary of the Company in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income of any Restricted
Subsidiary to the extent that such Restricted Subsidiary is subject to
restrictions, directly or indirectly, prohibiting the payment of dividends, the
repayment of intercompany debt and the making of distributions by such
Restricted Subsidiary, directly or indirectly, to the Company, except that (A)
subject to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such period
shall be included in determining such Consolidated Net Income up to the
aggregate amount invested by the Company or any Restricted Subsidiary in such
Person during such period; (iv) any gain or loss realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and (vi) the cumulative effect of a change in
accounting principles.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the most recent fiscal quarter
of the Company for which financial statements are available, as (i) the par or
stated value of all outstanding Capital Stock of the Company plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
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"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Depository" means The Depository Trust Company, its nominees and their
respective successors.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (other than
as a result of a Change of Control) (i) matures or is mandatorily redeemable
pursuant to a sinking fund obligation or otherwise, (ii) is convertible or
exchangeable for Indebtedness or Disqualified Stock or (iii) is redeemable at
the option of the holder thereof, in whole or in part, in each case on or prior
to the Stated Maturity of the Notes; PROVIDED, HOWEVER, that any Capital Stock
that would not constitute Disqualified Stock but for provisions thereof giving
holders thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" and "Change of
Control."
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus the following to the extent deducted in
calculating such Consolidated Net Income: (a) all income tax expense of the
Company, (b) depreciation expense, (c) amortization expense and (d) all other
non-cash items reducing such Consolidated Net Income (excluding any non-cash
item to the extent it represents an accrual of, or reserve for, cash
disbursement for any subsequent period) less all non-cash items increasing such
Consolidated Net Income (such amount calculated pursuant to this clause (d) not
to be less than zero), in each case for such period. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means U.S. Bank Trust (formerly First Trust National
Association) as exchange agent for the Exchange Offer.
"Foreign Credit Agreement" means any revolving credit agreement, invoice
discounting, overdraft or guarantee facility or other similar arrangement
providing for the Incurrence of Indebtedness by any Foreign Subsidiary, and the
agreements governing such Indebtedness which may, in whole or in part, be
amended, renewed, extended, substituted, refinanced, restructured, replaced
(including, without limitation, any successive renewals, extensions,
substitutions, refinancing, restructuring, replacement, supplements or other
modifications of the foregoing).
"Foreign Subsidiary" means a Restricted Subsidiary that is incorporated in a
jurisdiction other than the United States or a State thereof or the District of
Columbia and with respect to which more than 80% of any of its sales, earnings
or assets (determined on a consolidated basis in accordance with GAAP) are
located in, generated from or derived from operations located in territories
outside of the United States of America and jurisdictions outside the United
States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the rules and regulations of the SEC
governing the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
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"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such Person (whether arising by virtue of agreements to keep
well, to purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Indebtedness of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part); PROVIDED, HOWEVER, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning. The
term "Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable for
Indebtedness; PROVIDED, HOWEVER, that any Indebtedness of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be Incurred by such Subsidiary at
the time it becomes a Subsidiary. The term "Incurrence" when used as a noun
shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property
(which purchase price is due more than one year after taking title of such
property), all conditional sale obligations of such Person and all obligations
of such Person under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) all obligations of
such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing obligations (other than obligations
described in clauses (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon, or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary of
such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Subsidiary Guaranty (but only to the extent of the amount actually guaranteed);
(vii) all obligations of the type referred to in clauses (i) through (vi) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or assets
or the amount of the obligation so secured; and (viii) to the extent not
otherwise included in this definition, Hedging Obligations of such Person. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date. For purposes of
clarification, (i) Indebtedness shall not include undrawn commitments under the
Bank Credit Agreement and the Foreign Credit Agreement or any obligation to
purchase Capital Stock of LIW pursuant to option
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agreements, purchase agreements or otherwise or the Company's Capital Stock
pursuant to employment agreements and otherwise and (ii) any Guarantee of
Indebtedness shall not be deemed to be an Incurrence of Indebtedness to the
extent that the Indebtedness so Guaranteed is Incurred by the Company or any
Restricted Subsidiary as permitted pursuant to the terms of the Indenture.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed solely
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the Person making the advance or
loan) or other extensions of credit (including by way of Subsidiary Guaranty or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and the covenant described under "--Certain Covenants--Limitation on
Restricted Payments," (i) "Investment" shall include the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that if such
designation is made in connection with the acquisition of such Subsidiary or the
assets owned by such Subsidiary, the "Investment" in such Subsidiary shall be
deemed to be the consideration paid in connection with such acquisition;
PROVIDED FURTHER, HOWEVER, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation, and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date of original issuance of the Old Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or required by law to
close. If a payment date is a Legal Holiday, payment shall be made on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. If a regular record date is a Legal Holiday, the record
shall not be affected.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"LIW Acquisition" has the meaning ascribed thereto under the heading
entitled "Recent Acquisitions--Acquisition of LIW" herein.
"Moody's" means Moody's Investors Service, Inc.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other noncash form) in each case
net of (i) all legal, title and recording tax expenses, brokerage commissions,
underwriting discounts or commissions or sales commissions and other reasonable
fees and expenses (including, without limitation, fees and expenses of counsel,
accountants and investment bankers) related to such Asset Disposition or
converting to cash any other proceeds received, and any relocation and severance
expenses as a result thereof, and all Federal, state, provincial, foreign and
local taxes required to be accrued or paid as a liability under GAAP, as a
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consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Disposition or
made in order to obtain a necessary consent to such Asset Disposition or to
comply with applicable law, (iii) all distributions and other payments required
to be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) appropriate amounts provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Disposition. Further, with respect to an Asset Disposition by a Subsidiary which
is not a Wholly Owned Subsidiary, Net Available Cash shall be reduced pro rata
for the portion of the equity of such Subsidiary which is not owned by the
Company.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof. In addition, for purposes of the calculations described in
"--Certain Covenants--Limitation on Restricted Payments," Net Cash Proceeds
shall also mean any cash amounts paid to the Company by members of management in
respect of all promissory notes outstanding on the Issue Date and any amounts
reflected on the records of the Company as additional paid in capital or equity
contributions made in respect of employment-related stock price guarantees
entered into prior to the Issue Date.
"Permitted Holders" means (i) William E. Simon & Sons, L.L.C. and its
Affiliates, (ii) Oaktree Capital Management, LLC and its Affiliates, including
any partnerships, separate accounts, or other entities managed by Oaktree and
(iii) Roger E. Payton. For purposes of clarification, The TCW Group, Inc.,
Logistical Simon, L.L.C., OCM Principal Opportunities Fund, L.P., TCW Special
Credits Fund V--The Principal Fund and their respective Affiliates are Permitted
Holders.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Restricted Subsidiary or a Person that will, upon the making
of such Investment, become a Restricted Subsidiary; PROVIDED, HOWEVER, that the
primary business of such Restricted Subsidiary is a Related Business; (ii)
another Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; PROVIDED, HOWEVER, that such
Person's primary business is a Related Business; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; PROVIDED, HOWEVER, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of the Company or such Restricted Subsidiary, including without
limitation, loans or advances made to employees in respect of stock purchase or
other employee benefit plans; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii)
any Person to the extent such Investment represents the non-cash portion of the
consideration received for a disposition of Assets as permitted pursuant to the
covenant described under "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock" and as described in clause (c) of the definition of Asset
Disposition.
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under workers' compensation laws, unemployment insurance laws or
similar legislation, or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness) or leases to which such
Person is a party, or deposits to secure public or statutory obligations of such
Person or deposits or
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cash or United States government bonds to secure surety or appeal bonds to which
such Person is a party, or deposits as security for contested taxes or import
duties or for the payment of rent, in each case incurred in the ordinary course
of business; (b) Liens imposed by law, such as carriers', warehousemen's and
mechanics' Liens, in each case for sums not yet due or being contested in good
faith by appropriate proceedings; (c) Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be proceeding
with an appeal or other proceedings for review or time for appeal has not yet
expired; (d) Liens for taxes, assessments or other governmental charges not yet
subject to penalties for non-payment or which are being contested in good faith
by appropriate proceedings; (e) Liens in favor of issuers of surety bonds or
letters of credit issued pursuant to the request of, and for the account of such
Person in the ordinary course of its business; PROVIDED, HOWEVER, that such
letters of credit do not constitute Indebtedness; (f) survey exceptions,
encumbrances, easements or reservations of or rights of others for licenses,
rights of way, sewers, electric lines, telegraph and telephone lines and other
similar purposes, or zoning or other restrictions as to the use of real
properties or Liens incidental to the conduct of the business of such Person or
to the ownership of its properties which were not incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect the
value of said properties or materially impair their use in the operation of the
business of such Person; (g) Liens securing an Interest Rate Agreement so long
as the related Indebtedness is, and is permitted to be under the Indenture,
secured by a Lien on the same property securing the Interest Rate Agreement; and
(h) leases and subleases of real property which do not interfere with the
ordinary conduct of the business of such Person, and which are made on customary
and usual terms applicable to similar properties.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; PROVIDED, HOWEVER, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding
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or committed (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being Refinanced; PROVIDED, FURTHER, HOWEVER, that
Refinancing Indebtedness shall not include (x) Indebtedness of a Restricted
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Company on the Issue Date.
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person), other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation), (ii) the purchase, redemption or other acquisition or
retirement for value of any Capital Stock of the Company held by any Person or
of any Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock), (iii) the purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value, prior to
scheduled maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of satisfying
of a sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of acquisition) or (iv) the making of any
Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. "Subordinated Obligation" of any Subsidiary Guarantor has a correlative
meaning.
"Subsidiary" means, in respect of any Person, any corporation, association,
limited liability company, limited or general partnership or other business
entity (x) of which more than 50% of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers, general partners or trustees thereof is at the time owned
or controlled, directly or indirectly, by (i) such Person,
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(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person, or (y) that is consolidated for purposes of
the Company's consolidated financial statements.
"Subsidiary Guarantor" means each Restricted Subsidiary designated as such
on the signature pages of the Indenture and any other Restricted Subsidiary that
has issued a Subsidiary Guaranty.
"Subsidiary Guaranty" means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"S&P" means Standard & Poor's Ratings Service.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $10,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 180 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's or "A-1" (or higher) according to S&P, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or "A" by Moody's.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Restricted Subsidiary of the Company; PROVIDED, HOWEVER,
that either (A) the Subsidiary to be so designated has total assets of $1,000 or
less or (B) if such Subsidiary has assets greater than $1,000, such designation
would be permitted under the covenant described under "--Certain
Covenants--Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED,
HOWEVER, that immediately after giving effect to such designation (x) if such
Unrestricted Subsidiary at such time has Indebtedness, the Company could Incur
$1.00 of additional Indebtedness under clause (i) of paragraph (a) of the
covenant described under "--Certain Covenants--Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced by the Company to the Trustee by
promptly filing with the Trustee a copy of the board resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United
125
<PAGE>
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian
with respect to any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE EXCHANGE OFFER
The exchange of New Notes for the Old Notes pursuant to the Exchange Offer
will not be treated as an "exchange" for United States federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a
Noteholder will be treated as a continuation of the Old Notes in the hands of
such Noteholder. As a result, there will be no United States federal income tax
consequences to Noteholders exchanging the Old Notes for the New Notes pursuant
to the Exchange Offer. The adjusted basis and holding period of the New Notes
for any Noteholder will be the same as the adjusted basis and holding period of
the Old Notes. Similarly, there would be no United States federal income tax
consequences to a Noteholder of Old Notes that does not participate in the
Exchange Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuer has agreed that, for a period of 180 days after
the Expiration Date it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 199 , all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that,
126
<PAGE>
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for the Holders of the
Securities) other than commissions or concessions of any brokers or dealers and
will indemnify the Holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with regard to the validity of the New Notes will be
passed upon for the Company by Milbank, Tweed, Hadley & McCloy, Los Angeles,
California.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1997 and for the period May 2, 1996 to December 31, 1996 and for the year
ended December 31, 1997, and of the Company Predecessor for the period April 1,
1996 to May 1, 1996, included in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows of Bekins for the years ended March 31, 1995 and 1996 included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein, in reliance upon the authority of said firm as experts in giving said
report.
The combined and consolidated financial statements of LIW and its
predecessor as of December 31, 1995 and 1996 and for the years ended December
31, 1994 and 1995 and for the periods January 1, 1996 to January 23, 1996 and
January 24, 1996 to December 31, 1996 included in this Prospectus have been
audited by Price Waterhouse, Chartered Accountants and Registered Auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-4 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the New Notes offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
While all material elements of the contracts and documents referenced in this
Prospectus are contained herein, statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the full text of such
contract or other document which is filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. For further information with respect to the Company and the New Notes
offered hereby, reference is made to such Registration Statement and the
exhibits and schedules thereto. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
50 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
documents may be obtained from the Commission at its principal office in
Washington, D.C. upon the payment of the charges prescribed by the Commission.
127
<PAGE>
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's address on the World Wide
Web is http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any of the
Notes remain outstanding, it will furnish to the holders of the Notes and file
with the Commission (unless the Commission will not accept such a filing) (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
was required to file such forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent auditors and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Company was required to file such
reports. In addition, for so long as any of the Notes remain outstanding, the
Company has agreed to make available to any prospective purchaser of the Notes
or beneficial owner of the Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act.
128
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
GEOLOGISTICS CORPORATION
Independent Auditors' Reports............................................................................ F-2
Consolidated Balance Sheets.............................................................................. F-6
Consolidated Statements of Operations.................................................................... F-8
Consolidated Statements of Stockholders' Equity.......................................................... F-9
Consolidated Statements of Cash Flows.................................................................... F-10
Notes to Consolidated Financial Statements............................................................... F-11
LEP INTERNATIONAL WORLDWIDE LIMITED
Statement of Directors' Responsibilities................................................................. F-29
Accountants' Report...................................................................................... F-30
Combined and Consolidated Balance Sheets................................................................. F-31
Combined and Consolidated Statements of Profit and Loss Accounts......................................... F-32
Combined and Consolidated Statements of Cash Flow........................................................ F-33
Statements of Total Recognised Gains and Losses.......................................................... F-34
Note of Historical Cost Profits and Losses............................................................... F-34
Notes to Combined and Consolidated Financial Statements.................................................. F-35
Principal Subsidiary and Associated Undertakings......................................................... F-57
Unaudited Interim Consolidated Balance Sheet............................................................. F-58
Unaudited Interim Consolidated Statements of Profit and Loss Accounts.................................... F-59
Unaudited Interim Consolidated Statements of Cash Flow................................................... F-60
Unaudited Interim Statement of Total Recognised Gains and Losses......................................... F-61
Unaudited Interim Reconciliation of Movements in Shareholders' Funds..................................... F-61
Notes to the Unaudited Interim Consolidated Financial Statements......................................... F-62
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of GeoLogistics Corporation
Golden, Colorado:
We have audited the accompanying consolidated balance sheets of GeoLogistics
Corporation and subsidiaries (formerly known as International Logistics Limited
and herein referred to as the "Company") as of December 31, 1996 and 1997, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the period from May 2, 1996 (date operations commenced) through
December 31, 1996 and for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of GeoLogistics
Corporation and subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for the period from May 2, 1996 (date
operations commenced) through December 31, 1996 and for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
As described in Note 3 to the financial statements, on May 2, 1996, the net
assets of The Bekins Company were acquired by the Company. The acquisition has
been accounted for by the purchase method of accounting and, accordingly, the
acquisition price has been allocated to the assets acquired and liabilities
assumed based on the estimated fair values on the date of acquisition. As such,
the amounts reported for the Company are not comparable to the amounts shown for
The Bekins Company in prior periods.
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 17, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of The Bekins Company
Hillside, Illinois:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows (the "Statements") of The Bekins Company (the "Company")
for the period from April 1, 1996 through May 1, 1996. These Statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these Statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statements. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the Statements referred to above present fairly, in all
material respects, the results of operations and cash flows of the Company for
the period from April 1, 1996 through May 1, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 8, 1997
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of The Bekins Company
Hillside, Illinois:
We have audited the consolidated statements of operations, stockholders'
equity and cash flows of The Bekins Company (a Delaware corporation) and
Subsidiaries for the years ended March 31, 1995 and 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of The Bekins
Company and Subsidiaries for the years ended March 31, 1995 and 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 16, 1996
F-4
<PAGE>
(This page has been left blank intentionally.)
F-5
<PAGE>
GEOLOGISTICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 3,424 $ 37,909
Accounts receivable:
Trade, net...................................... 114,174 250,006
Other........................................... 8,979 11,139
Deferred income taxes............................. 882 6,528
Prepaid expenses.................................. 1,956 14,150
Net assets held for sale.......................... 5,621 --
------------ ------------
Total current assets.......................... 135,036 319,732
------------ ------------
PROPERTY AND EQUIPMENT:
Transportation equipment.......................... 5,971 7,256
Operating equipment and other..................... 5,104 12,686
Buildings and leasehold improvements.............. 1,892 32,527
Land.............................................. 481 5,213
------------ ------------
13,448 57,682
Less accumulated depreciation..................... (1,667) (5,875)
------------ ------------
Property and equipment, net..................... 11,781 51,807
------------ ------------
NOTES RECEIVABLE, less current portion.............. 138 2,329
DEFERRED INCOME TAXES, net.......................... 3,447 20,861
INTANGIBLE ASSETS, net.............................. 85,144 73,876
OTHER ASSETS........................................ 1,138 17,161
------------ ------------
TOTAL......................................... $236,684 $485,766
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GEOLOGISTICS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 69,238 $128,138
Accrued expenses.................................. 48,816 165,098
Income taxes payable.............................. 580 5,993
Current portion of long-term debt................. 4,510 2,580
------------ ------------
Total current liabilities..................... 123,144 301,809
LONG-TERM DEBT, Less current portion................ 61,804 112,790
OTHER NONCURRENT LIABILITIES........................ 11,117 46,647
------------ ------------
Total liabilities............................. 196,065 461,246
------------ ------------
MINORITY INTEREST................................... 1,601
STOCKHOLDERS' EQUITY:
Common stock ($.001 par value, 5,000,000 shares
authorized, 2,016,667 and 2,074,226 shares
issued and outstanding at December 31, 1996 and
1997, respectively)............................. 2 2
Additional paid-in capital........................ 50,050 52,291
Accumulated deficit............................... (9,244) (28,902)
Notes receivable from stockholders................ (150) (357)
Cumulative translation adjustment................. (39) (115)
------------ ------------
Total stockholders' equity.................... 40,619 22,919
------------ ------------
TOTAL......................................... $236,684 $485,766
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
GEOLOGISTICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR COMPANY
----------------------------------- --------------------------
PERIOD FROM
YEAR ENDED MARCH 31 PERIOD FROM MAY 2, 1996 YEAR
APRIL 1, 1996 TO ENDED
-------------------- TO DECEMBER 31, DECEMBER 31,
1995 1996 MAY 1, 1996 1996 1997
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ 242,966 $ 231,752 $ 17,458 $ 225,793 $ 978,249
TRANSPORTATION AND OTHER
DIRECT COSTS............................... 191,278 179,611 13,634 181,208 759,049
--------- --------- ------------- ------------ ------------
NET REVENUES................................. 51,688 52,141 3,824 44,585 219,200
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 43,008 42,810 3,309 37,554 204,733
DEPRECIATION AND AMORTIZATION................ 5,675 4,194 337 16,310 30,398
--------- --------- ------------- ------------ ------------
OPERATING PROFIT (LOSS)...................... 3,005 5,137 178 (9,279) (15,931)
INTEREST EXPENSE, NET AND AMORTIZATION OF
DEBT ISSUANCE COSTS........................ 2,252 2,397 230 2,981 8,576
OTHER (INCOME/GAINS) EXPENSE/LOSSES.......... (259) 34 (73) -- 211
--------- --------- ------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTERESTS AND EXTRAORDINARY LOSS........... 1,012 2,706 21 (12,260) (24,718)
INCOME TAX PROVISION (BENEFIT)............... 816 1,508 48 (4,013) (8,420)
--------- --------- ------------- ------------ ------------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
EXTRAORDINARY LOSS......................... 196 1,198 (27) (8,247) (16,298)
MINORITY INTERESTS........................... -- -- -- -- 1,067
--------- --------- ------------- ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS...... 196 1,198 (27) (8,247) (17,365)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT--NET OF TAX BENEFIT ($664 AND
$1,528).................................... -- -- -- (997) (2,293)
--------- --------- ------------- ------------ ------------
NET INCOME (LOSS)............................ $ 196 $ 1,198 $ (27) $ (9,244) $ (19,658)
--------- --------- ------------- ------------ ------------
--------- --------- ------------- ------------ ------------
BASIC LOSS PER COMMON SHARE:.................
LOSS BEFORE EXTRAORDINARY LOSS............. $ (6.58) $ (8.47)
EXTRAORDINARY LOSS......................... (.79) (1.12)
------------ ------------
NET LOSS................................... $ (7.37) $ (9.59)
------------ ------------
------------ ------------
DILUTED LOSS PER COMMON SHARE:...............
LOSS BEFORE EXTRAORDINARY LOSS............. $ (6.58) $ (8.47)
EXTRAORDINARY LOSS......................... (.79) (1.12)
------------ ------------
NET LOSS................................... $ (7.37) $ (9.59)
------------ ------------
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING................................ 1,254,200 2,049,800
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
GEOLOGISTICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED NOTES
COMMON STOCK ADDITIONAL EARNINGS RECEIVABLE CUMULATIVE
------------------------ PAID-IN (ACCUMULATED FROM TRANSLATION
COMPANY PREDECESSOR SHARES STOCK CAPITAL DEFICIT) STOCKHOLDERS ADJUSTMENT
- ---------------------------------------- ----------- ----- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1994.................. 117,647 $ 1 $ 5,237 $ 1,026 $ -- $ --
Net income............................ -- -- -- 196 -- --
Issuance of stock to directors........ 1,021 -- 169 -- -- --
Value of options granted in
conjunction with extension of credit
agreement........................... -- -- 250 -- -- --
----------- --- ----------- ------------ ----- -----
BALANCE, MARCH 31, 1995................. 118,668 1 5,656 1,222 -- --
Net income............................ -- -- -- 1,198 -- --
Issuance of stock to directors........ 64 -- 10 -- -- --
Sale of stock......................... 300 -- 50 -- -- --
----------- --- ----------- ------------ ----- -----
BALANCE, MARCH 31, 1996................. 119,032 1 5,716 2,420 -- --
Net loss.............................. -- -- -- (27) -- --
Effect of merger...................... (119,032) (1) (5,716) (2,393) -- --
----------- --- ----------- ------------ ----- -----
COMPANY
BALANCE, MAY 2, 1996.................... -- -- -- -- -- --
Sale of stock......................... 1,873,773 2 46,842 -- (150) --
Bekins acquisition.................... 42,894 -- 208 -- -- --
Matrix acquisition.................... 100,000 -- 3,000 -- -- --
Net loss.............................. -- -- -- (9,244) -- --
Foreign currency translation
adjustment.......................... -- -- -- -- -- (39)
----------- --- ----------- ------------ ----- -----
BALANCE, DECEMBER 31, 1996.............. 2,016,667 2 50,050 (9,244) (150) (39)
Sale of stock......................... 85,119 -- 2,792 -- (207) --
Repurchase of common stock............ (27,560) -- (551) -- -- --
Net loss.............................. -- -- -- (19,658) -- --
Foreign currency translation
adjustment.......................... -- -- -- -- -- (76)
----------- --- ----------- ------------ ----- -----
BALANCE, DECEMBER 31, 1997.............. 2,074,226 $ 2 $ 52,291 $ (28,902) $ (357) $ (115)
----------- --- ----------- ------------ ----- -----
----------- --- ----------- ------------ ----- -----
<CAPTION>
TOTAL
STOCKHOLDERS'
COMPANY PREDECESSOR EQUITY
- ---------------------------------------- -------------
<S> <C>
BALANCE, APRIL 1, 1994.................. $ 6,264
Net income............................ 196
Issuance of stock to directors........ 169
Value of options granted in
conjunction with extension of credit
agreement........................... 250
-------------
BALANCE, MARCH 31, 1995................. 6,879
Net income............................ 1,198
Issuance of stock to directors........ 10
Sale of stock......................... 50
-------------
BALANCE, MARCH 31, 1996................. 8,137
Net loss.............................. (27)
Effect of merger...................... (8,110)
-------------
COMPANY
BALANCE, MAY 2, 1996.................... --
Sale of stock......................... 46,694
Bekins acquisition.................... 208
Matrix acquisition.................... 3,000
Net loss.............................. (9,244)
Foreign currency translation
adjustment.......................... (39)
-------------
BALANCE, DECEMBER 31, 1996.............. 40,619
Sale of stock......................... 2,585
Repurchase of common stock............ (551)
Net loss.............................. (19,658)
Foreign currency translation
adjustment.......................... (76)
-------------
BALANCE, DECEMBER 31, 1997.............. $ 22,919
-------------
-------------
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
GEOLOGISTICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------- COMPANY
------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR
MARCH 31, APRIL 1, 1996 MAY 2, 1996 TO ENDED
-------------------- TO DECEMBER 31, DECEMBER 31,
1995 1996 MAY 1, 1996 1996 1997
--------- --------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 196 $ 1,198 $ (27) $ (9,244) $ (19,658)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization.......................... 6,175 4,700 337 16,310 30,398
Amortization of deferred items......................... (324) (437) -- 231 861
Deferred income taxes.................................. 696 1,318 -- (4,180) (10,070)
(Gain) loss on sale of assets.......................... (259) 34 (69) -- 60
Extraordinary item, net of tax......................... -- -- -- 997 2,293
Change in operating assets and liabilities:
Accounts receivable--trade, net........................ (398) 630 (205) (1,422) (2,129)
Prepaid expenses and other current assets.............. (1,207) 1,639 356 1,180 1,945
Accounts payable and accrued expenses.................. (4,208) 184 (1,910) 1,119 (5,795)
Other.................................................. -- -- (1,149) (2,564) (5,654)
--------- --------- ------- -------------- --------------
Net cash from operating activities................... 671 9,266 (2,667) 2,427 (7,749)
--------- --------- ------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions.................................. -- -- -- (107,057) (14,470)
Purchases of property and equipment and software....... (3,251) (3,175) (130) (1,369) (11,744)
Proceeds from the sale of net assets held for sale..... 584 1,083 -- 1,477 7,545
Collection of notes receivable......................... 771 1,520 -- --
Issuance of notes receivable........................... (2,146) (572) -- --
Other.................................................. (500) 675 (16) --
--------- --------- ------- -------------- --------------
Net cash from investing activities................... (4,542) (469) (146) (106,949) (18,669)
--------- --------- ------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit................. 51,900 46,400 6,000 56,100 96,500
Proceeds from long-term debt........................... 1,566 -- -- 91,929 110,000
Payments on revolving line of credit................... (49,000) (55,000) (3,515) (52,200) (96,500)
Payments on long-term debt............................. (2,140) (793) -- (32,771) (64,692)
Debt issuance costs.................................... -- -- -- (6,076) (8,918)
Issuance of common stock............................... -- 50 -- 46,494 2,585
Repurchase of common stock............................. -- -- -- -- (551)
Dividend payments to minority interests................ -- -- -- -- (105)
Repayments from related party.......................... 1,500 -- -- -- --
--------- --------- ------- -------------- --------------
Net cash from financing activities................... 3,826 (9,343) 2,485 103,476 38,320
--------- --------- ------- -------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................ -- -- -- (2) 395
--------- --------- ------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... (45) (546) (328) (1,048) 12,297
CASH AND CASH EQUIVALENTS OF ACQUIRED COMPANIES.......... -- -- -- 4,472 22,188
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 1,987 1,942 1,396 -- 3,424
--------- --------- ------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 1,942 $ 1,396 $ 1,068 $ 3,424 $ 37,909
--------- --------- ------- -------------- --------------
--------- --------- ------- -------------- --------------
SUPPLEMENTAL DISCLOSURES:
Interest paid.......................................... $ 2,558 $ 2,661 $ 78 $ 1,878 $ 7,715
--------- --------- ------- -------------- --------------
--------- --------- ------- -------------- --------------
Income taxes paid...................................... $ 649 $ 385 $ 2 $ 934 $ 2,021
--------- --------- ------- -------------- --------------
--------- --------- ------- -------------- --------------
NONCASH COMMON STOCK TRANSACTIONS ....................... $ 3,360 $ 207
NONCASH WARRANT TRANSACTIONS............................. $ 198 --
NEW CAPITAL LEASES....................................... $ 490 $ 1,260
NONCASH PROCEEDS FROM THE SALE OF NET ASSETS HELD FOR
SALE................................................... $ 110 $ 2,496
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. GENERAL INFORMATION
GeoLogistics Corporation (formerly known as International Logistics Limited
and herein referred to as "GeoLogistics" or the "Company") was formed and
incorporated in Delaware in 1996 by William E. Simon and Sons, LLC ("WESS"),
entities managed by Oaktree Capital Management, LLC ("OCM") and Roger E. Payton,
President and Chief Executive Officer. As a platform to become a major factor in
both the domestic and international logistics markets, GeoLogistics made three
acquisitions during the period ended December 31, 1996, and one acquisition
during the year ended December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of GeoLogistics or The Bekins Company ("Bekins"
or "Company Predecessor") and their respective majority owned subsidiaries,
collectively. The Company records its investment in each unconsolidated
affiliated company (20 to 50 percent ownership) at its related equity in the net
assets of such affiliate. Other investments (less than 20 percent ownership) are
recorded at cost. Intercompany accounts and transactions have been eliminated.
The financial statements reflect minority interests in foreign affiliates
acquired in connection with the acquisition of LEP International Worldwide
Limited ("LIW") (see Note 3).
RECLASSIFICATIONS--Certain amounts for prior years have been reclassified to
conform with 1997 financial statement and footnote presentations.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include cash on hand,
demand deposits, and short-term investments with original maturities of three
months or less.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost, less
accumulated depreciation. Depreciation on owned assets and amortization on
capital lease assets is provided using the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the life of the lease or the useful life of the
asset on a straight-line basis. Major repairs, refurbishments and improvements
that significantly extend the useful lives of the related assets are
capitalized. Maintenance and repairs are expensed as incurred:
<TABLE>
<CAPTION>
DEPRECIATION/
AMORTIZATION
PERIODS
-------------
<S> <C>
Transportation equipment....................................................... 4-8 years
Operating equipment and other.................................................. 3-8 years
Buildings and improvements..................................................... 25-40 years
Furniture and fixtures......................................................... 3-10 years
</TABLE>
INTANGIBLE ASSETS--Intangible assets include costs in excess of net assets
acquired in connection with the acquisitions described in Note 3 which have been
allocated among certain intangible items determined by management to have value
such as software, agent and customer contracts and drivers' network. Provision
for amortization has been made based upon the estimated useful lives of the
intangible asset categories.
F-11
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
It is the Company's policy to capitalize all external direct costs of
materials and services consumed in developing or obtaining internal-use computer
software, and payroll and payroll related costs for employees who are directly
associated with a project to develop computer software. Training costs and
maintenance fees are expensed as incurred or, if such costs are included in the
price or the software, allocated over the term of the service provided.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate, to the carrying amount. If the operation
is determined to be unable to recover the carrying amount of its assets, then
the assets are written down to fair value. Fair value is determined based on
discounted cash flows or appraised values, depending upon the nature of the
assets.
OTHER ASSETS--Other assets consists primarily of pension assets acquired in
the LIW transaction ($12.7 million), investments in an affiliate and deposits
related to certain operating leases.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying value of cash and cash
equivalents, accounts receivable, accounts payable and accrued expenses
approximates fair value at December 31, 1996 and 1997 due to their short-term
nature; the carrying value of the Company's revolving debt approximates fair
value due to its variable interest rates. Fair values of other debt instruments
were calculated based on broker quotes or quoted market prices or rates for the
same or similar investments. The carrying amount of other debt instruments
subject to fair value disclosures was $110.0 million which approximated fair
value at December 31, 1997. The fair value of the Company's interest rate cap
agreement was based on termination value and approximated $.1 million in favor
of the Company at December 31, 1996. The Company had no such agreements in place
at December 31, 1997.
FOREIGN CURRENCY TRANSLATION--The financial statements of subsidiaries
outside the United States are generally measured using the local currency as the
functional currency. Assets, including intangible assets, and liabilities of
these subsidiaries are translated at the rate of exchange at the balance sheet
date. The resultant translation adjustments are included in the cumulative
translation adjustment, a separate component of stockholders' equity. Income and
expenses are translated at average monthly rates of exchange. Gains and losses
from foreign currency transactions are included in results of operations.
FOREIGN CURRENCY RISK MANAGEMENT--The Company's objective in managing the
exposure to foreign currency fluctuations is to reduce earnings and cash flow
volatility associated with foreign exchange rate changes and allow management to
focus its attention on its core business issues and challenges. Accordingly, the
Company enters into various contracts which change in value as foreign exchange
rates change to protect certain of its existing foreign assets, liabilities,
commitments and anticipated foreign earnings. The Company may use a combination
of financial instruments to manage these risks, including forward contracts or
option related instruments. The principal currencies hedged are the British
pound, German mark, Canadian dollar and some Asian currencies such as the Hong
Kong and Singapore dollar. By policy, the Company maintains hedge coverage
between minimum and maximum percentages of its anticipated foreign exchange
exposures for the next year. The gains and losses on these contracts are offset
by changes in the value of the related exposures. At December 31, 1997 the
Company had approximately $21.8 million
F-12
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
in forward contracts outstanding. The credit and market risks under these
agreements are not considered to be significant since the counterparties have
high credit ratings.
It is the Company's policy to enter into foreign currency transactions only
to the extent considered necessary to meet its objective as stated above. The
Company does not enter into foreign currency or interest rate transactions for
speculative purposes.
DEFERRED COMPENSATION PLAN--On July 1, 1996, the Company initiated a
nonqualified deferred compensation plan (the "Plan") for certain key employees
to supplement the retirement savings plans. Under the Plan, employees sign an
irrevocable contribution commitment for a plan year based on a percentage of
their salary. The Company matches this contribution subject to certain
limitations, and agrees to distribute the deferred compensation, plus investment
income, in accordance with the distribution method selected by the employee.
Matching expense of the Company was $24 and $76 in 1996 and 1997, respectively.
Employee deferrals and Company match funds have been deposited with a trustee.
These funds and the related deferred compensation obligations are recorded as
both a noncurrent asset and a noncurrent liability at December 31, 1996 and 1997
in the amounts of $118 and $754, respectively. The Company has established a
trust to hold and invest amounts contributed pursuant to the Plan. The Company
may from time to time, at its sole discretion, direct the trustee to purchase
shares of the Company's common stock (the "Plan Shares"). The Company may, by
written action, designate which employees are entitled to receive Plan Shares.
If at any time prior to an initial public offering, a participant's employment
is terminated for any reason whatsoever, the Company has the option to
repurchase any Plan Shares held in such participant's account. As of December
31, 1997, 3,168 Plan Shares were held by the Trustee on behalf of participants
under the Plan.
Participants are immediately vested in their voluntary contributions plus
actual earnings thereon. Company contributions are subject to various vesting
schedules, ranging from immediate to three years.
REVENUE RECOGNITION--The Company's policy is to recognize revenue when it
has performed substantially all services required under the terms of its
contracts, generally on the date shipment is completed. Revenue from
export-forwarding services is recognized at the time the freight departs the
terminal of origin. Customs brokerage revenue is recognized upon completing the
documents necessary for customs clearance. Storage revenue is recognized as
services are performed. Transportation and other direct costs are recognized
concurrently with revenues. For both international and domestic revenues, the
above methods of revenue recognition approximate recognizing revenues and
expenses when a shipment is completed.
CREDIT RISK CONSIDERATIONS--Concentration of credit risk with respect to
accounts receivable is limited due to the wide variety of customers and markets
into which services are sold, as well as their dispersion across many different
geographic areas.
The Company has recorded an allowance for doubtful accounts to estimate the
difference between recorded receivables and ultimate collections. The allowance
and provision for bad debts are adjusted periodically based upon the Company's
evaluation of historical collection experience, industry trends and other
relevant factors. The allowance for doubtful accounts was $3,675 and $17,710 at
December 31, 1996 and 1997, respectively.
INCOME TAXES--Deferred income taxes are provided for temporary differences
between the financial reporting basis and tax basis of assets and liabilities at
currently enacted tax rates. The deferred income tax
F-13
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
provision or benefit generally reflects the net change in deferred income tax
assets and liabilities during the year. The current income tax provision
reflects the tax consequences of revenues and expenses currently taxable or
deductible in income tax returns for the year reported.
EARNINGS PER SHARE--The Company adopted Statement of Financial Accounting
Standards No. 128 ("FAS 128"), Earnings Per Share at December 31, 1997. All
prior period earnings per common share data have been restated to conform to the
provisions of this statement. Basic earnings per common share is computed using
the weighted average number of shares outstanding. Diluted earnings per common
share is computed under the treasury stock method using the weighted average
number of shares outstanding adjusted for the incremental shares attributed to
outstanding warrants to purchase common stock. Incremental shares of zero and .1
million in 1996 and 1997 respectively, were not used in the calculation of
diluted loss per common share due to their antidilutive effect.
USE OF ESTIMATES--The financial statements have been prepared in conformity
with generally accepted accounting principles and, as such, include amounts
based on informed estimates and judgments of management. Actual results could
differ from those estimates. Accounts affected by significant estimates include
accounts receivable and accruals for transportation and other direct costs, tax
contingencies, insurance claims, cargo loss and damage claims.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board ("FASB") issued FAS 130, Reporting Comprehensive Income and FAS
131, Disclosures about Segments of an Enterprise and Related Information, which
become effective for the Company's 1998 consolidated financial statements. FAS
130 requires the disclosure of comprehensive income, defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources, in the Company's consolidated
financial statements. FAS 131 requires that a public business enterprise report
certain financial and descriptive information about its reportable operating
segments. In the opinion of the Company's management, it is not anticipated that
the adoption of these new accounting standards will have a material effect on
the consolidated financial statements or disclosures of the Company. In 1997,
the Securities and Exchange Commission amended its rules to require certain
disclosures concerning derivatives and other financial instruments. These
additional quantitative and qualitative disclosures will be required in the
Company's 1998 consolidated financial statements.
3. ACQUISITIONS
On May 2, 1996, the Company acquired all of the outstanding shares of
Bekins, a major provider, through its Bekins Van Lines ("BVL") subsidiary, of
interstate transportation of household goods and logistic services for
high-tech, electronic, medical, and high-end consumer products, for $49.7
million including assumptions of debt and acquisition costs. The consideration
was comprised of $49.5 million in cash and the exchange of 45,560 shares of
Bekins stock valued at $0.2 million for shares of GeoLogistics. The value
assigned to the Company's stock issued in the exchange was based on treatment
required by Emerging Issues Task Force ("EITF") publication 88-16 BASIS IN
LEVERAGED BUYOUT TRANSACTIONS, which states that residual interest in the
accquired company should be carried over at the predecessor's basis. Therefore,
the $.2 million of basis previously included in Bekins was carried over to the
shares of common stock of the Company. The excess of the purchase price over the
fair value of the net assets acquired was $17.9 million, has been recorded as
goodwill, and is being amortized on a straight-line basis over 40 years.
F-14
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED)
The Company has pursued a strategy of converting company-owned Bekins Moving
and Storage ("BMS") service centers into independent moving and storage agents,
who will become part of the BVL agent network. At December 31, 1996 and 1997, 17
and zero company-owned BMS service centers, respectively, remained. Upon the
acquisition of Bekins by the Company on May 2, 1996, BMS was treated as
discontinued and the net remaining assets were classified as assets held for
sale in the balance sheet. During 1997 all remaining assets of BMS were sold.
Losses from operations since May 2, 1996 of $4.0 million, partially offset by
the gain on sale of the assets of $2.6 million, have been considered in the
allocation of the purchase price.
On October 31, 1996, the Company acquired all of the outstanding shares of
LEP Profit International, Inc. ("LEP-USA") and LEP International Inc.
("LEP-Canada") from LIW for $32 million in cash including assumption of debt and
acquisition costs. LEP-USA and LEP-Canada (collectively "LEP") provide domestic
and international freight forwarding services, as well as value-added domestic
logistic services. The excess of the purchase price over the fair value of the
net assets acquired was $20.9 million, has been recorded as goodwill and is
being amortized on a straight-line basis over 40 years. In addition to the
acquisition of LEP, the Company acquired 33.3% of the outstanding common stock
and warrants to purchase the remaining 66.7% of LIW for the aggregate price of
one dollar.
On November 7, 1996, the Company acquired all of the outstanding shares of
Matrix International Logistics, Inc. ("Matrix"), an international project cargo
freight forwarder that also specializes in premium international household
relocation services, for $30 million including assumption of debt and
acquisition costs. The consideration was comprised of $27 million in cash and $3
million of the Company's common stock (valued at $30 per share, the same price
paid by shareholders for additional stock purchases made on October 31, 1996).
The excess of the purchase price over the fair value of the net assets acquired
was $18.9 million, has been recorded as goodwill, and is being amortized on a
straight-line basis over 25 years.
On December 31, 1997, employment agreements with three of the Matrix selling
stockholders were terminated and replaced with new employment agreements and the
employment agreement with the fourth selling stockholder was terminated pursuant
to a Separation Agreement and Mutual Release. Under the agreements, the Company
is obligated for future payments of consulting fees to the terminated selling
stockholder and salary for the three remaining selling stockholders through July
2000 and December 2001, respectively. The Company is also obligated to
repurchase shares of common stock owned by the selling stockholders under
certain conditions. In connection with the three new employment agreements, the
contingent purchase price provisions of the acquisition contract were
terminated.
On September 30, 1997, the Company increased its holdings of LIW's common
stock, a United Kingdom based international freight forwarder with operations
primarily in Europe and Asia, from 33.3% to 75.2%. In December 1997, the Company
acquired LIW's remaining outstanding common stock and acquired and retired LIW's
outstanding preferred stock. Consideration included cash and warrants to
purchase 19,045 shares of common stock of the Company at an exercise price of
$45 per share under terms similar to previously issued warrants. The transaction
has been accounted for under the purchase method of accounting. The purchase
price ($14.5 million, including assumption of debt and acquisition costs) has
been allocated to the assets acquired and liabilities assumed based on their
fair value at the date of purchase. The Company continues to evaluate the fair
value of certain assets acquired and liabilities assumed including those related
to foreign pension plans, investments in affiliates and certain claims. In the
opinion of management, no material adjustments from preliminary estimates and
assumptions are
F-15
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED)
expected, however any required adjustment to the purchase price allocation will
be recorded when the information becomes available.
The operating results of each acquired company have been included in the
consolidated statements of operations since the dates of acquisition.
Pro forma unaudited operating results assuming the LIW acquisition was made
on January 1, 1997 and adjusting for additional depreciation of property and
equipment and additional interest on long-term debt (See Note 6), are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C>
Revenues........................................................................ $1,525,162
Net revenues.................................................................... 378,273
Operating loss.................................................................. 9,156
Net loss........................................................................ 17,617
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- AMORTIZATION
1996 1997 PERIOD
---------- ---------- -------------
<S> <C> <C> <C>
Goodwill............................................... $ 52,878 $ 56,627 25-40 years
Software............................................... 21,687 28,251 2-3 years
Agent contracts........................................ 12,554 13,762 2-5 years
Customer contracts..................................... 6,500 6,500 2 years
Debt issuance costs.................................... 4,359 8,788 5-10 years
Drivers' network....................................... 1,750 1,750 2 years
Other.................................................. 255 255 4 years
---------- ----------
99,983 115,933
Less accumulated amortization.......................... (14,839) (42,057)
---------- ----------
$ 85,144 $ 73,876
---------- ----------
---------- ----------
</TABLE>
5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER NONCURRENT LIABILITIES
Accounts payable includes checks outstanding against the Company's
central disbursement accounts. Arrangements with the Company's banks do not
call for reimbursement until the checks are presented for payment. Such
outstanding checks totaled $11.3 million and $20.1 million at December 31,
1996 and 1997, respectively.
F-16
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER NONCURRENT LIABILITIES
(CONTINUED)
Accrued expenses and other noncurrent liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
ACCRUED EXPENSES
Transportation...................................................... $ 22,116 $ 101,462
Employee related.................................................... 8,722 21,196
Rents and utilities................................................. -- 1,508
Insurance and litigation............................................ 7,621 10,057
Acquisition related................................................. 4,761 7,913
Customer programs................................................... 1,825 2,997
Accrued interest.................................................... -- 2,031
VAT/Sales tax payables.............................................. -- 3,382
Other............................................................... 3,771 14,552
---------- -----------
$ 48,816 $ 165,098
---------- -----------
---------- -----------
OTHER NONCURRENT LIABILITIES
Employee benefit programs........................................... $ 118 $ 22,275
Insurance........................................................... 5,717 5,288
Taxes other than income taxes payable............................... -- 10,610
Acquisition related................................................. 4,526 8,335
Other............................................................... 756 139
---------- -----------
$ 11,117 $ 46,647
---------- -----------
---------- -----------
</TABLE>
INSURANCE CLAIMS--Certain of the Company's insurance programs, primarily
workers' compensation, public liability and property damage, and cargo loss and
damage, are subject to substantial deductibles or retrospective adjustments.
Accruals for insurance claims, except for cargo claims, are estimated for the
ultimate cost of unresolved and unreported claims pursuant to actuarial
determination. Cargo claims are accrued for based on the Company's historical
claims experience and management's judgment.
ACQUISITION RESERVES--In conjunction with the 1996 acquisitions of Bekins,
LEP and Matrix (see Note 3), the Company recorded certain acquisition reserves
related to the closure of duplicate administrative and warehouse facilities,
consolidation of redundant business systems, and reduction of Bekins and LEP
personnel performing duplicate tasks. Estimated termination benefits include
approximately $3.8 million for severance, wage continuation, medical and other
benefits for approximately 200 employees. Facility closures and related costs
include estimated net losses on disposal of property, plant and equipment, lease
payments and related costs of $3.9 million. Approximately $1.6 million was
accrued for all other consolidation, relocation and related activities. In 1997,
the Company adjusted certain of these reserves and recorded additional reserves
in connection with the acquisition of LIW relating to redundant office
facilities ($1.3 million), terminations and relocations of approximately 40
people ($2.6 million) and facility closures ($4.6 million). All costs were
accrued as part of the purchase accounting in accordance with approved
management plans.
F-17
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
INTEREST RATES 1996 1997
------------------- ------------ -------------
<S> <C> <C> <C>
Senior Notes.............................. 9.75% $ -- $ 110,000
Term Notes................................ 8.25% -- 9.50% 59,275 --
Revolving Credit Facility................. 9.50% 3,900 --
Capital lease obligations, due in various
installments through 2007,
collateralized by certain computer
equipment with a gross value of $5.7
million and $4.1 million at December 31,
1996 and 1997, respectively, and
accumulated depreciation of $4.0 million
and $0.9 million, respectively.......... 8.25% -- 9.90% 2,291 3,087
Other..................................... 6.19 -- 10.58% 848 2,283
------------ -------------
66,314 115,370
Less current portion...................... (4,510) (2,580)
------------ -------------
$ 61,804 $ 112,790
------------ -------------
------------ -------------
</TABLE>
Future minimum payments of the Company's long-term debt (exclusive of
payments for maintenance, insurance, taxes, and other expenses related to
capital leases) as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASES DEBT TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
1998........................................................ $ 1,822 $ 1,087 $ 2,909
1999........................................................ 1,263 465 1,728
2000........................................................ 467 292 759
2001........................................................ 83 292 375
2002........................................................ 2 147 149
Thereafter.................................................. 110,000 110,000
--------- ---------- ----------
3,637 112,283 115,920
Less amounts representing interest.......................... 550 -- 550
--------- ---------- ----------
$ 3,087 $ 112,283 $ 115,370
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
SENIOR NOTES--In October 1997 the Company issued and sold $110.0 million in
aggregate principal amount of its 9 3/4% senior notes (the "Notes") which are
due October 15, 2007, and are general unsecured obligations of the Company. The
Notes are fully and unconditionally guaranteed on a joint and several senior
basis by all existing and future domestic Restricted Subsidiaries (as defined in
the indenture relating to the Notes). Three of the Company's domestic
subsidiaries hold as their sole assets all of the issued and outstanding equity
interests of the Company's non-guarantor foreign subsidiaries. The Notes are
subject to various covenants, including, limitations on incurrence of additional
indebtedness, restricted payments,
F-18
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT (CONTINUED)
dividends and payment restrictions on the ability of the Company's subsidiaries
to pay dividends. The Notes may not be redeemed at the option of the Company
prior to October 15, 2002, except in connection with one or more public equity
offerings by the Company. Upon the occurrence of a Change of Control, the
holders of the Notes would have the right to require the Company to purchase
their Notes at a price equal to 101% of the then outstanding aggregate principal
amount thereof, plus accrued and unpaid interest to the date of purchase.
The following is condensed combined financial information of guarantor and
non-guarantor subsidiaries:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
---------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents.................... $ 7,578 $ 2,276 $ 28,055 $ -- $ 37,909
Accounts receivable--trade, net.............. -- 107,843 166,874 (24,711) 250,006
Property, net................................ 1,076 8,092 42,639 -- 51,807
Intangible assets, net....................... 13,203 58,044 3,595 (966) 73,876
Other assets................................. 38,395 31,961 39,479 (37,667) 72,168
---------- ----------- -------------- ------------ ----------
Total assets............................... $ 60,252 $ 208,216 $ 280,642 $ (63,344) $ 485,766
---------- ----------- -------------- ------------ ----------
---------- ----------- -------------- ------------ ----------
Current liabilities.......................... $ 6,188 $ 116,875 $ 204,427 $ (25,681) $ 301,809
Long-term debt............................... 110,534 38 2,218 -- 112,790
Other non-current liabilities................ (79,389) 72,138 55,495 4 48,248
Stockholders' equity......................... 22,919 19,165 18,502 (37,667) 22,919
---------- ----------- -------------- ------------ ----------
Total liabilities and
stockholders' equity..................... $ 60,252 $ 208,216 $ 280,642 $ (63,344) $ 485,766
---------- ----------- -------------- ------------ ----------
---------- ----------- -------------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
---------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ -- $ 661,201 $ 367,377 $ (50,329) $ 978,249
Transportation and other direct costs........ -- 519,892 289,486 (50,329) 759,049
Operating expenses........................... 2,917 159,664 72,550 -- 235,131
---------- ----------- -------------- ------------ ----------
Operating profit (loss).................... (2,917) (18,355) 5,341 -- (15,931)
Interest and other, net...................... (735) (7,016) (1,036) -- (8,787)
Income taxes benefit (provision)............. 1,410 8,612 (1,602) -- 8,420
Minority interests........................... -- -- (1,067) -- (1,067)
Extraordinary loss........................... (1,666) (420) (207) -- (2,293)
---------- ----------- -------------- ------------ ----------
Net (loss) income.......................... $ (3,908) $ (17,179) $ 1,429 $ -- $ (19,658)
---------- ----------- -------------- ------------ ----------
---------- ----------- -------------- ------------ ----------
</TABLE>
F-19
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
---------- ----------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operating activities........................ $ 2,996 $ (8,116) $ (2,568) $ (61) $ (7,749)
Investing activities:
Business acquisitions, net................ (14,470) (14,470)
Purchases of property and
equipment, net.......................... (4,714) 1,937 (1,422) (4,199)
Financing activities:
Debt transactions, net.................... 21,671 5,238 9,316 61 36,286
Equity transactions, net.................. 2,034 2,034
Effect of exchange rate, changes in cash
and cash equivalents.................... 395 395
---------- ----------- ------- ----- ----------
Net increase in cash.......................... 7,517 (941) 5,721 -- 12,297
Cash of acquired companies.................... 22,188 22,188
Cash and cash equivalents, beginning of
period...................................... 61 3,217 146 -- 3,424
---------- ----------- ------- ----- ----------
Cash and cash equivalents, end of period...... $ 7,578 $ 2,276 $ 28,055 -- $ 37,909
---------- ----------- ------- ----- ----------
---------- ----------- ------- ----- ----------
</TABLE>
REVOLVING CREDIT FACILITY--In October 1997, the Company entered into a new
revolving credit facility for $100.0 million which matures in October 2002. At
December 31, 1997, no amounts were outstanding and the Company had an eligible
borrowing base of $95.8 million. Letters of credit of $27.5 million were
outstanding, leaving approximately $68.3 million of unused availability under
the facility. Interest on the facility accrues at either the Prime Rate or LIBOR
plus an applicable interest margin. The applicable interest margin until March
31, 1998 is 0.5% for prime rate loans and 2.0% for LIBOR loans. Between April 1,
1998 and October 27, 1998, the applicable interest margin will be the lower of
(i) the foregoing margins or (ii) a percentage which will fluctuate between 0.0%
and 1% for prime rate loans and between 1.5% and 2.5% for LIBOR loans, based on
the ratio of the Company's funded indebtedness to EBITDA (as defined) (the
"Floating Margin"). From October 28, 1998, the Floating Margin will determine
the applicable interest margin.
The credit facility contains certain covenants and restrictions on actions
by the Company including, without limitation, restrictions on indebtedness,
liens, guarantee obligations, mergers, creation or dissolution of subsidiaries,
asset dispositions not in the ordinary course of business, investments,
acquisitions, loans, advances, dividends and other restricted junior payments,
transactions with affiliates, sale and leaseback transactions, prepayment of or
amendments to junior obligations, entering other lines of business and
amendments of other indebtedness. The Company is required to meet certain
financial covenants including minimum EBITDA (as defined) and, in certain
circumstances, interest coverage tests.
Certain subsidiaries are entitled to draw amounts under the revolving credit
facility, subject to availability pursuant to a borrowing base formula based
upon eligible accounts receivable, in order to meet working capital requirements
and for general corporate purposes. Borrowings under the facility are guaranteed
by Geologistics and certain indirect domestic subsidiaries of the Company.
F-20
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. LONG-TERM DEBT (CONTINUED)
TERM NOTES--The Company's loan agreement dated October 31, 1996 (the
"Agreement") was repaid in 1997 from the proceeds of the Notes. In connection
with this transaction, the Company has recorded an extraordinary loss of $3,821
($2,293 net of tax benefit) related to the write off of unamortized deferred
financing cost and interest rate caps.
Additional information on the Company's bank borrowings is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996 TO YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Average balance outstanding............................ $ 37,807 $ 82,838
Maximum balance outstanding............................ 66,375 119,218
Weighted average interest rate......................... 9.52% 9.28%
</TABLE>
On May 2, 1996, the Company secured a $50.0 million loan under similar terms
as the Agreement. On October 31, 1996, the Company used proceeds from the
Agreement to retire the May 2, 1996 loan. In connection with this transaction,
the Company recorded an extraordinary loss of $1.7 million ($997.0 net of tax)
related to the write-off of unamortized deferred financing costs.
INTEREST RATE PROTECTION--The Company enters into interest rate agreements
to reduce the impact of changes in interest rates on its variable rate debt. The
initial cost of interest rate caps was recorded in intangible assets and was
amortized to interest expense over the life of the caps.
At December 31, 1996, the Company had an interest rate cap which limited the
maximum LIBOR rate on $16 million notional principal amount at 7.0% through
August 1999. The interest rate caps were subsequently cancelled concurrent with
the issuance of the Senior Notes in 1997.
7. INCOME TAXES
The Company and its U.S. subsidiaries file their Federal income tax return
on an consolidated basis. At December 31, 1997, the Company's U.S. net operating
loss ("NOL") carryforwards available to offset future taxable income were
approximately $16.5 million which expire in 2009 through 2012. The availability
of tax benefits of such NOL carryforwards to reduce the Company's Federal income
tax liabilities is subject to various limitations under the Internal Revenue
Code of 1986, as amended (the "Code"). In addition, at December 31, 1997,
various foreign subsidiaries of the Company have aggregate NOL carryforwards for
foreign income tax purposes of approximately $90.6 million which are subject to
significant restrictive provisions in certain countries. Approximately $6.2
million of the foreign NOL's expire between 1998 and 2004 and $84.4 million have
an indefinite life. Approximately $42.0 million of the foreign NOL's relate to
Germany where the tax authorities have challenged their availability to offset
future income. An additional $24.0 million relate to the LIW parent company
which does not have significant, separate return, future earnings generation
potential. Management believes that the realization of the net deferred tax
asset is subject to significant challenge and has established a valuation
allowance to reflect this asset at its estimated realizable value.
No provision was made at December 31, 1997 for accumulated earnings of
certain overseas subsidiaries because it is expected that such earnings will be
reinvested overseas indefinitely.
Domestic loss from operations before income taxes was $14.2 million and
$27.7 million for the periods ended December 31, 1996 and 1997, respectively.
Foreign income before income taxes was $0.4 million and $1.9 million for the
periods ended December 31, 1996 and 1997, respectively.
F-21
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS DOLLARS EXCEPT PER SHARE AMOUNT)
7. INCOME TAXES (CONTINUED)
The following summarizes the effect of deferred income tax items and the
impact of "temporary differences" between amounts of assets and liabilities for
financial reporting purposes and such amounts as measured by tax laws. Temporary
differences and loss carry-forwards comprising the net deferred tax asset are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carry-forwards..................................... $ 4,196 $ 42,002
Insurance reserves.................................................... 5,027 5,363
Allowance for doubtful accounts....................................... 1,657 1,743
Property and equipment................................................ -- 1,884
Other assets.......................................................... 7,379 8,727
--------- ---------
Gross deferred tax assets............................................... 18,259 59,719
--------- ---------
Deferred tax liabilities:
Property and equipment................................................ 1,852 158
Other intangible assets............................................... 10,239 784
Other liabilities..................................................... 1,839 556
--------- ---------
Gross deferred tax liabilities.......................................... 13,930 1,498
--------- ---------
Valuation allowance..................................................... (30,832)
--------- ---------
Net deferred tax assets................................................. $ 4,329 $ 27,389
--------- ---------
--------- ---------
</TABLE>
Income tax expense (benefit), exclusive of the extraordinary losses, was
comprised of:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
TO YEAR ENDED
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31,
MARCH 31, MARCH 31, ------------- --------------
1995 1996 1996 1997
------------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Current--Federal..................... -- -- $ (300) $ --
State........................ $ 120 $ 190 303 559
Foreign...................... -- -- 164 1,091
----- ----------- ------ --------------
120 190 167 1,650
Deferred--Federal.................... 696 1,318 (3,644) (8,403)
State....................... -- -- (536) (2,039)
Foreign..................... -- -- -- 372
----- ----------- ------ --------------
696 1,318 (4,180) (10,070)
----- ----------- ------ --------------
$ 816 $ 1,508 $ (4,013) $ (8,420)
----- ----------- ------ --------------
----- ----------- ------ --------------
</TABLE>
F-22
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS DOLLARS EXCEPT PER SHARE AMOUNT)
7. INCOME TAXES (CONTINUED)
Reconciliation of income tax expense, exclusive of the extraordinary losses,
to the statutory corporate Federal tax rate of 35% were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 2, 1996
TO DECEMBER YEAR ENDED
YEAR ENDED YEAR ENDED 31, DECEMBER 31,
MARCH 31, MARCH 31, ------------ ------------
1995 1996 1996 1997
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Statutory tax expense (benefit)........ $ 354 $ 915 $ (4,291) $ (9,026)
Effects of--
Amortization of goodwill............. 405 486 245 851
Foreign income taxed at various
rates.............................. (370)
State income taxes, net of Federal
benefit............................ 57 107 (613) (1,388)
Other, net............................. 646 1,513
----- ----------- ------------ ------------
$ 816 $ 1,508 $ (4,013) $ (8,420)
----- ----------- ------------ ------------
----- ----------- ------------ ------------
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES--The Company leases facilities and equipment under
noncancelable operating leases which expire at various dates through 2006. Net
rental expense for the years ended March 31, 1995 and 1996, the period from May
2, 1996 to December 31, 1996, and the year ended December 31, 1997 was $8.9
million, $8.3 million, $3.6 million and $18.4 million, respectively.
Future minimum rental payments due under noncancelable operating leases at
December 31, 1997 were as follows:
<TABLE>
<S> <C>
1998.............................................. $ 32,320
1999.............................................. 21,689
2000.............................................. 17,141
2001.............................................. 10,930
2002.............................................. 7,949
Thereafter........................................ 38,054
---------
Total..................................... $ 128,083
---------
---------
</TABLE>
LITIGATION AND CONTINGENT LIABILITIES--At December 31, 1997, the Company is
contesting a claim made by Danish Customs and Excise for payment of customs
duties and excise taxes of approximately $4.7 million related to alleged
irregularities in connection with a number of historical LIW shipments of
freight out of Denmark. Additionally, the Company is subject to a challenge by
German tax authorities relating to approximately $3.2 million of alleged
liabilities relating to the status of LIW's historical tax filings. The Company
has other tax disputes which, in the aggregate, involve amounts of $11.6
million. The Company believes it has a number of defenses to the alleged tax
liabilities and it intends to defend the tax claims vigorously. The Company
believes it has established adequate reserves for the total alleged tax
liabilities.
F-23
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS DOLLARS EXCEPT PER SHARE AMOUNT)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and certain of its subsidiaries are defendants in legal
proceedings arising in the ordinary course of business and are subject to
unasserted claims. Although the outcome of these proceedings cannot be
determined, it is the opinion of management, based on consultation with legal
counsel, that the litigation reserves recorded at December 31, 1996 and 1997,
and included in accrued expenses, are sufficient to cover losses which are
probable to occur.
9. PENSION PLAN, POST RETIREMENT BENEFITS AND OTHER BENEFITS
DEFINED BENEFIT PLANS--As a result of the LIW acquisition the Company now
has a number of defined benefit pension plans that cover a substantial number of
foreign employees. Retirement benefits are provided based on compensation as
defined in the plans. The Company's policy is to fund these plans in accordance
with local practice and contributions are made in accordance with actuarial
valuations.
The components of net periodic pension cost and the significant assumptions
for the foreign plans consisted of the following in the thousands of dollars and
percents:
<TABLE>
<CAPTION>
1997
------------
<S> <C>
Service cost.................................................................... $ 756
Interest cost................................................................... 1,443
Return on assets................................................................ (1,487)
Net amortization................................................................ 323
------------
Net cost........................................................................ $ 1,035
------------
------------
Discount rates for obligations.................................................. 7.0 - 8.0%
Discount rates for expenses..................................................... 7.0 - 8.0%
Assumed rates of compensation increases......................................... 2.0 - 5.5%
Expected long-term rate of return............................................... 6.0 - 9.0%
</TABLE>
F-24
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS DOLLARS EXCEPT PER SHARE AMOUNT)
9. PENSION PLAN, POST RETIREMENT BENEFITS AND OTHER BENEFITS (CONTINUED)
A reconciliation of the funded status of the foreign plans at December 31,
1997 in thousands of dollars follows:
<TABLE>
<CAPTION>
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefit obligation........................................................... $ (62,703) $ (16,481)
Nonvested benefit obligation........................................................ (3,405) (536)
------------ ------------
Accumulated benefit obligation...................................................... (66,108) (17,017)
Excess of projected benefit obligation over accumulated benefit obligation............ (4,159) (454)
------------ ------------
Projected benefit obligation.......................................................... (70,267) (17,471)
Plan assets at fair value............................................................. 82,935 0
------------ ------------
Projected benefit obligation compared to plan assets.................................. 12,668 (17,471)
Unrecognized net (gain) loss.......................................................... (110) (5,201)
Prior service cost not yet recognized in net periodic pension cost.................... 0 1,407
Remaining unrecognized net asset...................................................... 138 0
------------ ------------
Pension asset (liability) recognized in the consolidated balance sheet................ $ 12,696 $ (21,265)
------------ ------------
------------ ------------
</TABLE>
Retirement savings plans are available to substantially all North American
salaried and nonunion hourly employees, which allow eligible employees to
contribute a portion of their annual salaries to the plans. Matching
contributions are made at the discretion of each subsidiary.
Participants are immediately vested in their voluntary contributions plus
actual earnings thereon. Contributions are subject to various vesting schedules,
ranging from immediate to seven years. Matching contributions for the period
ended December 31, 1996 and for the year ended December 31, 1997 were $207 and
$673, respectively.
10. STOCKHOLDERS' EQUITY
WARRANTS--In connection with the Company's 1996 acquisitions of Bekins, LEP
and Matrix fixed and variable price warrants for the purchase of 403,889 shares
of common stock at a price range of $20 to $39 were issued to certain employees
and nonemployees. During the year ended December 31, 1997, fixed price warrants
for the purchase of 333,500 shares of common stock were issued to certain
employees, at an exercise price ranging from $32 to $60 per share, and warrants
to purchase 19,045 shares of common stock were issued in connection with the
purchase of LIW at an exercise price of $45 per share. All warrants generally
vest ratably over one to four years, although those issued to certain
non-employee entities in connection with the Company's 1996 financings and
acquisition-related activities vested immediately, and
F-25
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS DOLLARS EXCEPT PER SHARE AMOUNT)
10. STOCKHOLDERS' EQUITY (CONTINUED)
warrants issued prior to January 1, 1997 fully vest upon a registered public
offering. All warrants expire in seven to ten years from the date of issuance.
The following table summarizes the warrant activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
WARRANTS PRICE
--------- -------------
<S> <C> <C>
Outstanding at May 2, 1996.......................................... -- --
Granted in 1996..................................................... 403,889 $ 26.25
---------
Outstanding at December 31, 1996.................................... 403,889 $ 26.25
Granted in 1997..................................................... 352,545 $ 51.69
Cancelled/forfeited................................................. (30,000) $ 55.67
---------
Outstanding at December 31, 1997.................................... 726,434 $ 37.38
---------
---------
Exercisable at: December 31, 1996................................... 128,889 $ 22.56
---------
---------
December 31, 1997...................................... 216,684 $ 26.50
---------
---------
</TABLE>
The following table summarizes information relating to warrants outstanding
and exercisable at December 31, 1997, using various ranges of exercise prices:
<TABLE>
<CAPTION>
RANGE OF
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICES OUTSTANDING EXERCISABLE EXERCISE PRICE REMAINING YEARS
- --------- ----------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C>
$20-$33 363,890 185,139 $ 24.87 5.6
$34-$47 162,545 31,545 $ 42.69 8.6
$48-$60 199,999 -- $ 55.83 9.5
</TABLE>
The Company accounts for warrants issued to nonemployees under the fair
value method as required by FAS 123, Accounting for Stock Based Compensation.
Approximately $200 of acquisition costs were recorded as part of the purchase
price for the fair value of fixed price warrants issued to nonemployees for
services rendered in connection with the Company's acquisitions during 1996.
ACCOUNTING FOR STOCK BASED COMPENSATION--The Company has adopted the
disclosure-only provisions of FAS 123, for purposes of warrants issued to
employees. Accordingly, no compensation expense has been recognized for the
stock warrants. Had compensation costs been determined based on the fair value
at the grant date consistent with the provisions of FAS 123, the Company's net
loss would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Net Loss--as reported..................................................... $ 9,244 $ 19,658
Net Loss--pro forma....................................................... $ 9,630 $ 19,798
Net Loss common per share--as reported.................................... $ 7.37 $ 9.59
Net Loss common per share--pro forma...................................... $ 7.67 $ 9.66
</TABLE>
F-26
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS DOLLARS EXCEPT PER SHARE AMOUNT)
10. STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of each warrant was estimated on the date of grant using the
minimum value method as a result of the Company's non-public status, zero
volatility of its stock and using risk free interest rates of 5.75% to 6.45%,
expected life of four years and a dividend yield of zero.
EMPLOYEE STOCK PURCHASE PLAN--The Company's Employee Stock Purchase Plans
(the "Purchase Plans") provide certain employees of the Company with the right
to purchase any or all of such employee's allocated portion, as determined by
the Board of Directors of the Company, of an aggregate of 8,500 shares of Common
Stock of the Company at a purchase price of $20.00 per share and 75,000 shares
of Common Stock at a purchase price of $30.00 per share. The right to acquire
shares of Common Stock under the Purchase Plans has terminated. A total of 33
employees purchased an aggregate of 55,150 shares of Common Stock pursuant to
the Purchase Plans. Subsequent to December 31, 1997, a third Purchase Plan has
been authorized for up to an additional 75,000 shares, which expires on December
31, 1998.
The Purchase Plans provide that, if at any time prior to an initial public
offering, an employee who has purchased shares under the Purchase Plans is
terminated for any reason whatsoever, including without limitation, death,
disability, resignation, retirement or termination with or without cause, (i)
the Company has an option (a "call") to repurchase, in whole or in part, the
shares of Common Stock of the Company that are then owned by such employee or
any transferee, which were acquired pursuant to the Purchase Plans and (ii) the
terminated employee has an option (a "put") to sell to the Company, in whole or
in part, the shares of Common Stock then owned by such employee which were
acquired pursuant to the Purchase Plans. The purchase price for the exercise of
either the call or the put option is based on the Company's earnings for the
most recent fiscal quarter prior to termination and the number of shares of
Common Stock outstanding and subject to warrants to the extent such warrants are
in the money.
NOTES RECEIVABLE FROM STOCKHOLDERS--During the period ended December 31,
1996, the Company sold 7,512 shares of common stock to an officer of the Company
in exchange for a note receivable of $150. During 1997, the Company sold 7,000
shares of stock to an officer of the Company in exchange for cash of $52 and a
note of $157 and 3,333 shares of common stock to a management employee of the
Company in exchange for $50 cash and a note receivable of $50. These notes have
been recorded as a reduction of stockholders' equity. The notes are secured by
the issued common stock, carry interest rates of 8% to 10%, and are payable in
full by April 30, 2000, March 1, 1998 and June 30, 1998, respectively.
Subsequent to December 31, 1997 the note for $157 was paid in full.
11. SEGMENT INFORMATION
The Company operates in a single business segment providing worldwide
logistics solutions to meet customer's specific requirements for transportation
and related services by arranging and monitoring all aspects of material flow
activities utilizing advanced information technology systems. No customer
accounted for ten percent or more of consolidated revenue.
F-27
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS DOLLARS EXCEPT PER SHARE AMOUNT)
11. SEGMENT INFORMATION (CONTINUED)
Certain information regarding the Company's operations by geographic region
is summarized below.
<TABLE>
<CAPTION>
U.S. AND
CANADA EUROPE ASIA CORPORATE ELIMINATIONS CONSOLIDATED
---------- ---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Total revenue......................... $ 755,116 $ 267,883 $ 92,850 -- $ (137,600) $ 978,249
Transactions between regions.......... 26,919 70,895 39,786 -- (137,600) --
Revenues from customers............... 728,197 196,988 53,064 -- -- 978,249
Net revenue........................... 157,160 46,051 15,989 -- -- 219,200
Income (loss) from operations......... (13,145) 1,032 1,992 (5,810) -- (15,931)
Long-lived assets..................... 14,538 33,349 6,407 5,525 -- 59,819
PERIOD ENDED DECEMBER 31, 1996
Total revenue......................... $ 225,793 -- -- -- -- $ 225,793
Transactions between regions.......... -- -- -- -- -- --
Revenues from customers............... 225,793 -- -- -- -- 225,793
Net revenue........................... 44,585 -- -- -- -- 44,585
Income (loss) from operations......... (8,423) -- -- $ (856) -- (9,279)
Long-lived assets..................... 25,963 -- -- 26 -- 25,989
</TABLE>
Revenue from transfers between regions represents approximate amounts that
would be charged if the service were provided by an unaffiliated company. Total
regional revenue is reconciled with total consolidated revenue by eliminating
inter-regional revenue.
12. RELATED PARTY TRANSACTIONS
The Company has entered into agreements with its two largest shareholders
WESS and OCM to provide the Company with management and financial advisory
services relating to the restructuring of the Company's debt and various
acquisitions made by the Company, during the past two years. In conjunction with
these activities, the Company paid WESS and OCM $1.7 million and $1.0 million in
1996, respectively, and $1.6 million and $1.3 million in 1997, respectively.
F-28
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
STATEMENT OF DIRECTORS' RESPONSIBILITIES
As described in the basis of preparation (Note 1 on page F-35), the combined
and consolidated financial statements do not constitute the statutory accounts
of LEP International Worldwide Limited (the "Company") prepared in accordance
with the Companies Act 1985. Nevertheless, the Directors acknowledge their
responsibility for the preparation of the combined and consolidated financial
statements and for ensuring that they present fairly the state of affairs of the
Company and its subsidiaries as at the end of each financial year and of the
loss of that group of companies for each financial year.
The Directors consider that in preparing the combined and consolidated
financial statements on pages F-30 to F-57 the Company has used appropriate
accounting policies, consistently applied and supported by reasonable and
prudent judgements and estimates, and that all the accounting standards which
they consider to be applicable have been followed.
F-29
<PAGE>
ACCOUNTANTS' REPORT TO THE DIRECTORS OF
LEP INTERNATIONAL WORLDWIDE LIMITED
To the Board of Directors and Shareholders of
LEP International Worldwide Limited:
We have audited the accompanying consolidated balance sheet of LEP
International Worldwide Limited and its subsidiaries (the Company or LIW) as of
31 December, 1996 and the combined balance sheet of its predecessor company and
subsidiaries (LIW Predecessor) as of 31 December 1995 and the related combined
and consolidated statements of profit and loss accounts and of cash flows for
the periods 24 January 1996 to 31 December 1996, 1 January 1996 to 23 January
1996 and the years ended 31 December 1995 and 1994. The basis of preparation of
these financial statements is set out in note 1. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United Kingdom which do not differ in any material respect from
auditing standards generally accepted in the United States. 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 combined and consolidated financial statements audited
by us present fairly, in all material respects, the financial position of the
Company and LIW Predecessor at 31 December 1996 and 1995, and the results of
their operations and their cash flows for the periods ended 31 December 1996, 23
January 1996, 31 December 1995 and 1994 in conformity with generally accepted
accounting principles in the United Kingdom consistently applied.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States. The application of the latter would have affected the
determination of combined and consolidated net income, expressed in pounds
sterling, for each of the periods ended 31 December 1996, 23 January 1996, 31
December 1995 and 1994 and the determination of the combined and consolidated
financial position expressed in pounds sterling at 31 December 1996 and 1995 to
the extent summarised in notes 24 and 25 to the combined and consolidated
financial statements.
Price Waterhouse
Chartered Accountants
London, England
3 October 1997
F-30
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
COMBINED AND CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER:
<TABLE>
<CAPTION>
LIW PREDECESSOR LIW
------------------- --------------------
1995 1996
---------- --------------------
NOTE L'000 L'000 US$'000
------- ---------- ---------- --------
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible assets
--property................................. 9 25,865 18,718 32,051
--other.................................... 10 7,715 3,588 6,144
Investments
--associated undertakings.................. 11 9,013 2,086 3,572
--other.................................... 12 378 283 485
---------- ---------- --------
42,971 24,675 42,252
---------- ---------- --------
CURRENT ASSETS
Debtors........................................ 13 164,012 112,913 193,341
Cash and short term deposits................... 17,877 14,618 25,030
---------- ---------- --------
181,889 127,531 218,371
Creditors: amounts falling due within one
year......................................... 14 & 16 (186,304) (122,376) (209,544)
---------- ---------- --------
Net current (liabilities)/assets............... (4,415) 5,155 8,827
---------- ---------- --------
Total assets less current liabilities.......... 38,556 29,830 51,079
Creditors: amounts falling due after more than
one year..................................... 15 & 16 (21,679) (17,160) (29,383)
Provisions for liabilities and charges......... 18 (387) (101) (173)
---------- ---------- --------
16,490 12,569 21,523
---------- ---------- --------
---------- ---------- --------
CAPITAL AND RESERVES
Shareholders' funds............................ 20 15,035 11,122 19,044
Equity minority interests...................... 1,455 1,447 2,479
---------- ---------- --------
16,490 12,569 21,523
---------- ---------- --------
---------- ---------- --------
</TABLE>
The combined and consolidated financial statements were approved by the
Board of Directors on 3 October 1997 and are signed on its behalf by
<TABLE>
<S> <C>
J Wasp M C Alexander Director
DIRECTOR DIRECTOR
</TABLE>
The notes on pages F-35 to F-56 form part of these combined and consolidated
financial statements.
F-31
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
COMBINED AND CONSOLIDATED STATEMENTS OF PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
LIW
LIW PREDECESSOR ---------------------
---------------------------------------
PERIOD PERIOD 24 JAN -
YEAR END YEAR END 01 JAN - 31 DEC 1996
31 DEC 1994 31 DEC 1995 23 JAN 1996 ---------------------
NOTE L'000 L'000 L'000 L'000 US$'000
---- ----------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
TURNOVER
Continuing operations............................. 735,078 736,942 45,503 678,596 1,059,085
Discontinued operations........................... 361,299 369,281 22,859 280,268 437,414
----------- ----------- ----------- ---------- ---------
3 1,096,377 1,106,223 68,362 958,864 1,496,499
----------- ----------- ----------- ---------- ---------
GROSS PROFIT
Continuing operations............................. 134,393 140,337 8,946 133,406 208,207
Discontinued operations........................... 61,284 59,143 3,798 46,561 72,667
----------- ----------- ----------- ---------- ---------
195,677 199,480 12,744 179,967 280,874
----------- ----------- ----------- ---------- ---------
OPERATING PROFIT/(LOSS) 4
Continuing operations............................. 1,574 (9,547) 539 (2,477) (3,866)
Discontinued operations........................... 1,257 (47) 13 (1,019) (1,590)
----------- ----------- ----------- ---------- ---------
3 2,831 (9,594) 552 (3,496) (5,456)
SHARE OF LOSSES OF ASSOCIATED UNDERTAKINGS........ 14 (1,021) (86) (1,283) (2,002)
TOTAL OPERATING PROFIT/(LOSS)..................... 2,845 (10,615) 466 (4,779) (7,458)
EXCEPTIONAL ITEMS................................. 21 (a) -- -- -- 5,800 9,052
----------- ----------- ----------- ---------- ---------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE
INTEREST........................................ 2,845 (10,615) 466 1,021 1,594
Interest receivable and similar income............ 686 699 54 809 1,263
Interest payable and similar charges.............. 5 (2,671) (3,440) (152) (2,036) (3,178)
----------- ----------- ----------- ---------- ---------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE
TAXATION........................................ 860 (13,356) 368 (206) (321)
Taxation.......................................... 6 (1,780) (5,987) (168) (2,420) (3,777)
----------- ----------- ----------- ---------- ---------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER
TAXATION........................................ (920) (19,343) 200 (2,626) (4,098)
Equity minority interests......................... (353) (397) (26) (386) (603)
----------- ----------- ----------- ---------- ---------
RETAINED (LOSS)/PROFIT............................ (1,273) (19,740) 174 (3,012) (4,701)
----------- ----------- ----------- ---------- ---------
----------- ----------- ----------- ---------- ---------
</TABLE>
The notes on pages F-35 to F-56 form part of these combined and consolidated
financial statements.
F-32
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
LIW
----------------------
LIW PREDECESSOR
----------------------------------- PERIOD
YEAR END PERIOD 24 JAN -
YEAR END 31 DEC 01 JAN - 31 DEC 1996
31 DEC 1994 1995 23 JAN ----------------------
NOTE L'000 L'000 1996 L'000 L'000 US$'000
----- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES...................................... 19 (a) 5,274 (9,508) 108 1,292 2,016
----------- --------- ----- --------- -----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received................................. 659 699 54 809 1,263
Interest paid..................................... (2,541) (3,440) (152) (2,547) (3,975)
Dividends paid to minority shareholders........... (234) (235) -- (283) (442)
Dividends from associated undertakings............ 295 232 -- 57 89
----------- --------- ----- --------- -----------
(1,821) (2,744) (98) (1,964) (3,065)
----------- --------- ----- --------- -----------
TAXATION
Net UK tax (paid)/received........................ -- (985) -- 187 292
Overseas tax paid................................. (1,301) (2,044) (246) (2,380) (3,714)
----------- --------- ----- --------- -----------
(1,301) (3,029) (246) (2,193) (3,422)
----------- --------- ----- --------- -----------
INVESTING ACTIVITIES
Purchase of fixed assets.......................... (1,935) (2,981) -- (1,758) (2,744)
Net disposals of trade investments................ (8) 716 -- -- --
Loans (made)/repaid by associates................. (278) 438 -- -- --
Proceeds on disposal of fixed assets.............. 878 1,288 1,720 931 1,452
Net proceeds on sale of North American
operations...................................... 21 (a) -- -- -- 6,038 9,424
Sale of interest in Cronat Transport Holding AG... 21 (b) -- -- 5,404 -- --
Purchase of subsidiary............................ (199) -- -- -- --
Proceeds of sale of business...................... 183 -- -- -- --
----------- --------- ----- --------- -----------
(1,359) (539) 7,124 5,211 8,132
----------- --------- ----- --------- -----------
Net cash inflow/(outflow) before financing........ 793 (15,820) 6,888 2,346 3,661
----------- --------- ----- --------- -----------
FINANCING
Additional loans (including finance leases)....... -- 6,255 50 741 1,156
Repayment of loans (including finance leases)..... (6,801) (2,351) (394) (6,268) (9,782)
Net capital contribution (to)/from LEP Group
plc............................................. (2,903) 5,210 (148) -- --
----------- --------- ----- --------- -----------
Net cash (outflow)/inflow from financing.......... (9,704) 9,114 (492) (5,527) (8,626)
----------- --------- ----- --------- -----------
(Decrease)/increase in cash and cash
equivalents..................................... 19 (b) (8,911) (6,706) 6,396 (3,181) (4,965)
----------- --------- ----- --------- -----------
----------- --------- ----- --------- -----------
</TABLE>
The notes on pages F-35 to F-56 form part of these combined and consolidated
financial statements.
F-33
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
PERIOD PERIOD
01 JAN - 24 JAN -
YEAR END YEAR END 23 JAN 31 DEC
31 DEC 1994 31 DEC 1995 1996 1996
L'000 L'000 L'000 L'000
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
(Loss)/profit for the period................................... (1,273) (19,740) 174 (3,012)
Currency translation differences on foreign currency net
investment................................................... 1,068 (7) (5) (922)
Unrealised surplus on revaluation of property.................. -- 266 -- --
------ ----------- --- -----------
Total recognised (loss)/profit for the period.................. (205) (19,481) 169 (3,934)
------ ----------- --- -----------
------ ----------- --- -----------
</TABLE>
NOTE OF HISTORICAL COST PROFITS AND LOSSES
<TABLE>
<CAPTION>
PERIOD PERIOD
YEAR END YEAR END 01 JAN 1996 - 24 JAN 1996 -
31 DEC 1994 31 DEC 1995 23 JAN 1996 31 DEC 1996
L'000 L'000 L'000 L'000
------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Reported profit/(loss) on ordinary activities before
taxation............................................. 860 (13,356) 368 (206)
Difference between historical cost depreciation charge
and the actual depreciation charge for the year
calculated on the revalued amount.................... 247 266 16 --
------ ------------- --- ------
Historical cost profit/(loss) on ordinary activities
before taxation...................................... 1,107 (13,090) 384 (206)
------ ------------- --- ------
------ ------------- --- ------
Historical cost (loss)/profit transferred (from)/to
reserves............................................. (1,026) (19,474) 190 (3,012)
------ ------------- --- ------
------ ------------- --- ------
</TABLE>
The notes on pages F-35 to F-56 form part of these combined and consolidated
financial statements.
F-34
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
During 1994 and 1995 the operating companies comprising the freight
forwarding interests of Wayrol plc (formerly LEP Group plc) were reorganised so
as to separate these companies from the other interests of Wayrol plc and to
better reflect the management and operating structure of the freight forwarding
business. LEP International (Worldwide) Limited was formed in 1995 to be the new
ultimate holding company for the freight forwarding companies, and, on 10
November 1995, acquired the freight forwarding companies and certain of their
holding companies.
LEP International (Worldwide) Limited and its subsidiaries (LIW Predecessor)
thus comprised the freight forwarding interests under Wayrol plc, with the
exception of Intercontinentale Ostereiche Gesellschaft Fur Transport und
Verkehrswesen GmbH and LEP International A/S which were not acquired.
On 24 January 1996 LEP International (Worldwide) Limited and LEP
International A/S were acquired from Wayrol plc by LEP International Worldwide
Limited (the Company or "LIW").
These combined and consolidated financial statements have been prepared to
show the results of the Company and its subsidiaries from the date of
acquisition of LEP International (Worldwide) Limited (the Predecessor Company,
hereinafter referred to as "LIW Predecessor") and the results of LIW Predecessor
and its subsidiaries (the Predecessor Group) as if the Predecessor Group had
existed as a legal group from 1 January 1994. They have been prepared from the
audited financial statements of the individual subsidiaries which comprise the
freight forwarding business. The financial statements for the years ended 31
December 1994 and 1995 comprise the combined financial statements of the
companies forming the freight forwarding interests of Wayrol plc with the
exception of Intercontinentale Ostereiche Gesellschaft. The period from 1
January 1996 to 23 January 1996 comprises the consolidated financial statements
of LEP International (Worldwide) Limited combined with those of LEP
International A/S. The period from 24 January 1996 to 31 December 1996 comprises
the consolidated financial statements of LEP International Worldwide Limited.
Adjustments have been made to eliminate intercompany investments and other
balances as appropriate.
These financial statements do not constitute the Company's statutory
accounts prepared in accordance with section 227 of the Companies Act 1985.
On 31 October 1996 the Group sold its North American interests to
GeoLogistics Corporation formerly known as International Logistics Limited (see
Note 21a). GeoLogistics Corporation also subscribed for shares in LEP
International Worldwide Limited, giving it a 33.3% interest in the Group.
GeoLogistics Corporation also held an option to acquire further shares, which
was exercised on 30 September 1997, thereby acquiring a controlling interest in
the Group.
Amounts shown on the Accounts as of 31 December 1996 have been converted at
a rate of L1= U.S.$1.7123 based on the closing rate on December 31, 1996 and
amounts shown for the period 24 January to 31 December 1996 have been converted
into U.S. Dollars at a convenience rate of L1= U.S.$1.5607 based on the average
rate for the period 24 January to 31 December 1996.
2. ACCOUNTING POLICIES
The combined and consolidated financial statements have been prepared in
accordance with applicable accounting standards.
F-35
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
All accounting policies have been applied consistently in preparing these
combined and consolidated financial statements; a summary of the principal
disclosures is set out below.
(I) ACCOUNTING CONVENTION
The combined and consolidated financial statements are prepared under the
historical cost convention modified to include the revaluation of certain fixed
assets.
(II) BASIS OF CONSOLIDATION
The combined and consolidated financial statements include, on the basis
described in Note 1 above, the results and net assets of the Company, including
its share of the results of associated undertakings accounted for under the
equity method of accounting.
Increases or reductions in inter-company balances with Wayrol plc and its
non-Freight Forwarding Division subsidiaries during the period to 24 January
1996 have been treated as capital increases or reductions. Interest payable and
receivable on these intercompany balances has been eliminated from the profit
and loss account. Intercompany balances outstanding when the Company acquired
the investment in the freight forwarding businesses were capitalised on 24
January 1996, the date of acquisition.
Companies in which the Company has an investment not exceeding 50% of the
voting capital and over which it exerts significant influence are defined as
associated undertakings. The combined and consolidated financial statements
include the appropriate share of these companies' results and retained reserves.
(III) TURNOVER
Turnover represents the total amount earned by the Company for services
provided in the ordinary course of business. Turnover includes disbursements,
customer VAT and customer duty payable on imports.
(IV) DEPRECIATION
Tangible assets are written off over their estimated useful lives. The
methods and rates are dependent on local conditions in the countries in which
the Company operates and are adjusted for consolidation purposes where
appropriate. Freehold land is not depreciated and other property, plant and
equipment are depreciated over their estimated useful lives on a straight line
basis principally as follows:
<TABLE>
<S> <C>
Freehold buildings.................................... 50 years
Leasehold land and buildings.......................... Lesser of 50 years
and the term of the
lease
Motor vehicles, plant and equipment................... 3 to 10 years
Furniture and fittings................................ 3 to 10 years
</TABLE>
(V) PENSIONS
The Company operates a number of pension schemes for the benefit of
employees. For defined benefit schemes, the expected cost of providing pensions,
as calculated periodically by professionally qualified actuaries, is charged to
the profit and loss account so as to spread the pension cost over the
F-36
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
expected service lives of employees who are in the plan. The basis used to
spread the expected pension cost is that it should represent a substantially
level percentage of the current and expected future pensionable salaries of the
members of the plan. Variations from the expected regular pension cost are
spread over the expected remaining service lives of the current employees who
are members of the plan. Contributions to defined contribution schemes are
charged to the profit and loss account as incurred.
(VI) HOLIDAY PAY
The accounting policy with regard to the treatment of holiday pay
entitlements reflects the matching of income and expenditure by accruing for
such liabilities in all countries where holiday pay can be carried forward at
the end of the year.
(VII) TAXATION
Deferred taxation is provided using the liability method on timing
differences which are expected to reverse in the foreseeable future, calculated
at the rate at which it is estimated that tax will be payable.
The United Kingdom tax charge includes amounts payable to Wayrol plc and
certain of its non-freight forwarding subsidiaries in respect of group tax
relief transferred to the United Kingdom freight forwarding company.
No provision is made for any additional taxation which may arise on the
distribution of profits and reserves retained by overseas subsidiary and
associated undertakings. No account is taken of unrelieved tax losses which are
available for set-off against future taxable profits of the companies concerned,
except where these offset timing differences in the deferred tax account.
(VIII) FOREIGN CURRENCIES
The results of overseas subsidiary and associated undertakings have been
translated into sterling at average rates of exchange for the year. Assets and
liabilities of overseas subsidiary and associated undertakings have been
translated into sterling at year end rates of exchange. The difference on
translating opening net assets is recorded as a movement on reserves. All other
translation differences are taken to the profit and loss account.
(IX) GOODWILL
Goodwill, being cost less attributable fair value of net assets of
subsidiaries at the date of acquisition, is written off directly to reserves in
the year in which it arises. On the disposal of a subsidiary undertaking, the
attributable goodwill is transferred from reserves and is charged to the profit
and loss account.
(X) LEASING AND HIRE PURCHASE COMMITMENTS
Assets purchased under finance leases and hire purchase contracts are
capitalised in the balance sheet and are depreciated over their useful lives.
The interest element of the rental obligations is charged to the profit and loss
account over the period of the lease. Rentals paid under operating leases are
charged to the profit and loss account as incurred.
F-37
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ANALYSIS OF RESULTS AND NET OPERATING ASSETS
<TABLE>
<CAPTION>
PERIOD PERIOD
01 JAN 24 JAN
YEAR END YEAR END 1996 - 1996 -
31 DEC 31 DEC 23 JAN 31 DEC
1994 1995 1996 1996
L'000 L'000 L'000 L'000
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Turnover by geographic segment:
United Kingdom.................................................. 164,622 157,660 10,420 155,397
Other Europe.................................................... 413,350 398,528 23,728 353,864
The Americas.................................................... 361,299 369,281 22,859 280,268
Asia Pacific and other.......................................... 157,106 180,754 11,355 169,335
---------- ---------- ----------- -----------
1,096,377 1,106,223 68,362 958,864
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Turnover is shown by geographic origin.
Turnover by geographic destination is not materially different
from that shown above.
Operating profit:
Continuing operations
Operating profit/(loss) before restructuring costs and
provisions.................................................. 3,015 (3,711) 107 1,626
---------- ---------- ----------- -----------
Restructuring costs and provisions............................ (1,441) (5,836) 432 (4,103)
Total continuing operations................................... 1,574 (9,547) 539 (2,477)
Discontinued operations....................................... 1,257 (47) 13 (1,019)
---------- ---------- ----------- -----------
2,831 (9,594) 552 (3,496)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Operating (loss)/profit by geographic segment:
United Kingdom................................................ 1,678 (1,811) 198 (155)
Other Europe.................................................. (3,496) (10,884) 151 (6,029)
The Americas.................................................. 1,257 (47) 13 (1,019)
Asia Pacific and other........................................ 3,392 3,148 190 3,707
---------- ---------- ----------- -----------
2,831 (9,594) 552 (3,496)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Operating assets by geographic segment:
United Kingdom................................................ (4,917) (519) (417) (2,825)
Other Europe.................................................. 14,681 7,635 2,239 (1,249)
The Americas.................................................. 14,226 18,816 18,774 --
Asia Pacific and other........................................ 12,522 12,451 12,428 13,365
---------- ---------- ----------- -----------
36,512 38,383 33,024 9,291
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
F-38
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NET OPERATING COSTS
<TABLE>
<CAPTION>
PERIOD PERIOD
END END
YEAR END YEAR END 23 JAN 31 DEC
1994 1995 1996 1996
L'000 L'000 L'000 L'000
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Continuing operations
Employee costs........................................................ 79,046 86,962 5,327 79,428
Other operating costs................................................. 52,332 57,086 3,512 52,352
--------- --------- ----- ---------
131,378 144,048 8,839 131,780
Restructuring costs and provisions.................................... 1,441 5,836 (432) 4,103
--------- --------- ----- ---------
132,819 149,884 8,407 135,883
--------- --------- ----- ---------
--------- --------- ----- ---------
Discontinued operations
Employee costs........................................................ 37,292 37,755 2,315 28,379
Other operating costs................................................. 22,673 20,772 1,470 18,034
--------- --------- ----- ---------
59,965 58,527 3,785 46,413
Restructuring costs and provisions.................................... 62 663 -- 1,167
--------- --------- ----- ---------
60,027 59,190 3,785 47,580
--------- --------- ----- ---------
--------- --------- ----- ---------
</TABLE>
Net operating (income)/costs include:
<TABLE>
<CAPTION>
PERIOD PERIOD
END END
YEAR END YEAR END 23 JAN 31 DEC
1994 1995 1996 1996
L'000 L'000 L'000 L'000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Investment income
--listed investments..................................................... (21) (26) -- --
--unlisted investments................................................... (336) (7) (2) (28)
Depreciation
--owned assets........................................................... 3,769 3,370 189 2,697
--finance leased & hire purchase assets.................................. 901 864 55 727
Operating lease rentals
--plant and machinery.................................................... 7,163 7,561 517 7,251
--other.................................................................. 7,998 9,945 595 8,239
Profit on disposal of fixed assets......................................... (82) (115) (76) --
</TABLE>
F-39
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
PERIOD PERIOD
END END
YEAR END YEAR END 23 JAN 31 DEC
1994 1995 1996 1996
L'000 L'000 L'000 L'000
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Interest payable and similar charges:
On bank loans, overdrafts and other loans wholly repayable within five
years................................................................. (1,931) (3,034) (644) (1,763)
On all other loans...................................................... (388) (27) (9) (129)
Waiver of interest during refinancing and restructuring................. -- -- 511 --
Finance charges:
In respect of finance leases and hire purchase contracts terminating
within five years..................................................... (337) (366) (10) (144)
All other finance charges............................................... (15) (13) -- --
----------- ----------- --- ---------
(2,671) (3,440) (152) (2,036)
----------- ----------- --- ---------
----------- ----------- --- ---------
</TABLE>
6. TAXATION
<TABLE>
<CAPTION>
PERIOD PERIOD
END END
YEAR END YEAR END 23 JAN 31 DEC
1994 1995 1996 1996
L'000 L'000 L'000 L'000
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
United Kingdom:
Current taxation........................................................ (829) (939) -- (5)
Deferred taxation....................................................... (25) (108) (3) (41)
Prior year.............................................................. 625 (549) 10 142
Overseas:
Current taxation........................................................ (1,207) (1,844) (163) (2,341)
Deferred taxation....................................................... (256) 72 3 49
Prior year.............................................................. (88) (2,619) (15) (224)
----------- ----------- --- ---------
(1,780) (5,987) (168) (2,420)
----------- ----------- --- ---------
----------- ----------- --- ---------
</TABLE>
The tax charge is disproportionate to the Company's loss before tax
primarily as a result of surplus losses in many countries which are not
recognised for deferred tax purposes.
The United Kingdom tax charge in 1995 represents group relief payable to
Wayrol plc and certain of its non-freight forwarding subsidiaries in respect of
tax losses transferred to the United Kingdom freight forwarding company.
Surplus advance corporation tax of approximately L595,000 (1995, L595,000)
is available for offset against future United Kingdom corporation tax
liabilities of the United Kingdom freight forwarding company.
F-40
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEES
<TABLE>
<CAPTION>
YEAR END YEAR END
31 DEC 31 DEC PERIOD END PERIOD END
1994 1995 23 JAN 1996 31 DEC 1996
NUMBER NUMBER NUMBER NUMBER
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
The average number of employees during the year was:
United Kingdom................................................. 908 956 954 899
Other Europe................................................... 1,959 1,735 1,563 1,536
The Americas................................................... 1,335 1,227 1,232 1,249
Asia Pacific................................................... 1,273 1,493 1,504 1,520
----- ----- ----- -----
5,475 5,411 5,253 5,204
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
L'000 L'000 L'000 L'000
--------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Payroll costs were:
Wages and salaries............................................. 96,974 103,717 6,357 89,681
Social security costs.......................................... 15,752 17,618 1,101 15,390
Pension costs.................................................. 3,495 3,382 184 2,736
--------- --------- ----- -----------
116,221 124,717 7,642 107,807
--------- --------- ----- -----------
--------- --------- ----- -----------
</TABLE>
8. PENSIONS
<TABLE>
<CAPTION>
PERIOD PERIOD
01 JAN 24 JAN
YEAR END YEAR END 1996 - 1996 -
31 DEC 31 DEC 23 JAN 31 DEC
1994 1995 1996 1996
L'000 L'000 L'000 L'000
----------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Pension cost of the Company...................................... 3,495 3,382 184 2,736
----- ----- --- -----
----- ----- --- -----
Amount attributable to overseas plans............................ 1,814 1,329 78 1,159
----- ----- --- -----
----- ----- --- -----
</TABLE>
The Company operates a number of pension plans throughout the world. The
major plans are of the defined benefit type. With the exception of the plan in
Germany, the assets of the major plans are held in separate trustee administered
funds. The plans are funded in accordance with local practice and contributions
are assessed in accordance with the advice of local actuaries.
The pension cost relating to the United Kingdom plan is assessed in
accordance with the advice of a qualified actuary using the projected unit
method. The latest actuarial valuation of the main United Kingdom plan was at 31
December 1995. It was assumed that investment returns would be 2.5% higher than
the annual increase in pensionable salaries and 4.0% higher than the annual
increase in present and future pensions in payment. In aggregate, at the date of
the most recent actuarial valuation, the market value of the assets in the main
United Kingdom plan was L40,045,000 and the actuarial value of the assets was
sufficient to cover the benefits accrued to members on an ongoing basis after
allowing for 6.5% p.a. future salary increases. Following the valuation as at 31
December 1995 the Company's contribution to this pension plan was reduced.
F-41
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. TANGIBLE ASSETS--PROPERTY
<TABLE>
<CAPTION>
LONG SHORT
FREEHOLD LEASEHOLD LEASEHOLD TOTAL
L'000 L'000 L'000 L'000
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Cost or valuation:
At 1 January 1996..................................................... 15,754 2,580 17,482 35,816
Exchange adjustments.................................................. (1,511) (86) (2,493) (4,090)
Additions............................................................. 4 -- 1 5
Disposals............................................................. (1,792) -- -- (1,792)
Companies sold........................................................ (1,622) -- (1,776) (3,398)
----------- ----- ----------- ---------
At 31 December 1996................................................... 10,833 2,494 13,214 26,541
----------- ----- ----------- ---------
----------- ----- ----------- ---------
Depreciation:
At 1 January 1996..................................................... (2,637) (193) (7,121) (9,951)
Exchange adjustments.................................................. 380 6 960 1,346
Charge for the year................................................... (354) (49) (612) (1,015)
Disposals............................................................. 77 -- -- 77
Companies sold........................................................ 204 -- 1,516 1,720
----------- ----- ----------- ---------
At 31 December 1996................................................... (2,330) (236) (5,257) (7,823)
----------- ----- ----------- ---------
----------- ----- ----------- ---------
Net book value:
At 31 December 1996................................................... 8,503 2,258 7,957 18,718
----------- ----- ----------- ---------
----------- ----- ----------- ---------
At 31 December 1995................................................... 13,117 2,387 10,361 25,865
----------- ----- ----------- ---------
----------- ----- ----------- ---------
</TABLE>
F-42
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. TANGIBLE ASSETS--OTHER
<TABLE>
<CAPTION>
MOTOR VEHICLES FURNITURE
PLANT & COMPUTER AND
MACHINERY EQUIPMENT FITTINGS TOTAL
L'000 L'000 L'000 L'000
--------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cost or valuation:
At 1 January 1996........................................... 39,041 -- 10,102 49,143
Reclassification............................................ (9,060) 10,445 (1,385) --
Exchange adjustments........................................ (3,032) (413) (707) (4,152)
Additions................................................... 827 352 574 1,753
Disposals................................................... (763) (790) (224) (1,777)
Companies sold.............................................. (10,719) -- (3,153) (13,872)
------- ----------- ----------- -----------
At 31 December 1996......................................... 16,294 9,594 5,207 31,095
------- ----------- ----------- -----------
------- ----------- ----------- -----------
Depreciation:
At 1 January 1996........................................... (32,343) -- (9,085) (41,428)
Reclassification............................................ 7,779 (9,137) 1,358 --
Exchange adjustments........................................ 2,684 1,079 637 4,400
Charge for the year......................................... (1,629) (615) (409) (2,653)
Disposals................................................... 663 65 189 917
Companies sold.............................................. 8,226 -- 3,031 11,257
------- ----------- ----------- -----------
At 31 December 1996......................................... (14,620) (8,608) (4,279) (27,507)
------- ----------- ----------- -----------
------- ----------- ----------- -----------
Net book value:
At 31 December 1996......................................... 1,674 986 928 3,588
Finance leases included therein............................. 869 23 -- 892
------- ----------- ----------- -----------
------- ----------- ----------- -----------
At 31 December 1995......................................... 6,698 -- 1,017 7,715
Finance leases included therein............................. 2,351 -- 29 2,380
------- ----------- ----------- -----------
------- ----------- ----------- -----------
</TABLE>
Outstanding contracts for capital expenditure at 31 December 1996 not
provided in these combined and consolidated financial statements amounted to
LNIL (1995--L271,000). Capital expenditure authorised but not contracted for at
31 December 1996 is estimated at LNIL (1995--L78,000).
11. INVESTMENTS--ASSOCIATED UNDERTAKINGS
The movement of the investment in associated undertakings is as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
At 1 January............................................................. 9,974 9,013
Exchange adjustments..................................................... 757 (97)
Additions................................................................ 109 --
Share of undistributed results........................................... (1,253) (1,426)
Reclassification to subsidiary........................................... (43) --
Decrease in loans........................................................ (438) --
Investments written down................................................. (93) --
Associated undertaking sold (see note 21 (b))............................ -- (5,404)
--------- ---------
At 31 December........................................................... 9,013 2,086
--------- ---------
--------- ---------
</TABLE>
F-43
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INVESTMENTS--ASSOCIATED UNDERTAKINGS (CONTINUED)
The values at 31 December in each of the years represents the Company's
share of the net tangible assets in its associated undertakings.
<TABLE>
<CAPTION>
YEAR END YEAR END PERIOD END PERIOD END
31 DEC 31 DEC 23 JAN 31 DEC
1994 1995 1996 1996
L'000 L'000 L'000 L'000
------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
Dividends from associated undertakings............................. 109 232 -- 57
</TABLE>
The principal associated undertaking is:
<TABLE>
<CAPTION>
NOMINAL AMOUNT OF EACH CLASS OF NUMBER IN PERCENTAGE NATURE OF
NAME OF COMPANY SHARE CAPITAL AND ISSUED DEBT ISSUE HELD BUSINESS
- --------------------- ------------------------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
LEP Albarelli SpA.... 1000 Lire ordinary shares 9,000,000 50% Freight
forwarding
</TABLE>
The carrying values of the associated undertakings are as follows:
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
LEP Albarelli SpA............................................................ 3,511 1,994
Cronat Transport Holding AG (see note 21 (b))................................ 5,404 --
Other........................................................................ 98 92
--------- ---------
9,013 2,086
--------- ---------
--------- ---------
</TABLE>
In 1996, the Company entered negotiations to acquire the remaining 50%
interest in LEP Albarelli SpA.
12. INVESTMENTS--OTHER
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- -----
<S> <C> <C>
Listed--recognised stock exchanges outside the United Kingdom.................. 29 25
Unlisted....................................................................... 349 258
--- ---
378 283
--- ---
--- ---
</TABLE>
The market value of investments is not materially different from their
carrying value shown in these combined and consolidated financial statements.
F-44
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. DEBTORS
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Trade debtors........................................................... 128,394 92,417
Amount owed by associated undertakings.................................. 2,614 2,122
Other debtors........................................................... 27,266 13,781
Prepayments............................................................. 5,738 4,593
--------- ---------
164,012 112,913
--------- ---------
--------- ---------
</TABLE>
14. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans and overdrafts
--secured............................................................. 33,391 8,722
--unsecured........................................................... 777 81
Other loans
--secured............................................................. 532 230
--unsecured........................................................... 53 --
Finance leases
--secured............................................................. 820 359
--------- ---------
35,573 9,392
Trade creditors......................................................... 73,568 56,933
Amount owed to associated undertakings.................................. 2,994 910
Taxation and social security............................................ 3,973 5,151
Other creditors......................................................... 40,167 30,799
Accruals and deferred income............................................ 30,029 19,191
--------- ---------
186,304 122,376
--------- ---------
--------- ---------
</TABLE>
15. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans and overdrafts
--secured................................................................ 1,723 1,370
Other loans
--secured................................................................ 384 --
Finance leases
--secured................................................................ 1,703 477
--------- ---------
3,810 1,847
Pension liabilities not separately funded.................................. 13,911 11,816
Other long term creditors.................................................. 3,958 3,497
--------- ---------
21,679 17,160
--------- ---------
--------- ---------
</TABLE>
F-45
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. NET (BORROWINGS)/CASH AT BANK
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
--------- ---------
<S> <C> <C>
Bank loans, overdrafts, finance leases and other loans:
Included in creditors due after one year:
Not wholly repayable within five years................................... (384) (897)
Wholly repayable within five years....................................... (3,426) (950)
--------- ---------
(3,810) (1,847)
Included in creditors due within one year................................ (35,573) (9,392)
--------- ---------
Gross borrowings......................................................... (39,383) (11,239)
Cash and short term deposits............................................. 17,877 14,618
--------- ---------
Net (borrowings)/cash.................................................... (21,506) 3,379
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Details of loans not wholly repayable within five years are as follows:
Bank borrowings.......................................................... -- 897
Other borrowings......................................................... 384 --
--------- ---------
384 897
--------- ---------
--------- ---------
Included in loans not wholly repayable within five years are aggregate
installments due after more than five years............................ 154 100
--------- ---------
--------- ---------
Gross borrowings comprise amounts repayable as:
Bank borrowings:
On demand or within one year............................................. 34,168 8,803
Between one and two years................................................ 805 578
Between two and five years............................................... 918 692
In five years or more.................................................... -- 100
--------- ---------
35,891 10,173
--------- ---------
Finance leases, hire purchase contracts and other borrowings:
On demand or within one year............................................. 1,405 589
Between one and two years................................................ 823 363
Between two and five years............................................... 1,110 114
In five years or more.................................................... 154 --
--------- ---------
3,492 1,066
--------- ---------
Total borrowings......................................................... 39,383 11,239
--------- ---------
--------- ---------
</TABLE>
F-46
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. LEASE COMMITMENTS
The Company's annual commitments under non-cancellable operating leases are
as follows:
<TABLE>
<CAPTION>
1995 1996
------------------------ ----------------------
LAND AND LAND AND
BUILDINGS OTHER BUILDINGS OTHER
L'000 L'000 L'000 L'000
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Operating leases which expire:
Within one year....................................... 1,363 1,481 1,365 1,525
Between two and five years............................ 4,118 4,998 1,983 2,360
In five years or more................................. 4,258 925 3,299 103
----- ----- ----- ---------
9,739 7,404 6,647 3,988
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>
18. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
1995 1996
L'000 L'000
----- ---------
<S> <C> <C>
Deferred tax in respect of timing differences:
At 1 January................................................................... 290 387
(Charge)/credit for the year................................................... 79 (8)
Net transfers in respect of group relief....................................... -- --
Exchange adjustment............................................................ 18 5
Companies sold................................................................. -- (283)
--- ---
At 31 December................................................................. 387 101
--- ---
--- ---
</TABLE>
19. CASH FLOW STATEMENT
a) Reconciliation of operating profit to net cash inflow from operating
activities:
<TABLE>
<CAPTION>
PERIOD PERIOD
YEAR END YEAR END 01 JAN 1996 - 24 JAN 1996 -
31 DEC 1994 31 DEC 1995 23 JAN 1996 31 DEC 1996
L'000 L'000 L'000 L'000
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Operating (loss) profit.................................. 2,831 (9,594) 552 (3,496)
Depreciation............................................. 4,670 4,234 244 3,424
Profit on sale of fixed assets........................... 82 (115) (5) (71)
Write-down of unlisted investment........................ -- -- -- 33
Increase in debtors...................................... (2,210) (7,262) (503) (7,499)
(Decrease) increase in creditors......................... (99) 3,229 (180) 8,901
------ ------ --- ------
Net cash inflow/(outflow) from operating activities...... 5,274 (9,508) 108 1,292
------ ------ --- ------
------ ------ --- ------
</TABLE>
F-47
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. CASH FLOW STATEMENT (CONTINUED)
(b) Analysis of changes in cash and cash equivalents during the year:
<TABLE>
<CAPTION>
PERIOD END PERIOD END
YEAR END YEAR END 23 JAN 1996 31 DEC 1996
1994 L'000 1995 L'000 L'000 L'000
----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Opening balance........................................... 6,929 (1,280) (7,986) (1,590)
Net cash inflow/(outflow) before adjusting for the effect
of foreign exchange rate changes and non cash flow
items................................................... (8,911) (6,706) 6,396 (3,181)
Bank loans and overdrafts sold as part of the net assets
of the North American operation (see note 21a).......... -- -- -- 13,016
Waiver of interest during refinancing and restructuring... -- -- -- 511
Effect of foreign exchange rate changes................... 702 -- -- (958)
----------- ----------- ------ ------
Closing balance........................................... (1,280) (7,986) (1,590) 7,798
----------- ----------- ------ ------
----------- ----------- ------ ------
</TABLE>
(c) Analysis of the balance of cash and cash equivalents:
<TABLE>
<CAPTION>
YEAR END YEAR END PERIOD PERIOD
31 DEC 31 DEC 01 JAN 1996 - 24 JAN 1996 -
1994 1995 23 JAN 1996 31 DEC 1996
L'000 L'000 L'000 L'000
----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand............................. 14,274 17,877 17,672 14,618
Bank loans and overdrafts............................ (15,554) (25,863) (19,262) (6,820)
----------- ----------- ------- ------
(1,280) (7,986) (1,590) 7,798
----------- ----------- ------- ------
----------- ----------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
CHANGE IN PERIOD CHANGE IN PERIOD
01 JAN 1996 - 24 JAN 1996 -
CHANGE IN CHANGE IN 23 JAN 1996 31 DEC 1996
1994 L'000 1995 L'000 L'000 L'000
----------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C>
Cash at bank and in hand.............................. 2,014 3,603 (205) (3,054)
Bank loans plus overdrafts............................ (10,223) (10,309) 6,601 12,442
----------- ----------- ----- -------
(8,209) (6,706) 6,396 9,388
----------- ----------- ----- -------
----------- ----------- ----- -------
</TABLE>
Amounts receivable after more than three months from the date of deposit
included in cash at bank:
<TABLE>
<CAPTION>
1994 1995 1996
L'000 L'000 L'000
----- ----- -----
<S> <C> <C>
445 63 --
-- --
-- --
---
---
</TABLE>
F-48
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SHAREHOLDERS' FUNDS
Up to 23 January 1996 shareholders' funds represented the net assets of the
constituent companies:
<TABLE>
<CAPTION>
23 JAN
1994 1995 1996
L'000 L'000 L'000
--------- --------- ---------
<S> <C> <C> <C>
Brought forward................................................. 35,944 29,306 15,035
Prior period adjustment re holiday pay.......................... (3,493) -- --
Profit/(loss) written off for the period........................ (1,165) (19,740) 174
Revaluations/goodwill write-off................................. (145) 266 --
Exchange adjustment............................................. 1,068 (7) --
Net capital (reduction)/contribution............................ (2,903) 5,210 --
--------- --------- ---------
At end of period................................................ 29,306 15,035 15,209
--------- --------- ---------
--------- --------- ---------
</TABLE>
Since 23 January 1996 the company's capital and reserves have been:
<TABLE>
<CAPTION>
SHARE TOTAL
SHARE PREMIUM MERGER REVENUE SHAREHOLDERS'
CAPITAL ACCOUNT RESERVE RESERVE FUNDS
L'000 L'000 L'000 L'000 L'000
------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
At 8 December 1995 and as at 23
January 1996................. -- -- -- -- --
Share capital subsequently
subscribed................... 1 4,974 -- -- 4,975
Loss for the period............ -- -- -- (3,012) (3,012)
Exchange adjustments........... -- -- -- (922) (922)
Negative goodwill.............. -- -- 10,081 -- 10,081
--
------- ------- ------- ------
At 31 December 1996............ 1 4,974 10,081 (3,934) 11,122
--
--
------- ------- ------- ------
------- ------- ------- ------
</TABLE>
At incorporation the authorised share capital was 1000 L1 ordinary shares,
of which two were issued.
Since 24 January 1996 the authorised share capital has been:
<TABLE>
<CAPTION>
<C> <C> <S>
1,200,000 L0.01 Ordinary shares
50,000 L0.01 Preference shares
1 L1.00 Special share
</TABLE>
The issued share capital is:
<TABLE>
<C> <C> <S>
300 L0.01 Ordinary shares
50,000 L0.01 Preference shares
1 L1.00 Special share
</TABLE>
In respect of unissued shares:
(a) options are outstanding in respect of:
i) 539,800 ordinary shares at a subscription price of L0.83 per
share exercisable on or before 31 December 1999.
F-49
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SHAREHOLDERS' FUNDS (CONTINUED)
ii) 419,900 ordinary shares at a subscription price of L0.01 per
share exercisable on or before 31 October 2003.
(b) 240,000 ordinary shares are reserved to provide sufficient unissued
share capital to satisfy the conversion rights attached to the Special Share
which converts on or before 31 December 2001.
In respect of the Preference Shares:
(a) The holders of the Preference Shares are entitled in priority to any
payment of dividend on any other class of shares to a fixed preferential
dividend at the rate of 5.5% on L5m. However no preference dividend is
payable in respect of the period from 24 January 1996 to 31 December 1996.
(b) i) The Preference Shares can be redeemed at any time at the
Company's option but unless redeemed previously must be redeemed on 24
January 2001 subject only to the company being able to comply with the
provisions of the Companies Legislation then in force relating to such
redemption.
ii) On redemption of the Preference Shares a premium is payable of
L99.99 per share.
(c) On winding-up the Preference Shares rank ahead of the other share
capital for any arrears of preference dividends, return of paid-up capital
and a premium of L99.99 per share.
(d) The Preference Share holders have no voting rights.
The Special Share is a L1 non participating share, convertible automatically
into fully paid ordinary shares in the event of one of certain events taking
place, or on the fifth anniversary of the issue of the special share.
On 24 January 1996, the Company issued 50,000 preference shares and the
special share to LEP Group plc in consideration for the investments and
inter-company debts acquired by the Company on that date.
In accounting for the share capital subscribed the Company has availed
itself of the merger relief provided by section 131 of the Companies Act 1985.
Of the loss attributable to shareholders, a profit of L44,000 was dealt with
through the profit and loss account of the Company.
The results of the subsidiaries, acquired in 1996, for the period up to
their acquisition by the Company, was a profit of L174,000 after tax and
minority interest. Their result for the year ended 31 December 1995 was a loss
of L19,740,000.
Revenue reserves include the Group's share of the post acquisition reserves
of associated undertakings, which at 31 December 1996 amounted to (L1,340,000).
Exchange adjustments include gains and losses arising on the Group's equity
investment in foreign subsidiary undertakings offset by losses arising on
foreign currency borrowings.
F-50
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. SHAREHOLDERS' FUNDS (CONTINUED)
The merger reserve is made up as follows:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Fair value of consideration for investments purchased 24 January 1996 (note 1)....... (5,000)
Fair value of net assets acquired.................................................... 15,081
---------
10,081
---------
---------
</TABLE>
No fair value adjustments were made to the book values of the assets and
liabilities acquired.
21. SALE OF SUBSIDIARIES AND ASSOCIATED UNDERTAKINGS
(a) Sale of North American Operations
LEP International Inc. in Canada and LEP Profit International Inc. in the
USA comprised the North American operations, which were sold as at 31 October
1996.
The impact on the accounts of this transaction can be summarised as follows:
<TABLE>
<CAPTION>
1996
L'000
---------
<S> <C>
Net assets sold
Fixed assets...................................................................... (4,293)
Investments....................................................................... (9)
Debtors........................................................................... (45,312)
Cash and cash equivalents......................................................... 13,016
Creditors......................................................................... 34,637
Long term loans................................................................... 1,440
Deferred tax...................................................................... 283
---------
(238)
Net proceeds........................................................................ 6,038
---------
Profit on sale...................................................................... 5,800
---------
---------
</TABLE>
Within the terms of the Sale Contract of the North American operations,
there are provisions which entitle GeoLogistics Corporation to require repayment
of part of the proceeds if the net asset value of the North American operations
is below a set threshold. GeoLogistics Corporation has made no such demand for
repayment.
F-51
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. SALE OF SUBSIDIARIES AND ASSOCIATED UNDERTAKINGS (CONTINUED)
(b) Sale of interest in Cronat Transport Holding AG
The Company sold its 34% interest in Cronat Transport Holding AG as at 12
January 1996. The transaction can be summarised as follows:
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
Carrying value at the date of sale................................................... 5,404
Net proceeds......................................................................... (5,404)
---------
Profit on sale....................................................................... NIL
---------
---------
</TABLE>
22. RELATED PARTY TRANSACTIONS
(a) The following companies are considered to be related parties:
i) LEP Albarelli SpA, in which the Company hold a 50% interest (see
note 11)
ii) LEP International Inc. in Canada, which for the two months since
its sale by the Company, has been owned by GeoLogistics Corporation.
iii) LEP Profit International Inc. in the USA, for the same reason as
explained in ii) above.
Revenues, all of which were generated from freight forwarding activities on
an "arms length" basis, for the year (two months only, with regard to ii) and
iii) above), and balances with these companies, at 31 December 1996, were as
follows:
<TABLE>
<CAPTION>
DEBTOR CREDITOR
SALES PURCHASES BALANCES BALANCES
--------- ----------- ----------- -----------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
LEP Albarelli SpA......................... 4,037 3,974 841 828
LEP International Inc..................... 1,291 845 1,517 993
LEP Profit Inc............................ 3,565 3,919 5,238 5,759
</TABLE>
(b) The LEP UK pension plan
The Company makes payments to this plan as per Note 8. The amount payable in
the year to 31 December 1996 was L1,557,000 (1995--L2,053,000). The amounts due
to the scheme at 31 December 1996 were L13,000 (1995--L63,000).
23. CONTINGENT LIABILITIES
(a) As part of the management buy-out, the Company, together with those
subsidiaries identified on page F-57 and certain inactive UK subsidiaries have
granted a contingent charge to the financing group over their assets capped at
L25 million. The charge can only crystalise on the Company or any of the above
subsidiaries in the event of one of them becoming insolvent. The contingent
charge will be released on the redemption of the L5 million preference shares
which were issued by the Company on 24 January 1996 as consideration for the
acquisition.
F-52
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. CONTINGENT LIABILITIES (CONTINUED)
(b) In Holland and Denmark, the Company has received claims for undischarged
Transit Forms from the respective customs authorities. These claims are rejected
by the Company and, based upon legal advice, the Board is of the opinion that no
provision needs to be made.
(c) There are contingent liabilities of the Company in respect of guarantees
entered into in the normal course of trade.
(d) LIW has a number of outstanding tax disputes but the directors believe
they have made sufficient provision for the eventual outcome of these disputes.
24. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
The combined and consolidated financial statements have been prepared in
accordance with UK GAAP, which differ in certain significant respects from
US GAAP. A description of the relevant accounting principles which differ
materially is given below:
GOODWILL AND OTHER ACQUISITION ACCOUNTING ADJUSTMENTS
Under UK GAAP the Group has written off purchased goodwill (as well as
negative goodwill arising on purchases of businesses) against reserves. US GAAP
requires that any remaining goodwill after the allocation of purchase price to
separately identifiable intangible assets and the fair value of net tangible
assets acquired and liabilities assumed be capitalised as an intangible asset
and amortised over a period not in excess of 40 years. Furthermore, US GAAP
requires that any negative goodwill arising from a purchase transaction be
allocated to the assigned fair values of identifiable tangible and intangible
assets until these are reduced to a carrying amount of zero with the remainder
recorded as a deferred credit and amortised to income over a period not in
excess of 40 years.
PENSION COSTS
UK GAAP and US GAAP are conceptually similar in respect of accounting for
pension costs. However, US GAAP is more specific in its requirements as to the
selection of discount rates which must reflect current market conditions at each
balance sheet date. In addition, the amortisation of unrecognised gains and
losses arising from changes in assumptions and actuarial experience, under US
GAAP is affected through a corridor approach.
TAXES ON INCOME
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystalise in the foreseeable
future. Under US GAAP, deferred taxes are accounted for on all timing
differences and a valuation allowance is established in respect of those
deferred tax assets where it is more likely than not that some portion will
remain unrealised. Deferred tax also arises in relation to the tax effect of the
other US GAAP adjustments.
REVALUATION OF PROPERTY AND PROPERTY DEPRECIATION
Under UK GAAP property is carried either at original cost or at subsequent
valuation less related depreciation, calculated on the revalued amount where
applicable. Revaluation surpluses are taken
F-53
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (CONTINUED)
directly to shareholders' funds, while deficits below cost, less any related
depreciation, are included in attributable profit.
Under US GAAP revaluations of properties are not permitted in the accounts.
As a result, when a property is disposed of, a greater profit or lower loss is
generally recorded under US GAAP than under UK GAAP. Depreciation is based on
the historical cost.
DIVIDENDS
Under UK GAAP, dividends are provided for in the year in respect of which
they are declared or proposed. Under US GAAP, dividends and the related advance
corporation tax are given effect only in the period in which dividends are
formally declared.
The effects of these differing accounting principles are shown in note 25.
CASH FLOW STATEMENTS
The Company's consolidated statements of cash flow set out on page F-33 are
prepared in accordance with UK Financial Reporting Standard No 1 (FRS 1) and
present substantially the same information as that required under US GAAP.
However, there are certain differences in classification of items within the
cash flow statement and with regard to the definition of cash and cash
equivalents between UK and US GAAP.
Cash flows from (i) operating activities; (ii) returns on investments and
servicing of finance; (iii) taxation; (iv) investing activities; and (v)
financing activities are presented separately under UK GAAP. However, US GAAP
cash flows are classified into only three categories of activities; (i)
operating, (ii) investing and (iii) financing.
Cash flows from returns on investments and servicing of finance are, with
the exception of dividends paid and interest paid but capitalised, included as
operating activities under US GAAP. The payment of dividends is included under
financing activities and capitalised interest is included under investing
activities for US GAAP purposes.
Cash flows from taxation are included as operating activities under US GAAP.
Cash for purposes of the cash flow statement under UK GAAP, includes bank
overdrafts and liquid resources. Under UK GAAP bank overdrafts are considered
loans and the movements thereon are included in financing activities; liquid
resources, to the extent that they have original maturities at date of
F-54
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (CONTINUED)
acquisition of three months or less, are considered cash equivalents and the
movements thereon are included in the overall cash movement.
<TABLE>
<CAPTION>
YEAR TO 31 1 - 23 JAN 24 JAN TO
DEC 1996 31 DEC
1995 ----------- 1996
------------- L'000 ---------
L'000 L'000
<S> <C> <C> <C>
Net cash flow from operating activities.......................... (15,281) (236) (2,865)
Net cash provided by (used in) investing activities.............. (539) 7,124 18,227
Net cash provided by (used in) financing activities.............. 19,423 (7,093) (17,458)
------------- ----------- ---------
Net increase/(decrease) in cash and cash equivalents under US
GAAP........................................................... 3,603 (205) (2,096)
------------- ----------- ---------
Cash and cash equivalents under US GAAP at beginning of period... 14,274 17,877 17,672
Effect of exchange rates on cash and cash equivalents............ -- -- (958)
------------- ----------- ---------
Cash and cash equivalents under US GAAP at end
of year........................................................ 17,877 17,672 14,618
Bank loans and overdrafts........................................ (25,863) (19,262) (6,820)
------------- ----------- ---------
Cash and cash equivalents under US GAAP at end
of year........................................................ (7,986) (1,590) 7,798
------------- ----------- ---------
------------- ----------- ---------
</TABLE>
F-55
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. NOTES ON SUMMARY OF DIFFERENCES BETWEEN UK AND US GAAP
<TABLE>
<CAPTION>
YEAR END PERIOD END PERIOD END
31 DEC 1995 23 JAN 1996 31 DEC 1996
L'000 L'000 L'000
----------- --------------- -----------
<S> <C> <C> <C>
Adjustments to net income
(Loss)/Profit attributable to shareholders in accordance with UK
GAAP.......................................................... (19,740) 174 (3,012)
US GAAP adjustments:
Fixed asset revaluations excess depreciation.................... 351 22 --
Depreciation adjustments........................................ -- -- 1,129
Profit on sale of fixed assets.................................. -- -- 482
Disposal of North American operations........................... -- -- 2,904
Pension scheme charges.......................................... 351 55 518
Taxation effect on the above items.............................. (116) (18) (1,129)
Deferred taxation............................................... -- -- (22)
----------- --- -----------
Approximate net income in accordance with US GAAP............... (19,154) 233 870
----------- --- -----------
----------- --- -----------
</TABLE>
<TABLE>
<CAPTION>
31 DEC 1995 31 DEC 1996
L'000 L'000
----------- -----------
<S> <C> <C>
Adjustments to shareholders' equity
Capital employed before minority interests in accordance with UK GAAP........ 15,035 11,122
US GAAP adjustments:
Reclassification of mandatorily redeemable preference shares................. -- (4,975)
Elimination of fixed asset revaluations...................................... (14,196) --
Pension scheme liabilities................................................... (483) 518
Acquisition of predecessor companies......................................... -- (10,081)
Depreciation................................................................. -- 1,129
Sale of fixed assets......................................................... -- 482
Disposal of North American operations........................................ -- 2,904
Taxation effect on above items............................................... -- (1,129)
Deferred taxation............................................................ 279 (22)
----------- -----------
Approximate shareholders' equity in accordance with US GAAP.................. 635 (52)
----------- -----------
----------- -----------
</TABLE>
F-56
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
PRINCIPAL SUBSIDIARY AND ASSOCIATED UNDERTAKINGS
The undertakings listed below comprise the principal subsidiary and
associated undertakings which have been included in these combined and
consolidated financial statements as of December 31, 1996, as detailed in Note 1
to the financial statements. The percentage shareholding (in all cases in
ordinary shares) is given for each undertaking. Each of the companies listed
below operates in freight forwarding, and operates principally in their country
of incorporation.
<TABLE>
<CAPTION>
PERCENTAGE
PRINCIPAL SUBSIDIARY AND ASSOCIATED UNDERTAKINGS COUNTRY OF INCORPORATION OWNED
- -------------------------------------------------------- ------------------------ -----------
<S> <C> <C>
EUROPE
+*LEP International Limited............................. England 100%
+*LEP International Management Limited.................. England 100%
LEP International Limited............................... Republic of Ireland 100%
LEP International NV.................................... Belgium 100%
LEP-Transportgruppen AS................................. Denmark 100%
LEP International (France) SA........................... France 100%
LEP International GmbH.................................. Germany 100%
LEP-Albarelli SpA....................................... Italy 50%
LEP International BV.................................... Netherlands 100%
Lassen Transport Ltda................................... Portugal 100%
LEP International SA.................................... Spain 100%
Olson and Wright AB..................................... Sweden 100%
PACIFIC BASIN
LEP International (Pty) Limited......................... Australia 100%
LEP International (China) Limited....................... Hong Kong 100%
LEP International (Far East) Limited.................... Hong Kong 100%
LEP International (Singapore) Pte Limited............... Singapore 100%
LEP International (Japan) Limited....................... Japan 100%
LEP International (Korea) Limited....................... Korea 49%
LEP International (Malaysia) Sdn Bhd.................... Malaysia 30%
LEP Freightways International Limited................... New Zealand 25%
LEP International Philippines Inc....................... Philippines 30%
LEP International Limited............................... Taiwan 33%
LEP International (Thailand) Co Limited................. Thailand 49%
HOLDING COMPANIES
+LEP International (Asia /Pacific) Limited.............. British Virgin Islands 100%
+*LEP European Holdings BV.............................. The Netherlands 100%
Telmidas AMS BV......................................... The Netherlands 100%
+*LEP Holdings (Bermuda) Limited........................ Bermuda 100%
+*LEP Holdings (North America) Limited.................. England 100%
LEP Holdings GmbH....................................... Germany 100%
</TABLE>
- ------------------------
* Owned directly by the company after the reorganisation (see Note 1)
+ Companies referred to in Note 23 (a).
F-57
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
30 SEPTEMBER 1997 30 SEPTEMBER 1997
----------------- -----------------
L'000 US $'000
<S> <C> <C>
FIXED ASSETS
Tangible assets............................................................ 20,488 33,160
Investments
--Associated undertakings................................................ 3,457 5,595
--Other.................................................................. 279 451
----------------- -----------------
24,224 39,206
----------------- -----------------
CURRENT ASSETS
Debtors.................................................................... 109,030 176,465
Cash and short term deposits............................................... 13,709 22,188
----------------- -----------------
122,739 198,653
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR............................. (121,839) (197,196)
----------------- -----------------
NET CURRENT (LIABILITIES)/ASSETS........................................... 900 1,457
----------------- -----------------
TOTAL ASSETS LESS CURRENT LIABILITIES...................................... 25,124 40,663
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR.................... (16,399) (26,542)
PROVISIONS FOR LIABILITIES AND CHARGES..................................... -- --
----------------- -----------------
8,725 14,121
----------------- -----------------
----------------- -----------------
CAPITAL AND RESERVES
Shareholders' funds........................................................ 7,240 11,718
Equity minority interests.................................................. 1,485 2,403
----------------- -----------------
8,725 14,121
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of the unaudited interim
consolidated financial statements.
F-58
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
UNREVIEWED
--------------------------------------
24 JAN - COMBINED
1 - 23 JAN 30 SEPT NINE MONTHS TO NINE MONTHS TO
1996 1996 30 SEPT 1996 30 SEPTEMBER 1997
----------- --------- -------------- --------------------
L'000 L'000 L'000 L'000 US $'000
<S> <C> <C> <C> <C> <C>
TURNOVER
Continuing operations............................... 45,503 496,806 542,309 505,026 823,445
Discontinued operations............................. 22,859 252,094 274,953 -- --
----------- --------- ------- --------- ---------
68,362 748,900 817,262 505,026 823,445
----------- --------- ------- --------- ---------
GROSS PROFIT
Continuing operations............................... 8,946 93,791 102,737 96,590 157,490
Discontinued operations............................. 3,798 41,703 45,501 -- --
----------- --------- ------- --------- ---------
12,744 135,494 148,238 96,590 157,490
----------- --------- ------- --------- ---------
OPERATING (LOSS/PROFIT)
Continuing operations............................... 539 (2,631) (2,092) 36 59
Discontinued operations............................. 13 (846) (833) -- --
----------- --------- ------- --------- ---------
552 (3,477) (2,925) 36 59
SHARE OF LOSSES OF ASSOCIATED UNDERTAKINGS.......... (86) (612) (698) (565) (922)
----------- --------- ------- --------- ---------
TOTAL OPERATING PROFIT/(LOSS)....................... 466 (4,089) (3,623) (529) (863)
EXCEPTIONAL ITEMS................................... -- -- -- (275) (448)
----------- --------- ------- --------- ---------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE
INTEREST.......................................... 466 (4,089) (3,623) (804) (1,311)
Interest receivable and similar income.............. 54 517 571 346 564
Interest payable and similar charges................ (152) (1,563) (1,715) (852) (1,389)
----------- --------- ------- --------- ---------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION.......................................... 368 (5,135) (4,767) (1,310) (2,136)
Taxation............................................ (168) (1,431) (1,599) (1,246) (2,032)
----------- --------- ------- --------- ---------
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION.......... 200 (6,566) (6,366) (2,556) (4,168)
Equity minority interests........................... (26) (461) (487) (223) (363)
----------- --------- ------- --------- ---------
RETAINED LOSS....................................... 174 (7,027) (6,853) (2,779) (4,531)
----------- --------- ------- --------- ---------
----------- --------- ------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the unaudited interim
consolidated financial statements.
F-59
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
UNREVIEWED
-----------------------------------------------
PERIOD
24 JAN - COMBINED NINE NINE MONTHS TO 30
PERIOD 30 SEPTEMBER MONTHS TO SEPTEMBER 1997
1 - 23 JAN 1996 30 SEPTEMBER 1996 ----------------------
1996 L'000 L'000 L'000 L'000 US $000
----------- ------------- ------------------- --------- -----------
<S> <C> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES
Result for the period........................... 552 (3,477) (2,925) 36 59
Depreciation and profit on sales of fixed
assets........................................ 239 2,494 2,733 1,545 2,519
Working capital movement........................ (683) (1,109) (1,792) 2,311 3,768
----------- ------------- ------ --------- -----------
108 (2,092) (1,984) 3,892 6,346
----------- ------------- ------ --------- -----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received............................... 54 517 571 346 564
Interest paid................................... (152) (2,074) (2,226) (852) (1,389)
----------- ------------- ------ --------- -----------
(98) (1,557) (1,655) (506) (825)
----------- ------------- ------ --------- -----------
TAXATION
Net UK tax received............................. -- 4 4 -- --
Overseas tax paid............................... (246) (1,109) (1,355) (820) (1,337)
----------- ------------- ------ --------- -----------
(246) (1,105) (1,351) (820) (1,337)
----------- ------------- ------ --------- -----------
INVESTING ACTIVITIES
Purchase of fixed assets........................ -- (1,249) (1,249) (955) (1,557)
Loans to associates............................. -- -- -- (954) (1,555)
Proceeds on disposal of fixed assets............ 1,720 345 2,065 61 99
Dividends paid to minority shareholders......... (88) (88) (40) (65)
Dividends from associated undertakings.......... 58 58 -- --
Proceeds on sale of businesses.................. 5,404 -- 5,404 -- --
Costs of disposal of North American
operations.................................... -- -- -- (275) (449)
----------- ------------- ------ --------- -----------
7,124 (934) 6,190 (2,163) (3,527)
----------- ------------- ------ --------- -----------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING...... 6,888 (5,688) 1,200 403 657
FINANCING
Additional loans (including finance leases)..... 50 440 490 211 345
Repayment of loans (including finance leases)... (394) (6,795) (7,189) (2,188) (3,568)
Net capital contribution of Wayrol plc.......... (148) -- (148) -- --
----------- ------------- ------ --------- -----------
NET CASH (OUTFLOW)/INFLOW FROM FINANCING........ (492) (6,355) (6,847) (1,977) (3,223)
----------- ------------- ------ --------- -----------
Increase/(decrease) in cash and cash
equivalents................................... 6,396 (12,043) (5,647) (1,574) (2,566)
----------- ------------- ------ --------- -----------
----------- ------------- ------ --------- -----------
</TABLE>
The accompanying notes are an integral part of the unaudited interim
consolidated financial statements.
F-60
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
UNAUDITED INTERIM STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
NINE MONTHS TO
30 SEPTEMBER 1997
L'000
-----------------
<S> <C>
Loss for the period........................................................ (2,779)
Currency translation differences on foreign currency net investment........ (1,103)
-------
Total recognised loss for the period....................................... (3,882)
-------
-------
</TABLE>
UNAUDITED INTERIM RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
L'000
---------
<S> <C>
At 1 January 1997................................................................... 11,122
Loss for the period................................................................. (2,779)
Revaluations........................................................................ --
Exchange adjustment................................................................. (1,103)
Net capital (reduction)/contribution................................................ --
---------
At 30 September 1997................................................................ 7,240
---------
---------
</TABLE>
F-61
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND--BUSINESS OPERATION AND LEGAL RESOURCING
During 1994 and 1995 the operating companies comprising the freight
forwarding interests of Wayrol plc (formerly LEP Group plc) were reorganised so
as to separate these companies from the other interests of Wayrol plc and to
better reflect the management and operating structure of the freight forwarding
business. LEP International (Worldwide) Limited was formed in 1995 to be the new
ultimate holding company for the freight forwarding companies, and, on 10
November 1995, acquired the freight forwarding companies and certain of their
holding companies.
LEP International (Worldwide) Ltd. and its subsidiaries thus comprised the
freight forwarding interests under Wayrol plc, with the exception of
Intercontinentale Ostereiche Gesellschaft Fur Transport and Verkenhrswesen GmbH
and LEP International A/S which were not acquired.
On 24 January 1996 LEP International (Worldwide) Ltd. and LEP International
A/S were acquired from Wayrol plc by LEP International Worldwide Ltd.
These combined and consolidated financial statements have been prepared to
show the results of the Company and its subsidiaries from the date of
acquisition of LEP International (Worldwide) Ltd. (the predecessor company,
hereinafter referred to as "LIW Predecessor"), and the results of LIW
Predecessor and its subsidiaries (the "Predecessor Group") as if the Predecessor
Group had existed as a legal group from 1 January 1996. They have been prepared
from the audited financial statements of the individual subsidiaries which
comprise the freight forwarding business. The period from 1 January 1996 to 23
January 1996 comprises the consolidated financial statements of LEP
International Worldwide Ltd. combined with those of LEP International A/S. The
period from 24 January 1996 to 31 December 1996 comprises the consolidated
financial statements of LEP International Worldwide Ltd. Adjustments have been
made to eliminate intercompany investments and other balances as appropriate.
On 31 October 1996 the Predecessor Group sold its North American interests
to GeoLogistics Corporation who also subscribed for shares in LEP International
Worldwide Ltd., giving it a 33% interest in the Group. GeoLogistics Corporation
subsequently acquired options to purchase and subscribe further shares, which
were exercised on 30 September 1997, thereby giving them a controlling interest
in the Predecessor Group.
Amounts shown in the Accounts at 30 September 1997 have been converted at a
rate of L1 = US$ 1.6185, based on the closing rate at September 30, 1997 and
amounts shown for the nine months ended 30 September 1997 have been converted at
an average rate for the period of L1 = US$ 1.6305.
2. BASIS OF PREPARATION
Unaudited Interim Financial Statements--In the opinion of management, the
unaudited interim financial statements for the nine months to 30 September 1997
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial position and the results of operations
as of such date and for such period.
With respect to the period ended 30 September 1996, LIW did not produce
financial statements in accordance with its normal year end financial reporting
procedures. The financial statements of LIW for this period have, therefore,
been derived from management reports. Management have made such
F-62
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BASIS OF PREPARATION (CONTINUED)
adjustments to these reports as they believe are necessary for a fair
presentation of the results of operations as of 30 September 1996.
3. DEBTORS
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
L'000
-----------------
<S> <C>
Trade debtors.................................................................................. 79,505
Amount owed by related parties................................................................. 8,507
Other debtors and prepayments.................................................................. 21,545
-------
109,557
-------
-------
</TABLE>
4. CREDITORS--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
L'000
-----------------
<S> <C>
Bank loans and overdrafts...................................................................... 8,018
Other loans.................................................................................... 140
Finance leases................................................................................. 343
-------
8,501
Trade creditors................................................................................ 52,220
Amount owed to related parties................................................................. 7,193
Corporation taxation........................................................................... 2,178
Other creditors, accruals and deferred income.................................................. 51,747
-------
121,839
-------
-------
</TABLE>
5. INVESTMENTS--ASSOCIATED UNDERTAKINGS
The movement of the investment in associated undertakings is as follows:
<TABLE>
<CAPTION>
L'000
-------------------
<S> <C>
At 1 January 1997.............................................................................. 2,086
Exchange and other adjustments................................................................. (154)
Share of undistributed results................................................................. (565)
Reclassification to subsidiary................................................................. --
Increase in loans.............................................................................. 1,563
Investments written down....................................................................... --
Associated undertaking sold.................................................................... --
Prepayments for future acquisitions............................................................ 527
-----
At 30 September 1997........................................................................... 3,457
-----
-----
</TABLE>
F-63
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CREDITORS--AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
L'000
-----------------
<S> <C>
Bank loans and overdrafts--secured............................................................. 921
Finance leases--secured........................................................................ 268
------
1,189
Pension liabilities not separately funded...................................................... 11,466
Other long term creditors...................................................................... 3,744
------
16,399
------
------
</TABLE>
7. CONTINGENT LIABILITIES
(a) As part of the management buy-out, the Company, together with its
subsidiaries granted a contingent charge to the financing group over their
assets capped at L25 million. The charge can only crystalise on the Company or
any of the above subsidiaries in the event that one of them becomes insolvent.
The contingent charge will be released on the redemption of the L5 million
preference shares which were issued by the Company on 24 January 1996 as
consideration for the acquisition.
(b) In Holland and Denmark, the Group has received claims for undischarged
Transit Forms from the respective customs authorities. These claims are rejected
by the Company and, based upon legal advice, the Board is of the opinion that no
provision needs to be made.
(c) There are contingent liabilities of the Company in respect of guarantees
entered into in the normal course of trade.
(d) LIW has a number of outstanding tax disputes but the directors believe
they have made sufficient provision for the eventual outcome of these disputes.
(e) The Company has signed a contract to purchase the 50% of the share of
LEP Albarelli SpA, not already owned by the Company, for L1,014,000 plus certain
amounts based on the proceeds of specified properties. Under this contract,
payments amounting to L527,000 have already been made which have been included
as part of the investment in the associated undertakings which will be completed
by July 31, 1999.
F-64
<PAGE>
LEP INTERNATIONAL WORLDWIDE LIMITED
NOTES TO THE UNAUDITED
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. NOTES ON SUMMARY OF DIFFERENCES BETWEEN UK AND US GAAP
<TABLE>
<CAPTION>
UNREVIEWED
-------------------------------------------
PERIOD COMBINED
PERIOD 24 JAN - PERIOD TO PERIOD TO 30
1- 23 JAN 30 SEPTEMBER 30 SEPTEMBER SEPTEMBER
1996 1996 1996 1997
L'000 L'000 L'000 L'000
------------- ------------- ------------- -------------------
<S> <C> <C> <C> <C>
Adjustment to net income:
(Loss)/profit attributable to shareholders in
accordance with UK GAAP............................ 174 (7,027) (6,853) (2,779)
US GAAP adjustments:
Fixed asset revaluations excess depreciation......... 22 (22) -- --
Depreciation adjustments............................. -- 1,081 1,081 1,179
Profit on sale of fixed assets....................... -- 209 209 29
Pension scheme changes............................... 55 325 380 415
Taxation effect on the above items................... (18) (581) (599) (536)
Deferred taxation.................................... -- (16) (16) (16)
--- ------ ------ ------
Approximate net income in accordance with US GAAP.... 233 (6,031) (5,798) (1,708)
--- ------ ------ ------
--- ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
30 SEPTEMBER
1997
L'000
-----------------
<S> <C>
Adjustments to shareholders' equity:
Capital employed before minority interests in accordance
with UK GAAP................................................................................. 7,240
US GAAP adjustments:
Reclassification of mandatorily redeemable preference shares...................................
Elimination of fixed asset revaluations........................................................ --
Pension scheme liabilities..................................................................... 933
Acquisition of predecessor companies........................................................... (10,081)
Depreciation................................................................................... 2,308
Sale of fixed assets........................................................................... 3,415
Taxation effect on the above items............................................................. (2,197)
Deferred taxation.............................................................................. (38)
-------
Approximate shareholders' equity in accordance with US GAAP.................................... 1,580
-------
-------
</TABLE>
F-65
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 12
Use of Proceeds........................................................... 22
Consolidated Capitalization............................................... 24
Unaudited Pro Forma Condensed Combined Statement of Operations............ 25
Selected Consolidated Financial Data of the Company....................... 30
Selected Consolidated Financial Data of LIW............................... 33
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 37
Company Historical.................................................... 39
Company Predecessor................................................... 44
LIW................................................................... 49
Business.................................................................. 56
Management................................................................ 72
Principal Stockholders.................................................... 80
Certain Relationships and Related Transactions............................ 82
Recent Acquisitions....................................................... 83
New Credit Facility....................................................... 86
The Exchange Offer........................................................ 89
Description of the New Notes.............................................. 98
Certain U.S. Federal Income Tax Considerations Relating to the Exchange
Offer................................................................... 126
Plan of Distribution...................................................... 126
Legal Matters............................................................. 127
Experts................................................................... 127
Available Information..................................................... 127
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
GEOLOGISTICS CORPORATION
FORMERLY KNOWN AS
INTERNATIONAL
LOGISTICS LIMITED
$110,000,000
9 3/4% SENIOR NOTES
DUE 2007
---------------------
PROSPECTUS
---------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Company's Articles of
Incorporation and Bylaws contain provisions for indemnification of officers and
directors of the Company and in certain cases employees and other persons. The
Bylaws require the Company to indemnify such persons to the full extent
permitted by Delaware law. Each such person will be indemnified in any
proceeding if such person acted in good faith and in a manner which such person
reasonably believed to be in, or not opposed to, the best interests of the
Company. Indemnification would cover expenses, including attorney's fees,
judgments, fines and amounts paid in settlement.
The Company's Bylaws also provide that the Company's Board of Directors may
cause the Company to purchase and maintain insurance on behalf of any present or
past director or officer insuring against any liability asserted against such
person incurred in the capacity of director or officer or arising out of such
status, whether or not the Company would have the power to indemnify such
person. The Company maintains directors' and officers' liability insurance.
The Company has entered into an indemnification agreement (the
"Indemnification Agreement") with each director and certain officers, employees
and agents of the Company. Each Indemnification Agreement provides for, among
other things: (i) indemnification to the fullest extent permitted by law against
any and all expenses, judgments, fines, penalties and amounts paid in settlement
of any claim against any indemnified party (the "Indemnitee") unless it is
determined, as provided in the Indemnification Agreement, that indemnification
is not permitted under laws and (ii) prompt advancement of expenses to any
Indemnitee in connection with his or her defense against any claim.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULE TABLES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(1)
3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation.(2)
3.3 Amended and Restated Bylaws of the Registrant.(2)
4.1 Indenture dated as of October 29, 1997 between the Company and First Trust National Association, as
Trustee.(1)
4.2 Form of New Note (included as Exhibit B to Exhibit 4.1).(1)
4.3 Form of Guarantee (included as Exhibit B to Exhibit 4.1).(1)
4.4 Registration Rights Agreement, dated as of October 29, 1997, between the Company and Credit Suisse First
Boston Corporation, BT Alex. Brown Incorporated, Smith Barney Inc. and ING Baring (U.S.) Securities,
Inc.(1)
5.1 Opinion of Milbank, Tweed, Hadley & McCloy.(1)
10.1 Third Amended and Restated Stockholders Agreement dated as of September 30, 1997 among the Company and
each of the Holders listed on Exhibit A thereto.(1)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.2 Amended and Restated Loan Agreement dated as of October 28, 1997 by and among the Company, The Bekins
Company, Matrix International Logistics, Inc., ILLCAN, Inc., ILLSCOT, Inc., LEP Profit International,
Inc. and LEP International Limited, as Borrowers and ING (US) Capital Corporation as administrative
agents and the Lenders party thereto.(1)
10.3 Second Amended and Restated Registration Rights Agreement dated as of November 7, 1996 by and between
the Company and each of the Holders listed on Exhibit A thereto.(1)
10.4 Executive Management Agreement dated as of October 31, 1996 by and between the Company and William E.
Simon & Sons, L.L.C.(1)
10.5 Employment Agreement dated as of April 30, 1996 between the Company and Roger E. Payton.(1)
10.6 Form of Employment Agreement between the Company and each of Messrs. Holter, Solis, Tieman and
Jackson.(1)
10.7 Promissory Note made by Mr. Payton in favor of the Company.(1)
10.8 Promissory Note made by Mr. Solis in favor of the Company.(1)
10.9 Form of Pledge Agreement executed by Messrs. Payton and Solis.(1)
10.10 Form of Warrant issued by the Company to Roger E. Payton.(2)
10.11 Form of Subscription Agreement executed by Roger E. Payton and the Company.(2)
10.12 Form of Warrant issued by the Company to Messrs. Tieman, Solis and Holter.(2)
10.13 Form of Subscription Agreement executed by the Company and each of Messrs. Tieman, Solis and Holter.(2)
10.14 Form of Indemnification Agreement.(1)
10.15 Deferred Compensation Plan.(1)
10.16 Employee Stock Purchase Plan dated March 3, 1997.(1)
10.17 Executive Management Agreement dated as of November 1, 1997 by and between the Company, TCW Special
Credits Fund V--The Principal Fund and Oaktree Capital Management, LLC.(1)
10.18 Agreement and Plan of Merger dated as of April 10, 1996, by and among the Company, Trasub, Inc., The
Bekins Company, IMR General Inc., and IMR Fund, L.P.(1)
10.19 Form of Warrant Agreement between the Company and Mr. Myers.(2)
10.20 Stock Purchase Agreement dated as of October 31, 1996 by and among LEP International Worldwide Limited,
LEP International Holdings Limited, LEP Holdings (North America) Limited, LEP Holdings U.S.A. Inc. and
the Company.(1)
10.21 Stock Purchase Agreement dated as of October 31, 1996 by and among LEP International Worldwide Limited,
LEP International Holdings Limited, LEP Holdings (North America) Limited and International Logistics
(Canada) Company.(2)
10.22 Stock Purchase Agreement dated as of November 7, 1996 by and among the Company and Douglas Cruikshank,
Ronald S. Cruse, Steve Hitchcock and Paul D. Smith.(1)
10.23 Form of Incentive Warrant Issued by the Company to Mr. Holter.(2)
10.24 Form of Incentive Subscription Agreement between the Company and Mr. Holter.(2)
12.1 Computation of Ratio of Earnings to Fixed Charges.(3)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Price Waterhouse.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Milbank, Tweed, Hadley & McCloy (included in exhibit 5.1).(1)
24.1 Power of Attorney (included on signature pages).(1)
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of First Bank National
Association.
27 Financial Data Schedule.(3)
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.(1)
</TABLE>
- ------------------------
(1) Previously filed on December 18, 1997.
(2) Previously filed on March 26, 1998.
(3) Previously filed on April 15, 1998.
(b) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required, are inapplicable or the required information has already
been provided elsewhere in the registration statement.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one day of receipt of such request,
and to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed subsequent
to the effective date of the registration statement through the date of
responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved herein, that was not subject of and included in
the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
GEOLOGISTICS CORPORATION
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ ROGER E. PAYTON Officer and Director
- ------------------------------ (Principal Executive April 24, 1998
Roger E. Payton Officer)
/s/ GARY S. HOLTER* Chief Financial Officer
- ------------------------------ (Principal Financial April 24, 1998
Gary S. Holter Officer)
/s/ KENNETH R. BATKO* Chief Accounting Officer
- ------------------------------ (Principal Accounting April 24, 1998
Kenneth R. Batko Officer)
/s/ VINCENT J. CEBULA*
- ------------------------------ Director April 24, 1998
Vincent J. Cebula
/s/ RICHARD J. GOLDSTEIN*
- ------------------------------ Director April 24, 1998
Richard J. Goldstein
/s/ STEPHEN A. KAPLAN*
- ------------------------------ Director April 24, 1998
Stephen A. Kaplan
/s/ MICHAEL B. LENARD*
- ------------------------------ Director April 24, 1998
Michael B. Lenard
/s/ CONOR T. MULLETT*
- ------------------------------ Director April 24, 1998
Conor T. Mullett
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM E. MYERS, JR.*
- ------------------------------ Director April 24, 1998
William E. Myers, Jr.
- ------------------------------ Director
William E. Simon, Jr.
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
THE BEKINS COMPANY
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ ROGER E. PAYTON Officer and Director
- ------------------------------ (Principal Executive April 24, 1998
Roger E. Payton Officer)
Treasurer and Chief
/s/ PAUL STONE* Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Paul Stone Accounting Officer)
/s/ GARY S. HOLTER*
- ------------------------------ Assistant Secretary and April 24, 1998
Gary S. Holter Director
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
BEKINS VAN LINES CO.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
VICE PRESIDENT AND DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ ROGER E. PAYTON Vice President and Director
- ------------------------------ (Principal Executive April 24, 1998
Roger E. Payton Officer)
/s/ PAUL STONE* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Paul Stone Accounting Officer)
/s/ GARY S. HOLTER* Vice President, Assistant
- ------------------------------ Treasurer, Assistant April 24, 1998
Gary S. Holter Secretary and Director
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
LEP PROFIT INTERNATIONAL, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
CHAIRMAN OF THE BOARD OF DIRECTORS AND
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ ANTHONY QUINN* Officer and Director
- ------------------------------ (Principal Executive April 24, 1998
Anthony Quinn Officer)
Executive Vice President
/s/ DANIEL D. MOORE* and Chief Financial
- ------------------------------ Officer (Principal April 24, 1998
Daniel D. Moore Financial and Accounting
Officer)
/s/ MARK A. JEROME* Executive Vice President,
- ------------------------------ Chief Operating Officer April 24, 1998
Mark A. Jerome and Director
/s/ LOUIS J. MITCHELL* Executive Vice President,
- ------------------------------ Secretary, General April 24, 1998
Louis J. Mitchell Counsel and Director
/s/ ROGER E. PAYTON
- ------------------------------ Director April 24, 1998
Roger E. Payton
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
LEP FAIRS, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ MARGARET
CHURCHILL-MILLER* Vice President, Operations
- ------------------------------ (Principal Executive April 24, 1998
Margaret Churchill-Miller Officer)
Chief Financial Officer,
/s/ DANIEL D. MOORE* Treasurer and Director
- ------------------------------ (Principal Financial and April 24, 1998
Daniel D. Moore Accounting Officer)
/s/ LOUIS J. MITCHELL* Vice President, Secretary,
- ------------------------------ General Counsel and April 24, 1998
Louis J. Mitchell Director
/s/ MARK A. JEROME*
- ------------------------------ Director April 24, 1998
Mark A. Jerome
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
AIR FREIGHT CONSOLIDATORS INTERNATIONAL, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ PATRICK KEELAGHAN* Officer and Director
- ------------------------------ (Principal Executive April 24, 1998
Patrick Keelaghan Officer)
/s/ DANIEL D. MOORE* Treasurer (Principal
- ------------------------------ Financial and Accounting April 24, 1998
Daniel D. Moore Officer)
/s/ JOSEPH P. MONAGHAN*
- ------------------------------ Director April 24, 1998
Joseph P. Monaghan
/s/ LOUIS J. MITCHELL*
- ------------------------------ Secretary and Director April 24, 1998
Louis J. Mitchell
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
Attorney-In-Fact
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
MATRIX INTERNATIONAL LOGISTICS, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
CHAIRMAN OF BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PAUL D. SMITH*
- ------------------------------ Co-President, Secretary April 24, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director April 24, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director April 24, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director April 24, 1998
Roger E. Payton
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
BAY AREA MATRIX, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PAUL D. SMITH*
- ------------------------------ Co-President, Secretary April 24, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director April 24, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director April 24, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director April 24, 1998
Roger E. Payton
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
L.A. MATRIX, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PAUL D. SMITH*
- ------------------------------ Co-President, Secretary April 24, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director April 24, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director April 24, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director April 24, 1998
Roger E. Payton
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
SOUTHWEST MATRIX, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PAUL D. SMITH*
- ------------------------------ Co-President, Secretary April 24, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director April 24, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director April 24, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director April 24, 1998
Roger E. Payton
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
MATRIX CT., INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PAUL D. SMITH*
- ------------------------------ Co-President, Secretary April 24, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director April 24, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director April 24, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director April 24, 1998
Roger E. Payton
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
LIW HOLDINGS CORP.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
PRESIDENT, CHAIRMAN OF THE BOARD AND
DIRECTOR
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ ROGER E. PAYTON
- ------------------------------ President, Chairman of the April 24, 1998
Roger E. Payton Board and Director
Vice President, Treasurer,
/s/ GARY S. HOLTER* Assistant Secretary and
- ------------------------------ Director (Principal April 24, 1998
Gary S. Holter Financial and Accounting
Officer)
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
ILLCAN, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
CHAIRMAN OF THE BOARD OF DIRECTORS AND
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL B. LENARD* President and Director
- ------------------------------ (Principal Executive April 24, 1998
Michael B. Lenard Officer)
/s/ GARY S. HOLTER* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Gary S. Holter Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Vice President and Chairman April 24, 1998
Roger E. Payton of the Board
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Golden, State of Colorado, on this 24th day of April, 1998.
ILLSCOT, INC.
/s/ ROGER E. PAYTON
Name: --------------------------------------
Title: Roger E. Payton
CHAIRMAN OF THE BOARD OF DIRECTORS AND
VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ MICHAEL B. LENARD* President and Director
- ------------------------------ (Principal Executive April 24, 1998
Michael B. Lenard Officer)
/s/ GARY S. HOLTER* Chief Financial Officer
- ------------------------------ (Principal Financial and April 24, 1998
Gary S. Holter Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Vice President and Chairman April 24, 1998
Roger E. Payton of the Board
</TABLE>
*By /s/ ROGER E. PAYTON
-------------------------
Roger E. Payton
ATTORNEY-IN-FACT
II-18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Registrant.(1)
3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation.(2)
3.3 Amended and Restated Bylaws of the Registrant.(2)
4.1 Indenture dated as of October 29, 1997 between the Company and First Trust National Association, as
Trustee.(1)
4.2 Form of New Note (included as Exhibit B to Exhibit 4.1).(1)
4.3 Form of Guarantee (included as Exhibit B to Exhibit 4.1).(1)
4.4 Registration Rights Agreement, dated as of October 29, 1997, between the Company and Credit Suisse First
Boston Corporation, BT Alex. Brown Incorporated, Smith Barney Inc. and ING Baring (U.S.) Securities,
Inc.(1)
5.1 Opinion of Milbank, Tweed, Hadley & McCloy.(1)
10.1 Third Amended and Restated Stockholders Agreement dated as of September 30, 1997 among the Company and
each of the Holders listed on Exhibit A thereto.(1)
10.2 Amended and Restated Loan Agreement dated as of October 28, 1997 by and among the Company, The Bekins
Company, Matrix International Logistics, Inc., ILLCAN, Inc., ILLSCOT, Inc., LEP Profit International,
Inc. and LEP International Limited, as Borrowers and ING (US) Capital Corporation as administrative
agents and the Lenders party thereto.(1)
10.3 Second Amended and Restated Registration Rights Agreement dated as of November 7, 1996 by and between
the Company and each of the Holders listed on Exhibit A thereto.(1)
10.4 Executive Management Agreement dated as of October 31, 1996 by and between the Company and William E.
Simon & Sons, L.L.C.(1)
10.5 Employment Agreement dated as of April 30, 1996 between the Company and Roger E. Payton.(1)
10.6 Form of Employment Agreement between the Company and each of Messrs. Holter, Solis, Tieman and
Jackson.(1)
10.7 Promissory Note made by Mr. Payton in favor of the Company.(1)
10.8 Promissory Note made by Mr. Solis in favor of the Company.(1)
10.9 Form of Pledge Agreement executed by Messrs. Payton and Solis.(1)
10.10 Form of Warrant issued by the Company to Roger E. Payton.(2)
10.11 Form of Subscription Agreement executed by Roger E. Payton and the Company.(2)
10.12 Form of Warrant issued by the Company to Messrs. Tieman, Solis and Holter.(2)
10.13 Form of Subscription Agreement executed by the Company and each of Messrs. Tieman, Solis and Holter.(2)
10.14 Form of Indemnification Agreement.(1)
10.15 Deferred Compensation Plan.(1)
10.16 Employee Stock Purchase Plan dated March 3, 1997.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<C> <S>
10.17 Executive Management Agreement dated as of November 1, 1997 by and between the Company, TCW Special
Credits Fund V--The Principal Fund and Oaktree Capital Management, LLC.(1)
10.18 Agreement and Plan of Merger dated as of April 10, 1996, by and among the Company, Trasub, Inc., The
Bekins Company, IMR General Inc., and IMR Fund, L.P.(1)
10.19 Form of Warrant Agreement between the Company and Mr. Myers.(2)
10.20 Stock Purchase Agreement dated as of October 31, 1996 by and among LEP International Worldwide Limited,
LEP International Holdings Limited, LEP Holdings (North America) Limited, LEP Holdings U.S.A. Inc. and
the Company.(1)
10.21 Stock Purchase Agreement dated as of October 31, 1996 by and among LEP International Worldwide Limited,
LEP International Holdings Limited, LEP Holdings (North America) Limited and International Logistics
(Canada) Company.(2)
10.22 Stock Purchase Agreement dated as of November 7, 1996 by and among the Company and Douglas Cruikshank,
Ronald S. Cruse, Steve Hitchcock and Paul D. Smith.(1)
10.23 Form of Incentive Warrant Issued by the Company to Mr. Holter.(2)
10.24 Form of Incentive Subscription Agreement between the Company and Mr. Holter.(2)
12.1 Computation of Ratio of Earnings to Fixed Charges.(3)
21.1 Subsidiaries of the Registrant.(1)
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Price Waterhouse.
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Milbank, Tweed, Hadley & McCloy (included in exhibit 5.1).(1)
24.1 Power of Attorney (included on signature page).(1)
25.1 Statement of Eligibility under the Trust Indenture Act of 1939 on Form T-1 of First Bank National
Association.
27 Financial Data Schedule.(3)
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.(1)
</TABLE>
- ------------------------
(1) Previously filed on December 18, 1997.
(2) Previously filed on March 26, 1998.
(3) Previously filed on April 15, 1998.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-42607 on Form S-4 of GeoLogistics Corporation, formerly International
Logistics Limited, of our reports dated September 8, 1997 and March 17,
1998, appearing in the Prospectus, which is a part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Chicago, Illinois
April 24, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Geologistics Corporation of our report
dated October 3, 1997, relating to the financial statements of LEP
International Worldwide Limited, which appears on page F-30 of such
Prospectus. We also consent to the references to us under the headings "Experts"
and "Selected Financial Data" in such Prospectus. However, it should be noted
that Price Waterhouse has not prepared or certified such "Selected Financial
Data".
Price Waterhouse
London
England
24 April, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made as part of
this Amendment No. 3 to Registration Statement on Form S-4 of GeoLogistics
Corporation.
April 24, 1998
ARTHUR ANDERSON LLP
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
FORMERLY KNOWN AS
FIRST TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
GEOLOGISTICS CORPORATION
FORMERLY KNOWN AS
INTERNATIONAL LOGISTICS LIMITED
AND OTHER REGISTRANTS*
(Exact name of Registrant as specified in its charter)
Delaware 22-3471988
(State of Incorporation) (I.R.S. Employer
Identification No.)
13952 Denver West Parkway
Golden, Colorado 80401
(Address of Principal Executive Offices) (Zip Code)
9 3/4% SENIOR NOTES DUE 2007
(Title of the Indenture Securities)
<PAGE>
*OTHER REGISTRANTS
THE BEKINS COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 95-4106021
(State of Incorporation) (I.R.S. Employer
Identification No.)
330 South Mannheim Road
Hillside, Illinois 60162
(Address of Principal Executive Offices) (Zip Code)
BEKINS VAN LINES, CO.
(Exact name of Registrant as specified in its charter)
Nebraska 36-2193916
(State of Incorporation) (I.R.S. Employer
Identification No.)
330 South Mannheim Road
Hillside, Illinois 60162
(Address of Principal Executive Offices) (Zip Code)
LEP PROFIT INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-2920613
(State of Incorporation) (I.R.S. Employer
Identification No.)
1950 Spectrum Circle
Marietta, Georgia 30067
(Address of Principal Executive Offices) (Zip Code)
<PAGE>
LEP FAIRS, INC.
(Exact name of Registrant as specified in its charter)
Georgia 58-1666904
(State of Incorporation) (I.R.S. Employer
Identification No.)
1950 Spectrum Circle
Marietta, Georgia 30067
(Address of Principal Executive Offices) (Zip Code)
AIR FREIGHT CONSOLIDATORS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
New York 11-2826590
(State of Incorporation) (I.R.S. Employer
Identification No.)
1950 Spectrum Circle
Marietta, Georgia 30067
(Address of Principal Executive Offices) (Zip Code)
MATRIX INTERNATIONAL LOGISTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 54-1378078
(State of Incorporation) (I.R.S. Employer
Identification No.)
200 Connecticut Avenue
Norwalk, Connecticut 06859
(Address of Principal Executive Offices) (Zip Code)
<PAGE>
BAY AREA MATRIX, INC.
(Exact name of Registrant as specified in its charter)
Delaware 54-1521288
(State of Incorporation) (I.R.S. Employer
Identification No.)
200 Connecticut Avenue
Norwalk, Connecticut 06859
(Address of Principal Executive Offices) (Zip Code)
L.A. MATRIX, INC.
(Exact name of Registrant as specified in its charter)
Delaware 52-1744031
(State of Incorporation) (I.R.S. Employer
Identification No.)
200 Connecticut Avenue
Norwalk, Connecticut 06859
(Address of Principal Executive Offices) (Zip Code)
SOUTHWEST MATRIX, INC.
(Exact name of Registrant as specified in its charter)
Delaware 54-1840752
(State of Incorporation) (I.R.S. Employer
Identification No.)
200 Connecticut Avenue
Norwalk, Connecticut 06859
(Address of Principal Executive Offices) (Zip Code)
<PAGE>
MATRIX CT., INC.
(Exact name of Registrant as specified in its charter)
Delaware 54-1513202
(State of Incorporation) (I.R.S. Employer
Identification No.)
200 Connecticut Avenue
Norwalk, Connecticut 06859
(Address of Principal Executive Offices) (Zip Code)
LIW HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)
Delaware 36-4215966
(State of Incorporation) (I.R.S. Employer
Identification No.)
330 South Mannheim Road
Hillside, Illinois 60162
(Address of Principal Executive Offices) (Zip Code)
ILLCAN, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3471988
(State of Incorporation) (I.R.S. Employer
Identification No.)
330 South Mannheim Road
Hillside, Illinois 60162
(Address of Principal Executive Offices) (Zip Code)
<PAGE>
ILLSCOT, INC.
(Exact name of Registrant as specified in its charter)
Delaware 22-3471990
(State of Incorporation) (I.R.S. Employer
Identification No.)
330 South Mannheim Road
Hillside, Illinois 60162
(Address of Principal Executive Offices) (Zip Code)
<PAGE>
GENERAL
1. GENERAL INFORMATION Furnish the following information as to the Trustee.
(a) Name and address of each examining or supervising authority to which
it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority is incorporated by reference to Registration Number 333-42147.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within
three years prior to the date of filing this statement, or what persons are
owners of 10% or more of the voting securities of the obligors, or
affiliates, are based upon information furnished to the Trustee by the
obligors. While the Trustee has no reason to doubt the accuracy of any such
information, it cannot accept any responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, First Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the City of Saint Paul and State of Minnesota on the
17th day of March, 1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ S. Christopherson
--------------------------------
S. Christopherson
Vice President
/s/ Kathe M. Barrett
- --------------------------------
Kathe M. Barrett
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, FIRST TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities
and Exchange Commission upon its request therefor.
Dated: April 16, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
f/k/a FIRST TRUST NATIONAL ASSOCIATION
/s/ S. Christopherson
--------------------------------
S. Christopherson
Vice President
<PAGE>
LETTER OF TRANSMITTAL
GEOLOGISTICS CORPORATION
OFFER TO EXCHANGE ITS
9 3/4% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
9 3/4% SENIOR NOTES DUE 2007
PURSUANT TO THE PROSPECTUS
DATED ________ ___, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ________________, 1998, UNLESS THE OFFER IS EXTENDED
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
U.S. BANK TRUST NATIONAL ASSOCIATION
(FORMERLY KNOWN AS
FIRST TRUST NATIONAL ASSOCIATION)
BY MAIL/OVERNIGHT DELIVERY/HAND:
U.S. BANK TRUST NATIONAL ASSOCIATION
U.S. BANK TRUST CENTER
180 EAST 5TH STREET
ST. PAUL, MINNESOTA 55101
ATTN: SPECIALIZED FINANCE DEPARTMENT
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(612) 244-1197
FACSIMILE TRANSMISSIONS:
(612) 244-1537
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning given
them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of the Old Notes (as
defined below) either if Old Notes are to be forwarded herewith or if tenders of
Old Notes are to be made by book-entry transfer to an account maintained by U.S.
Bank Trust National Association (the "Exchange Agent") at The Depository Trust
Company ("DTC") pursuant to the procedures set forth in "The Exchange Offer --
Procedures for Tendering the Old Notes" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such Old Notes
are not immediately available or who cannot deliver their Certificates and all
other required documents to the Exchange Agent on or prior to the Expiration
Date or who cannot complete the procedures for book-entry transfer on a timely
basis, must tender their Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Procedures for Tendering the Old
Notes" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE COMPANY OR DTC DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
-1-
<PAGE>
ALL TENDERING HOLDERS COMPLETE THIS BOX
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES TENDERED
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Please Print Name and Address of Old Notes Tendered Principal Amount of
Registered Holder Certificate (Attach Additional List of Old Notes Tendered (if Principal
(Please Fill in if Blank) Number(s)* Necessary) Amount of Old Notes Less than All)**
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL AMOUNT TENDERED:
- -----------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in denominations of $1,000 and integral multiples hereof.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING:
Name of Tendering Institution
--------------------------------------------
DTC Account Number
-------------------------------------------------------
Transaction Code Number
--------------------------------------------------
By crediting Old Notes to the Exchange Agent's Account at DTC in accordance
with DTC's Automated Tender Offer Program ("ATOP") and by complying with
applicable ATOP procedures with respect to the Exchange Offer, including
transmitting an Agent's Message to the Exchange Agent in which the holder
of Old Notes acknowledges and agrees to be bound by the terms of this
Letter, the participant in ATOP confirms on behalf of itself and the
beneficial owners as if it had completed the information required herein
and executed and transmitted this Letter to the Exchange Agent. The term
"Agent's Message" means a message transmitted by DTC to and received by the
Exchange Agent and forming a part of a book-entry confirmation, which
states that DTC has received an express acknowledgment from the tendering
participant, which acknowledgment of Transmittal (including the
representations contained herein) and that the Company (as defined
below) may enforce the Letter of Transmittal against such participant.
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s)
---------------------------------------------
Window Ticket Number (if any)
--------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-----------------------
Name of Institution Which Guaranteed Delivery
----------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
--------------------------------------------
DTC Account Number
-------------------------------------------------------
Transaction Code Number
--------------------------------------------------
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
-------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
-2-
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to GeoLogistics Corporation, (the
"Company"), the above described aggregate principal amount of the Company's
9 3/4% Senior Notes Due 2007 (the "Old Notes") in exchange for a like aggregate
principal amount of the Company's 9 3/4% Senior Notes Due 2007 (the "New Notes")
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), upon the terms and subject to the conditions set forth in the
Prospectus dated _____________ __, 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus"), receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the "Exchange Offer).
Subject to and effective upon the acceptance for exchange of all or
any portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED
HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF
THE EXCHANGE OFFER.
The names(s) and address(es) of the registered holder(s) of the Old
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Old Notes. The
Certificate number(s) and the Old Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Old Notes than
are tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered by
book-entry transfer, such Old Notes will be credited to an account maintained at
DTC), without expense to the tendering holder, promptly following the expiration
or termination of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to any
one of the procedures described in "The Exchange Offer -- Procedures for
Tendering the Old Notes" in the Prospectus and in the instructions hereto will,
upon the Company's acceptance for exchange of such tendered Old Notes,
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer. The undersigned
recognizes that, under certain circumstances set forth in the Prospectus, the
Company may not be required to accept for exchange any of the Old Notes tendered
hereby.
-3-
<PAGE>
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, the undersigned hereby directs that the New Notes
be issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of the Old Notes, that such New Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute Certificates
representing the Old Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Old Notes,
will be credited to the account indicated above maintained at DTC. Similarly,
unless otherwise indicated under "Special Delivery Instructions," please deliver
New Notes to the undersigned at the address shown below the undersigned's
signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED
ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE UNDERSIGNED
HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE UNDERSIGNED IS NOT A
BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE
IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES.
BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS LETTER
OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS A BROKER-DEALER REPRESENTS AND
AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE
DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE COMMISSION TO
THIRD PARTIES, THAT (A) SUCH OLD NOTES HELD BY THE BROKER-DEALER ARE HELD ONLY
AS A NOMINEE, OR (B) SUCH OLD NOTES WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES
AND IT WILL DELIVER THE PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO
TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY
RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE
REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS
DEFINED BELOW) IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR
OLD NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING
BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR
OTHER TRADING ACTIVITIES, FOR A PERIOD OF UP TO ONE YEAR AFTER THE DATE WHEN THE
REGISTRATION STATEMENT BECOMES EFFECTIVE OR, IF EARLIER, WHEN ALL SUCH NEW NOTES
HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH
BROKER-DEALER WHO ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING OR OTHER TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY
TENDERING SUCH OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT
UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF
CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED OR
SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS THE CASE MAY BE.
IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE NEW NOTES, IT SHALL
EXTEND THE ONE YEAR PERIOD REFERRED TO ABOVE DURING WHICH PARTICIPATING
BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION
-4-
<PAGE>
WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND
INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE ON
WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW NOTES MAYBE RESUMED, AS
THE CASE MAY BE.
All authority herein conferred or agreed to be conferred in this
Letter of Transmittal shall survive the death or incapacity of the undersigned
and any obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
-5-
<PAGE>
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 13)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s)
on Certificate(s) for the Old Notes hereby tendered or on a security position
listing, or by any person(s) authorized to be come the registered holder(s)
by endorsements and documents transmitted herewith (including such opinions
of counsel, certifications and other information as may be required by the
Company or the Trustee for the Old Notes to comply with the restrictions on
transfer applicable to the Old Notes). If signature is by an attorney-in-
fact, executor, administrator, trustee, guardian, officer of a corporation or
another acting in a fiduciary capacity or representing capacity, please set
forth the signer's full title. See Instruction 5.
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Date: , 1997
------------------------------------------------------------------
Name(s)
---------------------------------------------------------------------
-----------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
-------------------------------------------------------
Address
---------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
----------------------------------------------
------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
-------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Date: , 1997
------------------------------------------------------------------
Name of Firm
----------------------------------------------------------------
Capacity (full title)
-------------------------------------------------------
(PLEASE PRINT)
Address
---------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-----------------------------------------------
-6-
<PAGE>
<TABLE>
<S><C>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6) (SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes are to be issued in To be completed ONLY if New Notes are to be sent to someone
the name of someone other than the registered holder of the other than the registered holder of the Old Notes whose
Old Notes whose name(s) appear(s) above. name(s) appear(s) above, or such registered holder(s) at an
address other than that shown above.
Issue:
/ / Old Notes not tendered Send:
/ / New Notes, to: / / Old Notes not tendered
/ / New Notes, to:
Name(s) Name(s)
--------------------------------------------------- ----------------------------------------------------
Address Address
--------------------------------------------------- ----------------------------------------------------
----------------------------------------------------------- ------------------------------------------------------------
----------------------------------------------------------- ------------------------------------------------------------
----------------------------------------------------------- ------------------------------------------------------------
(INCLUDE ZIP CODE) (INCLUDE ZIP CODE)
Area Code and Telephone Number Area Code and Telephone Number
--------------------------- -----------------------------
----------------------------------------------------------- ------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL (TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S)) SECURITY NUMBER(S))
</TABLE>
-7-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer----Procedures for Tendering Old Notes" in the Prospectus. Certificates,
or timely confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC, as well as this Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein on or prior to the Expiration Date. Old Notes may be tendered in whole
or in part in the principal amount of $1,000 and integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent on or prior
to the Expiration Date or (iii) who cannot complete the procedures for delivery
by book-entry transfer on a timely basis, may tender their Old Notes by properly
completing and duly executing a Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedures set forth in "The Exchange Offer----Procedures
for Tendering Old Notes" in the Prospectus. Pursuant to such procedures: (i)
such tender must be made by or through an Eligible Institution (as defined
below); (ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Company, must be
received by the Exchange Agent on or prior to the Expiration Date; and (iii) the
Certificates (or a book-entry confirmation (as defined in the Prospectus))
representing all tendered Old Notes, in proper form for transfer, together with
a Letter of Transmittal (or facsimile thereof)), properly completed and duly
executed, with any required signature guarantees and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
within five New York Stock Exchange, Inc. trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer----Guaranteed Delivery Procedures" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
-8-
<PAGE>
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on a security position
listing as the owner of the Old Notes) of Old Notes tendered
herewith, unless such holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s) on
this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or
the principal amount of Old Notes and any other required information should
be listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tender of the Old Notes will be
accepted only in the principal amount of $1,000 and integral multiples thereof.
If less than all the Old Notes evidenced by any Certificate submitted are to be
tendered, fill in the principal amount of the Old Notes which are to be tendered
in the box entitled "Principal Amount of Old Notes Tendered (if less than all)."
In such case, new Certificate(s) for the remainder of the Old Notes that were
evidenced by your old Certificate(s) will only be sent to the holder of the Old
Note, promptly after the Expiration Date. All Old Notes represented by
Certificates delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of the Old Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Old Notes to be withdrawn,
the aggregate principal amount of Old Notes to be withdrawn, and (if
Certificates for Old Notes have been tendered) the name of the registered holder
of the Old Notes as set forth on the Certificate for the Old Notes, if different
from that of the person who tendered such Old Notes. If Certificates for the
Old Notes have been delivered or otherwise identified to the Exchange Agent,
then prior to the physical release of such Certificates for the Old Notes, the
tendering holder must submit the serial numbers shown on the particular
Certificates for the Old Notes to be withdrawn and the signature on the notice
of withdrawal must be guaranteed by an Eligible Institution, except in the case
of Old Notes tendered for the account of an Eligible Institution. If Old Notes
have been tendered pursuant to the procedures for book-entry transfer set forth
in "The Exchange Offer----Procedures for Tendering Old Notes," the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Old Notes, in which case a notice of withdrawal will be
effective if delivered to the Exchange Agent by written, telegraphic, telex or
facsimile transmission. Withdrawals of tenders of Old Notes may not be
rescinded. Old Notes properly withdrawn will not be deemed validly tendered for
purposes of the Exchange Offer, but may be retendered at any subsequent time on
or prior to the Expiration Date by following any of the procedures described in
the Prospectus under "The Exchange Offer----Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any
-9-
<PAGE>
other person shall be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Old Notes which have been tendered but which
are withdrawn will be returned to the holder thereof without cost to such holder
promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and must submit proper evidence
satisfactory to the Company, in its sole discretion, of such persons' authority
to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Old Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the registered holder(s). Signature(s) on such
Certificate(s) or bond power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the Trustee for the Old Notes may require in accordance with the
restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer
of this Letter of Transmittal or to an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed.
Certificates of Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The company reserves
the absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the view of
counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer----Certain
Conditions to the Exchange Offer" or any conditions or irregularity in any
tender of Old Notes of any particular holder whether or not similar conditions
or irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding.
No
-10-
<PAGE>
tender of Old Notes will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. Neither
the Company, any affiliates or assigns of the Company, the Exchange Agent, nor
any other person shall be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal
income tax law, a holder whose tendered Old Notes are accepted for exchange
is required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked in if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form W-9.
If the holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60 day period
will be remitted to the holder and no further amounts shall be retained or
withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60 day period,
amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
-11-
<PAGE>
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
11. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes in connection with the Exchange Offer, then the amount
of any such transfer tax (whether imposed on the registered holder or any
other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted
with the Letter of Transmittal, the amount of such transfer taxes will be
billed directly to such tendering holder.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE
EXPIRATION DATE.
-12-
<PAGE>
TO BE COMPLETED BY ALL
TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME:
--------------
<TABLE>
<CAPTION>
SUBSTITUTE PART 1 - PLEASE PROVIDE YOUR TIN ON THE LINE AT TIN_____________
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number or
Employer Identification Number
- -------------------------------------------------------------------------------------------------------------------
<S><C>
DEPARTMENT OF THE TREASURY NAME (Please Print)
INTERNAL REVENUE SERVICE PART 2
------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER Awaiting
IDENTIFICATION NUMBER (TIN) ADDRESS
AND CERTIFICATION ---------------------------------------- TIN / /
------------------------------------------------
CITY
-------------------------------------------
STATE ZIP CODE
------------------- -------------
-----------------------------------------------------------------------------------
Part 3 - CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number (or I am
waiting for a number to be issued to me), (2) I am not subject to backup withholding
either because (i) I am exempt from backup withholding, (ii) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or (iii)
the IRS has notified me that I am not longer subject to backup withholding, and (3)
any other information provided on this form is true and correct.
SIGNATURE DATE
------------------------------ ------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or
dividends on your tax return and you have not been notified by the IRS that you are
no longer subject to backup withholding.
- -------------------------------------------------------------------------------------------------------------------
NOTE; FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTION FORM W-9 FOR ADDITIONAL DETAILS.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand
that if I do not provide a taxpayer identification number by the time of
payment, 31% of all payments made to me on account of the New Notes shall be
retained until I provide a taxpayer identification number to the Exchange Agent
and that, if I do not provide my taxpayer identification number within 60 days,
such retained amounts shall be remitted to the Internal Revenue Service as
backup withholding and 31% of all reportable payments made to me thereafter will
be withheld and remitted to the Internal Revenue Service until I provide a
taxpayer identification number.
Signature Date , 1997
---------------------------------- --------------------
-13-
