<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1998
REGISTRATION NO. 333-42607
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
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 MARCH 26, 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 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. The New Notes have been made eligible for trading on the Portal-SM-
Market ("PORTAL") of the Nasdaq Stock Market, Inc. 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 March 5, 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
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
representative capacity), to the Exchange Agent (as
defined) at 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
New Notes, as the case may be. See "The Exchange Offer--
Purpose of the Exchange Offer--Registration Rights."
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.................... 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)
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
$20,584 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 $20.6
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 March 5, 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
March 5, 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 March 5, 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.
Although the New Notes will be eligible for trading on The Portal-SM- Market
("PORTAL") of the Nasdaq Stock Market, Inc., the Company does not intend to list
the New Notes on any securities exchange or to seek the admission thereof to
trading in the Nasdaq Stock Market. 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
22
<PAGE>
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 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)
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
$20,584 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)
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 $24,658
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 have been extended through March 31, 1998 and two others also expire on
March 31, 1998. The Company is currently renegotiating the terms of these four
contracts and hopes to reach a settlement with the unions on the remaining
issues. The Company believes
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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 the other 50.0%
of the outstanding shares must transfer to LIW a number of shares equal to the
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<PAGE>
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
March 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 Decorative Home Accents, Inc. and 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.,
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<PAGE>
Decorative Home Accents, Inc., KinderCare Learning Centers, Inc., Roller Bearing
Holding Company, Inc. and various private companies.
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
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<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 March 1, 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 March 1, 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 March 5, 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
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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 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 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 (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
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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
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.
First Trust National Association
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 $ 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 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
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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 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.
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CONCERNING THE TRUSTEE
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.
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
"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
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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 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.
"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.
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"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.
"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.
"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
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opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the SEC.
"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
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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
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).
"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,
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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
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.
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"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 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
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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 19,905
Operating equipment and other..................... 5,104 12,686
Buildings and leasehold improvements.............. 1,892 19,878
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) (782)
--------- --------- ------- -------------- --------------
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 in forward contracts outstanding.
F-12
<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 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 provision or benefit
generally reflects the net change in deferred income tax assets and liabilities
during the
F-13
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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.
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. The
operations of BMS have been treated as discontinued as of the acquisition date;
at December 31, 1996, the net remaining assets were classified as held for sale
on the Company's
F-14
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED)
balance sheet. During 1997, all remaining assets of BMS were sold. The actual
costs associated with the sale of the BMS service centers exceeded initial
estimates. Such excess has been recorded as goodwill.
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. 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.
F-15
<PAGE>
GEOLOGISTICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. ACQUISITIONS (CONTINUED)
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 Term 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>
NORTH
AMERICA 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.
3.3 Amended and Restated Bylaws of the Registrant.
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.
10.11 Form of Subscription Agreement executed by Roger E. Payton and the Company.
10.12 Form of Warrant issued by the Company to Messrs. Tieman, Solis and Holter.
10.13 Form of Subscription Agreement executed by the Company and each of Messrs. Tieman, Solis and Holter.
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.
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.
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.
10.24 Form of Incentive Subscription Agreement between the Company and Mr. Holter.
12.1 Computation of Ratio of Earnings to Fixed Charges.
</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.
99.1 Form of Letter of Transmittal.(1)
99.2 Form of Notice of Guaranteed Delivery.(1)
</TABLE>
- ------------------------
(1) Previously filed on December 18, 1997.
(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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Roger E. Payton Officer)
/s/ GARY S. HOLTER* Chief Financial Officer
- ------------------------------ (Principal Financial March 25, 1998
Gary S. Holter Officer)
/s/ KENNETH R. BATKO* Chief Accounting Officer
- ------------------------------ (Principal Accounting March 25, 1998
Kenneth R. Batko Officer)
/s/ VINCENT J. CEBULA*
- ------------------------------ Director March 25, 1998
Vincent J. Cebula
/s/ RICHARD J. GOLDSTEIN*
- ------------------------------ Director March 25, 1998
Richard J. Goldstein
/s/ STEPHEN A. KAPLAN*
- ------------------------------ Director March 25, 1998
Stephen A. Kaplan
/s/ MICHAEL B. LENARD*
- ------------------------------ Director March 25, 1998
Michael B. Lenard
/s/ CONOR T. MULLETT*
- ------------------------------ Director March 25, 1998
Conor T. Mullett
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM E. MYERS, JR.*
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Roger E. Payton Officer)
Treasurer and Chief
/s/ PAUL STONE* Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Paul Stone Accounting Officer)
/s/ GARY S. HOLTER*
- ------------------------------ Assistant Secretary and March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Roger E. Payton Officer)
/s/ PAUL STONE* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Paul Stone Accounting Officer)
/s/ GARY S. HOLTER* Vice President, Assistant
- ------------------------------ Treasurer, Assistant March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Anthony Quinn Officer)
Executive Vice President
/s/ DANIEL D. MOORE* and Chief Financial
- ------------------------------ Officer (Principal March 25, 1998
Daniel D. Moore Financial and Accounting
Officer)
/s/ MARK A. JEROME* Executive Vice President,
- ------------------------------ Chief Operating Officer March 25, 1998
Mark A. Jerome and Director
/s/ LOUIS J. MITCHELL* Executive Vice President,
- ------------------------------ Secretary, General March 25, 1998
Louis J. Mitchell Counsel and Director
/s/ ROGER E. PAYTON
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Margaret Churchill-Miller Officer)
Chief Financial Officer,
/s/ DANIEL D. MOORE* Treasurer and Director
- ------------------------------ (Principal Financial and March 25, 1998
Daniel D. Moore Accounting Officer)
/s/ LOUIS J. MITCHELL* Vice President, Secretary,
- ------------------------------ General Counsel and March 25, 1998
Louis J. Mitchell Director
/s/ MARK A. JEROME*
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Patrick Keelaghan Officer)
/s/ DANIEL D. MOORE* Treasurer (Principal
- ------------------------------ Financial and Accounting March 25, 1998
Daniel D. Moore Officer)
/s/ JOSEPH P. MONAGHAN*
- ------------------------------ Director March 25, 1998
Joseph P. Monaghan
/s/ LOUIS J. MITCHELL*
- ------------------------------ Secretary and Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director March 25, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director March 25, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director March 25, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director March 25, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director March 25, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director March 25, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director March 25, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director March 25, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Paul D. Smith and Director
/s/ STEVE HITCHCOCK*
- ------------------------------ Co-President and Director March 25, 1998
Steve Hitchcock
/s/ DOUGLAS CRUIKSHANK*
- ------------------------------ Co-President and Director March 25, 1998
Douglas Cruikshank
/s/ DIEGO HILDAGO* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Diego Hildago Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Director March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Roger E. Payton Board and Director
Vice President, Treasurer,
/s/ GARY S. HOLTER* Assistant Secretary and
- ------------------------------ Director (Principal March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Michael B. Lenard Officer)
/s/ GARY S. HOLTER* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Gary S. Holter Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Vice President and Chairman March 25, 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. 1 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 25th day of March, 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. 1 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 March 25, 1998
Michael B. Lenard Officer)
/s/ GARY S. HOLTER* Chief Financial Officer
- ------------------------------ (Principal Financial and March 25, 1998
Gary S. Holter Accounting Officer)
/s/ ROGER E. PAYTON
- ------------------------------ Vice President and Chairman March 25, 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.
3.3 Amended and Restated Bylaws of the Registrant.
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.
10.11 Form of Subscription Agreement executed by Roger E. Payton and the Company.
10.12 Form of Warrant issued by the Company to Messrs. Tieman, Solis and Holter.
10.13 Form of Subscription Agreement executed by the Company and each of Messrs. Tieman, Solis and Holter.
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
- ----------- --------------------------------------------------------------------------------------------------------
<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.
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.
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.
10.24 Form of Incentive Subscription Agreement between the Company and Mr. Holter.
12.1 Computation of Ratio of Earnings to Fixed Charges.
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.
99.1 Form of Letter of Transmittal.(1)
99.2 Form of Notice of Guaranteed Delivery.(1)
</TABLE>
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(1) Previously filed December 18, 1997.
<PAGE> EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
INTERNATIONAL LOGISTICS LIMITED
International Logistics Limited, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That, by unanimous written consent of the Board of
Directors of the Corporation dated February 16, 1998, resolutions were duly
adopted setting forth the proposed amendment to the Amended and Restated
Certificate of Incorporation of the Corporation, declaring said amendment to
be advisable and directing its officers to submit said amendment to the
stockholders of the Corporation for consideration thereof. The resolutions
setting forth the proposed amendments are as follows:
RESOLVED, that Article I of the Corporation's Amended and Restated
Certificate of Incorporation be amended to read as follows:
"The name of the Corporation is: "GeoLogistics Corporation"
(hereinafter referred to as the "Company")."
SECOND: That, thereafter, by written consent of the holders of at
least 80% of the voting stock of the Corporation, the necessary number of
shares required by the Corporation's bylaws were voted in favor of the
amendment. Prompt written notice in accordance with Section 228 of the
General Corporation Law of the State of Delaware has been given to those
stockholders of the Corporation and have not consented in writing.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Sections 242 and 228 of the General Corporation Law of the
State of Delaware.
<PAGE>
IN WITNESS WHEREOF, International Logistics Limited has caused this
certificate to be signed by Roger E. Payton, its Chief Executive Officer,
this 24th day of February, 1998.
/s/Roger E. Payton
------------------------------
Roger E. Payton
<PAGE>
Effective 10/31/96
AMENDED AND RESTATED
BYLAWS
OF
INTERNATIONAL LOGISTICS LIMITED
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I Office and Records. . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Delaware Office. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Offices. . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Books and Records. . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Special Meetings . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.5 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.6 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 List of Stockholders . . . . . . . . . . . . . . . . . . . . 3
Section 2.8 Written Consent of Stockholders in Lieu of Meeting . . . . . 4
ARTICLE III Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 Number of Directors. . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Election and Term of Directors . . . . . . . . . . . . . . . 6
Section 3.3 Vacancies and Newly Created Directorships. . . . . . . . . . 7
Section 3.4 Resignation. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.6 Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.7 Quorum and Voting. . . . . . . . . . . . . . . . . . . . . . 8
Section 3.8 Written Consent of Directors in Lieu of a Meeting. . . . . . 8
Section 3.9 Compensation . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.10 Committees of the Board of Directors. . . . . . . . . . . . 9
ARTICLE IV Officers, Agents and Employees . . . . . . . . . . . . . . . . . . 9
Section 4.1 Appointment and Term of Office . . . . . . . . . . . . . . . 9
Section 4.2 Resignation and Removal. . . . . . . . . . . . . . . . . . 10
Section 4.3 Compensation and Bond. . . . . . . . . . . . . . . . . . . 10
Section 4.4 Chairman of the Board. . . . . . . . . . . . . . . . . . . 10
Section 4.5 Chief Executive Officer and President. . . . . . . . . . . 10
Section 4.6 Vice Presidents. . . . . . . . . . . . . . . . . . . . . . 11
Section 4.7 Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.8 Secretary. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.9 Assistant Treasurers . . . . . . . . . . . . . . . . . . . 12
Section 4.10 Assistant Secretaries . . . . . . . . . . . . . . . . . . 12
Section 4.11 Delegation of Duties. . . . . . . . . . . . . . . . . . . 12
ARTICLE V Indemnification and Insurance . . . . . . . . . . . . . . . . . . 12
Section 5.1 Right to Indemnification . . . . . . . . . . . . . . . . . 12
Section 5.2 Right to Advancement of Expenses . . . . . . . . . . . . . 13
Section 5.3 Right of Indemnitee to Bring Suit. . . . . . . . . . . . . 13
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<PAGE>
Section 5.4 Non-Exclusivity of Rights. . . . . . . . . . . . . . . . . 14
Section 5.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.6 Indemnification of Employees and Agents of the Company . . 14
Section 5.7 Contract Rights. . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.1 Certificates . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.2 Transfers of Stock . . . . . . . . . . . . . . . . . . . . 15
Section 6.3 Lost, Stolen or Destroyed Certificates . . . . . . . . . . 15
Section 6.4 Stockholder Record Date. . . . . . . . . . . . . . . . . . 16
ARTICLE VII Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.1 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.1 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE IX Checks, Notes, Drafts, Etc.. . . . . . . . . . . . . . . . . . . 17
Section 9.1 Checks, Notes, Drafts, Etc . . . . . . . . . . . . . . . . 17
ARTICLE X Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 10.1 Amendments. . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XI Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
INTERNATIONAL LOGISTICS LIMITED
ARTICLE I
OFFICE AND RECORDS
SECTION 1.1 DELAWARE OFFICE. The principal office of the Company in
the State of Delaware shall be located in the City of Wilmington, County of New
Castle, and the name and address of its registered agent is The Prentice-Hall
Corporation, Inc., 1209 Orange Street, Wilmington, Delaware.
SECTION 1.2 OTHER OFFICES. The Company may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Company may from time to time require.
SECTION 1.3 BOOKS AND RECORDS. The books and records of the Company
may be kept at the Company's principal executive offices in 310 South Street,
Morristown, New Jersey, 07962 or at such other locations outside the State of
Delaware as may from time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 ANNUAL MEETING. Except as otherwise provided in
Section 2.8 of these Bylaws, an annual meeting of stockholders of the Company
shall be held at such time and date in each year as the Board of Directors, the
Chairman of the Board, if any, or the President may from time to time determine.
The annual meeting in each year shall be held at such place within or without
the State of Delaware as may be fixed by the Board of Directors, or if not so
fixed, at 12:00 P.M., local time, at the principal executive offices of the
Company.
SECTION 2.2 SPECIAL MEETINGS. A special meeting of the holders of
stock of the Company entitled to vote on any business to be considered at any
such meeting may be called only by the Chairman of the Board, if any, or the
President or any Vice President, and shall be called by the Chairman of the
Board,
<PAGE>
if any, or the President or the Secretary when directed to do so by resolution
of the Board of Directors or at the written request of directors representing a
majority of the total number of directors which the Company would at the time
have if there were no vacancies (the "Whole Board"). Any such request shall
state the purpose or purposes of the proposed meeting. The Board of Directors
may designate the place of meeting for any special meeting of stockholders, and
if no such designation is made, the place of meeting shall be the principal
executive offices of the Company.
SECTION 2.3 NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, unless notice is waived as
provided in Section 8.1 of these Bylaws, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, and except as to any stockholder
duly waiving notice, the written notice of any meeting shall be given personally
or by mail, not less than ten nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed given when deposited in the mail, postage prepaid,
directed to the stockholder at his or her address as it appears on the records
of the Company.
When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
Company may transact any business which might have been transacted at the
original meeting. If, however, the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
SECTION 2.4 QUORUM. Prior to a Voting Termination Event, at any
meeting of stockholders the holders of eighty percent (80%) of the outstanding
stock entitled to vote thereat, either present or represented by proxy, shall
constitute a quorum for the transaction of any business. Except as otherwise
provided by law or by the Certificate of Incorporation, upon a Voting
Termination Event, at any meeting of stockholders the holders of a majority of
the outstanding stock entitled to vote thereat, either present or represented by
proxy, shall constitute a quorum for the transaction of any business, but the
stockholders present, although less than a quorum, may adjourn the meeting to
- 2 -
<PAGE>
another time or place and, except as provided in the last paragraph of
Section 2.3 of these Bylaws, notice need not be given of the adjourned meeting.
SECTION 2.5 VOTING. Prior to a Voting Termination Event, all such
actions taken by, in the name of or on behalf of the holders of Common Stock
shall require an affirmative vote of the holders representing at least eighty
percent (80%) of the issued and outstanding shares entitled to vote. Upon a
Voting Termination Event, all such actions taken by, in the name of or on behalf
of the holders of Common Stock shall require an affirmative vote of a majority
of the issued and outstanding shares entitled to vote.
Except as otherwise required by these Bylaws, whenever directors are
to be elected at a meeting, they shall be elected by a plurality of the votes
cast at the meeting by the holders of stock entitled to vote. Whenever any
corporate action, other than the election of directors, is to be taken by vote
of stockholders at a meeting, it shall, except as otherwise required by law or
by the Certificate of Incorporation or by these Bylaws, be authorized by a
majority of the votes cast with respect thereto at the meeting (including
abstentions) by the holders of stock entitled to vote thereon.
Except as otherwise provided by law or by the Certificate of
Incorporation, each holder of record of stock of the Company entitled to vote on
any matter at any meeting of stockholders shall be entitled to one vote for each
share of such stock standing in the name of such holder on the stock ledger of
the Company on the record date for the determination of the stockholders
entitled to vote at the meeting.
Upon the demand of any stockholder entitled to vote, the vote for
directors or the vote on any other matter at a meeting shall be by written
ballot, but otherwise the method of voting and the manner in which votes are
counted shall be discretionary with the presiding officer at the meeting.
SECTION 2.6 PROXIES. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Every proxy shall be
signed by the stockholder or by his duly authorized attorney.
SECTION 2.7 LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Company shall prepare and make,
- 3 -
<PAGE>
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Company, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 2.8 WRITTEN CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any
action required by the General Corporation Law of the state of Delaware (the
"GCL") to be taken at any annual or special meeting of stockholders of the
Company, or any action which may be taken at any annual or special meeting of
the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt written notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any such written consent may be
given by one or any number of substantially concurrent written instruments of
substantially similar tenor signed by such stockholders, in person or by
attorney or proxy duly appointed in writing, and filed with the Secretary or an
Assistant Secretary of the Company. Any such written consent shall be effective
as of the effective date thereof as specified therein, provided that such date
is not more than sixty (60) days prior to the date such written consent is filed
as aforesaid, or, if no such date is so specified, on the date such written
consent is filed as aforesaid.
- 4 -
<PAGE>
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER OF DIRECTORS.
a. PRE-VOTING TERMINATION EVENT. Prior to the first to occur of
(i) an Initial Public Offering, (ii) a Sell-Down Event, (iii) a WES&S Purchase
Default, (iv) a WES&S Funding Default, (v) a Financial Default Disagreement,
(vi) an OCM Entity Purchase Default, (vii) an OCM Entity Funding Default or
(viii) May 2, 2002 (in each case a "VOTING TERMINATION EVENT"), the Board of
Directors of the Company (the "BOARD OF DIRECTORS") shall at all times consist
of eight (8) members. OCM shall have the right, at its election, to appoint two
(2) members of the Board of Directors of the Company (an "OCM DIRECTOR"), TCW
shall have the right, at its election, to appoint one (1) member of the Board of
Directors of the Company (a "TCW DIRECTOR"), WES&S shall have the right, at its
election, to appoint three (3) members of the Board of Directors of the Company
(a "WES&S DIRECTOR")
William E. Myers, Jr. shall be the seventh member of the Board of
Directors and the eighth member of the Board of Directors shall be the Chief
Executive Officer of the Company. Only OCM shall have the right to remove an
OCM Director, or to fill a vacancy caused by the resignation, removal (with or
without cause) or death of such OCM Director. Only TCW shall have the right to
remove a TCW Director, or to fill a vacancy caused by the resignation, removal
(with or without cause) or death of such TCW Director. Only WES&S shall have
the right to remove a WES&S Director, or to fill a vacancy caused by the
resignation, removal (with or without cause) or death of such WES&S Director.
b. POST-VOTING TERMINATION EVENT. Except as may be otherwise
provided herein or by law, upon a Voting Termination Event that is not caused by
an Initial Public offering, the Board of Directors of the Company shall at all
times consist of at least five (5) members or such greater number that shall be
needed to satisfy the terms of this SECTION 3.l(b) consisting of:
(A) (i) a majority of Board of Directors seats designated by an OCM
Entity, PROVIDED, that the combined holdings of the OCM Entities are
fifty percent (50%) or more of the voting stock and the Voting
Termination Event is due to an event other than an OCM Entity Funding
Default or an OCM Entity Purchase Default, (ii) one (1) Board of
Directors seat less than a majority designated by an OCM Entity,
PROVIDED, that either (x) the combined holdings of the OCM Entities
- 5 -
<PAGE>
are at least twenty-five percent (25%) but less than fifty percent
(50%) of the voting stock or (y) the combined holdings of the OCM
Entities are fifty percent (50%) or more of the voting stock and the
voting Termination Event is due solely to an OCM Entity Funding
Default or an OCM Entity Purchase Default, or (iii) one (1) Board of
Directors seat designated by an OCM Entity, PROVIDED, that the
combined holdings of the OCM Entities are at least ten percent (10%)
but less than twenty-five (25%) of the voting stock (in each case, an
"OCM ENTITY TERMINATION DIRECTOR");
(B) one (1) Board of Directors seat to be the Chief Executive
Officer;
(C) one (1) Board of Directors seat to be William E. Myers, Jr.; and
(D) the remainder of the board seats to be designated by WES&S (a
"WES&S TERMINATION DIRECTOR"); PROVIDED, HOWEVER, that in no event
shall WES&S designate less than one (1) Board of Directors seat.
Only OCM shall have the right to remove an OCM Entity Termination Director
appointed by OCM or to fill a vacancy caused by the resignation, removal (with
or without cause) or death of such OCM Entity Termination Director. Only TCW
shall have the right to remove an OCM Entity Termination Director appointed by
TCW or to fill a vacancy caused by the resignation, removal (with or without
cause) or death of such OCM Entity Termination Director. Only WES&S shall have
the right to remove a WES&S Termination Director or to fill a vacancy caused by
the resignation, removal (with or without cause) or death of such WES&S
Termination Director.
c. NUMBER OF DIRECTORS.
Upon a Voting Termination event that is caused by an Initial Public
Offering, the number of directors may be changed at any time and from time to
time by vote at a meeting or by written consent of the holders of stock
entitled to vote on the election of directors, or by a resolution of the
Board of Directors passed by a majority of the Whole Board, except that no
decrease shall shorten the term of any incumbent director unless such
director is specifically removed pursuant to Section 3.5 of these Bylaws at
the time of such decrease.
SECTION 3.2 ELECTION AND TERM OF DIRECTORS. Subject to SECTION 3.1,
the Directors shall be elected annually, by election at the annual meeting of
stockholders or by written
- 6 -
<PAGE>
consent of the holders of stock entitled to vote thereon in lieu of such
meeting if the annual election of directors is not held on the date
designated therefor, the directors shall cause such election to be held as soon
thereafter as convenient. Each director shall hold office from the time of his
or her election and qualification until his successor is elected and qualified
or until his or her earlier resignation, or removal.
SECTION 3.3 VACANCIES AND NEWLY CREATED DIRECTORSHIPS. At any time a
vacancy is created on the Board by the death, removal (with or without cause) or
resignation of any one of the Directors, no action shall be taken by the Board
until the Board is reconstituted with the appropriate number of directors. Only
OCM or an OCM Affiliate shall have the right to remove an OCM Director or an OCM
Entity Termination Director appointed by OCM, or to fill a vacancy caused by the
resignation, removal (with or without cause) or death of such OCM Director or
OCM Entity Termination Director. Only TCW or an TCW Affiliate shall have the
right to remove a TCW Director or an OCM Entity Termination Director appointed
by TCW, or to fill a vacancy caused by the resignation, removal (with or without
cause) or death of such TCW Director or OCM Entity Termination Director. Only
WES&S or a WES&S Affiliate shall have the right to remove a WES&S Director or to
fill a vacancy caused by the resignation, removal (with or without cause) or
death of such WES&S Director or WES&S Termination Director. For all other
vacancies, the remaining directors shall meet in person or by telephone for the
purpose of approving and appointing a director in accordance with the provisions
set forth in SECTION 3.1 hereof.
SECTION 3.4 RESIGNATION. Any director may resign at any time upon
written notice to the Company. Any such resignation shall take effect at the
time specified therein or, if the time be not specified, upon receipt thereof,
and the acceptance of such resignation, unless required by the terms thereof,
shall not be necessary to make such resignation effective.
SECTION 3.5 REMOVAL. Except as otherwise set forth in these Bylaws,
any or all of the directors may be removed at any time, with or without cause,
by vote at a meeting or by written consent of the holders of stock entitled to
vote on the election of directors.
SECTION 3.6 MEETINGS. Meetings of the Board of Directors, regular or
special, may be held at any place within or without the State of Delaware.
Members of the Board of Directors, or of any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in
- 7 -
<PAGE>
the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting. An annual meeting of the
Board of Directors shall be held after each annual election of directors. If
such election occurs at an annual meeting of stockholders, the annual meeting of
the Board of Directors shall be held at the same place and immediately following
such meeting of stockholders, and no further notice thereof need be given other
than this Bylaw. If an annual election of directors occurs by written consent
in lieu of the annual meeting of stockholders, the annual meeting of the Board
of Directors shall take place as soon after such written consent is duly filed
with the Company as is practicable, either at the next regular meeting of the
Board of Directors or at a special meeting. The Board of Directors may fix
times and places for additional regular meetings of the Board of Directors and
no notice of such meetings need be given. A special meeting of the Board of
Directors shall be held whenever called by the Chairman of the Board, if any, or
by the President or by at least one-third of the directors for the time being in
office, at such time and place as shall be specified in the notice or waiver
thereof. Notice of each special meeting shall be given by the Secretary or by a
person calling the meeting to each director by mailing the same, postage
prepaid, not later than the second day before the meeting, or personally or by
telegraphing or telephoning the same not later than the day before the meeting.
SECTION 3.7 QUORUM AND VOTING. Prior to a Voting Termination Event
and except with respect to the daily affairs and operations of the Company
arising in the ordinary course of business, which affairs shall be attended to
by the officers of the Company under the ultimate direction of the Board of
Directors, six (6) of the directors present at a meeting shall constitute a
quorum. Prior to a Voting Termination Event, no action shall 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 six (6) Directors of the Company. Upon a Voting Termination Event,
a whole number of directors equal to at least a majority of the Whole Board
shall constitute a quorum for the transaction of business, but if there be less
than a quorum at any meeting of the Board of Directors, a majority of the
directors present may adjourn the meeting from time to time, and no further
notice thereof need be given other than announcement at the meeting which shall
be so adjourned. Upon a Voting Termination Event, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 3.8 WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Any
action required or permitted to be taken at any
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meeting of the Board of Directors or of any committee thereof may be taken
without a meeting if all members of the Board of Directors or of such committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board of Directors or such
committee.
SECTION 3.9 COMPENSATION. Directors may receive compensation for
services to the Company in their capacities as directors or otherwise in such
manner and in such amounts as may be fixed from time to time by the Board of
Directors.
SECTION 3.10 COMMITTEES OF THE BOARD OF DIRECTORS.
(a) Prior to a Voting Termination Event, an Executive Committee (the
"EXECUTIVE COMMITTEE") consisting of three (3) members of the Board of Directors
shall be 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 such
Executive Committee. Each of OCM and WES&S shall designate one (1) OCM Director
(an "OCM EXECUTIVE DIRECTOR") and one (1) WES&S Director (a "WES&S EXECUTIVE
DIRECTOR"), respectively, to sit on the Executive Committee; and the third
member of the Executive Committee shall be the Chief Executive officer of the
Company.
Only OCM shall have the right to remove an OCM Executive Director or
to fill a vacancy caused by the resignation, removal (with or without cause) or
death of such OCM Executive Director. only WES&S shall have the right to remove
a WES&S Executive Director or to fill a vacancy caused by the resignation,
removal (with or without cause) or death of such WES&S Executive Director.
(b) Upon a Voting Termination Event, the Board of Directors may from
time to time, by resolution passed by majority of the Whole Board, designate one
or more committees, each committee to consist of one or more directors of the
Company. Each such committee shall keep a record of its acts and proceedings
and shall report thereon to the Board of Directors whenever requested so to do.
Any or all members of any such committee may be removed, with or without cause,
by resolution of the Board of Directors, passed by a majority of the whole
Board.
ARTICLE IV
OFFICERS, AGENTS AND EMPLOYEES
SECTION 4.1 APPOINTMENT AND TERM OF OFFICE. The officers of the
Company may include a President, a Chief Executive officer, a Secretary and a
Treasurer, and may also
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include a Chairman of the Board, one or more Vice Presidents, one or more
Assistant Secretaries and one or more Assistant Treasurers. All such
officers shall be appointed by the Board of Directors or by a duly authorized
committee thereof, and shall each have such powers and duties as generally
pertain to their respective offices, subject to the specific provisions of
this Article IV, together with such other powers and duties as from time to
time may be conferred by the Board of Directors or any committee thereof.
Any number of such offices may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one
capacity. Except as may be prescribed otherwise by the Board of Directors or
a committee thereof in a particular case, all such officers shall hold their
offices at the pleasure of the Board of Directors for an unlimited term and
need not be reappointed annually or at any other periodic interval. The
Board of Directors may appoint, and may delegate power to appoint, such other
officers, agents and employees as it may deem necessary or proper, who shall
hold their offices or positions for such terms, have such authority and
perform such duties as may from time to time be determined by or pursuant to
authorization of the Board of Directors.
SECTION 4.2 RESIGNATION AND REMOVAL. Any officer may resign at any
time upon written notice to the Company. Any officer, agent or employee of the
Company may be removed by the Board of Directors, or by a duly authorized
committee thereof, with or without cause at any time. The Board of Directors or
such a committee thereof may delegate such power of removal as to officers,
agents and employees not appointed by the Board of Directors or such a
committee. Such removal shall be without prejudice to a person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Company shall not of itself create contract rights.
SECTION 4.3 COMPENSATION AND BOND. The compensation of the officers
of the Company shall be fixed by the Board of Directors, but this power may be
delegated to any officer in respect of other officers under his or her control.
The Company may secure the fidelity of any or all of its officers, agents or
employees by bond or otherwise.
SECTION 4.4 CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there be one, shall preside at all meetings of stockholders and of the Board of
Directors, and shall have such other powers and duties as may be delegated to
him or her by the Board of Directors.
SECTION 4.5 CHIEF EXECUTIVE OFFICER AND PRESIDENT. In the absence of
the Chairman of the Board (or if there be none), the Chief Executive Officer
shall preside at all meetings of the
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stockholders and of the Board of Directors. The Chief Executive officer and
President shall have general charge of the business affairs of the Company. The
Chief Executive officer and President may employ and discharge employees and
agents of the Company, except such as shall be appointed by the Board of
Directors, and he or she may delegate these powers. The Chief Executive Officer
may vote the stock or other securities of any other domestic or foreign
corporation of any type or kind which may at any time be owned by the Company,
may execute any stockholders' or other consents in respect thereof and may in
his or her discretion delegate such powers by executing proxies, or otherwise,
on behalf of the Company. The Board of Directors by resolution from time to
time may confer like powers upon any other person or persons. In the absence or
inability to act of the Chief Executive Officer, unless the Board of Directors
shall otherwise provide, the President who has served in that capacity for the
longest time and who shall be present and able to act, shall perform all the
duties and may exercise any of the powers of the Chief Executive Officer.
SECTION 4.6 VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board of Directors, the Chief Executive
Officer or the President may from time to time prescribe. In the absence or
inability to act of the President, unless the Board of Directors shall otherwise
provide, the Vice President who has served in that capacity for the longest time
and who shall be present and able to act, shall perform all the duties and may
exercise any of the powers of the President.
SECTION 4.7 TREASURER. The Treasurer shall have charge of all funds
and securities of the Company, shall endorse the same for deposit or collection
when necessary and deposit the same to the credit of the Company in such banks
or depositories as the Board of Directors may authorize. He or she may endorse
all commercial documents requiring endorsements for or on behalf of the Company
and may sign all receipts and vouchers for payments made to the Company. He or
she shall have all such further powers and duties as generally are incident to
the position of Treasurer or as may be assigned to him or her by the President,
Chief Executive Officer or the Board of Directors.
SECTION 4.8 SECRETARY. The Secretary shall record all the
proceedings of the meetings of the stockholders and directors in a book to be
kept for that purpose and shall also record therein all action taken by written
consent of the stockholders or directors in lieu of a meeting. He or she shall
attend to the giving and serving of all notices of the Company. He or she shall
have custody of the seal of the Company and shall attest the same by his or her
signature whenever required. He or she
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shall have charge of the stock ledger and such other books and papers as the
Board of Directors may direct, but he or she may delegate responsibility for
maintaining the stock ledger to any transfer agent appointed by the Board of
Directors. He or she shall have all such further powers and duties as generally
are incident to the position of Secretary or as may be assigned to him or her by
the President, Chief Executive officer or the Board of Directors.
SECTION 4.9 ASSISTANT TREASURERS. In the absence or inability to act
of the Treasurer, any Assistant Treasurer may perform all the duties and
exercise all the powers of the Treasurer. An Assistant Treasurer shall also
perform such other duties as the Treasurer or the Board of Directors may assign
to him or her.
SECTION 4.10 ASSISTANT SECRETARIES. In the absence or inability to
act of the Secretary, any Assistant Secretary may perform all the duties and
exercise all the powers of the Secretary. An Assistant Secretary shall also
perform such other duties as the Secretary or the Board of Directors may assign
to him or her.
SECTION 4.11 DELEGATION OF DUTIES. In case of the absence of any
officer of the Company, or for any other reason that the Board of Directors may
deem sufficient, the Board of Directors may confer for the time being the powers
or duties, or any of them, of such officer upon any other officer or upon any
director.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 5.1 RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding") , by reason of the fact that he or
she or a person of whom he or she is the legal representative is or was a
director or an officer of the Company or is or was serving at the request of the
Company as a director, officer, employee or agent of any other corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to any employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Company to the
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fullest extent authorized by the GCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment), against all
expense, liability and loss (including, without limitation, attorneys, fees,
judgments, fines, excise taxes or penalties under the Employee Retirement Income
Security Act of 1974, as amended, and amounts paid or to be paid in settlement)
reasonably incurred by such indemnitee in connection therewith; PROVIDED,
HOWEVER, that except as provided in Section 5.3 with respect to proceedings
seeking to enforce rights to indemnification, the Company shall indemnify any
such indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by the Board of Directors.
SECTION 5.2 RIGHT TO ADVANCEMENT OF EXPENSES. The right to
indemnification conferred in Section 5.1 shall include the right to be paid by
the Company the expenses (including attorneys, fees) incurred in defending any
such proceeding in advance of its final disposition (hereinafter an "advancement
of expenses") ; PROVIDED, HOWEVER, that, if the GCL requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Company of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 5.2 or otherwise.
SECTION 5.3 RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under
Section 5.1 or Section 5.2 is not paid in full by the Company within thirty (30)
days after a written claim has been received by the Company, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Company to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right of an advancement of expenses) it shall be a defense that,
and
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(ii) in any suit brought by the Company to recover an advancement of expenses
pursuant to the terms of an undertaking, the Company shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
any applicable standard for indemnification set forth in the GCL. Neither the
failure of the Company (including its Board of Directors, independent legal
counsel or stockholders) to have made a determination prior to the commencement
of such action that indemnification of the indemnitee is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth in the GCL, nor an actual determination by the Company (including its
Board of Directors, independent legal counsel or stockholders) that the
indemnitee has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the indemnitee, be a defense to such
suit. In any suit brought by the indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or brought by the
Company to recover an advancement of expenses pursuant to the terms of an
undertaking, the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article V or
otherwise shall be on the Company.
SECTION 5.4 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the advancement of expenses conferred in this Article V shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, provision of
these Bylaws, agreement, vote of stockholders or disinterested directors or
otherwise.
SECTION 5.5 INSURANCE. The Company may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Company
would have the power to indemnify such person against such expense, liability or
loss under the GCL.
SECTION 5.6 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE COMPANY.
The Company may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and rights to the advancement of
expenses, to any employee or agent of the Company to the fullest extent of the
provisions of this Article V with respect to the indemnification and advancement
of expenses of directors and officers of the Company.
SECTION 5.7 CONTRACT RIGHTS. The rights to indemnification and to
the advancement of expenses conferred in Section 5.1 and Section 5.2 shall be
contract rights and such
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rights shall continue as to an indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the indemnitee's
heirs, executors and administrators.
ARTICLE VI
COMMON STOCK
SECTION 6.1 CERTIFICATES. Certificates for stock of the Company
shall be in such form as shall be approved by the Board of Directors and shall
be signed in the name of the Company by the Chairman of the Board, if any, or
the Chief Executive Officer, the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary.
Such certificates may be sealed with the seal of the Company or a facsimile
thereof. Any of or all the signatures on a certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued,, it may
be issued by the Company with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
SECTION 6.2 TRANSFERS OF STOCK. Transfers of stock shall be made
only upon the books of the Company by the holder, in person or by duly
authorized attorney, and on the surrender of the certificate or certificates for
the same number of shares, properly endorsed. The Board of Directors shall have
the power to make all such rules and regulations, not inconsistent with the
Certificate of Incorporation and these Bylaws and the GCL, as the Board of
Directors may deem appropriate concerning the issue, transfer and registration
of certificates for stock of the Company. The Board of Directors may appoint
one or more transfer agents or registrars of transfers, or both, and may require
all stock certificates to bear the signature of either or both.
SECTION 6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. Except as
otherwise set forth in the Certificate of Incorporation, the Company may issue a
new stock certificate in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Company may require the
owner of the lost, stolen or destroyed certificate or his or her legal
representative to give the Company a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of any such new certificate.
The Board of Directors may require such owner to satisfy other reasonable
requirements as it deems appropriate under the circumstances.
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SECTION 6.4 STOCKHOLDER RECORD DATE. In order that the Company may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action the Board of Directors
may fix a record date, which record date shall not precede the date on which
the resolution fixing the record date is adopted by the Board of Directors,
and which shall not be more than sixty nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
If no record date is fixed by the Board of Directors, (1) the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the date on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held, (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be at the close of
business on the day on which the first written consent is expressed by the
filing thereof with the Company as provided in Section 2.8 of these Bylaws,
and (3) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the
adjourned meeting.
Only such stockholders as shall be stockholders of record on the date
so fixed shall be entitled to notice of, and to vote at, such meeting and any
adjournment thereof, or to give such consent, or to receive payment of such
dividend or other distribution, or to exercise such rights in respect of any
such change, conversion or exchange of stock, or to participate in such action,
as the case may be, notwithstanding any transfer of any stock on the books of
the Company after any record date so fixed.
ARTICLE VII
SEAL
SECTION 7.1 SEAL. The seal of the Company shall be circular in form
and shall bear, in addition to any other emblem or device approved by the Board
of Directors, the name of the Company, the year of its incorporation and the
words "Corporate Seal" and "Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE VIII
WAIVER OF NOTICE
SECTION 8.1 WAIVER OF NOTICE. Whenever notice is required to be
given to any stockholder or director of the Company under any provision of the
GCL or the Certificate of Incorporation or these Bylaws, a written waiver
thereof, signed by the person or persons entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such
notice. In the case of a stockholder, such waiver
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of notice may be signed by such stockholder's attorney or proxy duly appointed
in writing. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE IX
CHECKS, NOTES, DRAFTS, ETC.
SECTION 9.1 CHECKS, NOTES, DRAFTS, ETC. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors or a duly authorized committee thereof may from time to time
designate.
ARTICLE X
AMENDMENTS
SECTION 10.1 AMENDMENTS. Prior to a Voting Termination Event, these
Bylaws and the Certificate of Incorporation may be altered, amended or repealed
at any time by the stockholders beneficially owning at least eighty percent
(80%) of the issued and outstanding shares of Common Stock entitled to Vote.
Upon a Voting Termination Event, these Bylaws and the Certificate of
Incorporation may be altered, amended, or repealed at any time by the
stockholders beneficially owning a majority of the issued and outstanding shares
of Common Stock entitled to vote. Notwithstanding the foregoing, no amendment
or modification to ARTICLES II OR III hereof may be made without the consent of
the stockholders beneficially owning ninety percent (90%) of the issued and
outstanding shares of Common Stock entitled to vote. No amendment, modification
or waiver of any provision hereof shall extend to or affect any obligation not
expressly amended, modified or waived or impair any right consequent thereon.
No course of dealing, and no failure to exercise or delay in exercising any
right, remedy, power or privilege hereunder, shall operate as a waiver,
amendment or modification of any provision of the Company's Certificate of
Incorporation or these Bylaws.
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ARTICLE XI
DEFINITIONS
The following terms shall have the following meanings, which meanings
shall be equally applicable to the singular and plural forms of such terms:
"AFFILIATE" of any person or entity means any person or entity which
directly or indirectly controls, is controlled by, or is under common control
with such person or entity.
"CONTROL," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH" means
direct or indirect possession of the power to direct or cause the direction of
management or policies (whether through ownership of voting securities, by
contract or otherwise); provided that control shall be conclusively presumed
when any person or entity or affiliated group directly or indirectly owns ten
percent (10%) or more of the securities having ordinary voting power for the
election of a majority of the directors of a corporation.
"CLOSING DATE" means October 31, 1996.
"FINANCIAL DEFAULT" shall mean with respect to the Company or any
Subsidiary, any of the following: (i) the occurrence of a default under any
indebtedness with a principal amount in excess of $20 million (either
individually or in the aggregate) to the extent that such default is not cured
or waived within thirty (30) days; (ii) the acceleration of any indebtedness
with a principal amount in excess of $10 million (either individually or in the
aggregate) to the extent not paid or rescinded within five (5) days; (iii) the
imposition of any final and non-appealable judgments in excess of $10 million
(either individually or in the aggregate) to the extent not paid or rescinded
within five (5) days; or (iv) the filing of any voluntary or involuntary
bankruptcy petition with respect to the Company or any Subsidiary to the extent
not withdrawn within five (5) days.
"FINANCIAL DEFAULT DISAGREEMENT" shall mean that, upon the occurrence
of a Financial Default, the Board of Directors of the Company is unable to agree
on the Company's course of action in response to a Financial Default.
"INITIAL PUBLIC OFFERING" means the first underwritten public offering
of Common Stock by the Company pursuant to a registration of shares under the
Securities Act on a Form S-1 Registration Statement (or equivalent or successor
form).
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"OCM" means OCM Principal Opportunities Fund, L.P., a Delaware limited
partnership.
"OCM AFFILIATE" means any investor in or any employee of OCM or
Oaktree Capital Management, LLC ("OAKTREE"), a California limited liability
company, or in any company, joint venture, limited liability company,
association or partnership of which OCM or Oaktree, is a shareholder, manager
or general partner, as the case may be.
"OCM DIRECTORS" has the meaning assigned to such term in
SECTION 3.1(a).
"OCM ENTITY" means either or both of TCW and OCM, as the context
indicates.
"OCM ENTITY FUNDING DEFAULT" means a circumstance whereby (1) an OCM
Entity and WES&S have entered into a commitment to purchase Securities of the
Company pursuant to a purchase agreement; (ii) such OCM Entity is in breach
of its commitment to purchase such Securities; and (iii) WES&S ultimately
completes its purchase under such purchase agreement.
"OCM ENTITY PURCHASE DEFAULT" means an OCM Entity is in breach of
its purchase obligation under an OCM Entity Acceptance Notice in connection
with certain transfers of the WES&S Shares as set forth in the Stockholders
Agreement.
"OCM ENTITY SHARES" means all the Securities now and hereafter held
by OCM, an OCM Affiliate, TCW or a TCW Affiliate.
"PERSON" shall mean any individual, corporation, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or agency or political
subdivision thereof.
"SECURITIES" shall mean the shares of Common Stock and any
securities convertible or exercisable into shares of Common Stock.
"SELL-DOWN EVENT" means an event, subject to the Stockholders
Agreement, whereby WES&S sells or Transfers Securities (or an economic
"capital interest" therein, whether directly or indirectly) to any Person;
PROVIDED, HOWEVER, that the following Transfers shall not constitute a
Sell-Down Event: (i) any Transfer made to a WES&S Affiliate or
(ii) any Transfer made to any Person if (A) WES&S retains voting control of
the Securities transferred to such Person and (B) the cumulative number of
Securities so transferred for the economic capital interest therein) by WES&S
shall not exceed the Threshold Amount.
"SIMON ENTITY" means Logistical Simon, L.L.C., a Delaware limited
liability company, WESINVEST, Inc., a Delaware corporation or William E. Simon &
Sons, L.L.C, a Delaware limited liability company.
"STOCKHOLDERS AGREEMENT" means the Amended and Restated Stockholder's
Agreement, dated as of October 31, 1996, among the Company and all of the
holders of the Securities on such date as the same may be modified or amended
from time to time.
"SUBSIDIARY" means any corporation at least a majority of the Voting
Stock of which is, at the time as of which any determination is being made,
owned by the Company either directly or indirectly through one or more
Subsidiaries.
"TCW" means TCW Special Credits Fund V -- The Principal Fund, a
California limited partnership.
"TCW DIRECTOR" has the meaning assigned to such term in
SECTION 3.1(a).
"TCW AFFILIATE" means any investor in or any employee of TCW, TCW
Asset Management Company, a California corporation ("TAMCO") , Trust Company of
the West, a California trust company ("TRUSTCO") or Oaktree Capital Management,
LLC ("OAKTREE"), a California limited liability company, or in any company,
joint
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venture, limited liability company, association or partnership of which TCW,
TAMCO, Trustco or Oaktree, is a shareholder, manager or general partner, as the
case may be.
"THRESHOLD AMOUNT" means thirty Percent (30%) of the shares held by
WES&S as of the Closing Date (excluding for the purpose of this calculation any
shares owned by WES&S to the extent received upon the exercise of warrants or
otherwise acquired from parties other than the Company).
"VOTING STOCK" means any shares of stock having general voting power
to elect the Board of Directors (whether or not stock of any other class or
classes has or might have voting power by reason of the occurrence of any
contingency).
"VOTING TERMINATION EVENT" means the first to occur of (i) an Initial
Public Offering, (ii) a Sell-Down Event, (iii) a WES&S Purchase Default, (iv) a
WES&S Funding Default, (v) a Financial Default Disagreement, (vi) an OCM Entity
Purchase Default, (vii) an OCM Entity Funding Default or (viii) May 2, 2002.
"WES&S" means Logistical Simon, L.L.C., a Delaware limited liability
company.
"WES&S DIRECTOR" has the meaning assigned to such term in
SECTION 3.1(a).
"WES&S AFFILIATE" means any Simon Entity or any partnership, limited
liability company or corporation that directly or indirectly, through one or
more intermediaries, has control of, is controlled by or is under common control
with (i) any Simon Entity or (ii) any shareholder, partner or member of a Simon
Entity or any such shareholder's, partner's or member's spouse, siblings,
children, children's spouses, grandchildren or their spouses or any trusts for
the benefit of any of the foregoing.
"WES&S FUNDING DEFAULT" means a circumstance whereby (i) an OCM
Entity and WES&S have entered into a commitment to purchase the Securities of
the Company pursuant to a purchase agreement; (ii) WES&S is in breach of its
commitment to purchase such Securities; and (iii) an OCM Entity ultimately
completes its purchase under such purchase agreement.
"WES&S PURCHASE DEFAULT" means WES&S is in breach of its purchase
obligation under a WES&S Acceptance Notice in connection with certain transfers
of the OCM Entity Shares as set forth in the Stockholders Agreement.
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EXHIBIT 10.10
THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE OF THE WARRANT ARE SUBJECT TO A SECOND AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT AND SECOND AMENDED AND RESTATED REGISTRATION
RIGHTS AGREEMENT, EACH DATED AS OF NOVEMBER 7, 1996 AND A SUBSCRIPTION
AGREEMENT DATED AS OF _________, 1996, COPIES OF WHICH ARE ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED TO THE HOLDER ON
REQUEST TO THE SECRETARY OF THE COMPANY. SUCH SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT, SECOND AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT AND SUBSCRIPTION AGREEMENT PROVIDE, AMONG OTHER THINGS, FOR CERTAIN
RESTRICTIONS ON VOTING, SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF
COMMON STOCK PURCHASABLE UPON EXERCISE OF THE WARRANT AND THAT SUCH SHARES OF
COMMON STOCK ARE SUBJECT TO PURCHASE BY THE COMPANY AS WELL AS CERTAIN OTHER
PERSONS UPON THE OCCURRENCE OF CERTAIN EVENTS. ANY EVIDENCE, SALE,
ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE TO PERSONS OTHER THAN IN ACCORDANCE WITH SUCH SECOND AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT, SECOND AMENDED AND RESTATED REGISTRATION
RIGHTS AGREEMENT AND SUBSCRIPTION AGREEMENT SHALL BE NULL AND VOID.
THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED PURSUANT TO
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAW, AND SUCH WARRANT AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED.
No. ___ Warrant to Purchase
_________ Shares Dated
as of __________, 1996
WARRANT
To Purchase Common Stock of
INTERNATIONAL LOGISTICS LIMITED
Purchase Price of Common Stock: Purchase price per share
as set forth below.
THIS WARRANT CERTIFIES that, for value received, Roger E. Payton or
registered assigns is entitled, prior to the close of
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business on the Expiration Date (defined below), to purchase _________ shares
of Common Stock in International Logistics Limited, a Delaware corporation
(the "COMPANY"), at a purchase price per share equal to _______ (the "WARRANT
PURCHASE PRICE") upon surrender of this Warrant at the principal office of
the Company, and payment of such purchase price in cash, by bank cashier's or
certified check or by a cashless exercise as set forth in SECTION 2.B.2.
below.
This Warrant is issued by the Company in connection with the acquisition
by the Company of the outstanding shares of common stock in LEP Profit
International, Inc., a Delaware corporation. The terms and conditions of the
Warrant are set forth herein. Any capitalized terms used herein and not
defined herein shall have the meanings set forth in the Stockholders
Agreement (as defined herein).
SECTION 1
DEFINITIONS
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or any day
on which commercial banks in the city of Chicago, Illinois are authorized or
required by law to close.
"COMMON STOCK" means the Common Stock of the Company, $.001 par value
per share, authorized on the date of the original issue of this Warrant and
shall also include any capital stock of any class of the Company then or
thereafter authorized which shall not be limited to a fixed sum or percentage
of par value in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of the Company, and shall
also include, in case of any reorganization, reclassification, consolidation,
merger or sale of assets of the character referred to in SECTION 5 hereof,
the stock, securities or assets provided for in such Section; PROVIDED that
the shares purchasable pursuant to this Warrant shall include only shares of
such class.
"EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of May
2, 1996, as amended, by and between the Company and Roger E. Payton.
"EXPIRATION DATE" means May 2, 2003.
"FAIR MARKET VALUE" shall mean the fair market value of the Company's
Common Stock (or other securities if in the context of untraded securities
distributed in connection with a Qualified
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<PAGE>
Sale) as determined on a fully-distributed basis without regard to liquidity
or size relative to the number of shares outstanding; PROVIDED that such
valuation (x) be performed by a nationally recognized investment banking,
valuation or appraisal firm paid for by the Company and (y) shall ascribe
value to warrants as the amount, if any, by which the value of the Common
Stock underlying the warrant shall exceed the aggregate exercise price
related thereto.
"INITIAL PUBLIC OFFERING" means the first underwritten public offering
of Common Stock by the Company pursuant to a registration of shares under the
Securities Act on a Form S-1 Registration Statement (or equivalent or
successor form).
"OCM" means OCM Principal Opportunities Fund, L.P., a Delaware limited
partnership.
"OCM AFFILIATES" means any investor in or any employee of OCM or Oaktree
Capital Management, LLC ("OAKTREE"), a California limited liability company,
or in any company, joint venture, limited liability company, association or
partnership of which the OCM or Oaktree, is a shareholder, manager or general
partner, as the case may be.
"PUBLIC OFFERING" means any offering of Common Stock to the public,
including the Initial Public Offering, either on behalf of the Company or any
of its stockholders, pursuant to an effective registration statement under
the Securities Act.
"QUALIFIED PUBLIC OFFERING" means a Public Offering wherein the
aggregate offering proceeds are not less than $30,000,000 (determined based
on gross offering price paid to the Company at the closing of each such
transaction for the offered securities).
"QUALIFIED SALE" shall mean (i) any sale of all or substantially all of
the assets of the Company or (ii) any sale, merger or liquidation of the
Company with or into any other entity whereby at least a majority of the
voting stock of such surviving entity shall be owned or controlled by a
person other than OCM, TCW, WES&S, an OCM Affiliate, a TCW Affiliate or a
WES&S Affiliate.
"REGISTRATION RIGHTS AGREEMENT" means the Second Amended and Restated
Registration Rights Agreement dated as of November 7, 1996, by and among the
Company and each of the Investors listed on Exhibit A thereto, as the same
may be amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended and as the
same may be amended from time to time.
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<PAGE>
"SIMON ENTITY" means Logistical Simon, L.L.C., a Delaware limited
liability company, WESINVEST, Inc., a Delaware corporation or William E.
Simon & Sons, L.L.C., a Delaware limited liability company.
"STOCKHOLDERS AGREEMENT" means the Second Amended and Restated
Stockholders Agreement dated as of November 7, 1996 by and among the Company
and each of the Holders listed on Exhibit A thereto, as the same may be
amended from time to time.
"TCW" means TCW Special Credits Fund V - The Principal Fund, a
California limited partnership.
"TCW AFFILIATES" means any investor in or any employee of TCW, TCW Asset
Management Company, a California corporation ("TAMCO"), Trust Company of the
West, a California trust company ("TRUSTCO") or Oaktree Capital Management,
LLC ("OAKTREE"), a California limited liability company, or in any company,
joint venture, limited liability company, association or partnership of which
TCW, TAMCO, Trustco or Oaktree, is a shareholder, manager or general partner,
as the case may be.
"TRADING PRICE" means the trading price for each such trading day: (a)
if the Common Stock is traded on a national securities exchange, its last
reported sale price on the preceding Business Day on such national securities
exchange or, if there was no sale on that day, the last reported sale price
on such national securities exchange on the next preceding Business Day on
which there was a sale, all as made available over the Consolidated Last Sale
Reporting System of the CTA Plan (the "CLSRS") or, if the Common Stock is not
then eligible for reporting over the CLSRS, its last reported sale price on
the preceding Business Day on such national securities exchange or, if there
was no sale on that day, on the next preceding Business Day on which there
was a sale on such exchange or (b) if the principal market for the Common
Stock is the over-the-counter market, but the Common Stock is not then
eligible for reporting over the CLSRS, but the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), the last sale price reported on NASDAQ on the preceding Business
Day or, if the Common Stock is an issue for which last sale prices are not
reported on NASDAQ, the closing bid quotation on such day, but in each of the
next preceding two cases, if the relevant NASDAQ price or quotation did not
exist on such day, then the price or quotation on the next preceding Business
Day in which there was such a price or quotation.
"WES&S means Logistical Simon, L.L.C., a Delaware limited liability
company.
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<PAGE>
"WES&S AFFILIATE" means any Simon Entity or any partnership, limited
liability company or corporation that directly or indirectly, through one or
more intermediaries, has control of, is controlled by or is under common
control with (i) any Simon Entity or (ii) any shareholders, partner or member
of a Simon Entity or any such shareholder's, partner's or member's spouse,
siblings, children, children's spouses, grandchildren or their spouses or any
trusts for the benefit of any of the foregoing.
"WARRANT PURCHASE PRICE" has the meaning assigned to that term in the
introductory paragraph hereof.
"WARRANT SHARES" means the shares of Common Stock purchased or
purchasable by the Warrantholder upon the exercise of the Warrant pursuant to
SECTION 2 hereof.
"WARRANTHOLDER" means the registered holder of the Warrant and any
related Warrant Shares.
SECTION 2
EXERCISE
A. GENERAL. The Warrantholder shall be entitled to exercise the
Warrant, in whole or in part, at any time or from time to time on or before
5:00 p.m., Chicago, Illinois time, on the Expiration Date; PROVIDED, HOWEVER,
that the Warrant shall be subject to vesting on the following basis: (i)
_________ shares shall be vested on ____________ and (ii) __________ shares
shall be vested on _____________. The Warrant is not exercisable as to
fractions of shares. Unvested portions of the Warrant shall be forfeited and
cancelled if at any time (i) Roger E. Payton's employment with the Company is
terminated as a result of death, disability or retirement, (ii) Roger E.
Payton's employment with the Company is terminated for "Cause" or (iii) Roger
E. Payton voluntarily resigns from the Company (unless such resignation is
due to a significant diminution of responsibility). Unvested portions of the
Warrant shall be automatically vested upon a Qualified Sale, a Qualified
Public Offering or the termination of Roger E. Payton's employment from the
Company without Cause. For purposes of this Agreement, "Cause" shall have
the meaning set forth in the Employment Agreement.
B. MANNER OF EXERCISE. The Warrantholder may exercise the vested
portion of the Warrant, in whole or in part, by either of the following
methods:
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<PAGE>
1. The Warrantholder shall complete one of the Subscription Forms
attached hereto, and deliver it to the Company, at its principal offices
located at 330 S. Mannheim Road, Suite 200, Hillside, IL 60162, Attention:
President (or at such other location as the Company may designate by notice
in writing to the Warrantholder), together with the Warrant and either cash,
a certified check or a bank cashier's check, in an amount equal to the then
aggregate Warrant Purchase Price of the shares of Common Stock being
purchased; or
2. The Warrantholder may also exercise this Warrant, in whole or in
part, in a "cashless" exercise by delivering to the Company, at its principal
offices located at 330 S. Mannheim Road, Suite 200, Hillside, IL 60162,
Attention: President (or at such other location as the Company may designate
by notice in writing to the Warrantholder), (i) one of the Subscription Forms
attached hereto, which notice shall specify the number of Warrant Shares to
be delivered to such Warrantholder and the number of Warrant Shares with
respect to which this Warrant is being surrendered in payment of the
aggregate Exercise Price for the Warrant Shares to be delivered to the
Warrantholder, and (ii) the Warrant. For purposes of this cashless exercise
provision, all Warrant Shares as to which the Warrant is surrendered will be
attributed the following value: (i) prior to an Initial Public Offering and
in context of a Qualified Sale: at the Fair Market Value of the
consideration received by stockholders with respect to their outstanding
shares of Common Stock; (ii) concurrently with an Initial Public Offering:
a value equal to the Initial Public Offering offer price to the public; or
(iii) subsequent to an Initial Public Offering, a price equal to the average
Trading Price of the Company's Common Stock for the twenty (20) preceding
trading days ending on the day prior to the date on which the request for
cashless exercise is received by the Company. The costs and expenses
associated with determination of any of the preceding valuations shall be
borne by the Company. Cashless exercises shall be permitted only to the
extent that such exercise is permitted by the terms of the Company's
indebtedness. Notwithstanding the foregoing, commencing on the day after the
Initial Public Offering through the twentieth trading day following the
Initial Public Offering, the Warrantholder shall not be permitted to make a
cashless exercise pursuant to this Section.
Upon receipt thereof by the Company, the Warrantholder shall be
deemed to be a holder of record of the shares of Common Stock specified in
said Subscription Form, and the Company shall, as promptly as practicable,
and in any event within ten (10) Business Days thereafter, execute and
deliver or cause to be delivered to the Warrantholder a certificate or
certificates representing the aggregate number of shares of Common Stock
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<PAGE>
specified in said Subscription Form. Each stock certificate so delivered
shall be registered in the name of the Warrantholder or such other name as
shall be designated by the Warrantholder, subject to compliance with federal
and state securities laws. If the Warrant shall have been exercised only in
part, the Company shall, at the time of delivery of said stock certificate or
certificates, deliver to the Warrantholder a like Warrant representing the
right to purchase the remaining number of shares purchasable thereunder. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, execution and delivery of stock certificates pursuant
to this SECTION 2, except that, in case such stock certificates shall be
registered in a name or names other than the name of the Warrantholder, funds
sufficient to pay all stock transfer taxes which shall be payable upon the
execution and delivery of such stock certificate or certificates shall be
paid by the Warrantholder to the Company at the time of delivering the
Warrant to the Company as mentioned above.
C. TRANSFER RESTRICTION LEGEND. The Warrant and each certificate for
Warrant Shares issued upon exercise or conversion of the Warrant, unless at
the time of exercise or conversion such Warrant Shares are registered under
the Securities Act, shall bear the legends described in SECTION 10(A) of the
Stockholders Agreement.
D. CHARACTER OF WARRANT SHARES. All shares of Common Stock issuable
upon the exercise of the Warrant shall be duly authorized, validly issued,
fully paid and nonassessable.
SECTION 3
OWNERSHIP AND EXCHANGE OF THE WARRANT
A. REGISTERED HOLDER. The Company may deem and treat the person in
whose name the Warrant is registered as the holder and owner thereof
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of the Warrant for exchange as
provided in this SECTION 3.
B. EXCHANGE AND REPLACEMENT. The Warrant is exchangeable upon the
surrender thereof by the Warrantholder to the Company at its principal
offices for a new Warrant or Warrants of like tenor and date representing in
the aggregate the right to purchase the number of shares purchasable
hereunder, each new Warrant to represent the right to purchase such number of
shares as shall be designated by the Warrantholder at the time of surrender.
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<PAGE>
Subject to compliance with SECTION 4 hereof, each Warrant and all rights
thereunder are transferable in whole or in part upon the books of the Company
by the Warrantholder in person or by its duly authorized attorney, and a new
Warrant or Warrants shall be made and delivered by the Company, of the same
tenor and date as the Warrant but registered in the name of the transferee,
upon surrender of the Warrant, duly endorsed, at the principal offices of the
Company. The Company will issue a replacement certificate for the Warrant
upon the loss, theft, destruction or mutilation thereof pursuant to SECTION
10(b) of the Stockholders Agreement. The Warrant shall be promptly canceled
by the Company upon the surrender thereof in connection with any exchange,
transfer or replacement. Except as set forth in the Stockholders Agreement,
the Company shall pay all expenses, taxes (other than stock transfer taxes)
and other charges payable in connection with the preparation, execution and
delivery of the Warrant pursuant to this SECTION 3.
SECTION 4
TRANSFER OF WARRANT OR WARRANT SHARES
A. GENERAL PROVISIONS. The Warrant shall not be transferable. The
related Warrant Shares shall not be transferable except in accordance with
the terms and conditions specified in the Stockholders Agreement.
B. REGISTRATION RIGHTS. The Company has agreed to provide certain
piggyback registration rights in respect of the Warrant Shares, the terms and
conditions of which are set forth in the Registration Rights Agreement. Upon
any transfer of any Warrant Shares in accordance with the provisions of the
Stockholders Agreement (other than transfers made after an Initial Public
Offering), the registration rights pertaining thereto may be transferred,
pursuant to the terms and provisions of Section 10 of the Registration Rights
Agreement, upon giving notice to the Company and the transferee's agreement
to be bound by the provisions of the Stockholders Agreement.
SECTION 5
ANTI-DILUTION PROVISIONS
A. PAYMENTS TO THE WARRANTHOLDER IN CONNECTION WITH CERTAIN DIVIDENDS.
In the event that the Company declares a dividend upon the Common Stock,
other than a dividend payable in Common Stock, then at the option of the
Warrantholder,
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<PAGE>
1. the Warrant Purchase Price in effect immediately prior to the
declaration of such dividend shall be reduced by an amount equal to the
amount of such dividend payable per share of Common Stock, in the case of a
cash dividend, or by the fair value of such dividend per share (as reasonably
determined by the Board of Directors of the Company) in the case of any other
dividend, such reduction to be effective on the date as of which a record is
taken for purposes of such dividend, or if a record is not taken, the date as
of which holders of record of Common Stock entitled to such dividend are
determined, or
2. in the case of a dividend consisting of stock or securities
(other than Common Stock, options or convertible securities) or other
property distributable to holders of Common Stock, lawful and adequate
provisions shall be made (including without limitation any necessary
reduction in the Warrant Purchase Price) whereby the Warrantholder shall
thereafter have the right to purchase and/or receive, on the terms and
conditions specified in this Warrant and in addition to the Warrant Shares
purchasable immediately prior to the declaration of such dividend, such
shares of stock, securities or property as are distributable with respect to
outstanding shares of Common Stock equal to the number of Warrant Shares
purchasable immediately prior to such declaration, to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Warrant Purchase Price and of the number of shares receivable upon
exercise) shall thereafter be applicable, as nearly as may be, in relation to
such shares of stock, securities or property.
For the purposes of this SECTION 5.A, "DIVIDEND" shall mean any
distribution to the holders of Common Stock as such.
B. STOCK SPLITS AND REVERSE SPLITS. In the event that the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Warrant Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares purchasable pursuant to this Warrant immediately prior to such
subdivision shall be proportionately increased, and conversely, in the event
that the outstanding shares of Common Stock of the Company shall at any time
be combined into a smaller number of shares, the Warrant Purchase Price in
effect immediately prior to such combination shall be proportionately
increased and the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such combination shall be proportionately
reduced. Except as provided in this SECTION 5.B, no adjustment in the
Warrant Purchase Price and no change in the number of Warrant Shares
purchasable shall be made under this SECTION 5 as a result of or by reason of
any such subdivision or combination.
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<PAGE>
C. REORGANIZATION AND ASSET SALES. Subject to the terms and
provisions in the Stockholders Agreement, if any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then
the following provisions shall apply:
1. As a condition of such reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided below in this
SECTION 5.C), lawful and adequate provisions shall be made whereby the
Warrantholder shall thereafter have the right to purchase and receive upon
the terms and conditions specified in this Warrant and in lieu of the Warrant
Shares immediately theretofore receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of Warrant Shares immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place.
2. In the event of a merger or consolidation of the Company with
or into another corporation as a result of which a number of shares of Common
Stock of the surviving corporation greater or lesser than the number of
shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the
Company, then the Warrant Purchase Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock
of the Company.
3. The Company shall not effect any such consolidation, merger or
sale unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume, by written instrument executed and mailed or delivered to the
Warrantholder at the last address of the Warrantholder appearing on the books
of the Company, the obligation to deliver to the Warrantholder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
the Warrantholder may be entitled to receive, and all other liabilities and
obligations of the Company hereunder. Upon written request by the
Warrantholder such successor corporation will issue a new warrant revised to
reflect the modifications in this Warrant effected pursuant to this SECTION
5.C.
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<PAGE>
D. NOTICE OF ADJUSTMENT. Whenever the Warrant Purchase Price and the
number of Warrant Shares issuable upon the exercise of this Warrant shall be
adjusted as herein provided, or the rights of the Warrantholder shall change
by reason of other events specified herein, the Company shall compute the
adjusted Warrant Purchase Price and the adjusted number of Warrant Shares in
accordance with the provisions hereof and shall prepare a certificate signed
by its President, Vice President, Treasurer or Secretary setting forth the
adjusted Warrant Purchase Price and the adjusted number of Warrant Shares
issuable upon the exercise of this Warrant or specifying the other shares of
stock, securities or assets receivable as a result of such change in rights,
and showing in reasonable detail the facts and calculations upon which such
adjustments or other changes are based, including a statement of the
consideration received or to be received by the Company for, and the amount
of, any Common Stock, options and convertible securities issued since the
last such adjustment or change (or since the date hereof in the case of the
first adjustment or change). The Company shall cause to be mailed to the
Warrantholder copies of such officer's certificate together with a notice
stating that the Warrant Purchase Price and the number of Warrant Shares
purchasable upon exercise of this Warrant have been adjusted and setting
forth the adjusted Warrant Purchase Price and the adjusted number of Warrant
Shares purchasable upon the exercise of this Warrant.
SECTION 6
NOTICES
Any notice or other document required or permitted to be given or
delivered to the Warrantholder shall be delivered in writing or sent by
certified or registered mail to the Warrantholder at the address furnished to
the Company in writing by the Warrantholder. Any notice or other document
required or permitted to be given or delivered to the Company shall be
delivered personally (including delivery by courier or by facsimile if
received during normal working hours), or be sent by certified or registered
mail to the Company, at 330 S. Mannheim Road, Suite 200, Hillside, IL 60162,
Attention: President, or other such address as shall have been furnished to
the Warrantholder by the Company. Except as otherwise provided, each such
notice shall be deemed given when delivered or on a date which is four (4)
days after it is mailed in any post office or branch post office regularly
maintained by the United States Postal Service (registered or certified, with
postage prepaid and properly addressed).
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<PAGE>
SECTION 7
NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY
The Warrant shall not entitle the Warrantholder to any of the rights of
a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Warrantholder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the
Warrantholder, shall give rise to any liability of the Warrantholder for the
Warrant Purchase Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the company.
SECTION 8
MISCELLANEOUS
This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to
principles of conflict of laws. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning or construction
of any of the provisions hereof.
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<PAGE>
WITNESS the due execution of this Warrant by a duly authorized officer
of the Company.
INTERNATIONAL LOGISTICS LIMITED
a Delaware corporation
By: _____________________________
Gary S. Holter
Chief Financial Executive
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<PAGE>
FULL SUBSCRIPTION FORM
(To Be Executed by the Registered Holder
If It Desires to Exercise the Warrant in Full)
The undersigned hereby exercises the right to purchase the total number
of shares of Common Stock covered by the attached Warrant at the date of this
subscription and herewith makes payment of the sum of $______, or hereby
tenders __________ Warrant Shares as payment therefor, representing the
Warrant Purchase Price of $_____ per share in effect at this date.
Certificates for such shares shall be issued in the name of and delivered to
the undersigned, unless otherwise specified in written instructions signed by
the undersigned and accompanying this subscription.
Dated: ____________________, 19__.
_____________________________
[Signature]
Address:
_____________________________
_____________________________
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<PAGE>
PARTIAL SUBSCRIPTION FORM
(To Be Executed by the Registered Holder
If It Desires to Exercise the Warrant in Part)
The undersigned hereby exercises the right to purchase ______ shares of
Common Stock covered by the attached Warrant at the date of this subscription
and herewith makes payment of the sum of $_____, or hereby tenders ______
Warrant Shares as payment therefor, representing the Warrant Purchase Price
of $_____ per share in effect at this date. Certificates for such shares and
a new Warrant of like tenor and date for the balance of the shares not
subscribed for shall be issued in the name of and delivered to the
undersigned, unless otherwise specified in written instructions signed by the
undersigned and accompanying this subscription.
Dated: _____________________, 19__.
_____________________________
[Signature]
Address:
_____________________________
_____________________________
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<PAGE>
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is made as of the date
of its acceptance set forth on the signature page below by and between
International Logistics Limited, a Delaware corporation (the "Company"), and
Roger E. Payton, an individual subscribing for warrants to purchase shares of
the Company's capital stock pursuant hereto (the "Management Investor").
Certain capitalized terms that are used herein are defined in Section 7 of this
Agreement. Capitalized terms used but not defined herein shall have the
meanings ascribed to them under the Stockholders Agreement.
1. GRANT OF WARRANTS.
(a) Upon the execution of this Agreement, the Management
Investor will receive from the Company, and the Company will grant to the
Management Investor, warrants which, subject to the provisions hereof,
accord to the Management Investor the right to purchase (upon the vesting
of such warrants) up to __________ shares of Common Stock from the Company
(the "Warrants"). The Management Investor's receipt of such Warrants shall
constitute a subscription for such Warrants and shall be evidenced by the
Management Investor's completion of the "Management Investor Election" form
attached hereto. The Management Investor will deliver to the Company the
full purchase price for the Shares purchased upon exercise of the Warrants
by check, wire transfer, bank draft or money order made payable to
"International Logistics Limited". The purchase price per share for Shares
purchased upon exercise of the Warrants is the Warrant Purchase Price. The
Management Investor agrees to enter into the Stockholders Agreement and the
Registration Rights Agreement concurrently with the receipt of the Warrants
pursuant to this Agreement.
(b) In connection with the grant and receipt of the Warrants
hereunder, the Management Investor represents and warrants to the Company
that:
(i) The Management Investor understands that (A) the
Securities have not been registered under the Securities Act, nor
qualified under the securities laws of any other jurisdiction, (B) the
Warrants are non-transferable, (C) the Securities cannot be resold
unless they subsequently are registered under the Securities Act and
qualified under applicable state securities laws, unless the Company
determines that exemptions from such registration and qualification
requirements are available, and (D) except as otherwise set forth in
the Stockholders Agreement and the Registration Rights Agreement, the
Management Investor has no right to require such registration or
qualification;
<PAGE>
(ii) The Securities to be acquired by the Management
Investor pursuant to this Agreement will be acquired for the
Management Investor's own account and not with a view to, or intention
of, distribution thereof in violation of the Securities Act, or any
applicable state securities laws, and the Securities will not be
disposed of in contravention of the Securities Act or any applicable
state securities laws;
(iii) The Management Investor has substantial knowledge
and experience in financial and business matters, has specific
experience making investment decisions of a similar nature, and is
capable, without the use of a financial advisor, of utilizing and
analyzing the information made available in connection with the
acquisition of the Securities and of evaluating the merits and risks
of an investment in the Securities. The Management Investor will
provide the Company, upon request, with such information concerning
any prior investment experience, business or professional experience
and other information as the Company may deem necessary to further
evaluate the foregoing representations;
(iv) The Management Investor has carefully reviewed and
understands the risks of, and other considerations relating to, an
investment in the Securities;
(v) The Management Investor understands that his investment
in the Securities is subject to significant economic risk, including
the relative illiquidity resulting from the fact that the Securities
(A) have not been registered under the Securities Act and, therefore,
cannot be sold unless they are subsequently registered under the
Securities Act or they are sold pursuant to an exemption from such
registration, and (B) are subject to additional restrictions as
provided herein. The Management Investor is able to bear such
economic risk of his investment in the Securities for an indefinite
period of time;
(vi) The Management Investor has had an opportunity to ask
questions and receive answers concerning the terms and conditions of
the offering of the Securities and has had full access to such other
information concerning the Company as he or she has requested.
Without limiting the generality of the foregoing, the Management
Investor has been provided with copies of the Stockholders Agreement
and the Registration Rights Agreement and has had an opportunity to
review and ask questions and receive satisfactory answers concerning
the terms and conditions of such Stockholders Agreement and
Registration Rights Agreement;
(vii) The Management Investor is a resident and
domiciliary of the state or other jurisdiction hereinafter set forth
opposite the Management
<PAGE>
Investor's signature and the Management Investor has no present
intention of becoming a resident of any other state or
jurisdiction. If the Management Investor is a resident and
domiciliary of a state that requires the Company to ascertain certain
other information regarding the Management Investor, the Company ma
attach a page to this Agreement containing additional representations
to be made by the Management Investor in connection with the
Management Investor's investment in the Securities, and by signing
this Agreement, the Management Investor shall be deemed to have made
such additional representations to the Company;
(viii) This Agreement, the Stockholders Agreement and the
Registration Rights Agreement constitute the legal, valid and binding
obligations of the Management Investor, enforceable in accordance with
their respective terms, and the execution, delivery and performance of
this Agreement, the Stockholders Agreement and the Registration Rights
Agreement by the Management Investor does not and will not conflict
with, violate or cause a breach of any agreement, contract or
instrument to which the Management Investor is a party or any order,
judgment or decree to which the Management Investor is subject; and
(ix) The Management Investor has not received and is not
relying upon any written offering literature or prospectus other than
the Stockholders Agreement and the Registration Rights Agreement, and
has not received and is not relying upon any oral representations
which are in any manner inconsistent with the written information
contained in such document.
(c) The Management Investor further acknowledges and agrees
that:
(i) none of (A) the grant of the Warrants to the Management
Investor or (B) any provision contained herein shall entitle the
Management Investor to remain in the employment of the Company or
affect the right of the Company to terminate the Management Investor's
employment at any time for any reason;
(ii) the Company shall have no duty or obligation to
disclose to the Management Investor and the Management Investor shall
have no right to be advised of, any material information regarding the
Company, its Subsidiaries or Affiliates at any time prior to, upon or
in connection with the repurchase of the Securities upon the
termination of the Management Investor's employment with the Company
or as otherwise provided hereunder;
(iii) the Management Investor is to be an officer of the
Company, and has a high degree of familiarity with the business and
assets of the Company and the prospects of such business;
<PAGE>
(iv) the Company is entering into this Agreement in reliance
upon the Management Investor's representations and warranties herein;
(v) all information which the Management Investor has
provided to the Company concerning the Management Investor, his or her
financial position and knowledge of and experience with financial and
business matters is correct and complete as of the date set forth at
the end of this Agreement, and if there should be any material change
in such information prior to the closing of this offering, the
Management Investor will immediately provide the Company with such
information; and
(vi) the Management Investor is aware of the provisions of
Section 83(b) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder and has consulted with his or her
tax advisor as to the advisability of filing an election under said
Section. The Management Investor acknowledges that the Management
Investor has received independent tax advice with respect to tax
consequences resulting from the transactions contemplated herein.
(d) The Company and the Management Investor acknowledge and
agree that this Agreement has been executed and delivered and the Warrants
have been granted hereunder, in connection with and as a part of the
compensation and incentive arrangements between the Company and the
Management Investor.
2. AGREEMENT WITH RESPECT TO THE STOCKHOLDERS AGREEMENT,
REGISTRATION RIGHTS AGREEMENT AND WARRANT AGREEMENT. The Management Investor
acknowledges and agrees that Securities are being issued (or granted) hereunder
pursuant to, and are subject in all respects to, this Agreement as well as the
Registration Rights Agreement, the Stockholders Agreement and the Warrant
Agreement, the terms and conditions of which are incorporated herein as if set
forth fully herein. The Management Investor acknowledges and agrees to all the
terms and conditions of this Agreement and such Stockholders Agreement,
Registration Rights Agreement and Warrant Agreement, including the rights of
repurchase, tag-along and drag-along rights, rights of first refusal, vesting
requirements, restrictions on transfer and other provisions set forth herein and
in such Stockholders Agreement, Registration Rights Agreement and Warrant
Agreement. The Management Investor acknowledges that the certificates
evidencing the Shares shall be imprinted with a legend providing notice of such
restrictions substantially in the form set forth herein and in Section 10 of the
Stockholders Agreement. The Management Investor is aware that, except as
expressly provided in the Registration Rights Agreement, the Management Investor
has no right to require registration of any of the Securities and must bear the
economic risk of illiquid Securities. The Management Investor is also aware of
and familiar with the provisions of the Stockholders Agreement relating to the
management of the Company and the provisions regarding the election of members
to the Board.
<PAGE>
3. REPURCHASE PROVISIONS APPLICABLE TO THE SECURITIES.
(a) CALL. If at any time the Management Investor's employment
with the Company is terminated by either the Company or the Management Investor
for any reason, then the Company or its designee(s) (which designee(s) may be
any person or entity that shall have been approved by the Board pursuant to the
terms of the Stockholders Agreement) shall have the exclusive and irrevocable
option (a "Call"), exercisable in its sole discretion, to repurchase the
Securities (i.e. all of the Shares and the Warrants that have not been cancelled
and terminated pursuant to the Warrant Agreement), in whole or in part, that are
then owned by the Management Investor or any transferee. The Company may
exercise the Call for all or any portion of the Securities subject to such
repurchase hereunder by delivering written notice (a "Repurchase Notice") to the
holder or holders of such Securities within 30 days of the Management Investor's
Termination. The Repurchase Notice will set forth the number of Shares and
Warrants to be acquired from each holder, the aggregate consideration to be paid
for such Shares and Warrants and the time and place for the closing of the
transaction. The Management Investor and any transferee thereof shall be
obligated to resell the Securities as provided in this Section 3.
The number of Shares and Warrants to be repurchased by the
Company shall first be satisfied to the extent possible from the Shares and
Warrants held by the Management Investor. If the number of Shares then held by
the Management Investor is less than the total number of Shares the Company has
elected to purchase, or if the number of Warrants then held by the Management
Investor is less than the total number of Warrants the Company has elected to
purchase, the Company shall purchase the remaining Shares or Warrants, as the
case may be, elected to be purchased from the Management Investor's transferees,
pro rata according to the number of Shares (with respect to Shares to be
purchased) and Warrants (with respect to Warrants to be purchased) held by such
other transferees as of the Date of Termination (determined as nearly as
practicable to the nearest Share or Warrant, as the case may be).
The consummation of the purchase or purchases of such Securities
pursuant to the Company's exercise of its Call shall take place on the date and
in the manner designated by the Company in the Repurchase Notice; provided,
however, that the Company may consummate its purchase of such Securities
pursuant to its exercise of its Call by delivering payment for such Securities
being repurchased by it along with the Repurchase Notice. The Company will pay
for the Securities to be purchased by it pursuant to the exercise of its Call by
delivery of a check in an amount equal to the applicable repurchase price for
the Securities being repurchased. The Company will, in connection with such
repurchase, be entitled to receive customary representations and warranties from
the sellers regarding such sale and to require that all sellers' signatures be
guaranteed.
Notwithstanding anything to the contrary contained herein, all
repurchases of Securities by the Company shall be subject to applicable
restrictions contained in the Delaware General Corporation Law and in the
Company's and its Subsidiaries' debt
<PAGE>
and equity financing agreements. If any such restrictions prohibit the
repurchase of Securities hereunder which the Company is otherwise entitled to
make, the Company may make such repurchases as soon as it is permitted to do
so under such restrictions and the time period for exercise of its rights
hereunder shall be tolled during any such period of disability. The Company
shall pay interest on any portion of the Securities being repurchased subject
to the restrictions set forth in this paragraph, with such interest accruing
at an annual rate of 10%, and with such interest being paid on the date that
such restricted portion of the Securities is repurchased.
(b) PUT. If at any time the Management Investor's employment
with the Company is terminated by either the Company or the Management Investor
for any reason, then the Management Investor shall have the exclusive and
irrevocable option (a "Put"), exercisable in the Management Investor's sole
discretion, to sell to the Company, or at the option of the Company, its
designee(s) (which designee(s) may be any person or entity that shall have been
approved by the Board pursuant to the terms of the Stockholders Agreement), the
Securities (i.e. all of the Shares and the Warrants that have not been cancelled
and terminated pursuant to the Warrant Agreement), in whole or in part, that are
then owned by the Management Investor. The Management Investor may elect to
sell all or any portion of the Securities subject to sale hereunder by
delivering written notice (a "Put Notice") to the Company within 60 days of the
Management Investor's Termination. The Put Notice will set forth the number of
Shares and Warrants to be sold to the Company, the aggregate consideration to be
received for such Shares and Warrants and the time and place for the closing of
the transaction. The Company or its designee(s) (which designee(s) may be any
person or entity that shall have been approved by the Board pursuant to the
terms of the Stockholders Agreement) shall be obligated to repurchase the
Securities as provided in this Section 3.
The consummation of the sale of such Securities pursuant to the
Management Investor's exercise of the Put shall take place on the date and in
the manner designated by the Management Investor in the Put Notice. The Company
will, in connection with such sale by the Management Investor, be entitled to
receive customary representations and warranties from the sellers regarding such
sale and to require that all sellers' signatures be guaranteed.
Notwithstanding anything to the contrary contained herein, all
sales of Securities by the Management Investor to the Company shall be subject
to applicable restrictions contained in the Delaware General Corporation Law and
in the Company's and its Subsidiaries' debt and equity financing agreements. If
any such restrictions prohibit the repurchase of Securities hereunder which the
Company is otherwise obligated to make as a result of the Management Investor's
exercise of the Put, the Company shall make such repurchases as soon as it is
permitted to do so under such restrictions and the time period for exercise of
the Management Investors rights hereunder shall be tolled during any such period
of disability. The Management Investor shall be entitled to receive, and the
Company shall pay, interest on any portion of the Securities being sold subject
to the restrictions set forth in
<PAGE>
this paragraph, with such interest accruing at na annual rate of 10%, and
with such interest being paid on the date that such restricted portion of the
Securities is repurchased.
(c) CALL AND PUT PRICE. The repurchase price applicable to the
exercise by the Company of its Call right described in Section 3(a) above and by
the Management Investor of the Put right described in Section 3(b) above shall
be as follows:
(i) WARRANTS. If the Management Investor's employment with
the Company is terminated for Cause or as a result of the resignation of the
Management Investor (other than a resignation resulting from a diminution in
responsibility), then the aggregate repurchase/sale price for the Warrants shall
be equal to zero dollars ($0.00). If the Management Investor's employment
agreement with the Company is terminated in any other manner, then the aggregate
repurchase/sale price for the Warrants shall be equal to the Warrant Market
Value as of the Date of Termination. Such repurchase/sale price shall be paid
by the Company by check, wire transfer, bank draft or money order (subject to
the obligations of the Management Investor as set forth in Section 3(a)) within
60 days after the Date of Termination.
(ii) SHARES. If the Management Investor's employment with
the Company is terminated for Cause or as a result of the resignation (other
than a resignation resulting from a diminution in responsibility) of the
Management Investor, then the repurchase/sale price per Share shall be equal to
the LOWER of cost or the Fair Market Value as of the Date of Termination, with
such amount to be paid (subject to the obligations of the Management Investor as
set forth in Section 3(a)) within two years after the Date of Termination. If
the Management Investor's employment is terminated as a result of the expiration
of his Employment Agreement or as a result of the death or Disability of the
Management Investor, then the repurchase/sale price per share shall be equal to
the Fair Market Value as of the Date of Termination, with such amount (subject
to the obligations of the Management Investor as set forth in Section 3(a)) to
be paid within 90 days (60 days if termination is caused by the death or
Disability of the Management Investor) after the Date of Termination. If the
Management Investor's employment is terminated in any other manner, then the
repurchase price per share shall be the HIGHER of cost or the Fair Market Value
as of the Date of Termination, with such amount to be paid (subject to the
obligations of the Management Investor as set forth in Section 3(a)) within 60
days after the Date of Termination.
(d) IPO ADJUSTMENT TO CALL OR PUT PRICE FOR TERMINATION WITHOUT
CAUSE. If (i) the Company terminates the Management Investor's employment
without Cause, (ii) the Put or Call is exercised, (iii) within 180 days of the
payment of the repurchase price with respect to the exercise of the Put or Call,
the Company files a registration statement with the Commission in connection
with an Initial Public Offering and (iv) at the consummation of such Initial
Public Offering, the initial public offering price per share with respect to
such Initial Public Offering (the "IPO Price") is higher than the Fair Market
Value as of the Date of Termination, then the IPO Price shall replace the Fair
<PAGE>
Market Value in the computation of the repurchase/sale price referred to in
Section 3(c) above. Within 60 days of the consummation of such Initial Public
Offering, subject to the foregoing conditions, the Company shall pay the
Management Investor the difference, if any, between the repurchase/sale amount
as computed using the IPO Price and such repurchase/sale amount as computed
using the Fair Market Value.
(e) BENEFIT OF SALE OF COMMON STOCK OR ASSETS FOR TERMINATION
WITHOUT CAUSE. If (i) the Company terminates the Management Investor's
employment without Cause, (ii) the Put or Call is exercised and (iii) within 180
days of the payment of the repurchase price with respect to the exercise of the
Put or Call, the Company sells more than 80% of the Common Stock of the Company
to a third party (which is not an Affiliate of any Person who, prior to such
sale, "controls" the Company), then the Company shall pay to such selling
Management Investor for each Share sold pursuant to the Put or Call an amount
equal to the amount, if any, by which the price per share of the shares of
Common Stock of the Company sold in such sale exceeds the price per Share for
each Share sold pursuant to the Put or Call. If (i) the Company terminates the
Management Investor's employment without Cause, (ii) the Put or Call is
exercised and (iii) within 180 days of the payment of the repurchase price with
respect to the exercise of the Put or Call, the Company sells all or
substantially all of the assets of the Company to a third party (which is not an
Affiliate of any Person who, prior to such sale, "controls" the Company), then
the Company shall pay to such selling Management Investor for each Share sold
pursuant to the Put or Call an amount equal to the amount, if any, by which the
amount paid per share to holders of shares of Common Stock of the Company
receiving a payment subsequent to such sale of assets (after adjustment for the
Shares of the Management Investor purchased pursuant to the Put or Call) exceeds
the price per Share for each Share sold pursuant to the Put or Call. Any
amounts payable pursuant to this Section 3(e) shall be paid to the Management
Investor, subject to the restrictions referenced in this Agreement, within 60
days after the consummation of the sale of Common Stock or assets, as
applicable.
4. TRANSFER RESTRICTIONS. The Management Investor shall hold the
Securities subject to the terms of the Stockholders Agreement, the Registration
Rights Agreement, the Warrant Agreement and the terms of this Agreement. As
provided in the Stockholders Agreement, the Shares may be transferred in certain
limited circumstances. As also provided in the Stockholders Agreement and the
Warrant Agreement, no Warrants may be transferred. Any transferee of any
Securities shall take those Securities subject to the terms of the Stockholders
Agreement, the Registration Rights Agreement, the Warrant Agreement and this
Agreement, including, without limitation, the repurchase rights set forth in
Section 3 of this Agreement. Any such transferee must, upon the request of the
Company, execute an agreement agreeing to be bound by the Stockholders
Agreement, the Registration Rights Agreement, the Warrant Agreement and this
Agreement and must agree to such other waivers, limitations and restrictions as
the Company may reasonably require. The Company shall not, and shall not permit
any transfer agent or registrar for any shares of the Company's capital stock
to, transfer upon the books of the Company any shares of the Company's capital
stock originally issued hereunder or pursuant hereto in any manner except
<PAGE>
in accordance with this provision, and any purported transfer not in compliance
herewith shall be void.
5. SECURITIES LAW RESTRICTIONS AND OTHER RESTRICTIONS ON TRANSFER OF
SHARES.
(a) The Management Investor is advised that federal and state
securities laws govern and restrict the Management Investor's right to offer,
sell or otherwise dispose of any Securities unless the Management Investor's
offer, sale or other disposition thereof is registered under the Securities Act
and state securities laws, or in the opinion of the Company's counsel, such
offer, sale or other disposition is exempt from registration or qualification
thereunder. The Management Investor agrees that the Management Investor will
not offer, sell or otherwise dispose of any such Securities in any manner which
would: (i) require the Company to file any registration statement with the
Commission (or any similar filing under state law) or to amend or supplement any
such filing or (ii) violate or cause the Company to violate the Securities Act,
the rules and regulations promulgated thereunder or any other state or federal
law. The certificates for any Shares will bear such legends as the Company
deems necessary or desirable in connection with the Securities Act or other
rules, regulations or laws.
(b) The certificates representing the Shares will bear the following
legends:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THE SAME ARE REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED."
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED AS OF NOVEMBER 7,
1996, A SUBSCRIPTION AGREEMENT, DATED AS OF _______________, 1996, AND A
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF
NOVEMBER 7, 1996 COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED TO THE HOLDER ON REQUEST TO THE SECRETARY OF
THE COMPANY. SUCH SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT,
SUBSCRIPTION AGREEMENT AND SECOND AMENDED AND RESTATED REGISTRATION RIGHTS
AGREEMENT PROVIDE, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS ON VOTING,
<PAGE>
SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
SECURITIES EVIDENCED BY THIS CERTIFICATE AND THAT SUCH SECURITIES MAY BE
SUBJECT TO PURCHASE BY THE COMPANY AS WELL AS CERTAIN OTHER PERSONS UPON
THE OCCURRENCE OF CERTAIN EVENTS. ANY ISSUANCE, SALE, ASSIGNMENT, TRANSFER
OR OTHER DISPOSITION OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE TO
PERSONS WHO ARE NOT A PARTY TO SUCH AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT SHALL BE NULL AND VOID."
(c) Notwithstanding any other provision contained herein, the Company
may refuse to register any transfer of Securities if the registration of such
transfer would require the Company to register any class of equity securities
with the Commission under the Securities Exchange Act (except in connection with
an effective registration statement under the Securities Act).
(d) Unless otherwise set forth in the Stockholders Agreement or the
Registration Rights Agreement, the Management Investor may not effect any Public
Sale or distribution of any Shares or other equity securities of the Company, or
any Warrants or other securities convertible into or exchangeable or exercisable
for any of the Company's equity securities, during the ten days prior to and the
120 days after the effectiveness of any underwritten public offering of any
class of the Company's equity securities, except as part of such underwritten
public offering or if otherwise consented to by the Company in writing prior to
such sale or distribution.
6. DEFINITIONS.
"AFFILIATE" means with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For the purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities or by agreement or otherwise.
"BOARD" means the board of directors of the Company.
"CAUSE" shall have the meaning set forth in the Employment Agreement.
"COMMISSION" means the United States Securities and Exchange
Commission.
<PAGE>
"COMMON STOCK" means the Company's common stock, par value $0.001 per
share, or in the event that the outstanding Common Stock is hereafter changed
into or exchanged for different stock or securities of the Company, such other
stock or securities.
"DATE OF TERMINATION" shall have the meaning set forth in the
Employment Agreement.
"DISABILITY" shall have the meaning set forth in the Employment
Agreement.
"EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of May
2, 1996, by and between the Management Investor and the Company.
"FAIR MARKET VALUE" means the fair market value (as determined by a
nationally recognized investment banking, valuation or appraisal firm of the
Company's choice paid for by the Company) of the Company's common shares (or
other securities if in the context of untraded securities distributed in
connection with a Qualified Sale) divided by the number of such shares, as
determined on a fully-distributed basis without regard to liquidity or size
relative to the number of shares outstanding.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"PUBLIC SALE" means any sale pursuant to a registered public offering
under the Securities Act or any sale to the public pursuant to Rule 144
promulgated under the Securities Act (if and as modified by Rule 701(c) under
the Securities Act) effected through a broker, dealer or market maker.
"QUALIFIED SALE" shall mean (i) any sale of all or substantially all
of the assets of the Company or (ii) any sale, merger or liquidation of the
Company with or into any entity (other than OCM Principal Opportunities Fund,
L.P., TCW Special Credits Fund V - The Principal Fund, Logistical Simon, L.L.C.,
or any Affiliate of the foregoing) whereby such entity shall obtain (A) at least
a majority of the voting stock of the surviving entity and (B) the right to
elect a majority of the surviving entity's board of directors.
"REGISTRATION RIGHTS AGREEMENT" means the Second Amended and Restated
Registration Rights Agreement dated as of November 7, 1996 by and among the
Company and the Investors listed in Exhibit A thereto, as the same may be
amended from time to time.
"SECURITIES" means the Shares and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
<PAGE>
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SHARES" means, with respect to the Management Investor, (a) any
shares of Common Stock of the Company purchased by the Management Investor upon
exercise of the Warrants and (b) any shares of the capital stock of the Company
issued in respect of any of the securities described in clause (a) above,
whether by way of stock dividend, stock split, merger, consolidation,
reorganization or other recapitalization. Except as otherwise expressly
provided in the Stockholders Agreement, each subsequent holder of the Shares
shall succeed to all rights and obligations hereunder attributable to the
Management Investor as a holder of Shares.
"STOCKHOLDERS AGREEMENT" means the Second Amended and Restated
Stockholders Agreement dated as of November 7, 1996 by and among the Company and
the Holders listed in Exhibit A thereto, as the same may be amended from time to
time.
"SUBSIDIARY" means any corporation of which the Company owns, directly
or through one or more intermediaries, securities having a majority of the
ordinary voting power in electing the board of directors of such corporation.
"WARRANT AGREEMENT" means that warrant certificate (#___), executed by
the Company as of ___________, 1996, certifying that the Management Investor has
been granted the Warrants by the Company.
"WARRANT MARKET VALUE" means the amount by which the Fair Market Value
multiplied by the number of common shares underlying the Warrants exceeds the
Warrant Purchase Price multiplied by the number of common shares underlying the
Warrants. If the Warrant Purchase Price is greater than or equal to the Fair
Market Value, then the "Warrant Market Value" shall equal $0.00.
"WARRANT PURCHASE PRICE" has the meaning set forth in the Warrant
Agreement.
7. NOTICES. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given and made and served either by personal delivery
to the person for whom it is intended or if deposited, postage prepaid,
registered or certified mail, return receipt requested, in the United States
mail:
If to the Company, addressed to:
International Logistics Limited
330 S. Mannheim Road
Hillside, IL 60162
<PAGE>
Attention: Chief Executive Officer
With copies to:
Milbank, Tweed, Hadley & McCloy
601 S. Figueroa St.
Suite 3100
Los Angeles, California 90017
Attention: Eric H. Schunk, Esq.
If to the Management Investor, addressed to:
the Management Investor at his address shown on the stock records
of the Company, or at such other address as the Management
Investor may specify by written notice to the Company.
8. MISCELLANEOUS.
(a) Upon its acceptance by the Company, this Agreement shall be
binding upon and inure to the benefit of the Company and its successors and
assigns and the Management Investor and the Management Investor's executors
or administrators, personal representatives, heirs, legatees and
distributees.
(b) This Agreement shall be governed by and construed in
accordance with the local law, and not the law of conflicts, of the State
of Delaware.
(c) In any conflict between the terms and provisions of this
Agreement and the terms and provisions of the Stockholders Agreement, the
Warrant Agreement or the Registration Rights Agreement, the terms and
provisions of the Stockholders Agreement, the Warrant Agreement or
Registration Rights Agreement, as the case may be, shall govern.
(d) No course of dealing or any delay or failure to exercise any
right, power or remedy hereunder on the part of any party hereto shall
operate as a waiver of or otherwise prejudice such party's rights, powers
or remedies.
(e) Notwithstanding anything in this Agreement, the Company
shall not be obligated to issue, grant or sell any Securities to any Person
if, in the judgment of the Board, such issuance or sale may violate Federal
or applicable state securities laws or regulations or may require the
Company to register or qualify any such Securities under any Federal or
state securities laws, or require the Company or any
<PAGE>
of its agents or representatives to register or qualify with any
governmental agency or organization, pursuant to such laws or regulations.
(f) This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter hereof between
the parties and contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
9. JOINT SIGNATORIES; SUCCESSORS AND ASSIGNS. If this Agreement is
signed by more than one Person or entity, then the obligations of the
undersigned shall be joint and several, and the acknowledgements,
representations, warranties and agreements herein contained shall be deemed to
be made by and be binding upon each such Person or entity. This Agreement shall
survive the death or disability of the undersigned and shall be binding upon the
undersigned's heirs, executors, administrators, successors and assigns.
10. ACCREDITED INVESTOR. Please initial all boxes which apply to
you.
/ / I will be a director or executive officer of the Company;
/ / I am a natural person whose individual net worth, or joint
net worth with my spouse, exceeds $1 million;
/ / I am a natural person and had individual (NOT JOINT) income
in excess of $200,000 in each of the two most recent years
and reasonably expect to reach the same income level in the
current year;
/ / I am a natural person and had joint income (together with my
spouse) in excess of $300,000 in each of the two most recent
years and reasonably expect to reach the same income level
in the current year;
/ / I am a person who is subscribing to purchase $_________ or
more of the Securities, and this investment does not exceed
10% of my personal net worth or my joint net worth with my
spouse;
/ / The undersigned is an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986 as amended
(I.E., tax exempt entities), a corporation, a trust, a
Massachusetts or similar business trust, or a partnership,
not formed for the specific purpose of acquiring Securities,
with total assets in excess of $5 million and the investment
decisions of which are directed by one or more persons able
to make the representation set forth in Section 9(e) above;
<PAGE>
/ / The undersigned is an employee benefit plan within the
meaning of Title I of the Employment Retirement Income
Security Act of 1974, the investment decisions of which are
made by a plan fiduciary, as defined in Section 9(21) of
such Act, which is either a bank, a savings and loan
association, an insurance company, or a registered
investment advisor;
/ / The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, which either has total assets in
excess of $5 million or is a self-directed plan, the
investment decisions of which are made solely by one or more
persons able to make the representations contained in
Section 9(e) above and who fits into one of the above
categories; or
/ / The undersigned is an entity in which all of the equity
owners are accredited investors, falling into one or more of
the categories described above.
11. CERTIFICATION AS TO TAXPAYER IDENTIFICATION NUMBER AND BACKUP
WITHHOLDING AND NON-FOREIGN STATUS-SUBSTITUTE FORM W-9; SOCIAL SECURITY OR
TAX ID NUMBER. Under penalties of perjury, the Management Investor certifies by
his or her signature below that (a) the number shown on this form is his or her
correct taxpayer identification number; (b) the Management Investor is not
subject to backup withholding either because (i) the Management Investor is
exempt from backup withholding, (ii) the Management Investor has not been
notified that the Management Investor is subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the Internal
Revenue Service has notified the Management Investor that the Management
Investor is no longer subject to backup withholding; (c) the Management Investor
is not a non-resident alien for purposes of U.S. income taxation; (d) the
Management Investor's home address (individual) or business address (entity) set
forth in this Agreement is correct; and (e) if the Management Investor becomes a
non-resident alien, the Management Investor will notify the Company within 60
days of doing so.
IF THE MANAGEMENT INVESTOR HAS BEEN NOTIFIED BY THE IRS THAT THE MANAGEMENT
INVESTOR IS PRESENTLY SUBJECT TO BACKUP WITHHOLDING, STRIKE OUT THE LANGUAGE
UNDER (b) ABOVE BEFORE SIGNING.
12. TYPE OF OWNERSHIP FOR THE SHARES TO BE ACQUIRED.
(Check the Appropriate Box)
/ / INDIVIDUAL OWNERSHIP BY UNMARRIED PERSON
<PAGE>
/ / OWNERSHIP BY MARRIED PERSON AS SOLE AND SEPARATE PROPERTY
(if the Management Investor lives in a state which has
community property laws, signatures of both spouses may be
required)
/ / COMMUNITY PROPERTY (signatures of both spouses are required)
/ / JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both parties must
sign)
/ / TENANTS-IN-COMMON (both parties must sign)
/ / TRUST*
/ / OTHER ENTITY*
* Any Person executing this Agreement on behalf of such
entities hereby represents and agrees that: (i) he or she
is duly authorized to act on behalf of such corporation,
partnership, trust or other entity, (ii) such corporation,
partnership, trust or other entity was formed on
_________________, 19___, and (iii) he or she will provide
such information as the Company may request confirming the
authority to sign on behalf of such entity.
<PAGE>
MANAGEMENT INVESTOR ELECTION AND SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the latest date written below.
MANAGEMENT INVESTOR:
No. of Warrants: _________ (@ $0.00/warrant)
__________________________________ __________________________________
Management Investor (Print or Type Other Investor (Print or Type Name)
Name)
__________________________________ __________________________________
Signature Signature
__________________________________ __________________________________
Social Security or Tax ID # Social Security or Tax ID #
__________________________________ __________________________________
Residence Street Address Residence Street Address
__________________________________ __________________________________
City and State Zip City and State Zip
__________________________________ __________________________________
Residence Telephone Residence Telephone
__________________________________ __________________________________
Business Name Business Name
[CONTINUED]
<PAGE>
__________________________________ __________________________________
Business Address Business Address
__________________________________ __________________________________
City and State Zip City and State Zip
__________________________________ __________________________________
Business Telephone Business Telephone
Mail Correspondence to: Mail Correspondence to:
/ / Residence / / Business / / Residence / / Business
COMPANY:
Accepted this ____ day of _________, 1996.
INTERNATIONAL LOGISTICS LIMITED
a Delaware corporation
By:__________________________________
Its: ________________________________
<PAGE>
EXHIBIT 10.12
THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE OF THE WARRANT ARE SUBJECT TO A SECOND AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 7, 1996, REGISTRATION
RIGHTS AGREEMENT DATED AS OF JUNE 1, 1997, AND A SUBSCRIPTION AGREEMENT DATED
MARCH 3, 1997 COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED TO THE HOLDER ON REQUEST TO THE SECRETARY OF
THE COMPANY. SUCH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, REGISTRATION
RIGHTS AGREEMENT AND SUBSCRIPTION AGREEMENT PROVIDE, AMONG OTHER THINGS, FOR
CERTAIN RESTRICTIONS ON VOTING, SALE, TRANSFER, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION OF THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES
OF COMMON STOCK PURCHASABLE UPON EXERCISE OF THE WARRANT AND THAT SUCH SHARES
OF COMMON STOCK ARE SUBJECT TO PURCHASE BY THE COMPANY AS WELL AS CERTAIN
OTHER PERSONS UPON THE OCCURRENCE OF CERTAIN EVENTS. ANY EVIDENCE, SALE,
ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE TO PERSONS OTHER THAN IN ACCORDANCE WITH SUCH SECOND AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT, REGISTRATION RIGHTS AGREEMENT AND
SUBSCRIPTION AGREEMENT SHALL BE NULL AND VOID.
THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED PURSUANT TO
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAW, AND SUCH WARRANT AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED.
No. _____ Warrant to Purchase
_____ Shares Dated
as of March 3, 1997
WARRANT
To Purchase Common Stock of
INTERNATIONAL LOGISTICS LIMITED
Purchase Price of Common Stock: Purchase price per share
as set forth below.
THIS WARRANT CERTIFIES that, for value received, ____________________ or
registered assigns is entitled, prior to the close of business on the
Expiration Date (defined below), to purchase _____ shares of Common Stock in
International Logistics Limited, a Delaware corporation (the "COMPANY"), at a
purchase
<PAGE>
price per share equal to $__________ (the "WARRANT PURCHASE PRICE") upon
surrender of this Warrant at the principal office of the Company, and payment
of such purchase price in cash, by bank cashier's or certified check or by a
cashless exercise as set forth in SECTION 2.B.2. below.
This Warrant is issued by the Company in connection with the execution
of the Employment Agreement (as defined herein). The terms and conditions of
the Warrant are set forth herein. Any capitalized terms used herein and not
defined herein shall have the meanings set forth in the Stockholders
Agreement (as defined herein).
SECTION 1
DEFINITIONS
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or any day
on which commercial banks in the city of Chicago, Illinois are authorized or
required by law to close.
"COMMON STOCK" means the Common Stock of the Company, $.001 par value
per share, authorized on the date of the original issue of this Warrant and
shall also include any capital stock of any class of the Company then or
thereafter authorized which shall not be limited to a fixed sum or percentage
of par value in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of the Company, and shall
also include, in case of any reorganization, reclassification, consolidation,
merger or sale of assets of the character referred to in SECTION 5 hereof,
the stock, securities or assets provided for in such Section; PROVIDED that
the shares purchasable pursuant to this Warrant shall include only shares of
such class.
"EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of March
3, 1997, as amended, by and between the Company and ____________________.
"EXPIRATION DATE" means March 3, 2007.
"FAIR MARKET VALUE" shall mean the fair market value of the Company's
Common Stock (or other securities if in the context of untraded securities
distributed in connection with a Qualified Sale) as determined on a
fully-distributed basis without regard to liquidity or size relative to the
number of shares outstanding; PROVIDED that such valuation (x) be performed
by a nationally recognized investment banking, valuation or appraisal
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<PAGE>
firm paid for by the Company and (y) shall ascribe value to warrants as the
amount, if any, by which the value of the Common Stock underlying the warrant
shall exceed the aggregate exercise price related thereto.
"INITIAL PUBLIC OFFERING" means the first underwritten public offering
of Common Stock by the Company pursuant to a registration of shares under the
Securities Act on a Form S-1 Registration Statement (or equivalent or
successor form).
"OCM" means OCM Principal Opportunities Fund, L.P., a Delaware limited
partnership.
"OCM AFFILIATES" means any investor in or any employee of OCM or Oaktree
Capital Management, LLC ("OAKTREE"), a California limited liability company,
or in any company, joint venture, limited liability company, association or
partnership of which the OCM or Oaktree, is a shareholder, manager or general
partner, as the case may be.
"PUBLIC OFFERING" means any offering of Common Stock to the public,
including the Initial Public Offering, either on behalf of the Company or any
of its stockholders, pursuant to an effective registration statement under
the Securities Act.
"QUALIFIED SALE" shall mean (i) any sale of all or substantially all of
the assets of the Company or (ii) any sale, merger or liquidation of the
Company with or into any entity other than OCM, TCW, WES&S, an OCM Affiliate,
a TCW Affiliate or a WES&S Affiliate whereby such entity shall obtain (A) at
least a majority of the voting stock of the surviving entity and (B) the
right to elect a majority of the surviving entity's board of directors.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of June 1, 1997, by and among the Company and each of the Investors
listed on EXHIBIT A thereto, as the same may be amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended and as the
same may be amended from time to time.
"SIMON ENTITY" means Logistical Simon, L.L.C., a Delaware limited
liability company, WESINVEST, Inc., a Delaware corporation or William E.
Simon & Sons, L.L.C., a Delaware limited liability company.
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<PAGE>
"STOCKHOLDERS AGREEMENT" means the Second Amended and Restated
Stockholders Agreement dated as of November 7, 1996, by and among the Company
and each of the Holders listed on EXHIBIT A thereto, as the same may be
amended from time to time.
"TCW" means TCW Special Credits Fund V - The Principal Fund, a
California limited partnership.
"TCW AFFILIATES" means any investor in or any employee of TCW, TCW Asset
Management Company, a California corporation ("TAMCO"), Trust Company of the
West, a California trust company ("TRUSTCO") or Oaktree Capital Management,
LLC ("OAKTREE"), a California limited liability company, or in any company,
joint venture, limited liability company, association or partnership of which
TCW, TAMCO, Trustco or Oaktree, is a shareholder, manager or general partner,
as the case may be.
"TRADING PRICE" means the trading price for each such trading day: (a)
if the Common Stock is traded on a national securities exchange, its last
reported sale price on the preceding Business Day on such national securities
exchange or, if there was no sale on that day, the last reported sale price
on such national securities exchange on the next preceding Business Day on
which there was a sale, all as made available over the Consolidated Last Sale
Reporting System of the CTA Plan (the "CLSRS") or, if the Common Stock is not
then eligible for reporting over the CLSRS, its last reported sale price on
the preceding Business Day on such national securities exchange or, if there
was no sale on that day, on the next preceding Business Day on which there
was a sale on such exchange or (b) if the principal market for the Common
Stock is the over-the-counter market, but the Common Stock is not then
eligible for reporting over the CLSRS, but the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), the last sale price reported on NASDAQ on the preceding Business
Day or, if the Common Stock is an issue for which last sale prices are not
reported on NASDAQ, the closing bid quotation on such day, but in each of the
next preceding two cases, if the relevant NASDAQ price or quotation did not
exist on such day, then the price or quotation on the next preceding Business
Day in which there was such a price or quotation.
"WES&S" means Logistical Simon, L.L.C., a Delaware limited liability
company.
"WES&S AFFILIATE" means any Simon Entity or any partnership, limited
liability company or corporation that directly or indirectly, through one or
more intermediaries, has control of, is controlled by or is under common
control with (i) any Simon Entity or (ii) any shareholders, partner or member
of a
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<PAGE>
Simon Entity or any such shareholder's, partner's or member's spouse,
siblings, children, children's spouses, grandchildren or their spouses or any
trusts for the benefit of any of the foregoing.
"WARRANT PURCHASE PRICE" has the meaning assigned to that term in the
introductory paragraph hereof.
"WARRANT SHARES" means the shares of Common Stock purchased or
purchasable by the Warrantholder upon the exercise of the Warrant pursuant to
SECTION 2 hereof.
"WARRANTHOLDER" means the registered holder of the Warrant and any
related Warrant Shares.
SECTION 2
EXERCISE
A. GENERAL. The Warrantholder shall be entitled to exercise the
Warrant, in whole or in part, at any time or from time to time on or before
5:00 p.m., Chicago, Illinois time, on the Expiration Date; PROVIDED, HOWEVER,
that __________ shares underlying the Warrant shall be subject to vesting on
March 3, _____. The Warrant is not exercisable as to fractions of shares.
Unvested portions of the Warrant shall be forfeited and cancelled if at any
time (i) ____________________'s employment with the Company is terminated as
a result of death, disability or retirement, (ii) ____________________'s
employment with the Company is terminated for "Cause" or (iii)
____________________ voluntarily resigns from the Company (unless such
resignation is due to a significant diminution of responsibility). Unvested
portions of the Warrant shall be automatically fully vested upon a Qualified
Sale or the termination of ____________________'s employment from the Company
without Cause. For purposes of this Agreement, "Cause" shall have the
meaning set forth in the Employment Agreement.
B. MANNER OF EXERCISE. The Warrantholder may exercise the vested
portion of the Warrant, in whole or in part, by either of the following
methods:
1. The Warrantholder shall complete one of the Subscription Forms
attached hereto, and deliver it to the Company, at its principal offices
located at 330 S. Mannheim Road, Hillside, IL 60162, Attention: President
(or at such other location as the Company may designate by notice in writing
to the Warrantholder), together with the Warrant and either cash, a certified
check or a bank cashier's check, in an amount equal to
-5-
<PAGE>
the then aggregate Warrant Purchase Price of the shares of Common Stock being
purchased; or
2. The Warrantholder may also exercise this Warrant, in whole or
in part, in a "cashless" exercise by delivering to the Company, at its
principal offices located at 330 S. Mannheim Road, Hillside, IL 60162,
Attention: President (or at such other location as the Company may designate
by notice in writing to the Warrantholder), (i) one of the Subscription Forms
attached hereto, which notice shall specify the number of Warrant Shares to
be delivered to such Warrantholder and the number of Warrant Shares with
respect to which this Warrant is being surrendered in payment of the
aggregate Exercise Price for the Warrant Shares to be delivered to the
Warrantholder, and (ii) the Warrant. For purposes of this cashless exercise
provision, all Warrant Shares as to which the Warrant is surrendered will be
attributed the following value: (i) prior to an Initial Public Offering and
in the context of a Qualified Sale: at the Fair Market Value of the
consideration received by stockholders with respect to their outstanding
shares of Common Stock; (ii) concurrently with an Initial Public Offering:
a value equal to the Initial Public Offering offer price to the public; or
(iii) subsequent to an Initial Public Offering, a price equal to the average
Trading Price of the Company's Common Stock for the twenty (20) preceding
trading days ending on the day prior to the date on which the request for
cashless exercise is received by the Company. The costs and expenses
associated with determination of any of the preceding valuations shall be
borne by the Company. Cashless exercises shall be permitted only to the
extent that such exercise is permitted by the terms of the Company's
indebtedness. Notwithstanding the foregoing, commencing on the day after the
Initial Public Offering through the twentieth trading day following the
Initial Public Offering, the Warrantholder shall not be permitted to make a
cashless exercise pursuant to this Section.
Upon receipt thereof by the Company, the Warrantholder shall be deemed
to be a holder of record of the shares of Common Stock specified in said
Subscription Form, and the Company shall, as promptly as practicable, and in
any event within ten (10) Business Days thereafter, execute and deliver or
cause to be delivered to the Warrantholder a certificate or certificates
representing the aggregate number of shares of Common Stock specified in said
Subscription Form. Each stock certificate so delivered shall be registered in
the name of the Warrantholder or such other name as shall be designated by
the Warrantholder, subject to compliance with federal and state securities
laws. Before being required to transfer any Common Stock, the Company may
require the Warrantholder at the Warrantholder's expense to provide an
opinion of counsel satisfactory to the Company that
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<PAGE>
any such exercise is exempt from registration or qualification under the
federal and state securities laws. If the Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of said stock
certificate or certificates, deliver to the Warrantholder a like Warrant
representing the right to purchase the remaining number of shares purchasable
thereunder. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, execution and delivery of stock
certificates pursuant to this SECTION 2, except that, in case such stock
certificates shall be registered in a name or names other than the name of
the Warrantholder, funds sufficient to pay all stock transfer taxes which
shall be payable upon the execution and delivery of such stock certificate or
certificates shall be paid by the Warrantholder to the Company at the time of
delivering the Warrant to the Company as mentioned above.
C. TRANSFER RESTRICTION LEGEND. The Warrant and each certificate for
Warrant Shares issued upon exercise or conversion of the Warrant, unless at
the time of exercise or conversion such Warrant Shares are registered under
the Securities Act, shall bear the legends described in SECTION 10(A) of the
Stockholders Agreement.
D. CHARACTER OF WARRANT SHARES. All shares of Common Stock issuable
upon the exercise of the Warrant shall be duly authorized, validly issued,
fully paid and nonassessable.
SECTION 3
OWNERSHIP AND EXCHANGE OF THE WARRANT
A. REGISTERED HOLDER. The Company may deem and treat the person in
whose name the Warrant is registered as the holder and owner thereof
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of the Warrant for exchange as
provided in this SECTION 3.
B. EXCHANGE AND REPLACEMENT. The Warrant is exchangeable upon the
surrender thereof by the Warrantholder to the Company at its principal offices
for a new Warrant or Warrants of like tenor and date representing in the
aggregate the right to purchase the number of shares purchasable hereunder, each
new Warrant to represent the right to purchase such number of shares as shall be
designated by the Warrantholder at the time of surrender. Subject to compliance
with SECTION 4 hereof, each Warrant and all rights thereunder are transferable
in whole or in part upon the
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<PAGE>
books of the Company by the Warrantholder in person or by its duly authorized
attorney, and a new Warrant or Warrants shall be made and delivered by the
Company, of the same tenor and date as the Warrant but registered in the name
of the transferee, upon surrender of the Warrant, duly endorsed, at the
principal offices of the Company. The Company will issue a replacement
certificate for the Warrant upon the loss, theft, destruction or mutilation
thereof pursuant to SECTION 10(B) of the Stockholders Agreement. The Warrant
shall be promptly canceled by the Company upon the surrender thereof in
connection with any exchange, transfer or replacement. Except as set forth
in the Stockholders Agreement, the Company shall pay all expenses, taxes
(other than stock transfer taxes) and other charges payable in connection
with the preparation, execution and delivery of the Warrant pursuant to this
SECTION 3.
SECTION 4
TRANSFER OF WARRANT OR WARRANT SHARES
A. GENERAL PROVISIONS. The Warrant shall not be transferable. The
related Warrant Shares shall not be transferable except in accordance with
the terms and conditions specified in the Stockholders Agreement.
B. REGISTRATION RIGHTS. The Company has agreed to provide certain
piggyback registration rights in respect of the Warrant Shares, the terms and
conditions of which are set forth in the Registration Rights Agreement. Upon
any transfer of any Warrant Shares in accordance with the provisions of the
Stockholders Agreement (other than transfers made after an Initial Public
Offering), the registration rights pertaining thereto may be transferred,
pursuant to the terms and provisions of Section 9 of the Registration Rights
Agreement, upon giving notice to the Company and the transferee's agreement
to be bound by the provisions of the Stockholders Agreement.
SECTION 5
ANTI-DILUTION PROVISIONS
A. STOCK SPLITS AND REVERSE SPLITS. In the event that the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Warrant Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares purchasable pursuant to this Warrant immediately prior to such
subdivision shall be proportionately increased, and conversely,
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<PAGE>
in the event that the outstanding shares of Common Stock of the Company shall
at any time be combined into a smaller number of shares, the Warrant Purchase
Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares purchasable upon
the exercise of this Warrant immediately prior to such combination shall be
proportionately reduced. Except as provided in this SECTION 5.A, no
adjustment in the Warrant Purchase Price and no change in the number of
Warrant Shares purchasable shall be made under this SECTION 5 as a result of
or by reason of any such subdivision or combination.
B. REORGANIZATION AND ASSET SALES. Subject to the terms and provisions
in the Stockholders Agreement, if any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then
the following provisions shall apply:
1. As a condition of such reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided below in this
SECTION 5.B), lawful and adequate provisions shall be made whereby the
Warrantholder shall thereafter have the right to purchase and receive upon
the terms and conditions specified in this Warrant and in lieu of the Warrant
Shares immediately theretofore receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of Warrant Shares immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place.
2. In the event of a merger or consolidation of the Company with or
into another corporation as a result of which a number of shares of Common
Stock of the surviving corporation greater or lesser than the number of
shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the
Company, then the Warrant Purchase Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock
of the Company.
3. The Company shall not effect any such consolidation, merger or
sale unless prior to or simultaneously with the consummation thereof the
successor corporation (if other
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<PAGE>
than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume, by written instrument
executed and mailed or delivered to the Warrantholder at the last address of
the Warrantholder appearing on the books of the Company, the obligation to
deliver to the Warrantholder such shares of stock, securities or assets as,
in accordance with the foregoing provisions, the Warrantholder may be
entitled to receive, and all other liabilities and obligations of the Company
hereunder. Upon written request by the Warrantholder such successor
corporation will issue a new warrant revised to reflect the modifications in
this Warrant effected pursuant to this SECTION 5.B.
C. NOTICE OF ADJUSTMENT. Whenever the Warrant Purchase Price and the
number of Warrant Shares issuable upon the exercise of this Warrant shall be
adjusted as herein provided, or the rights of the Warrantholder shall change
by reason of other events specified herein, the Company shall compute the
adjusted Warrant Purchase Price and the adjusted number of Warrant Shares in
accordance with the provisions hereof and shall prepare a certificate signed
by its President, Vice President, Treasurer or Secretary setting forth the
adjusted Warrant Purchase Price and the adjusted number of Warrant Shares
issuable upon the exercise of this Warrant or specifying the other shares of
stock, securities or assets receivable as a result of such change in rights,
and showing in reasonable detail the facts and calculations upon which such
adjustments or other changes are based, including a statement of the
consideration received or to be received by the Company for, and the amount
of, any Common Stock, options and convertible securities issued since the
last such adjustment or change (or since the date hereof in the case of the
first adjustment or change). The Company shall cause to be mailed to the
Warrantholder copies of such officer's certificate together with a notice
stating that the Warrant Purchase Price and the number of Warrant Shares
purchasable upon exercise of this Warrant have been adjusted and setting
forth the adjusted Warrant Purchase Price and the adjusted number of Warrant
Shares purchasable upon the exercise of this Warrant.
SECTION 6
NOTICES
Any notice or other document required or permitted to be given or
delivered to the Warrantholder shall be delivered in writing or sent by
certified or registered mail to the Warrantholder at the address furnished to
the Company in writing by the Warrantholder. Any notice or other document
required or permitted to be given or delivered to the Company shall be
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<PAGE>
delivered personally (including delivery by courier or by facsimile if
received during normal working hours), or be sent by certified or registered
mail to the Company, at 330 S. Mannheim Road, Hillside, IL 60162, Attention:
President, or other such address as shall have been furnished to the
Warrantholder by the Company. Except as otherwise provided, each such notice
shall be deemed given when delivered or on a date which is four (4) days
after it is mailed in any post office or branch post office regularly
maintained by the United States Postal Service (registered or certified, with
postage prepaid and properly addressed).
SECTION 7
NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY
The Warrant shall not entitle the Warrantholder to any of the rights of
a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Warrantholder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the
Warrantholder, shall give rise to any liability of the Warrantholder for the
Warrant Purchase Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the company.
SECTION 8
MISCELLANEOUS
This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to
principles of conflict of laws. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning or construction
of any of the provisions hereof.
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<PAGE>
WITNESS the due execution of this Warrant by a duly authorized officer
of the Company.
INTERNATIONAL LOGISTICS LIMITED
a Delaware corporation
By: ___________________________
Roger E. Payton
President and
Chief Executive Officer
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<PAGE>
FULL SUBSCRIPTION FORM
(To Be Executed by the Registered Holder
If It Desires to Exercise the Warrant in Full)
The undersigned hereby exercises the right to purchase the total number
of shares of Common Stock covered by the attached Warrant at the date of this
subscription and herewith makes payment of the sum of $______, or hereby
tenders __________ Warrant Shares as payment therefor, representing the
Warrant Purchase Price of $_____ per share in effect at this date.
Certificates for such shares shall be issued in the name of and delivered to
the undersigned, unless otherwise specified in written instructions signed by
the undersigned and accompanying this subscription.
Dated: ____________________, 19__.
_____________________________
[Signature]
Address:
_____________________________
_____________________________
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<PAGE>
PARTIAL SUBSCRIPTION FORM
(To Be Executed by the Registered Holder
If It Desires to Exercise the Warrant in Part)
The undersigned hereby exercises the right to purchase ______ shares of
Common Stock covered by the attached Warrant at the date of this subscription
and herewith makes payment of the sum of $_____, or hereby tenders ______
Warrant Shares as payment therefor, representing the Warrant Purchase Price
of $_____ per share in effect at this date. Certificates for such shares and
a new Warrant of like tenor and date for the balance of the shares not
subscribed for shall be issued in the name of and delivered to the
undersigned, unless otherwise specified in written instructions signed by the
undersigned and accompanying this subscription.
Dated: _____________________, 19__.
_____________________________
[Signature]
Address:
_____________________________
_____________________________
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<PAGE>
EXHIBIT 10.13
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is made as of the date of
its acceptance set forth on the signature page below by and between
International Logistics Limited, a Delaware corporation (the "Company"), and
____________________, an individual subscribing for shares of the Company's
capital stock pursuant hereto (the "Management Investor"). Certain
capitalized terms that are used herein are defined in Section 6 of this
Agreement. Capitalized terms used but not defined herein shall have the
meanings ascribed to them under the Stockholders Agreement.
1. PURCHASE AND SALE OF SHARES AND GRANT OF WARRANTS.
(a) Upon the execution of this Agreement, (i) the Management
Investor will receive from the Company, and the Company will grant to the
Management Investor, warrants which, subject to the provisions hereof,
accord to the Management Investor the right to purchase (upon the vesting
of such warrants) up to _____ shares of Common Stock from the Company
(the "Warrants") and (ii) the Management Investor will purchase from the
Company, and the Company will sell and issue to the Management Investor,
the Shares that the Management Investor elects to purchase pursuant to an
exercise of, and subject to the terms of, his Warrants. The Management
Investor's election to purchase such Warrants shall constitute a
subscription for the Shares and shall be evidenced by the Management
Investor's completion of the "Management Investor Election" form attached
hereto. The Management Investor will deliver to the Company the full
purchase price for the Shares purchased hereunder by check, wire
transfer, bank draft or money order made payable to "International
Logistics Limited". The purchase price per share for Shares purchased
upon exercise of the Warrants is the Warrant Purchase Price. The
Management Investor agrees to enter into the Stockholders Agreement and
the Registration Rights Agreement concurrently with the execution of this
Agreement.
(b) In connection with the purchase and sale of the Shares
hereunder and the grant and receipt of the Warrants hereunder, the
Management Investor represents and warrants to the Company that:
(i) The Management Investor understands that (A) the
Securities have not been registered under the Securities Act, nor
qualified under the securities laws of any other jurisdiction, (B)
the Warrants are non-
<PAGE>
transferable, (C) the Securities cannot be resold unless they
subsequently are registered under the Securities Act and qualified
under applicable state securities laws, unless the Company
determines that exemptions from such registration and qualification
requirements are available, and (D) except as otherwise set forth in
the Stockholders Agreement and the Registration Rights Agreement,
the Management Investor has no right to require such registration or
qualification;
(ii) The Securities to be acquired by the Management Investor
pursuant to this Agreement will be acquired for the Management
Investor's own account and not with a view to, or intention of,
distribution thereof in violation of the Securities Act, or any
applicable state securities laws, and the Securities will not be
disposed of in contravention of the Securities Act or any applicable
state securities laws;
(iii) The Management Investor has substantial knowledge and
experience in financial and business matters, has specific
experience making investment decisions of a similar nature, and is
capable, without the use of a financial advisor, of utilizing and
analyzing the information made available in connection with the
acquisition of the Securities and of evaluating the merits and risks
of an investment in the Securities. The Management Investor will
provide the Company, upon request, with such information concerning
any prior investment experience, business or professional experience
and other information as the Company may deem necessary to further
evaluate the foregoing representations;
(iv) The Management Investor has carefully reviewed and
understands the risks of, and other considerations relating to, an
investment in the Securities;
(v) The Management Investor understands that his investment in
the Securities is subject to significant economic risk, including
the relative illiquidity resulting from the fact that the Securities
(A) have not been registered under the Securities Act and,
therefore, cannot be sold unless they are subsequently registered
under the Securities Act or they are sold pursuant to an exemption
from such registration, and (B) are subject to additional
restrictions as provided herein. The Management
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<PAGE>
Investor is able to bear such economic risk of his investment in the
Securities for an indefinite period of time;
(vi) The Management Investor has had an opportunity to ask
questions and receive answers concerning the terms and conditions of
the offering of the Securities and has had full access to such other
information concerning the Company as he or she has requested.
Without limiting the generality of the foregoing, the Management
Investor has been provided with copies of the Stockholders Agreement
and the Registration Rights Agreement and has had an opportunity to
review and ask questions and receive satisfactory answers concerning
the terms and conditions of such Stockholders Agreement and
Registration Rights Agreement;
(vii) The Management Investor is a resident and domiciliary of
the state or other jurisdiction hereinafter set forth opposite the
Management Investor's signature and the Management Investor has no
present intention of becoming a resident of any other state or
jurisdiction. If the Management Investor is a resident and
domiciliary of a state that requires the Company to ascertain
certain other information regarding the Management Investor, the
Company may attach a page to this Agreement containing additional
representations to be made by the Management Investor in connection
with the Management Investor's investment in the Securities, and by
signing this Agreement, the Management Investor shall be deemed to
have made such additional representations to the Company;
(viii) This Agreement, the Stockholders Agreement and the
Registration Rights Agreement constitute the legal, valid and
binding obligations of the Management Investor, enforceable in
accordance with their respective terms, and the execution, delivery
and performance of this Agreement, the Stockholders Agreement and
the Registration Rights Agreement by the Management Investor does
not and will not conflict with, violate or cause a breach of any
agreement, contract or instrument to which the Management Investor
is a party or any order, judgment or decree to which the Management
Investor is subject; and
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<PAGE>
(ix) The Management Investor has not received and is not
relying upon any written offering literature or prospectus other
than the Stockholders Agreement and the Registration Rights
Agreement, and has not received and is not relying upon any oral
representations which are in any manner inconsistent with the
written information contained in such document.
(c) The Management Investor further acknowledges and agrees
that:
(i) none of (A) the issuance of the Shares to the Management
Investor, (B) the grant of the Warrants to the Management Investor
or (C) any provision contained herein shall entitle the Management
Investor to remain in the employment of the Company or affect the
right of the Company to terminate the Management Investor's
employment at any time for any reason;
(ii) the Company shall have no duty or obligation to disclose
to the Management Investor and the Management Investor shall have no
right to be advised of, any material information regarding the
Company, its Subsidiaries or Affiliates at any time prior to, upon
or in connection with the repurchase of the Securities upon the
termination of the Management Investor's employment with the Company
or as otherwise provided hereunder;
(iii) the Management Investor is to be an officer of the
Company, and has a high degree of familiarity with the business and
assets of the Company and the prospects of such business;
(iv) the Company is entering into this Agreement in reliance
upon the Management Investor's representations and warranties herein;
(v) all information which the Management Investor has provided
to the Company concerning the Management Investor, his or her
financial position and knowledge of and experience with financial
and business matters is correct and complete as of the date set
forth at the end of this Agreement, and if there should be any
material change in such information prior to the closing of this
offering, the Management Investor will immediately provide the
Company with such information; and
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<PAGE>
(vi) the Management Investor is aware of the provisions of
Section 83(b) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder and has consulted with his or her
tax advisor as to the advisability of filing an election under said
Section. The Management Investor acknowledges that the Management
Investor has received independent tax advice with respect to tax
consequences resulting from the transactions contemplated herein.
(d) The Company and the Management Investor acknowledge and agree
that this Agreement has been executed and delivered and the Shares (upon
exercise of the Warrants) and the Warrants have been issued and granted,
respectively, hereunder, in connection with and as a part of the
compensation and incentive arrangements between the Company and the
Management Investor.
2. AGREEMENT TO THE STOCKHOLDERS AGREEMENT. The Management Investor
acknowledges and agrees that Securities are being issued (or granted)
hereunder pursuant to, and are subject in all respects to, this Agreement as
well as the Registration Rights Agreement, the Stockholders Agreement and the
Warrant Agreement, the terms and conditions of which are incorporated herein
as if set forth fully herein. The Management Investor acknowledges and
agrees to all the terms and conditions of this Agreement and such
Stockholders Agreement, Registration Rights Agreement and Warrant Agreement,
including the rights of repurchase, tag-along and drag-along rights, rights
of first refusal, vesting requirements, restrictions on transfer and other
provisions set forth herein and in such Stockholders Agreement, Registration
Rights Agreement and Warrant Agreement. The Management Investor acknowledges
that the certificates evidencing the Shares shall be imprinted with a legend
providing notice of such restrictions substantially in the form set forth
herein and in Section 10 of the Stockholders Agreement. The Management
Investor is aware that, except as expressly provided in the Registration
Rights Agreement, the Management Investor has no right to require
registration of any of the Securities and must bear the economic risk of
illiquid Securities. The Management Investor is also aware of and familiar
with the provisions of the Stockholders Agreement relating to the management
of the Company and the provisions regarding the election of members to the
Board.
3. BUYBACK PROVISIONS APPLICABLE TO THE SECURITIES.
(a) BUYBACK. If at any time prior to the initial public offering of
the Company, the Management Investor's employment with the Company is
terminated by either the Company
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<PAGE>
or the Management Investor for any reason, then the Company or its
designee(s) hereby agrees to repurchase, and the Management Investor and his
transferees, if any, hereby agree to sell, the Securities (i.e. all of the
Shares and the Warrants that have not been cancelled and terminated pursuant
to the Warrant Agreement above), in whole, that are then owned by the
Management Investor or any transferee (such repurchase and sale being the
"Buyback"). The Company will, in connection with the Buyback, be entitled to
receive customary representations and warranties from the sellers regarding
such sale and to require that all sellers' signatures be guaranteed.
Notwithstanding anything to the contrary contained herein, the Buyback
shall be subject to applicable restrictions contained in the Delaware General
Corporation Law and in the Company's and its Subsidiaries' debt and equity
financing agreements. If any such restrictions prohibit the Buyback to any
extent, the Company shall repurchase such Securities and the Management
Investor (and any transferees) shall sell such Securities, to the extent
permitted by such restrictions within the time period specified in Section
3(b) below, and the Management Investor (and any transferees) shall complete
the repurchase and sale of the remaining Securities subject to the Buyback as
soon as they are permitted to do so under such restrictions. The Management
Investor shall be entitled to receive, and the Company shall pay, interest on
any portion of the Securities being sold subject to the restrictions set
forth in this paragraph, with such interest accruing at an annual rate of 10%
(beginning of the date that such Securities would have been sold but for the
restrictions), and with such interest being paid on the date that such
restricted portion of the Securities is repurchased.
(b) BUYBACK PRICE. The price applicable to the Buyback described
in Section 3(a) above shall be as follows:
(i) WARRANTS. If the Management Investor's employment with
the Company is terminated for Cause or as a result of the resignation of the
Management Investor (other than a resignation resulting from a diminution in
responsibility), then the aggregate repurchase/sale price for the Warrants
shall be equal to zero dollars ($0.00). If the Management Investor's
employment with the Company is terminated in any other manner, then the
aggregate repurchase/sale price for the Warrants shall be equal to the
Warrant Market Value as of the Date of Termination. Such repurchase/sale
price shall be paid by the Company by check, wire transfer, bank draft or
money order (subject to the obligations of the Management Investor as set
forth in Section 3(a)) within 60 days after the Date of Termination.
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<PAGE>
(ii) SHARES. If the Management Investor's employment with the
Company is terminated for Cause or as a result of the resignation (other than
a resignation resulting from a diminution in responsibility) of the
Management Investor, then the repurchase/sale price per Share shall be equal
to the LOWER of cost or the Fair Market Value as of the Date of Termination,
with such amount to be paid (subject to the obligations of the Management
Investor as set forth in Section 3(a)) within two years after the Date of
Termination. If the Management Investor's employment is terminated as a
result of the expiration of his Employment Agreement or as a result of the
death or Disability of the Management Investor, then the repurchase/sale
price per share shall be equal to the Fair Market Value as of the Date of
Termination, with such amount (subject to the obligations of the Management
Investor as set forth in Section 3(a)) to be paid within 90 days (60 days if
termination is caused by the death or Disability of the Management Investor)
after the Date of Termination. If the Management Investor's employment is
terminated in any other manner, then the repurchase price per share shall be
the HIGHER of cost or the Fair Market Value as of the Date of Termination,
with such amount to be paid (subject to the obligations of the Management
Investor as set forth in Section 3(a)) within 60 days after the Date of
Termination.
(c) IPO. The Company hereby agrees that upon consummation of its
initial public offering, neither the Company nor its designees shall have any
right or obligation to repurchase any of the Securities that are then owned
by the Management Investor or its transferees and that the provisions of
Sections 3(a) and 3(b) above shall have no further force and effect. The
Management Investor hereby agrees that upon consummation of the Company's
initial public offering, neither the Management Investor nor its transferees
shall have any right or obligation to sell to the Company any of the
Securities that are then owned by the Management Investor or its transferees
and that the provisions of Sections 3(a) and 3(b) above shall have no further
force and effect.
4. TRANSFER RESTRICTIONS. The Management Investor shall hold the
Securities subject to the terms of the Stockholders Agreement, the
Registration Rights Agreement, the Warrant Agreement and the terms of this
Agreement. As provided in the Stockholders Agreement, the Shares may be
transferred in certain limited circumstances. As also provided in the
Stockholders Agreement and the Warrant Agreement, no Warrants may be
transferred. Any transferee of any Securities shall take those Securities
subject to the terms of the Stockholders Agreement, the Registration Rights
Agreement, the Warrant Agreement and this Agreement, including, without
limitation, the
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<PAGE>
repurchase rights set forth in Section 3 of this Agreement. Any such
transferee must, upon the request of the Company, execute an agreement
agreeing to be bound by the Stockholders Agreement, the Registration Rights
Agreement, the Warrant Agreement and this Agreement and must agree to such
other waivers, limitations and restrictions as the Company may reasonably
require. The Company shall not, and shall not permit any transfer agent or
registrar for any shares of the Company's capital stock to, transfer upon the
books of the Company any shares of the Company's capital stock originally
issued hereunder or pursuant hereto in any manner except in accordance with
this provision, and any purported transfer not in compliance herewith shall
be void.
5. SECURITIES LAW RESTRICTIONS AND OTHER RESTRICTIONS ON TRANSFER OF
SHARES.
(a) The Management Investor is advised that federal and state securities
laws govern and restrict the Management Investor's right to offer, sell or
otherwise dispose of any Securities unless the Management Investor's offer,
sale or other disposition thereof is registered under the Securities Act and
state securities laws, or in the opinion of the Company's counsel, such
offer, sale or other disposition is exempt from registration or qualification
thereunder. The Management Investor agrees that the Management Investor will
not offer, sell or otherwise dispose of any such Securities in any manner
which would: (i) require the Company to file any registration statement with
the Commission (or any similar filing under state law) or to amend or
supplement any such filing or (ii) violate or cause the Company to violate
the Securities Act, the rules and regulations promulgated thereunder or any
other state or federal law. The certificates for any Shares will bear such
legends as the Company deems necessary or desirable in connection with the
Securities Act or other rules, regulations or laws.
(b) The certificates representing the Shares will bear the following
legends:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THE SAME ARE REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IN
THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED."
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
SECOND AMENDED AND RESTATED STOCKHOLDERS
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<PAGE>
AGREEMENT, DATED AS OF NOVEMBER 7, 1996, A SUBSCRIPTION AGREEMENT, DATED
AS OF MARCH 3, 1997, AND A REGISTRATION RIGHTS AGREEMENT DATED AS OF JUNE
1, 1997 COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE
COMPANY AND WILL BE FURNISHED TO THE HOLDER ON REQUEST TO THE SECRETARY
OF THE COMPANY. SUCH SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT,
SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS AGREEMENT PROVIDE, AMONG
OTHER THINGS, FOR CERTAIN RESTRICTIONS ON VOTING, SALE, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE AND THAT SUCH SECURITIES MAY BE SUBJECT TO PURCHASE BY THE
COMPANY AS WELL AS CERTAIN OTHER PERSONS UPON THE OCCURRENCE OF CERTAIN
EVENTS. ANY ISSUANCE, SALE, ASSIGNMENT, TRANSFER OR OTHER DISPOSITION OF
THE SECURITIES EVIDENCED BY THIS CERTIFICATE TO PERSONS WHO ARE NOT A
PARTY TO SUCH SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT SHALL BE
NULL AND VOID."
(c) Notwithstanding any other provision contained herein, the
Company may refuse to register any transfer of Securities if the registration
of such transfer would require the Company to register any class of equity
securities with the Commission under the Securities Exchange Act (except in
connection with an effective registration statement under the Securities Act).
(d) Unless otherwise set forth in the Stockholders Agreement or the
Registration Rights Agreement, the Management Investor may not effect any
Public Sale or distribution of any Shares or other equity securities of the
Company, or any Warrants or other securities convertible into or exchangeable
or exercisable for any of the Company's equity securities, during the ten
days prior to and the 120 days after the effectiveness of any underwritten
public offering of any class of the Company's equity securities, except as
part of such underwritten public offering or if otherwise consented to by the
Company in writing prior to such sale or distribution.
6. DEFINITIONS.
"AFFILIATE" means with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities or by
agreement or otherwise.
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<PAGE>
"BOARD" means the board of directors of the Company.
"CAUSE" shall have the meaning set forth in the
Employment Agreement.
"COMMISSION" means the United States Securities and
Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value $0.001
per share, or in the event that the outstanding Common Stock is hereafter
changed into or exchanged for different stock or securities of the Company,
such other stock or securities.
"DATE OF TERMINATION" shall have the meaning set forth in the
Management Investor's Employment Agreement.
"DISABILITY" shall mean the Management Investor's physical or mental
disability or infirmity which, in the opinion of a competent physician
selected by the Board, renders the Management Investor unable to perform his
duties under the Management Investor's Employment Agreement for more than 90
days during any 180-day period.
"EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of
March 3, 1997, by and between the Management Investor and the Company.
"FAIR MARKET VALUE" means the fair market value (as determined by a
nationally recognized investment banking, valuation or appraisal firm of the
Company's choice paid for by the Company) of the Company's common shares (or
other securities if in the context of untraded securities distributed in
connection with a Qualified Sale) divided by the number of such shares, as
determined on a fully-distributed basis without regard to liquidity or size
relative to the number of shares outstanding.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"PUBLIC SALE" means any sale pursuant to a registered public
offering under the Securities Act or any sale to the public pursuant to Rule
144 promulgated under the Securities Act (if and as modified by Rule 701(c)
under the Securities Act) effected through a broker, dealer or market maker.
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<PAGE>
"QUALIFIED SALE" shall mean (i) any sale of all or substantially all
of the assets of the Company or (ii) any sale, merger or liquidation of the
Company with or into any entity (other than OCM Principal Opportunities
Fund, L.P., TCW Special Credits Fund V - The Principal Fund, Logistical
Simon, L.L.C., or any Affiliate of the foregoing) whereby such entity shall
obtain (A) at least a majority of the voting stock of the surviving entity
and (B) the right to elect a majority of the surviving entity's board of
directors.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of June 1, 1997 by and among the Company and the Investors
listed in Exhibit A thereto, as the same may be amended from time to time.
"SECURITIES" means the Shares and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SHARES" means, with respect to the Management Investor, (a) any
shares of Common Stock of the Company purchased by the Management Investor
upon exercise of the Warrants and (b) any shares of the capital stock of the
Company issued in respect of any of the securities described in clause (a)
above, whether by way of stock dividend, stock split, merger, consolidation,
reorganization or other recapitalization. Except as otherwise expressly
provided in the Stockholders Agreement, each subsequent holder of the Shares
shall succeed to all rights and obligations hereunder attributable to the
Management Investor as a holder of Shares.
"STOCKHOLDERS AGREEMENT" means the Second Amended and Restated
Stockholders Agreement dated as of November 7, 1996 by and among the Company and
the Holders listed in Exhibit A thereto, as the same may be amended from time to
time.
"SUBSIDIARY" means any corporation of which the Company owns, directly
or through one or more intermediaries, securities having a majority of the
ordinary voting power in electing the board of directors of such corporation.
"WARRANT AGREEMENT" means that warrant certificate (#___), executed by
the Company as of March 3, 1997, certifying that the Management Investor has
been granted the Warrants by the Company.
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<PAGE>
"WARRANT MARKET VALUE" means the amount by which the Fair Market Value
multiplied by the number of common shares underlying the Warrants exceeds the
Warrant Purchase Price multiplied by the number of common shares underlying the
Warrants. If the Warrant Purchase Price is greater than or equal to the Fair
Market Value, then the "Warrant Market Value" shall equal $0.00.
"WARRANT PURCHASE PRICE" has the meaning set forth in the Warrant
Agreement.
7. NOTICES. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall
be deemed to have been duly given and made and served either by personal
delivery to the person for whom it is intended or if deposited, postage
prepaid, registered or certified mail, return receipt requested, in the
United States mail:
If to the Company, addressed to:
International Logistics Limited
330 S. Mannheim Road
Hillside, IL 60162
Attention: Roger E. Payton
With copies to:
Milbank, Tweed Hadley & McCloy
601 S. Figueroa St.,
Suite 3100
Los Angeles, California 90017
Attention: Eric H. Schunk, Esq.
If to the Management Investor, addressed to:
the Management Investor at his address shown on the stock
records of the Company, or at such other address as the
Management Investor may specify by written notice to the
Company
8. MISCELLANEOUS.
(a) Upon its acceptance by the Company, this Agreement shall
be binding upon and inure to the benefit of the Company and its successors
and assigns and the Management Investor and the Management Investor's
executors or administrators, personal representatives, heirs, legatees and
distributees.
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<PAGE>
(b) This Agreement shall be governed by and construed in
accordance with the local law, and not the law of conflicts, of the State
of Delaware.
(c) In any conflict between the terms and provisions of this
Agreement and the terms and provisions of the Stockholders Agreement, the
Warrant Agreement or the Registration Rights Agreement, the terms and
provisions of the Stockholders Agreement, the Warrant Agreement or
Registration Rights Agreement, as the case may be, shall govern.
(d) No course of dealing or any delay or failure to exercise any
right, power or remedy hereunder on the part of any party hereto shall
operate as a waiver of or otherwise prejudice such party's rights, powers
or remedies.
(e) Notwithstanding anything in this Agreement, the Company
shall not be obligated to issue, grant or sell any Securities to any Person
if, in the judgment of the Board, such issuance or sale may violate Federal
or applicable state securities laws or regulations or may require the
Company to register or qualify any such Securities under any Federal or
state securities laws, or require the Company or any of its agents or
representatives to register or qualify with any governmental agency or
organization, pursuant to such laws or regulations.
(f) This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter hereof
between the parties and contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
9. JOINT SIGNATORIES; SUCCESSORS AND ASSIGNS. If this Agreement
is signed by more than one Person or entity, then the obligations of the
undersigned shall be joint and several, and the acknowledgements,
representations, warranties and agreements herein contained shall be deemed
to be made by and be binding upon each such Person or entity. This Agreement
shall survive the death or disability of the undersigned and shall be binding
upon the undersigned's heirs, executors, administrators, successors and
assigns.
10. ACCREDITED INVESTOR. Please initial all boxes which apply to
you.
_ I will be a director or executive officer of the Company;
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<PAGE>
_ I am a natural person whose individual net worth, or joint
net worth with my spouse, exceeds $1 million;
_ I am a natural person and had individual (NOT JOINT) income
in excess of $200,000 in each of the two most recent years
and reasonably expect to reach the same income level in the
current year;
_ I am a natural person and had joint income (together with
my spouse) in excess of $300,000 in each of the two most
recent years and reasonably expect to reach the same income
level in the current year;
_ I am a person who is subscribing to purchase $150,000 or
more of the Securities, and this investment does not exceed
10% of my personal net worth or my joint net worth with my
spouse;
_ The undersigned is an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986 as amended
(I.E., tax exempt entities), a corporation, a trust, a
Massachusetts or similar business trust, or a partnership,
not formed for the specific purpose of acquiring
Securities, with total assets in excess of $5 million and
the investment decisions of which are directed by one or
more persons able to make the representation set forth in
Section 8(e) above;
_ The undersigned is an employee benefit plan within the
meaning of Title I of the Employment Retirement Income
Security Act of 1974, the investment decisions of which are
made by a plan fiduciary, as defined in Section 9(21) of such
Act, which is either a bank, a savings and loan
association, an insurance company, or a registered
investment advisor;
_ The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security
Act of 1974, which either has total assets in excess of
$5 million or is a self-directed plan, the
- 14 -
<PAGE>
investment decisions of which are made solely by one or
more persons able to make the representations contained
in Section 8(e) above and who fits into one of the above
categories; or
_ The undersigned is an entity in which all of the equity
owners are accredited investors, falling into one or more
of the categories described above.
11. CERTIFICATION AS TO TAXPAYER IDENTIFICATION NUMBER AND BACKUP
WITHHOLDING AND NON-FOREIGN STATUS-SUBSTITUTE FORM W-9; SOCIAL SECURITY OR
TAX ID NUMBER. Under penalties of perjury, the Management Investor certifies
by his or her signature below that (a) the number shown on this form is his
or her correct taxpayer identification number; (b) the Management Investor is
not subject to backup withholding either because (i) the Management Investor
is exempt from backup withholding, (ii) the Management Investor has not been
notified that the Management Investor is subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the
Internal Revenue Service has notified the Management Investor that the
Management Investor is no longer subject to backup withholding; (c) the
Management Investor is not a non-resident alien for purposes of U.S. income
taxation; (d) the Management Investor's home address (individual) or business
address (entity) set forth in this Agreement is correct; and (e) if the
Management Investor becomes a non-resident alien, the Management Investor
will notify the Company within 60 days of doing so.
IF THE MANAGEMENT INVESTOR HAS BEEN NOTIFIED BY THE IRS THAT THE MANAGEMENT
INVESTOR IS PRESENTLY SUBJECT TO BACKUP WITHHOLDING, STRIKE OUT THE LANGUAGE
UNDER (b) ABOVE BEFORE SIGNING.
12. TYPE OF OWNERSHIP FOR THE SHARES TO BE ACQUIRED.
(Check the Appropriate Box)
_ INDIVIDUAL OWNERSHIP BY UNMARRIED PERSON
_ OWNERSHIP BY MARRIED PERSON AS SOLE AND SEPARATE PROPERTY
(if the Management Investor lives in a state which has
community property laws, signatures of both spouses may be
required)
_ COMMUNITY PROPERTY (signatures of both spouses are required)
- 15 -
<PAGE>
_ JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
(both parties must sign)
_ TENANTS-IN-COMMON (both parties must sign)
_ TRUST*
_ OTHER ENTITY*
* Any Person executing this Agreement on behalf of such
entities hereby represents and agrees that: (i) he or she
is duly authorized to act on behalf of such corporation,
partnership, trust or other entity, (ii) such corporation,
partnership, trust or other entity was formed on
_________________, 19___, and (iii) he or she will provide
such information as the Company may request confirming the
authority to sign on behalf of such entity.
- 16 -
<PAGE>
MANAGEMENT INVESTOR ELECTION AND SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the latest date written below.
MANAGEMENT INVESTOR:
No. of Warrants: _____
_____________________________ _______________________________
Management Investor (Print or Business Name
Type Name)
_____________________________ _______________________________
Signature Business Address
_____________________________ _______________________________
Social Security or Tax ID # City and State Zip
_____________________________ _______________________________
Residence Street Address Business Telephone
_____________________________ Mail Correspondence to:
City and State Zip
_ Residence _ Business
_____________________________
Residence Telephone
_____________________________
Other Investor (Print or Type
Name)
_____________________________
Signature
_____________________________
Social Security or Tax ID #
_____________________________
Residence Street Address
_____________________________
City and State Zip
_____________________________
Residence Telephone
- 17 -
<PAGE>
COMPANY:
Accepted as of this 3rd day of March, 1997.
INTERNATIONAL LOGISTICS LIMITED
a Delaware corporation
By: _______________________
Roger E. Payton
Its: President and
Chief Executive Officer
- 18 -
<PAGE>
EXHIBIT 10.19
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
COMMON STOCK
WARRANT AGREEMENT
BY AND BETWEEN
INTERNATIONAL LOGISTICS LIMITED
AND
WILLIAM E. MYERS, JR.
DATED AS OF , 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THIS COMMON STOCK WARRANT AGREEMENT (the "AGREEMENT") is dated as of
, 1996 and entered into by and between International Logistics
Limited, a Delaware corporation (the "COMPANY"), and William E. Myers, Jr, as an
individual (the "WARRANT HOLDER").
RECITALS
A. The Company desires to sell to the Warrant Holder and the Warrant
Holder desires to purchase from the Company a Common Stock Purchase Warrant, as
hereinafter described (the "WARRANT"), to purchase up to an aggregate of
shares of Common Stock, $.001 par value (the "COMMON STOCK"), of the
Company (the Common Stock issuable on exercise of the Warrant being referred to
herein as the "WARRANT SHARES").
B. In order to induce the Company to sell the Warrant, the Warrant
Holder desires to have the Warrant subject to the restrictions and rights
created by this Agreement and by the terms of the Warrant.
C. The Company and various stockholders have entered into an [Amended
and Restated] Stockholders Agreement dated as of , 1996 (the
"STOCKHOLDERS AGREEMENT"). As provided below, any transfer of the Warrant
Shares will, upon issuance, become subject to the terms of the Stockholders
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. SALE AND PURCHASE OF WARRANT. The Company hereby agrees
to sell to the Warrant Holder, subject to the conditions and restrictions
contained in this Agreement, and the Warrant Holder hereby agrees to purchase
from the Company, the Warrant at an aggregate price of $ (the "PURCHASE
PRICE"). The Purchase Price shall be payable by check made payable to the
Company. The Company shall issue and deliver to the Warrant Holder the Warrant
concurrently with the Warrant Holder's execution of this Agreement.
SECTION 2. INVESTMENT REPRESENTATIONS. The Warrant Holder represents
and warrants to the Company as follows:
(a) The Warrant Holder is acquiring the Warrant for his own
account and not with a view to or for sale in connection with any distribution
of the Warrant or the Warrant Shares.
(b) The Warrant Holder (i) is familiar with the business of the
Company, (ii) has had an opportunity to discuss with representatives of the
Company the condition of and any prospects for the continued operation and
financing of the Company and such other matters as the Warrant Holder has deemed
appropriate in considering whether to invest in the Warrant, and (iii) has been
provided access to all available information about the Company requested by the
Warrant Holder.
(c) The Warrant Holder understands that the Warrant and the
Warrant Shares have not been registered under the Securities Act of 1933, as
amended (the "SECURITIES
<PAGE>
ACT") or registered or qualified under the securities laws of any state and
that the Warrant Holder may not sell or otherwise transfer the Warrant or
Warrant Shares unless they are subsequently registered under the Securities
Act and registered or qualified under applicable state securities laws, or
unless an exemption is available which permits sale or other transfer without
such registration and qualification.
SECTION 3. WARRANT CERTIFICATE. The certificate evidencing the
Warrant (the "WARRANT CERTIFICATE") to be delivered pursuant to this Agreement
shall be in registered form only and shall be substantially in the form set
forth in ANNEX 1 attached hereto.
SECTION 4. REGISTRATION. The Company shall number and register the
Warrant Certificate in a register as it is issued.
SECTION 5. REGISTRATION OF TRANSFERS AND EXCHANGES. (a) Prior to
any Transfer (as defined below) or attempted Transfer of any Warrant, the holder
of such Warrant shall (i) give 20 days' prior written notice (a "TRANSFER
NOTICE") to the Company of such holder's intention to effect such transfer,
describing the manner and circumstances of the proposed transfer, and
(ii) obtain from counsel to such holder who shall be reasonably satisfactory to
the Company, an opinion that the proposed transfer of such Warrant may be
effected without registration under the Securities Act. After receipt of the
Transfer Notice and opinion by the Company, such holder shall thereupon be
entitled to transfer such Warrant, in accordance with the terms of the Transfer
Notice, to any person or entity permitted by the Stockholders Agreement. Each
Warrant issued upon such transfer shall bear the restrictive legends set forth
on the Warrant Certificate attached hereto as ANNEX 1, unless, with respect to
the first such legend, in the opinion of such counsel such legend is not
required in order to ensure compliance with the Securities Act. In addition,
any Transfer of the Warrant Shares issued upon exercise of the Warrant shall be
subject to the terms and conditions of the Stockholders Agreement. The Warrant
holder shall be added as a party to the Stockholders Agreement and shall be
bound by the terms of and entitled to the benefits of such agreement. As used
herein, "TRANSFER" means sell, assign, transfer, pledge, hypothecate, mortgage,
encumber, dispose by gift or bequest, or otherwise transfer or dispose.
(b) Subject to SECTION 5(a), the Company shall from time to time register
the transfer of the Warrant Certificate in a Warrant register to be maintained
by the Company upon surrender of such Warrant Certificate accompanied by a
written instrument or instruments of transfer in form satisfactory to the
Company, duly executed by the registered holder or holders thereof or by the
duly appointed legal representative thereof or by a duly authorized attorney.
Upon any such registration of transfer, a new Warrant Certificate shall be
issued to the transferee(s) and the surrendered Warrant Certificate shall be
cancelled and disposed of by the Company. The Warrant Certificate may be
exchanged at the option of the holder(s) thereof, when surrendered to the
Company at its office for another Warrant Certificate or other Warrant
Certificates of like tenor and representing in the aggregate a like number of
Warrant Shares. Warrant Certificates surrendered for exchange shall be
cancelled and disposed of by the Company.
2
<PAGE>
SECTION 6. WARRANT; EXERCISE OF WARRANT. (a) Subject to the terms of
this Agreement, the Warrant holder shall have the right, which may be exercised
commencing , 1996 and until the earlier of (i) 5:00 p.m., Los
Angeles time on or (ii) the occurrence of an Early
Termination Event (as defined below) (the "EXERCISE PERIOD"), to receive from
the Company the number of fully paid and nonassessable Warrant Shares which the
holder may at the time be entitled to receive on exercise of such Warrant and
payment to the Company of the Exercise Price (as defined below) then in effect
for such Warrant Shares. In the alternative, the Warrant holder may exercise
its right, during the Exercise Period, to receive Warrant Shares on a net basis,
such that, without the exchange of any funds, such holder receives that number
of Warrant Shares otherwise issuable (or payable) upon exercise of its Warrant
less that number of Warrant Shares having a Current Market Price (as defined in
SECTION 10(F)) at the time of exercise equal to the aggregate Exercise Price
that would otherwise have been paid by such holder of the Warrant Shares. If
not exercised within the Exercise Period, the Warrant shall become void and all
rights thereunder and all rights in respect thereof under this Agreement shall
cease as of such time. An "EARLY TERMINATION EVENT" shall mean any sale of all
or substantially all of the assets of the Company, any sale of the stock of the
Company or any reorganization, merger or consolidation of the Company, provided
that in each of the foregoing cases: (i) Warrant holder shall have received not
less than 20 days' nor more than 90 days' written notice of such event and (ii)
[neither of OCM Principal Opportunities Fund, L.P., TCW Special Credits
Fund V--the Principal Fund or] William E. Simon & Sons, L.L.C. (including its
successors and assigns) or its affiliates (collectively, "WSS") [no longer]
controls (within the meaning of Rule 405 of Regulation C under the Securities
Act) the Company or any purchaser or successor.
(b) The Warrant may be exercised upon surrender to the Company at its
office designated for such purpose (the address of which is set forth in SECTION
15 hereof) the certificate or certificates evidencing the Warrant to be
exercised with the form of election to purchase duly filled in and signed, and
upon payment to the Company of the exercise price per share of Common Stock (the
"EXERCISE PRICE") which is set forth in the form of Warrant Certificate attached
hereto as ANNEX 1, subject to adjustment pursuant to SECTION 10, for the number
of Warrant Shares in respect of which such Warrant are then exercised. Payment
of the aggregate Exercise Price shall be made (i) in cash or by certified or
official bank check payable to the order of the Company or (ii) in the manner
provided in SECTION 6(a). In the event of an Early Termination Event, absent
any notice to the Company to the contrary from the Warrant holder, the Warrant
shall be deemed to have been exercised pursuant to the cashless net issuance
provision of SECTION 6(a).
(c) Upon such surrender of the Warrant and payment of the Exercise
Price the Company shall issue and cause to be delivered within five business
days to or upon the written order of the holder and in such name or names as the
Warrant holder may designate, a certificate or certificates for the number of
full Warrant Shares issuable upon the exercise of such Warrant. Subject to
SECTION 5(a), such certificate or certificates shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Shares as of the date of the surrender
of such Warrant and payment of the Exercise Price.
3
<PAGE>
(d) The Warrant shall be exercisable, at the election of the holder
thereof, either in full or from time to time in part and, in the event that a
certificate evidencing a Warrant is exercised in respect of fewer than all of
the Warrant Shares issuable on such exercise at any time prior to the date of
expiration of the Warrant, a new certificate evidencing the remaining Warrant
Shares will be issued and delivered pursuant to the provisions of this Section.
(e) The Warrant shall also be conditionally exercisable, at the
election of the holder thereof, so that if the Warrant holder exercises the
Warrant in contemplation of the consummation of a transaction described in any
of clauses (a) - (h) of SECTION 14 and such transaction is not consummated, the
Warrant holder may elect to revoke such exercise, in which case such Warrant
shall be deemed not to have been so exercised.
(f) Any Warrant Certificate surrendered upon exercise of a Warrant
shall be cancelled and disposed of by the Company. The Company shall keep
copies of this Agreement and any notices given or received hereunder available
for inspection by the holders during normal business hours at its office.
SECTION 7. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares upon the
exercise of the Warrant; PROVIDED, HOWEVER, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issue of any Warrant Certificate or any certificates for Warrant
Shares in a name other than that of the registered holder of the Warrant
Certificate surrendered upon the exercise of the Warrant, and the Company shall
not be required to issue or deliver such Warrant Certificate unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
SECTION 8. MUTILATED OR MISSING WARRANT CERTIFICATE. In case the
Warrant Certificate shall be mutilated, lost, stolen or destroyed, the Company
may in its discretion issue, in exchange and substitution for and upon
cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, also reasonably satisfactory to it.
SECTION 9. RESERVATION OF WARRANT SHARES. The Company will at all
times reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of the Warrant, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of the Warrant.
The Company or, if appointed, the transfer agent for the Common Stock
(the "TRANSFER AGENT") and every subsequent transfer agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably
4
<PAGE>
authorized and directed at all times to reserve such number of authorized
shares as shall be required for such purpose. The Company will keep a copy of
this Agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Company's capital stock issuable upon
the exercise of the rights of purchase represented by the Warrant. The
Company will furnish such Transfer Agent a copy of all notices of adjustments
and certificates related thereto, transmitted to each holder pursuant to
SECTION 14 hereof.
Before taking any action which would cause an adjustment pursuant to
SECTION 10 hereof to reduce the Exercise Price below the then par value (if any)
of the Warrant Shares, the Company will take any corporate action which may, in
the opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares at the Exercise
Price as so adjusted.
The Company covenants that all Warrant Shares which may be issued upon
exercise of the Warrant will, upon issue, be fully paid, nonassessable, free of
preemptive rights and free from all taxes, liens, charges and security interests
with respect to the issue thereof.
SECTION 10. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES
ISSUABLE. The Exercise Price and the number of Warrant Shares issuable upon the
exercise of the Warrant are subject to adjustment from time to time upon the
occurrence of the events enumerated in this SECTION 10. For purposes of this
SECTION 10, "COMMON STOCK" means shares now or hereafter authorized of any class
of common stock of the Company and any other stock of the Company, however
designated, that has the right to participate in any distribution of the assets
or earnings of the Company, excluding preferred stock.
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK.
If the Company:
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares; or
(3) combines its outstanding shares of Common Stock into a smaller
number of shares;
then the Exercise Price shall be adjusted in accordance with the formula:
0
E' = E x -
A
5
<PAGE>
Where:
E' = the adjusted Exercise Price
E = the current Exercise Price
O = the number of shares of all classes of Common Stock outstanding prior
to such action
A = the number of shares of all classes of Common Stock outstanding
immediately after such action
In the case of a dividend or distribution the adjustment shall become
effective immediately after the record date for determination of holders of
shares of Common Stock entitled to receive such dividend or distribution, and in
the case of a subdivision, combination or reclassification, the adjustment shall
become effective immediately after the effective date of such corporate action.
If after an adjustment the holder of the Warrant upon exercise of it
may receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted Exercise Price between
the classes of capital stock. After such allocation, the exercise privilege,
the number of shares issuable upon such exercise and the Exercise Price of each
class of capital stock shall thereafter be subject to adjustment on terms
comparable to those applicable to Common Stock in this Section 10.
Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) ADJUSTMENT FOR RIGHTS ISSUE.
If the Company distributes any rights, options or warrants to any
holders of any class of its Common Stock entitling such holder at any time after
the record date mentioned below to purchase shares of Common Stock at a price
per share less than the Current Market Price per share on that record date, the
Exercise Price shall be adjusted in accordance with the formula:
N x P
0+-----
M
E'=E x ------
0 + N
6
<PAGE>
where:
E' = the adjusted Exercise Price.
E = the current Exercise Price.
O = the number of shares of all classes of Common Stock outstanding on the
record date.
N = the number of additional shares of all classes of Common Stock
issuable upon exercise of the rights, options or warrants offered.
P = the exercise price per share of the additional shares issuable upon
exercise of the rights, options or warrants.
M = the Current Market Price per share of Common Stock on the record date.
The adjustment shall be made successively whenever any such rights,
options or warrants are issued and shall become effective immediately after the
record date for the determination of stockholders entitled to receive the
rights, options or warrants. If at the end of the period during which such
rights, options or warrants are exercisable, (i) not all rights, options or
warrants shall have been exercised or (ii) the exercise price per share for
which shares of Common Stock are issuable pursuant to such rights, options or
warrants shall be increased or decreased solely by virtue of provisions therein
contained for an automatic increase or decrease in such exercise price per share
upon the occurrence of a specified date or event, then the Exercise Price shall
be immediately readjusted to what it would have been if, in the case of clause
(i) above, "N" in the above formula had been the number of shares actually
issued or, in the case of clause (ii) above, "P" in the above formula had been
the exercise price per share, as so increased or decreased, as the case may be.
(c) ADJUSTMENT FOR DISTRIBUTIONS.
If the Company distributes (including by way of share repurchases to
the extent in excess of the Current Market Price per share) to any holders of
any class of its Common Stock any of its assets (including, but not limited to,
cash), debt securities, preferred stock, or any rights or warrants to purchase
debt securities, preferred stock, assets or other securities of the Company, the
Exercise Price shall be adjusted in accordance with the formula:
M - F
E' = E x -----
M
where:
7
<PAGE>
E' = the adjusted Exercise Price.
E = the current Exercise Price.
M = the Current Market Price per share of Common Stock on the record date
mentioned below.
F = the Fair Market Value (as defined in SECTION 10(f)) on the record date
of the assets, securities, rights or warrants applicable to one share
of Common Stock.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
This subsection does not apply to rights, options or warrants referred
to in subsection (b) of this Section 10.
This subsection does not apply to distributions by the Company of
ordinary quarterly cash dividends to all holders of its Common Stock, provided
that timely notice of such distributions are given by the Company to the Warrant
holders pursuant to Section 14.
(d) ADJUSTMENT FOR BELOW MARKET ISSUANCES OF COMMON STOCK.
If the Company issues shares of any class of its Common Stock for a
consideration per share less than the Current Market Price per share on the date
the Company fixes the offering price of such additional shares, the Exercise
Price shall be adjusted in accordance with the formula:
P
O + ---
M
E' = E x ------
A
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares of all classes of Common Stock outstanding
immediately prior to the issuance of such additional shares.
8
<PAGE>
P = the aggregate consideration received for the issuance of such
additional shares.
M = the Current Market Price per share on the date of issuance of such
additional shares.
A = the number of shares of all classes of Common Stock outstanding
immediately after the issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This subsection (d) does not apply to:
(1) any of the transactions described in subsections (a), (b) or (c)
of this SECTION 10;
(2) the exercise of the Warrant, or the conversion or exchange of
other securities outstanding on the date of this Agreement that are
convertible or exchangeable for Common Stock and were included in the
calculation described in SECTION 12(b);
(3) Common Stock issued upon the exercise of rights or warrants
issued to the holders of Common Stock for which rights or warrants an
adjustment has been made pursuant to SECTION 10(b);
(4) Common Stock issued to shareholders of any person which merges
with the Company or an affiliate thereof in proportion to their stock
holdings of such person immediately prior to such merger, upon such merger;
(5) Common Stock issued in a bona fide public offering pursuant to a
firm commitment underwriting; or
(6) Common Stock issued to financial institutions or investors other
than WSS concurrently with the making of a bona fide loan to the Company as
an additional inducement to the making of such loan, if such Common Stock
would otherwise be covered by this subsection (d).
(e) ADJUSTMENT FOR CONVERTIBLE SECURITIES ISSUE.
If the Company issues any securities convertible into or exchangeable
for Common Stock (other than securities issued in transactions described in
subsections (b) and (c) of this SECTION 10) for a consideration per share of
Common Stock initially deliverable upon conversion or exchange of such
securities less than the Current Market Price per share on the date of issuance
of such securities, the Exercise Price shall be adjusted in accordance with this
formula:
9
<PAGE>
P
O + --
M
E' = E x -------
O + D
where:
E' = the adjusted Exercise Price.
E = the then current Exercise Price.
O = the number of shares of all classes of Common Stock outstanding
immediately prior to the issuance of such securities.
P = the aggregate consideration received for the issuance of such
securities.
M = the Current Market Price per share on the date of issuance of such
securities.
D = the maximum number of shares of all classes of Common Stock
deliverable upon conversion or in exchange for such securities at the
initial conversion or exchange rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
If (i) all of the Common Stock deliverable upon conversion or exchange
of such securities have not been issued when such securities are no longer
outstanding, or (ii) the exercise price per share for which shares of Common
Stock are issuable pursuant to such securities shall be increased or decreased
solely by virtue of provisions therein contained for an automatic increase or
decrease in such exercise price per share upon the occurrence of a specified
date or event, then the Exercise Price shall promptly be readjusted to the
Exercise Price which would then be in effect had the adjustment upon the
issuance of such securities been made on the basis of, in the case of clause (i)
above, the actual number of shares of Common Stock issued upon conversion or
exchange of such securities or, in the case of clause (ii) above, the exercise
price per share, as so increased or decreased, as the case may be.
This subsection (e) does not apply to:
(1) any of the transactions described in subsections (b) or (c) of
this SECTION 10;
10
<PAGE>
(2) convertible securities issued to shareholders of any person which
merges into the Company, or with a subsidiary of the Company, in proportion
to their stock holdings of such person immediately prior to such merger,
upon such merger;
(3) convertible securities issued in a bona fide public offering
pursuant to a firm commitment underwriting; or
(4) convertible securities issued to financial institutions or
investors other than WSS substantially concurrently with the making of a
bona fide loan to the Company as an additional inducement to the making of
such loan, if such convertible securities would otherwise be covered by
this subsection (e).
(f) CERTAIN DEFINITIONS.
(1) CURRENT MARKET PRICE. The Current Market Price per share of
Common Stock on any date is:
(i) if the Common Stock is not registered under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), then the Fair
Market Value of the Common Stock based upon the Fair Market Value of
100% of the Company if sold as a going concern and without regard to
any discount for the lack of liquidity or on the basis that the
relevant shares of the Common Stock do not constitute a majority or
controlling interest in the Company and assuming, if applicable, the
exercise or conversion of all in-the-money warrants, convertible
securities, options or other rights to subscribe for or purchase any
additional shares of capital stock of the Company or securities
convertible or exchangeable into such capital stock; or
(ii) if the Common Stock is registered under the Exchange Act,
the average of the Quoted Prices of the Common Stock for 30
consecutive trading days commencing 45 trading days before the date in
question. The "QUOTED PRICE" of the Common Stock is the last reported
sales price of the Common Stock as reported by Nasdaq National Market,
or if the Common Stock is listed on a national securities exchange,
the last reported sales price of the Common Stock on such exchange
(which shall be for consolidated trading if applicable to such
exchange), or if neither so reported or listed, the last reported bid
price of the Common Stock. In the absence of one or more such
quotations, the Current Market Price of the Common Stock shall be
determined as if the Common Stock was not registered under the
Exchange Act.
11
<PAGE>
(2) FAIR MARKET VALUE. Fair Market Value means the value obtainable
upon a sale in an arm's length transaction to a third party under usual and
normal circumstances, with neither the buyer nor the seller under any
compulsion to act, with equity to both, as determined by the Board of
Directors of the Company (the "BOARD") in good faith; PROVIDED, HOWEVER,
that if the Warrant holder shall dispute the Fair Market Value as
determined by the Board, the Warrant holder may undertake to have it and
the Company retain an Independent Expert. The determination of Fair Market
Value by the Independent Expert shall be final, binding and conclusive on
the Company and the Warrant holder. All costs and expenses of the
Independent Expert shall be borne by the Warrant holder unless the
determination of Fair Market Value by the Independent Expert is more than
5% more favorable to the Company than the Fair Market Value determined by
the Board, in which event the cost of the Independent Expert shall be
shared equally by the Warrant holder and the Company, or more than 10% more
favorable to the Company than the Fair Market Value determined by the
Board, in which event the cost of the Independent Expert shall be borne
solely by the Company.
(3) INDEPENDENT EXPERT. Independent Expert means an investment
banking firm reasonably agreeable to the Company and the Warrant holder who
does not (and whose affiliates do not) have a financial interest in the
Company or any of its affiliates.
(g) CONSIDERATION RECEIVED.
For purposes of any computation respecting consideration received
pursuant to subsections (d) and (e) of this SECTION 10, the following shall
apply:
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or
otherwise in connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the Fair Market Value thereof;
(3) in the case of the issuance of securities convertible into or
exchangeable for shares, the aggregate consideration received therefor
shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if
any, to be received by the Company upon the conversion or exchange thereof
(the consideration in each case to be determined in the same manner as
provided in clauses (1) and (2) of this subsection).
12
<PAGE>
(h) WHEN ADJUSTMENT NOT REQUIRED.
If the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be rescinded and annulled.
(i) NOTICE OF ADJUSTMENT.
Whenever the Exercise Price is adjusted, the Company shall provide the
notices required by SECTION 14 hereof.
(j) VOLUNTARY REDUCTION.
The Company from time to time may reduce the Exercise Price by any
amount for any period of time if the period is at least 20 days and if the
reduction is irrevocable during the period; PROVIDED, HOWEVER, that in no event
may the Exercise Price be less than the par value of a share of Common Stock.
Whenever the Exercise Price is reduced, the Company shall mail to the
registered holder of the Warrant Certificate a notice of the reduction. The
Company shall mail the notice at least 15 days before the date the reduced
Exercise Price takes effect. The notice shall state the reduced Exercise Price
and the period it will be in effect.
A reduction of the Exercise Price does not change or adjust the
Exercise Price otherwise in effect for purposes of subsections (a), (b), (c),
(d) and (e) of this SECTION 10.
(k) REORGANIZATION OF COMPANY.
If any capital reorganization or reclassification of the capital stock
of the Company, any consolidation or merger of the Company with another entity,
or the sale or lease of all or substantially all of the Company's assets to
another entity shall be effected in such a way that holders of Common Stock of
the Company shall be entitled to receive stock, securities or assets with
respect to or in exchange for such Common Stock, then, as a condition precedent
to such reorganization, reclassification, consolidation, merger, sale or lease,
lawful and adequate provisions shall be made whereby the holder shall thereafter
have the right to purchase and receive upon the basis and the terms and
conditions specified in this Agreement and in lieu of the shares of Common Stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable in such reorganization, reclassification, consolidation,
merger, sale or lease with respect to or in exchange for the number of shares of
Common Stock purchasable and receivable upon the exercise of the rights
represented hereby had such rights been exercised immediately prior thereto, and
in any such case appropriate provision shall be made with respect
13
<PAGE>
to the rights and interests of the holder of the Warrant to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Exercise Price and of the number of shares of Common Stock purchasable
and receivable upon the exercise of the Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger, sale or lease, unless
prior to the consummation thereof the successor corporation (if other than
the Company) resulting from such consolidation or merger or the corporation
purchasing or leasing such assets shall assume by written instrument,
executed and mailed or delivered to the holder at the last address thereof
appearing on the books of the Company, the obligation to deliver to such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to purchase.
(l) ADJUSTMENT IN NUMBER OF SHARES.
Upon each adjustment of the Exercise Price pursuant to this SECTION
10, the Warrant shall thereafter evidence the right to receive upon payment of
the adjusted Exercise Price that number of shares of Common Stock (calculated to
the nearest hundredth) obtained from the following formula:
E
N' = N x ---
E'
where:
N' = the adjusted number of Warrant Shares issuable upon exercise of the
Warrant by payment of the adjusted Exercise Price.
N = the number of Warrant Shares previously issuable upon exercise of the
Warrant by payment of the Exercise Price prior to adjustment.
E' = the adjusted Exercise Price.
E = the Exercise Price prior to adjustment.
(m) FORM OF WARRANT.
Irrespective of any adjustments in the Exercise Price or the number or
kind of shares purchasable upon the exercise of the Warrant, any Warrant
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the Warrant initially issuable
pursuant to this Agreement.
14
<PAGE>
SECTION 11. PREEMPTIVE RIGHTS. In the event of the issuance, sale,
grant or distribution by the Company of any Common Stock or any other capital
stock of the Company, or any other voting or other security of the Company whose
participation varies with the income or value of the Company, or any security
convertible into or exchangeable for any of the foregoing (collectively, an
"EQUITY SECURITY"), the holder of the Warrant shall be entitled to participate
in such issuance, sale, grant or distribution on a pro rata basis, and on the
same terms and conditions (to the extent applicable to such holder), so that
following such issuance, sale, grant or distribution such holder will, if he has
elected to purchase or otherwise receive the new securities to be issued, sold,
granted or distributed (and after giving effect to any adjustments pursuant to
SECTION 10), have the same percentage of the equity ownership of the Company (on
a fully diluted basis) as such holder had (on a fully diluted basis) prior to
such issuance, sale, grant or distribution. This SECTION 11 shall not apply to
registered public offerings or issuances of stock to management of the Company.
SECTION 12. CAPITALIZATION; ADJUSTMENT TO THE NUMBER OF WARRANT
SHARES. The Company hereby represents and warrants to the Warrant holders as
follows:
(a) The authorized capital stock of the Company consists of
shares of Common Stock. As of the date of this Agreement (i)
shares of Common Stock are validly issued and outstanding, fully paid and
nonassessable and (ii) shares of Common Stock are issuable upon
exercise of outstanding options, warrants (including the Warrant), rights or
other securities, consisting of (a) a warrant held by Logistical Simon, LLC,
consisting of the right to purchase 125,000 shares of Common Stock, (b) a
warrant held by Roger E. Payton, consisting of the right to purchase
shares of Common Stock, (c) a warrant held by Banque Paribas, consisting of the
right to purchase shares of Common Stock (which may be increased up
to an aggregate of 6,649 shares of Common Stock [upon additional exercises of
warrants issued to other parties on May 2, 1996),] (d) a warrant held by
Internationale Nederlanden (U.S.) Capital Company, consisting of the right to
purchase shares of Common Stock [(which may be increased up to an
aggregate of 6,649 shares of Common Stock upon additional exercises of warrants
issued to other parties on May 2, 1996),] (e) a warrant held by Kurt Kamm,
consisting of the right to purchase 6,516 shares of Common Stock, (f) a warrant
held by William Kidd, consisting of the right to purchase 6,516 shares of Common
Stock, (g) warrants held by David W.M. Harvey, consisting of the right to
purchase shares of Common Stock, respectively, (h) a warrant held by
Edward Mandell, consisting of the right to purchase 266 shares of Common Stock,
(i) warrants held by Brian E. Sanderson, consisting of the right to purchase
shares of Common Stock, respectively, and [(j) warrants held by William E.
Myers, Jr., consisting of the right to purchase shares of Common
Stock, respectively] (the "DERIVATIVE SECURITIES"). Except as contemplated by
clauses (i) and (ii) above or Section 11, there are no other shares of capital
stock, or other equity securities of the Company outstanding, and no other
outstanding options, warrants, rights to subscribe to (including any preemptive
rights other than those set forth in the Articles or in the Stockholders
Agreement), calls or commitments of any character whatsoever to which the
Company or any of its subsidiaries is a party or may be bound, requiring the
issuance or sale of shares of any capital stock or other equity securities of
the Company or securities or rights convertible into or exchangeable for such
shares or other equity securities, and there are no
15
<PAGE>
contracts, commitments, understandings or arrangements by which the Company
is or may become bound to issue additional shares of its capital stock or
other equity securities or options, warrants or rights to purchase or acquire
any additional shares of its capital stock or other equity securities or
securities convertible into or exchangeable for such shares or other equity
securities.
(b) shares of Common Stock were issued to
in connection with [the acquisition of the outstanding capital stock of certain
subsidiaries of as of
, 1996 (the "Transaction"),] and invested a total of $
in the Company in connection with such Transaction.
[(c) 263,298 shares of Common Stock issuable upon exercise of the
Derivative Securities were included in calculating the number of Warrant Shares
issuable upon the exercise of the Warrant. In the event that prior to the
issuance of all of the Warrant Shares issuable upon exercise of the Warrant, the
number of shares of Common Stock issuable upon exercise of the Derivative
Securities described in clauses (a) through (d) inclusive of Section 12(a)
decreases due to the expiration, cancellation or other termination of such
Derivative Securities, then the number of shares to be acquired upon exercise of
the Warrant shall be equitably adjusted downward.]
SECTION 13. FINANCIAL STATEMENTS. The Company shall provide to the
Warrant holder a copy of all monthly, quarterly and annual financial statements
and variance reports of the Company provided to the directors of the Company;
provided, however, that the Company shall not be obligated to provide to the
Warrant holder (in such capacity) any documents provided solely for review by
the directors of the Company at board meetings. The Company shall also provide
to the Warrant holder at no cost to such holder a copy of any material
agreements relating to the Company's (or any subsidiary's) equity
capitalization, including options, warrants or convertible securities, that may
be reasonably requested by such holder. If requested by the Company, the
Warrant holder shall execute such confidentiality agreements as the Company may
reasonably require.
SECTION 14. NOTICES TO WARRANT HOLDERS. Upon any adjustment of the
Exercise Price pursuant to SECTION 10, the Company shall promptly thereafter (i)
cause to be filed with the Company a certificate of a firm of independent public
accountants of recognized standing selected by the Board (who may be the regular
auditors of the Company) setting forth the Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculations are based and setting forth the number of Warrant
Shares (or portion thereof) issuable after such adjustment in the Exercise
Price, upon exercise of the Warrant and payment of the adjusted Exercise Price,
which certificate shall be presumptive evidence of the correctness of the
matters set forth therein, and (ii) cause to be given to the registered holder
of the Warrant Certificate written notice of such adjustments. Where
appropriate, such notice may be given in advance and included as a part of the
notice required to be mailed under the other provisions of this SECTION 14.
16
<PAGE>
In case:
(a) the Company shall authorize the issuance to any holders of shares
of Common Stock of rights, options or warrants to subscribe for or purchase
shares of Common Stock or of any other subscription rights or warrants;
(b) the Company shall authorize the distribution to any holders of
shares of Common Stock of evidences of its indebtedness or assets
(including without limitation ordinary quarterly cash dividends);
(c) of any consolidation or merger to which the Company is a party
and for which approval of any shareholders of the Company is required, or
of the conveyance or transfer of the properties and assets of the Company
substantially as an entirety, or of any reclassification or change of
Common Stock issuable upon exercise of the Warrant (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or a tender offer
or exchange offer made by the Company for shares of Common Stock;
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
(e) the Company proposes to take any action (other than actions of
the character described in SECTION 10(a)) which would require an adjustment
of the Exercise Price pursuant to SECTION 10;
(f) the Company takes any action that would require a supplemental
Warrant Agreement pursuant to subsection (k) of this SECTION 10;
(g) the Company proposes to issue, sell, grant or distribute any
Equity Security; or
(h) of any proposed transaction that would constitute an Early
Termination Event;
then the Company shall cause to be given to the registered holder of the Warrant
Certificate, at least 20 days (or 10 days in any case specified in clauses (a)
or (b) above) prior to the applicable record date hereinafter specified, or
promptly in the case of events for which there is no record date, a written
notice stating (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such rights, options, warrants or
distribution are to be determined, (ii) the initial expiration date set forth in
any tender offer or exchange offer made by the Company for shares of Common
Stock, (iii) the date on which any such consolidation, merger, conveyance,
transfer, dissolution, liquidation, winding up is expected to become effective
or consummated, and the date as of which it is expected that holders of record
of shares of Common Stock shall be entitled to exchange such shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance,
17
<PAGE>
transfer, dissolution, liquidation or winding up, or (iv) the date on which
any such issuance, sale, grant or distribution is expected to become
effective or consummated.
Nothing contained in this Agreement or in the Warrant Certificate
shall be construed as conferring upon the holder thereof the right to vote or to
consent or to receive notice as shareholders in respect of the meetings of
shareholders or the election of Directors of the Company or any other matter, or
any rights whatsoever as shareholders of the Company.
SECTION 15. NOTICES TO COMPANY AND THE WARRANT HOLDER. Any notice or
demand authorized by this Agreement to be given or made by the Warrant Holder to
or on the Company shall be sufficiently given or made when and if delivered by a
recognized overnight delivery service, or deposited in the mail, first class or
registered, postage prepaid, addressed to the office of the Company expressly
designated by the Company for purposes of this Agreement (until the Warrant
Holder is otherwise notified in accordance with this Section by the Company), as
follows:
-----------------------
International Logistics Limited
330 South Manheim Road
Hillside, IL 60162
with a copy to:
Eric H. Schunk
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, Thirtieth Floor
Los Angeles, CA 90017
Any notice pursuant to this Agreement to be given by the Company to
the registered holder of the Warrant Certificate shall be sufficiently given
when and if delivered by a recognized overnight delivery service, or deposited
in the mail, first-class or registered, postage prepaid, addressed (until the
Company is otherwise notified in accordance with this Section by such holder) to
such holder at the following address:
W.E. Myers & Company
2 North Lake Avenue, Suite 650
Pasadena, California 91101,
ATTN: William E. Myers, Jr.
Telecopy No.: (818) 449-1288
18
<PAGE>
with a copy to:
----------------
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Telecopy No.: (213) 891-8763
SECTION 16. CONSENTS AND BEST EFFORTS. The Company shall as soon as
practicable after the date hereof, commence to take all action required to
obtain all consents, approvals and agreements of, and to give all notices and
make all other filings with, any individual, firm, corporation, partnership,
trust, unincorporated organization or other entity or a government or agency or
political subdivision thereof necessary to authorize, approve or permit the
consummation of the transactions contemplated by this Agreement, and Warrant
holder shall cooperate with the Company with respect thereto. In addition,
subject to the terms and conditions provided herein, the Company covenants and
agrees to use its best efforts to take, or cause to be taken, all action or do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby and to cause the fulfillment of the Company's obligations
hereunder.
SECTION 17. SUCCESSORS. All the covenants and provisions of this
Agreement shall bind and inure to the benefit of the parties' respective
successors and assigns hereunder.
SECTION 18. GOVERNING LAW. This Agreement and the Warrant
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be construed in
accordance with the internal laws of said State.
SECTION 19. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Warrant holder any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company and the Warrant holder.
SECTION 20. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
[SIGNATURE PAGE TO FOLLOW]
19
<PAGE>
IN WITNESS WHEREOF, the Company and Warrant holder have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the day and year first above written.
INTERNATIONAL LOGISTICS LIMITED
-------------------------------
By:
---------------
Title: President & Chief Executive Officer
WILLIAM E. MYERS, Jr.
-------------------------------------------
<PAGE>
ANNEX 1
TO WARRANT AGREEMENT
Form of Warrant Certificate
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENT OF SUCH ACT OR SUCH LAWS.
ALL WARRANT SHARES RECEIVED BY THE WARRANT HOLDER UPON EXERCISE OF THE WARRANTS
WILL BE SUBJECT TO THE TERMS AND CONDITIONS OF AN [AMENDED AND RESTATED]
STOCKHOLDERS AGREEMENT, [AN AMENDED AND RESTATED] REGISTRATION RIGHTS AGREEMENT
AND SUBSCRIPTION AGREEMENT, EACH DATED AS OF , 1996 AMONG THE
COMPANY AND THE VARIOUS STOCKHOLDERS OF THE COMPANY, AND EACH WARRANT HOLDER
AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF SUCH AGREEMENTS.
No. Shares
Warrant Certificate
INTERNATIONAL LOGISTICS LIMITED
This Warrant Certificate certifies that William E. Myers, Jr., or
registered assigns, is the registered holder of one Warrant expiring at 5:00
p.m., Los Angeles time on (the "WARRANT") to purchase Common
Stock, $.001 par value (the "COMMON STOCK"), of International Logistics Limited,
a Delaware corporation (the "COMPANY"). The Warrant entitles the holder upon
exercise to receive from the Company prior to 5:00 p.m., Los Angeles time on
, shares of fully paid and nonassessable shares of
Common Stock (the "WARRANT SHARES") at the initial exercise price (the "EXERCISE
PRICE") of $ per share payable in lawful money of the United States of
America upon surrender of this Warrant Certificate and payment of the Exercise
Price at the office of the Company designated for such purpose, but only subject
to the conditions set forth herein and in the Warrant Agreement referred to
below. Notwithstanding the foregoing, the Warrant may be exercised without the
exchange of funds pursuant to the net exercise provisions of SECTION 6(a) of
the Warrant Agreement. [The Exercise Price shall increase daily by a factor of
0.000261158 multiplied by the Exercise Price as of the preceding day.] The
Exercise Price and number of Warrant Shares issuable upon exercise of the
Warrant are subject to adjustment upon the occurrence of certain events set
forth in the Warrant Agreement.
A-1
<PAGE>
The Warrant may not be exercised after 5:00 p.m., Los Angeles time on
, and to the extent not exercised by such time such
Warrant shall become void.
The Warrant evidenced by this Warrant Certificate is part of a duly
authorized issue of Warrants expiring at 5:00 p.m., Los Angeles time on
entitling the holder on exercise to receive shares of Common Stock,
$0.001 par value, of the Company (the "COMMON STOCK"), and is issued or is to be
issued pursuant to a Warrant Agreement dated as of , 1996 (the "WARRANT
AGREEMENT"), duly executed and delivered by the Company, which Warrant Agreement
is hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Company and the holder (the
word "holder" meaning the registered holder) of the Warrant. A copy of the
Warrant Agreement may be obtained by the holder hereof upon written request to
the Company.
The Warrant may be exercised at any time prior to (i) 5:00 p.m., Los
Angeles time on or (ii) the occurrence of an Early Termination
Event (as defined in the Warrant Agreement). The holder of the Warrant
evidenced by this Warrant Certificate may exercise it by surrendering this
Warrant Certificate, with the form of election to purchase set forth hereon
properly completed and executed, together with payment of the Exercise Price in
cash at the office of the Company designated for such purpose. In the event
that upon any exercise of the Warrant evidenced hereby the number of Warrant
Shares issuable upon such exercise shall be less than the total number of
Warrant Shares evidenced hereby, there shall be issued to the holder hereof or
his assignee a new Warrant Certificate evidencing the number of Warrant Shares
not exercised.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that the number of shares of Common Stock issuable upon the
exercise of the Warrant shall be adjusted. No fractions of a share of Common
Stock will be issued upon the exercise of the Warrant, but the Company will pay
the cash value thereof determined as provided in the Warrant Agreement.
The Warrant Certificate, when surrendered at the office of the Company
by the registered holder thereof in person or by legal representative or
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrant Shares.
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrant Shares shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
A-2
<PAGE>
Neither the Warrant nor this Warrant Certificate entitles any holder
hereof to any rights of a stockholder of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be signed by a duly authorized officer.
Dated: , 1996
INTERNATIONAL LOGISTICS LIMITED
By:
----------------------------------------
By:
-------------------
Its: President & Chief Executive Officer
A-3
<PAGE>
Form of Election to Purchase
(To Be Executed Upon Exercise Of The Warrant)
The undersigned hereby irrevocably (subject to SECTION 6(e)) of the
Warrant Agreement) elects to exercise the right, represented by this Warrant
Certificate, to receive __________ shares of Common Stock and herewith tenders
payment for such shares to the order of International Logistics Limited in the
amount of $_________ in accordance with the terms hereof, unless the holder is
exercising the Warrant pursuant to the net exercise provisions of SECTION 6(a)
of the Warrant Agreement. The undersigned requests that a certificate for such
shares be registered in the name of ________________, whose address is
_______________________________ and that such shares be delivered to
________________ whose address is ___________ ______________________. If said
number of shares is less than all of the shares of Common Stock purchasable
hereunder, the undersigned requests that a new Warrant Certificate representing
the remaining balance of such shares be registered in the name of
______________, whose address is _________________________, and that such
Warrant Certificate be delivered to _________________, whose address is
__________________.
Signature:
--------------------------------
Date:
----------------------
A-4
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. Sale and Purchase of Warrant . . . . . . . . . . . . . . . . . . 1
SECTION 2. Investment Representations . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Warrant Certificate. . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 4. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. Registration of Transfers and Exchanges. . . . . . . . . . . . . 2
SECTION 6. Warrant; Exercise of Warrant . . . . . . . . . . . . . . . . . . 3
SECTION 7. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 8. Mutilated or Missing Warrant Certificate . . . . . . . . . . . . 4
SECTION 9. Reservation of Warrant Shares. . . . . . . . . . . . . . . . . . 4
SECTION 10. Adjustment of Exercise Price and Number of Warrant Shares
Issuable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 11. Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 12. Capitalization; Adjustment to the Number of Warrant
Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 13. Financial Statements. . . . . . . . . . . . . . . . . . . . . . 16
SECTION 14. Notices to Warrant holders . . . . . . . . . . . . . . . . . . . 16
SECTION 15. Notices to Company and the Warrant Holder. . . . . . . . . . . . 18
SECTION 16. Consents and Best Efforts. . . . . . . . . . . . . . . . . . . 19
SECTION 17. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 18. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 19. Benefits of This Agreement . . . . . . . . . . . . . . . . . . . 19
SECTION 20. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ANNEX 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
i
<PAGE>
EXHIBIT 10.21
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
--------------------------
STOCK PURCHASE AGREEMENT
--------------------------
by and among
LEP INTERNATIONAL WORLDWIDE LIMITED
as "LIW,"
LEP INTERNATIONAL HOLDINGS LIMITED
as "Holdings"
LEP HOLDINGS (NORTH AMERICA) LIMITED
as "Stockholder"
and
INTERNATIONAL LOGISTICS (CANADA) COMPANY
as "Buyer"
Dated: October 31, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . .-2-
ARTICLE II PURCHASE AND SALE OF STOCK . . . . . . . . . . . . . . . . . . -15-
2.1 Transfer of Stock . . . . . . . . . . . . . . . . . . . . . . . -15-
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . -16-
2.3 Post-Closing Adjustment. . . . . . . . . . . . . . . . . . . . . -16-
2.4 Intercompany Receivables and Payables. . . . . . . . . . . . . . -19-
ARTICLE III CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
3.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
3.2 Deliveries at Closing. . . . . . . . . . . . . . . . . . . . . . -20-
3.3 Other Closing Transactions . . . . . . . . . . . . . . . . . . . -21-
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS
WITH RESPECT TO THE TARGET AND ITS SUBSIDIARIES . . . . . . . . . . . -22-
4.1 Organization of the Target and each of its Subsidiaries. . . . . -22-
4.2 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
4.3 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . -23-
4.4 Absence of Certain Changes or Events . . . . . . . . . . . . . . -24-
4.5 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . -27-
4.6 Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
4.7 Contracts and Commitments. . . . . . . . . . . . . . . . . . . . -29-
4.8 Permits, Consents and Approvals. . . . . . . . . . . . . . . . . -32-
4.9 No Conflict or Violation . . . . . . . . . . . . . . . . . . . . -33-
4.10 Financial Statements . . . . . . . . . . . . . . . . . . . . . . -33-
4.11 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . -34-
4.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
4.13 Labour Matters . . . . . . . . . . . . . . . . . . . . . . . . . -35-
4.14 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
4.15 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . -36-
4.16 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
4.17 No Other Agreements to Sell the Assets . . . . . . . . . . . . . -36-
4.18 Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . -37-
4.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . -38-
4.20 THIS SECTION INTENTIONALLY OMITTED . . . . . . . . . . . . . . . -41-
4.21 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
4.22 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
4.23 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . -44-
4.24 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
4.25 INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . -44-
4.26 Customers, Distributors and Suppliers. . . . . . . . . . . . . . -45-
4.27 Compliance With Environmental Laws . . . . . . . . . . . . . . . -45-
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<PAGE>
4.28 Banking Relationships. . . . . . . . . . . . . . . . . . . . . . -47-
4.29 Intercompany Loans . . . . . . . . . . . . . . . . . . . . . . . -47-
4.30 Material Misstatements Or Omissions. . . . . . . . . . . . . . . -47-
ARTICLE V INTENTIONALLY OMITTED. . . . . . . . . . . . . . . . . . . . . . -47-
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . -47-
6.1 Organization of Buyer. . . . . . . . . . . . . . . . . . . . . . -48-
6.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . -48-
6.3 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
6.4 No Conflict or Violation . . . . . . . . . . . . . . . . . . . . -48-
6.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . -49-
6.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
6.7 Investment Intent. . . . . . . . . . . . . . . . . . . . . . . . -49-
ARTICLE VII COVENANTS OF SELLERS, THE TARGET AND BUYER . . . . . . . . . . -49-
7.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . -50-
7.2 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . -50-
7.3 Use of Purchase Price Amount . . . . . . . . . . . . . . . . . . -51-
7.4 1995 Year End Financial Statements . . . . . . . . . . . . . . . -51-
7.5 THIS SECTION INTENTIONALLY OMITTED . . . . . . . . . . . . . . . -51-
7.6 Payment of Royal Obligation. . . . . . . . . . . . . . . . . . . -51-
7.7 Intercompany Receivables and Payables. . . . . . . . . . . . . . -51-
7.8 Franchise Matters. . . . . . . . . . . . . . . . . . . . . . . . -52-
ARTICLE VIII ACTIONS BY SELLERS AND BUYER AFTER THE CLOSING. . . . . . . . -52-
8.1 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . -52-
8.2 Survival of Representations, Etc . . . . . . . . . . . . . . . . -53-
8.3 Indemnifications . . . . . . . . . . . . . . . . . . . . . . . . -53-
8.4 THIS SECTION INTENTIONALLY OMITTED . . . . . . . . . . . . . . . -57-
ARTICLE IX TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . -57-
9.1 Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -57-
9.2 Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . -58-
9.3 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . -59-
9.4 Notice of Contests . . . . . . . . . . . . . . . . . . . . . . . -60-
9.5 Cooperation. . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
9.6 Purchase Price Adjustment. . . . . . . . . . . . . . . . . . . . -61-
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . -61-
10.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . -61-
10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . -62-
10.3 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . -63-
10.4 Service of Process, Consent to Jurisdiction. . . . . . . . . . -63-
10.5 Entire Agreement; Amendments and Waivers . . . . . . . . . . . -63-
10.6 Multiple Counterparts. . . . . . . . . . . . . . . . . . . . . -64-
10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . -64-
10.8 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . -64-
10.9 Titles; Gender . . . . . . . . . . . . . . . . . . . . . . . . -64-
10.10 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . -64-
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10.11 Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . -64-
10.12 Confidential Information . . . . . . . . . . . . . . . . . . . -65-
10.13 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . -66-
10.14 Limitation of Liability. . . . . . . . . . . . . . . . . . . . -67-
10.15 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
10.16 Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
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<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of October 31, 1996 (this
"AGREEMENT"), is by and among International Logistics (Canada) Company, a
Nova Scotia unlimited liability company ("BUYER"), LEP International
Worldwide Limited, a company organized under the laws of England ("LIW"), LEP
International Holdings Limited, a company organized under the laws of England
("HOLDINGS"), (and, together with LIW, the "PARENT COMPANIES") and LEP
Holdings (North America) Limited, a corporation organized under the laws of
England (the "STOCKHOLDER" and together with the Parent Companies, the
"SELLERS").
RECITALS
A. LIW desires to sell its Canadian business operations, which
operations in Canada are comprised entirely of LEP International Inc., a
Canadian corporation (the "TARGET") and its Subsidiaries.
B. The Stockholder, an indirect subsidiary of LIW, is the owner of all
of the issued and outstanding shares of capital stock of the Target and the
Target is the owner of all of the issued and outstanding shares of capital
stock of each of its Subsidiaries.
C. Buyer desires to purchase from the Stockholder, and the Stockholder
desires to sell to Buyer, all of the issued and outstanding capital stock of
the Target upon the terms and subject to the conditions of this Agreement
(the "ACQUISITION").
D. In connection with the Acquisition, the parties desire to set forth
certain representations, warranties and covenants made each to the other as
an inducement to the consummation of the Acquisition, upon the terms and
subject to the conditions contained herein.
E. In connection with the Acquisition, the Sellers are willing to
indemnify Buyer, and Buyer is willing to indemnify the Sellers, against
certain liabilities they may incur in connection with the Acquisition, upon
the terms and subject to the conditions contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and
<PAGE>
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINED TERMS. As used herein, the terms set forth below shall
have the following meanings. Any of such terms, unless the context otherwise
requires, may be used in the singular or plural, depending upon the reference.
"1995 YEAR END BALANCE SHEET" shall mean the audited consolidated
balance sheet of the Target and its Subsidiaries for the period ended
December 31, 1995, together with the notes thereon, accordance with GAAP and
previously delivered to Buyer.
"1995 YEAR END FINANCIAL STATEMENTS" shall mean the audited
consolidated balance sheets of the Target and its Subsidiaries and related
audited consolidated statements of operations and income, changes in
stockholders" equity and cash flow of the Target and its Subsidiaries for the
twelve month period ended December 31, 1995, together with notes thereon,
aprepared in accordance with GAAP and previously delivered to Buyer.
"ACCOUNTING FIRM" shall have the meaning set forth in Section 2.3(a)
of this Agreement.
"ACQUISITION PROPOSAL" shall have the meaning set forth in
Section 7.2(a) of this Agreement.
"ACQUISITION TRANSACTION" shall have the meaning set forth in
Section 7.2(a) of this Agreement.
"ACTION" shall mean any action, claim, suit, litigation, proceeding,
labour dispute, arbitral action, governmental audit, inquiry, criminal
prosecution, investigation or unfair labour practice charge or complaint.
"AFFILIATE" shall have the meaning set forth in the Canada Business
Corporations Act, as amended, and the rules and regulations thereunder, and in
addition shall include all directors and officers of a Person that is a
corporation and all managing members of a Person that is a limited liability
company, shall be deemed affiliates of such Person for all purposes hereunder.
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<PAGE>
"ANCILLARY AGREEMENTS" shall mean the License Agreement, the Escrow
Agreement, the InterCompany Agreement and the Trademark Assignment.
"ASSETS" shall mean, with respect to the Target and each of its
Subsidiaries, all of the right, title and interest in and to all of the
business, properties, assets and rights of any kind, whether tangible or
intangible, real or personal owned by the Target or any of its Subsidiaries
or in which the Target or any of its Subsidiaries has any interest, including
without limitation all of the right, title and interest of the Target and
each of its Subsidiaries in the following:
(i) all accounts and notes receivable (whether current or
non-current), refunds, deposits, prepayments or prepaid expenses (including
without limitation any prepaid insurance premiums);
(ii) all Contract Rights;
(iii) all shares of common stock and any other ownership interests
owned by the Target or such Subsidiary;
(iv) all tangible personal property;
(v) all Owned Real Property;
(vi) all Leases and Leasehold Estates;
(vii) all Leasehold Improvements;
(viii) all Fixtures and Equipment;
(ix) all Books and Records;
(x) all Proprietary Rights;
(xi) all Insurance Policies;
(xii) all Permits;
(xiii) all computers and software;
(xiv) all available supplies, sales literature, promotional
literature, customer, supplier and distributor lists, art work, employee
uniforms, wrapping, supply and packaging items, display units, telephone and
fax numbers, purchasing records and any other items related to the Business;
-3-
<PAGE>
(xv) all rights under or pursuant to all warranties,
representations and guarantees made by suppliers in connection with the
Assets or services furnished to the Target or any of its Subsidiaries
pertaining to the Business or affecting the Assets;
(xvi) all claims, causes of action, chooses in action, rights of
recovery and rights of set-off of any kind, against any person or entity,
including without limitation any liens, security interests, pledges or other
rights to payment or to enforce payment in connection with products delivered
by the Target or any of its Subsidiaries on or prior to the Closing Date; and
(xvii) all goodwill related to the Business.
"ASSOCIATE" shall have the meaning set forth in the Canada Business
Corporations Act.
"BENEFIT ARRANGEMENT" shall mean any employment, consulting,
severance or other similar contract, arrangement or policy and each plan,
arrangement (written or oral), program, agreement or commitment providing for
insurance coverage (including without limitation any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, life, health,
disability or accident benefits or for deferred compensation, profit-sharing
bonuses, stock options, stock appreciation rights, stock purchases or other
forms of incentive compensation or post-retirement insurance, compensation or
benefits which (A) is not a Pension Plan, (B) is entered into, maintained,
contributed to or required to be contributed to, as the case may be, by the
Target or any of its Subsidiaries or under which the Target or any of its
Subsidiaries may incur any Liability, and (C) covers any employee or former
employee of the Target or any of its Subsidiaries (with respect to their
relationship with such entities).
"BOOKS AND RECORDS" shall mean (a) all records and lists of the
Target and each of its Subsidiaries pertaining to the Assets, (b) all records
and lists of the Target and its Subsidiaries Pertaining to the Business,
customers, suppliers or personnel of each of the Target and each of its
Subsidiaries, (c) all product, business and marketing plans of the Target and
each of its Subsidiaries, and (d) all books, ledgers, files, reports, plans,
drawings and operating records of every kind maintained by the Target and
each of its Subsidiaries.
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<PAGE>
"BUSINESS" shall mean the business conducted by the Target and its
Subsidiaries of providing origin and destination services, freight
forwarding, logistics, supply chain management, customs clearing services,
transportation and distribution services in Canada, together with any
ancillary services provided therewith.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in Toronto, Ontario are authorized or
obligated by law, regulation or executive order to remain closed.
"BUYER" shall mean International Logistics (Canada) Company, a Nova
Scotia unlimited liability company.
"BUYER INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 8.3(a) of this Agreement.
"CLAIM" shall have the meaning set forth in Section 8.3(d) of this
Agreement.
"CLAIM NOTICE" shall have the meaning set forth in Section 8.3(d) of
this Agreement.
"CLOSING" shall have the meaning set forth in Section 3.1 of this
Agreement.
"CLOSING BALANCE SHEET" shall have the meaning set forth in
Section 2.3(a) of this Agreement.
"CLOSING DATE" shall mean (a) October 31, 1996; or (b) such other
date as Buyer and the stockholder shall mutually agree upon.
"CLOSING FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 2.3(a) of this Agreement.
"CLOSING FINANCIAL STATEMENTS DELIVERY DATE" shall have the meaning
set forth in Section 2.3(h) of this Agreement.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in
Section 10.12(b) of this Agreement.
"CONTRACT" shall mean any agreement, contract, Lease, note, loan,
evidence of indebtedness, purchase order, letter of credit, indenture,
security or pledge agreement, franchise agreement, covenant not to compete,
employment agreement, license, instrument, obligation, commitment, purchase
and sales order, quotation or other executory commitment to which the Target
or any of its Subsidiaries is a party or is bound, or to
-5-
<PAGE>
which any Assets of the Target or any of its Subsidiaries are subject,
whether oral or written, express or implied.
"CONTRACT RIGHTS" shall mean all of the rights and obligations of
the Target and each of its Subsidiaries under the Contracts.
"CORPORATION" shall mean (i) the Target and each of its Subsidiaries,
(ii) all partnerships, joint ventures, limited liability companies,
associations, joint-stock companies or trusts in which the Target or any of
its Subsidiaries was at any time or is a partner, joint venturer,
participant or member and (iii) all predecessor or former corporations,
partnerships, joint ventures, limited liability companies, associations,
joint-stock companies, or trusts, whether in existence as of the date hereof
or at any time prior to the date hereof, the assets or obligations of which
have been acquired or assumed by the Target or any of its Subsidiaries or to
which the Target or any of its Subsidiaries has succeeded.
"COPYRIGHTS" shall mean registered copyrights, copyright applications
and unregistered copyrights.
"COURT ORDER" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, provincial or municipal court or
governmental agency, department or authority that is binding on any person or
its property under applicable law.
"DAMAGES" shall have the meaning set forth in Section 8.3(a) of this
Agreement.
"DEFAULT" shall mean (a) a breach of or default under any Contract
or Permit, (b) the occurrence of an event that with the passage of time or
the giving of notice or both would constitute a breach of or default under
any Contract or Permit, or (c) the occurrence of an event that with or
without the passage of time or the giving of notice or both would give rise
to a right of termination, renegotiation or acceleration under any Contract
or Permit.
"DISCLOSURE SCHEDULE" shall mean a schedule executed and delivered
by the Sellers to Buyer as of the date hereof which sets forth the exceptions
to (i) the representations and warranties of the Sellers with respect to the
Target and its Subsidiaries contained in Article IV hereof, (ii) certain
other information called for by this Agreement. Unless otherwise specified,
each reference in this Agreement to any numbered schedule is a reference to
that numbered schedule which is included in the Disclosure Schedule.
-6-
<PAGE>
"DISCONTINUED OPERATIONS" shall mean any businesses or operations
previously sold or otherwise disposed of by any of the Sellers or by the
Target or any of its Subsidiaries including but not limited to the
discontinued subsidiaries set forth in Schedule 1.1 hereto, and any ongoing
indemnification obligations in connection therewith.
"DOWNWARD ADJUSTMENT" shall have the meaning set forth in Section
2.3(b) of this Agreement.
"DORVAL OBLIGATION" shall mean the mortgage in favour of The
Standard Life Assurance Company on the property set forth in Schedule 4.6
hereto.
"EMPLOYEE PLANS" shall mean all Benefit Arrangements and Pension Plans.
"ENCUMBRANCE" shall mean any claim, lien, pledge, option, charge,
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, conditional sales agreement, encumbrance or other similar right of
any third party, whether voluntarily incurred or arising by operation of law,
and includes, without limitation, any agreement to give any of the foregoing in
the future, and any contingent sale or other title retention agreement or lease
in the nature thereof.
"ENVIRONMENTAL LAWS" shall mean all Regulations which regulate or
relate to the protection or clean-up of the environment, the use, treatment,
storage, transportation, generation, manufacture, processing, distribution,
handling or disposal of, or emission, discharge or other release or
threatened release of, Hazardous Substances, the preservation or protection
of waterways, groundwater, drinking water, air, wildlife, plants or other
natural resources, or the health and safety of persons or property, including
without limitation protection of the health and safety of employees.
Environmental Laws shall include, without limitation, the Environmental
Protection Act (Ontario), Occupational Health & Safety Act (Ontario), the
Ontario Water Resources Act, Environmental Quality Act (Quebec), the Canadian
Environmental Protection Act and all analogous or related federal, provincial
or municipal laws, each as amended.
"ENVIRONMENTAL CONDITIONS" shall mean the introduction into the
environment of any Hazardous Substance (whether or not upon any Facility or
Former Facility or other property and whether or not such pollution
constituted at the time thereof a violation of any Environmental Law as a
result of any Release of any kind whatsoever of any Hazardous Substance)
during and in connection with the ownership, operation or occupancy of any
Corporation as a result of which any Corporation has become or
-7-
<PAGE>
becomes liable to any person, or has or may become responsible for any
environmental remediation under current Environmental Laws, or by reason of
which any Facility, Former Facility or any of the Assets suffers or becomes
subject to any lien under current Environmental Laws.
"ESCROW AGREEMENT" shall have the meaning set forth in Section 2.2(b)
of this Agreement.
"ESCROW AMOUNT" shall have the meaning set forth in Section 2.2(b) of
this Agreement.
"FACILITIES" shall mean all plants, offices, manufacturing
facilities, stores, warehouses, improvements, administration buildings, and
all real property and related facilities which are used or held for use in
connection with the Business, all of which are identified or listed on
Exhibit A attached hereto.
"FACILITY LEASES" shall mean all of the leases of Facilities, all of
which are listed in Schedule 4.6(a) hereto.
"FINANCIAL STATEMENTS" shall mean, with respect to the Target and
its Subsidiaries, the (i) monthly unaudited consolidated financial statements
for each of the months beginning at the Most Recent Fiscal Quarter End
through and including the month ended August 31, 1996 (the "MOST RECENT MONTH
END FINANCIAL STATEMENTS"), (ii) the unaudited consolidated financial
statements for the fiscal quarter ended June 30, 1996 (the "MOST RECENT
FISCAL QUARTER END FINANCIAL STATEMENTS"), and (iii) the Year End Financial
Statements.
"FINANCING OBLIGATIONS" shall mean (a) any indebtedness of the
Target or any of its Subsidiaries for borrowed money, including without
limitation the Royal Obligation, (b) the Dorval Obligation (c) any
obligations of the Target or any of its Subsidiaries evidenced by bonds,
notes, debentures, letters of credit or similar instruments, (d) obligations
of the Target or any of its Subsidiaries under capitalized leases, (e)
obligations under conditional sale, title retention or similar agreements or
arrangements creating an obligation of the Target or any of its Subsidiaries
with respect to the deferred purchase price of property (other than customary
trade credit), (f) interest rate and currency obligation swaps, hedges and
similar arrangements of the Target and any of its Subsidiaries and (g) all
obligations of the Target or any of its Subsidiaries to guarantee any of the
foregoing types of obligations on behalf of others.
-8-
<PAGE>
"FIXTURES AND EQUIPMENT" shall mean all of the furniture, fixtures,
furnishings, machinery, automobiles, trucks, spare parts, supplies,
equipment, tooling, molds, patterns, dies and other tangible personal
property owned by the Target or any of its Subsidiaries and used, held for
use or useful in connection with the Business, wherever located, and
including any such Fixtures and Equipment in the possession of any suppliers
of the Target or any of its Subsidiaries, together with all warranty rights
with respect thereto.
"FOREIGN SUBSIDIARY" shall mean any Subsidiary organized under the
laws of or with a principal place of business in any country other than Canada.
"FORMER FACILITY" shall mean, with respect to each Corporation, each
plant, office, manufacturing facility, store, warehouse, improvement,
administrative building and all real property and related facilities which
was owned, leased or operated by such Corporation at any time prior to the
date hereof, but excluding any Facilities.
"GAAP" shall mean generally accepted accounting principles in
Canada, as in effect from time to time, consistently applied.
"HAZARDOUS SUBSTANCE" shall mean any pollutant, contaminant,
chemical, waste and any toxic, infectious, carcinogenic, reactive, corrosive,
ignitable or flammable chemical or chemical compound or hazardous substance,
material or waste, whether solid, liquid or gas, that is subject to
regulation, control or remediation under any Environmental Laws including,
without limitation, any quantity of asbestos in any form, urea formaldehyde,
PCB'S, radon gas, crude oil or any fraction thereof, all forms of natural
gas, petroleum products or by-products or derivatives.
"HOLDINGS" shall mean LEP International Holdings Limited, a
corporation organized under the laws of England.
"HOLDINGS LOAN" shall mean the loan payable by Holdings to the
Target in the principal amount of Cdn $3,496,266.32.
"INCLUDED SUBSIDIARIES" shall have the meaning set forth in
Section 9.6 of this Agreement.
"ING OBLIGATION" shall mean the $3.2 Million Loan Facility provided
by International Nederlanden Bank N.V. ("ING") to LEP International, B.V., an
indirect subsidiary of LIW.
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<PAGE>
"INSURANCE POLICIES" shall mean the insurance policies related to the
Assets or the Business.
"INTERCOMPANY AGREEMENT" shall mean the operations agreement by and
between LIW, Buyer and the Target and each of its Subsidiaries, substantially in
the form of Appendix A attached hereto.
"INTERCOMPANY DEFICIT" shall mean the amount, if any, as of the
Closing Date, by which all sums owed by the Target or any of its Subsidiaries
to LIW or any of its Subsidiaries (excluding the Target and its Subsidiaries)
exceeds all sums owed by LIW or any of its Subsidiaries (excluding the Target
and its Subsidiaries), to the Target and its Subsidiaries as of such date
(i.e., net payable that is payable by the Target and its Subsidiaries).
"INTERCOMPANY SURPLUS" shall mean the amount, if any, as of the
Closing Date, by which all sums owed by LIW or any of its Subsidiaries
(excluding the Target and its Subsidiaries), to the Target or any of its
Subsidiaries exceeds all sums owed by the Target or any of its Subsidiaries to
LIW or any of its Subsidiaries (excluding the Target and its Subsidiaries) as of
such date (i.e. net receivable owed to the Target and its Subsidiaries).
"LEASED REAL PROPERTY" shall mean all leased property described in the
Facility Leases.
"LEASEHOLD ESTATES" shall mean all rights and obligations of the
Target and each of its Subsidiaries as lessee under the Leases.
"LEASEHOLD IMPROVEMENTS" shall mean all leasehold improvements
situated in or on the Leased Real Property and owned by the Target or any of its
Subsidiaries.
"LEASES" shall mean all of the existing leases with respect to the
personal or real property of the Target or any of its Subsidiaries used or held
for use in connection with the Business.
"LIABILITIES" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured, known, unknown or other. "LIABILITY" shall have
the correlative meaning.
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"LICENSE AGREEMENT" shall mean the trademark license agreement by and
between Holdings and the Target, substantially in the form of Appendix B
attached hereto.
"LIW" shall mean LEP International Worldwide Limited, a corporation
organized under the laws of England.
"MATERIAL ADVERSE EFFECT" shall mean with respect to the Target or
any of its Subsidiaries, after giving effect to the transactions contemplated
by this Agreement (except with respect to (i)(C) below), (i) a significant or
substantial adverse effect or adverse change in (A) the condition (financial
or otherwise) of or in the Assets of the Target and its Subsidiaries,
collectively, or (B) the Business or properties, Liabilities, reserves,
working capital, earnings, technology or relations with customers, public
image or employees of the Target and its Subsidiaries, collectively, or (C)
the right or ability of the Sellers or the Target to consummate the
transactions contemplated hereby, or (ii) any event or condition, singly or
in the aggregate, which would, with the passage of time, constitute a
"MATERIAL ADVERSE EFFECT."
"MORTGAGES" shall mean with respect to the Target and each of its
Subsidiaries, all deeds of trust, mortgages or other Encumbrances securing
indebtedness and relating to any of the Owned Real Property of the Target or
such Subsidiaries.
"MOST RECENT FISCAL QUARTER END" shall mean June 30, 1996.
"MOST RECENT FISCAL QUARTER-END FINANCIAL STATEMENTS" shall have the
meaning ascribed to it in the definition of "Financial Statements."
"MOST RECENT MONTH END FINANCIAL STATEMENTS" shall have the meaning
ascribed to it in the definition of "Financial Statements."
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 1 of
the Pension Benefits Act (Ontario).
"NET WORTH DEFICIENCY" shall have the meaning set forth in
Section 2.3(e) of this Agreement.
"NET WORTH SURPLUS" shall have the meaning set forth in Section 2.3(f)
of this Agreement.
"NET WORTH VALUE" shall have the meaning set forth in Section 2.3(g)
of this Agreement.
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"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar phrase
when used with respect to the Target or any of its Subsidiaries shall mean
with respect to the Target and each such Subsidiary the ordinary course of
the Business and consistent with the past practices of the Target and each
such Subsidiary.
"OVERLAP PERIOD" shall have the meaning set forth in Section 9.1 of this
Agreement.
"OWNED REAL PROPERTY" shall mean all real property owned in fee by the
Target and any of its Subsidiaries, including without limitation all rights,
easements and privileges appertaining or relating thereto, all buildings,
fixtures, and improvements located thereon and all Facilities thereon, if any.
"PARENT COMPANIES" shall mean, collectively, LIW, and Holdings.
"PATENTS" shall mean all patents and patent applications and registered
designs and registered design applications.
"PAYBACK AMOUNT" shall have the meaning set forth in Section 2.2(c) of
this Agreement.
"PENSION PLAN" shall (a) have the meaning set forth in section 1 of the
Pension Benefits Act (Ontario) (A) which the Target or any of its
Subsidiaries maintains, administers, contributes to or is required to
contribute to, or, within the five years prior to the Closing Date,
maintained, administered, contributed to or was required to contribute to, or
under which the Target or any of its Subsidiaries may incur any Liability and
(B) which covers any employee or former employee of the Target or any of its
Subsidiaries (with respect to their relationship with such entities).
"PERMITTED ENCUMBRANCES" shall mean the Encumbrances listed on Schedule
1.3 hereto and other Encumbrances which, individually and in the aggregate,
do not materially detract from the value or transferability of the property
or Assets subject thereto, or interfere in any material respect with the
present use of the properties or Assets subject thereto.
"PERMITS" shall mean all licenses, permits, franchises, authorizations,
consents or orders of, or filings with, any governmental authority, whether
foreign, federal, provincial or municipal, or any other person, necessary for
the conduct or operations of the Business.
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"PERSON" shall mean an individual, partnership, corporation, limited
liability company, joint venture, trust, association or unincorporated
organization or a government or agency or political subdivision thereof.
"PERSONNEL" shall have the meaning set forth in Section 4.4(b)(i) of
this Agreement.
"POST-CLOSING PERIOD" shall have the meaning set forth in Section 9.2 of
this Agreement.
"PRE-CLOSING ENVIRONMENTAL MATTERS" shall mean (a) the production, use,
generation, storage, treatment, recycling, disposal, discharge, release, or
other handling or disposition at any time on or prior to the Closing Date
(collectively "HANDLING") of any Hazardous Substance, either in, on, under or
from any Facility or Former Facility during and the ownership, operation or
occupancy of any Corporation, including, without limitation, the effects of
such Handling of Hazardous Substances which result in an Environmental
Condition, and (b) the failure on or prior to the Closing Date of any
Facility or Former Facility during the ownership, operation or occupancy of
any Corporation to be in compliance with any applicable Environmental Law or
the failure on or prior to the Closing Date of any operation of any
Corporation to be in compliance with any applicable Environmental Laws or to
have discharged liability for any past non-compliance.
"PRE-CLOSING PERIODS" shall have the meaning set forth in Section 9.1 of
this Agreement.
"PROPRIETARY RIGHTS" shall mean all of the Copyrights, Patents,
Trademarks, technology rights and licenses, computer software (including
without limitation any source or object codes therefor or documentation
relating thereto), trade secrets, franchises, know-how, inventions, designs,
specifications, plans, drawings and intellectual property rights of the
Target and each of its Subsidiaries.
"PURCHASE PRICE" shall have the meaning set forth in Section 2.2(a) of
this Agreement.
"REGULATIONS" shall mean any laws, statutes, ordinances, regulations,
rules, court decisions and orders of any foreign, federal, provincial or
municipal government and any other governmental department or agency,
including without limitation Environmental Laws, energy, motor vehicle
safety, public utility, zoning, building and health codes, occupational
safety and health and laws respecting employment practices,
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employee documentation, terms and conditions of employment and wages and
hours.
"RELEASE" shall mean and include any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, leaching, dumping or
disposing into the environment or the workplace of any Hazardous Substance.
"REPRESENTATIVE" shall mean any officer, director, principal, attorney,
agent, employee or other representative.
"ROYAL OBLIGATION" shall mean the credit facility from The Royal Bank of
Canada to the Target.
"S AGENT" shall mean any sales agent of the Target or any of its
Subsidiaries.
"SELLERS" shall mean, collectively, the Stockholder and the Parent
Companies.
"SELLERS INDEMNIFIED PARTIES" shall have the meaning set forth in
section 8.3(b) of this Agreement.
"SELLERS' SUBSIDIARY" shall mean (a) any corporation in an unbroken
chain of corporations beginning with LIW if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing
more than 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain, (b) any partnership in
which LIW or any of the Sellers' Subsidiaries is a general partner and any
limited liability company in which LIW or any of the Sellers' Subsidiaries is
a managing member, or (c) any partnership or limited liability company in
which LIW or any of the Sellers' Subsidiaries possesses more than 50%
interest in the total capital or total income of such partnership or limited
liability company. For the purposes of this Agreement, "SELLERS'
SUBSIDIARIES" shall be deemed to exclude the Target and its Subsidiaries.
"SELLERS' ACCOUNTANT" shall have the meaning set forth in Section 2.3(a)
of this Agreement.
"STOCKHOLDER" shall mean LEP Holdings (North America) Limited, a
corporation organized under the laws of England.
"SUBSIDIARY" shall mean (a) any corporation in an unbroken chain of
corporations beginning with the Target if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing more
than 50% or more of the total combined voting power of all classes of stock
in one
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of the other corporations in such chain, (b) any partnership in which the
Target or any of its Subsidiaries is a general partner and any limited
liability company in which the Target or any of its Subsidiaries is a
managing member, or (c) any partnership or limited liability company in which
the Target or any of its Subsidiaries possesses more than 50% interest in the
total capital or total income of such partnership or limited liability
company.
"TAX" shall mean any federal, provincial, municipal or foreign net or
gross income, gross receipts, license, payroll, employment, excise,
severance, stamp, business, occupation, premium, customs duties, capital
stock, capital, employer health, franchise, profits, withholding, including
non-residency withholding, payroll, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, goods and services, alternative or
add-on minimum, estimated, or other tax, levy, impost, governmental fee or
like assessment or charge of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not, imposed by any
governmental authority or arising under any tax law or agreement, including,
without limitation, any joint venture or partnership agreement.
"TRADEMARKS" shall mean registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks and
service marks.
"TRADEMARK ASSIGNMENT" shall mean the trademark assignment by Target to
Holdings with respect to the "LEP" trademarks, substantially in the form of
Appendix C attached hereto.
"UPWARD ADJUSTMENT" shall have the meaning set forth in Section 2.3(c)
of this Agreement.
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 TRANSFER OF STOCK. Upon the terms and subject to the conditions
contained herein, at the Closing, the Stockholder shall sell, convey,
transfer, assign and deliver to Buyer, and Buyer shall purchase from the
Stockholder, all of the outstanding shares of capital stock of the Target as
set forth in Schedule 2.1 of this Agreement.
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2.2 PURCHASE PRICE.
(a) PURCHASE PRICE. At the Closing, upon the terms and subject to
the conditions set forth herein, in consideration for the transfer of all the
shares of capital stock of the Target pursuant to Section 2.1 of this
Agreement, the Stockholder shall be entitled to receive and the Buyer shall
be obligated to pay an aggregate of $6,500,000, in cash (the "PURCHASE
PRICE"). The Purchase Price shall be paid by wire transfer of immediately
available funds to an account designated by the Stockholder in an amount
equal to the Purchase Price less the Escrow Amount (which shall be paid
pursuant to Section 2.2(b) below) and the ING Obligation (which shall be paid
pursuant to Section 2.2(c) below).
(b) ESCROW AGREEMENT. In order to establish a procedure for the
satisfaction of any claims by any Buyer Indemnified Party for indemnification
pursuant to Section 8.3 or Article IX hereof, the Sellers shall enter into an
escrow agreement with Buyer and the Escrow Agent, substantially in the form
of Appendix D attached hereto (the "ESCROW AGREEMENT"), pursuant to which
two-hundred and fifty thousand dollars ($250,000) of the Purchase Price shall
be held in escrow until the first anniversary of the Closing Date, subject to
the terms of the Escrow Agreement. Pursuant to the Escrow Agreement, the
Sellers hereby direct Buyer to deliver to the Escrow Agent (as such term is
defined in the Escrow Agreement), and at the Closing Buyer shall wire to the
Escrow Agent in immediately available funds, an aggregate of two-hundred and
fifty thousand dollars ($250,000) in cash out of the aggregate amount of the
Purchase Price (the "ESCROW AMOUNT"). The respective indemnification
obligations of the Sellers hereunder shall not be limited to the Escrow
Amount.
(c) PAYBACK AMOUNT. In order to establish a procedure for the
discharge of the ING Obligation, the Sellers hereby direct Buyer to pay
directly to ING an aggregate of $3.2 million out of the aggregate amount of
the Purchase Price (the "PAYBACK AMOUNT") and apply this Payback Amount to
discharge such ING Obligation. At the Closing, Buyer shall wire to the bank
account designated by ING in immediately available funds the Payback Amount.
2.3 POST-CLOSING ADJUSTMENT.
(a) CLOSING BALANCE SHEET. Schedule 2.3 of the Disclosure Schedule
sets forth a calculation of the consolidated net worth of the Target and its
Subsidiaries based on the balance sheet contained in the Most Recent Month
End Financial Statements. As promptly as practicable after the Closing Date
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(but in no event more than ninety (90) days after the Closing Date), Buyer
will cause the Target to prepare and deliver to the Sellers consolidated
financial statements of the Target and its Subsidiaries as of the close of
business on the day immediately preceding the Closing Date (the "CLOSING
FINANCIAL STATEMENTS"). The Closing Financial Statements shall be
accompanied by a certificate of the Chief Financial Officer of the Target to
the effect that the Closing Financial Statements present fairly, in
accordance with GAAP and the accounting practices of the Target and its
Subsidiaries applied on a basis consistent with the Financial Statements,
except with respect to those changes set forth on Schedule 4.10, the
financial condition of the Target and its Subsidiaries as of the close of
business on the day immediately preceding the Closing Date. The balance
sheet contained in the Closing Financial Statements shall be referred to
herein as the "CLOSING BALANCE SHEET." The closing Financial Statements will
be prepared in accordance with GAAP, applied on a basis consistent with the
1995 Year End Financial Statements, except with respect to certain agreed
changes in accounting policies as set forth in Schedule 4.10 attached hereto
and incorporated herein by this reference. The Closing Balance Sheet shall
be accompanied by reasonably detailed schedules including a calculation of
the Net Worth Value. The Sellers and a firm of independent public
accountants designated by the Sellers (the "SELLERS' ACCOUNTANT") will be
entitled to reasonable access during normal business hours to the relevant
records and working papers of the Target and its Subsidiaries to aid in their
review of the Closing Financial Statements. The Closing Financial Statements
shall be deemed to be accepted by the Sellers and shall be conclusive for the
purposes of the adjustment described in Sections 2.3(b) and 2.3(c) hereof
except to the extent, if any, that the Sellers or the Sellers' Accountant
shall have delivered, within thirty (30) days after the date on which the
Closing Financial Statements are delivered to the Sellers, a written notice
to Buyer stating each and every item to which the Sellers take exception,
specifying in reasonable detail the nature and extent of any such exception
(it being understood that any amounts not disputed as provided herein shall
be paid promptly). If a change proposed by the Sellers is disputed by Buyer,
then Buyer and the Sellers shall negotiate in good faith to resolve such
dispute. If, after a period of twenty (20) days following the date on which
the Sellers give Buyer notice of any such proposed change, any such proposed
change still remains disputed, then Buyer and the Sellers hereby agree that
Ernst & Young, LLP (the "ACCOUNTING FIRM") shall resolve any remaining
disputes. The Accounting Firm shall act as an arbitrator to determine, based
solely on presentations by the Sellers and Buyer, and not by independent
review, only those issues still in dispute. The decision of the Accounting
Firm shall be final and binding and shall be in accordance with the
provisions of this
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Section 2.3(a). The fees and expenses of the Accounting Firm, if any, shall
be paid equally by Buyer and the Stockholder; PROVIDED, HOWEVER, that, if the
Accounting Firm determines that either party's position is totally correct,
then the other party shall pay one hundred percent (100%) of the costs and
expenses incurred by the Accounting Firm in connection with any such
determination.
(b) In the event that there is a Net Worth Deficiency (as defined
below) with respect to the Target and its Subsidiaries, the Sellers shall pay
to Buyer, as an adjustment to the Purchase Price, an amount equal to (i) the
Net Worth Deficiency, (ii) plus the amount of the InterCompany Surplus, if
any, and (iii) minus the amount of the Intercompany Deficit, if any (the
"DOWNWARD ADJUSTMENT"); PROVIDED, HOWEVER, that if the Downward Adjustment is
a negative number, then Buyer shall pay to the Stockholder an amount equal to
(ii) the InterCompany Deficit minus (ii) the Net Worth Deficiency. Any
payments required to be made by the Sellers pursuant to this Section 2.3(b)
or pursuant to Section 2.3(c) shall be made within ten (10) days of the
Closing Financial Statements Delivery Date (as defined below) by wire
transfer of immediately available funds to an account designated by Buyer.
(c) In the event that there is a Net Worth Surplus (as defined
below) with respect to the Target and its Subsidiaries, Buyer shall pay to
the Stockholder, as an adjustment to the Purchase Price, an amount equal to
(i) the Net Worth Surplus, (ii) plus the amount of the InterCompany Deficit,
if any, (iii) minus the amount of the InterCompany Surplus, if any (the
"UPWARD ADJUSTMENT"); PROVIDED, HOWEVER, that if the Upward Adjustment is a
negative number, then the Sellers shall pay to Buyer an amount equal to (i)
the InterCompany Surplus minus (ii) the Net Worth Surplus. Any payments
required to be made by Buyer pursuant to this Section 2.3(c) or pursuant to
Section 2.3(b) shall he made within ten (10) days of the Closing Financial
Statements Delivery Date by wire transfer of immediately available funds to
an account designated by the Stockholder.
(d) For tax allocation purposes, the parties hereto agree that the
fair market value of Trans Navigation Inc. is $750,000.
(e) The term "NET WORTH DEFICIENCY" shall mean, with respect to the
Target and its Subsidiaries, the amount, if any, by which the Net Worth Value
is less than $1,500,000.
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(f) The term "NET WORTH SURPLUS" shall mean, with respect to the
Target and its Subsidiaries, the amount, if any, by which the Net Worth Value
exceeds $1,500,000.
(g) The term "NET WORTH VALUE" shall mean, with respect to the
Target and its Subsidiaries, the (i) net amount of the Assets; (ii) less the
value of the Liabilities as set forth on the Closing Balance Sheet; PROVIDED,
HOWEVER, that if any change to the Closing Financial Statements is agreed to
by the Target and the Stockholder in accordance with Section 2.3(a) or any
dispute between the Target and the Stockholder with respect to the Closing
Financial Statements is resolved in accordance with section 2.3(a), then "NET
WORTH VALUE" shall be calculated after giving effect to any such change or
resolution. In addition, "NET WORTH VALUE" shall be converted from Canadian
dollars to American dollars at the rate of $1.35 Cdn. for each American
dollar.
(h) The term "CLOSING FINANCIAL STATEMENTS DELIVERY DATE" shall
mean the date on which the Closing Financial Statements are delivered
pursuant to Section 2.3(a); PROVIDED, HOWEVER, that if the Sellers take
exception to any item in the Closing Financial Statements the Closing
Financial Statements Delivery Date shall be the date on which the Target and
the Stockholder agree in writing to any change as provided in Section 2.3(a)
or the date on which the Accounting Firm delivers its decision with respect
to such dispute as provided in Section 2.3(a).
(i) In the event the Target at any time collects any amount from
Holdings in payment of either principal or interest with respect to the
Holdings Loan, the Purchase Price shall be increased by an amount equal to
the amount so collected. Such amount shall be paid by the Buyer to
Stockholder or Stockholder's designee promptly following Target's collection
of such amount. Target agrees not to assign or otherwise transfer all or any
interest in the Holdings Loan.
2.4 INTERCOMPANY RECEIVABLES AND PAYABLES. On the Closing Financial
Statements Delivery Date all intercompany payables and receivables between
the Target and its Subsidiaries on the one hand, and the Sellers and the
Sellers' Subsidiaries on the other hand, shall be settled and liquidated in
the manner set forth in Section 2.3(b) and 2.3(c) of this Agreement.
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ARTICLE III
CLOSING
3.1 CLOSING. Upon the terms and subject to the conditions set forth
herein, the closing of the transactions contemplated herein (the "CLOSING")
shall be held at 9:00 a.m. local time on the Closing Date at the offices of
Latham & Watkins, Sears Tower, Suite 5800, 233 South Wacker Drive, Chicago,
Illinois, 60606, unless the parties hereto otherwise agree.
3.2 DELIVERIES AT CLOSING.
(a) STOCK CERTIFICATES. To effect the Acquisition, the Stockholder
shall, on the Closing Date, deliver to Buyer certificates(s) evidencing all
of the capital stock of the Target, free and clear of any Encumbrances of any
nature whatsoever, duly endorsed in blank for transfer or accompanied by
stock powers duly executed in blank.
(b) BUYER CERTIFICATES. To effect the Acquisition, Buyer will
furnish the Sellers with such certificates of its officers and others as may
be reasonably requested by the Sellers, which certificates shall include, but
not be limited to:
(i) a certificate executed by the Secretary or an Assistant
Secretary of Buyer certifying as of the Closing Date (A) a true and complete
copy of the Charter Documents of Buyer, (B) a true and complete copy of the
resolutions of the board of directors of Buyer authorizing the execution,
delivery and performance of this Agreement by Buyer and the consummation of
the transactions contemplated hereby and thereby, and (C) incumbency matters;
and
(ii) a certificate of the Registrar of Joint Stock Companies
of Nova Scotia certifying the good standing or status of Buyer in Nova Scotia.
(c) OPINION OF COUNSEL. At the Closing, Buyer shall deliver to the
Stockholder an opinion of Stikeman, Elliott, Canadian counsel to Buyer, dated
as of the Closing Date, in form and substance reasonably satisfactory to the
parties and customary in transactions of the type contemplated by this
Agreement.
(d) SELLER CERTIFICATES. To effect the Acquisition, the Sellers
shall and shall cause the Target to furnish the Buyer with such certificates
of its officers and
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others as may be reasonably requested by the Buyer, which certificates shall
include, but not be limited to:
(i) a certificate executed by the Secretary or an Assistant
Secretary of each of the Sellers and of the Target and each of its
Subsidiaries certifying as of the Closing Date (A) a true and complete copy
of the Articles or Certificate of Incorporation (or such other comparable
organizational documents) of each of the Sellers and of the Target and each
such Subsidiary, (B) a true and complete copy of the Bylaws of each of the
Sellers and of the Target and each such Subsidiary, (C) incumbency matters
and (D) with respect to each of the Sellers, (1) a true and correct copy of
the resolutions of the board of directors of such Seller authorizing the
execution, delivery and performance of this Agreement by such Seller and the
consummation of the transactions contemplated hereby, and (2) approval and
adoption of this Agreement by any requisite vote or consent of the
shareholders of such Seller;
(ii) a copy of the Articles or Certificate of Incorporation
(or such other comparable organizational documents) of each of the Sellers
and of the Target and each of its Subsidiaries and all amendments thereto,
certified as of a recent date by the appropriate Secretary of State or such
other appropriate authority;
(iii) a certificate of good standing of the Target and each of
its Subsidiaries in its jurisdiction of incorporation and all jurisdictions
in which it is qualified to do business; and
(e) OPINION OF SELLERS' COUNSEL. The Sellers shall deliver to
Buyer an opinion of Fasken, Campbell, Godfrey, special Canadian counsel to
the Sellers, dated as of the Closing Date, in form and substance reasonably
satisfactory to the parties and customary in transactions of the type
contemplated by this Agreement.
3.3 OTHER CLOSING TRANSACTIONS.
(a) PAYMENT OF PURCHASE PRICE. At the Closing, Buyer shall deliver
to the Stockholder the Purchase Price as provided in Section 2.2.
(b) INTERCOMPANY AGREEMENT. At the Closing, the Buyer, LIW, LIM
and the Target and its Subsidiaries shall enter into the Intercompany
Agreement substantially in the form of APPENDIX A attached hereto.
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(c) LICENSE AGREEMENT. At the Closing, the Target and Holdings
shall enter into the License Agreement substantially in the form of APPENDIX
B attached hereto.
(d) TRADEMARK ASSIGNMENT. At the Closing, the Target shall deliver
the Trademark Assignment, substantially in the form of APPENDIX C attached
hereto, to Holdings.
(e) ESCROW AGREEMENT. At the Closing, the Sellers shall enter into
the Escrow Agreement with Buyer and the Escrow Agent substantially in the
form of APPENDIX D attached hereto and Buyer shall deposit the Escrow Amount
into escrow thereunder contemplated by Section 2.2(b).
(f) PAYMENT OF ROYAL OBLIGATION. Concurrently with the Closing,
Buyer shall cause the Target to retire the aggregate amount of the Royal
Obligation.
(g) PAYMENT OF THE DORVAL OBLIGATION. Concurrently with the
Closing, Buyer shall cause the Target to retire the aggregate amount of the
Dorval Obligation.
(h) PAYMENT OF THE PAYBACK AMOUNT. At the Closing, Buyer shall pay
the Payback Amount as contemplated by Section 2.2(c).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS WITH
RESPECT TO THE TARGET AND ITS SUBSIDIARIES
The Sellers hereby, jointly and severally, represent and warrant to
Buyer as follows (except as otherwise set forth in the numbered section of
the Disclosure Schedule corresponding to the Sections of this Article to
which such exception pertains), which representations and warranties are, as
of the date hereof, true and correct:
4.1 ORGANIZATION OF THE TARGET AND EACH OF ITS SUBSIDIARIES. (a) The
Target and each of its active Subsidiaries is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or formation with full power and authority to conduct the
Business as it is presently being conducted and to own and lease its
properties and Assets. The Target and each of its Subsidiaries is duly
qualified to do business as an extra-provincial corporation or as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under the applicable law as a result of the
conduct of the Business or
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ownership (or leasing) of its properties, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
Copies of the Certificates or Articles of Incorporation and Bylaws of the
Target and each of its Subsidiaries, and all amendments thereto, heretofore
delivered to Buyer are accurate and complete as of the date hereof. Schedule
4.1(a) contains a true, correct and complete list of all jurisdictions in
which the Target and each of its Subsidiaries is qualified to do business as
an extra-provincial or as a foreign corporation.
(b) The authorized, issued and outstanding shares of capital stock
of the Target and each of its Subsidiaries are set forth in Schedule 4.1(b)
hereto. All of the outstanding shares of capital stock of the Target and
each of its Subsidiaries are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in Schedule 4.1(b), the Stockholder has
good and valid title to all of the issued and outstanding shares of capital
stock of the Target free and clear of all Encumbrances with full right, power
and authority to transfer such shares to Buyer subject to securing the
consents set forth in Schedule 4.1(b) hereof. Except as set forth in Schedule
4.1(b), the Target owns all of the issued and outstanding shares of capital
stock of each of its Subsidiaries. Except as set forth in Schedule 4.1(b),
there are no outstanding subscriptions, calls, commitments, warrants or
options for the purchase of shares of any capital stock or other securities
of (or other ownership interests in) the Target or any of its Subsidiaries or
any securities convertible into or exchangeable for shares of capital stock
or other securities issued by (or other ownership interests in) the Target or
any of its Subsidiaries or any other commitments of any kind for the issuance
of additional shares of capital stock or other securities issued by (or other
ownership interests in) the Target or any of its Subsidiaries. Upon delivery
to Buyer and the payment in full of the Royal Obligation the capital stock of
the Target and its Subsidiaries will be free and clear of all Encumbrances
and shall be duly authorized, validly issued, fully paid and non-assessable.
4.2 SUBSIDIARIES. Except as set forth in Schedule 4.2 the Target does
not have (a) any Subsidiaries nor (b) any direct or indirect stock or other
ownership interest (whether controlling or not) in any Person.
4.3 AUTHORIZATION. The Target and each of its Subsidiaries have all
requisite corporate power and authority, and have taken all corporate action
necessary, to own, lease and operate their respective Assets and to conduct
the Business as it is presently being conducted. The Target has all
requisite power
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and authority, and has taken all action necessary, to execute and deliver the
Ancillary Agreements to which it is a party, to consummate the transactions
contemplated thereby and to perform its obligations thereunder. The
execution and delivery by the Target of the Ancillary Agreements to which it
is a party and the consummation by the Target of the transactions
contemplated thereby have been duly approved by the board of directors and,
to the extent required under applicable corporate laws, shareholders of the
Target. No other proceedings or actions on the part of the Target are
necessary to authorize the Ancillary Agreements to which it is a party and
the transactions contemplated hereby and thereby. Each of the Ancillary
Agreements to which it is a Party have been duly executed and delivered by
the Target, and each such agreement is a legal, valid and binding obligation
of the Target, enforceable against the Target in accordance with its terms,
except as such enforceability may be limited by (i) bankruptcy, insolvency,
moratorium, reorganization and other similar laws affecting creditors' rights
generally and (ii) general principles of equity, regardless of whether
asserted in a proceeding in equity or at law.
4.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 4.4:
(a) since June 30, 1996, there has not been any actual or, to the
knowledge of the Sellers, threatened change in the Assets or the Business, or
the Liabilities, earnings, results of operations or financial condition of
the Target or any of its Subsidiaries that would have a Material Adverse
Effect;
(b) since June 30, 1996, there has not been (i) except for normal
periodic increases in the ordinary course of business or pursuant to the
collective bargaining agreements to which the Target or any of its
Subsidiaries are a party as set forth in Schedule 4.13, any increase in the
compensation payable or to become payable by the Target or any of its
Subsidiaries to any of its current or former officers, employees, or agents
(collectively, "PERSONNEL"), (ii) any grant, payment or accrual, contingent
or otherwise, for or to the credit of any of the Personnel with respect to
any bonus, incentive compensation, service award or other like benefit other
than in the ordinary course of business, (iii) any adoption, creation or
amendment of any Employee Plan of the Target or any of its Subsidiaries, (iv)
any written employment agreement made by the Target or any of its
Subsidiaries to which the Target or any of its Subsidiaries is a party or (v)
any other material change in employment terms for any officers, employees or
agents of the Target or any of its Subsidiaries other than in the ordinary
course of business;
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(c) since December 31, 1995, there has not been any sale, lease,
assignment or transfer of any of the Assets, other than to persons that are
not affiliates for fair consideration and in the ordinary course of business;
(d) since June 30, 1996, there has not been any cancellation of any
indebtedness or waiver or release of any right or claim of the Target or any
of its Subsidiaries relating to its activities or properties in connection
with the Assets or the Business, except where such cancellation, release or
waiver would not, individually or in the aggregate, have a Material Adverse
Effect;
(e) since June 30, 1996, there has not been any amendment,
cancellation or termination of any Contract, commitment, agreement,
transaction or Permit relating to the Assets or the Business or entry into
any Contract, commitment, agreement, Lease, transaction or Permit which, in
each case, is not in the ordinary course of business;
(f) since June 30, 1996, there has not been any damage, destruction
or loss of assets (whether or not covered by insurance) which would have a
Material Adverse Effect.
(g) since June 30, 1996, there has not been any change in employee
relations which has or would have a Material Adverse Effect;
(h) since December 31, 1995, there has not been any change in
accounting methods, principles or practices by the Target or any of its
Subsidiaries;
(i) since June 30, 1996, there has not been any revaluation of any
of the Assets of the Target or any of its Subsidiaries, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable except in the ordinary course of business, except for
such revaluation of Assets which would not have, either individually or in
the aggregate, a Material Adverse Effect;
(j) since June 30, 1996, there has not been any mortgage, pledge or
other Encumbrance of any Assets, except Permitted Encumbrances and those
Encumbrances identified in Schedule 4.4(j);
(k) since December 31, 1995, except for the Royal Obligation, and
the Dorval Obligation, there has not been any incurrence of indebtedness by
the Target or any of its Subsidiaries for borrowed money or commitment to
borrow money entered into by the Target or any of its Subsidiaries, or any
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loans made or agreed to be made by the Target or any of its Subsidiaries, or
indebtedness guaranteed by the Target or any of its Subsidiaries, in excess
of $100,000 (exclusive of freight costs and custom duties) for any single
item (or series of similar items with the same party or parties);
(l) since December 31, 1995, there has not been any incurrence,
payment, discharge or satisfaction by the Target or any of its Subsidiaries
of Liabilities, except Liabilities incurred, paid, discharged or satisfied in
the ordinary course of business and not in excess of $100,000 for any single
item (or series of similar items);
(m) since December 31, 1995, there has not been any capital
expenditure or the execution of any Lease or Contract (or series of related
Leases or Contracts) or any incurring of liability therefor in each case by
the Target and its Subsidiaries (i) involving affiliates of the Target or any
of its Subsidiaries by the Target or any of its Subsidiaries, (ii) involving
payments, individually or for a series of related Contracts for payments to
or from the same party or parties in the aggregate, in excess of $100,000, or
(iii) outside of the ordinary course of business;
(n) since June 30, 1996, there has not been any failure to pay or
satisfy when due any Liability of the Target and its Subsidiaries, except
where the failure would not have a Material Adverse Effect;
(o) since June 30, 1996, there has not been any failure of the
Target or any of its Subsidiaries to carry on diligently (given the financial
condition of the Target and its Subsidiaries) the Business in the ordinary
course;
(p) since December 31, 1995, other than pursuant to this Agreement,
there has not been any issuance of any shares of capital stock of the Target
or any of its Subsidiaries or any rights or options to purchase any such
shares, payment of dividends in cash or otherwise or any other distribution
on account of the capital stock of the Target and any of its Subsidiaries;
(q) since June 30, 1996, there has not been any acceleration of the
payment by the Target or any of its Subsidiaries of any accounts payable to
LIW and/or any affiliate of LIW outside of the normal MCS terms (as such
terms are defined in the Intercompany Agreement);
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(r) to the knowledge of the Sellers, since June 30, 1996, there has
not occurred any other event or condition which in any one case or in the
aggregate would have a Material Adverse Effect;
(s) agreement by any Seller or the Target or any of its
Subsidiaries to do any of the things described in the preceding clauses (a)
through (r) other than as expressly provided for herein.
4.5 TITLE TO ASSETS. Schedule 4.5 contains accurate lists or summary
descriptions of categories of all tangible Assets owned or leased by the
Target and any of its Subsidiaries where the value of an individual item
exceeds $50,000 at current book value or where an aggregate of similar items
exceeds $100,000 at current book value. Except as set forth in Schedule 4.5,
the Target and each of its Subsidiaries owns or has the right to use its
respective Assets free and clear of any Encumbrances, except for Encumbrances
specifically identified in Schedule 4.5 and Permitted Encumbrances. The
Assets include without limitation all assets necessary for the conduct of the
Business. All tangible assets and properties which are part of the Assets
conform in all respects to all applicable Regulations (including
Environmental Laws) relating to their construction, use and operation except
where the failure to conform would not have a Material Adverse Effect.
4.6 FACILITIES.
(a) Neither the Target nor any of its Subsidiaries owns any Owned
Real Property except for the property covered by the Dorval Obligation.
Schedule 4.6(a) also contains a complete and accurate description of the
following terms of all Facility Leases of the Target and any of its
Subsidiaries: (i) a general description of the leased property or items,
(ii) the term, (iii) the applicable rent and (iv) any requirements for the
consent of third parties to assignments thereof, or to the change of control
or ownership of the Target. To the knowledge of the Sellers, all Facility
Leases of the Target and any of its Subsidiaries are valid, binding and
enforceable in accordance with their terms and, to the knowledge of the
Sellers, are in full force and effect; no event exists which (whether with or
without notice, lapse of time or both or the happening or occurrence of any
other event) would constitute a Default thereunder on the part of the Target
or any of its Subsidiaries which would terminate or cause a material
Liability under any Facility Leases; and, to the knowledge of the Sellers,
there exists no occurrence of any event of Default which (whether with or
without notice, lapse of time or both or the happening or
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occurrence of any other event) would constitute a Default thereunder by any
other party.
(b) ACTIONS. There are no pending condemnation proceedings,
administrative proceeding or other Actions against the Target or any of its
Subsidiaries with respect to any of the Facility Leases, or to the knowledge
of the Sellers, pending or threatened condemnation proceedings,
administrative proceedings or other Actions otherwise with respect to any of
the Facility Leases.
(c) LEASES OR OTHER AGREEMENTS. Except for Facility Leases listed
in Schedule 4.6, there are no leases, subleases, licenses, occupancy
agreements, options, rights, concessions or other agreements or arrangements
with respect to real property, written or oral, involving, individually or in
the aggregate, the payment of $50,000 or more to or by the Target or any of
its Subsidiaries during any twelve-month period and granting to any Person
the right to purchase, use or occupy any Facility or any real property.
(d) FACILITY LEASES AND LEASED REAL PROPERTY. With respect to each
Facility Lease, the Target and each of its Subsidiaries that is a party to
such Facility Lease has and will have at the Closing an interest in the
Leasehold Estate, subject only to Permitted Encumbrances and those
Encumbrances set forth in Schedule 4.6(d). Except as set forth in Schedule
4.6(d), the Target and each of its Subsidiaries enjoys peaceful and
undisturbed possession of all the Leased Real Property it leases, subject to
the rights of the fee owners and the terms of the Facility Leases, and the
Target and each of its Subsidiaries has performed all the obligations
required to be performed by it through the date hereof, except where the
failure to perform would not, either individually or in the aggregate, have a
Material Adverse Effect.
(e) CERTIFICATE OF OCCUPANCY. To the knowledge of the Sellers, all
Facilities have received all required approvals of governmental authorities
(including without limitation Permits and a certificate of occupancy or other
similar certificate permitting lawful occupancy of the Facilities) required
in connection with the operation thereof and have been operated and
maintained in all respects in accordance with applicable Regulations, except
where the failure to receive such approvals or comply with any such
Regulation would not have a Material Adverse Effect.
(f) UTILITIES. All Facilities are supplied with utilities
(including without limitation water, sewage, disposal, electricity, gas and
telephone) and other services necessary for
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the operation of such Facilities as currently operated, and, to the
knowledge of the Sellers, there is no condition which would result in the
termination of the present access from any Facility to such utility services.
(g) IMPROVEMENTS, FIXTURES AND EQUIPMENT. The improvements
constructed on the Facilities, including without limitation all Leasehold
Improvements are (i) insured to the extent and in a manner customary in the
industry, (ii) to the knowledge of the Sellers, structurally sound with no
material defects, (iii) in good operating condition and repair, subject to
ordinary wear and tear, (iv) to the knowledge of the Sellers, sufficient for
the operation of the Business as presently conducted and (v) in conformity
with all applicable Regulations, except where the failure to be insured,
structurally sound, in good operating condition and repair or to conform with
any such Regulation would not have a Material Adverse Effect. None of the
improvements is subject to any commitment or other arrangement for their sale
or use by any affiliate of the Target or any of its Subsidiaries or, to the
knowledge of the Sellers, any third party that would materially interfere
with the use thereof.
(h) NO SPECIAL ASSESSMENT. Neither the Target nor any of its
Subsidiaries has received notice of any special assessment relating to any
Facility or any portion thereof and, to the knowledge of the Sellers, there
is no pending or threatened special assessment.
4.7 CONTRACTS AND COMMITMENTS.
(a) CONTRACTS. Schedule 4.7(a) lists the following Contracts,
agreements and other written arrangements to which the Target and any of its
Subsidiaries is a party, or by which the Assets of the Target or any such
Subsidiary are bound, including without limitation:
(i) Contracts not made in the ordinary course of business;
(ii) written employment and severance agreements, including
without limitation Contracts (A) to employ or terminate officers or other
Personnel and other Contracts with present or former officers, directors or
shareholders or other Personnel of the Target or any of its Subsidiaries or
(B) that will result in the payment by, or the creation of any Liability to
pay on behalf of Buyer or the Target or any of its Subsidiaries any
severance, termination, ""golden parachute," or other similar payments to any
present or former Personnel following termination of employment or otherwise
as a result of the consummation of the transactions contemplated by this
Agreement;
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(iii) collective bargaining agreements;
(iv) excluding Contracts with S-Agents and employees, written
sales, commission, consulting or agency Contracts related to the Assets or
the Business requiring payments by the Target or its Subsidiaries in excess
of $50,000 during any twelve-month period;
(v) options with respect to any property, real or personal,
whether the Target or any of its Subsidiaries shall be the grantor or grantee
thereunder providing for payments in excess of $50,000;
(vi) excluding Contracts that are cancellable by the Target
(in the case of contracts entered into by the Target) and its Subsidiaries
(in the case of Contracts that are entered into by the Target's Subsidiaries)
without penalty or increased cost, written Contracts for the performance of
services or delivery of goods by the Target or any of its Subsidiaries
involving receipts in excess of $500,000 (exclusive of freight charges and
customs duties) in any twelve-month period;
(vii) excluding Contracts that are cancellable by the Target
(in the case of contracts entered into by the Target) and its Subsidiaries
(in the case of Contracts entered into by the Target's Subsidiaries) without
penalty or increased cost, Contracts involving expenditures or Liabilities,
actual or potential, which individually involve in excess of $50,000
(exclusive of freight charges and customs duties) in any twelve-month period;
(viii) promissory notes, loans, indentures, evidences of
indebtedness, letters of credit, guarantees, or other similar instruments
relating to an obligation to repay borrowed money, individually in excess of
or in the aggregate in excess of $25,000, whether the Target or any of its
Subsidiaries shall be the borrower, lender or guarantor thereunder or whereby
any Assets are pledged (excluding credit provided by the Target or any such
Subsidiary in the ordinary course of business to purchasers of its products)
or services;
(ix) Contracts containing covenants materially limiting the
freedom of the Target or any of its Subsidiaries or any officer, director,
shareholder or affiliate of the Target or any of its Subsidiaries, (i) to
engage in any line of business which is competitive with the Business, or
(ii) except for covenants running in favour of the Target or any of its
Subsidiaries, to compete with any Person with respect to the Business;
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(x) except for agreements with S Agents, written arrangements
(or group of related written arrangements) constituting a partnership or
joint venture between the Target or any of its Subsidiaries and any other
Person;
(xi) written arrangements between the Target or any of its
Subsidiaries and any of their respective directors, officers, shareholders or
employees, any affiliate thereof or any member of any such person's immediate
family (x) providing for the furnishing of material services by, (y)
providing for the rental of material real or personal property from, or (z)
otherwise requiring material payments to (other than for services as
officers, directors or employees of the Target or any such Subsidiary), any
such Person or any corporation, partnership, trust or other entity in which
any such Person has a substantial interest as a shareholder, officer,
director, trustee or partner;
(xii) Contracts that materially limit or contain material
restrictions on the ability of the Target or any of its Subsidiaries to
purchase or sell any Assets;
(xiii) Contracts with the government of Canada, United States,
any provincial or municipal government or any agency or department thereof,
(xiv) Leases of real property; and
(xv) Leases of personal property providing for lease payments
in excess of $50,000 and not cancellable (without Liability) within 30
calendar days.
(xvi) The Target and its Subsidiaries have made available to
Buyer true, correct and complete copies of all of the Contracts listed in
Schedule 4.7(a), including all amendments and supplements thereto.
(b) ABSENCE OF BREACHES AND DEFAULTS. All of the Contracts to
which the Target or any of its Subsidiaries is party or by which it or any of
the Assets is bound or affected are valid, binding and enforceable in
accordance with their terms, except where any such failure, to be
enforceable, would not, either individually or in the aggregate, have a
Material Adverse Effect. Except as set forth in Schedule 4.7(b), each of the
Target and its Subsidiaries has fulfilled, or taken all action necessary to
enable it to fulfil when due, all of its material obligations under each such
Contract, except where the failure to fulfil its obligations thereunder, or
the failure to take any such action to enable it to fulfil its obligations
thereunder, either individually or in the aggregate, could not reasonably be
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expected to have a Material Adverse Effect. Except as set forth in Schedule
4.7(b), the Target and each of its Subsidiaries which is a party to such
Contracts and, to the knowledge of the Sellers, each other party to such
Contracts has complied in all material respects with the provisions thereof
and is not in Default thereunder, except where such Default would not, either
individually or in the aggregate, have a Material Adverse Effect, and no
notice of any claim of Default has been given to the Target or any of its
Subsidiaries. Neither the Target nor any of its Subsidiaries has reason to
believe that any outstanding bid, proposal or any unfinished Contract will
upon performance by the Target or any of its Subsidiaries result in a loss to
the Target or such Subsidiary, except where such loss would not have a
Material Adverse Effect.
(c) SERVICE WARRANTY. Except as set forth in Schedule 4.7(c),
neither the Target nor any of its Subsidiaries has committed any act, and
there has been w omission, which will result in, and there has been no
occurrence which will give rise to, Liability for breach of warranty (whether
covered by insurance or not) on the part of the Target or any of its
Subsidiaries, with respect to products maintained, delivered or installed or
services rendered prior to or on the Closing Date, except for such
Liabilities which would not, either individually or in the aggregate, have a
Material Adverse Effect.
4.8 PERMITS, CONSENTS AND APPROVALS.
(a) Schedule 4.8(a) sets forth a complete list of all material
Permits used in the operation of the Business or otherwise held by the Target
or any of its Subsidiaries with respect to the Business. The Target and each
of its Subsidiaries has all Permits required to be maintained by the Target
or any of its Subsidiaries under any Regulation (including applicable
Environmental Laws) in the operation of its Business or in the ownership of
the Assets, and possesses such Permits free and clear of all Encumbrances,
other than Permitted Encumbrances and Encumbrances identified in Schedule
4.8(a), except Permits the failure of which to obtain would not have a
Material Adverse Effect. To the knowledge of the Sellers neither the Target
nor any of its Subsidiaries is in Default, nor has the Target or any of its
Subsidiaries received any notice of any claim of Default, with respect to any
such Permit. Except as set forth in Schedule 4.8(a), none of the rights of
the Target or any of its Subsidiaries in any Permit will be adversely
affected by the completion of the transactions contemplated by this
Agreement. Except for Permits set forth in Schedule 4.8(a), no present or
former shareholder, director, officer or employee of the Target or any of its
Subsidiaries or any affiliate thereof, or any other Person owns or has any
proprietary, financial or other interest
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(direct or indirect) in any Permit which any Seller owns, possesses or uses.
(b) other than in connection with or in compliance with the
provisions of the Investment Canada Act (in respect of which a notice must be
filed under Section 11 thereof within 30 days of Closing) and except as
disclosed in Schedule 4.8(b) hereto, no notice to, declaration, filing or
registration with, or Permit from, any domestic or foreign governmental or
regulatory body or authority, or any other Person, is required to be made or
obtained by the Target or any of its Subsidiaries in connection with the
execution, delivery or performance of this Agreement and the consummation of
the transactions contemplated hereby. Schedule 4.8(b) sets forth all
Contracts which require the consent of the other parties thereto to any
""change of control" or similar event with respect to the Target or any of
its Subsidiaries.
4.9 NO CONFLICT OR VIOLATION. Except as set forth in Schedule 4.9,
neither the execution, delivery or performance of this Agreement or the
Ancillary Agreements nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by the Target or any of its Subsidiaries
with any of the provisions hereof, will (a) violate any provision of the
Articles of Incorporation or Bylaws of the Target or any of its Subsidiaries,
(b) violate or result in or constitute a Default under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the Assets under, any of the terms, conditions or
provisions of any Contract or Permit (i) to which the Target or any of its
Subsidiaries is a party or (ii) by which the Assets are bound, (c) violate
any Regulation or Court Order or (d) impose any Encumbrance on any of the
Assets or the Business, other than Permitted Encumbrances, except in the
cases of each of clauses (b), (c) and (d) above, for such violations,
Defaults, terminations, accelerations or creations of Encumbrances which,
individually and in the aggregate, would have a Material Adverse Effect.
4.10 FINANCIAL STATEMENTS. The Target and each of its Subsidiaries
have heretofore delivered to Buyer true and complete copies of the Financial
Statements. The Financial Statements (a) are in accordance with the Books
and Records of the Target and its Subsidiaries in all material respects, (b)
except as set forth in Schedule 4.10 have been prepared in accordance with
GAAP consistently applied (except such changes as may have been required by
GAAP) throughout the period covered thereby (subject, in the case of the
Interim Financial Statements, which have been prepared in accordance with the
historical accounting procedures
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of the Target and its Subsidiaries for the preparation of interim financial
statements, to normal year-end adjustments and the absence of footnotes) and
(c) after giving effect to the adjustments specified therein, fairly and
accurately present in all material respects (i) the combined assets,
liabilities (including all reserves) and financial position of the Target and
its Subsidiaries on the date or for the period covered thereby, (ii) the
combined results and operations of the Target and its Subsidiaries for the
period presented and (iii) the combined cash flows of the Target and its
Subsidiaries for the period presented.
4.11 BOOKS AND RECORDS. The Target and each of its Subsidiaries has
made and kept (and given Buyer access to) Books and Records and accounts,
which, in reasonable detail, accurately reflect in all material respects the
activities of the Target and each such Subsidiary. The minute books of the
Target and each of its Subsidiaries previously delivered to Buyer accurately
and adequately reflect all material action previously taken by the
shareholders, board of directors and committees of the board of directors of
the Target and each such Subsidiary. The copies of the stock ledgers of the
Target and each of its Subsidiaries previously delivered to Buyer are true,
correct and complete in all material respects, and accurately reflect all
transactions effected in the stock of the Target and each of its Subsidiaries
through and including the date hereof.
4.12 LITIGATION. Except as set forth in Schedule 4.12, there are no
Actions, individually or, if related to a single set of circumstances, in the
aggregate, involving more than $50,000 pending, or to the knowledge of the
Sellers, threatened (a) against, or to the knowledge of the Sellers, relating
to or affecting (i) the Target or any of its Subsidiaries, the Business or
the Assets (including with respect to Environmental Laws), (ii) any Employee
Plan of the Target or any of its Subsidiaries or any trust or other funding
instrument or any fiduciary or administrator thereof in their capacity as
such, (iii) any officers or directors of the Target or any of its
Subsidiaries in such capacity, (iv) any shareholder of the Target or any of
its Subsidiaries in such shareholder's capacity as shareholder of the Target
or such Subsidiary or (v) the transactions contemplated by this Agreement or
before or by any federal, provincial or municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, any of which would have a Material Adverse Effect, (b) which, if
determined adversely to the Target or any of its Subsidiaries, could
reasonably be expected to delay, limit or enjoin the transactions
contemplated by this Agreement, (c) that involve the probability of criminal
liability on the part of the Target or any of its Subsidiaries, or (d) in
which
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the Target or any of its Subsidiaries is a plaintiff, including any
derivative suits brought by or on behalf of the Target or any of its
Subsidiaries. Except as set forth in Schedule 4.12, neither the Target nor
any of its Subsidiaries is in Default with respect to or subject to any
judgment, order, writ, injunction or decree of any court or governmental
agency and there are no unsatisfied judgments against the Target or any of
its Subsidiaries, the Business or the Assets, any of which would,
individually or in the aggregate, have a Material Adverse Effect. To the
knowledge of the Sellers, there is not a reasonable likelihood of an adverse
determination of any pending Actions that could, individually or in the
aggregate, have a Material Adverse Effect. There are no Court Orders or
agreements with, or liens of, any governmental authority pursuant to or under
any Environmental Law which regulate, obligate or bind the Target or any of
its Subsidiaries or, to the knowledge of the Sellers, any Facility or Former
Facility.
4.13 LABOUR MATTERS. Except as set forth in Schedule 4.13, neither the
Target nor any of its Subsidiaries is a party to any collective bargaining
agreement with respect to its employees with any labour organization, union
or similar group or association and there are no employee unions (nor any
other similar labour or employee organizations) which represent employees of
the Target or its Subsidiaries. Neither the Target nor any of its
Subsidiaries is experiencing any attempt by organized labour or its
representatives to make the Target or any of its Subsidiaries conform to
demands of organized labour relating to its employees or to enter into a
binding agreement with organized labour that would cover the employees of the
Target or any of its Subsidiaries. There is no labour strike or labour
disturbance pending or, to the knowledge of the Sellers, threatened against
the Target or any of its Subsidiaries nor is any grievance currently being
asserted. The Business is in compliance with all applicable laws respecting
employment practices, employment documentation, terms and conditions of
employment and wages and hours, except where any failure to comply with any
such applicable law would not have a Material Adverse Effect, and is not and
has not engaged in any unfair labour practice which would, individually or in
the aggregate, have a Material Adverse Effect. Schedule 4.13 sets forth the
names and current annual salary rates or current hourly wages of all present
employees of the Target or any of its Subsidiaries whose annual cash
compensation for the 1996 fiscal year exceeds $75,000, and also sets forth
the earnings for each of such employees for the 1995 calendar year. Except
as set forth in Schedule 4.13, there is no unfair labour practice charge or
complaint against the Target or any of its Subsidiaries pending before any
labour relations board or any other domestic or foreign governmental agency
arising out of conduct of the Business,
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and to the knowledge of the Sellers there are no facts or information which
would give rise thereto.
4.14 LIABILITIES. Except as set forth in Schedule 4.14 hereto, neither
the Target nor any of its Subsidiaries has any Liabilities due or to become
due, except (a) Liabilities which are reflected and reserved against on the
1995 Year End Financial Statements, which have not been paid or discharged
since the date thereof, (b) Liabilities hereunder and under the Ancillary
Agreements, (c) Liabilities arising in the ordinary course of business
(including payments of amounts due in the ordinary course under Contracts)
and none of which, individually or in the aggregate, has or would have a
Material Adverse Effect.
4.15 COMPLIANCE WITH LAW. Except as set forth in Schedule 4.15, the
Target and each of its Subsidiaries and the conduct of the Business have not
violated and are in compliance with all applicable Regulations and Court
Orders relating to the Assets or the Business or operations of the Target and
each such Subsidiary, except where the violation or failure to comply,
individually or in the aggregate, would not have a Material Adverse Effect.
Except as set forth in Schedule 4.15, neither the Target nor any of its
Subsidiaries has received any notice to the effect that, or otherwise been
advised that, the Target or any of its Subsidiaries is not in compliance with
any such Regulations or Court Orders, and no Seller has reason to believe
that any existing circumstances are likely to result in violations of any of
the foregoing, which failure to comply or violation would, in any one case or
in the aggregate, have a Material Adverse Effect.
4.16 NO BROKERS. Neither the Target nor any of its Subsidiaries nor
any of their respective officers, directors, employees, shareholders or
affiliates has employed or made any agreement with any broker, finder or
similar agent or any person or firm which will result in the obligation of
Buyer or any of its affiliates to pay any finder's fee, brokerage fees or
commission or similar payment in connection with the transactions
contemplated hereby.
4.7 NO OTHER AGREEMENTS TO SELL THE ASSETS. Neither the Target nor any
of its Subsidiaries nor any of their respective officers, directors,
shareholders or affiliates has any outstanding commitment or legal
obligation, absolute or contingent, to any other Person other than Buyer to
sell, assign, transfer or effect a sale of all or a material portion of the
Assets (other than inventory in the ordinary course of business), to sell or
effect a sale of the capital stock of the Target or any of its Subsidiaries,
to effect any merger, consolidation,
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liquidation, dissolution or other reorganization of the Target or any of its
Subsidiaries, or to enter into any agreement or cause the entering into of an
agreement with respect to any of the foregoing.
4.18 PROPRIETARY RIGHTS.
(a) PROPRIETARY RIGHTS. Schedule 4.18(a) sets forth with respect
to the Target and each of its Subsidiaries: (i) for each Patent owned by the
Target or any of its Subsidiaries, the number, expiration date and subject
matter for each country in which such Patent has been issued, or, if
applicable, the application number, date of filing and subject matter for
each country, (ii) for each Trademark owned by the Target or any of its
Subsidiaries, the application serial number or registration number, the class
of goods covered and the issuance date for each country in which a Trademark
has been registered and (iii) for each Copyright owned by the Target or any
of its Subsidiaries, the number and date of filing for each country in which
a Copyright application has been filed. The Proprietary Rights listed in the
Disclosure Schedule are all of the material Proprietary Rights used by the
Target or any of its Subsidiaries in connection with the Business. True and
correct copies of all Patents (including any and all pending applications)
owned, controlled or created by or on behalf of the Target or any of its
Subsidiaries or in which the Target or any of its Subsidiaries have any
ownership interest whatsoever have been made available to Buyer.
(b) OWNERSHIP AND PROTECTION OF PROPRIETARY RIGHTS. The Target and
its Subsidiaries own or have a valid right to use each of the Proprietary
Rights, and assuming the consents described in Schedule 4.18(b) have been
obtained, no such Proprietary Rights will cease to be valid rights of the
Target or any of its Subsidiaries solely by reason of the execution, delivery
and performance of this agreement or the consummation of the transactions
contemplated hereby. Except for applications pending, all of the material
Patents, registered designs and registered Trademarks listed in the
Disclosure Schedule have been duly issued to the Target or its Subsidiaries
and all of the other Proprietary Rights exist and if possible, are registered
and are subsisting. All of the pending Patent applications have been duly
filed. None of the Proprietary Rights owned by the Target or any of its
Subsidiaries is involved in any pending or, to the knowledge of the Sellers,
threatened litigation. Neither the Target nor any of its Subsidiaries has
received any notice of invalidity of its rights or infringement of any rights
of others with respect to such Proprietary Rights. Except as set forth in
Schedule 4.18(b), no Person (i) has notified the Target or any of its
Subsidiaries that it is
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claiming any ownership of or right to use such Proprietary Rights, or (ii) to
the knowledge of the Sellers, is infringing upon any such Proprietary Rights
in any way. To the knowledge of the Sellers, the use of by the Target or any
of its Subsidiaries of the Proprietary Rights owned by the Target and its
Subsidiaries does not and will not infringe upon the rights of any third
party, and no Action has been instituted against or notices received by the
Target or any of its Subsidiaries that are presently outstanding alleging
that any use by the Target and its Subsidiaries of the Proprietary Rights
infringes upon or otherwise violates any rights of a third party.
4.19 EMPLOYEE BENEFIT PLANS.
(a) DISCLOSURE; DELIVERY OF COPIES OF RELEVANT DOCUMENTS AND OTHER
INFORMATION. Schedule 4.19 contains a complete list of Employee Plans.
Except as set forth in Schedule 4.19, true and complete copies of each of the
following documents have been made available by the Target and its
Subsidiaries to Buyer: (i) each Pension Plan, and Benefit Arrangement (and,
if applicable, related trust agreements) which covers or has covered
employees of the Target or any of its Subsidiaries (with respect to their
relationship with such entities) and all amendments thereto which have been
distributed to any employees of the Target or any of its Subsidiaries, (ii)
each Employee Plan which covers or has covered employees of the Target or any
of its Subsidiaries (with respect to their relationship with such entities)
(including descriptions of the number and level of employees covered thereby)
and a complete description of any Employee Plan which is not in writing, and
(iii) all actuarial reports prepared for the last three plan years for each
Pension Plan which covers or has covered employees of the Target or any of
its Subsidiaries (with respect to its relationship with such entities).
(b) REPRESENTATIONS. Except as set forth in Schedule 4.19:
(i) PENSION PLANS.
(A) The funding method used in connection with each Pension
Plan is acceptable and the actuarial assumptions used in connection with
funding each such plan are reasonable. Neither the Target nor any of its
Subsidiaries has any Liability for unpaid contributions with respect to any
Pension Plan or employee benefit plan of any foreign government.
(B) Each Pension Plan, each related trust agreement,
annuity contract or other funding instrument which covers or has covered
employees or former employees of the
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Target or any Of its Subsidiaries (with respect to their relationship with
such entities) presently complies and has been maintained in all material
respects in compliance with its terms and, both as to form and in operation,
with the requirements prescribed by any and all Regulations and Court Orders
which are applicable to such plans, including without limitation the Income
Tax Act (Canada) and the Pension Benefits Act (Ontario).
(C) All required employer and employee contributions and
premiums under each pension Plan to the date hereof have been made, the
respective fund or funds established under each pension plan is funded in
accordance with applicable laws and the rules of each such Pension Plan, and
no past service funding liabilities exist thereunder. No condition exists
and no event has occurred that could constitute grounds for the termination
of any pension Plan by the Superintendent of Pensions or the Pension
Commission.
(ii) MULTIEMPLOYER PLANS. Neither the Target nor the
Subsidiaries is party to any Multiemployer Plan.
(iii) BENEFIT ARRANGEMENTS. Each Benefit Arrangement which
covers or has covered employees or former employees of the Target or any of
its Subsidiaries (with respect to their relationship with such entities) has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all Regulations and Court Orders which are
applicable to such Benefit Arrangement, including without limitation the
Income Tax Act (Canada). Except as set forth in the Disclosure Schedule, and
except as provided by law, the employment of all persons presently employed
or retained by the Target or any of its Subsidiaries (other than those
employees with whom the Target or any of its Subsidiaries has an employment
agreement) is terminable upon reasonable notice.
(iv) FOREIGN PLANS. None of the Foreign Subsidiaries has any
employees and there are no plans that cover any employee or former employee
of any Foreign Subsidiary (with respect to their relationship with such
entities) or is otherwise not subject to the Pension Benefits Act (Ontario)
or the income Tax Act (Canada) has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all applicable
Regulations and Court Orders (including without limitation any special
provisions relating to the tax status of contributions to, earnings of or
distributions from such Plans where each such Plan was intended to have such
tax status) and has been maintained in good standing with applicable
regulatory authorities.
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(v) VALIDITY AND ENFORCEABILITY. Each Pension Plan, related
trust agreement, annuity contract or other funding instrument and Benefit
Arrangement which covers or has covered employees or former employees of the
Target or any of its Subsidiaries (with respect to their relationship with
such entities) is legally binding in all material respects and in full force
and effect.
(vi) LITIGATION. There is no Action or Court Order
outstanding, relating to or seeking benefits under any Employee Plan that is
pending or, to the knowledge of the Sellers, threatened against the Target or
any of its Subsidiaries, or any Employee Plan.
(vii) NO AMENDMENTS. Neither the Target nor any of its
Subsidiaries has any announced plan or legally binding commitment to create
any additional Employee Plans which are intended to cover employees or former
employees of the Target or such Subsidiary (with respect to their
relationship with such entities) or to amend or modify any existing Employee
Plan which covers or has covered employees or former employees of the Target
or such Subsidiary (with respect to their relationship with such entities).
(viii) NO OTHER MATERIAL LIABILITY. No event has occurred in
connection with which any Sellers or any Employee Plan, directly or
indirectly, would be subject to any material Liability (A) under any
Regulation or Court Order relating to any Employee Plans or (B) pursuant to
any obligation of the Target or such Subsidiary to indemnify any person
against Liability incurred under any such Regulation or Court Order as they
relate to the Employee Plans.
(ix) INSURANCE CONTRACTS. Neither the Target nor any of its
Subsidiaries nor any Employee Plan holds as an asset of any Employee Plan any
interest in any annuity contract, guaranteed investment contract or any other
investment or insurance contract issued by an insurance company that is the
subject of bankruptcy, conservatorship or rehabilitation proceedings.
(x) NO ACCELERATION OR CREATION OF RIGHTS. Neither the
execution and delivery of this Agreement or other related agreements by the
Target or any of its Subsidiaries nor the consummation of the transactions
contemplated hereby or the related transactions will result in the
acceleration or creation of any rights of any person to benefits under any
Employee Plan (including, without limitation, the acceleration of the vesting
or exercisability of any stock options, the acceleration of the vesting of
any restricted stock, the acceleration of the accrual or vesting of any
benefits under any Pension Plan or the accel-
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eration or creation of any rights under any severance, parachute or change in
control agreement).
4.20 THIS SECTION INTENTIONALLY OMITTED.
4.21 TAX MATTERS.
(a) FILING OF TAX RETURNS. Each of the Target and each of its
Subsidiaries (and any affiliated group of which the Target or such Subsidiary
is Dow or has been a member) has timely filed with the appropriate taxing
authorities all returns (including without limitation information returns and
other material information) in respect of Taxes required to be filed through
the date hereof and will timely file any such returns required to be filed on
or prior to the Closing Date, other than those returns, the failure of which
to file would not, individually or in the aggregate, have a Material Adverse
Effect. The returns and other information filed are complete and accurate in
all material respects. Except as specified in Schedule 4.21(a), neither the
Target nor any of its Subsidiaries, nor any group of which the Target or such
Subsidiary is now or was a member, has requested any extension of time within
which to file returns (including without limitation information returns) in
respect of any Taxes. Each of the Target and each of its Subsidiaries has
made available to Buyer complete and accurate copies of the Target's or such
Subsidiary's foreign, federal, provincial and municipal tax returns for the
years 1993, 1994 and 1995.
(b) PAYMENT OF TAXES. All material amounts of Taxes payable by the
Target or any of its Subsidiaries (whether or not shown on any Tax return) in
respect of periods beginning before the Closing Date have been timely paid,
or will be timely paid, or an adequate reserve has been established therefor,
as set forth in Schedule 4.21(b) and the Financial Statements, and neither
the Target nor any of its Subsidiaries has any material Liability for Taxes
in excess of the amounts so paid or reserves so established.
(c) AUDITS, INVESTIGATIONS OR CLAIMS. Except as set forth in
Schedule 4.21(c), no material deficiencies for Taxes have been claimed,
proposed or assessed by any taxing or other governmental authority against
the Target or any of its Subsidiaries. Except as set forth in Schedule
4.21(c), there are no pending or, to the knowledge of the Target or the
Sellers, threatened audits, investigations or claims for or relating to any
material additional Liability in respect of Taxes, and there are no matters
under discussion with any governmental authorities with respect to Taxes that
in the reasonable judgment of any
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Seller, is likely to result in a material additional Liability for Taxes.
Audits, if any, of foreign, federal, provincial and municipal returns for
Taxes by the relevant taxing authorities have been completed for each period
set forth in Schedule 4.21(c) and, except as set forth in Schedule 4.21(c),
neither the Target nor any of its Subsidiaries has been notified that any
taxing authority intends to audit a return for any period. Except as set
forth in Schedule 4.21(c), no extension of a statute of limitations relating
to Taxes is in effect with respect to the Target or any of its Subsidiaries.
(d) LIEN. There are no liens for Taxes (other than for
current Taxes not yet due and payable) on the Assets.
(e) PARTNERSHIP. Except as set forth in Schedule 4.21(e),
neither the Target nor any of its Subsidiaries is a party to any joint
venture, partnership, or other arrangement or contract that could be treated
as a partnership for federal income tax purposes.
(f) WITHHOLDING. Each of the Target and its Subsidiaries
has withheld all material amounts of Taxes required to have been withheld by
it in connection with amounts paid or deemed paid by any taxing statute owing
to any employee, independent contractor, creditor, stockholder, or other
third party, and such withheld Taxes have either been duly paid to the proper
governmental authority or set aside in accounts for such purpose.
(g) ADEQUATE RESERVES. The charges, accruals and reserves
for Taxes (including deferred Taxes) currently reflected on the Financial
Statements in accordance with GAAP are adequate in all material respects to
cover all unpaid Taxes accruing or payable by the Target or any of its
Subsidiaries in respect of taxable periods that end on or before the Closing
Date and for any taxable periods that begin before the Closing Date and end
thereafter to the extent such Taxes are attributable to the portion of such
period ending on the Closing Date (determined under the closing of the books
method of allocation).
(h) CERTAIN ACTIONS. Neither the Target nor any of its
Subsidiaries has taken, and none will take prior to Closing, any action not
in accordance with past practice that would have the effect of deferring any
Tax liability of the Target or any of its Subsidiaries from any taxable
period ending on or before the Closing Date to any subsequent taxable period.
(i) NO TRANSFER PRICING AGREEMENTS. Except as set forth in
Schedule 4.21(i), neither the Target nor any of its Subsidiaries has entered
into transfer pricing agreements or other like arrangements with respect to
any foreign jurisdiction.
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(j) INTERNATIONAL BOYCOTT. Neither the Target nor any of
its Subsidiaries has participated in or co-operated with an international
boycott or has been requested to do so in connection with any transaction or
proposed transaction.
4.22 INSURANCE. Schedule 4.22 contains a complete and accurate
(in all material respects) list of all policies or binders of fire,
liability, title, product liability (which list shall be for three (3) years)
and other forms of insurance (showing as to each policy or binder the
carrier, policy number, coverage limits, expiration dates, annual premiums, a
general description of the type of coverage provided and loss experience
history by line of coverage) maintained by the Target or any of its
Subsidiaries in connection with the Business, the Assets or their respective
employees. To the knowledge of the Sellers, all insurance coverage currently
maintained by the Target and its Subsidiaries applicable to the Target or any
of its Subsidiaries, its employees, the Business or the Assets is in full
force and effect, and provides coverage as may be required by applicable
Regulation and by any and all Contracts to which the Target or any of its
Subsidiaries is a party, except where the failure to provide such coverage
would not, individually or in the aggregate, have a Material Adverse Effect.
To the knowledge of the Sellers, there is no Default under any such coverage
nor, to the knowledge of the Sellers, has there been any failure to give
notice or present any material claim under any such coverage in a due and
timely fashion. There are no outstanding unpaid material amounts of premiums
(other than those not yet due and payable) except in the ordinary course of
business and no notice of cancellation or non-renewal of the Target or any
such coverage has been received. Except as set forth in Schedule 4.22, there
are no provisions in such insurance policies for retroactive or retrospective
premium adjustments that have not been fully provided in the Closing
Financial Statements. Except as set forth in Schedule 4.22, all products
liability and general liability insurance policies maintained by the Target
or any of its Subsidiaries during the three (3) year period prior to the
Closing have been occurrence policies and not claims made policies. Except
for performance bonds obtained in the ordinary course of the Business, there
are no outstanding performance bonds in any material amounts covering or
issued for the benefit of the Target or any of its Subsidiaries. To the
knowledge of the Sellers, there are no facts particular to the Target and its
subsidiaries upon which an insurer would be justified in reducing coverage or
increasing premiums in any material amounts on existing policies or binders.
Except as set forth in Schedule 4.22, no insurer has advised the Target or
any of its Subsidiaries that it intends to reduce coverage, increase premiums
in any material amounts or fail to renew any existing policy or binder with
respect to which such insurer has not acted.
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4.23 ACCOUNTS RECEIVABLE. The accounts receivable reflected on
the balance sheet contained in the Most Recent Month End Financial
Statements, and all accounts receivable arising since June 30, 1996,
represent bona fide claims of the Target and its Subsidiaries against debtors
for sales, services performed or other charges arising on or before the date
hereof, and, to the knowledge of the Sellers, all the goods delivered and
services performed which gave rise to said accounts were delivered or
performed in all material respects in accordance with the applicable orders,
Contracts or customer requirements. To the knowledge of the Sellers, all
accounts receivable in excess of $1,000,000 shall be subject to no defenses,
counterclaims or rights of set-off, except to the extent of the appropriate
reserves for bad debts on accounts receivable as set forth on the Closing
Balance Sheet.
4.24 PAYMENTS. To the knowledge of the Sellers, neither the
Target nor any of its Subsidiaries has, (i) directly or indirectly, paid or
delivered any fee, commission or other sum of money or item or property,
however characterized, to any finder, agent, client, customer, supplier,
government official or other party, in Canada or any other country, which is
in any manner related to the Business, Assets or operations of the Target or
any of its Subsidiaries, which is, or may be with the passage of time or
discovery, illegal under any federal, provincial or municipal laws of Canada
or any other country having jurisdiction; (ii) illegally participate in any
boycotts or other similar practices affecting any of its actual or potential
customers, or (iii) established or maintained any unrecorded fund or asset
for any purpose or made any false entries on the Books and Records of the
Target or such Subsidiary for any reason. In addition, the Target or any of
its Subsidiaries (a) has complied with all applicable laws relating to
employee and human rights and relating to employment opportunities including
the Pay Equity Act, (b) filed in a timely manner all reports or documents it
was required to required to file (and the information contained therein was
correct and complete in all respects) under all applicable laws, (c) has
possession of all records and documents it was required to retain under all
applicable laws and (d) has not violated in any respect or received a notice
or charge asserting any violation of the Securities Act (Ontario) or Canada
Business Corporations Act, each as amended, except in the case of each of
clauses (a), (b), (c) and (d) above, when such failure would not have a
Material Adverse Effect.
4.25 INTENTIONALLY OMITTED
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4.26 CUSTOMERS, DISTRIBUTORS AND SUPPLIERS. Schedule 4.26 sets
forth a complete and accurate list of the names and addresses of (i) the ten
largest customers of the Target and each of its Subsidiaries, showing the
approximate total sales in dollars by the Target and each such Subsidiary to
each such customer during the fiscal year most recently ended; (ii) ten
largest suppliers of the Target of any of its Subsidiaries, showing the
approximate total purchases in dollars by the Target and each such Subsidiary
from each such supplier during such fiscal year; and (iii) all S Agents of
the Target and each of its Subsidiaries. Except as set forth in Schedule
4.26, since June 30, 1996, there has been no adverse change in the business
relationship of the Target or any of its Subsidiaries with any customer,
supplier or S Agent named in Schedule 4.26 which, individually or in the
aggregate, would have a Material Adverse Effect and neither the Target nor
any of its Subsidiaries has received any communication from any customer,
supplier or S Agent named in Schedule 4.26 of any intention to terminate or
materially reduce purchases from or supplies or services to the Target or any
of its Subsidiaries.
4.27 COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as set forth in
Schedule 4.27:
(a) FACILITIES. The Facilities are, and at all times
during the ownership, operation or occupancy of any Corporation have been,
and all Former Facilities were at all times when owned, leased or operated by
any Corporation, owned, leased and operated in compliance with all applicable
Environmental Laws and in a manner which would not cause an Environmental
Condition, where such noncompliance or Environmental Condition would have a
Material Adverse Effect. Without limiting the foregoing, (i) there is not
and has not been any Hazardous Substance used, generated, treated, stored,
transported, disposed of, handled or otherwise existing on, under, about or
emanating from any Facility or any Former Facility as a result of any act or
omission of any Corporation, except for quantities of any such Hazardous
Substances used, generated, treated, stored, transported, disposed of,
handled, or otherwise held on, under or about any such Facility by any
Corporation in full compliance with all applicable Environmental Laws, where
such non-compliance would have a Material Adverse Effect, (ii) each
Corporation has at all times used, generated, treated, stored, transported,
disposed of or otherwise handled its Hazardous Substances in compliance with
all applicable Environmental Laws and in a manner which would not cause an
Environmental Condition, where such non-compliance or Environmental Condition
would have a Material Adverse Effect; and (iii) there is not now and has not
been at any time during the ownership, operation or occupancy of any
Corporation any underground or above-ground storage tank or pipeline at any
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Facility or Former Facility where the installation, use, maintenance, repair,
testing, closure or removal of such tank or pipeline by any Corporation was
not in compliance with all applicable Environmental Laws, where such
non-compliance would have a Materially Adverse Effect, and there has been no
Release from any such tank or pipeline during the ownership, operation, or
occupancy of any Corporation, where such Release would have a Material
Adverse Effect.
(b) NOTICE OF VIOLATION. To the knowledge of the Sellers,
no Corporation has received any notice of alleged, actual or potential
responsibility for, or any inquiry or investigation regarding, (i) any
Release or threatened Release of any Hazardous Substance at any location, or
(ii) any Environmental Conditions, or (iii) an alleged violation of or
non-compliance with any Environmental Law.
(c) PRE-CLOSING, ENVIRONMENTAL MATTERS. There are no
Pre-Closing Environmental Matters which would have a Material Adverse Effect.
(d) ENVIRONMENTAL AUDITS OR ASSESSMENTS. True, complete
and correct copies of the written reports, and all parts thereof, of all
environmental audits or assessments which have been conducted at any Facility
or Former Facility within the past five years by or on behalf of the Target
or any of its Subsidiaries or of which any Seller otherwise has knowledge,
have been made available to Buyer and a list of all such reports, audits and
assessments and any other similar report, audit or assessment of which any
Seller has knowledge is included in Schedule 4.27(d).
(e) INDEMNIFICATION AGREEMENTS. Other then agreements
(including, without limitation, leases) entered into in the ordinary course
of business, to the knowledge of the Sellers, no corporation is a party,
whether as a direct signatory or as successor, assign or third party
beneficiary, or otherwise bound, to any Contract (excluding insurance
policies disclosed on the Disclosure Schedule) under which such Corporation
is obligated by or entitled to the benefits of, directly or indirectly, any
representation, warranty, indemnification, covenant, restriction or other
undertaking concerning Environmental Conditions known to any Corporation.
(f) RELEASES OR WAIVERS. To the knowledge of Sellers,
other than agreements entered into in the ordinary course of business
(including without limitation, leases), no Corporation is party to an
agreement under which such Corporation has released any other Person from any
liability to the Cor-
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poration under any Environmental Laws concerning laws for any Environmental
Condition.
(g) NOTICES, WARNINGS AND RECORDS. Each Corporation has
given all notices and warnings, made all reports, and has kept and maintained
all records required by and in compliance with all applicable Environmental
Laws where such non-compliance would have a Material Adverse Effect.
4.28 BANKING RELATIONSHIPS. Schedule 4.28 sets forth a complete
and accurate description of all arrangements that the Target or any of its
Subsidiaries has with any banks, savings and loan associations or other
financial institutions providing for checking accounts, safe deposit boxes,
and certificates of deposit, indicating in each case account numbers, if
applicable, and the person or persons authorized to act or sign on behalf of
the Target and each such Subsidiary in respect of any of the foregoing.
4.29 INTERCOMPANY LOANS. Other than MCS (as defined in the
InterCompany Agreement) related intracompany trading and except as set forth
in Schedule 4.29, since June 30, 1996, neither the Target nor any of its
Subsidiaries has entered into any Contract relating to intercompany
indebtedness between or among the Target and its Subsidiaries and/or LIW
and/or any affiliate of LIW (other than the Target or its Subsidiaries).
4.30 MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by any of the Sellers in this Agreement, nor any exhibit,
appendix, certificate or schedule heretofore or hereinafter furnished to
Buyer pursuant hereto, or in connection with the transactions contemplated
hereby, including without limitation the Disclosure Schedule, contains any
untrue statement of a material fact, or omits to state any material fact
necessary to make the statements or facts contained therein not misleading.
ARTICLE V
INTENTIONALLY OMITTED
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Sellers as follows,
which representations and warranties are, as of the date hereof, and will be,
as of the Closing Date, true and correct:
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6.1 ORGANIZATION OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
province of Nova Scotia. Buyer is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under the applicable law as a result of the
conduct of its business or the ownership (or leasing) of its properties,
except where the failure to be so qualified or in good standing would not
have a material adverse effect on Buyer or its ability to perform its
obligations hereunder or under any of the Ancillary Agreements to which it is
a party.
6.2 AUTHORIZATION. Buyer has all requisite corporate power and
authority, and has taken all corporate action necessary, to execute and
deliver this Agreement and the Ancillary Agreements to which it is a party,
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder and thereunder. The execution and delivery by
Buyer of this Agreement and the Ancillary Agreements to which it is a party
and the consummation by Buyer of the transactions contemplated hereby and
thereby have been duly approved by the board of directors and stockholder of
Buyer. No other corporate proceedings or actions on the part of Buyer are
necessary to authorize this Agreement and the Ancillary Agreements to which
it is a party and the transactions contemplated hereby and thereby. This
Agreement and the Ancillary Agreements to which Buyer is a party have been
duly executed and delivered by Buyer, and are legal, valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their
terms, except as such enforceability may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization and other similar laws affecting
creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law.
6.3 NO BROKERS. Neither Buyer nor any of its subsidiaries nor
any of their respective officers, directors, employees, shareholders or
affiliates has employed any broker, finder, advisor or intermediary in
connection with the transactions contemplated by this Agreement which would
be entitled to a broker's, finder's, or similar fee or commission in
connection therewith or upon the consummation thereof, other than William E.
Myers & Company, the fees of which will be paid by Buyer.
6.4 NO CONFLICT OR VIOLATION. Neither the execution, delivery or
performance of this Agreement or the Ancillary Agreements, nor the
consummation of the transactions contemplated hereby or thereby, nor
compliance by the Buyer with any of the provisions hereof, will (a) violate
any provision of the Charter Documents of the Buyer, (b) violate or result in
or constitute a
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default under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation or any Encumbrance upon any of the assets under, any
of the terms, conditions or provisions of any contracts or permit (i) to
which the Buyer is a party or (ii) by which its assets are bound, (c) violate
any Regulation or Court Order or (d) impose any Encumbrance on any of the
assets or the business of Buyer, except for permitted encumbrances, except in
the cases of each of clauses (b), (c) and (d) above, for such violations,
defaults, accelerations, or creations of Encumbrances which, individually or
in the aggregate, would not have a material adverse effect on Buyer or its
ability to perform its obligations hereunder or under any of the Ancillary
Agreements to which it is a party.
6.5 CONSENTS AND APPROVALS. Other than in connection with or in
compliance with the provisions of the Investment Canada Act, (in respect of
which a notice must be filed under Section 11 within thirty days of Closing),
no notice to, declaration, filing or registration with, or permit from, any
domestic or foreign governmental or regulatory body or authority, or any
other Person, is required to be made or obtained by Buyer in connection with
the execution, delivery or performance of this Agreement and the consummation
of the transactions contemplated hereby.
6.6 LITIGATION. There are no Actions, individually or, if
relating to a single set of circumstances, in the aggregate, involving in
excess of $50,000, pending or, to Buyer's knowledge, threatened or
anticipated, which, if determined adversely to Buyer could reasonably be
expected to delay, limit or enjoin the transactions contemplated by this
Agreement or the Ancillary Agreements to which it is a party or which would
otherwise, individually or in the aggregate, have a material adverse effect
on the Buyer or its ability to perform its obligations hereunder or under any
of the Ancillary Agreements to which it is a party.
6.7 INVESTMENT INTENT. Buyer is acquiring all of the issued and
outstanding capital stock of the Target solely for purposes of investment and
not with a view to any distribution thereof in violation of applicable
securities laws.
ARTICLE VII
COVENANTS OF SELLERS, THE TARGET AND BUYER
The Sellers and Buyer each covenant with each other as follows:
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7.1 FURTHER ASSURANCES. Upon the terms and subject to the
conditions contained herein, the parties agree (i) to use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, (ii) to execute
any documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the transactions contemplated
hereunder, and (iii) to cooperate with each other in connection with the
foregoing. Without limiting the foregoing, the parties agree to use their
respective reasonable efforts (A) to obtain all necessary waivers, consents
and approvals from other parties to the Contracts and Permits; PROVIDED,
HOWEVER, that none of the Sellers, the Target or Buyer shall be required to
make any payments, commence litigation or agree to modifications of the terms
thereof in order to obtain all such waivers, consents or approvals, (B) to
obtain all necessary Permits as are required to be obtained under any
Regulations, (C) to give all notices to, and make all registrations and
filings with, third parties, including without limitation submissions of
information requested by governmental authorities, (D) to defend all Actions
challenging this Agreement or the consummation of the transaction
contemplated hereby, (E) to lift or rescind any injunction or restraining
order or other Court Order adversely affecting the ability of the parties to
consulate the transactions contemplated hereby and (F) to fulfil all
conditions to this Agreement.
7.2 EMPLOYEE MATTERS.
(a) Nothing contained in this Agreement shall confer upon
any employee of the Target or any of its Subsidiaries any right with respect
to continuance of employment after the consummation of the transaction
contemplated hereby, nor shall anything herein interfere with the right of
Buyer to terminate the employment of any of the employees of the Target or
any of its Subsidiaries at any time, with or without cause, or restrict Buyer
in the exercise of its independent business judgment in modifying any of the
terms and conditions of the employment of any such employees.
Notwithstanding the foregoing, Buyer acknowledges that Sellers have advised
Buyer of the collective bargaining agreements set forth in Schedule 4.13 and
that Target and its Subsidiaries shall continue to be bound by such
collective bargaining agreements.
(b) No provision of this Agreement shall create any third
party beneficiary rights in any employee of the Target or any of its
Subsidiaries, any beneficiary or dependents thereof, or any collective
bargaining representative thereof, with respect to the compensation, terms
and conditions of employment and benefits that may be provided to any
employee of
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the Target or any of its Subsidiaries by Buyer or under any benefit plan
which Buyer may maintain.
(c) Prior to the second anniversary of the Closing Date, no
Seller nor any affiliate of any Seller nor any Sellers Subsidiary shall,
directly or indirectly, solicit for employment any key employee of the Target
or any of its Subsidiaries whose employment is continued by Buyer after the
Closing Date, unless Buyer first terminates the employment of such employee
or gives its written consent to such employment or offer of employment.
7.3 USE OF PURCHASE PRICE AMOUNT. Each of the Sellers hereby
agrees that it will use commercially reasonable efforts to use the amount of
the Purchase Price (plus any further amounts received by the Stockholder
pursuant to Section 2.3(b) or 2.3(c) of this Agreement) in the manner set
forth in the plan of restructuring, attached hereto as Exhibit C. Any use of
the Adjusted Cash Amount (and any further amounts received by the Sellers
pursuant to Section 2.3(b) or 2.3(c) of this Agreement) in a manner
inconsistent with Exhibit C shall require the prior approval of all of the
Buyer's nominees to the board of directors of LIW.
7.4 1995 YEAR END FINANCIAL STATEMENTS. Prior to the date
hereof, the Sellers shall have delivered to Buyer the 1995 Year End Financial
Statements. The 1995 Year End Financial Statements, attached hereto as
Exhibit B, shall have been audited by Price Waterhouse at Sellers' expense
and shall have been accompanied by an unqualified report to the effect that
the 1995 Year End Financial Statements present fairly, in accordance with
GAAP, the financial condition of the Target and its Subsidiaries for such
period.
7.5 THIS SECTION INTENTIONALLY OMITTED.
7.6 PAYMENT OF ROYAL OBLIGATION. Concurrently with the Closing,
the Buyer shall cause the Target to retire the aggregate amount of the Royal
Obligation.
7.7 INTERCOMPANY RECEIVABLES AND PAYABLES. On the Closing
Financial Statements Delivery Date all intercompany payables and receivables,
between the Target and its Subsidiaries on the one hand, and the Sellers and
the Sellers' Subsidiaries on the other hand, shall be settled on and
liquidated in the manner set forth in Sections 2.3(b) and 2.3(c) of this
Agreement.
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7.8 FRANCHISE MATTERS. Buyer acknowledges that it does not
become a "franchisee" by virtue of the applicable provincial franchise laws
by virtue of the provisions of this Agreement or any of the Ancillary
Agreements. Buyer hereby waives, to the extent permitted by applicable law,
any protection of "franchisees" and rights to sue for damages as a
"franchisee" that may be provided by any of the Regulations promulgated
under any applicable legislation.
ARTICLE VIII
ACTIONS BY SELLERS AND BUYER AFTER THE CLOSING
8.1 BOOKS AND RECORDS
(a) The Sellers and Buyer agree that each will cooperate
with and make available to the other party, during normal business hours, all
Books and Records, information and Personnel (without substantial disruption
of employment) retained and remaining in existence after the Closing Date
that are necessary or useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and
Records, information or employees shall bear all of the out-of-pocket costs
and expenses (including without limitation, attorneys' fees, but excluding
reimbursement for salaries and employee benefits) reasonably incurred in
connection with providing such Books and Records, information or employees.
(b) COOPERATION AND RECORDS RETENTION. The Sellers and
Buyer shall (and Buyer shall cause Target and its Subsidiaries to) (i) each
provide the other with such assistance as may reasonably be requested by any
of them in connection with the preparation of any return, audit, or other
examination by any taxing authority or judicial or administrative proceedings
relating to Liability for Taxes, (ii) each retain and provide the other with
any records or other information that may be relevant to such return, audit
or examination, proceeding or determination, and (iii) each provide the other
with any final determination of any such audit or examination, proceeding, or
determination that affects any amount required to be shown on any tax return
of the other for any period. Without limiting the generality of the
foregoing, Buyer and the Sellers shall each retain, until the applicable
statutes of limitations (including any extensions) have expired, copies of
all tax returns, supporting work schedules, and other records or information
that may be relevant to such returns for all tax periods or portions thereof
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ending on or before the Closing Date and shall not destroy or otherwise
dispose of any such records without first providing the other party with a
reasonable opportunity to review and copy the same.
8.2 SURVIVAL OF REPRESENTATIONS, ETC. All statements contained
in the Disclosure Schedule or in any certificate, schedule, exhibit or
instrument or conveyance delivered by or on behalf of the parties pursuant to
this Agreement or in connection with the transactions contemplated hereby
shall be deemed to be representations and warranties by the parties
hereunder. The representations and warranties of the Sellers, on the one
hand and Buyer on the other hand contained herein and as provided in the
preceding sentence shall survive the Closing Date until sixty days after the
completion of the fiscal-year audit of the Target and its Subsidiaries for
the second full year after the Closing Date (but shall in no event survive to
a date later than April 15, 1998) PROVIDED, HOWEVER, that the representations
and warranties contained in Section 4.19 and 4.21 shall continue to survive
until sixty days after the expiration of the applicable limitation periods,
or, with respect to Section 4.19, the applicable reassessment periods,
(giving effect to any waiver, tolling or extension thereof) and that the
representations and warranties contained in Section 4.27 shall continue to
survive until four (4) years after the Closing Date. The termination of the
representations and warranties provided herein shall not affect the rights of
a party in respect of any Claim made by such party in a writing received by
the other party prior to the expiration of the applicable survival period
provided herein.
8.3 INDEMNIFICATIONS.
(a) BY THE SELLERS. The Sellers shall jointly and
severally indemnify, save and hold harmless Buyer, its affiliates and
subsidiaries, and each of their respective Representatives (collectively, the
"BUYER INDEMNIFIED PARTIES"), from and against any and all costs, losses,
Liabilities, obligations, damages, lawsuits, deficiencies, claims, demands,
and expenses (whether or not arising out of third-party claims), including
without limitation interest, penalties, costs of mitigation, any clean-up,
remedial correction or responsive action, damages to the environment,
attorneys' fees and all amounts paid in investigation, defense or settlement
of any of the foregoing (herein, "DAMAGES"), incurred in connection with,
arising out of, or resulting from (i) any breach of any representation or
warranty or the inaccuracy of any representation made by the Sellers in or
pursuant to this Agreement; (ii) any breach of any covenant or agreement made
by the Sellers in or pursuant to this Agreement; (iii) any Liabilities or
contingent Liabilities, whether arising prior to
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or after the Closing Date, related to, in connection with or arising out of
the activities of the Sellers or any of the Sellers' Subsidiaries; (iv) any
liability with respect to the Discontinued Operations (except for Liabilities
arising out of the operation of the Discontinued Operations after the Closing
Date by the Buyer); (v) any Liabilities arising under any Environmental Law
or concerning any Environmental Condition, occurring after the Closing Date
and resulting from (A) any release or waiver by any Corporation of any other
Person with respect thereto which is not disclosed in the Disclosure Schedule
or (B) any representation, warranty, indemnification, covenant, restriction
or other undertaking of any Corporation with respect thereto which is not
disclosed in the Disclosure Schedule (except with respect to representations
and warranties set forth in Section 4.27 of this Agreement, the Liabilities
with respect to which will be indemnified against pursuant to the terms of
Section 8.3(a)(i) above) or (vi) any breach of any of the Ancillary
Agreements by any of the Sellers or any of the Sellers' Subsidiaries.
The term "DAMAGES" as used in this Section 8.3 is not limited to
matters asserted by third parties against any indemnified party, but includes
Damages incurred or sustained by an indemnified party in the absence of third
party claims. Payments by any indemnified party of amounts for which such
indemnified party is indemnified hereunder shall not be a condition precedent
to recovery. The rights and remedies provided in this Article VIII shall be
exclusive as to any Damages incurred by a party under this Agreement;
PROVIDED, HOWEVER, that nothing herein shall preclude a party from exercising
its rights under this Agreement and applicable law to seek equitable
remedies, including without limitation, specific performance and injunctions.
(b) BY BUYER. Buyer shall indemnify and save and hold
harmless the Sellers and their respective affiliates and Representatives
(collectively, the "SELLERS INDEMNIFIED PARTIES") from and against any and
all Damages incurred in connection with, arising out of, resulting from or
incident to (i) any breach of any representation or warranty or the
inaccuracy of any representation made by Buyer in or pursuant to this
Agreement; and (ii) any breach of any covenant or agreement made by Buyer in
or pursuant to this Agreement or any of the Ancillary Agreements to which it
is a party.
(c) COOPERATION. The indemnified party shall cooperate in
all reasonable respects with the indemnifying party and its representatives
(including without limitation its attorneys) in the investigation, trial and
defense of such lawsuit or action and any appeal arising therefrom; PROVIDED,
HOWEVER, that
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the indemnified party may, at its own cost, participate in negotiations,
arbitrations and the investigation, trial and defense of such lawsuit or
action and any appeal arising therefrom. The parties shall cooperate with
each other in any notifications to insurers.
(d) DEFENSE OF CLAIMS. If a claim for Damages (a "CLAIM") is to
be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such Indemnification shall, subject to
Section 8.2 hereof, give written notice (a "CLAIM NOTICE") to the
indemnifying Party as soon as practicable after the party entitled to
indemnification becomes aware of any fact, condition or event which may give
rise to Damages for which indemnification may be sought under this Section
8.3. If any lawsuit or enforcement action is filed against any party entitled
to the benefit of indemnity hereunder, written notice thereof shall be given
to the indemnifying party as promptly as practicable (and in any event within
five (5) calendar days after the service of the citation or summons). The
failure of any indemnified party to give timely notice hereunder shall not
affect rights to indemnification hereunder, except to the extent that the
indemnifying party demonstrates actual damage caused by such failure. After
such notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the
terms of its indemnity hereunder in connection with such lawsuit or action,
then the indemnifying party shall be entitled, if it so elects at its own
cost, risk and expense, (i) to take control of the defense and investigation
of such lawsuit or action, (ii) to employ and engage attorneys of its own
choice to handle and defend the same unless the named parties to such action
or proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and the indemnified party has been advised in
writing by counsel that there may be one or more legal defenses available to
such indemnified party that are different from or additional to those
available to the indemnifying party, in which event the indemnified party
shall be entitled, at the indemnifying party's cost, risk and expense, to
separate counsel of its own choosing, and (iii) to compromise or settle such
lawsuit or action, which compromise or settlement shall be made only with the
written consent of the indemnified party, such consent not to be unreasonably
withheld. If the indemnifying party fails to assume the defense of such
lawsuit or action within fifteen (15) calendar days after receipt of the
Claim Notice, the indemnified party against which such lawsuit or action has
been asserted will (upon delivering notice to such effect to the indemnifying
party) have the right to undertake, at the indemnifying party's cost and
expense, the defense, compromise or settlement of such lawsuit or action on
behalf of and for the account and risk of the indemnifying party; PROVIDED,
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EVER, that such lawsuit or action shall not be compromised or settled without
the written consent of the indemnifying party, which consent shall not be
unreasonably withheld. If the indemnified party settles or compromises such
lawsuit or action without the written consent of the indemnifying party, the
indemnifying party shall not have any liability hereunder for or with respect
to such lawsuit or action. In the event the indemnified party assumes the
defense of the lawsuit or action, the indemnified party will keep the
indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 8.3 and for any final judgment (subject to any right of appeal), and
the indemnifying party agrees to indemnify and hold harmless an indemnified
party from and against any Damages by reason of such settlement or judgment.
(e) BROKERS AND FINDERS. No agent, broker, investment banker,
financial advisor or other Person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated hereby other than William E. Myers & Company
(the fees of which will be paid by Buyer). Each party hereto agrees to hold
the other parties hereto harmless from and against any and all claims,
liabilities or obligations with respect to any such fee or commission or
expenses related thereto asserted by any Person (i) with respect to any such
fee or commission or expenses related thereto or (ii) on the basis of any act
or statement alleged to have been made by any party hereto or any of their
respective representatives or affiliates.
(f) REPRESENTATIVES. No individual Representative of any party
shall be personally liable for any Damages under the provisions contained in
this Section 8.3. Nothing herein shall relieve either party of any Liability
to make any payment expressly required to be made by such party pursuant to
this Agreement.
(g) LIMITATION ON INDEMNITY/COMMITMENTS.
(i) The indemnification obligation of the parties hereto with
respect to any breach of any representation or warranty pursuant to Sections
8.3(a) or (b) shall be limited to Claims for Damages made prior to last date
of survival thereof referred to in Section 8.2. The indemnification
obligation of the parties hereto with respect to any breach of any covenant
or agreement pursuant to Sections 8.3(a) or (b) shall survive indefinitely
subject to the terms of this Agreement.
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(ii) Buyer may not recover Damages from the Sellers pursuant
to Section 8.3(a)(i) until the aggregate amount of Damages relating to such
Claims for which Buyer is seeking indemnification exceeds two hundred fifty
thousand dollars ($250,000); PROVIDED, HOWEVER, in the event that the
aggregate amount of Damages for which Buyer is seeking indemnification
exceeds such amount, Buyer may recover the full amount of such Damages less
$250,000. Notwithstanding the foregoing, the maximum amount of damages for
which the Sellers shall be liable pursuant to this Section 8.3 shall be
$10,000,000, plus or minus the amount of any post-Closing adjustment as set
forth in Section 2.3 hereof.
(iii) No Seller may recover damages from Buyer pursuant to
Section 8.3(b)(i) until the aggregate amount of Damages for which such Seller
is seeking indemnification exceeds two hundred and fifty thousand dollars
(250,000); PROVIDED, HOWEVER, in the event that the aggregate amount of
Damages for which such Seller is seeking indemnification exceeds such amount,
such Seller may recover the full amount of such Damages less $250,000.
Notwithstanding the foregoing, the maximum amount of damages for which Buyer
shall be liable pursuant to this Section 8.3 shall be $10,000,000, plus or
minus the amount of any post-Closing adjustment as set forth in Section 2.3
hereof.
(iv) Neither (a) the termination of the representations or
warranties contained herein, nor (b) the expiration of the indemnification
obligations described above, will affect the rights of a Person in respect of
any Claim made by such Person received by the indemnifying party prior to the
expiration of the applicable survival period provided herein.
(h) ESCROW AGREEMENT. Notwithstanding the foregoing, subject to
the terms and conditions of the Escrow Agreement, Claims for indemnification
against any Seller pursuant to this Section 8.3 shall first be satisfied from
the Escrow Amount and, after the Escrow Amount has been exhausted, shall be
recovered directly from the Sellers.
8.4 THIS SECTION INTENTIONALLY OMITTED.
ARTICLE IX
TAX MATTERS
9.1 RETURNS. The Sellers and the Target shall have the exclusive
obligation and authority to file or cause to be filed all Tax returns that
are required to be filed by or with
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respect to the income, assets (including, without limitation, real, personal
and intangible property) or operations of the Target or its Subsidiaries for
all taxable years or other taxable periods ending on or prior to the Closing
Date (the "PRE-CLOSING PERIODS"). Except as provided in the preceding
sentence, Buyer shall have the exclusive obligation and authority to file or
cause to be filed all Tax returns that are required to be filed by or with
respect to the income, assets (including, without limitation, real, personal
and intangible property) or operations of the Target or any of its
Subsidiaries or any successor thereto. No later than thirty days prior to
the due date (or any later date to which such due date has been legally
extended) for the filing of any Tax return with respect to any taxable year
or other taxable period of the Target and its Subsidiaries beginning on or
before the Closing Date and ending after the Closing Date (an "OVERLAP
PERIOD"), Buyer shall (a) provide the Sellers with written notice, which
notice shall set forth Buyer's calculations regarding the amount of Taxes for
which Buyer determines the Sellers are obligated to reimburse Buyer pursuant
to Section 9.3(a) in sufficient detail and particularity to enable the
Sellers to verify the amount of such Taxes for which the Sellers are
obligated to reimburse Buyer, (b) provide the Sellers with a draft of such
Tax return, and (c) provide the Sellers access to all records of the Target
and its Subsidiaries reasonably necessary to enable the Sellers and their
representatives to evaluate the draft Tax returns provided with such notice.
No later than ten days prior to the due date (or any later date to which such
due date has been legally extended) for the filing of such Tax return, the
Sellers shall notify Buyer of any objections the Sellers may have to Buyer's
calculations regarding the amount of such Taxes and to any items set forth in
such draft Tax return. Buyer and the Sellers agree to consult and resolve in
good faith any such objection. In the event that Buyer and the Sellers are
not able to resolve such dispute within seven days of the filing date of such
Tax return, the parties shall appoint Ernst & Young, LLP to resolve such
dispute as soon as shall be practicable after such appointment. The fees and
expenses of Ernst & Young, LLP, if any, shall be paid equally by Buyer and
LIW.
9.2 CONTESTS. The Sellers and their duly appointed representatives
shall have the exclusive authority to control any audit or examination by any
taxing authority, to initiate any claim for refund, to amend any Tax return
and to contest, resolve and defend against any assessment for additional
Taxes, or other adjustment of Taxes of or relating to any liability of the
Target or its Subsidiaries for Taxes reflected on any Tax returns covering
any Pre-Closing Periods; PROVIDED, HOWEVER, that (a) neither the Sellers nor
any of their duly appointed representatives shall, without the prior written
consent of the
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Buyer, which consent shall not be unreasonably withheld, file any claim for
refund, amend any Tax return or enter into any settlement of any contest or
otherwise compromise any issue that affects or may affect the Tax liability
of the Buyer or any of its Affiliates for any Tax period beginning after the
Closing Date (a "POST-CLOSING PERIOD") or any portion of an Overlap Period
beginning after the Closing Date, and (b) neither the Sellers nor any of
their duly appointed shall, without the prior consent of the Buyer, which
consent shall not unreasonably be withheld, enter into any settlement of any
contest or otherwise compromise any issue that would increase any liability
accruals for Taxes as of the Closing Date or would otherwise require payment
by the Buyer of any amount under Section 9.3 unless the Sellers shall have
agreed to indemnify the Buyer for payment of such Taxes. Buyer and its duly
appointed representatives shall have the exclusive authority to control any
audit or other proceeding relating to Taxes for any taxable year or other the
Closing Date; PROVIDED, HOWEVER, that (a) neither Buyer, the Target nor any
of their duly appointed representatives shall, without the prior written
consent of the Sellers, which consent shall not be unreasonably withheld,
enter into any settlement of any contest or otherwise compromise any issue
that affects or may affect the Tax liability of the Sellers or any of their
affiliates for any Pre-Closing Period or any portion of the Overlap Period
ending on the Closing Date, and (b) neither Buyer, the Target nor any of
their duly appointed representatives shall, without the prior consent of the
Sellers, which consent shall not unreasonably be withheld, enter into any
settlement of any contest or otherwise compromise any issue that would reduce
any liability accruals for Taxes as of the Closing Date or would otherwise
require payment by the Sellers of any amount under Section 9.3 unless Buyer
shall have waived or caused to be waived for itself and the Target any right
to indemnification for Taxes from the Sellers. The Sellers shall be entitled
to any Tax refund relating to the Target and its Subsidiaries to the extent
such Tax refund relates to any Pre-Closing Period or any portion of the
Overlap Period ending on the Closing Date, unless such refund has been
recorded as an Asset on the Closing Balance Sheet in which case Buyer shall
be entitled thereto.
9.3 PAYMENT OF TAXES. (a) Taxes of the Target and its Subsidiaries
that relate to an Overlap Period shall be apportioned between the portion of
such period ending on the Closing Date and the portion of such period
beginning after the Closing Date on the basis of an interim closing of the
books, and based on accounting methods, elections and conventions that do not
have the effect of distorting income or expenses. Notwithstanding the
foregoing, real and personal property Taxes of the Target and its
Subsidiaries for any Overlap Period shall be apportioned on a per diem basis.
The Sellers shall pay to
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Buyer or the appropriate taxing authority the Taxes calculated with respect
to the portion of the Overlap Period ending on the Closing Date (as
determined by the Sellers and Buyer using the procedure set forth under
Section 9.1), but any such payment required by the Sellers shall be reduced
by the amount of such Taxes already paid by the Target or the Sellers or any
affiliate of the Sellers on or prior to the Closing Date or accrued or
otherwise reflected as a Tax liability for such period on the Closing Balance
Sheet.
(b) except as otherwise provided in this Section 9.3(b) the Sellers
shall indemnify the Buyer Indemnified Parties and hold them harmless from (i)
all Liability for Taxes of the Target and its Subsidiaries (except Taxes
accrued and accounted for) for all Pre-Closing Tax Periods and the portion
ending on the Closing Date, (ii) all Liability for Taxes of any Person (other
than the Target or its Subsidiaries) with which any of the Sellers or the
Target or any of their respective Subsidiaries is or has been affiliated and
all liabilities arising from the requirement to withhold and remit Canadian
non-resident tax; and (iii) all Taxes arising out of a breach of the Sellers'
representations and warranties contained in Section 4.21 hereof.
Notwithstanding the foregoing provisions of this Section 9.3(b), the Sellers
shall not indemnify and hold harmless Buyer for the amount of recorded
liability accruals for Taxes reflected on the Closing Balance Sheet.
(c) Buyer agrees to pay or cause the Target to pay the Sellers an
amount equal to all payments made by the Sellers or their affiliates after
the Closing Date to any governmental authority for or with respect to Taxes
imposed on or with respect to the income, assets and operation of or with
respect to the Target or any of its Subsidiaries for periods ending on or
prior to the Closing Date, to the extent that the aggregate amount of such
payments does not exceed the amount of liability accruals for such Taxes
reflected on the Closing Balance Sheet.
(d) except as otherwise provided in this Section 9.3, Buyer hereby
indemnifies and agrees to hold harmless the Sellers and their affiliates from
and against all Taxes of or with respect to the Target and each of its
Subsidiaries for all taxable years or other taxable periods beginning after
the Closing Date and, with respect to the Overlap Period, the portion of such
period commencing after the Closing Date.
9.4 NOTICE OF CONTESTS. The Buyer shall promptly notify the Seller, in
connection with any inquiry, examination, or proceeding, any government
authority proposes in writing to make or any assessment or adjustment with
respect to Tax items of
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the Target and its Subsidiaries, which assessments or adjustments could
affect the Sellers following the Closing Date, and shall consult with the
Sellers with respect to any such proposed assessment or adjustment. Buyer
shall notify the Sellers in writing promptly upon learning of any such
inquiry, examination, or proceeding and shall consult with the Sellers with
respect to any such proposed assessment or adjustment relating to periods
ending on or prior to the Closing Date.
9.5 COOPERATION. The Buyer shall cause the Target and its Subsidiaries
to provide the Sellers or their designee with such assistance as may
reasonably be requested by the Sellers or their designee in connection with
the preparation of any Tax return, audit or judicial or administrative
proceeding or determination relating to liability for Taxes of or with
respect to the Target or any of its Subsidiaries, including but not limited
to, access to the books and records, and the assistance of the officers and
employees, of the Target and its Subsidiaries. Buyer and the Sellers
acknowledge that any and all information obtained in connection with the
preparation of any Tax return, audit or judicial or administrative proceeding
or determination pursuant to this Section 9.5 is of a confidential nature and
that all such information shall be used only for the purposes set forth in
the immediately preceding sentence.
9.6 PURCHASE PRICE ADJUSTMENT. To the extent permitted by law, any
payment made pursuant to Article VIII or Article IX hereunder by Buyer to the
Stockholder or by the Stockholder to Buyer shall be treated by all parties
for all purposes as an adjustment to the purchase price of the stock of the
Target.
ARTICLE X
MISCELLANEOUS
10.1 ASSIGNMENT. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party without the prior written
consent of the other parties; PROVIDED, HOWEVER, without the consent of any
other party, the Buyer may, (i) assign all such rights to any lender as
collateral security in connection with the financing of the Purchase Price so
long as Buyer is not in any way released from its obligations hereunder and
(ii) assign all such rights and obligations to any subsidiary or affiliate of
Buyer or to a successor in interest to Buyer which shall assume all
obligations and Liabilities of Buyer under this Agreement; PROVIDED, FURTHER,
that LIW will not unreasonably withhold its consent to the assignment by
Buyer of this Agreement or any of its rights and obligations hereunder in any
sale by
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Buyer of all or a significant portion of the assets of Target and its
Subsidiaries, taken as a whole; and PROVIDED, FURTHER, that the Stockholder
may, without the consent of Buyer, assign its rights hereunder in connection
with the dissolution of the Stockholder. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors-in-interest, personal representatives,
heirs, legatees and permitted assigns, and no other person shall have any
right, benefit or obligation under this Agreement as a third party
beneficiary or otherwise.
10.2 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing
and shall be deemed to have been duly given when received if personally
delivered; when transmitted if transmitted by telecopy, electronic or digital
transmission method; the day after it is sent, if sent for next day delivery
to a domestic address by recognized overnight delivery service (E.G., Federal
Express); and upon receipt, if sent by certified or registered mail, return
receipt requested. In each case notice shall be sent to:
If to the Sellers, addressed to:
LEP International Worldwide Limited
28 Church Street, Epsom
Surrey KT 174QP, London
England
Attention: Ron Jackson
Fax Number: 011/44/137/281 3181
With a copy to:
Troutman Sanders LLP Fasken-Campbell Godfrey
600 Peachtree Street, N.E. Suite 3600, Toronto-Dominion Tower
Suite 5200 Toronto-Dominion Center
Atlanta, GA 30308-2216 Toronto, Ontario
Attention: John C. Beane Attention: Bruce Blain
Fax Number: (404) 885-3900
If to Buyer, addressed to:
International Logistics Limited
310 South Street, P.O. Box 1913
Morristown, NJ 07962-1913
Attention: Roger Payton
Fax Number:
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With a copy to:
Latham & Watkins Stikeman, Elliott
633 W. 5th Street, Suite 4000 Suite 5300, P.O. Box 85
Los Angeles, CA 90071-2007 Commerce Court West
Attention: Paul D. Tosetti Toronto, Canada
Fax Number: (213) 891-8763 M5L IB9
Attention: Richard E. Clark
Fax Number: (416) 947-0866
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
10.3 CHOICE OF LAW. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of Ontario,
except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
10.4 SERVICE OF PROCESS, CONSENT TO JURISDICTION.
(a) SERVICE OF PROCESS. Each of the parties hereto irrevocably
consents to the service of any process, pleading, notices or other papers by
the mailing of copies thereof by registered, certified or first class mail,
postage prepaid, to such party at such party's address set forth herein, or
by any other method provided or permitted under Ontario law.
(b) CONSENT TO JURISDICTION. Each party hereto irrevocably and
unconditionally (1) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the Ontario Court (General
Division) or, if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in Ontario; (2) consents
to the jurisdiction or any such court in any such suit, action or proceeding;
and (3) waives any objection which such party may have to the laying of venue
of any such suit, action or proceeding in any such court.
10.5 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement, the
Ancillary Agreements, together with all exhibits and schedules hereto and
thereto (including the Disclosure Schedule), constitutes the entire agreement
among the parties to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. This Agreement may not be amended
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except by an instrument in writing signed on behalf of each of the parties
hereto. No amendment, supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless
otherwise expressly provided.
10.6 MULTIPLE COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.7 EXPENSES. Except as otherwise specified in this Agreement, each
party hereto shall pay its own legal, accounting out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
10.8 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, then to the maximum extent permitted by law, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement or any other such instrument.
10.9 TITLES; GENDER. The titles, captions or headings of the Articles
and Sections herein, and the use of a particular gender, are for convenience
of reference only and are not intended to be a part of or to affect or
restrict the meaning or interpretation of this Agreement.
10.10 PUBLICITY. Neither Buyer, on the one hand, nor the Sellers, the
Target or any of their respective subsidiaries, on the other hand, shall
issue any press release or make any public statement regarding the
transactions contemplated hereby, without prior written approval of the other
parties.
10.11 CUMULATIVE REMEDIES. All rights and remedies of either party
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
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10.12 CONFIDENTIAL INFORMATION.
(a) NO DISCLOSURE. The parties acknowledge that the transaction
described herein is of a confidential nature and shall not be disclosed
except to consultants, advisors and affiliates, or as required by law, until
such time as the parties make a public announcement regarding the transaction
as provided in Section 10.10.
(b) PRESERVATION OF CONFIDENTIALITY. In connection with the
negotiation of this Agreement, the preparation for the consummation of the
transactions contemplated hereby, and the performance of obligations
hereunder, Buyer acknowledges that it will have access to confidential
information relating to the Sellers and the Target and its Subsidiaries and
the Sellers acknowledge that they will have access to confidential
information relating to the Buyer and its affiliates, in each case, including
technical, manufacturing or marketing information, ideas, methods,
developments, inventions, improvements, business plans, trade secrets,
scientific or statistical data, diagrams, drawings, specifications or other
proprietary information relating thereto, together with all analyses,
compilations, studies or other documents, records or data prepared by the
Sellers and the Target and its Subsidiaries or Buyer, as the case may be, or
their respective Representatives or affiliates, which contain or otherwise
reflect or are generated from such information ("CONFIDENTIAL
INFORMATION"). The term "CONFIDENTIAL INFORMATION" does not include
information received by one party in connection with the transactions
contemplated hereby which (i) is or becomes generally available to the public
other than as a result of a disclosure by such party or its Representatives,
(ii) was within such party's possession prior to its being furnished to such
party by or on behalf of the other party in connection with the transactions
contemplated hereby, provided that the source of such information was not
known by such party to be bound by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the other
party or any other Person with respect to such available to such party on a
non-confidential basis from a source other than the other party or any of
their respective Representatives, provided that such source is not bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the other party or any other Person with
respect to such information.
(c) Each party shall treat all Confidential Information of the
other party as confidential, preserve the confidentiality thereof and not
disclose any such Confidential Information, except to its representatives and
affiliates who
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need to know such Confidential Information in connection with the
transactions contemplated hereby. Each party shall use all reasonable
efforts to cause its Representatives to treat all such Confidential
Information of the other party as confidential, preserve the confidentiality
thereof and not disclose any such Confidential Information. Each party shall
be responsible for any breach of this Agreement by any of its
Representatives. If, however, Confidential Information is disclosed, the
party responsible for such disclosure shall immediately notify the other
Party in writing and take all reasonable steps required to prevent further
disclosure.
(d) All Confidential Information shall remain the property of
the party who originally possessed such information. In the event of the
termination of this Agreement for any reason whatsoever, each party shall,
and shall cause its representatives to, return to the other party all
Confidential information (including all copies, summaries and extracts
thereof) furnished to such party by the other party in connection with the
transactions contemplated hereby.
(e) If one party or any of its representatives or affiliates is
requested or required (by oral questions, interrogatories, requests for
information or documents in legal proceedings, subpoena, civil investigative
demand or other similar process) or is required by operation of law to
disclose any Confidential Information, such party shall provide the other
party with prompt written notice of such request or requirement, which notice
shall, if practicable, be at least forty-eight hours prior to making such
disclosure, so that the other party may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this
Agreement. If, in the absence of a protective order or other remedy or the
receipt of such a waiver, such party or any of its representatives are
nonetheless, in the opinion of counsel, legally compelled to disclose
Confidential Information, then such party may disclose that portion of the
Confidential Information which such counsel advises is legally required to be
disclosed, provided that such party uses its reasonable efforts to preserve
the confidentiality of the Confidential Information, whereupon such
disclosure shall not constitute a breach of this Agreement.
10.13 ATTORNEYS' FEES. If any party to this Agreement brings an action
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
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10.14 LIMITATION OF LIABILITY. Notwithstanding anything to the
contrary in this Agreement, in no event shall any party hereto be liable for
any incidental or consequential damages occasioned by any failure to perform
or the breach of any obligation (including, without limitation, the breach of
any representation or warranty) under this Agreement.
10.15 KNOWLEDGE. Whenever a phrase herein is qualified by "to the
knowledge of the Seller" or a similar phrase, it is intended to refer to the
knowledge, after the exercise of reasonable diligence, of lack Wasp, Ron
Series, Digby Davies, Ron Jackson, Andrew Bernard, Peter Brown, Wolfgang
Hollermann and Ron Evinou.
10.16 CURRENCY. All references in this Agreement to dollars, unless
otherwise specifically indicated, are expressed in the currency of the United
States.
PAGES 49 TO 52, INCLUSIVE, INTENTIONALLY DELETED.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on their respective behalf, by their respective officers
thereunto duly authorized, all as of the day and year first above written.
LEP INTERNATIONAL WORLDWIDE INTERNATIONAL LOGISTICS
LIMITED (CANADA) LIMITED
By: /s/ By: /s/
------------------------ ------------------------
Name: DIGBY J. DAVIES Name: ROGER E. PAYTON
Its: DIRECTOR Its: PRESIDENT AND CEO
LEP INTERNATIONAL HOLDINGS
LIMITED
By: /s/
------------------------
Name: DIGBY J. DAVIES
Its: DIRECTOR
LEP HOLDINGS (NORTH AMERICA)
LIMITED
By: /s/
-------------------------
Name: DIGBY J. DAVIES
Its: DIRECTOR
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<PAGE>
EXHIBIT 10.23
THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE OF THE WARRANT ARE SUBJECT TO A SECOND AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT, SECOND AMENDED AND RESTATED REGISTRATION
RIGHTS AGREEMENT EACH DATED AS OF NOVEMBER 7, 1996, AND A SUBSCRIPTION
AGREEMENT DATED MARCH 3, 1997 COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE FURNISHED TO THE HOLDER ON REQUEST TO THE
SECRETARY OF THE COMPANY. SUCH AMENDED AND RESTATED STOCKHOLDERS AGREEMENT,
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT AND SUBSCRIPTION AGREEMENT
PROVIDE, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS ON VOTING, SALE,
TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE WARRANT EVIDENCED
BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK PURCHASABLE UPON EXERCISE
OF THE WARRANT AND THAT SUCH SHARES OF COMMON STOCK ARE SUBJECT TO PURCHASE
BY THE COMPANY AS WELL AS CERTAIN OTHER PERSONS UPON THE OCCURRENCE OF
CERTAIN EVENTS. ANY EVIDENCE, SALE, ASSIGNMENT, TRANSFER OR OTHER
DISPOSITION OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE TO PERSONS OTHER
THAN IN ACCORDANCE WITH SUCH SECOND AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT, SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT AND
SUBSCRIPTION AGREEMENT SHALL BE NULL AND VOID.
THE WARRANT EVIDENCED BY THIS CERTIFICATE AND THE SHARES OF COMMON STOCK
PURCHASABLE UPON EXERCISE OF THE WARRANT HAVE NOT BEEN REGISTERED PURSUANT TO
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAW, AND SUCH WARRANT AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED.
No. __ Warrant to Purchase
5,000 Shares Dated
as of March 3, 1997
WARRANT
To Purchase Common Stock of
INTERNATIONAL LOGISTICS LIMITED
Purchase Price of Common Stock: Purchase price per share
as set forth below.
THIS WARRANT CERTIFIES that, for value received, Gary S. Holter or
registered assigns is entitled, prior to the close of business on the
Expiration Date (defined below), to purchase 5,000 shares of Common Stock in
International Logistics Limited,
<PAGE>
a Delaware corporation (the "COMPANY"), at a purchase price per share equal
to $_____ (the "WARRANT PURCHASE PRICE") upon surrender of this Warrant at
the principal office of the Company, and payment of such purchase price in
cash, by bank cashier's or certified check or by a cashless exercise as set
forth in SECTION 2.B.2. below.
This Warrant is issued by the Company in connection with the
establishment of an incentive program for certain employees of the Company
and its subsidiaries to help the Company obtain not less than $3,874,447 in
quantifiable synergies during fiscal 1997 from the consolidation of certain
operations and functions currently performed by each of The Bekins Company,
LEP Profit International, Inc. LEP International, Inc. and Matrix
International Logistics, Inc. The terms and conditions of the Warrant are
set forth herein. Any capitalized terms used herein and not defined herein
shall have the meanings set forth in the Stockholders Agreement (as defined
herein) or the Subscription Agreement (as defined herein) related thereto.
SECTION 1
DEFINITIONS
"BUSINESS DAY" means any day other than a Saturday, a Sunday, or any day
on which commercial banks in the city of Chicago, Illinois are authorized or
required by law to close.
"COMMON STOCK" means the Common Stock of the Company, $.001 par value
per share, authorized on the date of the original issue of this Warrant and
shall also include any capital stock of any class of the Company then or
thereafter authorized which shall not be limited to a fixed sum or percentage
of par value in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding-up of the Company, and shall
also include, in case of any reorganization, reclassification, consolidation,
merger or sale of assets of the character referred to in SECTION 5 hereof,
the stock, securities or assets provided for in such Section; PROVIDED that
the shares purchasable pursuant to this Warrant shall include only shares of
such class.
"EXPIRATION DATE" means March 3, 2007.
"FAIR MARKET VALUE" shall mean the fair market value of the Company's
Common Stock (or other securities if in the context of untraded securities
distributed in connection with a Qualified Sale) as determined on a
fully-distributed basis without regard
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to liquidity or size relative to the number of shares outstanding; PROVIDED
that such valuation (x) be performed by a nationally recognized investment
banking, valuation or appraisal firm paid for by the Company and (y) shall
ascribe value to warrants as the amount, if any, by which the value of the
Common Stock underlying the warrant shall exceed the aggregate exercise price
related thereto.
"INITIAL PUBLIC OFFERING" means the first underwritten public offering
of Common Stock by the Company pursuant to a registration of shares under the
Securities Act on a Form S-1 Registration Statement (or equivalent or
successor form).
"OCM" means OCM Principal Opportunities Fund, L.P., a Delaware limited
partnership.
"OCM AFFILIATES" means any investor in or any employee of OCM or Oaktree
Capital Management, LLC ("OAKTREE"), a California limited liability company,
or in any company, joint venture, limited liability company, association or
partnership of which the OCM or Oaktree, is a shareholder, manager or general
partner, as the case may be.
"PUBLIC OFFERING" means any offering of Common Stock to the public,
including the Initial Public Offering, either on behalf of the Company or any
of its stockholders, pursuant to an effective registration statement under
the Securities Act.
"QUALIFIED SALE" shall mean (i) any sale of all or substantially all of
the assets of the Company or (ii) any sale, merger or liquidation of the
Company with or into any entity other than OCM, TCW, WES&S, an OCM Affiliate,
a TCW Affiliate or a WES&S Affiliate whereby such entity shall obtain (A) at
least a majority of the voting stock of the surviving entity and (B) the
right to elect a majority of the surviving entity's board of directors.
"REGISTRATION RIGHTS AGREEMENT" means the Second Amended and Restated
Registration Rights Agreement dated as of November 7, 1996, by and among the
Company and each of the Investors listed on Exhibit A thereto, as the same
may be amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended and as the
same may be amended from time to time.
"SIMON ENTITY" means Logistical Simon, L.L.C., a Delaware limited
liability company, WESINVEST, Inc., a Delaware corporation or William E.
Simon & Sons, L.L.C., a Delaware limited liability company.
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<PAGE>
"STOCKHOLDERS AGREEMENT" means the Second Amended and Restated
Stockholders Agreement dated as of November 7, 1996, by and among the Company
and each of the Holders listed on EXHIBIT A thereto, as the same may be
amended from time to time.
"SUBSCRIPTION AGREEMENT" means the Warrant Subscription Agreement dated
as of March 3, 1997, as amended, by and between the Company and Gary Holter.
"SYNERGY EVENT" means the date on which the Company's Board of
Directors determines in good faith that the quantifiable synergies actually
obtained by virtue of consolidation in fiscal year 1997 of certain operations
and functions currently performed by each of The Bekins Company, LEP Profit
International, Inc., LEP International, Inc., and Matrix International
Logistics, Inc. are, in the aggregate, less than (U.S.) $3,874,447.
"TCW" means TCW Special Credits Fund V - The Principal Fund, a
California limited partnership.
"TCW AFFILIATES" means any investor in or any employee of TCW, TCW Asset
Management Company, a California corporation ("TAMCO"), Trust Company of the
West, a California trust company ("TRUSTCO") or Oaktree Capital Management,
LLC ("OAKTREE"), a California limited liability company, or in any company,
joint venture, limited liability company, association or partnership of which
TCW, TAMCO, Trustco or Oaktree, is a shareholder, manager or general partner,
as the case may be.
"TRADING PRICE" means the trading price for each such trading day: (a)
if the Common Stock is traded on a national securities exchange, its last
reported sale price on the preceding Business Day on such national securities
exchange or, if there was no sale on that day, the last reported sale price
on such national securities exchange on the next preceding Business Day on
which there was a sale, all as made available over the Consolidated Last Sale
Reporting System of the CTA Plan (the "CLSRS") or, if the Common Stock is not
then eligible for reporting over the CLSRS, its last reported sale price on
the preceding Business Day on such national securities exchange or, if there
was no sale on that day, on the next preceding Business Day on which there
was a sale on such exchange or (b) if the principal market for the Common
Stock is the over-the-counter market, but the Common Stock is not then
eligible for reporting over the CLSRS, but the Common Stock is quoted on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ"), the last sale price reported on NASDAQ on the preceding Business
Day or, if the Common Stock is an issue for which last sale prices are not
reported on NASDAQ, the closing bid quotation on such day, but in each of the
next preceding two
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cases, if the relevant NASDAQ price or quotation did not exist on such day,
then the price or quotation on the next preceding Business Day in which there
was such a price or quotation.
"WES&S means Logistical Simon, L.L.C., a Delaware limited liability
company.
"WES&S AFFILIATE" means any Simon Entity or any partnership, limited
liability company or corporation that directly or indirectly, through one or
more intermediaries, has control of, is controlled by or is under common
control with (i) any Simon Entity or (ii) any shareholders, partner or member
of a Simon Entity or any such shareholder's, partner's or member's spouse,
siblings, children, children's spouses, grandchildren or their spouses or any
trusts for the benefit of any of the foregoing.
"WARRANT PURCHASE PRICE" has the meaning assigned to that term in the
introductory paragraph hereof.
"WARRANT SHARES" means the shares of Common Stock purchased or
purchasable by the Warrantholder upon the exercise of the Warrant pursuant to
SECTION 2 hereof.
"WARRANTHOLDER" means the registered holder of the Warrant and any
related Warrant Shares.
SECTION 2
EXERCISE
A. GENERAL. The Warrantholder shall be entitled to exercise the
Warrant, in whole or in part, at any time or from time to time on or before
5:00 p.m., Chicago, Illinois time, on the Expiration Date; PROVIDED, HOWEVER,
that 5,000 shares underlying the Warrant shall be subject to vesting on March
3, ____. The Warrant is not exercisable as to fractions of shares. Unvested
portions of the Warrant shall be forfeited and cancelled if either (A) at any
time (i) Gary S. Holter's employment with the Company is terminated as a
result of death, disability or retirement, (ii) Gary S. Holter's employment
with the Company is terminated for "Cause" or (iii) Gary S. Holter
voluntarily resigns from the Company (unless such resignation is due to a
significant diminution of responsibility) or (B) a Synergy Event shall have
occurred. Unvested portions of the Warrant shall be automatically fully
vested upon a Qualified Sale or the termination of Gary S. Holter's
employment from the Company without cause. For purposes of this Agreement,
"Cause" shall have the meaning set forth in the Subscription Agreement.
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B. MANNER OF EXERCISE. The Warrantholder may exercise the vested
portion of the Warrant, in whole or in part, by either of the following
methods:
1. The Warrantholder shall complete one of the Subscription Forms
attached hereto, and deliver it to the Company, at its principal offices
located at 330 S. Mannheim Road, Hillside, IL 60162, Attention: President
(or at such other location as the Company may designate by notice in writing
to the Warrantholder), together with the Warrant and either cash, a certified
check or a bank cashier's check, in an amount equal to the then aggregate
Warrant Purchase Price of the shares of Common Stock being purchased; or
2. The Warrantholder may also exercise this Warrant, in whole or in
part, in a "cashless" exercise by delivering to the Company, at its principal
offices located at 330 S. Mannheim Road, Hillside, IL 60162, Attention:
President (or at such other location as the Company may designate by notice
in writing to the Warrantholder), (i) one of the Subscription Forms attached
hereto, which notice shall specify the number of Warrant Shares to be
delivered to such Warrantholder and the number of Warrant Shares with respect
to which this Warrant is being surrendered in payment of the aggregate
Exercise Price for the Warrant Shares to be delivered to the Warrantholder,
and (ii) the Warrant. For purposes of this cashless exercise provision, all
Warrant Shares as to which the Warrant is surrendered will be attributed the
following value: (i) prior to an Initial Public Offering and in context of a
Qualified Sale: at the Fair Market Value of the consideration received by
stockholders with respect to their outstanding shares of Common Stock; (ii)
concurrently with an Initial Public Offering: a value equal to the Initial
Public Offering offer price to the public; or (iii) subsequent to an Initial
Public Offering, a price equal to the average Trading Price of the Company's
Common Stock for the twenty (20) preceding trading days ending on the day
prior to the date on which the request for cashless exercise is received by
the Company. The costs and expenses associated with determination of any of
the preceding valuations shall be borne by the Company. Cashless exercises
shall be permitted only to the extent that such exercise is permitted by the
terms of the Company's indebtedness. Notwithstanding the foregoing,
commencing on the day after the Initial Public Offering through the twentieth
trading day following the Initial Public Offering, the Warrantholder shall
not be permitted to make a cashless exercise pursuant to this Section.
Upon receipt thereof by the Company, the Warrantholder shall be
deemed to be a holder of record of the shares of Common Stock specified in
said Subscription Form, and the Company shall,
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as promptly as practicable, and in any event within ten (10) Business Days
thereafter, execute and deliver or cause to be delivered to the Warrantholder
a certificate or certificates representing the aggregate number of shares of
Common Stock specified in said Subscription Form. Each stock certificate so
delivered shall be registered in the name of the Warrantholder or such other
name as shall be designated by the Warrantholder, subject to compliance with
federal and state securities laws. Before being required to transfer any
Common Stock, the Company may require the Warrantholder at the
Warrantholder's expense to provide an opinion of counsel satisfactory to the
Company that any such exercise is exempt from registration or qualification
under the federal and state securities laws. If the Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of said
stock certificate or certificates, deliver to the Warrantholder a like
Warrant representing the right to purchase the remaining number of shares
purchasable thereunder. The Company shall pay all expenses, taxes and other
charges payable in connection with the preparation, execution and delivery of
stock certificates pursuant to this SECTION 2, except that, in case such
stock certificates shall be registered in a name or names other than the name
of the Warrantholder, funds sufficient to pay all stock transfer taxes which
shall be payable upon the execution and delivery of such stock certificate or
certificates shall be paid by the Warrantholder to the Company at the time of
delivering the Warrant to the Company as mentioned above.
C. TRANSFER RESTRICTION LEGEND. The Warrant and each certificate for
Warrant Shares issued upon exercise or conversion of the Warrant, unless at
the time of exercise or conversion such Warrant Shares are registered under
the Securities Act, shall bear the legends described in SECTION 10(a) of the
Stockholders Agreement.
D. CHARACTER OF WARRANT SHARES. All shares of Common Stock issuable
upon the exercise of the Warrant shall be duly authorized, validly issued,
fully paid and nonassessable.
SECTION 3
OWNERSHIP AND EXCHANGE OF THE WARRANT
A. REGISTERED HOLDER. The Company may deem and treat the person in
whose name the Warrant is registered as the holder and owner thereof
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary,
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<PAGE>
until presentation of the Warrant for exchange as provided in this SECTION 3.
B. EXCHANGE AND REPLACEMENT. The Warrant is exchangeable upon the
surrender thereof by the Warrantholder to the Company at its principal
offices for a new Warrant or Warrants of like tenor and date representing in
the aggregate the right to purchase the number of shares purchasable
hereunder, each new Warrant to represent the right to purchase such number of
shares as shall be designated by the Warrantholder at the time of surrender.
Subject to compliance with SECTION 4 hereof, each Warrant and all rights
thereunder are transferable in whole or in part upon the books of the Company
by the Warrantholder in person or by its duly authorized attorney, and a new
Warrant or Warrants shall be made and delivered by the Company, of the same
tenor and date as the Warrant but registered in the name of the transferee,
upon surrender of the Warrant, duly endorsed, at the principal offices of the
Company. The Company will issue a replacement certificate for the Warrant
upon the loss, theft, destruction or mutilation thereof pursuant to SECTION
10(b) of the Stockholders Agreement. The Warrant shall be promptly canceled
by the Company upon the surrender thereof in connection with any exchange,
transfer or replacement. Except as set forth in the Stockholders Agreement,
the Company shall pay all expenses, taxes (other than stock transfer taxes)
and other charges payable in connection with the preparation, execution and
delivery of the Warrant pursuant to this SECTION 3.
SECTION 4
TRANSFER OF WARRANT OR WARRANT SHARES
A. GENERAL PROVISIONS. The Warrant shall not be transferable. The
related Warrant Shares shall not be transferable except in accordance with
the terms and conditions specified in the Stockholders Agreement.
B. REGISTRATION RIGHTS. The Company has agreed to provide certain
piggyback registration rights in respect of the Warrant Shares, the terms and
conditions of which are set forth in the Registration Rights Agreement. Upon
any transfer of any Warrant Shares in accordance with the provisions of the
Stockholders Agreement (other than transfers made after Initial Public
Offerings), the registration rights pertaining thereto may be transferred,
pursuant to the terms and provisions of Section 10 of the Registration Rights
Agreement, upon giving notice to the Company and the transferee's agreement
to be bound by the provisions of the Stockholders Agreement.
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<PAGE>
SECTION 5
ANTI-DILUTION PROVISIONS
A. STOCK SPLITS AND REVERSE SPLITS. In the event that the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Warrant Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares purchasable pursuant to this Warrant immediately prior to such
subdivision shall be proportionately increased, and conversely, in the event
that the outstanding shares of Common Stock of the Company shall at any time
be combined into a smaller number of shares, the Warrant Purchase Price in
effect immediately prior to such combination shall be proportionately
increased and the number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such combination shall be proportionately
reduced. Except as provided in this SECTION 5.A, no adjustment in the
Warrant Purchase Price and no change in the number of Warrant Shares
purchasable shall be made under this SECTION 5 as a result of or by reason of
any such subdivision or combination.
B. REORGANIZATION AND ASSET SALES. Subject to the terms and
provisions in the Stockholders Agreement, if any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then
the following provisions shall apply:
1. As a condition of such reorganization, reclassification,
consolidation, merger or sale (except as otherwise provided below in this
SECTION 5.B), lawful and adequate provisions shall be made whereby the
Warrantholder shall thereafter have the right to purchase and receive upon
the terms and conditions specified in this Warrant and in lieu of the Warrant
Shares immediately theretofore receivable upon the exercise of the rights
represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of Warrant Shares immediately
theretofore so receivable had such reorganization, reclassification,
consolidation, merger or sale not taken place.
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<PAGE>
2. In the event of a merger or consolidation of the Company with
or into another corporation as a result of which a number of shares of Common
Stock of the surviving corporation greater or lesser than the number of
shares of Common Stock of the Company outstanding immediately prior to such
merger or consolidation are issuable to holders of Common Stock of the
Company, then the Warrant Purchase Price in effect immediately prior to such
merger or consolidation shall be adjusted in the same manner as though there
were a subdivision or combination of the outstanding shares of Common Stock
of the Company.
3. The Company shall not effect any such consolidation, merger or
sale unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall
assume, by written instrument executed and mailed or delivered to the
Warrantholder at the last address of the Warrantholder appearing on the books
of the Company, the obligation to deliver to the Warrantholder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
the Warrantholder may be entitled to receive, and all other liabilities and
obligations of the Company hereunder. Upon written request by the
Warrantholder such successor corporation will issue a new warrant revised to
reflect the modifications in this Warrant effected pursuant to this SECTION
5.B.
C. NOTICE OF ADJUSTMENT. Whenever the Warrant Purchase Price and the
number of Warrant Shares issuable upon the exercise of this Warrant shall be
adjusted as herein provided, or the rights of the Warrantholder shall change
by reason of other events specified herein, the Company shall compute the
adjusted Warrant Purchase Price and the adjusted number of Warrant Shares in
accordance with the provisions hereof and shall prepare a certificate signed
by its President, Vice President, Treasurer or Secretary setting forth the
adjusted Warrant Purchase Price and the adjusted number of Warrant Shares
issuable upon the exercise of this Warrant or specifying the other shares of
stock, securities or assets receivable as a result of such change in rights,
and showing in reasonable detail the facts and calculations upon which such
adjustments or other changes are based, including a statement of the
consideration received or to be received by the Company for, and the amount
of, any Common Stock, options and convertible securities issued since the
last such adjustment or change (or since the date hereof in the case of the
first adjustment or change). The Company shall cause to be mailed to the
Warrantholder copies of such officer's certificate together with a notice
stating that the Warrant Purchase Price and the number of Warrant Shares
purchasable upon exercise of this Warrant have been adjusted and setting
forth the
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<PAGE>
adjusted Warrant Purchase Price and the adjusted number of Warrant Shares
purchasable upon the exercise of this Warrant.
SECTION 6
NOTICES
Any notice or other document required or permitted to be given or
delivered to the Warrantholder shall be delivered in writing or sent by
certified or registered mail to the Warrantholder at the address furnished to
the Company in writing by the Warrantholder. Any notice or other document
required or permitted to be given or delivered to the Company shall be
delivered personally (including delivery by courier or by facsimile if
received during normal working hours), or be sent by certified or registered
mail to the Company, at 330 S. Mannheim Road, Hillside, IL 60162, Attention:
President, or other such address as shall have been furnished to the
Warrantholder by the Company. Except as otherwise provided, each such notice
shall be deemed given when delivered or on a date which is four (4) days
after it is mailed in any post office or branch post office regularly
maintained by the United States Postal Service (registered or certified, with
postage prepaid and properly addressed).
SECTION 7
NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY
The Warrant shall not entitle the Warrantholder to any of the rights of
a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Warrantholder to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the
Warrantholder, shall give rise to any liability of the Warrantholder for the
Warrant Purchase Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the company.
SECTION 8
MISCELLANEOUS
This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to
principles of conflict of laws. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant
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<PAGE>
are for purposes of reference only and shall not affect the meaning or
construction of any of the provisions hereof.
- 12 -
<PAGE>
WITNESS the due execution of this Warrant by a duly authorized officer
of the Company.
INTERNATIONAL LOGISTICS LIMITED
a Delaware corporation
By: _____________________________
Roger E. Payton
President and
Chief Executive Officer
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<PAGE>
FULL SUBSCRIPTION FORM
(To Be Executed by the Registered Holder
If It Desires to Exercise the Warrant in Full)
The undersigned hereby exercises the right to purchase the total number
of shares of Common Stock covered by the attached Warrant at the date of this
subscription and herewith makes payment of the sum of $______, or hereby
tenders __________ Warrant Shares as payment therefor, representing the
Warrant Purchase Price of $_____ per share in effect at this date.
Certificates for such shares shall be issued in the name of and delivered to
the undersigned, unless otherwise specified in written instructions signed by
the undersigned and accompanying this subscription.
Dated: ____________________, 19__.
_____________________________
[Signature]
Address:
_____________________________
_____________________________
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<PAGE>
PARTIAL SUBSCRIPTION FORM
(To Be Executed by the Registered Holder
If It Desires to Exercise the Warrant in Part)
The undersigned hereby exercises the right to purchase ______ shares of
Common Stock covered by the attached Warrant at the date of this subscription
and herewith makes payment of the sum of $_____, or hereby tenders ______
Warrant Shares as payment therefor, representing the Warrant Purchase Price
of $_____ per share in effect at this date. Certificates for such shares and
a new Warrant of like tenor and date for the balance of the shares not
subscribed for shall be issued in the name of and delivered to the
undersigned, unless otherwise specified in written instructions signed by the
undersigned and accompanying this subscription.
Dated: ____________________, 19__.
_____________________________
[Signature]
Address:
_____________________________
_____________________________
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<PAGE>
EXHIBIT 10.24
SUBSCRIPTION AGREEMENT
This Subscription Agreement (this "Agreement") is made as of the
date of its acceptance set forth on the signature page below by and between
International Logistics Limited, a Delaware corporation (the "Company"), and
Gary S. Holter, an individual subscribing for shares of the Company's capital
stock pursuant hereto (the "Management Investor"). Certain capitalized terms
that are used herein are defined in Section 6 of this Agreement. Capitalized
terms used but not defined herein shall have the meanings ascribed to them
under the Stockholders Agreement.
1. PURCHASE AND SALE OF SHARES AND GRANT OF WARRANTS.
(a) Upon the execution of this Agreement, (i) the Management
Investor will receive from the Company, and the Company will grant to the
Management Investor, warrants which, subject to the provisions hereof,
accord to the Management Investor the right to purchase (upon the vesting
of such warrants) up to 5,000 shares of Common Stock from the Company (the
"Warrants") and (ii) the Management Investor will purchase from the
Company, and the Company will sell and issue to the Management Investor,
the Shares that the Management Investor elects to purchase pursuant to an
exercise of, and subject to the terms of, his Warrants. The Management
Investor's election to purchase such Warrants shall constitute a
subscription for the Shares and shall be evidenced by the Management
Investor's completion of the "Management Investor Election" form attached
hereto. The Management Investor will deliver to the Company the full
purchase price for the Shares purchased hereunder by check, wire transfer,
bank draft or money order made payable to "International Logistics
Limited". The purchase price per share for Shares purchased upon exercise
of the Warrants is the Warrant Purchase Price. The Management Investor
agrees to enter into the Stockholders Agreement and the Registration Rights
Agreement concurrently with the execution of this Agreement.
(b) In connection with the purchase and sale of the Shares
hereunder and the grant and receipt of the Warrants hereunder, the
Management Investor represents and warrants to the Company that:
(i) The Management Investor understands that (A) the
Securities have not been registered under the Securities Act, nor
qualified under the securities laws of any other jurisdiction, (B) the
Warrants are non-transferable, (C) the Securities cannot be resold
<PAGE>
unless they subsequently are registered under the Securities Act and
qualified under applicable state securities laws, unless the Company
determines that exemptions from such registration and qualification
requirements are available, and (D) except as otherwise set forth in
the Stockholders Agreement and the Registration Rights Agreement, the
Management Investor has no right to require such registration or
qualification;
(ii) The Securities to be acquired by the Management
Investor pursuant to this Agreement will be acquired for the
Management Investor's own account and not with a view to, or intention
of, distribution thereof in violation of the Securities Act, or any
applicable state securities laws, and the Securities will not be
disposed of in contravention of the Securities Act or any applicable
state securities laws;
(iii) The Management Investor has substantial knowledge and
experience in financial and business matters, has specific experience
making investment decisions of a similar nature, and is capable,
without the use of a financial advisor, of utilizing and analyzing the
information made available in connection with the acquisition of the
Securities and of evaluating the merits and risks of an investment in
the Securities. The Management Investor will provide the Company,
upon request, with such information concerning any prior investment
experience, business or professional experience and other information
as the Company may deem necessary to further evaluate the foregoing
representations;
(iv) The Management Investor has carefully reviewed and
understands the risks of, and other considerations relating to, an
investment in the Securities;
(v) The Management Investor understands that his investment
in the Securities is subject to significant economic risk, including
the relative illiquidity resulting from the fact that the Securities
(A) have not been registered under the Securities Act and, therefore,
cannot be sold unless they are subsequently registered under the
Securities Act or they are sold pursuant to an exemption from such
registration, and (B) are subject to additional restrictions as
provided herein. The Management Investor is able to bear such
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<PAGE>
economic risk of his investment in the Securities for an indefinite
period of time;
(vi) The Management Investor has had an opportunity to ask
questions and receive answers concerning the terms and conditions of
the offering of the Securities and has had full access to such other
information concerning the Company as he or she has requested.
Without limiting the generality of the foregoing, the Management
Investor has been provided with copies of the Stockholders Agreement
and the Registration Rights Agreement and has had an opportunity to
review and ask questions and receive satisfactory answers concerning
the terms and conditions of such Stockholders Agreement and
Registration Rights Agreement;
(vii) The Management Investor is a resident and domiciliary
of the state or other jurisdiction hereinafter set forth opposite the
Management Investor's signature and the Management Investor has no
present intention of becoming a resident of any other state or
jurisdiction. If the Management Investor is a resident and
domiciliary of a state that requires the Company to ascertain certain
other information regarding the Management Investor, the Company may
attach a page to this Agreement containing additional representations
to be made by the Management Investor in connection with the
Management Investor's investment in the Securities, and by signing
this Agreement, the Management Investor shall be deemed to have made
such additional representations to the Company;
(viii) This Agreement, the Stockholders Agreement and the
Registration Rights Agreement constitute the legal, valid and binding
obligations of the Management Investor, enforceable in accordance with
their respective terms, and the execution, delivery and performance of
this Agreement, the Stockholders Agreement and the Registration Rights
Agreement by the Management Investor does not and will not conflict
with, violate or cause a breach of any agreement, contract or
instrument to which the Management Investor is a party or any order,
judgment or decree to which the Management Investor is subject; and
(ix) The Management Investor has not received and is not
relying upon any written offering literature or prospectus other than
the Stockholders Agreement and the Registration Rights Agreement, and
has not received
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<PAGE>
and is not relying upon any oral representations which are in any
manner inconsistent with the written information contained in such
document.
(c) The Management Investor further acknowledges and agrees
that:
(i) none of (A) the issuance of the Shares to the
Management Investor, (B) the grant of the Warrants to the Management
Investor or (C) any provision contained herein shall entitle the
Management Investor to remain in the employment of the Company or
affect the right of the Company to terminate the Management Investor's
employment at any time for any reason;
(ii) the Company shall have no duty or obligation to
disclose to the Management Investor and the Management Investor shall
have no right to be advised of, any material information regarding the
Company, its Subsidiaries or Affiliates at any time prior to, upon or
in connection with the repurchase of the Securities upon the
termination of the Management Investor's employment with the Company
or as otherwise provided hereunder;
(iii) the Management Investor is to be an officer of the
Company, and has a high degree of familiarity with the business and
assets of the Company and the prospects of such business;
(iv) the Company is entering into this Agreement in reliance
upon the Management Investor's representations and warranties herein;
(v) all information which the Management Investor has
provided to the Company concerning the Management Investor, his or her
financial position and knowledge of and experience with financial and
business matters is correct and complete as of the date set forth at
the end of this Agreement, and if there should be any material change
in such information prior to the closing of this offering, the
Management Investor will immediately provide the Company with such
information; and
(vi) the Management Investor is aware of the provisions of
Section 83(b) of the Internal Revenue Code of 1986, and the
regulations promulgated thereunder and has consulted with his or her
tax advisor as to the advisability of filing an election under said
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<PAGE>
Section. The Management Investor acknowledges that the Management
Investor has received independent tax advice with respect to tax
consequences resulting from the transactions contemplated herein.
(d) The Company and the Management Investor acknowledge and
agree that this Agreement has been executed and delivered and the Shares
(upon exercise of the Warrants) and the Warrants have been issued and
granted, respectively, hereunder, in connection with and as a part of the
compensation and incentive arrangements between the Company and the
Management Investor.
2. AGREEMENT TO THE STOCKHOLDERS AGREEMENT. The Management
Investor acknowledges and agrees that Securities are being issued (or
granted) hereunder pursuant to, and are subject in all respects to, this
Agreement as well as the Registration Rights Agreement, the Stockholders
Agreement and the Warrant Agreement, the terms and conditions of which are
incorporated herein as if set forth fully herein. The Management Investor
acknowledges and agrees to all the terms and conditions of this Agreement and
such Stockholders Agreement, Registration Rights Agreement and Warrant
Agreement, including the rights of repurchase, tag-along and drag-along
rights, rights of first refusal, vesting requirements, restrictions on
transfer and other provisions set forth herein and in such Stockholders
Agreement, Registration Rights Agreement and Warrant Agreement. The
Management Investor acknowledges that the certificates evidencing the Shares
shall be imprinted with a legend providing notice of such restrictions
substantially in the form set forth herein and in Section 10 of the
Stockholders Agreement. The Management Investor is aware that, except as
expressly provided in the Registration Rights Agreement, the Management
Investor has no right to require registration of any of the Securities and
must bear the economic risk of illiquid Securities. The Management Investor
is also aware of and familiar with the provisions of the Stockholders
Agreement relating to the management of the Company and the provisions
regarding the election of members to the Board.
3. BUYBACK PROVISIONS APPLICABLE TO THE SECURITIES.
(a) BUYBACK. If at any time prior to the initial public
offering of the Company, the Management Investor's employment with the
Company is terminated by either the Company or the Management Investor for
any reason, then the Company or its designee(s) hereby agrees to repurchase,
and the Management Investor and his transferees, if any, hereby agree to
sell, the Securities (i.e. all of the Shares and the Warrants that have not
been cancelled and terminated pursuant to the Warrant Agreement),
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<PAGE>
in whole, that are then owned by the Management Investor or any transferee
(such repurchase and sale being the "Buyback"). The Company will, in
connection with the Buyback, be entitled to receive customary representations
and warranties from the sellers regarding such sale and to require that all
sellers' signatures be guaranteed.
Notwithstanding anything to the contrary contained herein, the
Buyback shall be subject to applicable restrictions contained in the Delaware
General Corporation Law and in the Company's and its Subsidiaries' debt and
equity financing agreements. If any such restrictions prohibit the Buyback
to any extent, the Company shall repurchase such Securities and the
Management Investor (and any transferees) shall sell such Securities, to the
extent permitted by such restrictions within the time period specified in
Section 3(b) below, and the Management Investor (and any transferees) shall
complete the repurchase and sale of the remaining Securities subject to the
Buyback as soon as they are permitted to do so under such restrictions. The
Management Investor shall be entitled to receive, and the Company shall pay,
interest on any portion of the Securities being sold subject to the
restrictions set forth in this paragraph, with such interest accruing at an
annual rate of 10% (beginning of the date that such Securities would have
been sold but for the restrictions), and with such interest being paid on the
date that such restricted portion of the Securities is repurchased.
(b) BUYBACK PRICE. The price applicable to the Buyback
described in Section 3(a) above shall be as follows:
(i) WARRANTS. If the Management Investor's employment
with the Company is terminated for Cause or as a result of the resignation of
the Management Investor (other than a resignation resulting from a diminution
in responsibility), then the aggregate repurchase/sale price for the Warrants
shall be equal to zero dollars ($0.00). If the Management Investor's
employment with the Company is terminated in any other manner, then the
aggregate repurchase/sale price for the Warrants shall be equal to the
Warrant Market Value as of the Date of Termination. Such repurchase/sale
price shall be paid by the Company by check, wire transfer, bank draft or
money order (subject to the obligations of the Management Investor as set
forth in Section 3(a)) within 60 days after the Date of Termination.
(ii) SHARES. If the Management Investor's employment
with the Company is terminated for Cause or as a result of the resignation
(other than a resignation resulting from a diminution in responsibility) of
the Management Investor, then the repurchase/sale price per Share shall be
equal to the LOWER of cost or the Fair Market Value as of the Date of
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<PAGE>
Termination, with such amount to be paid (subject to the obligations of the
Management Investor as set forth in Section 3(a)) within two years after the
Date of Termination. If the Management Investor's employment is terminated
as a result of the expiration of his Employment Agreement or as a result of
the death or Disability of the Management Investor, then the repurchase/sale
price per share shall be equal to the Fair Market Value as of the Date of
Termination, with such amount (subject to the obligations of the Management
Investor as set forth in Section 3(a)) to be paid within 90 days (60 days if
termination is caused by the death or Disability of the Management Investor)
after the Date of Termination. If the Management Investor's employment is
terminated in any other manner, then the repurchase price per share shall be
the HIGHER of cost or the Fair Market Value as of the Date of Termination,
with such amount to be paid (subject to the obligations of the Management
Investor as set forth in Section 3(a)) within 60 days after the Date of
Termination.
(c) IPO. The Company hereby agrees that upon consummation of
its initial public offering, neither the Company nor its designees shall have
any right or obligation to repurchase any of the Securities that are then
owned by the Management Investor or its transferees and that the provisions
of Sections 3(a) and 3(b) above shall have no further force and effect. The
Management Investor hereby agrees that upon consummation of the Company's
initial public offering, neither the Management Investor nor its transferees
shall have any right or obligation to sell to the Company any of the
Securities that are then owned by the Management Investor or its transferees
and that the provisions of Sections 3(a) and 3(b) above shall have no further
force and effect.
4. TRANSFER RESTRICTIONS. The Management Investor shall hold the
Securities subject to the terms of the Stockholders Agreement, the
Registration Rights Agreement, the Warrant Agreement and the terms of this
Agreement. As provided in the Stockholders Agreement, the Shares may be
transferred in certain limited circumstances. As also provided in the
Stockholders Agreement and the Warrant Agreement, no Warrants may be
transferred. Any transferee of any Securities shall take those Securities
subject to the terms of the Stockholders Agreement, the Registration Rights
Agreement, the Warrant Agreement and this Agreement, including, without
limitation, the repurchase rights set forth in Section 3 of this Agreement.
Any such transferee must, upon the request of the Company, execute an
agreement agreeing to be bound by the Stockholders Agreement, the
Registration Rights Agreement, the Warrant Agreement and this Agreement and
must agree to such other waivers, limitations and restrictions as the Company
may reasonably require. The Company
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<PAGE>
shall not, and shall not permit any transfer agent or registrar for any
shares of the Company's capital stock to, transfer upon the books of the
Company any shares of the Company's capital stock originally issued hereunder
or pursuant hereto in any manner except in accordance with this provision,
and any purported transfer not in compliance herewith shall be void.
5. SECURITIES LAW RESTRICTIONS AND OTHER RESTRICTIONS ON TRANSFER
OF SHARES.
(a) The Management Investor is advised that federal and state
securities laws govern and restrict the Management Investor's right to offer,
sell or otherwise dispose of any Securities unless the Management Investor's
offer, sale or other disposition thereof is registered under the Securities
Act and state securities laws, or in the opinion of the Company's counsel,
such offer, sale or other disposition is exempt from registration or
qualification thereunder. The Management Investor agrees that the Management
Investor will not offer, sell or otherwise dispose of any such Securities in
any manner which would: (i) require the Company to file any registration
statement with the Commission (or any similar filing under state law) or to
amend or supplement any such filing or (ii) violate or cause the Company to
violate the Securities Act, the rules and regulations promulgated thereunder
or any other state or federal law. The certificates for any Shares will bear
such legends as the Company deems necessary or desirable in connection with
the Securities Act or other rules, regulations or laws.
(b) The certificates representing the Shares will bear the
following legends:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW, AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THE SAME ARE REGISTERED AND QUALIFIED IN
ACCORDANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR IN THE
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY SUCH REGISTRATION
AND QUALIFICATION ARE NOT REQUIRED."
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED AS OF NOVEMBER 7,
1996, A SUBSCRIPTION AGREEMENT, DATED AS OF MARCH 3, 1997, AND A SECOND
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DATED AS OF NOVEMBER 7,
1996 COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND
WILL BE FURNISHED TO THE HOLDER ON REQUEST TO THE SECRETARY OF THE COMPANY.
SUCH
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<PAGE>
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, SUBSCRIPTION
AGREEMENT AND SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
PROVIDE, AMONG OTHER THINGS, FOR CERTAIN RESTRICTIONS ON VOTING, SALE,
TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES
EVIDENCED BY THIS CERTIFICATE AND THAT SUCH SECURITIES MAY BE SUBJECT TO
PURCHASE BY THE COMPANY AS WELL AS CERTAIN OTHER PERSONS UPON THE
OCCURRENCE OF CERTAIN EVENTS. ANY ISSUANCE, SALE, ASSIGNMENT, TRANSFER OR
OTHER DISPOSITION OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE TO
PERSONS WHO ARE NOT A PARTY TO SUCH SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT SHALL BE NULL AND VOID."
(c) Notwithstanding any other provision contained herein, the
Company may refuse to register any transfer of Securities if the registration
of such transfer would require the Company to register any class of equity
securities with the Commission under the Securities Exchange Act (except in
connection with an effective registration statement under the Securities Act).
(d) Unless otherwise set forth in the Stockholders Agreement or
the Registration Rights Agreement, the Management Investor may not effect any
Public Sale or distribution of any Shares or other equity securities of the
Company, or any Warrants or other securities convertible into or exchangeable
or exercisable for any of the Company's equity securities, during the ten
days prior to and the 120 days after the effectiveness of any underwritten
public offering of any class of the Company's equity securities, except as
part of such underwritten public offering or if otherwise consented to by the
Company in writing prior to such sale or distribution.
6. DEFINITIONS.
"AFFILIATE" means with respect to any Person, any other Person that
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities or by
agreement or otherwise.
"BOARD" means the board of directors of the Company.
"CAUSE" shall have the meaning set forth in the Employment Agreement.
-9-
<PAGE>
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON STOCK" means the Company's common stock, par value $0.001
per share, or in the event that the outstanding Common Stock is hereafter
changed into or exchanged for different stock or securities of the Company,
such other stock or securities.
"DATE OF TERMINATION" shall mean (i) if the Management Investor's
employment is terminated by his death, the date of his death, (ii) if the
Management Investor's employment is terminated by reason of his Disability,
the date of the opinion of a physician opining to such effect, (iii) if the
Management Investor's employment is terminated for Cause, or without Cause by
the Company, the date of such termination, (iv) if the Management Investor
resigns or retires, the date of such resignation or retirement, and (v) if
the Company's Board determines that a Synergy Event (as such term is defined
in the Warrant Agreement) has occurred, the date of such determination.
"DISABILITY" shall mean the Management Investor's physical or
mental disability or infirmity which, in the opinion of a competent physician
selected by the Board, renders the Management Investor unable to perform his
duties under the Management Investor's Employment Agreement for more than 90
days during any 180-day period.
"EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of
March 3, 1997, by and between the Management Investor and the Company.
"FAIR MARKET VALUE" means the fair market value (as determined by a
nationally recognized investment banking, valuation or appraisal firm of the
Company's choice paid for by the Company) of the Company's common shares (or
other securities if in the context of untraded securities distributed in
connection with a Qualified Sale) divided by the number of such shares, as
determined on a fully-distributed basis without regard to liquidity or size
relative to the number of shares outstanding.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department,
agency or political subdivision thereof.
"PUBLIC SALE" means any sale pursuant to a registered public
offering under the Securities Act or any sale to the
-10-
<PAGE>
public pursuant to Rule 144 promulgated under the Securities Act (if and as
modified by Rule 701(c) under the Securities Act) effected through a broker,
dealer or market maker.
"QUALIFIED SALE" shall mean (i) any sale of all or substantially
all of the assets of the Company or (ii) any sale, merger or liquidation of
the Company with or into any entity (other than OCM Principal Opportunities
Fund, L.P., TCW Special Credits Fund V - The Principal Fund, Logistical
Simon, L.L.C., or any Affiliate of the foregoing) whereby such entity shall
obtain (A) at least a majority of the voting stock of the surviving entity
and (B) the right to elect a majority of the surviving entity's board of
directors.
"REGISTRATION RIGHTS AGREEMENT" means the Second Amended and
Restated Registration Rights Agreement dated as of November 7, 1996 by and
among the Company and the Investors listed in Exhibit A thereto, as the same
may be amended from time to time.
"SECURITIES" means the Shares and the Warrants.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SHARES" means, with respect to the Management Investor, (a) any
shares of Common Stock of the Company purchased by the Management Investor
upon exercise of the Warrants and (b) any shares of the capital stock of the
Company issued in respect of any of the securities described in clause (a)
above, whether by way of stock dividend, stock split, merger, consolidation,
reorganization or other recapitalization. Except as otherwise expressly
provided in the Stockholders Agreement, each subsequent holder of the Shares
shall succeed to all rights and obligations hereunder attributable to the
Management Investor as a holder of Shares.
"STOCKHOLDERS AGREEMENT" means the Second Amended and Restated
Stockholders Agreement dated as of November 7, 1996 by and among the Company
and the Holders listed in Exhibit A thereto, as the same may be amended from
time to time.
"SUBSIDIARY" means any corporation of which the Company owns,
directly or through one or more intermediaries, securities having a majority
of the ordinary voting power in electing the board of directors of such
corporation.
-11-
<PAGE>
"WARRANT AGREEMENT" means that warrant certificate (#__), executed
by the Company as of March 3, 1997, certifying that the Management Investor
has been granted the Warrants by the Company.
"WARRANT MARKET VALUE" means the amount by which the Fair Market
Value multiplied by the number of common shares underlying the Warrants
exceeds the Warrant Purchase Price multiplied by the number of common shares
underlying the Warrants. If the Warrant Purchase Price is greater than or
equal to the Fair Market Value, then the "Warrant Market Value" shall equal
$0.00.
"WARRANT PURCHASE PRICE" has the meaning set forth in the Warrant
Agreement.
7. NOTICES. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall
be deemed to have been duly given and made and served either by personal
delivery to the person for whom it is intended or if deposited, postage
prepaid, registered or certified mail, return receipt requested, in the
United States mail:
If to the Company, addressed to:
International Logistics Limited
330 S. Mannheim Road
Hillside, IL 60162
Attention: Roger E. Payton
With copies to:
Milbank, Tweed, Hadley & McCloy
601 S. Figueroa St.
Suite 3100
Los Angeles, California 90017
Attention: Eric H. Schunk, Esq.
If to the Management Investor, addressed to:
the Management Investor at his address shown on the stock records
of the Company, or at such other address as the Management
Investor may specify by written notice to the Company
8. MISCELLANEOUS.
(a) Upon its acceptance by the Company, this Agreement shall be
binding upon and inure to the benefit of the Company and its successors and
assigns and the
-12-
<PAGE>
Management Investor and the Management Investor's executors
or administrators, personal representatives, heirs, legatees and
distributees.
(b) This Agreement shall be governed by and construed in
accordance with the local law, and not the law of conflicts, of the State
of Delaware.
(c) In any conflict between the terms and provisions of this
Agreement and the terms and provisions of the Stockholders Agreement, the
Warrant Agreement or the Registration Rights Agreement, the terms and
provisions of the Stockholders Agreement, the Warrant Agreement or
Registration Rights Agreement, as the case may be, shall govern.
(d) No course of dealing or any delay or failure to exercise any
right, power or remedy hereunder on the part of any party hereto shall
operate as a waiver of or otherwise prejudice such party's rights, powers
or remedies.
(e) Notwithstanding anything in this Agreement, the Company
shall not be obligated to issue, grant or sell any Securities to any Person
if, in the judgment of the Board, such issuance or sale may violate Federal
or applicable state securities laws or regulations or may require the
Company to register or qualify any such Securities under any Federal or
state securities laws, or require the Company or any of its agents or
representatives to register or qualify with any governmental agency or
organization, pursuant to such laws or regulations.
(f) This Agreement supersedes all prior discussions and
agreements between the parties with respect to the subject matter hereof
between the parties and contains the sole and entire agreement between the
parties hereto with respect to the subject matter hereof.
9. JOINT SIGNATORIES; SUCCESSORS AND ASSIGNS. If this Agreement is
signed by more than one Person or entity, then the obligations of the
undersigned shall be joint and several, and the acknowledgements,
representations, warranties and agreements herein contained shall be deemed to
be made by and be binding upon each such Person or entity. This Agreement shall
survive the death or disability of the undersigned and shall be binding upon the
undersigned's heirs, executors, administrators, successors and assigns.
-13-
<PAGE>
10. ACCREDITED INVESTOR. Please initial all boxes which apply to
you.
_ I will be a director or executive officer of the Company;
_ I am a natural person whose individual net worth, or joint
net worth with my spouse, exceeds $1 million;
_ I am a natural person and had individual (NOT JOINT) income
in excess of $200,000 in each of the two most recent years
and reasonably expect to reach the same income level in the
current year;
_ I am a natural person and had joint income (together with my
spouse) in excess of $300,000 in each of the two most recent
years and reasonably expect to reach the same income level
in the current year;
_ I am a person who is subscribing to purchase $150,000 or
more of the Securities, and this investment does not exceed
10% of my personal net worth or my joint net worth with my
spouse;
_ The undersigned is an organization described in Section
501(c)(3) of the Internal Revenue Code of 1986 as amended
(I.E., tax exempt entities), a corporation, a trust, a
Massachusetts or similar business trust, or a partnership,
not formed for the specific purpose of acquiring Securities,
with total assets in excess of $5 million and the investment
decisions of which are directed by one or more persons able
to make the representation set forth in Section 8(e) above;
_ The undersigned is an employee benefit plan within the
meaning of Title I of the Employment Retirement Income
Security Act of 1974, the investment decisions of which are
made by a plan fiduciary, as defined in Section 9(21) of
such Act, which is either a bank, a savings and loan
association, an insurance company, or a registered
investment advisor;
-14-
<PAGE>
_ The undersigned is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income
Security Act of 1974, which either has total assets in
excess of $5 million or is a self-directed plan, the
investment decisions of which are made solely by one or more
persons able to make the representations contained in
Section 8(e) above and who fits into one of the above
categories; or
_ The undersigned is an entity in which all of the equity
owners are accredited investors, falling into one or more of
the categories described above.
11. CERTIFICATION AS TO TAXPAYER IDENTIFICATION NUMBER AND BACKUP
WITHHOLDING AND NON-FOREIGN STATUS-SUBSTITUTE FORM W-9; SOCIAL SECURITY OR
TAX ID NUMBER. Under penalties of perjury, the Management Investor certifies by
his or her signature below that (a) the number shown on this form is his or her
correct taxpayer identification number; (b) the Management Investor is not
subject to backup withholding either because (i) the Management Investor is
exempt from backup withholding, (ii) the Management Investor has not been
notified that the Management Investor is subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the Internal
Revenue Service has notified the Management Investor that the Management
Investor is no longer subject to backup withholding; (c) the Management Investor
is not a non-resident alien for purposes of U.S. income taxation; (d) the
Management Investor's home address (individual) or business address (entity) set
forth in this Agreement is correct; and (e) if the Management Investor becomes a
non-resident alien, the Management Investor will notify the Company within 60
days of doing so.
IF THE MANAGEMENT INVESTOR HAS BEEN NOTIFIED BY THE IRS THAT THE MANAGEMENT
INVESTOR IS PRESENTLY SUBJECT TO BACKUP WITHHOLDING, STRIKE OUT THE LANGUAGE
UNDER (b) ABOVE BEFORE SIGNING.
12. TYPE OF OWNERSHIP FOR THE SHARES TO BE ACQUIRED.
(Check the Appropriate Box)
_ INDIVIDUAL OWNERSHIP BY UNMARRIED PERSON
_ OWNERSHIP BY MARRIED PERSON AS SOLE AND SEPARATE PROPERTY
(if the Management Investor lives in a state which has
community property
-15-
<PAGE>
laws, signatures of both spouses may be required)
_ COMMUNITY PROPERTY (signatures of both spouses are required)
_ JOINT TENANTS WITH RIGHT OF SURVIVORSHIP (both parties must
sign)
_ TENANTS-IN-COMMON (both parties must sign)
-16-
<PAGE>
MANAGEMENT INVESTOR ELECTION AND SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the latest date written below.
MANAGEMENT INVESTOR:
No. of Warrants: 5,000
- ------------------------------------- ------------------------------------
Management Investor (Print or Business Name
Type Name)
- ------------------------------------- ------------------------------------
Signature Business Address
- ------------------------------------- ------------------------------------
Social Security or Tax ID # City and State Zip
- ------------------------------------- ------------------------------------
Residence Street Address Business Telephone
- -------------------------------------
City and State Zip Mail Correspondence to:
__ Residence __ Business
- -------------------------------------
Residence Telephone
- -------------------------------------
Other Investor (Print or Type
Name)
- -------------------------------------
Signature
- -------------------------------------
Social Security or Tax ID #
- -------------------------------------
Residence Street Address
- -------------------------------------
City and State Zip
- -------------------------------------
Residence Telephone
-17-
<PAGE>
COMPANY:
Accepted as of this 3rd day of March, 1997.
INTERNATIONAL LOGISTICS LIMITED
a Delaware corporation
By: ___________________________________
Roger E. Payton
Its: President and
Chief Executive Officer
-18-
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE PERIODS ENDED
---------------------
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
EARNINGS
Loss before extraordinary item and taxes $(23,234)
Add (Subtract):
Fixed Charges 12,987
Share of loss in Equity Investments 1,078
Adjusted Earnings (9,169)
--------
--------
FIXED CHARGES
Interest Charges 11,887
Amortization of Debt issuance costs 1,100
--------
Total Fixed Charges $ 12,987
--------
--------
Ratio of Earnings to fixed charges -
--------
--------
Earnings insufficient to cover fixed charges $ 22,156
--------
--------
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 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
March 25, 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. However, it should be noted that Price Waterhouse has not
prepared or certified such "Selected Financial Data".
Price Waterhouse
London
England
March 24, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (as to all references to our Firm) included in or made as part of
this Amendment No. 1 to Registration Statement on Form S-4 of International
Logistics Limited.
March 24, 1998 /s/ Arthur Anderson LLP
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
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 OTHE REGISTRANTS*
(Exact name of Registrant as specified in its charter)
Delaware 22-3438013
(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
(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.
FIRST TRUST NATIONAL ASSOCIATION
/s/ James T. Kaufman
--------------------------------
James T. Kaufman
Assistant 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: March 17, 1998
FIRST TRUST NATIONAL ASSOCIATION
/s/ James T. Kaufman
--------------------------------
James T. Kaufman
Assistant Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES F-5 AND F-6 OF THE COMPANYS
FORM S-4 FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE PERIOD ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 37,909
<SECURITIES> 0
<RECEIVABLES> 261,145
<ALLOWANCES> 17,710
<INVENTORY> 0
<CURRENT-ASSETS> 319,732
<PP&E> 57,682
<DEPRECIATION> 5,875
<TOTAL-ASSETS> 485,766
<CURRENT-LIABILITIES> 301,809
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 22,917
<TOTAL-LIABILITY-AND-EQUITY> 485,766
<SALES> 978,249
<TOTAL-REVENUES> 978,249
<CGS> 759,049
<TOTAL-COSTS> 994,180
<OTHER-EXPENSES> 1,278
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,576
<INCOME-PRETAX> (25,785)
<INCOME-TAX> (8,420)
<INCOME-CONTINUING> (17,365)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,293)
<CHANGES> 0
<NET-INCOME> (19,658)
<EPS-PRIMARY> (9.59)
<EPS-DILUTED> 0
</TABLE>
