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As filed with the Securities and Exchange Commission on June 18, 1997.
REGISTRATION NO. 333-24689
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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LOOMIS, FARGO & CO.
(Exact Name of Co-Registrant as Specified in its Charter)
DELAWARE 76-0521092
(State or Other (I.R.S. Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
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<S> <C> <C> <C>
File No. 333-24689-01 File No. 333- 24689-02 File No. 333-24689-03 File No. 333-24689-04
LFC HOLDING CORPORATION LOOMIS, FARGO & CO. LFC ARMORED LOOMIS, FARGO & CO.
(Exact Name of Co-Registrant (Exact Name of Co-Registrant OF TEXAS INC. OF PUERTO RICO
as Specified in its Charter) as Specified in its Charter) (Exact Name of Co-Registrant (Exact Name of Co-Registrant
as Specified in its Charter) as Specified in its Charter)
DELAWARE TEXAS TEXAS TENNESSEE
(State or other jurisdiction of (State or otherjurisdiction of (State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation ororganization) incorporation or organization) incorporation or organization)
75-2371825 75-0117200 58-1884701 66-0215016
(I.R.S. Employer (I.R.S. Employer (I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.) Identification No.) Identification No.)
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4214
(Primary Standard Industrial Classification Code Number)
JAMES B. MATTLY
2500 CITYWEST BLVD., SUITE 900 2500 CITYWEST BLVD., SUITE 900
HOUSTON, TEXAS 77042 (713) 435-6700 HOUSTON, TEXAS 77042 (713) 435-6700
(Address, including Zip Code, and (Name, Address, including Zip Code,
Telephone Number, including Area Code and Telephone Number, including Area
of Co-Registrants' Principal Executive Code, of Agent for Service)
Offices)
COPY TO:
MARY R. KORBY
WEIL, GOTSHAL & MANGES LLP
100 CRESCENT COURT
SUITE 1300
DALLAS, TEXAS 75201
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933, CHECK THE FOLLOWING BOX. [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING
BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [_]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [_]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [_]
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THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
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.
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<PAGE>
LOOMIS, FARGO & CO.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE LOCATION IN
THE PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-1
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FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<C> <C> <S>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Cover Page of
Registration Statement;
Outside Front Cover Page
of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside
Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................... Prospectus Summary; Risk
Factors; Business;
Selected Historical
Financial Information;
Pro Forma Combined
Financial Information
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Not Applicable
6. Dilution........................................ Not Applicable
7. Selling Security Holders........................ Not Applicable
8. Plan of Distribution............................ Front Cover Page of
Prospectus; The Exchange
Offer; Plan of
Distribution
9. Description of Securities to be Registered...... Description of New Notes
10. Interests of Named Experts and Counsel.......... Not Applicable
11. Information with Respect to the Registrant...... Cover Page of
Registration Statement;
Prospectus Summary; Risk
Factors; Business; The
Transactions; Selected
Historical Financial
Information; Pro Forma
Combined Financial
Information; Management's
Discussion and Analysis
of Financial Condition
and Results of
Operations; Management;
Security Ownership of
Certain Beneficial Owners
and Management; Certain
Relationships and Related
Transactions; Description
of New Credit Facility;
Legal Matters
12. Disclosure of Commission Position on
Indemnification for Securities Act Not Applicable
Liabilities....................................
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PROSPECTUS
OFFER FOR ALL OUTSTANDING
10% SENIOR SUBORDINATED NOTES DUE 2004
IN EXCHANGE FOR
10% SENIOR SUBORDINATED NOTES DUE 2004
OF
LOOMIS, FARGO & CO.
Loomis, Fargo & Co., a Delaware Corporation (the "Company"), and the
Guarantors (as hereinafter defined) hereby offer, upon the terms and subject
to the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), to exchange
$1,000 principal amount of registered 10% Senior Subordinated Notes Due 2004
(the "New Notes") issued by the Company, for each $1,000 principal amount of
unregistered 10% Senior Subordinated Notes Due 2004 (the "Old Notes") issued
by the Company, of which an aggregate principal amount of $85,000,000 is
outstanding. The form and terms of the New Notes are identical to the form and
terms of the Old Notes except that (i) interest on the New Notes shall accrue
from the date of issuance of the Old Notes, and (ii) the New Notes are being
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and will not bear any legends restricting their transfer. The New Notes
will evidence the same debt as the Old Notes and will be issued pursuant to,
and entitled to the benefits of, the indenture governing the Old Notes. The
Exchange Offer is being made in order to satisfy certain contractual
obligations of the Company. See "The Exchange Offer" and "Description of New
Notes." The New Notes and the Old Notes are sometimes collectively referred to
herein as the "Notes."
Interest on the New Notes will be payable semi-annually on January 15 and
July 15 of each year, commencing January 15, 1998. The Company will not be
required to make any sinking fund payment with respect to the New Notes. The
New Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after January 15, 2001 at the redemption prices set
forth herein, plus accrued and unpaid interest and Liquidated Damages (as
defined), if any, to the date of redemption. In addition, prior to January 15,
2000, the Company may on any one or more occasions redeem up to $25.0 million
in principal amount of the Notes at a redemption price equal to 110% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of redemption, with the net proceeds of
one or more public offerings of common stock, par value $.01 per share
("Common Stock"), of the Company; provided that at least $60.0 million in
aggregate principal amount of the Notes remains outstanding immediately after
the occurrence of such redemption. See "Description of New Notes--Optional
Redemption."
The net proceeds from the sale of the Old Notes (the "Original Offering")
were used to effect the business combination of Loomis Armored Inc. ("Loomis
Armored"), a wholly-owned subsidiary of Loomis Holding Corporation ("Loomis"),
and Wells Fargo Armored Service Corporation ("Wells Fargo Armored"), a wholly-
owned subsidiary of Borg-Warner Security Corporation ("Borg-Warner"), and
related transactions (together, the "Transactions"). Following the
consummation of the Transactions, the Company is owned 51% by a Delaware
business trust, the beneficiaries of which are the former stockholders of
Loomis (the "Business Trust"), and 49% by Borg-Warner, through its wholly-
owned subsidiary Wells Fargo Armored. See "The Transactions."
In the event of a Change of Control (as defined), holders of the New Notes
will have the right to require the Company to purchase their New Notes, in
whole or in part, at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to
the date of purchase.
The New Notes will be general unsecured obligations of the Company
subordinate in right of payment to all existing and future Senior Debt (as
defined) of the Company. The Company conducts its operations solely through
its subsidiaries. Certain of the Company's subsidiaries (the "Guarantors")
will guarantee the New Notes (collectively, the "Subsidiary Guarantees") that
will be subordinated in right of payment to all existing and future senior
debt of such Guarantors. As of March 31, 1997, there was approximately $165.7
million of total debt of the Company and its subsidiaries, $73.5 million of
which was Senior Debt, and there was not any indebtedness of the Company
expressly subordinated by its terms in right and priority of payment to the
Notes; in addition, there was approximately $29.9 million available to be
drawn by the Company under the New Credit Facility.
------------------------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
NEW NOTES.
------------------------------------------------
The Company and the Guarantors will accept for exchange any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on July 21, 1997, unless extended (as so extended, the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer."
In order for a holder of Old Notes to participate in the Exchange Offer,
such holder must represent to the Company that, among other things, (i) the
New Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving New Notes, whether or not
such person is the holder of the Old Notes, (ii) neither the holder nor any
such other person is engaging in or intends to engage in a distribution of
such New Notes, (iii) neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Notes, and (iv) neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 promulgated under the
Securities Act, of the Company. See "The Exchange Offer--Purpose and Effect."
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 those New Notes. The letter of transmittal
accompanying this Prospectus (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, for a period of one year after the date of
this Prospectus, to make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
No public market has existed for the Old Notes before the Exchange Offer.
The Company and the Guarantors currently do not intend to list the New Notes
on any securities exchange or to seek approval for quotation through any
automated quotation system, and no active public market for the New Notes is
currently anticipated. The Company and the Guarantors will pay all the
expenses incident to the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange pursuant to the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE 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 June 20, 1997.
<PAGE>
AVAILABLE INFORMATION
As a result of the filing of its Registration Statement with the Securities
and Exchange Commission (the "Commission"), the Company and the Guarantors
will become subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will be required to file reports and other information
with the Commission. Such reports and other information can be inspected and
copied at the principal office of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the following Regional Offices of
the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60611 and New York Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.
The Company and the Guarantors have filed with the Commission a Registration
Statement (which term shall encompass any amendments thereto) on Form S-1
under the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement and the exhibits thereto, to which reference is hereby made.
Although the Company believes that statements made in this Prospectus as to
the contents of any contract, agreement, or other document describe all
material elements of such documents, such statements are not necessarily
complete. With respect to each such contract, agreement, or other document
filed as an exhibit to the Registration Statement, reference is hereby made to
such exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Company will furnish holders of the securities offered hereby with
annual reports containing, among other information, audited financial
statements certified by an independent public accounting firm and quarterly
reports containing unaudited financial information for the first three
quarters of each fiscal year. The Company will also furnish such other reports
as it may determine or as may be required by law or by the Indenture. Based
upon certain provisions of the Staff Accounting Bulletins of the Commission
and interpretations of the staff of the Commission set forth in no-action
letters issued to third parties unrelated to the Company and the Guarantors,
the Guarantors do not intend to file separate periodic and other reports with
the Commission under the Exchange Act because (i) the Company is a holding
company with no independent operations, (ii) the Guarantors are direct and
indirect wholly-owned consolidated subsidiaries of the Company that will fully
and unconditionally guarantee the New Notes on a joint and several basis, and
(iii) the Guarantors comprise all of the Company's direct and indirect
subsidiaries.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
CERTAIN OF THE MATTERS DISCUSSED UNDER THE CAPTIONS "PROSPECTUS SUMMARY,"
"RISK FACTORS," "PRO FORMA COMBINED FINANCIAL INFORMATION," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS FOR PURPOSES OF THE SECURITIES ACT AND THE EXCHANGE ACT AND AS SUCH
MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY
CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS
THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE DISCLOSED IN
THIS PROSPECTUS ("CAUTIONARY STATEMENTS"), INCLUDING, WITHOUT LIMITATION,
THOSE STATEMENTS MADE IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS
INCLUDED UNDER "RISK FACTORS" AND OTHERWISE HEREIN. ALL WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE EXPRESSLY QUALIFIED
IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, (i) references to
"Loomis" herein mean Loomis Holding Corporation prior to the consummation of
the Transactions, (ii) references to "Loomis Armored" herein mean Loomis
Armored Inc. prior to the consummation of the Transactions, (iii) references to
"Wells Fargo Armored" herein mean Wells Fargo Armored Service Corporation prior
to the consummation of the Transactions, and (iv) references to "Loomis, Fargo
& Co." or the "Company" herein mean the combined entity, including Loomis,
Loomis Armored and the assets transferred to the Company by Wells Fargo Armored
pursuant to the Transactions. Unless otherwise specified, all financial,
statistical and other data regarding the Company contained herein is presented
on a pro forma basis after giving effect to the Original Offering, the
Transactions, borrowings under the New Credit Facility and the application of
the proceeds therefrom.
THE COMPANY
Loomis, Fargo & Co., created through the combination of Loomis Armored and
Wells Fargo Armored, is one of the largest armored transport companies in the
United States. Loomis, Fargo & Co. operates over 150 branches, employs
approximately 8,700 persons, and utilizes a fleet of approximately 2,700
armored vehicles nationwide to provide armored ground transport services,
automated teller machine ("ATM") services, and cash vault and related services
to financial institutions and commercial customers. Serving all 50 states and
Puerto Rico, the Company is one of only two armored transport companies in the
United States that provides these services on a national basis. Management
believes that the combination of Loomis Armored and Wells Fargo Armored into a
national service provider favorably positions the Company for additional
revenue opportunities as large financial and retail institutions are
increasingly seeking vendors capable of providing an array of services on a
national basis. In addition, management believes the proliferation of ATMs and
the trend of banks and other financial and retail institutions towards
outsourcing cash vault and related services will contribute to the Company's
growth prospects. For the twelve months ended December 31, 1996 and the three
months ended March 31, 1997, the Company would have had pro forma revenues of
$373.7 million and $95.2 million, respectively, and earnings before interest,
taxes, depreciation and amortization ("EBITDA") of $35.2 million and $4.6
million, respectively.
The Company is implementing the management principles and decentralized
structure utilized by the Loomis Armored management team, which have proven to
be highly effective in reducing employee turnover, increasing customer
satisfaction and decreasing "cost of risk," which consists of the cost of cargo
and casualty losses, related insurance costs and claims administration
expenses. Since implementing this strategy at Loomis Armored in 1991, Loomis
Armored's total cost of risk decreased from 10.9% of revenues for the year
ended June 30, 1992 to 7.4% of revenues for the twelve months ended December
31, 1996, and EBITDA as a percent of revenues increased from 2.4% to 7.5% over
the same period. Management believes that by combining the business strategy
and risk management skills of Loomis Armored with the larger customer base and
leading ATM Services (as defined) position of Wells Fargo Armored, the Company
will be well-positioned to capitalize on the numerous opportunities developing
in the armored transport industry.
The Company provides a wide range of services within the following
categories:
Traditional Armored Transport. The Company's armored fleet transports
currency and other valuables in sealed packages between commercial
enterprises and banks, between banks, and from the Federal Reserve Banks to
commercial banks. The Company provides traditional armored transport
services to numerous banks including Bank of America and Wells Fargo Bank
as well as national and regional
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businesses such as Wal-Mart Stores, Inc., Kmart Corporation and Kroger.
Traditional armored transport represented approximately 62.9% of the
Company's revenues for the twelve months ended December 31, 1996, making it
the largest component of the Company's business.
ATM Services. The Company provides cash replenishment, deposit pick-up,
and first-line maintenance services (collectively, "ATM Services") to over
28,000 ATM locations nationwide, making it the leading provider of ATM
Services in the United States. The total number of ATM locations in the
United States is expected to increase significantly over the next five
years. Additionally, many ATM owners have begun outsourcing the servicing
and maintenance of ATM locations formerly serviced and maintained
internally. Management believes these trends provide the Company with
further opportunities to build upon its leading position in the ATM
Services industry by offering broad geographic coverage as well as a high
level of service. The Company's ATM customers include NationsBank, NCR
Corporation and Electronic Data Systems Corporation. ATM Services
represented approximately 29.9% of the Company's revenues for the twelve
months ended December 31, 1996, and have increased at a compounded annual
growth rate of approximately 12.3% over the three year period ended
December 31, 1996.
Cash Vault and Related Services. The Company provides a wide array of
cash vault and related services ranging from passive, secured storage of
valuables such as currency, securities and computer chips to active
services such as deposit processing and consolidation, change order
preparation, coin wrapping and storage and food stamp processing. In
addition, the Company's cash vault capacity is a key element in supporting
services to larger customers and ATM networks. Cash vault and related
services represented approximately 7.2% of the Company's revenues for the
twelve months ended December 31, 1996.
The Company's principal executive offices are located at 2500 CityWest Blvd.,
Suite 900, Houston, Texas 77042, and its telephone number at such address is
(713) 435-6700.
INDUSTRY OVERVIEW
Management estimates that the ten largest armored transport companies in the
United States have aggregate annual revenues of approximately $1.0 billion. The
ground transportation portion of the armored transport industry, currently the
single largest sector, has historically maintained moderate growth. ATM
services represent the most dynamic growth sector of the armored transport
industry, with the total number of ATM locations served by the armored
transport industry expected to increase significantly over the next five years.
This expected growth results from a fundamental change in the retail delivery
channel strategy of banks in the United States as traditional, full service
bank branches are being replaced by ATMs, drive-through service centers and
banks located in supermarkets and other nontraditional locations. In addition,
while cash vault and related services currently represent a relatively small
portion of the armored transport industry's revenues, this market is also
expected to expand over the next several years as banks and other financial
institutions continue the trend toward outsourcing such services.
POST-COMBINATION STRATEGY
Management believes that Loomis, Fargo & Co. has several distinct competitive
strengths within the armored transport industry, including a strong national
presence, the leading ATM Services operation, and a management team experienced
in maximizing service value, reducing cost of risk and improving cash flow and
profitability. The Company's business strategy is to capitalize on its
competitive strengths by implementing the following initiatives:
Promote the National Presence of Loomis, Fargo & Co. The Company provides
its services to a much larger geographic area than either Loomis Armored or
Wells Fargo Armored serviced on a stand-alone
2
<PAGE>
basis. With services in all 50 states and Puerto Rico, the Company is able
to expand its business with national financial institutions and retail
customers which require armored ground transport, ATM Services and/or cash
vault and related services in numerous locations across the country.
Management believes that the ability to provide nationwide service is
becoming more important in the armored transport industry as banks are
expanding geographically through the continuing consolidation of the
banking industry and as other institutions are shifting toward centralized
purchasing of goods and services. As one of only two armored transport
providers in the United States with nationwide service, the Company is
well-positioned to augment its base of customers requiring broad geographic
coverage. The Company has dedicated a segment of its sales force to manage
national account relationships.
Focus on Growing ATM Services Market. The Company provides ATM Services
to over 27,000 ATM locations nationwide, making it the leading provider of
ATM Services in the United States. Both the number of ATM locations and the
types of items being dispensed through ATMs, such as travelers checks,
lottery tickets, coupons, postage stamps and other valuables, continue to
grow. Additionally, many ATM owners have begun outsourcing the servicing
and maintenance of ATM locations formerly serviced and maintained
internally. The Company uses its proprietary automated national dispatching
system to coordinate customer requests, provide service data to customers
and dispatch service technicians nationwide. To complement the national
dispatching system, the Company has developed an automated network cash
management system that optimizes ATM cash loads and provides ATM balance
reporting. With its broad range of services and automated systems, the
Company intends to build upon its leading position in the ATM Services
market.
Reduce Cost of Risk and Emphasize Risk Management Partnership with
Customers. Management intends to improve cash flow and profitability not
only by reducing the Company's overall cost of risk but also by using a
risk management partnership approach with its customers as a means of
differentiating the Company from its competitors. A comprehensive risk
management program which emphasizes incident avoidance and loss
minimization is being implemented throughout the Company's operations. The
program focuses on (i) employee culture and attitude, (ii) selectivity in
hiring, (iii) operating procedures designed to recognize and avoid
potential danger or accidents, (iv) safety and security procedures,
including training in the proper use of firearms and the operation of the
Company's vehicles, (v) limits on the amounts of cash or other valuables
contained in a branch or vehicle or under the control of an employee, (vi)
utilization of three-person crews and surveillance or chase cars in high-
risk areas, and (vii) an extensive security oversight program, including
surveillance and evaluation by AMSEC, an independent, international
security firm. This risk management program produced significant cost
savings with respect to cargo loss and casualty liability claims for Loomis
Armored over the five years prior to the consummation of the Transactions.
To provide the quality of service necessary to enhance customer loyalty in
support of this business strategy, the Company emphasizes an operating
philosophy dedicated to:
Attracting and Retaining Quality, Loyal Employees. Management believes
that a loyal employee base directly contributes to reducing cost of risk
and improving customer service and that the combination of selectivity in
hiring, a commitment to employee training, responsibility and safety, and
competitive wage and benefit packages will enable the Company to attract
and retain quality, loyal employees. As a result of Loomis Armored's
commitment to these principles, its employee turnover rate decreased from
41% for the twelve months ended December 31, 1992 to 29% for the twelve
months ended December 31, 1996.
Encouraging Employee Initiative. The Company operates so that many of the
daily operational decisions such as local sales, routing, hiring, and fleet
maintenance are made at the branch level while the Company's corporate and
five regional management teams support the branches, particularly with
respect to pricing and risk management. This delegation of responsibility
is expected to improve efficiency and responsiveness to customer needs,
while maintaining Company-wide security, safety and quality of revenue
standards. Management believes that this structure, together with an
incentive program that links a branch
3
<PAGE>
manager's compensation to branch profitability, gives branch managers and
other employees a sense of empowerment and accountability. This structure
was successfully implemented at Loomis Armored's operations and is
currently being implemented at all of the Company's locations.
CONSOLIDATION SAVINGS
The Company has developed an integration plan focused on reducing corporate
overhead and consolidating branches in overlapping service areas. The Company
expects to achieve cost savings in consolidation through (i) adopting the most
effective business practices of Loomis Armored and Wells Fargo Armored, (ii)
consolidating corporate, regional and branch offices, and (iii) achieving
routing and servicing efficiencies as well as reducing occupancy costs by
combining operations in the areas where both Loomis Armored and Wells Fargo
Armored previously operated.
Management estimates that, upon successful completion of its consolidation
plan over the 12-month period following the consummation of the Transactions,
the Company will realize $7.5 million in cost savings on an annualized basis
(approximately $3.4 million of which is related to headcount reduction and $3.7
million of which is related to the elimination of management fees) compared to
the cost of operating Loomis Armored and Wells Fargo Armored as separate
entities. There can be no assurance, however, that all of such savings will
occur as planned. The Company's actual consolidation savings could differ
materially from management's estimate. Factors that could cause or contribute
to such differences include those discussed elsewhere in this Prospectus,
including, but not limited to, risks and uncertainties relating to leverage,
risks inherent in the armored transport industry, issues concerning integration
of operations and the ability of the Company to attract and retain qualified
employees. See "Risk Factors--Implementation of Post-Combination Strategy," "--
Employees" and "Pro Forma Combined Financial Information."
4
<PAGE>
THE TRANSACTIONS
The Business Combination. On November 28, 1996, Borg-Warner, Wells Fargo
Armored, the Company, Loomis, Loomis Armored and the Business Trust entered
into the Contribution Agreement (as defined), pursuant to which, on January 24,
1997, the Business Trust contributed all of the issued and outstanding common
stock of Loomis and Wells Fargo Armored contributed substantially all of its
assets and certain liabilities to the Company in exchange for 51% and 49%,
respectively, of the Common Stock and certain other consideration. See "The
Transactions--The Business Combination."
The Financing. The Transactions were financed through the establishment of
the New Credit Facility and the issuance of the Old Notes. The following table
illustrates the sources and uses of cash in connection with the Transactions.
See "The Transactions--The Business Combination." The Transactions were
consummated on January 24, 1997.
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF CASH
New Credit Facility (1)...................................... $ 73.3
10% Senior Subordinated Notes................................ 85.0
------
Total sources of cash..................................... $158.3
======
USES OF CASH
Retirement of Loomis and Loomis Armored obligations:
Existing indebtedness (2) (3).............................. $ 29.6
Accrued management fees (4)................................ 1.6
Casualty and employee claims (5)........................... 8.5
Payments to the Loomis Indemnity Trust....................... 4.7
Payments to Wells Fargo Armored and related entities (6)(7).. 106.6
Fees and expenses............................................ 5.3
Payment escrowed to retire Wells Fargo Armored IRB and
accrued interest............................................ 1.1
Contribution to the Operating Subsidiary for working capital
purposes.................................................... 0.9
------
Total uses of cash........................................ $158.3
======
</TABLE>
- --------
(1) The New Credit Facility provides initially for aggregate borrowings of
$115.0 million and matures in January 2002. As of March 31, 1997,
approximately $11.7 million in letters of credit were outstanding under the
New Credit Facility, leaving approximately $29.9 million in available
borrowing capacity under the New Credit Facility.
(2) Includes (i) $10.3 million of 14% senior subordinated notes that were
scheduled to mature on September 30, 1999, including accrued interest, (ii)
$9.2 million of a 9% junior subordinated note that was scheduled to mature
on September 30, 1999, including accrued interest (iii) $3.3 million of a
term loan that was scheduled to mature on September 30, 1999, including
accrued interest, and (iv) $6.8 million in borrowings under Loomis
Armored's credit facility.
(3) $3.5 million of the borrowings by Loomis Armored under its credit facility
were used to redeem the Loomis Preferred Stock (as defined) immediately
prior to the Closing (as defined). See "The Transactions--The Business
Combination."
(4) Accrued management fees were paid at Closing to an affiliate of Loomis
pursuant to a Financial Advisory Agreement (as defined). See "Certain
Relationships and Related Transactions--Financial Advisory Agreement."
(5) Represents a lump sum payment on behalf of the Business Trust to CIGNA
Insurance Company and related entities pursuant to an Early Program Close-
Out Agreement dated January 24, 1997, related to insuring and managing
casualty and employee claims of Loomis incurred prior to the Closing (the
"Early Program Close-Out Agreement"). See "The Transactions--The Business
Combination" and "Pro Forma Combined Financial Information."
(6) Includes approximately $1.4 million of reimbursement for fees and expenses
related to the Transactions.
(7) A portion of such consideration was paid at Closing by the Company to Borg-
Warner and/or one or more of its wholly-owned subsidiaries to satisfy
certain intercompany indebtedness of Wells Fargo Armored assumed by the
Company.
5
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer applies to $85.0 million aggregate principal amount of the
Old Notes. The form and terms of the New Notes are the same as the form and
terms of the Old Notes except that (i) interest on the New Notes shall accrue
from the date of issuance of the Old Notes, and (ii) the New Notes are being
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer. The New Notes will evidence the same debt as the
Old Notes and will be entitled to the benefits of the Indenture pursuant to
which the Old Notes were issued. The Old Notes and the New Notes are sometimes
referred to collectively herein as the "Notes." See "Description of New Notes."
The Exchange Offer........ $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, Old Notes representing $85.0
million aggregate principal amount are outstanding.
The terms of the New Notes and the Old Notes are
substantially identical.
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to the Company and the
Guarantors, the Company and the Guarantors believe
that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any
person receiving the New Notes, whether or not that
person is the holder (other than any such holder or
such other person that is an "affiliate" of the
Company or any Guarantors 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 (i) the New Notes are acquired in the ordinary
course of business of that holder or such other
person, (ii) neither the holder nor such other
person is engaging in or intends to engage in a
distribution of the New Notes, and (iii) neither
the holder nor such other person has an arrangement
or understanding with any person to participate in
the distribution of the New Notes. See "The
Exchange Offer--Purpose and Effect." Each broker-
dealer that receives New Notes for its own account
in exchange for Old Notes, where those Old Notes
were acquired by the broker-dealer as a result of
its market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of these
New Notes. See "Plan of Distribution."
Registration Rights The Old Notes were sold by the Company on January
Agreement................ 24, 1997, in a private placement. In connection
with the sale, the Company entered into a
Registration Rights Agreement with the purchasers
(the "Registration Rights Agreement") providing for
the Exchange Offer. See "The Exchange Offer--
Purpose and Effects."
Expiration Date...........
The Exchange Offer will expire at 5:00 p.m., New
York City time, July 21, 1997, or such later date
and time to which it is extended.
Withdrawal................ The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Any Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer.
6
<PAGE>
Interest on the New Notes
and Old Notes............
Interest on each New Note will accrue from the most
recent date to which interest has been paid or, if
no interest has been paid, from the date of
issuance of the Old Note for which the New Note is
exchanged.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Company. See "The Exchange Offer--Certain
Conditions to Exchange Offer."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Notes and any other required documentation,
to the Exchange Agent at the address set forth in
the Letter of Transmittal. Persons holding Old
Notes through the Depository Trust Company ("DTC")
and wishing to accept the Exchange Offer must do so
pursuant to the DTC's Automated Tender Offer
Program, by which each tendering Participant will
agree to be bound by the Letter of Transmittal. By
executing or agreeing to be bound by the Letter of
Transmittal, each holder will represent to the
Company that, among other things, (i) 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, whether or not
such person is the holder of the Old Notes, (ii)
neither the holder nor any such other person is
engaging in or intends to engage in a distribution
of such New Notes, (iii) neither the holder nor any
such other person has an arrangement or
understanding with any person to participate in the
distribution of such New Notes, and (iv) neither
the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated
under the Securities Act, of the Company. Pursuant
to the Registration Rights Agreement, the Company
and each of the Guarantors are required to use
their reasonable best efforts to file a "shelf"
registration statement for a continuous offering
pursuant to Rule 415 under the Securities Act in
respect of the Old Notes (and cause such shelf
registration statement to be declared effective by
the Commission and keep it continuously effective,
supplemented and amended for prescribed periods) if
(i) the Company is not required to file an Exchange
Offer Registration Statement (as defined in the
Registration Rights Agreement) or to consummate the
Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy,
or (ii) any holder of Old Notes is prohibited from
participating in the Exchange Offer by applicable
law or Commission policy, or such holder would be
required to deliver a prospectus in connection with
any resale of New Notes acquired in the Exchange
Offer and the prospectus contained in the Exchange
Offer Registration Statement would not be
appropriate or available for such resales, or such
holder is a broker-dealer that holds Old Notes
acquired directly from the Company or its
affiliates.
7
<PAGE>
Acceptance of Old Notes
and Delivery of New The Company will accept for exchange any and all
Notes.................... Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on 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."
Exchange Agent............
Marine Midland Bank is serving as Exchange Agent in
connection with the Exchange Offer.
Federal Income Tax The exchange pursuant to the Exchange Offer should
Considerations........... not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Effect of Not Tendering...
Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer
thereof. The Company will have no further
obligation to provide for the registration under
the Securities Act of such Old Notes.
8
<PAGE>
TERMS OF NEW NOTES
Securities Offered........ $85.0 million aggregate principal amount of 10%
Senior Subordinated Notes due 2004.
Issuer.................... Loomis, Fargo & Co.
Interest Payment Dates.... January 15 and July 15, commencing July 15, 1997.
Maturity.................. January 15, 2004.
Sinking Fund Provisions... None.
Optional Redemption....... The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after January 15, 2001 at the Redemption Prices (as
defined) set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to
the date of redemption. In addition, prior to
January 15, 2000, the Company may on any one or
more occasions redeem up to $25.0 million aggregate
principal amount of the New Notes at a Redemption
Price equal to 110% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of
redemption, with the net proceeds of one or more
public offerings of Common Stock; provided that at
least $60.0 million principal amount of the Notes
remains outstanding immediately after the
occurrence of such redemption. See "Description of
New Notes--Optional Redemption."
Change of Control......... In the event of a Change of Control (as defined),
the holders of the New Notes will have the right to
require the Company to purchase their New Notes at
a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of
purchase.
Ranking................... The New Notes will be general unsecured obligations
of the Company, subordinate in right of payment to
all existing and future Senior Debt of the Company,
which will include all indebtedness incurred under
the New Credit Facility. As of March 31, 1997,
there was approximately $165.7 million of total
debt of the Company and its subsidiaries, $73.5
million of which was Senior Debt, and there was not
any indebtedness of the Company expressly
subordinated to the Notes by its terms in right and
priority of payment; in addition, there was
approximately $29.9 million available to be drawn
by the Company as secured Senior Debt under the New
Credit Facility. See "Risk Factors--Subordination,"
"Capitalization" and "Description of New Notes--
Subordination."
Subsidiary Guarantees..... The Company's payment obligations under the New
Notes will be jointly and severally guaranteed by
the Guarantors. The Subsidiary Guarantees will be
subordinated in right of payment to all existing
and future
senior debt of each Guarantor, which include
guarantees of all indebtedness incurred under the
New Credit Facility. See "Description of New
Notes--Subsidiary Guarantees."
9
<PAGE>
The indenture pursuant to which the New Notes will
Certain Covenants......... be issued (the "Indenture") will contain covenants
that, among other things, limit the ability of the
Company and its subsidiaries to: (i) incur
additional indebtedness; (ii) pay dividends or make
certain other restricted payments; (iii) enter into
transactions with affiliates; (iv) create certain
liens; (v) engage in certain sale and leaseback
transactions; (vi) make certain asset dispositions;
and (vii) merge or consolidate with, or transfer
substantially all of their assets to, another
person. See "Description of New Notes--Certain
Covenants."
Use of Proceeds........... There will be no cash proceeds to the Company from
the exchange of New Notes for Old Notes pursuant to
the Exchange Offer. The net proceeds from the
Original Offering were used, together with
borrowings under the New Credit Facility, to effect
the Transactions.
RISK FACTORS
In considering an investment in the New Notes offered hereby, the investor is
encouraged to consider many risk factors involved, including the Company's
leverage and debt service, subordination of the New Notes, the Company's
holding company structure, risks inherent in the armored transport industry,
the Company's implementation of its post-combination strategy, competition,
control of the Company by Borg-Warner and the Business Trust, considerations of
fraudulent conveyance and enforceability of the Subsidiary Guarantees,
environmental matters, restrictions imposed by the Indenture and New Credit
Facility, employee related issues, regulation and legal proceedings and the
absence of a public market for the New Notes. For a more detailed discussion of
these factors, see "Risk Factors" beginning on page 17.
10
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited Summary Pro Forma Combined Financial Information set forth
below should be read in conjunction with the unaudited Pro Forma Combined
Financial Information included elsewhere herein, and is based on the historical
financial statements of Loomis and Wells Fargo Armored and gives effect to (i)
the acquisition of substantially all of the assets and certain liabilities of
Wells Fargo Armored and other adjustments relating to the Transactions, (ii)
the sale of the Old Notes and borrowings under the New Credit Facility, and the
application of the net proceeds therefrom to repay certain indebtedness of
Loomis Armored, repay accrued management fees of Loomis and Loomis Armored,
fund a distribution to the Loomis Indemnity Trust, make a lump sum payment to
CIGNA Insurance Company and related entities pursuant to the Early Program
Close-Out Agreement on behalf of the Business Trust, and fund the purchase of
substantially all of the assets and certain liabilities of Wells Fargo Armored
pursuant to the Contribution Agreement, all as described in the Notes to Pro
Forma Combined Financial Information, and (iii) the redemption by Loomis of the
Loomis Preferred Stock. See "The Transactions--The Business Combination." The
unaudited Summary Pro Forma Combined Financial Information is intended for
informational purposes only and is not necessarily indicative of the future
financial position or results of operations of the Company had the transactions
described above occurred on the indicated dates or been in effect for the
period presented. The unaudited Summary Pro Forma Combined Financial
Information should be read in conjunction with, and is qualified in its
entirety by, the historical consolidated financial statements of Loomis and
Wells Fargo Armored, including the related notes thereto, included elsewhere
herein.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Revenues............................... $373,742 $95,221
Cost of operations:
Payroll and related expenses.......... 219,561 56,401
Vehicle expense....................... 50,022 12,834
Facilities expense.................... 16,862 4,148
Other operating expenses.............. 69,085 20,132
Gains associated with benefit plans... (954) --
Expenses related to the Transactions.. -- 1,139
-------- -------
Operating income....................... 19,166 567
Interest expense, net................. 15,847 3,915
-------- -------
Income (loss) before income taxes and
extraordinary item.................... 3,319 (3,348)
Income taxes........................... 108 25
-------- -------
Net income (loss) before extraordinary
item.................................. $ 3,211 $(3,373)
======== =======
Ratio of earnings to fixed charges
(1)................................... 1.2x --
OTHER DATA:
EBITDA (2)............................. $ 31,370 $ 4,561
EBITDA as a % of revenues.............. 8.4% 4.8%
Depreciation and amortization.......... $ 13,158 $ 3,994
Capital expenditures................... 11,811 696
SELECTED FINANCIAL RATIOS:
Ratio of EBITDA to cash interest
expense (3)........................... 2.2x 1.3x
Ratio of total debt to EBITDA.......... 5.2x 36.3x
</TABLE>
- --------
(1) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases, and
amortization of debt issuance costs and debt discount. For the three months
ended March 31, 1997, pro forma earnings were insufficient to cover fixed
charges by approximately $3,300.
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and excludes certain gains related to benefit plans of $954 in
1996. EBITDA is presented because it is commonly used by certain investors
and analysts to analyze and compare companies on the basis of operating
performance and to
11
<PAGE>
determine a company's ability to service and incur debt. EBITDA should not
be considered in isolation from or as a substitute for net income, cash
flows from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(3) Cash interest expense represents total interest expense for the twelve
months ended December 31, 1996 and the three months ended March 31, 1997
less (i) $910 and $252, respectively, of amortization of financing fees
and (ii) $523 and $127, respectively, of accretion of discount on non-
interest bearing NOL Note.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION--LOOMIS, FARGO & CO.
The summary historical financial data of Loomis, Fargo & Co., successor to
Loomis, set forth below for each of the three fiscal years in the period ended
June 30, 1996 and the six months ended December 31, 1996 has been derived from
the consolidated financial statements of Loomis, Fargo & Co. which have been
audited by Ernst & Young LLP, independent auditors. The summary financial
information for the six months ended December 31, 1995 and the three months
ended March 31, 1996 and 1997 are unaudited and in the opinion of the Company's
management reflects all adjustments, consisting only of normal recurring
accruals, considered necessary for a fair presentation of such data. The
results of operations for any interim period are not necessarily indicative of
results of operations for the fiscal year and should be read in conjunction
with, and are qualified in their entirety by, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Loomis, Fargo & Co."
and the financial statements of Loomis, Fargo & Co. included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
YEARS ENDED JUNE 30, DECEMBER 31, MARCH 31,
---------------------------- ---------------- -----------------
1994 1995 1996 1995 1996 1996 1997
-------- -------- -------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $106,447 $115,136 $119,455 $57,806 $65,765 $30,229 $ 79,892
Cost of operations:
Payroll and related
expenses.............. 72,447 77,270 79,974 38,029 43,031 19,629 47,632
Vehicle expense........ 13,583 13,815 14,035 7,010 7,637 3,565 10,423
Facilities expense..... 5,395 4,991 5,094 2,531 2,661 1,288 3,286
Other operating
expenses.............. 14,679 15,936 17,120 8,381 8,745 4,930 17,524
Expenses related to the
Transactions (1)...... -- -- -- -- -- -- 1,139
Gains associated with
benefit plans......... (1,677) -- (954) -- -- -- --
-------- -------- -------- ------- ------- ------- --------
Operating income....... 2,020 3,124 4,186 1,855 3,691 817 (112)
Interest expense, net.. 3,053 3,158 2,981 1,528 1,445 734 3,078
-------- -------- -------- ------- ------- ------- --------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle............. (1,033) (34) 1,205 327 2,246 83 (3,190)
Income taxes........... -- -- 78 25 50 -- 25
Cumulative effect of
change in accounting
principle............. (453) -- -- -- -- -- --
-------- -------- -------- ------- ------- ------- --------
Income (loss) before
extraordinary item.... (1,486) (34) 1,127 302 2,196 83 (3,215)
Extraordinary item
(2)................... -- -- -- -- -- -- (124)
-------- -------- -------- ------- ------- ------- --------
Net income (loss)...... (1,486) (34) 1,127 302 2,196 83 (3,339)
======== ======== ======== ======= ======= ======= ========
Ratio of earnings to
fixed charges (3)..... -- 1.0x 1.3x 1.2x 2.1x 1.1x --
BALANCE SHEET DATA (AT
PERIOD END):
Total assets........... $ 39,935 $ 38,879 $ 39,755 $36,449 $43,046 $37,744 $209,822
Total debt (4)......... 26,985 26,791 27,392 27,253 27,767 26,977 165,674
Common stockholders'
deficit............... (11,316) (11,350) (10,550) (11,048) (8,354) (10,725) (2,727)
OTHER DATA:
EBITDA (5)............. $ 7,423 $ 8,344 $ 8,118 $ 4,323 $ 5,752 $ 2,080 $ 3,265
EBITDA as a % of
revenues.............. 7.0% 7.2% 6.8% 7.5% 8.7% 6.9% 4.1%
Depreciation and
amortization.......... $ 7,080 $ 5,220 $ 4,886 $ 2,468 $ 2,061 $ 1,263 $ 3,377
Capital expenditures... 419 809 2,231 1,056 2,571 619 537
Cost of risk (6)....... 10,578 10,134 10,210 5,007 3,974 2,674 9,823
Cost of risk as a % of
revenues.............. 9.9% 8.8% 8.5% 8.7% 6.0% 8.8% 12.3%
Monthly fixed billing
revenue per location
served (dollars not in
thousands) (7)........ $ 280 $ 329 $ 368 $ 345 $ 345 N/A N/A
Number of ATMs serviced
(8)................... 906 1,172 3,181 2,400 3,925 N/A N/A
</TABLE>
13
<PAGE>
- --------
(1) Expenses related to the Transactions include payroll-related and other
costs of consolidating operations following the business combination,
including the maintenance of two corporate offices and other duplicate
functions during the period of transition.
(2) Extraordinary item represents a loss on extinguishment of debt, net of
provision for income taxes of $1.
(3) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases, and
amortization of debt issuance costs and debt discount. For the year ended
June 30, 1994 and the three months ended March 31, 1997, earnings were
insufficient to cover fixed charges by approximately $1,000 and $3,200,
respectively.
(4) Total debt includes long-term capital lease obligations, redeemable
preferred stock and redeemable common stock warrants.
(5) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and excludes certain gains related to benefit plans of $1,677
in 1994 and $954 in 1996, the cumulative effect of the change in accounting
principle of $(453) in 1994, and the $124 extraordinary item during the
three months ended March 31, 1997. EBITDA is presented because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance and to determine a
company's ability to service and incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(6) Cost of risk is defined as the total cost of cash-in-transit insurance
coverage (cargo), casualty and other insurance (worker's compensation,
automobile liability, general liability and other coverage), and surety and
includes premiums, broker's fees, administration charges, payments under
deductibles provisions, collateral fees and insurance related incentive
programs.
(7) Monthly fixed billing revenue per location served is defined as the total
fixed fee monthly contract revenue for all types and frequency of service
divided by the number of customer service locations billed in such manner
at the end of each period. Monthly fixed billing revenue constitutes
approximately 70% of Loomis' total revenue in all years.
(8) Number of ATMs serviced is defined as the number of ATM machines under
contract at the end of each period whether on a fixed fee monthly contract
or on a variable fee for service basis. Figures prior to 1995 are
management estimates.
14
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION--WELLS FARGO ARMORED
The summary historical financial data of Wells Fargo Armored set forth below
for each of the three years in the period ended December 31, 1996 has been
derived from the financial statements of Wells Fargo Armored which have been
audited by Deloitte & Touche LLP, independent auditors.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net service revenues............ $211,204 $230,999 $246,328
Cost of services................ 177,093 188,639 204,543
-------- -------- --------
Gross profit.................... 34,111 42,360 41,785
Selling, general, and
administrative expenses........ 21,406 18,705 20,309
Depreciation.................... 7,096 7,150 6,997
Management fees to Borg-Warner.. 3,004 3,185 3,353
Amortization of excess purchase
price.......................... 1,325 1,474 1,466
-------- -------- --------
Earnings from operations........ 1,280 11,846 9,660
Interest expense and finance
charges........................ 6,567 7,135 7,683
-------- -------- --------
Earnings (loss) before income
taxes.......................... (5,287) 4,711 1,977
Provision (benefit) for income
taxes.......................... (1,798) 1,866 860
-------- -------- --------
Net earnings (loss)............. $ (3,489) $ 2,845 $ 1,117
======== ======== ========
Ratio of earnings to fixed
charges (1).................... -- 1.5x 1.2x
BALANCE SHEET DATA (AT PERIOD
END):
Total assets.................... $124,812 $128,192 $136,204
Total debt...................... 58,477 54,114 53,102
Stockholder's equity............ 35,341 43,705 50,285
OTHER DATA:
EBITDA (2)...................... $ 9,701 $ 20,470 $ 18,123
EBITDA as a % of net service
revenues....................... 4.6% 8.9% 7.4%
Depreciation and amortization... $ 8,421 $ 8,624 8,463
Capital expenditures............ 6,231 3,695 8,065
Cost of risk (3)................ 29,734 30,086 28,262
Cost of risk as a % of net
service revenues............... 14.1% 13.0% 11.5%
Number of ATMs serviced (4)..... 18,185 23,980 24,062
</TABLE>
15
<PAGE>
- --------
(1) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases. For the year
ended December 31, 1994, earnings were insufficient to cover fixed charges
by $5,287.
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(3) Cost of risk is defined as the total cost of cash-in-transit insurance
coverage (cargo), casualty and other insurance (worker's compensation,
automobile liability, general liability and other coverage), and surety and
includes premiums, broker's fees, administration charges, payments under
deductibles provisions, collateral fees and insurance related incentive
programs.
(4) Number of ATMs serviced is defined as the number of ATM machines under
contract at the end of each period whether on a fixed fee monthly contract
or on a variable fee for service basis.
16
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the New Notes offered hereby. This Prospectus contains forward-looking
statements. These statements are subject to a number of risks and
uncertainties, including the factors set forth below, many of which are beyond
the Company's control.
LEVERAGE AND DEBT SERVICE
The Company has a significant amount of indebtedness following the
consummation of the Transactions. As of March 31, 1997, the Company's
consolidated total indebtedness and stockholders' deficit was $165.7 million
and $2.7 million, respectively.
The degree to which the Company is leveraged could have important
consequences to holders of the New Notes, including, without limitation, the
following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, potential acquisition
opportunities, general corporate purposes or other purposes may be impaired;
(ii) a substantial portion of the Company's cash flow from operations must be
dedicated to the payment of principal and interest on its indebtedness; and
(iii) the Company may be more vulnerable to economic downturns, may be limited
in its ability to withstand competitive pressures, and may have reduced
flexibility in responding to changing business and economic conditions. The
Company's ability to service its indebtedness will be dependent on its future
performance, which, in turn, will be affected by prevailing economic
conditions and financial, business and other factors, many of which are beyond
the Company's control.
The Company believes that, based upon current levels of operations, it will
be able to meet its debt service obligations, including principal and interest
payments on the Notes, when due. However, if the Company cannot generate
sufficient cash flow from operations to meet its debt service obligations,
defaults may occur thereunder and the Company might be required to refinance
its indebtedness. There is no assurance that refinancings could be effected on
satisfactory terms or would be permitted by the terms of the New Credit
Facility. See "Description of New Credit Facility" and "Description of New
Notes."
A substantial portion of the indebtedness incurred by the Company to finance
the Transactions bears interest at variable rates. Any increase in the
interest rates on the Company's indebtedness will reduce funds available to
the Company for its operations and future business opportunities and will
exacerbate the consequences of the Company's leveraged capital structure.
SUBORDINATION
The indebtedness evidenced by the New Notes and the Subsidiary Guarantees
(including principal, Redemption Price and Purchase Price (as defined) of,
interest and Liquidated Damages, if any, on the New Notes) will be
subordinated in right of payment to present and future Senior Debt of the
Company and senior debt of each Guarantor. In the event of the dissolution or
liquidation of the Company, or in the case of certain events of default with
respect to the New Notes or such Senior Debt, certain creditors of the Company
holding Senior Debt will be entitled to be paid in full before any payment is
made to holders of the New Notes. Senior Debt would currently include, among
other things, the debt incurred under the New Credit Facility and the
Company's current and future obligations under capitalized leases. As of March
31, 1997, there was approximately $165.7 million of total debt of the Company
and its subsidiaries, $73.5 million of which was Senior Debt, and there was
not any indebtedness of the Company expressly subordinated to the Notes by its
terms in right and priority of payment; in addition, there was approximately
$29.9 million available to be drawn by the Company as secured Senior Debt
under the New Credit Facility. The Indenture does not prohibit or limit the
designation of indebtedness otherwise permitted to be incurred as Senior Debt.
See "Pro Forma Combined Financial Information" and "Description of New Notes--
Subordination."
17
<PAGE>
HOLDING COMPANY STRUCTURE
The Company is a holding company, the sole asset of which is all of the
issued and outstanding capital stock of its subsidiaries. The Company has no
independent means of generating revenues. As a holding company, the Company
will depend on dividends and other permitted payments from its subsidiaries to
meet cash needs, including payment of dividends on the Common Stock and
principal, Redemption Price and Purchase Price of, interest and Liquidated
Damages, if any, on the New Notes. The Company will be the sole obligor on the
New Notes, which will be initially guaranteed by all of the Company's
subsidiaries. The New Notes will not be secured by any of the assets of the
Company or its subsidiaries. In addition, the obligations of the Company and
its subsidiaries under the New Credit Facility will be secured by pledges of
substantially all of such entities' assets. The right of the Company to
participate in any distribution of earnings or assets of its subsidiaries will
be subject to the prior claims of the creditors of such subsidiaries. See "The
Transactions," "Description of New Credit Facility" and "Description of New
Notes."
RISKS INHERENT IN THE ARMORED TRANSPORT INDUSTRY
The nature of the services provided by the Company potentially exposes the
Company to greater risks than are experienced in many businesses. The
potential for substantial cargo losses, as well as claims for personal injury,
wrongful death, worker's compensation, punitive damages and general liability,
despite risk management efforts, is inherent in the armored transport
business. While the Company seeks to maintain appropriate levels of insurance,
there can be no assurance that the Company will avoid significant future
catastrophic claims or adverse publicity related thereto. Furthermore, there
can be no assurance that the Company's insurance will be adequate to cover the
Company's liabilities or that such insurance coverage will remain available at
acceptable costs. The availability of quality and reliable insurance coverage
is an important factor in the Company's ability to obtain and retain
customers. A successful claim brought against the Company for which coverage
is denied or which is in excess of its insurance coverage could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--The Industry."
Pursuant to the terms of the Company's insurance policies, the Company is
required to maintain standby letters of credit with its insurance providers to
satisfy any deductible requirements in the event of an insurable loss. Such
standby letters of credit are counted against the amount available to be
borrowed by the Company under the New Credit Facility and therefore constrain
the Company's financial flexibility. The exercise of all or a significant
portion of the Company's outstanding standby letters of credit to satisfy
deductible claims would have a material adverse effect on the Company's
business, financial condition and results of operations. As of March 31, 1997,
the Company had outstanding approximately $11.7 million in standby letters of
credit, which amounts are expected to substantially increase over time as the
Company's reserve for casualty losses increases. Because the casualty and
employee claims incurred by Wells Fargo Armored prior to the consummation of
the Transactions are liabilities of Wells Fargo Armored and those incurred by
Loomis Armored prior to the consummation of the Transactions are liabilities
of the Business Trust and are subject to the Early Program Close-Out
Agreement, the Company did not have any reserve for casualty losses
immediately following the consummation of the Transactions. See "The
Transactions--The Business Combination."
On March 29, 1997 and on May 13, 1997 the Company experienced material cargo
losses from its Jacksonville, Florida and Ponce, Puerto Rico branches,
respectively. Both cargo losses are under active investigation. The Company
believes that the cargo losses will not have a material adverse effect on the
Company's liquidity or earnings in 1997, but that such losses could have
negative consequences on the Company's insurance coverage and/or costs at some
future time. Due to the fact that the Company's premiums on insurance relating
to its cargo losses are influenced by various factors, including general
market conditions and the Company's risk management performance in future
periods, management for the Company is unable to predict the effect or
magnitude such cargo losses will have on the Company's insurance coverage or
costs when its current policies expire.
IMPLEMENTATION OF POST-COMBINATION STRATEGY
The Company's future operations and earnings will be largely dependent upon
the Company's ability to integrate the businesses separately conducted by
Loomis Armored and Wells Fargo Armored. In addition, management will be
required to apply its business strategy to an entity which is significantly
larger than the entity
18
<PAGE>
it previously managed. The Company must, among other things, consolidate
certain regional and branch offices, integrate management and employee
personnel, combine customer bases and relocate certain billing, security, and
other database systems. There can be no assurance that the Company will
successfully integrate the separate businesses of Loomis Armored and Wells
Fargo Armored, and the failure to do so would have a material adverse effect
on the Company's results of operations and financial condition. Additionally,
the need to focus management's attention on integration of the businesses and
implementation of the Company's post-combination strategy may limit the
Company's ability to successfully pursue other opportunities related to its
business for the foreseeable future.
As presented under "Prospectus Summary--Consolidation Savings" and "Pro
Forma Combined Financial Information," management anticipates that the Company
will realize approximately $7.5 million in annualized cost savings as a result
of a successful integration of the businesses of Wells Fargo Armored and
Loomis Armored. The achievement of these savings is significantly dependent on
such successful integration. There can be no assurance that all such savings
will be achieved or sustained and the failure to achieve or sustain such
savings could result in a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has not yet received all necessary third party and state and
local governmental consents, approvals and waivers in connection with the
Transactions. While the Company believes that all material consents, approvals
and waivers ultimately will be received, the failure to obtain certain of such
consents, approvals and waivers, in the aggregate, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION
The armored transport industry is highly competitive. Some of the Company's
competitors have a greater presence in certain markets in which the Company
competes and may have greater financial and other resources available to them.
There can be no assurance that the Company can compete with such other
companies in any given market or that the Company will continue to be
competitive in the markets it presently serves. See "Business--Competition."
CONTROL BY THE BUSINESS TRUST AND BORG-WARNER
The Business Trust owns 51%, and Borg-Warner, through its wholly-owned
subsidiary Wells Fargo Armored, owns 49%, of the outstanding shares of Common
Stock. Frederick B. Hegi, Jr., an indirect general partner of Wingate
Partners, L.P. ("Wingate Partners"), a Delaware limited partnership and
private investment firm located in Dallas, Texas, serves as Manager of the
Business Trust. Acting together, the Business Trust and Borg-Warner have the
power to elect all of the directors of the Company and to approve any action
requiring stockholder approval. See "Security Ownership of Certain Beneficial
Owners and Management."
FRAUDULENT CONVEYANCE; ENFORCEABILITY OF SUBSIDIARY GUARANTEES
The Company's obligations under the Notes may be subject to review under
federal or state fraudulent transfer law if the Company becomes a debtor in a
subsequent bankruptcy case or otherwise has financial difficulties after
consummation of the Original Offering. In that event, if a court in a lawsuit
by an unpaid creditor or by a representative of creditors (such as a trustee
in a bankruptcy or a debtor-in-possession) were to find that the Company
received less than fair consideration or reasonably equivalent value for
incurring the indebtedness represented by the Notes and (i) was insolvent,
(ii) was rendered insolvent by reason of such transaction, (iii) was engaged
in a business or transaction, or was about to be engaged in a business or
transaction, for which its remaining assets constituted unreasonably small
capital or (iv) intended to incur, or believed or reasonably should have
believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the Company's obligations under the Notes
and direct the return of any amounts paid thereunder to the Company or to a
fund for the benefit of its creditors. The measure of insolvency for purposes
of the foregoing will vary depending upon the law of the jurisdiction being
applied. Management believes that at the time the Old Notes were issued, the
Company received fair consideration and reasonably equivalent value in
exchange for its
19
<PAGE>
obligations thereunder, was, is and will be solvent, will have sufficient
capital for the business in which it is engaged and will not incur debts
beyond its ability to pay such debts as they mature. There can be no
assurance, however, as to what standard a court would apply in making such
determinations or whether a court would agree with such assessments. See "--
Leverage and Debt Service" above.
The Guarantors will guarantee the Company's obligations under the New Notes.
See "Description of New Notes--Subsidiary Guarantees." Under applicable
provisions of the federal bankruptcy law or comparable provisions of state
law, if any Guarantor is insolvent at the time it incurs its Subsidiary
Guarantee, such Guarantee could be voided, or claims in respect of such
Subsidiary Guarantees could be subordinated to all other debts of such
Guarantor. The measures of insolvency will vary depending upon the law applied
in any such proceeding. See "Description of New Notes--Subordination."
ENVIRONMENTAL MATTERS
The Company is subject to numerous and increasingly stringent federal, state
and local laws and regulations relating to the protection of the environment
as well as the storage, handling, use, emission, discharge, release or
disposal of hazardous materials and solid wastes into the environment and the
investigation and remediation of contamination associated with such materials.
These laws include, but are not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, the Water Pollution Control Act, the
Clean Air Act and the Resource Conservation and Recovery Act, as those laws
have been amended and supplemented, the regulations promulgated thereunder,
and any applicable state analogs. The Company's operations also are governed
by laws and regulations relating to employee health and safety. The Company
believes that it is in material compliance with such applicable laws and
regulations and that its existing environmental controls are adequate to
address existing regulatory requirements.
As is the case with other companies engaged in similar businesses, the
Company could incur costs relating to environmental compliance, including
remediation costs related to historical hazardous materials handling and
disposal practices, principally petroleum products related to the Company's
fleet, at certain facilities. The Company has undertaken remedial activities
in the past to address on-site soil contamination caused by historic
operations. None of these cleanups has resulted in any material liability.
Currently, the Company is involved in remedial/closure activities at various
locations, none of which, individually or in the aggregate, is expected to
have a material adverse effect on the Company's operations, financial
condition or competitive position. As mentioned above, however, the risk of
environmental liability and remediation costs is present in the Company's
business and, therefore, there can be no assurance that material environmental
costs, including remediation costs, will not arise in the future. Moreover, it
is possible that future developments (e.g., new regulations or stricter
regulatory requirements) could result in the Company incurring material costs
to comply with applicable environmental laws and regulations. In addition, the
Company has not undertaken an independent investigation of each facility;
accordingly, there can be no assurance that in the future additional
conditions requiring remediation will not be identified.
The Company has identified 41 underground fuel storage tanks on the
properties owned or operated by it. Federal governmental regulations require
that by the end of 1998 all underground storage tanks located within the
United States must satisfy stricter safety standards or be removed. If the
Company fails to comply with these regulations, it could be subject to fines,
penalties or other governmental actions, the imposition of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Pursuant to the Contribution Agreement, the Company will be indemnified by
Borg-Warner and the Business Trust for environmental liabilities associated
with underground storage tanks and other known and identified environmental
liabilities existing as of the Closing Date. The indemnification obligations
will survive until the earlier of December 31, 1998 or the first anniversary
of an initial public offering of Common Stock. To the extent that there are
remedial activities in process as of the date of termination of such
indemnification obligations, the Company will provide Borg-Warner and the
Business Trust, as applicable, with a written estimate describing in
reasonable detail the remaining costs and expenses expected to be incurred by
the
20
<PAGE>
Company which would otherwise have been covered by such indemnification. Such
estimated costs and expenses may be satisfied in cash (subject to a present
value discount rate) or pursuant to an irrevocable letter of credit issued in
the full amount of such estimated costs and expenses.
RESTRICTIONS IMPOSED BY THE INDENTURE AND THE NEW CREDIT FACILITY
The Indenture contains covenants which restrict, among other things, the
ability of the Company to incur additional indebtedness, pay dividends or make
certain other Restricted Payments (as defined), enter into transactions with
affiliates, create certain liens, engage in certain sale and leaseback
transactions, make certain asset dispositions and merge or consolidate with,
or transfer substantially all of its assets to, another person. In addition,
the New Credit Facility contains other and more restrictive covenants and
prohibits the Company from prepaying certain of its indebtedness, including
the Notes. Under the New Credit Facility, the Company is also required to
maintain specified financial ratios and comply with certain financial tests.
The failure by the Company to maintain such financial ratios or to comply with
the restrictions contained in the New Credit Facility or the Indenture could
result in a default thereunder, which in turn could cause such indebtedness
(and by reason of cross-default provisions, other indebtedness) to become
immediately due and payable. No assurance can be given that the Company's
future operating results will be sufficient to enable compliance with such
covenants, or in the event of default, to remedy such default. See
"Description of New Credit Facility" and "Description of New Notes."
EMPLOYEES
The Company's business is labor intensive and, as a result, is affected by
the availability of qualified personnel and the cost of labor, including the
cost of insurance and other employee benefits provided to the Company's
employees. The Company's ability to pass along any increases in labor costs
may be limited by contract or by price competition within the industry. In
addition, the Company's operations could be adversely affected if the Company
is unable to hire suitable personnel in certain markets due to a lack of
qualified candidates in those markets.
REGULATION AND LEGAL PROCEEDINGS
The Company is subject to and complies with a large number of state and
federal occupational licensing and firearm laws that apply to its employees.
In addition, many states have laws requiring training and registration of
certain of the Company's employees and imposing minimum bond surety or
insurance standards. The Company, either directly or through industry trade
associations, generally supports the creation of minimum standards for the
industry. Due to its high qualification and training standards, the Company
does not expect any future establishment of minimum federal standards or new
state standards to have a material adverse effect on the Company's business.
However, there can be no assurance that future regulatory actions will not
have a material adverse effect on the Company's operations, financial
condition or competitive position.
ABSENCE OF PUBLIC MARKET
The New Notes are being offered to the holders of Old Notes, and the Company
does not intend to apply to have the New Notes listed on any securities
exchange. The initial purchasers of the Old Notes (the "Initial Purchasers")
have advised the Company that they currently intend to make a market in the
New Notes after the consummation of the Exchange Offer, as permitted by
applicable laws and regulations; however, the Initial Purchasers are not
obligated to do so, and may discontinue any such market-making activity at any
time without notice. Therefore, there can be no assurance that an active
market for the New Notes will develop. If a trading market for the New Notes
does develop, the New Notes may trade at a discount from their face value
depending upon prevailing interest rates, the market for similar securities,
the performance of the Company and other factors.
21
<PAGE>
THE TRANSACTIONS
THE BUSINESS COMBINATION
Contribution Agreement. On November 28, 1996, Borg-Warner, Wells Fargo
Armored, the Company, Loomis, Loomis Armored, and the Business Trust entered
into a Contribution Agreement (the "Contribution Agreement"), pursuant to
which, at the closing of the Transactions (the "Closing" and the date on which
such Closing occurred, the "Closing Date"), (a) the Business Trust contributed
all of the issued and outstanding shares of common stock of Loomis to the
Company in exchange for (i) 5,100,000 shares of Common Stock issued to the
Business Trust, (ii) a cash payment of $8.5 million was delivered to CIGNA
Insurance Company and related entities on behalf of the Business Trust for the
purpose of administering casualty and employee claims of Loomis incurred prior
to the Closing, (iii) a cash payment of approximately $4.7 million was made on
behalf of the Business Trust to an indemnity trust established to satisfy
indemnity claims of the Company (the "Loomis Indemnity Trust"), and (iv) a
promissory note issued to the Business Trust in the original principal amount
of $6.0 million (the "NOL Note"), and (b) Wells Fargo Armored contributed
substantially all of its assets, including all of the capital stock of two
wholly-owned subsidiaries of Wells Fargo Armored (collectively, the
"Transferred Assets"), and assigned certain liabilities (including
intercompany indebtedness) (the "Assumed Liabilities") to the Company in
exchange for (i) 4,900,000 shares of Common Stock to be issued to Wells Fargo
Armored and (ii) a cash payment made to Wells Fargo Armored and related
entities equal to approximately $106.6 million (as adjusted based upon a
formula set forth in the Contribution Agreement). In addition, at the Closing,
the Company, the Business Trust and Wells Fargo Armored entered into the
Stockholders Agreement (as defined). See "Certain Relationships and Related
Transactions." The Contribution Agreement also provides that, after the
Closing, certain post-closing cash adjustments will be made among the parties
based upon specified minimum working capital requirements. The capitalization
of the Company and the combination of Loomis and Wells Fargo Armored has been
accounted for as a recapitalization of Loomis and the purchase of
substantially all the assets and certain liabilities of Wells Fargo Armored by
Loomis.
Immediately following the consummation of the transactions contemplated by
the Contribution Agreement, the Company: (i) filed a certificate of amendment
to the certificate of incorporation of Loomis changing its name to LFC Holding
Corporation (the "Intermediate Holding Company"); (ii) filed articles of
amendment to the articles of incorporation of Loomis Armored changing its name
to Loomis, Fargo & Co. (the "Operating Subsidiary"); and (iii) contributed all
of the assets acquired from Wells Fargo Armored to the Operating Subsidiary.
The Company and the Operating Subsidiary have the same name, except that the
Company is incorporated under the laws of Delaware and the Operating
Subsidiary is incorporated under the laws of Texas.
22
<PAGE>
The following diagrams set forth (i) the structure of Loomis and Wells Fargo
Armored immediately prior to the consummation of the Transactions, and (ii)
the structure of the Company following the consummation of the Transactions.
Loomis and Wells Fargo Armored prior to the Transactions:
LOGO
23
<PAGE>
The Company following the Transactions:
LOGO
Loomis Preferred Stock. Pursuant to the Contribution Agreement, at the
Closing, Loomis redeemed $3.5 million aggregate liquidation preference of
Series I Preferred Stock, par value $.01 per share, of Loomis (the "Loomis
Preferred Stock"), representing all issued and outstanding shares of Loomis
Preferred Stock, out of proceeds of the former credit facility of Loomis
Armored. All of such shares of Loomis Preferred Stock were owned of record and
beneficially by Wingate Partners or its affiliates. See "Certain Relationships
and Related Transactions."
Historical Casualty and Employee Claims. At the Closing, the Company
delivered $8.5 million to CIGNA Insurance Company and related entities on
behalf of the Business Trust pursuant to the Early Program Close-Out
Agreement, related to casualty and employee claims of Loomis incurred prior to
Closing. In addition, pursuant to an Excess Claims Assumption Agreement dated
January 24, 1997, among the Company, the Intermediate Holding Company, the
Operating Subsidiary and the Business Trust, the Business Trust is liable for
all casualty and employee claims of Loomis incurred prior to Closing not
covered by CIGNA pursuant to the Early Program Close-Out Agreement. Casualty
and employee claims of Wells Fargo Armored incurred prior to Closing were not
assumed by the Company and remain liabilities of Wells Fargo Armored. As of
December 31, 1996, the estimated aggregate insurance liability for casualty
and employee claims of Wells Fargo Armored was $16.0 million.
NOL Note. At the Closing, the NOL Note, which does not accrue interest, was
issued by the Company to the Business Trust and is carried at March 31, 1997
at a discount of $567,000 from its original principal amount
24
<PAGE>
to approximate its fair value. The NOL Note has a term of fifteen years,
subject to mandatory prepayments as, and to the extent that, the Company
realizes a tax benefit attributable to the utilization of net operating losses
of Loomis available as of the Closing Date.
Environmental Indemnification. Pursuant to the Contribution Agreement, the
Company will be indemnified by Borg-Warner and the Business Trust for
environmental liabilities associated with existing underground storage tanks
and other known and identified environmental liabilities. The indemnification
obligations will survive until the earlier of December 31, 1998 or the first
anniversary of an initial public offering of Common Stock. To the extent that
there are remedial activities in process as of the date of termination of such
indemnification obligations, the Company will provide Borg-Warner and the
Business Trust, as applicable, with a written estimate describing in
reasonable detail the remaining costs and expenses expected to be incurred by
the Company which would otherwise have been covered by such indemnification.
Such estimated costs and expenses may be satisfied in cash (subject to a
present value discount rate) or pursuant to an irrevocable letter of credit
issued in the full amount of such estimated costs and expenses.
USE OF PROCEEDS
The Company will not receive any proceeds for the exchange of New Notes for
Old Notes pursuant to the Exchange Offer.
The net proceeds from the sale of the Old Notes of approximately $81.8
million, together with borrowings under the New Credit Facility, were used to
consummate the Transactions and meet ongoing working capital needs. See "The
Transactions."
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
SOURCES OF CASH
New Credit Facility (1)...................................... $ 73.3
10% Senior Subordinated Notes................................ 85.0
------
Total sources of cash..................................... $158.3
======
USES OF CASH
Retirement of Loomis and Loomis Armored obligations:
Existing indebtedness (2)(3)............................... $ 29.6
Accrued management fees (4)................................ 1.6
Casualty and employee claims (5)........................... 8.5
Payment to the Loomis Indemnity Trust........................ 4.7
Payments to Wells Fargo Armored and related entities (6)(7).. 106.6
Fees and expenses............................................ 5.3
Payment escrowed to retire Wells Fargo Armored IRB and
accrued interest............................................ 1.1
Contribution to the Operating Subsidiary for working capital
purposes.................................................... 0.9
------
Total uses of cash........................................ $158.3
======
</TABLE>
- --------
(1) The New Credit Facility provides initially for aggregate borrowings of
$115.0 million and matures in January 2002. As of March 31, 1997,
approximately $11.7 million in letters of credit were outstanding under
the New Credit Facility, leaving approximately $29.9 million in available
borrowing capacity under the New Credit Facility.
(2) Includes (i) $10.3 million of 14% senior subordinated notes that were
scheduled to mature on September 30, 1999, including accrued interest,
(ii) $9.2 million of a 9% junior subordinated note that was scheduled to
mature on September 30, 1999, including accrued interest (iii) $3.3
million of a term loan that was scheduled to mature on September 30, 1999,
including accrued interest, and (iv) $6.8 million in borrowings under
Loomis Armored's credit facility.
(3) $3.5 million of the borrowings by Loomis Armored under its credit facility
were used to redeem the Loomis Preferred Stock immediately prior to the
Closing. See "The Transactions--The Business Combination."
(4) Accrued management fees were paid at Closing to an affiliate of Loomis
pursuant to a Financial Advisory Agreement. See "Certain Relationships and
Related Transactions--Financial Advisory Agreement."
(5) Represents a lump sum payment on behalf of the Business Trust to CIGNA
Insurance Company and related entities pursuant to the Early Program
Close-Out Agreement related to insuring and managing casualty and employee
claims of Loomis incurred prior to the Closing. See "The Transactions--The
Business Combination" and "Pro Forma Combined Financial Information."
(6) Includes approximately $1.4 million of reimbursement for fees and expenses
related to the Transactions.
(7) A portion of such consideration was paid at Closing by the Company to
Borg-Warner and/or one or more of its wholly-owned subsidiaries to satisfy
certain intercompany indebtedness of Wells Fargo Armored assumed by the
Company.
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<PAGE>
CAPITALIZATION
The following table sets forth the Company's historical capitalization at
March 31, 1997. The table should be read in conjunction with the audited and
unaudited financial statements appearing elsewhere herein. For additional
information with respect to the New Credit Facility, see "Description of New
Credit Facility."
<TABLE>
<CAPTION>
HISTORICAL AT
MARCH 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Total Debt:
New Credit Facility (1)................................. $ 73,450
10% Senior Subordinated Notes........................... 85,000
Non-interest bearing NOL Note (2)....................... 5,433
Other debt.............................................. 1,791
--------
Total debt............................................. 165,674
Total stockholders' equity............................... (2,727)
--------
Total capitalization................................... $162,947
========
</TABLE>
- --------
(1) The New Credit Facility provides initially for an aggregate principal
amount of $115.0 million in borrowings and matures in January 2002. As of
March 31, 1997, approximately $11.7 million in letters of credit would
have been outstanding under the New Credit Facility, leaving approximately
$29.9 million in available borrowing capacity under the New Credit
Facility.
(2) The $6.0 million NOL Note does not accrue interest and has a term of
fifteen years, subject to mandatory prepayments as, and to the extent
that, the Company realizes a tax benefit attributable to the utilization
of net operating losses of Loomis available as of the Closing Date. The
NOL Note is being carried on the Company's balance sheet at March 31, 1997
at a discount of $567,000 from its original principal amount to
approximate its fair value.
26
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The accompanying unaudited Pro Forma Combined Financial Information is based
on the historical financial statements of Loomis, Fargo & Co., successor to
Loomis, and Wells Fargo Armored and gives effect to (i) the acquisition of
substantially all of the assets and certain liabilities of Wells Fargo Armored
and other adjustments related to the Transactions, (ii) the issuance and sale
of the Old Notes, together with borrowings under the New Credit Facility, and
the application of the net proceeds therefrom to repay all indebtedness of
Loomis Armored, repay certain accrued management fees of Loomis and Loomis
Armored, fund a distribution to the Loomis Indemnity Trust on behalf of the
Business Trust, make a lump sum payment on behalf of the Business Trust to
CIGNA Insurance Company and related entities pursuant to the Early Program
Close-Out Agreement, related to casualty and employee claims of Loomis and
Loomis Armored prior to the Closing Date, and fund the purchase of
substantially all of the assets and certain liabilities of Wells Fargo Armored
pursuant to the Contribution Agreement, and (iii) the redemption by Loomis of
the Loomis Preferred Stock. See "The Transactions--The Business Combination."
The unaudited Pro Forma Combined Income Statements for the twelve months ended
December 31, 1996 and the three months ended March 31, 1997 give effect to the
transactions described above as if they had been consummated on January 1,
1996. The Pro Forma Combined Financial Information has been prepared on the
basis of a December 31 fiscal year end as the Company reports on a calendar
year basis. The historical Wells Fargo Armored financial statements have been
conformed to the Loomis financial statement presentation format in the
accompanying Pro Forma Combined Financial Information.
The unaudited Pro Forma Combined Financial Information is intended for
informational purposes only and is not necessarily indicative of the future
financial position or results of operation of the Company had the transactions
described in the preceding paragraph occurred on the indicated dates or been
in effect for the periods presented.
The unaudited Pro Forma Combined Financial Information and the accompanying
notes should be read in conjunction with, and are qualified in their entirety
by, the historical consolidated financial statements of Loomis and Wells Fargo
Armored, including the related notes thereto, included elsewhere herein.
27
<PAGE>
LOOMIS, FARGO & CO.
PRO FORMA COMBINED INCOME STATEMENT
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WELLS FARGO
LOOMIS HOLDING ARMORED SERVICE PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED (1)
-------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................ $ 127,414 $246,328 $ -- $ 373,742
Cost of operations:
Payroll and related
expense............... 84,976 134,585 -- 219,561
Vehicle expense........ 14,663 35,371 (12)(a) 50,022
Facilities expense..... 5,224 11,442 196 (a) 16,862
Other operating
expenses.............. 17,484 55,270 (3,669)(b) 69,085
Gains associated with
benefit plans......... (954) -- -- (954)
---------- -------- ------ -----------
121,393 236,668 (3,485) 354,576
---------- -------- ------ -----------
Operating income........ 6,021 9,660 (3,485) 19,166
Interest expense--
affiliates............. 1,097 7,683 (8,780)(c) --
Interest expense--
other.................. 1,799 -- 14,048 (c) 15,847
---------- -------- ------ -----------
Total interest
expense............... 2,896 7,683 5,268 15,847
---------- -------- ------ -----------
Income before income
taxes.................. 3,125 1,977 (1,783) 3,319
Income taxes............ 103 860 (855)(d) 108
---------- -------- ------ -----------
Net income.............. 3,022 1,117 (928) 3,211
Increase in value of
redeemable warrants.... 327 -- (327)(e) --
---------- -------- ------ -----------
Net income available to
common stockholders.... $ 2,695 $ 1,117 $ (601) $ 3,211
========== ======== ====== ===========
Net income per common
and common equivalent
share.................. $ 0.53 $ 0.32
========== ===========
Weighted average common
and common equivalent
shares................. 5,092,171 10,000,000
========== ===========
OPERATING AND OTHER
DATA:
EBITDA (2)............. $ 9,544 $ 18,123 $ 31,370
EBITDA as a % of
revenues.............. 7.5% 7.4% 8.4%
Depreciation and
amortization.......... $ 4,477 $ 8,463 $ 13,158
Capital expenditures... 3,746 8,065 11,811
Ratio of EBITDA to
total cash interest
expense (3)........... 2.2x
Ratio of earnings to
fixed charges (4)..... 1.2x
</TABLE>
- --------
(1) Management estimates that, upon successful completion of its consolidation
plan over the 12-month period following the consummation of the
Transactions, the Company will realize $3.8 million in savings on an
annualized basis compared to the cost of operating Loomis and Wells Fargo
Armored as separate entities. The costs associated with implementing this
plan have been recognized as liabilities assumed in the business
combination and included in the allocation of purchase price in accordance
with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination." The following table itemizes these
consolidation and related cost savings on an annualized basis:
<TABLE>
<CAPTION>
PAYROLL AND OTHER TOTAL
RELATED FACILITIES OPERATING COST
EXPENSES EXPENSE EXPENSES SAVINGS
----------- ---------- --------- -------
<S> <C> <C> <C> <C>
Headquarters office headcount
reduction...................... $2,376 $ -- $-- $2,376
Information systems
duplication.................... -- -- 319 319
Branch headcount and facilities
duplication.................... 739 103 -- 842
ATM dispatch center
duplication.................... 236 -- 10 246
------ ----- ---- ------
$3,351 $ 103 $329 $3,783
====== ===== ==== ======
</TABLE>
Had these cost savings been reflected in the Pro Forma Combined Income
Statement above, net income and net income per share would have been $6,994
and $0.70, respectively.
28
<PAGE>
LOOMIS, FARGO & CO.
TWELVE MONTHS ENDED DECEMBER 31, 1996
NOTES TO PRO FORMA COMBINED INCOME STATEMENT
(UNAUDITED)
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and excludes certain gains related to benefit plans of $954.
EBITDA is presented because it is commonly used by certain investors and
analysts to analyze and compare companies on the basis of operating
performance and to determine a company's ability to service and incur
debt. EBITDA should not be considered in isolation from or as a substitute
for net income, cash flows from operating activities or other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
(3) Cash interest expense represents total interest expense less (i)
amortization of financing fees and (ii) accretion of discount on non-
interest bearing NOL note. See Note (c) to the Pro Forma Combined Income
Statement.
(4) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on non-cancelable leases, and
amortization of debt issuance costs and debt discount.
See accompanying notes to Pro Forma Combined Income Statement.
29
<PAGE>
LOOMIS, FARGO & CO.
TWELVE MONTHS ENDED DECEMBER 31, 1996
NOTES TO PRO FORMA COMBINED INCOME STATEMENT--(CONTINUED)
(UNAUDITED)
Pro Forma adjustments have been made to the unaudited Pro Forma Combined
Income Statement to reflect the following (in thousands):
(a) To adjust depreciation expense resulting from the adjustment in basis
of Wells Fargo Armored property and equipment to fair market value.
(b) Represents (i) the elimination of management fees for both Loomis and
Wells Fargo Armored that will no longer be charged to the Company.
There are no direct services associated with the Wingate Partners
management fees. Any services previously associated with the management
fees paid to Borg-Warner are duplicative of activities already
performed by Loomis; (ii) the adjustment of depreciation expense
resulting from the adjustment in basis of Wells Fargo Armored property
and equipment to fair market value (iii) the amortization over 40 years
of goodwill arising from the Transactions and (iv) the elimination of
Wells Fargo Armored historical goodwill amortization.
<TABLE>
<S> <C>
Elimination of management fees to Borg-Warner.................... $(3,353)
Elimination of management fees to Wingate Partners............... (350)
Depreciation and amortization.................................... (968)
Record revised goodwill amortization............................. 2,468
Reverse historical Wells Fargo Armored goodwill amortization..... (1,466)
-------
$(3,669)
=======
</TABLE>
(c) Reflects the net change in interest expense based on the financing of
the Transactions:
<TABLE>
<S> <C>
Elimination of historical interest expense....................... $(10,579)
Interest on New Credit Facility.................................. 5,770
Interest on Notes................................................ 8,500
Interest on other existing debt.................................. 144
Amortization of financing fees................................... 910
Accretion of discount on non-interest bearing NOL note........... 523
--------
$ 5,268
========
</TABLE>
The interest rates on the New Credit Facility are variable rates based
on LIBOR and are assumed to be 7.75%. For each 1/8% change in the
assumed average rate on the New Credit Facility, interest expense would
change by approximately $92 for the twelve months ended December 31,
1996. The non-interest bearing NOL note has been discounted at a rate
of 10.0%.
(d) Reflects the income tax effect of the pro forma adjustments based on
the availability of net operating loss carryforwards and the
requirements of the alternative minimum tax.
(e) Eliminates the accretion in carrying value of redeemable warrants that
were exercised prior to the closing of the Transactions.
30
<PAGE>
LOOMIS, FARGO & CO.
PRO FORMA COMBINED INCOME STATEMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WELLS FARGO
LOOMIS ARMORED
HOLDING SERVICE PRO FORMA PRO FORMA
CORPORATION CORPORATION ADJUSTMENTS COMBINED(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................... $ 79,892 $15,329 $ -- $ 95,221
Cost of operations:
Payroll and related
expense................. 47,632 8,769 -- 56,401
Vehicle expense.......... 10,423 2,413 (2)(a) 12,834
Facilities expense....... 3,286 829 83 (a) 4,148
Other operating
expenses................ 17,524 2,836 (228)(b) 20,132
Expenses related to the
Transactions(2)......... 1,139 -- -- 1,139
---------- ------- ----- -----------
80,004 14,847 (197) 94,654
---------- ------- ----- -----------
Operating income........... (112) 482 197 567
Interest expense--
affiliates................ 95 362 (457)(c) --
Interest expense--other.... 2,983 -- 932 (c) 3,915
---------- ------- ----- -----------
Total interest expense... 3,078 362 475 3,915
---------- ------- ----- -----------
Income (loss) before income
taxes and extraordinary
item...................... (3,190) 120 (278) (3,348)
Income taxes............... 25 -- -- 25
---------- ------- ----- -----------
Net income (loss) before
extraordinary item........ $ (3,215) $ 120 $(278) $ (3,373)
========== ======= ===== ===========
Net loss per common and
common equivalent share... $ (0.37) $ (0.34)
========== ===========
Weighted average common and
common equivalent shares.. 8,745,777 10,000,000
========== ===========
Operating and Other Data:
EBITDA(3).................. $ 3,265 $ 986 $ 4,561
EBITDA as a % of revenues.. 4.1% 6.4% 4.8%
Depreciation and
amortization.............. $ 3,377 $ 504 $ 3,994
Capital expenditures....... 537 159 696
Ratio of EBITDA to total
cash interest expense(4).. 1.3x
Ratio of earnings to fixed
charges(5)................ --
</TABLE>
- --------
(1) Management estimates that, upon successful completion of its consolidation
plan over the 12-month period following the consummation of the
Transactions, the Company will realize $3.8 million in savings on an
annualized basis compared to the cost of operating Loomis and Wells Fargo
Armored as separate entities. The costs associated with implementing this
plan have been recognized as liabilities assumed in the business
combination and included in the allocation of purchase price in accordance
with EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a
Purchase Business Combination." The following table itemizes these
consolidation and related cost savings on an annualized basis:
<TABLE>
<CAPTION>
PAYROLL
AND OTHER TOTAL
RELATED FACILITIES OPERATING COST
EXPENSES EXPENSE EXPENSES SAVINGS
-------- ---------- --------- -------
<S> <C> <C> <C> <C>
Headquarters office headcount
reduction......................... $2,376 $-- $-- $2,376
Information systems duplication.... -- -- 319 319
Branch headcount and facilities
duplication....................... 739 103 -- 842
ATM dispatch center duplication.... 236 -- 10 246
------ ---- ---- ------
$3,351 $103 $329 $3,783
====== ==== ==== ======
</TABLE>
31
<PAGE>
LOOMIS, FARGO & CO.
THREE MONTHS ENDED MARCH 31, 1997
NOTES TO PRO FORMA COMBINED INCOME STATEMENT--(CONTINUED)
(UNAUDITED)
Had a proportionate share of these cost savings been reflected in the Pro
Forma Combined Income Statement above, net loss and net loss per share
would have been $(2,427) and $(0.24), respectively.
(2) Expenses related to the Transactions include payroll-related and other
costs of consolidating operations following the business combination,
including the maintenance of two corporate offices and other duplicate
functions during the period of transition.
(3) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because it is commonly used by certain
investors and analysts to analyze and compare companies on the basis of
operating performance and to determine a company's ability to service and
incur debt. EBITDA should not be considered in isolation from or as a
substitute for net income, cash flows from operating activities or other
consolidated income or cash flow statement data prepared in accordance
with generally accepted accounting principles or as a measure of
profitability or liquidity.
(4) Cash interest expense represents total interest expense less (i)
amortization of financing fees and (ii) accretion of discount on non-
interest bearing NOL note. See Note (c) to the Pro Forma Combined Income
Statement.
(5) For the purpose of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on non-cancelable leases, and
amortization of debt issuance costs and debt discount. For the three
months ended March 31, 1997, pro forma earnings were insufficient to cover
fixed charges by approximately $3,300.
See accompanying notes to Pro Forma Combined Income Statement.
32
<PAGE>
LOOMIS, FARGO & CO.
THREE MONTHS ENDED MARCH 31, 1997
NOTES TO PRO FORMA COMBINED INCOME STATEMENT--(CONTINUED)
(UNAUDITED)
Pro Forma adjustments have been made to the unaudited Pro Forma Combined
Income Statement to reflect the following (in thousands):
(a) To adjust depreciation expense resulting from the adjustment in basis
of Wells Fargo Armored property and equipment to fair market value.
(b) Represents (i) the elimination of management fees for both Loomis and
Wells Fargo Armored that will no longer be charged to the Company.
There are no direct services associated with the Wingate Partners
management fees. Any services previously associated with the management
fees paid to Borg-Warner are duplicative of activities already
performed by Loomis; (ii) the adjustment of depreciation expense
resulting from the adjustment in basis of Wells Fargo Armored property
and equipment to fair market value (iii) the amortization over 40 years
of goodwill arising from the Transactions and (iv) the elimination of
Wells Fargo Armored historical goodwill amortization.
<TABLE>
<S> <C>
Elimination of management fees to Borg Warner...................... $(287)
Elimination of management fees to Wingate Partners................. (23)
Depreciation and amortization...................................... 19
Record revised goodwill amortization............................... 158
Reverse historical Wells Fargo Armored goodwill amortization....... (95)
-----
$(228)
=====
</TABLE>
(c) Reflects the net change in interest expense based on the financing of
the Transactions:
<TABLE>
<S> <C>
Elimination of interest expense related to retired debt............. $(552)
Interest on New Credit Facility..................................... 379
Interest on Notes................................................... 543
Interest on other existing debt..................................... 9
Amortization of financing fees...................................... 60
Accretion of discount on non-interest bearing NOL note.............. 36
-----
$ 475
=====
</TABLE>
The interest rates on the New Credit Facility are variable rates based
on LIBOR and are assumed to be 7.75%. For each 1/8% change in the
assumed average rate on the New Credit Facility, interest expense would
change by approximately $23 for the three months ended March 31, 1997.
The non-interest bearing NOL note has been discounted at a rate of
10.0%.
33
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
LOOMIS, FARGO & CO.
The selected consolidated financial data of Loomis, Fargo & Co., successor
to Loomis, set forth below for each of the three fiscal years in the period
ended June 30, 1996 and the six months ended December 31, 1996 has been
derived from the financial statements of Loomis, Fargo & Co. which have been
audited by Ernst & Young LLP, independent auditors. The selected financial
information for the two years in the period ended June 30, 1993 and the six
months ended December 31, 1995 and the three months ended March 31, 1996 and
March 31, 1997 is unaudited and in the opinion of Loomis, Fargo & Co.
management reflects all adjustments, consisting only of normal recurring
accruals, considered necessary for a fair presentation of such data. The
results of operations for any interim period are not necessarily indicative of
results of operations for the fiscal year and should be read in conjunction
with, and are qualified in their entirety by, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Loomis" and the
financial statements of Loomis, Fargo & Co. included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
YEARS ENDED JUNE 30, DECEMBER 31, MARCH 31,
------------------------------------------------ ---------------- -----------------
1992 1993 1994 1995 1996 1995 1996 1996 1997
-------- -------- -------- -------- -------- ------- ------- ------- --------
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............... $105,590 $107,249 $106,447 $115,136 $119,455 $57,806 $65,765 $30,229 $ 79,892
Cost of operations:
Payroll and related
expenses.............. 75,312 75,128 72,447 77,270 79,974 38,029 43,031 19,629 47,632
Vehicle expense........ 14,650 14,883 13,583 13,815 14,035 7,010 7,637 3,565 10,423
Facilities expense..... 5,404 5,184 5,395 4,991 5,094 2,531 2,661 1,288 3,286
Other operating
expenses.............. 13,793 12,857 14,679 15,936 17,120 8,381 8,745 4,930 17,524
Gains associated with
benefit plans......... -- -- (1,677) -- (954) -- -- -- --
Expenses related to the
Transactions (1)...... -- -- -- -- -- -- -- -- 1,139
-------- -------- -------- -------- -------- ------- ------- ------- --------
Operating income
(loss)................ (3,569) (803) 2,020 3,124 4,186 1,855 3,691 817 (112)
Interest expense, net.. 3,179 3,369 3,053 3,158 2,981 1,528 1,445 734 3,078
-------- -------- -------- -------- -------- ------- ------- ------- --------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle............. (6,748) (4,172) (1,033) (34) 1,205 327 2,246 83 (3,190)
Income taxes........... -- -- -- -- 78 25 50 -- 25
Cumulative effect of
change in accounting
principle............. -- -- (453) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- ------- ------- --------
Income (loss) before ex-
traordinary item....... (6,748) (4,172) (1,486) (34) 1,127 302 2,196 83 (3,215)
Extraordinary item (2).. -- -- -- -- -- -- -- -- (124)
-------- -------- -------- -------- -------- ------- ------- ------- --------
Net income (loss)....... (6,748) (4,172) (1,486) (34) 1,127 302 2,196 83 (3,339)
======== ======== ======== ======== ======== ======= ======= ======= ========
Net income (loss) avail-
able to
common stockholders.... (6,748) (4,172) (1,486) (34) 800 302 2,196 83 (3,339)
Earnings (loss) per
share (dollars not in
thousands) (3)......... (2.34) (1.45) (0.51) (0.01) 0.16 0.11 0.43 0.02 (0.38)
Ratio of earnings to
fixed
charges (4)............ -- -- -- 1.0x 1.3x 1.2x 2.1x 1.1x --
BALANCE SHEET DATA (AT
PERIOD END):
Total assets........... $ 55,011 $ 46,244 $ 39,935 $ 38,879 $ 39,755 $36,449 $43,046 $37,744 $209,822
Total debt (5)......... 29,444 28,429 26,985 26,791 27,392 27,253 27,767 26,977 165,674
Common stockholders'
deficit............... (5,658) (9,830) (11,316) (11,350) (10,550) (11,048) (8,354) (10,725) (2,727)
OTHER DATA:
EBITDA (6)............. $ 2,529 $ 5,389 $ 7,423 $ 8,344 $ 8,118 $ 4,323 $ 5,752 $ 2,080 $ 3,265
EBITDA as a % of
revenues.............. 2.4% 5.0% 7.0% 7.2% 6.8% 7.5% 8.7% 6.9% 4.1%
Depreciation and
amortization.......... $ 6,098 $ 6,192 $ 7,080 $ 5,220 $ 4,886 $ 2,468 $ 2,061 $ 1,263 $ 3,377
Capital expenditures... 3,957 569 419 809 2,231 1,056 2,571 619 537
Cost of risk (7)....... 11,527 12,232 10,578 10,134 10,210 5,007 3,974 2,674 9,823
Cost of risk as a % of
revenues.............. 10.9% 11.4% 9.9% 8.8% 8.5% 8.7% 6.0% 8.8% 12.3%
Monthly fixed billing
revenue per location
served (dollars not in
thousands) (8)........ n/a $ 274 $ 280 $ 329 $ 368 $ 345 $ 345 N/A N/A
Number of ATMs serviced
(9)................... 722 734 906 1,172 3,181 2,400 3,925 N/A N/A
</TABLE>
34
<PAGE>
- --------
(1) Expenses relating to the Transactions include payroll-related and other
costs of consolidating operations following the business combination,
including the maintenance of two corporate offices and other duplicate
functions during the period of transition.
(2) Extraordinary item represents a loss on extinguishment of debt, net of
provision for income taxes of $1.
(3) Earnings (loss) per share have been restated to reflect retroactively the
effects of the recapitalization of Loomis described under "The
Transactions--The Business Combination."
(4) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on noncancelable leases, and
amortization of debt issuance costs and debt discount. For the years ended
June 30, 1992, 1993 and 1994 and the three months ended March 31, 1997,
earnings were insufficient to cover fixed charges by approximately $6,700,
$4,200, $1,000 and $3,200, respectively.
(5) Total debt is defined as long-term debt, long-term capital lease
obligations, redeemable preferred stock and redeemable common stock
warrants.
(6) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and excludes certain gains related to benefit plans of $1,677
in 1994 and $954 in 1996, the cumulative effect of the change in
accounting principle of $(453) in 1994, and the $124 extraordinary item
during the three months ended March 31, 1997. EBITDA is presented because
it is commonly used by certain investors and analysts to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service and incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operating activities or other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(7) Cost of risk is defined as the total cost of cash-in-transit insurance
coverage (cargo), casualty and other insurance (worker's compensation,
automobile liability, general liability and other coverage), and surety
and includes premiums, broker's fees, administration charges, payments
under deductibles provisions, collateral fees and insurance related
incentive programs.
(8) Monthly fixed billing revenue per location served is defined as the total
fixed fee monthly contract revenue for all types and frequency of service
divided by the number of customer service locations billed in such manner
at the end of each period. Monthly fixed billing revenue constitutes
approximately 70% of Loomis' total revenue in all years. Information for
1992 is not available.
(9) Number of ATMs serviced is defined as the number of ATM machines under
contract at the end of each period whether on a fixed fee monthly contract
or on a variable fee for service basis. Figures prior to 1995 are
management estimates.
35
<PAGE>
WELLS FARGO ARMORED
The selected consolidated financial data of Wells Fargo Armored set forth
below for each of the three years in the period ended December 31, 1996 has
been derived from the financial statements of Wells Fargo Armored which have
been audited by Deloitte & Touche LLP, independent auditors. The selected
financial information for the two years in the period ended December 31, 1993
is unaudited and in the opinion of Wells Fargo Armored management reflects all
adjustments, consisting only of normal recurring accruals, considered
necessary for a fair presentation of such data.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net service revenues........ $156,388 $182,124 $211,204 $230,999 $246,328
Cost of services............ 120,916 142,210 177,093 188,639 204,543
-------- -------- -------- -------- --------
Gross profit................ 35,472 39,914 34,111 42,360 41,785
Selling, general, and
administrative expenses.... 17,973 17,306 21,406 18,705 20,309
Depreciation................ 5,953 6,753 7,096 7,150 6,997
Management fees to Borg-
Warner..................... 3,160 2,577 3,004 3,185 3,353
Amortization of excess
purchase price............. 959 1,332 1,325 1,474 1,466
-------- -------- -------- -------- --------
Earnings from operations.... 7,427 11,946 1,280 11,846 9,660
Interest expense and finance
charges.................... 4,738 5,363 6,567 7,135 7,683
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes............... 2,689 6,583 (5,287) 4,711 1,977
Provision (benefit) for
income taxes............... 1,796 1,922 (1,798) 1,866 860
-------- -------- -------- -------- --------
Net earnings (loss) before
cumulative effect of
accounting change.......... 893 4,661 (3,489) 2,845 1,117
Cumulative effect of
accounting change.......... -- (2,000) -- -- --
-------- -------- -------- -------- --------
Net earnings (loss)......... $ 893 $ 2,661 $ (3,489) $ 2,845 $ 1,117
======== ======== ======== ======== ========
Ratio of earnings to fixed
charges (1)................ 1.5x 2.0x -- 1.5x 1.2x
BALANCE SHEET DATA (AT PERIOD
END):
Total assets................ $113,344 $118,129 $124,812 $128,192 $136,204
Total debt.................. 59,741 58,110 58,477 54,114 53,102
Stockholder's equity........ 28,702 34,453 35,341 43,705 50,285
OTHER DATA:
EBITDA (2).................. $ 14,339 $ 20,031 $ 9,701 $ 20,470 $ 18,123
EBITDA as a % of net service
revenues................... 9.2% 11.0% 4.6% 8.9% 7.4%
Depreciation and
amortization............... $ 6,912 $ 8,085 $ 8,421 $ 8,624 $ 8,463
Capital expenditures........ 12,064 5,740 6,231 3,695 8,065
Cost of risk (3)............ 16,060 18,211 29,734 30,086 28,262
Cost of risk as a % of net
service revenues........... 10.3% l0.0% 14.1% 13.0% 11.5%
Number of ATMs serviced
(4)........................ 13,618 15,405 18,185 23,980 24,062
</TABLE>
36
<PAGE>
- --------
(1) For the purposes of calculating the ratio of earnings to fixed charges,
earnings represent income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense on all indebtedness plus the
interest portion of rental expense on non-cancelable leases. For the year
ended December 31, 1994 earnings were insufficient to cover fixed charges
by $5,287.
(2) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and excludes the cumulative effect of a change in accounting
principle of ($2,000) in 1993. EBITDA is presented because it is commonly
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance and to determine a company's ability to
service and incur debt. EBITDA should not be considered in isolation from
or as a substitute for net income, cash flows from operating activities or
other consolidated income or cash flow statement data prepared in
accordance with generally accepted accounting principles or as a measure
of profitability or liquidity.
(3) Cost of risk is defined as the total cost of cash-in-transit insurance
coverage (cargo), casualty and other insurance (worker's compensation,
automobile liability, general liability and other coverage), and surety
and includes premiums, broker's fees, administration charges, payments
under deductibles provisions, collateral fees and insurance related
incentive programs.
(4) Number of ATMs serviced is defined as the number of ATM machines under
contract at the end of each period whether on a fixed fee monthly contract
or on a variable fee for service basis.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except as otherwise indicated, the following discussion and analysis of
results of operations and financial condition of Loomis, Fargo & Co.,
successor to Loomis and Wells Fargo Armored covers periods before the
consummation of the Transactions. Accordingly, the discussion and analysis of
such periods does not reflect the significant impact that the Transactions,
the Original Offering and the New Credit Facility have had on the Company. See
"Pro Forma Combined Financial Information" and "Prospectus Summary--
Consolidation Savings." In addition, the following discussion and analysis is
based upon and should be read in conjunction with "Selected Historical
Financial Information" and the consolidated financial statements of each of
Loomis, Fargo & Co., and Wells Fargo Armored, including the notes thereto,
included elsewhere in this Prospectus.
LOOMIS, FARGO & CO.
OVERVIEW
Loomis was incorporated and has operated under the name Loomis Holding
Corporation since 1991. On May 5, 1991, Loomis acquired Loomis Armored for
$27.8 million. Loomis Armored was incorporated in 1928. In connection with the
Transactions, Loomis was reorganized into Loomis, Fargo & Co. on January 24,
1997.
RESULTS OF OPERATIONS
The following table sets forth Loomis, Fargo & Co.'s results of operations
expressed as a percentage of revenue.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
YEARS ENDED ENDED ENDED
JUNE 30, DECEMBER 31, MARCH 31,
-------------------- -------------- --------------
1994 1995 1996 1995 1996 1996 1997
----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of operations:
Payroll and related
expense.............. 68.0 67.1 67.0 65.8 65.5 64.9 59.6
Vehicle expense....... 12.8 12.0 11.7 12.1 11.6 11.8 13.1
Facilities expense.... 5.1 4.3 4.3 4.4 4.0 4.3 4.1
Other operating
expenses............. 13.8 13.9 14.3 14.5 13.3 16.3 21.9
Gains associated with
benefit plans........ (1.6) 0.0 (0.8) 0.0 0.0 0.0 0.0
Expenses relating to
the Transactions..... 0.0 0.0 0.0 0.0 0.0 0.0 1.4
----- ----- ----- ------ ------ ------ ------
Operating income........ 1.9 2.7 3.5 3.2 5.6 2.7 (0.1)
Interest expenses, net.. 2.9 2.7 2.5 2.6 2.2 2.4 3.9
----- ----- ----- ------ ------ ------ ------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle.............. (1.0) 0.0 1.0 0.6 3.4 0.3 (4.0)
Income taxes............ 0.0 0.0 0.1 0.1 0.1 -- --
----- ----- ----- ------ ------ ------ ------
Cumulative effect of
change in accounting
principle.............. 0.4 0.0 0.0 0.0 0.0 -- --
----- ----- ----- ------ ------ ------ ------
Income (loss) before
extraordinary item..... (1.4%) 0.0% 0.0% 0.5% 3.3% 0.3% (4.0%)
Extraordinary item (net
of provision for income
tax)................... -- -- -- -- -- -- (0.2)
----- ----- ----- ------ ------ ------ ------
Net income (loss)....... (1.4%) 0.0% 0.9% 0.5% 3.3% 0.3% (4.2%)
===== ===== ===== ====== ====== ====== ======
</TABLE>
38
<PAGE>
Three months ended March 31, 1996 compared with three months ended March 31,
1997
A comparison of the Company's results of operations for the first quarter of
1997 with Loomis's results of operations for the first quarter of 1996 is
necessarily focused on the significant difference in the size of the Company
before and after the acquisition of certain assets and liabilities of Wells
Fargo Armored. The audited financial statements of the separate companies as
of December 31, 1996 reflect annual 1996 revenues and property and equipment
of Wells Fargo Armored that were approximately twice as large as those of
Loomis, and net assets of Well's Fargo Armored that were three times as large.
While this increase in the Company's size offers potential for future growth
and profitability, the business combination tends to dominate any financial
comparison of periods before and after the transactions. Results of operations
and related cash flows for the first three months of 1997 include 23 days of
Loomis alone before the combination, and 67 days of combined operations
beginning with the January 24, 1997 closing date. For a condensed comparison
of first quarter operations of 1996 and 1997 on a pro forma basis, as if the
companies had been combined for the entirety of the two periods, see the Pro
Forma Combined Financial Information included elsewhere in this Prospectus.
Revenues. Revenues increased from $30.2 million for the three months ended
March 31, 1996 to $79.9 million for the three months ended March 31, 1997, an
increase of $49.7 million or 164.6%, of which $46.6 million is due to the
acquisition of the assets of Wells Fargo Armored. Excluding the increase from
the acquisition, revenues increased $3.1 million or 10% over the three months
ended March 31, 1996. The following table analyzes revenues by type of
service.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31
---------------
1996 1997 CHANGE PERCENT
------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Traditional armored transport services..... $ 24.2 $ 47.9 $ 23.7 97.9%
ATM services............................... 3.6 23.3 19.7 547.2%
Cash vault and related services............ 2.4 8.7 6.3 262.5%
------- ------- ------
$ 30.2 $ 79.9 $ 49.7 164.6%
======= ======= ======
</TABLE>
ATM services have continued to expand dramatically with additional service
opportunities in both the number of ATM locations and the additional items
being dispensed through ATMs. Not including the ATM locations added in the
acquisition of Wells Fargo Armored, the number of ATMs served increased by
approximately 1,500 machines in the three months ended March 31, 1997 compared
to the three months ended March 31, 1996. The increase in ATMs served has also
benefitted armored transport and cash vault revenues as customers often prefer
to use one risk management service provider. The significant increase in ATM
services revenue reflects both Loomis Holding Corporation's strategic decision
to develop this market segment and the strong presence of Wells Fargo Armored
in the ATM services market even before the combination. Although the Company's
revenues are generally level throughout the year, revenues vary due to the
extent that demand for money increases during the major holiday seasons.
Payroll and related expense. Payroll and related expense increased from
$19.6 million for the three months ended March 31, 1996 to $47.6 million for
the three months ended March 31, 1997, an increase of $28.0 million or 142.9%.
Payroll and related expense as a percent of revenue decreased from 64.9% for
the three months ended March 31, 1996 to 59.6% for the three months ended
March 31, 1997. The increase in payroll and related expense was principally
related to the employee base acquired from Wells Fargo Armored of
approximately $24.6 million. Additional increases for growth in the employee
base for new business and wage increases totaled approximately $3.0 million.
The decrease of payroll and related expense as a percentage of revenues
reflects the lower wage rates of the employee base acquired from Wells Fargo
Armored. Management estimates that, upon completion of its consolidation plan
expected by December 31, 1997, annual savings of approximately $3.4 million
will be realized in the area of payroll and related expense over the cost of
operating Loomis and Wells Fargo Armored separately.
39
<PAGE>
Vehicle expense. Vehicle expense increased from $3.6 million for the three
months ended March 31, 1996 to $10.4 million for the three months ended March
31, 1997, an increase of $6.8 million, or 188.9%, of which $6.3 million was
related to the fleet acquired from Wells Fargo Armored. Vehicle expense as a
percent of revenue increased from 11.8% for the three months ended March 31,
1996 to 13.0% for the three months ended March 31, 1997. The increase as a
percentage of revenues can be attributed to the higher depreciation and lease
expenses of the relatively newer fleet of Wells Fargo Armored acquired in the
business combination, and management's emphasis on preventive maintenance
programs on the acquired fleet. The number of trucks in active service
increased from approximately 950 to approximately 2,800 with the business
combination.
Facilities expense. Facilities expense increased from $1.3 million for the
three months ended March 31, 1996 to $3.3 million for the three months ended
March 31, 1997, an increase of $2.0 million, or 153.8%. Facilities expense as
a percent of revenue decreased from 4.3% for the three months ended March 31,
1996 to 4.1% for the three months ended March 31, 1997. The number of
operating sites increased from 69 to 197 sites with the purchase of Wells
Fargo Armored, with $1.6 million of the increase in facilities expense
associated with the acquired branches. The remaining $0.4 million increase
includes the maintenance of the duplicate headquarters in Atlanta. The
phaseout of duplicate facilities is scheduled to be completed by December 31,
1997.
Other operating expenses. Other operating expenses increased from $4.9
million for the three months ended March 31, 1996 to $17.5 million for the
three months ended March 31, 1997, an increase of $12.6 million, or 257.1%.
Other operating expenses as a percent of revenue increased from 16.3% for the
three months ended March 31, 1996 to 21.9% for the three months ended March
31, 1997. Other operating expenses include such expenses as cargo insurance
premiums and losses, a centralized dispatch center, and the testing,
recruiting and training of employees. Other operating costs associated with
the facilities acquired from Wells Fargo Armored were approximately $8.0
million. The Company experienced higher cargo losses in the three months ended
March 1997 compared to the three months ended March 1996, due to the
substantially higher rate of cargo losses at the acquired Wells Fargo Armored
facilities. The total increase in retained cargo losses was $3.8 million over
the prior year. Also, cargo premiums increased from $0.6 million in the three
months ended March 31, 1996 to $0.8 million in the three months ended March
31, 1997. Additionally, operating expense increased by $0.4 million for the
incremental amortization of goodwill related to the business combination.
Expenses relating to the Transaction. Expenses related to the Transactions
include payroll-related and other costs of consolidating operations following
the business combination, including the maintenance of two corporate offices
and other duplicate functions during the period of transition. The
consolidation is expected to be completed by December 31, 1997.
Extraordinary item. An extraordinary item of $0.1 million was recorded in
the three months ended March 31, 1997, resulting from the write-off of
deferred financing costs associated with the debt retired in January 1997.
Six months ended December 30, 1995 compared with six months ended December
30, 1996
Revenues. Revenues increased from $57.8 million for the six months ended
December 31, 1995 to $65.8 million for the six months ended December 31, 1996,
an increase of $8.0 million or 13.8%. The following table analyzes revenues by
type of service.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31,
---------------
1995 1996 CHANGE PERCENT
------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Traditional armored transport services..... $ 48.2 $ 49.1 $0.9 1.9%
ATM services............................... 4.5 10.9 6.4 142.2
Cash vault and related services............ 5.1 5.8 0.7 13.7
------- ------- -----
Total revenue............................ $ 57.8 $65.8 $ 8.0 13.8
======= ======= =====
</TABLE>
40
<PAGE>
ATM services have continued to expand dramatically with additional service
opportunities in both the number of ATM locations and the additional items
being dispensed through ATMs. The significant improvement in ATM services
revenue has resulted from Loomis' strategic decision to increase its efforts
in developing this market segment.
Payroll and related expense. Payroll and related expense increased from
$38.0 million for the six months ended December 31, 1995 to $43.0 million for
the six months ended December 31, 1996, an increase of $5.0 million or 13.2%.
Payroll and related expense as a percent of revenue decreased slightly from
65.8% for the six months ended December 31, 1995 to 65.5% for the six months
ended December 31, 1996. The increase in payroll and related expenses is
primarily attributable to additional personnel required to support the growing
market for ATM services.
Vehicle expense. Vehicle expense increased from $7.0 million for the six
months ended December 31, 1995 to $7.6 million for the six months ended
December 31, 1996, an increase of $0.6 million or 8.6%. Vehicle expense as a
percent of revenue decreased from 12.1% for the six months ended December 31,
1995 to 11.6% for the six months ended December 31, 1996. The primary reason
for the $0.6 million increase in vehicle expense was related to an increase in
the price of gasoline and diesel fuel. The reduction in vehicle expense as a
percent of revenue primarily resulted from reduced vehicle repair expense as
new armored vehicles have replaced older vehicles that had previously been
utilized at near full capacity. The reduction in vehicle repairs has more than
offset the increase in armored vehicle depreciation.
Facilities expense. Facilities expense increased from $2.5 million for the
six months ended December 31, 1995 to $2.7 million for the six months ended
December 31, 1996. Facilities expense as a percent of revenue decreased from
4.4% for the six months ended December 31, 1995 to 4.0% for the six months
ended December 31, 1996. No new facilities have been opened since December 31,
1995.
Other operating expenses. Other operating expenses increased from $8.4
million for the six months ended December 31, 1995 to $8.7 million for the six
months ended December 31, 1996. Other operating expenses as a percent of
revenue decreased from 14.5% for the six months ended December 31, 1995 to
13.3% for the six months ended December 31, 1996. Other operating expenses
include such expenses as cargo insurance premiums and losses; subcontracting
costs; and testing, recruiting, uniforming, and training of employees.
Included in other operating expenses is the amortization of a covenant not to
compete and the cost of purchased contracts which became fully amortized
during fiscal year ended June 30, 1996. Consequently, amortization of these
intangible assets decreased by $0.5 million for the six months ended December
31, 1996.
Operating income. Operating income increased from $1.9 million for the six
months ended December 31, 1995 to $3.7 million for the six months ended
December 31, 1996, an increase of $1.8 million or 94.7%, for the reasons
stated above.
Net income. Net income increased from $0.3 million for the six months ended
December 31, 1995 to $2.2 million for the six months ended December 31, 1996,
an increase of $1.9 million or 633.3%, for the reasons stated above.
Fiscal year ended June 30, 1995 compared with fiscal year ended June 30, 1996
Revenues. Revenues increased from $115.1 million in fiscal 1995 to $119.5
million in fiscal 1996, an increase of $4.4 million or 3.8%. The following
table analyzes revenues by type of service.
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
---------------
1995 1996 CHANGE PERCENT
------- ------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Traditional armored transport services.... $ 98.5 $ 96.2 $ (2.3) (2.3)%
ATM services.............................. 7.2 13.1 5.9 80.6
Cash vault and related services........... 9.4 10.2 0.8 8.5
------- ------- ------
Total revenue........................... $ 115.1 $ 119.5 $ 4.4 3.8
======= ======= ======
</TABLE>
41
<PAGE>
In fiscal 1995, Loomis developed an improved revenue management system which
effectively identified those contracts which were inappropriately priced
relative to cost of service. As a result of this review, traditional armored
transport and cash vault and related services revenues in fiscal 1996
initially declined with the loss of certain high risk and low profitability
customers. By mid-1996 Loomis returned to building the customer base with a
higher quality of revenue and finished the fiscal year with significantly
improved revenue per fixed billing location served. Fixed billing revenue per
location served increased from $329 monthly at June 30, 1995 to $368 monthly
at June 30, 1996, an 11.8% increase. ATM services revenues were responsible
for most of the revenue growth during fiscal 1996, with an 81% increase over
fiscal 1995, which more than offset a decrease in traditional armored
transport services.
Payroll and related expense. Payroll and related expense increased from
$77.3 million in fiscal 1995 to $80.0 million in fiscal 1996, an increase of
$2.7 million or 3.5%. Payroll and related expense as a percent of revenue
decreased slightly from 67.1% in fiscal 1995 to 66.9% in fiscal 1996, which in
part reflects improvement in the customer mix. With the growth in ATM
services, Loomis' wage structure has increased to support three-person crews
which are used on most ATM routes as well as service locations with higher
risk profiles. The effect of the increased wages has been more than offset
during this period due to a change to subcontracting work related to some of
Loomis' coin operations that previously were performed in-house. These
subcontracting expenses, which increased by $0.8 million in fiscal 1996, are
included in other operating expenses. Loomis established a $0.3 million
reserve for discretionary bonuses in fiscal 1996 that were unrelated to branch
performance. An additional expense of $0.2 million was incurred in fiscal 1996
to harmonize branch specific vacation policies to a region standard vacation
entitlement program.
Vehicle expense. Vehicle expense increased from $13.8 million in fiscal 1995
to $14.0 million in fiscal 1996, an increase of $0.2 million or 1.6%. Vehicle
expense as a percent of revenue decreased slightly from 12.0% in fiscal 1995
to 11.7% in fiscal 1996. The decrease as a percent of revenue primarily
related to a reduction of over $0.4 million related to auto and general
liability insurance losses. Additionally, armored truck depreciation continued
to decline, by $0.2 million, between fiscal 1995 and fiscal 1996 as a portion
of Loomis' vehicles became fully depreciated.
Facilities expense. Facilities expense increased from $5.0 million in fiscal
1995 to $5.1 million in fiscal 1996, an increase of $0.1 million or 2.0%.
Facilities expense as a percent of revenue remained constant for both fiscal
1995 and 1996 at 4.3%.
Other operating expenses. Other operating expenses increased from $15.9
million in fiscal 1995 to $17.1 million in fiscal 1996, an increase of $1.2
million or 7.4%. Other operating expenses as a percent of revenue increased
from 13.8% in fiscal 1995 to 14.3% in fiscal 1996. As noted above, the Company
shifted certain coin operation work previously performed in-house to
subcontractors. The shift resulted in an increase in subcontracting expense of
$0.8 million from fiscal 1995 to 1996. Excluding this shift in operational
strategy, other operating expense as a percent of revenue would have decreased
to 13.7%. Loomis established in fiscal 1996 a reserve of $0.3 million for a
potential settlement of a customer dispute and a reserve of $0.3 million for a
wrongful termination suit for an employee terminated in June 1994.
Gains associated with benefit plans. The $1.0 million gain associated with
benefit plans in fiscal 1996 related to the termination of Loomis'
postretirement benefit plan. See footnote 7 to the audited financial
statements of Loomis for further discussion.
Operating income. Operating income increased from $3.1 million in fiscal
1995 to $4.2 million in fiscal 1996, an increase of $1.1 million or 34.0%, for
the reasons stated above.
Net income. Net income increased from a slight loss in fiscal 1995 to $1.1
million net income in fiscal 1996, an increase of $1.2 million, for the
reasons stated above.
42
<PAGE>
Fiscal year ended June 30, 1994 compared with fiscal year ended June 30, 1995
Revenues. Revenues increased from $106.4 million in fiscal 1994 to $115.1
million in fiscal 1995, an increase of $8.7 million or 8.2%. The following
table analyzes revenues by type of service.
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
---------------
1994 1995 CHANGE PERCENT
------- ------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Traditional armored transport services......... $ 93.4 $ 98.5 $ 5.1 5.5%
ATM services................................... 5.0 7.2 2.2 44.0
Cash vault and related services................ 8.0 9.4 1.4 17.5
------- ------- -----
Total revenue................................ $ 106.4 $ 115.1 $ 8.7 8.2
======= ======= =====
</TABLE>
The increase in traditional armored transport services and cash vault and
related services revenues resulted in part from corrective price increases
associated with the development of the new revenue management system. In
addition, Loomis provided more cash vault and related services to an
increasing number of ATM customers.
Payroll and related expense. Payroll and related expense increased from
$72.4 million in fiscal 1994 to $77.3 million in fiscal 1995, an increase of
$4.9 million or 6.7%. Payroll and related expense as a percent of revenue
decreased from 68.1% in fiscal 1994 to 67.1% in fiscal 1995. Payroll and
related expense declined as a percentage of revenue due to higher revenue from
the improved price structure associated with the quality of revenue program
and a $0.4 million decrease in workers' compensation cost resulting from
improved loss history.
Vehicle expense. Vehicle expense increased from $13.6 million in fiscal 1994
to $13.8 million in fiscal 1995, an increase of $0.2 million or 1.7%. Vehicle
expense as a percent of revenue decreased from 12.8% in fiscal 1994 to 12.0%
in fiscal 1995. Fixed vehicle expense declined by $0.4 million as a portion of
Loomis' vehicles became fully depreciated.
Facilities expense. Facilities expense decreased from $5.4 million in fiscal
1994 to $5.0 million in fiscal 1995, a decrease of $0.4 million or 7.5%.
Facilities expense as a percent of revenue decreased from 5.1% in fiscal 1994
to 4.3% in fiscal 1995 due primarily to the 8.2% increase in revenues from
fiscal 1994 to fiscal 1995.
Other operating expenses. Other operating expenses increased from $14.7
million in fiscal 1994 to $15.9 million in fiscal 1995, an increase of $1.2
million or 8.6%. Other operating expenses as a percent of revenue remained
constant at 13.8%.
Gains associated with benefit plans. The gain associated with benefit plans
in fiscal 1994 related to the curtailment of future benefits under Loomis'
defined benefit plan. See footnote 7 to the audited financial statements for
further discussion.
Operating income. Operating income increased from $2.0 million in fiscal
1994 to $3.1 million in fiscal 1995, an increase of $1.1 million or 54.7%, for
the reasons stated above.
Cumulative effect of change in accounting principle. The cumulative effect
of change in accounting principle totaling $0.5 million expense in fiscal 1994
resulted from the adoption of Statement of Financial Accounting Standards No.
106, Employer's Accounting for Postretirement Benefits Other Than Pensions.
See footnote 7 to the audited financial statements for further discussion.
Net income (loss). Net income increased from a net loss of $1.4 million in
fiscal 1994 to a slight loss in fiscal 1995, an increase of $1.4 million, for
the reasons stated above.
43
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents at June 30, 1995, June 30, 1996, December
31, 1996, March 31, 1996 and March 31, 1997 were $1.9 million, $3.4 million,
$2.5 million, $2.5 million and $8.6 million, respectively. Included in these
amounts for June 30, 1995, June 30, 1996, December 31, 1996 and March 31, 1996
were $1.5 million in restricted cash and cash equivalents. Changes in cash and
cash equivalents and other working capital items are described in the
Company's consolidated statements of cash flows, which are summarized below.
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
YEARS ENDED ENDED ENDED MARCH
JUNE 30, DECEMBER 31, 31,
------------ ------------ --------------
1995 1996 1996 1996 1997
----- ----- ------------ ----- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities.......... $ 0.7 $ 3.8 $ 1.2 $ 2.0 $ (1.8)
Net cash used in investing
activities.................... (0.4) (1.8) (1.3) (0.6) (105.8)
Net cash provided by (used in)
financing activities.......... -- (0.6) (0.8) (0.4) 115.3
</TABLE>
Net cash provided by operating activities in the three months ended March
31, 1996 decreased to net cash used in operating activities in the three
months ended March 31, 1997, primarily due to the net loss in 1997.
In the three months ended March 31, 1996, cash was used in investing
activities primarily for vehicles and computer equipment. In the three months
ended March 31, 1997, cash was primarily used in the acquisition of the assets
of Wells Fargo Armored.
In the three months ended March 31, 1996, cash was used to repay debt and
capital leases. In the three months ended March 31, 1997, cash was provided by
financing activities entered into in connection with the business combination.
Long-term obligations of $24.7 million were repaid, preferred stock of $3.5
million was redeemed, $8.7 million of cash distributions were made for the
benefit of stockholders of Loomis and $4.7 million of financing costs were
paid in connection with the refinancing of the Company's debt. Borrowings of
$73.5 million were drawn against the Company's New Credit Facility, and $85.0
million of Old Notes that were sold in the Original Offering.
Net cash provided by operating activities increased $3.2 million from fiscal
1995 to fiscal 1996. Loomis experienced improved net income over prior years
of $1.5 million in fiscal 1995 and $1.2 million in fiscal 1996. Despite the
improvement in net income during fiscal 1995, operating cash flows for the
period declined compared to fiscal 1994 due in part to a change in Loomis'
major medical plan. Also, operating cash flow was reduced in fiscal 1995 due
to the payment of $0.9 million in interest during fiscal 1995 that had been
recognized as expense in fiscal 1994. Finally, a change in Loomis' cash-in-
transit insurance program resulted in the use of $1.5 million in operating
cash flow during fiscal 1995 to fund a restricted cash requirement. Net cash
provided by operations was $1.2 million in the six months ended December 31,
1996. Loomis' net income of $2.2 million in the six months ended December 31,
1996 is consistent with the improving trend in net income. On an annualized
basis, the net income of the six month period would indicate an improvement of
$3.3 million over the fiscal year ended June 30, 1996.
Net cash used in investing activities in fiscal 1995 was $0.4 million,
reflecting capital expenditures necessary to maintain existing assets. Net
cash used in investing activities in fiscal 1996 was $1.8 million of which
$1.1 million was used for vehicle refurbishment and new vehicles to meet the
new equipment requirements of business growth. An additional $0.7 million was
used for support equipment, computer and software needs, and capital
expenditures necessary to maintain existing assets. The cash used in investing
activities in the six months ended December 31, 1996 was $1.3 million, of
which $0.9 million was used for computers and software purchased in
anticipation of the acquisition of Wells Fargo Armored.
44
<PAGE>
Net cash used in financing activities in fiscal 1994 was $2.5 million, of
which $1.5 million was used to repay principal of a long-term note with a
commercial finance company and the remainder was used to pay down on Loomis'
revolver. The remaining $0.4 million of the long-term note with the commercial
finance company was repaid in fiscal 1995. In fiscal 1996, Loomis borrowed a
$4.0 million term loan from a commercial finance company under its credit
facility for the purpose of repaying $4.0 million to certain senior and junior
subordinated debt holders and negotiated a deferral of the remaining principal
to September 30, 1999. Net cash of $0.8 million used in financing activities
in the six months ended December 31, 1996 was primarily payment of costs
related to the acquisition of Wells Fargo Armored, and the related refinancing
of debt.
The Company's balance sheet reflected working capital of $7.3 million at
March 31, 1997. The Company is highly leveraged, with long-term liabilities
comprising 80% of total liabilities and common stockholders' deficit at March
31, 1997.
The Company's revolving bank credit facility provides initial aggregate
commitments of $115 million through December 1997. These funds can be borrowed
for unspecified time periods at a base rate tied to the bank's prime rate, or
for fixed periods under variable rates tied to LIBOR. The facility includes
guarantees of letters of credit, of which approximately $11.7 million were
outstanding at March 31, 1997. The agreement includes a step-down of
commitments over the final four years of the facility. Remaining commitments
available under the facility at March 31, 1997 were $29.9 million.
In one year, total commitments under the agreement will decrease to $112.5
million. It is anticipated that letters of credit requirements, principally
for casualty liabilities, will increase to approximately $24.0 million,
leaving $88.5 million in commitments. The Company's management believes that
the operating cash flow and this remaining financing commitment will be more
than adequate to fund future operating needs and anticipated payment of the
NOL note in April 1998.
Planned capital expenditures for the next twelve months are $12 million,
primarily vehicles, which will depend on growth rate experienced. Committed
capital expenditures of $2.2 million include $1.5 million for vehicles.
TAX LOSS CARRYFORWARD
The Company had a net operating loss carryforward at December 31, 1996 of
$15.1 million and therefore has generally not been subject to federal and
state income taxes due to the availability of this net operating loss
carryforward resulting in a net deferred tax asset. The realization of this
deferred tax asset is dependent primarily on the Company's ability to generate
future taxable earnings. Because the Company's operating history does not
provide sufficient evidence to conclude that it is more likely than not that
it will generate sufficient future taxable earnings to realize this asset, a
valuation allowance for the full amount of the net deferred tax asset has been
recorded. Changes in this valuation allowance result primarily from
utilization of net operating loss carryforwards. See footnote 6 to the audited
financial statements for further discussion.
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"),
provides that upon the occurrence of a more than 50% change in the ownership
of a corporation having a net operating loss carryforward, the annual
utilization of such net operating loss carryforward will be limited to an
amount generally determined by multiplying the value of the stock of the loss
corporation immediately before the ownership change times an applicable
federal rate (currently 5.64%) (an "Annual Limitation"). The Company currently
intends to take the position that the Transactions do not result in an
ownership change of Loomis for purposes of Section 382 of the Code. However,
there can be no assurance that the Internal Revenue Service will not disagree
with such position. Further, because small changes in the direct or indirect
ownership of the Company during the three year period following the Closing
Date may result in an ownership change with respect to the Company for
purposes of Section 382 of the Code, there can be no assurance that an Annual
Limitation will not become applicable to the Loomis net operating loss
carryforward following the Closing of the Transactions.
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SEASONALITY
Although the Company's sales are generally level throughout the year, the
Company's sales vary to the extent demand for money increases during major
holiday seasons. Additional charges apply to most deliveries made on bank
holidays. Extra charges are incurred by customers during the increased demand
during the pre-Christmas shopping season relating to increased item count,
liability limits, and special runs. Payroll related costs generally follow the
same seasonal pattern with paid holidays and overtime for work done on bank
holidays.
WELLS FARGO ARMORED
OVERVIEW
Wells Fargo Armored is a security-related cash services business that
provides traditional armored transport services, ATM services and cash vault
and related services in the United States and Puerto Rico. The traditional
armored transport services business, consisting of the transportation by
heavily armored vehicles of currency, securities and other valuables for the
banking industry, is a mature business that experiences modest growth. In
reaction to consolidation in the banking industry, Wells Fargo Armored has
expanded into additional areas of service, including ATM services and cash
vault and related services. It has also expanded the markets served by the
traditional armored transport business by providing service in small to mid-
size markets for retail clients that have not traditionally used armored
transport services. Consolidated net service revenues have increased from
$211.2 million in 1994 to $246.3 million in 1996, an annual compound increase
of 8.0%, and ATM services revenues have increased from $73.0 million in 1994
to $92.4 million in 1996, an annual compound increase of 12.6%.
During 1994 increased cargo losses relative to historic levels resulted in
increased security costs and insurance premiums. Wells Fargo Armored responded
with a pricing effort in 1995 and 1996 to better align prices with the cost of
risk of providing armored transport services. In addition, Wells Fargo Armored
expanded its programs to reduce cargo losses, the benefits of which began to
be seen in 1995 and continued into 1996. Such programs include lowering the
profile of its vehicles, increasing security training, improving security
measures through technology and route structure and eliminating certain
higher-risk services.
RESULTS OF OPERATIONS
The following table sets forth the Wells Fargo Armored's results of
operations expressed as a percentage of revenue.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net service revenues.... 100.0% 100.0% 100.0%
Gross profit............ 16.2 18.3 17.0
Selling, general and
administrative
expenses............... 10.1 8.1 8.2
Depreciation............ 3.4 3.1 2.8
Earnings from
operations............. 0.6 5.1 3.9
Net earnings (loss)..... (1.7) 1.2 0.5
</TABLE>
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<PAGE>
Fiscal year ended December 31, 1995 compared with fiscal year ended December
31, 1996.
The following table sets forth information concerning the revenue
contributed by each sector of Wells Fargo Armored:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1995 1996 CHANGE PERCENT
------ ------ ------ -------
<S> <C> <C> <C> <C>
Traditional armored transport.................. $133.5 $137.9 $ 4.4 3.3%
ATM services................................... 81.2 92.4 11.2 13.8
Cash vault and related services................ 16.3 16.0 (0.3) (0.2)
------ ------ -----
Total........................................ $231.0 $246.3 $15.3 6.6%
====== ====== =====
</TABLE>
Consolidated net service revenue increased 6.6% in 1996 compared with 1995.
Higher volume in ATM services, both for new and existing customers, and
selected price increases contributed to the revenue increase.
Gross profit margins declined to 17.0% in 1996 from 18.3% in 1995 due to
higher labor, vehicle and insurance costs, as well as higher cargo losses.
Beginning in 1995, Wells Fargo Armored increased its use of operating leases
relative to capital leases and purchases for capital investments, principally
vehicles. As a result, costs of services have increased while depreciation
expense has decreased as a percentage of revenues. Selling, general and
administrative expenses have stabilized as a percentage of revenues as Wells
Fargo Armored received the full impact of certain cost reduction programs
implemented in late 1994. Such programs included consolidation of certain
regions, administrative consolidation of certain traditional armored transport
and ATM Services offices and consolidation of certain back office functions at
the corporate and branch office levels.
Interest expense is based on financing decisions and allocations made by
Borg-Warner. Wells Fargo Armored participates in the receivables financing
facility that Borg-Warner established in November 1995 and the level of its
participation affects Borg-Warner's net investment in Wells Fargo Armored.
Because interest expense includes both the balance of receivables sold by
Wells Fargo Armored and certain debt allocations made by Borg-Warner,
management does not believe that the reported amount of interest expense is
material to an analysis of Wells Fargo Armored's results.
Wells Fargo Armored is included in Borg-Warner's consolidated United States
income tax return. The provision for income taxes is determined on a separate
return basis. Effective tax rates have varied from the federal tax rate
primarily due to nondeductible amortization of excess purchase price over net
assets acquired. Such excess purchase price results from the increase in
carrying values of Wells Fargo Armored's assets in connection with the 1987
acquisition of Borg-Warner and its subsidiaries (including Wells Fargo
Armored).
Fiscal year ended December 31, 1994 compared with fiscal year ended December
31, 1995
The following table sets forth information concerning the revenue
contributed by each sector of Wells Fargo Armored:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1994 1995 CHANGE PERCENT
------ ------ ------ -------
<S> <C> <C> <C> <C>
Traditional armored transport.................. $121.5 $133.5 $12.0 9.9%
ATM services................................... 73.0 81.2 8.2 11.2
Cash vault and related services................ 16.7 16.3 (0.4) (2.4)
------ ------ -----
Total........................................ $211.2 $231.0 $19.8 9.4%
====== ====== =====
</TABLE>
Consolidated net service revenue increased 9.4% in 1995 compared with 1994.
Wells Fargo Armored instituted a pricing effort to better align prices with
the increasing cost of risk of providing armored transport
47
<PAGE>
services. In addition, Wells Fargo Armored increased its volume of armored
transport and ATM Services business in 1995. Wells Fargo Armored's traditional
armored transport unit has expanded its operations to provide deposit pick up
services in small to medium-sized markets for retailers that have not
traditionally used armored transport services.
Gross profit margins improved to 18.3% in 1995 compared to 16.2% in 1994
primarily due to improved pricing and programs to improve profitability and
control losses. During 1994 an increased amount of cargo losses relative to
historic levels resulted in increased security costs and insurance premiums.
Pricing efforts in 1995 focused on recovering these cost increases. Cost
reduction programs implemented in late 1994 were effective in reducing general
and administrative expenses. Such programs included consolidation of certain
regions, administrative consolidation of certain traditional armored transport
and ATM Services offices and consolidation of certain back office functions at
the corporate and branch office levels. As a result, earnings from operations
increased from 0.6% of revenues in 1994 to 5.1% of revenues in 1995.
Beginning in 1995, Wells Fargo Armored increased its use of operating leases
relative to capital leases for capital investments. As a result, cost of
services will increase while depreciation expense will decrease as a
percentage of revenues.
FINANCIAL CONDITION AND LIQUIDITY
Wells Fargo Armored's operations overall generate sufficient cash flow to
meet its operating capital needs. Wells Fargo Armored is part of Borg-Warner's
central cash management system, wherein excess cash is transferred to Borg-
Warner and short-term working capital needs are funded by Borg-Warner.
Financing decisions and allocations made by Borg-Warner affect Borg-Warner's
net investment in Wells Fargo Armored.
Wells Fargo Armored is involved in several legal actions arising in the
ordinary course of business. Wells Fargo Armored believes that the various
asserted claims and litigation in which it is involved will not materially
affect its financial position or future operating results, although no
assurance can be given with respect to the ultimate outcome of any such claim
or litigation.
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<PAGE>
BUSINESS
GENERAL
Loomis, Fargo & Co., created through the combination of Loomis Armored and
Wells Fargo Armored, is one of the largest armored transport companies in the
United States. Loomis, Fargo & Co. operates over 150 branches, employs
approximately 8,700 persons, and utilizes a fleet of approximately 2,700
armored vehicles nationwide to provide armored ground transport services,
automated teller machine ("ATM") services, and cash vault and related services
to financial institutions and other commercial customers. Serving all 50
states and Puerto Rico, the Company is one of only two armored transport
companies in the United States which provides these services on a national
basis. Management believes that large financial and retail institutions are
increasingly seeking vendors capable of providing an array of services on a
national basis and that the combination of Loomis Armored and Wells Fargo
Armored favorably positions the Company for additional revenue opportunities.
In addition, management believes the proliferation of ATMs and the trend of
banks and other financial and retail institutions towards outsourcing cash
vault and related services should contribute to the Company's growth
prospects. For the twelve months ended December 31, 1996 and the three months
ended March 31, 1997, the Company would have had revenues of $373.7 million
and $95.2 million, respectively, and EBITDA of $35.2 million and $4.6 million,
respectively.
The Company is implementing the management principles and decentralized
structure utilized by the Loomis Armored management team, which have proven to
be highly effective in reducing employee turnover, increasing customer
satisfaction and decreasing "cost of risk," which consists of the cost of
cargo and casualty losses, related insurance costs and claims administration
expenses. Since implementing this strategy at Loomis Armored in 1991, Loomis
Armored's total cost of risk decreased from 10.9% of revenues for the year
ended June 30, 1992 to 7.4% of revenues for the twelve months ended December
31, 1996, and EBITDA as a percent of revenues increased from 2.4% to 7.5% over
the same period. Management believes that by combining the management strategy
and risk management skills of Loomis Armored with the larger customer base and
leading ATM services position of Wells Fargo Armored, the Company is well-
positioned to capitalize on the numerous opportunities developing in the
armored transport industry.
THE INDUSTRY
The U.S. armored transport industry consists of two national companies and
over 100 regional and local companies. Management estimates that the ten
largest of these companies have aggregate annual revenues of approximately
$1.0 billion. The industry provides a variety of services which can be
categorized as (i) traditional armored ground transportation of cash and other
valuables, (ii) ATM services and (iii) cash vault and related services.
Traditional Armored Ground Transportation. Traditional armored ground
transportation is the largest sector of the armored transport industry and
represents the core service provided by the industry. Armored vehicles
transport currency and other valuables between commercial enterprises and
banks, between banks, and from the Federal Reserve Banks to commercial banks.
Approximately one-half of ground transportation revenues in the industry were
generated from financial institutions. Other customers of ground
transportation services include a wide range of commercial establishments as
well as governmental entities.
Typically, ground transportation services have been provided by a two-person
crew, comprised of a driver and a guard, operating in an armored vehicle. At
each stop, the guard exits the vehicle to pick up or deliver cargo, usually
currency and/or coin, while the driver normally remains inside the vehicle.
The cargo typically is received by the guard in a sealed bag bearing a tag
indicating the amount of cash the bag is said to contain. The sealed bag is
ultimately delivered to its destination without being opened while in the
custody of the armored carrier.
In effect, the armored transport industry provides customers a logistical
service in transporting valuables as well as a form of insurance by accepting
the risk of cargo losses. Until recently, cash-in-transit insurance for
armored transport service providers was relatively easy to obtain, in part
because armored carriers were not
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<PAGE>
frequently targeted by criminals, and carriers were able to pass most of the
risk to insurance companies. Accordingly, the economics of the industry were
based largely on routing efficiency or density and effective cost control.
Quality of service was measured primarily by timeliness of pick-up and
delivery. Generally, risk management, while important, was not a crucial
service differentiator as long as the carrier maintained adequate insurance.
By the early 1990s, however, armored vehicles had increasingly become targets
of armed robbery, particularly on the east and west coasts. As a result, cargo
loss insurers suffered substantial losses and the cost of cash-in-transit
insurance increased significantly for large carriers, forcing them to retain
greater risk and pay higher premiums.
Due to these changes, quality risk management has become increasingly
important from both a cost and marketing perspective. While the cost reduction
benefits of an effective risk management program are clear for the armored
carrier, they are even more significant to the customer, particularly banking
customers. In the event of an armed robbery at the customer's place of
business, the customer will suffer a business disruption and may be liable
should one of its employees or customers or a bystander become injured. An
armored carrier that can prevent or avoid an incident saves its customer from
the prospect of a multi-million dollar liability. Consequently, the strategy
of establishing a risk management partnership between the armored service
provider and the customer becomes more appealing to the customer once the
customer recognizes the benefits of a comprehensive risk management program.
ATM Services. ATM services represent the most dynamic growth sector of the
armored transport industry and are expected by the Company to grow
significantly over the next five years. This expected growth results from a
fundamental change in the retail delivery channel strategy of banks in the
United States as traditional, full service bank branches are being replaced by
ATMs, drive-through service centers and banks located in supermarkets and
other non-traditional locations. Each individual point of distribution
represents a potential service location and new revenue opportunity to the
armored transport industry. Additionally, many ATM owners have begun
outsourcing the servicing and maintenance of ATM locations formerly serviced
and maintained internally, resulting in further growth prospects for this
portion of the armored transport industry.
ATM services consist of cash replenishment, deposit pick-up and first-line
and second-line maintenance services. Cash replenishment and deposit pick-up
at ATM locations is substantially similar to normal ground transportation
services with respect to the transport of cash. However, the servicing of ATM
locations involves a greater degree of mechanical proficiency in that guards
are required to disarm and reset alarms, change bill cassettes and perform
various other administrative and mechanical tasks. First-line maintenance
services involve correction of simple non-technical problems such as
dislodging jammed bills and cards and refilling receipt paper and are
frequently provided by armored transport carriers. Second-line maintenance
services consist of more complex technical ATM repairs and often require
specialized training, diagnostic equipment and an inventory of parts.
Cash Vault and Related Services. Cash vault and related services cover a
wide array of activities from passive, secured storage of valuables such as
currency, securities and computer chips to active services such as deposit
processing and consolidation, change order preparation, coin wrapping and
storage and food stamp processing. While cash vault and related services
currently represent only a small portion of the total industry's revenues,
this market is expected to expand over the next several years as banks and
other financial institutions continue the trend toward outsourcing such
services.
BUSINESS STRATEGY
Management believes that Loomis, Fargo & Co. has several distinct
competitive strengths within the armored transport industry, including a
strong national presence, the leading ATM Services operation, and a management
team experienced in reducing cost of risk and improving cash flow and
profitability. The Company's business strategy is to capitalize on its
competitive strengths by implementing the following initiatives:
50
<PAGE>
Promote the National Presence of Loomis, Fargo & Co. The Company provides
its services to a much larger geographic area than either Loomis Armored or
Wells Fargo Armored serviced on a stand-alone basis. With services in all
50 states and Puerto Rico, the Company will be able to expand its business
with national financial institutions and retail customers which require
armored ground transport, ATM Services and/or cash vault and related
services in numerous locations across the country. Management believes that
the ability to provide nationwide service is becoming more important in the
armored transport industry as banks are expanding geographically through
the continuing consolidation of the banking industry and as many other
institutions are shifting toward centralized purchasing of goods and
services. As one of only two armored transport providers in the United
States with nationwide service, the Company is well-positioned to augment
its base of customers requiring broad geographic coverage. The Company
intends to dedicate a segment of its sales force to exclusively manage
national account relationships.
Focus on Growing ATM Services Market. The Company provides ATM Services
to over 28,000 ATM locations nationwide, making it the leading provider of
ATM Services in the United States. Both the number of ATM locations and the
types of items being dispensed through ATMs, including travelers checks,
lottery tickets, coupons, postage stamps and other valuables, continue to
grow. Additionally, many ATM owners have begun outsourcing the servicing
and maintenance of ATM locations formerly serviced and maintained
internally. The Company uses its proprietary automated national dispatching
system to coordinate customer requests, provide service data to customers
and dispatch service technicians nationwide. To complement the national
dispatching system, the Company has developed an automated network cash
management system that optimizes ATM cash loads and provides ATM balance
reporting. With its broad range of services and automated systems, the
Company intends to build upon its leading position in the ATM services
market.
Reduce Cost of Risk and Emphasize Risk Management Partnership with
Customers. Management intends to increase profitability not only by
reducing the Company's overall cost of risk but also by using a risk
management partnership approach with its customers as a means of
differentiating the Company from its competitors. A comprehensive risk
management program which emphasizes incident avoidance and loss
minimization per incident is being implemented throughout all of the
Company's operations. The program focuses on (i) employee culture and
attitude, (ii) selectivity in hiring, (iii) operating procedures designed
to recognize and avoid potential danger or accidents, (iv) safety and
security procedures, including training in the proper use of firearms and
the operation of the Company's vehicles, (v) limits on the amounts of cash
or other valuables contained in a branch or vehicle or under the control of
an employee, (vi) utilization of three-person crews and surveillance or
chase cars in high-risk areas, and (vii) an extensive security oversight
program, including surveillance and evaluation by AMSEC, an independent,
international security firm. This risk management program produced
significant cost savings with respect to cargo loss and casualty liability
claims for Loomis Armored over the five years prior to the consummation of
the Transactions.
To provide the quality of service necessary to enhance customer loyalty in
support of this business strategy, the Company emphasizes an operating
philosophy dedicated to:
Attracting and Retaining Quality, Loyal Employees. Management believes
that a loyal employee base directly contributes to reducing cost of risk
and improving customer service and that the combination of selectivity in
hiring, a commitment to employee training, responsibility and safety, and
competitive wage and benefit packages will enable the Company to attract
and retain quality, loyal employees. As a result of Loomis Armored's
commitment to these principles, employee turnover at Loomis Armored
decreased from 41% for the twelve months ended December 31, 1992 to 29% for
the twelve months ended December 31, 1996. Wells Fargo Armored has also
embraced many of these same principles; its employee turnover rate for the
fiscal year ended December 31, 1996 was approximately 62%.
Encouraging Employee Initiative through Decentralized Management
Structure. The Company operates on a decentralized basis so that many of
the daily operational decisions such as local sales, routing, hiring, and
fleet maintenance are made at the branch level while the Company's
corporate and five regional management teams support the branches,
particularly with respect to pricing and risk management. This delegation
of responsibility is expected to improve efficiency and responsiveness to
customer needs, while
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<PAGE>
maintaining strict compliance with Company-wide security and safety
standards. Management believes that this decentralized structure, together
with an incentive program that links a branch manager's compensation to
branch profitability, gives branch managers and other employees a sense of
empowerment and accountability. This decentralized structure was
successfully implemented at Loomis Armored's operations and is currently
being implemented at all of the Company's locations.
SERVICES
The Company provides services in three business areas: traditional armored
transport; ATM Services; and cash vault and related services.
Traditional Armored Transport. Traditional armored transport constitutes the
largest part of the Company's business and the overall armored transport
industry, representing approximately 62.9% of the Company's gross revenues for
the twelve months ended December 31, 1996. The Company's ground transportation
services primarily involve the secured transport of currency, securities and
other items of value between commercial enterprises and banks, between banks,
and from the Federal Reserve Banks to commercial banks.
The Company provides traditional armored transport services seven days per
week, 365 days per year. Most of the Company's armored vehicles use two-person
crews, with the driver remaining in the vehicle and the guard making the pick-
up or delivery. In higher risk areas, the Company utilizes several additional
security measures, including three-person or four-person crews and
surveillance vehicles. In addition, the Company strives to work closely with
its customers to develop safe procedures for transferring and transporting
cargo. Typically, armored vehicle routes are scheduled to provide for pick-up
and delivery within prescribed time periods which are most convenient for the
customer, usually during normal business hours. The Company schedules routes
for each armored vehicle to maximize efficiency, with armored vehicles
generally leaving the branch in the morning and not returning until the
evening, making approximately 40 to 50 service stops on average per day.
ATM Services. The ATM Services business represents the Company's second
largest revenue generating division and is the most rapidly growing area of
the armored transport industry. As ATMs and other remote banking services
expand, the Company is positioned to capitalize on business opportunities in
this field. As the leading provider of ATM Services in the United States, the
Company believes that its experience, customer relationships, infrastructure,
and dominant position in this market will enable the Company to increase its
revenues.
The Company offers a wide range of ATM Services to customers including cash
replenishment, deposit pick-up, and first-line maintenance. The Company
utilizes a proprietary centralized automated dispatch system to coordinate ATM
servicing nationwide. The dispatch center coordinates customer requests and
directs field technicians throughout the country. The automated system
provides detailed service confirmation data both internally and directly to
the customer. In addition, the automated system controls the ATM security
access codes and provides such codes to technicians upon receipt of proper
identification.
The frequency of cash replenishment of ATMs varies depending upon consumer
use of an ATM location. High traffic ATM locations may require cash
replenishment on a daily basis whereas low traffic locations may require
service once or twice per month. Deposit pick-ups at ATM locations that
process banking deposits are typically executed on a daily basis. First-line
maintenance calls are less predictable than cash replenishment and deposit
pick-ups, but require the same level of prompt attention as scheduled ATM
services.
Cash Vault and Related Services. Cash vault and related services cover a
wide array of activities from passive, secured storage of valuables such as
currency, securities and computer chips to active services such as deposit
processing and consolidation, change order preparation, coin wrapping and
storage and food stamp processing. While cash vault and related services
represent a relatively small portion of the Company's revenues and the armored
transport industry's revenues, this market is expected to expand over the next
several years as
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banks and other financial institutions continue the trend toward outsourcing
such services. The Company also provides contract security officers to patrol
and control access to customer facilities in Puerto Rico.
RISK MANAGEMENT
Management views the Company as a risk management partner rather than a
transportation company. Cost of risk, in the form of armed robberies, other
cargo losses, vehicular accidents or worker's compensation claims, represents
a key component of the Company's overall cost structure. The Company attempts
to control its cost of risk by integrating risk management into all phases of
its operations: corporate culture; hiring and training; customer and revenue
management; operating procedures; and insurance, administration and claims
management. This risk management program is an extension of the program
utilized by Loomis Armored over the five years prior to the consummation of
the Transactions in reducing Loomis Armored's cost of risk from 10.9% of
revenues for the year ended June 30, 1992 to 7.4% of revenues for the twelve
months ended December 31, 1996.
Corporate Culture. Management believes that the most important factor to
effective risk management for an armored transport company is that its
employees understand their safety is the primary concern of the Company. This
belief has been encouraged and consistently reinforced through all programs
and procedures of the Company and will be a fundamental building block of the
Company going forward.
Hiring and Training. The Company maintains an employee selection and
screening program which includes a series of tests and a detailed background
check. The Company emphasizes training and development at all levels. All
safety training stresses the importance of risk avoidance rather than
confrontation. The Company has implemented specialized training programs in
employee orientation, weapons safety, driving safety, back injury prevention
and virtually all other elements of operations. All training is reinforced
through a coordinated communications effort featuring posters, videotape
presentations, weekly security updates, payroll stuffers and other news
bulletins. The programs are further supported through incentive and other
employee recognition programs.
Customer and Revenue Management. Management believes that it can charge a
premium for the quality of service provided by Loomis, Fargo & Co. The Company
emphasizes its role as a risk management partner with its customers and works
closely with them to develop safe procedures for transferring and transporting
cargo. Customers in higher risk locations or those that ship higher valued
cargo pay premium prices to support additional security costs necessary to
safely provide the service and minimize risk of loss. If the Company
determines that the risk of providing armored transport services in a given
situation is too great, the Company will decline the business.
Operating Procedures. The Company's operating procedures are designed to
avoid robberies or, in the event of a robbery, to minimize cargo losses and
worker's compensation claims. The Company has instituted many safety and
security procedures such as (i) use of three-person crews at locations
considered high risk, (ii) utilization of chase cars and roving guards to
scout high risk locations in advance of servicing and to provide unmarked
surveillance, and (iii) adoption of "over the pavement" limits representing
the maximum cargo a guard may carry while out of the armored vehicle,
effectively limiting the amount of cargo which could be lost in the event of
robbery.
To ensure compliance with its operating procedures, the Company utilizes
AMSEC, an international security consulting firm, to evaluate the operating
security of branches. The AMSEC team will review or audit the operations of
each branch at least once per year. AMSEC reports each month to a committee of
the Company comprised of executive officers and senior level operations
personnel, providing an effective third party quality control function.
Insurance, Administration and Claims Management. The two primary risks for
which the Company carries insurance are cargo loss and casualty claims.
Insurance coverage underlies the Company's comprehensive risk management
program. The Company has an A-rated primary cash-in-transit insurance policy
which provides the
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Company with coverage up to $200 million per occurrence. The insurance program
allows the Company to participate in potential savings by actively managing
claims with reduced fixed premiums and collateral costs, but affords the
Company protection for catastrophic claims.
On March 29, 1997 and on May 13, 1997 the Company experienced material cargo
losses from its Jacksonville, Florida and Ponce, Puerto Rico branches,
respectively. Both cargo losses are under active investigation. The Company
believes that the cargo losses will not have a material adverse effect on the
Company's liquidity or earnings in 1997, but that such losses could have
negative consequences on the Company's insurance coverage and/or costs at some
future time. Due to the fact that the Company's premiums on insurance relating
to its cargo losses are influenced by various factors, including general
market conditions and the Company's risk management performance in future
periods, management for the Company is unable to predict the effect or
magnitude such cargo losses will have on the Company's insurance coverage or
costs when its current policies expire.
SALES AND MARKETING
The Company markets its services to a broad cross section of customer types
which can be classified as either depository or commercial institutions. The
Company further classifies these two categories into national and local
subgroups. Typically, national customers make decisions on the use of armored
transport carriers at the corporate office level. Conversely, local customers
function at an individual market level or within a fairly limited geographic
area. To optimize penetration of these customer groups, the Company has
organized its marketing effort and sales force around these general customer
profiles.
National Accounts. To promote revenue growth from and maintain strong
customer relationships with national customers, the Company has a dedicated
staff of senior-level salespersons, each of whom individually manages a very
limited number of customers and prospects in this group. These sales personnel
promote a full range of ATM Services, traditional armored transport services
and cash vault and related services. They work with senior-level officers of
the customers to ensure that the Company is maximizing revenue opportunities
with these customers by cross-selling the Company's many services, maintaining
the quality of customer service, and identifying changes in customer needs,
priorities and business strategies.
The Company markets itself to financial institutions as the premier service
provider in the armored transport industry capable of providing a wide array
of services on a national basis. The rapid expansion of ATMs across the nation
as well as bank consolidation has compelled armored transport companies to be
increasingly flexible, dependable and consistent in the delivery of services.
Management believes that customers are placing greater emphasis on quality of
service when making their purchase decisions than they have in the past. The
Company views this development as a significant opportunity to expand and
enhance the Company's business relationships with financial institutions.
Local Customers. The local customer subgroups include community and regional
depository institutions as well as regional and local retail stores, hotels
and restaurants. The sale of the Company's services at the local market level
is primarily linked to the relationship established between the Company's
salesperson and the customer's local decision maker. The field sales force
includes sales representatives located in all of the Company's major markets
who are responsible for an integral part of the Company's growth plan. Such
sales representatives are accountable for meeting specific new revenue
objectives, as established by individual markets, as well as building
relationships with key customers in the marketplace to maintain a high degree
of customer retention.
The Company's sales representatives receive extensive training both in basic
selling skills and product knowledge of all of the Company's services. The
Company's sales force positions the Company not only as an armored car service
provider, but more broadly as a provider of risk management services. Trust,
dependability and expertise are the main components in securing the customer
relationship. Senior management of the Company provides overall guidelines for
pricing, prioritizing sales calls and growth targets for the field sales
force; however, specific strategic plans are developed by the branch managers.
54
<PAGE>
COMPETITION
The armored transport industry in the United States consists of two national
companies (Loomis, Fargo & Co. and Pittston Brink's) and numerous regional and
local companies. The Company competes with all of the above types of companies
in the markets it serves. However, because of the national presence and
substantial resources of Pittston Brink's, the Company believes that Pittston
Brink's is the Company's primary competitor for many national accounts. While
the Company believes its pricing of services is generally competitive, certain
of its competitors offer lower prices in certain markets primarily as a result
of lower employee wages and benefits and/or more limited services. See "Risk
Factors--Competition."
GOVERNMENT REGULATION
Federal legislation became effective in 1995 that abolished all interstate
regulatory control over prices, routes and service to which the Company's
business had been previously subject. The Company's operations continue to be
subject to regulation by federal and state agencies with respect to safety of
employees, operations and equipment, vehicle emissions, and underground fuel
storage tanks. See "Risk Factors--Regulation and Legal Proceedings."
ENVIRONMENTAL MATTERS
The Company is subject to numerous and increasingly stringent federal, state
and local laws and regulations relating to the protection of the environment
as well as the storage, handling, use, emission, discharge, release or
disposal of hazardous materials and solid wastes into the environment and the
investigation and remediation of contamination associated with such materials.
These laws include, but are not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, the Water Pollution Control Act, the
Clean Air Act and the Resource Conservation and Recovery Act, as those laws
have been amended and supplemented, the regulations promulgated thereunder,
and any applicable state analogs. The Company's operations also are governed
by laws and regulations relating to employee health and safety. The Company
believes that it is in material compliance with such applicable laws and
regulations and that its current environmental controls are adequate to
address existing regulatory requirements.
As is the case with other companies engaged in similar businesses, the
Company could incur costs relating to environmental compliance, including
remediation costs related to historical hazardous materials handling and
disposal practices at certain facilities. In the past the Company has
undertaken remedial activities to address on-site soil contamination caused by
historic operations. None of these cleanups has resulted in any material
liability. Currently, the Company is involved with remedial/closure activities
at various locations, none of which is expected to have a material adverse
effect on the Company's operations, financial condition or competitive
position. As mentioned above, however, the risk of environmental liability and
remediation costs is present in the Company's business and, therefore, there
can be no assurance that material environmental costs, including remediation
costs, will not arise in the future. In addition, it is possible that future
developments (e.g., new regulations or stricter regulatory requirements) could
result in the Company incurring material costs to comply with applicable
environmental laws and regulations. In addition, the Company has not
undertaken an independent investigation of each facility; accordingly, there
can be no assurance that in the future additional conditions requiring
remediation will not be identified. See "Risk Factors--Environmental Matters."
The Company has identified 41 underground fuel storage tanks on the
properties owned or operated by it. Federal governmental regulations require
that by the end of 1998 all underground storage tanks located within the
United States must satisfy stricter safety standards or be removed. If the
Company fails to comply with these regulations, it could be subject to fines,
penalties or other governmental actions, the imposition of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Environmental Matters."
Pursuant to the Contribution Agreement, the Company will be indemnified by
Borg-Warner and the Business Trust for environmental liabilities associated
with existing underground storage tanks and other known
55
<PAGE>
and identified environmental liabilities. The indemnification obligations will
survive until the earlier of December 31, 1998 or the first anniversary of an
initial public offering of Common Stock. To the extent that there are remedial
activities in process as of the date of termination of such indemnification
obligations, the Company will provide Borg-Warner and the Business Trust, as
applicable, with a written estimate describing in reasonable detail the
remaining costs and expenses expected to be incurred by the Company which
would otherwise have been covered by such indemnification. Such estimated
costs and expenses may be satisfied in cash (subject to a present value
discount rate) or pursuant to an irrevocable letter of credit issued in the
full amount of such estimated costs and expenses.
EMPLOYEES
As of May 30, 1997, the Company employed approximately 8,700 full-time and
part-time employees, most of whom are drivers and/or guards. Of these
employees, approximately 2,800 are represented by labor unions. The contracts
covering the Company's unionized work force will expire at varying times over
the next three years. The Company believes that its relations with its
employees are good.
PROPERTIES
The Company's corporate headquarters, which consist of approximately 15,000
square feet of leased office space, are located in Houston, Texas. The Company
recently completed negotiating an agreement to lease a new corporate
headquarters consisting of approximately 29,000 square feet of office space in
Houston, Texas and anticipates that it will begin to move into such new office
space in June 1997. The Company's fleet of approximately 2,700 armored
vehicles operates out of 150 branches which provide service to all 50 states
and Puerto Rico. Of these branch locations, 123 are leased and 27 are owned.
Management expects to close six of the branches within the next 12 months in
connection with the consolidation. All of the Company's owned properties have
been pledged to secure the Company's indebtedness under the New Credit
Facility. The Company believes that its properties are suitable and adequate
for their intended uses.
LEGAL PROCEEDINGS
The Company is a party to various legal proceedings and administrative
actions, all of which are of an ordinary or routine nature incidental to the
operations of the Company. In the opinion of the Company's management, such
proceedings and actions should not, individually or in the aggregate, have a
material adverse effect on the Company's results of operations or financial
condition.
56
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Stockholders' Agreement, seven directors serve on the
Company's board: three nominees designated by the Business Trust, three
nominees designated by Borg-Warner, and the Chief Executive Officer of the
Company. See "Certain Relationships and Related Transactions--Stockholders
Agreement."
Set forth below is certain information with respect to those individuals who
serve as members of the Board of Directors and as executive officers of the
Company. Each of the persons named below holds the positions set forth
opposite his name with each of the Co-Registrants, except that Messrs.
Adorjan, Mattly and Hegi are the only directors constituting the boards of
directors of LFC Armored of Texas Inc. and Loomis, Fargo & Co. of Puerto Rico.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
J. Joe Adorjan.......... 58 Chairman of the Board of Directors
James B. Mattly......... 55 Director, President and Chief Executive Officer
James T. Callier, Jr.... 61 Director
Frederick B. Hegi, Jr... 53 Director
John D. O'Brien......... 54 Director
Jay I. Applebaum........ 34 Director
Timothy M. Wood......... 49 Director
James K. Jennings, Jr... 54 Executive Vice President, Chief Financial
Officer and Secretary
Edward H. Hamlett....... 46 Executive Vice President--Sales and Marketing
</TABLE>
There is no family relationship between any director or executive officer of
the Company. Officers of the Company are elected by the Board of Directors and
hold office until their respective successors are duly elected and qualified.
J. Joe Adorjan has served as a director of Borg-Warner since 1993, Chairman
of the Board of Borg-Warner since January 1996, Chief Executive Officer of
Borg-Warner since October 1995, and President of Borg-Warner since April 1995,
and was elected to the Board of Directors of the Company as of the Closing.
Mr. Adorjan was President of Emerson Electric Co. from 1992 to 1995 and
Chairman and Chief Executive Officer of ESCO Electronics Corporation from 1990
to 1992. Mr. Adorjan also currently serves as a director of California
Microwave, Inc., The Earthgrains Company, ESCO Electronics Corporation and
Goss Graphic Systems, Inc.
James B. Mattly served as a director and as President and Chief Executive
Officer of Loomis Armored from November 1991 to January 1997 and as a director
of Loomis from May 1991 to January 1997, and was elected to the Board of
Directors of the Company in January 1997. From 1979 to 1990, Mr. Mattly served
as Regional Vice President of Browning-Ferris Industries ("BFI") and as Chief
Operating Officer of its southwest region. Mr. Mattly has also served as Vice
President--Operations for Butler Aviation (1977-79) and Regional Vice
President of Wells Fargo Armored (1973-77).
James T. Callier, Jr. served as a director of Loomis and Loomis Armored from
May 1991 to January 1997, and was elected to the Board of Directors of the
Company as of the Closing. Mr. Callier is an indirect general partner of
Wingate Partners and a general partner of Wingate Affiliates, L.P., and has
served as President of Callier Consulting, Inc. (an operating management firm)
since 1985. From January 1992 through March 1995, Mr. Callier served as a
director of Associated Stationers, Inc. (an office products wholesaler) and
has served as a director of United Stationers Inc., the successor to
Associated Stationers, Inc., since March 1995. Mr. Callier also currently
serves as Chairman of the Board of Century Products Company (a manufacturer of
baby seats and other juvenile products), and as a director of RBPI Holding
Corporation ("RBPI") (a manufacturer and distributor of aluminum and vinyl
windows).
57
<PAGE>
Frederick B. Hegi, Jr. served as Chairman of the Board of Loomis and Loomis
Armored from May 1991 to January 1997, and was elected to the Board of
Directors of the Company in August 1996. Mr. Hegi is an indirect general
partner of Wingate Partners and a general partner of Wingate Affiliates, L.P.
Since May 1982, Mr. Hegi has served as President of Valley View Capital
Corporation (a private investment firm). Mr. Hegi served as a director of
Associated Holdings, Inc. from January 1992 through March 1995, a director of
United Stationers Inc. since March 1995 and Chairman of the Board, President
and Chief Executive Officer of United Stationers Inc. since November 1996. Mr.
Hegi also currently serves as Chairman of the Board of ITCO Holding Company,
Inc. (the parent corporation of ITCO Tire Company), Tahoka First Bancorp, Inc.
(a bank holding company), and Cedar Creek Bancshares, Inc. (a bank holding
company), and as a director of RBPI, Century Products Company, Lone Star
Technologies, Inc. (a diversified company engaged in the manufacturing of
steel pipe), Cattle Resources, Inc. (a manufacturer of animal feeds and
operator of commercial cattle feedlots), and various funds managed by
InterWest Partners.
John D. O'Brien has served as Senior Vice President of Borg-Warner since
1993 and was Vice President of Borg-Warner from 1987 to 1993, and was elected
to the Board of Directors of the Company as of the Closing.
Timothy M. Wood has served as Vice President, Finance of Borg-Warner since
1994 and was Vice President and Controller of Borg-Warner from 1987 to 1994,
and was elected to the Board of Directors of the Company in January 1997.
Jay I. Applebaum was elected to the board of directors of the Company in
February 1997. Mr. Applebaum served as Secretary for Loomis and Loomis Armored
from May 1991 to January 1997. Since June 1989, Mr. Applebaum has been
associated with Wingate Partners.
James K. Jennings, Jr. served as Chief Financial Officer of Loomis from
March 1994 to January 1997, and was elected to the offices of Executive Vice
President, Chief Financial Officer and Secretary of the Company in January
1997. Prior to joining Loomis, Mr. Jennings held various management positions
at HWC Distribution Corporation (a distributor of electrical and electronic
wire and cable), including as President and as a director from February 1990
to September 1993 and as Executive Vice President and Chief Financial Officer
from 1980 to February 1990.
Edward H. Hamlett served as a director of Loomis from February 1992 to
January 1997 and as Vice President of Sales and Marketing from February 1996
to January 1997, and was elected to the office of Executive Vice President of
the Company in January 1997. From May 1979 to May 1995, Mr. Hamlett served as
Vice President, Sales and Marketing of BFI. Prior to joining BFI, Mr. Hamlett
held regional sales and branch management positions with Wells Fargo Armored
from 1973 to 1977.
COMPENSATION OF DIRECTORS
Directors who are officers, employees or otherwise an affiliate of the
Company do not presently receive compensation for their services as directors.
Directors of the Company are entitled to reimbursement of their reasonable
out-of-pocket expenses in connection with their travel to and attendance at
meetings of the board of directors or committees thereof. No determination has
yet been made whether annual fees or board attendance fees, if any, will be
paid to future directors who are not also officers, employees, or otherwise an
affiliate of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There is currently no compensation committee of the Board of Directors of
the Company. Compensation decisions in 1996 were made by (i) the entire board
of directors of Loomis, the members of which were Messrs. Hegi, Callier,
Mattly, Hamlett, Thomas W. Sturgess and David S. Teed, in the case of Loomis
Armored, and (ii) the compensation committee of the board of directors of
Borg-Warner, in the case of Wells Fargo Armored.
58
<PAGE>
EXECUTIVE COMPENSATION
The executive officers of the Company did not receive any compensation from
the Company during the period prior to the consummation of the Transactions.
The compensation to be paid to the executive officers of the Company will be
determined by the Board of Directors of the Company or any compensation
committee thereof and, for Mr. Mattly, subject to the terms of his existing
employment agreement with Loomis.
BENEFIT PLANS
Stock Option Plan. It is anticipated that the Company will adopt a stock
option plan for the Company's management and employees and grant options to
purchase shares of Common Stock pursuant to such plan. Such option plan may
provide for approximately 5% to 10% of the fully diluted Common Stock of the
Company to be reserved for issuance under such plan.
Management Equity Growth and Appreciation Plan. Effective as of May 1, 1991,
Loomis and Loomis Armored established a Management Equity Growth and
Appreciation Plan (the "Old MEGA Plan") to reward certain of the key employees
of Loomis and Loomis Armored. As of the Closing Date, Loomis and Loomis
Armored had issued or had contractual obligations which may have required the
issuance of an aggregate of 349,827 participation units ("Units") pursuant to
the Old MEGA Plan. Each Unit issued pursuant to the Old MEGA Plan was subject
to a five-year vesting schedule and represented an unfunded, unsecured,
potential right to receive deferred compensation.
Upon consummation of the Transactions, the Old MEGA Plan was terminated and
each Unit was cancelled. Holders of Units received options ("Options") to
purchase a number of shares of Common Stock of the Company that were
substantially equivalent in value pursuant to a New MEGA Units Holder Option
Plan (the "New MEGA Plan") established by the Company. The Options are subject
to the same vesting schedule and other limitations on exercise and transfer as
existed under the Old MEGA Plan, including without limitation, the requirement
that a Triggering Event (as defined) occur before the Options become
exercisable.
Upon exercising any Options, pursuant to a stock contribution agreement, the
Business Trust will be required to contribute to the Company that number of
shares of Common Stock which is delivered to such Option holder, and the
Company will be required to deliver to the Business Trust the exercise price
paid by the Option holder in connection with the exercise of such Options.
A Triggering Event under the New MEGA Plan means the first to occur of (i)
any sale, disposition, exchange, consolidation, merger or other transaction,
as a result of which Wingate Partners, either directly or indirectly through
its ownership interest through the Business Trust or otherwise, sells,
transfers or otherwise disposes of for value, in the aggregate through one or
more transactions, more than 1,250,000 shares of Common Stock to any other
person or entity that is not an affiliate of the Company, a successor entity
or Wingate Partners, (ii) any sale, exchange or other disposition either
directly or indirectly, of all or substantially all of the assets of the
Company or a successor entity (in a single transaction or a series of related
transactions) to a person or entity which is not an affiliate of the Company,
a successor entity or Wingate Partners, (iii) a merger or consolidation of the
Company or a successor entity with or into another entity which is not an
affiliate of the Company, a successor entity or Wingate Partners (whether or
not the Company or such successor entity is the survivor) with respect of
which more than 50% of the fully diluted Common Stock or common stock of such
successor entity, as the case may be, is converted into cash or other
property, or (iv) the consummation of an underwritten public offering or
series of offerings of Common Stock by the Company or a successor entity
pursuant to a registration statement filed under the Securities Act producing
aggregate gross proceeds to the Company or any successor entity and any
selling stockholders of at least $100 million; provided, however, that
notwithstanding the occurrence of one of the events described in (i) through
(iv) of this paragraph, a Triggering Event may be deferred in certain
circumstances by the board of directors of the Company for a period of up to
two years.
Compensation Paid by Loomis Armored. The following table sets forth for the
last fiscal year the compensation awarded to or earned by the Chief Executive
Officer of the Company and the other most highly
59
<PAGE>
compensated executive officers (the "Named Executive Officers") of the
Company, which compensation was paid to such Named Executive Officers by or on
behalf of Loomis Armored.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM COMPENSATION
COMPENSATION AWARDS
------------------- ----------------------
NAME AND PRINCIPAL ALL OTHER SECURITIES UNDERLYING
POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) UNITS (#) (3)
------------------ ---- --------- -------- --------------- ----------------------
<S> <C> <C> <C> <C> <C>
James B. Mattly......... 1996(1) 362,500 138 -- 29,476(4)
Director, President and
Chief Executive
Officer
James K. Jennings, Jr... 1996(1) 150,000 2,938 6,864(5) --
Executive Vice
President,
Chief Financial Officer
and Secretary
Edward H. Hamlett....... 1996(1)(2) 66,667 -- 2,860(5) 10,000
Executive Vice
President-- Sales and
Marketing
</TABLE>
- --------
(1) Reflects compensation paid by Loomis Armored for the fiscal year ended
June 30, 1996.
(2) Represents compensation for the period of February 2, 1996, when Mr.
Hamlett became employed by the Company, to June 30, 1996.
(3) Reflects Units granted under the Old MEGA Plan. The number of securities
underlying Units is shown based on the shares of Loomis common stock
outstanding on June 30, 1996, and does not give effect to the
Transactions.
(4) Units shown were issuable to Mr. Mattly only upon the occurrence of
certain contingencies on or prior to June 30, 1998.
(5) Reflects automobile allowance paid to Messrs. Jennings and Hamlett in the
fiscal year ended June 30, 1996.
Mattly Employment Agreement. Mr. Mattly is a party to an employment
agreement with the Company pursuant to which he serves as President and Chief
Executive Officer. Mr. Mattly's employment agreement is subject to automatic
successive one-year renewal terms. Mr. Mattly's current base salary is
$350,000, subject to increase from time to time at the sole discretion of the
board of directors of Loomis. In addition, Mr. Mattly may receive a bonus
generally recognizable following the end of the Company's fiscal year in an
amount up to 100% of his then current base salary at the sole discretion of
the board of directors of the Company. The employment agreement also provides
for participation by Mr. Mattly in the Company's general life, health and
disability plans generally applicable to senior executives of the Company, as
well as reimbursement of reasonable business expenses. Mr. Mattly's employment
agreement includes certain noncompetition and confidentiality provisions.
In May 1996 and January 1997, the provisions of Mr. Mattly's employment
agreement were amended to provide for the issuance of 166,543 Options under
the New MEGA Plan upon the occurrence of certain contingencies on or prior to
December 31, 1999.
60
<PAGE>
Old MEGA Plan Units. The following table shows individual grants of Units
issued pursuant to the Old MEGA Plan to the Chief Executive Officer of the
Company and the Named Executive Officers for the fiscal year ended June 30,
1996.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
POTENTIAL VALUE
AT ASSUMED
NUMBER OF ANNUAL RATE
SECURITIES PERCENT OF OF STOCK PRICE
UNDERLYING TOTAL UNITS APPRECIATION
UNITS GRANTED TO EXERCISE OR FOR UNIT TERM (6)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ------------------
NAME (#) (1) FISCAL YEAR (%) ($/SH) DATE 5% ($) 10% ($)
---- ---------- --------------- ----------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
James B. Mattly......... 29,476(2)(3) 74.7 $3.33(4) (5) 242,293 338,384
Edward H. Hamlett....... 10,000(2) 25.3 $3.33(4) (5) 82,200 114,800
</TABLE>
- --------
(1) The number of securities underlying Units is shown based on the shares of
Loomis common stock outstanding on June 30, 1996, and does not give effect
to the Transactions.
(2) All Units reflected vest in five equal annual installments commencing on
the Award Date (as defined). The Units vest immediately for employees of
Loomis or Loomis Armored on a Payment Event (as defined).
(3) Pursuant to Mr. Mattly's employment agreement, as amended, 29,476 Units
would have been issuable if certain contingent events occur on or prior to
June 30, 1998.
(4) Reflects the base price per share of the common stock of Loomis used to
calculate the value per Unit. The base price of Units as of the date of
grant was determined based upon the Loomis' board of directors' good faith
determination of the amount invested in the equity of Loomis since its
acquisition of Loomis Armored in May 1991.
(5) The Units issued under the Old MEGA Plan had no established expiration
date. The Old MEGA Plan and all Units thereunder terminated upon certain
conditions specified in the Old MEGA Plan.
(6) Assumes a Payment Event (as defined in the Old MEGA Plan) occurs five
years from June 30, 1996.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AND UNITS AT OPTIONS AND UNITS
FISCAL YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)
------------------------- -------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------- -------------------------
<S> <C> <C>
James B. Mattly............ 6,265/127,730(2) 35,523/724,229
Edward H. Hamlett.......... 6,265/10,000 35,523/56,700
</TABLE>
- --------
(1) The number of securities underlying options and Units is shown based on
the shares of Loomis common stock outstanding on June 30, 1996, and does
not give effect to the Transactions.
(2) Assumes a fair market value of Loomis common stock as of June 30, 1996 of
$9.00 per share.
(3) Includes 29,476 Units that would have been issuable to Mr. Mattly pursuant
to an employment agreement if certain contingencies occurred on or prior
to June 30, 1998.
61
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock as
of the Date of this Prospectus by (i) each person known to the Company to
beneficially own more than 5% of the Common Stock, (ii) each of the directors
of the Company, (iii) each of the Named Executive Officers, and (iv) all
directors and Named Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NAME AND ADDRESS NUMBER PERCENT OF
OF BENEFICIAL OWNER OF SHARES CLASS
------------------- --------- ----------
<S> <C> <C>
Loomis Stockholders Trust................................ 5,100,000 51.0%
c/o Wingate Partners, L.P.
750 N. St. Paul Street
Suite 1200
Dallas, Texas 75201
Wingate Partners, L.P.(1)(2)............................. 4,120,208 41.2%
750 N. St. Paul Street, Suite 1200
Dallas, Texas 75201
Key Capital Corporation(1)............................... 516,774 5.2%
127 Public Square, Fourth Floor
Cleveland, Ohio 44114
Wells Fargo Armored Service Corporation.................. 4,900,000 49.0%
200 South Michigan Avenue
Chicago, Illinois 60604
Borg-Warner Security Corporation(3)...................... 4,900,000 49.0%
200 South Michigan Avenue
Chicago, Illinois 60604
J. Joe Adorjan(4)........................................ -- *
James B. Mattly(1)....................................... 88,370 *
James T. Callier, Jr.(5)................................. -- *
Frederick B. Hegi, Jr.(5)(6)............................. -- *
John D. O'Brien(4)....................................... -- *
Jay I. Applebaum(1)...................................... 10,703 *
Timothy M. Wood(4)....................................... -- *
James K. Jennings, Jr.................................... -- *
Edward H. Hamlett(7)..................................... 10,978 *
All directors and executive officers as a group (9 *
persons)(8)............................................. 99,159
</TABLE>
- --------
* Represents less than 1%.
(1) Reflects such holder's beneficial ownership of Common Stock in accordance
with its percentage interest of trust units in the Business Trust. All of
such shares of Common Stock are held of record by the Business Trust
pursuant to the Business Trust Agreement and, therefore, the number of
shares and percentage of beneficial ownership of the Company attributable
to such holder is subject to change upon the acquisition or disposition of
shares of Common Stock held of record by the Business Trust.
(2) Includes the beneficial ownership of 4,051,150 shares by Wingate Partners
and 69,058 shares by Wingate Affiliates, L.P.
(3) Borg-Warner is the sole stockholder of Wells Fargo Armored and, therefore,
may be deemed to beneficially own all shares of Common Stock owned of
record by Wells Fargo Armored.
62
<PAGE>
(4) Does not include 4,900,000 shares of Common Stock held of record by Wells
Fargo Armored, a wholly-owned subsidiary of Borg-Warner. Mr. Adorjan is a
director and each of Messrs. Adorjan, O'Brien and Wood are executive
officers of Borg-Warner and, therefore, may be deemed to be a beneficial
owner of some or all of such shares. Each of Messrs. Adorjan, O'Brien and
Wood disclaims beneficial ownership of all shares of Common Stock not held
of record by him.
(5) Does not include an aggregate of 4,120,208 shares of Common Stock
beneficially owned by Wingate Partners and Wingate Affiliates, L.P. Each
of Messrs. Callier and Hegi are indirect general partners of Wingate
Partners and general partners of Wingate Affiliates, L.P. and, therefore,
may be deemed to beneficially own some or all of the shares of Common
Stock owned by such entities. Each of Messrs. Callier and Hegi disclaims
beneficial ownership of all shares of Common Stock not held of record by
him.
(6) Does not include 5,100,000 shares of Common Stock held by the Business
Trust. Mr. Hegi is the manager of the Business Trust and, therefore, may
be deemed to beneficially own the shares of Common Stock held by the
Business Trust. Mr. Hegi disclaims beneficial ownership of all shares of
Common Stock not held of record by him.
(7) Includes options exercisable within 60 days of the date of this Prospectus
to purchase up to 10,978 shares of Common Stock.
(8) Includes (i) 10,978 shares of Common Stock issuable to Mr. Hamlett
pursuant to an option exercisable within 60 days of the date of this
Prospectus and (ii) 88,181 shares of Common Stock beneficially owned by
Mr. Mattly through the Business Trust following the delivery to the
Company of 10,978 shares of Common Stock by the Business Trust pursuant to
a stock contribution agreement upon the exercise of Mr. Hamlett's stock
option.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS AGREEMENT
At the Closing, the Company, Wells Fargo Armored, the Business Trust and
Wingate Partners entered into a stockholders agreement (the "Stockholders
Agreement"). The Stockholders Agreement provides that the Board of Directors
initially will consist of seven directors: the Chief Executive Officer of the
Company, three directors nominated by the Business Trust, and three directors
nominated by Wells Fargo Armored. The right to designate directors pursuant to
the Stockholders Agreement shall be adjusted as to Wells Fargo Armored or the
Business Trust (each a "Designating Party"), as the case may be, as follows:
(i) if a Designating Party shall own beneficially less than 35% but at least
15% of the fully diluted Common Stock, such Designating Party shall be
entitled to designate only two directors pursuant to the Stockholders
Agreement, (ii) if such Designating Party shall own beneficially less than 15%
but at least 10% of the fully diluted Common Stock, such Designating Party
shall be entitled to designate only one director and (iii) if such Designating
Party shall cease to own beneficially at least 10% of the fully diluted Common
Stock, the right of such Designating Party to designate directors pursuant to
the Stockholders Agreement shall terminate. The Board of Directors shall be
empowered to create an Executive Committee to act on behalf of the Board of
Directors, subject to any limitations under applicable law. The Executive
Committee shall consist of three directors, such committee to be comprised of
the Chief Executive Officer of the Company, one director designated by Wells
Fargo Armored and one director designated by the Business Trust. Pursuant to
the Stockholders Agreement, the affirmative vote of at least five of the seven
directors, or the unanimous consent of the Executive Committee, is required
for the Company to engage in certain specified activities.
The Stockholders Agreement prohibits the sale, transfer or disposition of
any shares of Common Stock by Wells Fargo Armored or the Business Trust for a
period of three years following the Closing Date without the prior written
consent of the other. After such three year period, shares of Common Stock may
be sold, transferred or disposed of only in accordance with the provisions of
the Stockholders Agreement, which include rights of first refusal and co-sale
rights. The issuance by the Company of Common Stock or securities exchangeable
or convertible into Common Stock will also be subject to certain preemptive
rights of the stockholders.
Each time the Company proposes to register any Common Stock pursuant to the
Securities Act, the stockholders shall be entitled to include their shares of
Common Stock in such registered offering; provided, however, that the Company
may at any time withdraw or cease proceeding with such registration if it
shall at the same time withdraw or cease proceeding with the registration of
all other shares of Common Stock originally proposed to be registered;
provided, further, that if the managing underwriter in any such proposed
offering advises the Company in writing that the number of shares of Common
Stock requested to be included in the registration by all persons (including
the Company) exceeds the number of shares of Common Stock which can be sold in
such offering without having an adverse effect on such offering, including
without limitation, the price at which such shares can be sold (the "Maximum
Offering Size"), the Company will be obligated to include in such registration
only (i) first, any and all shares of Common Stock for sale by the Company,
(ii) second, to the extent the Maximum Offering Size exceeds the number of
shares to be offered by the Company, each of the Business Trust, on the one
hand, and Wells Fargo Armored, on the other hand, shall be entitled to include
one-half of such available shares in the registration and (iii) third, to the
extent any remaining shares which may be sold in such offering, pro rata among
any other shares of Common Stock requested to be included pursuant to any
other registration rights that may have been, or may hereafter be, granted by
the Company (on the basis of the total number of shares of Common Stock that
each holder has requested to be registered). Pursuant to the terms of the
Stockholders Agreement, the Company has agreed to indemnify participating
stockholders against certain liabilities arising from a registration statement
filed in connection with such offering.
The Stockholders Agreement (except for certain limited provisions including
the registration rights described above, which survive indefinitely) shall
terminate upon the earliest to occur of (i) the consummation of an
underwritten public offering or series of offerings pursuant to an effective
registration statement under the Securities Act for cash of Common Stock
producing aggregate gross proceeds to the Company and any holders
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selling shares of Common Stock thereunder of at least $100.0 million, (ii) the
sale of all or substantially all of the assets of the Company, or the merger
or consolidation of the Company with any person as a result of which the
holders hold less than 35% of the Common Stock, (iii) the date one year after
the date of a Change of Control (as defined in the Stockholders Agreement) of
Borg-Warner, (iv) the foreclosure on or forced sale of at least 50% of the
Common Stock held by Wells Fargo Armored on the Closing Date by any lender of
Borg-Warner or Wells Fargo Armored, and (v) the date any holder and its
affiliates become the beneficial owners of all of the outstanding Common
Stock.
PAYMENTS TO AFFILIATES
At the Closing, the Company made certain payments to the Business Trust and
related entities and to Wells Fargo Armored and related entities pursuant to
the terms of the Contribution Agreement. See "The Transactions--The Business
Combination." In addition, at the Closing Loomis redeemed $3.5 million
aggregate principal amount of Loomis Preferred Stock. All issued and
outstanding shares of Loomis Preferred Stock were owned of record and
beneficially by Wingate Partners and its affiliates. Additionally, at the
Closing Loomis Armored repaid all of its outstanding 14% senior subordinated
notes due September 30, 1999, of which approximately $7.5 million was paid to
Wingate Partners and its affiliates, approximately $2.7 million was paid to
Key Capital Corporation and approximately $175,000 was paid to James B.
Mattly, President and Chief Executive Officer of the Company.
In the ordinary course of business, Wells Fargo Armored purchases security
services from various other subsidiaries of Borg-Warner. During 1995, Wells
Fargo Armored paid approximately $1.65 million for such services, including
electronic security installation, maintenance and monitoring, physical
security, investigative services and courier services.
FINANCIAL ADVISORY AGREEMENT
Pursuant to a Financial Advisory Agreement (the "Financial Advisory
Agreement") dated as of May 6, 1991 among Loomis, Loomis Armored and Wingate
Partners, Wingate Partners (i) provided certain financial advisory services to
Loomis and Loomis Armored in connection with the merger (the "Merger") of
Loomis Acquisition Corporation, a wholly-owned subsidiary of Loomis, with and
into Loomis Armored, in exchange for a one-time fee of $750,000 (which was
paid in May 1991 upon consummation of the Merger), and (ii) agreed to provide
additional financial advisory services to Loomis and Loomis Armored in
exchange for a fee of $350,000 per year. Loomis Armored is also obligated to
reimburse Wingate Partners for its out-of-pocket expenses and indemnify
Wingate Partners and its affiliates from losses incurred in connection with
the provision of these services. The Financial Advisory Agreement was
scheduled to expire on May 6, 2001 (the "Primary Term"), provided that it
would have continued in effect on a year to year basis thereafter unless
terminated in writing by one of the parties on or before the thirtieth day
prior to the expiration of the Primary Term or prior to the expiration of any
subsequent annual term. At the Closing, all accrued management fees and
expenses pursuant to the Financial Advisory Agreement were paid to Wingate
Partners for the period up to and including the Closing Date and the Financial
Advisory Agreement terminated. See "The Transactions--The Business
Combination" and "Use of Proceeds."
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DESCRIPTION OF NEW CREDIT FACILITY
At the Closing, the Company, Lehman Commercial Paper Inc. ("LCPI") and
NationsBank of Texas, N.A. ("NationsBank" and, together with LCPI, and the
other lenders parties thereto the "Lenders") entered into a credit agreement
(the "Credit Agreement") to provide the Company's new credit facility (the
"Credit Facility"), which provides initial aggregate borrowings of up to
$115.0 million.
Term. The New Credit Facility is a five-year step-down revolving facility
providing for initial aggregate borrowings of up to $115.0 million. The
commitment (the "Commitment") under the New Credit Facility will be reduced
beginning in January 1999 to $105.0 million, reduces further in January 2000
to $90.0 million, in January 2001 to $72.5 million, and matures in January
2002. In addition, the Company is obligated to make mandatory prepayments on
the New Credit Facility under certain circumstances with the proceeds of
certain asset sales and incurrence of indebtedness and from excess cash flow.
Letters of Credit. A portion of the New Credit Facility, not to exceed $40.0
million in the first year following the Closing Date, $45.0 million in the
second year following the Closing Date and $50.0 million thereafter, is
available for the issuance of letters of credit ("Letters of Credit").
Interest Rate. Amounts outstanding under the New Credit Facility bear
interest at a rate equal to, at the Company's option, (i) the Base Rate (as
defined) plus the Base Rate Applicable Margin (as defined) ("Base Rate Loans")
or (ii) the Eurodollar Rate (as defined) plus the Eurodollar Applicable Margin
(as defined) ("Eurodollar Rate Loans"). "Base Rate" means the highest of (i)
the rate of interest publicly announced by the administration agent for the
New Credit Facility as its prime rate in effect at its principal office and
(ii) the federal funds effective rate from time to time plus 0.5%, and "Base
Rate Applicable Margin" means an amount per annum ranging from 0.125% to 1.25%
based upon the Company's ratio of total debt to EBITDA. "Eurodollar Rate"
means the average of the rates (adjusted for statutory reserve requirements
for eurocurrency liabilities) at which eurodollar deposits for one, two, three
or six months (as selected by the Company) are offered to reference Lenders to
be selected in the interbank eurodollar market, and "Eurodollar Applicable
Margin" means an amount per annum ranging from 1.125% to 2.25% based upon the
Company's ratio of total debt to EBITDA. Interest on Base Rate Loans are
payable quarterly in arrears. Interest on Eurodollar Loans are payable on the
last day of each relevant interest period and, in the case of any interest
period longer than three months, on each successive date three months after
the first day of such interest period.
Security and Guarantees. The New Credit Facility is secured by a perfected
first priority security interest in substantially all of the Company's and its
direct and indirect subsidiaries' tangible and intangible assets, including
without limitation, intellectual property, fee owned real property and all of
the capital stock of the Company's direct and indirect subsidiaries. The New
Credit Facility is also guaranteed by each of the Company's subsidiaries.
Fees. The Company is required to pay a commitment fee, calculated at a rate
per annum ranging from 0.375% to 0.5% based upon the Company's ratio of total
debt to EBITDA, on the average daily unused portion of the New Credit
Facility, payable quarterly in arrears. Fees to be paid on outstanding Letters
of Credit are at a per annum rate equal to the Eurodollar Applicable Margin.
In addition, a fronting fee on the face amount of each Letter of Credit is
payable by the Company quarterly in arrears to the issuing Lender in an amount
per annum of 0.125% or 0.1875% based upon whether the Company's ratio of total
debt to EBITDA exceeds certain thresholds.
Covenants. The Credit Agreement contains customary affirmative and negative
covenants which, among other things and with certain exceptions, require the
Company and its subsidiaries to: (i) periodically deliver certain financial
and other information; (ii) not merge or consolidate with another entity;
(iii) not incur indebtedness or guarantees of indebtedness; (iv) not incur
liens on property; (v) not engage in certain sales or other dispositions or
sale-leaseback transactions; (vi) not engage in certain acquisitions or other
investments; (vii) not pay dividends, repurchase stock or make certain other
restricted payments; and (viii) not engage in
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transactions with affiliates. Under the Credit Agreement, the Company is
required to satisfy certain financial covenants, which require the Company to
maintain specified financial ratios and comply with certain financial tests.
Events of Default. The Credit Agreement contains certain customary events of
default, including without limitation, a change of control (as defined in the
Credit Agreement) of the Company.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on January 24, 1997, in a private
placement. In connection with that placement, the Company entered into the
Registration Rights Agreement, which requires that the Company file a
registration statement under the Securities Act with respect to the New Notes
and, upon the effectiveness of that registration statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of New Notes, which will be issued without a restrictive
legend and may be reoffered and resold by the holder without registration
under the Securities Act. The Registration Rights Agreement further provides
that the Company must use its best efforts to cause the Registration Statement
with respect to the Exchange Offer to be declared effective on or before June
23, 1997 and the Exchange Offer Consummated on or before August 5, 1997.
Except as provided below, upon the completion of the Exchange Offer, the
Company's obligations with respect to the registration of the Old Notes and
the New Notes will terminate. A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part and although the Company believes that the summary herein
of certain provisions thereof describes all material elements of the
Registration Rights Agreement, such summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference thereto. As a
result of the filing and the effectiveness of the Registration Statement,
certain liquidated damages ("Liquidated Damages") provided for in the
Registration Rights Agreement will not become payable by the Company.
Following the completion of the Exchange Offer (except as set forth in the
paragraph immediately below), holders of Old Notes not tendered will not have
any further registration rights and those Old Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for the Old Notes could be adversely affected upon completion of the
Exchange Offer.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of
the person receiving the New Notes, whether or not such person is the holder
of the Old Notes, (ii) neither the holder nor any such other person is
engaging in or intends to engage in a distribution of the New Notes, (iii)
neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the New
Notes, and (iv) neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 promulgated under the Securities Act,
of the Company. In the event that (i) the Company is not required to file an
Exchange Offer Registration Statement (as defined in the Registration Rights
Agreement) because the Exchange Offer is not permitted by applicable law of
Commission policy, or (ii) any holder of Old Notes is prohibited from
participating in the Exchange Offer by applicable law or Commission policy, or
such holder would be required to deliver a prospectus in connection with any
resale of New Notes acquired in the Exchange Offer and the prospectus
contained in the Exchange Offer Registration Statement would not be
appropriate or available for such resales, or such holder is a broker-dealer
that holds Old Notes acquired directly from the Company or its affiliates.
Such holders can elect, by so indicating on the Letter of Transmittal and
providing certain additional necessary information, to have such holder's Old
Notes registered in a "shelf" registration statement on an appropriate form
pursuant to Rule 415 under the Securities Act. In the event that the Company
is obligated to file a "shelf" registration statement, it may be required to
keep such "shelf" registration statement effective for at least three years.
Other than as set forth in this paragraph, no holder will have the right to
participate in the "shelf" registration statement nor otherwise to require
that the Company register such holder's Old Notes under the Securities Act.
See"--Procedures for Tendering."
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third-parties unrelated to the Company, the Company believes
that, with the exceptions set forth below, New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any person receiving such New Notes, whether or not
such person is the holder (other than any such holder or such other person
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 the New Notes are
acquired in the ordinary course of business of the holder or such other person
and neither the holder nor such other person has an arrangement or
understanding with any person to
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participate in the distribution of such New Notes. Any holder who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
New Notes cannot rely on this interpretation by the Commission's staff and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each broker-
dealer that receives New Notes for its own account in exchange for Old Notes,
where the Old Notes were acquired by that 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."
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth in the
second paragraph under "--Purpose and Effect" above), holders of Old Notes not
tendered will not have any further registration rights and those Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for a holder's Old Notes could be adversely
affected upon completion of the Exchange Offer if the holder does not
participate in the Exchange Offer.
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 Old
Notes validly tendered and not withdrawn prior to 5:00p.m., New York City
time, on the Expiration Date. 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. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000 in principal amount.
The form and terms of the New Notes are substantially the same as the form,
and terms of the Old Notes except that (i) interest on the New Notes shall
accrue from the date of issuance of the Old Notes and (ii) the New Notes have
been registered under the Securities Act and will not bear legends restricting
their transfer. The New Notes will evidence the same debt as the Old Notes and
will be issued pursuant to, and entitled to the benefits of, the Indenture
pursuant to which the Old Notes were issued.
As of May 30, 1997, Old Notes representing $85,000,000 aggregate principal
amount were outstanding. This Prospectus, together with the Letter of
Transmittal, is being sent to such registered Holder and to others believed to
have beneficial interests in the Old Notes. Holders of Old Notes do not have
any appraisal or dissenters' rights under the General Corporation Law of the
State of Delaware or the indenture in connection with the Exchange Offer. The
Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission promulgated thereunder.
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 holders
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, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
Holders 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 "The Exchange Offer--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on July
21, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall
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mean the latest date and time to which the Exchange Offer is extended. In
order to extend the Exchange Offer, the Company will notify the Exchange Agent
and each registered holder of any extension by oral or written notice 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, in its sole
discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer
or, if any of the conditions set forth under "The Exchange Offer--Certain
Conditions to Exchange Offer" shall not have been satisfied, to terminate the
Exchange Offer, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
Except as set forth under "The Exchange Offer--Book Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign, and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the
Letter of Transmittal or copy to the Exchange Agent prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Old Notes, if that procedure is available, into the Exchange Agent's account
at DTC (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 Holder must comply with the
guaranteed delivery procedures described below. To be tendered effectively,
the Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth under "The Exchange Offer--Exchange
Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date will
constitute an agreement between that holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company, or other nominee and who wishes to
tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the
beneficial owner wishes to tender on the owner's own behalf, the owner must,
prior to completing and executing the Letter of Transmittal and delivering the
owner's Old Notes, either make appropriate arrangements to register ownership
of the Old Notes in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of transmittal
or (ii) for the account of an Eligible Institution. If signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, the guarantee must be by any eligible guarantor institution
that is a member of or participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program, the Stock
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Exchange Medallion Program, or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, the Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by the registered
holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so at must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities, or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent, nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly as to which the defects or irregularities
have not been cured or waived will be returned by the Exchange Agent to the
tendering holders, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "The Exchange Offer--Conditions to the
Exchange Offer," to terminate the Exchange Offer and, to the extent permitted
by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions, or otherwise. The terms of any such purchases or
offers could differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) 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, whether or not such person is the holder, ( ii ) neither the holder nor
any such other person is engaging in or intends to engage in a distribution of
such New Notes, (iii) neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of such New Notes, and (iv) neither the holder nor any such other
person is an "affiliate" as defined under Rule 405 of the Securities Act, of
the Company or any ~Guarantor.
In the event that (i) the Company is not required to file an Exchange Offer
Registration Statement because the Exchange Offer is not permitted by
applicable law or Commission policy, or (ii) any holder of Old Notes is
prohibited from participating in the Exchange Offer by applicable law or
Commission policy, or such holder would be required to deliver a prospectus in
connection with any resale of New Notes acquired in the Exchange Offer and the
prospectus contained in the Exchange Offer Registration Statement would not be
appropriate or available for such resales, or such holder is a broker-dealer
that holds Old Notes acquired directly from the Company or its affiliates.
Such holders can elect, by so indicating on the Letter of Transmittal and
providing certain additional necessary information, to have such holder's Old
Notes registered in a "shelf" registration statement on an appropriate form
pursuant to Rule 415 under the Securities Act. Such election must be made by
the Expiration Date in order for such holder to participate in the "shelf"
registration.
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In all cases, issuance of New Notes for 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, a properly completed and duly executed Letter of
Transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of and
agreement to be bound by the 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 Old Notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged Old Notes will be returned without expense to
the tendering Holder 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.
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 within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered 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 such Book-Entry Transfer Facility's procedures for transfer. However,
although delivery of Old Notes may be effected through book-entry transfer at
the Book-Entry Transfer Facility, the Letter of Transmittal or copy thereof,
with any required signature guarantees and any other required documents, must,
in any case other than as set forth in the following paragraph, be transmitted
to and received by the Exchange Agent at the address set forth under "The
Exchange Offer-Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through
DTC's communication system in place of sending a signed, hard copy Letter of
Transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder'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 received 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 holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for 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 three NYSE trading days after the date
of execution of the Notice of Delivery.
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WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or (for
DTC participants) electronic ATOP transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth in this Prospectus
prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes
to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied
by documents of transfer sufficient to have the Trustee register the transfer
of such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. 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 holder thereof without cost to such holder 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 under "The Exchange Offer-Procedures for Tendering" at
any time on or prior to the Expiration Date.
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, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company and the Guarantors in whole or
in part at any time and from time to time in its reasonable discretion. The
failure by the Company at any time to exercise any of the foregoing rights
shall not be deemed a waiver 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.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the indenture under the Trust Indenture Act of 1939, as
amended (the "TIA" ). In any such event the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
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EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange Agent.
Marine Midland Bank has been appointed as Exchange Agent for the Exchange
Offer. Questions, requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agent addressed as follows:
MARINE MIDLAND BANK
By Facsimile By Hand, Mail orOvernight Delivery:
Transmission Marine Midland Bank
(for Eligible 140 Broadway, Level A
Institutions only): New York, New York 10005-1180
(212) 658-2292 Attn: Corporate Trust Operations
For information or
Confirmation by
Telephone:
(212) 658-5931
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated 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
approximately $240,000, which includes fees and expenses of the Trustee,
accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection except that holders who instruct the Company
to register New Notes in the name of, or request that Old Notes not tendered or
not accepted in the Exchange Offer be returned to, a person other than the
registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for New Notes, but does
not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury regulations, Internal Revenue Service rulings and pronouncements, and
judicial decisions now in effect, all of which are subject to change at any
time by legislative, judicial or administrative action. Any such changes may be
applied retroactively in a manner that could adversely affect a holder of the
New Notes. The description does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
EACH HOLDER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF EXCHANGING OLD NOTES FOR NEW NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer should
not constitute a material modification of the terms of the Old Notes and,
therefore, such exchange should not constitute an exchange for federal income
tax purposes. Accordingly, such exchange should have no federal income tax
consequences to holders of Old Notes.
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DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to an Indenture (the "Indenture"),
dated as of January 24, 1997, among the Company, the Guarantors and Marine
Midland Bank, as trustee (the "Trustee"). Upon the issuance of the New Notes,
the Indenture will be subject to and governed by the Trust Indenture Act of
1939 (the "Trust Indenture Act"). The New Notes are subject to all such terms,
and Holders of New Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to all the provisions of the New Notes,
the Indenture including the definitions therein of certain terms used below. A
copy of the Indenture is available as set forth under "Additional
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions."
The New Notes will rank junior in right of payment to all Senior Debt,
including borrowings under the New Credit Facility. The New Notes will rank
pari passu in right of payment with the Old Notes, if any, and all senior
subordinated Indebtedness of the Company issued in the future, if any, and
senior in right of payment to all other subordinated Indebtedness of the
Company issued in the future, if any. As of March 31, 1997, the total amount
of Senior Debt outstanding was approximately $73.5 million.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. Except to the
extent of the Subsidiary Guarantees, the Notes will be effectively
subordinated to all Indebtedness and other liabilities and commitments
(including trade payables and lease obligations) of the Company's
Subsidiaries. Any right of the Company to receive assets of any of its
Subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the Holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of that Subsidiary's creditors,
except to the extent that the Company is itself recognized as a creditor of
such Subsidiary, in which case the claims of the Company would still be
subordinate to any security in the assets of such Subsidiary and any
Indebtedness of such Subsidiary senior to that held by the Company. See "--
Subsidiary Guarantees" and "--Subordination."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $85.0 million and
will mature on January 15, 2004. Interest on the Notes will accrue at the rate
of 10% per annum and will be payable semi-annually in arrears on January 15
and July 15, commencing on July 15, 1997, to Holders of record at the close of
business on the January 1 and July 1 immediately preceding such interest
payment date. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, Redemption Price and Purchase
Price of, and interest and Liquidated Damages, if any, on the Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company,
payment of interest and Liquidated Damages, if any, may be made by check
mailed to the Holders of the Notes at their respective addresses set forth in
the register of Holders of Notes; provided that all payments with respect to
Global Notes or Notes where the Holders thereof have given wire transfer
instructions to the Trustee or the Paying Agent will be required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to January
15, 2001. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the Redemption Prices (expressed as percentages of principal
amount) set forth below,
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plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on January 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001.................................................... 105.000%
2002.................................................... 102.500%
2003 and thereafter..................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to January 15, 2000, the Company may in
its discretion redeem up to an aggregate of $25.0 million in principal amount
of Notes at a redemption price of 110% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
redemption date, with the net proceeds of one or more public offerings of
common stock of the Company; provided that at least $60.0 million in aggregate
principal amount of Notes remain outstanding immediately after the occurrence
of such redemption; and provided, further, that such redemption shall occur
within 90 days after the date of the closing of such public offering of common
stock of the Company.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee by lot, pro rata or by such
other method as the Trustee shall deem fair and appropriate; provided that no
Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on the Notes or portions of them called for redemption.
SUBSIDIARY GUARANTEES
The Company's obligations under the Notes will be jointly and severally
Guaranteed (the "Subsidiary Guarantees") by the Guarantors. The Subsidiary
Guarantees of the Guarantors will be unsecured and subordinated to the prior
payment in full of all senior debt of the Guarantors (including such
Guarantor's Guarantee of the New Credit Facility), approximately $2.0 million
of other Indebtedness of the Guarantors and the amounts for which the
Guarantors will be liable under Guarantees issued from time to time with
respect to Senior Debt of the Company, which would include approximately $70.8
million of Senior Debt outstanding as of December 31, 1996, after giving pro
forma effect to the Original Offering, the Transactions and the initial
borrowings under the New Credit Facility. The subordination of the Subsidiary
Guarantees will be substantially similar to the subordination provided for in
the Indenture with respect to the Notes. See "Subordination." The obligations
of each Guarantor under its Subsidiary Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Conveyance."
The Indenture provides that, subject to the provisions of the following
paragraph, no Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person), another corporation, Person or
entity (except the Company or another Guarantor) whether or not affiliated
with such Guarantor, unless (i) the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor under its Subsidiary Guarantee in form and
substance reasonably satisfactory to the Trustee; (ii) immediately after
giving effect to such transaction, no Default or Event of Default exists; and
(iii) immediately after giving pro forma effect to such transaction, the
Company would be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant
described below under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
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The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
Capital Stock of any Guarantor, then such Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation or otherwise, of all
of the Capital Stock of such Guarantor to any Person other than the Company or
a Wholly Owned Subsidiary thereof) will be released and relieved of any
obligations under its Subsidiary Guarantee; provided that the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "Repurchase at the Option of Holders."
"Guarantors" means each of (i) the Operating Subsidiary, (ii) the
Intermediate Holding Company, (iii) LFC Armored of Texas Inc., a Texas
corporation ("LFC of Texas"), (iv) Loomis, Fargo & Co. of Puerto Rico, a
Tennessee corporation ("LFC of Puerto Rico") and (v) any other Subsidiary that
(a) Guarantees any Senior Debt of the Company or any Indebtedness of the
Company that is pari passu in right of payment with the Notes or (b) is or
becomes a Significant Subsidiary (whether as a result of creation,
acquisition, additional investment, internal growth, or otherwise), and their
respective successors and assigns.
The Intermediate Holding Company is a holding company whose only significant
asset is all of the capital stock of the Operating Subsidiary. All of the
Company's business is conducted through the Operating Subsidiary and its two
wholly-owned subsidiaries, LFC of Texas and LFC of Puerto Rico. Separate
financial statements of the Guarantors are not included herein because the
Guarantors are jointly and severally liable with respect to the Company's
obligations pursuant to the New Notes, the Subsidiary Guarantees are full and
unconditional, and the Guarantors have no operations independent of the
Company.
SUBORDINATION
The payment of principal, Redemption Price and Purchase Price of, and
interest and Liquidated Damages, if any, on the Notes will be expressly
subordinate and subject in right of payment, as set forth in the Indenture, to
the prior payment in full of all Senior Debt, whether outstanding on the date
of the Indenture or thereafter incurred.
The Notes will rank junior in right of payment to all Senior Debt, including
borrowings under the New Credit Facility. Borrowings under the New Credit
Facility will be secured by substantially all the Company's assets, including
the capital stock of the Company's existing and future Subsidiaries, and will
be guaranteed by all such Subsidiaries, which guarantees will be secured by
substantially all of such Subsidiaries' assets. The Notes will rank pari passu
in right of payment with all senior subordinated Indebtedness of the Company
issued in the future, if any, and senior in right of payment to all other
subordinated Indebtedness of the Company issued in the future, if any.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not such interest
constitutes an allowable claim in such proceeding) before the Holders of Notes
will be entitled to receive any payment with respect to the Notes, and until
all Obligations with respect to Senior Debt are paid in full, any distribution
to which the Holders of Notes would be entitled shall be made to the holders
of Senior Debt (except that Holders of Notes may receive securities that are
subordinated at least to the same extent as the Notes to Senior Debt and any
securities issued in exchange for Senior Debt and payments made from the trust
described under "Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities or from the trust described under
"Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any
default occurs (other than a payment default) and is continuing
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with respect to Designated Senior Debt that permits holders of the Designated
Senior Debt as to which such default relates to accelerate its maturity and
the Trustee receives a notice of such default (a "Payment Blockage Notice")
from the Company or the representative of the Designated Senior Debt. Payments
on the Notes may and shall be resumed (a) in the case of a payment default,
upon the date on which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of (i) the date on which such nonpayment
default is cured or waived, (ii) 179 days after the date on which the
applicable Payment Blockage Notice is received unless the maturity of any
Designated Senior Debt has been accelerated and (iii) the date on which such
payment blockage period shall have been terminated by written notice to the
Company and the Trustee from the representative of the Designated Senior Debt
who shall have previously delivered the Payment Blockage Notice. No new period
of payment blockage may be commenced unless and until (i) 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice and (ii) all scheduled payments of principal, Redemption Price and
Purchase Price of, and interest and Liquidated Damages, if any, on the Notes
that have become due have been paid in full in cash or Cash Equivalents. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for
a subsequent Payment Blockage Notice. The Company shall deliver a notice to
the Trustee promptly after the date on which any nonpayment default is cured
or waived or ceases to exist or on which the Designated Senior Debt related
thereto is discharged or paid in full.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the Holders of Notes to
accelerate the maturity thereof in accordance with the Indenture. See "--
Events of Default." The Indenture will further require that the Company
promptly notify the holders of Senior Debt if payment of the Notes is
accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. As of March 31, 1997,
the total amount of Senior Debt outstanding was $73.5 million. Although the
Indenture will limit, subject to certain financial tests, the amount of
additional Indebtedness, including Senior Debt, that the Company and its
Subsidiaries can incur, under certain circumstances, the amount of such
Indebtedness could be substantial and, in any case, said Indebtedness may be
Senior Debt. See " Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."
"Designated Senior Debt" means (i) Indebtedness of the Company under the New
Credit Facility and (ii) any other Senior Debt permitted under the Indenture,
which, at the date of creation thereof or determination, has an aggregate
principal amount outstanding of, or under which at the date of creation
thereof or determination, the holders thereof are committed to lend, at least
$20.0 million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Debt as "Designated Senior Debt" for
purposes of the Indenture.
"Senior Debt" means Indebtedness of the Company, whether outstanding on the
date of the Indenture or thereafter created, incurred or assumed, unless the
instrument under which such Indebtedness is incurred expressly provides that
such Indebtedness shall not be senior in right of payment to the Notes.
Notwithstanding the foregoing, Senior Debt will not include (i) Indebtedness
evidenced by the Notes, (ii) Indebtedness that is by its terms subordinate or
junior in right of payment to any other Indebtedness of the Company, (iii) any
liability for federal, state, local or other taxes owed or owing by the
Company, (iv) Indebtedness of the Company to any of its Subsidiaries, (v)
Indebtedness for the purchase of goods or materials in the ordinary course of
business except purchase money Indebtedness secured by a security interest in
or a Lien upon the goods or materials purchased, (vi) that portion of any
Indebtedness that is incurred in violation of the Indenture, (vii)
Indebtedness which is represented by Disqualified Stock, (viii) Indebtedness
of or amounts owing by the Company for compensation to employees, (ix) amounts
owing under leases (other than Capital Lease Obligations), and (x) the NOL
Note.
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MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. Upon the occurrence of a Change of Control, each Holder
of Notes will have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer") at a
Purchase Price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to
the Purchase Date). Within 30 days following any Change of Control, the
Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes pursuant to the procedures required by the Indenture and described in
such notice. The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
On the related Purchase Date, which is at least 30 but no more than 60 days
from the date on which the Company mails notice of the Change of Control, the
Company will, to the extent permitted under applicable law, (1) accept for
payment all Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (2) deposit with the Paying Agent an amount equal to the
Purchase Price, together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Purchase Date in respect of all Notes or
portions thereof so tendered and accepted for repurchase and (3) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Notes or
portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Notes so repurchased the amount due in
connection with such Notes, and the Company will promptly issue a new Note,
and the Trustee, upon written request from the Company will authenticate and
mail or deliver (or cause to be transferred by book entry) to each relevant
Holder a new Note equal in principal amount to any unpurchased portion of the
Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Purchase Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act) other than the Principals or their Related Parties (as defined
below), (ii) the approval by the requisite vote of the stockholders of the
Company of a plan of liquidation or dissolution of the Company, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Wingate Principals, Borg-Warner Principals, and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than
40% of the voting stock of the Company and at such time neither the Wingate
Principals and their Related Parties nor the Borg-Warner Principals and their
Related Parties beneficially own, directly or indirectly (including through
the
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Business Trust), more voting stock of the Company than such "person", (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors or (v) the first day on which the Company
ceases for any reason to own, beneficially and legally, 100% of the
outstanding Capital Stock of the Operating Subsidiary.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
"Borg-Warner Principals" means Borg-Warner Security Corporation and the
Management Group.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) (x) was a member of such Board
of Directors on the date of the Indenture or (y) was identified to become a
Director on Exhibit B to the Contribution Agreement or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Management Group" means the individuals listed as such in the Indenture.
"Principals" means either the Borg-Warner Principals or the Wingate
Principals, as the case may be.
"Related Party" with respect to either the Wingate Principals or the Borg-
Warner Principals means (A) any controlling stockholder, 80% (or more) owned
Subsidiary, or spouse or immediate family member (in the case of an
individual) of such Principals or (B) any trust, corporation, partnership or
other entity, the beneficiaries, stockholders, partners, owners or Persons
beneficially holding an 80% or more controlling interest of which consist of
the Borg-Warner Principals, the Wingate Principals and/or such other Persons
referred to in the immediately preceding clause (A).
"Wingate Principals" means Wingate Partners, L.P., Wingate Affiliates, L.P.
and the Management Group.
Asset Sales. The Indenture provides that the Company will not, and will not
permit any of its Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by
a resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Subsidiary is in the form of cash or Cash
Equivalents; provided that the amount of (x) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet) of the Company or
any of its Subsidiaries (other than contingent liabilities and liabilities
that are by their terms subordinated to the Notes or any guarantee thereof)
that are assumed by the transferee of any such assets pursuant to an agreement
that releases the Company or such Subsidiary from further liability and (y)
any securities received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary
into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received), shall be deemed to be cash or Cash Equivalents for purposes of this
provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the applicable Subsidiary may apply such Net Proceeds, at its
option, (a) to permanently reduce Senior Debt, including without limitation
Indebtedness under the New Credit Facility (and to correspondingly reduce
commitments with respect thereto) or (b) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in the same or a similar
line of business as the Company
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was engaged in on the date of the Asset Sale. Pending the final application of
any such Net Proceeds, the Company or the applicable Subsidiary may
temporarily reduce Senior Debt, including without limitation Indebtedness
under the New Credit Facility or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." Within 30 days
after the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will be required to make an offer to all Holders of Notes (an "Asset
Sale Offer") to purchase an aggregate principal amount of Notes equal to such
Excess Proceeds (the "Offer Amount"), at a Purchase Price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the Purchase Date, in
accordance with the procedures set forth in the Indenture and described in
such notice.
The Company will comply with the requirements of Rule 14(e)-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of an Asset Sale.
On the related Purchase Date, which is at least 30 but no more than 60 days
from the date on which the Company mails notice of an Asset Sale Offer, the
Company will, to the extent permitted under applicable law, (i) accept for
payment all Notes or portions thereof properly tendered pursuant to the Asset
Sale Offer in an aggregate principal amount not in excess of the Offer Amount,
(ii) deposit with the Paying Agent an amount equal to the Purchase Price,
together with accrued and unpaid interest and Liquidated Damages, if any,
thereon to the Purchase Date, in respect of all Notes or portions thereof so
tendered and accepted for repurchase and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Notes or portions
thereof being repurchased by the Company. The Paying Agent will promptly mail
to each Holder of Notes so tendered the amount due in connection with such
Notes, and the Company will promptly issue a new Note, and the Trustee, upon
written request from the Company will authenticate and mail or deliver (or
cause to be transferred by book entry) to each relevant Holder a new Note,
equal in principal amount to any unpurchased portion of the Notes surrendered,
if any; provided, that each such new Note will be in a principal amount of
$1,000 or an integral multiple thereof. The Company will publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the
Purchase Date.
To the extent that the aggregate amount of Notes tendered pursuant to an
Asset Sale Offer is less than the Excess Proceeds, the Company or the
applicable Subsidiary may use any remaining Excess Proceeds for any purpose
not prohibited by the Indenture. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the Offer Amount, the Trustee shall
select the Notes to be purchased on a pro rata basis. Upon completion of an
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Restrictions under Senior Debt. The Indenture provides that prior to
complying with the provisions of the covenants described above relating to a
Change of Control Offer or an Asset Sale Offer, but in any event within 90
days following a Change of Control or the accumulation of Excess Proceeds in
excess of $5.0 million, the Company shall (i) repay, or otherwise make
arrangements satisfactory to the holders of all Senior Debt for the repayment
of, all Senior Debt in full or offer to repay all such Senior Debt in full and
have repaid, or otherwise made arrangements satisfactory to the holders of all
Senior Debt for the repayment of, all Senior Debt in full of any lender who
accepts such offer; and/or (ii) obtain the requisite consents under the New
Credit Facility or under agreements relating to other Senior Debt to purchase
Notes as required by the Indenture.
The New Credit Facility prohibits the Company from purchasing any Notes and
also will provide that certain change of control events with respect to the
Company and asset sales would constitute a default thereunder. Any future
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event the Company becomes
obligated pursuant to the Indenture to purchase Notes at a time when the
Company is contractually prohibited by the New Credit Facility or any other
such agreement from purchasing Notes, the Company could seek the consent of
its lenders to the purchase of Notes or could attempt to refinance the
borrowings under the agreements that contain such prohibition. If the Company
does not obtain such a consent or repay such borrowings, the Company would
remain contractually
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prohibited from purchasing Notes. In such case, the Company's failure to make
the required Change or Control Offer or Asset Sale Offer or to purchase
tendered Notes would constitute an Event of Default under the Indenture which
would, in turn, constitute a default under the New Credit Facility and any
other Senior Debt which contains terms which would result in an event of
default upon the occurrence of an Event of Default under the Notes. In such
circumstances, the Company's ability to make payments to the Holders of Notes
would be subject to the subordination provisions of the Indenture.
CERTAIN COVENANTS
Restricted Payments. The Indenture provides that the Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly: (i)
declare or pay any dividend or make any other payment or distribution in
respect of the Company's Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company)
or to the direct or indirect holders of the Company's Equity Interests in
their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends
or distributions payable to the Company or any Wholly Owned Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any direct or indirect parent of the
Company or other Affiliate of the Company (other than a Wholly Owned
Subsidiary of the Company); (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value, prior to any
scheduled maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness that is subordinated to the Notes; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clauses (w)
and (x) of the next succeeding paragraph), is less than the sum of (i) 50%
of the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company or of debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted Investment (less the cost
of disposition, if any) and (B) the initial amount of such Restricted
Investment plus (iv) $500,000.
The foregoing provisions will not prohibit (v) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (w) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other
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acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(x) the defeasance, redemption, repurchase or payment of principal of
Indebtedness that is subordinated to the Notes with the net cash proceeds from
an incurrence of Permitted Refinancing Debt or the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (y) (A) the acquisition or assumption of the indebtedness
evidenced by the Bond Agreement by and among New Jersey Economic Development
Authority, Wells Fargo Armored, the purchasers thereunder, and Mellon Bank,
N.A., as trustee, dated June 1, 1984, in the original principal amount of $1.0
million (the "IRB"), (B) the payment of principal, interest, or premiums, if
any, in connection with the redemption, repurchase or maturity of the IRB, (C)
the payment or reimbursement of costs, expenses and taxes as may be incurred
by Wells Fargo Armored after the Closing Date with respect to maintaining the
property to which the IRB relates, (D) the payment to the original holders
under the IRB or their assignees of any amount required to cancel or retire
the IRB and the indebtedness evidenced thereby and (E) the reimbursement of
costs and expenses incurred by Wells Fargo Armored in redeeming or
repurchasing the IRB at the request or direction of the Company; and (z) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Subsidiary of the Company held by any
member of the Company's (or any of its Subsidiaries') management pursuant to
any management equity subscription agreement or stock option agreement in
effect as of the date of the Indenture; provided that (i) the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $250,000 in any twelve-month period plus the aggregate cash
proceeds received by the Company during such twelve-month period from any
reissuance of Equity Interests by the Company to members of management of the
Company and its Subsidiaries; (ii) the cash proceeds from any such reissuance
shall be excluded from clause (c)(ii) of the preceding paragraph; and (iii) no
Default or Event of Default shall have occurred and be continuing immediately
after such transaction.
Notwithstanding anything contained in the Indenture to the contrary, the
events described in clause (y) of the preceding paragraph (each, an "IRB
Payment Event") shall be excluded from the definition of Restricted Payments.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
Incurrence of Indebtedness and Issuance of Preferred Stock. The Indenture
provides that the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of Disqualified
Stock or preferred stock (other than to the Company or a Wholly Owned
Subsidiary of the Company); provided, however, that the Company and its
Subsidiaries may incur Indebtedness (including Acquired Debt) and the Company
(but not any of its Subsidiaries) may issue shares of Disqualified Stock, if
the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been at least 2.0 to
1.0, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of Senior Debt under the New Credit
Facility and letters of credit thereunder in an aggregate principal amount
at any time outstanding (with letters of credit (other than
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Insurance Letters of Credit) being deemed to have a principal amount equal
to the maximum potential liability of the Company and its Subsidiaries
thereunder) not to exceed an amount equal to $100.0 million under the New
Credit Facility less the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the commitments with respect to such
Indebtedness pursuant to the covenant described above under the caption
"Repurchase at the Option of Holders--Asset Sales";
(ii) the incurrence by the Company and its Subsidiaries of Existing
Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iv) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness represented by Capital Lease Obligations, mortgage
financings, purchase money obligations or Acquired Debt, in each case
incurred for the purpose of financing or refinancing all or any part of the
purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Subsidiary, in an
aggregate principal amount not to exceed $5.0 million at any time
outstanding;
(v) the incurrence in the ordinary course of business by the Company or
any of its Subsidiaries of Indebtedness in respect of Insurance Letters of
Credit;
(vi) the incurrence by any Subsidiary of the Company of Indebtedness
under a Guarantee of any Indebtedness permitted under the Indenture to be
incurred by the Company; provided that (a) in the case such Guarantee is of
Indebtedness that is pari passu in right of payment with the Notes, all
obligations with respect to the Notes are Guaranteed on an equal and
ratable basis with the Indebtedness so Guaranteed, and (b) in the case such
Guarantee is of Indebtedness that is subordinated in right of payment to
the Notes, all obligations with respect to the Notes are Guaranteed on a
senior basis reflecting the subordination of the Indebtedness so Guaranteed
on terms substantially similar to, or more favorable to senior creditors
than, those contained in the Indenture;
(vii) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred;
(viii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Wholly Owned Subsidiaries; provided, however, that (i) if the Company is
the obligor of such Indebtedness, such Indebtedness is evidenced by a note
and expressly subordinate to the payment in full of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance, transfer or other
disposition of Equity Interests that results in any such Indebtedness being
held by a Person other than the Company or a Wholly Owned Subsidiary and
(B) any sale, transfer or other disposition of any such Indebtedness to a
Person that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Subsidiary, as the case may be;
(ix) the incurrence by the Company or any of its Subsidiaries of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the terms of this Indenture to be outstanding;
(x) the incurrence by the Company or any of its Subsidiaries of
Indebtedness in respect of bid, performance or advance payment bonds, and
appeal and surety bonds;
(xi) the incurrence by the Company of Indebtedness represented by the
IRB;
(xii) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $10.0 million; and
(xiii) the incurrence by the Company or any of its Subsidiaries of
interest, fees or other expenses on Indebtedness otherwise permitted under
this covenant, provided that such interest, fees or other expenses are
payable on a current basis no less frequently than semi-annually and are
paid when due or within any applicable customary grace period thereafter,
not to exceed thirty days.
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For purposes of determining compliance with this covenant, (i) in the event
that an item of Indebtedness meets the criteria of more than one of the types
of Indebtedness permitted by this covenant, the Company in its sole discretion
will classify such item of Indebtedness and will only be required to include
the amount and type of each class of Indebtedness in the test specified in the
first paragraph of this covenant or in one of the clauses of the second
paragraph of this covenant; (ii) the amount of Indebtedness issued at a price
which is less than the principal amount thereof shall be equal to the amount
of liability in respect thereof determined in accordance with GAAP unless the
Company shall elect upon written notice to the Trustee at the time of issuance
of such Indebtedness to qualify the extended principal amounts or final
accreted value thereof as permitted under the terms of the Indenture; and
(iii) the amount of Indebtedness represented by a Guarantee of a primary
obligation of another Person shall be deemed to be the lower of (x) an amount
equal to the maximum amount of the primary obligation (including without
limitation all principal, premiums, if any, interest, fees and all other
amounts in respect thereof) in respect of which such Guarantee is made and (y)
the maximum amount for which such guaranteeing Person may be liable pursuant
to the terms of the applicable Guarantee, which, in any case in which such
Guarantee consists solely of the granting of a Lien on any asset of such
guaranteeing Person, shall be limited to the fair market value of such asset.
Liens. The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries. The
Indenture provides that the Company will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary to (i)(a) pay dividends or make any other distributions to the
Company or any of its Subsidiaries (1) on its Capital Stock or (2) with
respect to any other interest or participation in, or measured by, its
profits, or (b) pay any Indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company
or any of its Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (a) Existing Indebtedness as in effect on the
date of the Indenture; (b) the New Credit Facility as in effect as of the date
of the Indenture, and any amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings thereof,
provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the New Credit Facility as in effect on the date of the
Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any
instrument or agreement governing Acquired Debt of the Company or any of its
Subsidiaries or Capital Stock of a Person acquired by the Company or any of
its Subsidiaries as in effect at the time of such acquisition (except to the
extent such Acquired Debt was incurred or Capital Stock was issued in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person, or the property or assets of the Person, so
acquired, provided that in the case of Indebtedness, such Indebtedness was
permitted by the terms of the Indenture to be incurred and provided, further,
that the Consolidated Cash Flow of such Person is not taken into account in
determining whether such Indebtedness is permitted, (f) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, or (h) Permitted Refinancing Debt, provided that the restrictions
contained in the agreements governing such Permitted Refinancing Debt are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
Merger, Consolidation, or Sale of Assets. The Indenture provides that the
Company may not consolidate or merge with or into (whether or not the Company
is the surviving corporation), or permit any other Person to consolidate or
merge with or into the Company, nor will the Company sell, assign, transfer,
lease, convey or
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otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions, to another corporation, Person or entity
unless (i) the Company shall be the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made (the "Surviving Entity"), is a
corporation organized and existing under the laws of the United States, any
state thereof, or the District of Columbia; (ii) the Surviving Entity assumes
by supplemental indenture in a form reasonably satisfactory to the Trustee all
of the obligations of the Company under the Notes and this Indenture; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iv) immediately after giving
effect to such transaction, the Consolidated Net Worth of the Company or the
Surviving Entity, as the case may be, would be at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction;
and (v) immediately after giving effect to such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the beginning
of the applicable four quarter period, the Company or the Surviving Entity, as
the case may be, would be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates. The Indenture provides that the Company will
not, and will not permit any of its Subsidiaries to, make any payment to, or
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into or make or amend
any contract, agreement, understanding, loan, advance or guarantee with, or
for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Subsidiary than those that could
have been reasonably obtained in a comparable transaction by the Company or
such Subsidiary with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors and (b) with respect to
any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Company of such Affiliate Transaction from a financial
point of view issued by an accounting, appraisal or investment banking firm of
national standing; provided that (u) the Contribution Agreement and the
transactions contemplated thereunder, including without limitation the
issuance of the NOL Note, (v) the stockholders agreement, entered into on the
Issue Date, among the Company and Wells Fargo Armored Service Corporation, the
Business Trust and Wingate Partners, L.P., (w) the indemnification of officers
and directors of the Company or its Subsidiaries in accordance with the
charters and by-laws of the Company and its Subsidiaries or pursuant to
director indemnification agreements, (x) any employment agreement entered into
by the Company or any of its Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Subsidiary, (y)
transactions between or among the Company and/or its Wholly Owned Subsidiaries
and (z) Restricted Payments, Permitted Investments and IRB Payment Events that
are permitted by the provisions of the Indenture described above under the
caption "Certain Covenants--Restricted Payments," in each case, shall not be
deemed Affiliate Transactions.
Notwithstanding the foregoing, clause (ii) in the preceding paragraph shall
not apply to any agreement for the provision of security services and related
goods in connection therewith between the Company or any of its Subsidiaries
and an Affiliate that (x) provides for rates that are at least as favorable as
standard published rates then offered by the Affiliate in question or (y) is
entered into pursuant to a commercially bid arrangement in which at least two
Persons that are not Affiliates have been asked to participate.
Sale and Leaseback Transactions. The Indenture provides that the Company
will not, and will not permit any of its Subsidiaries to, enter into any sale
and leaseback transaction; provided that the Company may enter into a sale and
leaseback transaction if (i) the Company could have (a) incurred Indebtedness
in an amount equal to the Attributable Debt relating to such sale and
leaseback transaction pursuant to the Fixed Charge Coverage
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Ratio test set forth in the first paragraph of the covenant described above
under the caption "Certain Covenants--Incurrence of Additional Indebtedness
and Issuance of Preferred Stock" and (b) incurred a Lien to secure such
Indebtedness pursuant to the covenant described above under the caption
"Certain Covenants--Liens," (ii) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
applies the proceeds of such transaction in compliance with, the covenant
described above under the caption "Certain Covenants--Asset Sales."
No Intervening Subordinate Debt. The Indenture provides that (i) the Company
will not incur, create, issue, assume, Guarantee or otherwise become liable
for any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt and senior in right of payment to the Notes, and (ii) no Guarantor
will incur, create, issue, assume, Guarantee or otherwise become liable for
any Indebtedness that is subordinate or junior in right of payment to its
senior debt and senior in any respect in right of payment to the Subsidiary
Guarantees.
Payments for Consent. The Indenture provides that neither the Company nor
any of its Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Notes for or as an inducement to any consent, waiver or amendment of
any of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the Notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports. The Indenture provides that, whether or not required by the rules
and regulations of the Securities and Exchange Commission (the "Commission"),
so long as any Notes are outstanding, the Company will, and if the Company is
required to file financial statements for any Guarantor, shall cause such
Guarantor to, furnish to the Holders of Notes (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 and/or any Guarantor were
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 certified independent
accountants of the Company and/or any Gurantor and (ii) all information that
would be required to be filed with the Commission on Form 8-K if the Company
and/or any Gurantor were required to file such reports. In addition, whether
or not required by the rules and regulations of the Commission, the Company
and/or any Guarantor will file a copy of all such information and reports with
the Commission for public availability (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company has agreed that,
for so long as any Notes remain outstanding, it will, and will cause any
Guarantor to, furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal, Redemption Price or Purchase Price of the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (iii) failure by the Company to comply with the provisions
described under the captions "Repurchase at the Option of Holders"; (iv)
failure by the Company for 30 days after notice from the Trustee or Holders of
not less than 25% of the aggregate principal amount of the Notes outstanding
to comply with the provisions described under the captions "Certain
Covenants--Restricted Payments" or "Incurrence of Indebtedness and Issuance of
Preferred Stock"; (v) failure by the Company for 60 days after notice from the
Trustee or Holders of not less than 25% of the aggregate principal amount of
the Notes outstanding to comply with any of its other agreements in the
Indenture or the Notes; (vi) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness
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for money borrowed by the Company or any of its Subsidiaries (or the payment
of which is Guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or Guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $7.5 million or more; (vii) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating
in excess of $7.5 million (excluding judgments to the extent covered by
insurance in respect of which coverage has not been disclaimed or denied),
which judgments are not paid, discharged or stayed for a period of 60 days;
(viii) a Subsidiary Guarantee is held in any judicial proceeding to be
unenforceable or invalid, or with respect to any Guarantor that is a
Significant Subsidiary, the Subsidiary Guarantee of such Guarantor ceases to
be in full force and effect; and (ix) certain events of bankruptcy or
insolvency with respect to the Company, any Guarantor or any Subsidiary that
is obligated under the Indenture to execute and deliver a Subsidiary
Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Upon such acceleration, the
entire principal amount of, and accrued and unpaid interest and Liquidated
Damages, if any, on the Notes shall become immediately due and payable, unless
all Events of Default specified in such acceleration notice (other than any
Event of Default in respect of non-payment of principal, premium or interest,
if any, which has become due solely by reason of such declaration of
acceleration) shall have been cured. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any Guarantor or any Subsidiary that
is obligated under the Indenture to execute and deliver a Subsidiary
Guarantee, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal, Redemption Price, Purchase Price, interest or Liquidated Damages,
if any) if it determines in good faith that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to the
first date on which the Company may redeem Notes at its option as described in
the first paragraph under "Optional Redemption" by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding the prohibition on redemption of the Notes prior to
such first date, then the premium specified in the Indenture for an optional
redemption on such first date shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Notes.
The Holders of the required percentage of the aggregate principal amount of
the Notes then outstanding as described under "Amendment, Supplement and
Waiver," by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and, in certain
circumstances MAY RESCIND ANY ACCELERATION WITH RESPECT TO THE NOTES AND ITS
CONSEQUENCES.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or of any Guarantor, as such, shall have any liability for any obligations of
the Company under the Notes or the Indenture or of a Guarantor under the
Subsidiary Guarantee, or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver of liabilities under the federal
securities laws is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
Obligations of the Company and the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal or
Redemption Price of, and interest and Liquidated Damages, if any, on such
Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and
the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
Obligations of the Company released with respect to certain covenants
(including those described under "Repurchase at the Option of Holders") that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable government
securities, or a combination thereof, in such amounts as will be sufficient
(without reinvestment), in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal or Redemption Price of,
and interest and Liquidated Damages, if any, on the outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Default or
Event of Default shall have occurred and be continuing on the date of such
deposit (other than a Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit (it being understood that
such condition shall not be deemed to be satisfied until such 91st day); (v)
such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the
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Company or any of its Subsidiaries is bound; (vi) the Company must have
delivered to the Trustee an opinion of counsel to the effect that, after the
91st day after the deposits, the trust funds will not be subject to the effect
of an avoidance or other order under any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii)
the Company must deliver to the Trustee an Officers' Certificate stating that
the deposit was not made by the Company with the intent of preferring the
Holders of Notes over the other creditors of the Company with the intent of
defeating, hindering, delaying or defrauding creditors of the Company or
others; and (viii) the Company must deliver to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the Covenant
Defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed. The registered Holder of a Note will be treated as the owner of it
for all purposes.
The Notes will be subject to certain transfer restrictions as described
below under "Notice to Investors" and certificates evidencing the Notes will
bear a legend to such effect. No service charge will be made for any
registration of transfer, exchange or redemption of Notes, except in certain
circumstances for any tax or other governmental charge that may be imposed in
connection therewith.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided below, the Indenture or the Notes may be amended or
supplemented with the consent of the Holders of at least a majority in
principal amount of the Notes then outstanding (including, without limitation,
consents obtained in connection with a purchase of, tender offer or exchange
offer for, Notes), and any existing default or compliance with any provision
of the Indenture or the Notes may be waived with the consent of the Holders of
a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal, Redemption Price or Purchase
Price of or change the fixed maturity of any Note or alter the provisions with
respect to the redemption of the Notes (other than a payment required by one
of the covenants described above under the caption "Repurchase at the Option
of Holders"), (iii) reduce the rate of or change the time for payment of
interest or Liquidated Damages, if any, on or with respect to any Note, (iv)
waive a Default or Event of Default in the payment of principal, Redemption
Price or Purchase Price of, or interest or Liquidated Damages, if any, on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal, Redemption Price
or Purchase Price of, or interest or Liquidated Damages, if any, on the Notes,
(vii) waive a redemption or repurchase payment with respect to any Note (other
than a payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders"), or (viii) make any change in
the foregoing amendment and waiver provisions.
Old Notes that remain outstanding after the consummation of the Exchange
Offer, if any, and New Notes issued in connection with the Exchange Offer will
be entitled to vote or consent on all matters as a single class of securities
under the Indenture.
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Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then 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 in case an Event of Default
shall occur (which shall not be 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 the Trustee
against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes will be issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and integral multiples thereof.
Global Notes; Book-Entry Form. New Notes will be evidenced by one or more
global notes (collectively, the "Global Note") which will be deposited with
the Trustee as custodian for The Depository Trust Company, New York, New York
("DTC") and registered in the name of Cede & Co. ("Cede") as DTC's nominee.
Except as set forth below, record ownership of the Global Notes may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
An investor may hold its interests in the Global Note directly through DTC
if such investor is a participant in DTC, or indirectly through organizations
which are participants in DTC (the "Participants"). Transfers between
Participants will be effected in the ordinary way in accordance with DTC rules
and will be settled in same-day funds. The laws of some states require that
certain persons take physical delivery of securities in definitive form.
Consequently, the ability to transfer a beneficial interest in the Global Note
to such person may be limited.
Investors who are not Participants may beneficially own interests in the
Global Notes held by DTC only through Participants, or certain banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"). So long as Cede, as nominee of DTC, is the
registered owner of the Global Notes, Cede for all purposes will be considered
the sole Holder of the Global Notes. Except as provided below, owners of
beneficial interests in the Global Notes will not be entitled to have
certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form, and will not be
considered Holders thereof.
Payment of principal, Redemption Price and Purchase Price of, and interest
and Liquidated Damages, if any, on the Global Notes will be made to Cede, the
nominee for DTC, as the registered owner of the Global
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Notes by wire transfer of immediately available funds. None of the Company,
the Trustee or any paying agent will 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 Notes or for maintaining,
supervising, or reviewing any records relating to such beneficial ownership
interests.
The Company has been informed by DTC that, with respect to any payment of
principal, Redemption Price and Purchase Price of, and interest and Liquidated
Damages, if any, on the Global Notes, DTC's practice is to credit
Participants' accounts on the payment date therefor with payments in amounts
proportionate to their respective beneficial interests in the Notes
represented by the Global Notes, as shown on the records of DTC, unless DTC
has reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in Notes
represented by the Global Notes held through such Participants will be the
responsibility of such Participants, as is now the case with securities held
for the accounts of customers registered in "street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Notes represented by the Global Notes to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar or paying agent under
the Indenture) will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under
the rules and procedures governing their operations. DTC has advised the
Company that it will take any action permitted to be taken by a Holder of New
Notes only at the direction of one or more Participants to whose account with
DTC interests in the Global Notes are credited and only in respect of the
principal amount of the Notes represented by the Global Notes as to which such
Participant or Participants has or have given such direction.
DTC has advised the Company as follows: DTC 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
Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entry
changes to the accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and may include
certain other organizations such as the Initial Purchasers. Certain of such
Participants (or their representatives), together with other entities, own
DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with, a Participant, either directly or indirectly.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the
Company will cause New Notes to be issued in definitive form in exchange for
the Global Notes. None of the Company, the Trustee or any of their respective
agents will have any responsibility for the performance by DTC, their
Participants or Indirect Participants of their respective obligations under
the rules and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on account
of, beneficial ownership interests in Global Notes.
An investor may request that their New Note be issued in certificated form,
and may request at any time that their interest in a Global Note be exchanged
for a New Note in certificated form. Finally, certificated New Notes may be
issued in exchange for New Notes represented by the Global Notes if no
successor depositary is appointed by the Company or in certain other
circumstances set forth in the Indenture.
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Same-Day Settlement and Payment. The Indenture requires that payments in
respect of the Notes represented by the Global Notes (including principal,
Redemption Price, Purchase Price, interest and Liquidated Damages, if any) be
made by wire transfer of immediately available funds to the accounts specified
by Cede, the nominee for DTC. With respect to certificated securities, the
Company will make all payments of principal, Redemption Price, Purchase Price,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's registered
address. Secondary trading in long-term notes and debentures of corporate
issuers not held in DTC is generally settled in clearing-house or next-day
funds. In contrast, the New Notes represented by the Global Notes are expected
to trade in the Depositary's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such New Notes will, therefore,
be required by the Depositary to be settled in immediately available funds.
The Company expects that secondary trading in the certificated securities will
also be settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person or
assumed in connection with the acquisition of assets from such other Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person or such acquisition of assets, and (ii)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "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, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of
a Person shall be presumed to be control, which presumption may be rebutted by
evidence to the contrary.
"Asset Sale" means (A) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback)
other than in the ordinary course of business consistent with past practices
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above
under the caption "Repurchase at the Option of Holders--Change of Control"
and/or the provisions described above under the caption "Merger, Consolidation
or Sale of Assets" and not by the provisions of the "Asset Sale" covenant), or
(B) the issue or sale by the Company or any of its Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause
(A) or (B), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $500,000 or (b)
for net proceeds in excess of $500,000. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Wholly Owned Subsidiary of the Company
or by a Subsidiary of the Company to the Company or to a Wholly Owned
Subsidiary of the Company, (ii) an issuance or sale of Equity Interests by a
Subsidiary of the Company to the Company or to a Wholly Owned Subsidiary of
the Company, (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments",
(iv) a disposition of inventory in the ordinary course of business, and (v) a
sale or other disposition of damaged, worn out or obsolete property that is no
longer useful in the conduct of the business of the Company and its
Subsidiaries in the ordinary course of business will not be deemed to be Asset
Sales.
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"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or other business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) in the equity of such association or entity, (iii) in the case of
a partnership, partnership interests (whether general or limited) and (iv) any
other interest or participation that confers on a Person the right to receive
a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) demand and time deposits, certificates of deposit
and eurodollar time deposits with maturities of six months or less from the
date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any lender party to the
New Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or
better, (iii) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (i) and (ii) above
entered into with any financial institution meeting the qualifications
specified in clause (ii) above and (iv) commercial paper rated at least P-1 by
Moody's Investors Service, Inc. or at least A-1 by Standard & Poor's Rating
Group and in each case maturing within six months after the date of
acquisition.
"Consolidated Cash Flow" means, without duplication, with respect to any
Person for any period, the Consolidated Net Income of such Person for such
period plus, to the extent deducted in computing Consolidated Net Income: (i)
an amount equal to any net loss realized in connection with an Asset Sale,
plus (ii) provision for taxes based on income or profits of such Person and
its Subsidiaries for such period, plus (iii) consolidated interest expense of
such Person and its Subsidiaries for such period, whether paid or accrued and
whether or not capitalized (including, without limitation, amortization of
original issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations, but excluding fees and
expenses related to Insurance Letters of Credit), plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Subsidiaries for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, and the depreciation and amortization and other non-cash charges
of, a Subsidiary of the referent Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent (and in same
proportion) that the net income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be paid as a dividend to
the Company by such Subsidiary without prior governmental approval (that has
not been obtained), and without direct or indirect restriction pursuant to,
the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the net income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance
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with GAAP; provided that there shall be excluded therefrom, without
duplication: (i) all items classified as extraordinary, unusual or
nonrecurring gains or losses; (ii) any net loss or net income of any other
Person (other than a Subsidiary of such Person), except to the extent of the
amount of dividends or other distributions actually paid to such Person or its
Subsidiaries by such other Person during such period; (iii) the net income of
any Person acquired by such Person or a Subsidiary thereof in a pooling-of-
interests transaction for any period prior to the date of such acquisition;
(iv) gains (but not losses) in respect of Asset Sales by such Person or its
Subsidiaries; (v) the net income (but not net loss) of any Subsidiary of such
Person to the extent that the declaration or payment of dividends or
distributions to such Person is restricted by the terms of its constituent
documents or any agreement, instrument, contract, judgment, order, decree,
statute, rule, governmental regulation or otherwise, except for any dividends
or distributions actually paid by such Subsidiary to such Person or another
Subsidiary of such Person; (vi) with regard to a Subsidiary of such Person
(other than a Wholly Owned Subsidiary of such Person), any aggregate net
income (or loss) in excess of such Person's pro rata share of such
Subsidiary's net income (or loss); and (vii) the cumulative effect of any
change in accounting principles.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated stockholders' equity of such Person and its consolidated
Subsidiaries, as determined in accordance with GAAP, less, to the extent
included therein, all amounts, if any, attributable to Disqualified Stock.
"Contribution Agreement" means that certain Contribution Agreement, dated as
of November 28, 1996, by and among Borg-Warner Security Corporation, Wells
Fargo Armored Service Corporation, the Company, Loomis Holding Corporation,
Loomis Armored Inc. and Business Trust.
"Default" means any event, occurrence or condition that is or with the
passage of time or the giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock of any Person 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 or with the
passage of time, matures or is redeemable, pursuant to a sinking fund
obligation or otherwise (excluding any redemption at the option of the issuer
of such Capital Stock on a date that is at least 91 days after the date on
which the Notes mature), or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means all Indebtedness of the Company and its
Subsidiaries (other than under the New Credit Facility) in existence on the
Issue Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations, but excluding fees and expenses related to Insurance Letters of
Credit) plus (ii) the consolidated interest expense of such Person and its
Subsidiaries that was capitalized during such period plus (iii) any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Subsidiaries or secured by a Lien on assets of such Person or one
of its Subsidiaries (whether or not such Guarantee or Lien is called upon)
plus (iv) the product of (a) all cash dividend payments (and non-cash dividend
payments in the case of a Person that is a Subsidiary) on any series of
preferred stock of such Person, times (b) a fraction, the numerator of which
is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
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"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than repayments of revolving credit borrowings) or issues
or redeems preferred stock subsequent to the commencement of the period for
which the Fixed Charge Coverage Ratio is being calculated but prior to the
date on which the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
Guarantee or redemption of Indebtedness, or such issuance or redemption of
preferred stock, and the use of the proceeds therefrom, as if the same had
occurred at the beginning of the applicable four-quarter reference period. In
addition, for purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related
financing transactions, during the four-quarter reference period or subsequent
to such reference period and on or prior to the Calculation Date shall be
deemed to have occurred on the first day of the four-quarter reference period
and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, and (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with
GAAP, and operations or businesses disposed of prior to the Calculation Date,
shall be excluded, and (iii) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession of the United States, as in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, without duplication, (i)
any liability of such Person (a) for borrowed money, or under any
reimbursement obligation relating to a letter of credit, bankers' acceptance
or note purchase facility; (b) evidenced by a bond, note, debenture or similar
instrument; (c) for the balance deferred and unpaid of the purchase price for
any property or service or any obligation upon which interest charges are
customarily paid (except for accrued expenses or trade payables arising in the
ordinary course of business); (d) for the payment of money relating to a lease
that is required to be classified as a Capitalized Lease Obligation in
accordance with GAAP; or (e) for the maximum fixed repurchase price of any
Disqualified Stock of such Person plus accrued and unpaid dividends thereon;
(ii) any obligation of others secured by a Lien on any asset of such Person,
whether or not any obligation secured thereby has been assumed, by such
Person; (iii) any obligations of such Person under any Hedging Obligation; and
(iv) any Guarantee of such Person or any obligation of such Person which in
economic effect is a guarantee with respect to any Indebtedness of another
Person.
For purposes of this definition, "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such
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Disqualified Stock, such fair market value shall be determined in good faith
by the board of directors of the Person issuing such Disqualified Stock.
"Insurance Letters of Credit" means letters of credit issued for the account
of the Company or any Wholly Owned Subsidiary of the Company for purposes of
(i) securing certain deductible amounts payable by the Company or a Wholly
Owned Subsidiary of the Company under cargo, automobile or general liability
insurance policies or (ii) complying with workers' compensation requirements
under applicable law.
"Investment" by any Person means any direct or indirect loan, advance (or
other extension of credit) or capital contribution (by means of any transfer
of cash or other property) to another Person or any other payments for
property or services for the account or use of another Person, including
without limitation the following: (i) the purchase or acquisition of any
Capital Stock or other evidence of beneficial ownership in another Person;
(ii) the purchase, acquisition or Guarantee of the Indebtedness of another
Person or the issuance of a "keep well" with respect thereto; and (iii) the
purchase or acquisition of the business or assets of another Person; but shall
exclude: (a) accounts receivable and other extensions of trade credit on
commercially reasonable terms in accordance with normal trade practices;
(b) the acquisition of property and assets from equipment suppliers and other
vendors in the ordinary course of business, provided that such property and
assets do not represent all or substantially all of the production capacity of
the supplier or other vendor; and (c) the acquisition of assets, Capital Stock
or other securities by the Company for consideration consisting solely of the
Capital Stock of the Company other than Disqualified Stock. If the Company or
any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Equity Interests of such Subsidiary not sold or disposed
of.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"NOL Note" means the note having a principal amount of $6.0 million issued
by the Company to the Business Trust pursuant to the terms of the Contribution
Agreement.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received in connection with the sale or other disposition
of any non-cash consideration received in any Asset Sale), net of (i) the
direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, (ii) taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), (iii) amounts required to be
applied to the repayment of Indebtedness that is (a) secured by a Lien on the
asset or assets that were the subject of such Asset Sale or (b) Senior Debt,
the repayment of which is required either pursuant to the terms thereof, by
applicable law, or in order to obtain a necessary consent to such transaction,
and (iv) any reserves established in accordance with GAAP for adjustment in
respect of the sale price of such asset or assets or for any liabilities
associated with such Asset Sale; provided that any reversal of any such
reserve shall be added back in the determination of Net Proceeds.
"New Credit Facility" means that certain credit facility, dated as of the
Issue Date, by and among the Company and the banks party thereto, providing
for up to $115.0 million of revolving credit borrowings and letters of credit,
including any related notes, Guarantees, collateral documents, instruments and
agreements
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executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Paying Agent" means Marine Midland Bank or any other office or agency where
Notes may be presented for payment, as designated by the Company.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company that is a Guarantor; (b) any Investment in Cash
Equivalents; (c) any Investment by the Company or any Subsidiary of the
Company in a Person, if as a result of such Investment (i) such Person becomes
a Subsidiary of the Company and a Guarantor or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Subsidiary of the Company that is a Guarantor; (d) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was
made pursuant to and in compliance with the covenant described above under the
caption "Repurchase at the Option of Holders--Asset Sales"; (e) any
obligations or shares of Capital Stock received in connection with or as a
result of a bankruptcy, workout or reorganization of the issuer of such
obligations or shares of Capital Stock; (f) any Investment received
involuntarily; (g) any Investment existing on the date of the Indenture; and
(h) Investments having an aggregate fair market value (together with all other
Investments made pursuant to this clause (h) and outstanding) at any time
outstanding not to exceed $1.0 million.
"Permitted Liens" means (i) Liens on assets of the Company securing the New
Credit Facility and other Senior Debt that was permitted by the terms of the
Indenture to be incurred; (ii) Liens on assets of Subsidiaries securing Senior
Guarantees; (iii) Liens in favor of the Company; (iv) Liens on property of a
Person existing at the time such Person is merged into or consolidated with
the Company or any Subsidiary of the Company; provided that such Liens were in
existence prior to such merger or consolidation and were not incurred in
contemplation thereof and do not extend to any assets other than those of the
Person merged into or consolidated with the Company or any Subsidiary of the
Company; (v) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to such acquisition and were not incurred in contemplation
thereof and do not extend to any assets other than those so acquired by the
Company or any Subsidiary of the Company; (vi) Liens to secure the performance
of statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business (or
to secure reimbursement obligations in respect of letters of credit issued in
connection with any of the foregoing obligations); (vii) Liens existing on the
date of the Indenture; (viii) Liens to secure Indebtedness (including Capital
Lease Obligations) permitted by clause (iv) of the second paragraph of the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock"
covering only the assets acquired with such Indebtedness; (ix) Liens for
taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (x) covenants, easements, rights-of-way,
restrictions, encroachments or other similar encumbrances not materially
impairing the marketability of the property encumbered thereby and not
interfering in any material respect with the use of such property or with the
ordinary conduct of the business of the Company or any Subsidiary; (xi) Liens
to secure any Indebtedness which is pari passu with or subordinate in right of
payment to the Notes, where (a) in the case of any Lien securing Indebtedness
that is pari passu in right of payment with the Notes, all obligations with
respect to the Notes are secured on an equal and ratable basis with the
Indebtedness so secured and (b) in the case of any Lien securing Indebtedness
that is subordinated in right of payment to the Notes, all obligations with
respect to the Notes are secured on a senior basis reflecting the
subordination of the Indebtedness so secured on terms substantially similar
to, or more favorable to senior creditors than, those contained in the
Indenture, in each case, until such time as such pari passu or subordinated
Indebtedness is no longer secured by such Lien, at which time such Lien
securing the Notes shall be automatically released; (xii) Liens to secure
obligations of the Company or its Subsidiaries under Insurance Letters of
Credit; (xiii) Liens with respect to judgments which have been stayed or for
which a bond
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having a value equal to the judgment amount has been posted, but only for so
long as such judgment has been stayed or such bond remains posted and
outstanding; (xiv) Liens securing the IRB or the property which is subject to
the IRB; (xv) Liens incurred in the ordinary course of business of the Company
or any Subsidiary of the Company with respect to obligations that do not
exceed $1.0 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b) do
not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company
or such Subsidiary.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any of
its Subsidiaries issued in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund other Indebtedness of
the Company any of its Subsidiaries; provided that (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Debt does not
exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Debt has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Debt has a final maturity date later than the final maturity date
of, and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Purchase Date" means each date on which the Company is obligated to
repurchase Notes pursuant to the terms of the Indenture.
"Purchase Price" means the amount payable for the repurchase of any Note on
a Purchase Date, exclusive of accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Purchase Date, unless otherwise specifically
provided.
"Redemption Price" means the amount payable for the redemption of any Note,
exclusive of accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of redemption, unless otherwise specifically provided.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Guarantees" means Guarantees by a Guarantor with respect to Senior
Debt of the Company.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date of the
Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or in a combination thereof) and (ii) any partnership or limited
liability company (a) the sole general partner or member or the managing
general partner or member of which is such Person or a Subsidiary of such
Person or (b) the only general partners or members of which are such Person or
of one or more Subsidiaries of such Person (or any combination thereof).
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"Transactions" means the formation of the Company and related transactions
contemplated by the Contribution Agreement.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by (i)
such Person or (ii) such Person and one or more Wholly Owned Subsidiaries of
such Person.
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 Company has agreed that, for a period of one year
after the date of this Prospectus, they will make this Prospectus, as amended
or supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until September 18, 1997 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 commissions or concessions received by any such persons may be deemed
to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that 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 one year after the date of this Prospectus, 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 Notes) other than commissions or concessions of any
brokers or dealers and will indemnify holders of the Old Notes (including any
broker-dealers) against certain liabilities, including certain liabilities
under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Notes and Subsidiary
Guarantees offered hereby will be passed upon for the Company by Weil, Gotshal
& Manges LLP, Dallas, Texas and New York, New York.
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EXPERTS
The consolidated financial statements of Loomis, Fargo & Co., successor to
Loomis, included in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as stated in their report with respect thereto included
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing. The consolidated financial
statements of Wells Fargo Armored (a wholly-owned subsidiary of Borg-Warner
Security Corporation) included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report with
respect thereto included herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LOOMIS, FARGO & CO. (SUCCESSOR TO LOOMIS HOLDING CORPORATION)
Report of Independent Auditors............................................ F-2
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of June 30, 1995, June 30, 1996 and De-
cember 31, 1996........................................................ F-3
Consolidated Statements of Operations for the fiscal years ended June
30, 1994, June 30, 1995 and June 30, 1996 and the six months ended De-
cember 31, 1996........................................................ F-4
Consolidated Statements of Cash Flows for the fiscal years ended June
30, 1994, June 30, 1995 and June 30, 1996 and the six months ended De-
cember 31, 1996........................................................ F-5
Notes to Consolidated Financial Statements.............................. F-6
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheet as of March 31, 1997 (Unaudited)............. F-17
Consolidated Statements of Operations for the three months ended March
31, 1996 and March 31, 1997 (Unaudited)................................ F-18
Consolidated Statements of Cash Flows for the three months ended March
31, 1996 and March 31, 1997 (Unaudited)................................ F-19
Consolidated Statement of Stockholders' Deficit (Unaudited)............. F-20
Notes to Unaudited Consolidated Financial Statements.................... F-21
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
Independent Auditors' Report.............................................. F-26
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and December 31,
1996................................................................... F-27
Consolidated Statements of Operations for the fiscal years ended Decem-
ber 31, 1994, December 31, 1995 and December 31, 1996.................. F-28
Consolidated Statements of Stockholder's Equity for the fiscal years
ended December 31, 1994, December 31, 1995 and December 31, 1996....... F-29
Consolidated Statements of Cash Flows for the fiscal years ended Decem-
ber 31, 1994, December 31, 1995 and December 31, 1996.................. F-30
Notes to Consolidated Financial Statements.............................. F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Loomis, Fargo & Co.
We have audited the accompanying consolidated balance sheets of Loomis,
Fargo & Co., successor to Loomis Holding Corporation as of June 30, 1995 and
1996 and December 31, 1996, and the related consolidated statements of
operations and cash flows for each of the three years in the period ended June
30, 1996 and the six months ended December 31, 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 consolidated financial position of Loomis, Fargo
& Co. at June 30, 1995 and 1996 and December 31, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended June 30, 1996 and the six months ended December 31, 1996, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, during the year ended
June 30, 1994, the Company changed its method of accounting for postretirement
benefits other than pensions.
/s/ Ernst & Young LLP
Houston, Texas
March 14, 1997
F-2
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
------------------ DECEMBER 31
1995 1996 1996
-------- -------- -----------
(IN THOUSANDS, EXCEPT FOR PER
SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash and cash equivalents of
$1,500, $1,505 and $1,536, respectively
(Note 2).................................... $ 1,902 $ 3,376 $ 2,469
Trade accounts receivable, net (Note 3)...... 6,394 8,515 10,235
Other receivables............................ 338 577 704
Parts and supplies........................... 619 322 267
Prepaid expenses............................. 2,915 2,724 1,986
-------- -------- --------
Total current assets........................ 12,168 15,514 15,661
Property and equipment:
Land......................................... 1,899 1,865 1,865
Buildings.................................... 4,472 4,215 4,216
Armored vehicles............................. 22,861 24,194 24,506
Other equipment.............................. 4,837 5,662 7,626
Leasehold improvements....................... 2,792 2,641 2,655
-------- -------- --------
36,861 38,577 40,868
Less accumulated depreciation and
amortization................................ 19,156 22,381 24,052
-------- -------- --------
Property and equipment, net.................... 17,705 16,196 16,816
Other assets, net (Note 3)..................... 9,006 8,045 10,569
-------- -------- --------
Total assets................................ $ 38,879 $ 39,755 $ 43,046
======== ======== ========
LIABILITIES AND COMMON SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................. $ 6,797 $ 7,530 $ 5,439
Accrued expenses (Note 3).................... 13,691 13,896 15,597
Short-term debt (Note 4)..................... 445 -- 1,022
Current portion, long-term debt (Note 4)..... -- 1,500 1,500
Current portion, capital lease obligations
(Note 5).................................... 43 110 496
-------- -------- --------
Total current liabilities................... 20,976 23,036 24,054
Long-term liabilities:
Long-term debt--affiliates (Note 4).......... 7,539 7,561 7,569
Long-term debt--other (Note 4)............... 15,597 14,123 13,381
Capital lease obligations (Note 5)........... 84 243 966
Accrued management fees (Note 8)............. 1,312 1,487 1,575
Postretirement benefits other than pensions
(Note 7).................................... 1,193 -- --
-------- -------- --------
Total long-term liabilities................. 25,725 23,414 23,491
Redeemable preferred stock, par value $.01 per
share (Note 10):
Authorized shares--4,000,000 Issued and
outstanding shares--3,500,000............... 3,500 3,500 3,500
Redeemable common stock warrants (Note 10)..... 28 355 355
Common shareholders' deficit (Note 10):
Class A common stock, par value $.01 per
share: Authorized shares--10,000,000 Issued
and outstanding shares--1,500,000........... 15 15 15
Class B common stock, par value $.01 per
share: Authorized shares--2,000,000 Issued
and outstanding shares--none................ -- -- --
Common stock warrants........................ 304 304 304
Additional paid-in capital................... 1,485 1,485 1,485
Accumulated deficit.......................... (13,154) (12,354) (10,158)
-------- -------- --------
Total common shareholders' deficit.......... (11,350) (10,550) (8,354)
-------- -------- --------
Total liabilities and common shareholders'
deficit.................................... $ 38,879 $ 39,755 $ 43,046
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30 ENDED
------------------------------- DECEMBER 31
1994 1995 1996 1996
--------- --------- --------- -----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues.......................... $ 106,447 $ 115,136 $ 119,455 $ 65,765
Cost of operations:
Payroll and related expense..... 72,447 77,270 79,974 43,031
Vehicle expense................. 13,583 13,815 14,035 7,637
Facilities expense.............. 5,395 4,991 5,094 2,661
Other operating expenses........ 14,679 15,936 17,120 8,745
Gains associated with benefit
plans.......................... (1,677) -- (954) --
--------- --------- --------- ---------
104,427 112,012 115,269 62,074
--------- --------- --------- ---------
Operating income.................. 2,020 3,124 4,186 3,691
Interest expense--affiliates (Note
8)............................... 1,099 1,099 1,099 550
Interest expense--other........... 1,954 2,059 1,882 895
--------- --------- --------- ---------
3,053 3,158 2,981 1,445
--------- --------- --------- ---------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle.......... (1,033) (34) 1,205 2,246
Income taxes (Note 6)............. -- -- 78 50
--------- --------- --------- ---------
Income (loss) before cumulative
effect of change in accounting
principle........................ (1,033) (34) 1,127 2,196
Cumulative effect of change in
accounting principle............. (453) -- -- --
--------- --------- --------- ---------
Net income (loss)................. (1,486) (34) 1,127 2,196
Increase in value of redeemable
warrants......................... -- -- 327 --
--------- --------- --------- ---------
Net income (loss) available to
common shareholders.............. (1,486) (34) 800 2,196
Accumulated deficit at beginning
of period........................ (11,634) (13,120) (13,154) (12,354)
--------- --------- --------- ---------
Accumulated deficit at end of
period........................... $ (13,120) $ (13,154) $ (12,354) $ (10,158)
========= ========= ========= =========
Net income (loss) per share before
cumulative effect of change in
accounting principle............. $ (0.36) $ (0.01) $ 0.16 $ 0.43
Cumulative effect of change in
accounting principle............. (0.15) -- -- --
--------- --------- --------- ---------
Net income (loss) per share....... $ (0.51) $ (0.01) $ 0.16 $ 0.43
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JUNE 30 ENDED
------------------------------- DECEMBER 31
1994 1995 1996 1996
--------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................ $ (1,486) $ (34) $ 1,127 $ 2,196
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Cumulative effect of change in
accounting principle.......... 453 -- -- --
Depreciation and amortization
expense....................... 7,080 5,220 4,886 2,061
(Gain) loss on disposal of
property and equipment........ 44 (265) 92 3
Provision for allowance for
doubtful accounts............. (181) (12) 27 60
Accrued management fees........ 350 262 175 88
Postretirement benefits other
than pensions................. -- 340 (954) --
Change in restricted cash...... -- (1,500) (5) (31)
Changes in current assets and
liabilities:
Trade accounts receivable.... 826 (806) (2,148) (1,780)
Other receivables............ (7) (155) (239) (127)
Parts and supplies........... 38 (133) (62) 55
Prepaid expenses............. (1,084) (461) 191 738
Accounts payable............. (1,539) 3,182 733 (2,091)
Accrued expenses............. (2,612) (4,073) (34) 17
Deferred interest and
accretion of discounts...... 1,001 (890) 48 16
--------- --------- --------- --------
Net cash provided by operating
activities...................... 2,883 675 3,837 1,205
INVESTING ACTIVITIES
Acquisition of property and
equipment....................... (419) (688) (1,930) (1,355)
Proceeds from sale of property
and equipment................... 33 295 162 1
--------- --------- --------- --------
Net cash used in investing
activities...................... (386) (393) (1,768) (1,354)
FINANCING ACTIVITIES
Borrowings of debt............... 117,937 123,528 130,485 66,600
Repayments of debt and capital
leases.......................... (120,413) (123,492) (131,005) (66,435)
Other............................ -- -- (80) (954)
--------- --------- --------- --------
Net cash provided by (used in)
financing activities............ (2,476) 36 (600) (789)
--------- --------- --------- --------
Net increase (decrease) in cash
and cash equivalents............ 21 318 1,469 (938)
Cash and cash equivalents at
beginning of period*............ 63 84 402 1,871
--------- --------- --------- --------
Cash and cash equivalents at end
of period*...................... $ 84 $ 402 $ 1,871 $ 933
========= ========= ========= ========
</TABLE>
- --------
* Excludes restricted cash and cash equivalents of $1,500, $1,505 and $1,536 at
June 30, 1995 and 1996 and December 31, 1996, respectively.
See accompanying notes.
F-5
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BACKGROUND
Loomis Holding Corporation was reorganized into Loomis, Fargo & Co. (the
"Company") on January 24, 1997, in connection with the transactions described
in Note 11. Through its wholly owned subsidiary, Loomis Armored Inc., which on
January 24, 1997 was renamed Loomis, Fargo & Co., a Texas corporation (the
"Subsidiary"), the Company provides armored car transport services to a
variety of financial, commercial, industrial and retail establishments within
the United States. It offers secure, expedited transportation and protection
for a variety of valuable commodities such as coin and currency, negotiable
and nonnegotiable securities, precious metals, bullion, food coupons, gems and
works of art. The Company also offers several ancillary services including
storage and issuance of U.S. government food stamps, coin wrapping, vault
storage and other related services. In addition, Loomis provides an extensive
automatic teller machine supply and repair service.
On May 5, 1991, the Company acquired the Subsidiary for cash and debt of
$27,787,000 and assumed liabilities of $8,052,000. Acquisition-related costs
to purchase the Subsidiary were $5,705,000 which included arbitration costs
incurred prior to finalizing the purchase price. As part of the final
settlement agreement of the purchase price, the seller ("Seller") agreed to
assume all preacquisition contingencies relating to outstanding or pending
litigation, workers' compensation claims and state income taxes and a portion
of preacquisition contingencies relating to environmental liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. Intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity date of three months or less to be cash equivalents. Approximately
$1,500,000, $1,505,000 and $1,536,000 of cash and cash equivalents at June 30,
1995 and 1996 and December 31, 1996, respectively, were held under restricted
arrangements as required by insurance agreements.
Revenue Recognition
Revenue on service contracts is recognized as services are provided.
Unearned revenues represent billings for recurring services to be performed in
the month subsequent to year-end.
Property and Equipment
Property and equipment, which includes assets resulting from capital leases,
are recorded at cost and are depreciated on a straight-line basis over the
estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings.................................................... 20--40 years
Trucks and other vehicles.................................... 3--12 years
Other equipment.............................................. 2--8 years
</TABLE>
Leasehold improvements are amortized over the term of the related leases or
the useful lives of the improvements, whichever is less. Repairs and
maintenance costs are charged to expense as incurred.
The Company acquired $121,000, $301,000 and $1,216,000 of assets under
capital lease agreements in the years ended June 30, 1995 and 1996 and the six
months ended December 31, 1996, respectively, which represent both non-cash
investing and non-cash financing activities.
F-6
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, the Company changed its estimates for depreciable lives of
certain assets. The effect of this change was to increase depreciation expense
for 1994 by approximately $1,000,000.
Other Assets
Goodwill resulting from the purchase acquisition is being amortized on a
straight-line basis over 40 years. A related covenant not to compete entered
into with the Seller and certain service contracts acquired by the Company in
the state of Alaska subsequent to May 5, 1991 were amortized on a straight-
line basis over a five-year period and were fully amortized at June 30, 1996.
Amortization expense on other assets was $1,194,000 for each of the years
ended June 30, 1994 and 1995, $1,041,000 for the year ended June 30, 1996 and
$114,000 for the six months ended December 31, 1996.
Long-Lived Assets
Under Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (Statement 121), impairment losses are required to be recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amounts. Statement 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Company's
adoption of Statement 121 in fiscal 1996 did not impact the Company's results
of operations or financial position.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation
The Company grants stock options to employees for a fixed number of shares
with an exercise price no less than the fair value of the shares at the date
of grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and, accordingly, recognizes no compensation expense for the
stock option grants.
Net Income (Loss) Per Share
Net income (loss) per share amounts are computed by dividing net income
(loss) available to common shareholders by the weighted-average number of
common shares and common stock equivalents outstanding during the year as
restated to reflect retroactively the reorganization and recapitalization of
the Company described in Note 11. Common stock equivalents include stock
options and warrants and are computed under the treasury stock method. Because
the Company's common stock is not publicly traded, the computation of common
stock equivalents is based on the fair value of the Company's common stock,
rather than the market price of the stock. The fair value of the Company's
common stock has been estimated by a third party in connection with the
transaction described in Note 11. The number of shares used in the computation
of net income (loss) per share for the years ended June 30, 1994, 1995 and
1996 and the six months ended December 31, 1996 was 2,883,849, 2,883,849,
5,092,171 and 5,092,171, respectively.
Reclassifications
Certain reclassifications have been made in the prior years' financial
statements to conform to the current year presentation.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term maturities of
these instruments. The carrying amount of the Company's debt also
F-7
<PAGE>
LOOMIS, FARGO, & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximates fair value because the debt was recently renegotiated at a market
rate of interest or the debt accrues interest at a variable rate based on
current market rates.
Fiscal Year
Effective July 1, 1996, the Company changed its fiscal year end from June 30
to December 31. Accordingly, the financial statements include a presentation
as of and for the six months ended December 31, 1996. Certain unaudited
comparative information for the six months ended December 31, 1995 are
presented below (in thousands, except per share information):
<TABLE>
<S> <C>
Revenues.......................................................... $57,806
Operating income.................................................. $ 1,855
Net income........................................................ $ 302
Net income per share.............................................. $ 0.10
</TABLE>
3. BALANCE SHEET DATA
Detailed balance sheet data are as follows:
<TABLE>
<CAPTION>
JUNE 30
---------------- DECEMBER 31
1995 1996 1996
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Trade accounts receivable:
Gross trade accounts
receivable................................. $13,099 $15,871 $17,937
Unearned revenues........................... (6,484) (7,109) (7,394)
Allowance for doubtful
accounts receivable........................ (221) (247) (308)
------- ------- --------
Net trade accounts
receivable................................... $ 6,394 $ 8,515 $ 10,235
======= ======= ========
Other assets:
Goodwill.................................... $ 9,153 $ 9,153 $ 9,153
Covenant not to compete..................... 4,500 -- --
Purchased contracts......................... 385 -- --
------- ------- --------
14,038 9,153 9,153
Less accumulated
amortization............................... (5,032) (1,188) (1,302)
Deferred financing and
acquisition costs.......................... -- 80 2,718
------- ------- --------
Total other assets,
net...................................... $ 9,006 $ 8,045 $ 10,569
------- ------- --------
Accrued expenses:
Payroll and related
expenses................................... $ 5,698 $ 5,917 $ 6,450
Insurance................................... 6,043 6,488 6,095
Other....................................... 1,950 1,491 3,052
------- ------- --------
Total accrued expenses.................... $13,691 $13,896 $ 15,597
======= ======= ========
</TABLE>
4. DEBT
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
JUNE 30
--------------- DECEMBER 31
1995 1996 1996
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
14% senior subordinated notes due September
30, 1999..................................... $12,211 $10,211 $10,211
9% junior subordinated note due September 30,
1999......................................... 11,015 9,015 9,015
Term loan with commercial finance company..... -- 4,000 3,250
------- ------- -------
23,226 23,226 22,476
Less discount................................. 90 42 26
Less current portion.......................... -- 1,500 1,500
------- ------- -------
$23,136 $21,684 $20,950
======= ======= =======
</TABLE>
F-8
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The senior subordinated notes include $7,580,000 owed to affiliates. The
junior subordinated debt is held by the Seller as a result of the purchase of
the Subsidiary by the Company.
Effective June 25, 1996, the Company renegotiated its senior subordinated
and junior subordinated debt agreements and, as a result, deferred all
principal payments to September 30, 1999.
During 1994, the Company entered into an agreement to repay the $991,000
interest due on the junior subordinated note for the period May 7, 1993
through May 6, 1994, of which $46,000 was repaid in fiscal 1994 and $945,000
in fiscal 1995.
The Company has a $29,500,000 credit facility consisting of a term loan and
a line of credit with a commercial finance company which expires on September
30, 1999. The facility is structured such that the total maximum borrowings
for the term loan and for guarantees for letters of credit cannot exceed
$21,500,000. The total credit facility and the total maximum borrowings for
the term loan and for the guarantees for letters of credits are reduced by an
amount equal to the aggregate amount of all payments made on the term loan. At
December 31, 1996, the total credit facility and maximum borrowings were
reduced by term loan payments of $750,000 to $28,750,000 and $20,750,000,
respectively. Borrowings under the term loan are repayable in monthly
installments through February 1999. At December 31, 1996, the Company had
approximately $15,900,000 in letters of credit outstanding which were
guaranteed under this agreement and approximately $1,600,000 available for
additional guarantees of letters of credit. Fees charged for the letter of
credit guarantee range from 2.00% to 2.25% of the face amount of the letter of
credit. The maximum amount allowed under the resulting line of credit is the
lesser of (a) 85% of outstanding eligible accounts receivable or (b)
$8,000,000. The balances under the line of credit are classified as short-term
debt under the terms of the agreement. Available borrowings were approximately
$4,800,000 at December 31, 1996. Interest is determined using the bank
reference rate plus 1.75% on the term loan and the bank reference rate plus
1.5% on the line of credit. The interest rates for the term loan and line of
credit were 10% and 9.75% at June 30, 1996 and December 31, 1996. The interest
rate on the line of credit was 10.5% at June 30, 1995.
Collateral pledged under the credit facility includes virtually all the
assets of the Company. The agreement contains restrictive covenants regarding
the level of net worth and working capital, the creation of loans, the
compensation of officers, limitations on capital expenditures, the entering
into of capital leases and maintenance of certain financial ratios.
Additionally, the agreement generally prohibits the payment of dividends to
the Company by the Subsidiary. The Company is in compliance with the terms of
the credit agreement.
The Company's long-term debt maturities for years following December 31,
1996 are $1,500,000 in 1997; $1,500,000 in 1998; $19,476,000 in 1999 and none
thereafter.
Interest of $2,100,000, $4,000,000, $3,100,000 and $1,300,000 was paid
during the years ended June 30, 1994, 1995 and 1996 and the six months ended
December 31, 1996, respectively.
On January 24, 1997, the Company issued $85,000,000 in notes due 2004, the
proceeds of which were used to repay all outstanding long-term debt, and
replaced its credit facility with a new $115,000,000 facility (see Note 11).
F-9
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. LEASES
At December 31, 1996, the scheduled future minimum lease payments under
capital leases are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................................. $ 594
1998................................................................. 566
1999................................................................. 407
2000................................................................. 53
2001................................................................. 23
------
Total minimum lease payments......................................... 1,643
Less amount representing interest.................................... 181
------
Present value of capital lease obligations........................... 1,462
Less current portion of capital lease obligations.................... 496
------
Long-term capital lease obligations.................................. $ 966
======
</TABLE>
The Company leases various office space and equipment under noncancelable
operating leases expiring on various dates through 2004. The Company also
subleases certain office space under noncancelable operating leases expiring
on various dates through 1997.
The following is a schedule of future minimum lease payments and future
minimum sublease income under noncancelable operating leases having remaining
terms in excess of one year as of December 31, 1996:
<TABLE>
<CAPTION>
LEASE SUBLEASE NET
PAYMENTS INCOME OBLIGATION
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1997............................................ $ 2,893 $ 11 $ 2,882
1998............................................ 2,476 -- 2,476
1999............................................ 1,763 -- 1,763
2000............................................ 1,131 -- 1,131
2001............................................ 635 -- 635
Thereafter...................................... 1,407 -- 1,407
------- ---- -------
$10,305 $ 11 $10,294
======= ==== =======
</TABLE>
Rent expense for the years ended June 30, 1994, 1995 and 1996 and the six
months ended December 31, 1996 was $2,907,000, $2,993,000, $3,093,000 and
$1,765,000, respectively.
The Company has certain operating leases which contain (i) rent escalation
clauses, some of which are fixed annual increases with others tied to the
Consumer Price Index and (ii) the passthrough of operating expenses and
property taxes. In addition, certain leases contain options to renew.
6. INCOME TAXES
The Company accounts for income taxes using the liability method required by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Taxes on income from operations for the year ended June 30, 1996 and the six
months ended December 31, 1996 consisted of current federal tax expense.
F-10
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation of income tax attributable to operations before the
cumulative effect of a change in accounting principle computed at the federal
statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30 ENDED
----------------------- DECEMBER 31
1994 1995 1996 1996
------- ------ ------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax (benefit) at statutory rate....... $ (351) $ (12) $ 410 $ 764
Change in valuation allowance......... 503 228 (418) (977)
Nondeductible goodwill amortization
and other............................ (152) (216) 86 263
------- ------ ------ -----
Income tax expense.................... $ -- $ -- $ 78 $ 50
======= ====== ====== =====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
as of June 30, 1995 and 1996 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30
---------------- DECEMBER 31
1995 1996 1996
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforward............. $ 8,360 $ 6,646 $ 5,574
Minimum tax credit carryforward............. -- 67 119
Accrued vacation and bonuses................ 1,082 1,141 1,038
Self-insurance reserve...................... 574 1,663 2,271
Postretirement plan obligation.............. 480 -- --
Deferred management fees.................... 245 455 630
Other reserves not currently deductible..... 210 8 --
Other, net.................................. 204 276 140
------- ------- -------
Total deferred tax assets................. 11,155 10,256 9,772
Valuation allowance for deferred tax assets... (8,362) (7,944) (6,967)
------- ------- -------
Net deferred tax assets....................... 2,793 2,312 2,805
Deferred tax liabilities:
Tax over book depreciation.................. 2,401 1,908 2,138
Prepaid pension cost........................ 392 404 404
Other....................................... -- -- 263
------- ------- -------
Total deferred tax liabilities............ 2,793 2,312 2,805
------- ------- -------
Net deferred tax assets................... $ -- $ -- $ --
======= ======= =======
</TABLE>
The Company has a federal net operating loss carryover of $22,594,000,
$17,885,000 and $15,065,000 at June 30, 1995 and 1996 and December 31, 1996,
respectively. The net operating loss carryover expires in years 2007 through
2009.
During the years ended June 30, 1995 and 1996 and the six months ended
December 31, 1996, the Company paid taxes of $-0-, $84,000 and $50,000,
respectively.
A valuation allowance of $3,892,000 was recognized as of the acquisition
date. Any subsequent reduction in this valuation allowance will result in a
reduction of goodwill. The change in the valuation allowance results primarily
from the recognition of tax benefits attributable to the net operating loss
carryforward which is recognized as the loss is utilized.
F-11
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. BENEFIT PLANS
Pension Plan
Employees of the Company participate in a qualified, defined-benefit pension
plan (the "Plan") sponsored by the Company, covering substantially all
employees who meet the eligibility requirements regarding age and length of
service and who are not participants in another plan to which the Company may
contribute. Plan assets are comprised primarily of investments in equity
securities.
During 1994, the Company froze future benefits under the Plan effective June
30, 1994. Due to the curtailment, the funding requirements under the Employee
Retirement Income Security Act of 1974, as amended, were changed from the
projected unit credit actuarial cost method to the accrued benefit cost
method. This change in funding methods resulted in an increase in the total
actuarial present value of accumulated benefit obligations of $983,000 to
$14,050,000 and an increase in the actuarial present value of projected
benefit obligations of $1,099,000 to $15,586,000 as of July 1, 1994.
The effect of the curtailment resulted in a $1,698,000 decrease to the
projected benefit obligation and a $21,000 decrease to the unrecognized net
gain which affected the $480,000 net pension liability at June 30, 1994,
resulting in prepaid pension cost after curtailment of $1,197,000.
The following table sets forth the funded status of the Plan:
<TABLE>
<CAPTION>
JUNE 30
--------------- DECEMBER 31
1995 1996 1996
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested...................................... $14,358 $14,109 $16,051
Nonvested................................... 369 458 78
------- ------- -------
Total..................................... 14,727 14,567 16,129
------- ------- -------
Plan assets at fair value..................... 14,955 15,380 16,373
------- ------- -------
Funded status................................. 228 813 244
Unrecognized net loss......................... 752 196 798
------- ------- -------
Prepaid pension cost.......................... $ 980 $ 1,009 $ 1,042
======= ======= =======
</TABLE>
A summary of the components of the net periodic pension cost is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED JUNE 30 ENDED
------------------------ DECEMBER 31
1994 1995 1996 1996
------ ------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost......................... $ 459 $ -- $ -- $ --
Interest cost........................ 1,207 1,195 1,120 563
Actual return on plan assets......... (627) (1,826) (1,511) (1,444)
Deferred gain (loss) on plan assets.. (490) 849 362 848
------ ------- ------- -------
Net periodic pension cost
(income)........................ $ 549 $ 218 $ (29) $ (33)
====== ======= ======= =======
Assumptions:
Discount rate...................... 8.0% 8.5% 8.0% 7.5%
Expected long-term rate of return
on assets......................... 8.0% 8.0% 8.0% 8.0%
</TABLE>
F-12
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company contributes to certain multiemployer, defined-benefit plans
covering certain employees under collective bargaining agreements. Total
expenses of these plans were $703,000, $789,000, $1,029,000 and $593,000 for
the years ended June 30, 1994, 1995 and 1996 and the six months ended December
31, 1996, respectively.
The Company also contributes to a 401(k) defined-contribution plan covering
substantially all employees. Contributions and cost are determined as 25% of
employees' contributions up to a maximum of $188 per employee. Total expenses
of this Plan were $-0-, $108,000, $109,000 and $89,000 for the years ended
June 30, 1994, 1995 and 1996 and the six months ended December 31, 1996,
respectively. The Company did not begin contributions to the Plan until August
1, 1994.
In addition to providing pension benefits, the Company had a defined-benefit
postretirement plan that provided medical care to its employees. The
postretirement plan was contributory and contained other cost- sharing
features such as deductibles and Medicare coordination. The funding policy was
to pay for these benefits as incurred.
During the year ended June 30, 1996, the Company terminated the
postretirement benefit plan. As a result of the termination, the Company made
lump-sum payments totaling approximately $89,000 to current retirees and
certain employees. The Company also incurred costs of approximately $150,000
associated with the plan termination and recognized a gain of $954,000.
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, Employer's Accounting for Postretirement
Benefits Other Than Pensions. The effect of adopting the new rules increased
net periodic postretirement benefit expense by approximately $453,000 for the
year ended June 30, 1994.
A summary of the components of the net periodic postretirement benefit
expense was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Service cost............................................. $ 64 $ 57
Interest cost............................................ 66 93
--------- ---------
$ 130 $ 150
========= =========
</TABLE>
Actuarial Assumptions
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Discount rate.................................................... 8.0% 8.0%
Health care cost trend rate--current year........................ 9.5% 9.5%
Health care cost trend rate--next year........................... 9.5% 9.5%
Ultimate health care cost trend rate............................. 4.5% 4.5%
</TABLE>
The following sets forth the funded status of the plans as of June 30, 1995
(in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................................... $ 683
Fully eligible active plan participants........................... 80
Other active plan participants.................................... 430
-------
1,193
Plan assets at fair value........................................... --
-------
Accrued postretirement benefit liability............................ $ 1,193
=======
</TABLE>
F-13
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. TRANSACTIONS WITH AFFILIATES
The Company's statements of operations include management fees charged by
affiliates of $350,000 for the years ended June 30, 1994, 1995 and 1996 and
$175,000 for the six months ended December 31, 1996. Cumulative management
fees of $1,312,000, $1,487,000 and $1,575,000 have not been paid and are
included in long-term liabilities at June 30, 1995 and 1996 and December 31,
1996, respectively. In addition, the Company paid interest of $1,061,000,
$1,076,000, $1,076,000 and $542,000 to affiliates in the years ended June 30,
1994, 1995 and 1996 and the six months ended December 31, 1996, respectively.
9. EMPLOYEE COMPENSATION PLANS
On January 1, 1993, the Board of Directors adopted the Loomis Holding
Corporation Management Stock Option Plan (the "Stock Option Plan"). Under the
Stock Option Plan, officers and key employees of the Company and its
subsidiary may be selected by the Compensation Committee of the Board of
Directors (the "Committee") to receive incentive or nonqualified stock options
to purchase the Company's Class A common stock at an exercise price not less
than the fair market value of the Class A shares at the grant date. The Stock
Option Plan also provides that outside directors of the Company may be
selected by the Compensation Committee to receive nonqualified stock options.
Subject to adjustment, the number of options that may be issued under the
Stock Option Plan will not in the aggregate exceed 50,000. No options were
granted under the plan during the three and one-half years in the period ended
December 31, 1996. Options to acquire 12,530 shares of Class A common stock at
a price of $3.33 per share were issued in previous periods and currently are
fully vested and exercisable.
On February 24, 1995, the Company adopted the Loomis Holding Corporation
Management Equity Growth and Appreciation Plan (the "Old MEGA Plan"),
effective May 5, 1991, pursuant to which the Company may award a maximum of
350,000 units to certain directors and key employees of the Company and its
subsidiary. Units do not represent securities, but merely serve as a basis to
compute compensation. Cash compensation is payable based on the value of a
unit under this plan only in the event of a change in control of the Company.
In the event of a public offering of the Company's common stock, units under
the plan will be exchanged for stock options with a fair value equal to the
value of the units. The value of a unit is based on (i) the value received
from a sale of over 50% of the Company's stock or substantially all the assets
of the Company (on a per share basis), less (ii) amounts received upon
issuance of the Company's equity securities (net of capital distributions),
currently equal to $3.33 per share. There are 284,351 units that vest ratably
over a five-year period. However, upon a change in control of the Company, the
units attributable to current employees vest immediately. In the event of a
public offering of the Company's common stock, units in the plan will be
converted to common stock options with a value equivalent to the units then
outstanding. At December 31, 1996, 320,351 units under the Old MEGA Plan were
outstanding, of which 217,560 were vested.
An additional 29,476 units will be issued in the event that, on or before
June 30, 1998, the Company's principal shareholder receives, in cash or fair
market value of equity securities of a class that is publicly traded, a return
on its investment equal to a compound rate of return of 45%.
In connection with the transactions described in Note 11, the Old MEGA Plan
was terminated and each Unit was cancelled. Holders of Units received options
("Options") to purchase a number of shares of Common Stock of the Company that
were substantially equivalent in value pursuant to the New MEGA Unitholder
Option Plan (the "New MEGA Plan") established by the Company. The Options are
subject to substantially the same vesting schedule and other limitations on
exercise and transfer as existed under the Old MEGA Plan, including without
limitation, the requirement that a Triggering Event (as defined) occur before
the Options become exercisable.
F-14
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. REDEEMABLE PREFERRED AND COMMON STOCK
Redeemable Preferred Stock
The Company's articles of incorporation authorize the issuance of 4,000,000
shares of $.01 par value Series I Preferred Stock, of which 3,500,000 shares
were issued in May 1991 and remain outstanding. There are no dividend
requirements associated with the preferred stock, except that the preferred
stock is entitled to share equally and ratably in dividends with holders of
common stock as if all such shares were a single class. In the event of a
change in control (as defined), the holders of not less than 66 2/3% of
outstanding preferred shares have the right to require that the Company
purchase all outstanding shares of preferred stock for cash at a price of $1
per share. Also, the Company has the right to redeem the preferred stock at
any time, in whole or in part, at a price of $1 per share. The holders of the
preferred stock are entitled to one vote for each share of preferred stock and
vote together with the holders of common stock as a single class. On January
24, 1997, the Company redeemed all its outstanding redeemable preferred stock
(see Note 11).
Common Stock
The Company's articles of incorporation authorize the issuance of 10,000,000
shares of $.01 par value Class A Common Stock and 2,000,000 shares of $.01 par
value Class B Common Stock, of which 1,500,000 and -0- shares, respectively,
are outstanding. The holders of Class A and Class B shares have identical
rights and privileges, except that holders of Class B common stock cannot vote
on matters submitted to shareholders, with the exception of certain
reorganizations or transactions that would result in a change in control of
the Company, in which case Class A and Class B shareholders vote as a single
class and are entitled to one vote per share. Class A shares may be converted
into Class B shares at any time. Class B shares may be converted into Class A
shares upon a change in control or a public offering of securities of the
Company. On January 24, 1997, the Company's shareholders exchanged all their
common stock in the Company for shares of Loomis, Fargo & Co. that
concurrently were transferred to a Business Trust owned by the shareholders of
the Company (see Note 11).
Warrants
In 1991, the Company issued to a lender warrants to purchase 39,301 shares
of the Company's Class A Common Stock at a price of $0.0654 per share, subject
to adjustment for the issuance of certain additional common equity securities.
The warrants expire on May 6, 2001. The warrant holders may require the
Company to repurchase their warrants and/or common equity securities resulting
from the exercise of a portion of their warrants anytime after May 6, 1996,
but before a public offering of the Company's common stock. The repurchase
price is equal to an amount determined by multiplying (a) the higher of (i)
the market value of the Company as of the exercise date or (ii) an amount
equal to (A) six times "put earnings before interest and taxes" (as defined)
for the four fiscal quarters immediately preceding the exercise date, plus (B)
the Company's cash equivalents as of the fiscal quarter immediately preceding
the exercise date, minus (C) outstanding debt and certain other liabilities as
of the fiscal quarter immediately preceding the exercise date, by (b) an
amount equal to the number of warrants or common securities being repurchased
divided by the total number shares of common stock and other dilutive
securities outstanding. Additionally, the Company may repurchase the warrants
and/or common equity securities resulting from the exercise of a portion of
the warrants for the purchase price defined above anytime after May 6, 1995,
but before a public offering of the Company's securities. The warrants are
carried at the greater of their initial book value or their redemption value,
which resulted in a $327,000 charge to retained earnings in the year ended
June 30, 1996.
In 1991, the Company also issued to another lender warrants to purchase
268,794 shares of the Company's Class B Common Stock and issued warrants to
certain shareholders to purchase 838,345 shares of the Company's Class A
Common Stock. All of these warrants are exercisable at a price of $0.0654 per
share. The number of shares that may be purchased under the warrants, as well
as the purchase price, are subject to adjustment for the issuance of certain
additional common equity securities. The warrants expire on May 22, 2002.
F-15
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On January 23, 1997, all warrant holders exercised their warrants and on
January 24, 1997 exchanged the resulting common shares for shares of Loomis,
Fargo & Co., which concurrently were transferred to a Business Trust owned by
the shareholders of the Company (see Note 11).
11. SUBSEQUENT EVENTS
On January 24, 1997 (the "transaction date"), the Company completed its
reorganization into Loomis, Fargo & Co. and the acquisition of certain assets
of Wells Fargo Armored Service Corporation ("Wells Fargo"), a wholly owned
subsidiary of Borg Warner Security Corporation. The reorganization involved
the exchange of all outstanding common stock of the Company for 5,100,000
shares of the common stock of Loomis, Fargo & Co. which concurrently were
transferred to a Business Trust owned by the shareholders of the Company, the
distribution of a total of $14,085,000 to the shareholders of the Company (or
to a trust established for the benefit of the shareholders) and the assumption
by the shareholders of the Company of certain of the Company's employee and
other liabilities.
The aggregate purchase price for the assets acquired and the assumption of
certain liabilities of Wells Fargo was approximately $132,575,000, which
includes cash payments of $106,600,000 and the issuance of 4,900,000 shares of
the common stock of Loomis, Fargo & Co. The acquisition has been accounted for
by the purchase method. The excess of the purchase price over net assets
acquired, which is expected to exceed $90,000,000, will be amortized to
expense principally over 40 years.
Concurrent with the acquisition, the Company issued $85,000,000 of 10%
Senior Subordinated Notes due 2004 in a private placement and repaid all of
its outstanding long-term debt and redeemable preferred stock and replaced its
existing lines of credit with a $115,000,000 revolving credit agreement.
LFC Holding Corporation, a wholly-owned subsidiary of Loomis, Fargo & Co.,
is a holding company whose only significant asset is all of the capital stock
of Loomis Fargo & Co. (Texas), the Operating Subsidiary. All of the Company's
business is conducted through the Operating Subsidiary and its two wholly-
owned subsidiaries, LFC Armored of Texas Inc. and Loomis Fargo & Co. of Puerto
Rico. All of Loomis, Fargo & Co.'s subsidiaries are guarantors of the 10%
Senior Subordinated Notes due 2004. Separate financial statements of the
guarantors are not included herein because the guarantors are jointly and
severally liable with respect to the Company's obligations pursuant to the 10%
Senior Subordinated Notes due 2004, their guarantees are full and
unconditional, and the guarantors have no operations independent of the
Company.
F-16
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 8,591
Accounts receivable, net....................................... 39,060
Prepaid expenses and other assets.............................. 4,928
--------
Total current assets......................................... 52,579
Property and equipment, net...................................... 45,962
Goodwill......................................................... 106,080
Other assets..................................................... 5,201
--------
Total assets................................................. $209,822
========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................................... $ 14,810
Accrued expenses and other current liabilities................. 29,839
Current portion, capital lease obligations..................... 951
--------
Total current liabilities.................................... 45,600
Long-term liabilities:
Long-term debt................................................. 163,883
Capital lease obligations...................................... 840
Other long-term liabilities.................................... 2,226
--------
Total long-term liabilities.................................. 166,949
Common stockholders' deficit:
Common stock................................................... 100
Additional paid-in capital..................................... 24,755
Accumulated deficit............................................ (27,582)
--------
Total common stockholders' deficit........................... (2,727)
--------
Total liabilities and common stockholders' deficit........... $209,822
========
</TABLE>
See accompanying notes.
F-17
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1997
-------------- --------------
(IN THOUSANDS, EXCEPT FOR PER
SHARE DATA)
<S> <C> <C>
Revenues........................................ $30,229 $79,892
Cost of operations:
Payroll and related expense................... 19,629 47,632
Vehicle expense............................... 3,565 10,423
Facilities expense............................ 1,288 3,286
Other operating expenses...................... 4,930 17,524
Expenses relating to the business
combination.................................. -- 1,139
------- -------
29,412 80,004
------- -------
Operating Income (Loss)......................... 817 (112)
Interest expense................................ 734 3,078
------- -------
Income (loss) before income taxes and
extraordinary item............................. 83 (3,190)
Income taxes.................................... -- 25
------- -------
Income (loss) before extraordinary item......... 83 (3,215)
Extraordinary item (net of provision for income
taxes of $1)................................... -- (124)
------- -------
Net income (loss)............................... $ 83 $(3,339)
======= =======
Net income (loss) per share: before extraordi-
nary item...................................... $ 0.02 $ (0.37)
Extraordinary item.............................. -- (0.01)
------- -------
Net income (loss)............................... $ 0.02 $ (0.38)
======= =======
</TABLE>
See accompanying notes.
F-18
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1997
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ 83 $ (3,339)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense.......... 1,263 3,377
Amortization of financing costs................ -- 192
Accretion of discount on NOL note.............. -- 91
Loss on disposal of property and equipment..... 7 --
Change in restricted cash...................... (26) 1,536
Provision for allowance for doubtful accounts.. -- 432
Accrued management fees........................ 87 23
Changes in current assets and liabilities (net
of the effects of the acquisition):
Trade accounts receivable.................... 450 (440)
Prepaid expenses............................. (1,383) (80)
Accounts payable............................. 248 (2,155)
Accrued expenses............................. 1,221 (1,503)
------- ---------
Net cash provided by (used in) operating
activities...................................... 1,950 (1,866)
INVESTING ACTIVITIES
Purchase of Wells Fargo Armored (net of cash
acquired)....................................... -- (105,236)
Capital expenditures............................. (619) (537)
------- ---------
Net cash used in investing activities............ (619) (105,773)
FINANCING ACTIVITIES
Borrowings of debt............................... -- 73,450
Issuance of senior subordinated notes............ -- 85,000
Repayments of debt and capital lease
obligations..................................... (344) (24,686)
Payment of accrued management fees............... -- (1,598)
Financing costs related to senior subordinated
notes and new credit facility................... -- (4,722)
Redemption of preferred stock.................... -- (3,500)
Exercise of common stock warrants................ -- 96
Distributions to stockholders.................... -- (8,743)
------- ---------
Net cash provided by (used in) financing
activities...................................... (344) 115,297
------- ---------
Net increase in cash and cash equivalents........ 987 7,658
Cash and cash equivalents at beginning of
period*......................................... 274 933
------- ---------
Cash and cash equivalents at end of period*...... $ 1,261 $ 8,591
======= =========
</TABLE>
- --------
* Excludes restricted cash and cash equivalents of $1,523, $1,549 and $1,536 at
December 31, 1995, March 31, 1996 and December 31, 1996, respectively
See accompanying notes.
F-19
<PAGE>
LOOMIS, FARGO & CO.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON COMMON COMMON ADDITIONAL
STOCK STOCK STOCK COMMON PAID-IN ACCUMULATED
CLASS A CLASS B WARRANTS STOCK CAPITAL DEFICIT
------- ------- -------- ------ ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1996................... $ 15 $ -- $ 304 $ -- $ 1,485 $(10,158)
Exercise of common stock
warrants............... 9 3 (304) 743
Exchange common stock of
Loomis Holding
Corporation for common
stock of Loomis, Fargo
& Co................... (24) (3) 51 (24)
Distribution to stock-
holders................ (14,085)
Issuance of common stock
as part of the purchase
consideration for Wells
Fargo Armored.......... 49 22,551
Net loss................ (3,339)
----- ----- ----- ----- ------- --------
Balances at March 31,
1997................... $ -- $ -- $ -- $ 100 $24,755 $(27,582)
===== ===== ===== ===== ======= ========
</TABLE>
See accompanying notes.
F-20
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
Loomis, Fargo & Co. (the "Company"), a Delaware corporation, was
incorporated in August 1996. On January 24, 1997, Loomis Holding Corporation,
a Delaware corporation, completed its business combination into Loomis, Fargo
& Co. and the acquisition of certain assets and the assumption of certain
liabilities of Wells Fargo Armored Service Corporation ("Wells Fargo
Armored"), a wholly owned subsidiary of Borg-Warner Security Corporation. The
reorganization involved the exchange of all outstanding common stock of Loomis
Holding Corporation for 5,100,000 shares of the common stock of the Company,
which concurrently were transferred to a business trust owned by the former
shareholders of Loomis Holding Corporation (the "Business Trust"). Earnings
per share have been restated to reflect retroactively the effects of the
reorganization.
The Company owns LFC Holding Corporation (formerly Loomis Holding
Corporation), which in turn owns Loomis, Fargo & Co., a Texas corporation
(formerly Loomis Armored Inc. which was originally incorporated in 1928).
Loomis, Fargo & Co. (the Texas corporation) has two subsidiaries, LFC Armored
of Texas Inc., a Texas corporation, and Loomis, Fargo & Co. of Puerto Rico, a
Tennessee corporation. The common stock of these two subsidiaries was
contributed to the Company by Wells Fargo Armored as part of the assets
transferred by Wells Fargo Armored in the business combination.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. For further information, refer to the
audited consolidated financial statements of Loomis, Fargo & Co. and Wells
Fargo Armored as of December 31, 1996 included elsewhere herein. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Certain prior period amounts have been reclassified to conform with the 1997
presentation.
NOTE 2. DEBT
Long-term debt consists of the following at March 31, 1997 (in thousands):
<TABLE>
<S> <C>
Bank credit facility............................................ $ 73,450
10% senior subordinated notes................................... 85,000
Non-interest bearing NOL note................................... 5,433
--------
$163,883
========
</TABLE>
Concurrent with the purchase of the assets of Wells Fargo Armored, and the
reorganization of Loomis Holding Corporation and the financing transactions
discussed below, substantially all of the then-existing Loomis Holding
Corporation indebtedness was repaid (other than capital leases). Deferred
financing costs associated with the retired debt were written off as an
extraordinary item in the accompanying consolidated statement of operations
for the three months ended March 31, 1997. The Company also entered into a
five-year step-down revolving bank credit facility agreement which provides
for aggregate initial commitments of up to $115 million. Aggregate commitments
are reduced by $2.5 million per quarter in 1998, by an additional $3.75
million per quarter in 1999, by an additional $4.375 million per quarter in
2000 and for the first two quarters of 2001, and $31.875 million per quarter
for the final two quarters of the agreement. The interest rate of the credit
facility is a
F-21
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
variable rate based on either LIBOR or a base rate tied to the bank's prime
rate. At March 31, 1997, the interest rates on the Company's borrowings were
9.75% on base-rate borrowings of $6.45 million and 7.69%--7.79% on LIBOR
borrowings totaling $67 million. Interest on base-rate borrowings is payable
on a quarterly basis. Interest on LIBOR borrowings is due at the end of the
repayment term, which terms vary from 30 to 90 days at March 31, 1997.
Borrowings under the credit facility are secured by substantially all of the
assets of the Company and its subsidiaries. The agreement contains restrictive
covenants regarding the levels of net worth and working capital, the issuance
of additional debt, the compensation of officers, the payment of dividends,
capital expenditures, new capital leases and maintenance of certain financial
ratios. The first required measurement date for financial condition covenants
is the fiscal quarter ending June 30, 1997. At March 31, 1997 there were no
retained earnings available for the payment of dividends.
The 10% senior subordinated notes were issued on January 24, 1997 in a
private placement. In connection with the sale, the Company entered into a
Registration Rights Agreement with the purchasers to provide for the exchange
of the original notes issued for new notes with substantially similar terms
issued in a transaction registered under the Securities Act of 1933, as
amended. The notes mature in January 2004, and provide for semiannual interest
payments of $4.25 million beginning in July 1997. The notes are subordinated
to borrowings under the credit facility and contain certain restrictive
covenants.
On January 24, 1997, the Company issued a $6,000,000 NOL note to the
Business Trust. The NOL note does not accrue interest and has a term of
fifteen years, subject to mandatory prepayments as, and to the extent that,
the Company realizes a tax benefit attributable to the utilization of net
operating losses of Loomis Holding Corporation available at the date of
closing of the Wells Fargo Armored acquisition. The NOL note was discounted at
10% over the Company's expected period of repayment of the principal. The
Company expects that its utilization of net operating losses will result in
the NOL Note being repaid in full by April 1998.
The amount of interest paid in the three months ended March 31, 1996 and
1997 was $309,080 and $927,239, respectively.
NOTE 3. LEASES
At March 31, 1997, the scheduled future minimum lease payments under capital
leases are as follows for years ending March 31(in thousands):
<TABLE>
<S> <C>
1998................................................................. $1,064
1999................................................................. 539
2000................................................................. 305
2001................................................................. 51
2002................................................................. 6
------
Total minimum lease payments......................................... 1,965
Less amount representing interest.................................... 174
------
Present value of capital lease obligations........................... 1,791
Less current portion of capital lease obligations.................... 951
------
Long-term capital lease obligations.................................. $ 840
======
</TABLE>
The Company leases various office space and equipment under noncancelable
operating leases expiring on various dates through 2006. The Company also
subleases certain office space under a noncancelable operating lease expiring
in 1997.
F-22
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following is a schedule of future minimum lease payments and future
minimum sublease income under noncancelable operating leases with terms
exceeding one year for years ending March 31:
<TABLE>
<CAPTION>
LEASE SUBLEASE NET
PAYMENTS INCOME OBLIGATION
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1998............................................ $12,541 $ 6 $12,535
1999............................................ 9,537 -- 9,537
2000............................................ 6,633 -- 6,633
2001............................................ 4,700 -- 4,700
2002............................................ 2,150 -- 2,150
Thereafter...................................... 1,901 -- 1,901
------- --- -------
$37,462 $ 6 $37,456
======= === =======
</TABLE>
Rent expense for the quarters ended March 31, 1996 and 1997 was $834,000 and
$2,093,000, respectively.
The Company has certain operating leases which contain (i) rent escalation
clauses, some of which are fixed annual increases with others tied to the
Consumer Price Index and (ii) the passthrough of operating expenses and
property taxes. In addition, certain leases contain renewal options.
NOTE 4. PURCHASE OF WELLS FARGO ARMORED SERVICE CORPORATION
On January 24, 1997 the Company purchased certain assets and assumed certain
liabilities of Wells Fargo Armored, a wholly-owned subsidiary of Borg-Warner
Security Corporation. (See Note 1.) The acquisition was accounted for using
the purchase method. The aggregate purchase price for the assets acquired and
the liabilities assumed was approximately $128,000,000, which included cash
payments of $105,236,000 and the issuance of 4,900,000 shares of the common
stock of the Company. The excess of the purchase price over the net assets
acquired, approximately $98,715,000, will be amortized to expense principally
over 40 years. The purchase price has been preliminarily allocated to the net
assets acquired and liabilities assumed. The purchase price will be finalized
when all fair market value appraisals are completed, severance, relocation and
leasehold abandonment costs are finalized, and the review of acquired
contracts is completed.
Concurrent with the acquisition, the Company repaid substantially all of the
long-term obligations of Loomis Holding Corporation, replaced its existing
lines of credit with a $115,000,000 revolving bank credit facility and issued
$85,000,000 of 10% unsecured notes due in 2004 in a private placement. See
Note 2.
The consolidated statements of operations and cash flows presented for the
three months ended March 31, 1996 are those of Loomis Holding Corporation,
predecessor to the Company. The statements of operations and cash flows
presented for the three months ended March 31, 1997 include the transactions
of Loomis Holding Corporation for the twenty-three days before the business
combination on January 24, 1997, and those of the Company for the remainder of
the three-month period.
F-23
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The pro forma unaudited results of operations for the three months ended
March 31, 1996 and March 31, 1997, assuming consummation of the purchase and
the restructuring of the Company's debt and capital structure as of January 1,
1996, are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES............................................. $ 89,233 $ 95,221
=========== ===========
Income (loss) before extraordinary item.............. $ 1,003 $ (3,373)
=========== ===========
Net income (loss).................................... $ 1,003 $ (3,497)
=========== ===========
Income (loss) before extraordinary item per common
share............................................... $ 0.10 $ (0.34)
=========== ===========
Net income (loss) per common share................... $ 0.10 $ (0.35)
=========== ===========
</TABLE>
The net income (loss) presented above includes pro forma adjustments to (i)
interest expense to reflect the Company's revised capital structure after the
business combination (ii) depreciation (iii) amortization of goodwill to
reflect the effects of purchase accounting and (iv) elimination of management
fees paid by both of the combined companies to their former owners.
The March 31, 1997 balance sheet reflects adjustments to record acquired
assets and assumed liabilities at their fair market values and to conform
certain accounting policies of Wells Fargo Armored to the policies of the
Company. Reserves totalling approximately $5,466,000 have been recorded for
costs associated with consolidating headquarters and branch facilities,
related relocation costs and severance payments, and obligations under
noncancelable leases for space, vehicles and equipment that extend beyond the
expected periods of use by the Company.
At March 31, 1997, charges of $398,000 have been taken against the
established reserves. The Company anticipates charges of $2,864,000 against
the purchase accounting reserves in the next twelve months, all of which will
represent cash outflows. All reorganization and consolidation activities are
expected to be completed by August 31, 1997.
NOTE 5. EMPLOYEE COMPENSATION PLANS
Before the reorganization of Loomis Holding Corporation into the Company,
certain key employees of Loomis Holding Corporation were compensated under a
Management Equity Growth and Appreciation Plan (the MEGA Plan), under which
Loomis Holding Corporation issued participation units representing unfunded,
unsecured, potential rights to receive deferred compensation. The units vested
over a five-year schedule and required the occurrence of a triggering event
(as defined) before they became exercisable.
Upon the reorganization of the Company and the acquisition of Wells Fargo
Armored, the MEGA Plan was terminated and all of its units canceled. The
Loomis, Fargo & Co. Unitholders Option Plan (the Option Plan) was established,
under which options to purchase shares of the Company's common stock were
issued to the holders of units under the MEGA Plan that were substantially
equivalent to the canceled units. Options under the Option Plan are subject to
vesting requirements and other limitations that are substantially similar to
those that existed with respect to the units under the MEGA Plan. The Option
Plan also requires a triggering event before the options may be exercised. A
triggering event is the first to occur of (i) any sale or disposition of more
than 1,250,000 shares of common stock of the Company by the majority
shareholder to a non-affiliate, (ii) any sale or disposition of substantially
all of the assets of the Company to a non-affiliate, (iii) a merger of the
Company with or into a non-affiliated entity, or (iv) a public offering or
series of offerings producing aggregate gross proceeds of at least $100
million.
F-24
<PAGE>
LOOMIS, FARGO & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of March 31, 1997, there are 612,967 options outstanding under the Option
Plan, 457,113 of which are vested.
NOTE 6. COMMON STOCK
The capital structure of the Company changed with the reorganization of
Loomis Holding Corporation into Loomis, Fargo & Co. and the acquisition of
Wells Fargo Armored on January 24, 1997. The 3,500,000 outstanding shares of
$.01 par value Loomis Holding Corporation Series 1 Preferred Stock were
redeemed out of the proceeds of the new financing arrangements. The 2,383,911
outstanding shares of Class A Loomis Holding Corporation common stock and the
268,794 outstanding shares of Class B Loomis Holding Corporation common stock
(both having a par value of $.01 per share) were exchanged for 5,100,000
shares of common stock of Loomis, Fargo & Co., which were concurrently
transferred to a Business Trust owned by the former stockholders of Loomis
Holding Corporation. (See Note 1.) Under certain circumstances, shares held by
the Business Trust may be provided subsequent to the exercise of certain stock
options. The remaining 4,900,000 outstanding shares of common stock of the
Company were issued to Wells Fargo Armored as part of the purchase price
consideration.
The common stock of the Company consists of one class and has a $.01 par
value. 20,000,000 shares are authorized, 10,000,000 of which are issued and
outstanding as described in the preceding paragraph. 10,000,000 shares of $.01
preferred stock are authorized, but none have been issued at March 31, 1997.
In 1991 and 1992, warrants were issued to certain lenders and shareholders
of Loomis Holding Corporation to purchase an aggregate of 877,646 shares of
Loomis's Class A Common Stock and 268,794 shares of Loomis's Class B Common
Stock. On January 23, 1997, all warrant holders exercised their warrants. The
shares issued upon exercise of the warrants were included in the January 24,
1997 exchange of common stock of Loomis Holding Corporation for shares of
common stock of the Company.
Concurrent with the business combination on January 24, 1997, the non-
interest bearing NOL note described in Note 2, having a discounted value at
that date of approximately $5,342,000, and net cash consideration of
approximately $8,743,000 were distributed for the benefit of the shareholders
of Loomis Holding Corporation.
NOTE 7. NET INCOME (LOSS) PER SHARE
Net income (loss) per share amounts are computed by dividing net income
(loss) available to common stockholders by the weighted average number of
common shares and common stock equivalents outstanding during the period.
Common stock equivalents include stock options and warrants and are computed
under the treasury stock method. The numbers of shares outstanding used in the
computation of net income (loss) per share for the three months ended March
31, 1996 and 1997 were 5,092,171 and 8,745,777, respectively. Earnings per
share have been restated to reflect retroactively the effects of the
recapitalization described in Note 6.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating "basic earnings per share" (which
calculation replaces the current "primary earnings per share"), the dilutive
effect of stock options will be excluded. The impact of Statement 128 on the
calculation of earnings per share for the quarters ended March 31, 1996 and
March 31, 1997 was not material.
NOTE 8. INCOME TAXES
The Company had a federal net operating loss carryforward of $15,100,000 at
December 31, 1996. Accordingly, the Company's income tax expense is limited to
the amount resulting from the computation of the alternative minimum tax.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
Wells Fargo Armored Service Corporation:
We have audited the consolidated balance sheets of Wells Fargo Armored
Service Corporation (a wholly owned subsidiary of Borg-Warner Security
Corporation ("Borg-Warner")) and subsidiaries (the "Company") as of December
31, 1995 and 1996, and the related consolidated statements of operations,
stockholder's equity, and cash flows for each of the three years in the period
ended December 31, 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Wells Fargo
Armored Service Corporation and subsidiaries at December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 10, in January 1997 the Company declared a dividend
payable to Borg-Warner and contributed substantially all of its assets and
assigned certain of its liabilities to Loomis, Fargo & Co.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 14, 1997
F-26
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1996
PRO FORMA
(UNAUDITED)
ASSETS 1995 1996 (NOTE 1)
------ -------- -------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................... $ 4,330 $ 4,601 $ 4,601
Receivables--net............................ 14,197 14,618 14,618
Inventories................................. 1,987 1,809 1,809
Amounts receivable from Borg-Warner......... 33,256 39,857 39,857
Deferred tax asset.......................... 2,626 2,017 2,017
Other current assets........................ 4,575 5,566 5,566
-------- -------- --------
Total current assets...................... 60,971 68,468 68,468
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings.......................... 21,768 20,709 20,709
Machinery and equipment..................... 49,935 47,800 47,800
Capital leases.............................. 9,041 7,943 7,943
-------- -------- --------
80,744 76,452 76,452
Less accumulated depreciation............... 49,687 45,587 45,587
-------- -------- --------
Property, plant and equipment--net........ 31,057 30,865 30,865
NET EXCESS PURCHASE PRICE OVER NET ASSETS
ACQUIRED..................................... 28,887 27,416 27,416
DEFERRED TAX ASSET............................ 3,822 5,198 5,198
OTHER LONG-TERM ASSETS........................ 3,455 4,257 4,257
-------- -------- --------
Total other assets........................ 36,164 36,871 36,871
-------- -------- --------
TOTAL ASSETS.................................. $128,192 $136,204 $136,204
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable and capital lease
obligations................................ $ 532 $ 574 $ 574
Accounts payable and accrued expenses....... 16,791 18,075 18,075
-------- -------- --------
Total current liabilities................. 17,323 18,649 18,649
LONG-TERM LIABILITIES:
Note payable and capital lease obligations.. 2,064 1,010 1,010
Note payable to Borg-Warner................. 51,518 51,518 68,518
Accrual for casualty insurance.............. 13,582 14,742 14,742
-------- -------- --------
Total long-term liabilities............... 67,164 67,270 84,270
-------- -------- --------
Total liabilities......................... 84,487 85,919 102,919
STOCKHOLDER'S EQUITY:
Capital stock............................... 1 1 1
Capital in excess of par value.............. 31,437 36,903 36,903
Dividends declared.......................... (17,000)
Retained earnings........................... 12,307 13,424 13,424
Cumulative translation adjustment........... (40) (43) (43)
-------- -------- --------
Total stockholder's equity................ 43,705 50,285 33,285
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.... $128,192 $136,204 $136,204
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-27
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
NET SERVICE REVENUES.............................. $211,204 $230,999 $246,328
COST OF SERVICES.................................. 177,093 188,639 204,543
-------- -------- --------
GROSS PROFIT...................................... 34,111 42,360 41,785
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES...... 21,406 18,705 20,309
DEPRECIATION...................................... 7,096 7,150 6,997
MANAGEMENT FEES TO BORG-WARNER.................... 3,004 3,185 3,353
AMORTIZATION OF EXCESS PURCHASE PRICE OVER NET
ASSETS ACQUIRED.................................. 1,325 1,474 1,466
-------- -------- --------
EARNINGS FROM OPERATIONS.......................... 1,280 11,846 9,660
INTEREST EXPENSE AND FINANCE CHARGES.............. 6,567 7,135 7,683
-------- -------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES............... (5,287) 4,711 1,977
PROVISION (BENEFIT) FOR INCOME TAXES.............. (1,798) 1,866 860
-------- -------- --------
NET EARNINGS (LOSS)............................... $ (3,489) $ 2,845 $ 1,117
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-28
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1996
PRO FORMA
(UNAUDITED)
1994 1995 1996 (NOTE 1)
------- ------- ------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
COMMON STOCK (100 shares issued and
outstanding).......................... $ 1 $ 1 $ 1 $ 1
CAPITAL IN EXCESS OF PAR VALUE:
Beginning balance.................... 21,544 25,920 31,437 31,437
Capital contributions................ 4,376 5,517 5,466 5,466
------- ------- ------- -------
Balance at December 31............... 25,920 31,437 36,903 36,903
DIVIDENDS DECLARED..................... (17,000)
RETAINED EARNINGS:
Beginning balance.................... 12,951 9,462 12,307 12,307
Net earnings (loss).................. (3,489) 2,845 1,117 1,117
------- ------- ------- -------
Balance at December 31............... 9,462 12,307 13,424 13,424
CUMULATIVE TRANSLATION ADJUSTMENT:
Beginning balance.................... (43) (42) (40) (40)
Current year adjustment.............. 1 2 (3) (3)
------- ------- ------- -------
Balance at December 31............... (42) (40) (43) (43)
------- ------- ------- -------
TOTAL STOCKHOLDER'S EQUITY............. $35,341 $43,705 $50,285 $33,285
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE>
WELLS FARGO ARMORED SERVICES CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
(IN THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings (loss).................................... $(3,489) $ 2,845 $ 1,117
Adjustments to reconcile earnings (loss) to net
cash flows provided
by operating activities:
Depreciation and amortization..................... 8,421 8,624 8,463
Provision for losses on receivables............... 945 983 1,853
Change in deferred income taxes................... (2,610) (1,522) (767)
Changes in assets and liabilities:
Increase in receivables.......................... (7,462) (2,777) (2,122)
(Increase) decrease in other assets and
liabilities..................................... 7,119 (5,285) (7,311)
Increase (decrease) in accounts payable and
accrued expenses................................ 4,845 (1,630) 1,284
------- ------- -------
Net cash provided by operating activities...... 7,769 1,238 2,517
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (6,231) (3,695) (8,065)
Proceeds from sales of fixed assets................ 2,029 430 1,520
Payments related to businesses acquired............ (5,623) (311)
------- ------- -------
Net cash used in investing activities.......... (9,825) (3,576) (6,545)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of debt.................................. 3,500 756 32
Redemption of debt................................. (3,133) (5,119) (1,044)
Contributions from parent.......................... 4,376 5,517 5,466
Other.............................................. (15) (155)
------- ------- -------
Net cash provided by financing activities...... 4,728 1,154 4,299
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ 2,672 (1,184) 271
CASH AND CASH EQUIVALENTS--Beginning of year........ 2,842 5,514 4,330
------- ------- -------
CASH AND CASH EQUIVALENTS--End of year.............. $ 5,514 $ 4,330 $ 4,601
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................... $ 5,051 $ 5,918 $ 5,759
Income taxes paid.................................. 56 108 352
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS OF DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Wells Fargo
Armored Service Corporation and subsidiaries (the "Company"), a wholly owned
subsidiary of Borg-Warner Security Corporation ("Borg- Warner").
Nature of Operations--The Company transports currency, securities and other
valuables, and provides full-service automated teller machine operations and
cash management services such as deposit verification and currency processing.
The principal markets for the Company's services are the United States and
Puerto Rico.
Use of Estimates--The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported amounts and
related disclosures. Actual results may differ from the estimates.
Cash and Cash Equivalents--Cash and cash equivalents consists primarily of
cash and certificates of deposit with original maturities of three months or
less.
Inventories--Inventories are valued at the lower of cost or market. Cost of
substantially all inventories is determined by the first-in, first-out method.
Property, Plant and Equipment and Depreciation--Property, plant and
equipment is carried at cost less accumulated depreciation. Expenditures for
maintenance, repairs and renewals of relatively minor items are generally
charged to expense as incurred. Renewals of significant items are capitalized.
Depreciation is computed generally on the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 15 to 20 years
Machinery and equipment..................................... 3 to 12 years
Property under capital leases............................... 3 to 7 years
</TABLE>
Income Taxes--The Company is included in Borg-Warner's consolidated United
States ("U.S.") income tax return. The Company's provision for income taxes is
determined on a separate return basis.
Income taxes are determined using the liability method under which deferred
tax assets and liabilities are based on the differences between the financial
accounting and tax bases of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using the currently
enacted tax rate expected to apply to taxable income in the periods in which
the deferred tax asset or liability is expected to be settled or realized.
Retirement Benefit Plans--A number of eligible salaried and hourly employees
participate in contributory or noncontributory defined benefit or defined
contribution plans sponsored by Borg-Warner. Borg-Warner's funding policy is
based upon independent actuarial valuations and is within the limits required
by the Employment Retirement Income Security Act of 1974 ("ERISA") for U.S.
defined benefit plans.
The benefits provided to certain salaried employees covered under the
various defined benefit plans are based on years of service and final average
pay and utilize the projected unit credit method for cost allocation. The
benefits provided to certain hourly employees under the various defined
benefit plans are based on years of service and utilize the unit credit method
for cost allocation.
F-31
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the defined contribution plan, contributions are based on the
employees' salaries and are charged to earnings as they become payable to the
plan.
Casualty Insurance Liabilities--The Company has accrued a discounted
liability for the retained portion of insurance costs related to its various
deductible policies. This insurance liability is determined by Borg-Warner and
allocated to the Company based on claims filed and an estimate of claims
incurred but not yet reported. The discount rate used to value the future
obligation at December 31, 1995 and 1996 was 5.5%.
Amortization of Excess of Purchase Price Over Net Assets Acquired--Excess of
purchase price over net assets acquired is being amortized on a straight-line
basis over 5 to 40 years, with the majority being amortized over 40 years. The
Company periodically reviews the appropriateness of both the carrying value
and remaining life of the excess of purchase price over fair value of net
assets acquired by assessing recoverability based on forecasted operating cash
flows, on an undiscounted basis, and other factors. Management believes that
the carrying value and remaining life of the excess of purchase price over
fair value of net assets acquired are appropriate.
Revenue Recognition--Revenue is recognized at the time services are
provided. In certain circumstances, this can result in revenue recognition
prior to customer billing and revenue deferral from advance billings.
Pro Forma Information (Unaudited)--The pro forma information presented in
the accompanying consolidated balance sheet as of December 31, 1996 and the
accompanying consolidated statement of stockholder's equity for the year ended
December 31, 1996 includes the effects of a dividend payable declared on
January 17, 1997 (described in Note 10) recorded as a portion of long-term
debt in the pro forma balance sheet.
2. BALANCE SHEET INFORMATION
Detailed balance sheet data are as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Receivables:
Customers............................................... $14,418 $14,010
Other................................................... 763 2,456
------- -------
15,181 16,466
Less allowance for losses............................... 984 1,848
------- -------
Net receivables........................................... $14,197 $14,618
======= =======
Accounts payable and accrued expenses:
Trade payables.......................................... $ 8,589 $ 8,253
Payroll and related..................................... 3,042 5,615
Casualty insurance (short-term)......................... 1,418 1,258
Cargo insurance......................................... 2,867 1,812
Other................................................... 875 1,137
------- -------
Total accounts payable and accrued expenses........... $16,791 $18,075
======= =======
</TABLE>
The Company participates in Borg-Warner's agreement to sell a $120,000
undivided interest in a revolving pool of customer receivables. The Company's
portion of this sold interest is $13,194 and $13,042 at December 31, 1995 and
1996, respectively, and is reflected as a reduction of "Receivables-net" in
the accompanying Consolidated Balance Sheets. The full amount of the allowance
for losses has been retained because the Company has retained substantially
the same risk of credit loss as if the receivables had not been sold. The
F-32
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
discount related to the sale of receivables is included with "Interest expense
and finance charges" in the Consolidated Statements of Operations.
Selling, general and administrative expenses include provisions for losses
on receivables of approximately $945, $983 and $1,853 in 1994, 1995 and 1996,
respectively. The allowance for doubtful accounts includes deductions of
$1,191 and $989 in 1995 and 1996, respectively.
Accumulated depreciation related to capital leases amounted to approximately
$5,790 and $5,603 at December 31, 1995 and 1996, respectively. Accumulated
amortization related to excess purchase price over net assets acquired
amounted to $10,063 and $9,581 at December 31, 1995 and 1996, respectively.
Trade payables include checks outstanding in excess of bank deposits in
Borg-Warner's central disbursement accounts, since arrangements with the banks
do not call for reimbursement until checks are presented for payment. Such
amounts were $5,483 and $4,085 at December 31, 1995 and 1996, respectively.
The long-term portion of the casualty insurance accrual was $13,582 and
$14,742 at December 31, 1995 and 1996, respectively. The estimated aggregate
undiscounted insurance liability was $17,226 and $17,086 at December 31, 1995
and 1996, respectively.
3. COMMITMENTS
Rental commitments on non-cancelable operating leases with terms exceeding
one year are summarized at December 31, 1996 as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997............................................................... $ 8,027
1998............................................................... 6,970
1999............................................................... 4,504
2000............................................................... 3,276
2001............................................................... 2,652
2002 and after..................................................... 2,317
-------
Total............................................................ $27,746
=======
</TABLE>
Total rental expense amounted to $5,799, $9,303 and $10,321 in 1994, 1995
and 1996, respectively.
F-33
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
The following is a summary of all borrowings of the Company:
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Note payable to Borg-Warner (at an
average rate of 10.5% in 1995 and
10.3% in 1996)........................ $51,518 $51,518
Capital lease liabilities (at an
average rate of 9.3% in 1995 and 9.0%
in 1996).............................. $532 1,064 $574 10
Industrial revenue bond (at an average
rate of 11.2%)........................ 1,000 1,000
---- ------- ---- -------
Total notes payable and long-term
debt................................ $532 $53,582 $574 $52,528
==== ======= ==== =======
</TABLE>
Maturities of long-term debt and capital lease obligations are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997............................................................... $ 574
1998............................................................... 10
1999............................................................... --
2000............................................................... 200
2001............................................................... 200
2002 and after..................................................... 52,118
-------
Total............................................................ $53,102
=======
</TABLE>
5. CONTINGENT LIABILITIES
The Company is involved in a number of legal actions arising in the ordinary
course of business. The Company believes that the various asserted claims and
litigation in which it is involved will not materially affect its financial
position or future operating results, although no assurance can be given with
respect to the ultimate outcome of any such claim or litigation.
6. TRANSACTIONS WITH AFFILIATES
Pursuant to an agreement, the Company paid management fees to Borg-Warner of
$3,004, $3,185 and $3,353 in 1994, 1995 and 1996, respectively. The fees
include charges for administrative services provided by Borg-Warner during the
ordinary course of business.
The Company maintained a note payable to a subsidiary of Borg-Warner of
$51,518 at December 31, 1995 and 1996. The note bears interest at the prime
rate plus 2.0% and its stated maturity is January 1, 2003. Related interest
expense was $4,606, $5,648 and $5,401 in 1994, 1995 and 1996, respectively.
Amounts receivable from Borg-Warner primarily represent advances to Borg-
Warner offset by certain tax and other liabilities owed to Borg-Warner.
F-34
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. PENSION AND OTHER RETIREMENT BENEFITS
The Company participates in various defined benefit plans and a defined
contribution plan (the "Plans") sponsored by Borg-Warner, which cover eligible
employees. The Plans are funded according to ERISA and income tax regulations
as applicable. The expense allocated to the Company by Borg-Warner under
defined benefit plans amounted to $784, $486 and $625 in 1994, 1995 and 1996,
respectively. This expense was actuarially determined based upon factors
including the number of participating employees and the related accumulated
benefit obligation. Management believes that this allocation method is
reasonable. The expense allocated to the Company by Borg-Warner under the
defined contribution plan, representing matching contributions made on behalf
of the Company's employees, was $153, $159 and $157 in 1994, 1995 and 1996
respectively.
8. INCOME TAXES
Provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- ------
<S> <C> <C> <C>
Current:
Federal........................................ $ 332 $ 3,178 $1,176
State.......................................... 480 210 451
Deferred......................................... (2,610) (1,522) (767)
------- ------- ------
Provision (benefit) for income taxes............. $(1,798) $ 1,866 $ 860
======= ======= ======
</TABLE>
The analysis of the variance of income taxes as reported from income taxes
computed at the U.S. statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------ -----
<S> <C> <C> <C>
Income taxes at U.S. statutory rate of 35%......... $(1,850) $1,649 $ 692
Increases (decreases) resulting from:
State income taxes............................... 312 137 293
Non-temporary differences........................ 61 (47) 157
Other--net....................................... (321) 127 (277)
------- ------ -----
Income taxes reported.............................. $(1,798) $1,866 $ 860
======= ====== =====
</TABLE>
F-35
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the deferred tax asset at December 31, 1995 and 1996 were
as follows:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
LONG- LONG-
CURRENT TERM CURRENT TERM
------- ------ ------- ------
<S> <C> <C> <C> <C>
Deferred tax assets:
Accruals for casualty insurance............ $5,884 $6,415
Allowance for bad debts.................... $1,363 $ 739
Miscellaneous accruals..................... 1,060 2,156
Other--net................................. 287 8
------ ------ ------ ------
Total deferred tax assets.................... 2,710 5,884 2,903 6,415
Deferred tax liabilities:
Net excess purchase price over net assets
acquired.................................. 160 222
Fixed assets............................... 1,902 995
Prepaid assets............................. 84 886
------ ------ ------ ------
Total deferred tax liabilities............... 84 2,062 886 1,217
------ ------ ------ ------
Net deferred tax assets...................... $2,626 $3,822 $2,017 $5,198
====== ====== ====== ======
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, receivables, notes
payable and accounts payable approximate fair value because of the short
maturity of these instruments and because interest rates are based on floating
rates identified by market rates.
10. SUBSEQUENT EVENTS
On January 17, 1997, the Company declared a dividend of $17,000 to Borg-
Warner payable in the form of a promissory note at a rate of prime plus 2.0%
due and payable on January 1, 2003.
On January 24, 1997, the Company contributed substantially all of its assets
and assigned certain of its liabilities to Loomis, Fargo & Co. ("Loomis
Fargo") in exchange for (i) 4,900,000 shares of Loomis Fargo common stock and
(ii) a cash payment of approximately $105 million which includes amounts paid
to satisfy intercompany indebtedness assumed by Loomis Fargo, including all
intercompany payables to Borg-Warner. Borg-Warner and the former stockholders
of Loomis Holding Corporation own 49% and 51%, respectively, of Loomis Fargo.
F-36
<PAGE>
WELLS FARGO ARMORED SERVICE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF BORG-WARNER SECURITY CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
1995 1996
------------------------------------------ -------------------------------------------
MAR. 31 JUN. 30 SEPT. 30 DEC. 31 YEAR 1995 MAR. 31 JUN. 30 SEPT. 30 DEC. 31 YEAR 1996
------- ------- -------- ------- --------- ------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net service revenues.... $56,684 $56,750 $58,092 $59,473 $230,999 $59,004 $60,733 $62,545 $64,046 $246,328
Cost of services........ 45,739 47,581 48,441 46,878 188,639 49,559 51,211 52,599 51,174 204,543
------- ------- ------- ------- -------- ------- ------- ------- ------- --------
Gross profit............ 10,945 9,169 9,651 12,595 42,360 9,445 9,522 9,946 12,872 41,785
Selling, general and
administrative
expenses............... 4,928 3,894 4,740 5,143 18,705 4,358 3,925 5,539 6,487 20,309
Depreciation............ 1,716 1,785 1,738 1,911 7,150 1,690 1,718 1,786 1,803 6,997
Management fees to Borg-
Warner................. 799 776 801 809 3,185 830 825 848 850 3,353
Amortization of excess
purchase price over net
assets acquired........ 370 358 368 378 1,474 368 365 367 366 1,466
------- ------- ------- ------- -------- ------- ------- ------- ------- --------
Earnings from
operations............. 3,132 2,356 2,004 4,354 11,846 2,199 2,689 1,406 3,366 9,660
Interest expense and
finance charges........ 1,701 1,763 1,762 1,909 7,135 1,820 1,802 2,020 2,041 7,683
------- ------- ------- ------- -------- ------- ------- ------- ------- --------
Earnings (loss) before
income taxes........... 1,431 593 242 2,445 4,711 379 887 (614) 1,325 1,977
Provision (benefit) for
income taxes........... 539 213 87 1,027 1,866 199 566 (344) 439 860
------- ------- ------- ------- -------- ------- ------- ------- ------- --------
Net earnings (loss)..... $ 892 $ 380 $ 155 $ 1,418 $ 2,845 $ 180 $ 321 $ (270) $ 886 $ 1,117
======= ======= ======= ======= ======== ======= ======= ======= ======= ========
</TABLE>
F-37
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES OFFERED
HEREBY NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 17
The Transactions......................................................... 22
Use of Proceeds.......................................................... 25
Capitalization........................................................... 26
Pro Forma Combined Financial Information................................. 27
Selected Historical Financial Information................................ 34
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Business................................................................. 49
Management............................................................... 57
Security Ownership of Certain Beneficial Owners and Management........... 62
Certain Relationships and Related Transactions........................... 64
Description of New Credit Facility....................................... 66
The Exchange Offer....................................................... 68
Certain Federal Income Tax Considerations................................ 74
Description of New Notes................................................. 75
Plan of Distribution..................................................... 100
Legal Matters............................................................ 100
Experts.................................................................. 101
Index to Financial Statements............................................ F-1
</TABLE>
------------------
UNTIL SEPTEMBER 18, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW
NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OFFER FOR ALL
OUTSTANDING 10% SENIOR
SUBORDINATED NOTES DUE 2004
IN EXCHANGE FOR
10% SENIOR SUBORDINATED NOTES
DUE 2004
OF
LOOMIS, FARGO & CO.
------------------
PROSPECTUS
------------------
JUNE 20, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table set forth the expenses payable in connection with the
offering of the securities to be registered and offered hereby. All of such
expenses are estimates, other than the registration fee payable to the
Securities and Exchange Commission.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $25,757.58
Printing and Engraving Expenses.................................. 110,000
-----------
Legal Fees and Expenses ......................................... 35,000
-----------
Accounting Fees and Expenses..................................... 62,000
-----------
Miscellaneous.................................................... 7,500
-----------
Total........................................................ $240,257.58
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware law authorizes corporations to limit or to eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The Certificate of
Incorporation of Loomis, Fargo & Co. (the "Company"), as amended (the
"Charter"), limits the liability of the Company's directors to the Company or
its stockholders to the fullest extent permitted by the Delaware statute as in
effect from time to time. Specifically, directors of the Company will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, (iii) for unlawful payments of dividends or unlawful stock repurchases
or redemptions as provided in the Delaware law, or (iv) for any transaction
from which the director derived an improper personal benefit.
The Charter of the Company provides that Company shall indemnify its
officers and directors and former officers and directors to the fullest extent
permitted by the General Corporation Law of the State of Delaware. Pursuant to
the provisions of Section 145 of the General Corporation Law of the State of
Delaware, the Company has the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding (other than an action by or in the right
of the Company) by reason of the fact that he is or was a director, officer,
employee, or agent of the Company, against any and all expenses, judgments,
fines, and amounts paid in actually and reasonably incurred m connection with
such action, suit, or proceeding. The power to indemnify applies only if such
person acted in good faith and in a manner he reasonably believed to be in the
best interest or not opposed to the best interest, of the Company and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of the
Company as well, but only to the extent of defense and settlement expenses and
not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct unless the
court, in its discretion, believes that in light of all the circumstances
indemnification should apply.
The statute further specifically provides that the indemnification
authorized thereby shall not be deemed exclusive of any other rights to which
any such officer or director may be entitled under any bylaws, agreements,
vote of stockholders or disinterested directors, or otherwise.
II-1
<PAGE>
Insofar as indemnifications for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person thereof in the successful defense of any action,
suit or proceeding) is asserted by a director, officer or controlling person
in connection with the securities being registered, the Company will, unless
in the opinion of its counsel the matter has been settled by controlled
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On January 24, 1997, the Company sold $85,000,000 aggregate principal amount
of 10% Senior Subordinated Notes due 2004 (the "Old Notes") in a private
placement in reliance on Section 4(2) under the Securities Act, at a price
equal to 100% of the stated principal amount of such Old Notes. The Old Notes
were immediately resold by the initial purchasers thereof in reliance on Rule
144A under the Securities Act.
On January 24, 1997, the Company issued 10,000,000 shares of its common
stock, $0.01 par value, to two purchasers in a transaction exempt from the
registration requirements of the Securities Act in reliance on Section 4(2)
thereof. Such shares of common stock were issued in exchange for securities
and assets in connection with the initial capitalization of the Company.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
2.1 -- Contribution Agreement, dated as of November 28, 1996, among
the Company, LFC Holding Corporation (formerly known as Loomis
Holding Corporation) ("LFC Holding") Loomis Fargo & Co (Texas)
(formerly known as Loomis Armored Inc.) ("Loomis, Fargo Texas"),
Borg-Warner Security Corporation, Wells Fargo Armored Service
Corporation, and the Loomis Stockholders Trust.*
2.2 -- Business Trust Agreement, dated as of November 27, 1996, among
Wingate Partners, L.P. and Wingate Affiliates, L.P., as initial
grantors, Wilmington Trust Company, as trustee, Frederick B.
Hegi, Jr., as manager, and the Unitholders parties thereto.*
2.3 -- Trust Unit Exchange Agreement, dated as of January 24, 1997,
among the Loomis Stockholders Trust and the Exchanging
Shareholders parties thereto.*
3.1 -- Certificate of Incorporation of Loomis, Fargo & Co.
(Delaware), as amended.*
3.2 -- Bylaws of Loomis, Fargo & Co. (Delaware).*
3.3 -- Certificate of Incorporation of LFC Holding, as amended.*
3.4 -- Bylaws of LFC Holding, as amended.*
3.5 -- Articles of Incorporation of Loomis, Fargo Texas, as amended.*
3.6 -- Restated Bylaws of Loomis, Fargo Texas.*
3.7 -- Articles of Incorporation of LFC Armored of Texas Inc., as
amended.*
3.8 -- Bylaws of LFC Armored of Texas, Inc.*
3.9 -- Amended and Restated of Incorporation of Loomis, Fargo & Co.
of Puerto Rico, as amended.*
3.10 -- Bylaws of Loomis, Fargo & Co. of Puerto Rico.*
4.1 -- Indenture, dated as of January 24, 1997, among the Company, as
Issuer, LFC Holding, Loomis, Fargo Texas, LFC Armored of Texas
Inc. (formerly known as Wells Fargo Armored Service Corporation
of Texas) ("LFC of Texas"), and Loomis, Fargo & Co of Puerto
Rico (formerly known as Wells Fargo Armored Service Corporation
of Puerto Rico) ("LFC of Puerto Rico"), as Guarantors, and
Marine Midland Bank, as trustee.*
4.2 -- Form of Old Note (included in Exhibit 4.1, Exhibit A-1).
4.3 -- Form of New Note (included in Exhibit 4.1, Exhibit A-3).
4.4 -- Registration Rights Agreement, dated as of January 24, 1997,
among Loomis, the Company, LFC Holding, Loomis, Fargo Texas, LFC
of Texas, LFC of Puerto Rico and Lehmen Brothers Inc. and
NationsBanc Capital Markets, Inc.*
4.5 -- Purchase Agreement, dated as of January 17, 1997, among the
Company, LFC Holding, Loomis, Fargo Texas and Lehman Brothers
Inc. and NationsBanc Capital Markets, Inc., as initial
purchasers.*
5.1 -- Opinion of Weil, Gotshal & Manges LLP as to certain securities
registered hereby.**
5.2 -- Opinion of Warring Cox, PLC as to certain securities
registered hereby.+
II-3
<PAGE>
10.1 -- Credit Agreement, dated as of January 24, 1997, among the
Company, as borrower, the several lenders parties thereto,
Lehman Commercial Paper Inc. ("LCPI") and NationsBank of Texas,
N.A. ("NationsBank"), as arrangers, LCPI and NationsBanc Capital
Markets, Inc., as syndication agents, LCPI as documentation
agent, and NationsBank as administrative agent.*
10.2 -- Guarantee and Collateral Agreement made by the Company, LFC
Holding, Loomis, Fargo Texas, LFC of Texas and LFC of Puerto
Rico, in favor of NationsBank of Texas, N.A.**
10.3 -- Stockholders Agreement dated as of January 24, 1997 among the
Company, Wells Fargo Armored Service Corporation, the Loomis
Stockholders Trust and Wingate Partners, L.P.*
10.4 -- Loomis Indemnity Trust Agreement, dated as of January 24,
1997, among the Company, the Loomis Stockholders Trust, and
Frederick B. Hegi, Jr., as trustee.*
10.5 -- Excess Claims Assumption Agreement, dated as of January 24,
1997, among the Company, LFC Holding, Loomis, Fargo Texas, and
the Loomis Stockholders Trust.*
10.6 -- Unitholders Option Plan and Agreement, dated as of January 24,
1997, among the Company and the Unitholders signatories
thereto.*
10.7 -- Stock Contribution Agreement, dated as of January 24, 1997,
between the Company and the Loomis Stockholders Trust.*
10.8 -- NOL Promissory Note, dated as of January 24, 1997, of the
Company in the principal amount of $6,000,000, payable to the
Loomis Stockholders Trust.*
10.9 -- Fleet Lease Agreement, dated as of December 2, 1996, between
Associates Leasing, Inc. and Wells Fargo Armored Service
Corporation.*
10.10 -- Transfer and Assumption Agreement, dated as of January 2,
1997, among Wells Fargo Armored Service Corporation, Borg-Warner
Security Corporation, the Company and Associates Leasing, Inc.*
10.11 -- Transition Services Agreement, dated as of January 24, 1997,
between the Company and Pony Express Courier Corp.*
10.12 -- Employment Agreement, dated as of November 11, 1991, as
amended, between LFC Holding Corporation (formerly known as
Loomis Holding Corporation) and James B. Mattly.*
12.1 -- Statement Re: Computation of Ratio of Earnings to Fixed
Charges of Loomis Holding Corporation.*
12.2 -- Statement Re: Computation of Pro Forma Ratio of Earnings to
Fixed Charges of Loomis, Fargo & Co.*
21.1 -- Subsidiaries of the Company.*
23.1 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion
filed as Exhibit 5.1 to this Registration Statement).
23.2 -- Consent of Ernst & Young LLP, independent auditors.**
23.3 -- Consent of Deloitte & Touche LLP, independent auditors.**
24.1 -- Powers of Attorney.*
25.1 -- Form T-1 of Marine Midland Bank, as Trustee under the
Indenture filed as Exhibit 4.1.**
99.1 -- Form of Letter of Transmittal.**
99.2 -- Form of Notice of Guaranteed Delivery.**
- --------
* Previously filed.
** Filed herewith.
+ To be filed by amendment.
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since the required information is either not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Co-Registrants hereby undertaken:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i)to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(3)To remove from registration by means a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) See Item 14.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 18th day of June, 1997.
LOOMIS, FARGO & CO., a Delaware
corporation
/s/ James K. Jennings, Jr.
BY: ___________________________________
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, and Director of the June 18, 1997
---------------------------- Co-Registrant listed above
J. Joe Adorjan
* President, Chief Executive Officer and June 18, 1997
---------------------------- Director of the Co-Registrant listed
James B. Mattly above (Principal Executive Officer)
/s/ James K. Jennings, Jr. Executive Vice President and chief June 18, 1997
---------------------------- Financial Officer of the Co-Registrant
James K. Jennings, Jr. listed above (Principal Financial and
Accounting Officer)
* Director of the Co-Registrant listed June 18, 1997
---------------------------- above
Frederick B. Hegi, Jr.
* Director of the Co-Registrant listed June 18, 1997
---------------------------- above
Timothy M. Wood
* Director of the Co-Registrant listed June 18, 1997
---------------------------- above
Jay I. Applebaum
* Director of the Co-Registrant listed June 18, 1997
---------------------------- above
John D. O'Brien
* Director of the Co-Registrant listed June 18, 1997
---------------------------- above
James T. Callier, Jr.
*/s/ James K. Jennings, Jr.
----------------------------
James K. Jennings, Jr.
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 18th day of June, 1997.
LFC HOLDING CORPORATION
/s/ James K. Jennings, Jr.
BY: ___________________________________
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, and Director of the June 18, 1997
- ---------------------------- Co-Registrant listed above
J. Joe Adorjan
* President, Chief Executive Officer and June 18, 1997
- ---------------------------- Director of the Co-Registrant listed
James B. Mattly above (Principal Executive Officer)
/s/ James K. Jennings, Jr. Executive Vice President and chief June 18, 1997
- ---------------------------- Financial Officer of the Co-Registrant
James K. Jennings, Jr. listed above (Principal Financial and
Accounting Officer)
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Frederick B. Hegi, Jr.
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Timothy M. Wood
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Jay I. Applebaum
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
John D. O'Brien
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
James T. Callier, Jr.
*/s/ James K. Jennings, Jr.
- ----------------------------
James K. Jennings, Jr.
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 18th day of June, 1997.
LOOMIS, FARGO & CO., a Texas
corporation
/s/ James K. Jennings, Jr.
BY: ___________________________________
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, and Director of the June 18, 1997
- ---------------------------- Co-Registrant listed above
J. Joe Adorjan
* President, Chief Executive Officer and June 18, 1997
- ---------------------------- Director of the Co-Registrant listed
James B. Mattly above (Principal Executive Officer)
/s/ James K. Jennings, Jr. Executive Vice President and chief June 18, 1997
- ---------------------------- Financial Officer of the Co-Registrant
James K. Jennings, Jr. listed above (Principal Financial and
Accounting Officer)
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Frederick B. Hegi, Jr.
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Timothy M. Wood
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Jay I. Applebaum
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
John D. O'Brien
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
James T. Callier, Jr.
*/s/ James K. Jennings, Jr.
- ----------------------------
James K. Jennings, Jr.
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 18th day of June, 1997.
LFC ARMORED OF TEXAS INC.
/s/ James K. Jennings, Jr.
BY: ___________________________________
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, and Director of the June 18, 1997
- ---------------------------- Co-Registrant listed above
J. Joe Adorjan
* President, Chief Executive Officer and June 18, 1997
- ---------------------------- Director of the Co-Registrant listed
James B. Mattly above (Principal Executive Officer)
/s/ James K. Jennings, Jr. Executive Vice President and chief June 18, 1997
- ---------------------------- Financial Officer of the Co-Registrant
James K. Jennings, Jr. listed above (Principal Financial and
Accounting Officer)
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Frederick B. Hegi, Jr.
*/s/ James K. Jennings, Jr.
- ----------------------------
James K. Jennings, Jr.
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Co-Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 18th day of June, 1997.
LOOMIS, FARGO & CO. OF PUERTO RICO
/s/ James K. Jennings, Jr.
BY: ___________________________________
James K. Jennings, Jr.
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, and Director of the June 18, 1997
- ---------------------------- Co-Registrant listed above
J. Joe Adorjan
* President, Chief Executive Officer and June 18, 1997
- ---------------------------- Director of the Co-Registrant listed
James B. Mattly above (Principal Executive Officer)
/s/ James K. Jennings, Jr. Executive Vice President and chief June 18, 1997
- ---------------------------- Financial Officer of the Co-Registrant
James K. Jennings, Jr. listed above (Principal Financial and
Accounting Officer)
* Director of the Co-Registrant listed June 18, 1997
- ---------------------------- above
Frederick B. Hegi, Jr.
*/s/ James K. Jennings, Jr.
- ----------------------------
James K. Jennings, Jr.
Attorney-in-Fact
</TABLE>
II-10
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF WEIL, GOTSHAL & MANGES LLP]
June 18, 1997
Loomis, Fargo & Co.
LFC Holding Corporation
Loomis, Fargo & Co. (Texas)
LFC Armored of Texas Inc.
16225 Park Ten Place
Houston, Texas 77084
Ladies and Gentlemen;
We have acted as counsel to Loomis, Fargo & Co,, a Delaware corporation
(the "Company"), and LFC Holding Corporation, a Delaware corporation, Loomis,
Fargo & Co., a Texas corporation, and LFC Armored of Texas Inc., a Texas
corporation (collectively, the "Guarantors"), in connection with the preparation
and filing by the Company and the Guarantors of a Registration Statement on
Form S-1 (Registration No. 333-24689) (as amended to date, the "Registration
Statement"), initially filed with the Securities and Exchange Commission on
April 7, 1997 under the Securities Act of 1933, as amended (the "Act"), relating
to $85,000,000 in aggregate principal amount of 10% Senior Subordinated Notes
due 2004 (the "New Notes") of the Company that may be issued in exchange for a
like principal amount of the issued and outstanding 10% Senior Subordinated
Notes due 2004 (the "Old Notes") of the Company. The Company proposes to offer,
upon the terms set forth in the Registration Statement, to exchange $1,000
principal amount of New Notes for each $1,000 principal amount of Old Notes (the
"Exchange Offer"). The Guarantors, each wholly owned direct or indirect
subsidiaries of the Company, will fully and unconditionally guarantee (the
"Guarantees") the New Notes on an unsecured, senior subordinated basis. The New
Notes and Guarantees will be offered under an Indenture dated as of January 24,
1997, by and among the Company, the Guarantors, and Marine Midland Bank, as
trustee (the "Indenture"). Capitalized terms defined in the Registration
Statement and not otherwise defined herein are used herein as so defined.
<PAGE>
Loomis, Fargo & Co.
June 18, 1997
Page 2
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Indenture, the form of the New Note filed
as an exhibit to the Registration Statement and such corporate records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of the Company
and the Guarantors, and have made such inquiries of such officers and
representatives as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such latter documents. As to all questions of fact material to
this opinion that have not been independently established, we have relied upon
certificates or comparable documents of officers and representatives of the
Company and the Guarantors.
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that:
1. Assuming that the Indenture has been duly authorized, executed and
delivered by the parties thereto and that the issuance of New Notes upon
consummation of the Exchange Offer has been duly authorized by the Company, when
(i) the New Notes upon consummation of the Exchange Offer have been duly
executed by the Company and authenticated by the trustee thereofor in
accordance with the terms of the Indenture and (ii) the New Notes issuable upon
consummation of the Exchange Offer have been duly delivered against receipt of
Old Notes surrendered in exchange therefor, the New Notes issuable upon
consummation of the Exchange Offer will constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in
<PAGE>
Loomis, Fargo & Co.
June l8, 1997
Page 3
equity), and subject to the qualification that we express no opinion as to the
effect on the New Notes of the laws of any jurisdiction other than the State of
New York, including laws which limit the rates of interest legally chargeable or
collectible.
2. Assuming that the Indenture has been duly authorized, executed and
delivered by the parties thereto and that the Guarantees of New Notes upon
consummation of the Exchange Offer have been duly authorized by the Guarantors,
when (i) the New Notes upon consummation of the Exchange Offer have been duly
executed by the Company and authenticated by the trustee therefor in accordance
with the terms of the Indenture and (ii) the New Notes issuable upon
consummation of the Exchange Offer have been duly delivered against receipt of
Old Notes surrendered in exchange therefor, the Guarantees of New Notes issuable
upon consummation of the Exchange Offer will constitute the legal, valid and
binding obligations of the Guarantors, enforceable against them in accordance
with their terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and subject to the qualification that we express
no opinion as to the effect on the Guarantees of New Notes of the laws of any
jurisdiction other than the State of New York, including laws which limit the
rates of interest legally chargeable or collectible.
The opinions expressed herein are limited to the laws of the State of New
York and the federal laws of the United States, and we express no opinion as to
the effect on the matters covered by this letter of the laws of any other
jurisdiction.
The opinions expressed herein are rendered solely for your benefit in
connection with the transactions described herein. Those opinions may not be
used or relied upon by any other person nor may this letter or any copies
thereof be furnished to any third party, filed with a governmental agency,
quoted, cited or otherwise referred to without our
<PAGE>
Loomis, Fargo & Co.
June 18, 1997
Page 4
prior written consent. We hereby consent to the filing of this letter as an
exhibit to the Registration Statement and the reference to this firm under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement.
Very truly yours,
/s/ WEIL, GOTSHAL & MANGES LLP
<PAGE>
EXHIBIT 10.2
- --------------------------------------------------------------------------------
GUARANTEE AND COLLATERAL AGREEMENT
made by
LOOMIS, FARGO & CO.,
and certain of its Subsidiaries
in favor of
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent
Dated as of January 24, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. DEFINED TERMS.................................................... 1
1.1 Definitions......................................................... 1
1.2 Other Definitional Provisions........................................ 5
SECTION 2. GUARANTEE........................................................ 5
2.1 Guarantee........................................................... 5
2.2 Right of Contribution............................................... 6
2.3 No Subrogation...................................................... 6
2.4 Amendments, etc. with respect to the Borrower Obligations........... 6
2.5 Guarantee Absolute and Unconditional................................ 7
2.6 Reinstatement....................................................... 8
2.7 Payments............................................................ 8
SECTION 3. GRANT OF SECURITY INTEREST....................................... 8
SECTION 4. REPRESENTATIONS AND WARRANTIES................................... 9
4.1 Representations in Credit Agreement................................. 9
4.2 Title; No Other Liens............................................... 9
4.3 Perfected First Priority Liens...................................... 9
4.4 Chief Executive Office.............................................. 9
4.5 Inventory and Equipment............................................. 9
4.6 Farm Products....................................................... 10
4.7 Pledged Securities.................................................. 10
4.8 Receivables......................................................... 10
4.9 Contracts........................................................... 10
4.10 Intellectual Property............................................... 11
SECTION 5. COVENANTS........................................................ 11
5.1 Covenants in Credit Agreement....................................... 11
5.2 Delivery of Instruments and Chattel Paper........................... 11
5.3 Maintenance of Insurance............................................ 11
5.4 Payment of Obligations.............................................. 12
5.5 Maintenance of Perfected Security Interest; Further Documentation... 12
5.6 Changes in Locations, Name, etc..................................... 12
5.7 Notices............................................................. 13
5.8 Pledged Securities.................................................. 13
5.9 Receivables......................................................... 14
5.10 Contracts........................................................... 14
5.11 Intellectual Property............................................... 15
SECTION 6. REMEDIAL PROVISIONS.............................................. 16
6.1 Certain Matters Relating to Receivables............................. 16
6.2 Communications with Obligors; Grantors Remain Liable................ 16
6.3 Pledged Stock....................................................... 17
6.4 Proceeds to be Turned Over To Administrative Agent.................. 18
i
<PAGE>
Page
----
6.5 Application of Proceeds............................................. 18
6.6 Code and Other Remedies............................................. 18
6.7 Registration Rights................................................. 19
6.8 Waiver; Deficiency.................................................. 20
SECTION 7. THE ADMINISTRATIVE AGENT......................................... 20
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc......... 20
7.2 Duty of Administrative Agent........................................ 22
7.3 Execution of Financing Statements................................... 22
7.4 Authority of Administrative Agent................................... 22
SECTION 8. MISCELLANEOUS.................................................... 22
8.1 Amendments in Writing............................................... 22
8.2 Notices............................................................. 23
8.3 No Waiver by Course of Conduct; Cumulative Remedies................. 23
8.4 Enforcement Expenses; Indemnification............................... 23
8.5 Successors and Assigns.............................................. 23
8.6 Set-Off............................................................. 23
8.7 Counterparts........................................................ 24
8.8 Severability........................................................ 24
8.9 Section Headings.................................................... 24
8.10 Integration......................................................... 24
8.11 GOVERNING LAW....................................................... 24
8.12 Submission To Jurisdiction; Waivers................................. 24
8.13 Acknowledgements.................................................... 25
8.14 WAIVER OF JURY TRIAL................................................ 25
8.15 Additional Grantors................................................. 25
8.16 Releases............................................................ 26
8.17 Conflict............................................................ 26
ii
<PAGE>
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of January 24, 1997, made by
each of the signatories hereto (together with any other entity that may become
a party hereto as provided herein, the "Grantors"), in favor of NATIONSBANK OF
--------
TEXAS, N.A., ("NationsBank") as Administrative Agent (in such capacity, the
-----------
"Administrative Agent") for the banks and other financial institutions (the
--------------------
"Lenders") from time to time parties to the Credit Agreement, dated as of
-------
January 24, 1997 (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), among Loomis, Fargo & Co., a Delaware corporation
----------------
(the "Borrower"), the Lenders, Lehman Commercial Paper Inc. ("LCPI"), as
-------- ----
documentation agent (in such capacity, the "Documentation Agent"), LCPI and
-------------------
NationsBanc Capital Markets, Inc., as syndication agents (in such capacity, the
"Syndication Agents"; together with the Documentation Agent and Administrative
------------------
Agent, the "Agents"), LCPI and NationsBank, as arrangers (in such capacity, the
------
"Arrangers") and the Administrative Agent.
---------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make extensions of credit to the Borrower upon the terms and subject
to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of companies that
includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the Credit
Agreement will be used in part to enable the Borrower to make valuable
transfers to one or more of the other Grantors in connection with the operation
of their respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in related
businesses, and each Grantor will derive substantial direct and indirect
benefit from the making of the extensions of credit under the Credit Agreement;
and
WHEREAS, it is a condition precedent to the obligation of the Lenders to
make their respective extensions of credit to the Borrower under the Credit
Agreement that the Grantors shall have executed and delivered this Agreement to
the Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the
Borrower thereunder, each Grantor hereby agrees with the Administrative Agent,
for the ratable benefit of the Lenders, as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms defined in the
-----------
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement, and the
<PAGE>
2
following terms which are defined in the Uniform Commercial Code in effect
in the State of New York on the date hereof are used herein as so defined:
Accounts, Chattel Paper, Documents, Equipment, Farm Products, Instruments and
Inventory.
(b) The following terms shall have the following meanings:
"Agreement": this Guarantee and Collateral Agreement, as the same may
---------
be amended, supplemented or otherwise modified from time to time.
"Borrower Obligations": the collective reference to the unpaid
--------------------
principal of and interest on the Loans and Reimbursement Obligations and
all other obligations and liabilities of the Borrower (including, without
limitation, (i) interest accruing at the then applicable rate provided in
the Credit Agreement after the maturity of the Loans and Reimbursement
Obligations and interest accruing at the then applicable rate provided in
the Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating
to the Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and (ii) any exposure of any Lender
under any lockbox arrangement, controlled disbursement arrangement,
checking accounts or other similar arrangements (collectively, "Cash
Management Agreements") with or on behalf of the Borrower and/or its
Subsidiaries) to the Administrative Agent or any Lender (or, in the case of
any Interest Rate Agreement referred to below, any Affiliate of any
Lender), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, the Credit Agreement, this Agreement, the
other Credit Documents, any Letter of Credit or any Interest Rate Agreement
entered into by the Borrower with any Lender (or any Affiliate of any
Lender) or any Cash Management Agreement entered into by the Borrower or
any Subsidiary of the Borrower with any Lender or any other document made,
delivered or given in connection therewith, in each case whether on account
of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent and counsel to the
Lenders that are required to be paid by the Borrower pursuant to the terms
of any of the foregoing agreements).
"Collateral": as defined in Section 3.
----------
"Collateral Account": any collateral account established by the
------------------
Administrative Agent as provided in Section 6.1 or 6.4.
"Contracts": the contracts and agreements listed on Schedule 7 as the
--------- ----------
same may be amended, supplemented or otherwise modified from time to time,
including, without limitation, (i) all rights of any Grantor to receive
moneys due and to become due to it thereunder or in connection therewith,
(ii) all rights of any Grantor to damages arising thereunder and (iii) all
rights of any Grantor to perform and to exercise all remedies thereunder.
"Copyrights": (i) all copyrights arising under the laws of the United
----------
States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished (including,
without limitation, those listed on Schedule 6), all registrations and
----------
recordings thereof, and all applications in connection therewith,
including,
<PAGE>
3
without limitation, all registrations, recordings and applications in the
United States Copyright Office, and (ii) the right to obtain all renewals
thereof.
"Copyright Licenses": any written agreement naming any Grantor as
------------------
licensor or licensee (including, without limitation, those listed on
Schedule 6), granting any right under any Copyright, including, without
----------
limitation, the grant of rights to manufacture, distribute, exploit and
sell materials derived from any Copyright.
"General Intangibles": all "general intangibles" as such term is
-------------------
defined in Section 9-106 of the Uniform Commercial Code in effect in the
State of New York on the date hereof and, in any event, including, without
limitation, with respect to any Grantor, all contracts, agreements,
instruments and indentures in any form, and portions thereof, to which such
Grantor is a party or under which such Grantor has any right, title or
interest or to which such Grantor or any property of such Grantor is
subject, as the same may from time to time be amended, supplemented or
otherwise modified, including, without limitation, (i) all rights of such
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of such Grantor to damages arising
thereunder and (iii) all rights of such Grantor to perform and to exercise
all remedies thereunder, in each case to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in its right,
title and interest in such contract, agreement, instrument or indenture is
not prohibited by such contract, agreement, instrument or indenture without
the consent of any other party thereto, would not give any other party to
such contract, agreement, instrument or indenture the right to terminate
its obligations thereunder, or is permitted with consent if all necessary
consents to such grant of a security interest have been obtained from the
other parties thereto (it being understood that the foregoing shall not be
deemed to obligate such Grantor to obtain such consents); provided that
--------
the foregoing limitation shall not affect, limit, restrict or impair the
grant by such Grantor of a security interest pursuant to this Agreement in
any Receivable or any money or other amounts due or to become due under any
such contract, agreement, instrument or indenture.
"Guarantor Obligations": with respect to any Guarantor, the
---------------------
collective reference to (i) the Borrower Obligations and (ii) all
obligations and liabilities of such Guarantor which may arise under or in
connection with this Agreement or any other Credit Document to which such
Guarantor is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs, expenses
or otherwise (including, without limitation, all fees and disbursements of
counsel to the Administrative Agent and counsel to the Lenders that are
required to be paid by such Guarantor pursuant to the terms of this
Agreement or any other Credit Document).
"Guarantors": the collective reference to each Grantor other than the
----------
Borrower.
"Intellectual Property": the collective reference to all rights,
---------------------
priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including, without limitation, the Copyrights, the Copyright Licenses, the
Patents, the Patent Licenses, the Trademarks and the Trademark Licenses,
and all rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and damages
therefrom.
<PAGE>
4
"Intercompany Note": any promissory note evidencing loans made by any
-----------------
Grantor to the Borrower or any of its Subsidiaries.
"Interest Rate Agreement": any interest rate swap agreement, interest
-----------------------
rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement.
"Issuers": the collective reference to each issuer of a Pledged
-------
Security.
"New York UCC": the Uniform Commercial Code as from time to time in
------------
effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
-----------
Obligations, and (ii) in the case of each Guarantor, its Guarantor
Obligations.
"Patents": (i) all letters patent of the United States, any other
-------
country or any political subdivision thereof, all reissues and extensions
thereof and all goodwill associated therewith, including, without
limitation, any of the foregoing referred to on Schedule 6, (ii) all
----------
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any of the foregoing referred to on
Schedule 6, and (iii) all rights to obtain any reissues or extensions of
----------
the foregoing.
"Patent License": all agreements, whether written or oral, providing
--------------
for the grant by or to any Grantor of any right to manufacture, use or sell
any invention covered in whole or in part by a Patent, including, without
limitation, any of the foregoing referred to on Schedule 6.
----------
"Pledged Notes": all promissory notes listed on Schedule 2, all
------------- ----------
Intercompany Notes at any time issued to any Pledgor and all other
promissory notes issued to or held by any Grantor (other than promissory
notes issued in connection with extensions of trade credit by any Grantor
in the ordinary course of business).
"Pledged Securities": the collective reference to the Pledged Notes
------------------
and the Pledged Stock.
"Pledged Stock": the shares of Capital Stock listed on Schedule 2,
------------- ----------
together with any other shares, stock certificates, options or rights of
any nature whatsoever in respect of the Capital Stock of any Person that
may be issued or granted to, or held by, any Grantor while this Agreement
is in effect.
"Proceeds": all "proceeds" as such term is defined in Section
--------
9-306(1) of the Uniform Commercial Code in effect in the State of New York
on the date hereof and, in any event, shall include, without limitation,
all dividends or other income from the Pledged Securities, collections
thereon or distributions or payments with respect thereto.
"Receivable": any right to payment for goods sold or leased or for
----------
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
<PAGE>
5
"Securities Act": the Securities Act of 1933, as amended.
--------------
"Trademarks": (i) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and all
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, and all common-law rights related thereto, including, without
limitation, any of the foregoing referred to on Schedule 6 and (ii) the
----------
right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral,
-----------------
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing referred to
on Schedule 6.
----------
1.2 Other Definitional Provisions. (a) The words "hereof," "herein",
-----------------------------
"hereto" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section and Schedule references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the Collateral or
any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and
---------
severally, unconditionally and irrevocably, guarantees to the Administrative
Agent, for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Credit Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under
the other Credit Documents shall in no event exceed the amount which can be
guaranteed by such Guarantor under applicable federal and state laws relating
to the insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may at any
time and from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing the guarantee contained in this Section 2 or
affecting the rights and remedies of the Administrative Agent or any Lender
hereunder.
(d) The guarantee contained in this Section 2 shall remain in full
force and effect until all the Borrower Obligations and the obligations of each
Guarantor under the guarantee contained in
<PAGE>
6
this Section 2 shall have been satisfied by payment in full, no Letter of
Credit shall be outstanding and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Borrower Obligations.
(e) No payment made by the Borrower, any of the Guarantors, any
other guarantor or any other Person or received or collected by the
Administrative Agent or any Lender from the Borrower, any of the Guarantors, any
other guarantor or any other Person by virtue of any action or proceeding or any
set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Borrower Obligations or any payment
received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid in
full, no Letter of Credit shall be outstanding and the Commitments are
terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that to the
---------------------
extent that a Guarantor shall have paid more than its proportionate share of any
payment made thereunder, such Guarantor shall be entitled to seek and receive
contribution from and against any other Guarantor hereunder which has not paid
its proportionate share of such payment. Each Guarantor's right of contribution
shall be subject to the terms and conditions of Section 2.3. The provisions of
this Section 2.2 shall in no respect limit the obligations and liabilities of
any Guarantor to the Administrative Agent and the Lenders, and each Guarantor
shall remain jointly and severally liable to the Administrative Agent and the
Lenders for the full amount guaranteed by such Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
--------------
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender for
the payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Administrative Agent and the Lenders by the Borrower on
account of the Borrower Obligations are paid in full, no Letter of Credit shall
be outstanding and the Commitments are terminated. If any amount shall be paid
to any Guarantor on account of such subrogation rights at any time when all of
the Borrower Obligations shall not have been paid in full, such amount shall be
held by such Guarantor in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon
receipt by such Guarantor, be turned over to the Administrative Agent in the
exact form received by such Guarantor (duly indorsed by such Guarantor to the
Administrative Agent, if required), to be applied against the Borrower
Obligations, whether matured or unmatured, in such order as the Administrative
Agent may determine.
2.4 Amendments, etc. with respect to the Borrower Obligations. Each
--------------------------------------------------------
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Borrower
Obligations made by the Administrative Agent or any Lender may be rescinded by
the Administrative Agent or such Lender and any of the Borrower Obligations
continued, and the Borrower Obligations, or the liability of any other Person
upon or for any part thereof, or any
<PAGE>
7
collateral security or guarantee therefor or right of offset with respect
thereto, may, from time to time, in whole or in part, be renewed, extended,
amended, modified, accelerated, compromised, waived, surrendered or released by
the Administrative Agent or any Lender, and the Credit Agreement and the other
Credit Document and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Administrative Agent (or the Required Lenders or all Lenders, as
the case may be) may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by the Administrative
Agent or any Lender for the payment of the Borrower Obligations may be sold,
exchanged, waived, surrendered or released. Neither the Administrative Agent
nor any Lender shall have any obligation to protect, secure, perfect or insure
any Lien at any time held by it as security for the Borrower Obligations or for
the guarantee contained in this Section 2 or any property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor waives any
------------------------------------
and all notice of the creation, renewal, extension or accrual of any of the
Borrower Obligations and notice of or proof of reliance by the Administrative
Agent or any Lender upon the guarantee contained in this Section 2 or acceptance
of the guarantee contained in this Section 2; the Borrower Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon the
guarantee contained in this Section 2; and all dealings between the Borrower and
any of the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, likewise shall be conclusively presumed to have been
had or consummated in reliance upon the guarantee contained in this Section 2.
Each Guarantor waives diligence, presentment, protest, demand for payment and
notice of default or nonpayment to or upon the Borrower or any of the Guarantors
with respect to the Borrower Obligations. Each Guarantor understands and agrees
that the guarantee contained in this Section 2 shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to
(a) the validity or enforceability of the Credit Agreement or any other Credit
Document, any of the Borrower Obligations or any other collateral security
therefor or guarantee or right of offset with respect thereto at any time or
from time to time held by the Administrative Agent or any Lender, (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrower or any other Person against the Administrative Agent or any Lender, or
(c) any other circumstance whatsoever (with or without notice to or knowledge of
the Borrower or such Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Borrower for the Borrower
Obligations, or of such Guarantor under the guarantee contained in this Section
2, in bankruptcy or in any other instance. When making any demand hereunder or
otherwise pursuing its rights and remedies hereunder against any Guarantor, the
Administrative Agent or any Lender may, but shall be under no obligation to,
make a similar demand on or otherwise pursue such rights and remedies as it may
have against the Borrower, any other Guarantor or any other Person or against
any collateral security or guarantee for the Borrower Obligations or any right
of offset with respect thereto, and any failure by the Administrative Agent or
any Lender to make any such demand, to pursue such other rights or remedies or
to collect any payments from the Borrower, any other Guarantor or any other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrower, any other
Guarantor or any other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any obligation or liability
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Administrative Agent or
any Lender against any Guarantor. For the purposes hereof "demand" shall include
the commencement and continuance of any legal proceedings.
<PAGE>
8
2.6 Reinstatement. The guarantee contained in this Section 2 shall
-------------
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Borrower Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any Lender
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
the Borrower or any Guarantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Guarantor or any substantial part of its property, or otherwise,
all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
--------
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at
NationsBank of Texas, N.A. 901 Main Street, Dallas, Texas 75202, Attention:
Renita Cummings, fax: (214) 508-7575.
SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the Administrative Agent,
and hereby grants to the Administrative Agent, for the ratable benefit of the
Lenders, a security interest in, all of the following property now owned or at
any time hereafter acquired by such Grantor or in which such Grantor now has or
at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"), as collateral security for the prompt and
----------
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of such Grantor's Obligations,:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Documents;
(e) all Equipment;
(f) all General Intangibles;
(g) all Instruments;
(h) all Intellectual Property;
(i) all Inventory;
(j) all Pledged Securities;
(k) all books and records pertaining to the Collateral; and
(1) to the extent not otherwise included, all Proceeds and products
of any and all of the foregoing and all collateral security and guarantees given
by any Person with respect to any of the foregoing.
<PAGE>
9
Notwithstanding the foregoing, except as permitted by Section 9.318(4) of the
New York UCC, this Agreement shall not constitute an assignment of any Contract,
General Intangible, Patent License or Trademark License to the extent that such
Contract, General Intangible, Patent License or Trademark License, or the
instruments giving the same, would prohibit such assignment.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into the
Credit Agreement and to induce the Lenders to make their respective extensions
of credit to the Borrower thereunder, each Grantor hereby represents and
warrants to the Administrative Agent and each Lender that:
4.1 Representations in Credit Agreement. In the case of each
-----------------------------------
Guarantor, the representations and warranties set forth in Section 4 of the
Credit Agreement as they relate to such Guarantor or to the Credit Document to
which such Guarantor is a party, each of which is hereby incorporated herein by
reference, are true and correct, and the Administrative Agent and each Lender
shall be entitled to rely on each of them as if they were fully set forth
herein, provided that each reference in each such representation and warranty
--------
to the Borrower's knowledge shall, for the purposes of this Section 4.1, be
deemed to be a reference to such Guarantor's knowledge.
4.2 Title: No Other Liens. Except for the security interest granted
---------------------
to the Administrative Agent for the ratable benefit of the Lenders pursuant to
this Agreement and the other Liens permitted to exist on the Collateral by the
Credit Agreement, such Grantor owns each item of the Collateral free and clear
of any and all Liens or claims of others. No financing statement or other public
notice with respect to all or any part of the Collateral is on file or of record
in any public office, except such as have been filed in favor of the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement or as are permitted by the Credit Agreement.
4.3 Perfected First Priority Liens. The security interests granted
------------------------------
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
----------
referred to on said Schedule, have been delivered to the Administrative Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Administrative Agent, for the
ratable benefit of the Lenders, as collateral security for such Grantor's
Obligations, enforceable in accordance with the terms hereof against all
creditors of such Grantor and any Persons purporting to purchase any Collateral
from such Grantor and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for unrecorded Liens and other Liens or
permitted by the Credit Agreement which have priority over the Liens on the
Collateral by operation of law.
4.4 Chief Executive Office. On the date hereof, such Grantor's
----------------------
jurisdiction of organization and the location of such Grantor's chief executive
office or sole place of business are specified on Schedule 4.
4.5 Inventory and Equipment. On the date hereof, the Inventory and the
-----------------------
Equipment (other than mobile goods) are kept at the locations listed on
Schedule 5.
- ----------
<PAGE>
10
4.6 Farm Products. None of the Collateral constitutes, or is the
-------------
Proceeds of, Farm Products.
4.7 Pledged Securities. (a) The shares of Pledged Stock pledged by
------------------
such Grantor hereunder constitute all the issued and outstanding shares of all
classes of the Capital Stock of each Issuer owned by such Grantor.
(b) All the shares of the Pledged Stock have been duly and validly
issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid and binding
obligation of the obligor with respect thereto, enforceable in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Securities pledged by it hereunder, free of
any and all Liens or options in favor of, or claims of, any other Person, except
the security interest created by this Agreement.
4.8 Receivables. (a) None of the obligors on any Receivables is a
-----------
Governmental Authority.
(b) The amounts represented by such Grantor to the Lenders from time
to time as owing to such Grantor in respect of the Receivables will at such
times be accurate.
4.9 Contracts. (a) Each Contract is in full force and effect and
---------
constitutes a valid and legally enforceable obligation of the parties thereto,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered
in a proceeding in equity or at law) and an implied covenant of good faith and
fair dealing.
(b) No consent or authorization of, filing with or other act by or in
respect of any Governmental Authority is required in connection with the
execution, delivery, performance, validity or enforceability of any of the
Contracts by any party thereto other than those which have been duly obtained,
made or performed, are in full force and effect and do not subject the scope
of any such Contract to any material adverse limitation, either specific or
general in nature.
(c) Neither such Grantor nor (to the best of such Grantor's knowledge)
any of the other parties to the Contracts is in default in the performance or
observance of any of the terms thereof in any manner that, in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(d) The right, title and interest of such Grantor in, to and under the
Contracts are not subject to any defenses, offsets, counterclaims or claims
that, in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(e) Such Grantor has delivered to the Administrative Agent a complete
and correct copy of each Contract, including all amendments, supplements and
other modifications thereto.
<PAGE>
11
(f) No amount payable to such Grantor under or in connection with any
Contract is evidenced by any Instrument or Chattel Paper which has not been
delivered to the Administrative Agent.
(g) None of the parties to any Contract is a Governmental Authority.
4.10 Intellectual Property. (a) Schedule 6 lists all Intellectual
--------------------- ----------
Property owned by such Grantor in its own name on the date hereof.
(b) On the date hereof, all material Intellectual Property is valid,
subsisting, unexpired and enforceable, has not been abandoned and does not
infringe the intellectual property rights of any other Person.
(c) Except as set forth in Schedule 6 on the date hereof, none of the
material Intellectual Property is the subject of any licensing or franchise
agreement pursuant to which such Grantor is the licensor or franchisor.
(d) No holding, decision or judgment has been rendered by any
Governmental Authority which would limit, cancel or question the validity of, or
such Grantor's rights in, any Intellectual Property in any respect that could
reasonably be expected to have a Material Adverse Effect.
(e) No action or proceeding is pending, or, to the knowledge of such
Grantor, threatened, on the date hereof (i) seeking to limit, cancel or
question the validity of any Intellectual Property or such Grantor's ownership
interest therein, or (ii) which, if adversely determined, would have a material
adverse effect on the value of any Intellectual Property.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Administrative Agent and the
Lenders that, from and after the date of this Agreement until the Obligations
shall have been paid in full, no Letter of Credit shall be outstanding and the
Commitments shall have terminated:
5.1 Covenants in Credit Agreement. In the case of each Guarantor, such
-----------------------------
Guarantor shall take, or shall refrain from taking, as the case may be, each
action that is necessary to be taken or not taken, as the case may be, so that
no Default or Event of Default is caused by the failure to take such action or
to refrain from taking such action by such Guarantor or any of its Subsidiaries.
5.2 Delivery of Instruments and Chattel Paper. If any amount payable
-----------------------------------------
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Administrative Agent, duly indorsed in a manner
satisfactory to the Administrative Agent, to be held as Collateral pursuant to
this Agreement.
5.3 Maintenance of Insurance. (a) Such Grantor will maintain, with
------------------------
financially sound and reputable companies, insurance policies (i) insuring the
Inventory and Equipment against loss by fire, explosion, theft and such other
casualties as may be reasonably satisfactory to the
<PAGE>
12
Administrative Agent and (ii) to the extent requested by the Administrative
Agent, insuring such Grantor, the Administrative Agent and the Lenders against
liability for personal injury and property damage relating to such Inventory
and Equipment, such policies to be in such form and amounts and having such
coverage as may be reasonably satisfactory to the Administrative Agent and the
Lenders.
(b) All such insurance shall (i) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Administrative Agent of
written notice thereof, (ii) name the Administrative Agent as insured party or
loss payee, (iii) if reasonably requested by the Administrative Agent, include a
breach of warranty clause and (iv) be reasonably satisfactory in all other
respects to the Administrative Agent.
(c) The Borrower shall deliver to the Administrative Agent and the
Lenders a report of a reputable insurance broker with respect to such insurance
during the month of December in each calendar year and such supplemental reports
with respect thereto as the Administrative Agent may from time to time
reasonably request.
5.4 Payment of Obligations. Such Grantor will pay and discharge or
----------------------
otherwise satisfy at or before maturity or before they become delinquent, as
the case may be, all material taxes, assessments and governmental charges or
levies imposed upon the Collateral or in respect of income or profits
therefrom, as well as all claims of any kind (including, without limitation,
claims for labor, materials and supplies) against or with respect to the
Collateral, except that no such charge need be paid if the amount or validity
thereof is currently being contested in good faith by appropriate proceedings,
reserves in conformity with GAAP with respect thereto have been provided on the
books of such Grantor and such proceedings could not reasonably be expected to
result in the sale, forfeiture or loss of any material portion of the
Collateral or any interest therein.
5.5 Maintenance of Perfected Security Interest; Further
---------------------------------------------------
Documentation. (a) Such Grantor shall maintain the security interest created by
- -------------
this Agreement as a perfected security interest having at least the priority
described in Section 4.3 and shall defend such security interest against the
claims and demands of all Persons whomsoever.
(b) Such Grantor will furnish to the Administrative Agent and the
Lenders from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Administrative Agent may reasonably request, all in reasonable
detail.
(c) At any time and from time to time, upon the written request of the
Administrative Agent, and at the sole expense of such Grantor, such Grantor
will promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further actions as the Administrative
Agent may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code (or other similar laws) in effect
in any jurisdiction with respect to the security interests created hereby.
5.6 Changes in Locations, Name, etc. Such Grantor will not, except
--------------------------------
upon 15 days' prior written notice to the Administrative Agent and delivery to
the Administrative Agent of (a) all additional executed financing statements and
other documents reasonably requested by the Administrative Agent to maintain the
validity, perfection and priority of the security interests provided
<PAGE>
13
for herein and (b) if applicable, a written supplement to Schedule 5 showing any
----------
additional location at which Inventory or Equipment shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a
location other than those listed on Schedule 5;
----------
(ii) change the location of its chief executive office or sole
place of business from that referred to in Section 4.4; or
(iii) change its name, identity or corporate structure to such an
extent that any financing statement filed by the Administrative Agent in
connection with this Agreement would become misleading.
5.7 Notices. Such Grantor will advise the Administrative Agent and the
-------
Lenders promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Credit Agreement) on any of the Collateral which would
adversely affect the ability of the Administrative Agent to exercise any of its
remedies hereunder; and
(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
5.8 Pledged Securities. (a) If such Grantor shall become entitled to
------------------
receive or shall receive any stock certificate (including, without limitation,
any certificate representing a stock dividend or a distribution in connection
with any reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights in respect of
the Capital Stock of any Issuer, whether in addition to, in substitution of, as
a conversion of, or in exchange for, any shares of the Pledged Stock, or
otherwise in respect thereof, such Grantor shall accept the same as the agent
of the Administrative Agent and the Lenders, hold the same in trust for the
Administrative Agent and the Lenders and deliver the same forthwith to the
Administrative Agent in the exact form received, duly indorsed by such Grantor
to the Administrative Agent, if required, together with an undated stock power
covering such certificate duly executed in blank by such Grantor and with, if
the Administrative Agent so requests, signature guaranteed, to be held by the
Administrative Agent, subject to the terms hereof, as additional collateral
security for the Obligations. Any sums paid upon or in respect of the Pledged
Securities upon the liquidation or dissolution of any Issuer shall be paid over
to the Administrative Agent to be held by it hereunder as additional collateral
security for the Obligations, and in case any distribution of capital shall be
made on or in respect of the Pledged Securities or any property shall be
distributed upon or with respect to the Pledged Securities pursuant to the
recapitalization or reclassification of the capital of any Issuer or pursuant
to the reorganization thereof, the property so distributed shall, unless
otherwise subject to a perfected security interest in favor of the
Administrative Agent, be delivered to the Administrative Agent to be held by it
hereunder as additional collateral security (or except as provided in the
Credit Agreement) for the Obligations. Except as provided in the Credit
Agreement, if any sums of money or property so paid or distributed in respect
of the Pledged Securities shall be received by such Grantor, such Grantor
shall, until such money or property is paid or delivered to the Administrative
Agent, hold such money or property in
<PAGE>
14
trust for the Lenders, segregated from other funds of such Grantor, as
additional collateral security for the Obligations.
(b) Except as provided in the Credit Agreement, without the prior
written consent of the Administrative Agent, such Grantor will not (i) vote to
enable, or take any other action to permit, any Issuer to issue any stock or
other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of any Issuer, (ii) sell, assign,
transfer, exchange, or otherwise dispose of, or grant any option with respect
to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction
expressly permitted by the Credit Agreement), (iii) create, incur or permit to
exist any Lien or option in favor of, or any claim of any Person with respect
to, any of the Pledged Securities or Proceeds thereof, or any interest therein,
except for the security interests created by this Agreement or (iv) enter into
any agreement or undertaking restricting the right or ability of such Grantor or
the Administrative Agent to sell, assign or transfer any of the Pledged
Securities or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such Issuer agrees
that (i) it will be bound by the terms of this Agreement relating to the Pledged
Securities issued by it and will comply with such terms insofar as such terms
are applicable to it, (ii) it will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in Section 5.8(a) with
respect to the Pledged Securities issued by it and (iii) the terms of Sections
6.3(c) and 6.7 shall apply to it, mutatis mutandis with respect to all actions
----------------
that may be required of it pursuant to Section 6.3(c) or 6.7 with respect to the
Pledged Securities issued by it.
5.9 Receivables. (a) Other than in the ordinary course of business
-----------
consistent with its past practices, such Grantor will not (i) grant any
extension of the time of payment of any Receivable, (ii) compromise or settle
any Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
(b) Such Grantor will deliver to the Administrative Agent a copy of
each material demand, notice or document received by it that questions or calls
into doubt the validity or enforceability of more than 7% of the aggregate
amount of the then outstanding Receivables.
5.10 Contracts. (a) Such Grantor will perform and comply in all
---------
material respects with all its obligations under the Contracts.
(b) Such Grantor will not amend, modify, terminate or waive any
provision of any material Contract in any manner which could reasonably be
expected to materially adversely affect the value of such material Contract as
Collateral.
(c) Such Grantor will exercise promptly and diligently each and every
material right which it may have under each Contract (other than any right of
termination).
(d) Such Grantor will deliver to the Administrative Agent a copy of
each material demand, notice or document received by it relating in any way to
any Contract that questions the validity or enforceability of such Contract.
<PAGE>
15
5.11 Intellectual Property. (a) Such Grantor (either itself or through
---------------------
licensees) will (i) continue to use each material Trademark on each and every
trademark class of goods applicable to its current line as reflected in its
current catalogs, brochures and price lists in order to maintain such Trademark
in full force free from any claim of abandonment for non-use, (ii) maintain as
in the past the quality of products and services offered under such material
Trademark, (iii) use such material Trademark with the appropriate notice of
registration and all other notices and legends required by applicable
Requirements of Law, (iv) not adopt or use any mark which is confusingly
similar or a colorable imitation of such material Trademark unless the
Administrative Agent, for the ratable benefit of the Lenders, shall obtain a
perfected security interest in such mark pursuant to this Agreement, and (v)
not (and not permit any licensee or sublicensee thereof to) do any act or
knowingly omit to do any act whereby such material Trademark may become
invalidated or impaired in any way.
(b) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any material Patent may become forfeited,
abandoned or dedicated to the public.
(c) Such Grantor (either itself or through licensees) (i) will employ
each material Copyright and (ii) will not (and will not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby any
material portion of the material Copyrights may become invalidated or otherwise
impaired. Such Grantor will not (either itself or through licensees) do any act
whereby any material portion of the Copyrights may fall into the public domain.
(d) Such Grantor (either itself or through licensees) will not do any
act that knowingly uses any material Intellectual Property to infringe the
intellectual property rights of any other Person.
(e) Such Grantor will notify the Administrative Agent and the Lenders
immediately if it knows, or has reason to know, that any application or
registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse determination
or development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court or tribunal in
any country) regarding such Grantor's ownership of, or the validity of, any
material Intellectual Property or such Grantor's right to register the same or
to own and maintain the same.
(f) Whenever such Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Intellectual Property with the United States Patent and Trademark Office,
the United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof, such Grantor shall report such
filing to the Administrative Agent within 30 Business Days after the last day of
the fiscal quarter in which such filing occurs. Upon request of the
Administrative Agent, such Grantor shall execute and deliver, and have recorded,
any and all agreements, instruments, documents, and papers as the Administrative
Agent may request to evidence the Administrative Agent's and the Lenders'
security interest in any Copyright, Patent or Trademark and the goodwill and
general intangibles of such Grantor relating thereto or represented thereby.
(g) Such Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency in any other country or any political subdivision thereof, to maintain
and pursue each application (and to obtain the relevant registration) and to
<PAGE>
16
maintain each registration of the material Intellectual Property, including,
without limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(h) In the event that any material Intellectual Property is infringed,
misappropriated or diluted by a third party, such Grantor shall (i) take such
actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Administrative Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and
to recover any and all damages for such infringement, misappropriation or
dilution.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The Administrative
---------------------------------------
Agent shall have the right to make test verifications of the Receivables in any
manner and through any medium that it reasonably considers advisable, and each
Grantor shall furnish all such assistance and information as the Administrative
Agent may require in connection with such test verifications. At any time and
from time to time, upon the Administrative Agent's request and at the expense of
the relevant Grantor, such Grantor shall cause independent public accountants or
others satisfactory to the Administrative Agent to furnish to the Administrative
Agent reports showing reconciliations, aging and test verifications of; and
trial balances for, the Receivables.
(b) The Administrative Agent hereby authorizes each Grantor to collect
such Grantor's Receivables, subject to the Administrative Agent's direction and
control, and the Administrative Agent may curtail or terminate said authority
at any time after the occurrence and during the continuance of an Event of
Default. If required by the Administrative Agent at any time after the
occurrence and during the continuance of an Event of Default, any payments of
Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any
event, within two Business Days) deposited by such Grantor in the exact form
received, duly indorsed by such Grantor to the Administrative Agent if
required, in a Collateral Account maintained under the sole dominion and
control of the Administrative Agent, subject to withdrawal by the
Administrative Agent for the account of the Lenders only as provided in Section
6.5, and (ii) until so turned over, shall be held by such Grantor in trust for
the Administrative Agent and the Lenders, segregated from other funds of such
Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.
(c) At the Administrative Agent's request, each Grantor shall deliver to
the Administrative Agent all original and other documents evidencing, and
relating to, the agreements and transactions which gave rise to the
Receivables, including, without limitation, all original orders, invoices and
shipping receipts.
6.2 Communications with Obligors: Grantors Remain Liable. (a) The
----------------------------------------------------
Administrative Agent in its own name or in the name of others may at any time
after the occurrence and during the continuance of an Event of Default
communicate with obligors under the Receivables and parties to the Contracts to
verify with them to the Administrative Agent's satisfaction the existence,
amount and terms of any Receivables or Contracts.
<PAGE>
17
(b) Upon the request of the Administrative Agent at any time after the
occurrence and during the continuance of an Event of Default, each Grantor
shall notify obligors on the Receivables and parties to the Contracts that the
Receivables and the Contracts have been assigned to the Administrative Agent
for the ratable benefit of the Lenders and that payments in respect thereof
shall be made directly to the Administrative Agent.
(c) Anything herein to the contrary notwithstanding, each Grantor shall
remain liable under each of the Receivables and Contracts to observe and
perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise
thereto. Neither the Administrative Agent nor any Lender shall have any
obligation or liability under any Receivable (or any agreement giving rise
thereto) or Contract by reason of or arising out of this Agreement or the
receipt by the Administrative Agent or any Lender of any payment relating
thereto, nor shall the Administrative Agent or any Lender be obligated in any
manner to perform any of the obligations of any Grantor under or pursuant to
any Receivable (or any agreement giving rise thereto) or Contract, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party
thereunder, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have occurred
-------------
and be continuing and the Administrative Agent shall have given notice to the
relevant Grantor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted
to receive all cash dividends paid in respect of the Pledged Stock and all
payments made in respect of the Pledged Notes, in each case paid in the normal
course of business of the relevant Issuer and consistent with past practice, to
the extent permitted in the Credit Agreement, and to exercise all voting and
corporate rights with respect to the Pledged Securities; provided, however, that
-------- -------
no vote shall be cast or corporate right exercised or other action taken which,
in the Administrative Agent's reasonable judgment, would materially impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of the Credit Agreement, this Agreement or any other Credit Document.
(b) If an Event of Default shall occur and be continuing and the
Administrative Agent shall give notice of its intent to exercise such rights to
the relevant Grantor or Grantors, (i) the Administrative Agent shall have the
right to receive any and all cash dividends, payments or other Proceeds paid in
respect of the Pledged Securities and make application thereof to the
Obligations in such order as the Administrative Agent may determine, and (ii)
any or all of the Pledged Securities shall be registered in the name of the
Administrative Agent or its nominee, and the Administrative Agent or its
nominee may thereafter exercise (x) all voting, corporate and other rights
pertaining to such Pledged Securities at any meeting of shareholders of the
relevant Issuer or Issuers or otherwise and (y) any and all rights of
conversion, exchange and subscription and any other rights, privileges or
options pertaining to such Pledged Securities as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the Pledged Securities upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any Issuer, or upon the exercise by any Grantor or the
Administrative Agent of any right, privilege or option pertaining to such
Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Administrative
<PAGE>
18
Agent may determine), all without liability except to account for property
actually received by it, but the Administrative Agent shall have no duty to any
Grantor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer of any
Pledged Securities pledged by such Grantor hereunder to (i) comply with any
instruction received by it from the Administrative Agent in writing that (x)
states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each
Issuer shall be fully protected in so complying, and (ii) unless otherwise
expressly permitted hereby, pay any dividends or other payments with respect to
the Pledged Securities directly to the Administrative Agent.
6.4 Proceeds to be Turned Over To Administrative Agent. In addition to
--------------------------------------------------
the rights of the Administrative Agent and the Lenders specified in Section 6.1
with respect to payments of Receivables, if an Event of Default shall occur and
be continuing, all Proceeds received by any Grantor consisting of cash, checks
and other near-cash items shall be held by such Grantor in trust for the
Administrative Agent and the Lenders, segregated from other funds of such
Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to
the Administrative Agent in the exact form received by such Grantor (duly
indorsed by such Grantor to the Administrative Agent, if required). All Proceeds
received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a Collateral
Account (or by such Grantor in trust for the Administrative Agent and the
Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be agreed upon by
-----------------------
the Borrower and the Administrative Agent, or, if an Event of Default shall have
occurred and be continuing, at any time at the Administrative Agent's election,
the Administrative Agent may apply all or any part of Proceeds held in any
Collateral Account in payment of the Obligations in such order as required by
the Credit Agreement, and any part of such funds which are not required as
collateral security for the Obligations shall be paid over from time to time by
the Administrative Agent to the Borrower or to whomsoever may be lawfully
entitled to receive the same. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full, no Letters of Credit shall be
outstanding and the Commitments shall have terminated shall be paid over to the
Borrower or to whomsoever may be lawfully entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall occur and be
-----------------------
continuing, the Administrative Agent, on behalf of the Lenders, may exercise,
in addition to all other rights and remedies granted to them in this Agreement
and in any other instrument or agreement securing, evidencing or relating to
the Obligations, all rights and remedies of a secured party under the New York
UCC or any other applicable law. Without limiting the generality of the
foregoing, the Administrative Agent, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon any Grantor or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do
any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's
<PAGE>
19
board or office of the Administrative Agent or any Lender or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Administrative Agent or any Lender shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in any Grantor,
which right or equity is hereby waived and released. Each Grantor further
agrees, at the Administrative Agent's request, to assemble the Collateral and
make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at such Grantor's
premises or elsewhere. The Administrative Agent shall apply the net proceeds of
any action taken by it pursuant to this Section 6.6, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Administrative Agent and the
Lenders hereunder, including, without limitation, reasonable attorneys' fees
and disbursements, to the payment in whole or in part of the Obligations, in
such order as the Administrative Agent may elect, and only after such
application and after the payment by the Administrative Agent of any other
amount required by any provision of law, including, without limitation, Section
9-504(l)(c) of the New York UCC, need the Administrative Agent account for the
surplus, if any, to any Grantor. To the extent permitted by applicable law,
each Grantor waives all claims, damages and demands it may acquire against the
Administrative Agent or any Lender arising out of the exercise by them of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 15 days before such sale or other disposition.
6.7 Registration Rights. (a) If the Administrative Agent shall determine
-------------------
to exercise its right to sell any or all of the Pledged Stock pursuant to
Section 6.6, and if in the opinion of the Administrative Agent it is necessary
or advisable to have the Pledged Stock, or that portion thereof to be sold,
registered under the provisions of the Securities Act, the relevant Grantor will
cause the Issuer thereof to (i) execute and deliver, and cause the directors and
officers of such Issuer to execute and deliver, all such instruments and
documents, and do or cause to be done all such other acts as may be, in the
opinion of the Administrative Agent, necessary or advisable to register the
Pledged Stock, or that portion thereof to be sold, under the provisions of the
Securities Act, (ii) use its commercially reasonable efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Stock, or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the related prospectus which, in the opinion of the
Administrative Agent, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. Each Grantor agrees to
cause such Issuer to comply with the provisions of the securities or "Blue Sky"
laws of any and all jurisdictions which the Administrative Agent shall designate
and to make available to its security holders, as soon as practicable, an
earnings statement (which need not be audited) which will satisfy the provisions
of Section 11(a) of the Securities Act.
(b) Each Grantor recognizes that the Administrative Agent may be unable
to effect a public sale of any or all the prohibitions contained in the
Securities Act and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to require
such securities for their own account for investment and not with a view to the
distribution or resale thereof. Each Grantor acknowledges and agrees that any
such private sale may
<PAGE>
20
result in prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Administrative Agent shall be under no obligation to delay a sale
of any of the Pledged Stock for the period of time necessary to permit the
Issuer thereof to register such securities for public sale under the Securities
Act, or under applicable state securities laws, even if such Issuer would agree
to do so.
(c) Each Grantor agrees to use its commercially reasonable efforts to do
or cause to be done all such other acts as may be necessary to make such sale or
sales of all or any portion of the Pledged Stock pursuant to this Section 6.7
valid and binding and in compliance with any and all other applicable
Requirements of Law. Each Grantor further agrees that a breach of any of the
covenants contained in this Section 6.7 will cause irreparable injury to the
Administrative Agent and the Lenders, that the Administrative Agent and the
Lenders have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 6.7 shall be
specifically enforceable against such Grantor, and such Grantor hereby waives
and agrees not to assert any defenses against an action for specific performance
of such covenants except for a defense that no Event of Default has occurred
under the Credit Agreement.
6.8 Waiver; Deficiency. Each Grantor walves and agrees not to assert any
------------------
rights or privileges which it may acquire under Section 9-112 of the New York
UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any
sale or other disposition of the Collateral are insufficient to pay its
Obligations and the fees and disbursements of any attorneys employed by the
Administrative Agent or any Lender to collect such deficiency.
SECTION 7. THE ADMINISTRATIVE AGENT
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc. (a)
-----------------------------------------------------------
Each Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, each
Grantor hereby gives the Administrative Agent the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do any or all of
the following:
(i) in the name of such Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable or Contract or with respect to any other Collateral and file
any claim or take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Administrative Agent for
the purpose of collecting any and all such moneys due under any
Receivable or Contract or with respect to any other Collateral whenever
payable;
(ii) in the case of any Intellectual Property, execute and deliver,
and have recorded, any and all agreements, instruments, documents and
papers as the Administrative Agent may request to evidence the
Administrative Agent's and the Lenders' security interest in such
<PAGE>
21
Intellectual Property and the goodwill and general intangibles of such
Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in Section
6.6 or 6.7, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(v) (1) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Administrative Agent or as the Administrative
Agent shall direct; (2) ask or demand for, collect, and receive payment
of and receipt for, any and all moneys, claims and other amounts due or
to become due at any time in respect of or arising out of any
Collateral; (3) sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection
with any of the Collateral; (4) commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any portion thereof and to
enforce any other right in respect of any Collateral; (5) defend any
suit, action or proceeding brought against such Grantor with respect to
any Collateral; (6) settle, compromise or adjust any such suit, action
or proceeding and, in connection therewith, give such discharges or
releases as the Administrative Agent may reasonably deem appropriate;
(7) assign any Copyright, Patent or Trademark (along with the goodwill
of the business to which any such Copyright, Patent or Trademark
pertains), throughout the world for such term or terms, on such
conditions, and in such manner, as the Administrative Agent shall in its
sole discretion determine; and (8) generally, sell, transfer, pledge and
make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Administrative Agent
were the absolute owner thereof for all purposes, and do, at the
Administrative Agent's option and such Grantor's expense, at any time,
or from time to time, all acts and things which the Administrative Agent
deems necessary to protect, preserve or realize upon the Collateral and
the Administrative Agent's and the Lenders' security interests therein
and to effect the intent of this Agreement, all as fully and
effectively as such Grantor might do.
Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the
power of attorney provided for in this Section 7.1(a) unless an Event of
Default shall have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its agreements
contained herein, the Administrative Agent, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in connection with
actions undertaken as provided in this Section 7.1, together with interest
thereon at a rate per annum equal to the rate per annum at which interest would
then be payable on past due Base Rate Loans under the Credit Agreement, from
the date of payment by the Administrative Agent to the date reimbursed by the
relevant Grantor, shall be payable by such Grantor to the Administrative Agent
on demand.
<PAGE>
22
(d) Each Grantor hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof. All powers, authorizations and agencies
contained in this Agreement are coupled with an interest and are irrevocable
until this Agreement is terminated and the security interests created hereby are
released.
7.2 Duty of Administrative Agent. The Administrative Agent's sole duty
----------------------------
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Administrative
Agent deals with similar property for its own account. Neither the
Administrative Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7.3 Execution of Financing Statements. Pursuant to Section 9402 of the
---------------------------------
New York UCC and any other applicable law, each Grantor authorizes the
Administrative Agent to file or record financing statements and other filing or
recording documents or instruments with respect to the Collateral without the
signature of such Grantor in such form and in such offices as the Administrative
Agent reasonably determines appropriate to perfect the security interests of the
Administrative Agent under this Agreement A photographic or other reproduction
of this Agreement shall be sufficient as a financing statement or other filing
or recording document or instrument for filing or recording in any
jurisdiction.
7.4 Authority of Administrative Agent. Each Grantor acknowledges that
---------------------------------
the rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and by such other agreements with
respect thereto as may exist from time to time among them, but, as between the
Administrative Agent and the Grantors, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and no Grantor shall be under any
obligation, or entitlement, to make any inquiry respecting such authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of this
---------------------
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with subsection 10.1 of the Credit Agreement.
<PAGE>
23
8.2 Notices. All notices, requests and demands to or upon the Agents or
-------
any Grantor hereunder shall be effected in the manner provided for in subsection
--------
10.2 of the Credit Agreement; provided that any such notice, request or demand
to or upon any Guarantor shall be addressed to such Guarantor at its notice
address set forth on Schedule 1.
----------
8.3 No Waiver by Course of Conduct, Cumulative Remedies. Neither the
---------------------------------------------------
Administrative Agent nor any Lender shall by any act (except by a written
instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise
be deemed to have waived any right or remedy hereunder or to have acquiesced in
any Default or Event of Default. No failure to exercise, nor any delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Administrative Agent or any Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which the Administrative Agent or such Lender would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of
any other rights or remedies provided by law.
8.4 Enforcement Expenses Indemnification. (a) Each Guarantor agrees to
------------------------------------
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in collecting against such Guarantor under the guarantee
contained in Section 2 or otherwise enforcing or preserving any rights under
this Agreement and the other Credit Documents to which such Guarantor is a
party, including, without limitation, the fees and disbursements of counsel to
each Lender and of counsel to the Administrative Agent.
(b) Each Guarantor agrees to pay, and to save the Administrative Agent
and the Lenders harmless from, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement.
(c) Each Guarantor agrees to pay, and to save the Administrative Agent
and the Lenders harmless from, any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement to the extent the
Borrower would be required to do so pursuant to subsection 10.5 of the Credit
Agreement.
(d) The agreements in this Section 8.4 shall survive repayment of the
Obligations and all other amounts payable under the Credit Agreement and the
other Credit Documents.
8.5 Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns; provided
--------
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
-------
Administrative Agent and each Lender at any time and from time to time pursuant
to subsection 10.7(a) of the Credit
<PAGE>
24
Agreement shall have occurred and be continuing, without notice to such
Grantor or any other Grantor, any such notice being expressly waived by each
Grantor, to set-off and appropriate and apply any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct
or indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender to or for the credit or the
account of such Grantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Grantor to the Administrative Agent or such
Lender hereunder and claims of every nature and description of the
Administrative Agent or such Lender against such Grantor, in any currency,
whether arising hereunder, under the Credit Agreement, any other Credit
Document or otherwise, as the Administrative Agent or such Lender may elect,
whether or not the Administrative Agent or any Lender has made any demand for
payment and although such obligations, liabilities and claims may be contingent
or unmatured. The Administrative Agent and each Lender shall notify such Grantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender of the proceeds thereof, provided that the failure to give
--------
such notice shall not affect the validity of such set-off and application. The
rights of the Administrative Agent and each Lender under this Section 8.6 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Administrative Agent or such Lender may have.
8.7 Counterparts. This Agreement may be executed by one or more of the
------------
parties to this Agreement on any number of separate counterparts (including by
telecopy), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8.9 Section Headings. The Section headings used in this Agreement are
----------------
for convenience of reference only and are not to affect the construction hereof
or be taken into consideration in the interpretation hereof.
8.10 Integration. This Agreement and the other Credit Documents
-----------
represent the agreement of the Grantors, the Administrative Agent and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to subject matter hereof and thereof not expressly
set forth or referred to herein or in the other Credit Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby
-----------------------------------
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Credit Documents to
which it is a party, or for recognition and
<PAGE>
25
enforcement of any judgment in respect thereof, to the non-exclusive
general jurisdiction of the Courts of the State of New York, the courts
of the United States of America for the Southern District of New York,
and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have
to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to
such Grantor at its address referred to in Section 8.2 or at such other
address of which the Administrative Agent shall have been notified
pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding
referred to in this Section any special, exemplary, punitive or
consequential damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
----------------
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Agreement and the other Credit Documents to which
it is a party;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to any Grantor arising out of or in
connection with this Agreement or any of the other Credit Documents, and
the relationship between the Grantors, on the one hand, and the
Administrative Agent and Lenders, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Credit
Documents or otherwise exists by virtue of the transactions contemplated
hereby among the Lenders or among the Grantors and the Lenders.
8.14 WAIVER OF JURY TRIAL. EACH GRANTOR AND, BY ACCEPTANCE OF THE
--------------------
BENEFITS HEREOF, EACH OF THE LENDERS AND THE ADMINISTRATIVE AGENT, HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
8.15 Additional Grantors. Each Subsidiary of the Borrower that is
-------------------
required to become a party to this Agreement pursuant to subsection 6.10 of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the form
of Annex 1 hereto.
<PAGE>
26
8.16 Releases. (a) At such time as the Loans, the Reimbursement
--------
Obligations and the other Obligations shall have been paid in full, the
Commitments have been terminated and no Letters of Credit shall be outstanding,
the Collateral shall be released from the Liens created hereby, and this
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Administrative Agent and each Grantor hereunder shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the Grantors and the
Administrative Agent shall deliver to such Grantor any Collateral held by the
Administrative Agent hereunder, and execute and deliver to such Grantor such
documents as such Grantor shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise
disposed of by any Grantor in a transaction permitted by the Credit Agreement,
then the Administrative Agent, at the request and sole expense of such Grantor,
shall execute and deliver to such Grantor all releases or other documents
reasonably necessary or desirable for the release of the Liens created hereby
on such Collateral. At the request and sole expense of the Borrower, a
Guarantor shall be released from its obligations hereunder in the event that
all the Capital Stock of such Guarantor shall be sold, transferred or otherwise
disposed of in a transaction permitted by the Credit Agreement
8.17 Conflict. In the event there is a conflict between the terms of
--------
this Agreement and the Credit Agreement, the Credit Agreement shall control.
<PAGE>
27
IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee
and Collateral Agreement to be duly executed and delivered as of the date first
above written.
LOOMIS, FARGO & CO., A DELAWARE CORPORATION
By: /s/ JAMES K. JENNINGS, JR.
-------------------------------------------
Title: Executive Vice President
LFC HOLDING CORPORATION
By: /s/ JAMES K. JENNINGS, JR.
-------------------------------------------
Title: Executive Vice President
LOOMIS, FARGO & CO., A TEXAS CORPORATION
By: /s/ JAMES K. JENNINGS, JR.
------------------------------------------
Title:
LOOMIS, FARGO & CO. OF PUERTO RICO
By: /s/ N. WOOD
-------------------------------------------
Title: Vice President
LFC ARMORED OF TEXAS INC.
By: /s/ N. WOOD
-------------------------------------------
Title: Vice President
<PAGE>
Schedule 1
----------
Guarantee and Collateral Agreement
----------------------------------
NOTICE ADDRESSES OF GUARANTORS
LOOMIS, FARGO & CO., a Delaware corporation
16225 Park Ten Place
Houston, Texas 77084
Attn: James K. Jennings, Jr.
Fax: 713/647-5697
LFC HOLDING CORPORATION, a Delaware corporation
16225 Park Ten Place
Houston, Texas 77084
Attn: James K. Jennings, Jr.
Fax: 713/647-5697
LOOMIS, FARGO & CO., a Texas corporation
16225 Park Ten Place
Houston, Texas 77084
Attn: James K. Jennings, Jr.
Fax: 713/647-5697
LOOMIS, FARGO & CO. OF PUERTO RICO, a Tennessee corporation
16225 Park Ten Place
Houston, Texas 77084
Attn: James K. Jennings, Jr.
Fax: 713/647-5697
LFC ARMORED OF TEXAS INC., a Texas corporation
16225 Park Ten Place
Houston, Texas 77084
Attn: James K. Jennings, Jr.
Fax: 713/647-5697
<PAGE>
Schedule 2
----------
Guarantee and Collateral Agreement
----------------------------------
DESCRIPTION OF PLEDGED SECURITIES
Pledged Stock
<TABLE>
<CAPTION>
Class of Stock No. of
Pledgor Issuer Stock Certificate Shares
------- ------ -------- ----------- ------
<S> <C> <C> <C> <C>
Loomis, Fargo & Co. LFC Holding Corporation Class A 015 2,652,705
f/k/a Loomis-Wells Corporation f/k/a Loomis Holding Corporation Common
LFC Holding corporation Loomis, Fargo & Co. Common 003 1,000
f/k/a Loomis Holding Corporation f/k/a Loomis Armored Inc.
Loomis, Fargo & Co. Loomis, Fargo & Co. of Puerto Rico Common 003 250
f/k/a Loomis Armored Inc. f/k/a Wells Fargo Armored Services
Corporation of Puerto Rico
Loomis, Fargo & Co. LFC Armored of Texas Inc. Common 001 100
f/k/a Loomis Armored Inc. f/k/a Wells Fargo Armored Service
Corporation of Texas
</TABLE>
<PAGE>
Schedule 3
----------
Guarantee and Collateral Agreement
----------------------------------
FILINGS AND OTHER ACTIONS
REQUIRED TO PERFECT SECURITY INTERESTS
Uniform Commercial Code Filings
-------------------------------
I. Filing Jurisdictions of Loomis, Fargo & Co., a Delaware corporation:
-------------------------------------------------------------------
Texas Secretary of State
II. Filing Jurisdictions of LFC Holding Corporation:
-----------------------------------------------
Texas Secretary of State
III. Filing Jurisdictions of Loomis, Fargo & Co., a Texas corporation:
----------------------------------------------------------------
Alabama Secretary of State
Alaska Secretary of State
Arizona Secretary of State
Arkansas Secretary of State*
Garland County, Arkansas
California Secretary of State
Colorado Secretary of State
Connecticut Secretary of State
Delaware Secretary of State
Florida Secretary of State
Georgia Central Filing Authority
Idaho Secretary of State
Illinois Secretary of State
Indiana Secretary of State
Iowa Secretary of State
Caddo Parish, Louisiana
East Baton Rouge Parish, Louisiana
Maine Secretary of State
Maryland Secretary of State
Massachusetts Secretary of State*
Bristol County, Massachusetts
Mississippi Secretary of State*
Hinds County, Mississippi
Missouri Secretary of State*
Platte County, Missouri
Montana Secretary of State
<PAGE>
Schedule 3
----------
Guarantee and Collateral Agreement
----------------------------------
Nevada Secretary of State
New Hampshire Secretary of State*
Hillsborough County, New Hampshire
New Jersey Secretary of State
New Mexico Secretary of State
New York Secretary of State*
New York County, New York
North Carolina Secretary of State*
Cumberland County, North Carolina
Ohio Secretary of State*
Franklin County, Ohio
Oregon Secretary of State
Pennsylvania Secretary of State*
Lehigh Prothonotary, Pennsylvania
South Carolina Secretary of State
Tennessee Secretary of
Texas Secretary of State
Utah Secretary of State
Virginia Secretary of State*
Richmond Independent City, Virginia
Washington Secretary of State
Washington, D.C
West Virginia Secretary of State*
Wood County, West Virginia
Wisconsin Secretary of State
Wyoming Secretary of State
IV. Filing Jurisdictions of Loomis, Fargo & Co. of Puerto Rico:
----------------------------------------------------------
Texas Secretary of State
V. Filing Jurisdictions of LFC Armored of Texas, Inc.:
--------------------------------------------------
Texas Secretary of State
*Dual Filing State
<PAGE>
Schedule 3
----------
Guarantee and Collateral Agreement
----------------------------------
Patent and Trademark Filings
----------------------------
Mark Serial No./Registration No. Registration Date
---- --------------------------- -----------------
LL Loomis Safety With 1,114,248 2/27/79
Dispatch and Design
<PAGE>
Schedule 3
----------
Guarantee and Collateral Agreement
----------------------------------
Actions with respect to Collateral
----------------------------------
Filing of the UCC-1 financing statements with the local filing office required
for perfection of such property, and the Administrative Agent's possession of
the Pledged Stock.
<PAGE>
Schedule 4
----------
Guarantee and Collateral Agreement
----------------------------------
LOCATION OF JURISDICTION OF ORGANIZATION
AND CHIEF EXECUTIVE OFFICE
Grantor and Chief Executive Officer Jurisdiction of Incorporation
----------------------------------- -----------------------------
LOOMIS, FARGO & CO. Delaware
16225 Park Ten Place
Houston, Texas 77084
LFC HOLDING CORPORATION Delaware
16225 Park Ten Place
Houston, Texas 77084
LOOMIS, FARGO & CO. Texas
16225 Park Ten Place
Houston, Texas 77084
LOOMIS, FARGO & CO. OF PUERTO RICO Tennessee
16225 Park Ten Place
Houston, Texas 77084
LFC ARMORED OF TEXAS INC. Texas
16225 Park Ten Place
Houston, Texas 77084
<PAGE>
Schedule 5
----------
Guarantee and Collateral Agreement
----------------------------------
LOCATION OF INVENTORY AND EQUIPMENT
I. Loomis, Fargo & Co., a Delaware corporation
-------------------------------------------
16225 Park Ten Place
Houston, Texas
II. LFC Holding Corporation
-----------------------
16225 Park Ten Place
Houston, Texas
III. Loomis, Fargo & Co., a Texas corporation
---------------------------------------
3551 Greensboro Avenue
Tuscaloosa, Alabama
1205 East Dowling Road
Anchorage, Alaska
3300 Airport Road
Fairbanks, Alaska
684 Hancock Road
Bullhead City, Arizona
1170 Kaibab, #6
Flagstaff, Arizona
3046 West Fairmont
Phoenix, Arizona
632 W. 24th Street
Tempe, Arizona
500 West Broadway, #110 and #111
Tempe, Arizona
231 W. Alturas
Tucson, Arizona
<PAGE>
Schedule 5
----------
Guarantee and Collateral Agreement
----------------------------------
655 South Madison Street
Yuma, Arizona
1321 Central Avenue
Hot Springs, Arkansas
114 W. 16th Street
Chico, California
5525 E. Lamona Street
Fresno, California
1421 N. Clovis Ave., Ste. 108
Fresno, California
1929 W. Pico Boulevard
Los Angeles, California
One Kaiser Plaza
Oakland, California
936 Brockhurst Street
Oakland, California
1939 S. Augusta Court
Ontario, California
1943 Augusta Court
Ontario, California
915 and 925 Merchant Street
Redding, California
315 12th Street
Sacramento, CA
1707 E. Street
Sacramento, California
1705 E. Street
Sacramento, California
<PAGE>
Schedule 5
----------
Guarantee and Collateral Agreement
----------------------------------
417 17th Street
Sacramento, California
1717 E. Street
Sacramento, California
2719 Market Street
San Diego, California
2762 National Avenue
San Diego, California
1060 Marin Street
San Francisco, California
126 and 128 E. St. John Street
San Jose, California
243 N. Union
Stockton, California
225, 231 and 233 Bennett Street
Vallejo, California
9371 Kramer Avenue
Westminster, California
5115 Race Court
Denver, Colorado
1540 Kalani Street
Honolulu, Hawaii
102 North Euclid Street
Bloomington, Illinois
122 No. College Avenue
Indianapolis, Indiana
117 No. College Avenue
Indianapolis, Indiana
<PAGE>
Schedule 5
----------
Guarantee and Collateral Agreement
----------------------------------
931 East 86th Street, Ste. 200
Indianapolis, Indiana
805 No. 30th Street
Monroe, Louisiana
2330 Earhart Boulevard
New Orleans, Louisiana
1202 Joseph
Shreveport, Louisiana
7120 Golden Ring Road
Baltimore, Maryland
G-5394 Corunna Road
Flint, Michigan
5316 Ramsey Street
Duluth, Minnesota
735 Raymond Avenue
St. Paul, Minnesota
1524 Adline
Hattisburg, Mississippi
1625 Handy Avenue, Ste. G and B
Jackson, Mississippi
2211 Highway 45 North
Meridian, Mississippi
1427 Gragson
Las Vegas, Nevada
295 14th Street
Reno, Nevada
34 Hardy Drive
Reno, Nevada
<PAGE>
Schedule 5
----------
Guarantee and Collateral Agreement
----------------------------------
88 Hardy Drive
Reno, Nevada
Security Bank Building, Ste. 308-G & H
Lawton, Oklahoma
1610 North Fourth
Oklahoma City, Oklahoma
102 E. 4th Street
Tulsa, Oklahoma
625 E. Highland St., 0639
Allentown, Pennsylvania
1401 E. 14th Street
Chattanooga, Tennessee
342-352 Washington Avenue
Memphis, Tennessee
336 and 338 Washington Avenue
Memphis, Tennessee
517 Ligon Drive
Nashville, Tennessee
301 N. Fillmore
Amarillo, Texas
78 East Avenue
Austin, Texas
4551-A Leston Street
Dallas, Texas
1655 Vilbig
Dallas, Texas
3607-3611 Duranzo Avenue
El Paso, Texas
<PAGE>
Schedule 5
----------
Guarantee and Collateral Agreement
----------------------------------
2109 E. Fourth Street
Ft. Worth, Texas
382 North Bowie
Harlingen, Texas
103 N. Jackson Street
Houston, Texas
16225 Park Ten Place
Houston, Texas
422 West Highway 190
Killeen, Texas
1703 Sandman Street
Laredo, Texas
1303 N. Ash
Lubbock, Texas
611 South Presa Street
San Antonio, Texas
902 B So. 31st
Temple, Texas
3410 S. Southwest, Loop 323
Tyler, Texas
1000 Second Avenue
Seattle, Washington
5200 E. Marginal Way
Seattle, Washington
806 E. Second Avenue
Spokane, Washington
3702 S. G Street
Tacoma, Washington
<PAGE>
Schedule 5
----------
Guarantee and Collateral Agreement
----------------------------------
603 S. Oneida Street
Green Bay, Wisconsin
609 S. Oneida Street
Green Bay, Wisconsin
4317 Nekoosa Trail
Madison, Wisconsin
2757-49 S. Fifth Court
Milwaukee, Wisconsin
IV. Loomis, Fargo & Co. of Puerto Rico
----------------------------------
16225 Park Ten Place
Houston, Texas
V. LFC Armored of Texas Inc.
-------------------------
16225 Park Ten Place
Houston, Texas
<PAGE>
Schedule 6
----------
Guarantee and Collateral Agreement
----------------------------------
COPYRIGHTS AND COPYRIGHT LICENSES
---------------------------------
None.
PATENT AND PATENT LICENSES
--------------------------
None.
TRADEMARKS AND TRADEMARK LICENSES
---------------------------------
Mark Serial No./Registration No. Registration Date
---- --------------------------- -----------------
LL Loomis Safety With 1,114,248 2/27/79
Dispatch and Design
<PAGE>
Schedule 7
----------
Guarantee and Collateral Agreement
----------------------------------
CONTRACTS
Certain Agreements with Officers, Directors or Employees
--------------------------------------------------------
1. Employment Agreement, dated as of November 11, 1991, between Loomis and
James B. Mattly.
2. Severance Agreement, dated as of November 4, 1996, between Loomis Armored
and Larry Baca.
Material Agreements
-------------------
1. Stockholders Agreement, dated as of January 24, 1997, between Loomis, Fargo
& Co., Wells Fargo Armored Service Corporation, The Loomis Stockholders
Trust and Wingate Partners, L.P.
2. Registration Rights Agreement, dated as of January 24, 1997, between
Loomis, Fargo & Co., the Guarantors and the Initial Purchasers.
3. Letter of Declaration regarding potential environmental liability
concerning property located in Oklahoma City, Oklahoma, dated May 6, 1991,
between Mayne Nickless Holding Company and Loomis Armored Inc.
4. Master Lease Agreement, dated as of May 11, 1995, between Information
Leasing Corporation and Loomis Armored.
5. Lease Agreement, between Loomis Armored and Amplicon, Inc., relating to the
lease of high speed coin wrapping machines.
6. Asset Purchase Agreement dates as of January 10, 1992, between Loomis
Armored Inc. and Federal Armored Express, Inc. (including the non-compete
provision contained in Section 8 thereof).
7. Capital lease with AT&T Capital relating to the items listed on Section
1.2(c) of this Disclosure Schedule.
8. Equipment Lease dated as of September 17, 1996 between Loomis Armored Inc.
and Commercial and Municipal Financial Corporation, relating to the lease
of coin sorting machines and related equipment.
9. The Contribution Documents.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Historical
Financial Information," "Selected Historical Financial Information" and
"Experts" and to the use of our report dated March 14, 1997, in Amendment No.
2 to the Registration Statement (Form S-1 No. 333-24689) and related
Prospectus of Loomis, Fargo & Co. for the registration of $85,000,000 of
Senior Subordinated Notes due 2004.
/s/ Ernst & Young LLP
Houston, Texas
June 17, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-24689 of Loomis, Fargo & Co. on Form S-1 of our report dated March 14, 1997,
relating to the financial statements of Wells Fargo Armored Service Corporation
(a wholly owned subsidiary of Borg-Warner Security Corporation), appearing in
the Prospectus, which is part of this Registration Statement, and to the
reference to us under the headings "Selected Historical Financial
Information-Wells Fargo Armored" and "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
June 17, 1997
<PAGE>
Exhibit 25.1
Conformed Copy
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
-----------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
-----------
MARINE MIDLAND BANK
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, N.Y. 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Charles E. Bauer
Vice President
Marine Midland Bank
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-1792
(Name, address and telephone number of agent for service)
LOOMIS, FARGO & CO.
(Exact name of obligor as specified in its charter)
Delaware 76-0521092
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16225 Park Ten Place, Suite 600
Houston, Texas 77084
(281)647-6700 (Zip Code)
(Address of principal executive offices)
10% SENIOR SUBORDINATED NOTES DUE 2004
(Title of Indenture Securities)
<PAGE>
LFC HOLDING CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 75-2371825
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16225 Park Ten Place, Suite 600
Houston, Texas 77084
(281)647-6700 (Zip Code)
(Address of principal executive offices)
LOOMIS, FARGO & CO.
(Exact name of obligor as specified in its charter)
Texas 75-0117200
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16225 Park Ten Place, Suite 600
Houston, Texas 77084
(281)647-6700 (Zip Code)
(Address of principal executive offices)
LFC ARMORED OF TEXAS INC.
(Exact name of obligor as specified in its charter)
Texas 58-1884701
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16225 Park Ten Place, Suite 600
Houston, Texas 77084
(281)647-6700 (Zip Code)
(Address of principal executive offices)
LOOMIS, FARGO & CO. OF PUERTO RICO
(Exact name of obligor as specified in its charter)
Tennessee 66-0215016
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
16225 Park Ten Place, Suite 600
Houston, Texas 77084
(281)647-6700 (Zip Code)
(Address of principal executive offices)
<PAGE>
General
Item 1. General Information.
--------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory
authority to which it is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System,
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
--------------------------
If the obligor is an affiliate of the trustee, describe
each such affiliation.
None
<PAGE>
Item 16. List of Exhibits.
-----------------
Exhibit
- -------
T1A(i) * - Copy of the Organization Certificate of
Marine Midland Bank.
T1A(ii) * - Certificate of the State of New York
Banking Department dated December 31,
1993 as to the authority of Marine Midland
Bank to commence business.
T1A(iii) - Not applicable.
T1A(iv) * - Copy of the existing By-Laws of Marine
Midland Bank as adopted on January 20, 1994.
T1A(v) - Not applicable.
T1A(vi) * - Consent of Marine Midland Bank required by
Section 321(b) of the Trust Indenture Act of
1939.
T1A(vii) - Copy of the latest report of condition of
the trustee (March 31, 1997), published
pursuant to law or the requirement of its
supervisory or examining authority.
T1A(viii) - Not applicable.
T1A(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange Commission with
Registration No. 33-53693 and incorporated herein by reference thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
Marine Midland Bank, a banking corporation and trust company organized under the
laws of the State of New York, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of New York and State of New York on the 11th day of June, 1997.
MARINE MIDLAND BANK
By: /s/ Robert A. Conrad
--------------------------------------
Robert A. Conrad
Assistant Vice President
<PAGE>
EXHIBIT T1A (VII)
Board of Governors of the
Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance
Corporation
OMB Number: 3064-0052
Office of the Comptroller of
the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1999
- --------------------------------------------------------------------------------
This financial information has not been reviewed, or confirmed
for accuracy or relevance, by the Federal Reserve System.
---
|1|
---
Please refer to page i,
Table of Contents, for
the required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031
REPORT AT THE CLOSE OF BUSINESS MARCH 31, 1997
(950630)
(RCRI 9999)
This report is required by law; 12 U.S.C. (S)324 (State member banks); 12 U.S.C.
(S) 1817 (State nonmember banks); and 12 U.S.C. (S)161 (National banks).
This report form is to be filed by banks with branches and consolidated
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consoli-dated foreign subsidiaries, or
International Banking Facilities.
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National Banks.
I, Gerald A. Ronning, Executive VP & Controller
--------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and believe.
/s/ Gerald A. Ronning
- -----------------------------------------------------
Signature of Officer Authorized to Sign Report
4/28/97
- -----------------------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in some
cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ James H. Cleave
- ----------------------------------------------------
Director (Trustee)
/s/ Bernard J. Kennedy
- ----------------------------------------------------
Director (Trustee)
/s/ Malcom Burnett
- ----------------------------------------------------
Director (Trustee)
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANK: Return the original and one copy to the appropriate Federal
Reserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Suite 204, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems,
2127 Espey Court, Suite 204, Crofton, MD 21114.
- --------------------------------------------------------------------------------
FDIC Certificate Number 0 0 5 8 9
(RCRI 9030)
<PAGE>
NOTICE
This form is intended to assist institutions with state publication
requirements. It has not been approved by any state banking authorities. Refer
to your appropriate state banking authorities for your state publication
requirements.
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
Marine Midland Bank of Buffalo
Name of Bank City
in the state of New York, at the close of business
March 31, 1997
<TABLE>
<CAPTION>
ASSETS
Thousands
of dollars
Cash and balances due from depository
institutions:
<S> <C>
Noninterest-bearing balances
currency and coin............................ $ 1,026,267
Interest-bearing balances.................... 2,219,196
Held-to-maturity securities.................. 0
Available-for-sale securities................ 3,728,393
Federal funds sold and securities purchased
under agreements to resell................... 1,830,419
Loans and lease financing receivables:
Loans and leases net of unearned
income....................................... 21,110,911
LESS: Allowance for loan and lease
losses....................................... 441,315
LESS: Allocated transfer risk reserve 0
Loans and lease, net of unearned
income, allowance, and reserve............... 20,669,596
Trading assets............................... 1,005,199
Premises and fixed assets (including
capitalized leases).......................... 217,027
Other real estate owned......................... 18,586
Investments in unconsolidated
subsidiaries and associated companies........... 0
Customers' liability to this bank on
acceptances outstanding......................... 21,351
Intangible assets............................... 495,502
Other assets.................................... 709,342
Total assets.................................... 31,940,878
LIABILITIES
Deposits:
In domestic offices.......................... 20,236,232
Noninterest-bearing.......................... 4,166,679
Interest-bearing............................. 16,069,553
</TABLE>
<PAGE>
<TABLE>
<S> <C>
In foreign offices, Edge, and Agreement
subsidiaries, and IBFs.......................... 2,639,327
Noninterest-bearing.......................... 0
Interest-bearing............................. 2,639,327
Federal funds sold and securities purchased
under agreements to resell................... 3,281,586
Demand notes issued to the U.S. Treasury 197,415
Trading Liabilities............................. 267,837
Other borrowed money:
With a remaining maturity of one year
or less...................................... 1,800,280
With a remaining maturity of more than
one year..................................... 371,195
Bank's liability on acceptances
executed and outstanding........................ 21,351
Subordinated notes and debentures............... 497,585
Other liabilities............................... 525,585
Total liabilities............................... 29,838,393
Limited-life preferred stock and
related surplus................................. 0
EQUITY CAPITAL
Perpetual preferred stock and related
surplus......................................... 0
Common Stock.................................... 205,000
Surplus......................................... 1,983,378
Undivided profits and capital reserves.......... (76,867)
Net unrealized holding gains (losses)
on available-for-sale securities................ (9,026)
Cumulative foreign currency translation
adjustments..................................... 0
Total equity capital............................ 2,102,485
Total liabilities, limited-life
preferred stock, and equity capital............. 31,940,878
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER
UNREGISTERED 10% SENIOR SUBORDINATED NOTES DUE 2004
OF
LOOMIS, FARGO & CO.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED JUNE 20, 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON JULY 21, 1997 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
MARINE MIDLAND BANK
By Facsimile Transmission (for By Hand, Mail or Overnight Delivery:
Eligible Institutions only): Marine Midland Bank
(212) 658-2292
140 Broadway, Level A
For information or Confirmation by New York, New York 10005-1180
Telephone: Attn: Corporate Trust Operations
(212) 658-5931
(Originals of all documents sent by facsimile should be sent promptly by
registered
or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
IF YOU WISH TO EXCHANGE UNREGISTERED 10% SENIOR SUBORDINATED NOTES DUE 2004,
FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF REGISTERED 10% SENIOR SUBORDINATED
NOTES DUE 2004, PURSUANT TO THE EXCHANGE OFFER, YOU MUST VALIDLY TENDER (AND
NOT WITHDRAW) OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
SIGNATURES MUST BE PROVIDED
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE>
DESCRIPTION OF TENDERED OLD NOTES
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S) AS CERTIFICATE AGGREGATE
IT APPEARS ON THE 10% SENIOR SUBORDINATED NOTES NUMBER(S) OF PRINCIPAL
DUE 2004 (PLEASE FILL IN, IF BLANK) OLD NOTES AMOUNT OF OLD
NOTES
TENDERED
- --------------------------------------------------------------------------------
----------------------------
----------------------------
----------------------------
----------------------------
TOTAL
PRINCIPAL
AMOUNT OF
NOTES
TENDERED
<PAGE>
LADIES AND GENTLEMEN:
1. The undersigned hereby tenders to Loomis, Fargo & Co., a Delaware
corporation (the "Company"), the 10% Senior Subordinated Notes due 2004 (the
"Old Notes"), described above pursuant to the Company's offer of $1,000
principal amount of 10% Senior Subordinated Notes due 2004 (the "New Notes"),
in exchange for each $1,000 principal amount of the Old Notes, upon the terms
and subject to the conditions contained in the Prospectus dated June 20, 1997
(the "Prospectus"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which together constitute the "Exchange Offer").
2. The undersigned hereby represents and warrants that it has full authority
to tender the Old Notes described above. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Company to be
necessary or desirable to complete the tender of Old Notes.
3. The undersigned understands that the tender of the Old Notes pursuant to
all of the procedures set forth in the Prospectus will constitute an agreement
between the undersigned and the Company as to the terms and conditions set
forth in the Prospectus.
4. Unless the box under the heading "Special Registration Instructions" is
checked, the undersigned hereby represents and warrants that:
(i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the undersigned, whether
or not the undersigned is the holder;
(ii) neither the undersigned nor any such other person is engaging in or
intends to engage in a distribution of such New Notes;
(iii) neither the undersigned nor any such other person has an arrangement
or understanding with any person to participate in the distribution
of such New Notes; and
(iv) neither the holder nor any such other person is an "affiliate," as
such term is defined under Rule 405 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), of the Company.
5. The undersigned may, if, and only if, unable to make all of the
representations and warranties contained in Item 4 above, elect to have its
Old Notes registered in the shelf registration described in the Registration
Rights Agreement, dated as of January 24, 1997, among the Company, certain
guarantors of the obligations under the Old Notes (the "Guarantors") and the
purchasers of the Old Notes in the form filed as an exhibit to the
Registration Statement (the "Registration Agreement") (all terms used in this
Item 5 with their initial letters capitalized, unless otherwise defined
herein, shall have the meanings given them in the Registration Agreement).
Such election may be made by checking the box under "Special Registration
Instructions" on page 5. By making such election, the undersigned agrees, as a
holder of Transfer Restricted Securities participating in a shelf
registration, to indemnify and hold harmless the Company, the Guarantors,
their respective directors and officers and each person, if any, who controls
the Company or any of the Guarantors within the meaning of either Section 15
of the Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and against any loss, claim, damage or
liability (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim), joint or several, or any action in respect thereof, to which
the Company, any Guarantor or any such director, officer or controlling person
may become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is based upon (i)
any untrue statement or alleged untrue statement of a material fact contained
in the Shelf Registration Statement or the Prospectus or in any amendment or
supplement thereto, (ii) or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with reference to such information
relating to the undersigned furnished in writing by or on behalf of the
undersigned expressly for use in the Shelf Registration Statement, the
Prospectus or any amendments or supplements thereto. Any such indemnification
shall be governed by the terms and subject to the conditions set forth in the
Registration Agreement, including, without limitation, the provisions
regarding notice, retention of counsel, contribution and payment of expenses
<PAGE>
set forth therein. The above summary of the indemnification provision of the
Registration Agreement is not intended to be exhaustive and is qualified in
its entirety by the Registration Agreement.
6. If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
New Notes. If the undersigned 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 acknowledges that
it will deliver a prospectus in connection with any resale of such New Notes;
however, by so acknowledging and delivering a prospectus, the undersigned will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. If the undersigned is a broker-dealer and Old Notes held for
its own account were not acquired as a result of market-making or other
trading activities, such Old Notes cannot be exchanged pursuant to the
Exchange Offer.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and
legal and personal representatives of the undersigned.
8. Unless otherwise indicated herein under "Special Delivery Instructions,"
the certificates for the New Notes will be issued in the name of the
undersigned.
SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the New Notes are to be issued or sent to
someone other than the undersigned or to the undersigned at an address
other than that provided above.
Mail [_] Issue [_] (check appropriate boxes) certificates to:
Name:______________________________________________________________________
(PLEASE PRINT)
Address:___________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(INCLUDING ZIP CODE)
<PAGE>
SPECIAL REGISTRATION INSTRUCTIONS
(See Item 5)
To be completed ONLY IF (i) the undersigned satisfies the conditions set
forth in Item 5 above, (ii) the undersigned elects to register its Old
Notes in the shelf registration described in the Registration Agreement,
and (iii) the undersigned agrees to indemnify certain entities and
individuals as set forth in the Registration Agreement and summarized in
Item 5 above.
[ ] By checking this box the undersigned hereby (i) represents that it
is unable to make all of the representations and warranties set forth in
Item 4 above, (ii) elects to have its Old Notes registered pursuant to the
shelf registration described in the Registration Agreement, and (iii)
agrees to indemnify certain entities and individuals identified in, and to
the extent provided in, the Registration Agreement and summarized in Item
5 above.
SPECIAL BROKER-DEALER INSTRUCTIONS
(See Item 6)
[_] Check here if you are a broker-dealer and wish to receive 10
additional copies of the Prospectus and 10 copies of any amendments or
supplements thereto.
Name:______________________________________________________________________
(PLEASE PRINT)
Address:___________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(INCLUDING ZIP CODE)
<PAGE>
SIGNATURE
To be completed by all exchanging noteholders. Must be signed by
registered holder exactly as name appears on Old Notes. If signature is by
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 3.
X _________________________________________________________________________
X _________________________________________________________________________
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATURE
Dated: ____________________________________________________________________
Name(s): __________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: _________________________________________________________________
Address: __________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone No.: ______________________________________________
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 1)
Certain Signatures Must be Guaranteed by an Eligible Institution
---------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
---------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF
FIRM)
---------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
---------------------------------------------------------------------------
(PRINTED NAME)
---------------------------------------------------------------------------
(TITLE)
Dated: ____________________________________________________________________
PLEASE READ THE INSTRUCTIONS BELOW,
WHICH FORM A PART OF THIS LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal must be
guaranteed by an eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion
Program, or by an "eligible guarantor institution" within the meaning of Rule
17Ad-15 promulgated under the Exchange Act (an "Eligible Institution") unless
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" above has not been completed or the Old Notes described above
are tendered for the account of an Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes, together
with a properly completed and duly executed Letter of Transmittal (or copy
thereof), should be mailed or delivered to the Exchange Agent at the address
set forth above.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
3. SIGNATURE ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If this
Letter of Transmittal is signed by a person other than a registered holder of
any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, signed by such registered holder exactly as such registered
holder's name appears on such Old Notes.
If this Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted with this Letter of Transmittal.
4. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance, and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding on all parties. The Company reserves the absolute
right to reject any or all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
defects, irregularities, or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any defects or irregularities in connection with
tenders of Old Notes must be cured within such 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 defects in such tenders or shall
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder thereof as soon as practicable following the
Expiration Date.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
UNREGISTERED 10% SENIOR SUBORDINATED NOTES DUE 2004
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
LOOMIS, FARGO & CO.
PURSUANT TO THE EXCHANGE OFFER AND PROSPECTUS DATED JUNE 20, 1997
As set forth in the Exchange Offer (as defined in the Prospectus (as defined
below)), this form or one substantially equivalent hereto must be used to
accept the Exchange Offer if certificates for unregistered 10% Senior
Subordinated Notes due 2004 (the "Old Notes"), of Loomis, Fargo & Co., are not
immediately available or time will not permit a holder's Old Notes or other
required documents to reach the Exchange Agent on or prior to the Expiration
Date (as defined below), or the procedure for book-entry transfer cannot be
completed on a timely basis. This form may be delivered by facsimile
transmission, by registered or certified mail, by hand, or by overnight
delivery service to the Exchange Agent. See "The Exchange Offer--Procedures
for Tendering" in the Prospectus.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON JULY 21, 1997 (THE "EXPIRATION DATE"), UNLESS THE
EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
MARINE MIDLAND BANK
By Facsimile Transmission (for By Hand, Mail or Overnight Delivery:
Eligible Institutions only): Marine Midland Bank
(212) 658-2292
140 Broadway, Level A
For information or Confirmation by New York, New York 10005-1180
Telephone: Attn: Corporate Trust Operations
(212) 658-5931
(Originals of all documents sent by facsimile should be sent promptly by
registered
or certified mail, by hand, or by overnight delivery service.)
DELIVERY OF THIS NOTICE TO AN ADDRESS OR TRANSMISSION OF INSTRUCTIONS VIA
FACSIMILE OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Loomis, Fargo & Co., a Delaware
corporation (the "Company"), in accordance with the Company's offer, upon the
terms and subject to the conditions set forth in the Prospectus dated June 20,
1997 (the "Prospectus"), and in the accompanying Letter of Transmittal,
receipt of which is hereby acknowledged, $ in aggregate principal
amount of Old Notes pursuant to the guaranteed delivery procedures described
in the Prospectus.
Name(s) of Registered Holder(s): __________________________________________
(PLEASE TYPE OR PRINT)
Address:___________________________________________________________________
___________________________________________________________________________
Area Code & Telephone No.: ________________________________________________
Certificate Number(s) for
Old Notes (if available): _________________________________________________
Total Principal Amount
Tendered and Represented
by Certificate(s): $ ______________________________________________________
Signature of Registered Holder(s): ________________________________________
Dated: ____________________________________________________________________
[_]The Depository Trust Company
(Check if Old Notes will be tendered
by book-entry transfer)
Account Number: ___________________________________________________________
THE GUARANTEE BELOW MUST BE COMPLETED
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, being a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or
a commercial bank or trust company having an office in the United States,
hereby guarantees (a) that the above named person(s) "own(s)" the Old Notes
tendered hereby within the meaning of Rule 14e-4 ("Rule 14e-4") under the
Securities Exchange Act of 1934, as amended, (b) that such tender of such Old
Notes complies with Rule 14e-4, and (c) to deliver to the Exchange Agent the
certificates representing the Old Notes tendered hereby or confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at The
Depository Trust Company, in proper form for transfer, together with the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees and any other required
documents, within three New York Stock Exchange trading days after the
Expiration Date.
Name of Firm: _____________________________________________________________
Address: __________________________________________________________________
___________________________________________________________________________
Area Code and Telephone No.: ______________________________________________
Authorized Signature: _____________________________________________________
Name: _____________________________________________________________________
Title: ____________________________________________________________________
Dated: ____________________________________________________________________
NOTE: DO NOT SEND CERTIFICATES OF OLD NOTES WITH THIS FORM. CERTIFICATES OF
OLD NOTES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL.
3
