<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1998
REGISTRATION NO. 333-53983
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PACER INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 4731 94-3285040
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
(925) 284-7145
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DONALD C. ORRIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
(925) 284-7145
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
----------------
WITH COPIES TO:
JOHN J. SUYDAM, ESQ. PETER P. WALLACE, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP MORGAN, LEWIS & BOCKIUS LLP
30 ROCKEFELLER PLAZA 300 SOUTH GRAND AVENUE
NEW YORK, NEW YORK 10112 LOS ANGELES, CALIFORNIA 90071
(212) 408-2400 (213) 612-2500
----------------
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: [_]
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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (par value 3,680,000
$0.01 per share)...... shares $13.00 $47,840,000 $14,113
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 480,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) $13,121 of this registration fee has previously been paid.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JULY 8, 1998
3,200,000 Shares
LOGO PACER INTERNATIONAL, INC.
Common Stock
--------
Of the 3,200,000 shares of Common Stock (the "Common Stock") offered hereby,
2,800,000 shares are being sold by Pacer International, Inc. ("Pacer" or the
"Company") and 400,000 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). The Company will not receive any proceeds
from the sale of shares by the Selling Stockholders. See "Principal and Selling
Stockholders." Prior to this offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $11.00 and $13.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied for the Common Stock to be quoted and
traded on the Nasdaq National Market under the symbol "PACR."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......................... $ $ $ $
- --------------------------------------------------------------------------------
Total(2)........................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Before deducting expenses of the offering estimated at $1,200,000.
(2) The Company and certain of the Selling Stockholders have granted the
Underwriters 30-day options to purchase up to an aggregate of 480,000
additional shares of Common Stock solely to cover over-allotments, if any.
To the extent the options are exercised, the Underwriters will offer the
additional shares at the Price to Public shown above. If the options are
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale when, as and if delivered to and accepted by them and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares will be made at the offices of BT Alex.
Brown Incorporated, Baltimore, Maryland, on or about , 1998.
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[PHOTOS]
------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and the consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Prospectus. Unless the context otherwise indicates, "Pacer" or "Company" refers
to Pacer International, Inc. and its subsidiaries. Unless otherwise indicated
herein, all information in this Prospectus (i) gives effect to a 9.5-for-1
stock split of the Common Stock to be effected immediately prior to this
offering; and (ii) assumes no exercise of the Underwriters' over-allotment
option. Certain terms used in this Prospectus are defined in the Glossary on
page 53.
THE COMPANY
GENERAL
Pacer, originally founded in 1928, is a multi-modal, value-added
transportation and logistics solutions provider, offering a broad menu of
transportation-related services, including a variety of trucking, intermodal
marketing, logistics and freight services. As a non-asset based company, Pacer
provides integrated freight services through a national network of sales
agents, independent contractors and railroad/drayage partnerships. To date, the
Company's business model has required minimal capital investment in physical
assets such as transportation equipment. The Company's strong internal growth
has been supplemented by strategic acquisitions, enabling the Company to
increase its revenues from $86.8 million in 1996 on a stand alone basis to $252
million for the twelve month period ended March 31, 1998 on a pro forma basis
after giving effect to such acquisitions. See "--Acquisition History."
According to a leading industry source, the total domestic market for freight
transportation in 1996 was approximately $467 billion, representing over 6% of
the U.S. gross national product. The transportation industry is highly
fragmented, and a shipper faces a broad array of changing service alternatives.
Integrated logistics providers, such as the Company, have the ability to
utilize a portfolio of transportation products and design optimal
transportation solutions for the shipper. By optimizing the flow of goods
through the supply chain, a company's overall freight handling, delivery and
inventory costs can be significantly reduced. As companies' transportation and
logistics decisions involve greater emphasis on cost efficiency and increased
focus on core competencies, many companies are reevaluating their in-house
transportation functions. At the same time, major shippers are seeking to
utilize fewer firms to service their transportation management and logistics
needs.
COMPETITIVE ADVANTAGES
The Company attributes its market position and its significant opportunities
for continued growth and increased profitability to the following competitive
advantages:
Diverse Product Offerings. The Company offers its customers one of the
broadest menus of service offerings in the transportation industry, including
flatbed and specialized heavy-haul trucking, intermodal marketing (rail or
over-the-road), warehousing, consolidation/deconsolidation, cross-dock, less-
than-truckload ("LTL"), cartage and drayage. The Company also provides
specialized services, such as rail car maintenance and inspection, to
transportation providers. Furthermore, the Company provides logistics services
to coordinate the foregoing services, offering integrated freight
transportation solutions to its customers.
National Presence. By combining a network of regional sales offices and
independent agents, complemented by national sales offices, the Company offers
integrated national services while maintaining the entrepreneurial
responsiveness of a small business. The Company's service network comprises a
broad range of national, regional and local transportation providers, including
rail partners, trucking companies, independent contractors and other third
party providers.
3
<PAGE>
Tailored Customer Focus. The Company has developed a customer philosophy
which categorizes each major customer as a distinct market. Accordingly, the
Company creates a package of services integrated and customized for each
customer and strives to broaden the relationship with each customer by
identifying, addressing and servicing an increasing share of the customer's
transportation and logistics needs. As a result of the Company's philosophy,
the Company has established a strong, diverse customer base consisting of
global, national and regional manufacturers and retailers, including numerous
Fortune 500 corporations, several of which have been customers of the Company
for more than 15 years.
Targeted Industry Expertise. The Company derives a significant portion of its
revenues from providing transportation services within certain core shipping
sectors where the Company's industry focus leads to greater expertise and
higher added value for the customer. For example, through its extensive network
of service providers, the Company provides a range of specialized services to
many of the nation's largest "superstore" or mass market retailers. In addition
to general consumer freight, the Company has developed customized services to
meet the special needs of certain product categories. Similarly, the Company
provides a range of specialized services for the transportation sector, with
customers including railroads, other intermodal transportation service
providers and equipment vendors to the rail industry. In the flatbed and
specialized trucking sector, the Company has limited its participation in
traditional commodity sectors and developed a specialty in industrial freight
with non-standard requirements, such as the transportation of heavy or
oversized materials.
Strong West Coast Market Position. Management believes that the Company has
developed a leading market position in intermodal and related logistics
services on the U.S. West Coast, where it operates specialized consolidation
and trucking facilities and provides cartage, drayage and LTL services.
Management believes that the Company is well-positioned to benefit from the
continued growth in international trade, the trend towards importing certain
product categories from Asia and the continued strength of the U.S. dollar in
foreign currency markets. The Company has also been able to replicate services
originally provided in the West Coast market for its customers operating in
other parts of the country. See "Business--Competitive Advantages--Strong West
Coast Market Position."
Information Technology. The Company has made significant investments in
information technology. The Company's information systems are capable of
providing a wide range of communication alternatives, typically through the
medium requested by a customer. This interconnection allows the Company to
easily communicate requirements and availability of equipment and volume, to
confirm and bill orders and to trace shipments. In addition, each office is
able to track trailers and containers entering its service area through the
Company's network and to redeploy that equipment to fulfill its customers'
outbound shipping requirements before the equipment is returned for use by
another intermodal user.
Experienced Management Team. One of the Company's most valuable assets is its
experienced team of senior management personnel, led by Don Orris, the
Company's President and Chief Executive Officer. Mr. Orris is the former
President and Chief Operating Officer of the Southern Pacific Transportation
Company (now the Union Pacific Railroad Company) ("UPRC"). The Company's senior
management team has an average of more than 25 years of experience in the
transportation and logistics industry, forming a core team with significant
leadership experience. Following this offering, members of the Company's senior
management will own or have the right to acquire, subject to certain
performance requirements, an aggregate of approximately 35% of the issued and
outstanding voting securities of the Company on a fully diluted basis, giving
them a personal stake in the continued success of the Company.
GROWTH STRATEGY
The Company's growth strategy consists of (i) expanding its service
offerings, (ii) increasing sales to existing customers, (iii) leveraging its
core service provider capability, (iv) expanding its customer base and (v)
pursuing strategic acquisitions.
4
<PAGE>
Expand Service Offerings. The Company believes it is increasingly important
to be able to meet the diverse needs of customers who are increasingly looking
to a limited number of sources for their transportation and logistics needs,
whether on a national or regional scale or even within a single shipping lane.
Thus, the Company intends to maintain its broad range of current service
offerings and selectively introduce new services without compromising its
commitment to superior service on an efficient and cost effective basis. See
"Business--Growth Strategy--Expand Service Offerings."
Increase Sales to Existing Customers. As part of its growth strategy, the
Company intends to provide additional services to existing customers. For
example, many of the Company's high volume nationwide customers currently use
only its intermodal transportation services for a portion of their overall
transportation needs. The Company believes that it will be able to expand the
services provided to its customers as they increasingly outsource their
transportation and logistics needs. The Company will continue to focus on
capturing additional freight volume from existing customers currently being
handled by long-haul trucking companies or intermodal competitors and on
providing supplementary logistics services to those customers.
Leverage Core Service Provider Capability. The Company seeks to capitalize on
the trend, especially among larger shippers, toward reducing the number of
authorized service providers the shippers use in favor of a small number of
core service providers with the size and diverse service capability to satisfy
most of the shippers' transportation needs. Accordingly, the Company has
concentrated on consolidating and integrating its multi-modal service offerings
and value-added logistics solutions capabilities, enabling it to handle a broad
range of each customer's transportation and logistics requirements.
Expand Customer Base. The Company intends to continue to expand its customer
base by (i) leveraging its operating infrastructure, (ii) adding sales agents
and independent contractors, which will increase the Company's capacity to
solicit and maintain customer relationships, (iii) increasing its geographic
scope through internal growth and acquisitions, (iv) expanding its size and
service offerings and (v) continuing to establish relationships with additional
transportation service providers who meet the Company's stringent quality and
pricing standards. See "Business--Growth Strategy--Expand Customer Base."
Pursue Strategic Acquisitions. As an additional component of its growth
strategy, the Company intends to continue its disciplined acquisition program.
Acquisition candidates will typically fall into one or more of the following
three categories: (i) operations that expand the Company's presence in a
particular service category, (ii) operations that expand the Company's existing
services in a new geographic area, or (iii) operations that enable the Company
to provide a new or expanded form of complementary services to its customer
base. The Company intends to seek acquisition candidates with complementary
management and operating philosophies and service capabilities that the Company
can add to and integrate with its current menu of services. Given the highly
fragmented nature of the industry, the relatively large number of small and
mid-size transportation companies, and the recent consolidation in the
transportation industry, management believes there is increased pressure on
these smaller transportation and logistics companies to consolidate. The
Company's nationwide network, together with its strong and diverse customer
base, make it well-positioned to benefit from the expected continued growth in
both the intermodal and transportation logistics services markets and the
potential for consolidation of the smaller companies.
ACQUISITION HISTORY
In March 1997, pursuant to a management buyout funded in part by Eos
Partners, L.P. ("Eos"), the Company acquired all of the capital stock of
Pacific Motor Transport Company ("PMTC"), a provider of truckload freight
services through its Pacer division. PMTC formerly offered intermodal marketing
services
5
<PAGE>
through its ABL-TRANS division, now a division of Interstate Consolidation
Service, Inc. (d/b/a Pacer Intermodal, Inc.). PMTC was founded in 1928 under
the name Pacific Electric Motor Transport Company as a subsidiary of UPRC (a
subsidiary of the Union Pacific Railroad ("UP")).
In December 1997, the Company acquired (the "Interstate Acquisition") all of
the capital stock of Interstate Consolidation, Inc. ("ICI") and Interstate
Consolidation Service, Inc. ("ICSI") and its wholly owned subsidiary Intermodal
Container Service, Inc. ("IMCS", and together with ICI and ICSI, "Interstate").
Interstate is a multipurpose provider of transportation services, including
intermodal marketing, cartage and freight consolidation and handling.
In April 1998, the Company acquired (the "Stutz Acquisition") all of the
capital stock of Intraco, Inc. d/b/a Stutz & Company ("Stutz").
In June 1998, the Company acquired (the "Cross Con Acquisition") all of the
capital stock of Cross Con Terminals, Inc. ("Terminals") and Cross Con
Transport, Inc. ("Transport" and, together with Terminals, "Cross Con").
The Interstate Acquisition, the Stutz Acquisition and the Cross Con
Acquisition are referred to herein collectively as the "Acquisitions."
------------
The Company's principal executive offices are located at 3746 Mt. Diablo
Boulevard, Suite 110, Lafayette, California 94549 and its telephone number is
(925) 284-7145.
------------
Forward-Looking Statements. Certain statements contained in this Prospectus,
including statements regarding the anticipated development and expansion of the
Company's business, the intent, belief or current expectations of the Company,
its directors or its officers, primarily with respect to the future operating
performance of the Company and other statements contained herein regarding
matters that are not historical facts, are "forward-looking" statements.
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that potentially could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the inability to manage growth of the
Company's operations, the loss of services of senior managers, the inability to
hire and retain salespersons and other logistics professionals, including
independent contractors, work stoppages at railroads or adverse weather
conditions affecting operations, the inability to successfully integrate
acquired companies and/or realize the competitive and business advantages of
such acquisitions and enhance the financial prospects of the Company, an
economic recession or a downturn in customers' business cycles, the inability
to secure sufficient equipment or other transportation services from third
parties to service customers' needs, a decrease in demand for intermodal
transportation services relative to other transportation services, the
inability to obtain the use of drayage services from third parties, as well as
other risks detailed in "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
6
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company ................ 2,800,000 shares
Common Stock offered by the Selling Stockholders.... 400,000 shares(1)
Common Stock to be outstanding after this offering.. 8,412,392 shares(2)
Use of proceeds..................................... To repay outstanding
indebtedness and
repurchase the Company's
outstanding Series A
Preferred Stock. See "Use
of Proceeds."
Proposed Nasdaq National Market Symbol.............. PACR
</TABLE>
- --------
(1) Includes 175,000 shares of Common Stock issuable upon exercise of the
warrant issued by the Company to UPRC (the "UPRC Warrant"), at an exercise
price of $10.00 per warrant unit (collectively, the "Warrant Units"). Each
Warrant Unit is exercisable for 9.5 shares of Common Stock and one share of
Series A Preferred Stock (to be redeemed at or prior to the closing of this
offering at a price of $9 per share). See "Management--Executive
Compensation."
(2) Excludes (a) 1,045,000 shares of Common Stock and 110,000 shares of Series
A Preferred Stock (collectively, the "Option Units") reserved for issuance
under the Company's 1997 Stock Option Plan (the "1997 Option Plan"), of
which options to purchase 40,000 Option Units, at an exercise price of
$40.00 per Option Unit, and 70,000 Option Units, at an exercise price of
$11.24 per Option Unit, were outstanding as of March 31, 1998 and (b)
650,000 shares of Common Stock reserved for issuance under the Company's
1998 Stock Option Plan (the "1998 Option Plan").
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
PREDECESSOR (1)
-------------------------------------------------
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------- MARCH 31,
1993 1994 1995 1996 1997
----------- ----------- ------- ------- ---------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues......... $67,300 $75,905 $78,278 $86,766 $19,538
Net revenues..... 10,085 11,109 12,378 13,650 3,040
Selling, general
and
administrative.. 7,059 7,149 8,697 10,037 2,300
Amortization of
intangibles..... -- -- -- -- --
Income from
operations...... 2,985 3,744 3,593 3,520 193
Net income....... $ 1,672 $ 2,678 $ 3,036 $ 3,008 $ 119
Income per
share(3):
Basic...........
Diluted.........
Weighted average shares
outstanding:
Basic...........
Diluted.........
<CAPTION>
COMPANY (1)
--------------------------------------------------------------
PRO FORMA PRO FORMA
NINE NINE THREE THREE
MONTHS MONTHS PRO FORMA MONTHS MONTHS
ENDED ENDED YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1997(2) 1997(2) 1998 1998(2)
------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues......... $81,102 $187,417 $ 238,859 $50,362 $64,582
Net revenues..... 12,389 28,638 36,546 8,359 10,388
Selling, general
and
administrative.. 8,799 19,497 25,009 5,634 6,702
Amortization of
intangibles..... 257 945 1,254 228 334
Income from
operations...... 3,187 7,771 9,718 2,384 3,188
Net income....... $ 1,416 $ 3,207 3,878 $ 1,065 $ 1,413
Income per
share(3):
Basic........... $0.41 $0.59 $ 0.71 $0.23 $0.26
Diluted......... $0.34 $0.49 $ 0.60 $0.19 $0.22
Weighted average shares
outstanding:
Basic........... 3,403,480 5,437,392 5,437,392 4,678,750 5,437,392
Diluted......... 4,141,041 6,499,216 6,499,216 5,604,877 6,499,216
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital deficiency ................ $(2,242) $ (315) $ (315)
Total assets............................... 56,134 78,389 78,389
Long-term debt and capital leases.......... 22,079 33,700 7,302
Stockholders' equity....................... 10,524 16,741 43,641
</TABLE>
- -------
(1) The "Predecessor" includes the accounts of PMTC prior to the management
buyout on March 31, 1997. The "Company" includes the accounts of PMTC
acquired in the management buyout, after purchase accounting adjustments,
and the accounts of Interstate subsequent to the Interstate Acquisition as
of December 16, 1997. The management buyout of PMTC and the Interstate
Acquisition were accounted for under the purchase method of accounting. As
a result of these transactions, the financial information presented above
is not comparable in certain respects.
(2) The pro forma information gives effect to the Acquisitions as if they were
completed on the first day of the periods presented. See "--Acquisition
History." Pro forma information has been presented for nine months and the
year ended December 31, 1997 for comparative purposes.
(3) Income per share has been computed for all periods reflecting the effect of
a 9.5 to 1 stock split to be effected immediately prior to this offering.
Shares outstanding for the year ended December 31, 1997 have been
calculated assuming all shares and options issued in connection with the
formation of the Company and the Interstate, Cross Con and Stutz
Acquisitions were outstanding as of January 1, 1997.
(4) Includes the Stutz Acquisition and the Cross Con Acquisition, which were
accounted for under the purchase method of accounting.
(5) Adjusted to give effect to the application of estimated net proceeds to the
Company from this offering based upon an assumed initial public offering
price of $12.00 per share. See "Use of Proceeds" and "Capitalization."
8
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered by this Prospectus. This Prospectus contains,
in addition to historical information, forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the following
risk factors, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus.
Lack of Significant Combined Operating History. Prior to being acquired by
the Company in connection with its respective Acquisition, each acquired
company had been operating as a separate independent entity and there can be
no assurance that the Company will be able to integrate each acquired business
effectively. In addition, there can be no assurance that management will be
able to oversee the combined entity and effectively implement the Company's
operating or growth strategies. The pro forma combined financial results of
the acquired companies cover periods when the acquired companies and Pacer
were not under common control or management and, therefore, may not be
indicative of the Company's future financial or operating results. The success
of the Company will depend on the extent to which management is able to
centralize and integrate certain operating, administrative and accounting
functions and otherwise integrate the acquired companies and other companies
acquired in the future into one organization in a profitable manner. The
inability of the Company to successfully integrate the acquired companies
would have a material adverse effect on the Company's financial condition and
results of operations.
Management of Growth. The Company's strategy is to expand its operations
through both internal growth and acquisitions. Management expects to spend
significant time and resources in evaluating, completing and integrating
acquisitions. There can be no assurance that the Company's systems, procedures
and controls will be adequate to support its operations as they expand. Any
future growth will impose significant added responsibilities on members of
senior management, including the need to recruit and integrate new senior
level managers and executives. There can be no assurance that such additional
management will be successfully recruited and retained by the Company. The
Company's failure to manage its growth effectively, or its inability to
attract and retain additional qualified management, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Growth Strategy."
Dependence on Management. The Company is highly dependent upon the continued
services of its senior management team. The sudden loss of the services of
several members of senior management could have a material adverse effect on
the Company. See "Management."
Reliance on Agents and Independent Contractors. The Company relies upon the
services of independent commission agents to market its transportation
services, to act as intermediaries with customers, and to recruit independent
contractors who are in turn relied upon for providing trucking services on
behalf of the Company. Contracts with agents and independent contractors are,
in most cases, terminable upon short notice by either party. Although the
Company believes its relationships with agents and independent contractors are
good, there can be no assurance that the Company will continue to be
successful in retaining its agents and independent contractors or that agents
or independent contractors who terminate their contracts can be replaced by
equally qualified persons. Furthermore, since the agents have the primary
relationship with customers and the day-to-day relationship with the
independent contractors, it can be expected that some customers and
independent contractors will terminate their relationship with the Company
whenever an agent terminates its relationship with the Company. See
"Business--Sales and Marketing" and "--Relationships with Independent
Contractors."
9
<PAGE>
Risk Associated with Independent Contractors. From time to time, tax and
other regulatory authorities have sought to assert that independent
contractors in the trucking industry are employees, rather than independent
contractors. No tax claim has been successfully made with respect to
independent contractors of the Company, and management is confident that the
independent contractors of the Company are not employees of the Company under
existing interpretations of federal and state tax laws. There can be no
assurance, however, that tax authorities will not successfully challenge this
position, or that such interpretations will not change, or that tax laws will
not change. If the independent contractors were determined to be employees,
such determination could materially increase the Company's exposure under a
variety of federal and state tax, worker's compensation, unemployment
benefits, labor and employment and tort laws, as well as potential liability
for employee benefits. See "Business--Relationships with Independent
Contractors."
Dependence on Railroads. The Company is dependent upon the major railroads
in the United States for substantially all of the intermodal services provided
by the Company. In many markets, rail service is limited to a few railroads or
even a single railroad. Consequently, a reduction in, or elimination of, rail
service to a particular market is likely to adversely affect the Company's
ability to provide intermodal transportation services to some of the Company's
customers. In addition, the railroads are relatively free to adjust shipping
rates up or down as market conditions permit. Rate increases would result in
higher intermodal transportation costs, reducing the attractiveness of
intermodal transportation as an alternative to truck or other modes of
transportation and could cause a decrease in demand for the Company's
services. Further, the Company's ability to continue to expand its intermodal
transportation business is dependent upon the railroads' ability to increase
capacity for intermodal freight. A significant portion of the Company's
revenues are derived from intermodal marketing. As a result, a decrease in
demand for intermodal transportation services relative to other transportation
services could have a material adverse effect on the Company's results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Services." The Company's business
would also be adversely affected by a work stoppage at one or more railroads
or by adverse weather conditions that hinder the railroads' ability to provide
transportation services. The Company cannot predict what effect, if any, the
recent trend toward consolidation among railroads may have on intermodal
transportation services or the Company's results of operations. In recent
years, the Company has received revenues for transportation services provided
to railroads in connection with their capital expenditure programs implemented
to improve their infrastructure. The Company cannot predict the duration of
such programs or whether the Company will continue to provide services to the
railroads in connection with such programs. See "Business--Relationships with
Railroads."
Risks Associated with Acquisitions. No assurance can be given that the
Company will be successful in identifying, closing and integrating future
acquisitions. Identifying, acquiring and integrating businesses requires
substantial management, financial and other resources and may pose risks with
respect to production, customer service and market share. Further,
acquisitions involve a number of special risks, including failure of the
acquired business to achieve expected results, diversion of management's
attention, failure to retain key personnel of the acquired business and risks
associated with unanticipated events or liabilities, some or all of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company may consider acquiring
complementary businesses that provide services that the Company currently does
not provide, and there can be no assurance that these complementary businesses
can be successfully integrated. While the Company believes that it has
sufficient financial and management resources to accomplish such activities,
there can be no assurance in this regard or that the Company will not
experience difficulties with customers, personnel or others. In addition,
although the Company believes that its acquisitions will enhance the
competitive position and business and financial prospects of the Company,
there can be no assurance that such benefits will be realized or that any
combination will be successful. See "Business--Growth Strategy."
10
<PAGE>
Risks Related to Acquisition Financing. The timing, size and success of the
Company's future acquisition efforts and the associated capital requirements
cannot be predicted at this time. The Company currently intends to finance
future acquisitions by using a combination of Common Stock, cash and debt. To
the extent the Company issues shares of Common Stock to finance future
acquisitions, the interests of existing stockholders will be diluted. If the
Common Stock does not maintain a sufficient market value, or if potential
acquisition candidates are unwilling to accept Common Stock as part of the
consideration for the sale of their businesses, the Company may be required to
utilize more of its cash resources, if available, in order to pursue its
acquisition program. See "Use of Proceeds." If the Company does not have
sufficient cash resources, its growth through acquisitions could be limited
unless it is able to obtain additional capital through debt or equity
financings. There can be no assurance that the Company will be able to obtain
the financing it will need for its acquisition program on acceptable terms, or
at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Risks of Adverse Economic Developments and Downturn in Business
Cycle. Certain sectors of the transportation industry historically have been
cyclical as a result of economic recession, customers' business cycles,
increases in prices charged by third party carriers, interest rate
fluctuations and other economic factors over which the Company has no control.
Increased operating expenses incurred by third party carriers can be expected
to result in higher transportation costs, and the Company's net revenues and
income from operations could be adversely affected if it were unable to pass
through to its customers the full amount of increased transportation costs.
Economic recession or a downturn in customers' business cycles, particularly
among certain national retailers or in the consumer products, railroad, toy or
other industries in which the Company has a large number of customers, also
could have a material adverse effect on the Company's operating results if the
volume of freight shipped by those customers were also reduced. Additionally,
a significant reduction in imports from Asia could have a material adverse
effect on the Company's business. See "Business--Competitive Advantages" and
"--Growth Strategy."
Dependence on Equipment and Services Availability. The Company is dependent
in part on the availability of truck, rail, ocean and air services provided by
independent third parties. There have historically been periods of equipment
shortages in the transportation industry, particularly among truckload
carriers and in a strong economy. If the Company were unable to secure
sufficient equipment or other transportation services to meet its customers'
needs, its results of operations could be materially adversely affected, and
customers could seek to have their transportation and logistics needs met by
other third parties on a temporary or permanent basis. See "Business--
Competitive Advantages" and "--Services."
Relationship with Drayage Companies. The Company only provides a portion of
the drayage services required by its intermodal customers and relies on
outside providers for the balance of such services. Most drayage companies
operate relatively small fleets and have limited access to additional capital
for expansion. Thus, as the Company expands, it will likely need the services
of additional drayage companies. At some locations, only a few drayage
companies meet the Company's quality standards. In addition, the trucking
industry has experienced severe shortages of available drivers in recent
years, which may curtail the ability of the drayage companies to expand the
size of their fleets. This shortage may also require drayage companies to
increase drivers' compensation, thereby increasing drayage costs to the
Company. If the Company were unable to secure additional local drayage
capacity to handle the drayage needs of its customers or had to increase the
amount paid for drayage services, the Company's results of operations could be
adversely affected and the Company could experience difficulty increasing its
business volume. See "Business--Relationships with Drayage Companies."
Safety Risks. Accidents in the trucking industry can be serious, and
occurrences are unpredictable. Although the Company has an active training and
safety program, there can be no assurance that the frequency or severity of
accidents or workers' compensation claims will not increase in the future,
that there will not be unfavorable developments of existing claims or that
insurance premiums will not
11
<PAGE>
increase. A material increase in the frequency or severity of accidents or
workers' compensation claims or the unfavorable development of existing claims
can be expected to adversely affect the Company's operating results. See
"Business--Risk Management; Insurance."
Highly Competitive Industry. The transportation services industry is highly
competitive and fragmented. The Company competes against other non-asset based
logistics companies, as well as asset-based logistics companies, third-party
freight brokers and carriers offering logistics services. The Company also
competes against carriers' internal sales forces and shippers' own
transportation departments. Some of the Company's competitors have
substantially greater financial and other resources than the Company. The
Company also buys and sells transportation services from and to many companies
with which it competes. Historically, competition has created downward pressure
on freight rates, and continuation of this rate pressure may adversely affect
the Company's net revenues and income from operations. See "Business--
Competition."
Seasonality. In the transportation industry generally, results of operations
show a seasonal pattern as customers reduce shipments during and after the
winter holiday season. In recent years, the Company's operating income and
earnings have been higher in the second and third quarters than in the first
and fourth quarters. The Company expects this seasonality to continue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Government Regulation. The Company is licensed by the Department of
Transportation (the "DOT") as a broker in arranging for the transportation of
general commodities by motor vehicle. The DOT prescribes qualifications for
acting in this capacity, including certain insurance and surety bond
requirements. The Company's failure to comply with the laws and regulations
applicable to entities holding such a license and any resultant suspension or
loss of such license could have a material adverse effect on the Company's
results of operations or financial condition. The transportation industry is
subject to legislative or regulatory changes that can affect the economics of
the industry by requiring changes in operating practices or influencing the
demand for, and the cost of providing, transportation services. See "Business--
Government Regulation."
Control by Existing Management and Stockholders. Following consummation of
this offering, the executive officers and directors of the Company and Eos will
beneficially own an aggregate of approximately 61.86% of the outstanding shares
of Common Stock. Accordingly, following this offering, such persons will
effectively be able to control the affairs of the Company, including the
election of all directors and the outcome of all matters submitted to a vote of
the stockholders of the Company. Such concentration of ownership may have the
effect of delaying, deterring or preventing a change of control of the Company,
including transactions in which the holders of Common Stock might receive a
premium for their shares over prevailing market prices. See "Principal and
Selling Stockholders."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the pro forma net tangible book value per share of
Common Stock. Purchasers of shares of Common Stock in this offering will incur
immediate and substantial dilution of $12.51 in the pro forma net tangible book
value per share of the Common Stock, assuming an initial public offering price
of $12.00 per share. See "Dilution."
Shares Eligible for Future Sale. Upon consummation of this offering, the
Company will have 8,412,392 shares of Common Stock issued and outstanding. The
3,200,000 shares of Common Stock sold in this offering will be freely tradable
without restriction or limitation under the Securities Act of 1933, as amended
(the "Securities Act"), except for shares purchased by "affiliates" (as defined
in Rule 144 under the Securities Act). Additionally, certain members of
management and others will own 5,212,392 shares of Common Stock following this
offering. None of these shares was issued in a transaction registered under the
Securities Act, and, accordingly, such shares may not be sold except in
transactions registered under the Securities Act or pursuant to an exemption
from registration, including the exemption contained in Rule 144 under the
Securities Act. When these shares become eligible for sale, the market price of
the Common Stock could be adversely affected by the sale of substantial amounts
of the shares
12
<PAGE>
into the public market. Prior to this offering, the Company expects to grant
demand registration rights to Eos and piggy-back registration rights to all of
its existing stockholders who will continue to be stockholders following this
offering. It is expected that such registration rights will be exercisable
after the expiration of the lock-up period described below. If such
stockholders, by exercising such registration rights, cause a large number of
shares to be registered and sold in the public market, such sales may have an
adverse effect on the market price of the Common Stock. See "Shares Eligible
for Future Sale."
Upon the closing of this offering, the Company also expects to have
outstanding options to purchase 1,045,000 shares of Common Stock and 110,000
shares of Series A Preferred Stock issued pursuant to the 1997 Option Plan,
constituting the total number of shares of Common Stock and Series A Preferred
Stock issuable pursuant to such plan. The Company intends to register all the
shares of Common Stock subject to these options under the Securities Act for
public resale. See "Management--1997 Stock Option Plan." In June 1998, the
Company adopted the 1998 Stock Option Plan. See "Management--1998 Stock Option
Plan."
The Company, the Selling Stockholders and the directors, executive officers
and all other stockholders of the Company have agreed that they will not
offer, sell or issue any shares of Common Stock or options, rights or warrants
to acquire any Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of BT Alex. Brown Incorporated,
except for the transfer by such stockholders pursuant to bona fide gifts, the
grant of employee stock options and for shares issued (i) in connection with
acquisitions and (ii) pursuant to the exercise of options granted under the
1997 Option Plan or the 1998 Option Plan.
The Company currently intends to file a Registration Statement on Form S-1
covering up to an additional 2 million shares of Common Stock under the
Securities Act for its use in connection with future acquisitions. These
shares generally will be freely tradable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale.
The effect, if any, of the availability for sale, or sale, of the shares of
Common Stock eligible for future sale on the market price of the Common Stock
prevailing from time to time is unpredictable, and no assurance can be given
that the effect will not be adverse.
Certain Anti-Takeover Provisions. Certain provisions of the Company's
Amended and Restated Certificate of Incorporation and Amended and Restated By-
laws and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company or
limit the price that certain investors may be willing to pay in the future for
shares of the Common Stock. These provisions (i) classify the Company's Board
of Directors into three classes, each of which will serve for different three-
year periods, (ii) provide that only the Board of Directors or certain members
thereof or officers of the Company may call special meetings of the
stockholders and (iii) authorize the issuance of "blank check" preferred stock
having such designations, rights and preferences as may be determined from
time to time by the Board of Directors. The Company also is subject to Section
203 of the Delaware General Corporation Law (the "DGCL"), which, subject to
certain exceptions, prohibits a Delaware corporation from engaging in any of a
broad range of business transactions with an "interested stockholder" for a
period of three years following the date such stockholder became an interested
stockholder. See "Description of Capital Stock."
No Prior Public Market; Determination of Offering Price; Stock Price
Volatility. Prior to this offering, there has been no public market for the
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
will be determined through negotiations among the Company and the
Representatives (as defined) of the Underwriters and may bear no relationship
to the price at which the Common Stock will trade after this offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The market price of the Common Stock may be
volatile and be significantly affected
13
<PAGE>
by factors such as actual or anticipated fluctuations in the Company's
operating results, announcements of new services by the Company or its
competitors, developments with respect to conditions and trends in the
logistics or transportation industries served by the Company, changes in
governmental regulation, changes in estimates by securities analysts of the
Company's future financial performance, general market conditions and other
factors, many of which may be beyond the Company's control. In addition, the
stock markets have from time to time experienced significant price and volume
fluctuations that have adversely affected the market prices of securities of
companies for reasons often unrelated to their operating performance.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,800,000 shares of
Common Stock offered hereby by the Company, after deducting underwriting
discounts and commissions and estimated offering expenses, are estimated to be
$30.0 million ($35.4 million if the Underwriters' over-allotment option is
exercised in full). The Company intends to use $26.8 million of such net
proceeds to repay in full the Term Loan (as defined) and to repay in part the
Revolving Loan (as defined) under the Company's existing credit agreement with
The First National Bank of Chicago (the "Credit Agreement") and $3.2 million
to repurchase from certain principal stockholders of the Company all
outstanding shares of the Company's Series A Preferred Stock. See "Certain
Transactions." The amount outstanding under the Credit Agreement at June 30,
1998 was $34.9 million. The debt under the Credit Agreement was incurred for
working capital purposes and to finance, in part, the Acquisitions, and bore
interest at a weighted average rate of 8.79% as of June 30, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders.
The Company continually reviews and evaluates acquisition candidates to
complement and expand its existing business, and is at various stages of
evaluation and discussion with a number of such candidates. The Company has
not entered into a definitive purchase agreement with respect to any
acquisition candidate, and no portion of the net proceeds has been allocated
to specific acquisitions. It is possible, however, that a portion of the net
proceeds will be used for one or more acquisitions.
DIVIDEND POLICY
The Company currently intends to retain its future earnings, if any, to
finance the growth, development and expansion of its business and,
accordingly, does not currently intend to declare or pay any cash dividends on
the Common Stock in the immediate future. The declaration, payment and amount
of future cash dividends, if any, will be at the discretion of the Company's
Board of Directors after taking into account various factors, including, among
others, the Company's financial condition, results of operations, cash flows
from operations, current and anticipated capital requirements and expansion
plans, the income tax laws then in effect and the requirements of Delaware
law. In addition, the Company expects that the terms of any credit facility
that it may obtain in the future will include restrictions on payment of cash
dividends by the Company without the consent of the lender.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998 (i) on a historical basis, (ii) on a pro forma basis after giving
effect to the Stutz Acquisition and the Cross Con Acquisition and (iii) as
adjusted to give effect to the sale by the Company of 2,800,000 shares of
Common Stock in this offering at an assumed initial public offering price of
$12.00 per share, after deducting estimated underwriting discounts and
commissions and expenses of this offering and the initial application of the
net proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company, including the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt and capital leases, including
current maturities of long-term debt......... $ 2,459 $ 2,481 $ 2,481
======= ======= =======
Long-term debt and capital leases, less
current portion.............................. $22,079 $33,700 $ 7,302
Stockholders' equity:
Preferred Stock, $0.01 par value, 600,000
shares authorized, 600,000 shares
designated Series A Preferred Stock,
350,000 shares issued and outstanding
actual, 350,000 shares outstanding pro
forma and no shares outstanding as adjusted
(2)(3)..................................... 4 4 --
Common Stock, $0.01 par value, 5,700,000
shares authorized, 4,678,750 shares issued
and outstanding actual, 5,437,392 shares
outstanding pro forma and 8,412,392 shares
outstanding as adjusted(2)(3).............. 5 6 36
Warrants, 18,421 outstanding actual and pro
forma, and no outstanding as adjusted(3)... 53 53 --
Additional paid-in capital.................. 7,981 14,197 41,124
Retained earnings(4)........................ 2,481 2,481 2,481
------- ------- -------
Total stockholders' equity................ 10,524 16,741 43,641
------- ------- -------
Total capitalization.................... $32,603 $50,441 $50,943
======= ======= =======
</TABLE>
- --------
(1) Gives effect to the Stutz Acquisition and the Cross Con Acquisition as if
such transactions had occurred on March 31, 1998.
(2) Excludes (a) 1,045,000 shares of Common Stock and 110,000 Shares of Series
A Preferred Stock issuable upon exercise of 40,000 outstanding Option
Units, at an exercise price of $40.00 per Option Unit, and 70,000
outstanding Option Units, at an exercise price of $11.24 per Option Unit
and (b) 650,000 shares of Common Stock reserved for issuance under the
1998 Option Plan.
(3) Gives effect to the exercise of the UPRC Warrant into 175,000 shares of
Common Stock upon consummation of this offering.
(4) Gives effect to the redemption by the Company of all issued and
outstanding shares of Series A Preferred Stock at face value of
$3,150,000. See "Use of Proceeds" and "Certain Transactions."
15
<PAGE>
DILUTION
At March 31, 1998, the pro forma net tangible book value (deficiency) of the
Company was $(31,177,000), or $(5.73) per share. Pro forma net tangible book
value (deficiency) per share represents the Company's pro forma total tangible
assets less its pro forma total liabilities divided by 5,437,392 pro forma
shares of Common Stock outstanding as of March 31, 1998. After giving effect
to the sale by the Company of 2,800,000 shares of Common Stock offered hereby
based on an assumed initial public offering price of $12.00 per share and
after deducting estimated underwriting discounts and commissions and expenses
of this offering, and after redemption of all issued and outstanding shares of
Series A Preferred Stock at face value of $3,150,000, the pro forma net
tangible book value (deficiency) of the Company at March 31, 1998 would have
been approximately $(4,279,000), or $(0.51) per share of Common Stock,
representing an immediate increase in pro forma net tangible book value of
$5.22 per share to existing stockholders and an immediate, substantial
dilution of $12.51 per share to persons purchasing shares of Common Stock
offered hereby. The following table illustrates this dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $12.00
Pro forma net tangible book value (deficiency) per share
at March 31, 1998....................................... $(5.73)
Increase attributable to price paid by new investors per
share................................................... 5.22
------
Pro forma net tangible book value per share as adjusted for
this offering............................................. (0.51)
------
Dilution per share to new investors........................ $12.51
======
</TABLE>
The following table sets forth, as of March 31, 1998, the number of shares
of Common Stock purchased from the Company, including shares issued to effect
the Interstate, Stutz and Cross Con Acquisitions (the Stutz and Cross Con
Acquisitions occurring in April and June, 1998, respectively) the total
consideration paid to the Company and the average price paid per share by
existing stockholders and purchasers of shares of Common Stock offered hereby,
after giving effect to the sale by the Company of 2,800,000 shares of Common
Stock offered hereby based on an assumed initial public offering price of
$12.00 per share and before deducting estimated underwriting discounts and
commissions and expenses of this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 5,437,392 64.6% $11,055,170 24.7% $ 2.03
New investors............... 2,975,000 35.4 33,784,210 75.3 11.36
--------- ----- ----------- -----
Total..................... 8,412,392 100.0% $44,839,380 100.0%
========= ===== =========== =====
</TABLE>
The foregoing computations give effect to (a) the automatic conversion of
the UPRC Warrant into 175,000 shares of Common Stock upon consummation of this
offering and (b) the redemption by the Company of all issued and outstanding
shares of Series A Preferred Stock at face value of $3,150,000, but do not
include the effect of the issuance of 1,045,000 shares of Common Stock and
110,000 shares of Series A Preferred Stock issuable upon exercise of 40,000
outstanding Option Units, at an exercise price of $40.00 per Option Unit, and
70,000 outstanding Option Units, at an exercise price of $11.24 per Option
Unit. See "Use of Proceeds" and "Certain Transactions."
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected statement of operations data of the Predecessor and the Company
for the periods ended December 31, 1995 through 1997 have been derived from
the consolidated financial statements, which have been audited by Arthur
Andersen LLP, independent public accountants, and which are included elsewhere
in this Prospectus. The data as of and for the years ended December 31, 1993,
1994 and as of December 31, 1995 and for the three months ended March 31, 1998
have been derived from the Company's unaudited consolidated financial
statements which, in the opinion of the Company's management, contain all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the financial condition and results of operations for these
periods. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
entire year. The selected historical consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR (1) COMPANY (1)
--------------------------------------------------- -------------------------------------------------
PRO FORMA
THREE NINE PRO FORMA THREE THREE
MONTHS MONTHS YEAR MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED ENDED
---------------------------------------- MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1996 1997 1997 1997(2) 1998 1998(2)
----------- ----------- ------- ------- --------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............ $67,300 $75,905 $78,278 $86,766 $19,538 $ 81,102 $ 238,859 $ 50,362 $ 64,582
Cost of
transportation and
services........... 57,215 64,796 65,900 73,116 16,498 68,713 202,295 42,003 54,194
------- ------- ------- ------- ------- --------- --------- --------- ---------
Net revenues....... 10,085 11,109 12,378 13,650 3,040 12,389 36,546 8,359 10,388
Selling, general and
administrative..... 7,059 7,149 8,697 10,037 2,300 8,799 25,009 5,634 6,702
Depreciation and
amortization(3).... 41 216 88 93 37 403 1,819 341 498
Transaction costs... -- -- -- -- 510 -- -- -- --
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income from
operations........ 2,985 3,744 3,593 3,520 193 3,187 9,718 2,384 3,188
Interest expense
(income)........... (451) (837) (1,383) (1,376) -- 659 3,055 554 760
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income before
provision for
income taxes and
extraordinary
loss.............. 3,436 4,581 4,976 4,896 193 2,528 6,663 1,830 2,428
Income tax
provision.......... 1,544 1,903 1,940 1,888 74 983 2,785 765 1,015
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income before
extraordinary
loss.............. 1,892 2,678 3,036 3,008 119 1,545 3,878 1,065 1,413
Extraordinary loss,
net of tax
benefit............ -- -- -- -- -- 129 -- -- --
Cumulative effect of
accounting
change(4).......... (220) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- --------- --------- --------- ---------
Net income......... $ 1,672 $ 2,678 $ 3,036 $ 3,008 $ 119 $ 1,416 $ 3,878 $ 1,065 $ 1,413
======= ======= ======= ======= ======= ========= ========= ========= =========
Income per share(5)..
Basic...............
Income before
extraordinary loss.. $ 0.45 $ 0.71 $ 0.23 $ 0.26
Extraordinary loss.. (0.04) -- -- --
--------- --------- --------- ---------
Net income......... $ 0.41 $ 0.71 $ 0.23 $ 0.26
========= ========= ========= =========
Weighted average
shares outstanding.. 3,403,480 5,437,392 4,678,750 5,437,392
========= ========= ========= =========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR (1) COMPANY (1)
----------------------------------------------------- -------------------------------------------------
PRO FORMA
NINE PRO FORMA THREE THREE
MONTHS YEAR MONTHS MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1997(2) 1998 1998(2)
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Diluted
Income before
extraordinary
loss........... $0.37 $0.60 $0.19 $0.22
Extraordinary
loss (0.03) -- -- -
--------- --------- --------- ---------
Net income...... $0.34 $0.60 $0.19 $0.22
========= ========= ========= =========
Weighted average
shares
outstanding.... 4,141,041 6,499,216 5,604,877 6,499,216
========= ========= ========= =========
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31, DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ------- --------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
BALANCE SHEET
DATA: (DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Working capital.. $ (1,851) $ 605 $ 2,772 $ 4,800 $ 2,783 $ (311) $ (2,242)
Total assets..... 26,789 31,550 32,275 37,582 11,350 57,067 56,134
Long-term debt
and capital
leases.......... -- -- -- -- -- 25,045 22,079
Stockholders'
equity.......... 16,296 20,022 23,059 26,067 2,964 9,459 10,524
</TABLE>
- -------
(1) The "Predecessor" includes the accounts of PMTC prior to the management
buyout on March 31, 1997. The "Company" includes the accounts of PMTC
acquired in the management buyout, after purchase accounting adjustments,
and the accounts of Interstate after its acquisition by the Company as of
December 16, 1997. The management buyout of PMTC and the Interstate
Acquisition were accounted for under the purchase method of accounting. As
a result of these transactions, the financial information presented above
is not comparable in certain respects.
(2) The pro forma information gives effect to the Acquisitions as if they were
completed on the first day of the periods presented. See "Prospectus
Summary--Acquisition History."
(3) Amortization of goodwill for the pro forma nine months ended December 31,
1997 and the pro forma three months ended March 31, 1998 was $945,000 and
$334,000, respectively.
(4) The Predecessor adopted Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" and, accordingly, reflected its initial
application.
(5) Income per share has been computed for all periods reflecting the effect
of a 9.5 to 1 stock split to be effected on the date of the initial public
offering. Shares outstanding for the year ended December 31, 1997 have
been calculated assuming all shares and options issued in connection with
the formation of the Company and the Interstate, Cross Con and Stutz
Acquisitions were outstanding as of January 1, 1997.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions, and the
actual events or results may differ materially from the results discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in "Risk Factors"
as well as those discussed elsewhere in this Prospectus. The historical
results set forth in this discussion and analysis are not indicative of trends
with respect to any actual or projected future financial performance of the
Company. This discussion and analysis should be read in conjunction with the
financial statements and the related notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company is a multi-modal, value-added transportation and logistics
solutions provider, offering a broad menu of transportation-related services,
including a variety of trucking, intermodal marketing, logistics and freight
services. As a non-asset based company, Pacer provides integrated freight
services through a national network of sales agents, independent contractors
and railroad/drayage partnerships. To date, the Company's business model has
required minimal capital investment in physical assets such as transportation
equipment.
In March 1997, pursuant to a management buyout funded in part by Eos, the
Company acquired all of the capital stock of PMTC, a provider of truckload
freight services through its Pacer division and intermodal marketing services
through its ABL-TRANS division, for approximately $13.0 million in cash and
the UPRC Warrant. PMTC was founded in 1928 as a subsidiary of SPTC. In
December 1997, the Company acquired all of the capital stock of Interstate for
$20.0 million in cash, and 1,353,750 shares of Common Stock, which was valued
at $4.5 million by independent appraisal. In April 1998, the Company acquired
all of the capital stock of Stutz for $400,000 in cash plus up to 217,142
shares of Common Stock. In June 1998, the Company acquired all of the capital
stock of Cross Con for $10.5 million in cash and 541,500 shares of Common
Stock. Acquisitions have been and will continue to be a significant component
of the Company's growth strategy. The Acquisitions and the management buyout
have been accounted for under the purchase method of accounting.
In the nine months ended December 31, 1997, and three months ended March 31,
1998, the Company's volumes have increased over the comparable periods of the
prior years. In recent years, the Company has received revenues for
transportation services provided to railroads in connection with their capital
expenditure programs implemented to improve their infrastructure. The Company
cannot predict the duration of such programs or whether the Company will
continue to provide services to the railroads in connection with such
programs.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's and the
Predecessor's statements of operations as a percentage of total revenues for
the periods indicated.
<TABLE>
<CAPTION>
PREDECESSOR (1) COMPANY (1)
------------------------ --------------------
THREE NINE THREE
YEAR ENDED MONTHS MONTHS MONTHS
DECEMBER 31, ENDED ENDED ENDED
-------------- MARCH DECEMBER MARCH 31,
1995 1996 31, 1997 31, 1997 1998
------ ------ -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of transportation and
services........................ 84.2 84.3 84.4 84.7 83.4
------ ------ ----- ----- -----
Net revenues.................... 15.8 15.7 15.6 15.3 16.6
Selling, general and
administrative.................. 11.1 11.6 11.8 10.8 11.2
Depreciation and amortization.... 0.1 0.1 0.2 0.5 0.7
Transaction costs................ 0.0 0.0 2.6 0.0 0.0
------ ------ ----- ----- -----
Income from operations.......... 4.6 4.1 1.0 3.9 4.7
Interest expense (income)........ (1.8) (1.6) 0.0 0.8 1.1
------ ------ ----- ----- -----
Income before provision for
income taxes and extraordinary
loss........................... 6.4 5.6 1.0 3.1 3.6
Income tax provision............. 2.5 2.2 0.4 1.2 1.5
------ ------ ----- ----- -----
Income before extraordinary
loss........................... 3.9 3.5 0.6 1.9 2.1
Extraordinary loss, net of tax
benefit......................... 0.0 0.0 0.0 (0.2) 0.0
------ ------ ----- ----- -----
Net income...................... 3.9% 3.5% 0.6% 1.7% 2.1%
====== ====== ===== ===== =====
</TABLE>
- --------
(1) The "Predecessor" includes the accounts of PMTC prior to the management
buyout on March 31, 1997. The "Company" includes the accounts of PMTC
acquired in the management buyout, after purchase accounting adjustments,
and the accounts of Interstate after its acquisition by the Company as of
December 16, 1997. The management buyout of PMTC and the Interstate
Acquisition were accounted for under the purchase method of accounting. As
a result of these transactions, the financial information presented above
is not comparable in certain respects.
THREE MONTHS ENDED MARCH 31, 1998 ("FIRST QUARTER 1998") AS COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997 ("FIRST QUARTER 1997").
Revenues. Revenues increased $30.8 million to $50.4 million in First Quarter
1998 from $19.5 million in First Quarter 1997. Approximately $23.6 million of
the increase is due to the Interstate Acquisition on December 16, 1997. In
addition, the Company experienced increased volumes at Pacer Transport
(formerly PMTC), the Company's flatbed and specialized heavy-haul trucking
subsidiary, and commenced business at Pacer International Rail Services LLC
(formerly known as American International Rail Services LLC) ("PIRS") in
September 1997. A portion of the increased volumes at Pacer Transport is a
result of UP's capital programs and integration issues resulting from its
merger with Southern Pacific Railroad.
Net Revenues. Net revenues increased $5.3 million to $8.4 million in First
Quarter 1998 from $3.0 million in First Quarter 1997. Approximately $3.7
million of the increase in net revenue is due to the Interstate Acquisition,
and the remaining increase is primarily due to higher volumes at Pacer
Transport. Net revenues as a percentage of revenues increased to 16.6% for
First Quarter 1998 from 15.6% for First Quarter 1997 as a result of the
Interstate Acquisition, because Interstate has historically operated at a
slightly higher margin than Pacer, as well as a change in the mix of services
provided.
Selling, General and Administrative. Selling, general and administrative
expenses increased $3.3 million to $5.6 million in First Quarter 1998 from
$2.3 million in First Quarter 1997. Approximately $2.4 million of the increase
is a result of the Interstate Acquisition. The remaining increase is primarily
due to increased salary and administrative costs associated with the growth of
the Company and its management team after the management buyout. As a
percentage of revenues, selling, general and administrative
20
<PAGE>
expenses decreased to 11.2% in First Quarter 1998 from 11.8% in First Quarter
1997. The decrease is primarily a result of the Interstate Acquisition,
because Interstate has historically operated with lower overhead than Pacer,
partially offset by the increases described above.
Transaction Costs. During First Quarter 1997, the Predecessor incurred
transaction costs of $0.5 million in connection with its sale to the Company.
Interest Expense (Income). Interest expense increased $0.6 million in First
Quarter 1998 from First Quarter 1997 as a result of borrowings utilized to
fund the management buyout of the Predecessor as well as the Interstate
Acquisition. Prior to the management buyout, the Predecessor did not have any
borrowings outstanding and had a significant cash position which generated
interest income.
Income Tax Provision. The Company's effective tax rate increased to 41.8% in
First Quarter 1998 from 38.3% in First Quarter 1997, primarily as a result of
non-deductible goodwill in connection with the Interstate Acquisition as well
as an increased effective state tax rate resulting from additional earnings
generated in higher tax states.
NINE MONTHS ENDED DECEMBER 31, 1997 ("FISCAL 1997") AS COMPARED TO THE YEAR
ENDED DECEMBER 31, 1996 ("1996").
As a result of the management buyout in March 1997, the period ended
December 31, 1997 consists of only nine months as compared to twelve months in
the period for the year ended December 31, 1996. For information purposes,
year-to-year comparisons have also been provided.
Revenues. Revenues decreased $5.7 million, or 6.5%, to $81.1 million in
Fiscal 1997 from $86.8 million in 1996. This decrease is due to the additional
quarter of revenues in 1996, which is partially offset by additional business
with UP in Fiscal 1997. Revenues increased $13.9 million, or 16.0%, to $100.6
million in the twelve month period ended December 31, 1997 compared to $86.8
million in the twelve month period ended December 31, 1996.
Net Revenues. Net revenues decreased $1.3 million, or 9.2%, to $12.4 million
in Fiscal 1997 from $13.7 million in 1996. Net revenues as a percentage of
gross revenues decreased to 15.3% in Fiscal 1997 from 15.7% in 1996. This
decrease is due to the additional quarter of revenues in 1996, which is
partially offset by additional business with UP in Fiscal 1997. The net
revenue percentage decrease reflects a marginal increase in the cost of
purchased transportation. Net revenues increased $1.8 million, or 13.0%, to
$15.4 million in the twelve month period ended December 31, 1997 compared to
$13.7 million in the twelve month period ended December 31, 1996.
Selling, General and Administrative. Selling, general and administrative
expenses decreased $1.2 million to $8.8 million in Fiscal 1997 from $10.0
million in 1996. As a percentage of revenues, selling, general and
administrative expenses decreased to 10.8% in Fiscal 1997 from 11.6% in 1996.
The decrease is due to the additional quarter of selling, general and
administrative expense included in 1996, which is partially offset by
additional salary and administrative costs associated with the growth of the
Company and its management team after the management buyout. Selling, general
and administrative expenses increased $1.1 million, or 10.6%, to $11.1 million
in the twelve month period ended December 31, 1997 compared to $10.0 million
in the twelve month period ended December 31, 1996.
Interest Expense (Income). Net interest expense increased $2.0 million to
$0.7 million in Fiscal 1997 from $1.4 million in net interest revenue in 1996.
This increase is a result of increased borrowings to finance the management
buyout and the Interstate Acquisition.
Income Tax Provision. The Company's effective tax rate remained relatively
unchanged in Fiscal 1997 as compared to 1996.
21
<PAGE>
YEAR ENDED DECEMBER 31, 1996 ("1996") AS COMPARED TO YEAR ENDED DECEMBER 31,
1995 ("1995")
Revenues. Revenues increased $8.5 million, or 10.8%, to $86.8 million in
1996 from $78.3 million in 1995. This increase is primarily due to the new
sales and marketing campaigns, which resulted in increased volumes.
Net Revenues. Net revenues increased $1.3 million, or 10.5%, to $13.7
million in 1996 from $12.4 million in 1995 as a result of the increased
volumes described above. Net revenues as a percentage of revenues remained
relatively flat.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.3 million, or 14.9%, to $10.0 million in 1996 from $8.7
million in 1995. As a percentage of revenues, selling, general and
administrative expenses increased to 11.6% in 1996 from 11.1% in 1995. This
increase is primarily a result of an increase in employee headcount related to
the sales and marketing campaigns described above.
Interest Expense (Income). Interest income was relatively unchanged in 1996
as compared to 1995.
Income Tax Provision. The Company's effective tax rate remained relatively
unchanged in 1996 as compared to 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception on March 31, 1997, the Company's cash needs have been
primarily to fund acquisitions, working capital and, on a limited basis,
capital expenditures. The Company's primary sources of capital have been the
Credit Agreement and cash raised in connection with formation of the Company.
In addition, the Company has issued shares of Common Stock as part of the
consideration in the Acquisitions. The Company uses the Credit Agreement to
manage its cash flow. At December 31, 1997 and March 31, 1998, availability
under the Credit Agreement was $5.6 million and $7.9 million, respectively,
and the Company's working capital deficit was $0.3 million and $2.2 million,
respectively. Immediately following this offering, the Company expects to have
approximately $17.0 million of availability under the Credit Agreement. See
"Use of Proceeds."
During Fiscal 1997, net cash used in operating activities was $2.7 million.
The Company's net use of cash during Fiscal 1997 resulted from funding working
capital for increased business levels and the start-up of PIRS. During the
three months ended March 31, 1998, net cash provided from operations was $2.7
million. This increase in cash provided from operations reflects collections
from the Company's customers, and collection of volume rebate payments from
the railroads for prior periods, a large portion of which are typically paid
in the first calendar quarter in accordance with industry norms.
Net cash used in investing activities during Fiscal 1997 was $10.0 million,
which was primarily used to finance the management buyout of the Company and
the Interstate Acquisition. Net cash provided by financing activities during
Fiscal 1997 was $11.2 million, which was provided by borrowings under the
Credit Agreement and cash raised in connection with the formation of the
Company. Borrowings under the Credit Agreement are secured by substantially
all of the Company's assets. On December 16, 1997, the Company issued $20.0
million in promissory notes and amended the Credit Agreement in connection
with the Interstate Acquisition. The Credit Agreement provides for a $20.0
million term loan (the "Term Loan") and a $12.0 million revolving line of
credit (the "Revolving Loan"). The Term Loan was used to extinguish the
promissory notes issued in connection with the Interstate Acquisition on
January 2, 1998. The Term Loan expires on November 21, 2004 and bears
interest, at the Company's option, at the prime rate plus 0.75 percent or
LIBOR plus 3.0 percent. The Revolving Loan expires on October 31, 2002 and
bears interest, at the Company's option, at the prime rate or LIBOR plus 2.3
percent. The Credit Agreement requires the Company to maintain certain
leverage and cash flow ratios and limits the level of capital expenditures.
22
<PAGE>
Net cash used in investing activities during the three months ended March
31, 1998 was $387,000 and was used for purchases of property and equipment.
Net cash used in financing activities during the three months ended March 31,
1998 was $2.3 million and was primarily used to repay debt.
Prior to formation of the Company, the Predecessor had generated significant
cash from operations over a long period of time. Excess cash was generally
advanced to the Predecessor's parent on an interest-bearing basis. Prior to
its sale to the Company, the Predecessor declared and paid a $23.2 million
dividend to its parent, and the parent in turn repaid in full its $21.9
million advance from the Predecessor.
Upon completion of this offering, the Company intends to use a portion of
the net proceeds to repay in full the Term Loan, to repay in part the
Revolving Loan and to repurchase all of the outstanding shares of the Series A
Preferred Stock. See "Use of Proceeds" and "Certain Transactions."
In April 1998, the Company acquired Stutz. In June 1998, the Company
acquired Cross Con. In connection with the Cross Con Acquisition, the Company
further amended the Credit Agreement to increase the availability thereunder.
The Company believes that the net proceeds from this offering, together with
available cash, cash generated from operations and available borrowings under
the Credit Agreement, will be sufficient to finance working capital, capital
expenditures and acquisitions for at least the next 12 months. There can be no
assurance, however, that such resources will be sufficient to meet the
Company's anticipated financing requirements or that the Company will not
require additional financing within this time frame. In particular, depending
upon the success of the Company's acquisition strategy, the Company could
require significant additional debt and or equity financing to make future
acquisitions.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards to measure all changes in equity that result
from transactions and other economic events other than transactions with
owners. Comprehensive income is the total of net income and all other nonowner
changes in equity. Except for net income, the Company does not have any
transactions and other economic events that qualify as comprehensive income as
defined under SFAS No. 130.
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 introduces a new model for segment reporting called the "management
approach." The management approach is based on the manner in which management
organizes segments within a company for making operating decisions and
assessing performance. The management approach replaces the notion of industry
and geographic segments. SFAS No. 131 is effective for the Company as of
January 1, 1998; however, in accordance with SFAS 131, this statement has not
been applied for interim periods in the initial year of application but will
be adopted as of December 31, 1998.
In 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
modifies the accounting for derivative and hedging activities and is effective
for fiscal years beginning after December 15, 1999. The adoption of SFAS No.
133 will require the Company to modify its method of accounting for its
interest rate hedging activities. Based on information currently available,
the Company does not expect the adoption of SFAS No. 133 to have a significant
impact on its financial position or results of operations.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." The
Company will adopt SOP 98-1 in 1999. The adoption of SOP 98-1 will require the
Company to modify its method of accounting for software. Based on information
currently available, the Company does not expect the adoption of SOP 98-1 to
have a significant impact on its financial position or results of operations.
23
<PAGE>
The Company believes the adoption of SFAS No. 130 and SFAS No. 131 will not
significantly affect the Company's financial position, results of operations
or financial statement presentation.
SEASONALITY
Historically, the Company's operating income and earnings have been higher
in the second and third quarters than in the first and fourth quarters due to
the shipping patterns of its customers. Based on its current business mix, the
Company expects this seasonality to continue. See "Risk Factors--Seasonality."
YEAR 2000
The Company has assessed and continues to assess the impact of the Year 2000
issue on its reporting systems and operations. The majority of the Company's
internal information systems are in the process of being replaced with fully
compliant new systems, or are being corrected to be Year 2000 compliant. The
Company believes that with upgrades or modifications, the impact of the Year
2000 issue can be mitigated. The Company plans to complete the Year 2000
replacement and testing by June 1999, and expects the total project cost to be
approximately $500,000, although additional costs may be incurred as the
project develops further. If the Company's remediation plan is not successful,
there could be a significant disruption of the Company's ability to transact
business with its customers and suppliers. Based on information currently
available, the Company does not believe the Year 2000 issue will adversely
impact its operations or significantly impact the Company's ability to conduct
business with customers or vendors. The cost of addressing the Year 2000 issue
will be funded by cash from operations or availability under the Credit
Agreement.
24
<PAGE>
INDUSTRY OVERVIEW
The Company competes in sizable markets, which are continually evolving and
undergoing substantial change. The market for domestic freight transportation
involves virtually every tangible product manufactured, assembled, mined,
grown, or otherwise produced or consumed, in the United States. The domestic
freight transportation market includes the transport of goods made and consumed
domestically, as well as the domestic portion of the transport of import and
export freight. According to a leading industry source, the total domestic
market for freight transportation in 1996 was $467 billion, representing over
6% of the U.S. economy as measured by gross national product. Providers of
freight transportation services include shippers who manage the distribution of
their freight, as well as third party providers who develop and market services
to shippers.
The U.S. market for third party transportation services is highly fragmented,
with thousands of service providers. Management believes that no third party
service provider represents more than 3% of the total market. In recent years,
many sectors of the transportation industry have experienced a trend toward
consolidation. The basis of competition in the freight transportation industry
includes cost, delivery time, reliability and precision of delivery and pick-
up, as well as freight-specific requirements such as handling and temperature
control. Increasingly, providers of transportation services are seeking to use
information technology and customized service packages to offer their customers
solutions to broader business issues than simply the delivery of goods.
Transportation modes include ground-based, air and water transportation
services. Of these, ground-based transportation makes up the largest component
of the domestic market, totaling $404 billion in 1996 according to a leading
industry source. Ground transportation utilizes primarily trucking ($369
billion) and rail ($35 billion) services to transport freight. Some of this
freight enters the domestic freight system via water or air transport. Air-
borne freight represents a rapidly growing, but small sector of the domestic
market, estimated at $20 billion in 1996. Water-borne freight is typically used
for international shipments where a ground-based alternative does not exist and
air costs cannot be justified. Although low in cost, water-borne freight
suffers from limited routes and slow transit time. As a result, there is
limited use of water-borne freight in the domestic market. Because of the
competitive nature of the transportation business, providers have developed
service offerings that utilize multiple modes of transportation which are
commonly known as intermodal. The Company's services are primarily targeted at
freight that is ground-based and transported within the U.S. by truck, rail or
intermodal service.
Logistics is the management and transportation of materials and inventory
throughout the supply chain. Using a network of transportation, handling and
storage providers in multiple modes, logistics companies seek to optimize the
movement of freight based not only on service and price but also on the total
economics of the customer, including inventory requirements and handling costs.
Integrated logistics providers, such as the Company, have the ability to
utilize a portfolio of transportation products and design optimal logistics
solutions for the shipper. Like the Company, many logistics providers are non-
asset-based, primarily utilizing physical assets owned by others in multiple
transport modes. Increasingly, the transportation process involves the
handling, consolidation/deconsolidation and storage of freight, including the
adding of value to the freight in process.
Trucking. The trucking market is comprised of private and for-hire fleets,
handling either truckload or LTL shipments over various lengths of haul.
Although private fleets operated by shippers still represent the largest sector
of the non-local trucking industry, this sector has been losing market share
(since deregulation of the trucking industry began in 1980) to for-hire
carriers that are more service oriented and typically more efficient. In
effect, the shipper's increased focus on cost reduction and core competencies
has been the catalyst behind the outsourcing of private fleets. This trend
toward outsourcing has led to an accelerated rate of increase in the for-hire
trucking sector.
25
<PAGE>
The truckload sector is composed primarily of specialized carriers operating
in sectors defined by the length of haul as well as the type of transportation
equipment utilized. Sectors include dry van, flatbed, heavy-haul and
temperature controlled services. Truckload carriers who compete on the basis of
specialized equipment often require substantial capital investment. The Company
estimates that the truckload market, including both the for-hire and the
private fleet sectors, generated approximately $187 billion of revenue in 1996,
with approximately one third of this amount, or $62 billion, representing
shipments in excess of 500 miles. A majority of the Company's trucking services
is provided in the truckload sector.
LTL services are provided by a large number of carriers that specialize in
consolidating smaller shipments into truckload quantities for transportation
across regional and national networks. Many LTL carriers have high fixed costs
due to their heavy investment in infrastructure. Other LTL market participants,
such as the Company, seek to utilize the fixed facilities of others, providing
specialized outsourced LTL services. According to a leading industry
consultant, the LTL market generated approximately $20 billion of revenues in
1996. The Company derives only a small portion of its revenues from LTL
freight.
Additional elements of the trucking business involve the use of independent
contractors, rather than employee drivers, to provide trucking services, as
well as the provision of truck brokerage services. Independent contractors are
entrepreneurs who own transportation equipment and provide services under
contract to for-hire trucking operations. Independent contractors are commonly
responsible for, among other things, the investment in and maintenance of their
equipment as well as fuel and operating expenses. Advantages to companies
providing trucking services through independent contractors include low
investment in transportation equipment and increased flexibility. Disadvantages
include generally lower operating margins, reduced operating control and
potential difficulties attracting owner-operators during times of tight
capacity. Truck brokerage involves the outsourced arrangement of trucking
services by a third party with a licensed carrier on behalf of a shipper. Truck
brokerage allows the provider to offer trucking services without actually
having dedicated capacity. However, the ability to provide service is dependent
on the available capacity of others. Substantially all of the Company's
trucking services involves either independent contractors or truck brokerage,
allowing the Company flexibility and minimizing its capital investment in
tractors and related transportation equipment.
Relative advantages to the domestic shipper of trucking (versus other modes,
excluding air transport) include flexibility of pickup, route, and delivery as
well as relatively rapid delivery cycles. Due to the capacity limitations of a
truck and the high variable fuel and labor content of a truck shipment,
however, trucking is often at a cost disadvantage versus other modes of
transportation such as rail. This disadvantage is exacerbated during periods
when trucking capacity or drivers are in short supply.
Rail. Rail transport is particularly competitive for moving bulk commodities
over long distance, due to its high capacity per shipment and low variable
labor and fuel requirements per ton/mile. A majority of the rail industry
infrastructure consists of traditional rail equipment, such as boxcar and
hopper, utilized in single mode service. Additionally, for general freight
moving in truckload (or container load) quantities in excess of 500 miles, rail
often represents a cost-effective alternative to trucking. Rail service is
limited in its origin and destination points, however, typically contracting to
transport freight from a specific loading/unloading point, or "railhead," to a
destination railhead. In recent decades, a significant and growing portion of
rail traffic has been characterized as intermodal business, where rail service
is augmented by other forms of transportation, usually trucking, for portions
of the shipment.
Intermodal. Intermodal freight service employs multiple modes of transit to
complete a freight movement. An intermodal movement may utilize a combination
of air, rail, truck or water services. Because the rail service fails to
complete a freight movement from origin to destination, IMCs complete the
freight movement by providing "door to door" transportation services in a
competitive manner. Intermodal services utilize specialized equipment,
including trailer-on-flat-car, container-on-flat-car and
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doublestack container, for the rail portion of the journey. The proliferation
in the use of freight containers, which allow freight to be easily handed off
among different modes of transportation without unloading and re-loading, has
contributed to the rapid growth of the intermodal sector in recent years.
Additionally, the advent of the doublestack container and the development of a
national doublestack handling infrastructure have materially improved the
efficiency of the rail portion of the shipment.
In the intermodal sector, railroads have relied heavily on third party sales
agents, primarily due to the need to arrange other transportation modes on
either end of the rail shipment. In addition, large IMCs with sophisticated
information systems are able to enhance service and reduce transportation
costs to customers through the efficient matching of customer transportation
requirements with available equipment. IMCs provide value to shippers by
passing on certain of the economies of scale of being a volume buyer from
railroads and drayage companies, providing access to large equipment pools and
streamlining the paperwork and logistics of an intermodal move. The customer
typically deals with only one party for the intermodal move and pays a single
bill. The Company estimates that the combined domestic and U.S. international
intermodal transportation industry generated approximately $8 billion in
revenue in 1996 and that IMCs accounted for approximately $3 billion of this
amount.
Management believes that many customers have become indifferent to the mode
of transportation being used to deliver freight, caring more about the
measures of service provided such as convenience, cost, transit time and
reliability. Management further believes that this trend benefits
sophisticated multi-modal service providers like the Company that do not have
a fixed infrastructure but can provide a service offering which takes
advantage of the most competitive resources that meet the transportation
customer's needs.
Logistics. The logistics business has been bolstered in recent years by the
competitiveness of the global economy, which causes shippers to focus on
reducing handling costs, operating with lower inventories and shortening
transit times. Management believes that these trends favor flexible non-asset-
based logistics providers such as the Company. The logistics provider in
effect supplements or replaces the shipper's transportation department, in
some cases allowing the shipper to take advantage of purchasing economies and
improve efficiencies through such methods as just-in-time processes. A key
trend in the logistics business is the increasing importance and application
of information technology as a link with the customer and as an analytical
tool to optimize transportation solutions. This trend favors the larger, more
professionally managed companies that have the resources to support a larger
information technology infrastructure. According to a leading industry
consultant, the logistics sector of the transportation industry was
approximately $25 billion in 1996.
Freight Handling, Consolidation and Storage. Because of the complexity of
freight patterns and the need to optimize multi-modal routes, the handling
and/or storage of freight on behalf of the shipper is often required during
the transportation process. Certain of these services involve freight
consolidation and deconsolidation, in which freight is unloaded, sometimes
temporarily stored in a warehouse or on a cross-dock, and then re-loaded for
further shipment. An example of such a service category in which the Company
competes involves the unloading of imported container freight on the West
Coast and the re-consolidation of the freight into new shipments for domestic
redistribution.
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BUSINESS
GENERAL
Pacer is a multi-modal, value-added transportation and logistics solutions
provider, offering a broad menu of transportation-related services, including
a variety of trucking, intermodal marketing, logistics and freight services.
As a non-asset based company, Pacer provides integrated freight services
through a national network of sales agents, independent contractors and
railroad/drayage partnerships. To date, the Company's business model has
required minimal capital investment in physical assets such as transportation
equipment. The Company's strong internal growth has been supplemented by
strategic acquisitions, enabling the Company to increase its revenues from
$86.7 million in 1996 on a stand alone basis to $252 million for the twelve
month period ended March 31, 1998 on a pro forma basis after giving effect to
such acquisitions.
COMPETITIVE ADVANTAGES
The Company attributes its market position and its significant opportunities
for continued growth and increased profitability to the following competitive
advantages:
Diverse Product Offerings. The Company offers its customers one of the
broadest menus of service offerings in the transportation industry. The
Company's current menu of services includes flatbed and specialized heavy-haul
trucking, intermodal marketing (rail or over-the-road), warehousing,
consolidation/ deconsolidation, cross-dock, LTL, cartage and drayage. The
Company also provides specialized services, such as rail car maintenance and
inspection, to transportation providers. Furthermore, the Company provides
logistic services to coordinate the foregoing services, offering integrated
freight transportation solutions to its customers.
National Presence. The Company has developed a national presence as a result
of its extensive marketing and service networks. By combining a network of
regional sales offices and independent agents, complemented by national sales
offices, the Company offers integrated national services while maintaining the
entrepreneurial responsiveness of a small business. The Company's service
network comprises a broad range of national, regional and local transportation
providers, including rail partners, trucking companies, independent
contractors and other third party providers. Management expects its sales and
service networks to continue to grow as the Company expands its service
offerings and customer base.
Tailored Customer Focus. The Company has developed a unique customer
philosophy which categorizes each major customer as a distinct market.
Accordingly, the Company creates a package of services integrated and
customized for each customer and strives to broaden the relationship with each
customer by identifying, addressing and servicing an increasing share of the
customer's transportation and logistics needs. This in turn strengthens the
relationship with the customer and enhances the customer's loyalty to the
Company. As a result of the Company's philosophy, the Company has established
a strong, diverse customer base consisting of global, national and regional
manufacturers and retailers, including numerous Fortune 500 corporations,
several of which have been customers of the Company for more than 15 years.
For example, on behalf of a national clothing retailer, the Company provides
domestic intermodal marketing, warehousing, drayage and bonded container
freight station handling services for that customer's freight originating in
Southern California, including imports. The Company originally provided simple
consolidation and cross-dock services to this customer. On behalf of a major
computer retailer, the Company provides intermodal transportation from ports
in Los Angeles, transloading of port containers, repackaging and
redistribution of freight to each individual store, and cross-dock
capabilities in Los Angeles, Chicago, Totowa, New Jersey, and Atlanta. This
relationship originally included basic cross-dock services on the West Coast.
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Targeted Industry Expertise. The Company derives a significant portion of
its revenues from providing transportation services within certain core
shipper sectors where the Company's industry focus leads to greater expertise
and higher added value for the customer. For example, through its extensive
network of service providers, the Company provides a range of specialized
services to many of the nation's largest "superstore" or mass market
retailers. In addition to general consumer freight, the Company has developed
customized services to meet the special needs of certain product categories
such as the seasonal needs of the toy business or the special handling
requirements of a major computer retailer. Similarly, the Company provides a
range of specialized services for the transportation sector, with customers
including railroads, other intermodal transportation service providers and
equipment vendors to the rail industry. In the flatbed and specialized
trucking sector, the Company has limited its participation in traditional
commodity sectors and developed a specialty in industrial freight with non-
standard requirements, such as the transportation of heavy or oversized
materials.
Strong West Coast Market Position. Based on management's knowledge of the
industry and information provided by customers and vendors, management
believes that the Company has developed a leading market position in
intermodal and related logistics services on the West Coast, where it operates
specialized consolidation and trucking facilities and provides cartage,
drayage and LTL services. Much of the freight handled by the Company is
imported from Asian markets and distributed throughout the U.S. Management
believes that the Company is well-positioned to benefit from the continued
growth in international trade, the trend towards importing certain product
categories from Asia and the continued strength of the U.S. dollar in foreign
currency markets. The Company has also been able to replicate services
originally provided in the West Coast market for its customers operating in
other parts of the country.
Information Technology. To maintain and expand its network and provide
participants in the network with advanced information support, the Company has
made significant investments in information technology. The Company's
information systems are capable of providing a wide range of communication
alternatives, typically through the medium requested by a customer. As such,
employees are linked with each other and with customers and carriers by
telephone, facsimile, E-mail, the internet and/or EDI. This interconnection
allows the Company to easily communicate requirements and availability of
equipment and volume, to confirm and bill orders and to trace shipments. In
addition, through the Company's network, each office is able to track trailers
and containers entering its service area and redeploy that equipment to
fulfill its customers' outbound shipping requirements before the equipment is
returned for use by another intermodal user. As a result, the Company is
better positioned to offer its customers the container or trailer that meets
the customer's shipping requirements.
Experienced Management Team. One of the Company's most valuable assets is
its experienced team of senior management personnel, led by Don Orris, the
Company's President and Chief Executive Officer. Mr. Orris is the former
President and Chief Operating Officer of UPRC, where he oversaw, among other
functions, sales, marketing, intermodal operations and network design. Prior
to that, Mr. Orris was instrumental in the establishment of the nation's
doublestack intermodal infrastructure as domestic head of American President
Companies. The Company's senior management team has an average of more than 25
years of experience in the transportation and logistics industry, forming a
core team with significant leadership experience. Each has direct knowledge of
the business based on past experience, including experience in managing and
building large companies, which the Company believes will be a particularly
valuable asset as the Company proceeds with its strategic acquisition program.
Members of the senior management team also have been successful in creating
extensive relationships in the transportation and customer communities and
have established reputations within the industry. Following this offering,
members of the Company's senior management will own or have the right to
acquire, subject to certain performance requirements, an aggregate of
approximately 35% of the issued and outstanding voting securities of the
Company on a fully diluted basis, giving them a personal stake in the
continued success of the Company.
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GROWTH STRATEGY
The Company's growth strategy consists of (i) expanding its service
offerings, (ii) increasing sales to existing customers, (iii) leveraging its
core service provider capability, (iv) expanding its customer base and (v)
pursuing strategic acquisitions.
Expand Service Offerings. Based on the Company's experience in the industry
and information provided by customers and other participants in the industry,
the Company believes it is increasingly important to be able to meet the
diverse needs of customers who are increasingly looking to a limited number of
sources for their transportation and logistics needs, whether on a national or
regional scale or even within a single shipping lane. Thus, the Company
intends to maintain its broad range of current service offerings and
selectively introduce new services without compromising its commitment to
superior service on an efficient and cost effective basis. Recent acquisitions
by the Company have added rail-related logistics services and expanded
geographic coverage with respect to its intermodal marketing capabilities.
Increase Sales to Existing Customers. The Company intends to expand its
service offerings by providing additional services to existing customers. For
example, many of the Company's high volume nationwide customers currently use
only its intermodal transportation services for a portion of their overall
transportation needs. The Company believes that it will be able to expand the
services provided to its customers as they increasingly outsource their
transportation and logistics needs. The Company will continue to focus on
capturing additional freight volume from existing customers currently being
handled by long-haul trucking companies or intermodal competitors and on
providing supplementary logistics services to those customers. In addition,
the Company will continue to solicit and encourage customers to establish EDI
interfaces which will reduce paperwork and automate billing and payment
processes.
Leverage Core Service Provider Capability. The Company seeks to capitalize
on the trend, especially among larger shippers, toward reducing the number of
authorized service providers the shippers use in favor of a small number of
core service providers with the size and diverse service capability to satisfy
most of the shippers' transportation needs. Accordingly, the Company has
concentrated on consolidating and integrating its multi-modal service
offerings and value-added logistics solutions capabilities, enabling it to
handle a broad range of each customer's transportation and logistics
requirements. The Company's service capabilities and network are integrated
through technology and can be tailored to meet a specific customer's needs.
Expand Customer Base. The Company intends to continue to expand its customer
base by (i) leveraging its operating infrastructure, (ii) adding sales agents
and independent contractors, which will increase the Company's capacity to
solicit and maintain customer relationships, (iii) increasing its geographic
scope through internal growth and acquisitions, (iv) expanding its size and
service offerings and (v) continuing to establish relationships with
additional transportation service providers who meet the Company's stringent
quality and pricing standards. The Company currently provides services on a
nationwide basis, with the bulk of its operations concentrated on the West
Coast, the Midwest and, especially in the case of Pacer Transport, Texas and
the Southeast. The Company has not identified specific markets in which to
expand but intends to both increase its presence in existing markets and enter
new markets as opportunities arise.
Pursue Strategic Acquisitions. As an additional component of its growth
strategy, the Company intends to continue its disciplined acquisition program.
Acquisition candidates typically will fall into one or more of the following
three categories: (i) operations that expand the Company's presence in a
particular service category (ii) operations that expand the Company's existing
services in a new geographic area or (iii) operations that enable the Company
to provide a new or expanded form of complementary services to its customer
base. The Company intends to seek acquisition candidates with complementary
management and operations philosophies and service capabilities that the
Company can add to and integrate with its current menu of services. Given the
highly fragmented nature of the industry, the relatively large number of small
and mid-size transportation companies, and the recent consolidation in the
transportation industry, management
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believes there is increased pressure on these smaller transportation and
logistics companies to consolidate. The Company's nationwide network of sales
personnel, independent contractors and railroad and drayage brokerage
partnerships, together with its strong and diverse customer base, make it
well-positioned to benefit from the expected continued growth in both the
intermodal and transportation logistics services markets and the potential for
consolidation of the smaller intermodal companies. The Company recently
completed the acquisitions of Stutz, a Kansas City-based provider of
warehousing, materials consolidation and regionalized dedicated trucking
services, and Cross Con, a Chicago-based intermodal marketing and drayage
company. By adding Stutz, the Company has expanded its rail-related logistics
services, and by adding Cross Con, the Company has materially expanded its
intermodal marketing capabilities and added valuable new industrial customers.
The Cross Con Acquisition is expected to improve the Company's access to
equipment in key freight markets where such access provides a competitive
advantage. Both acquisitions increased the Company's presence and service
capabilities in the Midwest region.
SERVICES
The Company is a multi-modal, value-added transportation and logistics
solutions provider, offering a broad menu of transportation-related services,
including a variety of trucking, intermodal marketing, logistics and freight
services.
Trucking Services. The Company competes in the common and contract flatbed
truckload segment of the domestic transportation industry, providing flatbed
and specialized heavy-haul trucking services. The Company offers its customers
a broad range of truckload services, a fleet of diverse equipment and
extensive geographic coverage. Operating under a 48-state, irregular route,
common and contract carrier authority and national freight brokerage license,
the Company provides specialized services through a fleet of trailers capable
of hauling extremely heavy or oversized loads such as machinery, construction
equipment, building materials, lumber, chemicals, automotive products and
metals. The Company's diverse fleet, consisting of over 500 vehicles operated
by independent contractors and small fleet owners, includes flatbed trailers
required to transport open-top shipments, "drop deck" trailers, which are
designed to transport high or over-dimensioned loads (generally over 8 feet 6
inches in height), "low boy" trailers, which often have multiple axles and are
used to carry the largest and heaviest types of over-dimensioned loads and
"hot shot" trailers, which are lightweight flatbed trailers designed to
minimize fuel costs when transporting light truckload freight. In addition,
the Company owns 57 specialized trailers used to deliver rail equipment as an
outsourcing function for a major railroad. In connection with its trucking
services, agents provide marketing and sales, terminal facilities and driver
recruiting, while an operations center provides, among other services,
insurance, claims handling, safety compliance, credit, billing and collection
and operating advances and payments to drivers and agents.
The Company also provides truck brokerage services throughout North America.
The coverage of the Company's truck brokerage operation starts with its
customer service centers in Los Angeles, Lafayette, California, Dallas,
Chicago and Totowa, New Jersey, and the Company intends to expand into other
locations by strategic acquisitions. The Company is expanding its truck
brokerage operation significantly from its previous role in Los Angeles and
Lafayette as a service recovery option for intermodal into a flexible,
nationwide network of customer service centers supplying freight to a core
group of reliable carriers. The network provides a cost efficient and
convenient back-up service to handle surges in customers' volume. Services
provided by the network are managed by a sophisticated new brokerage
information system.
As a common carrier with 48-state operating authority, the Company offers a
Los Angeles-based LTL service which operates throughout the continental U.S.,
as well as Canada and Mexico. The LTL operation specializes in long-haul
transportation of general commodities freight through hubs operated by other
companies located throughout the U.S. The Company leverages the mix of traffic
it gets from customers by integrating shipments which have common destinations
in order to lower the line haul, pick-up and delivery costs. While some of the
Company's LTL business is line-hauled by rail, most of its LTL traffic
utilizes over-the-road transportation, which the Company purchases from third-
party carriers. In a typical
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assignment, LTL dispatchers contract with one or several independent
contractors to pick up a freight order and take it to the Company's dock. Upon
arrival, the freight is offloaded and then transloaded onto a line haul unit
which has been contracted by the Company to deliver the load to its final
destination. The Company does not employ any drivers used directly by this
operation and coordinates with quality regional transportation providers at
each hub to provide local delivery and distribution services in end markets.
The Company offers single carrier responsibility including bills of lading and
insurance coverage through the Company's cargo insurance policy.
Intermodal Marketing. In its role as an intermodal marketing company, the
Company arranges for the movement of freight in containers and trailers
throughout North America for global, national and regional manufacturers and
retailers and provides customized electronic tracking and analysis of
accessorial charges. In addition, the Company negotiates rail and drayage
rates, consolidates billing and handles claims for freight loss or damage on
behalf of its customers. The Company's intermodal marketing operations are
based in California and, with the Cross Con Acquisition, Chicago and employ
experienced transportation personnel. This staff is responsible for
operations, customer service, marketing, management information systems and
the Company's relationships with the rail carriers. Services offered by the
Company include truck and rail brokerage, drayage and rail and over-the-road
(line haul).
By providing outsourcing services, the Company assists the railroads and
stacktrain operators in balancing freight originating in or destined to its
service areas, resulting in improved asset utilization. The Company provides
value to its customers by passing on certain economies of scale as a volume
buyer from railroads and stacktrain operators, providing access to the large
equipment pools that the Company effectively controls and streamlining the
paperwork and logistics of an intermodal move. In a typical transaction, a
customer places a freight movement order with a Company representative, the
information is then processed and a driver is dispatched to a facility with a
trailer for loading. When the load is ready, the driver transports it to the
appropriate intermodal facility. Shipping instructions are transmitted via EDI
to the rail carrier or stacktrain operator. The load's location and movement
can be checked at any time through the Company's information systems. Upon
arrival at its destination, the Company makes drayage arrangements for final
delivery.
Logistics. The Company believes that it has a unique capacity to provide not
only a broad range of traditional transportation related services, such as
trucking and intermodal marketing, but also an array of logistics solutions
which can be tailored to fit a particular customer's needs. Logistics
solutions currently offered by the Company include cartage, drayage, railcar
maintenance and inspection and railroad signal parts reclamation service based
in Kansas City. The Company also provides materials distribution services on
behalf of a major U.S. railroad. The Company believes that demand for value-
added logistics services will continue to grow as more companies continue to
downsize and outsource many of these functions to third parties.
The Company maintains its own cartage service, operated out of a facility in
Los Angeles, California, offering drayage of containers and intermodal
trailers to and from the Los Angeles and Oakland area harbors, rail centers
and airports, consolidation and deconsolidation, pick-up of freight from a
customer's southern California vendors, and distribution to a customer's
southern California locations. The Company contracts with independent
contractors controlling more than 230 trucks, serves full or less than
container loads and maintains five acres of fully secured port area yards. In
addition, all services are U.S. Customs bonded. The Company maintains
interchange agreements with all of the major steamship lines, railroads and
stacktrain operators. By maintaining its own cartage operation, the Company
has greater access to trailers owned by railroads, stacktrain operators and
other third parties which it can allocate to its customers during periods of
peak demand, a distinct competitive advantage over intermodal companies that
do not maintain internal cartage capabilities.
As part of its cartage operation, the Company coordinates drayage
transportation services through its network of drayage partners. In a typical
assignment, one of the Company's independent contractors will be contacted by
radio dispatch and directed to pick up a container or LTL shipment for a
customer. The
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goods are brought to the Company's facility for transloading and redirected to
the appropriate transportation mode or stored until the shipper instructs the
Company as to its final destination. This network of independent contractors
is a valuable asset that allows the Company to serve shippers, ocean carriers
and freight forwarders across the country.
The Company also offers a variety of freight handling services, including
consolidation/ deconsolidation, warehousing and cross-dock. The Company's
logistics operation has prospered by focusing on providing customers with
specially designed transportation packages which fit the particular shipper's
origin relative to a destination's traffic flow. Additionally, the Company has
designed service packages intended to reduce the shipper's handling
requirements and improve inventory efficiency. These services are primarily
offered on the West Coast, but in recent years the Company has established
additional regional freight handling facilities to meet the needs of its
customers.
SALES AND MARKETING
The Company believes that its sales force is one of its major assets. The
Company has a total of 155 sales agents which are supported by regional sales
offices in 17 cities, including Los Angeles, Chicago, Atlanta, Seattle, Dallas
and Oakland. Because of its close interaction with customers, the sales force
is in a unique position to understand and anticipate customer needs, manage
customer relationships and contribute to business development. The Company's
salaried sales representatives are deployed in major transportation hubs and
target major accounts, while commissioned sales agents located throughout the
country contribute additional business that enables the Company to meet its
volume commitments and balance traffic flows. A number of the Company's sales
agents focus on particular industries and in many cases the Company dedicates
personnel to service particular customers. Sales agents and representatives
regularly call on major shippers to develop business relationships and to
expand the Company's participation in meeting their transportation and
logistics needs. When a business opportunity is identified by a sales agent or
representative, the Company's marketing and pricing personnel work together to
provide a transportation solution tailored to the customer's needs. The
Company also has a national network of commissioned sales agents,
strategically located in key metropolitan areas, who, in connection with its
trucking services, contact local customers, solicit business and move freight
in conjunction with central dispatch coordinators. In addition, regional sales
offices that support the agents' initiatives with respect to marketing and
selling the Company's services make joint calls and represent the Company in
interacting with national accounts.
RELATIONSHIPS WITH INDEPENDENT CONTRACTORS
Although the Company owns a small number of tractors and trailers, the vast
majority of the Company's truck equipment is provided by independent
contractors and small fleet owners, who either hire their own drivers or drive
themselves. The Company's relationships with independent contractors allow the
Company to provide its customers with a broad range of trucking services
without the need to commit capital to acquire and maintain an asset base.
Independent contractors and fleet owners typically sign contracts with the
Company, pursuant to which the independent contractor or fleet owner makes its
equipment available to the Company. Typical lease contracts detail the
Company's economic arrangements with the independent contractors and fleet
owners, including payment terms and allocation of responsibility for operating
costs, insurance and road and fuel taxes. Although the leases are typically
long-term agreements, they are terminable by either party on short notice.
Independent contractors and fleet owners are compensated on the basis of
mileage rates and a fixed percentage of the revenue generated from the
shipments they haul. Under the terms of the Company's typical lease contracts,
independent contractors must pay all the expenses of operating their
equipment, including driver wages and benefits, fuel, physical damage
insurance, maintenance and debt service. On a combined basis, these
independent contractors and small fleet owners supplied over 700 tractors and
trailers to the Company in 1997. A leased truck usually has the Company's name
placard applied. The average length of a flatbed and specialized haul is 800
over the road miles. Cartage and drayage movements are typically local in
nature.
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Most independent contractors are recruited locally by the Company's sales
agents. Each independent contractor must meet specified Company-wide
guidelines relating to such matters as safety record, driving experience, past
work history and physical examinations in accordance with DOT regulations. The
Company requires drivers to pass a road test and to review the Company's
safety manual and operational handbook. The Company also provides both video
and supervised training. Similarly, the Company imposes requirements for the
independent contractors' equipment, including safety features. The Company
emphasizes safety to its independent contractors and maintains driver safety
inspection programs, safety awards, frequent local safety meetings and
stringent driver qualification standards. In addition, the Company performs
daily audits of all driver logs to assure regulatory compliance. Management
believes these factors encourage the independent contractors to operate in a
safe fashion. See "--Risk Management; Insurance."
RELATIONSHIPS WITH DRAYAGE COMPANIES
The Company has established a good working relationship with a large network
of draymen in many major urban centers throughout the U.S. The quality of
these relationships helps ensure reliable pick-ups and deliveries, which is a
major differentiating factor among intermodal marketing companies. The
Company's strategy has been to concentrate business with a select group of
draymen in a particular urban area, which increases the economic value of the
Company to the drayage companies, and in turn raises the quality of service
that the Company receives. The Company seeks draymen who are committed to a
high quality of service, clean and safe equipment and a satisfactory on-time
performance level, and who follow established procedures designed to minimize
freight loss and damage. The Company requires its drayage partners to carry
substantial amounts of auto liability, general liability and cargo insurance.
See "--Risk Management; Insurance." The Company negotiates drayage rates for
transportation between specific origin and destination points. These rates
generally are valid, with minor exceptions for fuel surcharge increases, for a
period of one year. The Company's ability to deliver its customers' freight on
time depends in large part on the quality and service provided by the drayage
companies with which it does business.
RELATIONSHIPS WITH RAILROADS
The Company maintains close working relationships with all of the major
railroads in the U.S. The Company views each relationship as a partnership and
continues to focus its efforts on strengthening these relationships. On a
regular basis, senior executives of the Company and key railroads meet to
discuss major strategic issues concerning intermodal transportation. A number
of the Company's executive officers, including the Company's President and
Chief Executive Officer, Don Orris, are former railroad executives, which
makes them well suited to understand the railroads' service capabilities.
Contracts with the railroads govern the transportation services and payment
terms pursuant to which the Company's intermodal shipments are handled by the
railroads. The Company's contracts with the railroads are typically of short
duration (usually twelve month terms) and subject to renewal or extension.
While there can be no assurance that these contracts will be renewed, the
Company has in the past successfully negotiated extensions of the contracts
with the railroads. Transportation rates are market driven and are typically
negotiated between the Company and the railroads on a customer specific basis.
Consistent with industry practice, many of the rates negotiated by the Company
are special commodity quotations ("SCQs"), which provide discounts from
published price lists based on competitive market factors and are designed by
the railroads to attract new business or to retain existing business. SCQ
rates are generally issued for the account of a single intermodal marketing
company. SCQ rates apply to specific customers in specified shipping lanes for
a specific period of time, usually six to 12 months. The Company's
computerized pricing systems use historical lane-specific data to optimize the
Company's rail and drayage costs.
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RISK MANAGEMENT; INSURANCE
The Company has focused substantial efforts on the development,
implementation, and administration of consistent risk management policies and
programs for all of its subsidiaries in an effort to minimize losses (such as
vehicle accidents) and to manage claims at the least possible cost to the
Company. Efforts have been concentrated in the areas of safety equipment and
training and equipment maintenance. Safety training programs focus on both
drivers and office and field employees. Drivers must satisfy qualification
standards higher than DOT requirements and every new driver receives
orientation that includes a standardized accident prevention program.
Management believes that the Company realizes significant savings in
insurance premiums by retaining a larger amount of risk than might be prudent
if any of the Company's subsidiaries were separate companies. Central handling
of most substantial insurance-related functions by the Company also results in
savings and in a degree of effectiveness in handling such functions that the
Company's subsidiaries could not achieve by themselves.
Potential liability associated with accidents in the trucking industry is
severe and occurrences are unpredictable. The Company currently retains
liability of up to $250,000 on each individual property, auto, casualty,
general liability and individual cargo claim. The Company provides for the
estimated cost of property, casualty and general liability claims reported and
for claims incurred but not reported. The Company generally requires that all
of its drayage partners carry at least $1 million in general liability and
auto insurance and $200,000 in cargo insurance. The Company's standard form
contract with independent contractors provides that the independent
contractors are covered under the Company's insurance policies while
performing services for the Company. Accordingly, to the extent not covered by
insurance, the Company may be liable for damages caused by independent
contractors engaged by the Company. The Company is not liable for damages
caused by its drayage partners. Railroads provide limited common carrier
liability protection.
COMPETITION
The transportation services industry is highly competitive and fragmented.
The Company competes primarily against a large number of other domestic non-
asset based transportation and logistics companies, as well as asset-based
transportation and logistics companies, third-party freight brokers, carriers
offering logistics services and freight forwarders. The Company also competes
against carriers' internal sales forces and shippers' own transportation
departments. It also buys and sells transportation services from and to
companies with which it competes. Competition is based primarily on freight
rates, quality of service (such as damage free shipments, on-time delivery and
consistent transit times), reliable pickup and delivery and scope of
operations. Other logistics companies and transportation services companies
and numerous carriers have substantially greater financial and other resources
than the Company. The Company also competes with transportation services
companies for the services of independent commission agents, and with
trucklines for the services of independent contractors and drivers.
Competition with the Company's trucking services from non-trucking modes of
transportation and from intermodal transportation would be likely to increase
if state or federal taxes on fuel were to increase without a corresponding
increase in taxes imposed upon other modes of transportation.
GOVERNMENT REGULATION
The transportation industry has been subject to legislative and regulatory
changes that have affected the economics of the industry by requiring changes
in operating practices or influencing the demand for, and cost of providing,
transportation services. The Company cannot predict the effect, if any, that
future legislative and regulatory changes may have on the transportation
industry.
The Company is subject to licensing and regulation as a transportation
provider. The Company is licensed by the DOT as a national freight broker in
arranging for the transportation of general commodities
35
<PAGE>
by motor vehicle and operates pursuant to a 48-state, irregular route common
and contract carrier authority. The DOT prescribes qualifications for acting in
its capacity as a national freight broker, including certain surety bonding
requirements. The Company provides motor carrier transportation services that
require registration with the DOT and compliance with certain economic
regulations administered by the DOT, including a requirement to maintain
insurance coverage in minimum prescribed amounts. Other sourcing and
distribution activities may be subject to various federal and state food and
drug statutes and regulations. Although Congress enacted legislation in 1994
that substantially preempts the authority of states to exercise economic
regulation of motor carriers and brokers of freight, the Company and several of
its subsidiaries continue to be subject to a variety of vehicle registration
and licensing requirements. The Company and the carriers that the Company
relies on in arranging transportation services for its customers are also
subject to a variety of federal and state safety and environmental regulations.
Although compliance with the regulations governing licensees in these areas has
not had a materially adverse effect on the Company's operations or financial
condition in the past, there can be no assurance that such regulations or
changes thereto will not adversely impact the Company's operations in the
future. Violation of these regulations could also subject the Company to fines
or, in the event of serious violation, suspension or revocation of operating
authority as well as increased claims liability.
LITIGATION
Interstate is a named defendant in a purported class action filed in July
1997 in the State of California, Los Angeles Superior Court, Central District,
alleging, among other things, breach of fiduciary duty, unfair business
practices, conversion and money had and received in connection with monies
allegedly wrongfully deducted from truck drivers' earnings. The class has not
been certified. Plaintiffs have demanded in excess of $8.8 million, together
with unspecified punitive damages, costs and interest, as well as equitable
relief. The Company intends to defend this action vigorously and believes that
its defenses are meritorious. There can be no assurance, however, as to a
favorable outcome of the action and an adverse outcome could have a material
adverse effect on the Company. To date, this action has not had a material
negative impact on the Company's relationships with independent contractors,
drayage companies or fleet owners.
The Company is currently not otherwise subject to any other pending or
threatened litigation other than routine litigation arising in the ordinary
course of business, none of which is expected to have a material adverse effect
on the business, financial condition or results of operations of the Company.
Most of the lawsuits to which the Company is party are covered by insurance and
are being defended by the Company's insurance carriers.
PROPERTIES
The Company's branch offices and its central office space are leased from
related parties and third parties under leases with terms ranging up to 10
years. The Company considers its current office space adequate for its current
level of operations. The Company has not had difficulty in obtaining sufficient
office space and believes it can renew existing leases or relocate branch
offices to new space as leases expire. The Company also leases freight
terminals in Los Angeles consisting of approximately 12 acres of parking for
tractors and trailers and approximately 40,000 square feet of dock space and
approximately 100,000 square feet warehouse on an adjacent property. In
addition, the Company leases two warehouses in Kansas City, consisting of
approximately 89,000 total square feet. See "Certain Transactions."
EMPLOYEES
As of June 30, 1998, the Company had approximately 250 employees,
substantially all of whom are full-time employees. PIRS is party to a
collective bargaining agreement, effective July 1, 1997, with the Brotherhood
of Railway Carmen Division, Transportation Communications International Union.
As of June 30, 1998, 20 of the Company's employees were covered under such
collective bargaining agreement. The Company is not party to any other
collective bargaining agreements. The Company considers its relationship with
its employees to be good.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald C. Orris............... 56 Chairman, President, Chief Executive
Officer and Director
Gerry Angeli.................. 51 Executive Vice President, Assistant
Secretary and Director
Gary I. Goldfein.............. 53 Executive Vice President and Director
Douglas R. Korn............... 35 Vice Chairman and Director
Robert L. Cross............... 51 Executive Vice President and Assistant
Secretary
Richard P. Hyland............. 44 Executive Vice President
Allen E. Steiner.............. 58 Executive Vice President
Lawrence C. Yarberry.......... 56 Executive Vice President, Chief Financial
Officer and Treasurer
Joseph P. Atturio............. 40 Vice President, Controller and Secretary
Edward L. Moyers.............. 70 Director
Jeffery M. Boetticher......... 47 Director
</TABLE>
Messrs. Moyers and Boetticher have agreed to become directors of the Company
upon consummation of this offering. Also upon consummation of this offering,
the Company's Board of Directors will be classified into three classes, which
will consist of, as nearly as practicable, an equal number of directors. The
members of each class will serve staggered three-year terms. Messrs. Orris and
Goldfein will be Class I directors, Messrs. Angeli and Boetticher will be
Class II directors and Messrs. Korn and Moyers will be Class III directors.
Nominees for director will be divided between the three classes upon their
election or appointment. The initial terms of the Class I, Class II and Class
III directors expire at the annual meeting of stockholders of the Company to
be held in 1999, 2000 and 2001, respectively. See "Description of Capital
Stock--Certain Provisions of the Company's Certificate of Incorporation and
By-laws--Classified Board of Directors." Messrs. Goldfein and Steiner are
brothers-in-law. There are no other family relationships among the directors
and executive officers.
Donald C. Orris has been the Chairman, President and Chief Executive Officer
of the Company and a director since the Company's inception in March 1997. He
is also a director of each of the Company's subsidiaries. From March 1997
until May 1998, Mr. Orris served as President and Chief Executive Officer of
PMTC. He also has served as Chairman of the Company's other subsidiaries since
their formation or acquisition by the Company. Mr. Orris has been the
President of Pacer International Consulting LLC (f/k/a Logistics International
LLC), a wholly owned subsidiary of the Company, since September 1996. From
January 1995 to September 1996, Mr. Orris served as President and Chief
Operating Officer, and from 1990 until January 1995, he served as an Executive
Vice President, of Southern Pacific Transportation Company. Mr. Orris was the
President and Chief Operating Officer of American President Domestic Company
and American President Intermodal Company from 1982 until 1990.
Gerry Angeli has been an Executive Vice President and Assistant Secretary of
the Company since the Company's inception in March 1997 and a director since
April 1998. He is also a director of each of the Company's subsidiaries. Since
May 1998, Mr. Angeli has served as President and Chief Executive Officer of
PMTC and Vice President of Interstate and Pacer Logistics, Inc., a wholly
owned subsidiary of Pacer ("Logistics"). Mr. Angeli also served as a Vice
President and Assistant Secretary of PMTC from March 1997 until May 1998.
Since 1982 Mr. Angeli has served as President of the Pacer division of PMTC
and, concurrent therewith, from 1987 until December 1993, Mr. Angeli served as
President and Chief Executive Officer of Southern Pacific Motor Trucking
("SPMT"), a wholly owned subsidiary of the Southern Pacific Railroad.
37
<PAGE>
Gary I. Goldfein has been an Executive Vice President of the Company and a
director since December 1997. He is also a director of each of the Company's
subsidiaries. Mr. Goldfein also has served as the President of Logistics and
as Vice President of PMTC since May 1998. Mr. Goldfein was a co-founder of ICI
and ICSI in 1972. From 1972 until December 1997, Mr. Goldfein served as
President and Treasurer of ICSI and IMCS and Vice President and Secretary of
ICI.
Douglas R. Korn has been a director of the Company since its inception in
March 1997 and Vice Chairman since March 1998. From March 1997 until May 1998,
Mr. Korn served as a Vice President, Assistant Secretary and Assistant
Treasurer of PMTC and has been a director of PMTC since March 1997. He is also
a director of each of the Company's other subsidiaries. Mr. Korn has been a
Managing Director of Eos since 1994. Mr. Korn also served as Vice President of
Acquisitions for Davis Companies from January 1992 until May 1993, and as
President of Water Mill Capital from July 1991 until December 1993. From 1988
to 1991, Mr. Korn was a Vice President and Associate with The Blackstone
Group.
Robert L. Cross has been an Executive Vice President and Assistant Secretary
of the Company since its inception in March 1997 and Vice President of PMTC
since March 1997. Mr. Cross has served as President--West of Pacer Intermodal,
the intermodal operations subsidiary of Logistics, and Executive Vice
President of Interstate since May 1998. From 1991 until March 1997, Mr. Cross
served as President of ABL-TRANS, formerly a division of PMTC and now a
division of ICSI.
Richard P. Hyland has been an Executive Vice President of the Company and
President--East of Pacer Intermodal since June 1998. He is the founder of
Cross Con and has served as President of Cross Con since 1977.
Allen E. Steiner has served as an Executive Vice President of the Company
and Interstate since December 1997. Since May 1998, Mr. Steiner has served as
Executive Vice President of Logistics. Mr. Steiner was a co-founder of ICI and
ICSI in 1972. From 1972 until December 1997, Mr. Steiner served as President
and Treasurer of ICI and Vice President and Secretary of ICSI and IMCS.
Lawrence C. Yarberry has been an Executive Vice President, Chief Financial
Officer and Treasurer of the Company since May 1998 and served as a consultant
to the Company from February 1998 until April 1998. From April 1990 until
December 1997, Mr. Yarberry served as Vice President of Finance of Southern
Pacific Transportation Company. From April 1990 until September 1996 he also
served as Chief Financial Officer and director of Southern Pacific
Transportation Company, and was Vice President of Finance and Chief Financial
Officer of Southern Pacific Rail Corporation ("SPRC"). He also served as a
director of SPRC from April 1990 until August 1993.
Joseph P. Atturio has served as Vice President and Secretary of the Company
since its inception in March 1997 and as Controller since May 1998. Mr.
Atturio also served as Treasurer of the Company from March 1997 until May
1998. Prior to joining the Company, Mr. Atturio served as Controller of SPMT
from August 1988 until December 1993 and as a Vice President of SPMT from July
1992 until December 1993. From January 1994 until March 1997 he served as Vice
President and Controller of PMTC and was a Regional Director of PMT Auto
Transport, a division of PMTC, from January 1986 until July 1988.
Edward L. Moyers has agreed to become a director of the Company upon
consummation of this offering. Since June 1996, Mr. Moyers has served as
Chairman and Chief Executive Officer of Brazil Rail Partners, LLC. From July
1993 until February 1995 he served as director, President and Chief Executive
Officer of Southern Pacific Rail Corporation and as President and Chief
Executive Officer of Southern Pacific Transportation Company. From March 1989
until February 1993 he served as Director, President and Chief Executive
Officer of Illinois Central Corporation ("ICC") and its wholly owned
subsidiary, The Illinois Central Railroad Company ("ICRC"). He also served as
Chairman of ICC and ICRC from 1990 until February 1993.
Jeffery M. Boetticher has agreed to become a director of the Company upon
consummation of this offering. Mr. Boetticher served as Chairman and Chief
Executive Officer of Black Box Corporation ("Black Box"), a provider of
computer networking, communications, services and equipment, from 1991 until
June 1998. He has been a director of Black Box since 1991. He has also served
as a director and as Chairman of JLK Direct since July 1997.
38
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors intends to establish an Audit
Committee prior to the consummation of this offering to make recommendations
concerning the engagement of independent public auditors; review with the
independent public auditors the plans for and scope of the audit, the audit
procedures to be used and results of the audit; approve the professional
services provided by the independent public auditors; review the independence
of the independent public auditors; and review the adequacy and effectiveness
of the Company's internal accounting controls.
Compensation Committee. The Board of Directors intends to establish a
Compensation Committee prior to the consummation of this offering to determine
compensation for the Company's executive officers and key employees and to
administer the 1997 Option Plan, the 1998 Option Plan and other Company
benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
To date, the Company's Board of Directors has established levels of
compensation for the Company's executive officers. There are not now, nor
following this offering will there be, any Compensation Committee interlocks
between the Company and other entities involving the Company's executive
officers and Board members who serve as executive officers or Board members of
such other entities.
DIRECTOR COMPENSATION
Following this offering, non-employee directors will receive an annual
retainer of $12,000 and will be paid a customary fee for attendance at each
meeting of the Board or committee thereof, including reimbursement for
reasonable expenses. Employee and consultant directors will not receive
additional compensation for serving on the Board. It is expected that non-
employee directors will be granted options under the 1998 Option Plan.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Chief Executive
Officer of the Company and to each of the three other most highly compensated
executive officers of the Company (the "Named Executive Officers") with
respect to fiscal 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------- ---------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL FISCAL OTHER ANNUAL STOCK ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SARS COMPENSATION
------------------ ------ -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Orris......... 1997 $123,750 $ 83,000 $16,134 36,666.66(2) $ --
President and Chief
Executive Officer
Gerry Angeli............ 1997 194,190 108,440 8,242 36,666.66(2) 232,040(3)
Vice President and
Assistant Secretary
Robert L. Cross......... 1997 193,758 83,000 14,128 36,666.66(2) 65,000(3)
Vice President and
Assistant Secretary
Joseph P. Atturio....... 1997 104,475 37,127 4,624 -- 71,100(3)
Vice President,
Secretary and Treasurer
</TABLE>
- --------
(1) Includes car allowance or use of a Company car, 401(k) matching
contributions and life insurance.
(2) Indicates number of Option Units, each of which consists of nine and one-
half shares of Common Stock and one share of Series A Preferred Stock.
(3) Change in control payment.
39
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options during fiscal 1997 to
the Named Executive Officers pursuant to the 1997 Option Plan. No stock
appreciation rights have ever been granted to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATE OF STOCK
PERCENTAGE PRICE
OF APPRECIATION
NUMBER OF SHARES OPTIONS/SARS FOR OPTION
UNDERLYING OPTIONS/SARS GRANTED TO EXERCISE OR TERM(2)
-------------------------EMPLOYEES-IN BASE PRICE EXPIRATION ---------------
NAME COMMON PREFERRED FISCAL YEAR PER UNIT(1) DATE 5% 10%
---- ------------ ------------------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald C. Orris......... 221,666.64 23,333.33 64% $11.24 3/31/07 308,804 522,678
126,666.64 13,333.33 36% 40.00 3/31/03 -- --
Gerry Angeli............ 221,666.64 23,333.33 64% 11.24 3/31/07 308,804 522,678
126,666.64 13,333.33 36% 40.00 3/31/03 -- --
Robert L. Cross......... 221,666.64 23,333.33 64% 11.24 3/31/07 308,804 522,678
126,666.64 13,333.33 36% 40.00 3/31/03 -- --
Joseph P. Atturio....... -- -- -- -- -- -- --
</TABLE>
- --------
(1) Each Unit consists of 9.5 shares of Common Stock and one share of Series A
Preferred Stock.
(2) Based upon the estimated fair value of the Common Stock on the date of
grant and assumed appreciation over the term of the options at the
respective annual rates of stock appreciation shown. Potential gains are
net of the exercise price but before taxes and other expenses associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
the future price of the Common Stock. Actual gains, if any, on stock
option exercises are dependent on the future financial performance of the
Company, the future performance of the Company's Common Stock and overall
market conditions. The actual value realized may be greater or less than
the potential realizable value set forth in the table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUE
The following table presents information as of the end of fiscal 1997 with
respect to the unexercised options to purchase the Common Stock granted under
the Option Plan to the Named Executive Officers. No options were exercised
during the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED IN
SHARES UNDERLYING UNEXERCISED THE MONEY OPTIONS/SARS AT
ACQUIRED OPTIONS/SARS AT YEAR-END FISCAL YEAR-END
NAME AND PRINCIPAL ON VALUE ------------------------- -------------------------
POSITION EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Orris......... -- -- 126,666.64 221,666.64 6,667 682,733
President and Chief
Executive Officer
Gerry Angeli............ -- -- 126,666.64 221,666.64 6,667 682,733
Vice President and
Assistant Secretary
Robert L. Cross......... -- -- 126,666.64 221,666.64 6,667 682,733
Vice President and
Assistant Secretary
Joseph P. Atturio....... -- -- -- -- -- --
Vice President,
Secretary and Treasurer
</TABLE>
40
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements dated as of March 31,
1997 with each of Donald C. Orris, Gerry Angeli and Robert L. Cross
(collectively, the "PMTC Employment Agreements"), employment agreements dated
as of December 16, 1997 with each of Gary I. Goldfein and Allen E. Steiner
(the "Interstate Employment Agreements") and an employment agreement with
Richard P. Hyland dated as of June 5, 1998 (the "Hyland Employment Agreement,"
and together with the PMTC Employment Agreements and the Interstate Employment
Agreements, the "Employment Agreements"). Base compensation under the
Employment Agreements is $225,000, $225,000, $200,000, $235,000, $220,000 and
$220,000 per year for Messrs. Orris, Angeli, Cross, Goldfein, Steiner and
Hyland, respectively, subject to increase by the Board of Directors, except in
the case of Mr. Orris, in which case base compensation is subject to increase
on the second anniversary thereof to reflect customary market compensation and
thereafter as agreed by Mr. Orris and the Board of Directors.
Under the PMTC Employment Agreements, the Board of Directors may award an
annual bonus to the employee in an amount up to $83,000 and under the
Interstate Employment Agreements and the Hyland Employment Agreement such
bonus may be in an amount up to $90,000. In each case, such bonus is based on
the attainment of certain operating income targets. The Company may terminate
the employee at any time and for any reason; provided that if the Employment
Agreements are terminated without cause (as defined in each such agreement),
the Company must pay the employee a severance amount determined in accordance
with a formula contained in that employee's agreement. In the case of certain
of the Employment Agreements, such severance also is due in the event of the
employee's death. In the case of the PMTC Employment Agreements, the employee
is prohibited from directly or indirectly competing with the Company during
the term of employment and the period beginning on the effective date of
termination of employment and ending on the third anniversary thereof. In the
case of the Interstate Employment Agreements and the Hyland Employment
Agreement, the employee is prohibited from directly or indirectly competing
with the Company during his employment period and the period beginning on the
effective date of any termination of employment and ending on the later of (i)
the second anniversary thereof and (ii) the fifth anniversary of the
commencement date of the employment agreement. There can be no assurance,
however, as to the enforceability of the Employment Agreements with respect to
such non-competition provisions. The restraint on competition by the employee
prohibits the employee from engaging in a competing business (as defined in
each agreement) and is geographically limited. Under the terms of each of the
Employment Agreements, the employee acknowledges that any confidential
information (as defined in each such agreement) that he may develop is the
sole property of the Company and agrees not to disclose to, or use for the
benefit of, any person or entity (other than the Company) any of such
confidential information, whether or not developed by him.
1997 STOCK OPTION PLAN
In order to further the growth and success of the Company by enabling
employees of and consultants to the Company to acquire Option Units and to
reward outstanding performances by such persons, the Company, pursuant to its
1997 Option Plan, has granted to certain of its employees options to purchase
an aggregate of 110,000 Option Units, each of which consists of nine and one-
half shares of Common Stock and one share of Series A Preferred Stock (subject
to adjustment in certain circumstances). If any options expire without being
exercised, the Company may, in accordance with the terms of the 1997 Option
Plan, grant additional Option Units with respect to those shares of Common
Stock and Series A Preferred Stock underlying the unexercised portion of such
expired Option Units.
The 1997 Option Plan may be administered by the Board of Directors or by a
two-person committee of the Board of Directors (the "Committee," and
references to the Committee shall mean the Board of Directors, if a committee
is not appointed). Grants of Option Units consist of (i) options intended to
qualify as incentive stock options ("ISOs") and (ii) non-qualified stock
options that are not intended to so qualify ("NSOs"). Except as set forth
below, the term of any such option is ten years.
41
<PAGE>
The Company has entered into Supplemental Stock Option Agreements and
Service Stock Option Agreements with each of Messrs. Orris, Angeli and Cross.
The Supplemental Stock Option Agreements provide for the option to purchase
Option Units at the price of $40.00 per Option Unit, which options expire not
later than the sixth anniversary of the date of grant. All options granted
pursuant to the Supplemental Stock Option Agreements are immediately
exercisable. The Service Stock Option Agreements provide for the option to
purchase Option Units at the price of $11.24 per Option Unit, which options
expire not later than the tenth anniversary of the date of grant. Of such
options, 25% vested and became exercisable on April 1, 1998, 25% will be
accelerated and vest and become exercisable upon the closing of this offering
and 25% will vest and become exercisable on April 1 of each of 2000 and 2001.
The option price of any ISO granted under the 1997 Option Plan will not be
less than the fair market value of the underlying shares of Common Stock and
Series A Preferred Stock on the date of grant; provided that the price of an
ISO granted to a person who owns more than 10% of the total combined voting
power of all classes of stock of the Company must be at least equal to 110% of
the fair market value of Common Stock and Series A Preferred Stock on the date
of grant and, in such case, the ISO's term may not exceed five years. The
option price of an NSO will be determined by the Committee in its sole
discretion, and may be greater than, equal to or less than the fair market
value of the underlying shares of Common Stock and Series A Preferred Stock on
the date of grant. A grantee may pay the option price in cash or personal or
certified check or by delivering shares of Common Stock and/or Series A
Preferred Stock already owned by the grantee for more than six months. In the
event of a Sale of the Company (as defined in the 1997 Option Plan), all
options that are otherwise subject to time vesting provisions automatically
will be subject to acceleration.
The Board of Directors may amend or modify the 1997 Option Plan at any time;
provided that, under certain circumstances, the approval of the stockholders
of the Company may be required. The 1997 Option Plan will terminate on the
earlier to occur of (i) the tenth anniversary of the effective date thereof
and (ii) consummation of a Sale of the Company (as defined in the 1997 Option
Plan).
1998 STOCK OPTION PLAN
In June 1998, the Company adopted the 1998 Option Plan and submitted such
plan to its existing stockholders for approval. The 1998 Option Plan will be
administered by the Committee. Under the 1998 Option Plan, the Committee may
grant ISOs and NSOs at an exercise price of not less than fair market value on
the date of grant to directors, officers and other key employees and
affiliates of the Company. The Committee will determine the number of shares
of Common Stock with respect to such awards and the terms of such awards,
including the applicable vesting periods. The maximum number of shares of
Common Stock subject to options that may be outstanding at any time under the
1998 Option Plan will be 650,000. The Company will not be able to issue more
than 650,000 shares of Common Stock under the 1998 Option Plan, except to the
extent that the Committee determines to grant options for an additional number
of shares equal to the number of shares surrendered to the Company to exercise
options granted under the 1998 Option Plan.
42
<PAGE>
CERTAIN TRANSACTIONS
The Company leases a facility consisting of office, warehousing and trucking
space from A&G Investments, a California general partnership of which Messrs.
Goldfein and Steiner are the only partners. Mr. Goldfein is a Director and
Executive Vice President of the Company, as well as President of Logistics.
Mr. Steiner is an Executive Vice President of the Company and of Logistics.
Lease payments in 1997 from the Company were $22,500 and are expected to be
approximately $540,000 in 1998.
On June 30, 1998, the Company paid each of Messrs. Goldfein and Steiner
$63,000, representing a purchase price adjustment in connection with the
Interstate Acquisition.
Under an Amended and Restated Management Consulting Agreement dated as of
December 16, 1997 between the Company, PMTC, ICI, ICSI, IMCS and Eos
Management, Inc. ("EMI"), the Company pays EMI a monthly management fee of
$10,416 for management consulting services rendered to the Company. In
addition, on December 17, 1997 and June 30, 1998, the Company paid EMI fees of
$100,000 and $40,000 pursuant to the management agreement for consulting
services rendered to the Company in connection with the Interstate and Cross
Con Acquisitions, respectively. Upon consummation of this offering, such
management agreement will be terminated. Following this offering, the Company
may from time to time retain EMI to provide management consulting services in
connection with specific transactions. Such arrangements will be on terms no
less favorable than those that would be available in a similar transaction
with an unrelated third party.
The Company provided over-the-road transportation services and purchased
Line Haul transportation services from UP and its subsidiaries for $6.1
million and $5.8 million, respectively, from March 1997 through December 31,
1997.
The Company's predecessor also provided over-the-road transportation
services and purchased Line Haul transportation services from UP and its
subsidiaries. During the three months ended March 31, 1997, and the years
ended December 31, 1996 and 1995, revenues earned by the Company's predecessor
from UP and its subsidiaries related to over-the-road transportation services
were $2.2 million, $4.8 million and $4.1 million, respectively. Purchased
transportation costs from UP and its subsidiaries were $2.7 million for the
three months ended March 31, 1997, $13.5 million for the year ended December
31, 1996 and $10.6 million for the year ended December 31, 1995.
Cross Con leases a facility consisting of office space from Richard P.
Hyland, an Executive Vice President of the Company and President and Chief
Executive Officer of Cross Con. Such lease is pursuant to an oral agreement
and is on a month to month basis. Lease payments are expected to be
approximately $36,000 in 1998, plus $16,000 for real estate taxes.
Pursuant to an Operations Agency Agreement, TEK, Incorporated ("TEK") is
entitled to 65% of the gross profit on Terminals' Detroit office. Thomas
Hyland, brother of Richard Hyland, is the owner of TEK. In 1997, TEK received
$350,990 pursuant to such Agreement.
Pursuant to an oral Commission/Bonus Agreement with Mark Hyland, an employee
of Cross Con and the brother of Richard Hyland, Mark Hyland is entitled to 30%
of the net profits before tax of the California office of Cross Con. In 1997,
Mark Hyland received $74,200 pursuant to such Agreement.
Prior to this offering, the Company intends to amend the terms of the Series
A Preferred Stock to provide that the Series A Preferred Stock may be redeemed
at the option of the Company. The Company currently intends to use a portion
of the proceeds of this offering to redeem all outstanding shares of Series A
Preferred Stock at face value. As a result of the foregoing, the Company will
make payments to Eos and Messrs. Orris, Angeli and Cross in the amounts of
$2,677,500, $157,500, $157,500 and $157,500, respectively. See "Use of
Proceeds." In addition, on June 30, 1998, the Company paid regular dividends
on the Series A Preferred Stock in the amounts of $321,300, $18,900, $18,900
and $18,900 to Eos and Messrs. Orris, Angeli and Cross, respectively.
The Company has entered into employment agreements with each of Messrs.
Orris, Angeli, Cross, Goldfein and Steiner. See "Management--Employment
Agreements."
The Company believes that the terms of each of the foregoing transactions
were no less favorable than could have been obtained in arm's-length
transactions with unaffiliated third parties.
43
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership as of June 30, 1998 of shares of Common Stock by (i) all
persons known by the Company to own beneficially more than 5% of the Common
Stock; (ii) each Selling Stockholder; (iii) each of the Company's directors;
(iv) each of the Named Executive Officers; and (v) all directors and executive
officers as a group. Unless otherwise indicated, the address of each person
listed is c/o the Company, 3746 Mt. Diablo Boulevard, Suite 110, Lafayette,
California 94549.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON
BENEFICIALLY OWNED SHARES STOCK BENEFICIALLY
PRIOR TO OFFERING TO BE OWNED AFTER OFFERING
NAME AND ADDRESS OF --------------------------- SOLD IN --------------------
BENEFICIAL OWNER NUMBER PERCENT(1) OFFERING NUMBER PERCENT(1)
------------------- ------------- ------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Eos Partners, L.P. ..... 2,826,250 51.98% 225,000(2) 2,601,250 30.92%
320 Park Avenue, 22nd
Floor
New York, New York
10022
Union Pacific Railroad 175,000 3.12 175,000 -- --
Company(3).............
1717 Main Street, 59th
Floor
Dallas, Texas 75201
Donald C. Orris(4)...... 348,333 6.20 -- 348,333 4.05
Gerry Angeli(4)......... 348,333 6.20 -- (5) 348,333 4.05
Douglas R. Korn(6)...... 2,826,250 51.98 225,000(2) 2,601,250 30.92
Gary I. Goldfein(7)..... 676,875 12.45 -- 676,875 8.05
Richard P. Hyland....... 541,500 9.96 -- 541,500 6.44
Allen E. Steiner(8)..... 676,875 12.45 -- 676,875 8.05
Robert L. Cross(4)...... 348,333 6.20 -- 348,333 4.05
Joseph P. Atturio....... -- -- -- --
All directors and
executive officers as a
group (8 persons)...... 5,766,500 96.37% 225,000 5,541,500 61.86%
</TABLE>
- --------
(1) Applicable percentage of ownership is based on 5,437,392 shares of Common
Stock outstanding as of June 30, 1998 and 8,412,392 shares of Common Stock
outstanding upon consummation of this offering. Beneficial ownership is
determined in accordance with the rules of the Commission and includes
voting and investment power with respect to securities. Securities subject
to options or warrants currently exercisable or exercisable within 60 days
of the date of this offering are deemed outstanding for purposes of
computing the percentage ownership of the person holding such options or
warrants but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Except for shares held jointly
with a person's spouse or subject to applicable community property laws,
or as indicated in the footnotes to this table, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by such
stockholder.
(2) Does not include up to 125,000 shares of Common Stock subject to the
Underwriters' overallotment option.
(3) Represents shares of Common Stock issuable upon exercise of the UPRC
Warrant.
(4) Includes 182,083 shares of Common Stock issuable upon the exercise of
presently exercisable options held by the stockholder.
(5) Does not include up to 25,000 shares of Common Stock subject to the
Underwriters' overallotment option.
(6) Includes 2,826,250 shares of Common Stock owned beneficially and of record
by Eos. Mr. Korn is a Managing Director of Eos. Mr. Korn disclaims
beneficial ownership of the shares of Common Stock held by Eos.
(7) All of Mr. Goldfein's shares are held by the Goldfein Living Trust, of
which Mr. Goldfein and his wife are the named beneficiaries.
(8) All of Mr. Steiner's shares are held by the Steiner Living Trust, of which
Mr. Steiner and his wife are the named beneficiaries.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $0.01 par value, and 5,000,000 shares of Preferred Stock, $0.01
par value (the "Preferred Stock"). The following description of the capital
stock of the Company is a summary of the material provisions of, and is
qualified in its entirety by reference to, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate") and Amended and Restated By-
laws (the "By-laws").
COMMON STOCK
The Certificate provides for the authorization of 20,000,000 shares of
Common Stock, par value $0.01 per share. Subject to the prior rights of any
series of Preferred Stock which may from time to time be authorized and
outstanding, holders of Common Stock are entitled to receive dividends out of
funds legally available therefor when, as and if declared by the Board of
Directors and to receive pro rata the net assets of the Company legally
available for distribution upon liquidation or dissolution.
Holders of Common Stock are entitled to one vote for each share of Common
Stock held on each matter to be voted on by the holders of Common Stock,
including the election of directors. Holders of Common Stock are not entitled
to cumulative voting, which means that the holders of more than 50% of the
outstanding Common Stock can elect all of the directors of any class if they
choose to do so. The stockholders do not have preemptive rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
Prior to this offering, there has been no public market for the Common
Stock. The Company intends to apply for the Common Stock to be quoted and
traded on the Nasdaq National Market under the symbol "PACR."
PREFERRED STOCK
The Certificate authorizes the issuance of 5,000,000 shares of Preferred
Stock, par value $0.01 per share, of which 600,000 shares have been designated
Series A Preferred Stock. All outstanding shares of Series A Preferred Stock
will be redeemed immediately prior to the consummation of this offering.
Following this offering, options to purchase 110,000 shares of Series A
Preferred Stock will remain outstanding under the 1997 Option Plan. The terms
of the Series A Preferred Stock provide that holders thereof are entitled to
receive cash dividends at the rate of 12% per annum, as, if and when declared
by the Board of Directors at its sole discretion. So long as any shares of
Series A Preferred Stock are outstanding, the Company may not pay or declare
any dividend on or with respect to any shares of Common Stock. Upon
liquidation, holders of Series A Preferred Stock will be entitled to receive,
prior and in preference to any distribution to any holder of Common Stock, an
amount per share equal to the original issuance price of such share, plus the
aggregate amount of all dividends declared, if any, less the aggregate amount
of all distributions, including payments of dividends. In general, holders of
Series A Preferred Stock will not be entitled to vote on any matters submitted
to the vote of stockholders except as set forth in the Certificate.
The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designations, preferences and
relative participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including the dividend rights, redemption
privileges, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the
stockholders of the Company. The issuance of Preferred Stock by the Board of
Directors could adversely affect the rights of holders of Common Stock. For
example, the issuance of Preferred Stock could result in a series of
securities outstanding that would have preferences over the Common Stock with
respect to dividends and in liquidation and that could (upon conversion or
otherwise) enjoy all of the rights appurtenant to Common Stock.
45
<PAGE>
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control
of the Company through merger, tender offer, proxy, consent or otherwise by
making such attempts more difficult to achieve or more costly. The Board of
Directors may issue Preferred Stock without stockholder approval and with
voting and conversion rights which could adversely affect the voting power of
holders of Common Stock. There are no agreements or understandings for the
issuance of Series A Preferred Stock and the Board of Directors has no present
intent to issue additional shares of Preferred Stock other than shares
issuable pursuant to the exercise of options granted under the 1997 Option
Plan.
DIRECTORS' LIABILITY
As authorized by the DGCL, the Certificate provides that no director of the
Company shall be liable to the Company or its stockholders for monetary
damages for breach of 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 a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or purchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of the provision in the Certificate is to eliminate the
rights of the Company and its stockholders to recover monetary damages against
a director for breach of fiduciary duty as a director except in the situations
described in clauses (i) through (iv) above. This provision does not limit or
eliminate the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a
director's fiduciary duty. In addition, the Certificate provides that if the
DGCL is amended to authorize the further elimination or limitation of the
liability of a director, then the liability of the directors shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended. These provisions do not alter the liability of directors under
federal securities laws.
The Certificate also contains provisions requiring the indemnification of
the Company's directors and officers to the fullest extent permitted by the
DGCL, including circumstances in which indemnification is otherwise
discretionary. The Company also has the power to maintain insurance, on terms
and conditions the Board deems acceptable, on behalf of officers and directors
against any expense, liability or loss arising out of such person's status as
an officer or director. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and officers.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the DGCL. Section
203 provides, with certain exceptions, that a Delaware corporation may not
engage in any of a broad range of business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board
of directors of the corporation before the person becomes an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned by
persons who are both officers and directors of the corporation, and shares
held by certain employee stock ownership plans); or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at
least 66 2/3% of the corporation's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder. An
"interested stockholder" is defined as any person (other than the corporation
or any direct or indirect majority owned subsidiary of the corporation) that
is (i) the owner of 15% or more of the outstanding voting stock of the
corporation or (ii) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
46
<PAGE>
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BY-LAWS
Certain provisions of the Certificate and By-laws of the Company summarized
below may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider
in its best interest, including an attempt that might result in the receipt of
a premium over the market price for the shares held by stockholders.
Classified Board of Directors. The Certificate provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, one-third of the Board of Directors will be
elected each year. Moreover, under Delaware Law, in the case of a corporation
having a classified board, stockholders may remove a director only for cause.
This provision, when coupled with the provision of the By-laws authorizing
only the Board of Directors to fill vacant directorships, will preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with its own nominees.
Special Meeting of Stockholders. The Certificate provides that special
meetings of stockholders of the Company may be called only by the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. This provision will make it more difficult for stockholders to take
actions opposed by the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Firstar Trust
Company.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
8,412,392 shares of Common Stock (8,742,392 if the Underwriters' over-
allotment option is exercised in full) of which the 3,200,000 shares sold in
the offering (3,680,000 if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, except for those held by "affiliates"
(as defined in the Securities Act) of the Company, which shares will be
subject to the resale limitations of Rule 144 under the Securities Act. The
remaining 5,212,392 shares of Common Stock are deemed "restricted securities"
under Rule 144 in that they were originally issued and sold by the Company in
private transactions in reliance upon exemptions under the Securities Act, and
may be publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act as described below.
In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from any affiliate of the issuer, the acquirer
or subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the issuer. In addition, if a period of at least two years has elapsed
since the later of the date of acquisition of restricted securities from the
issuer or from any affiliate of the issuer, and the acquirer or subsequent
holder thereof is deemed not to have been an affiliate of the issuer of such
restricted securities at any time during the 90 days preceding a sale, such
person would be entitled to sell such restricted securities under Rule 144(k)
without regard to the requirements described above. Rule 144 does not require
the same person to have held the securities for the applicable periods. The
foregoing summary of Rule 144 is not intended to be a complete description
thereof. The Securities and Exchange Commission (the "Commission") has
proposed certain amendments to Rule 144 that would, among other things,
eliminate the manner of sale requirements and revise the notice provisions of
that rule. The Commission has also solicited comments on other possible
changes to Rule 144, including possible revisions to the one- and two-year
holding periods and the volume limitations referred to above.
As of the closing of this offering, options to purchase approximately
1,045,000 shares of Common Stock will have been issued under the 1997 Option
Plan. In general, pursuant to Rule 701 under the Securities Act, any employee,
officer or director of, or consultant to, the Company who purchased his or her
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701, which permit non-affiliates to sell such
shares without compliance with the public information, holding period, volume
limitation or notice provisions of Rule 144, and permit affiliates to sell
such shares without compliance with the holding period provisions of Rule 144,
in each case commencing 90 days after the date of this Prospectus. In
addition, the Company intends to file a Registration Statement on Form S-8
covering the shares issuable upon exercise of stock options issued under the
1997 Option Plan and which may be granted in the future under the 1998 Option
Plan, in which case such shares of Common Stock generally will be freely
tradable by non-affiliates in the public market without restriction under the
Securities Act.
Prior to this offering, the Company expects to grant demand registration
rights to Eos and piggy-back registration rights to all of its existing
stockholders who will continue to be stockholders following this offering. It
is expected that such registration rights will be exercisable after the
expiration of the lock-up period described below. If such stockholders, by
exercising such registration rights, cause a large number of shares to be
registered and sold in the public market, such sales may have an adverse
effect on the market price of the Common Stock.
48
<PAGE>
The Company, the Selling Stockholders and the executive officers, directors
and other stockholders of the Company have agreed not to offer, sell, contract
to sell, grant any option or other right for the sale of, or otherwise dispose
of any shares of Common Stock or any securities, indebtedness or other rights
exercisable for or convertible or exchangeable into Common Stock owned or
acquired in the future in any manner for a period of 180 days following the
date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated, except for transfers by such stockholders pursuant to bona fide
gifts and except that the Company may, subject to certain conditions, issue
Common Stock in connection with acquisitions and may grant options (and issue
Common Stock upon exercise of options) under the 1997 Option Plan and the 1998
Option Plan. See "Underwriting." These restrictions will be applicable to any
shares acquired by any of those persons in this offering or otherwise during
the lockup period.
The Company currently intends to file a Registration Statement on Form S-1
covering up to an additional 2 million shares of Common Stock under the
Securities Act for its use in connection with future acquisitions. These
shares generally will be freely tradable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale.
Prior to this offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time
after this offering. The Company is unable to estimate the number of shares
that may be sold in the public market under Rule 144, or otherwise, because
such amount will depend on the trading volume in, and market price for, the
Common Stock and other factors. Nevertheless, sales of substantial amounts of
the Common Stock in the public market, or the perception that such sales might
occur, could adversely affect the market price of the Common Stock of the
Company and the Company's future ability to raise equity capital and complete
any additional acquisitions for Common Stock. See "Underwriting."
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
BT Alex. Brown Incorporated, PaineWebber Incorporated and Morgan Keegan &
Company, Inc. (together, the "Representatives"), have severally agreed to
purchase from the Company and the Selling Stockholders the following
respective number of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BT Alex. Brown Incorporated.......................................
PaineWebber Incorporated..........................................
Morgan Keegan & Company, Inc. ....................................
----
Total...........................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase the total number of shares of Common Stock offered hereby if any of
such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives that the Underwriters propose to offer the shares of Common
Stock to the public at the initial public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share to
certain other dealers. After commencement of the initial public offering, the
offering price and other selling terms may be changed by the Representatives.
The Company and certain of the Selling Stockholders have granted the
Underwriters options, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to an aggregate 480,000 additional shares of
Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise such options, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased
by it shown in the above table bears to 3,200,000, and the Company and the
Selling Stockholders will be obligated, pursuant to the options, to sell such
shares to the Underwriters. The Underwriters may exercise such options only to
cover over-allotments made in connection with the sale of the 3,200,000 shares
of Common Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 3,200,000 shares are
being offered.
50
<PAGE>
To facilitate this offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Common
Stock. Specifically, the Underwriters may over-allot shares of the Common
Stock in connection with this offering, thereby creating a short position in
the Underwriters' syndicate account. Additionally, to cover such over-
allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to engage in these activities, and, if
commenced, any such activities may be discontinued at any time. The
Representatives, on behalf of the Underwriters, also may reclaim selling
concessions allowed to an Underwriter or dealer, if the syndicate repurchases
shares distributed by that Underwriter or dealer.
The Underwriting Agreement contains covenants of indemnity and contribution
among the Underwriters, the Company and the Selling Stockholders regarding
certain liabilities, including liabilities under the Securities Act.
The Company, the Selling Stockholders, and the executive officers, directors
and other stockholders of the Company have agreed not to offer, sell, contract
to sell, grant any option or other right for the sale of, or otherwise dispose
of any shares of Common Stock or any securities, indebtedness or other rights
exercisable for or convertible or exchangeable into Common Stock owned or
acquired in the future in any manner for a period of 180 days following the
date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated, except for transfers by such stockholders pursuant to bona fide
gifts and except that the Company may, subject to certain conditions, issue
Common Stock in connection with acquisitions and may grant options (and issue
Common Stock upon exercise of options) under the 1997 Option Plan and the 1998
Option Plan.
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently the initial public offering price for the Common Stock
will be determined by negotiation between the Company and the Representatives.
Among the factors to be considered in such negotiations will be prevailing
market conditions, the results of operations of the Company in recent periods,
the market capitalization and stages of development of other companies which
the Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the state of the Company's
development and other factors deemed relevant.
51
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of the Common Stock offered
hereby will be passed upon for the Company by O'Sullivan Graev & Karabell,
LLP, New York, New York, and for the Underwriters by Morgan, Lewis & Bockius
LLP, Los Angeles, California.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports, have been audited by Arthur Andersen LLP,
independent public accountants, and are included in this Prospectus and in the
Registration Statement in reliance upon the authority of said firms as experts
in giving said reports.
The combined financial statements of Interstate Consolidation, Inc. and
Interstate Consolidation Service, Inc. and subsidiary as of December 16, 1997
and December 31, 1996 and for the two year period ending December 31, 1996 and
the period from January 1, 1997 to December 16, 1997 have been included herein
and in the registration statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP refers to a change in accounting
method for refunds from railroad companies.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Securities Act, including
amendments thereto, relating to the Common Stock offered hereby has been filed
by the Company with the Commission. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to such Registration Statement
and exhibits and schedules filed as a part thereof. A copy of the Registration
Statement may be inspected by anyone without charge at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwest Atrium Center, 500 West Madison Street, Suite 140, Chicago, Illinois
60661. Copies of all or any portion of the Registration Statement may be
obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The
Commission maintains a WorldWide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy and information
statements and other information may be found on the Commission's site
address, http://www.sec.gov. Copies of such material also can be obtained from
the Company upon request.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
As a result of this offering, the Company will become subject to the
information and periodic reporting requirements of the Securities Exchange
Act, as amended, and, in accordance therewith, will file periodic reports,
proxy statements and other information with the Commission. Such periodic
reports, proxy statements and other information will be available for
inspection and copying at the public reference facilities, regional offices
and Web site referred to above.
52
<PAGE>
GLOSSARY OF TERMS
TERMS MAY HAVE SEVERAL DIFFERENT MEANINGS IN THE FIELD OF TRANSPORTATION.
FOLLOWING ARE DEFINITIONS OF MOST COMMON USAGE.
Cartage.................... Trucking operations within a local market (e.g.
from one location to another in a metropolitan
area).
Consolidation/Deconsolidation..
Combining several shipments into one load to
provide more efficient and economical
transportation is the act of consolidation;
deconsolidation is the reciprocal.
Core Service Provider...... The entity selected by a customer to provide an
exclusive or semi-exclusive service within a
particular sector.
Drayage.................... The origination or completion of an intermodal
freight movement via truck.
Freight Brokerage.......... The act of a third party intermediating between
the shipper and the ultimate service provider.
Intermodal Marketing
Company (IMC).............
An entity which provides door-to-door shipping or
transportation services via multiple modes of
transportation, primarily including rail and
trucking.
Less-Than-Truckload
(LTL)...................... A shipment that is less than a full truckload and
is therefore usually shipped with similar loads.
Line Haul.................. The intercity movement of freight for a customer.
Special Commodity
Quotations (SCQs).........
A reduced rate offered to IMCs based on specific
commodities or volumes.
Supply Chain Management.... The process of optimizing the movement and
production of products from raw material to final
sale.
Truckload (TL).............
A shipment which because of either weight or size
is a full truckload.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Basis of Presentation................................................... F-2
Unaudited Pro forma Consolidated Balance Sheet as of March 31, 1998 .... F-3
Unaudited Pro forma Consolidated Statement of Operations for the three
months ended March 31, 1998............................................ F-5
Unaudited Pro forma Consolidated Statement of Operations for the year
ended December 31, 1997................................................ F-7
PACER INTERNATIONAL, INC.
HISTORICAL AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-9
Consolidated Balance Sheets as of December 31, 1997, March 31, 1997 and
December 31, 1996...................................................... F-10
Consolidated Statements of Operations for the nine months ended December
31, 1997, for the three months ended March 31, 1997, and for the years
ended December 31, 1996 and 1995....................................... F-11
Consolidated Statements of Changes in Stockholders' Equity for the nine
months ended December 31, 1997, for the three months ended March 31,
1997, and for the years ended December 31, 1996 and 1995............... F-12
Consolidated Statements of Cash Flows for the nine months ended December
31, 1997, for the three months ended March 31, 1997, and for the years
ended December 31, 1996 and 1995....................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.. F-29
Consolidated Statements of Operations for the three months ended March
31, 1998 and 1997...................................................... F-30
Consolidated Statement of Changes in Stockholders' Equity for the three
months ended March 31, 1998............................................ F-31
Consolidated Statements of Cash Flows for the three months ended March
31, 1998 and 1997...................................................... F-32
Notes to Consolidated Financial Statements.............................. F-33
INTERSTATE
HISTORICAL AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-39
Combined Balance Sheets as of December 16, 1997 and December 31, 1996... F-40
Combined Statements of Earnings and Retained Earnings for the period
from January 1, 1997 through December 16, 1997 and for the years ended
December 31, 1996 and 1995............................................. F-41
Combined Statements of Cash Flows for the period from January 1, 1997
through December 16, 1997, and for the years ended December 31, 1996
and 1995............................................................... F-42
Notes to Combined Financial Statements.................................. F-43
CROSS CON
HISTORICAL AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-49
Combined Balance Sheets as of December 31, 1997 and 1996................ F-50
Combined Statements of Operations for the years ended December 31, 1997,
1996 and 1995.......................................................... F-51
Combined Statements of Stockholders' Equity for the years ending
December 31, 1997, 1996, and 1995...................................... F-52
Combined Statements of Cash Flows for the years ending December 31,
1997, 1996, and 1995................................................... F-53
Notes to Consolidated Financial Statements.............................. F-54
UNAUDITED INTERIM FINANCIAL STATEMENTS
Combined Balance Sheets as of March 31, 1998 and December 31, 1997...... F-58
Combined Statements of Operations for the three months ended March 31,
1998 and 1997.......................................................... F-59
Combined Statement of in Stockholders' Equity for the three months ended
March 31, 1998......................................................... F-60
Combined Statements of Cash Flows for the three months ended March 31,
1998 and 1997.......................................................... F-61
Notes to Consolidated Financial Statements.............................. F-62
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The pro forma consolidated balance sheet as of March 31, 1998 gives effect
to the Stutz Acquisition and the Cross Con Acquisition as if such transactions
occurred at such date. The pro forma consolidated statement of operations for
the nine months ended December 31, 1997 ("Fiscal 1997") and the three months
ended March 31, 1998 give effect to the Acquisitions, as if they had been
completed on April 1, 1997. The information presented under "Fiscal 1997"
presents the actual results of the Company, including the results of
Interstate subsequent to the Interstate Acquisition on December 16, 1997. The
pro forma financial information gives effect to pro forma adjustments that are
based upon available information and certain assumptions that the Company
believes are reasonable. The Acquisitions have been accounted for under the
purchase method of accounting. The allocation of the purchase price to the
underlying net assets acquired is based upon preliminary estimates of the fair
value of the net assets, as prescribed by the purchase method of accounting,
as more fully described in the Company's financial statements appearing
elsewhere in this Prospectus.
The Company paid $20.0 million for Interstate and issued 1,353,750 shares of
Common Stock which were valued at $4.5 million by an independent appraisal.
The Company paid $400,000 for Stutz and issued 217,142 shares of Common Stock
which were valued at $1.4 million. Up to 126,664 of such shares of Common
Stock are subject to forfeiture in the event that Stutz fails to meet certain
operating performance levels ($0.5 million in revenue per quarter) over the
two-year period subsequent to the Stutz Acquisition. Under the terms of the
Cross Con purchase agreement, the Company paid $10.5 million for Cross Con and
issued 541,500 shares valued at $4.8 million. In addition, the Cross Con stock
purchase agreement provides that up to $1.5 million in additional proceeds may
be paid to Richard Hyland if Cross Con meets certain operating performance
levels (earnings before interest and taxes in excess of $3.0 million) during
the period from January 1, 1998 through December 31, 1998. Such payment may be
made in cash or shares of Common Stock at fair market value, at the election
of Richard Hyland. The Company borrowed $20.0 million to finance the
Interstate Acquisition, $0.4 million to finance the Stutz Acquisition and
$10.1 million to finance the Cross Con Acquisition. The purchase prices in
excess of the fair value of net assets acquired for Interstate, Stutz and
Cross Con of $21.0 million, $1.5 million and $13.1 million, respectively, have
been allocated to goodwill for purposes of the pro forma presentation.
The pro forma financial information should be read in conjunction with the
historical financial statements and the other financial information pertaining
to the Company, including "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
The pro forma financial information does not purport to be indicative of the
results that would have been obtained had such transactions been completed as
of the assumed dates and for the periods presented or that may be obtained in
the future.
F-2
<PAGE>
PACER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
COMPANY
HISTORICAL
MARCH 31, CROSS CON STUTZ PRO FORMA
1998 HISTORICAL HISTORICAL ADJUSTMENTS(2) PRO FORMA
ASSETS ---------- ---------- ---------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.. $ 87 $ 135 $ 20 $ -- $ 242
Accounts receivable, net... 19,877 5,742 406 -- 26,025
Prepaid expenses and oth-
er........................ 647 41 -- -- 688
------- ------ ---- ------- -------
Total current assets... 20,611 5,918 426 -- 26,955
------- ------ ---- ------- -------
Property and equipment, net.. 2,008 163 313 -- 2,484
Other assets:
Intangible assets, net..... 32,489 -- -- 14,529 (6) 47,918
Deferred income taxes...... 38 -- -- -- 38
Other assets............... 988 -- 6 -- 994
------- ------ ---- ------- -------
Total assets........... $56,134 $6,081 $745 $14,529 $78,389
======= ====== ==== ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
<S> <C> <C> <C> <C> <C>
Current liabilities:
Current maturities of debt
and capital leases........ $ 2,459 $ 19 $ 3 $ -- $ 2,481
Accounts payable........... 10,868 3,764 191 -- 14,823
Accrued expenses........... 8,946 436 -- -- 9,382
Income taxes payable....... 437 -- 4 -- 441
Deferred income taxes...... 143 -- -- -- 143
------- ------ ---- ------- -------
Total current liabili-
ties.................. 22,853 4,219 198 -- 27,270
Long-term liabilities
Employee benefits.......... 678 -- -- -- 678
Long-term debt and capital
leases.................... 22,079 -- 171 10,550 (3) 33,700
------- ------ ---- ------- -------
Total liabilities...... 45,610 4,219 369 10,550 61,648
------- ------ ---- ------- -------
Stockholders' equity
Preferred stock............ 4 -- -- 4
Common stock............... 5 -- 8 (4) 13
Warrants................... 53 -- -- 53
Additional paid-in capi-
tal....................... 7,981 1 6,208 14,190
Retained earnings.......... 2,481 1,861 376 (2,237)(5) 2,481
------- ------ ---- ------- -------
Total stockholders' eq-
uity.................. 10,524 1,862 376 3,979 16,741
------- ------ ---- ------- -------
Total liabilities and
stockholders' equity.. $56,134 $6,081 $745 $14,529 $78,389
======= ====== ==== ======= =======
</TABLE>
F-3
<PAGE>
PACER INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Includes the historical results of Pacer, including the results of
Interstate.
(2) Adjustments are based on events that are directly attributable to the
transaction and are computed assuming the transaction was consummated at
the end of the most recent period presented using the purchase method of
accounting.
(3) Reflects net borrowings of $10.6 million under the Company's Credit
Agreement to affect the purchases.
(4) Reflects the equity issued to the former owners of Stutz and Cross Con in
connection with the purchases.
(5) Reflects the historical retained earnings of Stutz and Cross Con.
(6) Reflects the difference between the cost of the companies acquired and the
preliminary costs assigned to the assets acquired less liabilities assumed
as required under the purchase method of accounting.
F-4
<PAGE>
PACER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
PACER --------------------------------------------
INTERNATIONAL, INC. CROSS CON STUTZ PRO FORMA
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED OTHER ENDED
MARCH 31, 1998 (1) MARCH 31, 1998 MARCH 31, 1998 ADJUSTMENTS(2) MARCH 31, 1998
------------------- -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................ $50,362 $13,439 $1,245 $(464)(3) $64,582
Cost of transportation
and services........... 42,003 11,810 845 (464)(3) 54,194
------- ------- ------ ----- -------
Net revenues......... 8,359 1,629 400 -- 10,388
Operating expenses:
Selling, general, and
administrative........ 5,634 967 112 (11)(4) 6,702
Depreciation and
amortization.......... 341 5 46 106 (5) 498
------- ------- ------ ----- -------
Income from
operations.......... 2,384 657 242 (95) 3,188
------- ------- ------ ----- -------
Interest expense
(income).............. 554 (30) 3 233 (6) 760
------- ------- ------ ----- -------
Income before tax
provision.............. 1,830 687 239 (328) 2,428
Income tax provision... 765 10 -- 240 (7) 1,015
------- ------- ------ ----- -------
Net income.............. 1,065 677 239 (568) 1,413
======= ======= ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Income per share(8):
<S> <C>
Basic:
Net income.............................................................. $ 0.26
==========
Pro forma weighted average shares outstanding........................... 5,437,392
==========
Diluted:
Net Income.............................................................. $ 0.22
==========
Pro forma weighted average shares outstanding........................... 6,499,216
==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
F-5
<PAGE>
PACER INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Includes the historical results of Pacer, including the results of
Interstate.
(2) Adjustments are based on historical results of operations of the
businesses, the allocation of purchase price to the net assets acquired,
interest on borrowings to effect the Acquisitions and other contractual
arrangements. Depreciation and amortization have been reflected in
accordance with the Company's accounting policy for the related item.
(3) Reflects the elimination of intercompany revenues and direct costs between
Stutz and Pacer.
(4) Reflects compensation differentials to former owners of Interstate, Stutz
and Cross Con that were contractually agreed to and directly attributable
to the purchase transactions.
(5) Reflects amortization of goodwill. Goodwill is being amortized over 40
years for Pacer, Interstate and Cross Con and 15 years for Stutz based on
the expected periods to be benefited.
(6) Reflects additional interest on borrowings used to finance the
Acquisitions based on the current interest rate of 8.7%.
(7) Reflects an increase in the income tax provision associated with the
increase in income before taxes and provisions for Stutz and Cross Con
which were previously taxed as Subchapter S corporations. The income tax
provision has been calculated assuming a pro forma effective tax rate of
41.8%.
(8) Pro forma basic weighted average shares outstanding include shares issued
at inception of the Company, as well as the total shares issued to effect
the acquisitions as if the shares had been outstanding for the entire
period. Pro forma diluted weighted average shares outstanding include the
pro forma basic amount plus the dilutive effect of options and warrants.
Basic and diluted weighted average shares outstanding have been computed
for all periods retroactively reflecting the effect of a 9.5 to 1 stock
split effected on the date of the initial public offering.
F-6
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------------------
INTERSTATE
ELEVEN AND
ONE-HALF
MONTHS ENDED
PACER DECEMBER 16,
INTERNATIONAL, INC. (1) 1997 STUTZ CROSS CON ADJUSTMENTS(2) PRO FORMA
----------------------- ------------ ------ --------- -------------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $100,640 $83,877 $3,571 $51,643 $ (892)(3) $ 238,859
Cost of transportation
and services........... 85,211 69,631 2,376 45,967 (892)(3) 202,295
-------- ------- ------ ------- ------- ---------
Net revenues......... 15,429 14,246 1,195 5,676 -- 36,546
Operating expenses:
Selling, general, and
administrative........ 11,099 9,667 556 3,925 (238)(4) 25,009
Depreciation and
amortization.......... 440 238 99 48 994 (5) 1,819
Transaction costs...... 510 -- -- -- (510)(6) --
-------- ------- ------ ------- ------- ---------
Income from
operations.......... 3,380 4,341 540 1,703 (246) 9,718
Interest expense
(income).............. 659 (114) 8 (85) 2,587 (7) 3,055
-------- ------- ------ ------- ------- ---------
Income before tax
provision.............. 2,721 4,455 532 1,788 (2,833) 6,663
Income tax provision... 1,057 921 -- 29 778 (8) 2,785
-------- ------- ------ ------- ------- ---------
Net income.............. $ 1,664 $ 3,534 $ 532 $ 1,759 $(3,611) $ 3,878
======== ======= ====== ======= ======= =========
<CAPTION>
Income per share(9):
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income............ $ 0.71
=========
Pro forma weighted
averages shares
outstanding.......... 5,437,392
=========
Diluted:
Net income............ $ 0.60
=========
Pro forma weighted
averages shares
outstanding.......... 6,499,216
=========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of
Operations
F-7
<PAGE>
PACER INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Includes the historical results of Pacer and the Predecessor, including
the results of Interstate subsequent to its acquisition. The historical
results of the Predecessor for the period from January 1, 1997 through
March 31, 1997 have been combined with the results of the Company for the
period from April 1, 1997 to December 31, 1997 in order to present the
historical information for the full year. As a result of the acquisition
of the Predecessor by Pacer on March 31, 1997, the historical data for the
Predecessor and the Company are not comparable in certain respects.
(2) Adjustments are based on historical results of operations of the
businesses, the allocation of purchase price to the net assets acquired,
interest on borrowings to effect the Acquisitions and other contractual
arrangements. Depreciation and amortization have been reflected in
accordance with the Company's accounting policy for the related item.
(3) Reflects the elimination of intercompany revenues and direct costs between
Stutz and Pacer.
(4) Reflects compensation differentials to former owners of Interstate, Stutz
and Cross Con that were contractually agreed to and directly attributable
to the purchase transactions.
(5) Reflects amortization of goodwill. Goodwill is being amortized over 40
years for Pacer, Interstate and Cross Con and 15 years for Stutz based on
the expected periods to be benefited.
(6) Reflects the elimination of non-recurring transaction costs incurred in
connection with the sale of the Predecessor to the Company. Such costs
would not have been incurred if the Predecessor was not sold.
(7) Reflects additional interest on borrowings used to finance the
Acquisitions based on the current interest rate of 8.7%.
(8) Reflects an increase in the income tax provision associated with the
increase in income before taxes and provisions for Stutz and Cross Con
which were previously taxed as Subchapter S corporations. The income tax
provision has been calculated assuming a pro forma effective tax rate of
41.8%.
(9) Pro forma basic weighted average shares outstanding include shares issued
at inception of the Company, as well as the total shares issued to effect
the acquisitions as if the shares had been outstanding for the entire
period. Pro forma diluted weighted average shares outstanding include the
pro forma basic amount plus the dilutive effect of options and warrants.
Basic diluted weighted average shares outstanding have been computed
reflecting the effect of a 9.5 to 1 stock split effected on the date of
the initial public offering.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pacer International, Inc.:
We have audited the accompanying consolidated balance sheet of Pacer
International, Inc. (a Delaware corporation) and Subsidiaries (the Company) as
of December 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from inception, March 31,
1997, through December 31, 1997. We have also audited the accompanying balance
sheets of the Predecessor (business identified in Note 1) as of March 31,
1997, and December 31, 1996, and the related statements of operations,
stockholders' equity and cash flows for the period from January 1, 1997,
through March 31, 1997, and for the years ended December 31, 1996 and 1995.
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 financial position of Pacer International, Inc.
and Subsidiaries as of December 31, 1997, and the results of their operations
and their cash flows for the period from inception, March 31, 1997, through
December 31, 1997, and the financial position of the Predecessor as of March
31, 1997, and December 31, 1996, and the result of its operations and its cash
flows for the period from January 1, 1997, through March 31, 1997, and for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
San Francisco, California,
May 15, 1998
F-9
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------ ----------------------
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1997 1996
------------ --------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 86 $ 1,623 $ 2,636
Accounts receivable, net of allowances of
$763, $800 and $764, respectively....... 20,729 7,852 11,367
Prepaid expenses and other............... 765 647 312
Deferred income taxes.................... -- 947 639
------- ------- -------
Total current assets................... 21,580 11,069 14,954
------- ------- -------
Property and equipment:
Property and equipment, at cost.......... 1,880 716 683
Accumulated depreciation................. (146) (464) (465)
------- ------- -------
Property and equipment, net............ 1,734 252 218
Other assets:
Advances to affiliates................... -- -- 21,865
Intangible assets, net................... 32,717 -- --
Deferred income taxes.................... 43 -- 526
Other assets............................. 993 29 19
------- ------- -------
Total assets........................... $57,067 $11,350 $37,582
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital leases.......................... $ 1,810 $ -- $ --
Accounts payable......................... 10,068 4,063 5,228
Accrued expenses......................... 9,447 4,323 3,977
Income taxes payable..................... 389 -- 949
Deferred income taxes.................... 177 -- --
------- ------- -------
Total current liabilities.............. 21,891 8,386 10,154
Long-term liabilities:
Employee benefits........................ 672 -- 1,361
Long-term debt and capital leases........ 25,045 -- --
------- ------- -------
Total liabilities...................... 47,608 8,386 11,515
------- ------- -------
Stockholders' equity:
Preferred stock at December 31, 1997:
$0.01 par value, 600,000 shares
authorized, 350,000 shares issued and
outstanding; at March 31, 1997, and
December 31, 1996: no shares authorized
or outstanding.......................... 4 -- --
Common stock at December 31, 1997: $0.01
par value, 5,700,000 shares authorized,
4,678,750 shares issued and outstanding;
at March 31, 1997, and December 31,
1996: $100.00 par value, 47,500 shares
authorized, 48 shares issued and
outstanding............................. 5 1 1
Warrants at December 31, 1997: 18,421
outstanding............................. 53 -- --
Additional paid-in capital............... 7,981 2,998 2,998
Retained earnings (accumulated deficit).. 1,416 (35) 23,068
------- ------- -------
Total stockholders' equity............. 9,459 2,964 26,067
------- ------- -------
Total liabilities and stockholders'
equity................................ $57,067 $11,350 $37,582
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------- ------------------------------------------
MARCH 31, JANUARY 1, 1997,
1997, THROUGH THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues................ $ 81,102 $19,538 $86,766 $78,278
Cost of transportation
and services........... 68,713 16,498 73,116 65,900
---------- ------- ------- -------
Net revenues........ 12,389 3,040 13,650 12,378
Operating expenses:
Selling, general and
administrative
expenses............. 8,799 2,300 10,037 8,697
Depreciation and
amortization......... 403 37 93 88
Transaction costs..... -- 510 -- --
---------- ------- ------- -------
Income from
operations......... 3,187 193 3,520 3,593
Interest expense
(income)............... 659 -- (1,376) (1,383)
---------- ------- ------- -------
Income before income
tax provision and
extraordinary
loss............... 2,528 193 4,896 4,976
Income tax provision.... 983 74 1,888 1,940
---------- ------- ------- -------
Income before
extraordinary
loss............... 1,545 119 3,008 3,036
Extraordinary loss, net
of tax benefit of $86.. 129 -- -- --
---------- ------- ------- -------
Net income.......... $ 1,416 $ 119 $ 3,008 $ 3,036
========== ======= ======= =======
Income per share:
Basic:
Income before
extraordinary loss... $ 0.45
Extraordinary loss.... (0.04)
----------
Net income.......... $ 0.41
==========
Weighted average
shares outstanding... 3,403,480
==========
Diluted:
Income before
extraordinary loss... $ 0.37
Extraordinary loss.... (0.03)
----------
Net income.......... $ 0.34
==========
Weighted average shares
outstanding............ 4,141,041
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
THE PREDECESSOR
---------------------------------------------------------------
RETAINED
ADDITIONAL EARNINGS
PREFERRED COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK STOCK WARRANTS CAPITAL DEFICIT) EQUITY
--------- ------ -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994....... $-- $ 1 $-- $ 2,998 $ 17,024 $ 20,023
Net income............ -- -- -- -- 3,036 3,036
---- --- ---- ------- -------- --------
December 31, 1995....... -- 1 -- 2,998 20,060 23,059
Net income............ -- -- -- -- 3,008 3,008
---- --- ---- ------- -------- --------
December 31, 1996....... -- 1 -- 2,998 23,068 26,067
Dividend.............. -- -- -- -- (23,222) (23,222)
Net income............ -- -- -- -- 119 119
---- --- ---- ------- -------- --------
March 31, 1997.......... $-- $ 1 $-- $ 2,998 $ (35) $ 2,964
==== === ==== ======= ======== ========
<CAPTION>
THE COMPANY
---------------------------------------------------------------
RETAINED
ADDITIONAL EARNINGS
PREFERRED COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK STOCK WARRANTS CAPITAL DEFICIT) EQUITY
--------- ------ -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Elimination of
Predecessor............ $-- $(1) $-- $(2,998) $ 35 $ (2,964)
Formation of the
Company:
Issuance of common
stock................ -- 4 -- 346 -- 350
Issuance of preferred
stock................ 4 -- -- 3,146 -- 3,150
Issuance of warrants.. -- -- 53 -- -- 53
Issuance of common
stock to acquire
Interstate........... -- 1 -- 4,489 -- 4,490
Net income............ -- -- -- -- 1,416 1,416
---- --- ---- ------- -------- --------
December 31, 1997....... $ 4 $ 5 $ 53 $ 7,981 $ 1,416 $ 9,459
==== === ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------- ----------------------------------------
MARCH 31, JANUARY 1,
1997, THROUGH 1997, THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income............ $ 1,416 $ 119 $ 3,008 $ 3,036
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating activities:
Depreciation and
amortization......... 403 37 93 88
Deferred income
taxes................ 152 218 347 (116)
Changes in operating
assets and
liabilities:
Decrease (increase) in
accounts receivable,
net of allowances.... (3,870) 3,515 (1,028) (583)
Decrease (increase) in
prepaid expenses and
other................ 232 (335) (282) 11
Decrease (increase) in
other assets......... (466) (10) (17) 91
Increase (decrease) in
accounts payable..... 43 (1,165) 1,653 (2,775)
Increase (decrease) in
accrued expenses..... (745) 346 (535) 2,118
Increase (decrease) in
income taxes
payable.............. 157 (949) (84) (822)
Increase (decrease) in
employee benefits.... -- (1,361) 265 168
-------- -------- ------- -------
Net cash provided by
(used in) operating
activities.......... (2,678) 415 3,420 1,216
-------- -------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of
businesses, net of
cash of acquired
companies............ (9,616) -- -- --
Purchases of property
and equipment........ (420) (71) (167) (25)
-------- -------- ------- -------
Net cash used in
investing
activities.......... (10,036) (71) (167) (25)
-------- -------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Cash overdrafts....... 1,632 -- -- --
Proceeds on long-term
debt................. 20,654 -- -- --
Principal payments on
long-term debt....... (14,259) -- -- --
Proceeds from issuance
of common stock...... 315 -- -- --
Proceeds from issuance
of preferred stock... 2,835 -- -- --
Decrease (increase) in
advances to
affiliates........... -- 21,865 (630) (1,190)
Dividend paid......... -- (23,222)
-------- -------- ------- -------
Net cash provided by
(used in) financing
activities.......... 11,177 (1,357) (630) (1,190)
-------- -------- ------- -------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... (1,537) (1,013) 2,623 1
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD... 1,623 2,636 13 12
-------- -------- ------- -------
CASH AND CASH
EQUIVALENTS AT END OF
PERIOD................ $ 86 $ 1,623 $ 2,636 $ 13
======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
year for:
Interest.............. $ 568 $ -- $ -- $ --
======== ======== ======= =======
Income taxes.......... $ 588 $ 1,125 $ 1,626 $ 2,877
======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING
AND FINANCING
ACTIVITIES:
Promissory notes
issued for
acquisitions......... $ 19,983 $ -- $ -- $ --
======== ======== ======= =======
Stock issued for
acquisitions......... $ 4,490 $ -- $ -- $ --
======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS:
THE COMPANY
PMT Holdings, Inc. (PMT Holdings), a Delaware corporation, was formed on
March 31, 1997 (inception), to acquire all of the capital stock of Pacific
Motor Transport Company (PMT) in a management buyout that was funded in part
by Eos Partners, L.P. (Eos). On March 31, 1997, PMT Holdings acquired all
issued and outstanding shares of PMT from Union Pacific Railroad Company and
its subsidiaries (UP) for approximately $13 million in cash and warrants to
purchase 18,421 units of PMT Holdings stock. Each unit represents nine and
one-half shares of common stock and one share of preferred stock and may be
purchased by UP for $10 per unit. The purchase of PMT was accounted for using
the purchase method of accounting. Prior to acquisition, PMT was a provider of
truckload freight services and intermodal marketing services. On December 16,
1997, PMT Holdings acquired all of the capital stock of Interstate
Consolidation, Inc. (ICI) and Interstate Consolidation Service, Inc. (ICSI)
and its wholly owned subsidiary, Intermodal Container Service, Inc. (IMCS)
(ICI, ICSI and IMCS, collectively, Interstate) by issuing $20 million in
promissory notes and 142,500 shares of PMT Holdings stock. The acquisition of
Interstate was accounted for using the purchase method of accounting.
Interstate is a multipurpose provider of transportation services, including
intermodal marketing, cartage, and freight consolidation and handling. In May
1998, PMT Holdings was renamed Pacer International, Inc. (Pacer
International). The name change has been given retroactive application in
these consolidated financial statements.
The consolidated balance sheet as of December 31, 1997 includes the accounts
of Pacer International, a Delaware corporation, and its wholly owned
subsidiaries (the Company). The wholly owned subsidiaries are Pacer Transport,
Pacer Logistics and Pacer Rail/Mechanical/Services LLC. The consolidated
statements of operations, changes in stockholders' equity and cash flows
include the accounts of Pacer International from March 31, 1997, and the
results and cash flows of PMT (now operated as part of the Pacer Transport and
Pacer Logistics businesses) since its purchase on March 31, 1997, and
Interstate (operated as a part of the Pacer Logistics business) since its
purchase on December 16, 1997.
THE PREDECESSOR
The balance sheets as of March 31, 1997 and December 31, 1996, and the
statements of operations, stockholders' equity and cash flows for the period
from January 1, 1997 through March 31, 1997, and for the years ended December
31, 1996 and 1995, include the accounts of PMT (the Predecessor), with its two
operating divisions, Pacer and ABL-Trans.
NATURE OF OPERATIONS
The Company's business consists primarily of (i) intermodal marketing, which
involves the provision of brokerage and logistics services by coordinating the
transportation of goods by truck and rail, (ii) specialized trucking services,
including flatbed heavy-haul trucking, drayage and cartage, and (iii) other
transportation services, such as freight consolidation and handling. As a
nonasset-based service provider, the Company is able to focus its efforts on
providing value-added logistics solutions for its customers through its
network of sales personnel and third-party brokerage partnerships. The Company
primarily provides services to numerous global, national and regional
manufacturers and retailers.
Reliance on Agents and Independent Contractors
The Company relies upon the services of independent commission agents to
market its transportation services, to act as intermediaries with customers,
and to recruit independent contractors. Contracts with
F-14
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
agents and independent contractors are, in most cases, terminable upon short
notice by either party. Although the Company believes its relationships with
agents and independent contractors are good, there can be no assurance that
the Company will continue to be successful in retaining its agents and
independent contracts or that agents and independent contractors who terminate
their contracts can be replaced by equally qualified persons. Furthermore,
since agents have the primary relationship with customers and independent
contractors, a loss of an agent can result in the loss of customers or
independent contractors.
Dependence on Railroads and Equipment and Services Availability
The Company is dependent upon the major railroads in the United States for
substantially all of the intermodal services provided by the Company. In many
markets, rail service is limited to a few railroads or even a single railroad.
Consequently, a reduction in or elimination of rail service to a particular
market is likely to adversely affect the Company's ability to provide
intermodal transportation services to some of the Company's customers.
Furthermore, significant rate increases, work stoppage or adverse weather
conditions can impact the railroads and therefore the Company's ability to
provide cost-effective services to its customers.
In addition, the Company is dependent in part on the availability of truck,
rail, ocean and air services provided by independent third parties. If the
Company were unable to secure sufficient equipment or other transportation
services to meet its customers' needs, its results of operations could be
materially adversely affected on a temporary or permanent basis.
Concentration of Business on Intermodal Marketing
A significant portion of the Company's revenues is derived from intermodal
marketing. As a result, a decrease in demand for intermodal transportation
services relative to other transportation services could have a material
adverse effect on the Company's results of operations.
Concentration of Credit Risk and Customer Concentration
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. The Company
sells primarily on net 30-day terms, performs credit evaluation procedures on
its customers and generally does not require collateral on its accounts
receivable. The Company maintains an allowance for potential credit losses and
insures certain of its receivables at Interstate through a third party
insurance provider. Sales to the Company's ten largest customers constituted
31 percent of revenues for the nine months ended December 31, 1997.
Receivables from the ten largest customers constituted 33 percent of total
receivables at December 31, 1997. No customer constituted more than 10 percent
of revenues or receivables at December 31, 1997. The sales and receivable
trends are representative of prior periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
Pacer International and its wholly owned subsidiaries. All material
intercompany amounts and transactions have been eliminated in consolidation.
F-15
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less.
ACCOUNTS RECEIVABLE
Trade accounts receivable are reflected net of allowances for doubtful
accounts. Additionally, the Company records receivables for contractually
negotiated rail volume incentives in the period earned. Rail volume incentives
receivable were $1,865,000 at December 31, 1997, $310,000 at March 31, 1997,
and $845,000 at December 31, 1996.
PROPERTY AND EQUIPMENT
Property, plant and equipment purchased in acquisitions are recorded at fair
value as prescribed by the purchase method of accounting. Subsequent purchases
of property, plant and equipment are recorded at cost. For assets financed
under capital leases, the present value of the future minimum lease payments
is recorded at the date of acquisition as property and equipment, with a
corresponding amount recorded as a capital lease obligation.
Depreciation is computed on a straight-line basis over the following
estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
ASSET CLASSIFICATION LIFE
-------------------- ----------------
<S> <C>
Office equipment........................................ 3 to 5 years
Office furniture........................................ 3 to 10 years
Transportation equipment................................ 3 to 15 years
Communications system................................... 15 years
Assets under capital lease.............................. Term of lease
</TABLE>
SOFTWARE
Purchases of software are capitalized and amortized over three to five years
using the straight-line method. Costs related to internal development of
software are expensed as incurred.
INTANGIBLE ASSETS
Amortization is computed on a straight-line basis over the shorter of
estimated useful lives or contract periods. The Company amortizes goodwill
over 40 years and loan fees over the term of the underlying debt.
Goodwill represents the excess of cost over the estimated fair value of the
net tangible and intangible assets of acquired businesses. Should events or
circumstances occur subsequent to any business
F-16
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquisition that bring into question the realizable value or impairment of any
component of goodwill, the Company will evaluate the remaining useful life and
balance of goodwill and make appropriate adjustments. The Company's principal
considerations in determining impairment include the strategic benefit to the
Company of the particular business related to the questioned component of
goodwill as measured by undiscounted current and expected future operating
income levels of that particular business and expected undiscounted future
cash flows. The Company expenses the costs of start-up activities as incurred.
FINANCIAL INSTRUMENTS
The carrying amounts for cash, receivables and accounts payable approximate
fair value due to the short-term nature of these instruments. Other fair-value
disclosures are in the respective notes.
In order to decrease its exposure to unfavorable interest rate movements,
the Company may from time to time purchase interest rate protection agreements
to cap the interest rates on its floating rate obligations. The purchase price
of the interest rate protection agreements is capitalized and amortized over
the life of the agreement. Amortization of the purchase price is charged to
interest expense.
ACCIDENT AND CARGO CLAIMS
The Company is self-insured for a significant portion of its accident and
cargo claims. Reserves are provided for uninsured cargo claims and for the
uninsured costs of personal injury and property damage as a result of vehicle
accidents involving the network of independent owner-operator drivers.
Reserves are based on the Company's best estimate of its expected loss. Actual
losses, if not covered by insurance, at amounts significantly greater than the
recorded amounts could have a material adverse impact on the Company's
financial position and results of operations.
REVENUE RECOGNITION
Revenues and related expenses are recognized when shipment is complete.
NET REVENUES
Net revenues represent transportation and service revenues net of associated
transportation and service costs.
TRANSACTION COSTS
Transaction costs of $510,000 in connection with the sale of PMT primarily
related to legal and financial advisory services.
INCOME TAXES
Income taxes are recognized utilizing the asset and liability method, under
which deferred income taxes are recognized for the consequences of temporary
differences by applying currently enacted statutory rates to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
EARNINGS PER SHARE
Basic earnings per share were calculated by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. Diluted earnings per share include the impact of common stock options
and warrants outstanding. Earnings per share for all periods presented and all
share data reflect the Company's proposed 9.5 for 1 stock split effective at
the time of the Company's initial public offering of common stock.
F-17
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company adopted
the disclosure provisions of this statement.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." In 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 130 establishes
standards to measure all changes in equity that result from transactions and
other economic events other than transactions with owners. Comprehensive
income is the total of net income and all other nonowner changes in equity.
SFAS No. 131 introduces a new model for segment reporting called the
"management approach." The management approach is based on the manner in which
management organizes segments within a company for making operating decisions
and assessing performance. The management approach replaces the notion of
industry and geographic segments. SFAS No. 133 modifies the method of
accounting for derivative instruments. The Company will adopt SFAS No. 130 and
SFAS No. 131 in 1998 and SFAS No. 133 in 2000. The Company believes that
adoption of SFAS No. 130 will not significantly affect the Company's financial
position, results of operations or financial statement presentation. The
adoption of SFAS No. 131 will require the Company to disclose additional
information about its business segments. The adoption of SFAS No. 133 will
require the Company to modify its method of accounting for its interest rate
hedging activities. Based on information currently available, the Company does
not expect the adoption of SFAS No. 133 to have significant impact on its
financial position or results of operations.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." The
Company will adopt SOP 98-1 in 1999. The adoption of SOP 98-1 will require the
Company to modify its method of accounting for software. Based on information
currently available, the Company does not expect the adoption of SOP 98-1 to
have a significant impact on its financial position or results of operations.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------- ----------------------
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1997 1996
-------------- --------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Office equipment....................... $ 560 $ 494 $ 507
Office furniture....................... 137 35 35
Transportation equipment............... 930 187 141
Communications equipment............... 253 -- --
------ ----- -----
1,880 716 683
Less: Accumulated depreciation (146) (464) (465)
------ ----- -----
Property and equipment............... $1,734 $ 252 $ 218
====== ===== =====
</TABLE>
Depreciation expense of the Company for the period from inception through
December 31, 1997, was $146,000, and of the Predecessor for the period from
January 1, 1997, through March 31, 1997, and for the years ended December 31,
1996 and 1995, was $37,000, $93,000 and $88,000, respectively.
F-18
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ADVANCES TO AFFILIATES:
Advances to affiliates represented cash generated by the Predecessor and
advanced to UP. Advances earned interest at rates ranging from 5.2 percent to
6.0 percent based on monthly commercial paper rates, and interest income was
$1,376,000 and $1,383,000 for the years ended December 31, 1996 and 1995,
respectively. For the period from January 1, 1997, through March 31, 1997, UP
did not pay interest to the Predecessor. On March 31, 1997, the Predecessor
declared a dividend of $23,222,000, which was partially used by UP to repay
the Predecessor's advances.
5. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
THE COMPANY
--------------
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
--------------
<S> <C>
Goodwill...................................................... $32,479
Financing costs............................................... 430
Organizational costs.......................................... 65
-------
32,974
Less: Accumulated amortization (257)
-------
Total intangible assets..................................... $32,717
=======
</TABLE>
Amortization expense for the period from inception through December 31,
1997, was $257,000.
6. ACQUISITIONS:
From inception through December 31, 1997, the Company effected two
acquisitions. The initial acquisition of PMT by PMT Holdings occurred on March
31, 1997, and the acquisition of Interstate occurred on December 16, 1997. The
purchase price, certain costs related to the acquisitions, and the allocation
of the purchase price to the underlying net assets acquired in the
acquisitions were as follows:
<TABLE>
<CAPTION>
PMT INTERSTATE
--------- ------------
MARCH 31, DECEMBER 16,
1997 1997
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Purchase price........................................ $13,215 $ 24,472
Acquisition costs..................................... -- 770
------- --------
Total purchase price.............................. 13,215 25,242
------- --------
Less: Value assigned to assets and liabilities:
Current assets...................................... 9,803 13,011
Long-term assets.................................... 281 2,222
Current liabilities................................. (8,386) (10,024)
Long-term liabilities............................... -- (929)
------- --------
1,698 4,280
------- --------
Goodwill.......................................... $11,517 $ 20,962
======= ========
</TABLE>
F-19
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company accounted for these acquisitions under the purchase method of
accounting. The allocation of the purchase price to the underlying net assets
acquired is based upon preliminary estimates of the fair value of the net
assets, which may be revised at a later date. It is anticipated that any
purchase price allocation adjustments will be made within one year from the
date of acquisition. Management does not presently believe that the final
allocations of the purchase prices will have a material effect on the
Company's financial position or results of operations. Management continues to
monitor a class action lawsuit in which Interstate is a named defendant (Note
16). In connection with the acquisitions, the Company issued 1,353,750 shares
of common stock, which were valued at $3.32 per share, and issued warrants to
purchase 18,421 units. Warrants were valued at their estimated fair value
using the Black-Scholes model. Results of operations of the entities acquired
are included in the consolidated financial statements subsequent to their
purchase date. Pro forma operating results of the Company, assuming that the
March 31, 1997, and December 16, 1997, acquisitions occurred on January 1,
1996, are presented below (unaudited).
<TABLE>
<CAPTION>
APRIL 1, 1997, JANUARY 1, 1997, JANUARY 1, 1996,
THROUGH THROUGH THROUGH
DECEMBER 31, 1997 MARCH 31,1997 DECEMBER 31,1996
----------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues................ $ 146,055 $ 38,488 $ 155,328
========= ========= =========
Income before
extraordinary loss..... $ 2,775 $ 517 $ 2,858
========= ========= =========
Earnings per share
before extraordinary
loss:
Basic................. $ 0.59 $ 0.11 $ 0.61
========= ========= =========
Diluted............... $ 0.51 $ 0.09 $ 0.52
========= ========= =========
Weighted average shares
outstanding:
Basic................. 4,678,750 4,678,750 4,678,750
========= ========= =========
Diluted............... 5,471,934 5,471,934 5,471,934
========= ========= =========
</TABLE>
Pro forma adjustments were made to reflect interest expense on cash
consideration, amortization of goodwill, compensation differentials and income
taxes as if the entities were combined and subject to the Company's effective
tax rate for the periods presented.
7. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------- ----------------------
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1997 1996
-------------- --------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Accident and cargo claims.............. $2,134 $1,951 $1,868
Bank overdrafts........................ 1,632 -- --
Accrued compensation................... 1,212 223 272
Advances from customers................ 1,033 730 691
Road and fuel taxes.................... 738 699 654
Other.................................. 2,698 720 492
------ ------ ------
Total accrued expenses............... $9,447 $4,323 $3,977
====== ====== ======
</TABLE>
F-20
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT AND CAPITAL LEASES:
Debt and capital leases of the Company as of December 31, 1997, consisted of
the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Promissory note to shareholders................................. $19,983
Term loan in the amount of $20,000 requiring 27 consecutive
quarterly installment payments, with all unpaid principal and
interest due on November 21, 2004; the loan bears interest, at
the Company's option, at the prime rate plus 0.75 percent (9.25
percent at December 31, 1997) or LIBOR plus 3.00 percent (8.72
percent at December 31, 1997); the loan is secured by
substantially all of the Company's assets...................... --
Revolving line of credit in an amount up to $12,000; advances
under the line accrue interest, at the Company's option, at the
prime rate (8.5 percent at December 31, 1997) or LIBOR plus
2.25 percent (7.97 percent at December 31, 1997); the line is
secured by substantially all of the Company's assets and
expires on October 31, 2002.................................... 6,395
Capital leases.................................................. 477
-------
Total debt and capital leases................................. 26,855
Less: Current maturities........................................ 1,810
-------
Long-term portion............................................... $25,045
=======
</TABLE>
The promissory note to shareholders represents the cash portion of the
purchase price of the Interstate acquisition owed to the former owners of
Interstate, who became shareholders of PMT Holdings on December 16, 1997. The
amount was paid to these shareholders on January 2, 1998, and was financed by
the term loan of $20 million.
The revolving line of credit and term loan agreements require that the
Company meet certain covenants that, among other things, require maintenance
of ratios related to leverage and cash flow and limit the level of capital
expenditures.
Maturities of debt and capital leases are as follows:
<TABLE>
<CAPTION>
DEBT LEASES TOTAL
------- -------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
1998....................................... $ 1,630 $233 $ 1,863
1999....................................... 2,520 218 2,738
2000....................................... 2,720 98 2,818
2001....................................... 2,920 -- 2,920
2002....................................... 9,795 -- 9,795
Thereafter................................. 6,793 -- 6,793
Amount representing interest............... -- (72) (72)
------- ---- -------
$26,378 $477 $26,855
======= ==== =======
</TABLE>
The fair value of long-term debt, including the current portion,
approximates fair value because all amounts outstanding at December 31, 1997,
were issued in the current year and are representative of the terms and
interest rates that would be available to the Company at December 31, 1997. As
a hedge against exposure to interest rate risk, the Company entered into an
interest rate swap agreement which becomes effective July 8, 1998, to exchange
the variable interest rate obligations for fixed rate obligations on a portion
of the outstanding principal balance of the $20 million term loan described
above. The fixed rate under the swap is 5.9 percent. Net payments or receipts
under the agreement will be included in interest
F-21
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
expense. The Company is exposed to credit losses in the event of counterparty
nonperformance, but does not currently anticipate any such losses because the
counterparties are established, reputable financial institutions. The
agreement terminates in January, 2000.
9. INCOME TAXES:
The provision for income taxes from continuing operations consists of the
following:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------- ------------------------------------------
APRIL 1, 1997, JANUARY 1, 1997,
THROUGH THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
-------------- ---------------- ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal............... $706 $(144) $1,277 $1,690
State and local....... 125 -- 264 366
---- ----- ------ ------
831 (144) 1,541 2,056
---- ----- ------ ------
Deferred:
Federal............... 128 206 291 (97)
State and local....... 24 12 56 (19)
---- ----- ------ ------
152 218 347 (116)
---- ----- ------ ------
Total provision....... $983 $ 74 $1,888 $1,940
==== ===== ====== ======
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is
as follows:
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------- ------------------------------------------
APRIL 1, 1997, JANUARY 1, 1997,
THROUGH THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1997 1997 1996 1995
-------------- ---------------- ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal statutory income
tax rate............... 34.0% 34.0% 34.0% 34.0%
State income tax rate,
net of federal
benefit................ 4.0 3.8 4.3 4.5
Other items............. 0.9 0.5 0.3 0.5
---- ----- ------ ------
Net effective tax rate.. 38.9% 38.3% 38.6% 39.0%
==== ===== ====== ======
</TABLE>
F-22
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets and liabilities are composed of the following:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
-------------- ----------------------
DECEMBER 31, MARCH 31, DECEMBER 31,
1997 1997 1996
-------------- --------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Current deferred tax assets
(liabilities):
Accounts receivable................. $(460) $190 $(85)
Accrued expenses.................... 283 757 724
----- ---- ----
Total current deferred tax assets
(liabilities).................... $(177) $947 $639
===== ==== ====
Noncurrent deferred tax assets
(liabilities):
Depreciation and amortization....... $(175) $-- $--
Employee benefits................... -- -- 526
Deferred compensation............... 218 -- --
----- ---- ----
Total noncurrent deferred tax
assets (liabilities)............. $ 43 $-- $526
===== ==== ====
</TABLE>
The Predecessor was included in the federal and state consolidated tax
returns of UP and its subsidiaries prior to inception. The tax expense
recorded by the Predecessor approximates what would have been recorded had the
Predecessor filed separate tax returns.
10. STOCKHOLDERS' EQUITY:
PREFERRED STOCK
The Company has one class of $0.01 par value Series A Preferred Stock
(preferred stock). Holders of the preferred stock are entitled to receive
dividends in cash at the per annum rate of 12 percent of the original issuance
price of a preferred share as, if and when declared by the Board of Directors
of the Company at its sole discretion. So long as any shares of preferred
stock are outstanding, the Company may not pay or declare any dividend on or
with respect to any shares of common stock. Upon liquidation, the holders of
preferred stock are entitled to receive, prior and in preference to any
distribution to any holder of common stock, for each share of preferred stock,
an amount per share equal to the original issuance price of such share, plus
the aggregate amount of all dividends declared, if any, less the aggregate
amount of all distributions, including payments of dividends. In general, the
holders of preferred stock are not entitled to vote on any matters submitted
to the vote of stockholders except as set forth in the Company's Certificate
of Incorporation. Additionally, upon the closing of an initial public offering
by the Company, each share of preferred stock automatically converts to shares
of common stock based on the ratio of preferred stock original issuance price
divided by the initial public offering price of common stock. No dividends
have been declared on preferred stock. In connection with the Company's
initial public offering the Company plans to redeem all outstanding preferred
stock at face value prior to conversion to Common Stock.
COMMON STOCK
The Company has one class of $0.01 par value common stock. Each holder of
the Company's common stock is entitled to one vote for every share of common
stock owned. In connection with the purchase of ICI and ICS, the Company
issued 1,353,750 shares of common stock, which were valued at $3.32 per share.
F-23
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCKHOLDERS' AGREEMENT
The common and preferred stockholders are parties to a Stockholders'
Agreement that, among other items, places restrictions upon the transfer of
securities, gives the Company and other then existing stockholders the right
of first refusal to purchase securities offered for sale and includes other
rights. The Stockholders' Agreement will be canceled in connection with the
successful completion of the Company's initial public offering.
WARRANTS
The Company issued 18,421 warrants to UP in connection with the acquisition
of PMT on March 31, 1997. The exercise price is $10 per warrant, and each
warrant entitles UP to purchase one share of preferred stock and nine and one-
half shares of common stock. The warrants expire on March 31, 2007. The
warrants were valued using the Black-Scholes model.
DIVIDENDS
On March 31, 1997, prior to the acquisition by PMT Holdings, the Predecessor
declared a dividend of $23,222,000.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws and Delaware law could,
together or separately, discourage potential acquisition proposals, delay or
prevent a change in control of the Company or limit the price that certain
investors may be willing to pay in the future for shares of the common stock.
These provisions (i) classify the Company's Board of Directors into two
classes, each of which will serve for different two or three year periods;
(ii) provide that only the Board of Directors or certain members thereof or
officers of the Company may call special meetings of the stockholders; and
(iii) authorize the issuance of "blank check" preferred stock having such
designations, rights and preferences as may be determined from time to time by
the Board of Directors.
11. STOCK OPTION PLANS:
On March 31, 1997, the Company adopted the Service Stock Option Agreement
(the Option Plan). The Option Plan assigned eligible employees options to
purchase shares of the Company's common and preferred stock at a price
generally not less than the fair value of the common and preferred stock on
the date of grant. Under the Option Plan, 70,000 options were granted at
$11.24 per option unit (each option unit allows the holder to purchase nine
and one-half shares of common stock and one share of preferred stock). The
combined fair value of the preferred and common stock on the date of grant was
$10.00, the price paid in formation of the Company on March 31, 1997. Options
under the Option Plan vest and become exercisable ratably on April 1 of each
of 1998, 1999, 2000 and 2001 (25 percent of the options may be exercised each
year). Options, if not previously exercised, expire ten years from the date of
grant.
On March 31, 1997, the Company also adopted the Supplemental Stock Option
Agreement (the Supplemental Option Plan). This plan assigned eligible
employees options to purchase shares of the Company's common and preferred
stock at a price generally not less than the fair value of the common and
preferred stock on the date of the grant. Under the Supplemental Option Plan,
40,000 options were granted at $40.00 per option unit (each option unit allows
the holder to purchase one share of common stock and one share of preferred
stock). Combined fair value of the preferred and common stock on the date of
grant was $10.00, the price paid in formation of the Company on March 31,
1997. All options under the Supplemental Option Plan fully vested on March 31,
1997, and expire six years from that date.
F-24
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at March 31, 1997......................... -- $ --
Granted............................................. 110,000 21.70
------- ------
Outstanding at December 31, 1997...................... 110,000 $21.70
======= ======
Options exercisable at year-end....................... 40,000 $40.00
======= ======
</TABLE>
There were no options exercised, forfeited or expired from inception through
December 31, 1997.
The following summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE WEIGHTED
OUTSTANDING AT REMAINING AVERAGE FAIR
EXERCISE DECEMBER 31, CONTRACTUAL VALUE OF OPTIONS
PRICE 1997 LIFE GRANTED
-------- -------------- ----------- ----------------
<S> <C> <C> <C>
$11.24........................... 70,000 2.5 years $0.47
$40.00........................... 40,000 6 years $0.00
</TABLE>
The fair value of each option granted since March 31, 1997, was estimated on
the date of the grant using the Black-Scholes option-pricing model. For the
Option Plan, an expected life of four years, a risk-free interest rate of 6.60
percent and no expected dividends were assumed. For the Supplemental Option
Plan, an expected life of six years, a risk-free interest rate of 6.83 percent
and no expected dividends were assumed.
Had compensation costs for the Company's stock-based compensation plans been
determined based upon the fair value at grant dates for awards under those
plans consistent with the method prescribed by SFAS No. 123, the Company's net
income would have been reduced by $6,000.
12. EARNINGS PER SHARE:
Earnings per share are as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
DECEMBER 31, 1997
----------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Basic earnings per share:
Income before extraordinary loss...... $1,545 $0.45
Extraordinary loss, net of tax........ (129) (0.04)
------ -----
Net income.......................... $1,416 3,403,480 $0.41
====== =====
Options outstanding..................... 573,335
Warrants outstanding.................... 164,226
Diluted earnings per share:
Income before extraordinary loss...... $1,545 $0.37
Extraordinary loss, net of tax........ (129) (0.03)
------ --------- -----
Net income.......................... $1,416 4,141,041 $0.34
====== ========= =====
Supplemental pro forma earnings per
share before extraordinary loss:
Basic................................. $1,416 8,430,233 $0.17
====== ========= =====
Diluted............................... $1,416 9,003,568 $0.16
====== ========= =====
</TABLE>
F-25
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options to purchase 40,000 common shares were excluded from the computation
of diluted earnings per share because the options' exercise price was greater
than the market price of the common shares.
Supplemental pro forma earnings per share have been presented to show the
effect of the Company's proposed initial public offering of common stock and
the shares issued in connection with the Stutz and Cross Con acquisitions as
if such shares were outstanding for the period from April 1, 1997, to December
31, 1997.
As a result of the acquisition of the Predecessor by the Company, earnings
per share are not comparable and have therefore not been presented for the
Predecessor.
13. EXTRAORDINARY LOSS:
In connection with the acquisition of Interstate on December 16, 1997, loan
fees of $215,000 were written off in connection with the early extinguishment
of debt. The loan fees, net of income taxes of $86,000, were recorded in the
accompanying statements of operations as an extraordinary loss.
14. RELATED-PARTY TRANSACTIONS:
During the period from inception through December 31, 1997, the Company paid
$75,000 in management fees and $100,000 in acquisition-related consulting fees
to Eos. Under an Amended and Restated Management Consulting Agreement dated as
of December 16, 1997, between the Company and Eos Management, Inc. (EMI), the
Company pays EMI a monthly management fee of $10,417 for management consulting
services rendered to the Company. The management fee is payable whether or not
EMI has performed any services during the term of the agreement. Upon
consummation of this offering, such management agreement will be terminated.
Following this offering, the Company may from time to time retain EMI to
provide management consulting services in connection with specific
transactions. Such arrangements will be on terms no less favorable than those
that would be available in a similar transaction with an unrelated third
party. The Company provides over-the-road transportation services and
purchases linehaul transportation services from UP and its subsidiaries of
$6.1 million and $5.8 million, respectively, since inception.
The Predecessor provided over-the-road transportation services and purchased
linehaul transportation services from UP and its subsidiaries. During the
three-month period ended March 31, 1997, and the years ended December 31, 1996
and 1995, revenues earned by the Predecessor from UP and its subsidiaries
related to over-the-road transportation services were $2.2 million, $4.8
million and $4.1 million, respectively. Purchased transportation costs from UP
and its subsidiaries were $2.7 million, for the three-month period ended March
31, 1997, $13.5 million for the year ended December 31, 1996, and $10.6
million from UP and its subsidiaries for the year ended December 31, 1995.
Prior to its acquisition, the Predecessor participated in benefit plans and
the other employee benefit services provided by UP and its affiliates (Note
15). UP and its affiliates also provided tax advice; tax return preparation
services; corporate secretarial services; legal advice; treasury, banking,
cash management and accounting services; services involving the acquisition of
insurance coverage and related services, all at no cost to the Predecessor.
Additionally, the Predecessor from time to time advanced excess cash to UP
(Note 4).
15. EMPLOYEE BENEFITS:
Prior to its acquisition, eligible employees of the Predecessor participated
in the pension and postretirement benefit plans of SP and UP. The Predecessor
recorded benefit charges related to these plans of $0, $266,000 and $167,000
for the period ended March 31, 1997, and for the years ended December 31, 1996
and 1995, respectively, for its proportionate share of the benefit plans as
directed by its parent. In connection with the purchase of PMT by PMT
Holdings, active participants of the plans became fully vested in their
benefits accrued to date and the obligation was assumed by UP.
F-26
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted two 401(k) plans (the Plans) in 1997. A plan was adopted
for PMT employees in July 1997 and for rail service employees in October 1997.
All employees who meet certain service requirements are eligible to
participate. The Company matched 100 percent of the first 3 percent
contributed by employees to the Plans during the year ended December 31, 1997.
In addition, the Company maintains a 401(k) plan for Interstate employees. The
Company matched 25 percent of the first 4 percent contributed by Interstate
employees to the plan since the date of acquisition for the period ended
December 31, 1997. Total expense related to these plans was $59,000 for the
nine months ended December 31, 1997.
16. COMMITMENTS AND CONTINGENCIES:
LEGAL PROCEEDINGS AND CONTINGENCIES
The Company is a party to various legal proceedings, claims and assessments
arising in the normal course of its business activities. Interstate is a named
defendant in a class action filed in July 1997 in the State of California, Los
Angeles. Superior Court, Central District, alleging, among other things,
breach of fiduciary duty, unfair business practices, conversion and money had
and received in connection with monies allegedly wrongfully deducted from
truck drivers' earnings. Plaintiffs have demanded in excess of $8.8 million,
together with unspecified punitive damages, costs and interest, as well as
equitable relief. The Company intends to defend this action vigorously and
believes that its defenses are meritorious. There can be no assurance,
however, as to a favorable outcome of the action and an adverse outcome could
have a material adverse effect on the Company. Based upon information
presently available and in light of legal and other defenses and insurance
coverage, management does not expect these legal proceedings, claims and
assessments, individually or in the aggregate, to have a material adverse
impact on the Company's consolidated financial position or operations.
OPERATING LEASE COMMITMENTS
The Company leases office space and equipment under noncancellable lease
agreements that expire at various dates.
The following is a schedule of future minimum lease payments required under
the Company's leases at December 31, 1997:
<TABLE>
<CAPTION>
OPERATING
LEASES
--------------
(IN THOUSANDS)
<S> <C>
1998........................................................ $1,390
1999........................................................ 988
2000........................................................ 844
2001........................................................ 716
2002........................................................ 716
Thereafter.................................................. 3,164
------
Total minimum lease payments................................ $7,818
======
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
executive officers, with remaining service periods ranging from 2.5 to 3.5
years. The agreements provide for certain payments to each officer upon
termination of employment, other than as a result of death, disability in most
cases or justified cause, as defined. The aggregate estimated commitment under
these agreements was $2,767,000 at December 31, 1997. Under the employee
agreements, the Board of Directors may award an annual bonus to certain of the
executives in an amount up to $99,000 based on the attainment of certain
operating income targets.
F-27
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. SUBSEQUENT EVENTS:
In April 1998, the Company acquired all of the capital stock of Intraco,
Inc. (referred to as "Stutz & Company" or "Stutz") for $400,000 in cash plus
217,142 shares of the Company's common stock. Up to 126,664 of such shares of
common stock are subject to forfeiture in the event Stutz's operating
performance (revenue of $0.5 million per quarter) fails to meet certain levels
over the two year period subsequent to the purchase. Stutz is a provider of
transportation services, including intermodal marketing, cartage, and freight
consolidation and handling.
EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT
In June 1998, the Company acquired all of the capital stock of Cross Con
Terminals, Inc. and Cross Con Transport, Inc. (collectively, Cross Con) for
$9.6 million in cash plus 541,500 shares of the Company's common stock. In
addition, the agreement provides that up to $1.5 million additional proceeds
may be paid to Cross Con if it meets certain operating performance levels from
January 1, 1998 through December 31, 1998 Richard Hyland is entitled to the
full $1.5 million payment if earnings before interest and taxes exceed $3.0
million during the performance period. Such payment may be made in either cash
or Common Stock at fair market value, at the election of Richard Hyland. The
additional payment, if any, will be recorded as purchase price when the target
is achieved. In order to finance the acquisition, the Company amended its
Credit Agreement to increase the availability thereunder. Cross Con is a
provider of intermodal marketing services.
The Company filed a registration statement on Form S-1 related to an initial
public offering (IPO) of common stock in May 1998. The Company plans to use a
portion of the proceeds of the IPO to redeem all of the outstanding shares of
preferred stock for a face value of $3,150,000 and will create a new stock
option plan. If the IPO is not consummated, these events may not occur or may
occur at a later date.
F-28
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 87 $ 86
Accounts receivable, net of allowances of $804, and
$763, respectively................................. 19,877 20,729
Prepaid expenses and other.......................... 647 765
------- -------
Total current assets.............................. 20,611 21,580
------- -------
Property and Equipment:
Property and equipment, at cost..................... 2,267 1,880
Accumulated depreciation............................ (259) (146)
------- -------
Property and equipment, net....................... 2,008 1,734
Other Assets:
Intangible assets, net.............................. 32,489 32,717
Deferred income taxes............................... 38 43
Other assets........................................ 988 993
------- -------
Total assets...................................... $56,134 $57,067
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt and capital
leases............................................. $ 2,459 $ 1,810
Accounts payable.................................... 10,868 10,068
Accrued expenses.................................... 8,946 9,447
Income taxes payable................................ 437 389
Deferred income taxes............................... 143 177
------- -------
Total current liabilities......................... 22,853 21,891
Long-Term Liabilities:
Employee benefits................................... 678 672
Long-term debt and capital leases................... 22,079 25,045
------- -------
Total liabilities................................. 45,610 47,608
------- -------
Stockholders' Equity:
Preferred stock: $0.01 par value, 600,000 shares
authorized, 350,000 shares issued and outstanding
as of March 31, 1998, and December 31, 1997........ 4 4
Common stock: $0.01 par value, 5,700,000 shares
authorized, 4,678,750 shares issued and outstanding
as of March 31, 1998, and December 31, 1997........ 5 5
Warrants: 18,421 outstanding........................ 53 53
Additional paid-in capital.......................... 7,981 7,981
Retained earnings................................... 2,481 1,416
------- -------
Total stockholders' equity........................ 10,524 9,459
------- -------
Total liabilities and stockholders' equity........ $56,134 $57,067
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
--------------- ---------------
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1998 1997
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Revenues.................... $ 50,362 $19,538
Cost of Transportation and
Services................... 42,003 16,498
---------- -------
Net revenues............ 8,359 3,040
Operating Expenses:
Selling, general and
administrative expenses.. 5,634 2,300
Depreciation and
amortization............. 341 37
Transaction costs......... -- 510
---------- -------
Income from operations.. 2,384 193
Interest Expense............ 554 --
---------- -------
Income before income tax
provision.............. 1,830 193
Income Tax Provision........ 765 74
---------- -------
Net income.............. $ 1,065 $ 119
========== =======
Income Per Share:
Basic..................... $ 0.23
==========
Diluted................... $ 0.19
==========
Weighted Average Shares
Outstanding:
Basic..................... 4,678,750
==========
Diluted................... 5,604,877
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------------
RETAINED
ADDITIONAL EARNINGS
PREFERRED COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
STOCK STOCK WARRANTS CAPITAL DEFICIT) EQUITY
--------- ------ -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997....... $ 4 $ 5 $53 $7,981 $1,416 $ 9,459
Net income
(unaudited).......... 0 0 0 0 1,065 1,065
--- --- --- ------ ------ -------
MARCH 31, 1998
(unaudited)............ $ 4 $ 5 $53 $7,981 $2,481 $10,524
=== === === ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
--------------- ---------------
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................... $ 1,065 $ 119
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization.............. 341 37
Deferred income taxes...................... (29) 218
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable,
net of allowances......................... 852 3,515
Decrease (increase) in prepaid expenses and
other..................................... 118 (335)
Decrease (increase) in other assets........ 5 (10)
Increase (decrease) in accounts payable.... 800 (1,165)
Increase (decrease) in accrued expenses.... (501) 346
Increase (decrease) in income taxes
payable................................... 48 (949)
Increase (decrease) in employee benefits... 6 (1,361)
------- --------
Net cash provided by (used in) operating
activities.............................. 2,705 415
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........... (387) (71)
------- --------
Net cash used in investing activities.... (387) (71)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on long-term debt................... 1,202 --
Principal payments on long-term debt......... (3,519) --
Decrease (increase) in advances to
affiliates.................................. -- 21,865
Dividend paid................................ -- (23,222)
------- --------
Net cash used in financing activities.... (2,317) (1,357)
------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 1 (1,013)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................ 86 2,636
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..... $ 87 $ 1,623
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest................................... $ 289 $ --
======= ========
Income taxes............................... $ 418 $ 1,125
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS:
THE COMPANY
PMT Holdings, Inc. (PMT Holdings), a Delaware corporation, was formed on
March 31, 1997 (inception), to acquire all of the capital stock of Pacific
Motor Transport Company (PMT) in a management buyout that was funded in part
by Eos Partners, L.P. (Eos). On March 31, 1997, PMT Holdings acquired all
issued and outstanding shares of PMT from Union Pacific Railroad Company and
its subsidiaries (UP) for approximately $13 million in cash and warrants to
purchase 18,421 units of PMT Holdings stock. Each unit represents one share of
common stock and one share of preferred stock and may be purchased by UP for
$10 per unit. The purchase of PMT was accounted for using the purchase method
of accounting. Prior to acquisition, PMT was a provider of truckload freight
services and intermodal marketing services. On December 16, 1997, PMT Holdings
acquired all of the capital stock of Interstate Consolidation, Inc. (ICI) and
Interstate Consolidation Service, Inc. (ICSI) and its wholly owned subsidiary,
Intermodal Container Service, Inc. (IMCS) (ICI, ICSI and IMCS, collectively,
Interstate) by issuing $20 million in promissory notes and 1,353,750 shares of
PMT Holdings stock. The acquisition of Interstate was accounted for using the
purchase method of accounting. Interstate is a multipurpose provider of
transportation services, including intermodal marketing, cartage, and freight
consolidation and handling. In May 1998, PMT Holdings was renamed Pacer
International, Inc. (Pacer International) and its subsidiaries reorganized.
The name change has been given retroactive application in these consolidated
financial statements.
The consolidated balance sheets as of March 31, 1998, and December 31, 1997,
and the consolidated statements of operations, changes in stockholders' equity
and cash flows for the three months ended March 31, 1998, include the accounts
of Pacer International, a Delaware corporation, and its wholly owned
subsidiaries (the Company). The wholly owned subsidiaries are Pacer Transport,
Pacer Logistics and Pacer Rail/Mechanical/Services LLC.
THE PREDECESSOR
The statements of operations, stockholders' equity and cash flows for the
three months ended March 31, 1997, include the accounts of PMT (the
Predecessor), with its two operating divisions, Pacer and ABL-Trans.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
QUARTERLY FINANCIAL DATA
The consolidated financial statements presented herein include the accounts
of the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The company believes that the disclosures
are adequate to make the information presented not misleading, although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the company's results of
operations, financial position and cash flows. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
F-33
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards to measure all changes in equity that result
from transactions and other economic events other than transactions with
owners. Comprehensive income is the total of net income and all other nonowner
changes in equity. Except for net income, the Company does not have any
transactions and other economic events that qualify as comprehensive income as
defined under SFAS No. 130.
SEGMENTS
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 introduces a new model for segment reporting called the "management
approach." The management approach is based on the manner in which management
organizes segments within a company for making operating decisions and
assessing performance. The management approach replaces the notion of industry
and geographic segments. SFAS No. 131 is effective for the Company as of
January 1, 1998; however, in accordance with SFAS No. 131, this statement has
not been applied for interim periods in the initial year of application.
3. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.............................................. $32,479 $32,479
Financing costs....................................... 430 430
Covenant not to compete............................... 65 65
------- -------
32,974 32,974
Less: Accumulated amortization........................ (485) (257)
------- -------
Total intangible assets............................. $32,489 $32,717
======= =======
</TABLE>
Amortization expense for the three months ended March 31, 1998, was
$228,000, and $257,000 for the nine months ended December 31, 1997.
4. ACQUISITIONS:
From inception through December 31, 1997, the Company effected two
acquisitions. The initial acquisition of PMT by Pacer International occurred
on March 31, 1997, and the acquisition of Interstate
F-34
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
occurred on December 16, 1997. The purchase price, certain costs related to
the acquisitions, and the allocation of the purchase price to the underlying
net assets acquired in the acquisitions were as follows:
<TABLE>
<CAPTION>
PMT INTERSTATE
--------- ------------
MARCH 31, DECEMBER 16,
1997 1997
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Purchase price........................................ $13,215 $ 24,472
Acquisition costs..................................... -- 770
------- --------
Total purchase price.............................. 13,215 25,242
------- --------
Less: Value assigned to assets and liabilities:
Current assets...................................... 9,803 13,011
Long-term assets.................................... 281 2,222
Current liabilities................................. (8,386) (10,024)
Long-term liabilities............................... -- (929)
------- --------
1,698 4,280
------- --------
Goodwill.......................................... $11,517 $ 20,962
======= ========
</TABLE>
The Company accounted for these acquisitions under the purchase method of
accounting. The allocation of the purchase price to the underlying net assets
acquired is based upon preliminary estimates of the fair value of the net
assets, which may be revised at a later date. It is anticipated that any
purchase price allocation adjustments will be made within one year from the
date of acquisition. Management does not believe that the final allocations of
the purchase prices will have a material effect on the Company's financial
position or results of operations. In connection with the acquisitions, the
Company issued 142,500 shares of common stock, which were valued at $31.50 per
share, and issued warrants to purchase 18,421 units. Warrants were valued at
their estimated fair value using the Black-Scholes model. Results of
operations of the entities acquired are included in the consolidated financial
statements subsequent to their purchase date.
Results of operations of the purchased entities are included in the
consolidated financial statements subsequent to the purchase date. Pro forma
operating results of the Company, assuming that all acquisitions before March
31, 1998, were purchased on the first day of the period presented, are as
follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues................................................ $ 50,362 $ 38,488
========= =========
Net income.............................................. $ 1,065 $ 517
========= =========
Earnings per share:
Basic................................................. $ 0.23 $ 0.11
========= =========
Diluted............................................... $ 0.19 $ 0.09
========= =========
Weighted average shares outstanding:
Basic................................................. 4,678,750 4,678,750
========= =========
Diluted............................................... 5,471,934 5,471,934
========= =========
</TABLE>
F-35
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Pro forma adjustments were made to reflect interest expense on cash
consideration, amortization of goodwill, compensation differentials and income
taxes as if the entities were combined and subject to the Company's effective
tax rate for the periods presented.
In April 1998, the Company acquired all of the capital stock of Intraco,
Inc. (referred to as "Stutz & Company" or "Stutz") for $400,000 in cash plus
217,142 shares of the Company's common stock. Up to 126,664 shares of such
common stock are subject to forfeiture in the event Stutz's operating
performance fails to meet certain levels over the two year period subsequent
to the purchase. Stutz is a provider of transportation services, including
intermodal marketing, cartage and freight consolidation and handling.
In May 1998, the Company entered into a definitive agreement to acquire all
of the capital stock of Cross Con Terminals, Inc. and Cross Con Transport,
Inc. (collectively, Cross Con) for $9.6 million in cash plus 541,500 shares of
the Company's common stock. In addition, the agreement provides that up to
$1.5 million additional proceeds may be paid to Cross Con if it meets certain
operating performance levels from the date of acquisition through December 31,
1998. The acquisition is expected to close in June 1996, subject to customary
closing conditions. Cross Con is a provider of intermodal marketing services.
5. DEBT AND CAPITAL LEASES:
Debt of the Company as of March 31, 1998, and December 31, 1997, consisted
of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Promissory note to
shareholders............. $ -- $19,983
Term loan in the amount of
$20,000.................. 20,000 --
Revolving line of credit
in an amount up to
$12,000.................. 4,104 6,395
Capital leases............ 434 477
------- -------
Total debt and capital
leases................. 24,538 26,855
Less: Current maturities.. 2,459 1,810
------- -------
Long-term portion......... $22,079 $25,045
======= =======
</TABLE>
The promissory note to shareholders represents the cash portion of the
purchase price of the Interstate acquisition owed to the former owners of
Interstate, who became shareholders of the Company on December 16, 1997. The
amount was paid to these shareholders on January 2, 1998, and was financed by
the term loan of $20 million.
The revolving line of credit and term loan agreements require that the
Company meet certain covenants that, among other things, require maintenance
of ratios related to leverage and cash flow and limit the level of capital
expenditures.
F-36
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
6. EARNINGS PER SHARE:
Earnings per share are as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1998
----------------------------------
PER SHARE
INCOME SHARES AMOUNT
-------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Basic earnings per share:
Net income............................ $1,065 4,678,750 $0.23
Options outstanding................... 754,956
Warrants outstanding.................. 171,171
---------
Diluted earnings per share.............. $1,065 5,604,877 $0.19
=========
Supplemental pro forma earnings per
share:
Basic................................. $1,065 8,410,857 $0.13
Options outstanding................... 756,756
---------
Diluted............................... $1,065 9,165,813 $0.12
=========
</TABLE>
Supplemental pro forma earnings per share have been presented to show the
effect of the Company's proposed initial public offering of common stock as if
such shares were outstanding for the period from January 1, 1998 to March 31,
1998.
7. COMMITMENTS AND CONTINGENCIES:
LEGAL PROCEEDINGS AND CONTINGENCIES
The Company is a party to various legal proceedings, claims and assessments
arising in the normal course of its business activities. Interstate is a named
defendant in a class action filed in July 1997 in the State of California, Los
Angeles Superior Court, Central District, alleging, among other things, breach
of fiduciary duty, unfair business practices, conversion and money had and
received in connection with monies allegedly wrongfully deducted from truck
drivers' earnings. Plaintiffs have demanded in excess of $8.8 million,
together with unspecified punitive damages, costs and interest, as well as
equitable relief. The Company intends to defend this action vigorously but
there can be no assurance as to a favorable outcome of the action. Based upon
information presently available and in light of legal and other defenses and
insurance coverage, management does not expect these legal proceedings, claims
and assessments, individually or in the aggregate, to have a material adverse
impact on the Company's consolidated financial position or operations.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its
executive officers with remaining service periods ranging from 2.5 to 3.5
years. The agreements provide for certain payments to each officer upon
termination of employment other than as a result of death, disability in most
cases or justified cause, as defined. The aggregate estimated commitment under
these agreements was $2,767,000 at March 31, 1998. Under the employee
agreements, the Board of Directors may award an annual bonus to certain of the
executives in an amount up to $90,000 based on the attainment of certain
operating income targets.
F-37
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(UNAUDITED)
8. SUBSEQUENT EVENTS:
The Company plans to file a registration statement relating to an initial
public offering (IPO) of its common stock in May 1998. The Company plans to
use a portion of the proceeds of the IPO to redeem all of the outstanding
shares of Preferred Stock for face value of $3,150,000 and will create a new
stock option plan. If the IPO is not consummated, these events may not occur
or may occur at a later date.
F-38
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Interstate Consolidation, Inc. and
Interstate Consolidation Service, Inc.
and Subsidiary:
We have audited the accompanying combined balance sheets of Interstate
Consolidation, Inc. and Interstate Consolidation Service, Inc. and subsidiary
as of December 16, 1997 and December 31, 1996 and the related combined
statements of earnings and retained earnings and cash flows for the period
from January 1, 1997 to December 16, 1997 and the years ended December 31,
1996 and 1995. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Interstate
Consolidation, Inc. and Interstate Consolidation Service, Inc. and subsidiary
as of December 16, 1997 and December 31, 1996 and the results of their
operations and their cash flows for the period from January 1, 1997 to
December 16, 1997 and the years ended December 31, 1996 and 1995 in conformity
with generally accepted accounting principles.
As discussed in note 1 to the combined financial statements, the Company
changed its method of accounting for refunds from railroad transportation
companies.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
April 2, 1998
F-39
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
COMBINED BALANCE SHEETS
DECEMBER 16, 1997 AND DECEMBER 31, 1996
(NOTE 10)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,733,241 $ 2,836,909
Trade accounts receivable................................. 7,962,913 6,102,825
Rail rebate receivables................................... 1,044,193 822,052
Prepaid expenses and other current assets................. 668,869 550,218
Note receivable from affiliate (note 3)................... -- 80,740
----------- -----------
Total current assets.................................. 13,409,216 10,392,744
Property and equipment, at cost, less accumulated
depreciation of $1,477,272 and $1,309,894 at December 16,
1997 and December 31, 1996, respectively (note 2).......... 659,529 627,678
Cash surrender value of life insurance and officer advances
(note 7)................................................... 673,581 906,230
Goodwill, less accumulated amortization of $712,963 and
$635,347 at December 16, 1997 and December 31, 1996,
respectively............................................... 508,012 585,628
Deferred tax assets, net (note 4)........................... 4,615 --
Other assets, at cost....................................... 320,099 328,447
----------- -----------
$15,575,052 $12,840,727
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Trade accounts payable.................................... $ 6,463,549 $ 4,823,765
Accrued expenses.......................................... 2,102,936 1,056,828
Income taxes payable (note 4)............................. 231,804 55,625
Deferred tax liabilities, net (note 4).................... -- 97,970
----------- -----------
Total current liabilities............................. 8,798,289 6,034,188
Deferred compensation (note 7).............................. 673,580 504,313
----------- -----------
Total liabilities..................................... 9,471,869 6,538,501
----------- -----------
Commitments, contingencies and subsequent event (notes 8, 9
and 10)
Stockholders' equity:
Common stock, $10 par value. Authorized 7,500 shares;
issued and outstanding 200 shares........................ 2,000 2,000
Common stock, no par value. Authorized 2,500 shares;
issued and outstanding 200 shares........................ 8,000 8,000
Retained earnings......................................... 6,093,183 6,292,226
----------- -----------
Total stockholders' equity............................ 6,103,183 6,302,226
----------- -----------
$15,575,052 $12,840,727
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-40
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
PERIOD FROM JANUARY 1, 1997 TO DECEMBER 16, 1997 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues............................... $83,876,778 $68,562,302 $61,771,944
Direct costs of operations (note 8).... 69,630,691 55,890,331 51,089,136
----------- ----------- -----------
Gross profit..................... 14,246,087 12,671,971 10,682,808
----------- ----------- -----------
Selling, general and administrative
expenses (note 8)..................... 9,197,863 8,927,744 8,437,466
Amortization of goodwill............... 77,616 78,631 80,879
Officers' salaries..................... 668,359 1,836,239 1,690,000
----------- ----------- -----------
9,943,838 10,842,614 10,208,345
----------- ----------- -----------
Earnings from operations......... 4,302,249 1,829,357 474,463
----------- ----------- -----------
Other income (expense):
Interest............................. 114,761 160,669 118,481
Other, net........................... 38,947 3,336 (9,387)
----------- ----------- -----------
153,708 164,005 109,094
----------- ----------- -----------
Earnings before income taxes..... 4,455,957 1,993,362 583,557
Income taxes (note 4).................. 921,000 363,000 237,000
----------- ----------- -----------
Net earnings..................... 3,534,957 1,630,362 346,557
Retained earnings, beginning of
period................................ 6,292,226 4,811,864 4,465,307
Dividends paid......................... (3,734,000) (150,000) --
----------- ----------- -----------
Retained earnings, end of period....... $ 6,093,183 $ 6,292,226 $ 4,811,864
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-41
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
COMBINED STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, 1997 TO DECEMBER 16, 1997 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................ $ 3,534,957 $1,630,362 $ 346,557
----------- ---------- ----------
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization of
property and equipment............... 159,952 190,139 191,310
Amortization of intangibles........... 77,616 78,631 78,631
Deferred compensation................. 169,267 151,722 131,586
(Gain) loss on disposition of property
and equipment........................ -- (3,793) 9,459
Change in assets and liabilities:
Trade accounts receivable........... (1,860,089) (1,730,657) 363,842
Rail rebates receivable............. (222,193) (287,396) (99,364)
Prepaid expenses and other current
assets............................. (118,651) 313,554 (2,143)
Deferred taxes...................... (102,585) 26,524 (24,454)
Other assets........................ 8,348 (291,211) --
Trade accounts payable and accrued
expenses........................... 2,685,945 1,785,989 (960,959)
Income taxes payable................ 176,179 8,736 140,073
----------- ---------- ----------
Total adjustments................. 973,789 242,238 (172,019)
----------- ---------- ----------
Net cash provided by operating
activities....................... 4,508,746 1,872,600 174,538
----------- ---------- ----------
Cash flows from investing activities:
Purchases of property and equipment..... (191,803) (183,780) (109,092)
Proceeds from sale of equipment......... -- 89,455 7,201
(Increase) decrease in cash surrender
value of life insurance and officer
advances............................... 232,649 (251,757) (229,123)
----------- ---------- ----------
Net cash provided by (used in)
investing activities............. 40,846 (346,082) (331,014)
----------- ---------- ----------
Cash flows from financing activities:
Payments received on notes receivable
from affiliates........................ 80,740 108,770 100,435
Dividends paid.......................... (3,734,000) (150,000) --
----------- ---------- ----------
Net cash (used in) provided by
financing activities............. (3,653,260) (41,230) 100,435
----------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents............. 896,332 1,485,288 (56,041)
Cash and cash equivalents at beginning of
period................................... 2,836,909 1,351,621 1,407,662
----------- ---------- ----------
Cash and cash equivalents at end of
period................................... $ 3,733,241 $2,836,909 $1,351,621
=========== ========== ==========
Supplemental disclosures of cash flow
information--cash paid during the period
for income taxes......................... $ 437,769 $ 326,041 $ 92,444
=========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-42
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 16, 1997 AND DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business and Basis of Presentation
Interstate Consolidation, Inc. and Interstate Consolidation Service, Inc.
and Subsidiary (the Company) are commonly owned corporations engaged in
surface-based transportation. These financial statements include the combined
results of the commonly owned corporations. The Company provides trailerload
operations through their third-party shippers' agent and operates as a common
carrier providing service in the United States, Canada and Mexico. The Company
also provides drayage and operates a bonded container freight station.
As more fully described in note 10, the stockholders of the Company sold all
their shares to a third party effective December 16, 1997. Accordingly, the
financial statements for 1997 are as of and for the period ended December 16,
1997.
All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition
Revenues and expenses are recognized upon shipment. This method approximates
the recognition of revenues and expenses when the shipment is complete.
Allowances for discounts are provided when related revenue is recorded.
During the period from January 1, 1997 to December 16, 1997, the Company had
one customer which accounted for approximately 17% of revenues. At December
16, 1997, the Company had two customers which accounted for approximately 10%,
individually, of trade accounts receivable. The Company had no customers in
1995 or 1996 which accounted for greater than 10% of revenues or trade
accounts receivable.
Depreciation and Amortization
Depreciation and amortization of property and equipment is generally
calculated on the straight-line method over the estimated useful lives of the
assets as follows:
<TABLE>
<S> <C>
Machinery and equipment 5 to 15 years
Furniture and fixtures 5 to 10 years
Leasehold improvements Lease term not to exceed
economic life of related asset
</TABLE>
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 10 to 40 years. The Company assesses the
recoverability of goodwill through undiscounted future operating cash flows
generated from the acquired operation. The amount of goodwill impairment, if
any, is measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be impacted if estimated
future operating cash flows are not achieved. As of December 16, 1997,
management has determined that there is no impairment of goodwill.
F-43
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company accounts for income taxes under the asset and liability method
of accounting for income taxes, whereby income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents for purposes
of the statements of cash flows.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and revenue and expenses
and the disclosure of contingent assets and liabilities to prepare these
combined financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
Long-Lived Assets
The Company accounts for long-lived assets, including intangibles, at
amortized cost. As part of its ongoing review of the valuation and
amortization of long-lived assets, management assesses the carrying value of
such assets if the facts and circumstances suggest that it may be impaired. As
a result, the Company has determined that its long-lived assets are not
impaired as of December 16, 1997 and December 31, 1996.
Accounting Change
The Company has agreements with certain railroad companies for the use of
rail services in meeting the surface-based transportation needs of the Company
and a related rebate sharing agreement with a customer. These agreements
provide for rebates to the Company upon attaining various levels of railroad
usage and limited pass-through of such amounts to a customer, as defined. The
Company changed its method of accounting for railroad rebates and related
pass-through from the cash method to the accrual method. The change to the
accrual method has been retroactively applied in accordance with Accounting
Principle Board Opinion No. 20, and was made to more accurately match the
actual costs of using railroad transportation in the Company's business with
the related revenues.
Reclassifications
Certain reclassifications have been made to the prior years combined
financial statements to conform to the 1997 presentation.
F-44
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 16, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Furniture and office equipment........................ $1,416,403 $1,247,557
Radio system.......................................... 402,752 402,752
Dock improvements and equipment....................... 206,277 175,894
Automotive and trailer equipment...................... 111,369 111,369
---------- ----------
Total property and equipment...................... 2,136,801 1,937,572
Less accumulated depreciation and amortization........ 1,477,272 1,309,894
---------- ----------
Property and equipment, net....................... $ 659,529 $ 627,678
========== ==========
</TABLE>
(3) NOTE RECEIVABLE FROM AFFILIATE
The Company had a note receivable from a partnership whose general partners
are the stockholders of the Company, which was repaid in 1997.
(4) INCOME TAXES
Interstate Consolidation, Inc. has elected to be taxed under the provisions
of Subchapter S of the Internal Revenue Code and under similar provisions for
California franchise tax purposes. Accordingly, the stockholders report their
equity in the earnings and losses of Interstate Consolidation, Inc. on their
individual Federal Income and California franchise tax returns. Interstate
Consolidation Services, Inc. and Subsidiary have elected to be taxed as a C
Corporation and subjected to Federal income and California state franchise
taxes.
A summary of income taxes for the period from January 1, 1997 to December
16, 1997 and the years ended December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current........................................... $557,000 $241,000 $209,000
Deferred.......................................... 198,000 22,000 (25,000)
-------- -------- --------
755,000 263,000 184,000
-------- -------- --------
State:
Current........................................... 166,000 96,000 61,000
Deferred.......................................... -- 4,000 (8,000)
-------- -------- --------
166,000 100,000 53,000
-------- -------- --------
$921,000 $363,000 $237,000
======== ======== ========
</TABLE>
F-45
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes for the period from January 1, 1997 to December 16, 1997 and
the years ended December 31, 1996 and 1995 differs from the amounts computed
by applying the Federal statutory rate of 34% to earnings before income taxes
as shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense............... $1,515,000 $678,000 $198,000
Adjustment for S-Corporation earnings not
subject to Federal income taxes.............. (861,000) (423,000) (38,000)
State taxes, net of Federal income tax
benefit...................................... 198,000 64,000 32,000
Goodwill amortization......................... 32,000 32,000 32,000
Other......................................... 37,000 12,000 13,000
---------- -------- --------
$ 921,000 $363,000 $237,000
========== ======== ========
</TABLE>
If the combined companies had been taxed as a C Corporation, the combined
provision for income taxes and net earnings would have been $1,782,000 and
$2,674,000, respectively, in 1997, $797,000 and $1,196,000, respectively, in
1996, and $233,000 and $350,000, respectively, in 1995, assuming an effective
tax rate of 40%.
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets at December 16, 1997 and December 31, 1996,
aggregating $305,999 and $220,430, respectively, primarily relate to deferred
compensation. The tax effects of temporary differences that give rise to
significant portions of deferred tax liabilities at December 16, 1997 and
December 31, 1996 of $301,384 and $318,400, respectively, primarily relates to
rail rebate receivables and accelerated depreciation. Accordingly, the Company
recognized a net deferred tax assets of $4,615 and a net deferred tax
liability of $97,970 at December 16, 1997 and December 31, 1996, respectively,
resulting from these temporary differences.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences.
The Internal Revenue Service is examining Interstate Consolidation Service,
Inc.'s 1993 and 1994 Federal income tax returns. The amount of liability
cannot be determined with certainty; however, management is of the opinion
that the outcome of any tax assessment will not have a material adverse impact
on the Company's financial position or results of operations.
(5) LINE OF CREDIT
The Company had a line of credit agreement providing for unsecured
borrowings of up to $1,000,000 at the lower of the prime rate or LIBOR plus
2.5%, which was guaranteed by the Company's stockholders. In connection with
the sale of the outstanding stock of the Company, the line of credit was
terminated (note 10). No amounts were outstanding at either December 16, 1997
or December 31, 1996.
F-46
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(6) BENEFIT PLANS
The Company maintains an Internal Revenue Code Section 125 salary reduction
"Cafeteria Plan" (the Plan) covering substantially all employees to provide
health care and group term life insurance coverage. The Company may contribute
any amount to the Plan determined at its sole discretion; however, such
contributions cannot exceed the maximum amount deductible for Federal income
tax purposes.
In July 1996, the Company established a defined contribution plan, which has
been qualified under Section 401(k) of the Internal Revenue Service Code (the
Savings Plan). The Savings Plan permits participation by all employees of the
Company who have completed one year of continuous service and attained the age
of 21, subject to their entry into the Savings Plan on enrollment dates of
January 1 or July 1 of each year. Participants may defer up to 18% of their
compensation allowing participants a pretax savings on their deferrals.
During the period from January 1, 1997 to December 16, 1997 and the year
ended December 31, 1996, the amounts expensed by the Company under these plans
for its share of employer contributions were immaterial. No contribution was
made during 1995.
(7) CASH SURRENDER VALUE OF LIFE INSURANCE AND DEFERRED COMPENSATION AND
OFFICER ADVANCES
The Company has agreed to make certain payments to key employees of the
Company upon death or retirement. In the case of retirement, the amount is
based upon the cash surrender value of the life insurance policies purchased
by the Company on the lives of the key employees. In the case of death, the
face amount of the life insurance policy, less cumulative premiums paid, are
the amounts to be paid to the designated beneficiary of the employee.
Deferred compensation payable represents the cash surrender value of the key
employees life insurance, of which $673,581 and $504,313 was outstanding at
December 16, 1997 and December 31, 1996, respectively. Premiums paid in excess
of the increase in cash surrender value have been charged to operations.
The Company has made non-interest bearing advances to the
officers/stockholders and or a trust for their benefit for the purpose of life
insurance on the life of the stockholders, of which $401,917 was outstanding
at December 31, 1996. Such amount was repaid in 1997 and no amounts were
outstanding at December 16, 1997.
(8) COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases a facility in Commerce, California from a partnership
whose general partners are the Company's stockholders. This lease was modified
in connection with the sale of the Company (note 10). The rent for this
facility during the period from January 1, 1997 to December 16, 1997 and the
years ended December 31, 1996 and 1995 was $457,000, $498,000 and $498,000,
respectively.
The Company also leases trailers and equipment from the same partnership on
a month-to-month basis. Rent paid to the partnership for trailers and
equipment during the period from January 1 to December 16, 1997 and the years
ended December 31, 1996 and 1995 was $426,000, $465,000 and $295,000,
respectively. The trailers and equipment were sold in connection with the sale
of the Company (note 10).
F-47
<PAGE>
INTERSTATE CONSOLIDATION, INC. AND
INTERSTATE CONSOLIDATION SERVICE, INC.
AND SUBSIDIARY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company leases certain equipment under noncancelable operating leases
with third parties expiring through 2000. Future minimum lease payments under
noncancelable operating leases, as of December 16, 1997, are as follows:
<TABLE>
<S> <C>
12 months ending December 16:
1998.......................... $449,000
1999.......................... 48,000
2000.......................... 14,000
========
</TABLE>
(9) CONTINGENCIES
The Company is involved with a purported class action lawsuit filed against
itself and certain other companies in the trucking industry. The complaint
alleges unfair business practices related to the utilization of independent
owner/operators and seeks damages in excess of $8.8 million, together with
unspecified punitive damages, costs and interest, as well as equitable relief.
This matter is in the initial stages of litigation and the Company vigorously
disputes the assertions and believes its defenses are meritorious. Due to the
complexity of the issues involved, a favorable result is not assured and the
ultimate outcome cannot presently be determined. Accordingly, no provision for
any liability has been recorded.
The Company is also involved in other matters of litigation, none of which,
in the opinion of management, will have a material impact on its combined
financial position or results of operations.
(10) SUBSEQUENT EVENT
On December 16, 1997, the Company's stockholders (Stockholders) sold their
entire ownership interest in the Company pursuant to a stock purchase
agreement (Agreement) with a third party. In connection with the Agreement,
the Stockholders also entered into (i) a 9-year and 50-week lease with the
Company of the Commerce facilities providing for monthly rental of
approximately $45,000 through November 2002 and approximately $52,000
thereafter through November 2007, (ii) an agreement for the transfer of
certain trailers and equipment previously leased to the Company from a
partnership controlled by the Stockholders and (iii) employment agreements
expiring December 31, 2000.
F-48
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Cross Con Terminals, Inc. and
Cross Con Transport, Inc.:
We have audited the accompanying combined balance sheets of CROSS CON
TERMINALS, INC. (a Delaware corporation) AND CROSS CON TRANSPORT, INC. (an
Illinois corporation) (together, the "Company") as of December 31, 1997 and
1996, and the related combined statements of operations, stockholder's equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Cross Con
Terminals, Inc. and Cross Con Transport, Inc. as of December 31, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Chicago, Illinois
May 22, 1998
F-49
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................... $1,707,392 $1,193,675
Accounts receivable, net of allowances of $154,000 and
$79,000 in 1997 and 1996, respectively..................... 5,386,938 4,804,301
Prepaid expenses and other current assets................... 67,903 68,285
---------- ----------
Total current assets.................................. 7,162,233 6,066,261
Property And Equipment, Net................................... 112,191 133,125
---------- ----------
Total assets.......................................... $7,274,424 $6,199,386
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable............................................ $3,122,334 $2,676,149
Accrued expenses............................................ 411,163 339,056
Short-term debt............................................. 38,553 50,297
---------- ----------
Total current liabilities............................. 3,572,050 3,065,502
---------- ----------
Commitments And Contingencies................................. -- --
Stockholder's Equity:
Cross Con Terminals, Inc.--
Common stock, $1 par value; 1,000 shares authorized; 250
shares issued and outstanding at December 31, 1997 and
1996..................................................... 250 250
Cross Con Transport, Inc.--
Common stock, no par value; 100,000 shares authorized;
1,000 shares issued and outstanding at December 31, 1997
and 1996................................................. -- --
Additional paid-in capital................................ 1,000 1,000
Retained earnings......................................... 3,701,124 3,132,634
---------- ----------
Total stockholder's equity............................ 3,702,374 3,133,884
---------- ----------
Total liabilities and stockholder's equity............ $7,274,424 $6,199,386
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................... $51,643,226 $47,488,557 $39,972,732
Cost of Transportation..................... 45,966,928 42,034,896 35,009,292
----------- ----------- -----------
Net revenue.......................... 5,676,298 5,453,661 4,963,440
Operating Expenses:
Selling, general and administrative
expenses................................ 3,925,308 4,108,182 3,772,972
Depreciation and amortization............ 48,320 46,952 42,686
----------- ----------- -----------
Income from operations............... 1,702,670 1,298,527 1,147,782
Interest and Other Income.................. 85,042 80,184 51,982
----------- ----------- -----------
Income before income tax provision... 1,787,712 1,378,711 1,199,764
Income Tax Provision....................... 29,337 14,100 13,660
----------- ----------- -----------
Net income........................... $ 1,758,375 $ 1,364,611 $ 1,186,104
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-51
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995........... $250 $1,000 $ 1,511,620 $ 1,512,870
Net income....................... -- -- 1,186,104 1,186,104
Distributions to stockholder..... -- -- (102,044) (102,044)
---- ------ ----------- -----------
BALANCE, DECEMBER 31, 1995......... 250 1,000 2,595,680 2,596,930
Net income....................... -- -- 1,364,611 1,364,611
Distributions to stockholder..... -- -- (827,657) (827,657)
---- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996......... 250 1,000 3,132,634 3,133,884
Net income....................... -- -- 1,758,375 1,758,375
Distributions to stockholder..... -- -- (1,189,885) (1,189,885)
---- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997......... $250 $1,000 $ 3,701,124 $ 3,702,374
==== ====== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-52
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................. $ 1,758,375 $1,364,611 $1,186,104
Adjustments to reconcile net income to
net cash provided
by operating activities--
Depreciation and amortization......... 48,320 46,952 42,686
Gain on sale of assets................ (2,706) (1,300) --
Changes in working capital--
Accounts receivable, net............ (582,637) (917,345) (512,030)
Prepaid expenses and other current
assets............................. 382 48,125 (14,831)
Accounts payable.................... 446,185 401,743 (106,554)
Accrued expenses.................... 72,107 74,601 (17,022)
----------- ---------- ----------
Net cash provided by operating ac-
tivities......................... 1,740,026 1,017,387 578,353
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment,
net.................................... (24,680) (13,632) (50,479)
----------- ---------- ----------
Net cash provided by investing ac-
tivities......................... (24,680) (13,632) (50,479)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholder............ (1,189,885) (827,657) (102,044)
Payments on short-term debt............. (80,319) (77,855) (59,768)
Proceeds from issuance of short-term
debt................................... 86,743 72,290 67,849
Payments on long-term debt.............. (18,168) (78,368) (107,187)
Proceeds from issuance of long-term
debt................................... -- -- 18,000
----------- ---------- ----------
Net cash used in financing activi-
ties............................. (1,201,629) (911,590) (183,150)
----------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVA-
LENTS.................................... 513,717 92,165 344,724
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR..................................... 1,193,675 1,101,510 756,786
----------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR.... $ 1,707,392 $1,193,675 $1,101,510
=========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for--
Interest.............................. $ 3,908 $ 7,155 $ 11,562
Income taxes.......................... 20,612 17,388 7,446
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-53
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
1. THE COMPANY
Cross Con Terminals, Inc. ("Terminals") and Cross Con Transport, Inc.
("Transport") (together, the "Company") operate as S Corporations and are
controlled by the same stockholder. Terminals is engaged in the business of
arranging, on behalf of others, for the transportation of freight over long
distances. Terminals contracts with railroads to provide transportation over
the long-haul portion of customer shipments and with local trucking companies,
known as "drayage companies," for pickups and deliveries. Transport provides
trucking services in the Chicago, Illinois, area using both owner-operator
drivers and leased truck equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements of the Company include all accounts of
Terminals and Transport. All material intercompany amounts and transactions
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less.
Accounts Receivable
Trade accounts receivable are reflected net of allowances for doubtful
accounts. Additionally, the Company records receivables for contractually
negotiated rail volume incentives in the period earned. Rail volume incentives
receivable were approximately $63,000 at December 31, 1997, and $440,000 at
December 31, 1996.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation is
computed on a straight-line basis over the estimated useful lives of the
assets, which are generally five to seven years.
Software
Purchases of software are capitalized and amortized over 5 years using the
straight-line method. Costs related to internal development of software are
expensed as incurred.
F-54
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. The Company
sells primarily on 21-day terms, performs credit evaluation procedures on its
customers and generally does not require collateral on its accounts
receivable. The Company maintains an allowance for potential credit losses.
One customer accounted for 15%, 19% and 19% of the combined Company's revenues
in 1997, 1996 and 1995, respectively.
No other customer accounted for greater than 10% of revenues in 1997, 1996
or 1995.
Financial Instruments
The carrying amounts for cash, receivables and accounts payable approximate
fair value due to the short-term nature of these instruments. Other fair value
disclosures are in the respective notes.
Revenue Recognition
Revenues and related expenses are recognized when shipment is complete.
Net Revenues
Net revenues represent transportation and service revenues net of associated
transportation and service costs.
Income Taxes
The Company has elected for federal and applicable state tax reporting to
include income with that of its stockholder (an S Corporation election). The
income tax provision on the accompanying income statement represents a
provision for state replacement taxes.
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Leasehold improvements.............................. $ 6,295 $ 6,295
Office equipment.................................... 139,218 109,123
Office furniture.................................... 51,674 51,674
Automobiles and trucks.............................. 138,783 145,728
--------- ---------
335,970 312,820
Less--Accumulated depreciation...................... (223,779) (179,695)
--------- ---------
Property and equipment.......................... $ 112,191 $ 133,125
========= =========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995,
was approximately $48,000, $47,000 and $43,000, respectively.
4. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Payroll................................................ $120,640 $123,987
Vacation............................................... 54,000 49,000
Commissions............................................ 89,170 57,258
Profit sharing......................................... 50,000 50,000
Replacement state income tax........................... 24,163 15,438
General and administrative expenses.................... 73,190 43,373
-------- --------
Total.............................................. $411,163 $339,056
======== ========
</TABLE>
F-55
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. DEBT
The Company maintains a revolving line of credit with a bank in the amount
of $3,000,000 that bears interest at the bank's prime rate. The line is
secured by the assets of the Company, and as of December 31, 1997 and 1996, no
amounts were outstanding on the line of credit. The line requires the Company
to maintain compliance with certain covenants. As of December 31, 1997 and
1996, the Company was in compliance with all of these financial covenants.
As of December 31, 1997 and 1996, the Company has financed insurance
payments in the amounts of approximately $39,000 and $32,000, respectively, at
an interest rate of 9.39% and 9.50%, respectively.
As of December 31, 1996, the Company had various vehicle loans bearing
interest in the range of 7.5% to 10.17%. The loans amounted to approximately
$18,000, all of which matured in 1997 and were paid off.
6. PROFIT-SHARING PLAN
The Company has a profit-sharing plan that the Company contributes to at its
discretion. The Company contributed $50,000 to the plan in each of the years
ended December 31, 1997, 1996 and 1995.
7. RELATED PARTY TRANSACTIONS
Under a formal operation agreement, the Company is provided certain agency
services by a related party. The total commissions charged to the Company
under this agreement were $377,000, $362,000 and $375,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Under a verbal agreement, the Company pays a related-party employee an
annual bonus based upon income earned by the employee's sales office. The
amount of bonus expense incurred under this agreement was $74,000, $74,000 and
$23,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company leases its principal office building from its sole stockholder
on a month-to-month basis. Rental expense recorded under this lease was
$36,000 for the years ended December 31, 1997, 1996 and 1995 that is based on
a monthly verbal agreement. In addition, the Company also pays the real estate
taxes and other expenses for this office building on behalf of the sole
stockholder. The related expenses was $17,000, $15,000 and $14,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings and Contingencies
The Company is a party to various legal proceedings, claims and assessments
arising in the normal course of its business activities. Based upon
information presently available and in light of legal and other defenses and
insurance coverage, management does not expect these legal proceedings, claims
and assessments, individually or in the aggregate, to have a material adverse
impact on the Company's combined financial position or operations.
F-56
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Operating Leases
The Company leases buildings. Future minimum lease payments for operating
leases with remaining noncancellable lease terms in excess of one year as of
December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998..................................... $ 43,388
1999..................................... 39,702
2000..................................... 21,004
--------
Total minimum lease payments......... $104,094
========
</TABLE>
Rental expense was $70,000 in each of the years ended December 31, 1997,
1996 and 1995.
9. SUBSEQUENT EVENTS
In April 1998, the Company signed a letter of intent to sell the Company.
10. PRO FORMA TAX PROVISION (UNAUDITED)
If the Company had been taxed as a C Corporation, the combined provision for
income taxes and net income would have been approximately $751,000 and
$1,037,000, respectively, in 1997, $579,000 and $800,000, respectively, in
1996 and $504,000 and $696,000, respectively, in 1995, assuming an effective
tax rate of 42%.
F-57
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $1,486,970 $1,707,392
Accounts receivable, net of allowances of $189,000
and $98,000 in 1998 and 1997, respectively......... 5,741,904 5,386,938
Prepaid expenses and other current assets........... 41,198 67,903
---------- ----------
Total current assets.............................. 7,270,072 7,162,233
Property and equipment, net......................... 163,194 112,191
---------- ----------
Total assets...................................... $7,433,266 $7,274,424
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................... $3,763,629 $3,122,334
Accrued expenses.................................... 435,737 411,163
Short-term debt..................................... 19,276 38,553
---------- ----------
Total current liabilities......................... 4,218,642 3,572,050
---------- ----------
Commitments and contingencies
Stockholder's equity:
Cross Con Terminals, Inc.:
Common stock, $1 par value; 1,000 shares autho-
rized; 250 shares issued and outstanding at March
31, 1998 and December 31, 1997................... 250 250
Cross Con Transport, Inc.:
Common stock, no par value; 100,000 shares autho-
rized; 1,000 shares issued and outstanding at
March 31, 1998 and December 31, 1997............. -- --
Additional paid-in capital........................ 1,000 1,000
Retained earnings................................. 3,213,374 3,701,124
---------- ----------
Total stockholder's equity...................... 3,214,624 3,702,374
---------- ----------
Total liabilities and stockholder's equity...... $7,433,266 $7,274,424
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-58
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1998 1997
----------- -----------
<S> <C> <C>
Revenues............................................... $13,439,009 $12,374,466
Cost of transportation................................. 11,810,328 11,083,520
----------- -----------
Net revenue.......................................... 1,628,681 1,290,946
Operating expenses:
Selling, general and administrative expenses......... 967,094 802,206
Depreciation and amortization........................ 5,437 9,129
----------- -----------
Income from operations............................... 656,150 479,611
Interest and other income.............................. 29,750 15,160
----------- -----------
Income before income tax provision................... 685,900 494,771
Income tax provision................................... 10,000 7,000
----------- -----------
Net income........................................... $ 675,900 $ 487,771
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-59
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND THE YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997......... $250 $1,000 $3,701,124 $3,702,374
Net income (unaudited)........... -- -- 675,900 675,900
Distributions to stockholders
(unaudited)..................... -- -- (1,163,650) (1,163,650)
---- ------ ---------- ----------
BALANCE, March 31, 1998 (unau-
dited)............................ $250 $1,000 $3,213,374 $3,214,624
==== ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-60
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 675,900 $ 487,771
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization...................... 5,437 9,129
Changes in working capital--
Accounts receivable, net......................... (354,966) (241,800)
Prepaid expenses and other current assets........ 26,705 31,623
Accounts payable................................. 641,294 519,254
Accrued expenses................................. 24,574 (206,252)
---------- ----------
Net cash provided by operating activities...... 1,018,944 599,725
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net............. (56,439) --
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to stockholder......................... (1,163,650) --
Payments on short-term debt.......................... (19,277) (23,847)
Payments on debt..................................... -- (8,260)
---------- ----------
Net cash used in financing activities.......... (1,182,927) (32,107)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (220,422) 567,618
CASH AND CASH EQUIVALENTS, beginning of period......... 1,707,392 1,193,675
---------- ----------
CASH AND CASH EQUIVALENTS, end of period............... $1,486,970 $1,761,293
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for--
Interest........................................... $ 1,289 $ 762
Income taxes....................................... -- 12,262
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-61
<PAGE>
CROSS CON TERMINALS, INC. AND
CROSS CON TRANSPORT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY
Cross Con Terminals, Inc. ("Terminals") and Cross Con Transport, Inc.
("Transport") (together, the "Company") operate as S corporations and are
controlled by the same stockholder. Terminals is engaged in the business of
arranging, on behalf of others, for the transportation of freight over long
distances. Terminals contracts with railroads to provide transportation over
the long-haul portion of customer shipments and with local trucking companies,
known as "drayage companies," for pickups and deliveries. Transport provides
trucking services in the Chicago, Illinois, area using both owner-operator
drivers and leased truck equipment.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Quarterly Financial Data
The combined financial statements presented herein include the accounts of
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company believes that the disclosures
are adequate to make the information presented not misleading, although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the combined financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the Company's results of operations,
financial position and cash flows. The combined financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included elsewhere in this Prospectus.
PRINCIPLES OF COMBINATION
The combined financial statements of the Company include all accounts of
Terminals and Transport. All material intercompany amounts and transactions
have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company has elected for federal and applicable state tax reporting to
include income with that of its stockholder (an S corporation election). The
income tax provision represents a provision for state replacement taxes on the
accompanying income statement.
F-62
<PAGE>
3. DEBT
The Company maintains a revolving line of credit with a bank in the amount
of $3,000,000 that bears interest at the bank's prime rate. The line is
secured by the assets of the Company and as of March 31, 1998, and December
31, 1997, no amounts were outstanding on the line of credit. The line requires
the Company to maintain compliance with certain financial covenants. As of
March 31, 1998, and December 31, 1997, the Company was in compliance with all
of these financial covenants.
As of March 31, 1998 and December 31, 1997, the Company has financed
insurance payments in the amounts of approximately $19,000 and $39,000,
respectively, at an interest rate of 9.40% and 9.39%, respectively.
4. COMMITMENTS AND CONTINGENCIES
Legal Proceedings and Contingencies
The Company is a party to various legal proceedings, claims and assessments
arising in the normal course of its business activities. Based upon
information presently available and in light of legal and other defenses and
insurance coverage, management does not expect these legal proceedings, claims
and assessments, individually or in the aggregate, to have a material adverse
impact on the Company's combined financial position or operations.
5. SUBSEQUENT EVENTS
In April 1998, the Company signed a letter of intent to sell the Company.
6. PRO FORMA TAX PROVISION
If the Company had been taxed as a C corporation, the combined provision for
income taxes and net income would have been approximately $288,000 and
$398,000, respectively, as of March 31, 1998, and $208,000 and $287,000,
respectively, as of March 31, 1997 assuming an effective tax rate of 42%.
F-63
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. 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....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Industry Overview........................................................ 25
Business................................................................. 28
Management............................................................... 37
Certain Transactions..................................................... 43
Principal and Selling Stockholders....................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 52
Experts.................................................................. 52
Additional Information................................................... 52
Glossary of Terms........................................................ 53
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,200,000 Shares
LOGO PACER INTERNATIONAL, INC.
Common Stock
------------
PROSPECTUS
------------
BT ALEX. BROWN
PAINEWEBBER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers, Inc. filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 14,113
NASD filing fee.................................................. 5,284
Nasdaq National Market listing fee............................... 40,000
Blue sky fees and expenses....................................... 5,000
Printing and engraving expenses.................................. 250,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 425,000
Transfer agent and registrar fees................................ 5,000
Miscellaneous.................................................... 155,603
----------
Total.......................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Article V of the Amended and Restated Certificate of Incorporation of
Pacer International, Inc. (the "Company", "Pacer" or the "Registrant") (the
"Certificate") (filed as Exhibit 3.1 to this Registration Statement)
eliminates the liability of the Company's directors to the Company or its
stockholders, except for liabilities related to breach of duty of loyalty,
actions not in good faith and certain other liabilities.
Section 145 of the DGCL provides for indemnification by the Company of its
directors and officers. In addition, Article VI of the Certificate and Article
IX of the Company's By-laws (filed as Exhibit 3.2 to this Registration
Statement) require the Company to indemnify any current or former director or
officer to the fullest extent permitted by the DGCL. In addition, the Company
intends to enter into indemnity agreements with its directors (a form of which
is filed as Exhibit 10.2 to this Registration Statement) which obligate the
Company to indemnify such directors to the fullest extent permitted by the
DGCL. The Company also maintains officers' and directors' liability insurance,
which insures against liabilities that officers and directors of the Company
may incur in such capacities.
Reference is made to the form of Underwriting Agreement filed as Exhibit 1.1
to this Registration Statement, which provides for indemnification of the
directors and officers of the Company signing the Registration Statement and
certain controlling persons of the Company against certain liabilities,
including those arising under the Securities Act, in certain instances by the
Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since March 1997, the Company has issued unregistered securities to
investors and to certain other individuals in connection with acquisitions.
Each such issuance was made in reliance upon the exemption from the registered
requirements of the Securities Act, contained in Section 4(2) of the
Securities Act on the basis that such transactions did not involve a public
offering.
(a) On March 31, 1997, pursuant to a Stock Subscription Agreement among
Pacer, Eos Partners, L.P. ("Eos") and Donald C. Orris ("Orris"), the Company
issued to Eos and Orris an aggregate of 2,992,500 shares of Common Stock and
2,992,500 shares of Series A Preferred Stock for an aggregate purchase price
of $3,150,000.
II-1
<PAGE>
(b) On March 31, 1997, pursuant to their respective Restricted Stock
Issuance and Stock Purchase Agreements, Pacer issued to each of Gerry Angeli
("Angeli") and Robert L. Cross ("Cross") 166,250 shares of Common Stock and
166,250 shares of Series A Preferred Stock for an aggregate purchase price of
$350,000.
(c) On December 16, 1997, pursuant to a Stock Purchase Agreement, Pacer
issued an aggregate of 1,353,750 shares of Common Stock to Gary I. Goldfein
("Goldfein") and Allen E. Steiner ("Steiner") as partial consideration for all
of the capital stock of Interstate Consolidation, Inc. ("ICI") and Interstate
Consolidation Service, Inc. ("ICSI").
(d) On April 3, 1998, pursuant to an Agreement and Plan of Merger, Pacer
issued an aggregate of 217,142 shares of Common Stock to John W. Hein ("Hein")
as partial consideration for all of the capital stock of Intraco, Inc. (d/b/a
Stutz & Company) ("Stutz").
(e) On June 5, 1998, pursuant to a Stock Purchase Agreement, Pacer issued an
aggregate of 541,500 shares of Common Stock to Richard Hyland ("Hyland") as
partial consideration for all of the capital stock of Cross Con Terminals,
Inc. ("Terminals") and Cross Con Transport, Inc. ("Transport" and, together
with Terminals, "Cross Con").
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
**1.1 Form of Underwriting Agreement.
**3.1 Form of Amended and Restated Certificate of Incorporation of the
Company.
**3.2 Form of Amended and Restated Bylaws of the Company.
*4.1 Certificate for Shares.
*5.1 Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of
such firm) regarding legality of securities being offered.
*10.1 Form of Registration Rights Agreement.
*10.2 Form of Indemnification Agreement.
10.3 1997 Stock Option Plan.
*10.4 Form of 1998 Stock Option Plan.
10.5 Employment Agreement dated March 31, 1997 between Pacific Motor
Transport Company ("PMTC") and Orris.
10.6 Employment Agreement dated March 31, 1997 between PMTC and Angeli.
10.7 Employment Agreement dated March 31, 1997 between PMTC and Cross.
10.8 Employment Agreement dated December 16, 1997 between Pacer and
Goldfein.
10.9 Employment Agreement dated December 16, 1997 between Pacer and
Steiner.
10.10 Employment Agreement dated April 3, 1998 between PMTC and Hein.
10.11 Stock Purchase Agreement dated March 31, 1997 by and among Union
Pacific Railroad Company, Southern Pacific Transportation Company
("SPTC"), PMTC and Pacer.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.12 Stock Purchase Agreement dated as of December 16, 1997 between Pacer,
ICI, ICSI, Goldfein and Steiner.
10.13 Agreement and Plan of Merger dated as of April 3, 1998 between Pacer
Integrated Logistics, Inc. ("PIL"), Stutz and Hein.
10.14 Warrant to purchase 18,421 units (consisting of 18,421 shares of the
Company's Series A Preferred Stock and 18,421 shares of the Company's
Common Stock) issued by the Company in favor of SPTC on March 31,
1997.
10.15 Supplemental Stock Option Agreement dated as of March 31, 1997 between
the Company and Cross. See Schedule A attached to Exhibit 10.15 for a
list of additional Supplemental Stock Option Agreements entered into
by the Company on substantially similar terms.
10.16 Service Stock Option Agreement dated as of March 31, 1997 between the
Company and Cross. See Schedule B attached to Exhibit 10.16 for a
list of additional Service Stock Option Agreements entered into by
the Company on substantially similar terms.
**10.17 Restricted Stock Issuance and Stock Purchase Agreement dated as of
March 31, 1997 by and between the Company and Cross. See Schedule C
attached to Exhibit 10.17 for a list of additional Restricted Stock
Issuance and Stock Purchase Agreements entered into by the Company on
substantially similar terms.
10.18 Amended and Restated Credit Agreement dated as of December 16, 1997
(the "Credit Agreement"), among the Company, PMTC, ICI, ICSI, IMCS,
ICI Acquisition Company, Pacer International Rail Services LLC (f/k/a
American International Rail Services LLC) ("PIRS"), Pacer Rail
Services LLC (f/k/a American International Mechanical Services LLC)
("PRS") and The First National Bank of Chicago, as agent (the
"Agent").
10.19 Amendment No. 1 to Credit agreement dated as of March 31, 1998 among
the Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL and the Agent.
10.20 Amendment No. 2 to Credit Agreement dated as of May 1, 1998 among the
Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL, Pacer Logistics, Inc.
("Logistics") and the Agent.
10.21 Amendment No. 3 to Credit Agreement dated as of May 29, 1998 among the
Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL, Logistics and the
Agent.
10.22 Amended and Restated Security Agreement dated as of December 16, 1997
executed by PMTC in favor of the Agent. See Schedule D attached to
Exhibit 10.22 for a list of additional Security Agreements entered
into by the Company on substantially similar terms.
10.23 Pledge Agreement dated as of May 1, 1998 executed by Logistics in
favor of the Agent. See Schedule E attached to Exhibit 10.23 for a
list of additional Pledge Agreements entered into by the Company on
substantially similar terms.
**10.24 Stock Purchase Agreement dated as of May 29, 1998 among the Company,
Cross Con and Hyland (the "Cross Con Purchase Agreement").
**10.25 Letter Agreement dated June 5, 1998 between the Company and Cross Con
and Hyland, which letter agreement amends the Cross Con Purchase
Agreement.
**10.26 Undivided Assignment and Assumption Agreement dated as of June 5, 1998
by and between the Company and Cross Con Acquisition Corp.
**10.27 Employment Agreement dated June 5, 1998 between the Company and
Hyland.
**10.28 Amendment No. 4 to Credit Agreement dated as of June 5, 1998 among the
Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL, Logistics, Terminals,
Transport and the Agent.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
**21.1 List of Subsidiaries.
23.1 Consent of O'Sullivan Graev & Karabell, LLP (to be included as part of
its opinion to be filed as Exhibit 5.1 hereto).
**23.2 Consent of Arthur Andersen LLP, independent accountants.
**23.3 Consent of KPMG Peat Marwick LLP, independent accountants.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements or related
notes.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Restated Certificate and Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the
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 payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAN
FRANCISCO, STATE OF CALIFORNIA ON THE 8TH DAY OF JULY, 1998.
PACER INTERNATIONAL, INC.
By: /s/ Donald C. Orris
Donald C. Orris
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 8TH DAY OF JULY,
1998, BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
SIGNATURE TITLE
/s/ Donald C. Orris President, Chief Executive
- ------------------------------------- Officer and Director (Principal
DONALD C. ORRIS Executive Officer)
Chief Financial Officer
* (Principal Financial Officer)
- -------------------------------------
LAWRENCE C. YARBERRY
Vice President and Controller
* (Principal Accounting Officer)
- -------------------------------------
JOSEPH P. ATTURIO
Director
*
- -------------------------------------
GERRY ANGELI
Director
*
- -------------------------------------
DOUGLAS R. KORN
Director
*
- -------------------------------------
GARY I. GOLDFEIN
/s/ Donald C. Orris
*By
-----------------------------------
DONALD C. ORRIS, ATTORNEY-IN-FACT
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
**1.1 Form of Underwriting Agreement.
**3.1 Form of Amended and Restated Certificate of Incorporation of the
Company.
**3.2 Form of Amended and Restated Bylaws of the Company.
*4.1 Certificate for Shares.
*5.1 Opinion of O'Sullivan Graev & Karabell, LLP (including the consent of
such firm) regarding legality of securities being offered.
*10.1 Form of Registration Rights Agreement.
*10.2 Form of Indemnification Agreement.
10.3 1997 Stock Option Plan.
*10.4 Form of 1998 Stock Option Plan.
10.5 Employment Agreement dated March 31, 1997 between Pacific Motor
Transport Company ("PMTC") and Orris.
10.6 Employment Agreement dated March 31, 1997 between PMTC and Angeli.
10.7 Employment Agreement dated March 31, 1997 between PMTC and Cross.
10.8 Employment Agreement dated December 16, 1997 between Pacer and
Goldfein.
10.9 Employment Agreement dated December 16, 1997 between Pacer and
Steiner.
10.10 Employment Agreement dated April 3, 1998 between PMTC and Hein.
10.11 Stock Purchase Agreement dated March 31, 1997 by and among Union
Pacific Railroad Company, Southern Pacific Transportation Company
("SPTC"), PMTC and Pacer.
10.12 Stock Purchase Agreement dated as of December 16, 1997 between Pacer,
ICI, ICSI, Goldfein and Steiner.
10.13 Agreement and Plan of Merger dated as of April 3, 1998 between Pacer
Integrated Logistics, Inc. ("PIL"), Intraco, Inc. and Hein.
10.14 Warrant to purchase 18,421 units (consisting of 18,421 shares of the
Company's Series A Preferred Stock and 18,421 shares of the Company's
Common Stock) issued by the Company in favor of SPTC on March 31,
1997.
10.15 Supplemental Stock Option Agreement dated as of March 31, 1997 between
the Company and Cross. See Schedule A attached to Exhibit 10.15 for a
list of additional Supplemental Stock Option Agreements entered into
by the Company on substantially similar terms.
10.16 Service Stock Option Agreement dated as of March 31, 1997 between the
Company and Cross. See Schedule B attached to Exhibit 10.16 for a
list of additional Service Stock Option Agreements entered into by
the Company on substantially similar terms.
**10.17 Restricted Stock Issuance and Stock Purchase Agreement dated as of
March 31, 1997 by and between the Company and Cross. See Schedule C
attached to Exhibit 10.17 for a list of additional Restricted Stock
Issuance and Stock Purchase Agreements entered into by the Company on
substantially similar terms.
10.18 Amended and Restated Credit Agreement dated as of December 16, 1997
(the "Credit Agreement"), among the Company, PMTC, ICI, ICSI, IMCS,
ICI Acquisition Company, Pacer International Rail Services LLC (f/k/a
American International Rail Services LLC) ("PIRS"), Pacer Rail
Services LLC (f/k/a American International Mechanical Services LLC)
("PRS") and The First National Bank of Chicago, as agent (the
"Agent").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<C> <S>
10.19 Amendment No. 1 to Credit agreement dated as of March 31, 1998
among the Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL and the
Agent.
10.20 Amendment No. 2 to Credit Agreement dated as of May 1, 1998 among
the Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL, Pacer
Logistics, Inc. ("Logistics") and the Agent.
10.21 Amendment No. 3 to Credit Agreement dated as of May 29, 1998 among
the Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL, Logistics and
the Agent.
10.22 Amended and Restated Security Agreement dated as of December 16,
1997 executed by PMTC in favor of the Agent. See Schedule D
attached to Exhibit 10.22 for a list of additional Security
Agreements entered into by the Company on substantially similar
terms.
10.23 Pledge Agreement dated as of May 1, 1998 executed by Logistics in
favor of the Agent. See Schedule E attached to Exhibit 10.23 for
a list of additional Pledge Agreements entered into by the
Company on substantially similar terms.
**10.24 Stock Purchase Agreement dated as of May 29, 1998 among the
Company, Cross Con and Hyland (the "Cross Con Purchase
Agreement").
**10.25 Letter Agreement dated June 5, 1998 between the Company and Cross
Con and Hyland, which letter agreement amends the Cross Con
Purchase Agreement.
**10.26 Undivided Assignment and Assumption Agreement dated as of June 5,
1998 by and between the Company and Cross Con Acquisition Corp.
**10.27 Employment Agreement dated June 5, 1998 between the Company and
Hyland.
**10.28 Amendment No. 4 to Credit Agreement dated as of June 5, 1998 among
the Company, PMTC, ICI, ICSI, IMCS, PIRS, PRS, PIL, Logistics,
Terminals, Transport and the Agent.
**21.1 List of Subsidiaries.
23.1 Consent of O'Sullivan Graev & Karabell, LLP (to be included as
part of its opinion to be filed as Exhibit 5.1 hereto).
**23.2 Consent of Arthur Andersen LLP, independent accountants.
**23.3 Consent of KPMG Peat Marwick LLP, independent accountants.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
**Filed herewith.
<PAGE>
EXHIBIT 1.1
2,975,000 Shares
Pacer International, Inc.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
----------------------
__________, 1998
BT Alex. Brown Incorporated
PaineWebber Incorporated
Morgan Keegan & Company, Inc.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
1 South Street
Baltimore, Maryland 21202
Gentlemen:
Pacer International, Inc., a Delaware corporation (the "Company"), and
certain stockholders of the Company (the "Selling Stockholders"), propose to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of 2,975,000 shares of the Company's Common Stock, $.01 par value (the "Firm
Shares"), of which 2,800,000 shares will be sold by the Company and 175,000
shares will be sold by the Selling Stockholders. The respective amounts of the
Firm Shares to be so purchased by the several Underwriters are set forth
opposite their names in Schedule I hereto, and the respective amounts to be sold
by the Selling Stockholders are set forth opposite their names in Schedule II
hereto. The Company and the Selling Stockholders are sometimes referred to
herein collectively as the "Sellers." The Company also proposes to sell at the
Underwriters' option an aggregate of up to 446,250 additional shares of the
Company's Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on
behalf of the several Underwriters, and (b) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the over-allotment
option in whole or in
<PAGE>
part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
-----------------------------------------------------
SELLING STOCKHOLDERS
--------------------
(a) The Company represents and warrants to, and agrees with, each of the
Underwriters as follows:
(i) A registration statement on Form S-1 (File No. 333-__________ )
with respect to the Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it becomes
effective is herein referred to as a "Preliminary Prospectus." Any reference
herein to the Registration Statement, any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any documents incorporated by
reference therein, and, in the case of any reference herein to any Prospectus,
also shall be deemed to include any documents incorporated by reference therein,
and any supplements or amendments thereto, filed with the Commission after the
date of filing of the Prospectus under Rules 424(b) or 430A, and prior to the
termination of the offering of the Shares by the Underwriters.
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority (corporate and otherwise) to own or lease its properties and
conduct its business as described in the Registration Statement. Each of the
subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the
Registration Statement (collectively, the "Subsidiaries"), has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation,
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and, with corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement. The
Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The
Company and each of the Subsidiaries are duly qualified to transact business in
all jurisdictions in which the conduct of their business requires such
qualification; except where the failure to be so qualified would not have a
material adverse effect on the business, properties, prospects, condition
(financial or otherwise) or results of operations of the Company and the
Subsidiaries, taken as a whole (a "Material Adverse Effect"). The outstanding
shares of capital stock of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and non-assessable and are owned by the
Company or another Subsidiary free and clear of all liens, encumbrances and
equities and claims, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the
Subsidiaries are outstanding. Except for the shares of capital stock of each
other Subsidiary, neither the Company nor any Subsidiary owns, directly or
indirectly, any shares of capital stock of any corporation or has any equity
interest in any firm, partnership, joint venture, association, limited liability
company or other entity.
(iii) The outstanding shares of Common Stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the Shares
to be issued and sold by the Company have been duly authorized and when issued
and paid for by the Underwriters as contemplated herein will be validly issued,
fully paid and non-assessable; no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof; and the Shares will
be quoted on the Nasdaq National Market as of the Closing Date. Neither the
filing of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(iv) The Company has the requisite power and authority to execute, deliver
and perform its obligations under this Agreement; the execution, delivery and
performance by the Company of its obligations under this Agreement have been
duly authorized by all requisite corporate action of the Company; and this
Agreement constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except (A) as
enforceability may be limited by (1) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect which affect
creditors' rights generally and (2) general principles of equity, regardless of
whether enforceability is considered in a proceeding at law or in equity and (B)
as enforceability of those provisions relating to indemnity may be limited by
applicable law and the principles of public policy underlying such law.
(v) The information set forth under the caption "Capitalization" in the
Prospectus is true and correct. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the State of Delaware.
(vi) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that
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purpose. The Registration Statement contains, and the Prospectus and any
amendments or supplements thereto will contain, all statements which are
required to be stated therein by, and will conform to, the requirements of the
Act and the Rules and Regulations. The Registration Statement and any amendment
thereto do not contain, and will not contain, any untrue statement of a material
fact and do not omit, and will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein not misleading. No
Preliminary Prospectus contained an untrue statement of material fact and did
not omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any untrue
statement of material fact; and do not omit, and will not omit, to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the Company makes no representations or
warranties as to information contained in or omitted from the Registration
Statement or the Prospectus or any Preliminary Prospectus, or any such amendment
or supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(vii) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the consolidated Subsidiaries, at
the indicated dates and for the indicated periods. Except as may be otherwise
stated therein, such financial statements and related schedules have been
prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of results for such periods have been made.
The summary financial and statistical data included in the Registration
Statement presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented therein
and the books and records of the Company. The pro forma financial statements
and other pro forma financial information included in the Registration Statement
and the Prospectus present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial statements, have been properly compiled on the pro forma
bases described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances referred to
therein.
(viii) There are no statutes or governmental regulations, or any contracts
or other documents, that are required to be described in or filed as exhibits to
the Registration Statement which are not described therein or filed as exhibits
thereto; and all such contracts to which the Company or any Subsidiary is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute legal, valid and binding agreements of the Company or
such Subsidiary and are enforceable against the Company or Subsidiary in
accordance with the terms thereof.
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(ix) Arthur Anderson LLP and KPMG Peat Marwick LLP, who have certified
certain of the financial statements filed with the Commission as part of the
Registration Statement, are each independent public accountants as required by
the Act and the Rules and Regulations.
(x) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the
Subsidiaries or any of their respective executive officers or directors before
any court or administrative agency or otherwise which if determined adversely to
the Company or any of the Subsidiaries or any of their respective executive
officers or directors might result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and of the
Subsidiaries taken as a whole or to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(xi) The Company and the Subsidiaries have good and marketable title to all
of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those reflected
in such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company and the Subsidiaries occupy their
leased properties under valid and binding leases conforming in all material
respects to the description thereof set forth in the Registration Statement, the
interests of the Company or any of the Subsidiaries in such leases are free and
clear of all material liens, encumbrances and defects, except as disclosed in
the Prospectus, and the Company and the Subsidiaries are in compliance in all
material respects with the terms and conditions of such leases. Except for such
assets and facilities as are immaterial in the aggregate to the business of the
Company and the Subsidiaries taken as a whole, tangible assets and facilities of
the Company and the Subsidiaries are adequate, in the reasonable opinion of the
Company, for the use to which they are being put or would be put in the ordinary
course of business, and the operation and use of such assets and facilities is
in compliance with all municipal, county, state and federal laws, regulations,
ordinances, standards, orders and other regulations where the failure to comply
therewith would have a material adverse effect on the condition (financial or
otherwise) or the earnings, business affairs or business prospects of the
Company and the Subsidiaries, taken as a whole.
(xii) The Company and the Subsidiaries have timely filed all Federal,
state, county, local and foreign income tax returns which have been required to
be filed and have paid all taxes shown thereon and all assessments received by
them or any of them to the extent that such taxes or assessments have become due
and are not being contested in good faith. All tax liabilities have been
adequately provided for in the financial statements of the Company. The Company
has no tax deficiencies which would have a Material Adverse Effect.
(xiii) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not been
any material adverse change or any development involving a prospective material
adverse change in or affecting the earnings, business, properties, assets,
results of operations, condition (financial or otherwise), or prospects of the
Company and the Subsidiaries taken as a whole (a "Material Adverse Change"),
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whether or not occurring in the ordinary course of business, and there has not
been any material transaction entered into or any material transaction that is
probable of being entered into by the Company or the Subsidiaries, other than
transactions in the ordinary course of business and changes and transactions
described in the Registration Statement, as it may be amended or supplemented.
The Company and the Subsidiaries have no material contingent obligations which
are not disclosed in the Company's financial statements which are included in
the Registration Statement.
(xiv) Neither the Company nor any of the Subsidiaries is or with the
giving of notice or lapse of time or both, will be, in violation of or in
default under its Charter or By-Laws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which default would have a Material
Adverse Effect. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of the
terms hereof will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which the Company or any Subsidiary is
a party, or of the Charter or By-laws of the Company or any order, rule or
regulation applicable to the Company or any Subsidiary of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction.
(xv) Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental body
necessary in connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated (except
such additional steps as may be required by the Commission or the National
Association of Securities Dealers, Inc. (the "NASD") or such additional steps as
may be necessary to qualify the Shares for public offering by the Underwriters
under state securities or Blue Sky laws) has been obtained or made and is in
full force and effect.
(xvi) The Company and each of the Subsidiaries hold all material licenses,
certificates, permits and other approvals from government and other regulatory
authorities, including, without limitation, the federal Department of
Transportation (the "DOT") (collectively, "Permits") which are necessary to the
conduct of their businesses;. neither the Company nor any of the Subsidiaries
has received any notice of proceedings or has any reason to believe proceedings
are pending relating to the revocation or modification of any such Permit where
the revocation of such Permit, together with the revocation of any other
Permits, would have a Material Adverse Effect; and the Company and the
Subsidiaries have fulfilled and performed in all material respects their
respective obligations with respect to all such Permits, and no event has
occurred which allows, or after notice or lapse of time or both would allow,
revocation or termination thereof or result in any other material impairment of
the rights of the holder of any such Permit which would have a Material Adverse
Effect.
(xvii) The Company and the Subsidiaries own or possess adequate patent
rights or licenses or other rights to use patent rights, inventions, trademarks,
service marks, trade names, copyrights, technology and know-how necessary to
conduct the general business now or proposed to be operated by them as described
in the Registration Statement; neither the Company
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nor any of its Subsidiaries has infringed any patents, patent rights, trade
names, trademarks or copyrights, which infringement is material to the business
of the Company and the Subsidiaries taken as a whole. The Company knows of no
material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xviii) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken, directly or indirectly, any action designed to cause
or result in, or which has constituted, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in passive
market making transactions in the Shares on the Nasdaq Stock Market in
accordance with Regulation M.
(xix) Neither the Company nor any Subsidiary is an "investment company"
within the meaning of such term under the Investment Company Act of 1940 and the
rules and regulations of the Commission thereunder, or is subject to regulation
under the Public Utility Holding Company Act of 1935, as amended, the Federal
Power Act, the Interstate Commerce Act or to any federal or state statute or
regulation limiting its respective ability to incur indebtedness for borrowed
money, except statutes or regulations applicable generally to business
corporations incorporated or doing business in the various states in which the
Company and the Subsidiaries do business.
(xx) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(xxi) The Company and each of the Subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses and the value of their respective properties and
as is customary for companies engaged in similar industries.
(xxii) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no fiduciary or plan administrator has engaged in a
transaction or has taken or failed to take any action that could bring about any
material liability for either a civil penalty assessed pursuant to Section 409
of ERISA or a tax imposed pursuant to Section 4975(a) or (b) or 4980B of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of
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the Code; and each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by action
or by failure to act, which would cause the loss of such qualification.
(xxiii) Neither the Company nor any of the Subsidiaries is engaged in any
unfair labor practice which would have a Material Adverse Effect; (B) there is,
to the Company's knowledge, (I) no unfair labor practice complaint pending or
threatened against the Company or any of the Subsidiaries before the National
Labor Relations Board, and no grievance or arbitration proceeding arising out of
or under collectible bargaining agreements pending or threatened against the
Company or any of the Subsidiaries, (II) no strike, labor dispute, slowdown or
stoppage is pending or threatened against the Company or any of the Subsidiaries
and (III) (1) no union representation question existing with respect to the
employees of the Company or any of the Subsidiaries and, no union organizing
activities are taking place, and (2) there has been no violation of any federal,
state or local law relating to discrimination in the hiring, promotion or pay of
employees of the Company or any of the Subsidiaries of any applicable wage or
hour laws.
(xxiv) Each of the Company and the Subsidiaries has obtained all permits,
licenses and other authorizations that are required under all applicable
federal, state, local and foreign environmental laws, including, but not limited
to, the Federal Water Pollution Control Act (33 U.S.C. (S)1251 et seq.),
Resource Conservation & Recovery Act (42 U.S.C. (S)6901 et seq.), Safe Drinking
Water Act (21 U.S.C. (S)349, 42 U.S.C. (S)(S)201, 300f), Toxic Substances
Control Act (15 U.S.C. (S)2601 et seq.), Clean Air Act (42 U.S.C. (S)7401 et
seq.), Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. (S)9601 et seq.), the appropriate laws of any state in which the Company
or any of the Subsidiaries owns or leases real property and any other laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water or land), or otherwise relating to the generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes or under any regulation, code, plan,
order, decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder (collectively, the "Environmental Laws"),
except as otherwise set forth in the Registration Statement or to the extent
failure to have any such permit, license or authorization, individually, or in
the aggregate, would not have a Material Adverse Effect; (B) except as described
in the Registration Statement, each of the Company and the Subsidiaries is in
compliance will all terms and conditions of any required permits, licenses and
authorizations, and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in the Environmental Laws, except to the
extent failure to comply would not have a material adverse effect on the Company
and the Subsidiaries, taken as a whole; and (C) except as disclosed in the
Registration Statement, the Company and the Subsidiaries do not have any
material liabilities arising under Environmental Laws.
(xxv) There are no past or present events, conditions, circumstances,
activities, practices, incidents, actions, or plans relating to the business as
presently being conducted by the Company
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or the Subsidiaries that interfere with or prevent compliance or continued
compliance with the Environmental Laws, or which would be reasonably likely to
give rise to any legal liability (whether statutory or common law) or otherwise
would be reasonably likely to form the basis of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study, investigation, remediation or
cleanup based on or related to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release into the workplace, the community or the
environment of any pollutant, contaminant, chemical or industrial, toxic, or
hazardous substance or waste, except for any liabilities or any claims, demands
or other actions specified above that are described in the Registration
Statement or which will not individually or in the aggregate have a material
adverse effect on the Company and the Subsidiaries, taken as a whole, and (B)
except as previously disclosed to the Underwriters or their counsel, no
asbestos-containing material and no underground or above-ground storage tanks
are located on property owned or leased by the Company or the Subsidiaries and
none have been previously removed or filled by the Company or the Subsidiaries
or, to the best of their knowledge, any predecessor of the Company or the
Subsidiaries.
(xxvi) Except as disclosed in the Registration Statement, there are no
business relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K promulgated under the Act.
(xxvii) None of the Company and the Subsidiaries, or its executive
officers, directors, employees or agents has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity, or made any unlawful payment of funds of the Company or any
Subsidiary or received or retained any funds in violation of any law, rule or
regulation.
(xxviii) The Directors' and Officers' Questionnaires delivered by the
Company to the Underwriters on or prior to the Closing Date are true and correct
in all material respects.
(b) Each of the Selling Stockholders severally represents and warrants as
follows:
(i) Such Selling Stockholder now has and at the Closing Date (as such date
is hereinafter defined) will have good and marketable title to the Firm Shares
to be sold by such Selling Stockholder, free and clear of any liens,
encumbrances, equities and claims, and full right, power and authority to effect
the sale and delivery of such Firm Shares; and upon the delivery of and against
payment for such Firm Shares by the Underwriters pursuant to this Agreement, the
Underwriters will acquire good and marketable title thereto, free and clear of
any liens, encumbrances, equities and claims.
(ii) Such Selling Stockholder has full right, power and authority to
execute and delivery this Agreement, the Power of Attorney, and the Custodian
Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation
by such Selling Stockholder of the transactions herein contemplated and the
performance by such Selling Stockholder of its obligations hereunder will not
require any consent, approval, authorization or any other order of any court,
regulatory body,
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administrative agency or other governmental body (except as may be required
under the Act, state securities or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under, the
organizational documents of such Selling Stockholder, if not an individual, or
any indenture, mortgage, deed of trust or other agreement or instrument to which
such Selling Stockholder is a party, or of any order, rule or regulation
applicable to such Selling Stockholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to, or which has constituted, the stabilization or
manipulation of the price of the Common Stock of the Company to facilitate the
sale ore resale of the Shares and, other than as permitted by the Act, the
Selling Stockholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently the accuracy
or completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
such Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in this Section I are not true and correct,
is familiar with the Registration Statement and has no knowledge of any material
fact, condition or information not disclosed in the Registration Statement which
has adversely affected or may adversely affect the business of the Company or
any of the Subsidiaries; and the sale of the Firm Shares by such Selling
Stockholder pursuant hereto is not prompted by any information concerning the
Company or any of the Subsidiaries which is not set forth in the Registration
Statement. The information pertaining to such Selling Stockholder under the
caption "Selling Stockholders" in the Prospectus is complete and accurate in all
material respects.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
-----------------------------------------
(a) On the basis of the representations, warranties and covenants herein
contained, and subject to the conditions herein set forth, the Sellers agree to
sell to the Underwriters and each Underwriter agrees, severally and not jointly,
to purchase, at a price of $______ per share, the number of Firm Shares set
forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to
be purchased by each Underwriter from each Seller shall be nearly as practicable
in the same proportion to the total number of Firm Shares being sold by each
Seller as the number of Firm Shares being purchased by each Underwriter bears to
the total number of Firm Shares to be sold hereunder. The obligations of the
Company and the Selling Stockholders shall be several and not joint.
(b) Certificates in negotiable form for the total number of Shares to be
sold hereunder by the Selling Stockholders have been placed in custody with
____________ as custodian (the "Custodian") pursuant to the Custodian Agreement
executed by each Selling Stockholder for delivery of all Firm Shares to be sold
hereunder by the Selling Stockholders. Each of the Selling Stockholders
specifically agrees that the Firm Shares represented by the certificates held in
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custody for the Selling Stockholders under the Custodian Agreement are subject
to the interests of the Underwriters hereunder, that the arrangements made by
the Selling Stockholders for such custody are to that extent irrevocable, and
that the obligations of the Selling Stockholders (or by any other person, firm
or corporation including the Company, the Custodian or the Underwriters) or by
operation of law (including the death of an individual Selling Stockholder or
the dissolution of a corporate Selling Stockholder) or by the occurrence of any
other event or events, except as set forth in the Custodian Agreement. If any
such event should occur prior to the delivery to the Underwriters of the Firm
Shares hereunder, certificates for the Firm Shares shall be delivered by the
Custodian in accordance with the terms and conditions of this Agreement as if
such event has not occurred. The Custodian is authorized to receive and
acknowledge receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.
(b) Delivery to the Underwriters of and payment for the Firm Shares shall
be made at 10:00 a.m., Baltimore time, on the third or fourth business day after
the date of this Agreement, unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Exchange Act (the "Closing Date"), at such time
and place as you shall designate. The Closing Date and the location of delivery
of and the form of payment for the Firm Shares may be varied by agreement
between you and the Company and the Selling Stockholders. As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and are not
permitted by law or executive order to be closed.
(c) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase the Option
Shares at the price per share as set forth in the first paragraph of this
Section 2. The option granted hereby may be exercised in whole or in part by
giving written notice (i) at any time before the Closing Date and (ii) only once
thereafter within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option and the time and date at which such Option Shares are to be delivered.
The time and date at which such Option Shares are to be delivered shall be
determined by the Representatives but shall not be earlier than three nor later
than 10 full business days after the exercise of such option, nor in any event
prior to the Closing Date (such time and date being herein referred to as the
"Option Closing Date"). If the date of exercise of the option is three or more
days before the Closing Date, the notice of exercise shall set the Closing Date
as the Option Closing Date. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of Option Shares
being purchased as the number of Firm Shares being purchased by such Underwriter
bears to the total number of Firm Shares, adjusted by you in such manner as to
avoid fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, delivery to the Underwriters of and payment
for the Option Shares to be purchased by the Underwriters shall be made at such
place as you shall designate at 10:00 a.m. Baltimore time on the
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Option Closing Date. Any such Option Closing Date and the location of delivery
of and the form of payment for such Option Shares may be varied by agreement
between you and the Company.
(d) The Company and the Selling Stockholders shall cause the Shares to be
delivered to the Depository Trust Company ("DTC") prior to the Closing Date or
the Option Closing Date, as the case may be. The interests of the several
Underwriters in the Shares shall be evidenced by book entries on the records of
DTC, as the Representatives may request not less than one full business day
prior to the Closing Date or the Option Closing Date, as the case may be. The
Shares shall be delivered to DTC and confirmed by the Representatives on the
Closing Date or an Option Closing Date, as the case may be, with any transfer
taxes thereon duly paid by the Company, for the respective accounts of the
several Underwriters, against payment of the Purchase Price therefor by wire
transfer of funds to the order of the Company.
(e) If on the Closing Date, any Selling Stockholder fails to sell the Firm
Shares which such Selling Stockholder has agreed to sell on such date as set
forth in Schedule II hereto, the Company agrees that it will sell or arrange for
-----------
the sale of that number of shares of Common Stock to the Underwriters which
represents Firm Shares which such Selling Stockholder has failed to so sell, as
set forth in Schedule II hereto, or such lesser number as may be requested by
-----------
the Representatives.
3. OFFERING BY THE UNDERWRITERS.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares in accordance with a Master
Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
-----------------------------------------------------
(a) The Company covenants and agrees with the several Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected
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in writing (unless the Company is advised by counsel that such filing is
required) or which is not in compliance with the Rules and Regulations.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information and (D) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent or take any action that would
subject it to taxation in respect of doing business in any jurisdiction where it
is not now subject to taxation. The Company will, from time to time, prepare
and file such statements, reports, and other documents, as are or may be
required to continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or
before the Closing Date, four signed copies of the Registration Statement and
all amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Exchange Act, and the rules and regulations of the
Commission thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any
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<PAGE>
time to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission an appropriate amendment to
the Registration Statement or supplement to the Prospectus so that the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
45 days after the close of the period covered thereby, an earning statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earning statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 of the Rules and Regulations and will advise you
in writing when such statement has been so made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports and copies
of all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of [180] days after the
date of this Agreement, directly or indirectly, by the Company otherwise than
hereunder or with the prior written consent of BT Alex. Brown Incorporated.
(vix) The Company will use its best efforts to list, subject to
notice of issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each officer and director and
specific stockholders of the Company to furnish to you, on or prior to the date
of this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person or request the registration for the offer or
sale of any of the foregoing (or as to which such person has the right to direct
the disposition of) for a period of [180] days after the date of this Agreement,
directly or indirectly, except with the prior written consent of BT Alex. Brown
Incorporated ("Lockup Agreements").
(xi) The Company shall apply the net proceeds of the sale of the
Shares sold by it as set forth in the Prospectus and shall file such reports
with the Commission with respect to
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<PAGE>
the sale of the Shares and the application of the proceeds therefrom as may be
required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company or any of the Subsidiaries to register as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company and its affiliates will not take, directly or
indirectly, any action designed to cause or result in, or that might reasonably
be expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees, severally and not
jointly, with the several Underwriters that:
(i) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other capital stock of the Company or
other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Stockholder or request the
registration for the offer or sale of any of the foregoing (or as to which the
Selling Stockholder or request the registration for the offer or sale of any of
the foregoing (or as to which the Selling Stockholder has the right to direct
the disposition of) will be made for a period of [180] days after the date of
this Agreement, directly or indirectly, by such Selling Stockholder otherwise
than hereunder or with the prior written consent of BT Alex. Brown Incorporated.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Stockholders agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that might reasonably
be expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
5. COSTS AND EXPENSES.
------------------
The Sellers will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to, or as requested by, the Underwriters
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<PAGE>
copies of the Registration Statement, Preliminary Prospectuses, the Prospectus,
the Underwriters' Selling Memorandum, the Underwriters' Invitation Letter, the
Listing Application, the Blue Sky Survey and any supplements or amendments
thereto; the filing fees of the Commission; the filing fees incident to securing
any required review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Shares; the Listing Fee of the Nasdaq
Stock Market; and the expenses, including the fees and disbursements of counsel
for the Underwriters, incurred in connection with the qualification of the
Shares under State securities or Blue Sky laws. [The Selling Stockholders have
agreed with the Company to reimburse the Company for a portion of such expenses.
To the extent, if at all, that any of the Selling Stockholders engage special
legal counsel to represent them in connection with this offering, the fees and
expenses of such counsel shall be borne by such Selling Stockholder. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Sellers pro rata.] The Company agrees to pay all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the Underwriters, incident to the offer and sale of directed shares of the
Common Stock by the Underwriters to employees and persons having business
relationships with the Company and the Subsidiaries. The Sellers shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification under NASD regulation and State securities or
Blue Sky laws) except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this Agreement
is terminated by the Representatives pursuant to Section 11(b) hereof, or by
reason of any failure, refusal or inability on the part of the Company or the
Selling Stockholders to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on their part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company
shall reimburse the several Underwriters for reasonable out-of-pocket expenses,
including fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company and the
Selling Stockholders shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
---------------------------------------------
The several obligations of the Underwriters to purchase the Firm Shares on
the Closing Date and the Option Shares, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company and the
Selling Stockholders contained herein, and to the performance by the Company and
the Selling Stockholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective amendments thereto
shall have become effective and any and all filings required by Rule 424 and
Rule 430A of the Rules and Regulations shall have been made, and any request of
the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to their reasonable satisfaction. No stop order suspending the
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effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company or the Selling Stockholders, shall be
contemplated by the Commission and no injunction, restraining order, or order of
any nature by a Federal or state court of competent jurisdiction shall have been
issued as of the Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of O'Sullivan Graev &
Karabell, LLP, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease and operate its properties and
conduct its business as described in the Registration Statement; each of the
Subsidiaries has been duly incorporated and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease and operate its properties and
conduct its business as described in the Registration Statement; the Company and
each of the Subsidiaries are duly qualified to transact business in the
jurisdictions set forth on a schedule to the opinion; and the outstanding shares
of capital stock of each of the Subsidiaries have been duly authorized and
validly issued and are fully paid and non-assessable and are owned by the
Company or a Subsidiary; and, to such counsel's actual knowledge, the
outstanding shares of capital stock of each of the Subsidiaries are owned free
and clear of all liens, encumbrances and equities and claims, and no options,
warrants or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into any shares of capital stock or
of ownership interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital stock as
set forth under the caption "Capitalization" in the Prospectus; the authorized
shares of the Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, conform to the
corporate law of the State of Delaware; the shares of Common Stock, including
the Option Shares, if any, to be sold by the Company pursuant to this Agreement
have been duly authorized and will be validly issued, fully paid and non-
assessable when issued and paid for by the Underwriters as contemplated by this
Agreement; and to our actual knowledge, no preemptive rights of stockholders
exist with respect to any of the Shares or the issue or sale thereof.
(iii) Except as described in or contemplated by the Prospectus, to
the actual knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights obligating the Company to
issue any shares of its capital stock or any securities convertible or
exchangeable
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<PAGE>
into or evidencing the right to purchase or subscribe for any shares of such
stock; and except as described in the Prospectus, to the actual knowledge of
such counsel, all registration rights attached to any of the Company's shares of
capital stock are inapplicable to, or have been duly waived with respect to, the
offering contempleted by the Prospectus.
(iv) The Registration Statement has been declared effective under
the Act and, to the actual knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto (except for (A) the financial statements, notes
thereto and other financial information and schedules included therein or
omitted therefrom as to which we have not been requested to express any opinion
and (B) the matters described under the captions "Risk Factors-Government
Regulation" and "Business-Government Regulation" in the Prospectus as to which
we express no opinion) comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial statements
and related schedules therein).
(vi) All descriptions in the Prospectus of statutes, regulations
or legal or governmental proceedings, and the statements under the captions
"Risk Factors - [regulation etc.]," "Business [TBD]," "Description of Capital
Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or matters of
law, fairly summarize in all material respects the information therein
presented.
(vii) To our actual knowledge, there are no contracts or other
documents of a character required to be filed as exhibits to the Registration
Statement or required to be described in the Registration Statement or the
Prospectus which are not so filed or described, and such contracts and
documents as are summarized in the Registration Statement or the Prospectus are
fairly summarized in all material respects.
(viii) To our actual knowledge, except as set forth in the
Prospectus, there are no legal or governmental proceedings pending or threatened
to which the Company or any Subsidiary is a party or to which any property of
the Company or any Subsidiary is subject which are required to be described in
the Registration Statement and are not so described.
(ix) The issue and sale of the Shares and the performance by the
Company of its obligations under the Underwriting Agreement will not (A) to our
actual knowledge, result in a breach or violation of any of the terms or
provisions of any agreement or instrument filed as an exhibit to the
Registration Statement or (B) result in any violation of the Amended and
Restated Certificate or By-laws of the Company or the provisions of the General
Corporation Law of the State of Delaware or any applicable New York or Federal
securities law or statute or any order known to us or any rule or regulation of
any New York or Federal court or governmental agency or body having jurisdiction
over the Company or any of its properties (except that we render no opinion
herein with respect to the compliance of the indemnification or contribution
provisions of the Underwriting Agreement with the Federal securities laws).
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<PAGE>
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No consent, approval, authorization or order of any New York
or Federal court or governmental agency or body is required for the sale and
issuance of the Shares or the performance by the Company of its obligations
under the Underwriting Agreement, except such consents, approvals and
authorizations as have been obtained under the Securities Act and such as may be
required under state securities or Blue Sky laws or under the rules of the
National Association of Securities Dealers, Inc. in connection with the purchase
and distribution of the Shares by the Underwriters.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholders.
(xiv) The Custodian Agreement and the Power of Attorney executed
and delivered by each Selling Stockholder is valid and binding.
(xv) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have acquired good
and marketable title to the Shares being sold by each Selling Stockholder on the
Closing Date, and the Option Closing Date, as the case may be, free and clear of
all liens, encumbrances, equities and claims.
In rendering such opinion O'Sullivan Graev & Karabell, LLP may rely as to
matters governed by the laws of states other than Delaware, New York or Federal
laws on local counsel in such jurisdictions, provided that in each case
O'Sullivan Graev & Karabell, LLP shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that in the course of the preparation of the Registration Statement and
the Prospectus, such counsel has participated in conferences with certain
officers and other representatives of the Company and the Selling Stockholders,
representatives of the independent public accountants for the Company and
representatives of and counsel for the Underwriters at which conferences such
counsel made inquiries of such officers, representatives, accountants and
counsel and discussed the contents of the Registration Statement and Prospectus
and related matters and, although such counsel is not passing upon and does not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus and has not
made any independent verification thereof, on the basis of the foregoing, in the
course of such counsel's examination of the Registration Statement and the
Prospectus and the discussions in the above-referenced conferences, no facts
have come to such counsel's attention that lead them to believe that (i) the
Registration Statement (except for (A) the financial statements, notes thereto
and other financial information and schedules included therein or omitted
therefrom as to which such counsel has not been requested to express any opinion
or statement of belief and (B) the matters described under the captions "Risk
Factors-Government Regulation" and "Business-Government Regulation" in the
Prospectus as to which such counsel expresses no opinion), at the time the
Registration Statement became effective, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (ii) the
Prospectus (except for (A) the financial statements, notes thereto and other
financial information and schedules included therein or
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<PAGE>
omitted therefrom as to which such counsel has not been requested to express any
opinion or statement of belief and (B) the matters described under the captions
"Risk Factors-Government Regulation" and "Business-Government Regulation" in the
Prospectus as to which such counsel expresses no opinion), at the time the
Prospectus was issued, on the Closing Date or the Option Closing Date, as the
case may be, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
The Representatives shall have received from Morgan, Lewis & Bockius LLP,
counsel for the Underwriters, an opinion dated the Closing Date or the Option
Closing Date, as the case may be, in form and substance satisfactory to you.
Such opinion shall include a statement to the effect that nothing has come to
the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Morgan, Lewis
& Bockius LLP may state that their belief is based upon such procedures as are
set forth therein, but is without independent check and verification.
(c) The Representatives shall have received at or prior to the Closing Date
from Morgan, Lewis & Bockius LLP a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the State securities
or Blue Sky laws of such jurisdictions as the Representatives may reasonably
have designated to the Company.
(d) You shall have received, on each of the date hereof, the Closing Date
and the Option Closing Date, as the case may be, a letter dated the date hereof,
the Closing Date or the Option Closing Date, as the case may be, in form and
substance satisfactory to you, of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
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Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published Rules
and Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(e) The Representatives shall have received on the Closing Date or the
Option Closing Date as the case may be, a certificate or certificates of the
Chief Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be:
(i) The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the
Registrations Statement has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by the
Commission;
(ii) The representations and warranties of the company contained
in Section l hereof are true and correct in all material respects as
of the Closing Date or the Option Closing Date, as the case may be;
and
(ii) All filings required to have been made pursuant to Rules 424
or 430A under the Act have been made;
(iv) Since the effective date of the Registration Statement, no
event has occurred which should have been set forth in a supplement to
or an amendment of the Prospectus which has not been so set forth in
such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any
Material Adverse Change or any development involving a prospective
Material Adverse Change.
(f) The Company and the Selling Stockholders shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(g) The Firm Shares and Option Shares, if any, shall have been approved for
quotation on the Nasdaq National Market subject to notice of issuance.
(h) The Lockup Agreements described in Section 4(x) are in full force and
effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Morgan, Lewis & Bockius LLP,
counsel for the Underwriters.
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If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be.
In such event, the Selling Stockholders, the Company and the Underwriters
shall not be under any obligation to each other (except to the extent provided
in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
--------------------------------------------
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
---------------
(a) The Company agrees:
(1) to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act, against any
losses, claims, damages or liabilities to which such Underwriter or any such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, (ii) 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, or (iii) any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided, that the Company shall
not be liable under this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); provided, however, that (A) the Company will
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for use
in the preparation thereof and (B) the indemnity agreement contained in this
paragraph (1) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from
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<PAGE>
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Shares which are the subject thereof (or to the benefit
of any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented). This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(2) to reimburse each Underwriter and each such controlling person upon
demand for any legal or other out-of-pocket expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a party to any
action or proceeding. In the event that it is finally judicially determined
that the Underwriters were not entitled to receive payments for legal and other
expenses pursuant to this subparagraph, the Underwriters will promptly return
all sums that had been advanced pursuant hereto.
(b) The Selling Stockholders, severally and not jointly, agree to
indemnify the Underwriters and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or controlling person may become subject
under the Act or otherwise to the same extent as indemnity is provided by the
Company pursuant to Section 8(a) above. In no event, however, shall the
liability of any Selling Stockholder for indemnification under this Section 8(a)
exceed the proceeds received by such Selling Stockholder from the Underwriters
in the offering. This indemnity agreement will be in addition to any liability
which the Selling Stockholders may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Stockholders, and each person, if
any, who controls the Company or the Selling Stockholders within the meaning of
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, Selling Stockholder or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company, the Selling
Stockholders or any such director, officer, or controlling person in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary
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<PAGE>
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Company by or through
the Representatives specifically for use in the preparation thereof. This
indemnity agreement will be in addition to any liability which such Underwriter
may otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a), (b) or (c) shall be available to any party who shall fail to give notice
as provided in this Section 8(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a), (b) or (c). In
case any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or
within 30 days of presentation) the fees and expenses of the counsel retained by
the indemnified party in the event (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel,
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential conflicting interests between them or (iii) the indemnifying party
shall have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by you in the case of parties indemnified pursuant to Section 8(a) or
(b) and by the Company and the Selling Stockholders in the case of parties
indemnified pursuant to Section 8(c). The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent of
the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
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<PAGE>
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or,
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation, and (iii) no Selling Stockholder
shall be required to contribute any amount in excess of the proceeds received by
such Selling Stockholder from the Underwriters in the offering. The
Underwriters' obligations in this Section 8(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom
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<PAGE>
contribution may be sought under this Section 8 hereby consents to the
jurisdiction of any court having jurisdiction over any other contributing party,
agrees that process issuing from such court may be served upon him or it by any
other contributing party and consents to the service of such process and agrees
that any other contributing party may join him or it as an additional defendant
in any such proceeding in which such other contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be, any
Underwriter shall fail to purchase and pay for the portion of the Shares which
such Underwriter has agreed to purchase and pay for on such date (otherwise than
by reason of any default on the part of the Company or a Selling Stockholder,
you, as Representatives of the Underwriters, shall use your reasonable efforts
to procure within 36 hours thereafter one or more of the other Underwriters, or
any others, to purchase from the Company or the Selling Stockholders such
amounts as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase. If during such 36 hours you, as such
Representatives, shall not have procured such other Underwriters, or any others,
to purchase the Firm Shares or Option Shares, as the case may be, agreed to be
purchased by the defaulting Underwriter or Underwriters, then (a) if the
aggregate number of shares with respect to which such default shall occur does
not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may be,
which they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case
may be, covered hereby, the Company and the Selling Stockholders or you as the
Representatives of the Underwriters will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or of the Company except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in this
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
postponed for such
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<PAGE>
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10. NOTICES.
-------
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows: if to the Underwriters, to BT Alex. Brown Incorporated, 1
South Street, Baltimore, Maryland 21202, Attention: Rob Irwin, Managing
Director; with a copy to BT Alex. Brown Incorporated, 1 South Street, Baltimore,
Maryland 21202. Attention: General Counsel; if to the Company, to
Pacer International, Inc.
3746 Mt. Diablo Boulevard, Suite 110
Lafayette, California 94549
Attn: President
11. TERMINATION.
-----------
This Agreement may be terminated by you by notice to the Company as
follows:
(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any Material Adverse Change or
any development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and the Subsidiaries taken
as a whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
the Subsidiaries taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable to market the Shares or to enforce contracts for the sale of the
Shares, (iii) suspension of trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market or
limitation on prices (other than limitations on hours or numbers of days of
trading) for securities on any such exchange or trading market, (iv) the
enactment, publication, decree or other promulgation of any statute, regulation,
rule or order of any court or other governmental authority which in your opinion
materially and adversely affects or may materially and adversely affect the
business or operations of the Company, (v) declaration of a banking moratorium
by United States or New York State authorities, (vi) any downgrading in the
rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as defined for purposes of Rule 436(g) under
the Exchange Act); (vii) the suspension of trading of the Company's common stock
by the Commission on the Nasdaq National Market or (viii) the
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<PAGE>
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
------------------------------------
The Company, the Selling Stockholders and the Underwriters acknowledge and
agree that the only information furnished or to be furnished by any Underwriter
to the Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front cover
page (insofar as such information relates to the Underwriters), legends required
by Item 502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
-------------
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
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<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the several Underwriters in accordance with its terms.
Very truly yours,
PACER INTERNATIONAL, INC.
By_______________________________________
President
[Selling Stockholders listed on Schedule II]
By_______________________________________
The foregoing Underwriting Agreement
is hereby confirmed and accepted as of
the date first above written
BT ALEX. BROWN INCORPORATED
PAINEWEBBER INCORPORATED
MORGAN KEEGAN & COMPANY, INC.
As representatives of the several Underwriters
listed on Schedule I
By: BT Alex. Brown Incorporated
By: ____________________________
Authorized Officer
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
Number of Firm Shares
Underwriter to be Purchased
----------- -------------------------
BT Alex. Brown Incorporated
PaineWebber Incorporated
Morgan Keegan & Company, Inch.
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<PAGE>
EXHIBIT 3.1
Draft 7/8/98]
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PACER INTERNATIONAL, INC.
___________________
Pursuant to Section 103, Section 242 and
Section 245 of the General Corporation Law
of the State of Delaware
___________________
The undersigned, being the duly elected President and Chief Executive
Officer of Pacer International, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:
FIRST: The present name of the Corporation is Pacer International,
Inc. The date of filing of the original Certificate of Incorporation of the
Corporation with the Secretary of State of the State of Delaware was March 5,
1997, under the name of PMT Holdings, Inc.
SECOND: This Amended and Restated Certificate of Incorporation was
duly adopted in accordance with Sections 242 and 245 of the Delaware General
Corporation Law, and amends and restates the provisions of the present Amended
and Restated Certificate of Incorporation of the Corporation dated April 1,
1997, as amended by the Certificate of Amendment dated May 1, 1998.
THIRD: The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended and restated to read in its entirety as set forth
on Exhibit A attached hereto.
---------
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of
the ___ day of __________, 1998.
______________________________
Donald C. Orris
President and Chief Executive
Officer
ATTEST:
______________________________
Joseph P. Atturio
Secretary
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PACER INTERNATIONAL, INC.
_____________________________
ARTICLE I
NAME
The name of the corporation (herein called the "Corporation") is PACER
-----------
INTERNATIONAL, INC.
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation in the State
of Delaware is 9 East Loockerman Street, City of Dover, County of Kent 19901.
The name of the registered agent of the Corporation at such address is National
Registered Agents, Inc.
ARTICLE III
OBJECTS AND PURPOSES
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "DGCL").
ARTICLE IV
CAPITAL STOCK
The total number of shares of stock which the Corporation shall have
authority to issue is 25,000,000 shares, consisting of (a) 5,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), 600,000 of
---------------
which shall be designated Series A Preferred Stock (the "Series A Preferred
------------------
Stock"), and (b) 20,000,000 shares of Common Stock, par value $.01 per share
- -----
(the "Common Stock"). The Preferred Stock and the Common Stock shall have the
------------
rights and preferences and limitations set forth below in this Article IV.
<PAGE>
A. PREFERRED STOCK
-- ---------------
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated in the resolutions providing
for the establishment of such series adopted by the Board of Directors of the
Corporation as hereinafter provided. Except as otherwise expressly stated in
the resolution or resolutions providing for the establishment of a series of
Preferred Stock, any shares of Preferred Stock which may be redeemed, purchased
or acquired by the Corporation may be reissued except as otherwise expressly
provided by law. Different series of Preferred Stock shall not be construed to
constitute different Classes of stock for the purpose of voting by Classes
unless expressly provided in the resolution or resolutions providing for the
establishment thereof.
Authority is hereby expressly granted to the Board of Directors of the
Corporation to issue, from time to time, shares of Preferred Stock in one or
more series, and, in connection with the establishment of any such series by
resolution or resolutions, to determine and fix such voting powers, full or
limited, or no voting powers, and such other powers, designations, preferences
and relative, participating, optional and other rights, and the qualifications,
limitations and restrictions thereof.
4.1 DEFINITIONS.
- --- -----------
As used herein, the following capitalized terms have the following
meanings:
"Affiliate" means, with respect to any Person, any other Person that,
---------
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For the purpose of
the above definition, the term "control" (including, with correlative meaning,
-------
the terms "controlling", "controlled by" and "under common control with"), as
----------- ------------- -------------------------
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting Securities, by contract or
otherwise.
"Board" means the Board of Directors of the Corporation.
-----
"Issuance Date" means, with respect to each share of Preferred Stock,
-------------
the date upon which such share was originally issued.
"Liquidation" means (i) any voluntary or involuntary liquidation,
-----------
dissolution or winding-up of the affairs of the Corporation, (ii) the sale of
all or substantially all of the assets of the Corporation and its Subsidiaries,
on a consolidated basis, to any Person which or who is not a wholly owned
Subsidiary of the Corporation, or (iii) the merger or consolidation of the
Corporation with or into another Person under circumstances in which the holders
of a majority in voting power of the outstanding capital stock of the
Corporation, immediately prior to such merger or consolidation own less than a
majority in voting power of the outstanding capital stock of the surviving or
resulting corporation, immediately following such merger or consolidation. For
the
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<PAGE>
purpose of this definition, a sale (or multiple related sales) of one or more
Subsidiaries of the Corporation (whether by way of merger, consolidation or sale
of all or substantially all assets) to a Person (other than the Corporation or a
wholly owned Subsidiary thereof) which constitutes all or substantially all of
the consolidated assets of the Corporation and its Subsidiaries shall be deemed
a Liquidation.
"Liquidation Date" has the meaning ascribed to it in SECTION 3(B).
---------------- ------------
"Liquidation Preference" means, at any point in time and with respect
----------------------
to each share of Series A Preferred Stock, an amount per share equal to the
Original Issuance Price of such share, plus the aggregate amount of all
dividends declared on such share (if any) through the date in question, less the
aggregate amount of all distributions (if any) of any kind or description made
by the Corporation with respect to such share, whether constituting a return of
the Original Issuance Price of such share or a payment of dividends on such
share through the date in question or otherwise.
"Original Issuance Price" means, in the case of a share of Series A
-----------------------
Preferred Stock, $9.00. The Original Issuance Price with respect to any share
of Preferred Stock shall be adjusted to reflect any stock dividend or
distribution, stock split, reverse stock split or combination or other similar
pro rata recapitalization event affecting any such series of the Corporation's
- --- ----
Preferred Stock.
"Person" shall be construed broadly and shall include an individual, a
------
partnership, a corporation, an association, a joint stock company, a limited
liability company, a trust, a joint venture, an unincorporated organization and
a governmental entity or any department, agency or political subdivision
thereof.
"Securities" means, with respect to any Person, such Person's
----------
"securities" as defined in Section 2(1) of the Securities Act and includes,
- -----------
without limitation, such Person's capital stock or other equity interests or any
options, warrants or other securities that are directly or indirectly
convertible into, or exercisable or exchangeable for, such Person's capital
stock or other equity interests.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal law then in force.
"Subsidiary" means, with respect to any other Person, any Person (i)
----------
whose shares of stock or other Securities having a majority of the general
voting power in electing the board of directors or equivalent governing body
(excluding shares or other Securities entitled to vote only upon the failure to
pay dividends thereon or other contingencies) are, at the time as of which any
determination is being made, owned by such other Person either directly or
indirectly through one or more other Persons constituting Subsidiaries of such
other Person or (ii) more than a 50% interest in the profits or capital of whom
is, at the time as of which any determination is being made, owned by such other
Person either directly or indirectly through one or more other Persons
constituting Subsidiaries of such other Person.
-4-
<PAGE>
4.2 DIVIDENDS AND DISTRIBUTIONS.
- --- ---------------------------
(a) The holders of Series A Preferred Stock shall be entitled to receive
dividends in cash at the per annum rate of 12% of the Original Issuance Price of
a share of such Series A Preferred Stock (subject to equitable adjustment to
reflect stock splits, stock dividends, stock combinations, recapitalizations,
and like occurrences) if, when and as declared by the Board of Directors of the
Corporation in its sole discretion. Dividends shall be payable to the holders of
record of Series A Preferred Stock as they appear on the stock ledger of the
Corporation on the date (a "Record Date") fixed by the Board of Directors, which
Record Date shall not be more than 60 days preceding the relevant date on which
dividends shall be paid and shall not precede the date on which the resolution
fixing such Record Date shall have been adopted.
(b) So long as any shares of Series A Preferred Stock are outstanding,
unless otherwise waived by the holders of a majority in interest of the Series A
Preferred Stock then outstanding, the Corporation shall not pay or declare or
set apart for payment any dividend or make any other distribution (whether in
cash or obligations of the Corporation or other properties) on or with respect
to any shares of Common Stock or any other shares of capital stock of the
Corporation ranking on a parity with or junior to Series A Preferred Stock with
respect to dividends or redeem, repurchase or otherwise acquire (for any
consideration or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) any such shares.
(c) Notwithstanding anything contained herein to the contrary, the
Corporation shall not be obligated to declare or pay any dividend on the Series
A Preferred Stock or to make any distribution of any kind on or with respect
to the Series A Preferred Stock pursuant to this SECTION 2 or otherwise if
---------
such dividend or distribution is prohibited by any agreement between the
Corporation and any third-party lender to the Corporation; provided,
--------
however, that any dividends or distributions by the Corporation contemplated by
- -------
this SECTION 2 or otherwise which would be payable but for the foregoing clause
---------
of this SECTION 2(C) shall be payable immediately following the termination of
------------
the provisions prohibiting the payment thereof set forth in such agreements, and
the Corporation shall use its reasonable commercial efforts to obtain any
consents, approvals or other authorizations necessary for the payment thereof.
4.3 LIQUIDATION.
- --- -----------
(a) Upon a Liquidation:
(i) The holders of record of Series A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution to any
holder of Common Stock or other Class or series of capital stock of the
Corporation, for each share of such Series A Preferred Stock, an amount
equal to the Liquidation Preference of such share. If the assets of the
Corporation available for distribution to the holders of Series A Preferred
Stock shall be insufficient to permit the payment of the full preferential
amount set forth in this SECTION 3(A)(I), the holders of Series A Preferred
---------------
Stock shall share ratably in any
-5-
<PAGE>
distribution of the assets of the Corporation based on the respective
amounts which would be payable to them in respect of the shares of Series A
Preferred Stock held by them upon such distribution pursuant to this
SECTION 3(A)(I) if all amounts payable on or with respect to such shares
were paid in full.
(ii) After all distributions pursuant to SECTIONS 3(A)(I) have been
----------------
made, the remaining assets of the Corporation available for distribution,
if any, to the stockholders of the Corporation shall be distributed to the
holders of shares of Common Stock pro rata based on the number of shares of
--- ----
Common Stock held.
(b) The Corporation shall mail a written notice of Liquidation to
each holder of record of shares of Series A Preferred Stock, at his or its
post office address last shown on the records of the Corporation, not less
than 30 days prior to the date on which such Liquidation is to be
consummated (the "Liquidation Date").
-----------------
4.4 VOTING.
- --- ------
Except as set forth in the next sentence or as required by law, the holders
of Series A Preferred Stock shall not be entitled to vote on any matters
submitted to the vote of stockholders of the Corporation. The Corporation shall
not, without obtaining the prior written consent or affirmative vote of the
holders of a majority in interest of the Series A Preferred Stock then
outstanding, voting together as a single Class and given by written consent in
lieu of a meeting or by vote at a special meeting called for such purpose (for
which written notice shall have been given to all holders of Series A Preferred
Stock in the manner provided in the By-laws of the Corporation):
(i) amend, alter or repeal any provision of this Certificate of
Incorporation or the Bylaws of the Corporation if such amendment,
alteration or repeal would materially adversely affect the powers,
preferences and rights, or the qualifications and limitations of the Series
A Preferred Stock;
(ii) authorize, create or issue any series or Class of capital stock
of the Corporation which, in any case, ranks as to payment of dividends or
distributions of assets, including, without limitation, any distributions
to be made upon the Liquidation of the Corporation, senior to or pari passu
---- -----
with the Series A Preferred Stock;
(iii) reClassify any Class or series of capital stock of the
Corporation which ranks junior to the Series A Preferred Stock as to the
payment of dividends, distribution of assets or redemptions into shares of
any Class or series of capital stock ranking, either as to payment of
dividends, distribution of assets (including, without limitation, any
distributions to be made upon the liquidation, dissolution or winding up of
the Corporation) or redemptions, senior to or pari passu with the Series A
---- -----
Preferred Stock; or
-6-
<PAGE>
(iv) declare or pay any dividends (other than dividends payable
solely in shares of the Corporation's Common Stock) or make any
distribution of cash or property or both to holders of shares of Common
Stock or any other capital stock of the Corporation.
4.5 REDEMPTION.
- --- ----------
At any time and from time to time, the Corporation may redeem shares of
Series A Preferred Stock at a purchase price per share equal to the liquidation
preference per share plus accrued and unpaid dividends, if any, declared by the
Board of Directors prior to such redemption.
B. COMMON STOCK.
- -- ------------
Each holder of the Common Stock of the Corporation shall be entitled
to one vote for every share of Common Stock outstanding in his name on the books
of the Corporation. Except for and subject to those rights expressly granted to
the holders of Series A Preferred Stock or except as may be provided by the laws
of the State of Delaware, the holders of Common Stock shall have exclusively all
other rights of stockholders, including, but not limited to, (i) the right to
receive dividends, when and as declared by the Board out of assets legally
available therefor, and (ii) in the event of any distribution of assets upon the
Liquidation of the Corporation or otherwise, the right to receive ratably and
equally with all holders of all Common Stock all the assets and funds of the
Corporation remaining after the payment to the holders of the Series A Preferred
Stock of the specific amounts that they are entitled to receive upon such
Liquidation of the Corporation, if any.
ARTICLE V
DIRECTORS
The Board of Directors shall consist of a total of not less than three
nor more than fifteen members, and shall be and is divided into three Classes,
designated Class I, Class II and Class III. Each Class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors, with the term of office of the directors of one
Class expiring each year. each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that the initial directors elected to
-------- -------
Class I shall serve for a term ending on the date of the annual meeting next
following the end of the calendar year 1998, the initial directors elected to
Class II shall serve for a term ending on the date of the annual meeting next
following the end of the calendar year 1999 and the initial directors elected to
Class III shall serve for a term ending on the date of the annual meeting next
following the end of the calendar year 2000. each director shall hold office
until the annual meeting for the year in which his term expires and until such
director's successor shall be elected and qualified, subject, however, to such
director's earlier death, resignation, disqualification or removal from office.
In the event of any change in the authorized number of directors, the Board of
-7-
<PAGE>
Directors shall apportion any newly created directorships among, or reduce the
number of directorships in, such Class or Classes as shall, so far as possible,
equalize the number of directors in each Class. Any vacancy in the Board of
Directors resulting from any increase in the number of directors and any other
vacancy occurring in the Board of Directors may be filled by the Board of
Directors acting by a majority of the Directors then in office, although less
than a quorum, or by the sole remaining director, and any director so elected to
fill a vacancy shall hold office for a term that shall coincide with the term of
the Class to which such director shall have been elected and until such
director's successor is duly elected and qualified (subject, however, to such
director's earlier death, resignation, disqualification or removal from office).
in no event shall a decrease in the number of directors shorten the term of any
incumbent director.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filing of
vacancies and other features of such directorships shall be governed by the
terms of this Certification of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article FOURTH applicable thereto,
and such directors so elected shall not be divided into classes pursuant to this
Article FIFTH unless expressly provided by such terms.
ARTICLE VI
DIRECTOR LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. If
the DGCL is amended after the date of incorporation of the Corporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE VII
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by Section 145
of the DGCL, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of
-8-
<PAGE>
the expenses, liabilities or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any By-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrators of such a person.
ARTICLE VIII
BY-LAW AMENDMENTS
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
and empowered to make, alter, amend or repeal the By-laws in any manner not
inconsistent with the laws of the State of Delaware or this Certificate of
Incorporation.
ARTICLE IX
SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer. Special
meetings of stockholders of the Corporation may not be called by any other
person or persons.
ARTICLE X
CREDITORS' MEETINGS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any Class of them and/or between the
Corporation and its stockholders or any Class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the DGCL, order a meeting of the creditors or
Class of creditors, and/or of the stockholders or Class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or Class of creditors, and/or of the stockholders or Class of
stockholders of the Corporation, as the case may be, agree on any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or Class of creditors, and/or on
all the
-9-
<PAGE>
stockholders or Class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
* * * *
-10-
<PAGE>
================================================================================
EXHIBIT 3.2
PACER INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
___________________________
AMENDED AND RESTATED BY-LAWS
___________________________
AS ADOPTED ON JULY ___, 1998
================================================================================
<PAGE>
AMENDED AND RESTATED
BY-LAWS OF
PACER INTERNATIONAL, INC.
OFFICES
-------
1.1 REGISTERED OFFICE.
- --- -----------------
The registered office of Pacer International, Inc. (the "Corporation"),
in the State of Delaware shall be at 9 East Loockerman Street, City of Dover,
County of Kent 19901, and the registered agent in charge thereof shall be
National Registered Agents, Inc.
1.2 OTHER OFFICES.
- --- -------------
The Corporation may also have an office or offices at any other place or
places within or outside the State of Delaware.
ARTICLE II
MEETING OF STOCKHOLDERS; STOCKHOLDERS'
CONSENT IN LIEU OF MEETING
--------------------------
2.1 ANNUAL MEETINGS.
- --- ---------------
The annual meeting of the stockholders for the election of directors, and
for the transaction of such other business as may properly come before the
meeting, shall be held at such place, date and hour as shall be fixed by the
Board of Directors (the "Board") and designated in the notice or waiver of
notice thereof, except that no annual meeting need be held if all actions,
including the election of directors, required by the General Corporation Law of
the State of Delaware (the "DGCL) to be taken at a stockholders' annual meeting
are taken by written consent in lieu of meeting pursuant to Section 10 of this
Article II.
2.2 SPECIAL MEETINGS
- --- ----------------
Aspecial meeting of the stockholders for any purpose or purposes may be
called by the Board, the Chairman of the Board, the President or the Chief
Executive Officer of the Corporation,
<PAGE>
to be held at such place, date and hour as shall be designated in the notice or
waiver of notice thereof.
2.3 NOTICE OF MEETINGS.
- --- ------------------
Except as otherwise required by statute, the Certificate of Incorporation
of the Corporation (the "Certificate") or these By-laws, notice of each annual
or special meeting of the stockholders shall be given to each stockholder of
record entitled to vote at such meeting not less than 10 nor more than 60 days
before the day on which the meeting is to be held, by delivering written notice
thereof to him personally, or by mailing a copy of such notice, postage prepaid,
directly to him at his address as it appears in the records of the Corporation,
or by transmitting such notice thereof to him at such address by telegraph,
cable or other telephonic transmission. Every such notice shall state the
place, the date and hour of the meeting, and, in case of a special meeting, the
purpose or purposes for which the meeting is called. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy, or who shall, in person or by
attorney thereunto authorized, waive such notice in writing, either before or
after such meeting. Except as otherwise provided in these By-laws, neither the
business to be transacted at, nor the purpose of, any meeting of the
stockholders need be specified in any such notice or waiver of notice. Notice
of any adjourned meeting of stockholders shall not be required to be given,
except when expressly required by law.
2.4 QUORUM.
- --- ------
At each meeting of the stockholders, except where otherwise provided by
the Certificate or these By-laws, the holders of a majority of the issued and
outstanding shares of Common Stock of the Corporation entitled to vote at such
meeting, present in person or represented by proxy, shall constitute a quorum
for the transaction of business. In the absence of a quorum, a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote, or, in the absence of all the stockholders entitled to vote,
any officer entitled to preside at, or act as secretary of, such meeting, shall
have the power to adjourn the meeting from time to time, until stockholders
holding the requisite amount of stock to constitute a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the meeting
as originally called.
2.5 ORGANIZATION.
- --- ------------
1. Unless otherwise determined by the Board, at each meeting of the
stockholders, one of the following shall act as
2
<PAGE>
chairman of the meeting and preside thereat, in the following order of
precedence:
i. the Chairman;
ii. the President;
iii. any director, officer or stockholder of the Corporation designated
by the Board to act as chairman of such meeting and to preside thereat if
the Chairman or the President shall be absent from such meeting; or
iv. a stockholder of record who shall be chosen chairman of such meeting
by a majority in voting interest of the stockholders present in person or by
proxy and entitled to vote thereat.
2. The Secretary or, if he shall be presiding over such meeting in
accordance with the provisions of this Section 5 or if he shall be absent from
such meeting, the person (who shall be an Assistant Secretary, if an Assistant
Secretary has been appointed and is present) whom the chairman of such meeting
shall appoint, shall act as secretary of such meeting and keep the minutes
thereof.
2.6 ORDER OF BUSINESS.
- --- -----------------
The order of business at each meeting of the stockholders shall be
determined by the chairman of such meeting, but such order of business may be
changed by a majority in voting interest of those present in person or by proxy
at such meeting and entitled to vote thereat.
2.7 VOTING.
- --- ------
Except as otherwise provided by law, the Certificate or these By-laws, at
each meeting of the stockholders, every stockholder of the Corporation shall be
entitled to one vote in person or by proxy for each share of Common Stock of the
Corporation held by him and registered in his name on the books of the
Corporation on the date fixed pursuant to Section 7 of Article VI as the record
date for the determination of stockholders entitled to vote at such meeting.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. A person whose stock is pledged shall be entitled to vote,
unless, in the transfer by the pledgor on the books of the Corporation, he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee
or his proxy may represent such stock and vote thereon. If shares or other
securities having voting power stand in the record of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety or otherwise,
3
<PAGE>
or if two or more persons have the same fiduciary relationship respecting the
same shares, unless the Secretary shall be given written notice to the contrary
and furnished with a copy of the instrument or order appointing them or creating
the relationship wherein it is so provided, their acts with respect to voting
shall have the following effect:
i. if only one votes, his act binds all;
ii. if more than one votes, the act of the majority so voting binds all;
and
iii. if more than one votes, but the vote is evenly split on any
particular matter, such shares shall be voted in the manner provided by
law.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes of this Section 7 shall be
a majority or even-split in interest. The Corporation shall not vote directly
or indirectly any share of its own capital stock. Any vote of stock may be
given by the stockholder entitled thereto in person or by his proxy appointed by
an instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, delivered to the secretary of the meeting; provided,
--------
however, that no proxy shall be voted after three years from its date, unless
- -------
said proxy provides for a longer period. At all meetings of the stockholders,
all matters (except where other provision is made by law, the Certificate or
these By-laws) shall be decided by the vote of a majority in interest of the
stockholders present in person or by proxy at such meeting and entitled to vote
thereon, a quorum being present. Unless demanded by a stockholder present in
person or by proxy at any meeting and entitled to vote thereon, the vote on any
question need not be by ballot. Upon a demand by any such stockholder for a
vote by ballot upon any question, such vote by ballot shall be taken. On a vote
by ballot, each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and shall state the number of shares voted.
2.8 INSPECTION.
- --- ----------
The chairman of the meeting may at any time appoint one or more
inspectors to serve at any meeting of the stockholders. Any inspector may be
removed, and a new inspector or inspectors appointed, by the Board at any time.
Such inspectors shall decide upon the qualifications of voters, accept and count
votes, declare the results of such vote, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
issued and outstanding and entitled to vote thereon and the number of shares
voted for and against the question, respectively. The inspectors need not be
stockholders of the Corporation, and any director or officer of the
4
<PAGE>
Corporation may be an inspector on any question other than a vote for or against
his election to any position with the Corporation or on any other matter in
which he may be directly interested. Before acting as herein provided, each
inspector shall subscribe an oath faithfully to execute the duties of an
inspector with strict impartiality and according to the best of his ability.
2.9 LIST OF STOCKHOLDERS.
- --- --------------------
It shall be the duty of the Secretary or other officer of the Corporation
who shall have charge of its stock ledger to prepare and make, at least 10 days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote thereat, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to any such meeting, during ordinary
business hours, for a period of at least 10 days prior to such meeting, either
at a place within the city where such meeting is to be held, which place shall
be specified in the notice of the meeting or, if not so specified, at the place
where the meeting is to be held. Such list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
2.10 STOCKHOLDERS' CONSENT IN LIEU OF MEETING.
- ---- ----------------------------------------
Any action required by the ` to be taken at any annual or special meeting
of the stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, by a consent in writing, as permitted
by the DGCL.
ARTICLE III
BOARD OF DIRECTORS
--------------------
3.1 GENERAL POWERS.
- --- --------------
The business, property and affairs of the Corporation shall be managed by
or under the direction of the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Certificate directed or required to be exercised or done by the stockholders.
3.2 NUMBER AND TERM OF OFFICE.
- --- -------------------------
The number of directors shall be fixed from time to time by the Board.
Directors need not be stockholders. Each director
5
<PAGE>
shall hold office until his successor is elected and qualified, or until his
earlier death or resignation or removal in the manner hereinafter provided.
3.3 ELECTION OF DIRECTORS.
- --- ---------------------
At each meeting of the stockholders for the election of directors at
which a quorum is present, the persons receiving the greatest number of votes,
up to the number of directors to be elected, of the stockholders present in
person or by proxy and entitled to vote thereon shall be the directors;
provided, however, that for purposes of such vote no stockholder shall be
- -------- -------
allowed to cumulate his votes. Unless an election by ballot shall be demanded
as provided in Section 7 of Article II, election of directors may be conducted
in any manner approved at such meeting.
3.4 RESIGNATION, REMOVAL AND VACANCIES.
- --- ----------------------------------
1. Any director may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall
take effect at the time specified therein or, if the time be not specified, upon
receipt thereof; unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
2. Any director or the entire Board may be removed, with or without cause,
at any time by vote of the holders of a majority of the shares then entitled to
vote at an election of directors or by written consent of the stockholders
pursuant to Section 10 of Article II.
3. Vacancies occurring on the Board for any reason may be filled by vote
of the stockholders or by the stockholders' written consent pursuant to Section
10 of Article II, or by vote of the Board or by the directors' written consent
pursuant to Section 6 of this Article III. If the number of directors then in
office is less than a quorum, such vacancies may be filled by a vote of a
majority of the directors then in office.
3.5 MEETINGS.
- --- --------
1. Annual Meetings. As soon as practicable after each annual election of
-- ---------------
directors, the Board shall meet for the purpose of organization and the
transaction of other business, unless it shall have transacted all such business
by written consent pursuant to Section 6 of this Article III.
2. Other Meetings. Other meetings of the Board shall be held at such times
-- --------------
and places as the Board, the Chairman, the President or any director shall from
time to time determine.
6
<PAGE>
3. Notice of Meetings. Notice shall be given to each director of each
-- ------------------
meeting, including the time, place and purpose of such meeting. Notice of each
such meeting shall be mailed to each director, addressed to him at his residence
or usual place of business, at least two days before the date on which such
meeting is to be held, or shall be sent to him at such place by telegraph,
cable, wireless or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on which such
meeting is to be held, but notice need not be given to any director who shall
attend such meeting. A written waiver of notice, signed by the person entitled
thereto, whether before or after the time of the meeting stated therein, shall
be deemed equivalent to notice.
4. Place of Meetings. The Board may hold its meetings at such place or
-- -----------------
places within or outside the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice thereof.
5. Quorum and Manner of Acting. A majority of the total number of
-- ---------------------------
directors then in office shall be present in person at any meeting of the Board
in order to constitute a quorum for the transaction of business at such meeting,
and the vote of a majority of those directors present at any such meeting at
which a quorum is present shall be necessary for the passage of any resolution
or act of the Board, except as otherwise expressly required by law or these By-
laws. In the absence of a quorum for any such meeting, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.
6. Organization. At each meeting of the Board, one of the following shall
-- ------------
act as chairman of the meeting and preside thereat, in the following order of
precedence:
i. the Chairman;
ii. the President (if a director); or
iii. any director designated by a majority of the directors present.
The Secretary or, in the case of his absence, an Assistant Secretary, if
an Assistant Secretary has been appointed and is present, or any person whom the
chairman of the meeting shall appoint shall act as secretary of such meeting and
keep the minutes thereof.
3.6 DIRECTORS' CONSENT IN LIEU OF MEETING.
- --- -------------------------------------
Any action required or permitted to be taken at any meeting of the Board
may be taken without a meeting, without
7
<PAGE>
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by all the directors then in office and such
consent is filed with the minutes of the proceedings of the Board.
3.7 ACTION BY MEANS OF CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS
- --- -----------------------------------------------------------------
EQUIPMENT.
---------
Any one or more members of the Board may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person at
such meeting.
3.8 COMMITTEES.
- --- ----------
The Board may, by resolution or resolutions passed by a majority of the
whole Board, designate one or more committees, each such committee to consist of
one or more directors of the Corporation, which to the extent provided in said
resolution or resolutions shall have and may exercise the powers of the Board in
the management of the business and affairs of the Corporation and may authorize
the seal of the Corporation to be affixed to all papers which may require it,
such committee or committees to have such name or names as may be determined
from time to time by resolution adopted by the Board. A majority of all the
members of any such committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. The Board
shall have power to change the members of any such committee at any time, to
fill vacancies and to discharge any such committee, either with or without
cause, at any time.
ARTICLE IV
OFFICERS
----------
4.1 EXECUTIVE OFFICERS.
- --- ------------------
The principal officers of the Corporation shall be a Chairman, if one
is appointed (and any references to the Chairman shall not apply if a Chairman
has not been appointed), a President, a Secretary and a Treasurer, and may
include such other officers as the Board may appoint pursuant to Section 4.3 of
this Article IV. Any two or more offices may be held by the same person.
4.2 AUTHORITY AND DUTIES.
- --- --------------------
All officers, as between themselves and the Corporation, shall have such
authority and perform such duties in the
8
<PAGE>
management of the Corporation as may be provided in these By-laws or, to the
extent so provided, by the Board.
4.3 OTHER OFFICERS.
- --- --------------
The Corporation may have such other officers, agents and employees as the
Board may deem necessary, including one or more Assistant Secretaries, one or
more Assistant Treasurers and one or more Vice Presidents, each of whom shall
hold office for such period, have such authority, and perform such duties as the
Board, the Chairman, or the President may from time to time determine. The
Board may delegate to any principal officer the power to appoint and define the
authority and duties of, or remove, any such officers, agents, or employees.
4.4 TERM OF OFFICE, RESIGNATION AND REMOVAL.
- --- ---------------------------------------
1. All officers shall be elected or appointed by the Board and shall hold
office for such term as may be prescribed by the Board. Each officer shall hold
office until his successor has been elected or appointed and qualified or until
his earlier death or resignation or removal in the manner hereinafter provided.
The Board may require any officer to give security for the faithful performance
of his duties.
2. Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified therein or, if the time be not specified, at the
time it is accepted by action of the Board. Except as aforesaid, the acceptance
of such resignation shall not be necessary to make it effective.
3. All officers and agents elected or appointed by the Board shall be
subject to removal at any time by the Board or by the stockholders of the
Corporation with or without cause.
4.5 VACANCIES.
- --- ---------
If the office of Chairman, President, Secretary or Treasurer becomes
vacant for any reason, the Board shall fill such vacancy, and if any other
office becomes vacant, the Board may fill such vacancy. Any officer so
appointed or elected by the Board shall serve only until such time as the
unexpired term of his predecessor shall have expired, unless reelected or
reappointed by the Board.
4.6 THE CHAIRMAN.
- --- ------------
The Chairman shall give counsel and advice to the Board and the officers
of the Corporation on all subjects concerning the welfare of the Corporation and
the conduct of its business
9
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and shall perform such other duties as the Board may from time to time
determine. Unless otherwise determined by the Board, he shall preside at
meetings of the Board and of the Stockholders at which he is present.
4.7 THE PRESIDENT.
- --- -------------
The President shall be the chief executive officer of the Corporation.
The President shall have general and active management and control of the
business and affairs of the Corporation subject to the control of the Board and
shall see that all orders and resolutions of the Board are carried into effect.
The President shall from time to time make such reports of the affairs of the
Corporation as the Board of Directors may require and shall perform such other
duties as the Board may from time to time determine.
4.8 THE SECRETARY.
- --- -------------
The Secretary shall, to the extent practicable, attend all meetings of
the Board and all meetings of the stockholders and shall record all votes and
the minutes of all proceedings in a book to be kept for that purpose. He may
give, or cause to be given, notice of all meetings of the stockholders and of
the Board, and shall perform such other duties as may be prescribed by the
Board, the Chairman or the President, under whose supervision he shall act. He
shall keep in safe custody the seal of the Corporation and affix the same to any
duly authorized instrument requiring it and, when so affixed, it shall be
attested by his signature or by the signature of the Treasurer or, if appointed,
an Assistant Secretary or an Assistant Treasurer. He shall keep in safe custody
the certificate books and stockholder records and such other books and records
as the Board may direct, and shall perform all other duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board, the Chairman or the President.
4.9 THE TREASURER.
- --- -------------
The Treasurer shall have the care and custody of the corporate funds and
other valuable effects, including securities, shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Board. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board, taking proper vouchers for such disbursements, shall
render to the Chairman, President and directors, at the regular meetings of the
Board, or whenever they may require it, an account of all his transactions as
Treasurer and of the financial condition of the Corporation and shall perform
all other duties incident to the office of
10
<PAGE>
Treasurer and such other duties as from time to time may be assigned to him by
the Board, the Chairman or the President.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
------------------------------------------------
5.1 EXECUTION OF DOCUMENTS.
- --- ----------------------
The Board shall designate, by either specific or general resolution, the
officers, employees and agents of the Corporation who shall have the power to
execute and deliver deeds, contracts, mortgages, bonds, debentures, checks,
drafts and other orders for the payment of money and other documents for and in
the name of the Corporation, and may authorize such officers, employees and
agents to delegate such power (including authority to redelegate) by written
instrument to other officers, employees or agents of the Corporation; unless so
designated or expressly authorized by these By-laws, no officer, employee or
agent shall have any power or authority to bind the Corporation by any contract
or engagement, to pledge its credit or to render it liable pecuniarily for any
purpose or amount.
5.2 DEPOSITS.
- --- --------
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board or
Treasurer, or any other officer of the Corporation to whom power in this respect
shall have been given by the Board, shall select.
5.3 PROXIES WITH RESPECT TO STOCK OR OTHER SECURITIES OF OTHER CORPORATIONS.
- --- -----------------------------------------------------------------------
The Board shall designate the officers of the Corporation who shall have
authority from time to time to appoint an agent or agents of the Corporation to
exercise in the name and on behalf of the Corporation the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation, and to vote or consent with respect to such stock or
securities. Such designated officers may instruct the person or persons so
appointed as to the manner of exercising such powers and rights, and such
designated officers may execute or cause to be executed in the name and on
behalf of the Corporation and under its corporate seal or otherwise, such
written proxies, powers of attorney or other instruments as they may deem
necessary or proper in order that the Corporation may exercise its powers and
rights.
11
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ARTICLE VI
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
-----------------------------------------------
6.1 CERTIFICATES FOR SHARES.
- --- -----------------------
Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number and class of shares owned by him in the
Corporation, which shall be in such form as shall be prescribed by the Board.
Certificates shall be numbered and issued in consecutive order and shall be
signed by, or in the name of, the Corporation by the Chairman, the President or
any Vice President, and by the Treasurer (or an Assistant Treasurer, if
appointed) or the Secretary (or an Assistant Secretary, if appointed). In case
any officer or officers who shall have signed any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be issued and
delivered as though the person or persons who signed such certificate had not
ceased to be such officer or officers of the Corporation.
6.2 RECORD.
- --- ------
A record in one or more counterparts shall be kept of the name of the
person, firm or corporation owning the shares represented by each certificate
for stock of the Corporation issued, the number of shares represented by each
such certificate, the date thereof and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the person in
whose name shares of stock stand on the stock record of the Corporation shall be
deemed the owner thereof for all purposes regarding the Corporation.
6.3 TRANSFER AND REGISTRATION OF STOCK.
- --- ----------------------------------
1. The transfer of stock and certificates which represent the stock of the
Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of the
Delaware Code (the Uniform Commercial Code), as amended from time to time.
2. Registration of transfers of shares of the Corporation shall be made
only on the books of the Corporation upon request of the registered holder
thereof, or of his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and upon the surrender
of the certificate or certificates for such shares properly endorsed or
accompanied by a stock power duly executed.
12
<PAGE>
6.4 ADDRESSES OF STOCKHOLDERS.
- --- -------------------------
Each stockholder shall designate to the Secretary an address at which
notices of meetings and all other corporate notices may be served or mailed to
him, and, if any stockholder shall fail to designate such address, corporate
notices may be served upon him by mail directed to him at his post-office
address, if any, as the same appears on the share record books of the
Corporation or at his last known post-office address.
6.5 LOST, DESTROYED AND MUTILATED CERTIFICATES.
- --- ------------------------------------------
The holder of any shares of the Corporation shall immediately notify the
Corporation of any loss, destruction or mutilation of the certificate therefor,
and the Board may, in its discretion, cause to be issued to him a new
certificate or certificates for such shares, upon the surrender of the mutilated
certificates or, in the case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction, and the Board may, in its
discretion, require the owner of the lost or destroyed certificate or his legal
representative to give the Corporation a bond in such sum and with such surety
or sureties as it may direct to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss or destruction of any such
certificate.
6.6 REGULATIONS.
- --- -----------
The Board may make such rules and regulations as it may deem expedient,
not inconsistent with these By-laws, concerning the issue, transfer and
registration of certificates for stock of the Corporation.
6.7 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
- --- -------------------------------------------------------
1. In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which record date shall be not more than 60 nor less than 10 days
before the date of such meeting. If no record date is fixed by the Board, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
- -------- -------
meeting.
13
<PAGE>
2. In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which date shall
be not more than 10 days after the date upon which the resolution fixing the
record date is adopted by the Board. If no record date has been fixed by the
Board, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the Board
is required by the DGCL, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in this State, its
principal place of business or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board and prior action by the Board is required by the
DGCL, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board adopts the resolution taking such prior action.
3. In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than 60 days prior to such action. If no record
date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
ARTICLE VII
SEAL
------
The Board may provide a corporate seal, which shall be in the form of a
circle and shall bear the full name of the Corporation, the year of
incorporation of the Corporation and the words and figures "Corporate Seal -
Delaware."
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ARTICLE VIII
FISCAL YEAR
-------------
The fiscal year of the Corporation shall be the calendar year unless
otherwise determined by the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-------------------------------
9.1 INDEMNIFICATION.
- --- ---------------
1. As provided in the Charter, to the fullest extent permitted by the DGCL
as the same exists or may hereafter be amended, a director of this Corporation
shall not be liable to the Corporation or its stockholders for breach of
fiduciary duty as a director.
2. Without limitation of any right conferred by paragraph (a) of this
Section 1, each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity while serving as a director, officer or employee
or in any other capacity while serving as a director, officer or employee, shall
be indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes or amounts paid in settlement) reasonably
incurred or suffered by such indemnitee in connection therewith and such
indemnification shall continue as to an indemnitee who has ceased to be a
director, officer or employee and shall inure to the benefit of the indemnitee's
heirs, testators, intestates, executors and administrators; provided, however,
-------- -------
that such person acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and with
respect to a criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful; provided further, however, that no
-------- ------- -------
15
<PAGE>
indemnification shall be made in the case of an action, suit or proceeding by or
in the right of the Corporation in relation to matters as to which it shall be
adjudged in such action, suit or proceeding that such director, officer,
employee or agent is liable to the Corporation, unless a court having
jurisdiction shall determine that, despite such adjudication, such person is
fairly and reasonably entitled to indemnification; provided further, however,
-------- ------- -------
that, except as provided in Section 1(c) of this Article IX with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) initiated
by such indemnitee was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Article IX shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the DGCL
-------- -------
requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise.
3. If a claim under Section (b) of this Article IX is not paid in full by
the Corporation with 60 days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be 20 days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of any undertaking, the indemnitee shall be entitled to be paid also the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met the applicable standard of conduct set forth in the DGCL.
Neither the failure of the Corporation (including the Board, independent legal
counsel, or the stockholders) to have made a determination prior to the
commencement of such suit that indemnification of
16
<PAGE>
the indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by the Corporation (including the Board, independent legal
counsel, or the stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not met
the applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Section or otherwise shall be on the Corporation.
4. The rights to indemnification and to the advancement of expenses
conferred in this Article IX shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Charter, agreement,
vote of stockholders or disinterested directors or otherwise.
9.2 INSURANCE.
- --- ---------
The Corporation may purchase and maintain insurance, at its expense, to
protect itself and any person who is or was a director, officer, employee or
agent of the Corporation or any person who is or was serving at the request of
the Corporation as a director, officer, employer or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the DGCL.
17
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ARTICLE X
AMENDMENT
-----------
Any by-law (including these By-laws) may be adopted, amended or repealed
by the vote of the holders of a majority of the shares then entitled to vote or
by the stockholders' written consent pursuant to Section 10 of Article II, or by
the vote of the Board or by the directors' written consent pursuant to Section 6
of Article III.
* * * * *
* * *
*
18
<PAGE>
EXHIBIT 10.17
RESTRICTED STOCK ISSUANCE
AND STOCR PURCHASE AGREEMENT,
dated as of March 31, 1997 (this
"Agreement"), by and between
PMT HOLDINGS, INC., a Delaware
corporation (the "Company"), and
ROBERT CROSS, an individual (the
"Employee").
The Company and the Employee are party to that certain Employment
Agreement, dated as of March 31, 1997 (the "Employment Agreement"), pursuant to
which the Company has engaged the Employee to serve as President of its
ABL-Trans Division subject to the terms and conditions set forth therein.
In connection with the transactions contemplated by that certain Stock
Purchase Agreement, dated as of March 31, 1997 (the "Purchase Agreement"), by
and among the Company, Union Pacific Railroad Company, Pacific Motor Transport
Company (the "Target"), and Southern Pacific Transportation Company (the
"Seller"), the Company desires, (i) to sell to the Employee 17,500 shares of
Common Stock and the Employee desires to purchase from the Company such shares
of Common Stock and (ii) in recognition of Employee's services to the Target, to
issue a bonus to Employee of 17,500 shares of Preferred Stock.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained in this Agreement, the parties agree as follows.
SECTION 1. Definitions.
Terms used in this Agreement shall have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"Common Stock" mean the common stock, $.01 par value, of the Company, and
any other securities that may be distributed by the Company or its successor
with respect thereto or in exchange thereof.
"Exchanqe Act" means the Securities Exchange Act of 1934, as amended.
"Preferred Stock" means the Series A Preferred Stock of the Company $.01
par value, and any other securities that may be distributed by the Company or
its successor with respect thereto or in exchange thereof.
"Public Offering" shall have the meaning ascribed to it in the Stockholders
Agreement.
<PAGE>
"Restricted Period" means the period commencing on the date hereof and
ending on the earliest to occur of: (a) the completion of a Public Offering of
the Company; (b) a Sale of the Company; or (c) the date on which the covenants
of the Employee contained in Section 11 of the Employment Agreement terminate or
expire.
"Sale of the Company" shall have the meaning ascribed to it in the
Stockholders Agreement.
"Stockholders Aqreement" means the Stockholders Agreement, dated as of
March 31, 1997, among the Company, Employees and the other stockholders a party
thereto.
SECTION 2. Issuance of Preferred Stock: Sale of Common Stock.
(a) In recognition of Employee's services to the Target, the Company hereby
issues and grants to Employee a special one time bonus of 17,500 shares of
Preferred Stock (the "Bonus Shares").
(b) On the Closing Date the Company shall issue and sell to the Employee
and the Employee shall purchase from the Company, 17,500 shares of Common Stock
(the "Purchased Shares") for a per share purchase price equal to $17,500. The
Bonus Shares and the Purchased Shares are hereinafter referred to collectively
as, the "Shares".
(c) On the Closing Date, the Company shall deliver to the Employee (i)
certificates registered in the name of the Employee representing the Purchased
Shares against receipt by the Corporation of cash in an amount equal to the
aggregate purchase price therefor and (ii) certificates registered in the name
of the Employee representing the Bonus Shares.
SECTION 3. Closing.
The closing (the "Closing") hereunder with respect to the issuance of the
Bonus Shares and the issuance, sale and purchase of the Purchased Shares shall
take place simultaneously with the signing of this Agreement and occur
immediately prior to the closing of the Stock Purchase Agreement.
SECTION 4. Forfeiture of Bonus Shares.
If, during the Restricted Period, the Employee is found by a court of
competent jurisdiction to have breached the noncompetition covenant contained in
Section 11 of the Employment Agreement, then the Bonus Shares shall be
automatically forfeited, without consideration, and returned to the Company and
Employee (or his permitted transferees) shall have no rights or interest with
respect to the Bonus Shares as of such date.
2
<PAGE>
SECTION 5. Voting Rights: Dividends and Other Distributions.
Subject to Section 4, during the Restricted Period the Employee may
exercise full voting rights with respect to the Bonus Shares and the Employee
(or his permitted transferees) shall be entitled to receive all dividends and
other distributions paid on or with respect to the Bonus Shares. If any such
dividends or distributions are paid on the Bonus Shares in additional shares of
Preferred Stock, such additional shares will be subject to the same restrictions
hereunder as the Bonus Shares with respect to which they were paid.
SECTION 6. Representations and Warranties of the Employee.
The Employee represents and warrants to the Company as follows:
6.1. Authorization. Etc.
(a) The Employee has full legal right, power and authority to enter into
this Agreement, the Employment Agreement and the Stockholders Agreement
(collectively, the "Equity Documents") and to perform the Employee's obligations
under the Equity Documents. The execution, delivery and performance by the
Employee of the Equity Documents has been duly authorized by all requisite
action on the part of the Employee. Each Equity Document has been, or at the
Closing will be, duly executed and delivered by the Employee and is, or at the
Closing will be, the valid and binding obligation of the Employee, enforceable
against the Employee in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium, and similar laws affecting
creditors' rights generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(b) The execution, delivery and performance by the Employee of the Equity
Documents, the consummation of the transactions contemplated thereby, and the
compliance by the Employee with the provisions thereof, will not (i) violate,
conflict with or constitute (with notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, or
result in the creation of any encumbrance upon the Employee's properties or
assets pursuant to, the terms, conditions or provisions of any note, bond,
lease, mortgage, indenture, license, agreement or other instrument or obligation
to which the Employee is a party or by which the Employee or the Employee's
properties or assets are bound, or (ii) violate any provision of law, statute,
rule, regulation, order, judgment, award, writ, injunction or decree
3
<PAGE>
applicable to the Employee or any of the Employee's properties or assets.
(c) No permit, authorization, consent or approval of or by, or notification
of or filing with, any person (governmental or private) is required in
connection with the valid authorization, execution, delivery or performance of
this Agreement by the Employee other than those permits, authorizations,
consents, approvals, notifications and filings which have been obtained or made,
as the case may be.
6.2. Investment by the Employee.
(a) The Employee is acquiring the Shares for his own account, for
investment and not with a view to the distribution thereof, nor with any present
intention of distributing the same.
(b) The Employee understands that the Shares have not been registered or
qualified under the Act or any applicable state securities laws, by reason of
their issuance in a transaction exempt from the registration or qualification
requirements of the Act and such laws, and that any subsequent disposition
thereof must be registered or qualified under the Act and such laws or be exempt
from such registration or qualification.
(c) The Employee understands that the exemption from registration afforded
by Rule 144 (the provisions of which are known to the Employee) promulgated
under the Act depends on the satisfaction of various conditions and that, if
applicable, Rule 144 may only afford the basis for sales under certain
circumstances only in limited amounts.
(d) The Employee (i) has been furnished with or has had access to all
information the Employee has requested from the Company relating to the Company
and the Target and (ii) has had an opportunity to discuss with management of the
Company and the Target the business and financial affairs of the Company and the
Target and (iii) has generally such knowledge and experience in business and
financial matters and with respect to investments in securities of privately
held companies so as to enable the Employee to understand and evaluate the risks
of and form an investment decision with respect to his investment in the Shares.
(e) The Employee has no need for liquidity in his investment in the Shares
and is able to bear the economic risk of his investment in the Shares and the
complete loss of all of such investment.
(f) The Employee understands that an investment in the Company is
speculative, that any possible profits therefrom
4
<PAGE>
are uncertain, and that Employee must bear the economic risks of the investment
in the Company for an indefinite period of time. Employee is able to bear these
economic risks and to hold the Shares for an indefinite period.
(g) Employee understands and agrees that (i) the legends set forth in
Section 8 will be placed on the certificates evidencing the Bonus Shares and on
certificates for Bonus Shares issued to permitted transferees; (ii) the stock
records of the Company will be noted with respect to such restrictions; and
(iii) the Company will not be under any obligation to register the Bonus Shares
or to take any action to comply with any exemptions available for sale of the
Bonus Shares without registration.
(h) The Employee represents and warrants to the Company that, to his actual
knowledge, the representations and warranties of the Target and the Seller
contained in Section 3 of the Stock Purchase Agreement and the representations
and warranties of the Target and the Corporation in the Credit Agreement dated
as of the date hereof between First National Bank of Chicago and the Target and
the Corporation are true and correct in all respects as of the date hereof.
Notwithstanding the foregoing, no party may bring any cause of action for breach
of this representation and warranty unless and until such party has incurred
Losses as defined in the Stock Purchase Agreement) in excess of $250,000 in the
aggregate, and then only with respect to such Losses which exceed $250,000 in
the aggregate.
SECTION 7. Representations and Warranties of the Corporation.
The Company hereby represents and warrants to the Employee as follows:
7.1. Organization, Authorization.
(a) The Corporation is a company duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be conducted and to carry out
the transactions and perform its obligations contemplated hereby. Attached
hereto as Exhibit A is a true and complete copy of the Certificate of
Incorporation of the Company as in effect on the date hereof.
(b) The Company has full legal right, power and authority to enter into,
execute and deliver the Equity Documents and to perform its obligations
thereunder. The execution, delivery and performance by the Company of the Equity
Documents have been duly authorized by all requisite corporate action by the
Company, and the Equity Documents have been, or at
5
<PAGE>
the Closing will be, duly executed and delivered by the Company and constitute,
or at the Closing will constitute, the valid and binding obligation of the
Company, enforceable in accordance with their terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium, and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principals of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law). The execution, delivery and performance by the
Company of the Equity Documents, the issuance, sale, exchange and delivery of
the Shares and the compliance with the provisions of the Equity Documents by the
Company, will not (a) violate any provision of law, statute, rule, regulation,
order, judgment, award, writ, injunction or decree applicable to the Company or
any of its properties or assets or (b) violate, conflict with or constitute
(with notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of
any encumbrance upon any of the Company's properties or assets pursuant to, the
terms, conditions or provisions of the Company's Certificate of Incorporation or
Bylaws or any note, bond, lease, mortgage, indenture, license, agreement or
other instrument or obligation to which the Company is a party or by which it or
any of its properties is bound or affected.
(c) Except for the filing of any notice which may be required under
applicable federal or state securities law (which, if required, has been or
shall be filed on a timely basis as may be so required), no permit,
authorization, consent or approval of or by, or notification of or filing with,
any person (governmental or private) is required in connection with the
execution, delivery or performance of this Agreement by the Company other than
those permits, authorizations, consents, approvals, notifications or filings
which have been obtained or made, as the case may be.
7.2. Capitalization.
--------------
The authorized capital stock of the Company immediately after the
consummation at the Closing of the transactions contemplated hereby shall
consist of 600,000 shares of Common Stock and 600,000 shares of Preferred Stock.
As of the date hereof, after giving effect to the Closing and the issuance of
any Common Stock and/or Preferred Stock pursuant to the Stock Subscription
Agreement dated as of the date hereof between the Company and the Investors
named therein, (i) 350,000 shares of Common Stock will have been validly issued
and be outstanding, fully paid and nonassessable, (ii) 350,000 shares of
Preferred Stock will have been validly issued and be outstanding, fully paid and
nonassessable and (iii) 128,421 shares of Common Stock and 128,421 shares of
Preferred Stock will be duly reserved for issuance upon the exercise of a
warrant issued to Southern Pacific Transportation Company and options issued to
employees,
6
<PAGE>
directors and consultants of the Company pursuant to the 1997 Stock Option Plan
of the Company.
7.3. Authorization of the Shares, Etc.
The issuance, sale and delivery by the Company of the Shares have been duly
authorized by all requisite corporate action of the Company, and the Shares,
when issued as contemplated hereby, will be validly issued and outstanding,
fully paid and nonassessable, with no personal liability attaching to the
ownership thereof at the time of their issuance.
7.4. Offering Exemption.
Subject to the accuracy of the Employee's representations and warranties in
Section 5 and the compliance by the Employee with the terms of this Agreement,
the offer, sale and issuance of the Shares pursuant to the terms of this
Agreement do not require registration under the Act or registration or
qualification under any applicable state "blue sky" or securities laws (or if so
required, have been so registered or qualified).
SECTION 8. Legends on Shares.
In addition to any legends which may be required under the Stockholders
Agreement, and other agreement between the Company and the Employee or
otherwise, each certificate representing the Bonus Shares shall have
conspicuously printed on it the following legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AS SET FORTH IN A RESTRICTED STOCK ISSUANCE AND STOCK PURCHASE
AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED HOLDER OR HIS PREDECESSOR
IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION."
(b) Any legend required to be placed thereon by the applicable blue sky
laws of any state.
SECTION 9. Employment.
The parties acknowledge that nothing in this Agreement shall affect in any
manner whatsoever the rights or obligations of the parties with respect to
Employee's employment by the Company.
SECTION 10. Indemnification.
(a) The Company shall indemnify, defend and hold harmless the Employee
against all liability, loss or damage, together with all reasonable costs and
expenses related thereto
7
<PAGE>
(including reasonable legal fees and expenses), relating to or arising from the
untruth, inaccuracy or breach of any of the representations, warranties or
agreements of the Company contained in this Agreement.
(b) The Employee shall indemnify and hold harmless the Company and Eos
Partners, L.P. ("Eos") against all liability, loss or damage, together with all
reasonable costs and expenses related thereto (including reasonable legal fees
and expenses), relating to or arising from the untruth, inaccuracy or breach of
any of the representations, warranties or agreements of the Employee contained
in this Agreement; provided, however, that the Company's and Eos' recourse for
any breach of the representation and warranty of the Employee contained in
Section 6.2(h) shall be limited to (i) the right to terminate the Employee for
"Cause" in accordance with the terms of the Employment Agreement and/or (ii) the
Shares.
SECTION 11. Rights as a Shareholder.
Subject to the provisions and limitations hereof and the terms of the
Stockholders Agreement, the Employee may, during the term of this Agreement,
exercise all rights and privileges of a shareholder of the Company with respect
to the Shares.
SECTION 12. Miscellaneous Provisions.
(a) The parties will execute such further instruments and take such further
action as may reasonably be necessary to carry out the intent of this Agreement.
(b) All notices, claims, certificates, requests, demands and other
communications to any party shall be in writing and shall be deemed to have been
duly given if personally delivered or if sent by nationally-recognized overnight
courier, by telecopy, or by registered or certified mail, return receipt
requested and postage prepaid, addressed to such party as follows:
If to the Corporation, to:
PMT Holdings, Inc.
c/o Eos Partners, L.P.
320 Park Avenue -22nd Floor
New York, New York 10022
Attention: Douglas R. Korn
Telecopier: (212) 832-5805
Telephone: (212) 832-5803;
with copies to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
8
<PAGE>
41st Floor
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopier: (212) 408-2420
Telephone: (212) 408-2400;
if to the Employee, to him at the address set forth on the
signature page hereto:
or to such other address as the party to whom notice is to be given may have
furnished to the other parties in writing in accordance herewith. Any such
notice or communication shall be deemed to have been delivered and received (i)
in the case of personal delivery, on the date of such delivery, (ii) in the case
of dispatch by nationally-recognized overnight courier, on the next business day
following such dispatch, (iii) in the case of telecopy transmission, when
received and (iv) in the case of mailing, on the fifth business day after the
posting thereof.
(c) The Company may assign its rights under this Agreement. The Employee
may not assign his rights or obligations under this Agreement without the
written consent of the Company. If any such assignment requires consent of any
Person, the parties agree to cooperate in requesting such consent. This
Agreement shall inure to the benefit of the Company and Eos and their respective
successors and assigns and, subject to the restrictions on transfer set forth in
the Stockholders Agreement, be binding upon Employee, Employee's heirs,
executors, administrators, successors and permitted assigns.
(d) No waiver of any breach or condition of this Agreement shall be deemed
to be a waiver of any other or subsequent breach or condition, whether of like
or different nature.
(e) This Agreement and the other writings and agreements referred to herein
or delivered pursuant hereto contain the entire understanding of the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, oral or written, among the parties with respect
to their subject matter.
(f) THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR
CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF
THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS
AGREEMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF
9
<PAGE>
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY.
(g) This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same instrument.
(h) It is the desire and intent of the parties hereto that the provisions
of this Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
(i) This Agreement may not be amended, modified or supplemented except by a
writing executed by both parties.
(j) The section headings contained in this Agreement are included for
convenience of reference only and are not intended by the parties to be a part
of or to affect the meaning or interpretation of this Agreement.
(k) BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL
TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND
EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN
ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS
RELATED HERETO.
* * * * *
10
<PAGE>
IN WITHNESS WHEREOF, the parties hereto have executed this Agrssment as of
the day and year first above written.
"The Company"
PMT HOLDINGS, INC.
By: /s/ Douglas R. Korn
------------------------------------------
Name: Douglas R. Korn
Title: Vice President, Assistant Secretary
and Assistant Treasurer
"Employee"
/s/ Robert Cross
------------------------------------------
Name: Robert Cross
Address: 3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Telecopier: (510) 283-1938
Telephone: (510) 299-2238
11
<PAGE>
CONSENT
The undersigned spouse of Employee agrees that the spouse's interest in the
Bonus Shares and the Purchased Shares subject to this Agreement shall be
irrevocably bound by this Agreement and the Stockholders Agreement and further
understands and agrees that any community property interest, if any, shall be
similarly bound by this Agreement and the Stockholders Agreement.
/s/
-------------------------------
Spouse of Employee
12
<PAGE>
SCHEDULE C TO EXHIBIT 10.17
The following agreement is substantially identical in all material respects
(except for the named parties) to Exhibit 10.17:
Restricted Stock Issuance and Stock Purchase Agreement dated as of March 31,
1997 between the Company and Angeli.
<PAGE>
EXHIBIT 10.24
================================================================
STOCK PURCHASE AGREEMENT
AMONG
PACER INTERNATIONAL, INC.,
CROSS CON TERMINALS, INC.,
CROSS CON TRANSPORT, INC.,
AND
RICHARD P. HYLAND
DATED AS OF MAY 29, 1998
================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Article I PURCHASE AND SALE OF SHARES 1
1.1 Transfer of Shares............................................................... 1
1.2 Purchase Price................................................................... 1
1.3 Payment at Closing............................................................... 2
1.4 Delivery of Shares............................................................... 2
1.5 Further Assurances............................................................... 2
Article II THE CLOSING 3
Article III FINAL DETERMINATION OF ADDITIONAL AMOUNT 3
3.1 Preparation and Delivery of Statements........................................... 3
3.2 Adjustments and Payment.......................................................... 4
Article IV CONTINGENT PAYMENT 5
4.1 Determination of Contingent Payment.............................................. 5
4.2 Option to Receive Contingent in Shares........................................... 7
Article V REPRESENTATIONS AND WARRANTIES OF THE SELLER 7
5.1 Title to the Shares.............................................................. 7
5.2 Authority; Enforceability; Noncontravention; Consents............................ 7
5.3 Investment Representations....................................................... 8
Article VI REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE COMPANIES 9
6.1 Organization, Power, Authority and Good Standing................................. 9
6.2 Authority; Authorization, Execution and Delivery; Enforceability................. 9
6.3 Consents. 10
6.4 Capitalization................................................................... 10
6.5 Subsidiaries; Investments........................................................ 11
6.6 Financial Information............................................................ 11
6.7 Absence of Undisclosed Liabilities............................................... 11
6.8 Absence of Changes............................................................... 12
6.9 Tax Matters. 13
6.10 Title to Assets, Properties and Rights and Related Matters....................... 14
6.11 Real Property-Owned or Leased.................................................... 15
6.12 Intellectual Property............................................................ 15
6.13 Agreements, No Defaults, Etc..................................................... 16
6.14 Litigation, Etc.................................................................. 18
6.15 Compliance with Laws............................................................. 18
6.16 Insurance. 19
6.17 Labor Relations; Employees...................................................... 19
6.18 ERISA Compliance................................................................. 20
</TABLE>
-i-
<PAGE>
<TABLE>
PAGE
----
<C> <S> <C>
6.19 Environmental Matters............................................................ 22
6.20 Brokers. 23
6.21 Related Party Transactions....................................................... 23
6.22 Accounts and Notes Receivable.................................................... 23
6.23 Bank Accounts; Powers of Attorney................................................ 24
6.24 Suppliers and Vendors............................................................ 24
6.25 Customers. 24
6.26 Conflicts of Interest............................................................ 24
6.27 Disclosure. 24
Article VII REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 25
7.1 Organization; Corporate Authority................................................ 25
7.2 Authority; Authorization; Execution and Delivery; Enforceability; No Conflict.... 25
7.3 Consents. 25
7.4 Capitalization................................................................... 26
Article VIII COVENANTS AND AGREEMENTS 26
8.1 Access to Records and Properties................................................. 26
8.2 Conduct of the Companies......................................................... 27
8.3 Efforts to Consummate............................................................ 28
8.4 Negotiation with Others.......................................................... 28
8.5 Termination or Amendment of Certain Agreements................................... 28
8.6 Proprietary Information.......................................................... 29
8.7 Notice of Prospective Breach..................................................... 29
8.8 Public Announcements............................................................. 29
8.9 Cooperation Regarding Tax Filings, Section 338 Election, Etc..................... 29
8.10 Exchange Proceeds................................................................ 30
8.11 [Intentionally Omitted.]......................................................... 31
8.12 Noncompetition Covenant.......................................................... 31
8.13 Headquarters Lease............................................................... 32
8.14 Ordinary Course.................................................................. 32
8.15 Registration Rights.............................................................. 32
Article IX CLOSING CONDITIONS 32
9.1 Conditions to Each Party's Obligations........................................... 32
9.2 Conditions to Obligations of the Purchaser....................................... 33
9.3 Conditions to Obligations of the Companies and the Seller........................ 35
Article X INDEMNIFICATION 36
10.1 Indemnification Generally; Etc.................................................. 36
10.2 Assertion of Claims............................................................ 37
10.3 Notice and Defense of Third Party Claims......................................... 37
10.4 Survival of Representations and Warranties................................... 38
10.5 Limitations on Indemnification................................................... 39
10.6 Satisfaction of Indemnification Obligations of the Seller Indemnifying Persons... 39
10.7 Cooperation Regarding Tax Proceedings............................................ 40
</TABLE>
-ii-
<PAGE>
<TABLE>
PAGE
----
<C> <S> <C>
Article XI................................................................................... 41
11.1 Termination...................................................................... 41
11.2 Effect of Termination............................................................ 42
Article XII MISCELLANEOUS PROVISIONS......................................................... 43
12.1 Amendment........................................................................ 43
12.2 Entire Agreement................................................................ 43
12.3 Severability..................................................................... 43
12.4 Benefits of Agreement............................................................ 43
12.5 Expenses......................................................................... 44
12.6 Remedies......................................................................... 44
12.7 Notices.......................................................................... 44
12.8 Counterparts..................................................................... 45
12.9 Governing Law................................................................... 45
12.10 Independence of Covenants and Representations and Warranties..................... 46
12.11 Interpretation; Construction..................................................... 46
</TABLE>
-iii-
<PAGE>
ANNEXES, SCHEDULES AND EXHIBITS
ANNEXES
-------
Annex I - Certain Definitions
Annex II - Determination of Additional Amount
Annex III - Determination of Contingent Payment
SCHEDULES
---------
Schedule 5.1 - Title to the Shares
Schedule 6.1 - Organization, Power, Authority and Good Standing
Schedule 6.3 - Consents
Schedule 6.4 - Capitalization
Schedule 6.5 - Subsidiaries; Investments
Schedule 6.6 - Financial Information
Schedule 6.7 - Disclosed Liabilities
Schedule 6.8 - Absence of Changes
Schedule 6.9(a) - Tax Matters
Schedule 6.9(c) - Taxing Authority Notifications
Schedule 6.10 - Encumbrances
Schedule 6.11(a) - Real Property
Schedule 6.11(b) - Real Property Notices
Schedule 6.11(c) - Leased Property Notices
Schedule 6.12(a) - Licensed Requisite Rights
Schedule 6.12(b) - Patents, Trademarks and Service marks
Schedule 6.13 - Contracts
Schedule 6.14(a) - Pending Litigation
Schedule 6.14(b) - Resolved Litigation
Schedule 6.15 - Compliance with Laws
Schedule 6.16(a) - Insurance Policies
Schedule 6.16(b) - Insurance Claims, Etc.
Schedule 6.17 - Employees
Schedule 6.18(a) - Employee Benefit Plans
Schedule 6.18(b) - ERISA Compliance
Schedule 6.19(a) - Environmental Laws - Violations
Schedule 6.19(b) - Previous Facilities - Environmental Compliance
Schedule 6.21 - Related Transactions
Schedule 6.22 - Accounts and Notes Receivable
Schedule 6.23 - Bank Accounts; Powers of Attorney
Schedule 7.1 - Purchaser's Jurisdictions
Schedule 7.4 - Purchaser's Capitalization
Schedule 8.5 - Terminated or Amended Agreements
-iv-
<PAGE>
EXHIBITS
- --------
Exhibit A - Form of Opinion of Seller Group's Counsel
Exhibit B - Form of General Release
Exhibit C - Form of Employment Agreement of Richard P. Hyland
Exhibit D - Form of Stockholders Agreement Amendment
Exhibit E - Form of Opinion of Purchaser's Counsel
-v-
<PAGE>
INDEX OF DEFINED TERMS
The following capitalized terms, which may be used in more than one Section or
other location of this Agreement, are defined in the following Sections or other
locations
Section or other
Term Location
- ---- --------
Acquisition Proposal.......................................Annex I
Additional Amount.........................................Annex II
Affiliate..................................................Annex I
Agreement....................................................12.11
Amended and Restated Stockholder's Agreement............9.2(h)(iv)
Audited Financial Statements.............................6.6(a)(i)
Best Knowledge...............................................12.11
Business Day...............................................Annex I
Business..................................................Preamble
Capital Leases.............................................Annex I
Cash Portion...................................................1.2
Charter Documents..........................................Annex I
Closing Date.....................................................2
Closing Income Statement....................................3.1(a)
Closing Payment.............................................1.3(a)
Closing..........................................................2
Code........................................................6.9(a)
Company Employee Plans.....................................6.18(a)
Company....................................................Caption
Competing Business.........................................8.12(c)
Contingent Payment..........................................4.1(b)
Contract...................................................Annex I
Control....................................................Annex I
Covered Properties.........................................6.19(b)
EBIT.....................................................Annex III
EBIT Certificate............................................4.1(a)
EBIT Determination Date.....................................4.1(a)
Employee Benefit Plan......................................Annex I
Employment Agreement...................................9.2(h)(iii)
Encumbrances...............................................Annex I
Environmental, Health and Safety Laws......................Annex I
ERISA Affiliate............................................Annex I
Estimated Additional Amount.................................1.3(a)
Exchange Proceeds.............................................8.10
Final Determination Date....................................3.1(b)
Financial Statements....................................6.6(a)(ii)
Fiscal Year 1998............................................4.1(b)
-vi-
<PAGE>
Section or other
Term Location
- ---- --------
Funded Indebtedness........................................Annex I
GAAP.......................................................Annex I
General Release.........................................9.2(h)(ii)
Governmental Entity........................................Annex I
Guaranty...................................................Annex I
Headquarters Lease.......................................9.2(h)(i)
Indemnified Persons........................................Annex I
Indemnifying Persons.......................................Annex I
Independent Accounting Firm.................................3.1(b)
Intellectual Property Rights...............................Annex I
Latest Balance Sheet Date...............................6.6(a)(ii)
Latest Balance Sheet....................................6.6(a)(ii)
Law........................................................Annex I
Leased Property............................................6.11(a)
Liability..................................................Annex I
Licensed Requisite Rights...............................6.12(a)(i)
Litigation Expense.........................................Annex I
Losses.....................................................Annex I
Management Consulting Agreement..........................9.2(h)(v)
Material Adverse Change.....................................6.8(i)
Nonrecurring................................................4.1(c)
Notice of Disagreement With Deferred
Purchase Price Certificate.................................4.1(e)
Notice of Disagreement......................................3.1(b)
Orders.....................................................Annex I
Owned Requisite Rights..................................6.12(a)(i)
Pacer......................................................Caption
Pacer Shares................................................1.3(b)
Permits....................................................Annex I
Permitted Encumbrances.....................................Annex I
Person.....................................................Annex I
Proceedings................................................Annex I
Purchase Price.................................................1.2
Purchaser Indemnified Persons..............................Annex I
Purchaser Indemnifying Persons.............................Annex I
Purchaser Losses...........................................Annex I
Purchaser..................................................Caption
Purchaser's Accountants.....................................3.1(a)
Purchaser's Certificate.....................................3.1(a)
Related Documents...........................................9.2(h)
Requisite Rights........................................6.12(a)(i)
Section 338 Election Forms..............................8.9(b)(ii)
Section 338 Elections....................................8.9(b)(i)
Securities Act.............................................Annex I
Securities.................................................Annex I
-vii-
<PAGE>
Section or other
Term Location
- ---- --------
Seller Group............................................Caption
Seller Indemnified Persons..............................Annex I
Seller Indemnifying Persons.............................Annex I
Seller Losses...........................................Annex I
Seller..................................................Caption
Shares.................................................Preamble
Special Tax Losses......................................Annex I
Stock..................................................Preamble
Stockholders Agreement Amendment....................9.2(h)(iii)
Tax Claim..................................................10.7
Tax Return..............................................Annex I
Tax(es).................................................Annex I
Terminals...............................................Caption
Third Party Claim..........................................10.3
Transport...............................................Caption
Unaudited Financial Statements.......................6.6(a)(ii)
-viii-
<PAGE>
EXECUTION COPY
STOCK PURCHASE AGREEMENT dated as of May
29, 1998, by and among PACER INTERNATIONAL, INC.,
a Delaware corporation (the "Purchaser" or
---------
"Pacer"), CROSS CON TERMINALS, INC., a Delaware
corporation ("Terminals"), CROSS CON TRANSPORT,
---------
INC., a Illinois corporation ("Transport";
---------
Terminals and Transport collectively, the
"Companies" and each individually, a "Company"),
---------- -------
and RICHARD P. HYLAND (the "Seller;" and together
-------
with the Companies prior to the Closing, the
"Seller Group").
-------------
PREAMBLE
The Companies are engaged in the business (the "BUSINESS") of
--------
providing intermodal marketing company services and drayage services to third
party customers.
The Seller is the sole shareholder of each Company, with the Seller
owning all 250 outstanding shares of the common stock, par value $1.00 per
share, of Terminals and all 1,000 shares of the common stock, no par value, of
Transport (collectively, the "STOCK"). The shares of Stock owned by the Seller
-----
are collectively referred to herein as the "SHARES". The Seller desires to sell
------
to the Purchaser, and the Purchaser desires to purchase from the Seller, all of
the Shares, on the terms and subject to the conditions contained in this
Agreement. Certain capitalized terms used in this Agreement are defined on
ANNEX I attached hereto.
- -------
ACCORDINGLY, in consideration of the premises and the mutual
representations hereinafter set forth, the parties hereto hereby agree as
follows.
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 TRANSFER OF SHARES.
------------------
On the terms and subject to the conditions of this Agreement, at the
Closing, the Seller shall sell, transfer, convey and assign to the Purchaser,
and the Purchaser shall purchase and acquire from the Seller, all of the Shares,
free and clear of all Encumbrances.
1.2 PURCHASE PRICE.
--------------
The aggregate purchase price (the "PURCHASE PRICE") to be paid by the
--------------
Purchaser to the Seller for the Shares shall be an aggregate amount equal to the
sum of the Cash Portion plus the Pacer Shares issued and delivered by Pacer to
----
the Seller at the Closing pursuant to SECTION 1.3(B). As used herein, the term
--------------
"CASH PORTION" means the sum of (i) $9,600,000.00 , plus (ii)
------------ ----
<PAGE>
the Additional Amount, if any, as finally determined pursuant to ARTICLE III,
-----------
plus (iii) the Contingent Amount, if any, as finally determined pursuant to
- ----
ARTICLE IV.
- ----------
1.3 PAYMENT AT CLOSING.
------------------
(a) On the Closing Date, the Purchaser shall pay to the Seller by wire
transfer of immediately available funds to the account designated by the Seller,
an amount equal to the sum of (i) $9,600,000.00 plus (ii) the Estimated
----
Additional Amount (the "CLOSING PAYMENT"). As used herein, the term "ESTIMATED
--------------- ---------
ADDITIONAL AMOUNT" means an amount equal to the sum of (A) $861,902 (calculated
- -----------------
as the difference between (x) $1,125,000 (which is the parties' agreed upon
estimate of the combined net income of the Companies for the period from (and
including) January 1, 1998, through (and including) May 31, 1998) less (y)
----
$263,098 (which is the amount by which the aggregate amount of all dividends and
distributions paid by the Companies to the Seller since December 31, 1997, as
set forth on Schedule 6.8 exceeds $1,391,000)) plus (B) interest on $861,902 at
------------ ----
the rate of 8% per annum, calculated on a per diem basis from and including June
1, 1998, through but excluding the Closing Date (assuming a year of 365 days).
(b) At the Closing, the Purchaser shall issue and deliver to the Seller a
certificate registered in the Seller's name evidencing 57,000 shares of common
stock, $.01 par value (the "Pacer Common Stock"), of Pacer(the "PACER SHARES")
------------------ ------------
issued in the name of the Seller.
1.4 DELIVERY OF SHARES.
------------------
At the Closing, in consideration of the Purchaser's delivery of the
Closing Payment and the Pacer Shares pursuant to SECTION 1.3, (a) the Seller
-----------
shall deliver to each Company the certificate or certificates representing the
Shares of such Company owned by the Seller (or, in lieu thereof, an Affidavit of
Loss and Indemnity reasonably satisfactory in form and substance to the
Purchaser), duly endorsed for transfer to the Purchaser or accompanied by duly
executed stock powers transferring the Shares to the Purchaser, in each case
sufficient in form and substance to convey to the Purchaser good title to all of
the Shares, free and clear of all Encumbrances, and (b) each Company shall
deliver to the Purchaser certificates registered in the name of the Purchaser
representing the Shares.
1.5 FURTHER ASSURANCES.
------------------
The Seller shall, at any time after the Closing, upon the request of
the Purchaser and at the Purchaser's expense, do, execute, acknowledge and
deliver, and cause to be done, executed, acknowledged and delivered, all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney and
other assurances as may be required to transfer, convey, grant and confirm to
and vest in the Purchaser good title to (i) the Shares and (ii) any asset used
in or necessary for the conduct of the Business that is owned by the Seller or
any Affiliate of the Seller (other than fee title to the real estate and
improvements thereon to be subject to the Headquarters Lease), in each case free
and clear of all Encumbrances.
-2-
<PAGE>
ARTICLE II
THE CLOSING
The closing (the "CLOSING") of the transactions contemplated by this
-------
Agreement shall take place at the offices of O'Sullivan, Graev & Karabell, LLP,
counsel for the Purchaser, at the address set forth in SECTION 12.7, on June 3,
------------
1998, or such other place or later date as shall be mutually agreeable to the
parties hereto (the "CLOSING DATE"), provided that all of the conditions set
------------
forth in ARTICLE IX have been satisfied or waived (other than those conditions
----------
which by their terms are intended to be satisfied at the Closing).
ARTICLE III
FINAL DETERMINATION OF ADDITIONAL AMOUNT
3.1 PREPARATION AND DELIVERY OF STATEMENTS.
--------------------------------------
(a) As soon as practicable after the Closing, but in no event later than 60
days after the Closing Date, the Purchaser shall prepare and deliver to the
Seller (i) a combined statement of operations of the Companies for the period
from (and including) January 1, 1998, through (and including) the Closing Date
(the "CLOSING INCOME STATEMENT") and (ii) a certificate from the Chief Financial
------------------------
Officer of the Purchaser setting forth the Purchaser's calculation of the
Additional Amount (the "PURCHASER'S CERTIFICATE" ). As used herein, the term
-----------------------
"ADDITIONAL AMOUNT" has the meaning set forth on ANNEX II. The Closing Income
- ------------------ --------
Statement shall be prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis consistent with the preparation of the
Annual Financial Statements (subject to those exceptions set forth on ANNEX II),
--------
and shall be reviewed by Arthur Andersen LLP (the "PURCHASER'S ACCOUNTANTS").
-----------------------
(b) The Seller (together with his accountants (the "Seller's Accountants")
and other advisers, as he may determine) shall be entitled to review the Closing
Income Statement, the Purchaser's Certificate and any working papers, trial
balances and similar materials relating to the Purchaser's preparation of the
Closing Income Statement and/or the Purchaser's Accountants' review thereof for
a period of thirty days following the Seller's receipt of the Closing Income
Statement and the Purchaser's Certificate. The Purchaser shall provide the
Seller (together with the Seller's Accountants and other advisers, as he may
determine) with timely access, during the Companies' normal business hours, to
each Company's personnel, properties, books and records in connection with such
review by the Seller. The Closing Income Statement and the Additional Amount
set forth in the Purchaser's Certificate shall become final and binding upon the
parties on the thirty-first day following delivery thereof unless the Seller
gives written notice to the Purchaser of its disagreement therewith (a "NOTICE
------
OF DISAGREEMENT") prior to such date. Any Notice of Disagreement shall specify
- ---------------
in reasonable detail the nature of any disagreement so asserted. If a timely
Notice of Disagreement is received by the Purchaser, then the Closing Income
Statement and the Additional Amount set forth therein (as revised in accordance
with clause (x) or (y) below) shall become final and binding upon the parties on
the earlier of (x) the date on which the Purchaser and the Seller resolve in
writing any differences they have with respect to any matter specified in the
Notice of Disagreement or (y) the date on
-3-
<PAGE>
which any matters in dispute are finally resolved in writing by the Independent
Accounting Firm (as defined below). The date on which the Closing Income
Statement and the Additional Amount set forth therein so become final and
binding is called "FINAL DETERMINATION DATE." During the 30 days immediately
------------------------
following the delivery of any Notice of Disagreement, the Purchaser and the
Seller shall seek in good faith to resolve in writing any differences which they
may have with respect to any matter specified in such Notice of Disagreement.
During such period, the Purchaser and the Seller shall each have reasonable
access to the other party's and its accountants' working papers, trial balances
and similar materials prepared in connection with the other party's preparation
and/or review of the Closing Income Statement and the Notice of Disagreement, as
the case may be. At the end of such 30-day period, the Seller and the Purchaser
shall submit to an independent "Big 6 public accounting firm (but not Arthur
Andersen, LLP) (the "INDEPENDENT ACCOUNTING FIRM") for review and resolution any
---------------------------
and all matters which remain in dispute and which were included in any Notice of
Disagreement, and the Independent Accounting Firm shall reach a final, binding
resolution of all matters which remain in dispute, which final resolution shall
be (i) in writing, (ii) furnished to the Purchaser and the Seller as soon as
practicable after the items in dispute have been referred to the Independent
Accounting Firm, (iii) made in accordance with this Agreement and (iv)
conclusive and binding upon the parties to this Agreement. The Closing Income
Statement and the Additional Amount set forth thereon, with any adjustments
necessary to reflect the Independent Accounting Firm's resolution of the matters
in dispute, shall become final and binding on the Purchaser and the Seller on
the date the Independent Accounting Firm delivers its final resolution to the
parties. The parties shall endeavor in good faith to cause the Independent
Accounting Firm to so deliver its final determination within 120 days after the
Closing Date. The Independent Accounting Firm shall be Deloitte & Touche, or if
such firm is unable or unwilling to act, such other independent "Big 6" public
accounting firm as shall be agreed upon by the Purchaser and the Seller in
writing or, if the Purchaser and the Seller cannot so agree within the 30-
calendar day period referred to above, by lot from among the remaining
independent "Big 6" public accounting firms (other than Arthur Andersen) willing
to act. Each party shall pay its own fees, costs and expenses incurred in
connection with the discussion and negotiation of any and all disputes that may
arise as to the Closing Income Statement and the determination of the Additional
Amount and in connection with any such arbitration; provided, however, that the
-------- -------
fees and disbursements of the Independent Accounting Firm shall be allocated
between the Seller on the one hand and the Purchaser on the other hand in the
same proportion that the aggregate amount of the disputed items submitted to the
Independent Accounting Firm that is unsuccessfully disputed by each such party
(as finally determined by the Independent Accounting Firm) bears to the total
amount of such disputed items so submitted.
3.2 ADJUSTMENTS AND PAYMENT.
-----------------------
Upon the final determination of the Additional Amount, pursuant to
SECTION 3.1, the following adjustment shall be made, if any, and the following
- -----------
payment shall be made, if any, within five (5) days after the Final
Determination Date:
(i) if the Additional Amount as finally determined is greater than the
Estimated Additional Amount, the Cash Portion shall be increased by an
amount equal to such excess and the Purchaser shall pay such excess to the
Seller, by wire transfer of immediately available funds pursuant to SECTION
-------
1.3(A); or
------
-4-
<PAGE>
(ii) if the Additional Amount as finally determined is less than the
Estimated Additional Amount, the Cash Portion shall be decreased by an
amount equal to such deficiency and the Seller shall pay such deficiency to
the Purchaser, by wire transfer of immediately available funds to an
account designated by the Purchaser; or
(iii) if the Additional Amount as finally determined equals the
Estimated Additional Amount, then no adjustment shall be made to the Cash
Portion and no payment shall be required to be made under this ARTICLE III.
-----------
ARTICLE IV
CONTINGENT PAYMENT
4.1 DETERMINATION OF CONTINGENT PAYMENT.
-----------------------------------
(a) As soon as practicable, but in no event later than 30 days following the
Purchaser's receipt from the Purchaser's Accountants of the Purchaser's audited
consolidated financial statements as of and for the fiscal year ended December
31, 1998, the Purchaser shall provide the Seller with a copy of the combined
statement of operations of the Companies for the fiscal year ending December 31,
1998 (the "1998 INCOME STATEMENT"), and a certificate from the Chief Financial
---------------------
Officer of the Purchaser (the "EBIT CERTIFICATE") setting forth in reasonable
----------------
detail the Purchaser's calculation of the combined EBIT (as defined on ANNEX
-----
III) of the Companies for the fiscal year ending December 31, 1998 (the "1998
----
EBIT AMOUNT"). The 1998 Income Statement and the 1998 EBIT Amount shall be
- -----------
prepared and calculated as set forth on ANNEX III. The Seller (together with
---------
the Sellers' Accountants and other advisers) shall be entitled to review the
1998 Income Statement and the EBIT Certificate and any working papers, trial
balances and similar materials relating to the 1998 Income Statement and the
EBIT Certificate prepared by the Purchaser and/or the Purchaser's Accountants
for a period of 30 days following the Seller's receipt of the 1998 Income
Statement and the EBIT Certificate, and the Purchaser shall, during such period,
provide the Seller and the Sellers' Accountants with reasonable access during
the Companies' normal business hours to each Company's personnel, properties,
books and records in connection with such review. The 1998 EBIT Amount set
forth in the EBIT Certificate shall become final and binding upon the parties on
the thirty-first day following delivery thereof unless the Seller gives written
notice to the Purchaser of its disagreement with the EBIT Certificate (a "NOTICE
------
OF DISAGREEMENT WITH EBIT CERTIFICATE") prior to such date. Any Notice of
- -------------------------------------
Disagreement With EBIT Certificate shall specify in reasonable detail the nature
of any disagreement so asserted. If a timely Notice of Disagreement With EBIT
Certificate is delivered by the Seller to the Purchaser, then the 1998 EBIT
Amount set forth in the EBIT Certificate (as revised (if at all) in accordance
with clause (x) or (y) below), shall become final and binding upon the parties
on the earlier of (x) the date the Purchaser and the Seller resolve in writing
any differences they have with respect to any matter specified in such Notice of
Disagreement With EBIT Certificate or (y) the date any matters in dispute are
finally resolved in writing by the Independent Accounting Firm (the date on
which the 1998 EBIT Amount becomes final and binding being hereinafter referred
to as the "EBIT DETERMINATION DATE"). During the 30 days immediately following
-----------------------
the delivery of any such Notice of Disagreement With EBIT Certificate, the
Purchaser and the Seller shall seek in good faith to resolve in writing any
differences which they may have with respect to any matter
-5-
<PAGE>
specified in such Notice of Disagreement With EBIT Certificate. During such
period, the Purchaser and the Seller shall each have reasonable access to the
other party's and its accountants' working papers, trial balances and similar
materials prepared in connection with the other party's preparation and/or
review of the 1998 Income Statement, the EBIT Certificate and the Notice of
Disagreement With EBIT Certificate, as the case may be. At the end of such 30-
day period, the Seller and the Purchaser shall submit to the Independent
Accounting Firm for review and resolution any and all matters which remain in
dispute and which were included in any Notice of Disagreement With EBIT
Certificate, and the Independent Accounting Firm shall reach a final, binding
resolution of all matters which remain in dispute, which final resolution shall
be (i) in writing, (ii) furnished to the Purchaser and the Seller as soon as
practicable after the items in dispute have been referred to the Independent
Accounting Firm, (iii) made in accordance with this Agreement and (iv)
conclusive and binding upon the Purchaser and the Seller. The 1998 EBIT Amount,
as adjusted to reflect the Independent Accounting Firm's resolution of the
matters in dispute, shall become final and binding on the Purchaser and the
Seller on the date the Independent Accounting Firm delivers its final resolution
to the parties. Each party shall pay its own fees, costs and expenses incurred
in connection with the discussion and negotiation of any and all disputes that
may arise as to the 1998 Income Statement and the determination of the 1998 EBIT
Amount and in connection with any such arbitration; provided, however, that the
-------- -------
fees and disbursements of the Independent Accounting Firm shall be allocated
between the Seller on the one hand and the Purchaser on the other hand in the
same proportion that the aggregate amount of the disputed items submitted to the
Independent Accounting Firm that is unsuccessfully disputed by each such party
(as finally determined by the Independent Accounting Firm) bears to the total
amount of such disputed items so submitted.
(b) Upon the final determination of the 1998 EBIT Amount, pursuant to SECTION
-------
4.1(A), the following adjustment shall be made to the Cash Portion, if any,
- ------
within five (5) days after the EBIT Determination Date:
(i) if the 1998 EBIT Amount as finally determined exceeds
$2,997,000.00, the Cash Portion shall be increased by $1,500,000.00 and the
Purchaser shall pay to the Seller the amount of such increase by wire
transfer of immediately available funds pursuant to SECTION 1.3(A); or
--------------
(ii) if the 1998 EBIT Amount as finally determined is more than
$2,500,000.00 and less than or equal to 2,997,000.00, the Cash Portion
shall be increased by an amount equal to the product of $1,500,000.00
multiplied by a fraction, the numerator of which is the 1998 EBIT Amount
less $2,500,000 and the denominator of which is $497,000.00, and the
Purchaser shall pay to the Seller the amount of such increase by wire
transfer of immediately available funds pursuant to SECTION 1.3(A); or
--------------
(iii) if the 1998 EBIT Amount as finally determined is less than or
equal to $2,500,000.00, then no adjustment shall be made to the Cash
Portion and no payment shall be required under this ARTICLE IV.
----------
Any payment made to the Seller pursuant to ARTICLE IV shall be referred to as
----------
the "CONTINGENT PAYMENT."
------------------
-6-
<PAGE>
4.2 OPTION TO RECEIVE CONTINGENT IN SHARES.
--------------------------------------
If the Purchaser shall have completed an initial public offering of
the Pacer Common Stock prior to the EBIT Determination Date, the Seller may, at
his sole option, elect to receive the Contingent Payment, if any, to which he is
entitled pursuant to clause (i) or (ii) of the first sentence of Section 4.1(b)
--------------
in shares of Pacer Common Stock, such number of shares to be determined by
dividing the amount of such Contingent Payment by an amount equal to the per
share Market Price of the Pacer Common Stock determined as of the EBIT
Determination Date. As used herein, "Market Price" means, as to any publicly
------------
traded security, the average of the closing prices of such security's sales on
all United States securities exchanges on which such security may at the time be
listed, or, if there have been no sales on any such exchange on any day, the
average of the highest bid and lowest asked prices on all such exchanges at the
end of such day, or, if on any day such security is not so listed, the average
of the representative bid and asked prices quoted in The NASDAQ Stock Market as
of 4:00 P.M., New York time, on such day, or, if on any day such security is not
quoted in The NASDAQ Stock Market, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar or successor
organization, in each such case averaged over a period of 21 days consisting of
the day as of which "Market Price" is being determined and the 20 consecutive
business days prior to such day.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants as to himself as of the date hereof
and as of the Closing Date as follows:
5.1 TITLE TO THE SHARES.
-------------------
The Seller is the lawful owner, of record and beneficially, of all of
the Shares and has good and marketable title to such Shares, free and clear of
any Encumbrances whatsoever and with no restriction on the voting rights and
other incidents of record and beneficial ownership pertaining thereto. The
Seller is not the subject of any bankruptcy, reorganization or similar
proceeding. Except for this Agreement and except as set forth on SCHEDULE 5.1,
------------
there are no agreements or understandings between the Seller or any other Person
with respect to the acquisition, disposition, transfer, registration or voting
of, or any other matters in any way pertaining or relating to, any of the
capital stock or other securities of any Company. The Seller does not have any
right whatsoever to receive or acquire any additional capital stock or other
securities of any Company.
5.2 AUTHORITY; ENFORCEABILITY; NONCONTRAVENTION; CONSENTS.
-----------------------------------------------------
(a) The Seller has the full and absolute legal right, capacity, power and
authority to enter into this Agreement and each Related Document to which Seller
is or will be a party, this Agreement and each Related Document to which the
Seller is or will be a party has been, or
-7-
<PAGE>
upon the execution thereof will be, duly and validly executed and delivered by
the Seller, and this Agreement and each Related Document is, or upon the
execution thereof will be, the valid and binding obligation of the Seller,
enforceable against the Seller in accordance with their respective terms.
(b) Neither the execution, delivery or performance by the Seller of, nor the
performance by the Seller of his obligations under, this Agreement and each
Related Document to which the Seller is or will be a party, nor the consummation
of the transactions contemplated hereby or thereby, nor compliance by the Seller
with any of the provisions hereof or thereof will (i) conflict with, or result
in any violation of, or cause a default (with or without notice or lapse of time
or both) under, or give rise to any right of termination, amendment,
cancellation or acceleration of any obligations contained in, or the loss of any
benefit under, any term, condition or provision of any Contract to which the
Seller is a party or by which the Seller or his assets may be bound, or (ii)
violate any Law applicable to the Seller, which conflict or violation could
prevent or impair the consummation of the transactions contemplated by this
Agreement or any of the Related Documents to which the Seller is or will be a
party or result in an Encumbrance on or against any assets, rights or properties
of the Seller or the Company, or on or against any capital stock or other
securities of any Company, or give rise to any claim against any Company or the
Purchaser.
(c) Except as set forth on SCHEDULE 5.2, no Permit, authorization,
consent or approval of or by, or any notification of or filing with, any Person
(governmental or private) is required in connection with the execution, delivery
and performance by the Seller of this Agreement or the Related Documents to
which the Seller is or will be a party or the consummation by the Seller of the
transactions contemplated hereby or thereby.
5.3 INVESTMENT REPRESENTATIONS.
--------------------------
(a) The Seller is acquiring the Pacer Shares to be acquired by the Seller
hereunder for his own account, for investment and not with a view to the
distribution thereof in violation of the Securities Act or applicable state
securities laws.
(b) The Seller understands that (i) the Pacer Shares have not been registered
under the Securities Act or applicable state securities laws by reason of their
issuance by the Purchaser in a transaction exempt from the registration
requirements of the Securities Act and applicable state securities laws and (ii)
the Pacer Shares must be held by the Seller indefinitely unless a subsequent
disposition thereof is registered under the Securities Act and applicable state
securities laws or is exempt from registration.
(c) The Seller further understands that the exemption from registration
afforded by Rule 144 (the provisions of which are known to the Seller)
promulgated under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may only afford the basis for
sales of Pacer Shares acquired hereunder only in limited amounts.
(d) The Seller is an "accredited investor" (as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act). The Purchaser has made
available to the Seller or his attorneys and other representatives all
agreements, documents, records and books that the Seller
-8-
<PAGE>
has requested relating to his acquisition of the Pacer Shares. The Seller has
had an opportunity to ask questions of, and receive answers from, persons acting
on behalf of the Purchaser concerning the Purchaser and the terms and conditions
of the Seller's acquisition of the Pacer Shares hereunder, and answers have been
provided to all of such questions to the full satisfaction of the Seller. The
Seller has such knowledge and experience in financial and business matters that
he is capable of evaluating the risks and merits of his acquisition of the Pacer
Shares hereunder.
(e) The Seller is not a person who himself is, or would cause the Purchaser
to be, disqualified pursuant to Rule 262 promulgated under the Securities Act of
1933, as amended.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE COMPANIES
Each Company and the Seller jointly and severally represent and
warrant as of the date hereof and as of the Closing Date as follows:
6.1 ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING.
------------------------------------------------
Each Company is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite power and authority to own, lease and operate its assets and
properties and to carry on its business as presently conducted and as presently
proposed to be conducted. Each Company is duly qualified and in good standing
to transact business as a foreign Person in those jurisdictions set forth on
SCHEDULE 6.1, which constitute all the jurisdictions in which the character of
- ------------
the property owned, leased or operated by such Company or the nature of the
business or activities conducted by such Company makes such qualification
necessary. The Purchaser has been furnished with true, correct and complete
copies of the Charter Documents of each Company in each case as amended and in
effect on and as of the date this representation is being made and is deemed
made. Except as set forth on SCHEDULE 6.1, no Company has (i) engaged in any
------------
business or activity other than the Business or (ii) used within the last five
years any trade name or assumed names.
6.2 AUTHORITY; AUTHORIZATION, EXECUTION AND DELIVERY; ENFORCEABILITY.
----------------------------------------------------------------
(a) Each Company has all requisite power and authority to execute, deliver
and perform its obligations under this Agreement and each Related Document to
which it is or will be a party and to consummate the transactions contemplated
hereby and thereby. Each Company's execution and delivery of this Agreement and
each Related Document to which it is or will be a party, and the performance by
any Company of its obligations hereunder and thereunder have been duly and
validly authorized by all requisite action on the part of such Company and the
Seller, and this Agreement and each Related Document to which such Company is or
will be a party has been, or upon such Company's execution thereof will be, duly
and validly executed and delivered by such Company and constitutes, or upon such
Company's
-9-
<PAGE>
execution and delivery thereof will constitute, a valid and binding obligation
of such Company, enforceable against such Company in accordance with its terms.
(b) Except as set forth on SCHEDULE 6.3, neither the execution and delivery
------------
by any Company of, nor the performance of its obligations under, this Agreement
and each Related Document to which it is or will be a party, nor the
consummation of the transactions contemplated hereby or thereby, nor the
compliance by such Company with any of the provisions hereof and thereof will
(i) conflict with, or result in any violation of, or cause a default (with or
without notice or lapse of time or both) under, or give rise to any right of
termination, amendment, cancellation or acceleration of any obligations
contained in, or the loss of any benefit under, any term, condition or provision
of any provision of such Company's Charter Documents or any Contract to which
any Company is a party, or by which any Company or its assets may be bound, or
(ii) violate any Law applicable to any Company, which conflict or violation
could prevent or impair the consummation of any of the transactions contemplated
by this Agreement or any of the Related Documents to which any Company is or
will be a party or result in an Encumbrance on or against any assets, rights or
properties of any Company, or on or against any capital stock or other
securities of any Company, or give rise to any claim against any Company or the
Purchaser.
6.3 CONSENTS.
--------
Except as set forth on SCHEDULE 6.3, no Permit, authorization, consent
------------
or approval of or by, or notification of or filing with, any Person
(governmental or otherwise) is required in connection with the execution,
delivery and performance by any Company of this Agreement or the Related
Documents to which it is or will be a party or the consummation of the
transactions contemplated hereby or thereby.
6.4 CAPITALIZATION.
--------------
(a) The authorized capital stock of each Company is as set forth on SCHEDULE
--------
6.4, which schedule also sets forth the total number of outstanding shares of
- ---
each Company. All such outstanding shares disclosed on SCHEDULE 6.4 are duly
------------
and validly issued and outstanding, fully paid and nonassessable, with no
personal Liability attached to the ownership thereof, and are held of record and
beneficially by the Seller, without Encumbrance.
(b) Except as set forth on SCHEDULE 6.4, there are no outstanding securities
------------
which are convertible into, exchangeable for, or carrying the right to acquire,
any equity securities of any Company, or subscriptions, warrants, options,
calls, puts, convertible securities, registration or other rights, arrangements
or commitments obligating any Company to issue, sell, register, purchase or
redeem any of its equity securities or any ownership interest or rights therein.
There are no voting trusts or other agreements or understandings to which any
Company is bound with respect to the voting of such Company's or any other
Person's capital stock or share capital. There are no stock appreciation
rights, phantom stock rights or similar rights or arrangements outstanding with
respect to any Company. Except as set forth on SCHEDULE 6.4, there are no
------------
Contracts, commitments, arrangements, understandings or restrictions to which
any Company, the Seller or any other Person is bound relating in any way to any
shares of capital stock or other securities of any Company.
-10-
<PAGE>
(c) All securities issued by each Company have been issued in transactions
exempt from registration under the Securities Act and the rules and regulations
promulgated thereunder and all applicable state securities or "blue sky" laws,
and no Company has violated the Securities Act or any applicable state
securities or "blue sky" laws in connection with the issuance of any such
securities.
6.5 SUBSIDIARIES; INVESTMENTS.
-------------------------
Except as set forth on SCHEDULE 6.5, no Company owns or holds,
------------
directly or indirectly, any equity interest in any other Person.
6.6 FINANCIAL INFORMATION.
---------------------
(a) SCHEDULE 6.6 attached hereto contains true, correct and complete copies
------------
of the following:
(i) (A) the audited combined balance sheets of the Companies as of
December 31, 1997, 1996 and 1995, and the related audited combined
statements of operations, stockholder's equity and cash flows of the
Companies for the fiscal years then ended, including the footnotes and
schedules thereto, as audited by (and together with the report of their
audit) Arthur Andersen LLP (all of foregoing being hereinafter collectively
called the "ANNUAL FINANCIAL STATEMENTS") and
---------------------------
(ii) the unaudited combined balance sheet of the Companies as of March
31, 1998 (the "LATEST BALANCE SHEET"; and such date being the "LATEST
-------------------- ------
BALANCE SHEET DATE"), and the unaudited combined statements of operations,
------------------
stockholder's equity and cash flows of the Companies for the three-month
period then ended, including any footnotes and schedules thereto (all of
the foregoing, including the Latest Balance Sheet, being hereinafter
collectively referred to as the "INTERIM FINANCIAL STATEMENTS"; and the
----------------------------
Annual Financial Statements and the Interim Financial Statements
collectively, the "FINANCIAL STATEMENTS").
--------------------
(b) The Financial Statements (i) are true, complete and correct, (ii) fairly
present the combined financial position of the Companies as of the dates
indicated and the combined results of operations of the Companies for the
periods indicated, (iii) have been prepared in accordance with GAAP consistently
applied throughout the periods covered thereby (subject to the exceptions on
SCHEDULE 6.6) and (iv) are in accordance with the books and records of the
Companies which have been maintained in a manner consistent with historical
practice.
6.7 ABSENCE OF UNDISCLOSED LIABILITIES.
----------------------------------
Except as disclosed on SCHEDULE 6.7, no Company has any Liabilities
------------
except (i) to the extent expressly reflected or reserved against on such
Company's Latest Balance Sheet, (ii) Liabilities under Contracts (except
resulting from any breach thereof) and (iii) Liabilities incurred in the
ordinary course of business consistent with past practice since the Latest
Balance Sheet Date (other than any such Liability arising from breach of
contract, breach of warranty, tort, infringement, or violation or Law of
Proceedings). There are no loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 issued by the Financial
-11-
<PAGE>
Accounting Standards Board in March 1975) of or affecting any Company which are
not adequately provided for or disclosed on such Company's Latest Balance Sheet
or in the notes thereto. No Company has, either expressly or by operation of
Law, assumed or undertaken any Liability of any other Person, including any
obligation for corrective or remedial action relating to Environmental, Health
and Safety Laws.
6.8 ABSENCE OF CHANGES.
------------------
Since the Latest Balance Sheet Date, except as set forth on SCHEDULE
--------
6.8, each Company has been operated in the ordinary course, consistent with past
- ---
practice, and there has not been:
(i) any adverse change in the business, operations, assets, condition
(financial or otherwise), operating results, liabilities, relations with
employees, customers or suppliers, or prospects of any Company, or any
casualty loss or damage to the assets of any Company, whether or not
covered by insurance (a "MATERIAL ADVERSE CHANGE");
-----------------------
(ii) any declaration, setting aside or payment of any distribution with
respect to any shares of capital stock of any Company, or any direct or
indirect redemption, purchase or other acquisition of any thereof, or any
other payments of any nature to any Affiliate of any Company whether or not
on or with respect to any shares of capital stock of such Company owned by
such Affiliate (excluding salaries and benefits paid in the ordinary course
of business consistent with past practices, and dividends paid in
accordance with this Agreement);
(iii) any general uniform increase in the compensation of employees
(including any increase pursuant to any bonus, pension, profit-sharing or
other plan or commitment) of any Company, or any increase in any such
compensation payable to any officer, director or key employee;
(iv) any change in the tax or other accounting methods or practices
followed by any Company, any change in the depreciation or amortization
policies or rates previously adopted or any write-up of inventory or other
assets;
(v) any change in the manner in which products or services of any
Company are marketed (including any change in prices), any change in the
manner in which any Company extends discounts or credit to customers or any
change in the manner or terms by which any Company collects accounts
receivable or otherwise deals with customers;
(vi) any failure by any Company to make scheduled capital expenditures
or investments or any failure to pay trade accounts payable or any other
Liability of such Company when due; or
(vii) any agreement, whether in writing or otherwise, to take any of
the actions specified in the foregoing CLAUSES (I) through (VI).
----------- ----
SCHEDULE 6.8 sets forth the aggregate amount of all dividends and distributions
- ------------
paid by the Companies since December 31, 1997, including the date and amount of
each such payment.
-12-
<PAGE>
6.9 TAX MATTERS.
-----------
(a) Except as set forth on SCHEDULE 6.9(A), each Company and each other
---------------
Person included in any consolidated or combined Tax Return and part of an
affiliated group, within the meaning of Section 1504 of the Internal Revenue
Code of 1986, as amended (the "CODE"), of which any Company is or has been a
----
member:
(i) has timely paid or caused to be paid all Taxes required to be paid
by it through the date hereof and as of the Closing Date (including any
Taxes shown due on any Tax Return);
(ii) has filed or caused to be filed in a timely and proper manner
(within any applicable extension periods) all Tax Returns required to be
filed by it with the appropriate Governmental Entities in all jurisdictions
in which such Tax Returns are required to be filed; and
(iii) has not requested or caused to be requested any extension of
time within which to file any Tax Return, which Tax Return has not since
been filed.
(b) Each Company has previously delivered to the Purchaser true, correct and
complete copies of all Tax Returns filed by or on behalf of the Companies for
all completed Tax years of each of the Companies that remain open for audit or
review by the relevant Taxing authority. All such Tax Returns were complete and
correct.
(c) Except as set forth in SCHEDULE 6.9(C):
---------------
(i) no Company has been notified by the Internal Revenue Service or any
other taxing authority that any issues have been raised (and no such issues
are currently pending) by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of any Company, there are no
pending Tax audits and no waivers of statutes of limitations have been
given or requested with respect to any Company;
(ii) full and adequate provision has been made (A) on the Latest
Balance Sheet Date for all Taxes payable by the Companies for all periods
ending on or prior to the Latest Balance Sheet Date, and (B) on the books
and records each Company for all Taxes payable by such Company for all
periods beginning on or after the Latest Balance Sheet Date;
(iii) no Company has incurred any Tax Liability from and after the
Latest Balance Sheet Date other than Taxes incurred in the ordinary course
of business and consistent with previous years and past practices;
(iv) no Company (A) is, or has made an election to be treated as, a
"consenting corporation" under Section 341(f) of the Code or (B) is, or has
been, a "personal holding company" within the meaning of Section 542 of the
Code;
-13-
<PAGE>
(v) each Company has complied in all respects with all applicable Laws
relating to the collection or withholding of Taxes (such as sales Taxes or
withholding of Taxes from the wages of employees);
(vi) no Company is or has ever been a party to any Tax sharing
agreement with any Person;
(vii) no Company has incurred any Liability to make or possibly make
any payments either alone or in conjunction with any other payments that:
(A) shall be non-deductible under, or would otherwise constitute
a "parachute payment" within the meaning of, Section 280G of the Code
(or any corresponding provision of state, local or foreign income Tax
Law) or
(B) are or may be subject to the imposition of an excise Tax
under Section 4999 of the Code;
(viii) no Company has agreed to or is required to make any adjustments
or changes either on, before or after the Closing Date, to its accounting
methods pursuant to Section 481 of the Code, and the Internal Revenue
Service has not proposed any such adjustments or changes in the accounting
methods of any Company;
(ix) no claim has ever been made by any Taxing authority in a
jurisdiction in which any Company does not file Tax Returns that such
Company is or may be subject to taxation by that jurisdiction and
(x) neither any Company nor the Seller is a foreign Person within the
meaning of Section 1.1445-2(b) of the rules and regulations promulgated
under Section 1445 of the Code, and the Purchaser has been furnished with
true and accurate certificates of the Companies and the Seller so stating
which complies in all respects with Section 1.1445-2(b)(1) of such rules
and regulations.
(d) Terminals has had in effect at all times since March 1, 1993, through the
date hereof a valid election under Section 1362(a) of the Code to be taxed as an
S corporation.
(e) Transport has had in effect at all times since February 23, 1993, through
the date hereof a valid election under Section 1362(a) of the Code to be taxed
as an S corporation.
6.10 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
----------------------------------------------------------
(a) Each Company has good and marketable title (or a valid leasehold
interest) to all of the assets, properties and interests in properties, real,
personal or mixed, reflected on the Latest Balance Sheet or acquired after the
Latest Balance Sheet Date (except for property sold or otherwise disposed of
since the Latest Balance Sheet Date in the ordinary course of business and
accounts receivable and notes receivable paid in full subsequent to the Latest
Balance Sheet Date), free and clear of all Encumbrances, of any kind or
character, except for those Encumbrances set forth on SCHEDULE 6.10 and
-------------
Permitted Encumbrances. Such assets are in good operating condition and repair
(normal wear and tear excepted), are sufficient to operate the
-14-
<PAGE>
Business as presently conducted and as presently proposed to be conducted, are
suitable for the uses for which they are used in the Business, are not subject
to any condition which interferes with the economic value or use thereof. With
respect to any leased assets, such assets are in such condition as to permit the
surrender thereof by the Companies to the lessors thereunder on the date hereof
without any cost or expense for repair or restoration as if the related leases
were terminated on the date hereof in the ordinary course of business. Except
for any inventory, supplies trailers and automobiles in transit in the ordinary
course of business, all tangible personal property is located on the premises of
the Companies listed on SCHEDULE 6.11.
-------------
6.11 REAL PROPERTY-OWNED OR LEASED.
-----------------------------
(a) SCHEDULE 6.11(A) contains a list of all of the real property owned,
----------------
leased, subleased or otherwise occupied by the Companies . The description of
each parcel of real property subject to one or more leases (the "LEASED
------
PROPERTY") includes the names of the lessor and the lessee and the basic terms
thereof. The real property listed on SCHEDULE 6.11(A) constitutes all real
----------------
property used or occupied by the Companies in connection with the Business.
(b) With respect to the real property, except as set forth on SCHEDULE
--------
6.11(B): (i) no portion thereof is subject to any pending condemnation
- -------
Proceeding or Proceeding by any public or quasi-public authority and, to the
Best Knowledge of the Seller, there is no threatened condemnation or Proceeding
with respect thereto; (ii) the physical condition of the property is sufficient
to permit the continued conduct of the Business as presently conducted and as
presently proposed to be conducted, subject to the provision of usual and
customary maintenance and repair performed in the ordinary course with respect
to similar properties of like age and construction; (iii) the Company indicated
on SCHEDULE 6.11(B) is the fee owner or owner and holder of all the leasehold
----------------
estates purported to be granted by such leases, as applicable; (iv) there are no
Contracts, written or oral, to which any Company or any Affiliate thereof is a
party, granting to any party or parties the right of use or occupancy of any
portion of real property; (v) there are no parties (other than the Companies) in
possession of the real property; (vi) no notice of any increase in the assessed
valuation of any real property and no notice of any contemplated special
assessment has been received by any Company and to the Best Knowledge of the
Seller, there is no threatened increase in assessed valuation or threatened
special assessment pertaining to any real property; and (vii) to the Best
Knowledge of the Seller, the current lease for the Companies' Headquarters
facility is at a rental rate that does not exceed fair market value..
(c) Notwithstanding anything contained in SECTION 6.11(B) to the contrary,
---------------
with respect to the Leased Property, except as set forth on SCHEDULE 6.11(C),
----------------
the Companies are the owner and holder of all the leasehold estates purported to
be granted by such leases and no notice of any increase in the assessed
valuation of the Leased Property and no notice of any contemplated special
assessment has been received by any Company and to the Best Knowledge of the
Seller, there is no threatened increase in assessed valuation or threatened
special assessment pertaining to any of the Leased Property.
6.12 INTELLECTUAL PROPERTY.
---------------------
(a) Except in each case as set forth on SCHEDULE 6.12(A):
----------------
-15-
<PAGE>
(i) each Company owns, has the right to use, sell, license and dispose
of, and has the right to bring actions for the infringement of, all
Intellectual Property Rights necessary or required for the conduct of the
Business (collectively, the "OWNED REQUISITE RIGHTS"), other than those
----------------------
Intellectual Property Rights for which any Company has a valid license,
all of which are listed on SCHEDULE 6.12(A) (collectively, the "LICENSED
---------------- --------
REQUISITE RIGHTS"; and together with the Owned Requisite Rights, the
----------------
"REQUISITE RIGHTS"), and such rights to use, sell, license, dispose of and
-----------------
bring actions are exclusive with respect to the Owned Requisite Rights;
(ii) each Company has taken reasonable and practicable steps designed
to safeguard and maintain (A) the secrecy and confidentiality of
confidential or proprietary information and (B) the proprietary rights of
such Company or subsidiary in all of its Requisite Rights;
(iii) no Company has interfered with, infringed upon, misappropriated
or otherwise come into conflict with any Intellectual Property Rights of
any Person or committed any acts of unfair competition or received from any
Person in the past five years any notice, charge, complaint, claim or
assertion thereof, and no such claim is impliedly threatened by an offer to
license from another Person; and
(iv) no Company has sent to any Person in the past five years, or
otherwise communicated to any Person, any notice, charge, complaint, claim
or other assertion of any present, impending or threatened infringement by
or misappropriation of, or other conflict with, any Intellectual Property
Rights of such Company by such other Person or any acts of unfair
competition by such other Person, nor to the Best Knowledge of the Seller,
is any such infringement, misappropriation, conflict or act of unfair
competition occurring or threatened.
(b) SCHEDULE 6.12(B) contains a true and complete list of all applications,
----------------
filings and other formal actions made or taken pursuant to any Laws by any
Company to perfect or protect their respective interests in its Intellectual
Property Rights, including, all patents, patent applications, trademarks,
trademark applications, service marks and service mark applications.
6.13 AGREEMENTS, NO DEFAULTS, ETC.
-----------------------------
(a) SCHEDULE 6.13 contains a true and complete list and brief description of
-------------
all written Contracts and, to the Best Knowledge of the Seller all oral
Contracts to which any Company is a party and (x) which were entered into or
made outside the ordinary course of business, or (y) which were entered into or
made in the ordinary course of business and are described in CLAUSES (I) through
-----------
(XV) of the next sentence this SECTION 6.13. Except as set forth on SCHEDULE
- ---- ------------ --------
6.13, none of the Companies is a party to any of the following, whether written
- ----
or oral:
(i) distributorship, dealer, sales, advertising, agency, manufacturer's
representative or other Contract relating to the payment of a commission;
-16-
<PAGE>
(ii) Contract for the employment of any officer, employee or consultant
or any other type of Contract or understanding with any officer, employee
or consultant, including any agreement or understanding relating to
severance payments;
(iii) indenture, mortgage, promissory note, loan agreement, pledge
agreement, conditional sale, guarantee or other Contract for the borrowing
of money, for a line of credit or for a Capital Lease;
(iv) Contract for charitable contributions in excess of $5,000
individually or $10,000 in the aggregate;
(v) Contract for capital expenditures in excess of $25,000 individually
or $100,000 in the aggregate;
(vi) agreement or arrangement for the sale of any assets, properties or
rights other than the sale of services or products in the ordinary course
of business at normal profit margins;
(vii) lease or other agreement pursuant to which it is a lessee of or
holds or operates any machinery, equipment, motor vehicles, office
furniture, fixtures, products, merchandise or other personal property owned
by any other Person in excess of $5,000 individually or $10,000 in the
aggregate;
(viii) Contract with respect to the lending or investing of funds;
(ix) Contract with respect to any form of intangible property,
including any Intellectual Property Rights;
(x) Contract which restricts any Company subsidiary from engaging in
any aspect of the Business or any other business anywhere in the world;
(xi) Contract or group of related Contracts with the same Person or
group of Affiliated Persons (excluding purchase orders entered into in the
ordinary course of business which are to be completed within three months
of entering into such purchase orders) for the purchase or sale of products
or services under which the undelivered or unperformed balance or portion
thereof (including the aggregate undelivered or unperformed balance or
portion under any such Contracts between the same Person and such Company )
has a selling price in excess of $50,000;
(xii) agreement for the acquisition or disposition of a Person or a
division of a Person made within the preceding five years (whether or not
such acquisition or disposition was consummated); or
(xiii) other Contract material to the Business.
The Contracts disclosed on SCHEDULE 6.4, the leases described on SCHEDULE
------------ --------
6.11(A), the licenses described on SCHEDULE 6.12(A), the insurance policies on
- ------- ----------------
SCHEDULE 6.16, the Company Employee Plans and the Contracts on SCHEDULE 6.21,
- ------------- -------------
are incorporated by reference onto SCHEDULE 6.13.
-------------
-17-
<PAGE>
(b) All items listed on SCHEDULE 6.13 are in full force and effect,
-------------
constitute legal, valid and binding obligations of the respective parties
thereto, and are enforceable in accordance with their respective terms. Each
Company has performed all of the obligations required to be performed by it to
date, and there exists no default, or any event which upon the giving of notice
or the passage of time, or both, would give rise to a claim of a default in the
performance by any Company or, to the Best Knowledge of the Seller, any other
party to any of the foregoing of their respective obligations thereunder. The
Purchaser has been furnished with true, complete and correct copies of all
written items listed on SCHEDULE 6.13 and SCHEDULE 6.13 (including by
------------- -------------
incorporated reference) contains complete descriptions of all oral items listed
on SCHEDULE 6.13 (including by incorporated reference).
-------------
(c) SCHEDULE 6.13 contains a true and complete list of all Funded
-------------
Indebtedness of each Company, all of which is to be repaid in full on or prior
to the Closing Date, in each case showing the aggregate principal amount thereof
(and the aggregate amount of any undrawn commitments with respect thereto), the
name of the lender and the name of the respective borrower and any other Person
which directly or indirectly guaranteed such debt.
6.14 LITIGATION, ETC.
----------------
(a) Except as disclosed on SCHEDULE 6.14(A) and for workers' compensation
----------------
claims made in the ordinary course of business and consistent (in frequency and
cost) with past practices, there are no (i) Proceedings pending or, to the Best
Knowledge of the Seller, threatened against any Company, whether at law or in
equity, whether civil or criminal in nature or before or by any Governmental
Entity or arbitrator, nor to the Best Knowledge of the Seller does there exist
any basis therefor, or (ii) Orders of any Governmental Entity or arbitrator
with respect to, involving or against any Company. Each Company has delivered
to the Purchaser all material documents and correspondence relating to such
matters referred to on SCHEDULE 6.14(A).
----------------
(b) SCHEDULE 6.14(B) lists each matter described in SECTION 6.14(A) that (i)
---------------- ---------------
was in existence since the inception of each Company and resulted in any
criminal sanctions or (ii) was in existence within the last five years and
resulted in payments in excess of $50,000 by any Company (whether as a result
of a judgment, civil fine, settlement or otherwise).
6.15 COMPLIANCE WITH LAWS.
--------------------
Each Company (a) has complied in all respects with, and is in
compliance in all respects with, all Laws, Orders and Permits applicable to it
and the Business and (b) has all Permits used or necessary in the conduct of the
Business. Such Permits are listed on SCHEDULE 6.15 and are in full force and
-------------
effect, no violations with respect to any thereof have occurred or are or have
been recorded, no Proceeding is pending or, to the Best Knowledge of the Seller,
threatened to revoke or limit any thereof. No investigation or review by any
Governmental Entity with respect to any Company is pending or, to the Best
Knowledge of the Seller, threatened, nor has any Governmental Entity notified
any Company of its intention to conduct the same. To the Best Knowledge of the
Seller, there is no proposed change in any applicable Law which would require
any Company to obtain any Permits not set forth on SCHEDULE 6.15 in order to
-------------
conduct the Business as presently conducted and as presently proposed to be
conducted. No Company
-18-
<PAGE>
has received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any Liability or
disadvantage which may be material to its business, financial condition,
operations, property or affairs. No Company is aware of any proposed Law which
would prohibit or restrict any Company from, or otherwise materially adversely
affect any Company in, conducting the Business in any jurisdiction in which it
is now conducting business or which it currently proposes to conduct business.
6.16 INSURANCE.
---------
(a) SCHEDULE 6.16(A) contains a true and complete list of all policies of
----------------
liability, theft, fidelity, life, fire, product liability (including "bobtail"),
cargo, workmen's compensation, health and other forms of insurance held by each
Company, or the Seller for the benefit of any Company (specifying the insurer,
amount of coverage, type of insurance, policy number, Best's rating of the
insurer and any pending claims thereunder). All such coverages have been
maintained at all times during the course of the operation of the Business, and
such insurance coverage has been maintained on an occurrence (as opposed to a
claims made) basis. Each Company is insured against all risks usually insured
against by Persons conducting similar businesses and operating similar
properties in the localities where the Business is conducted and the properties
of each Company are located, under policies of such types and in such amounts as
are customarily carried by such Persons.
(b) Except as set forth on SCHEDULE 6.16(B), with respect to each policy of
----------------
insurance listed on SCHEDULE 6.16(A): (i) all premiums with respect thereto are
----------------
currently paid and are not subject to adjustment, and neither the Seller nor any
Company is in default in any respect with respect to its obligations under such
policy, and no basis exists that would give any insurer under any such policy
the right to cancel or unilaterally reduce or limit the stated coverages
contained in such policy; (ii) there are no outstanding claims currently pending
under such policy that could be expected to cause an increase in the insurance
rates of any Company, and no facts or circumstances exist that might reasonably
be expected to relieve the insurer under such policy of its obligations to
satisfy in full any claim thereunder; and (iii) no Company has received any
notice that such policy has been or shall be canceled or terminated or will not
be renewed on substantially the same terms as are now in effect or that the
premium on such policy shall be increased on the renewal thereof.
6.17 LABOR RELATIONS; EMPLOYEES.
---------------------------
(a) SCHEDULE 6.17 sets forth a list of all directors, officers and key
--------------
employees of each Company as of the date hereof, together with their respective
titles (if any), their current compensation (including salary, wages, bonuses
and commissions) and the respective dates on which they commenced employment.
To the extent any such employee is on a leave of absence, SCHEDULE 6.17
--------------
indicates the nature of such leave of absence and such employee's anticipated
date of return to active employment. No key employee listed on SCHEDULE 6.17 has
-------------
given any Company notice and to the Best Knowledge of the Seller, none of the
key employees listed on SCHEDULE 6.17 has any plans or intends to terminate his
-------------
employment or engagement with such Company. No former key employee has left the
service of any Company within the last 6 months.
-19-
<PAGE>
(b) Except as set forth on SCHEDULE 6.17, (i) each Company generally enjoys
-------------
good relations with all of its employees, and there is no labor strike, dispute
or grievance, or work slowdown or stoppage actually pending or, to the Best
Knowledge of the Seller, threatened against or involving any Company, and (ii)
no Company is a party to or bound by any collective bargaining agreement, union
contract or similar agreement, no such agreement is currently being negotiated
by any Company, no labor union has taken any action with respect to organizing
employees of any Company and no representation question exists with respect to
any such employees.
(c) Each of the Companies and its ERISA Affiliates has complied in all
respects with all Laws relating to the hiring and retention of all employees,
leased employees and independent contractors relating to wages, hours, Company
Employee Plans, workers' compensation, unemployment, equal opportunity,
collective bargaining and the payment of social security and other taxes.
6.18 ERISA COMPLIANCE.
----------------
(a) SCHEDULE 6.18(A) contains a true, complete and correct list of all
----------------
Employee Benefit Plans of each Company (collectively, the "COMPANY EMPLOYEE
----------------
PLANS") (i) that cover any employees, contract employees or former employees of
- -----
any Company or any spouses, family members or beneficiaries thereof (A) that are
maintained, sponsored or contributed to by any Company or (B) with respect to
which any Company is obligated to contribute or has any Liability, or (ii) with
respect to which any Company has any Liability on account of the maintenance or
sponsorship thereof or contribution thereto by any present or former ERISA
Affiliate of any Company.
(b) ADMINISTRATION AND COMPLIANCE. Except as set forth on SCHEDULE 6.18(B),
----------------------------- ----------------
with respect to each Company Employee Plan:
(i) each Company Employee Plan has been established, maintained,
operated and administered in accordance with its terms and in compliance
with ERISA, the Code, and other applicable Laws (including with respect to
reporting and disclosure);
(ii) all required, declared or discretionary (in accordance with
historical practices) payments, premiums, contributions, reimbursements or
accruals for all periods ending prior to or as of the date hereof have been
made or properly accrued on the Latest Balance Sheet, or with respect to
accruals properly made after the Latest Balance Sheet Date, on the books
and records of such Company and all amounts withheld from employees have
been timely deposited into the appropriate trust or account;
(iii) there is no unfunded Liability relating to any Company Employee
Plan which is not reflected on the Latest Balance Sheet, or with respect to
accruals properly made after the Latest Balance Sheet Date, on the books
and records of such Company;
(iv) none of the Companies, or its ERISA Affiliates, nor any other
"disqualified person" or "party in interest" (as such terms are defined in
Section 4975 of the Code and Section 3(14) of ERISA, respectively) with
respect to such Company Employee Plan, has breached the fiduciary rules of
ERISA or engaged in a prohibited
-20-
<PAGE>
transaction that could subject any of the foregoing Persons to any tax or
penalty imposed under Section 4975 of the Code of Section 502(i), (j) or
(l) of ERISA;
(v) no Proceedings (other than routine claims for benefits) are pending
or, to the Best Knowledge of the Seller, threatened against or relating to
any Company Employee Plan or any fiduciary thereof, and there is, to the
Best Knowledge of the Seller, no basis for any such Proceeding against any
Company Employee Plan;
(vi) each Company Employee Plan, if intended to be "qualified", within
the meaning of Section 401(a) of the Code, has been determined by the
Internal Revenue Service to be so qualified and the related trusts are
exempt from Tax under Section 501(a) of the Code, and nothing has occurred
that has or could reasonably be expected to adversely affect such
qualification or exemption;
(vii) except as may be required under Laws of general application, no
Company Employee Plan obligates any Company to provide any employee or
former employee, or their spouses, family members or beneficiaries, any
post-employment or post-retirement health or life insurance, accident or
other "welfare-type" benefits;
(viii) each Company Employee Plan which is subject to the requirements
of the consolidated Omnibus Budget Reconciliation of 1985 ("COBRA") and the
Health Insurance Portability and Accountability Act ("HIPAA") has been
maintained in compliance with COBRA and HIPAA, including all notice
requirements, and no tax payable on account of Section 4980B or any other
section of the Code has been or is expected to be incurred;
(ix) no Company nor any ERISA Affiliate thereof is or has ever
maintained or been obligated to contribute to a Multiemployer Plan (as
defined in Section 3(37) of ERISA), a Multiple Employer Plan (as defined in
Section 413 of the Code) or a Defined Benefit Pension Plan (as defined in
Section 3(35) of ERISA); and
(x) no benefit payable or which may become payable by any Company or
its ERISA Affiliates pursuant to any Company Employee Plan shall constitute
an "excess parachute payment," within the meaning of Section 280G of the
Code, which is or may be subject to the imposition of an excise tax under
Section 4999 of the Code or which would not be deductible by reason of
Section 280G of the Code.
(c) The Purchaser has been provided with true and complete copies, to the
extent applicable, of all documents pursuant to which each Company Employee Plan
is maintained and administered, the two most recent annual reports (Form 5500
and attachments) and financial statements therefor, all governmental rulings,
determinations, and opinions (and pending requests therefor), and, if any
Company Employee Plan provides post-employment or post-retirement health and
life insurance, accident or other "welfare-type" benefits, the most recent
valuation of the present and future obligations under such Company Employee
Plan; and the foregoing documents accurately reflect all of the terms of such
Company Employee Plan (including any agreement or provision which would limit
the ability of any Company to make any prospective amendments or terminate such
Company Employee Plan).
-21-
<PAGE>
6.19 ENVIRONMENTAL MATTERS.
---------------------
(a) Except as set forth on SCHEDULE 6.19(A), none of the Companies or their
----------------
Affiliates, nor any of their respective predecessors, has received any written
or oral notice, report or other information (i) regarding any actual or alleged
violation of any Environmental, Health and Safety Laws, or any Liabilities,
including any investigatory, remedial or corrective obligations, relating to any
Company, the Business or any Company's current or former owned or leased
properties or operations or (ii) that any Company is potentially responsible
under any Environmental, Health and Safety Laws for response costs, corrective
action or natural resource damages, as those terms are defined under the
Environmental, Health and Safety Laws, at any location.
(b) SCHEDULE 6.19(B) sets forth a complete and accurate list of all
----------------
properties and facilities previously owned, leased or operated by each Company
or any of their respective predecessors, (together with the Leased Properties,
the "COVERED PROPERTIES"). There has been no release, discharge, spill, or
------------------
disposal of any substance at any of the Covered Properties so as to give rise to
Liability of any Company under any Environmental, Health and Safety Laws.
Except as set forth on SCHEDULE 6.19(B), neither is there now, nor has there
----------------
ever been, any asbestos-containing material in any form or condition,
underground storage tanks, above-ground storage tanks, landfill, waste pile,
surface impoundment, or article or equipment containing polychemical biphenyls
on or at any of the Covered Properties.
(c) None of the Companies or their Affiliates, nor any of their respective
predecessors, has treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled or released any substance, or owned or
operated any property (and no such property is contaminated by any such
substance) in a manner that has given or would give rise to Liabilities pursuant
to any Environmental, Health and Safety Laws, including any Liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damage or attorney fees, or any investigative, corrective or
remedial obligations pursuant to any Environmental, Health and Safety Laws.
(d) No facts, events or conditions relating to the past or present operations
of any Company or its Affiliates, nor any of their respective predecessors or
any of the Covered Properties will prevent continued compliance by any Company
with any Environmental, Health and Safety Laws, or give rise to any
investigatory, remedial or corrective obligations pursuant to any Environmental,
Health and Safety Laws, or give rise to any other Liabilities pursuant to
Environmental Health and Safety Laws, including any relating to on-site or off-
site releases or threatened releases of materials, substances or wastes,
personal injury, property damage or natural resources damage.
(e) Neither this Agreement nor the consummation of the transactions
contemplated by this Agreement or any of the Related Documents will result in
any obligations for site investigation or cleanup, or notification to or consent
of government agencies or third parties, pursuant to any of the so-called
"transaction-triggered" or "responsible property transfer" Environmental,
Health, and Safety Laws.
-22-
<PAGE>
(f) Each Company has provided the Purchaser with correct and complete copies
of all reports and studies within the possession or control of such Company with
respect to past or present environmental conditions or events at any of the
Covered Properties and to the Best Knowledge of the Seller there are no other
environmental reports or studies with respect thereto.
6.20 BROKERS.
-------
Other than Blackwater Capital Group, neither the Seller nor any
Company has employed any broker or finder or incurred any Liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby. All fees and related out-of-pocket expenses payable to
Blackwater Capital Group have been (or will be) paid by the Seller.
6.21 RELATED PARTY TRANSACTIONS.
--------------------------
Except as set forth on SCHEDULE 6.21, and except for compensation to
-------------
bona-fide employees of each Company for services rendered in the ordinary course
of business, no current or former Affiliate of any Company or any "Associate"
(as defined in the rules promulgated under the Securities Exchange Act of 1934,
as amended) of any thereof, is now, or has been during the last five fiscal
years, (i) party to any transaction or Contract with any Company (including any
contract, agreement or other arrangement providing for the furnishing of
services by, or rental of real or personal property from, or otherwise requiring
payments to, any such Affiliate or Associate), or (ii) the direct or indirect
owner of an interest in any Person which is a present or potential competitor,
supplier or customer of any Company (other than non-affiliated holdings in
publicly held companies). Except as set forth on SCHEDULE 6.21, no Company is a
-------------
guarantor or otherwise liable for any actual or potential Liability of its
Affiliates and their Associates. Except as set forth on SCHEDULE 6.21, no
-------------
Company (x) owns or operates any vehicles, boats, aircrafts, apartments or other
residential or recreational properties or facilities for executive,
administrative or sales purposes or (y) owns or pays for any social club
memberships, whether or not for the benefit of any Company and/or any of its
executives.
6.22 ACCOUNTS AND NOTES RECEIVABLE.
-----------------------------
Except as set forth on SCHEDULE 6.22 and except for allowances for bad
-------------
debt reflected on the Interim Balance Sheet, all accounts receivable and notes
receivable owing to any Company as of the date hereof constitute, and as of the
Closing shall constitute, valid and enforceable claims arising from bona fide
transactions in the ordinary course of business, and there are no known or
asserted claims, refusals to pay or other rights of set-off against any thereof.
Except as set forth on SCHEDULE 6.22, there is (i) no account debtor or note
-------------
debtor that is delinquent by more than 30 days for payments in excess of $10,000
in the aggregate, (ii) no account debtor or note debtor that has refused or, to
the Best Knowledge of the Seller, threatened to refuse to pay its obligations to
any Company for any reason, or has otherwise made a claim of set-off or similar
claim (other than in amounts not in excess of $5,000 per account debtor or
$10,000 in the aggregate), and (iii) to the Best Knowledge of the Seller, no
account debtor or note debtor that owes any Company amounts in excess of $10,000
in the aggregate that is insolvent or bankrupt.
-23-
<PAGE>
6.23 BANK ACCOUNTS; POWERS OF ATTORNEY.
---------------------------------
SCHEDULE 6.23 sets forth a true and complete list of (i) all bank
-------------
accounts and safe deposit boxes of each Company and all persons who are
signatories thereunder or who have access thereto and (ii) the names of all
persons, firms, associations, corporations or business organizations holding
general or special powers of attorney from any Company and a summary of the
terms thereof (excluding ministerial powers of attorney granted to
representatives of any Company which are terminable at will).
6.24 SUPPLIERS AND VENDORS.
---------------------
Except in the ordinary course of business, no material supplier or
vendor to any Company has canceled or otherwise terminated, or, to the Best
Knowledge of the Seller, threatened to cancel or otherwise terminate, its
relationship with any Company or has decreased, limited or otherwise modified,
or to the Best Knowledge of the Seller, threatened to decrease, limit or
otherwise modify, the services, supplies or materials it provides to any
Company.
6.25 CUSTOMERS.
---------
No customer of any Company, to which more than $250,000 of annual
sales are attributable, has notified any Company that it intends, or, to the
Best Knowledge of the Seller, has threatened, to terminate or materially curtail
its relationship and dealings with any Company.
6.26 CONFLICTS OF INTEREST.
---------------------
Neither the Seller, nor any Company nor any officer, employee, agent
or other Person acting on their behalf has directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or employee
of any Governmental Entity or other Person who was, is, or may be in a position
to help or hinder the business of any Company (or assist in connection with any
actual or proposed transaction) that (i) might subject any Company to any damage
or penalty in any Proceeding, (ii) if not given in the past, would have resulted
in a Material Adverse Change, or (iii) if not continued in the future, could
reasonably be expected to result in a Material Adverse Change. There is not
now, and there has never been, any employment by any Company of, or beneficial
ownership in any Company by, any governmental or political official in any
jurisdiction in which any Company has conducted or proposes to conduct business.
6.27 DISCLOSURE.
----------
This Agreement, including the schedules, attachments or exhibits
hereto does not contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained herein or therein,
taken as a whole, in light of the circumstances in which they were made, not
misleading. There is no fact that has not been disclosed to the Purchaser of
which the Seller is aware and which constitutes or could reasonably be
anticipated to result in a Material Adverse Change.
-24-
<PAGE>
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants as of the date hereof and as of
the Closing Date as follows:
7.1 ORGANIZATION; CORPORATE AUTHORITY.
---------------------------------
The Purchaser is a corporation duly organized, validly existing and in
good standing under the Laws of the jurisdiction of its incorporation and has
all requisite power and authority (corporate or otherwise) to own, lease and
operate its assets and properties and to carry on its business as presently
conducted and as presently proposed to be conducted. The Purchaser is duly
qualified and in good standing to transact business as a foreign Person in those
jurisdictions set forth on SCHEDULE 7.1, which constitute all the jurisdictions
------------
in which the character of the property owned, leased or operated by the
Purchaser or the nature of the business or activities conducted by the Purchaser
makes such qualification necessary. The Seller has been furnished with true,
correct and complete copies of the Purchaser's Charter Documents, in each case
as amended and in effect on the date hereof.
7.2 AUTHORITY; AUTHORIZATION; EXECUTION AND DELIVERY; ENFORCEABILITY; NO
--------------------------------------------------------------------
CONFLICT.
- --------
The Purchaser has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement and each Related
Document to which it is or will be a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Purchaser of this Agreement and each Related Document to which it is or will be
a party, and performance of its obligations hereunder and thereunder have been
duly and validly authorized by all necessary corporate action on the part of the
Purchaser and its shareholders. This Agreement and each Related Document to
which the Purchaser is or will be a party has been or upon the execution thereof
will be, duly and validly executed and delivered by the Purchaser, and
constitutes, or upon its execution and delivery will constitute, a valid and
binding obligation of the Purchaser, enforceable against it in accordance with
its terms. Neither the Purchaser's execution and delivery of, and performance
of its obligations under, this Agreement and each Related Document to which it
is or will be a party, nor the consummation of the transactions contemplated
hereby and thereby will (i) conflict with or result in any violation or breach
of, any of the terms, conditions or provisions of, or constitute (with due
notice or lapse of time, or both) a default under, or give rise to any right of
termination, cancellation or acceleration or result in the creation of any
Encumbrance upon any of the assets or properties of the Purchaser under
provision of the Purchaser's Charter Documents or any Contract to which the
Purchaser is a party or by which it or any of its assets or properties is or may
be bound or (ii) violate, or result in the creation of an Encumbrance upon any
of the Purchaser's assets as a result of, any Law applicable to the Purchaser or
any of its properties or assets.
7.3 CONSENTS.
--------
No Permit, authorization, consent or approval of or by, or
notification of or filing with, any Person (governmental or otherwise) is
required in connection with the execution, delivery
-25-
<PAGE>
and performance by the Purchaser of this Agreement or the Related Documents to
which the Purchaser is or will be a party or the consummation of the
transactions contemplated hereby or thereby.
7.4 CAPITALIZATION.
--------------
(a) The authorized capital stock of the Purchaser and its subsidiaries is as
set forth on SCHEDULE 7.4, which schedule also sets forth the total number of
------------
outstanding shares of the Purchaser and its subsidiaries. All such outstanding
shares disclosed on SCHEDULE 7.4 are duly and validly issued and outstanding,
------------
fully paid and nonassessable, with no personal Liability attached to the
ownership thereof, and are held of record by the Persons and in the amounts set
forth on SCHEDULE 7.4.
------------
(b) Except as set forth on SCHEDULE 7.4, there are no securities presently
------------
outstanding, and on the Closing Date there will not be any outstanding
securities, which are convertible into, exchangeable for, or carrying the right
to acquire, equity securities of the Purchaser or any of its subsidiaries, or
subscriptions, warrants, options, calls, puts, convertible securities,
registration or other rights, arrangements or commitments obligating the
Purchaser or any of its subsidiaries to issue, sell, register, purchase or
redeem any of its equity securities or any ownership interest or rights therein.
Except as set forth on SCHEDULE 7.4, there are no voting trusts or other
------------
agreements or understandings to which the Purchaser or any of its subsidiaries
is bound with respect to the voting of such Person's capital stock. There are
no stock appreciation rights, phantom stock rights or similar rights or
arrangements outstanding with respect to the Purchaser or any of its
subsidiaries.
(c) All securities issued by the Purchaser and its subsidiaries have been
issued in transactions exempt from registration under the Securities Act and
the rules and regulations promulgated thereunder and all applicable state
securities or "blue sky" laws, and none of the Purchaser nor any of its
subsidiaries has violated the Securities Act or any applicable state securities
or "blue sky" laws in connection with the issuance of any such securities.
ARTICLE VIII
COVENANTS AND AGREEMENTS
8.1 ACCESS TO RECORDS AND PROPERTIES.
--------------------------------
(a) From and after the date hereof until the Closing, each Company shall
afford, and the Seller shall cause each Company to afford, (i) to the Purchaser,
its lenders and other financing sources and their respective authorized
representatives, including accountants, free and full access at all reasonable
times to the assets, business, facilities, properties, books, records (including
Tax returns filed and in preparation), customers, consultants, and key employees
of, or relating to, each Company in order that the Purchaser has the full
opportunity to make such investigation as it shall reasonably desire to make of
the affairs of each Company, and each Company and the Seller shall cooperate
fully in connection therewith and (ii) the Accountants, free and full access at
all reasonable times to the records of the independent certified public
accountants of each Company relating to such Company. The investigation
contemplated by this
-26-
<PAGE>
SECTION 8.1(A) shall not affect or otherwise diminish or obviate in any respect
- --------------
any of the representations and warranties or the indemnification obligations of
any Company or the Seller contained in this Agreement. The parties hereto agree
to use their reasonable efforts to minimize any disruption to any other party's
business in connection with the conduct of the due diligence process
contemplated herein.
(b) From and after the date hereof until the Closing, the Purchaser shall
afford, to the Seller and his authorized representatives, including accountants,
free and full access at all reasonable times to the assets, business,
facilities, properties, books, records (including Tax returns filed and in
preparation), and senior officers of, or relating to, the Purchaser in order
that the Seller has the full opportunity to make such investigation as he shall
reasonably desire to make of the affairs of the Purchase, and the Purchasers
shall cooperate fully in connection therewith. The investigation contemplated
by this SECTION 8.1(B) shall not affect or otherwise diminish or obviate in any
--------------
respect any of the representations and warranties or the indemnification
obligations of the Purchaser contained in this Agreement. The parties hereto
agree to use their reasonable efforts to minimize any disruption to any other
party's business in connection with the conduct of the due diligence process
contemplated herein.
8.2 CONDUCT OF THE COMPANIES.
------------------------
From and after the date hereof until the earlier of the Closing or the
termination of this Agreement pursuant to ARTICLE XI, each Company shall, and
----------
the Seller shall cause each Company to:
(i) conduct its business substantially as presently operated and only
in the ordinary course consistent with past practice;
(ii) not enter into any transaction other than in the ordinary course
of business, or any transaction which is not at arms-length with
unaffiliated third Persons, or any transaction with any affiliated third
Person;
(iii) not dispose of any material assets;
(iv) use commercially reasonable efforts to (A)maintain its business,
assets, relations with present employees, customers and suppliers, licenses
and operations as an ongoing business and preserve its goodwill, in
accordance with past custom and (B) to satisfy each of the closing
conditions set forth in ARTICLE IX;
----------
(v) not issue or sell any shares of any capital stock or issue or sell
any securities convertible into, exercisable or exchangeable for or options
or warrants to purchase or rights to subscribe for, any shares of any of
its capital stock, or enter into any agreement, contract or other
commitment to do any of the foregoing;
(vi) not declare or pay any dividend or distribution on or with respect
to its capital stock (other than dividends payable prior to Closing
pursuant to SECTION 8.11), not change the number of authorized shares of
------------
its capital stock or reclassify, combine, split, subdivide or redeem or
otherwise repurchase any of its capital stock, or issue, deliver,
-27-
<PAGE>
pledge or encumber any additional capital stock or other securities
equivalent to or exchangeable for capital stock or enter into any Contract
to do any of the foregoing;
(vii) not take or omit to take any action which would result in the
representations and warranties contained in this Agreement and the Related
Documents being untrue on the Closing Date, other than such action as shall
have been previously agreed to in writing by the parties hereto or is
otherwise expressly contemplated herein; and
(viii) not delay or postpone the payment of accounts payable and other
obligations and liabilities or accelerate the collection of accounts
receivable, other than in the ordinary course of business consistent with
past custom and practice.
8.3 EFFORTS TO CONSUMMATE.
---------------------
Subject to the terms and conditions of this Agreement, each party
shall use commercially reasonable efforts to take or cause to be taken all
actions and do or cause to be done all things required under all applicable
Laws, in order to consummate the transactions contemplated hereby.
8.4 NEGOTIATION WITH OTHERS.
-----------------------
(a) From and after the date hereof until the earlier of the Closing or the
termination of this Agreement pursuant to ARTICLE XI, the Seller Group shall
----------
not, and shall cause its officers, directors, Affiliates, representatives and
agents not to, directly or indirectly, (i) take any action to solicit or
initiate any Acquisition Proposal, (ii) continue, initiate or engage in
negotiations or discussions relating to an Acquisition Proposal with, or
disclose or provide any non-public information (other than in the ordinary
course of business or otherwise required by Law) relating to any Company to any
Person other than the parties hereto and their respective representatives or
(iii) enter into any written or oral agreement or understanding with any Person
(other than the Purchaser) regarding an Acquisition Proposal. If any of the
Seller or the Companies receives any unsolicited offer or proposal to enter into
negotiations relating to any Acquisition Proposal, such party shall promptly
notify the Purchaser of such offer or proposal and the general economic terms of
such offer or proposal and shall furnish a copy of any written offer or proposal
thereto.
(b) The parties recognize and acknowledge that a breach of this SECTION 8.4
-----------
will cause irreparable and material loss and damage to the non-breaching party
as to which it will not have an adequate remedy at law or in equity.
Accordingly, each party acknowledges and agrees that the issuance of an
injunction or other equitable remedy is an appropriate remedy for any such
breach.
8.5 TERMINATION OR AMENDMENT OF CERTAIN AGREEMENTS.
----------------------------------------------
The Seller Group agrees that, effective as of the Closing, those
Agreements listed on SCHEDULE 8.5 shall either (i) be automatically terminated
------------
without any further action by the parties thereto or any further liability of
any Company thereunder or (ii) be amended in form and substance reasonably
acceptable to the Purchaser, in each case as designated on such schedule.
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<PAGE>
8.6 PROPRIETARY INFORMATION.
-----------------------
The Seller agrees that all confidential or proprietary information or
work product relating to the Business which is known to the Seller as of the
Closing Date will be the sole property of the Companies. The Seller agrees that
it will not use or disclose such information or work product except for the
benefit of the Companies and their respective successors and assigns and the
Seller will take reasonable steps to protect such information and work product
from misuse, loss, theft or accidental disclosure.
8.7 NOTICE OF PROSPECTIVE BREACH.
----------------------------
Each party shall immediately notify the other parties in writing upon
the occurrence, or the failure to occur, of any event, which occurrence or
failure to occur would be reasonably likely to cause (i) any representation or
warranty of such party that is contained in this Agreement or any Related
Document to be untrue or inaccurate in any respect at any time from the date of
this Agreement to the Closing as if such representation and warranty were made
at such time or (ii) any failure of any party hereto to comply with or satisfy
any covenant or agreement to be complied with or satisfied by it under this
Agreement.
8.8 PUBLIC ANNOUNCEMENTS.
--------------------
The Seller, the Companies and the Purchaser agree that, except (i) as
otherwise required by Law and (ii) for disclosure to its respective directors,
officers, employees, financial advisors, financing sources, legal counsel,
independent certified public accountants or other agents, advisors or
representatives on a need-to-know basis and with whom such party has a
confidential relationship, and, in the case of the Purchaser, in connection with
its efforts regarding an initial public offering of its Common Stock, it will
not issue any reports, statements or releases, in each case pertaining to this
Agreement or any Related Document to which it is a party or the transactions
contemplated hereby or thereby, without the prior written consent of the Seller
and the Purchaser, which consent shall not unreasonably be withheld or delayed.
8.9 COOPERATION REGARDING TAX FILINGS, SECTION 338 ELECTION, ETC.
------------------------------------------------------------
(a) The Purchaser, each Company and the Seller shall act in good faith and
cooperate with one another for the purpose of filing all Tax Returns and reports
required to be filed by any of them and in connection with the Purchaser's
efforts regarding an initial public offering of its Common Stock.
(b) The Seller and the Purchaser agree to jointly make, or cause to be made,
in an appropriate and timely manner the elections provided for by Section
338(h)(10) of the Code (and, to the extent necessary to allow for an election
under Section 338(h)(10) of the Code, the elections provided for by Section
338(g) of the Code) and any corresponding election under state, local, or
foreign law (collectively, "SECTION 338 ELECTIONS") with respect to the purchase
---------------------
of the Shares.
(i) The Seller and the Purchaser shall cooperate with each other to
take all actions necessary or appropriate to effect and preserve timely
Section 338 Elections, including, but not limited to, preparing the IRS
Form 8023-A (Corporate Qualified Stock
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<PAGE>
Purchase Agreement) and any related and comparable forms for state, local,
or foreign law (collectively, "SECTION 338 ELECTION FORMS").
---------------------------
(ii) As reasonably requested form time to time by the Purchaser
(whether before, at, or after the Closing), the Seller shall assist the
Purchaser in, and shall provide the necessary information to the Purchaser,
in connection with the preparation of any Section 338 Election Form. The
Seller also agrees on or before the Closing to cause each Section 338
Election Form reasonably requested by the Purchaser to be duly executed by
the Seller or any Affiliate of the Seller, as appropriate, and delivered to
the Purchaser at the Closing. If the Purchaser reasonably determines that
a change is required to any Section 338 Election Form previously executed
by the Seller or an Affiliate of the Seller, the Purchaser may prepare a
new Section 338 Election Form and deliver it to the Seller and the Seller
shall cause such form to be duly executed by the Seller or an Affiliate of
the Seller, as appropriate, and promptly delivered to the Purchaser.
Anything contained in this SECTION 8(B) to the contrary notwithstanding,
------------
the Seller shall have the right to approve all Section 338 Election Forms
prior to filing, such approval not to be unreasonably withheld or delayed.
(iii) The Purchaser shall file, or cause to be filed, all Section 338
Election Forms and shall provide the Seller with notice of such filings.
(iv) The Seller and the Purchaser agree to report, or cause to be
reported, the purchase by the Purchaser of the Companies consistent with
the Section 338 Elections and shall take no position on any Tax Return, or
in any audit, examination, investigation, or other proceeding that is
inconsistent with such elections.
(v) The Seller and the Purchaser shall cooperate and consult with each
other in good faith in order to reach a mutually acceptable agreement with
respect to the allocation of the Modified Aggregate Sales Price (as defined
in Treasury Regulation section 1.338(h)(10)-1(e)(5)) among the assets of
the Companies that complies with the applicable treasury regulations
promulgated under Section 338 of the Code.
8.10 EXCHANGE PROCEEDS.
-----------------
If, between the date hereof and the Closing, any Company receives any
proceeds in consideration for the exchange of any of its assets, whether from
the sale of any such assets, from insurance proceeds payable on account of any
loss or casualty to such assets, any proceeds form the taking of such assets
pursuant to the power of eminent domain, or any other proceeds from whatever
source relating to the disposition of such assets (the "EXCHANGE PROCEEDS"),
-----------------
such Company shall promptly notify the Purchaser of such receipt of such
Exchange Proceeds and shall consult with the Purchaser with respect to the
application of any such Exchange Proceeds, which shall either be used to
purchase replacement assets or real properties or shall be retained by such
Company.
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<PAGE>
8.11 [INTENTIONALLY OMITTED.]
---------------------
8.12 NONCOMPETITION COVENANT.
-----------------------
(a) The Seller acknowledges and agree that as a mutual condition to the
respective obligations of the parties at the Closing, as a material inducement
to the Purchaser to enter into and perform its obligations hereunder and in
consideration of the payments to be received by the Seller under this Agreement,
the Seller shall not, without the prior written consent of the Purchaser, at any
time during the period beginning on the Closing Date and ending on the fifth
anniversary thereof, (i) directly or indirectly engage in, represent in any way,
or be connected with, any Competing Business (as defined below), whether such
engagement shall be as an officer, director, owner, employee, partner, affiliate
or other participant in any Competing Business, (ii) assist others in engaging
in any Competing Business in the manner described in clause (i) above, (iii)
induce other employees of any Company or any of its respective subsidiaries or
Affiliates to terminate their employment with any Company or any of its
respective subsidiaries or Affiliates or to engage in any Competing Business or
(iv) induce any customer, vendor or agent or any other Person with which any
Company or its respective subsidiaries or Affiliates has a business
relationship, contractual or otherwise, to terminate or alter such business
relationship. This covenant is considered an integral part of this Agreement.
The foregoing restriction shall not apply to the Seller's ownership of publicly
traded securities which represent less than 5% of the ownership interests of the
issuer.
(b) The Seller understands that the foregoing restrictions may limit his
ability to earn a livelihood in a business similar to the business of any
Company or affiliate thereof, but the Seller nevertheless believes that he has
received and will receive sufficient consideration and other benefits under this
Agreement, and under the terms of this Agreement, to justify clearly such
restrictions which, in any event (given the Seller's education, skills and
ability), the Seller does not believe would prevent him from earning a living.
(c) As used herein, the term "Competing Business" shall mean any business
conducted in any city or county in any state of the United States which is
engaged in the business of providing any of the following transportation
services to third party customers:
(i) intermodal marketing services in any city or county in any state or
province located in the continental United States, Canada or Mexico; or
(ii) intermodal drayage services (A) in any city or county in the State
of Illinois or (B) in any other city or county in any state or province
located in the continental United States, Canada or Mexico where any of the
Companies provides drayage services at the time of, or where there are
fixed plans for any of the Companies to provide drayage services at any
time within 12 months after, the termination of your employment under this
Agreement; or
(iii) any other transportation services in any city or county in the
United States, Canada or Mexico provided by Pacer or its subsidiaries at
the time of, or where there are fixed plans for Pacer or its subsidiaries
to provide such other transportation services at any time within 12 months
after, the termination of the Seller's employment
-31-
<PAGE>
under the Employment Agreement and with respect to which the Seller has had
direct or indirect supervisory authority as an officer of Pacer or any of
its subsidiaries.
Anything contained in the immediately preceding sentence to the
contrary notwithstanding, any entity which has separate divisions or business
units, one or more of which are engaged in a business described above, will not
be deemed a Competing Business with respect to those portions of such entity
which are not engaged in a business described above so long as the Seller's
association with any such separate division or business unit (fully taking into
account the Seller's functions and the nature of the Seller's work at such
division or business unit) does not involve existing customers of Pacer or any
of its subsidiaries or relate in any material respect to such portion of such
business which would be a Competing Business hereunder.
8.13 HEADQUARTERS LEASE.
------------------
From and after the Closing, the Seller shall continue to lease to the
Companies their current headquarters facility pursuant to an oral, month-to-
month lease at a monthly rental rate no greater than the average monthly rental
paid by the Companies therefor during 1997, provided, however, that each party
-------- -------
shall provide the other party at least 90 days advance written notice of any
intention to discontinue such oral month-to-month lease.
8.14 ORDINARY COURSE.
---------------
From and after the date hereof, until December 31, 1998, each of the
Purchaser and the Seller shall cause the Companies to continue to operate in the
ordinary course of business consistent with past practice, unless otherwise
agreed to in writing by the Seller and the Purchaser in their reasonable
discretion exercised in good faith (which agreement shall include any necessary
or appropriate modifications and adjustments to the amounts set forth in SECTION
-------
4.1(B) and to ANNEX III).
- ------ ---------
8.15 REGISTRATION RIGHTS.
-------------------
After the Closing, the Purchaser will use its commercially reasonable
efforts to provide the Seller with "piggyback" registration rights following an
initial public offering of the Purchaser's common stock having the same priority
with respect to the inclusion of the Pacer Shares then held by the Seller as the
priority rights of the other senior executive officers of the Purchaser
(including Gary Goldfein and Allen Steiner).
ARTICLE IX
CLOSING CONDITIONS
9.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.
--------------------------------------
The respective obligations of the parties to consummate the
transactions contemplated hereby are subject to the satisfaction prior to the
Closing Date of the following conditions unless waived (to the extent such
conditions can be waived) by the Seller or the Purchaser, as applicable:
-32-
<PAGE>
(a) APPROVALS. All authorizations, consents, Orders or approvals of, or
---------
declarations or filings with, or expiration of waiting periods imposed by, any
Governmental Entity necessary for the consummation of the transactions
contemplated hereby shall have been obtained or made.
(b) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
----------------------------
preliminary or permanent injunction or other Order issued by any court or
Governmental Entity of competent jurisdiction nor other legal restraint or
prohibition preventing the consummation of the transactions contemplated hereby
shall be in effect.
(c) ACTIONS AND STATUTES. No action, suit or proceeding shall have been
--------------------
taken or threatened, and no statute, rule, regulation or Order shall have been
enacted, promulgated or issued or deemed applicable to the transactions
contemplated by this Agreement or the Related Documents by any Governmental
Entity that would (i) make the consummation of the transactions contemplated
hereby or thereby illegal or substantially delay the consummation of any
material aspect of the transactions contemplated hereby or thereby or (ii)
render any party unable to consummate the transactions contemplated hereby or
thereby.
9.2 CONDITIONS TO OBLIGATIONS OF THE PURCHASER.
------------------------------------------
The obligations of the Purchaser to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions, unless waived (to the extent such conditions can be waived) by the
Purchaser:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and
--------------------------------------------
warranties made by the Companies and the Seller in this Agreement and the
Related Documents shall be true and correct in all material respects as of the
Closing Date with the same effect as if such representations and warranties had
been made at and as of the Closing Date, and the Purchaser shall have received a
certificate to that effect signed by the Seller.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANIES AND THE SELLER. Each Company
----------------------------------------------------------
and the Seller shall have performed in all material respects all obligations and
covenants required to be performed by them under this Agreement and the Related
Documents as of the Closing Date, and the Purchaser shall have received a
certificate to that effect signed by the Seller.
(c) AUTHORIZATION. All action necessary to authorize the execution, delivery
-------------
and performance of this Agreement and the Related Documents by each Company and
the Seller and the consummation of the transactions contemplated hereby and
thereby, including, the requisite shareholder approvals, shall have been duly
and validly taken by each Company and the Seller, and each Company and the
Seller shall have the full power and right to consummate the transactions
contemplated hereby and thereby on the terms provided herein and therein.
(d) OPINION OF THE SELLER GROUP'S COUNSEL. The Purchaser shall have received
-------------------------------------
an opinion of Pembroke & Brown, PC, counsel for the Seller Group, dated the
Closing Date, substantially in the form of EXHIBIT A attached hereto.
---------
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<PAGE>
(e) CONSENTS AND APPROVALS. The Purchaser shall have received duly executed
----------------------
copies of all consents and approvals required for or in connection with the
execution and delivery, by each Company and the Seller, of this Agreement and
each of the Related Documents to which any of them may be parties, the
consummation of the transactions contemplated hereby and thereby, and the
continued conduct of the Business as previously conducted (including any
material consent identified on SCHEDULE 6.3), in form and substance reasonably
-------------
satisfactory to the Purchaser and its counsel.
(f) FINANCING. The Purchaser shall have obtained sufficient financing on
---------
terms and conditions acceptable to the Purchaser, necessary to consummate the
transactions contemplated hereby.
(g) ABSENCE OF MATERIAL ADVERSE CHANGE. Since the Latest Balance Sheet Date,
----------------------------------
there shall have been no Material Adverse Change in the Business of any Company.
(h) RELATED DOCUMENTS. Each of the following documents (each, a "RELATED
----------------- -------
DOCUMENT," and collectively, the "RELATED DOCUMENTS") shall have been executed
- -------- -----------------
and delivered by the parties thereto and the transactions contemplated thereby
to be completed at or prior to the Closing substantially consummated or
effected, as the case may be, in accordance with the terms thereof:
(i) GENERAL RELEASES. The Seller has entered into a General Release in
----------------
favor of each Company substantially in the form of EXHIBIT B attached
---------
hereto (the "GENERAL RELEASE");
---------------
(ii) EMPLOYMENT AGREEMENT. The Seller has executed and delivered an
--------------------
employment agreement with the Purchaser substantially in the form of
EXHIBIT C attached hereto (the "EMPLOYMENT AGREEMENT").
---------- --------------------
(iii) AMENDMENT TO STOCKHOLDERS AGREEMENT. The Seller and the other
-----------------------------------
parties thereto other than the Purchaser shall have entered into an
amendment to the Purchaser's Amended and Restated Stockholders Agreement in
substantially in the form of EXHIBIT D attached hereto (the "STOCKHOLDERS
---------- ------------
AGREEMENT AMENDMENT").
-------------------
(i) SELLER CERTIFICATES. Each of the following certificates shall have been
-------------------
executed and/or delivered, as the case may be, by the Person who or which is the
subject thereof:
(i) a certificate of the secretary of each Company, dated as of the
Closing Date, certifying (i) that true and complete copies of such
Company's Charter Documents as in effect on the Closing Date are attached
thereto, (ii) as to the incumbency and genuineness of the signatures of
each officer of such Person executing this Agreement and the Related
Documents on behalf of such Person; and (iii) the genuineness of the
resolutions (attached thereto) of the board of directors or similar
governing body of such Person authorizing the execution, delivery and
performance of this Agreement and the Related Documents to which such
Person is a party and the consummation of the transactions contemplated
hereby and thereby;
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<PAGE>
(ii) certificates dated within five days of the Closing Date of the
secretaries of state of the states in which each Company is organized and
qualified to do business dated as of the Closing Date, certifying as to the
good standing and non-delinquent tax status of such Company;
(iii) a certificate signed by the Seller, dated as of the Closing
Date, and certifying as to (A) the accuracy of the representations and
warranties of each Company and the Seller contained herein, as contemplated
by SECTION 9.2(A), and (B) the performance of the covenants of each
---------------
Company and the Seller contained herein, as contemplated in SECTION 9.2(B)
---------------
and
(iv) a certificate of a principal executive officer of each Company,
dated as of the Closing Date, certifying that such Company is not a foreign
person within the meaning of Section 1445 of the Code.
9.3 CONDITIONS TO OBLIGATIONS OF THE COMPANIES AND THE SELLER.
---------------------------------------------------------
The obligations of the Seller Group to consummate the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions unless waived (to the extent such conditions can be waived) by the
Seller Group:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and
------------------------------------------
warranties made by the Purchaser in this Agreement and the Related Documents
shall be true and correct in all material respects at and as of the Closing Date
with the same effect as if such warranties and representations had been made at
and as of the Closing Date, and the Seller Group shall have received a
certificate to that effect signed by a principal executive officer of the
Purchaser.
(b) PERFORMANCE OF OBLIGATIONS OF THE PURCHASER. The Purchaser shall have
-------------------------------------------
performed in all material respects all obligations and covenants required to be
performed by it under this Agreement and the Related Documents prior to or as of
the Closing Date and the Seller Group shall have received a certificate to that
effect signed by a principal executive officer of the Purchaser.
(c) AUTHORIZATION. All action necessary to authorize the execution, delivery
-------------
and performance of this Agreement and the Related Documents by the Purchaser and
the consummation of the transactions contemplated hereby and thereby, including
the requisite shareholder approvals (if any), shall have been duly and validly
taken and the Purchaser shall have full power and right to consummate the
transactions contemplated hereby and thereby on the terms provided herein.
(d) OPINION OF THE PURCHASER'S COUNSEL. The Seller Group shall have received
----------------------------------
an opinion of O'Sullivan Graev & Karabell, LLP, counsel for the Purchaser, dated
the Closing Date, substantially in the form of EXHIBIT E attached hereto.
---------
(e) CONSENTS AND APPROVALS. The Seller Group shall have received duly
----------------------
executed copies of all consents and approvals required for or in connection with
the execution and delivery by the Purchaser of this Agreement and each of the
Related Documents to which it
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<PAGE>
may be a party and the consummation of the transactions contemplated hereby and
thereby, in form and substance reasonably satisfactory to the Seller Group.
(f) RELATED DOCUMENTS. Each of the Related Documents to which the Purchaser
-----------------
is a party shall have been executed and/or delivered by the Purchaser and the
transactions contemplated thereby to be completed at or prior to the Closing
shall have been substantially consummated or effected, as the case may be, in
accordance with the terms thereof.
(g) PURCHASER CERTIFICATES. Each of the following certificates shall have
----------------------
been executed and/or delivered, as the case may be, by the Person who or which
is the subject thereof:
(i) a certificate of the secretary of Purchaser, dated as of the
Closing Date, certifying (A) that true and complete copies of Purchaser's
Charter Documents as in effect on the Closing Date are attached thereto,
(B) as to the incumbency and genuineness of the signatures of each officer
of such Person executing this Agreement and the Related Documents on behalf
of Purchaser; and (C) the genuineness of the resolutions (attached thereto)
of the board of directors or similar governing body of Purchaser
authorizing the execution, delivery and performance of this Agreement and
the Related Documents to which Purchaser is a party and the consummation of
the transactions contemplated hereby and thereby;
(ii) certificates dated within five days of the Closing Date of the
secretaries of state of the states in which Purchaser is organized dated as
of the Closing Date, certifying as to the good standing and non-delinquent
tax status of Purchaser and
(iii) a certificate signed by a principal executive officer of
Purchaser dated as of the Closing Date, and certifying as to (A) the
accuracy of the representations and warranties of the Purchaser contained
herein, as contemplated by SECTION 9.3(A) hereof and (B) the performance
---------------
of the covenants of the Purchaser contained herein, as contemplated in
SECTION 9.3(B) hereof.
---------------
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION GENERALLY; ETC.
-------------------------------
(a) Subject to the further provisions of this ARTICLE X, the Seller shall
---------
indemnify the Purchaser Indemnified Persons for, and hold each of them harmless
from and against, any and all Purchaser Losses arising from or in connection
with any of the following:
(i) the untruth, inaccuracy or breach of any representation or warranty
of any Company or the Seller contained herein or any certificate delivered
by any Company or the Seller in connection herewith at or before the
Closing (or any facts or circumstances constituting any such untruth,
inaccuracy or breach);
(ii) the breach of any agreement or covenant of any Company or the
Seller contained in this Agreement and
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<PAGE>
(iii) any and all Special Tax Losses.
(b) Subject to the further terms of this ARTICLE X, the Purchaser agrees to
---------
indemnify the Seller Indemnified Persons for, and hold each of them harmless
from and against, any and all Seller Losses arising from or in connection with
any of the following:
(i) the untruth, inaccuracy or breach of any representation or warranty
of Purchaser contained herein or any certificate delivered by the Purchaser
in connection herewith at or before the Closing (or any facts or
circumstances constituting any such untruth, inaccuracy or breach) and
(ii) the breach of any agreement or covenant of the Purchaser contained
in this Agreement.
10.2 ASSERTION OF CLAIMS.
---------------------
No claim shall be brought for a breach of a representation or warranty
under SECTION 10.1 hereof unless the Indemnified Persons, or any of them, at
-------------
any time prior to the applicable Survival Date, give the Indemnifying Persons
(a) written notice of the existence of any such claim, specifying the nature and
basis of such claim and the amount thereof, to the extent known or (b) written
notice pursuant to SECTION 10.3 of any Third Party Claim, the existence of
-------------
which might give rise to such a claim. Upon the giving of such written notice
as aforesaid, the Indemnified Persons, or any of them, shall have the right to
commence legal proceedings subsequent to the Survival Date for the enforcement
of their rights under SECTION 10.1.
-------------
10.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS.
----------------------------------------
The obligations and liabilities of an Indemnifying Person with respect
to Losses resulting from the assertion of liability by third parties (each, a
"THIRD PARTY CLAIM") shall be subject to the following terms and conditions:
- ------------------
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim which might give rise to any Loss
by the Indemnified Persons, stating the nature and basis of such Third Party
Claim, and the amount thereof to the extent known; provided, however, that no
-------- -------
delay on the part of the Indemnified Persons in notifying any Indemnifying
Persons shall relieve the Indemnifying Persons from any liability or obligation
hereunder unless (and then solely to the extent) the Indemnifying Person thereby
is prejudiced by the delay. Such notice shall be accompanied by copies of all
relevant documentation with respect to such Third Party Claim, including any
summons, complaint or other pleading which may have been served, any written
demand or any other document or instrument.
(b) If the Indemnifying Persons shall acknowledge in a writing delivered to
the Indemnified Persons that such Third Party Claim is properly subject to their
indemnification obligations hereunder, then the Indemnifying Persons shall have
the right to assume the defense of any Third Party Claim at their own expense
and by their own counsel, which counsel shall be reasonably satisfactory to the
Indemnified Persons; provided, however, that the Indemnifying Persons shall not
-------- -------
have the right to assume the defense of any Third Party Claim, notwithstanding
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<PAGE>
the giving of such written acknowledgment, if (i) the Indemnified Persons shall
have been advised by counsel that there are one or more legal or equitable
defenses available to them which are different from or in addition to those
available to the Indemnifying Persons, and, in the reasonable opinion of the
Indemnified Persons, counsel for the Indemnifying Persons could not adequately
represent the interests of the Indemnified Persons because such interests could
be in conflict with those of the Indemnifying Persons, (ii) such action or
proceeding involves, or could have a material effect on, any material matter
beyond the scope of the indemnification obligation of the Indemnifying Persons
or (iii) the Indemnifying Persons shall not have assumed the defense of the
Third Party Claim in a timely fashion.
(c) If the Indemnifying Persons shall assume the defense of a Third Party
Claim (under circumstances in which the proviso to the first sentence of SECTION
-------
10.3(B) is not applicable), the Indemnifying Persons shall not be responsible
- -------
for any legal or other defense costs subsequently incurred by the Indemnified
Persons in connection with the defense thereof. If the Indemnifying Persons do
not exercise their right to assume the defense of a Third Party Claim by giving
the written acknowledgment referred to in SECTION 10.3(B), or are otherwise
----------------
restricted from so assuming by the proviso to the first sentence of SECTION
--------
10.3(B), the Indemnifying Persons shall nevertheless be entitled to participate
- -------
in such defense with their own counsel and at their own expense. If the defense
of a Third Party Claim is assumed by the Indemnified Persons pursuant to clause
(i) or (ii) of the proviso to the first sentence of SECTION 10.3(B), the
----------------
Indemnified Persons shall not be entitled to settle such Third Party Claim
without the prior written consent of the Indemnifying Persons, which consent
shall not be unreasonably withheld or delayed.
(d) If the Indemnifying Persons exercise their right to assume the defense of
a Third Party Claim pursuant to clause (i) or (ii) of SECTION 10.3(B), (i) the
---------------
Indemnified Persons shall be entitled to participate in such defense with their
own counsel at their own expense and (ii) the Indemnifying Persons shall not
make any settlement of any claims without the written consent of the Indemnified
Persons, which consent shall not be unreasonably withheld or delayed.
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
----------------------------------------------
(a) Subject to the further provisions of this SECTION 10.4, the
-------------
representations and warranties of the Seller contained in this Agreement or in
any certificate or other writing delivered in connection with this Agreement
shall survive the Closing until March 31, 2000; provided, however, that the
-------- -------
representations and warranties contained in ARTICLE V, SECTIONS 6.1 THROUGH 6.5
--------- ------------------------
and SECTION 6.10 shall survive indefinitely and the representations and
------------
warranties contained in SECTIONS 6.9, 6.15, 6.18 and 6.19 shall survive the
-------------- ---- ---- ----
Closing Date until the expiration of the applicable statutes of limitations for
claims applicable to the matters covered thereby. The covenants and other
agreements of the Seller contained in this Agreement shall survive the Closing
Date until they are otherwise terminated by their terms. Subject to the further
provisions of this SECTION 10.4 the representations and warranties of the
------------
Purchaser contained in this Agreement or in any certificate or other writing
delivered in connection with this Agreement shall survive the Closing until
March 31, 2000. The covenants and other agreements of the Purchaser contained
in this Agreement shall survive the Closing Date until they are other wise
terminated by their terms. For convenience of reference, the date upon which
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<PAGE>
any representation or warranty contained herein shall terminate, if any, is
referred to herein as the "SURVIVAL DATE".
-------------
(b) From and after the Closing, the Seller shall have no recourse against any
Company for any breach of any representation, warranty, covenant or agreement of
any Company set forth in this Agreement or in any certificate or other writing
delivered in connection with this Agreement.
10.5 LIMITATIONS ON INDEMNIFICATION.
------------------------------
(a) INDEMNITY BASKETS FOR THE SELLERS. From and after the Closing, the
---------------------------------
Purchaser Indemnified Persons shall not have the right to be indemnified for
breaches of representations and warranties of the Seller pursuant to SECTION
-------
10.1(A)(I) unless and until the Purchaser Indemnified Persons (or any member
- ----------
thereof) shall have incurred on a cumulative basis aggregate Losses in an amount
exceeding (and then only to the extent exceeding) $100,000; provided, however,
-------- -------
that in no event shall the limitations set forth in this SECTION 10.5(A) apply
----------------
with respect to the representations and warranties set forth in ARTICLE V and in
---------
SECTIONS 6.1, 6.2, 6.3, 6.4, 6.5, 6.9 (with respect to Income Taxes only) and
- --------------------------------------
6.20 (collectively, the "Excluded Seller Representations") and willful breaches.
- ---- -------------------------------
(b) INDEMNITY LIMITATIONS FOR THE SELLER. From and after the Closing, the
------------------------------------
sum of all Losses pursuant to which indemnification is payable by the Seller
Indemnified Persons pursuant to SECTION 10.1(A)(I) with respect to the
------------------
representations and warranties of the Seller set forth in ARTICLE VI (other than
----------
the Excluded Sellers Representations) shall not exceed $5,700,000; provided,
--------
however, that in no event shall the limitations set forth in this SECTION
- ------- --------
10.5(B) apply with respect to any willful breach of any of the foregoing
- -------
representations and warranties.
(c) The Indemnified Persons shall use commercially reasonable efforts to
mitigate any Losses for which they are entitled to indemnification pursuant to
this ARTICLE X.
---------
10.6 SATISFACTION OF INDEMNIFICATION OBLIGATIONS OF THE SELLER INDEMNIFYING
----------------------------------------------------------------------
PERSONS.
- -------
The obligations of the Seller Indemnifying Persons pursuant to SECTION
-------
10.1 to indemnify the Purchaser Indemnified Persons for Purchaser Losses arising
- ----
from or in connection with the matters described in SECTION 10.1 shall be
------------
satisfied in the following manner: (i) an amount equal to one-half of each such
Purchaser Loss shall be paid in cash by the Seller Indemnifying Persons to the
Purchaser Indemnified Persons by wire transfer of immediately available funds to
an account specified by the Purchaser and (ii) an amount equal to one-half of
each such Purchaser Loss shall be paid by the surrender to the Purchaser for no
consideration of that number of Pacer Shares having an aggregate value on the
Closing Date equal to such amount (unless all of the Pacer Shares have been
surrendered, at which time all Purchaser Losses shall be satisfied in full by
cash payment in the manner provided in CLAUSE (I) of this sentence), it being
----------
agreed that solely for purposes of this SECTION 10.6 on the Closing Date the
------------
aggregate value of the Pacer Shares is $5,700,000 and the per share value of the
Pacer Shares is $100 per share (subject to proportionate adjustment after the
Closing for stock splits, stock dividends, reverse
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<PAGE>
stock splits or combinations and other similar pro rata recapitalization events
affecting the Pacer Common Stock).
10.7 COOPERATION REGARDING TAX PROCEEDINGS.
-------------------------------------
(a) The Purchaser, on the one hand, and the Seller, on the other hand, shall
promptly notify the other party upon becoming aware of the assertion of any
claim (a "Tax Claim") with respect to Taxes paid or payable by any Company for
---------
which the Purchaser Indemnified Persons may seek indemnity hereunder; provided,
--------
however, that no delay on the part of either party in so notifying the other
- -------
party shall relieve the other party from any liability or obligation hereunder
unless (and then solely to the extent) that the other party is prejudiced by
such delay. Such notice shall be accompanied by copies of all relevant
documentation with respect to such Tax Claim and, to the extent then known to
the party so obligated to provide such notice, the action that such party in
good faith intends to take with respect to such Tax Claim, but such party shall
not thereby be restricted from taking other or different action.
(b) If the Seller shall acknowledge in a writing delivered to the Purchaser
that such Tax Claim is properly subject to its indemnification obligations
hereunder and the Seller shall have the financial resources to meet such
indemnification obligations, then subject to the further provisions of this
SECTION 10.7, the Seller shall have the right to assume the defense of such Tax
- ------------
Claim at his own expense and by his own counsel and other advisers, which
counsel and other advisors shall be reasonably satisfactory to the Purchaser
Indemnified Persons; provided, however, that the Seller shall not have the right
-------- -------
to assume the defense of any Tax Claim, notwithstanding the giving of such
written acknowledgment, if such Tax Claim involves, or could have a material
effect on, any material matter beyond the scope of the indemnification
obligations of the Seller or the Seller shall not have assumed the defense of
such Tax Claim in a timely fashion.
(c) If the Seller shall assume the defense of a Tax Claim pursuant to and in
accordance with SECTION 10.7(B), the Seller shall not be responsible for any
---------------
legal or other defense costs subsequently incurred by the Purchaser Indemnified
Persons in connection with the defense thereof. If the Seller does not exercise
his right to assume the defense of a Tax Claim or is otherwise restricted from
doing so pursuant to SECTION 10.7(B), the Seller shall nevertheless be entitled
---------------
to participate in such defense with his own counsel and other advisors and at
their own expense. If the defense of a Tax Claim is retained by a Purchaser
Indemnified Person, the Purchaser Indemnified Persons shall not be entitled to
settle such Tax Claim without the prior written consent of the Seller, which
consent shall not be unreasonably withheld, delayed or conditioned.
(d) If the Seller exercises his right to assume the defense of a Tax Claim
pursuant to and in accordance with SECTION 10.7(B), (i) the Purchaser
---------------
Indemnified Persons shall be entitled to participate in such defense with their
own counsel and other advisors at their own expense and (ii) the Seller shall
not make any settlement of such Tax Claim without the written consent of the
Purchaser Indemnified Persons, which consent shall not be unreasonably withheld,
delayed or conditioned.
-40-
<PAGE>
(e) Anything contained in this SECTION 10.7 to the contrary notwithstanding,
------------
if the Purchaser Indemnified Persons (or any of them) or the Seller elect to pay
any Tax asserted by a Tax Claim, such party nevertheless shall not do so for at
least thirty (30) days after the date of its notice to the other party hereunder
(or such shorter period as may be required by law or by prudent practice) in
order to permit the other party to inform the former of the other party's views
as to the merits of such Tax Claim. The Seller, on the one hand, and the
Purchaser Indemnified Persons, on the other hand, shall use commercially
reasonable efforts to resist an assertion of Taxes with respect to which the
Seller is obligated to indemnify the Purchaser Indemnified Persons but shall not
be required to contest any such assertion if the other party consents. Such
other party shall give its consent if (i) there would not be a reasonable
probability of having such Tax Claim declared to be incorrect by a court if the
matter were fully litigated, or (ii) the Purchaser Indemnified Persons
reasonably would agree to such claim if the Purchaser Indemnified Persons were
not indemnified for such Tax Claim, taking into account the collateral effects
of such Tax Claim. If the Seller, on the one hand, and the Purchaser
Indemnified Persons, on the other hand, are unable to resolve any dispute
regarding the application of the principles of this SECTION 10.7(E), the matter
---------------
shall be referred for determination as promptly as possible to the Independent
Accounting Firm, whose determination shall be binding on the parties in the
absence of fraud.
(f) For purposes of this SECTION 10.7(A) and to the extent permitted by law,
---------------
a Purchaser Indemnified Person may contest a Tax Claim either by contesting the
imposition of such Tax prior to payment or by paying the Tax and pursuing
appropriate procedures for obtaining a refund. If the Purchaser Indemnified
Person elects the latter course, the Seller shall indemnify the Purchaser
Indemnified Persons (but only to the extent they are required to do so under the
applicable provisions of this ARTICLE 10) promptly after the Purchaser
----------
Indemnified Person's payment of the Tax, and if a refund subsequently is
obtained, the Purchaser Indemnified Person shall turn over to the Seller the
amount of Tax (but not interest) refunded, up to the amount of the
indemnification payment actually made by the Seller to the Purchaser Indemnified
Persons, together with interest on such refund of Tax from the date the Seller
made such indemnification payment, at the rates in effect from time to time
under Section 6621(a)(1) of the Code.
(g) During the course of any Proceeding regarding any Tax Claim, the
Purchaser Indemnified Persons and the Seller will cooperate and consult with
each other from time to time in good faith regarding the defense of such Tax
Claim. Each of the Purchaser Indemnified Persons, on the one hand, and the
Seller, on the other hand, will afford the other and its attorneys and other
advisors reasonable access to all documents and other materials pertaining to
such Tax Claim and the defense thereof.
ARTICLE XI
TERMINATION; EFFECT OF TERMINATION
----------------------------------
11.1 TERMINATION.
-----------
This Agreement may be terminated at any time prior to the Closing by:
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<PAGE>
(i) the mutual consent of the Purchaser and the Seller; or
(ii) the Purchaser, if there has been a breach by any Company or the
Seller of any representation, warranty, covenant or agreement set forth in
this Agreement which is material and which such Company or the Seller fails
to cure within twenty (20) Business Days after notice thereof is given by
the Purchaser (except no cure period shall be provided for a breach by any
Company or the Seller which by its nature cannot be cured); or
(iii) the Seller, if there has been a breach by the Purchaser of any
representation, warranty, covenant or agreement set forth in this Agreement
which is material and which the Purchaser fails to cure within twenty (20)
Business Days after notice thereof is given by the Seller (except no cure
period shall be provided for a breach by the Purchaser which by its nature
cannot be cured); or
(iv) the Purchaser, if the conditions set forth in SECTIONS 9.1 OR 9.2
-------------------
shall not have been satisfied or waived by the Purchaser by June 15, 1998;
or
(v) the Seller, if the conditions set forth in SECTIONS 9.1 OR 9.3
--------------------
shall not have been satisfied or waived by the Seller by June 15, 1998; or
(vi) the Purchaser or the Seller if any permanent injunction or other
Order of a court or other competent authority preventing the Closing shall
have become final and non-appealable;
provided, however, that neither the Purchaser nor the Seller shall be entitled
- -------- -------
to terminate this Agreement pursuant to CLAUSE (IV) or CLAUSE (V) of this
----------- ----------
SECTION 11.1 if such party's intentional breach (or, with respect to such
- -------------
termination by the Seller, any Company's intentional breach) of this Agreement
has prevented the satisfaction of any such condition. Any termination pursuant
to CLAUSE (I) of SECTION 11.1 shall be effected by a written instrument signed
---------- -------------
by the Purchaser and the Seller, and any termination pursuant to this SECTION
--------
11.1 (other than a termination pursuant to CLAUSE (I) of SECTION 11.1) shall be
- ---- ---------- -------------
effected by written notice from the party or parties so terminating to the other
parties hereto, which notice shall specify the Section of this Agreement
pursuant to which this Agreement is being terminated.
11.2 EFFECT OF TERMINATION.
---------------------
In the event of the termination of this Agreement as provided in
SECTION 11.1, this Agreement shall be of no further force or effect, except for
- -------------
this SECTION 11.2 and SECTION 12, each of which shall survive the termination
------------- -----------
of this Agreement; provided, however, that the Liability of any party for any
-------- -------
breach by such party of the representations, warranties, covenants or agreements
of such party set forth in this Agreement occurring prior to the termination of
this Agreement shall survive the termination of this Agreement and, in addition,
in the event of any action for breach of contract in the event of a termination
of this Agreement, the prevailing party shall be reimbursed by the other party
to the action for reasonable attorneys' fees and expenses relating to such
action.
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<PAGE>
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 AMENDMENT.
---------
This Agreement may not be altered or otherwise amended except pursuant
to an instrument in writing signed by each party, except that any party may
waive any obligation owed to it by another party under this Agreement. No
waiver by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
12.2 ENTIRE AGREEMENT.
-----------------
This Agreement and the other agreements and documents referenced
herein (including, but not limited to, the schedules and the exhibits (in their
executed form) attached hereto) and any other document or agreement
contemporaneously entered into this Agreement contain all of the agreements
among the parties hereto with respect to the transactions contemplated hereby
and supersede all prior agreements or understandings among the parties with
respect thereto (including the Letter of Intent dated as of April 3, 1998, among
Seller Group and the Purchaser).
12.3 SEVERABILITY.
- ---- ------------
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the Law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
12.4 BENEFITS OF AGREEMENT.
---------------------
All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns. Except as expressly provided herein, this Agreement shall
not confer any rights or remedies upon any Person other than the foregoing.
Notwithstanding anything contained herein to the contrary, this Agreement shall
not be assignable by the Seller, or any Company prior to the Closing, without
the express, written consent of the Purchaser. The Purchaser may, without the
consent of any other party hereto, (i) assign any or all of its rights and
interests hereunder to one or more of its wholly-owned Affiliates and designate
one or more of its wholly-owned Affiliates to perform its obligations hereunder
and (ii) assign any or all of its rights and interests hereunder as security for
any obligations arising in connection with the financing of the transactions
contemplated hereby,
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<PAGE>
in any or all of which cases the Purchaser nonetheless shall remain responsible
for the performance.
12.5 EXPENSES.
--------
Except as otherwise provided in this Agreement, the Purchaser on the
one hand and the Seller on the other hand shall each bear their own expenses
(with the Seller bearing the expenses of each Company) incurred in connection
with this Agreement and the Related Documents (including the legal and due
diligence fees, costs and expenses incurred by such party). If the Closing
occurs, the Purchaser shall pay to EOS Management, Inc., a transaction fee of
not more than $40,000. The Purchaser shall pay the fees and expenses of Arthur
Andersen LLP in connection with their audit of the Annual Financial Statements.
12.6 REMEDIES.
--------
The parties shall each have and retain all rights and remedies
existing in their favor under this Agreement, at law or in equity, including
rights to bring actions for specific performance and injunctive and other
equitable relief (including the remedy of rescission) to enforce or prevent a
breach or violation of any provision of this Agreement. All such rights and
remedies shall, to the extent permitted by applicable Law, be cumulative and a
party's pursuit of any such right or remedy shall not preclude such party from
exercising or pursuing any other available right or remedy.
12.7 NOTICES.
-------
All notices or other communications pursuant to this Agreement shall
be in writing and shall be deemed to be sufficient if delivered personally,
telecopied, sent by nationally-recognized, overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to the Seller, or any Company prior to the Closing, to:
Richard P. Hyland
President
Cross Con Terminals, Inc.
11260 Southwest Highway
Palos Hills, IL 60465
Telephone No.: (708) 974-1660
Facsimile No.: (708) 974-0364
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<PAGE>
with a copy to:
Pembroke and Brown, P.C.
Suite 150
422 N. Northwest Highway
Park Ridge, IL 60068
Attention: John Pembroke, Esq.
Telephone No.: 847-696-0060
Facsimile No.: 847-696-0950
(b) if to the Purchaser or, after the Closing, any Company, to:
Pacer International, Inc.
3746 Mt. Diablo Boulevard
Suite 110
Lafayette, CA 94549
Attention: President
Telephone No.: (925) 284-7145
Facsimile No.: (925) 283-1938
With a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
24th Floor
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telephone No.: (212) 480-2432
Facsimile No.: (212) 728-5950
All such notices and other communications shall be deemed to have been given and
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of delivery by telecopy, on the date of such delivery, (iii)
in the case of delivery by nationally-recognized, overnight courier, on the
Business Day following dispatch, and (iv) in the case of mailing, on the third
Business Day following such mailing.
12.8 COUNTERPARTS.
------------
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement.
12.9 GOVERNING LAW.
--------------
(a) THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY
OTHER
-45-
<PAGE>
JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
OF NEW YORK TO BE APPLIED.
(b) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY RELATED DOCUMENT.
12.10 INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES.
------------------------------------------------------------
All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached shall not affect the incorrectness of or a breach
of a representation and warranty hereunder.
12.11 INTERPRETATION; CONSTRUCTION.
----------------------------
The term "AGREEMENT" means this agreement together with all schedules
---------
and exhibits hereto, as the same may from time to time be amended, modified,
supplemented or restated in accordance with the terms hereof. In this
Agreement, the term "BEST KNOWLEDGE" of any Person means (i) the actual
--------------
knowledge of such Person and (ii) that knowledge which should have been
acquired by such Person after making such due inquiry and exercising such due
diligence as a prudent businessperson would have made or exercised in the
management of his or her business affairs, including due inquiry of those
officers, directors, key employees and professional advisers (including
attorneys, accountants and consultants) of the Person who could reasonably be
expected to have actual knowledge of the matters in question. The use in this
Agreement of the term "including" means "including, without limitation." The
words "herein", "hereof", "hereunder", "hereby", "hereto", "hereinafter", and
other words of similar import refer to this Agreement as a whole, including the
schedules and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular article, section,
subsection, paragraph, subparagraph or clause contained in this Agreement. All
references to articles, sections, subsections, clauses, paragraphs, schedules
and exhibits mean such provisions of this Agreement and the schedules and
exhibits attached to this Agreement, except where otherwise stated. The title
of and the article, section and paragraph headings in this Agreement are for
convenience of reference only and shall not govern or affect the interpretation
of any of the terms or provisions of this Agreement. The use herein of the
masculine, feminine or neuter forms shall also denote the other forms, as in
each case the context may require. Where specific language is used to clarify
by example a general statement contained herein, such specific language shall
not be deemed to modify, limit or restrict in any manner the construction of the
general statement to which it relates. The language used in this Agreement has
been chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party. Accounting terms used but not
otherwise defined herein shall have the meanings given to them under GAAP.
Unless expressly provided otherwise, the measure of a
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<PAGE>
period of one month or year for purposes of this Agreement shall be that date of
the following month or year corresponding to the starting date, provided that if
no corresponding date exists, the measure shall be that date of the following
month or year corresponding to the next day following the starting date. For
example, one month following February 18 is March 18, and one month following
March 31 is May 1.
* * * * *
-47-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as of the date first written above.
THE PURCHASER:
-------------
PACER INTERNATIONAL, INC.
/s/ Donald C. Orris
By: _________________________________
Name: Donald C. Orris
Title: President and CEO
THE COMPANIES:
-------------
CROSS CON TERMINALS, INC.
/s/ Richard P. Hyland
By: _________________________________
Name: Richard P. Hyland
Title: President
CROSS CON TRANSPORT, INC.
/s/ Richard P. Hyland
By: _________________________________
Name: Richard P. Hyland
Title: President
THE SELLER:
----------
/s/ Richard P. Hyland
______________________________________
Richard P. Hyland
<PAGE>
ANNEX I
CERTAIN DEFINITIONS
-------------------
"ACQUISITION PROPOSAL" means any offer, proposal or indication of
--------------------
interest in (i) the direct or indirect acquisition of all or any material part
of any of the Companies or their subsidiaries, (ii) a merger, consolidation or
other business combination directly or indirectly involving any of the Companies
or their subsidiaries or (iii) the direct or indirect acquisition of any capital
stock of any of the Companies or their subsidiaries.
"AFFILIATE" means, with respect to any Person, (i) a director,
---------
officer or shareholder of such Person, (ii) a spouse, parent, sibling or
descendant of such Person (or spouse, parent, sibling or descendant of any
director or executive officer of such Person), and (iii) any other Person that,
directly or indirectly through one or more intermediaries, Controls, or is
Controlled by, or is under common Control with, such Person.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or a day
------------
on which banking institutions in New York, New York are not required to be open.
"CAPITAL LEASE" means any obligation to pay rent or other amounts
-------------
under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such
Person as of such date computed in accordance with GAAP.
"CHARTER DOCUMENTS" means, as to any corporation, the articles,
-----------------
certificate or memorandum of incorporation or association of such corporation,
the by-laws of such corporation, and each other instrument or other document
governing such corporation's existence and internal affairs, in each case as
amended and restated and in effect at the time in question.
"CONTRACT" means any loan or credit agreement, note, bond, mortgage,
--------
indenture, lease, sublease, purchase order or other agreement, commitment,
instrument, permit, concession, franchise or license.
"CONTROL" means, with respect to any Person, the possession, directly
-------
or indirectly, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.
"EBIT" shall have the meaning provided for on ANNEX III of this
---- ---------
Agreement.
"EMPLOYEE BENEFIT PLAN" means (i) any qualified or non-qualified
---------------------
Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA), including
any Multiemployer Plan or Multiple Employer Plan, (ii) any Employee Welfare
Benefit Plan (as defined in Section 3(1) of ERISA), or (iii) any employee
benefit, fringe benefit,
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<PAGE>
compensation, severance, incentive, bonus, profit-sharing, stock option, stock
purchase or other plan, program or arrangement, whether or not subject to ERISA
and whether or not funded.
"ENCUMBRANCES" shall mean and include security interests, mortgages,
------------
liens, pledges, charges, easements, reservations, restrictions, rights of way,
servitudes, options, rights of first refusal, community property interests,
equitable interests, restrictions of any kind and all other encumbrances,
whether or not relating to the extension of credit or the borrowing of money.
"ENVIRONMENTAL, HEALTH AND SAFETY LAWS" means all Laws, Permits,
-------------------------------------
Orders and Contracts and all common law relating to or addressing pollution or
protection of the environment, public health and safety, or employee health and
safety, including, but not limited to, all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, each as amended and as now or hereafter in
effect.
"ERISA AFFILIATE" means, with respect to any Person, any other Person
---------------
that is a member of a "controlled group of corporations" with, or is under
--------------------------------
"common control" with, or is a member of the same "affiliated service group"
- --------------- ------------------------
with such Person as defined in Section 414(b), 414(c), or 414(m) or 414(o) of
the Code.
"FUNDED INDEBTEDNESS" means, without duplication, the aggregate amount
-------------------
(including the current portions thereof) of all (i) indebtedness for money
borrowed from others (including any prepayment and similar penalties) and
purchase money indebtedness (other than accounts payable in the ordinary
course); (ii) indebtedness of the type described in clause (i) above
guaranteed, directly or indirectly, in any manner by any Company or in effect
guaranteed, directly or indirectly, in any manner by any Company through an
agreement, contingent or otherwise, to supply funds to, or in any other manner
invest in, the debtor, or to purchase indebtedness, or to purchase and pay for
property if not delivered or pay for services if not performed, primarily for
the purpose of enabling the debtor to make payment of the indebtedness or to
assure the owners of the indebtedness against loss (any such arrangement being
hereinafter referred to as a "GUARANTY") (but the term "Guaranty" shall exclude
--------
endorsements of checks and other instruments in the ordinary course); (iii) all
indebtedness of the type described in clause (i) above secured by any
Encumbrance upon property owned by any Company even though such Company has not
in any manner become liable for the payment of such indebtedness; (iv) Capital
Leases and (v) all interest expense and other charges accrued but unpaid, and
all prepayment premiums, on or relating to any of such indebtedness. Funded
Indebtedness of each Company as of the date hereof is set forth on SCHEDULE
---------
6.13 hereof.
- ----
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<PAGE>
"GAAP" means generally accepted accounting principles in the United
States as promulgated by the AICPA applied on a basis consistent with the
preparation of the Audited Financial Statements.
"GOVERNMENTAL ENTITY" means any governmental authority or
-------------------
instrumentality, whether Federal, state, local or foreign and whether
legislative, executive, judicial or otherwise.
"INCOME TAXES" means all income taxes (including any tax on or based
------------
upon net income, gross income, income as specially defined, earnings, profits or
selected items of income, earnings or profits (including state taxes imposed on
subchapter S corporations)).
"INDEMNIFIED PERSONS" means and includes the Seller Indemnified
-------------------
Persons and/or the Purchaser Indemnified Persons, as the case may be.
"INDEMNIFYING PERSONS" means and includes the Seller Indemnifying
--------------------
Persons and/or the Purchaser Indemnifying Persons, as the case may be.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual property rights,
----------------------------
including, patents, patent applications, trademarks, trademark applications,
trade names, service marks, service mark applications, trade dress, logos and
designs and the goodwill connected with the foregoing, copyrights and copyright
applications, know-how, trade secrets, proprietary processes and formulae,
confidential information, franchises, licenses, inventions, instructions,
marketing materials and all documentation and media constituting, describing or
relating to the foregoing, including, manuals, memoranda and records.
"LAW" means any applicable foreign, federal, state or local law,
---
statute, treaty, rule, directive, regulation, ordinances and similar provisions
having the force or effect of law or an Order of any Governmental Entity
(including all Environmental, Health and Safety Laws).
"LIABILITY" means any actual or potential liability or obligation,
---------
whether known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated and whether due or to become
due, regardless of when asserted.
"LITIGATION EXPENSE" means any out-of-pocket expenses incurred in
------------------
connection with investigating, defending or asserting any claim, legal or
administrative action, suit or Proceeding incident to any matter indemnified
against hereunder including, court filing fees, court costs, arbitration fees or
costs, witness fees and fees and disbursements of outside legal counsel,
investigators, expert witnesses, accountants and other professionals.
"LOSSES" means any and all losses (including a diminution in the value
------
of any Company's capital stock), claims, shortages, damages, expenses (including
reasonable attorneys' and accountants' and other professionals' fees and
Litigation
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<PAGE>
Expenses), assessments, Taxes (including interest or penalties thereon) and
insurance premium increases arising from or in connection with any such matter
that is the subject of indemnification under ARTICLE X.
---------
"ORDERS" means judgments, writs, decrees, compliance agreements,
------
injunctions or judicial or administrative orders and determinations of any
Governmental Entity or arbitrator.
"PERMITS" means all permits, licenses, authorizations, registrations,
-------
franchises, approvals, consents, certificates, variances and similar rights
obtained, or required to be obtained, from Governmental Entities.
"PERMITTED ENCUMBRANCES" means (i) Encumbrances for Taxes not yet due
----------------------
and payable or being contested in good faith by appropriate proceedings and for
which there are adequate reserves on the books, (ii) workers or unemployment
compensation liens arising in the ordinary course of business; and (iii)
mechanic's, materialman's, supplier's, vendor's or similar liens arising in the
ordinary course of business securing amounts that are not delinquent.
"PERSON" shall be construed broadly and shall include an individual,
------
a partnership, a corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization or
a governmental entity (or any department, agency or political subdivision
thereof).
"PROCEEDINGS" means any action, suit, investigation or proceedings
-----------
before any Governmental Entity or arbitrator.
"PURCHASER INDEMNIFIED PERSONS" means and includes the Purchaser and
-----------------------------
its subsidiaries (including, following the Closing, each Company), their
respective successors and assigns, and the respective officers, directors and
controlling parties of each of the foregoing; provided, however, that any such
-------- -------
Person who was, prior to the Closing Date, an officer, director, employee,
Affiliate, successor or assign of any Company or the Seller shall not in such
capacity, be a Purchaser Indemnified Person with respect to a breach of this
Agreement or any Related Document based on facts or circumstances occurring, or
actions taken by such Person, at or prior to the Closing.
"PURCHASER INDEMNIFYING PERSONS" means the Purchaser and its
------------------------------
successors.
"PURCHASER LOSSES" means any and all Losses sustained, suffered or
----------------
incurred by any Purchaser Indemnified Person arising from or in connection with
any such matter which is the subject of indemnification under ARTICLE X.
---------
"SECURITIES" means "SECURITIES" as defined in SECTION 2(1) of the
---------- ---------- -------------
Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
--------------
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<PAGE>
"SELLER INDEMNIFIED PERSONS" means and includes the Seller and his
--------------------------
respective personal representatives, estates and heirs.
"SELLER INDEMNIFYING PERSONS" means and includes the Seller and his
---------------------------
respective personal representatives, estates and heirs.
"SELLER LOSSES" shall mean any and all Losses sustained, suffered or
-------------
incurred by any Seller Indemnified Person arising from or in connection with any
matter which is the subject of indemnification under ARTICLE X.
---------
"SPECIAL TAX LOSSES" means any and all Losses sustained, suffered or
------------------
incurred by any Purchaser Indemnified Person arising from or in connection with
Taxes payable by any Company or Affiliate thereof with respect to period ending
or prior to the Closing Date or the untruth, inaccuracy or breach of the
representations and warranties of any Company or the Seller contained in SECTION
-------
6.9 that relate to or arise out of any compensation, dividends, distributions or
- ---
other payments made by any Company or Affiliate thereof to the Seller any former
shareholder of any Company or Affiliate thereof or any officer of any Company or
Affiliate thereof.
"TAX RETURN" means any return, declaration, report, claim for refund,
----------
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TAXES" means, with respect to any Person, (i) all Income Taxes and
-----
all gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties and other taxes, fees, assessments or charges of any kind whatsoever,
together with all interest and penalties, additions to tax and other additional
amounts imposed by any taxing authority (domestic or foreign) on such Person (if
any) and (ii) any liability for the payment of any amount of the type described
in CLAUSE (I) above as a result of (A) being a "transferee" (within the
----------- ----------
meaning of Section 6901 of the Code or any other applicable Law) of another
Person, (B) being a member of an affiliated, combined or consolidated group or
(C) a contractual arrangement or otherwise.
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<PAGE>
ANNEX II
ADDITIONAL AMOUNT
"Additional Amount" shall mean the amount equal to the sum of (i) the
difference between (x) the combined net income of the Companies for the period
from (and including) January 1, 1998, through (and including) May 31, 1998, as
set forth on, and calculated in accordance with, the Closing Income Statement,
less (y) $263,098 plus (ii) interest on such amount in clause (i) at the rate of
- ---- ----
8 percent per annum, calculated on a per diem basis from (and including) June 1,
1998, through (but excluding) the Closing Date (assuming a year of 365 days).
For the purpose of the above calculation, net income will not take into account
adjustments made to prior periods, including write-downs of accounts payable.
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<PAGE>
ANNEX III
CONTINGENT PAYMENT
As used in this Agreement, the term "EBIT" shall mean, with respect to
----
the fiscal year of the Companies commencing January 1, 1998, and ending December
31, 1998, the "Income from Operations" as set forth on, and calculated in
accordance with, the audited combined statement of operations of the Companies
for the fiscal year of the Companies ending December 31, 1998, which shall be
prepared in accordance with GAAP applied on a basis consistent with the
preparation of the Annual Financial Statements, subject to the following
exceptions: (i) EBIT shall not include any reduction for interest expense
incurred by or allocated to the Companies for such fiscal year; (ii) insurance
expense shall remain at historical levels, even if insurance is changed to Pacer
International, Inc. policies; and (iii) EBIT will not be reduced or increased by
any (A) extraordinary gains or losses determined in accordance with GAAP or
adjustments made to periods including prior to January 1, 1998, including write-
downs of accounts payable or (B) without limiting any other provision of this
Agreement, amortization of goodwill resulting from the transactions contemplated
hereby.
III-1
<PAGE>
EXHIBIT 10.25
PACER INTERNATIONAL, INC.
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CA 94549
June 5, 1998
Richard P. Hyland
Cross Con Terminals, Inc.
Cross Con Transport, Inc.
11260 Southwest Highway
Palos Hills, IL 60465
Stock Purchase Agreement dated as of May 29, 1998
(the "Agreement"), among Pacer International, Inc.,
Cross Con Terminals, Inc., Cross Con Transport, Inc., and Richard P. Hyland
---------------------------------------------------------------------------
Gentlemen:
This letter will serve to set forth our agreement regarding the
following amendments to the Agreement. Accordingly, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Agreement is hereby amended as follows:
(a) Capitalized terms used and not defined herein have the meanings
given to them in the Agreement.
(b) Clause (i) of the second sentence of Section 1.2 of the Agreement
is amended and restated in its entirety to read as follows:
"(i) the sum of (A) $9,600,000, plus (B) interest on $9,600,000 at
----
the rate of 8% per annum, calculated on a per diem basis from and
including May 31, 1998, through but excluding the Closing Date
(assuming a year of 365 days),"
(c) Clause (i) of the first sentence of Section 1.3(a) of the
Agreement is amended and restated in its entirety to read as follows:
"(i) the sum of (A) $9,600,000, plus (B) interest on $9,600,000 at
----
the rate of 8% per annum, calculated on a per diem basis from and
including May 31, 1998, through but excluding the Closing Date
(assuming a year of 365 days),"
(d) Clause (B) of the second sentence of Section 1.3(a) of the
Agreement is amended by changing the reference therein to "June 1, 1998" to read
"May 31, 1998."
(e) Schedule 5.2 is amended and restated in its entirety to read
"None."
<PAGE>
Richard P. Hyland
Cross Con Terminals, Inc.
Cross Con Transport, Inc.
11260 Southwest Highway
Palos Hills, IL 60465
Page 2
(f) Schedule 6.15 is amended and restated in its entirety to read as
follows:
"Interstate Commerce Commission Permit No. MC 263523, with a service
date of 8/26/93, issued to Cross Con Transport, Inc.
"Interstate Commerce Commission License No. MC 157393 Sub 1, with a
service date of 11/13/94, issued to Cross Con Terminals, Inc."
(g) Schedule 6.7 is amended by adding thereto the following:
"See items 2 and 4 on Schedule 6.14(a)."
(h) Schedule 6.16(b) is amended and restated in its entirety to read
as follows:
"See item 4 on Schedule 6.14(a)."
The parties agree that the Closing Payment to be paid pursuant to
Section 1.3 is $10,473,367.
Please acknowledge your agreement with the foregoing by signing this
letter where provided below, whereupon it shall become a binding agreement
between us.
PACER INTERNATIONAL, INC.
By /s/ Lawrence Yarberry
------------------------------------
Name: Lawrence Yarberry
Title: Executive Vice President & CFO
Accepted and Agreed as of the date written above:
CROSS CON TERMINALS, INC.
By:/s/ Richard P. Hyland
----------------------------
Richard P. Hyland
President
CROSS CON TRANSPORT, INC.
By:/s/ Richard P. Hyland
----------------------------
Richard P. Hyland
President
/s/ Richard P. Hyland
- -------------------------------
Richard P. Hyland
<PAGE>
EXHIBIT 10.26
EXECUTION COPY
UNDIVIDED ASSIGNMENT AND ASSUMPTION AGREEMENT
---------------------------------------------
This UNDIVIDED ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), dated
---------
as of June 5, 1998, is entered into by and between Pacer International, Inc., a
Delaware corporation (the "Assignor"), and Cross Con Acquisition Corp., a
--------
Delaware corporation and wholly owned subsidiary of the Assignor (the
"Assignee")
--------
WHEREAS, on or prior to the date hereof, the Assignor executed and delivered
that certain Stock Purchase Agreement dated as of May 29, 1998 by and among the
Assignor, Cross Con Terminals, Inc., a Delaware corporation ("Terminals"), Cross
---------
Con Transport, Inc., an Illinois corporation ("Transport"; and together with
---------
Terminals, the "Companies"), and Richard Hyland (the "Seller") (as the same may,
------
from time to time, be amended, restated , supplemented or otherwise modified,
the "Stock Purchase Agreement");
------------------------
WHEREAS, pursuant to the terms and conditions of the Stock Purchase Agreement,
the Assignor has the right to purchase from the seller, and the seller has
agreed to sell to the Assignor, all of the shares of outstanding capital stock
of the Companies; and
WHEREAS, pursuant to (S)(S) 12.4 of the Stock Purchase Agreement, the Assignor
may assign any or all of its rights and interests under the Stock Purchase
Agreement to one or more of its wholly owned Affiliates (as such term is defined
in the Stock Purchase Agreement) and may designate one or more of its wholly
owned Affiliates to perform its obligations thereunder;
NOW, THEREFORE, in consideration of the covenants herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby covenant and agree as follows:
(a) The Assignor hereby sells, conveys, delivers, assigns and transfers to
the Assignee all of the Assignor's undivided right, title and interest in, to
and under the Stock Purchase Agreement, including, without limitation, the
Assignor's right to purchase from the Seller all of the shares of outstanding
capital stock of the Companies, at the purchase price set forth in the Stock
Purchase Agreement, subject to the terms, conditions and adjustments set forth
therein.
(b) The Assignee hereby acknowledges and agrees to perform all of the
terms, covenants and conditions of the Assignor set forth in the Stock Purchase
Agreement.
(c) The Assignor hereby acknowledges and agrees that, notwithstanding this
Agreement, it will remain primarily liable for all of its duties and obligations
under the Stock Purchase Agreement.
(d) This Agreement shall be binding on the Assignor, the Assignee and their
respective successors and assigns.
<PAGE>
(e) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of conflict of
laws.
(f) This Agreement may not be modified or amended in any manner other than
by a written agreement executed by both parties hereto.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the day and year first above written.
PACER INTERNATIONAL, INC.
a Delaware corporation
By: /s/ Lawrence C. Yarberry
------------------------------
Lawrence C. Yarberry
Executive Vice President and Chief
Executive Officer
CROSS CON ACQUISITION CORP.,
a Delaware corporation
By: /s/ Lawrence C. Yarberry
------------------------------
Lawrence C. Yarberry
President, Treasurer and Secretary
<PAGE>
EXHIBIT 10.27
PACER INTERNATIONAL, INC.
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
June 5, 1998
Mr. Richard P. Hyland
11260 Southwest Highway
Palos Hills, IL 60465
Employment Agreement
Dear Richard:
This letter sets forth the terms of your employment with Pacer
International, Inc. (the "Company"), and its subsidiaries Interstate
Consolidation Service, Inc., d/b/a Pacer International, Inc. ("Pacer
Intermodal"), Cross Con Terminals, Inc. ("Cross Con Terminals"), and Cross Con
Transport, Inc. ("Cross Con Transport," and together with Cross Con Terminals,
the "Cross Con Companies," and the Cross Con Companies together with Pacer
Intermodal, the "Subsidiaries").
1. Duties. On the terms and subject to the conditions contained in
------
this Agreement, you will be employed as an Executive Vice President of the
Company, the President of the Eastern Division of Pacer Intermodal, and the
President of each of Cross Con Terminals and Cross Con Transport, and shall
perform such duties and services consistent with such positions as may
reasonably be assigned to you from time to time by the Board of Directors of the
Company or each such Subsidiary or by the Chairman or the President of the
Company or the President of Pacer Intermodal, to whom you will report. You will
have such authority as is reasonably necessary to perform your duties hereunder.
In performing such duties you will not be required to relocate your principal
office outside of a 50-mile radius from the Chicago metropolitan area.
2. Term. Unless sooner terminated in accordance with the applicable
----
provisions of this Agreement, your employment hereunder shall be for the period
(including any extensions thereof, the "Employment Period") commencing on the
date hereof (the "Commencement Date") and ending on the third anniversary of the
date hereof.
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 2
3. Time to be Devoted to Employment. During the Employment Period,
--------------------------------
you will devote substantially all of your working energies, efforts, interest,
abilities and time to the business and affairs of the Company and the
Subsidiaries. You will not engage in any other business or activity which, in
the reasonable judg ment of the Board of Directors of the Company or each such
Subsidiary, would conflict or interfere with the performance of your duties as
set forth herein, whether or not such activity is pursued for gain, profit or
other pecuniary advantage.
4. Base Salary; Bonus; Benefits.
----------------------------
(a) During the Employment Period, the Company or any of its
Subsidiaries shall pay you a minimum annual base salary (the "Base Salary") of
$220,000, payable in such installments (but not less often than bi-weekly) as is
generally the policy of the Company or such Subsidiary with respect to the
payment of regular compensation to its executive officers. The Base Salary may
be increased from time to time in the sole discretion of the Board of Directors
of the Company. During the Employment Period, you will also be entitled to four
weeks vacation per year and such other benefits as may be made available to
other executive officers of the Company or such Subsidiary generally, including,
without limitation, (i) participation in such health, life and disability
insurance programs and retirement or savings plans as the Company or such
Subsidiary may from time to time maintain in effect; (ii) the use of a vehicle
provided by the Company or such Subsidiary or an equivalent monthly car
allowance in accordance with the Company's or such Subsidiary's policy with
respect to its senior executives; and (iii) participation in such stock option
plans of the Company as may be adopted from time to time for the executive
officers of the Company on terms determined by the Board of Directors of the
Company.
(b) In addition to the Base Salary and benefits set forth in
paragraph (a) above, you will be entitled to receive a cash incentive bonus, if
any, with respect to each fiscal year of the Company occurring during the
Employment Period, determined pursuant to Section 4(c). Such bonus shall be due
and payable as soon as practicable, but in no event later than 30 days,
following the Company's receipt from its public accountants of the audited
consolidated financial statements of the Company and its subsidiaries. If your
employment with the Company is terminated for any reason other than without
"cause" pursuant to Section 7(b), the Company (or any of its affiliates)
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 3
will not pay you a bonus with respect to the fiscal year in which your
employment is terminated or thereafter. If your employment with the Company is
terminated without "cause" pursuant to Section 7(b) at any time during any
fiscal year, you will be entitled to receive that portion of the bonus payable
for such fiscal year pro rated through the date of such termination based on the
number of days elapsed through the termination date over 365 days, payable in
accordance with the second sentence of this Section 4(b).
(c) The bonuses payable for each calendar year during the
Employment Period shall be subject to and determined on the achievement by the
Company and its subsidiaries of the same specified performance targets
applicable to the other senior managers of the Company and its subsidiaries that
are determined by the Board of Directors of the Company. Such bonus for the 1998
calendar year will range from $23,300 upon the achievement of the minimum
specified targets to $60,000 upon the achievement of the maximum specified
targets. For the calendar year 1999 and each calendar year thereafter during the
Employment Period, the bonus shall range from $35,000 upon the achievement of
the minimum specified targets to $90,000 upon the achievement of the maximum
specified targets.
5. Reimbursement of Expenses. During the Employment Period, the
-------------------------
Company or any of the Subsidiaries shall reimburse you in accordance with the
Company's or such Subsidiary's policy for all reasonable and necessary traveling
expenses and other disbursements incurred by you for or on behalf of the Company
and the Subsidiaries in connection with the performance of your duties hereunder
upon presentation of appropriate receipts or other documentation therefor, in
accordance with all applicable policies of the Company or such Subsidiary.
6. Disability or Death. If, during the Employment Period, you are
-------------------
incapacitated or disabled by accident, sickness or otherwise (hereinafter, a
"Disability") so as to render you mentally or physically incapable of performing
the services required to be performed by you under this Agreement for any period
of 90 consecutive days or for an aggregate of 180 days in any period of 360
consecutive days, the Company may, at any time thereafter, at its option,
terminate your employment under this Agreement immediately upon giving you
written notice to that effect. In the event of your death, your employment will
be deemed terminated as of the date of death.
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 4
7. Termination.
-----------
(a) The Company may terminate your employment hereunder at any
time for "cause" by giving you written notice of such termination, with
reasonable specificity of the grounds therefor. For purposes of this Section 7,
"cause" shall mean (i) willful misconduct with respect to the business and
affairs of the Company or any of its subsidiaries, (ii) willful neglect of your
duties or the failure to follow the lawful directions of the Board of Directors
of the Company or any Subsidiary or more senior officers of the Company to whom
you report, including, without limitation, the violation of any material policy
of the Company or any of the Subsidiaries that is applicable to you and of which
you have knowledge, (iii) the material breach of any of the provisions of this
Agreement or any Related Agreement (as defined below) and, if such breach is
capable of being cured, your failure to cure such breach within 30 days of
receipt of written notice thereof from the Company, (iv) the commission of a
felony, (v) the commission of an act of fraud or financial dishonesty with
respect to the Company or any of its subsidiaries or affiliates or (vi) the
commission of any crime that involves moral turpitude or fraud or that otherwise
has a material adverse effect on the business, assets, liabilities, operations,
affairs or prospects of the Company or any of its subsidiaries or affiliates. A
termination pursuant to this Section 7(a) shall take effect immediately upon the
giving of the notice contemplated hereby. In this Agreement, the term "Related
Agreement" means the Stock Purchase Agreement dated as of the date hereof
between you, the Company, Cross Con Terminals and Cross Con Transport and the
Stockholders Agreement dated as of the date hereof among the Company, you and
the other stockholders named therein.
(b) The Company may terminate your employment hereunder at any
time without "cause" by giving you written notice of such termination, hich
termination shall be effective as of the date of delivery of such notice,
provided that such date shall not be earlier than the date of the notice.
8. Effect of Termination.
---------------------
(a) Upon the effective date of a termination of your employment
under this Agreement for any reason other than a termination without cause
pursuant to Section 7(b), neither you nor your beneficiaries or estate shall
have any further rights under this Agreement or any claims against the Company
or any of its subsidiaries or affiliates arising out of this Agreement,
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 5
except the right to receive, within 30 days after the effective date of such
termination:
(i) the unpaid portion of the Base Salary provided for in Section
4, computed on a pro rata basis to the effective date of such termination;
(ii) reimbursement for any expenses for which you shall not have
theretofore been reimbursed, as provided in Section 5; and
(iii) the unpaid portion of any amounts earned by you prior to the
effective date of such termination pursuant to any benefit program in which you
participated during the Employment Period; provided, however, you shall not be
entitled to receive any benefits under any benefit program that have accrued
during any period if the terms of such program require that the beneficiary be
employed by the Company or any of its subsidiaries as of the end of such period.
(b) Upon termination of your employment under this Agreement
pursuant to Section 7(b), neither you nor your beneficiaries or estate shall
have any further rights under this Agreement or any claims against the Company
or any of its subsidiaries or affiliates arising out of this Agreement, except
the right to receive, within 30 days after the effective date of such
termination, in the case of amounts due pursuant to clause (i) below, and at
such other times as provided in clause (ii) and (iii) below in the case of
amounts due thereunder:
(i) the payments, if any, referred to in Section 8(a) above, to the
extent not covered by clause (ii) and (iii) of this Section 8(b);
(ii) the right to continue to receive the Base Salary through the
third anniversary of the Commencement Date, payable during such period in such
manner as the Base Salary is payable pursuant to Section 4, shall be reduced by
the product of (x) any amounts you (or your beneficiaries or estate) receive or
are entitled to receive as salary or other cash compensation from subsequent
employment or for services rendered during such period multiplied by (y) 50%
(and in order to carry out the intent of this clause, you agree, for yourself
and your beneficiaries or estate, to provide the Company with such information
as the Company may reasonably request regarding your receipt of salary and other
cash compensation from subsequent
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 6
employment or for services rendered or to be rendered during or with respect to
such period); and
(iii) the right to receive any bonus payable in accordance with
Section 4 with respect to the fiscal year in which such termination occurs
(payable at such time as bonuses for such fiscal year are paid to the Company's
other senior executives generally).
Notwithstanding anything in this Agreement to the contrary, your
beneficiaries or estate will be entitled to continue to receive all payments
specified in this Section 8(b) if you die after the date of a termination
without "cause."
9. Disclosure of Information.
-------------------------
(a) From and after the date hereof, you shall not at any time use
or disclose to any person or entity (other than any officer, director, employee,
affiliate or representative of the Company or any of its subsidiaries), except
as required in connection with the performance of your duties under and in
compliance with this Agreement and as required by law and judicial process, any
Confidential Information (as hereinafter defined) heretofore acquired or
acquired during the Employment Period for any reason or purpose whatsoever, nor
shall you make use of any of the Confidential Information for your own purposes
or for the benefit of any person or entity except the Company or any subsidiary
thereof.
(b) For purposes of this Agreement, "Confidential In formation"
shall mean (i) the Intellectual Property Rights (as hereinafter defined) of the
Company and its subsidiaries and (ii) all other information of a proprietary or
confidential nature relating to the Company or any subsidiary thereof, or the
business or assets of the Company or any such subsidiary, including, without
limitation, books, records, agent and independent contractor lists and related
information, customer lists and related information, vendor lists and related
information, supplier lists and related information, distribution channels,
pricing information, cost information, marketing plans, strategies, forecasts,
financial statements, budgets and projections, other than (i) information which
is generally available to the public on the date hereof, or which becomes
generally available to the public after the date hereof without action by you or
(ii) information which you receive from a third party who does not have any
independent obligation to
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 7
the Company or any of its subsidiaries to keep such information confidential.
(c) As used herein, the term "Intellectual Property Rights" means
all industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, copyright
applications, know-how, certificates of public convenience and necessity,
franchises, licenses, trade secrets, proprietary processes and formulae,
inventions, development tools, marketing materials, instructions, confidential
information, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing, including, without
limitation, manuals, memoranda and records.
10. Noncompetition Covenant.
-----------------------
(a) You acknowledge and recognize that during the Employment
Period you will be privy to Confidential Information. You further acknowledge
and recognize that the relationships with vendors, agents and customers of the
Company and the Subsidiaries that you have developed prior to the date hereof
and those that you will maintain or develop during the Employment Period with
the use and assistance of each of the Company and the Subsidiaries and its
properties and assets are of speci al and unique value to the Company and the
Subsidiaries and their affiliates and that the Company and the Subsidiaries
would find it extremely difficult to replace you. Accordingly, in consideration
of the premises contained herein and the consideration you will receive
hereunder (including, without limitation, the severance compensation described
in Section 8(b)(ii), if applicable), without the prior written consent of the
Company, you shall not, at any time during the period commencing on the
Commencement Date and ending on the later of (i) the fifth anniversary of the
Commencement Date and (ii) the second anniversary of the effective date of any
termination of your employment with the Company and its subsidiaries, (a)
directly or indirectly engage in, represent in any way, or be connected with,
any Competing Business (as defined below), whether such engagement shall be as
an officer, director, owner, employee, partner, affiliate or other participant
in any Competing Business, (b) assist others in engaging in any Competing
Business in the manner described in clause (a) above, (c) induce other employees
of the Company or any of its subsidiaries to terminate their employment with the
Company or any of its subsidiaries or to engage in any Competing Business
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 8
or (d) induce any customer, vendor or agent or any other person or entity with
which the Company or any subsidiary or affiliate thereof has a business
relationship, contractual or otherwise, to terminate or alter such business
relationship. This covenant is considered an integral part of this Agreement.
The foregoing restriction shall not apply to your ownership of publicly traded
securities which represent not more than 5% of the ownership interests of the
issuer.
(b) You understand that the foregoing restrictions may limit your
ability to earn a livelihood in a business similar to the business of the
Company or any subsidiary or affiliate thereof, but you nevertheless believe
that you have received and will receive sufficient consideration and other
benefits as an employee of the Company and the Subsidiaries and under the terms
of this Agreement to justify clearly such restrictions which, in any event
(given your education, skills and ability), you do not believe would prevent you
from earning a living.
(c) As used herein, the term "Competing Business" shall mean any
business conducted in any city or county in any state of the United States which
is engaged in the business of providing any of the following transportation
services to third party customers:
(i) intermodel marketing services in any city or county in any
state or province located in the continental United States, Canada or Mexico; or
(ii) intermodal drayage services (A) in any city or county in the
State of Illinois or (B) in any other city or county in any state or province
located in the continental United States, Canada or Mexico where any of the
Cross Con Companies provides drayage services at the time of, or where there are
fixed plans for any of the Cross Con Companies to provide drayage services at
any time within 12 months after, the termination of your employment under this
Agreement; or
(iii) any other transportation services in any city or county in the
United States, Canada or Mexico provided by any of the Company or its
subsidiaries at the time of, or where there are fixed plans for any of the
Company or its subsidiaries to provide such other transportation services at any
time within 12 months after, the termination of your employment under this
Agreement and with respect to which you
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 9
have had direct or indirect supervisory authority as an officer of the Company
or any of the Subsidiaries.
Anything contained in the immediately preceding sentence to the
contrary notwithstanding, any entity which has separate divisions or business
units, one or more of which are engaged in a business described above, will not
be deemed a Competing Business with respect to those portions of such entity
which are not engaged in a business described above so long as your association
with any such separate division or business unit (fully taking into account your
functions and the nature of your work at such division or business unit) does
not involve existing customers of the Company or any of its subsidiaries or
relate in any material respect to such portion of such business which would be a
Competing Business hereunder.
11. Inventions Assignment. During the Employment Period, you shall
---------------------
promptly disclose, grant and assign to the Company for its sole use and benefit
any and all inventions, improvements, technical information and suggestions
reasonably relating to the business of the Company or any of its subsidiaries
(collectively, the "Inventions") which you may develop or acquire during the
Employment Period (whether or not during usual working hours), together with all
patent applications, letters patent, copyrights and reissues thereof that may at
any time be granted for or with respect to the Inventions. In connection
therewith (a) you shall, at the expense of the Company or any of its
Subsidiaries (including a reasonable payment (based on your last per diem
earnings) for the time involved if you are not then in the Company's or any of
its subsidiaries' employ or receiving severance payments from the Company or any
of its subsidiaries pursuant to Section 8(b)(ii)), promptly execute and deliver
such applications, assignments, descriptions and other instruments as may be
necessary or proper in the opinion of the Company to vest title to the
Inventions and any patent applications, patents, copyrights, reissues or other
proprietary rights related thereto in the Company and to enable it to obtain and
maintain the entire right and title thereto throughout the world; and (b) you
shall render to the Company, at its expense (including a reasonable payment
(based on your last per diem earnings) for the time involved if you are not then
in the Company's or any of its subsidiaries' employ or receiving severance
payments from the Company or any of its subsidiaries pursuant to Section
8(b)(ii)), reasonable assistance as it may require in the prosecution of
applications for said patents, copyrights, reissues or other proprietary rights,
in the prosecution or defense of interference's which may be declared
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 10
involving any said applications, patents, copyrights or other proprietary rights
and in any litigation in which the Company or any of its subsidiaries may be
involved relating to the Inventions.
12. Assistance in Litigation. At the request and expense of the
------------------------
Company (including a reasonable payment (based on your last per diem earnings)
for the time involved if you are not then in the Company's or any of its
subsidiaries' employ or receiving severance payments from the Company or any of
its subsidiaries pursuant to Section 8(b)(ii)) and upon reasonable noti ce, you
shall, at all times during and after the Employment Period, furnish such
information and assistance to the Company as it may reasonably require in
connection with any issue, claim or litigation in which the Company or any of
its subsidiaries may be involved (but only to the extent that providing such
information or assistance does not unreasonably interfere with your other
business activities if you are no longer employed by the Company or any of its
subsidiaries at the time of any such request); provided, however, that you will
not be contractually obligated by this Section 12 to furnish any such
information or assistance in the event that you are an opposing party to the
Company or any of its subsidiaries with respect to any pending litigation.
13. Entire Agreement; Amendment and Waiver. This agreement and the
--------------------------------------
other writings referred to herein contain the entire agreement between the
parties hereto with respect to the subject matter hereof and thereof and
supersede any prior agreement between you and the Company or any predecessor of
the Company or any of their respective subsidiaries or affiliates (including,
without limitation, that certain letter agreement dated April 3, 1998, among you
and the Company). No waiver, amendment or modification of any provision of this
Agreement shall be effective unless in writing and signed by each party hereto.
The waiver by either party of a breach of any provision of this Agreement by the
other party shall not operate or be construed as a waiver of any subsequent
breach by such other party.
14. Notices. All notices or other communications pursuant to this
-------
Agreement shall be in writing and shall be deemed to be sufficient if delivered
personally, telecopied, sent by nationally-recognized, overnight courier or
mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 11
(a) if to the Company or any Subsidiary, to:
Pacer International, Inc.
3746 Mt. Diablo Boulevard, Suite 110
Lafayette, CA 94549
Attention: President
Telecopier: (925) 283-1938
Telephone: (925) 284-7145
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 24th Floor
New York, NY 10112
Attention: Michael F. Killea, Esq.
Telecopier: (212) 728-5950
Telephone: (212) 408-2432
(b) if to you, to:
Mr. Richard P. Hyland
11260 Southwest Highway
Palos Hills, IL 60465
Telephone:
Telecopier:
with a copy to:
Pembroke & Brown, P.C.
422 N. Northwest Highway
Suite 150
Park Ridge, IL 60068
Attention: John Pembroke, Esq.
Telecopier: (847) 696-0950
Telephone: (877) 696-0060
All such notices and other communications shall be deemed to have been given and
received (i) in the case of personal delivery, on the date of such delivery,
(ii) in the case of delivery by telecopy, on the date of such delivery, (iii) in
the case of delivery by nationally-recognized, overnight courier, on the
business day following dispatch, and (iv) in the case of mailing, on the third
business day following such mailing.
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 12
15. Headings. The section headings in this Agreement are for
--------
convenience only and shall not control or affect the meaning of any provision of
this Agreement.
16. Severability. In the event that any provision of this Agreement is
------------
determined to be partially or wholly invalid, illegal or unenforceable in any
jurisdiction, then such provision shall, as to such jurisdiction, be modified or
restricted to the extent necessary to make such provision valid, binding and
enforceable, or if such provision cannot be modified or restricted, then such
provision shall, as to such jurisdiction, be deemed to be excised from this
Agreement; provided, however, that the binding effect and enf orceability of the
remaining provisions of this Agreement, to the extent the economic benefits
conferred upon the parties by virtue of this Agreement remain substantially
unimpaired, shall not be affected or impaired in any manner, and any such
invalidity, illegality or unenforceability with respect to such provisions shall
not invalidate or render unenforceable such provision in any other jurisdiction.
17. Remedies. You acknowledge and understand that the provisions of
--------
this Agreement are of a special and unique nature, the loss of which cannot be
adequately compensated for in damages by an action at law, and thus, the breach
or threatened breach of the provisions of this Agreement would cause the Company
irreparable harm. You further acknowledge that in the event of a breach of any
of the covenants contained in paragraphs 9, 10, or 11, the Company and its
subsidiaries shall be entitled to immediate relief enjoining such violations in
any court or before any judicial body having jurisdiction over such a claim. All
remedies hereunder are cumulative, are in addition to any other remedies
provided for by law and may, to the extent permitted by law, be exercised
concurrently or separately, and the exercise of any one remedy shall not be
deemed to be an election of such remedy or to preclude the exercise of any other
remedy.
18. Representation. You hereby represent and warrant to the Company
--------------
that (a) the execution, delivery and performance of this Agreement by you does
not breach, violate or cause a default under any agreement, contract or
instrument to which you are a party or any judgment, order or decree to which
you are subject and (b) you are not a party to or bound by any employment
agreement, consulting agreement, noncompete agreement, confidentiality agreement
or similar agreement with any other person or entity.
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 13
19. Benefits of Agreement; Assignment. The terms and provisions of
---------------------------------
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, representatives, heirs and
estate, as applicable.
20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
21. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws o f the State of Illinois without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Illinois or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Illinois.
22. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
---------------------------
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER
THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO.
*******
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 14
If the above terms are satisfactory to you, please acknowledge our
agreement by signing the enclosed copy of this letter in the space provided
below and returning it to the undersigned.
Very truly yours,
PACER INTERNATIONAL, INC.
/s/ Larry Yarberry
By:_____________________________
Name: Larry Yarberry
Title: CFO and E.V.P.
Accepted and agreed to:
/s/ Richard P. Hyland
_____________________________
Richard P. Hyland
<PAGE>
Mr. Richard P. Hyland
June 5, 1998
Page 15
SCHEDULE 4(c)
-------------
OPERATING INCOME
----------------
For purposes of Section 4(c) of this Agreement, "Operating Income"
----------------
means, for any calendar year, the earnings before interest expense and interest
income, income taxes and amortization of goodwill and acquisition and financing
fees of the Company and its subsidiaries, determined on a consolidated basis and
in accordance with generally accepted accounting principles consistently applied
for the calendar year in question, as set forth on the audited consolidated
statement of income of the Company and its subsidiaries for the fiscal year in
question; provided, however, that Operating Income shall (x) exclude management
-------- -------
fees, transaction expenses, non-operating gains and losses as determined by the
Board of Directors of the Company and such other non-cash items as shall be
determined by the Board of Directors of the Company and (y) be determined after
giving effect to any and all bonuses payable by the Company and/or any of its
subsidiaries to management or employees of the Company and/or any of its
subsidiaries hereunder or otherwise. In the event that the Company and/or any
of its subsidiaries consummate any mergers or acquisitions (whether of assets,
stock or other interests) or other extraordinary transactions, the Board of
Directors of the Company shall in good faith make such adjustments to the
targets set forth in Section 4(b) for Operating Income (as defined above) to
take into account the effects of any such acquisition or other extraordinary
transaction.
<PAGE>
EXHIBIT 10.28
EXECUTION COPY
CONSENT AND AMENDMENT NO. 4
TO AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of June 5, 1998
THIS CONSENT AND AMENDMENT NO. 4 TO AMENDED AND RESTATED CREDIT
AGREEMENT ("Amendment") is made as of June 5, 1998 by and among Pacer
International, Inc. (f/k/a PMT Holdings, Inc.), a Delaware corporation ("Pacer
International"), Pacific Motor Transport Company, a California corporation
("Pacific Motor"), Pacer International Rail Services LLC (f/k/a American
International Rail Services LLC), a Colorado limited liability company ("Pacer
Services"), Pacer Rail Services LLC (f/k/a American International Mechanical
Services LLC), a Colorado limited liability company ("Pacer Rail"), Interstate
Consolidation, Inc., a California corporation. ("ICI"), Interstate
Consolidation Service, Inc., a California corporation ("ICS"), Intermodal
Container Service, Inc., a California corporation ("IMCS"), Pacer Integrated
Logistics, Inc., a Delaware corporation ("PIL"), Pacer Logistics, Inc., a
California corporation ("Pacer Logistics"), Cross Con Acquisition Corp., a
Delaware Corporation ("Newco"), Cross Con Terminals, Inc., a Delaware
-----
corporation ("Terminals"), and Cross Con Transport, Inc., an Illinois
corporation ("Transport"), (Pacer International, Pacific Motor, Pacer Rail,
Pacer Services, ICI, ICS, IMCS, Pacer Logistics, PIL, Newco, Transport and
Terminals, being collectively referred to herein as the " Borrowers"), the
financial institutions listed on the signature pages hereof (the "Lenders") and
THE FIRST NATIONAL BANK OF CHICAGO, in its individual capacity as a Lender and
as agent (the "Agent") on behalf of the Existing Lenders under that certain
Amended and Restated Credit Agreement dated as of December 16, 1997 (as
amended by that certain Amendment No. 1 dated March 31, 1998, the Amendment No.
2 dated May 1, 1998 and the Amendment No. 3 dated as of May 29, 1998, the
"Credit Agreement"). Each defined term used herein and not otherwise defined
herein shall have the meaning given to it in the Credit Agreement.
WITNESSETH
WHEREAS, the Borrowers (other than Newco, Terminals and Transport),
the Lenders and the Agent are currently parties to the Credit Agreement;
WHEREAS, the Borrowers have notified the Lenders and the Agent of the
formation by Pacer International of Newco and the proposed acquisition (the
"Acquisition") by Newco of 100% of the outstanding and issued Capital Stock of
Terminals and Transport (collectively, the "Companies");
WHEREAS, the Borrowers have requested that the Lenders consent to the
Acquisition, waive certain covenants under the Credit Agreement in respect of
the Acquisition, amend the Credit Agreement in certain respects in order to
integrate each of Newco and the Companies as a "Borrower", increase the
Revolving Loan Commitment and Term Loan Commitment thereunder and amend the
Credit Agreement in certain other respects; and
<PAGE>
WHEREAS, the Lenders and the Agent are willing to amend the Credit
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers, the Lenders and the Agent have agreed to the following:
ARTICLE I: AMENDMENTS
----------------------
Effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 3 below, the Credit Agreement is
---------
hereby amended as follows:
1.01. Defined Terms. The definition of "Borrowers" set forth in
-------------
Section 1.1 of the Credit Agreement is hereby amended by inserting the words
"Newco, Transport, Terminals," immediately after the term "Pacific Motor," as
and where "Pacific Motor," now appears in such definition.
1.02. New Defined Terms. New definitions of the terms "Terminals" and
-----------------
"Transport" shall be inserted into Section 1.1 of the Credit Agreement in its
appropriate alphabetical order and shall read as follows:
""NEWCO" means Cross Con Acquisition Corp., a Delaware corporation.
-----
""TERMINALS" means Cross Con Terminals, Inc., a Delaware corporation."
---------
""TRANSPORT" means Cross Con Transport, Inc., an Illinois corporation."
---------
1.03. Term Loans. Section 2.1 of the Credit Agreement is hereby
---------- -----------
amended to read in its entirety as follows:
" 2.1. Term Loans.
----------
(i) Amount of Term Loan. Subject to the terms and conditions set
-------------------
forth in this Agreement, on June 5, 1998, each Lender severally and not jointly
agrees to make, a term loan, in Dollars, to the Borrowers in an aggregate amount
not to exceed such Lender's Term Loan Commitment (each individually, a "TERM
LOAN" and, collectively, the "TERM LOANS"). All Term Loans shall be made by the
Lenders on the dates specified above simultaneously and proportionately to their
respective Pro Rata Shares, it being understood that no Lender shall be
responsible for any failure by any other Lender to perform its obligation to
make any Term Loan hereunder nor shall the Term Loan Commitment of any Lender be
increased or decreased as a result of any such failure.
2
<PAGE>
(ii) Borrowing Notice. The Borrowers shall deliver to the Agent a
----------------
Borrowing Notice, signed thereby, on June 5, 1998, for the Term Loans to be made
on such dates. Such Borrowing Notice shall specify (i) the aggregate amount of
the Term Loans to be made on such date and (ii) instructions for the
disbursement of the proceeds of the Term Loans. The Term Loans shall initially
be Floating Rate Loans and thereafter may be continued as Floating Rate Loans or
converted into Eurodollar Rate Loans in the manner provided in Section 2.10 and
------------
subject to the other conditions and limitations therein set forth and set forth
in this Article II.
----------
(iii) Making of Term Loans. Promptly after receipt of the Borrowing
--------------------
Notice under Section 2.1(a)(ii) in respect of the Term Loans, the Agent shall
------------------
notify each Lender by telex or telecopy, or other similar form of transmission,
of the proposed Advance. Each Lender shall deposit an amount equal to its Pro
Rata Share of the Term Loans with the Agent at its office in Chicago, Illinois,
in immediately available funds, on the date specified in the Borrowing Notice.
Subject to the fulfillment of the conditions precedent set forth in Sections 4.1
------------
and 4.2, the Agent shall make the proceeds of such amounts received by it
---
available to the Borrowers at the Agent's office in Chicago, Illinois on such
date and shall disburse such proceeds in accordance with the Borrowers'
disbursement instructions set forth in such Borrowing Notice. The failure of
any Lender to deposit the amount described above with the Agent on the
applicable date of such Loan shall not relieve any other Lender of its
obligations hereunder to make its Term Loan.
(iv) Repayment of the Term Loans.
---------------------------
(A) The Term Loans shall be repaid in twenty-six (26) consecutive
quarterly principal installments on the last day of each calendar quarter
commencing September 30, 1998, and continuing thereafter until the Term Loan
Termination Date, and the Term Loans shall be permanently reduced by the amount
of each installment on the date payment thereof is required to be made
hereunder. The installments shall be in the aggregate amounts set forth below:
Date of Installment Amount of Installment
------------------- ---------------------
September 30, 1998 $ 622,500
December 31, 1998 $ 787,500
March 31, 1999 $ 787,500
June 30, 1999 $ 787,500
September 30,1999 $ 787,500
December 31, 1999 $ 787,500
March 31, 2000 $ 870,000
June 30, 2000 $ 870,000
September 30, 2000 $ 870,000
December 31, 2000 $ 870,000
March 31, 2001 $ 932,500
3
<PAGE>
June 30, 2001 $ 932,500
September 30, 2001 $ 932,500
December 31, 2001 $ 932,500
March 31, 2002 $ 1,082,500
June 30, 2002 $ 1,082,500
September 30, 2002 $ 1,082,500
December 31, 2002 $ 1,082,500
March 31, 2003 $ 1,145,000
June 30, 2003 $ 1,145,000
September 30, 2003 $ 1,145,000
December 31, 2003 $ 1,145,000
March 31, 2004 $ 1,080,000
June 30, 2004 $ 1,080,000
September 30, 2004 $ 1,080,000
December 16, 2004 $ 1,080,000.
Notwithstanding the foregoing, the final installment made on the Term Loan
Termination Date shall be in the amount of the then outstanding principal
balance of the Term Loans. In addition, the then outstanding principal balance
of the Term Loans, if any, shall be due and payable on the Termination Date. No
installment of any Term Loan shall be reborrowed once repaid.
(B) In addition to the scheduled payments on the Term Loans, the
Borrowers (i) may make the voluntary prepayments described in Section 2.4 for
-----------
credit against the scheduled payments on the Term Loans pursuant to Section 2.4
-----------
and (ii) shall make the mandatory prepayments prescribed in Section 2.5, for
-----------
credit against such scheduled payments on the Term Loans pursuant to Section
-------
2.5."
1.04. Applicable Margins. Clause (ii) of Section 2.15(D) of the Credit
------------------ ---------------
Agreement is hereby amended by inserting the following phrase at the end thereof
immediately preceding the ultimate "." thereof:
"; provided further, that Level 4 above shall be deemed to apply to the
-------- -------
determination of the Applicable Eurodollar Margin, Applicable Floating Rate
Margin and Applicable Commitment Fee Percentage at all times for the period
from June 5, 1998 through March 31, 1999"
1.05. Use of Proceeds. Section 6.2(K) of the Credit Agreement shall be
--------------- --------------
amended to read in its entirety as follows:
"(K) Use of Proceeds. The Borrowers shall use the proceeds of the Loans
---------------
(i) to effect Permitted Acquisitions (as defined in Section 6.3(G)) or any other
--------------
Acquisition consented to in writing by the Required Lenders; and (ii) to provide
funds for the working capital needs and other
4
<PAGE>
general corporate purposes of the Borrowers and to repay outstanding Loans. The
Borrowers will not, nor will they permit any Subsidiary to, use any of the
proceeds of the Loans to purchase or carry any Margin Stock."
1.06. New Subsidiaries. A new Section 6.2(O) of the Credit Agreement is
---------------- --------------
hereby inserted immediately following Section 6.2(N) and shall read in its
--------------
entirety as follows:
"(O) Subsidiary Documentation. In connection with and at the time of the
------------------------
creation, acquisition and/or capitalization by any Borrower or any Subsidiary of
any Borrower of a new Subsidiary (a "NEW SUBSIDIARY") pursuant to any
transaction that is permitted by or not otherwise prohibited by this Agreement,
the Borrowers shall, or shall cause each New Subsidiary, to deliver to the
Agent: (a) an executed pledge agreement, pursuant to which the Agent receives a
first priority perfected pledge of and security interest in all of the
outstanding Capital Stock of the New Subsidiary owned by such Borrower or such
Subsidiary of a Borrower; (b) an executed secured subsidiary guaranty, pursuant
to which the New Subsidiary unconditionally guaranties the repayment of the
Secured Obligations, secured by a first priority perfected security interest in
all of the New Subsidiary's real and personal property, subject to no Liens
other than those permitted pursuant to the terms of this Agreement; and (c)
stock certificates, stock powers, mortgages, UCC financing statements, third-
party lien waiver agreements, corporate resolutions, opinions and other
documentation, the items set forth in the foregoing clauses (a), (b) and (c)
all to be in form and substance reasonably satisfactory to the Agent."
1.07. Investments. Clause (iv) of Section 6.3(D) of the Credit
----------- --------------
Agreement is hereby amended to read in its entirety as follows:
"(iv) Investments of any Borrower in any other Borrower or any
Subsidiary of such investing Borrower only if the requirements of Section
-------
6.2(O) have been complied with in respect to such Subsidiary; and"
------
1.08. Restricted Payments. Section 6.3(F) of the Credit Agreement is
------------------- --------------
hereby amended to read in its entirety as follows:
" (F) Restricted Payments. No Borrower shall declare or make any
-------------------
Restricted Payment, except that (i) the Borrowers may purchase shares of Capital
Stock from terminated employees in the aggregate amount not to exceed $500,000
in any fiscal year, (ii) Holdings may make Restricted Payments with respect to
dividends payable on its Series A Preferred Stock and on its common stock in an
aggregate amount not to exceed $504,000 for all such dividends in any calendar
year, (iii) the Borrowers may pay an advisory fee to Eos Management Inc. or its
Affiliates in connection with the acquisition of Terminals and Transport in an
aggregate amount not exceeding $40,000 and (iv) each Borrower which is a
subsidiary of a Borrower may make distributions to its applicable parent-
Borrower; provided, however, that no such Restricted Payments shall be permitted
-------- -------
if either a Default or an Unmatured Default shall have occurred and be
continuing at the date of declaration or payment thereof or would result
therefrom."
5
<PAGE>
1.09. Permitted Acquisitions. Section 6.3(G) of the Credit Agreement is
---------------------- --------------
hereby amended to read in its entirety as follows:
"(G) Conduct of Business; Subsidiaries; Acquisitions. None of the
-----------------------------------------------
Borrowers shall engage in any business other than the businesses engaged in by
it on the date hereof and any business or activities which are substantially
similar, related or incidental thereto. None of the Borrowers or their
respective Subsidiaries shall create or capitalize any Subsidiary (other than
New Subsidiaries satisfying the condition in Section 6.2(O)) after the date
---------------
hereof or enter into any transaction or series of transactions in which it
acquires all or any significant portion of the assets Capital Stock of another
Person unless such acquisition meets the following requirements (each such
acquisition constituting a "PERMITTED ACQUISITION"):
(1) no Default or Unmatured Default shall have occurred and be
continuing or would result from such transaction or transactions or the
incurrence of any Indebtedness in connection therewith;
(2) in the case of an Acquisition of Equity Interests of an entity,
such Acquisition shall be no less than one hundred percent (100%) of the
Equity Interests of such entity;
(3) the business being acquired shall be substantially similar,
related or incidental to the businesses or activities engaged in by the
Borrowers and their Subsidiaries;
(4) after giving effect to such Acquisition, the representation and
warranties set forth in Article V hereof shall be true and correct in all
---------
material respects on and as of the date of such Acquisition with the same
effect as though made on and as of such date;
(5) prior to each such purchase, the Borrowers shall cause to be
delivered to the Agent and the Lenders a certificate from one of the
acquiring Borrower's Authorized Officers demonstrating to the satisfaction
of the Agent and the Required Lenders that after giving effect to such
transaction or transactions and the incurrence of any Indebtedness
permitted by Section 6.3(A) in connection therewith on a pro forma basis as
--------------
if such acquisition and such incurrence of Indebtedness had occurred on the
first day of the twelve-month period ending on the last day of the
Borrowers' most recently completed fiscal quarter, the Borrowers would have
been in compliance with all of the covenants contained in this Agreement at
all times during such twelve-month period, including, without limitation,
the financial covenants of Section 6.4;
-----------
(6) the purchase is consummated pursuant to a negotiated acquisition
agreement on a non-hostile basis and involves the purchase of a business
line similar, related or incidental to that of the Borrowers and their
respective Subsidiaries;
(7) the Borrowers and their Subsidiaries shall be in compliance with
the requirements set forth in Section 6.2(O) hereof; and
--------------
6
<PAGE>
(8) the cash portion of the purchase price (including assumed
Indebtedness) in connection with any and all such transactions shall not
exceed:
(A) for any single transaction or series of related transactions,
$5,000,000; and
(B) for all transactions during the twelve-month period ending
on the date of such transaction, $10,000,000 (determined without
taking into account any Acquisition made on or prior to June 5,
1998)."
1.10. Subsidiaries. Section 6.3(P) is hereby struck from the Credit
------------ --------------
Agreement.
1.11. Financial Covenants: Definitions. A new definition of the term
--------------------------------
"Consolidated Net Worth" shall be inserted into Section 6.4(A) of the Credit
--------------
Agreement in its appropriate alphabetical order and shall read as follows:
""CONSOLIDATED NET WORTH" means, at a particular date, all amounts which
----------------------
would be included under shareholders' equity for Holdings and it consolidated
Subsidiaries determined in accordance with Agreement Accounting Principles."
1.12. Fixed Charge Coverage Ratio. Clauses (1), (2), (3), (4) and (5)
---------------------------
of set forth in Section 6.4(B) shall be replaced in their entirety by clauses
--------------
(1), (2) and (3) set forth below:
"(1) 1.10 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending June 30, 1998 through the fiscal quarter
ending September 30, 1998;
(2) 1.15 to 1.00 for each fiscal quarter for the fiscal quarter ending
December 31, 1998;
(3) 1.20 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending March 31, 1999 through the fiscal quarter
ending June 30, 1999; and
(4) 1.25 to 1.00 for each fiscal quarter thereafter."
1.13. Maximum Leverage Ratio. Section 6.4(C) is hereby amended to read
---------------------- --------------
in its entirety as follows:
"(C) Maximum Leverage Ratio. Holdings and its Subsidiaries, determined
----------------------
on a consolidated basis, shall not permit the ratio ("LEVERAGE RATIO") of (i)
Indebtedness of the Borrowers and their consolidated subsidiaries for borrowed
money that would be required to be reflected as "total debt" on a balance sheet
prepared in accordance with Agreement Accounting Principles plus the face amount
----
of outstanding letters of credit issued for the Borrowers respective accounts to
(ii) EBITDA of not greater than the ratio set forth below at the end of the
fiscal quarter ending on the corresponding date set forth below:
7
<PAGE>
PERIOD ENDING MAXIMUM LEVERAGE RATIO
------------- ----------------------
June 30, 1998 4.00 to 1.00
September 30, 1998 3.50 to 1.00
December 31, 1998 3.25 to 1.00
March 31, 1999 3.25 to 1.00
June 30, 1999 3.25 to 1.00
September 30, 1999 3.25 to 1.00
December 31, 1999 2.75 to 1.00
March 31, 2000 2.75 to 1.00
June 30, 2000 2.75 to 1.00
September 30, 2000 2.75 to 1.00
December 31, 2000 and each
quarter thereafter 2.50 to 1.00
In each case, the Leverage Ratio shall be determined as of the last day of each
fiscal quarter based upon (A) for Indebtedness, Indebtedness as of the last day
of each such fiscal quarter; and (B) for EBITDA, the actual amount of EBITDA for
the four-quarter period ending on such day (provided, however, that (a) for the
-------- -------
fiscal quarter ending June 30, 1998, the Leverage Ratio shall be calculated
using EBITDA for the fiscal quarter ending June 30, 1998 multiplied by four,
(b) for the fiscal quarter ending September 30, 1998, the Leverage Ratio shall
be calculated using EBITDA for the two fiscal quarters ending September 30, 1998
multiplied by two, and (c) for the fiscal quarter ending December 31, 1998, the
Leverage Ratio shall be calculated using EBITDA for the three fiscal quarters
ending December 31, 1998 multiplied by 4/3). In addition, in each case, EBITDA
shall be calculated for the period ending June 30, 1998 by including (on a pro
---
forma basis for the period from the first day of such period through June 5,
- -----
1998) the actual amount of EBITDA attributable to Transport and Terminals during
such period, utilizing financial statements of Transport and Terminals obtained
from the seller or management thereof and in form and broken down in a manner
consistent with the audited financial statements of Terminals and Transport for
the fiscal year ended December 31, 1997, previously delivered to the Agent."
1.14. Minimum Consolidated Net Worth. Section 6.4(D) is hereby
------------------------------ --------------
amended and restated in its entirety to read as follows:
"(D) Minimum Consolidated Net Worth. Holdings shall not permit its
------------------------------
Consolidated Net Worth at any time to be less than the sum of (i) 80% of
Consolidated Net Worth as determined at December 31, 1997, plus (ii) fifty
----
percent (50%) of Net Income (if positive) calculated separately for each fiscal
quarter ending after December 31, 1997, plus (iii) eighty percent (80%) of the
----
increase in the Consolidated Net Worth resulting from the issuance by Holdings
or any Subsidiary of Holdings of any Capital Stock."
1.15. Capital Expenditures. Section 6.4(E is hereby amended and
restated in its entirety to read as follows:
8
<PAGE>
"(E) Capital Expenditures. Holdings will not expend or permit its
--------------------
Subsidiaries to expend, or be committed to expend, for Capital Expenditures in
the acquisition of fixed assets during any one fiscal year on a non-cumulative
basis in the aggregate in excess of $1,250,000 plus the difference, if positive,
----
between the maximum aggregate amount of Capital Expenditures permitted to be
expended in the immediately preceding fiscal year and the amount of Capital
Expenditures actually expended in the immediately preceding fiscal year;
provided, however, that the Borrowers may expend an additional amount of up to
- -------- -------
$1,250,000 in the aggregate for computer systems (including hardware and
software); such amount not to be applied to the limitation expressed above."
1.16. Guaranty. Any reference set forth in Article IX of the Credit
-------- ----------
Agreement to the term "Obligation" or "Obligations" is hereby amended to be a
reference to the term "Secured Obligation" or "Secured Obligations",
respectively.
1.17. Commitments. Exhibit B to the Credit Agreement is hereby replaced
----------- ---------
in its entirety by Exhibit B attached hereto effectively increasing the
---------
aggregate Revolving Loan Commitment and aggregate Term Loan Commitment of the
Lenders.
1.18. Supplemental Disclosures. Each of the Schedules attached to the
------------------------
Credit Agreement are hereby amended and restated in their entirety by the
Schedules attached hereto pursuant to the terms of Section 1.3 of the Credit
-----------
Agreement.
ARTICLE II: CONSENT AND LIMITED WAIVER
---------------------------------------
2.01. Upon the effectiveness of this Amendment, the Lenders hereby
consent to the consummation of the Acquisition and waive (a) the restrictions
set forth in Sections 6.3(D) and (G) of the Credit Agreement solely with respect
to the consummation of the Acquisition.
ARTICLE III: CONDITIONS PRECEDENT
----------------------------------
3.01. This Amendment shall become effective and be deemed effective as
of the date hereof, if, and only if, the Agent shall have received each of the
following:
(a) duly executed original counterparts of this Amendment from the
Borrowers and each of the Lenders together with all of the schedules and
exhibits to be attached hereto;
(b) duly executed Revolving Loan Notes and Term Loan Notes in favor of
each of the Lenders issued by the Borrowers (the "Notes");
(c) Secretary's Certificate of each Borrower certifying (i) copies of
the resolutions of the Board of Directors or an equivalent thereof (as
attached thereto) of such Borrower approving such Borrower's execution and
delivery of this Amendment and all other documents relating hereto, (ii) a
copy of the Articles of Incorporation of each
9
<PAGE>
Borrower or an equivalent thereof (as attached thereto) as true and
correct, (iii) a copy of the By-Laws of each Borrower or an equivalent
thereof (as attached thereto) as true and correct, and (iv) the names,
titles and signatures of the officers of each Borrower authorized to sign
this Amendment and all other documents relating hereto;
(d) duly executed original counterparts of a Security Agreement
("Transport Security Agreement") evidencing the granting of a security
interest by Transport to and in favor of the Agent, for the benefit of the
Lenders;
(e) duly executed original counterparts of a Security Agreement
("Terminals Security Agreement") evidencing the granting of a security
interest by Terminals to and in favor of the Agent, for the benefit of the
Lenders;
(f) duly executed original counterparts of a Security Agreement
("Newco Security Agreement") evidencing the granting of a security interest
by Newco to and in favor of the Agent, for the benefit of the Lenders;
(g) duly executed pledge supplement, (the "Pledge Supplement")
evidencing the pledge by Pacer International of 100% of the Capital Stock
of each Company and Newco pursuant to the Amended and Restated Pledge
Agreement executed and delivered by Pacer International and dated as of May
1, 1998, together with the stock certificates representing such Capital
Stock of the Companies and related stock powers signed in blank;
(h) duly executed Uniform Commercial Code financing statements naming
Transport as debtor and the Agent as Secured Party to be filed with the
Secretary of State of Illinois;
(i) duly executed Uniform Commercial Code financing statements naming
Terminals as debtor and the Agent as Secured Party to be filed with the
Secretary of State of Illinois;
(j) assignment of Pacer International's interests in the Stock
Purchase Agreement among Pacer International, Inc., Terminals, Transport
and Richard P. Hyland dated as of May 29, 1998 (the "Stock Purchase
Agreement") together with a copy of the executed Stock Purchase Agreement
and other evidence that the Acquisition shall have been consummated;
(k) opinions of counsel to the Borrowers and addressed to the Lenders,
as to, among other things, the consummation of the Acquisition, the due
authorization, enforceability and validity of this Amendment, the Notes
executed and the other documents delivered with respect hereto by each
Borrower (covering legal jurisdictions of California, Colorado, Delaware
and Illinois and including a perfection opinion with respect to the Newco
Security Agreement, Transport Security Agreement and Terminals Security
10
<PAGE>
Agreement and a perfection and priority opinion with respect to the Pledge
Supplement) and in form reasonably acceptable to the Lenders; and
(l) evidence satisfactory to the Agent that all conditions precedent
to, and all consents necessary to permit, the Acquisition have been
satisfied or waived, and that simultaneously with the effectiveness hereof,
the Acquisition will be consummated and Pacer International will be
obtaining at such time good and marketable title to all of the outstanding
Equity Interests of Terminals and Transport free and clear of any Liens.
ARTICLE IV: REPRESENTATIONS OF THE BORROWERS
---------------------------------------------
4.01 The Borrowers hereby represent and warrant as follows:
(a) This Amendment and the Credit Agreement as previously executed
and as amended hereby, constitute legal, valid and binding obligations of
the Borrowers and are enforceable against the Borrowers in accordance with
their terms.
(b) In order to induce the Lenders to execute and deliver this
Amendment, the Borrowers hereby represent to the Lenders that as of the
date hereof and after giving effect to the Acquisition and this Amendment,
the representations and warranties set forth in Article V of the Credit
---------
Agreement are and shall be and remain true and correct (except that the
representations contained in Section 5.5 shall be deemed to refer to the
-----------
most recent financial statements of the Borrowers delivered to the Lenders)
and the Borrowers are in full compliance with all of the terms and
conditions of the Credit Agreement (including, without limitation, the
provisions of Article VI to the extent the same are not specifically waived
----------
hereby), and no Default or Unmatured Default has occurred and is continuing
under the Credit Agreement or shall result after giving effect to the
Acquisition or this Amendment.
ARTICLE V: MISCELLANEOUS
------------------------
5.01. Companies as Borrowers. Each Company and Newco shall, upon the
----------------------
effectiveness of and as evidenced by the execution of this Amendment, hereby
become a Borrower under the Credit Agreement and shall have the rights and
obligations of a Borrower thereunder. Each of Newco and the Companies agrees
that it will perform in accordance with the terms of the Credit Agreement, as
amended hereby, all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Borrower. The respective
notice address for each Company under the Credit Agreement shall be as set forth
on the signature page hereof.
5.02. References in Credit Agreement. Upon the effectiveness of this
------------------------------
Amendment, on and after the date hereof, each reference in the Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or words of like import
shall mean and be a reference to the
11
<PAGE>
Amended and Restated Credit Agreement dated as of December 16, 1997, as amended
previously and as amended hereby.
5.03. Credit Agreement in Full Force and Effect. Except as
-----------------------------------------
specifically amended above, the Credit Agreement and all other documents,
instruments and agreements executed and/or delivered in connection therewith
shall remain in full force and effect, and are hereby ratified and confirmed.
5.04. Express Limitation of Waivers. The execution, delivery and
-----------------------------
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of the Agent or any of the
Lenders, nor constitute a waiver of any provision of the Credit Agreement or any
other documents, instruments and agreements executed and/or delivered in
connection therewith.
5.05 Reaffirmation of Secured Obligations/Collateral Documents. This
---------------------------------------------------------
Agreement is not intended to and shall not constitute a novation. All Loans
made and Secured Obligations incurred under the Credit Agreement which are
outstanding prior to the date of the effectiveness hereof shall continue as
Loans and Secured Obligations under (and shall be governed by the terms of) the
Credit Agreement as amended hereby. Furthermore, the Borrowers have heretofore
delivered to the Agent, for the benefit of the Holders of Secured Obligations,
certain Collateral Documents evidencing the granting of collateral security for
the Secured Obligations and the Borrowers hereby acknowledge and agree that,
notwithstanding the execution and delivery of this Amendment, the Collateral
Documents remain in full force and effect and the rights and remedies of the
Lenders thereunder, the obligations of the Borrowers thereunder and the liens
and security interest created and provided for thereunder remain in full force
and effect and shall not be affected, impaired or discharged hereby. Nothing
herein contained shall in any manner affect or impair the priority of liens and
security interests created and provided for by the Collateral Documents as to
the Secured Obligations which would be secured thereby prior to giving effect to
this Amendment.
5.06. Costs and Expenses. The Borrowers agree to pay all reasonable
------------------
costs, fees and out-of-pocket expenses (including attorneys' fees and expenses
charged to the Agent) incurred by the Agent in connection with the preparation,
execution and enforcement of this Amendment.
5.07. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS (INCLUDING 735
ILCS 105/5-1 ET SEQ. BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS).
5.08. Headings. Section headings in this Amendment are included herein
--------
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
12
<PAGE>
5.09. Counterparts. This Amendment may be executed by one or more of
------------
the parties to the Amendment on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument.
13
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first above written.
CROSS CON TERMINALS, INC.
By:___________________________
Name: Richard P. Hyland
Title: President
Address:
c/o Pacer International, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: Chief Financial Officer
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
CROSS CON TRANSPORT, INC.
By:___________________________
Name: Richard P. Hyland
Title: President
Address:
c/o Pacer International, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: Chief Financial Officer
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
PACER LOGISTICS, INC.
By:___________________________
Name:
Title:
<PAGE>
PACER INTEGRATED LOGISTICS, INC.
By:___________________________
Name:
Title:
PACER INTERNATIONAL, INC.
(f/k/a PMT Holdings, Inc.)
By:___________________________
Name:
Title:
PACIFIC MOTOR TRANSPORT COMPANY
By:___________________________
Name:
Title:
PACER INTERNATIONAL RAIL SERVICES LLC
(f/k/a American International Rail Service LLC)
By: Pacific Motor Transport Company
Its: Manager
By:___________________________
Name:
Title:
PACER RAIL SERVICES LLC
(f/k/a American International Mechanical Service,
LLC)
By: Pacific Motor Transport Company
Its: Manager
By:___________________________
Name:
Title:
<PAGE>
INTERSTATE CONSOLIDATION, INC.
By:___________________________
Name:
Title:
INTERSTATE CONSOLIDATION SERVICE, INC.,
By:___________________________
Name:
Title:
INTERMODAL CONTAINER SERVICE, INC.
By:___________________________
Name:
Title:
CROSS CON ACQUISITION CORP.
By:___________________________
Name: Richard P. Hyland
Title: Vice President, Assistant Secretary &
Assistant Treasurer
Address:
c/o Pacer International, Inc.
3746 Mt. Diablo Blvd.
Lafayette, CA 94549
Attn: Chief Financial Officer
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent and as a Lender
By:___________________________
Name: Greg Sjullie
Title: Vice President
UNION BANK OF CALIFORNIA, N.A., as a Lender
By:___________________________
Name:
Title:
BANKBOSTON, N.A., as a Lender
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT B
TO
AMENDED AND RESTATED CREDIT AGREEMENT
COMMITMENTS
-----------
I. REVOLVING LOAN COMMITMENTS
<TABLE>
<CAPTION>
Amount of Term % of Term
Lender Loan Commitment Loan Commitment
- ------ --------------- ---------------
<S> <C> <C>
The First National
Bank of Chicago $12,500,000 50%
Union Bank $ 5,000,000 20%
of California, N.A.
BankBoston, N.A. $ 7,500,000 30%
TOTAL $25,000,000.00 100.000000 %
</TABLE>
II. TERM LOAN COMMITMENTS
<TABLE>
<CAPTION>
Amount of Term % of Term
Lender Loan Commitment Loan Commitment
- ------ --------------- ---------------
<S> <C> <C>
The First National
Bank of Chicago $12,500,000 50%
Union Bank $ 5,000,000 20%
of California, N.A.
BankBoston, N.A. $ 7,500,000 30%
TOTAL $25,000,000.00 100.000000 %
</TABLE>
<PAGE>
EXHIBIT 21.1
Subsidiaries
------------
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
Name or Organization Additional Business Names Used (if any)
- ---- ----------------------------- ---------------------------------------
<S> <C> <C>
Pacific Motor Transport Company California Pacer
Pacer, Inc.
Pacer Transport, Inc.
Pacer International, Inc.
ABL-Trans
Pacer Logistics, Inc. California
Pacer Integrated Logistics, Inc. Delaware Stutz and Company
Interstate Consolidation Service, Inc. California Pacer Intermodal, Inc.
ABL-Trans
Interstate Consolidation, Inc. California Cartage Service, Inc.
Intermodal Container Service, Inc. California Harbor Rail Transport
Pacer International Rail Services LLC Colorado
Pacer Rail Services LLC Colorado
Pacer International Consulting LLC Colorado
Cross Con Acquisition Corp. Delaware
Cross Con Terminals, Inc. Delaware
Cross Con Transport, Inc. Illinois
PLM Acquisition Corporation Delaware
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement on Form S-1 (file no. 333-53983).
July 7, 1998
/s/ Arthur Andersen LLP
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Interstate Consolidation, Inc. and
Interstate Consolidation Services, Inc.
and subsidiary:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus. Our report refers to a
change in accounting method for refunds from railroad companies.
/s/ KPMG Peat Marwick LLP
Los Angeles, CA
July 7, 1998
