<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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
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<S> <C> <C> <C> <C>
Common Stock (par value 3,421,250
$0.01 per share)...... shares $13.00 $44,476,250 $13,121
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 446,250 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.
----------------
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.
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<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
MAY 29, 1998
2,975,000 Shares
[LOGO OF PACER INTERNATIONAL, INC.]
Common Stock
--------
Of the 2,975,000 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 175,000 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 $ and $ per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. The Company intends to apply 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.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.......................... $ $ $ $
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Total(2)........................... $ $ $ $
</TABLE>
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(1) Before deducting expenses of the offering estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
446,250 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
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]
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."
------------
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 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.
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. 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, 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. 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
3
<PAGE>
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 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.
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 and 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. 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. 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, 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. 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
4
<PAGE>
Officer. Mr. Orris is the former President and Chief Operating Officer of the
Southern Pacific Transportation Company ("SPTC"), 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. 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 % 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.
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. 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.
5
<PAGE>
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. The Company recently
completed the acquisitions of Stutz (as defined), a Kansas City-based provider
of warehousing, materials consolidation and regionalized dedicated trucking
services, and Cross Con (as defined), 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.
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 and intermodal marketing services through
its ABL-TRANS division. PMTC was founded in 1928 under the name Pacific
Electric Motor Transport Company as a subsidiary of SPTC (a subsidiary of the
Union Pacific Railroad).
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 May 1998, the Company signed a definitive agreement to acquire (the "Cross
Con Acquisition") all of the capital stock of Cross Con Terminals, Inc. and
Cross Con Transport, Inc. (collectively, "Cross Con"). The Cross Con
Acquisition is expected to close in June 1998, subject to customary closing
conditions.
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.
6
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company ................ 2,800,000 shares
Common Stock offered by the Selling Stockholders.... 175,000 shares(1)
Common Stock to be outstanding after this offering.. 8,410,857 shares(2)
Use of proceeds..................................... To repay outstanding
indebtedness, repurchase
the Company's outstanding
Series A Preferred Stock
and for working capital
and other general
corporate purposes,
including possible
acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market..................... PACR
</TABLE>
- --------
(1) Consists of 175,000 shares of Common Stock, including 13,816 shares of
Common Stock issuable upon conversion of the shares of Series A Preferred
Stock (collectively, the "Warrant Units"), reserved for issuance under a
warrant issued by the Company to SPTC (the "SP Warrant"), at an exercise
price of $10.00 per Warrant Unit, reduced by shares of Common Stock to be
used to exercise the SP Warrant. See "Management--Executive Compensation."
(2) Excludes 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.
7
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
PREDECESSOR (1) COMPANY (1)
------------------------------------------------- -------------------------------------------------
PRO FORMA PRO FORMA
THREE NINE NINE THREE THREE
MONTHS MONTHS MONTHS 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 $187,417 $50,362 $64,582
Net revenues....... 10,085 11,109 12,378 13,650 3,040 12,389 28,638 8,359 10,388
Selling, general
and
administrative.... 7,059 7,149 8,697 10,037 2,300 8,799 19,497 5,634 6,702
Income from
operations........ 2,985 3,744 3,593 3,520 193 3,187 7,771 2,384 3,188
Net income......... $ 1,672 $ 2,678 $ 3,036 $ 3,008 $ 119 $ 1,416 $ 3,207 $ 1,065 $ 1,413
Income per
share(3):
Basic............. $0.41 $0.59 $0.23 $0.26
Diluted........... $0.34 $0.49 $0.19 $0.22
Weighted average
shares
outstanding:
Basic............. 3,403,480 5,437,392 4,678,750 5,437,392
Diluted........... 4,141,041 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 77,489 77,489
Long-term debt and capital leases.......... 22,079 32,800 6,402
Stockholders' equity....................... 10,524 16,741 43,141
</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."
(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.
(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
on an economic basis. 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 his 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. Although the Company has been successful
in identifying, closing and integrating previous acquisitions, no assurance
can be given that it will continue to 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' transportation
departments. Some of the Company's competitors have significantly 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 approximately % 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 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 $12.46 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 8,410,857 shares of Common Stock issued and outstanding. The
2,975,000 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 own 5,437,392 shares of Common Stock. 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
into the public market. Prior to this
12
<PAGE>
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." Prior to completion
of this offering, the Company intends to adopt a 1998 Stock Option Plan (the
"1998 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 (ii) pursuant to the exercise of options granted under the 1997
Option Plan and (iii) pursuant to the exercise of options granted under the
1998 Option Plan.
The Company currently intends to file a Registration Statement on Form S-1
covering up to an additional 3 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
$ million ($ million if the Underwriters' over-allotment option is
exercised in full). The Company intends to use $ 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 $3.6 million to
repurchase from certain principal stockholders of the Company all outstanding
shares of the Company's Series A Preferred Stock, including accrued and unpaid
dividends thereon of approximately $500,000. See "Certain Transactions." The
amount outstanding under the Credit Agreement at March 31, 1998 was $24.1
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 8.68% as of March 31, 1998. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The Company intends to use any remaining net
proceeds for working capital and other general corporate purposes, including
possible future acquisitions. Pending such uses, the net proceeds will be
invested in short-term, investment grade, interest-bearing securities. 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 $32,800 $ 6,402
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 8,410,857 shares
outstanding as adjusted(2)................. 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 1,981
------- ------- -------
Total stockholders' equity................ 10,524 16,741 43,141
------- ------- -------
Total capitalization.................... $32,603 $49,541 $49,543
======= ======= =======
</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.
(3) Gives effect to the automatic conversion of the SP Warrant into 173,465
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, and the payment of accrued and unpaid dividends thereon of
approximately $500,000. 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 $(30,277,000), or $(5.57) 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, the pro forma net tangible book value (deficiency) of the
Company at March 31, 1998 would have been approximately $(3,877,000), or
$(0.46) per share of Common Stock, representing an immediate increase in pro
forma net tangible book value of $5.11 per share to existing stockholders and
an immediate, substantial dilution of $12.45 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....................................... $(5.57)
Increase attributable to price paid by new investors per
share................................................... 5.11
------
Pro forma net tangible book value per share as adjusted for
this offering............................................. (0.46)
------
Dilution per share to new investors........................ $12.46
======
</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 May, 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>
TOTAL
SHARES PURCHASED CONSIDERATIONS
----------------- ------------------- 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............... 2,973,465 35.4 33,784,210 75.3 11.36
--------- ----- ----------- -----
Total..................... 8,410,857 100.0% $44,839,380 100.0%
========= ===== =========== =====
</TABLE>
The foregoing computations give effect to (a) the automatic conversion of
the SP Warrant into 173,465 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, and the
payment of accrued and unpaid dividends thereon of approximately $500,000, 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 PRO FORMA
THREE NINE NINE THREE THREE
MONTHS MONTHS MONTHS 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 $ 187,417 $ 50,362 $ 64,582
Cost of
transportation and
services........... 57,215 64,796 65,900 73,116 16,498 68,713 158,779 42,003 54,194
------- ------- ------- ------- ------- --------- --------- --------- ---------
Net revenues....... 10,085 11,109 12,378 13,650 3,040 12,389 28,638 8,359 10,388
Selling, general and
administrative..... 7,059 7,149 8,697 10,037 2,300 8,799 19,497 5,634 6,702
Depreciation and
amortization(3).... 41 216 88 93 37 403 1,370 341 498
Transaction costs... -- -- -- -- 510 -- -- -- --
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income from
operations........ 2,985 3,744 3,593 3,520 193 3,187 7,771 2,384 3,188
Interest expense
(income)........... (451) (837) (1,383) (1,376) -- 659 2,260 554 760
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income before
provision for
income taxes and
extraordinary
loss.............. 3,436 4,581 4,976 4,896 193 2,528 5,511 1,830 2,428
Income tax
provision.......... 1,544 1,903 1,940 1,888 74 983 2,304 765 1,015
------- ------- ------- ------- ------- --------- --------- --------- ---------
Income before
extraordinary
loss.............. 1,892 2,678 3,036 3,008 119 1,545 3,207 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 $ 3,207 $ 1,065 $ 1,413
======= ======= ======= ======= ======= ========= ========= ========= =========
Income per share(5)..
Basic...............
Income before
extraordinary loss.. $ 0.45 $ 0.59 $ 0.23 $ 0.26
Extraordinary loss.. (0.04) -- -- --
--------- --------- --------- ---------
Net income......... $ 0.41 $ 0.59 $ 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 PRO FORMA
NINE NINE THREE THREE
MONTHS MONTHS 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 $0.49 $0.19 $0.22
Extraordinary
loss (0.03) -- -- -
--------- --------- --------- ---------
Net income...... $0.34 $0.49 $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 common 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.
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 million in cash and the
SP 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 and 1,353,750 shares of the Company's 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 the Company's common stock. In May 1998, the Company entered into a
definitive agreement to acquire all of the capital stock of Cross Con. The
Cross Con Acquisition is expected to close in June 1998, subject to customary
closing conditions. 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 acquisition of Interstate on December 16, 1997. In
addition, the Company experienced increased volumes at Pacer Transport, the
Company's flatbed and specialized heavy-haul trucking subsidiary and commenced
business at AIRS 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
acquisition of Interstate, which has historically operated at a slightly
higher margin than the Company, 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 for First Quarter 1998 from
$2.3 million for 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% for First Quarter 1998 from 11.8% for First
Quarter 1997. The decrease is primarily a result of the acquisition of
Interstate, which has historically operated with lower overhead than the
Company, 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. In addition, for information
purposes, year-to-year comparisons have been provided.
Revenues. Revenues decreased $5.7 million, or 6.5%, to $81.1 million for
Fiscal 1997 from $86.8 million for 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 for the twelve month period ended December 31, 1996.
Net Revenues. Net revenues decreased $1.3 million, or 9.2%, to $12.4 million
for Fiscal 1997 from $13.7 million for 1996. Net revenues as a percentage of
gross revenues decreased to 15.3% for Fiscal 1997 from 15.7% for 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 for 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 for Fiscal 1997 from $10.0
million for 1996. As a percentage of revenues, selling, general and
administrative expenses decreased to 10.8% for Fiscal 1997 from 11.6% for
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
for 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 for
1996. This increase is a result of increased borrowings to finance the
management buyout and the purchase of Interstate.
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 its common stock as part of the
consideration in the Acquisitions.
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 AIRS. 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. At March 31, 1998 and December 31, 1997, the Company had $7.9 and
$5.6 million of additional availability under the Revolving Loan. The Credit
Agreement requires the Company to maintain certain leverage and cash flow
ratios and limits the level of capital expenditures.
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.
22
<PAGE>
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 its $21.9 million
advance from the Predecessor in full.
Upon completion of this offering, the Company intends to use a portion of
the net proceeds to repay in full the Term Loan and to repay in part the
Revolving Loan and to repurchase all of the outstanding shares of the Series A
Preferred Stock, including accrued and unpaid dividends thereon of
approximately $500,000. See "Use of Proceeds" and "Certain Transactions."
Subsequent to March 31, 1998, the Company acquired Stutz. In May 1998, the
Company entered into a definitive agreement to acquire Cross Con. The Cross
Con Acquisition is expected to close in June 1998, subject to customary
closing conditions. In connection with the Cross Con Acquisition, the Company
expects to further amend 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 capitalize on
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.
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.
23
<PAGE>
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.
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
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
freight represents a rapidly growing, but small segment of the domestic
market, estimated at $20 billion in 1996. Water-borne freight is typically
used for international shipments where a land 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 U.S. 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 full truckloads 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 for-hire 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 segments, 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. Truck brokerage
involves the outsourced arrangement of trucking services by a third party with
a licensed carrier on behalf of a shipper. 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 equipment.
Relative advantages to the domestic shipper of trucking include flexibility
of pickup, route, and delivery as well as relatively rapid delivery cycles
(versus other modes excluding air transport). 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 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 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 haul.
26
<PAGE>
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 journey. In addition, larger 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. 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 SPTC, 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 % 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. 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 only 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.
Pursue Strategic Acquisitions. As an additional component of its growth
strategy, the Company intends to continue its disciplined acquisition program.
The Company believes that, given the highly fragmented nature of the industry,
the relatively large number of small and mid-size intermodal companies and the
recent consolidation of railroads, there is increased pressure on the smallest
intermodal companies to consolidate. 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 believes there is increased pressure on these smaller
transportation and logistics companies to consolidate. The Company's
nationwide network of
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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
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be contacted by radio dispatch and directed to pick up a container or LTL
shipment for a customer. The 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.
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 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 U.S. Department of
Transportation ("DOT") regulations. The Company also 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.
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 insure 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.
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 typically govern the transportation services
and payment terms pursuant to which the Company's intermodal shipments are
handled by the railroads. 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.
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
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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. 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 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.
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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 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.
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 of approximately
89,000 total square feet. See "Certain Transactions."
EMPLOYEES
As of March 31, 1998, the Company had approximately 250 employees,
substantially all of whom are full-time employees. Pacer International Rail
Services LLC (formerly American International Rail Services LLC) is party to a
collective bargaining agreement, effective July 1, 1997, with the Brotherhood
of Railway Carmen Division, Transportation Communications International Union.
As of March 31, 1998, 17 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
Allen E. Steiner............... 58 Executive Vice President
Lawrence C. Yarberry........... 56 Executive Vice President and Chief
Financial Officer
Joseph P. Atturio.............. 40 Vice President, Controller and Secretary
</TABLE>
Prior to or promptly following the consummation of this offering, the
Company intends to add two independent directors. 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 one
of the newly appointed directors will be Class II directors and Messrs. Korn
and one of the newly appointed directors 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."
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.
From March 1997 until May 1998, Mr. Orris served as President and Chief
Executive Officer of PMTC. Since December 1997 he has served as Chairman of
Interstate and since May 1998 he has served as Chairman of the Company's other
subsidiaries. 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 1990 until 1996, Mr. Orris served
as the Chief Operating Officer and an Executive Vice President of SPTC. 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. Since May 1998, Mr. Angeli has served as President and Chief
Executive Officer of PMTC and Vice President of Interstate and 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.
Gary I. Goldfein has been an Executive Vice President of the Company and a
director since December 1997. Mr. Goldfein also has served as the President of
Pacer Logistics, Inc., a wholly owned subsidiary of the Company ("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.
37
<PAGE>
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. Mr. Korn
has been a Managing Director of Eos Partners, L.P., 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 Executive Vice President of
Logistics and Interstate since May 1998. From 1991 until March 1997, Mr. Cross
served as President of ABL-TRANS, formerly a division of PMTC.
Allen E. Steiner has served as an Executive Vice President of the Company
and Interstate since December 1997. Mr. Steiner was a co-founder of ICI and
ICSI in 1972. Since May 1998, Mr. Steiner has served as Executive Vice
President of Logistics. 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 and the Chief
Financial Officer of the Company since May 1998 and served as a consultant to
the Company from February 1998 until March 1998. From April 1990 until
December 1997, Mr. Yarberry served as Vice President of Finance of SPTC. From
April 1990 until September 1996 he also served as Chief Financial Officer and
director of SPTC, 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.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors intends to establish an Audit
Committee following 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 following 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.
38
<PAGE>
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 23,333.33 100% $11.24 3/31/07 308,804 522,678
126,666.64 13,333.33 100% 40.00 3/31/03 -- --
Gerry Angeli............ 221,666.64 23,333.33 100% 11.24 3/31/07 308,804 522,678
126,666.64 13,333.33 100% 40.00 3/31/03 -- --
Robert L. Cross......... 221,666.64 23,333.33 100% 11.24 3/31/07 308,804 522,678
126,666.64 13,333.33 100% 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"), and employment agreements
dated as of December 16, 1997 with each of Gary I. Goldfein and Allen E.
Steiner (the "Interstate Employment Agreements;" and together with the PMTC
Employment Agreements, the "Employment Agreements"). Base compensation under
the Employment Agreements is $225,000, $225,000, $200,000, $235,000, and
$220,000 per year for Messers. Orris, Angeli, Cross, Goldfein and Steiner,
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 and Interstate Employment Agreements, the Board of Directors
may award an annual bonus to the employee in an amount up to $83,000 and
$90,000, respectively, in each case 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 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, 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.
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
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 the 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.
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
41
<PAGE>
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. Unless
accelerated pursuant to the terms thereof, options granted thereunder vest and
become exercisable on April 1 of each of 1998, 1999, 2000 and 2001 as to 25%
of the Option Units.
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 100% 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
Prior to completion of this offering, the Company intends to adopt the 1998
Option Plan and submit such plan to its existing stockholders for approval.
The 1998 Option Plan will be administered by the Committee. Under the Plan,
the Committee will be able to 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 . The Company
will not be able to issue more than 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 (not in excess of ) 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.
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. 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.
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 and to pay accrued and unpaid dividends thereon
of approximately $500,000. As a result of the foregoing, the Company will make
payments to Eos and Messrs. Orris, Angeli and Cross in the amounts of
$3,102,500, $182,500, $182,500 and $182,500, respectively. See "Use of
Proceeds."
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 March 31, 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 STOCK BENEFICIALLY
BENEFICIALLY OWNED SHARES OWNED AFTER
PRIOR TO OFFERING TO BE OFFERING
NAME AND ADDRESS OF ------------------------ SOLD IN -----------------
BENEFICIAL OWNER NUMBER PERCENT OFFERING NUMBER PERCENT
------------------- ------------ ----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Eos Partners, L.P. ......... 2,826,250 60.41% -- 2,826,250 33.60%
320 Park Avenue, 22nd Floor
New York, New York 10022
Southern Pacific 175,000 3.61 175,000 -- --
Transportation Company(2)..
1717 Main Street, 59th
Floor
Dallas, Texas 75201
Donald C. Orris(3).......... 348,333 7.17 -- 348,333 4.05
Gerry Angeli(3)............. 348,333 7.17 -- 348,333 4.05
Douglas R. Korn(4).......... 2,826,250 60.41 -- 2,826,250 33.60
Gary I. Goldfein............ 676,875 14.47 -- 676,875 8.05
Allen E. Steiner............ 676,875 14.47 -- 676,875 8.05
Robert L. Cross(3).......... 348,333 7.17 -- 348,333 4.05
Joseph P. Atturio........... -- -- -- --
All directors and executive
officers as a group (7
persons)................... 5,225,000 100.00% -- 5,225,000 58.33%
</TABLE>
- --------
(1) Applicable percentage of ownership is based on 4,678,750 shares of Common
Stock outstanding as of March 31, 1998 and 8,410,857 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) Represents shares of Common Stock issuable upon conversion of the SP
Warrant.
(3) Includes 182,083 shares of Common Stock issuable upon the exercise of
presently exercisable options held by the stockholder.
(4) 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.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of shares of
Common Stock, $0.01 par value, and 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 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 shares of Preferred Stock,
par value $0.01 per share, of which 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 shares of Series A Preferred Stock will
remain outstanding under the 1997 Option Plan.
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.
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.
45
<PAGE>
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.
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.
46
<PAGE>
Classified Board of Directors. The Certificate provides for the Board of
Directors to be divided into two classes of directors serving staggered two-
year terms. As a result, one-half 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 of Incorporation 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
8,410,857 shares of Common Stock (8,857,107 if the Underwriters' over-
allotment option is exercised in full) of which the 2,975,000 shares sold in
the offering (3,421,250 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 5,437,392 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 (or 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 3 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 has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to
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 option, 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 , and the Company will
be obligated, pursuant to the option, to sell such shares to the Underwriters.
The Underwriters may exercise such option only to cover over-allotments made
in connection with the sale of the shares of Common Stock offered hereby.
If purchased, the Underwriters will offer such additional shares on the same
terms as those on which the 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 has agreed not to offer, sell or otherwise dispose of any shares
of Common Stock for a period of 180 days from the date of this Prospectus
without the prior written consent of BT Alex. Brown Incorporated, except for
the grant of employee stock options under the 1998 Option Plan shares issued
(i) in connection with acquisitions, (ii) pursuant to the exercise of options
granted under the 1997 Option Plan and (iii) pursuant to the exercise of
options granted under the 1998 Option Plan. In addition, the Selling
Stockholders and the Company's directors, officers and other stockholders who
beneficially own an aggregate of shares of outstanding Common Stock have
agreed not to offer, sell or otherwise dispose of any shares of 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 transfers pursuant
to bona fide gifts.
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 which in and of itself 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 in and of itself a full truckload.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Basis of Presentation................................................... F-3
Unaudited Pro forma Consolidated Balance Sheet as of March 31, 1998 .... F-4
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 nine
months ended December 31, 1997......................................... F-7
HISTORICAL FINANCIAL STATEMENTS
PACER INTERNATIONAL, INC.
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
INTERSTATE
Report of Independent Public Accountants................................ F-29
Combined Balance Sheets as of December 16, 1997 and December 31, 1996... F-30
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-31
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-32
Notes to Combined Financial Statements.................................. F-33
CROSS CON
Report of Independent Public Accountants................................ F-39
Combined Balance Sheets as of December 31, 1997 and 1996................ F-40
Combined Statements of Operations for the years ended December 31, 1997,
1996 and 1995.......................................................... F-41
Combined Statements of Stockholders' Equity for the years ending
December 31, 1997, 1996, and 1995...................................... F-42
Combined Statements of Cash Flows for the years ending December 31,
1997, 1996, and 1995................................................... F-43
Notes to Consolidated Financial Statements.............................. F-44
</TABLE>
F-1
<PAGE>
UNAUDITED INTERIM FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PACER INTERNATIONAL, INC.
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997.. F-48
Consolidated Statements of Operations for the three months ended March
31, 1998 and 1997...................................................... F-49
Consolidated Statement of Changes in Stockholders' Equity for the three
months ended March 31, 1998............................................ F-50
Consolidated Statements of Cash Flows for the three months ended March
31, 1998 and 1997...................................................... F-51
Notes to Consolidated Financial Statements.............................. F-52
CROSS CON
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-2
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The pro forma balance sheet as of March 31, 1998 gives effect to the Stutz
Acquisition and the proposed 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 and proposed acquisition of Cross
Con 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. Under the terms of the Cross Con purchase
agreement, the Company will pay $9.6 million and will issue 541,500 shares
valued at $4.8 million. The Company borrowed $20.0 million to finance the
Interstate Acquisition, $0.4 million to finance the Stutz Acquisition and will
borrow $9.6 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-3
<PAGE>
PACER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
COMPANY ADJUSTMENTS FOR
HISTORICAL ACQUISITIONS AFTER
MARCH 31, 1998 MARCH 31, 1998 PRO FORMA
ASSETS -------------- ------------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 87 $ 155 $ 242
Accounts receivable, net.............. 19,877 6,148 26,025
Prepaid expenses and other............ 647 41 688
------- ------- -------
Total current assets.............. 20,611 6,344 26,955
------- ------- -------
Property and equipment:
Property and equipment, at cost....... 2,267 476 2,743
Accumulated depreciation.............. (259) -- (259)
------- ------- -------
Property and equipment, net....... 2,008 476 2,484
Other assets:
Intangible assets, net................ 32,489 14,529 47,018
Deferred income taxes................. 38 -- 38
Other assets.......................... 988 6 994
------- ------- -------
Total assets...................... $56,134 $21,355 $77,489
======= ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS" EQUITY
<S> <C> <C> <C>
Current liabilities:
Current maturities of debt and capital
leases............................... $ 2,459 $ 22 $ 2,481
Accounts payable...................... 10,868 3,955 14,823
Accrued expenses...................... 8,946 436 9,382
Income taxes payable.................. 437 4 441
Deferred income taxes................. 143 -- 143
------- ------- -------
Total current liabilities......... 22,853 4,417 27,270
Long-term liabilities
Employee benefits..................... 678 -- 678
Long-term debt and capital leases..... 22,079 10,721 32,800
------- ------- -------
Total liabilities................. 45,610 15,138 60,748
------- ------- -------
Stockholders' equity
Preferred stock....................... 4 -- 4
Common stock.......................... 5 1 6
Warrants.............................. 53 -- 53
Additional paid-in capital............ 7,981 6,216 14,197
Retained earnings..................... 2,481 -- 2,481
------- ------- -------
Total stockholders' equity........ 10,524 6,217 16,741
------- ------- -------
Total liabilities and stockhold-
ers' equity...................... $56,134 $21,355 $77,489
======= ======= =======
</TABLE>
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 and employees.
(5) Reflects amortization of goodwill. Goodwill is being amortized over 15 to
40 years 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 NINE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------------
INTERSTATE
EIGHT AND STUTZ CROSS CON PRO FORMA
ONE-HALF NINE MONTHS NINE MONTHS NINE MONTHS
PACER MONTHS ENDED ENDED ENDED ENDED
INTERNATIONAL, INC. DECEMBER 16, DECEMBER 31, DECEMBER 31, DECEMBER 31,
FISCAL 1997(1) 1997 1997 1997 ADJUSTMENTS(2) 1997
------------------- ------------ ------------ ------------ -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $81,102 $64,953 $2,854 $39,268 $ (760)(3) $ 187,417
Cost of transportation
and services........... 68,713 54,042 1,901 34,883 (760)(3) 158,779
------- ------- ------ ------- ------- ---------
Net revenues......... 12,389 10,911 953 4,385 -- 28,638
Operating expenses:
Selling, general, and
administrative........ 8,799 7,311 442 3,123 (178)(4) 19,497
Depreciation and
amortization.......... 403 175 66 39 687 (5) 1,370
------- ------- ------ ------- ------- ---------
Income from
operations.......... 3,187 3,425 445 1,223 (509) 7,771
Interest expense
(income) ............. 659 (114) 8 (70) 1,777 (6) 2,260
------- ------- ------ ------- ------- ---------
Income before tax
provision.............. 2,528 3,539 437 1,293 (2,286) 5,511
Income tax provision... 983 -- -- -- 1,321 (7) 2,304
------- ------- ------ ------- ------- ---------
Net income.............. $ 1,545 $ 3,539 $ 437 $ 1,293 $(3,607) $ 3,207
======= ======= ====== ======= ======= =========
<CAPTION>
Income per share(8):
<S> <C> <C> <C> <C> <C> <C>
Basic:
Net income............ $ 0.59
=========
Pro forma weighted
averages shares
outstanding.......... 5,437,392
=========
Diluted:
Net income............ $ 0.49
=========
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, 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 and employees.
(5) Reflects amortization of goodwill. Goodwill is being amortized over 15 to
40 years 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 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 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 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.
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 upon completion of the
Company's services.
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 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.
COMPREHENSIVE INCOME AND SEGMENTS
In 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information." 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. The Company
will adopt SFAS No. 130 and SFAS No. 131 in 1998. 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.
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.
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.
F-18
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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 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-
F-19
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 shall not pay or declare any dividend on or
with respect to any shares of common stock. Upon liquidation, the holders of
preferred stock shall be 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 shall not be 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.
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 142,500 shares of common stock, which were valued at $31.50 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 one share 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 8,410,857 $0.17
====== ========= =====
Diluted............................... $1,416 8,984,192 $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 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 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.
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 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 of Cross Con is expected to close in June 1998, subject
to customary closing conditions. Cross Con is a provider of intermodal
marketing services.
The Company plans to file 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, will declare a
dividend to preferred stockholders of approximately $500,000, 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>
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-29
<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-30
<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-31
<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-32
<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
Revenue is generally recognized upon shipment. 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
calclulated 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-33
<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-34
<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-35
<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-36
<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-37
<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 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, however, 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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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 upon completion of the
Company's services.
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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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 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) 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-52
<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-53
<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-54
<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-55
<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-56
<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, will declare a
dividend to preferred stockholders of approximately $500,000, 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-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 OPERATIONS
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 DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION AND REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR SO-
LICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE AN OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,975,000 Shares
[LOGO OF 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................................................ $13,121
NASD filing fee..................................................... 4,948
Nasdaq National Market listing fee.................................. *
Blue sky fees and expenses.......................................... *
Printing and engraving expenses..................................... *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Transfer agent and registrar fees................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
--------
*To be provided by amendment.
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
II-1
<PAGE>
shares of Common Stock and 2,992,500 shares of Series A Preferred Stock for an
aggregate purchase price of $3,150,000.
(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").
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 Amended and Restated Certificate of Incorporation of the Company.
*3.2 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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
to be 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
Pacer, PMTC, ICI, 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.
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
(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.
II-3
<PAGE>
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 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 29TH DAY OF MAY, 1998.
PACER INTERNATIONAL, INC.
By: /s/ Donald C. Orris
----------------------------------
Donald C. Orris
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSON BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Donald C. Orris and Lawrence C.
Yarberry or either of them, each acting alone, his or her true and lawful
attorney-in-fact and agent, with full power of substitution and
resubstitution, for such person and in his or her name, place and stead, in
any and all capacities, in connection with the Registrant's Registration
Statement on Form S-1 under the Securities Act of 1933, including to sign the
Registration Statement in the name and on behalf of the undersigned as a
director or officer of the Registrant and any and all amendments or
supplements thereto, including any and all stickers and post-effective
amendments thereto, and any and all additional registration statements
relating to the same offering of securities as those that are covered by the
Registration Statement that are filed pursuant to Rule 462(b) under the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
all other documents in connection therewith, with the Securities and Exchange
Commission and any applicable securities exchange or securities self-
regulatory body, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or his,
her or their substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 29TH DAY OF MAY, 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)
/s/ Lawrence C. Yarberry Chief Financial Officer
- ------------------------------------- (Principal Financial Officer)
LAWRENCE C. YARBERRY
/s/ Joseph P. Atturio Vice President and Controller
- ------------------------------------- (Principal Accounting Officer)
JOSEPH P. ATTURIO
/s/ Gerry Angeli Director
- -------------------------------------
GERRY ANGELI
/s/ Douglas R. Korn Director
- -------------------------------------
DOUGLAS R. KORN
/s/ Gary I. Goldfein Director
- -------------------------------------
GARY I. GOLDFEIN
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 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
to be 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
Pacer, PMTC, ICI, 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.
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
<PAGE>
EXHIBIT 10.3
PMT HOLDINGS, INC.
1997 Stock Option Plan
----------------------
1. PURPOSE OF THE PLAN
The purpose of the PMT HOLDINGS, INC. 1997 STOCK OPTION PLAN (the
"Plan") is (i) to further the growth and success of PMT HOLDINGS, INC., a
Delaware corporation (the "Company"), and its Subsidiaries (as hereinafter
defined) by enabling employees of, or consultants to, the Company or any of its
Subsidiaries to acquire Units (as hereinafter defined), thereby increasing their
personal interest in such growth and success, and (ii) to provide a means of
rewarding outstanding performance by such persons to the Company and/or its
Subsidiaries. Options granted under the Plan (the "Options") may be either
"incentive stock options" ("ISOs"), intended to qualify as such under the
provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options ("NSOs"). In this Plan, the terms
"Parent" and "Subsidiary" mean "Parent Corporation" and "Subsidiary
Corporation," respectively, as such terms are defined in Sections 424(e) and (f)
of the Code. Unless the context otherwise requires, any ISO or NSO is referred
to in this Plan as an "Option."
2. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set
forth below:
"AFFILIATE" has the meaning ascribed thereto in the Stockholders
Agreement.
"BOARD" has the meaning set forth in Section 3(a) hereof.
"CAUSE" has the meaning ascribed thereto in any written agreement
entered into between the Company and any Optionee as to which a determination of
"Cause" is to be made; provided, however, that if no such agreement exists
-------- -------
"Cause" shall be determined by the Committee.
"COMMITTEE" has the meaning set forth in Section 3(a) hereof.
"COMMON STOCK" means the Company's Common Stock, par value $.01 per
share.
"COMPANY" has the meaning set forth in Section 1 hereof.
<PAGE>
"DISQUALIFYING DISPOSITION" has the meaning set forth in Section 16
hereof.
"EFFECTIVE DATE" has the meaning set forth in Section 12 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INVOLUNTARY TERMINATION" has the meaning set forth in Section 7(a)
hereof.
"ISOS" has the meaning set forth in Section 1 hereof.
"NASDAQ" has the meaning set forth in Section 6(b)(i) hereof.
"NSOS" has the meaning set forth in Section 1 hereof.
"NOTICE" has the meaning set forth in Section 9(b) hereof.
"OPTION" has the meaning set forth in Section 1 hereof.
"OPTION AGREEMENT" has the meaning set forth in Section 5(b) hereof.
"OPTIONED UNITS" has the meaning set forth in Section 9(b)(ii) hereof.
"OPTIONEES" has the meaning set forth in Section 5(a)(i).
"PERSON" has the meaning ascribed thereto in the Stockholders
Agreement.
"PLAN" has the meaning set forth in Section 1 hereof.
"PREFERRED STOCK" means the Company's Series A Preferred Stock, par
value $.01 per share.
"PUBLIC OFFERING" has the meaning ascribed thereto in the Stockholders
Agreement.
"RESERVED UNITS" means, at any time, an aggregate of 110,000 Units
(consisting of an aggregate of 110,000 shares of Common Stock and 110,000 shares
of Preferred Stock).
"RULE 16B-3" has the meaning set forth in Section 3(a) hereof.
"SALE OF THE COMPANY" has the meaning ascribed thereto in the
Stockholders Agreement.
-2-
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement dated as of
March 31, 1997 and as hereafter amended from time to time, among the Company and
the stockholders of the Company named therein.
"TERMINATION DATE" means the earlier to occur of the tenth anniversary
of the Effective Date or the consummation of a Sale of the Company.
"TERMINATION FOR CAUSE" has the meaning set forth in Section 7(a)
hereof.
"TERMINATION OF RELATIONSHIP" means (a) if the Optionee is an employee
of the Company or any Subsidiary, the termination of the Optionee's employment
with the Company and its Subsidiaries for any reason and (b) if the Optionee is
a consultant to the Company or any Subsidiary, the termination of the Optionee's
consulting relationship with the Company and its Subsidiaries for any reason.
"UNITS" means a strip of securities initially consisting of one (1)
share of Common Stock and one (1) share of Preferred Stock, in each case as may
be adjusted pursuant to Section 10 hereof.
3. ADMINISTRATION OF THE PLAN; UNITS SUBJECT TO THE PLAN
(a) Committee
---------
The Plan shall be administered by the Board of Directors of the
Company (the "Board") or a two-person Option Committee (the "Committee")
appointed from time to time by the Board; provided, however, that, so long as it
-------- -------
shall be required to comply with Rule 16b-3 ("Rule 16b-3") promulgated by the
Securities and Exchange Commission (the "SEC") under the Exchange Act in order
to permit officers and directors of the Company to be exempt from the provisions
of Section 16(b) of the Exchange Act with respect to transactions effected
pursuant to the Plan, each of such persons, at the effective date of his or her
appointment to the Committee and at all times thereafter while serving on the
Committee, shall be a "disinterested person" within the meaning of Rule 16b-3.
Any vacancy on the Committee, whether due to action of the Board or any other
cause, shall be filled by the Board. The term "Committee" shall, for all
purposes of the Plan other than this Section 2, be deemed to refer to the Board
if the Board is administering the Plan.
-3-
<PAGE>
(b) Procedures
----------
The Committee shall adopt such rules and regulations as it shall deem
appropriate concerning the holding of meetings and the administration of the
Plan. The entire Committee shall constitute a quorum and the actions of the
entire Committee present at a meeting, or actions approved in writing by the
entire Committee, shall be the actions of the Committee.
(c) Interpretation
--------------
Except as may otherwise be expressly reserved to the Board as provided
herein, and, with respect to any Option, except as may otherwise be provided in
the Option Agreement evidencing such Option, the Committee shall have all powers
with respect to the administration of the Plan, including the interpretation of
the provisions of the Plan and any Option Agreement (as defined in Section
5(b)), and all decisions of the Board or the Committee, as the case may be,
shall be conclusive and binding on all participants in the Plan.
(d) Number of Units
---------------
Subject to the provisions of Section 10 (relating to adjustments upon
changes in capital structure and other corporate transactions), the aggregate
number of Units with respect to which Options may be granted under the Plan
shall not exceed the Reserved Units. If and to the extent that Options granted
under the Plan terminate, are reduced in number, expire or are canceled without
having been fully exercised, new Options may be granted under the Plan with
respect to the Units covered by the unexercised portion of such terminated,
expired or canceled Options.
(e) Reservation of Shares
---------------------
The number of shares of Common Stock and Preferred Stock reserved for
issuance upon the exercise of Options granted under the Plan shall at no time be
less than the maximum number of shares of Common Stock and Preferred Stock which
may be purchased at any time pursuant to outstanding Options.
4. ELIGIBILITY
(a) General
-------
Options may be granted under the Plan only to persons who are
employees of, or consultants to, the Company or any of its Subsidiaries on the
date of grant. Options granted to consultants shall be NSOs. Options granted
to employees of the Company or any of its Subsidiaries shall be, in the
discretion of the Committee, either ISOs or NSOs on the date of grant.
-4-
<PAGE>
(b) Exceptions
----------
Notwithstanding anything contained in Section 4(a) to the contrary:
(i) no ISO may be granted under the Plan to an employee who
owns, directly or indirectly (within the meaning of Sections 422(b)(6) and
425(d) of the Code), stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or of its Parent, if
any, or any of its Subsidiaries, unless (A) the Option Price (as defined in
Section 6(a)) of the Units subject to such ISO is fixed at not less than
110% of the Fair Market Value on the date of grant (as determined in
accordance with Section 6(b)) of such Unit and (B) such ISO by its terms is
not exercisable after the expiration of five years from the date it is
granted; and
(ii) no Option may be granted to any Person serving on the
Committee for so long as such Person serves on the Committee; and
(iii) no Options may be granted to any Person in any one
taxable year of the Company in excess of 35% of the Options issued or
issuable under the Plan.
5. GRANT OF OPTIONS
(a) General
-------
Subject to Section 5(f), options may be granted under the Plan at any
time and from time to time on or prior to the Termination Date. Subject to the
provisions of the Plan, the Committee shall have plenary authority, in its sole
discretion, to determine:
(i) the persons (from among the class of persons eligible to
receive Options under the Plan) to whom Options shall be granted (the
"Optionees");
(ii) the time or times at which Options shall be granted; and
(iii) the number of Units for which an Option may be
exercisable.
(b) Option Agreements
-----------------
Each Option granted under the Plan shall be designated as an ISO or an
NSO and shall be subject to the terms and conditions applicable to ISOs and/or
NSOs (as the case may be)
-5-
<PAGE>
set forth in the Plan. Each Option shall specify the number of Units for which
such Option shall be exercisable and the exercise price for such Units. In
addition, each Option shall be evidenced by a written agreement (an "Option
Agreement"), in substantially the form of Exhibit A for an ISO and Exhibit B for
--------- ---------
an NSO, with such changes thereto as are consistent with the Plan as the
Committee shall deem appropriate. Each Option Agreement shall be executed by
the Company and the Optionee.
(c) Vesting. The Committee shall determine whether and to what
-------
extent any Options which are exercisable for Units are also subject to vesting
based upon the Optionee's continued service to, or the performance of, the
Company and its Subsidiaries; provided that if an Agreement contains time
vesting provisions, such vesting provisions will automatically be subject to
acceleration upon a Sale of the Company. An option may only be exercised to the
extent it has time vested pursuant to such Option Agreement.
(d) No Evidence of Employment or Service
------------------------------------
Nothing contained in the Plan or in any Option Agreement shall confer
upon any Optionee any right with respect to the continuation of his or her
employment by or service with the Company or any of its Subsidiaries or
interfere in any way with the right of the Company or any such Subsidiary
(subject to the terms of any separate agreement to the contrary) at any time to
terminate such employment or service or to increase or decrease the compensation
of the Optionee from the rate in existence at the time of the grant of an
Option.
(e) Date of Grant
-------------
The date of grant of an Option under this Plan shall be the date as of
which the Committee approves the grant; provided, however, that in the case of
-------- -------
an ISO, the date of grant shall in no event be earlier than the date as of which
the Optionee becomes an employee of the Company or one of its Subsidiaries.
(f) Units
-----
Options shall be granted to purchase a specified number of Units not
to exceed, in the aggregate, the Reserved Units. Options may only be exercisable
for whole Units. Once an Option is exercised to acquire a Unit, the securities
comprising such Unit shall be detachable from each other.
-6-
<PAGE>
6. OPTION PRICE
(a) General
-------
The price (the "Option Price") at which each Unit may be purchased
shall be the Fair Market Value (or such lesser amount approved by the Board) of
the shares of Common Stock and Preferred Stock that comprise such Unit on the
date of the grant (as determined in accordance with Section 6(b)); provided,
--------
however, that in the case of an ISO, such Option Price shall in no event be less
- -------
than 100% (or 110% if Section 4(b)(i) hereof is applicable) of the Fair Market
Value on the date of grant (as determined in accordance with Section 6(b)) of
the shares of Common Stock and Preferred Stock that comprise such Unit.
(b) Determination of Fair Market Value
----------------------------------
Subject to the requirements of Section 422 of the Code regarding
ISO's, for purposes of the Plan, the "Fair Market Value" of a Unit shall be
equal to the sum of the Fair Market Values of the shares of Common Stock and
Preferred Stock which comprise such Unit determined as follows:
(i) if such shares are publicly traded, (x) the closing price
on the business day immediately preceding the date of grant if any trades
were made on such business day and such information is available, otherwise
the average of the last bid and asked prices on the business day
immediately preceding the date of grant, in the over-the-counter market as
reported by the National Association of Securities Dealers Automated
Quotations System ("NASDAQ") or (y) if such shares are then traded on a
national securities exchange, the closing price on the business day
immediately preceding the date of grant, if any trades were made on such
business day and such information is available, otherwise the average of
the high and low prices on the business day immediately preceding the date
of grant, on the principal national securities exchange on which it is so
traded; or
(ii) if there is no public trading market for such shares, the
fair value of such shares on the date of grant as reasonably determined in
good faith by the Committee (with the consent of a majority of the Board)
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of such shares
in private transactions negotiated at arms' length; provided that the Fair
Market Value of a share of Preferred Stock shall not be less than its
liquidation value per share.
-7-
<PAGE>
Notwithstanding anything contained in the Plan to the contrary, all
determinations pursuant to Section 6(b)(ii) shall be made without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(c) Repricing of NSOs
-----------------
Subsequent to the date of grant of any NSO, the Committee may, at its
discretion and with the written consent of the Optionee and the prior approval
of the Board, establish a new Option Price for such NSO so as to increase or
decrease the Option Price of such NSO.
7. AUTOMATIC TERMINATION OF OPTION
(a) Each Option granted under the Plan shall automatically terminate
and shall become null and void and be of no further force or effect upon the
first to occur of the following:
(i) (A) in the case of an ISO, the tenth anniversary of the
date on which such Option is granted or, in the case of any ISO granted to
a person described in Section 4(b)(i), the fifth anniversary of the date on
which such ISO is granted and (B) in the case of a NSO, the tenth
anniversary on which such Option is granted;
(ii) the termination date specified in any Option Agreement
evidencing such Option;
(iii) within 90 days after a Termination of Relationship other
than as a result of an Involuntary Termination (as defined in clause (iv)
below)) or a Termination For Cause (as defined in clause (v) below));
(iv) within 365 days after the date that the Optionee ceases to
be an employee of the Company or any of its Subsidiaries, if such
termination is due to such Optionee's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) (an
"Involuntary Termination");
(v) immediately if the Optionee ceases to be an employee of the
Company or any of its Subsidiaries, if such termination is determined by
the Committee to be for Cause (a "Termination For Cause"); and
(vi) simultaneously with the consummation of a Sale of the
Company if prior to such time the Optionees are given at least 30 days
advance written notice and the opportunity to exercise their Options with
respect to all Units.
-8-
<PAGE>
(b) The Committee shall have the power to determine what constitutes
a Termination For Cause for purposes of the Plan, and the date upon which such
Termination For Cause shall occur. All such determinations shall be made in good
faith and shall be final, conclusive and binding upon the Optionee.
(c) Any Units that are not acquired as a result of an Option expiring
without being fully exercised shall be available for award by the Committee to
another eligible person.
8. LIMITATIONS ON ISOS; NOTICE TO OPTIONEES GRANTED ISOS
In accordance with Section 422(d) of the Code, to the extent that the
aggregate Fair Market Value of all stock with respect to which incentive stock
options are exercisable for the first time by such Optionee during any calendar
year (under all plans of the Company and its subsidiaries) exceeds $100,000,
such ISOs shall be treated as NSOs.
Under certain circumstances, the exercise of an ISO may disqualify the
holder from recovering the favorable tax benefits ISOs offer. For example, ISO
tax treatment is currently not available if (i) an ISO is exercised within one
year of its date of grant or (ii) if the shares issuable upon exercise of an ISO
are sold within two years of the grant date of such ISO. Therefore, the Company
recommends that each Optionee holding an ISO consult with a competent tax
advisor before taking any action with respect to his or her ISOs.
9. PROCEDURE FOR EXERCISE
(a) Payment
-------
At the time an Option is granted under the Plan, the Committee shall,
in its discretion, specify one or more of the following forms of payment which
may be used by an Optionee upon exercise of his Option:
(i) cash or personal or certified check payable to the Company
in an amount equal to the aggregate Option Price of the Units with respect
to which the Option is being exercised;
(ii) stock certificates (in negotiable form) representing shares
of Common Stock and/or Preferred Stock having a Fair Market Value on the
date of exercise (as determined in accordance with Section 6(b) as if the
date of exercise were the date of grant) equal to the aggregate Option
Price of the Units with respect to which the Option is being exercised;
-9-
<PAGE>
(iii) vested Options to purchase Units, valued for such
purposes at the Fair Market Value per Unit on the date of exercise (as
determined in accordance with Section 6(b) as if the date of exercise were
the date of grant), net of the exercise price for each such Unit; or
(iv) a combination of the methods set forth in clauses (i), (ii)
and (iii).
(b) Notice
------
An Optionee (or other person, as provided in Section 11(b)) may
exercise an Option (for the Units represented thereby) granted under the Plan in
whole or in part (but for the purchase of whole Units only), as provided in the
Option Agreement evidencing his Option, by delivering a written notice (the
"Notice") to the Secretary of the Company. The Notice shall state:
(i) that the Optionee elects to exercise the Option;
(ii) the number of Units with respect to which the Option is
being exercised (the "Optioned Units");
(iii) the method of payment for the Optioned Units (which
method must be available to the Optionee under the terms of his or her
Option Agreement);
(iv) the date upon which the Optionee desires to consummate the
purchase (which date must be prior to the termination of such Option);
(v) a copy of any election filed or intended to be filed by the
Optionee with respect to such Optioned Units pursuant to Section 83(b) of
the Code; and
(vi) such further provisions consistent with the Plan as the
Committee may from time to time require.
The exercise date of an Option shall be the date on which the Company
receives the Notice from the Optionee. Such Notice shall also contain, to the
extent such Optionee is not then a party to the Stockholders Agreement, a
Joinder Agreement, in form and substance satisfactory to the Board pursuant to
which the Optionee agrees to become a party to the Stockholders Agreement.
-10-
<PAGE>
(c) Issuance of Certificates
------------------------
The Company shall issue stock certificates in the name of the Optionee
(or such other person exercising the Option in accordance with the provisions of
Section 11(b)) for the securities purchased upon exercise of an Option as soon
as practicable after receipt of the Notice and payment of the aggregate Option
Price for such securities; provided that the Company may elect to not issue any
fractional shares upon the exercise of any Options (determining the fractional
shares after aggregating all shares issuable to a single holder as a result of
an exercise of an Option for more than one Unit) and in lieu of issuing such
fractional shares, shall pay the Optionee the Fair Market Value thereof.
Neither the Optionee nor any person exercising an Option in accordance with the
provisions of Section 11(b) shall have any privileges as a stockholder of the
Company with respect to any shares of stock subject to an Option granted under
the Plan until the date of issuance of stock certificates pursuant to this
Section 9(c).
10. ADJUSTMENTS
(a) Changes in Capital Structure
----------------------------
If the Common Stock and/or Preferred Stock is changed by reason of a
stock split, reverse stock split or stock combination, stock dividend or
distribution, or recapitalization (including, without limitation, a conversion
of the Preferred Stock into Common Stock), or converted into or exchanged for
other securities as a result of a merger, consolidation or reorganization, the
Board shall make such adjustments in the number and class of shares of stock
constituting a Unit as shall be necessary to preserve to an Optionee rights
substantially proportionate to his rights existing immediately prior to such
transaction or event (but subject to the limitations and restrictions on such
rights). The exercise price for each Unit shall not change notwithstanding any
change to the number and class of shares of stock constituting a Unit.
Notwithstanding anything contained in the Plan to the contrary, in the case of
ISOs, no adjustment under this Section 10(a) shall be appropriate if such
adjustment (i) would constitute a modification, extension or renewal of such
ISOs within the meaning of Sections 422 and 425 of the Code, and the regulations
promulgated by the Treasury Department thereunder, or (ii) would, under Section
422 of the Code and the regulations promulgated by the Treasury Department
thereunder, be considered as the adoption of a new plan requiring stockholder
approval. The Company will not, in any event, permit the par value of the
Common Stock or the Preferred Stock to be less than the per share exercise price
thereof under any option.
-11-
<PAGE>
(b) Special Rules
-------------
The following rules shall apply in connection with Section 10(a)
above:
(i) no adjustment shall be made for cash dividends or the
issuance to stockholders of rights to subscribe for additional shares of
Common Stock, Preferred Stock or other securities; and
(ii) any adjustments referred to in Section 10(a) shall be made
by the Board in its sole discretion and shall, absent manifest error, be
conclusive and binding on all persons holding any Options granted under the
Plan.
11. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES
(a) Compliance With Securities Laws
-------------------------------
No Options shall be granted under the Plan, and no securities shall
be issued and delivered upon the exercise of Options granted under the Plan,
unless and until the Company and/or the Optionee shall have complied with all
applicable Federal or state registration, listing and/or qualification
requirements and all other requirements of law or of any regulatory agencies
having jurisdiction.
The Committee in its discretion may, as a condition to the exercise of
any Option granted under the Plan, require an Optionee (i) to represent in
writing that the securities received upon exercise of an Option are being
acquired for investment and not with a view to distribution and (ii) to make
such other representations and warranties as are deemed appropriate by the
Company. Stock certificates representing securities acquired upon the exercise
of Options that have not been registered under the Securities Act shall, if
required by the Committee, bear the following legend and such additional legends
as may be required by the Option Agreement evidencing a particular Option:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE ISSUER HEREOF
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT."
-12-
<PAGE>
(b) Nonassignability of Option Rights
---------------------------------
No Option granted under this Plan shall be assignable or otherwise
transferable by the Optionee, except by will or by the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee. If an Optionee dies, his or her Options shall thereafter
be exercisable, during the period specified in Section 7(a) or the applicable
Option Agreement (as the case may be), by his or her executors or administrators
to the full extent (but only to such extent) to which such Options were
exercisable by the Optionee at the time of his or her death.
Before issuing any shares upon exercise of Options to any person who
is not already a party to the Stockholders Agreement, the Company shall obtain,
in appropriate form, an executed Joinder Agreement from such person unless a
Public Offering shall have already occurred.
12. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date of its adoption by the
Board (the "Effective Date"); provided, however, that no ISO shall be
-------- -------
exercisable by an Optionee unless and until the Plan shall have been approved by
the stockholders of the Company in accordance with the provisions of its
Articles of Incorporation and By-laws, which approval shall be obtained by a
simple majority vote of stockholders, voting either in person or by proxy, at a
duly held stockholders' meeting, or by written consent, within 12 months before
or after the adoption of the Plan by the Board.
13. TERMINATION OF THE PLAN
No Options may be granted after the Termination Date.
14. AMENDMENT OF PLAN
The Plan may be modified or amended in any respect by the Committee
with the prior approval of the Board; provided, however, that the approval of
-------- -------
the holders of a majority of the votes that may be cast by all of the holders of
shares of common stock of the Company entitled to vote (voting together as a
single class, with each such holder entitled to cast one vote per share held by
such holder) shall be obtained prior to any such amendment becoming effective if
such approval is required by law or is necessary to comply with regulations
promulgated by the SEC under Section 16(b) of the 1934 Act or with Section 422
of the Code or the regulations promulgated by the Treasury Department
thereunder.
-13-
<PAGE>
15. CAPTIONS
The use of captions in this Plan is for convenience. The captions are
not intended to provide substantive rights.
16. DISQUALIFYING DISPOSITIONS
If securities acquired by exercise of an ISO granted under this Plan
are disposed of within two years following the date of grant of the ISO or one
year following the issuance of the securities to the Optionee (a "Disqualifying
Disposition"), the holder of such securities shall, immediately prior to such
Disqualifying Disposition, notify the Company in writing of the date and terms
of such Disqualifying Disposition and provide such other information regarding
the Disqualifying Disposition as the Company may reasonably require.
17. WITHHOLDING TAXES
Whenever under the Plan securities are to be delivered by an Optionee
upon exercise of an NSO, the Company shall be entitled to require as a condition
of delivery that the Optionee remit or, in appropriate cases, agree to remit
when due, an amount sufficient to satisfy all current or estimated future
Federal, state and local withholding tax and employment tax requirements
relating thereto. At the time of a Disqualifying Disposition, the Optionee
shall remit to the Company in cash the amount of any applicable Federal, state
and local withholding taxes and employment taxes.
18. OTHER PROVISIONS
Each Option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Committee,
in its sole discretion. Notwithstanding the foregoing, each ISO granted under
the Plan shall include those terms and conditions which are necessary to qualify
the ISO as an "incentive stock option" within the meaning of Section 422 of the
Code and the regulations thereunder and shall not include any terms or
conditions which are inconsistent therewith.
19. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall
include the plural form, the masculine gender shall include the feminine
gender, and vice-versa, as the context requires.
-14-
<PAGE>
20. GOVERNING LAW
All questions concerning the construction, interpretation and validity
of this Plan and the instruments evidencing the Options granted hereunder shall
be governed by and construed and enforced in accordance with the domestic laws
of the State of Delaware, without giving effect to any choice or conflict of law
provision or rule (whether in the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware. In furtherance of the foregoing, the internal law of the
State of Delaware will control the interpretation and construction of this Plan,
even if under such jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
21. SECURITIES EXCHANGE ACT COMPLIANCE
In order to satisfy the conditions of paragraph (b) of Rule 16b-3, the
Company shall furnish in writing to the holders of record of the securities
entitled to vote for the Plan substantially the same information concerning the
Plan which would be required by the rules and regulations in effect under
Section 14(a) of the 1934 Act at the time such information is furnished, as if
proxies to be voted with respect to the approval or disapproval of the Plan were
then being solicited, on or prior to the date of the first annual meeting of
security holders held subsequent to the later of (a) the first registration of
an equity security under Section 12 of the 1934 Act or (b) the acquisition of an
equity security for which exemption is claimed. The Company will use its
commercially reasonable efforts to cause the exemption from Section 16 of the
1934 Act afforded by such Rule 16b-3 to be available at the time the Company has
a class of equity securities registered under Section 12 of the 1934 Act.
As adopted by the Board of Directors of PMT HOLDINGS, INC., on March
31, 1997.
-15-
<PAGE>
EXHIBIT A
---------
INCENTIVE STOCK OPTION AGREEMENT
dated as of_____________ between PMT
HOLDINGS, INC., a Delaware corporation
(the "Company"), and [________] (the
"Optionee").
The Company, acting through a Committee (as defined in the Plan) with
the consent of the Company's Board of Directors (the "Board") has granted to the
Optionee, effective as of the date of this Agreement, an option under the
Company's 1997 Stock Option Plan (the "Plan") to purchase a number of Units set
forth below, each Unit consisting of ___ shares of Common Stock par value $.01
per share, of the Company and ___ shares of Series A Preferred Stock par value
$.01 per share of the Company, on the terms and subject to the conditions set
forth in this Agreement and the Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, the parties hereto agree as follows:
SECTION 1. THE PLAN. The terms and provisions of the Plan are hereby
--------
incorporated into this Agreement as if set forth herein in their entirety. In
the event of a conflict between any provision of this Agreement and the Plan,
the provisions of the Plan shall control. A copy of the Plan may be obtained
from the Company by the Optionee upon request. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed thereto in the Plan.
SECTION 2. OPTION; OPTION PRICE. (a) On the terms and subject to the
--------------------
conditions of the Plan and this Agreement, the Optionee shall have the option
(the "Option") to purchase up to $[ ] Units (the "Option Units") at the price of
$[ ] per Option Unit (the "Option Price") at the times and in the manner
provided herein. Payment of the Option Price may be made in the manner specified
by clauses [COMMITTEE TO SPECIFY CLAUSES (I), (II), (III) AND/OR (IV)] of
Section 9(a) of the Plan. The Option is intended to qualify for federal income
tax purposes as an "incentive stock option" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) Except as otherwise provided in Section 7(a) of the Plan, the
Option shall remain exercisable as to all Vested Option Units (as defined in
Section 4) until the expiration of the Option Term. Except as otherwise
provided in Section 7(a) of the Plan, upon a Termination of Relationship, the
unvested portion of the Option (i.e., that portion which does not constitute
----
Vested Option Units) shall terminate.
SECTION 3. TERM. The term of the Option (the "Option Term") shall
----
commence on the date hereof and expire on the tenth
<PAGE>
anniversary of the Effective Date, unless the Option shall have sooner been
terminated in accordance with the terms of the Plan (including, without
limitation, Section 7 of the Plan) or this Agreement.
SECTION 4. TIME VESTING. [AS DETERMINED BY THE COMMITTEE PURSUANT TO
------------
THE PLAN].
SECTION 5. RESTRICTION ON TRANSFER. The Option may not be
-----------------------
transferred, pledged, assigned, hypothecated or otherwise disposed of in any way
by the Optionee and may be exercised during the lifetime of the Optionee only by
the Optionee. If the Optionee dies, the Option shall thereafter be exercisable,
during the period specified in Section 7 of the Plan, by his executors or
administrators to the full extent to which the Option was exercisable by the
Optionee at the time of his death. The Option shall not be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
SECTION 6. OPTIONEE'S EMPLOYMENT. Nothing in the Option shall confer
---------------------
upon the Optionee any right to continue in the employ of the Company or any of
its affiliates or interfere in any way with the right of the Company or its
affiliates or stockholders, as the case may be, to terminate the Optionee's
employment or to increase or decrease the Optionee's compensation at any time.
SECTION 7. NOTICES. All notices, claims, certificates, requests,
-------
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given and delivered 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 as
follows:
(a) if to the Company, to it at:
PMT Holdings, Inc.
c/o ____________________
Address:
Attn: Chief Executive Officer
Telecopier:
Telephone:
-2-
<PAGE>
with copies to:
Eos Partners, L.P.
320 Park Avenue, 22nd Floor
New York, New York 10022
Attention: Douglas R. Korn
Telephone: (212) 832-5805
Telecopier: (212) 832-5800; and
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopier: (212) 408-2420
Telephone: (212) 408-2400;
(b) if to the Optionee, to him at:
[ ]; and
with a copy to:
[ ];
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) in the case of
personal delivery, on the date of such delivery (or if such date is not a
business day, on the next business after the date of delivery), (ii) in the case
of nationally-recognized overnight courier, on the next business day after the
date sent, (iii) in the case of telecopy transmission, when received (or if not
sent on a business day, on the next business day after the date sent), and (iv)
in the case of mailing, on the third business day following that on which the
piece of mail containing such communication is posted.
SECTION 8. WAIVER OF BREACH. The waiver by either party of a breach
----------------
of any provision of this Agreement must be in writing and shall not operate or
be construed as a waiver of any other or subsequent breach.
SECTION 9. OPTIONEE'S UNDERTAKING. The Optionee hereby agrees to
----------------------
take whatever additional actions and execute whatever additional documents the
Company may in its reasonable judgment deem necessary or advisable in order to
carry out or effect one or more of the obligations or restrictions imposed on
the Optionee pursuant to the express provisions of this Agreement and the Plan.
-3-
<PAGE>
SECTION 10. MODIFICATION OF RIGHTS. The rights of the Optionee are
----------------------
subject to modification and termination in certain events as provided in this
Agreement and the Plan.
SECTION 11. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE
STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF
THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
SECTION 12. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts, and each such counterpart shall be deemed to be an original,
but all such counterparts together shall constitute but one agreement.
SECTION 13. ENTIRE AGREEMENT. This Agreement and the Plan (and the
----------------
other writings referred to herein) constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof and supersede all
prior written or oral negotiations, commitments, representations and agreements
with respect thereto.
SECTION 14. SEVERABILITY. 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.
SECTION 15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING
HEREUNDER.
* * * * *
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Incentive
Stock Option Agreement as of the date first written above.
PMT HOLDINGS, INC.
By:___________________________________
Name:
Title:
_____________________________________
[OPTIONEE]
<PAGE>
EXHIBIT B
---------
NONQUALIFIED STOCK OPTION AGREEMENT
dated as of [___________] between PMT
HOLDINGS, INC., a Delaware corporation
(the "Company"), and [________] (the
"Optionee").
The Company, acting through a Committee (as defined in the Plan) with
the consent of the Company's Board of Directors (the "Board") has granted to the
Optionee, effective as of the date of this Agreement, an option under the
Company's 1997 Stock Option Plan (the "Plan") to purchase a number of Units set
forth below, each unit consisting of ___ shares of Common Stock par value $.01
per share, of the Company and ___ shares Series A of Preferred Stock par value
$.01 per share of the Company, on the terms and subject to the conditions set
forth in this Agreement and the Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, the parties hereto agree as follows:
SECTION 1. THE PLAN. The terms and provisions of the Plan are hereby
--------
incorporated into this Agreement as if set forth herein in their entirety. In
the event of a conflict between any provision of this Agreement and the Plan,
the provisions of the Plan shall control. A copy of the Plan may be obtained
from the Company by the Optionee upon request. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed thereto in the Plan.
SECTION 2. OPTION; OPTION PRICE. (a) On the terms and subject to the
--------------------
conditions of the Plan and this Agreement, the Optionee shall have the option
(the "Option") to purchase up to [ ] Units (the "Option Units") at the price of
$[ ] per Option Unit (the "Option Price") at the times and in the manner
provided herein. Payment of the Option Price may be made in the manner
specified by clauses [COMMITTEE TO SPECIFY CLAUSES (I), (II), (III) OR (IV)] of
Section 9(a) of the Plan. The Option is not intended to qualify for federal
income tax purposes as an "incentive stock option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Except as otherwise provided in Section 7(a) of the Plan, the
Option shall remain exercisable as to all Vested Option Units (as defined in
Section 4) until the expiration of the Option Term. Except as otherwise
provided in Section 7(a) of the Plan, upon a Termination of Relationship, the
unvested portion of the Option (i.e., that portion which does not constitute
----
Vested Option Units) shall terminate.
SECTION 3. TERM. The term of the Option (the "Option Term") shall
----
commence on the date hereof and expire on the tenth
<PAGE>
anniversary of the Effective Date, unless the Option shall have sooner been
terminated in accordance with the terms of the Plan (including, without
limitation, Section 7 of the Plan) or this Agreement.
SECTION 4. TIME VESTING. [AS DETERMINED BY THE COMMITTEE PURSUANT TO
------------
THE PLAN.]
SECTION 5. RESTRICTION ON TRANSFER. The Option may not be
-----------------------
transferred, pledged, assigned, hypothecated or otherwise disposed of in any way
by the Optionee and may be exercised during the lifetime of the Optionee only by
the Optionee. If the Optionee dies, the Option shall thereafter be exercisable,
during the period specified in Section 7 of the Plan, by his executors or
administrators to the full extent to which the Option was exercisable by the
Optionee at the time of his death. The Option shall not be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
SECTION 6. OPTIONEE'S EMPLOYMENT. Nothing in the Option shall confer
---------------------
upon the Optionee any right to continue in the employ of the Company or any of
its affiliates or interfere in any way with the right of the Company or its
affiliates or stockholders, as the case may be, to terminate the Optionee's
employment or to increase or decrease the Optionee's compensation at any time.
SECTION 7. NOTICES. All notices, claims, certificates, requests,
-------
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given and delivered 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 as
follows:
(a) if to the Company, to it at:
PMT Holdings, Inc.
c/o __________________
Address:
Attention: Chief Executive Officer
Telecopier:
Telephone:
-2-
<PAGE>
with a copies to:
Eos Partners, L.P.
320 Park Avenue, 22nd Floor
New York, New York 10022
Attention: Douglas Korn
Telecopier: (212) 832-5805
Telephone: (212) 832-5800
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 41st Floor
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopier: (212) 408-2420
Telephone: (212) 408-2400;
(b) if to the Optionee, to him at:
[ ]; and
with a copy to:
[ ];
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) in the case of
personal delivery, on the date of such delivery (or if such date is not a
business day, on the next business after the date of delivery), (ii) in the case
of nationally-recognized overnight courier, on the next business day after the
date sent, (iii) in the case of telecopy transmission, when received (or if not
sent on a business day, on the next business day after the date sent), and (iv)
in the case of mailing, on the third business day following that on which the
piece of mail containing such communication is posted.
SECTION 8. WAIVER OF BREACH. The waiver by either party of a breach
----------------
of any provision of this Agreement must be in writing and shall not operate or
be construed as a waiver of any other or subsequent breach.
SECTION 9. OPTIONEE'S UNDERTAKING. The Optionee hereby agrees to
----------------------
take whatever additional actions and execute whatever additional documents the
Company may in its reasonable judgment deem necessary or advisable in order to
carry out or effect one or more of the obligations or restrictions imposed on
the Optionee pursuant to the express provisions of this Agreement and the Plan.
-3-
<PAGE>
SECTION 10. MODIFICATION OF RIGHTS. The rights of the Optionee are
----------------------
subject to modification and termination in certain events as provided in this
Agreement and the Plan.
SECTION 11. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE
STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF
THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
SECTION 12. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts, and each such counterpart shall be deemed to be an original,
but all such counterparts together shall constitute but one agreement.
SECTION 13. ENTIRE AGREEMENT. This Agreement and the Plan (and the
----------------
other writings referred to herein) constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof and supersede all
prior written or oral negotiations, commitments, representations and agreements
with respect thereto.
SECTION 14. SEVERABILITY. 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.
SECTION 15. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY DO SO, TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING ARISING
HEREUNDER.
* * * * *
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Nonqualified
Stock Option Agreement as of the date first written above.
PMT HOLDINGS, INC.
By:___________________________________
Name:
Title:
______________________________________
[OPTIONEE]
<PAGE>
EXHIBIT 10.5
PACIFIC MOTOR TRANSPORT COMPANY
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
March 31, 1997
Mr. Don C. Orris
10007 Oak Tree Court
Littleton, Colorado 80124
Employment Agreement
--------------------
Dear Don:
This letter sets forth the terms of your continued employment with
Pacific Motor Transport Company (the "Company").
1. Duties. On the terms and subject to the conditions contained
------
in this Agreement, you will be employed as the President of the Company (the
"Company"), and shall perform such duties and services consistent with such
position as may reasonably be assigned to you from time to time by the Board of
Directors.
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 initially ending on
the second anniversary of the date hereof. Subject to the applicable provisions
of Section 8 of this Agreement regarding earlier termination, the Employment
Period shall be extended automatically one day prior to each anniversary of the
Commencement Date, beginning with the second anniversary thereof, for an
additional period of one year.
3. Time to be Devoted to Employment. During the Employment Period,
--------------------------------
you will devote your working energies, efforts, interest, abilities and time
exclusively to the business and affairs of the Company. You will not engage in
any other business or activity which, in the reasonable judgment of the Board of
Directors of the Company, would conflict or interfere with the performance of
your duties as
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 2
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 affiliates) shall pay you a minimum annual base salary (the "Base Salary")
of $165,000, payable in such installments (but not less often than monthly) as
is generally the policy of the Company with respect to the payment of regular
compensation to its executive officers. On the first anniversary of the
Commencement Date, the Base Salary will be increased to $225,000 per annum, and
on the second anniversary of the Commencement Date, the Base Salary will be
adjusted to an amount that reflects customary market compensation for a company
in the same industry and of comparable size and income as the Company, which
Base Salary, as adjusted, shall be agreed upon by you and the Board of Directors
of the Company. At all times after the second anniversary of the Commencement
Date, increases in the Base Salary, if any, will be determined by the Board of
Directors in its sole discretion. 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 generally, including,
without limitation, (i) participation in such health, life and disability
insurance programs and retirement or savings plans as the Company may from time
to time maintain in effect and (ii) the use of a vehicle provided by the Company
or an equivalent monthly car allowance in accordance with the Company's policy
with respect to its senior executives.
(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, as provided in this paragraph. The bonus, if any, for each
fiscal year of the Company ending on or prior to December 31, 2001, shall be
calculated in the manner set forth on Annex A attached to this Agreement and
-------
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
financial statements of the Company. If your employment with the Company is
terminated for any reason other than without "cause" pursuant to Section 8(b),
the Company 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" as
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 3
provided in Section 8(b) below, 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). For each fiscal year ending after December 31, 2001, the amount of the
bonus and the criteria therefor shall be determined by the Board of Directors.
In the event that the Company consummates any mergers or acquisitions (whether
of assets, stock or other interests) or other extraordinary transactions, the
Board of Directors shall in good faith make such adjustments to the targets set
forth on Annex A for Operating Income (as defined on Annex A) to take into
------- -------
account the effects of any such acquisition or transaction.
5. Reimbursement of Expenses. During the Employment Period, the
-------------------------
Company shall reimburse you in accordance with Company policy for all reasonable
and necessary traveling expenses and other disbursements incurred by you for or
on behalf of the Company 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.
6. Options. The Company will grant you options (the "Options") to
-------
purchase shares of common stock, $.01 par value (the "Common Stock"), of the
Company pursuant to the Company's 1997 Stock Option Plan (the "Option Plan").
The Options will be evidenced by a Stock Option Agreement between you and the
Company. The Option Plan and the Stock Option Agreement will contain all of the
terms and conditions of your Options.
7. 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 an
aggregate of 210 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.
8. Termination.
-----------
(a) The Company may terminate your employment hereunder at
any time for "cause" by giving you written notice
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 4
of such termination, with reasonable specificity of the grounds therefor. For
purposes of this Section 8, "cause" shall mean (i) willful misconduct with
respect to the business and affairs of the Company, PMT Holdings, Inc. ("PMT")
or any of their respective subsidiaries, (ii) willful neglect of your duties or
the failure to follow the lawful directions of the Board or more senior officers
of the Company to whom you report, including, without limitation, the violation
of any material policy of the Company, PMT or any of their respective
subsidiaries applicable to you, (iii) the breach of Section 7 of the
Subscription Agreement or 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, PMT or any of their respective subsidiaries or
affiliates or (vi) any conviction for a crime involving moral turpitude or
fraud. A termination pursuant to this Section 8(a) shall take effect immediately
upon the giving of the notice contemplated hereby. In this Agreement, the term
"Related Agreements" means (i) the Stock Subscription Agreement dated as of the
date hereof between you and PMT (the "Subscription Agreement"), and (ii) the
Stockholders Agreement dated as of the date hereof among PMT, 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, which
termination shall be effective as of the date set forth in such notice, provided
that such date shall not be earlier than the date of the notice.
9. 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 8(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:
(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;
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 5
(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 as of the end of such period.
(b) Upon termination of your employment under this Agreement
pursuant to Section 8(b), neither you nor your beneficiaries or estate shall
have any further rights under this Agreement or any claims against the Company,
PMT or any of their respective 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 9(a)
above, to the extent not covered by clause (ii) and (iii) of this Section 9(b);
(ii) the right to continue to receive the Base Salary
for a period equal to the greater of (A) the number of months remaining in the
Employment Period on the effective date of termination or (B) twelve months, in
either case commencing on the first month following the effective date of such
termination, payable during such period in such manner as the Base Salary is
payable pursuant to Section 4(a), reduced by 50% of 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, up to a maximum of 50% of all amounts due to you under this Section
9(b)(ii). In order to carry out the intent of the immediately preceding
sentence, 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
employment or for services rendered or to be rendered during or with respect to
such period.
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 6
(iii) the right to receive any bonus payable in
accordance with Section 4(b) with respect to the fiscal year in which such
termination occurs.
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 9(b) if you die after the date of a termination
without "cause."
10. 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), 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
Information" 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 the Company 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
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 7
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.
11. 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 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 the Company and its properties and assets are of special
and unique value to the Company and its affiliates and that the Company 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
9(b)(ii), if applicable), without the prior written consent of the Company, you
shall not, at any time during the Employment Period and the period beginning on
the effective date of any termination of your employment with the Company and
its subsidiaries and ending on the third anniversary thereof, (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, PMT or any of their respective subsidiaries to terminate their
employment with the Company or any of their respective subsidiaries or to engage
in any Competing Business 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.
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 8
(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 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 (A) intermodal marketing or (B) providing flatbed
specialized hauling services utilizing owner-operators or agents; provided,
however, that an entity which has separate divisions or business units, one or
more of which are engaged in a business described in clause (A) or (B) hereof,
will not be deemed a Competing Business with respect to those portions of such
entity which are not engaged in a business described in clause (A) or (B) above
so long as the Employee's association with any such separate division or
business unit (fully taking into account his functions and the nature of his
work at such division or business unit) does not relate in any material respect
to such portion of such business which would be a Competing Business hereunder.
(d) Notwithstanding anything contained in this Agreement to
the contrary, if, following the termination of your employment with the Company
and/or its subsidiaries, the Company fails to pay to you any sums due under
Section 9(b)(ii) hereof and (i) you have complied in all material respects with
all of the provisions of the last sentence of Section 9(b)(ii) and (ii) such
failure to pay continues for a period of fifteen (15) days following receipt by
the Company of written notice thereof, the restrictions contained in this
Section 11 shall terminate and be of no further force or effect. Any termination
of the restrictions contained in this Section 11 pursuant to this subsection (d)
shall not affect the Company's obligations under this Agreement or constitute a
waiver by you of any other rights or remedies you may have against the Company
for breach of any term hereof.
12. 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
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 9
relating to the business of the Company, PMT or any of their respective
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 (including
a reasonable payment (based on your last per diem earnings) for the time
involved if you are not then in the Company's employ or receiving severance
payments from the Company pursuant to Section 9(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 employ or receiving severance payments from the Company
pursuant to Section 9(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 involving any said applications, patents, copyrights or other
proprietary rights and in any litigation in which the Company may be involved
relating to the Inventions.
13. 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 employ or receiving
severance payments from the Company pursuant to Section 9(b)(ii)) and upon
reasonable notice, 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 may be involved. If such a request for assistance occurs after the
expiration of the Employment Period, then you will only be required to render
assistance to the Company to the extent that you can do so without materially
affecting your other business obligations.
14. 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
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 10
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
affiliates (including, without limitation, that certain letter agreement dated
January 29, 1997, among you, Eos Partners, L.P., and the other parties thereto).
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.
15. 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 Company, to:
Pacific Motor Transport Company
10007 Oak Tree Court
Littleton, CO 80124
Attention: President
Telecopier: (303) 790-4685
Telephone: (303) 799-1443
with a copy to:
Eos Partners, L.P.
320 Park Avenue
22nd Floor
New York, NY 10022
Attention: Douglas R. Korn
Telecopier: (212) 832-5805
Telephone: (212) 832-5800
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 11
(b) if to you, to:
Mr. Don Orris
10007 Oak Tree Court
Littleton, Colorado 80124
Telecopier: (303) 790-4685
Telephone: (303) 790-4160
16. 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.
17. 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 enforceability 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.
18. 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 10, 11, or 12, the Company 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.
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 12
19. 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.
20. 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. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by any party hereto
without the consent of the other party hereto.
21. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counter part shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
22. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
<PAGE>
Mr. Don C. Orris
March 31, 1997
Page 13
23. 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.
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,
PACIFIC MOTOR TRANSPORT COMPANY
By:___________________________
Name:
Title:
Accepted and agreed to:
_____________________________
[Name]
<PAGE>
ANNEX A
-------
INCENTIVE BONUS PROGRAM
-----------------------
The Company will pay a cash incentive bonus based upon the Operating
Income (as hereinafter defined) of the Company for each fiscal year set forth
below occurring during the Employment Period. The amount of the Bonus so
payable will be based on the Company's achieving Operating Income (as defined
below) targets set by the President of the Company (which will be identical for
the President of the Company and the Presidents of the Company's PACER and ABL-
TRANS divisions), but which in no event will be lower than the target amounts
set forth below (with the amount of the Bonus payable being calculated
accordingly at the rate of $6,000 of Bonus per $100,000 of Operating Income).
For purposes of this Agreement, "Operating Income" means the operating income of
the Company, determined on a consolidated basis (if applicable) and in
accordance with generally accepted accounting principles consistently applied
for the fiscal year in question, as set forth on the audited statement of income
of the Company for the fiscal year in question; provided, however, Operating
-------- -------
Income shall (x) exclude management fees, non-operating gains and losses as
determined by the Board of Directors and such other non-cash items as shall be
determined by the Board of Directors and (y) be determined after giving effect
to any bonus payable by the Company to management or employees of the Company
hereunder or otherwise.
MINIMUM OPERATING INCOME TARGETS
AND CORRESPONDING BONUS CALCULATION
FISCAL YEAR 1997
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $3,050,000 $ 0
equal to or greater than $35,000
$3,050,000 but less than
$3,150,000
equal to or greater than $41,000
$3,150,000 but less than
$3,250,000
equal to or greater than $47,000
$3,250,000 but less than
$3,350,000
equal to or greater than $53,000
$3,350,000 but less than
$3,450,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $59,000
$3,450,000 but less than
$3,550,000
equal to or greater than $65,000
$3,550,000 but less than
$3,650,000
equal to or greater than $71,000
$3,650,000 but less than
$3,750,000
equal to or greater than $77,000
$3,750,000 but less than
$3,850,000
equal to or greater than $83,000
$3,850,000
</TABLE>
FISCAL YEAR 1998
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $3,288,400 $ 0
equal to or greater than $35,000
$3,288,400 but less than
$3,388,400
equal to or greater than $41,000
$3,388,400 but less than
$3,488,400
equal to or greater than $47,000
$3,488,400 but less than
$3,588,400
equal to or greater than $53,000
$3,588,400 but less than
$3,688,400
equal to or greater than $59,000
$3,688,400 but less than
$3,788,400
equal to or greater than $65,000
$3,788,400 but less than
$3,888,400
equal to or greater than $71,000
$3,888,400 but less than
$3,988,400
equal to or greater than $77,000
$3,988,400 but less than
$4,088,400
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $83,000
$4,088,400
</TABLE>
FISCAL YEAR 1999
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $3,561,200 $ 0
equal to or greater than $35,000
$3,561,200 but less than
$3,661,200
equal to or greater than $41,000
$3,661,200 but less than
$3,761,200
equal to or greater than $47,000
$3,761,200 but less than
$3,861,200
equal to or greater than $53,000
$3,861,200 but less than
$3,961,200
equal to or greater than $59,000
$3,961,200 but less than
$4,061,200
equal to or greater than $65,000
$4,061,200 but less than
$4,161,200
equal to or greater than $71,000
$4,161,200 but less than
$4,261,200
equal to or greater than $77,000
$4,261,200 but less than
$4,361,200
equal to or greater than $83,000
$4,361,200
</TABLE>
FISCAL YEAR 2000
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $3,906,100 $ 0
equal to or greater than $35,000
$3,906,100 but less than
$4,006,100
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $41,000
$4,006,100 but less than
$4,106,100
equal to or greater than $47,000
$4,106,100 but less than
$4,206,100
equal to or greater than $53,000
$4,206,100 but less than
$4,306,100
equal to or greater than $59,000
$4,306,100 but less than
$4,406,100
equal to or greater than $65,000
$4,406,100 but less than
$4,506,100
equal to or greater than $71,000
$4,506,100 but less than
$4,606,100
equal to or greater than $77,000
$4,606,100 but less than
$4,706,100
equal to or greater than $83,000
$4,706,100
</TABLE>
FISCAL YEAR 2001
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $4,152,800 $ 0
equal to or greater than $35,000
$4,152,800 but less than
$4,252,800
equal to or greater than $41,000
$4,252,800 but less than
$4,352,800
equal to or greater than $47,000
$4,352,800 but less than
$4,452,800
equal to or greater than $53,000
$4,452,800 but less than
$4,552,800
equal to or greater than $59,000
$4,552,800 but less than
$4,652,800
equal to or greater than $65,000
$4,652,800 but less than
$4,752,800
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $71,000
$4,752,800 but less than
$4,852,800
equal to or greater than $77,000
$4,852,800 but less than
$4,952,800
equal to or greater than $83,000
$4,952,800
</TABLE>
<PAGE>
EXHIBIT 10.6
PACIFIC MOTOR TRANSPORT COMPANY
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
March 31, 1997
Mr. Gerry Angeli
1245 Regents Park Court
DeSoto, Texas 75115
Employment Agreement
--------------------
Dear Gerry:
This letter sets forth the terms of your continued employment with
Pacific Motor Transport Company (the "Company").
1. Duties. On the terms and subject to the conditions contained in
------
this Agreement, you will be employed as the President of PACER, a division of
the Company (the "Company"), and shall perform such duties and services
consistent with such position as may reasonably be assigned to you from time to
time by the Board of Directors or by the President of the Company.
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 initially ending on the second
anniversary of the date hereof. Subject to the applicable provisions of Section
8 of this Agreement regarding earlier termination, the Employment Period shall
be extended automatically on each anniversary of the Commencement Date,
beginning with the first anniversary thereof, for an additional period of one
year.
3. Time to be Devoted to Employment. During the Employment Period,
--------------------------------
you will devote your working energies, efforts, interest, abilities and time
exclusively to the business and affairs of the Company. You will not engage in
any other business or activity which, in the reasonable judgment of the Board of
Directors of the Company, 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.
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 2
4. Base Salary; Bonus; Benefits.
----------------------------
(a) During the Employment Period, the Company (or any of its
affiliates) shall pay you a minimum annual base salary (the "Base Salary") of
$225,000, payable in such installments (but not less often than monthly) as is
generally the policy of the Company 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 generally, including, without limitation, (i)
participation in such health, life and disability insurance programs and
retirement or savings plans as the Company may from time to time maintain in
effect and (ii) the use of a vehicle provided by the Company or an equivalent
monthly car allowance in accordance with the Company's policy with respect to
its senior executives.
(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, as provided in this paragraph. The bonus, if any, for each
fiscal year of the Company ending on or prior to December 31, 2001, shall be
calculated in the manner set forth on Annex A attached to this Agreement and
-------
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
financial statements of the Company. If your employment with the Company is
terminated for any reason other than without "cause" pursuant to Section 8(b),
the Company 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" as provided in Section 8(b) below, 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). For each fiscal year ending after December
31, 2001, the amount of the bonus and the criteria therefor shall be determined
by the Board of Directors. In the event that the Company consummates any mergers
or acquisitions (whether of assets, stock or other interests) or other
extraordinary transactions, the Board of Directors shall in good faith make such
adjustments to the targets set forth on
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 3
Annex A for Operating Income (as defined on Annex A) to take into account the
- ------- -------
effects of any such acquisition or transaction.
5. Reimbursement of Expenses. During the Employment Period, the
-------------------------
Company shall reimburse you in accordance with Company policy for all reasonable
and necessary traveling expenses and other disbursements incurred by you for or
on behalf of the Company 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.
6. Options. The Company will grant you options (the "Options") to
-------
purchase shares of common stock, $.01 par value (the "Common Stock"), of the
Company pursuant to the Company's 1997 Stock Option Plan (the "Option Plan").
The Options will be evidenced by a Stock Option Agreement between you and the
Company. The Option Plan and the Stock Option Agreement will contain all of the
terms and conditions of your Options.
7. 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 an
aggregate of 210 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.
8. 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 8,
"cause" shall mean (i) willful misconduct with respect to the business and
affairs of the Company, PMT Holdings, Inc. ("PMT") or any of their respective
subsidiaries, (ii) willful neglect of your duties or the failure to follow the
lawful directions of the Board or more senior officers of the Company to whom
you report, including, without limitation, the violation of any material policy
of the Company, PMT or any of their respective subsidiaries applicable to you,
(iii) the breach of Section 6.2(h) of the Restricted Stock Agreement (as defined
below) or the material breach of any of the provisions of this Agreement or any
Related Agreement (as
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 4
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, PMT or any of their
respective subsidiaries or affiliates or (vi) any conviction for a crime
involving moral turpitude or fraud. A termination pursuant to this Section 8(a)
shall take effect immediately upon the giving of the notice contemplated hereby.
In this Agreement, the term "Related Agreements" means (i) the Restricted Stock
Issuance and Stock Purchase Agreement dated as of the date hereof between you
and PMT (the "Restricted Stock Agreement"), and (ii) the Stockholders Agreement
dated as of the date hereof among PMT, 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, which
termination shall be effective as of the date set forth in such notice, provided
that such date shall not be earlier than the date of the notice. You will be
employed by the Company at a facility located within a 50 mile radius of DeSoto,
Texas. The Company may not require you to relocate from this location unless the
Company moves all or substantially all of the Pacer division, in which case you
may be required by the Company to work at such new location.
9. 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 8(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:
(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
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 5
(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 as of the end of such period.
(b) Upon termination of your employment under this Agreement
pursuant to Section 8(b), neither you nor your beneficiaries or estate shall
have any further rights under this Agreement or any claims against the Company,
PMT or any of their respective 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 9(a)
above, to the extent not covered by clause (ii) and (iii) of this Section 9(b);
(ii) the right to continue to receive the Base Salary for a
period of twenty-four months commencing on the first month following the
effective date of such termination, payable during such period in such manner as
the Base Salary is payable pursuant to Section 4(a), reduced by 50% of 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, up to a maximum of 50% of all amounts due to you
under this Section 9(b)(ii). In order to carry out the intent of the immediately
preceding sentence, 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
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(b) with respect to the fiscal year in which such termination
occurs.
Notwithstanding anything in this Agreement to the contrary, your
beneficiaries or estate will be entitled to
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 6
continue to receive all payments specified in this Section 9(b) if you die after
the date of a termination without "cause."
10. 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), 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 Information"
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 the Company 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,
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 7
describing or relating to the foregoing, including, without limitation, manuals,
memoranda and records.
11. 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 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
the Company and its properties and assets are of special and unique value to the
Company and its affiliates and that the Company 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 9(b)(ii), if
applicable), without the prior written consent of the Company, you shall not, at
any time during the Employment Period and the period beginning on the effective
date of any termination of your employment with the Company and its subsidiaries
and ending on the third anniversary thereof, (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, PMT or any of their
respective subsidiaries to terminate their employment with the Company or any of
their respective subsidiaries or to engage in any Competing Business 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 under the terms of
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 8
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 (A) intermodal marketing or (B) providing flatbed specialized
hauling services utilizing owner-operators or agents; provided, however, that an
entity which has separate divisions or business units, one or more of which are
engaged in a business described in clause (A) or (B) hereof, will not be deemed
a Competing Business with respect to those portions of such entity which are not
engaged in a business described in clause (A) or (B) above so long as the
Employee's association with any such separate division or business unit (fully
taking into account his functions and the nature of his work at such division or
business unit) does not relate in any material respect to such portion of such
business which would be a Competing Business hereunder.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if, following the termination of your employment with the Company
and/or its subsidiaries, the Company fails to pay to you any sums due under
Section 9(b)(ii) hereof and (i) you have complied in all material respects with
all of the provisions of the last sentence of Section 9(b)(ii) and (ii) such
failure to pay continues for a period of fifteen (15) days following receipt by
the Company of written notice thereof, the restrictions contained in this
Section 11 shall terminate and be of no further force or effect. Any termination
of the restrictions contained in this Section 11 pursuant to this subsection (d)
shall not affect the Company's obligations under this Agreement or constitute a
waiver by you of any other rights or remedies you may have against the Company
for breach of any term hereof.
12. 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, PMT or any of their
respective 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
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 9
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 employ
or receiving severance payments from the Company pursuant to Section 9(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 employ or receiving severance payments from
the Company pursuant to Section 9(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 involving any said applications, patents,
copyrights or other proprietary rights and in any litigation in which the
Company may be involved relating to the Inventions.
13. 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 employ or receiving
severance payments from the Company pursuant to Section 9(b)(ii)) and upon
reasonable notice, 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 may be involved. If such a request for assistance occurs after the
expiration of the Employment Period, then you will only be required to render
assistance to the Company to the extent that you can do so without materially
affecting your other business obligations.
14. 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 affiliates (including, without
limitation, that certain letter agreement dated January 29, 1997, among you, Eos
Partners, L.P., and the other parties thereto). 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
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 10
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.
15. 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 Company, to:
Pacific Motor Transport Company
10007 Oak Tree Court
Littleton, CO 80124
Attention: President
Telecopier: (303) 790-4685
Telephone: (303) 799-1443
with a copy to:
Eos Partners, L.P.
320 Park Avenue
22nd Floor
New York, NY 10022
Attention: Douglas R. Korn
Telecopier: (212) 832-5805
Telephone: (212) 832-5800
(b) if to you, to:
Mr. Gerry Angeli
1245 Regents Park Court
DeSoto, Texas 75115
Telephone: (972) 230-3840
Telecopier: (972) 230-3774
16. 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.
17. 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
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 11
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 enforceability 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.
18. 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 10, 11, or 12, the Company 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.
19. 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.
20. 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. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by any party hereto
without the consent of the other party hereto.
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 12
21. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counter part shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
22. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California.
<PAGE>
Mr. Gerry Angeli
March 31, 1997
Page 13
23. 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.
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,
PACIFIC MOTOR TRANSPORT COMPANY
By:_____________________________
Name:
Title:
Accepted and agreed to:
_____________________________
[Name]
<PAGE>
ANNEX A
-------
INCENTIVE BONUS PROGRAM
-----------------------
The Company will pay a cash incentive bonus based upon the Operating
Income (as hereinafter defined) of the Company for each fiscal year set forth
below occurring during the Employment Period. The amount of the Bonus so
payable will be based on the Company's achieving Operating Income (as defined
below) targets set by the President of the Company (which will be identical for
the President of the Company and the Presidents of the Company's PACER and ABL-
TRANS divisions), but which in no event will be lower than the target amounts
set forth below (with the amount of the Bonus payable being calculated
accordingly at the rate of $6,000 of Bonus per $100,000 of Operating Income).
For purposes of this Agreement, "Operating Income" means the operating income of
the Company, determined on a consolidated basis (if applicable) and in
accordance with generally accepted accounting principles consistently applied
for the fiscal year in question, as set forth on the audited statement of income
of the Company for the fiscal year in question; provided, however, Operating
-------- -------
Income shall (x) exclude management fees, non-operating gains and losses as
determined by the Board of Directors and such other non-cash items as shall be
determined by the Board of Directors and (y) be determined after giving effect
to any bonus payable by the Company to management or employees of the Company
hereunder or otherwise.
MINIMUM OPERATING INCOME TARGETS
AND CORRESPONDING BONUS CALCULATION
FISCAL YEAR 1997
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $3,050,000 $0
equal to or greater than $35,000
$3,050,000 but less than
$3,150,000
equal to or greater than $41,000
$3,150,000 but less than
$3,250,000
equal to or greater than $47,000
$3,250,000 but less than
$3,350,000
equal to or greater than $53,000
$3,350,000 but less than
$3,450,000
equal to or greater than $59,000
$3,450,000 but less than
$3,550,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $65,000
$3,550,000 but less than
$3,650,000
equal to or greater than $71,000
$3,650,000 but less than
$3,750,000
equal to or greater than $77,000
$3,750,000 but less than
$3,850,000
equal to or greater than $83,000
$3,850,000
</TABLE>
FISCAL YEAR 1998
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ---------------------------------
<S> <C>
less than $3,288,400 $0
equal to or greater than $35,000
$3,288,400 but less than
$3,388,400
equal to or greater than $41,000
$3,388,400 but less than
$3,488,400
equal to or greater than $47,000
$3,488,400 but less than
$3,588,400
equal to or greater than $53,000
$3,588,400 but less than
$3,688,400
equal to or greater than $59,000
$3,688,400 but less than
$3,788,400
equal to or greater than $65,000
$3,788,400 but less than
$3,888,400
equal to or greater than $71,000
$3,888,400 but less than
$3,988,400
equal to or greater than $77,000
$3,988,400 but less than
$4,088,400
equal to or greater than $83,000
$4,088,400
</TABLE>
<PAGE>
FISCAL YEAR 1999
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ---------------------------------
<S> <C>
less than $3,561,200 $0
equal to or greater than $35,000
$3,561,200 but less than
$3,661,200
equal to or greater than $41,000
$3,661,200 but less than
$3,761,200
equal to or greater than $47,000
$3,761,200 but less than
$3,861,200
equal to or greater than $53,000
$3,861,200 but less than
$3,961,200
equal to or greater than $59,000
$3,961,200 but less than
$4,061,200
equal to or greater than $65,000
$4,061,200 but less than
$4,161,200
equal to or greater than $71,000
$4,161,200 but less than
$4,261,200
equal to or greater than $77,000
$4,261,200 but less than
$4,361,200
equal to or greater than $83,000
$4,361,200
</TABLE>
FISCAL YEAR 2000
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $3,906,100 $0
equal to or greater than $35,000
$3,906,100 but less than
$4,006,100
equal to or greater than $41,000
$4,006,100 but less than
$4,106,100
equal to or greater than $47,000
$4,106,100 but less than
$4,206,100
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $53,000
$4,206,100 but less than
$4,306,100
equal to or greater than $59,000
$4,306,100 but less than
$4,406,100
equal to or greater than $65,000
$4,406,100 but less than
$4,506,100
equal to or greater than $71,000
$4,506,100 but less than
$4,606,100
equal to or greater than $77,000
$4,606,100 but less than
$4,706,100
equal to or greater than $83,000
$4,706,100
</TABLE>
FISCAL YEAR 2001
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $4,152,800 $0
equal to or greater than $35,000
$4,152,800 but less than
$4,252,800
equal to or greater than $41,000
$4,252,800 but less than
$4,352,800
equal to or greater than $47,000
$4,352,800 but less than
$4,452,800
equal to or greater than $53,000
$4,452,800 but less than
$4,552,800
equal to or greater than $59,000
$4,552,800 but less than
$4,652,800
equal to or greater than $65,000
$4,652,800 but less than
$4,752,800
equal to or greater than $71,000
$4,752,800 but less than
$4,852,800
equal to or greater than $77,000
$4,852,800 but less than
$4,952,800
equal to or greater than $83,000
$4,952,800
</TABLE>
<PAGE>
EXHIBIT 10.7
PACIFIC MOTOR TRANSPORT COMPANY
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
March 31, 1997
Mr. Robert L. Cross
2061 Casa Nuestra
Diablo, California 94528
Employment Agreement
--------------------
Dear Mr. Robert:
This letter sets forth the terms of your continued employment with
Pacific Motor Transport Company (the "Company").
1. Duties. On the terms and subject to the conditions contained in
------
this Agreement, you will be employed as the President of ABL-TRANS, a division
of the Company (the "Company"), and shall perform such duties and services
consistent with such position as may reasonably be assigned to you from time to
time by the Board of Directors or by the President of the Company.
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 initially ending on the second
anniversary of the date hereof. Subject to the applicable provisions of Section
8 of this Agreement regarding earlier termination, the Employment Period shall
be extended automatically one day prior to each anniversary of the Commencement
Date, beginning with the second anniversary thereof, for an additional period of
one year.
3. Time to be Devoted to Employment. During the Employment Period,
--------------------------------
you will devote your working energies, efforts, interest, abilities and time
exclusively to the business and affairs of the Company. You will not engage in
any other business or activity which, in the reasonable judgment of the Board of
Directors of the Company, would conflict or interfere with the performance of
your duties as set forth herein, whether
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 2
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
affiliates) shall pay you a minimum annual base salary (the "Base Salary") of
$200,000, payable in such installments (but not less often than monthly) as is
generally the policy of the Company 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 generally, including, without limitation, (i)
participation in such health, life and disability insurance programs and
retirement or savings plans as the Company may from time to time maintain in
effect and (ii) the use of a vehicle provided by the Company or an equivalent
monthly car allowance in accordance with the Company's policy with respect to
its senior executives.
(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, as provided in this paragraph. The bonus, if any, for each
fiscal year of the Company ending on or prior to December 31, 2001, shall be
calculated in the manner set forth on Annex A attached to this Agreement and
-------
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
financial statements of the Company. If your employment with the Company is
terminated for any reason other than without "cause" pursuant to Section 8(b),
the Company 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" as provided in Section 8(b) below, 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). For each fiscal year ending after December
31, 2001, the amount of the bonus and the criteria therefor shall be determined
by the Board of Directors. In the event that the Company consummates any mergers
or
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 3
acquisitions (whether of assets, stock or other interests) or other
extraordinary transactions, the Board of Directors shall in good faith make such
adjustments to the targets set forth on Annex A for Operating Income (as
-------
defined on Annex A) to take into account the effects of any such acquisition
-------
or transaction.
5. Reimbursement of Expenses. During the Employment Period, the
-------------------------
Company shall reimburse you in accordance with Company policy for all reasonable
and necessary traveling expenses and other disbursements incurred by you for or
on behalf of the Company 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.
6. Options. The Company will grant you options (the "Options") to
-------
purchase shares of common stock, $.01 par value (the "Common Stock"), of the
Company pursuant to the Company's 1997 Stock Option Plan (the "Option Plan").
The Options will be evidenced by a Stock Option Agreement between you and the
Company. The Option Plan and the Stock Option Agreement will contain all of the
terms and conditions of your Options.
7. 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 an aggregate of 210 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. Robert Cross
March 31, 1997
Page 4
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 5
8. 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), 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
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 6
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 Information"
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 the Company 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.
9. 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 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
the Company and its properties and assets are of special and unique value to the
Company and its affiliates and that the Company would find it extremely
difficult to
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 7
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 9(b)(ii), if applicable), without
the prior written consent of the Company, you shall not, at any time during the
Employment Period and the period beginning on the effective date of any
termination of your employment with the Company and its subsidiaries and ending
on the third anniversary thereof, (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, PMT or any of their
respective subsidiaries to terminate their employment with the Company or any of
their respective subsidiaries or to engage in any Competing Business 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 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 (A) intermodal marketing or (B) providing flatbed specialized
hauling services utilizing owner-operators or agents; provided, however, that an
entity which has separate divisions or business units, one or more of which are
engaged in a business described in clause (A) or (B) hereof, will not be deemed
a Competing Business with respect to those portions of such entity which are not
engaged in a business described in clause (A) or (B) above so long as
<PAGE>
Mr.Robert Cross
March 31, 1997
Page 8
the Employee's association with any such separate division or business unit
(fully taking into account his functions and the nature of his work at such
division or business unit) does not relate in any material respect to such
portion of such business which would be a Competing Business hereunder.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if, following the termination of your employment with the Company
and/or its subsidiaries, the Company fails to pay to you any sums due under
Section 9(b)(ii) hereof and (i) you have complied in all material respects with
all of the provisions of the last sentence of Section 9(b)(ii) and (ii) such
failure to pay continues for a period of fifteen (15) days following receipt by
the Company of written notice thereof, the restrictions contained in this
Section 11 shall terminate and be of no further force or effect. Any termination
of the restrictions contained in this Section 11 pursuant to this subsection (d)
shall not affect the Company's obligations under this Agreement or constitute a
waiver by you of any other rights or remedies you may have against the Company
for breach of any term hereof.
10. 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, PMT or any of their
respective 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
(including a reasonable payment (based on your last per diem earnings) for the
time involved if you are not then in the Company's employ or receiving severance
payments from the Company pursuant to Section 9(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 employ or receiving severance payments from the Company
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 9
pursuant to Section 9(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 involving any said applications, patents, copyrights or other
proprietary rights and in any litigation in which the Company may be involved
relating to the Inventions.
11. 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 employ or receiving
severance payments from the Company pursuant to Section 9(b)(ii)) and upon
reasonable notice, 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 may be involved. If such a request for assistance occurs after the
expiration of the Employment Period, then you will only be required to render
assistance to the Company to the extent that you can do so without materially
affecting your other business obligations.
12. 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 affiliates (including, without
limitation, that certain letter agreement dated January 29, 1997, among you, Eos
Partners, L.P., and the other parties thereto). 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.
13. 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. Robert Cross
March 31, 1997
Page 10
(a) if to the Company, to:
Pacific Motor Transport Company
10007 Oak Tree Court
Littleton, CO 80124
Attention: President
Telecopier: (303) 790-4685
Telephone: (303) 799-1443
with a copy to:
Eos Partners, L.P.
320 Park Avenue
22nd Floor
New York, NY 10022
Attention: Douglas R. Korn
Telecopier: (212) 832-5805
Telephone: (212) 832-5800
(b) if to you, to:
Mr. Robert L. Cross
2061 Casa Nuestra
Diablo, California 94528
Telecopier: (510) 743-8975
Telephone: (510) 743-8552
14. 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.
15. 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 enforceability 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
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 11
invalidate or render unenforceable such provision in any other jurisdiction.
16. 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 10, 11, or 12, the Company 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.
17. 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.
18. 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. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by any party hereto
without the consent of the other party hereto.
19. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counter part shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
20. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any
<PAGE>
Mr, Robert Cross
March 31, 1997
Page 12
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
<PAGE>
Mr. Robert Cross
March 31, 1997
Page 13
21. 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.
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,
PACIFIC MOTOR TRANSPORT COMPANY
By:_____________________________
Name:
Title:
Accepted and agreed to:
_____________________________
[Name]
<PAGE>
ANNEX A
-------
INCENTIVE BONUS PROGRAM
-----------------------
The Company will pay a cash incentive bonus based upon the Operating
Income (as hereinafter defined) of the Company for each fiscal year set forth
below occurring during the Employment Period. The amount of the Bonus so
payable will be based on the Company's achieving Operating Income (as defined
below) targets set by the President of the Company (which will be identical for
the President of the Company and the Presidents of the Company's PACER and ABL-
TRANS divisions), but which in no event will be lower than the target amounts
set forth below (with the amount of the Bonus payable being calculated
accordingly at the rate of $6,000 of Bonus per $100,000 of Operating Income).
For purposes of this Agreement, "Operating Income" means the operating income of
the Company, determined on a consolidated basis (if applicable) and in
accordance with generally accepted accounting principles consistently applied
for the fiscal year in question, as set forth on the audited statement of income
of the Company for the fiscal year in question; provided, however, Operating
-------- -------
Income shall (x) exclude management fees, non-operating gains and losses as
determined by the Board of Directors and such other non-cash items as shall be
determined by the Board of Directors and (y) be determined after giving effect
to any bonus payable by the Company to management or employees of the Company
hereunder or otherwise.
MINIMUM OPERATING INCOME TARGETS
AND CORRESPONDING BONUS CALCULATION
FISCAL YEAR 1997
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
------------------------- ----------------------------
<S> <C>
less than $3,050,000 $ 0
equal to or greater than $35,000
$3,050,000 but less than
$3,150,000
equal to or greater than $41,000
$3,150,000 but less than
$3,250,000
equal to or greater than $47,000
$3,250,000 but less than
$3,350,000
equal to or greater than $53,000
$3,350,000 but less than
$3,450,000
equal to or greater than $59,000
$3,450,000 but less than
$3,550,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $65,000
$3,550,000 but less than
$3,650,000
equal to or greater than $71,000
$3,650,000 but less than
$3,750,000
equal to or greater than $77,000
$3,750,000 but less than
$3,850,000
equal to or greater than $83,000
$3,850,000
</TABLE>
FISCAL YEAR 1998
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
---------------------- ----------------------------
<S> <C>
less than $3,288,400 $ 0
equal to or greater than $35,000
$3,288,400 but less than
$3,388,400
equal to or greater than $41,000
$3,388,400 but less than
$3,488,400
equal to or greater than $47,000
$3,488,400 but less than
$3,588,400
equal to or greater than $53,000
$3,588,400 but less than
$3,688,400
equal to or greater than $59,000
$3,688,400 but less than
$3,788,400
equal to or greater than $65,000
$3,788,400 but less than
$3,888,400
equal to or greater than $71,000
$3,888,400 but less than
$3,988,400
equal to or greater than $77,000
$3,988,400 but less than
$4,088,400
equal to or greater than $83,000
$4,088,400
</TABLE>
<PAGE>
FISCAL YEAR 1999
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ---------------------------
<S> <C>
less than $3,561,200 $ 0
equal to or greater than $35,000
$3,561,200 but less than
$3,661,200
equal to or greater than $41,000
$3,661,200 but less than
$3,761,200
equal to or greater than $47,000
$3,761,200 but less than
$3,861,200
equal to or greater than $53,000
$3,861,200 but less than
$3,961,200
equal to or greater than $59,000
$3,961,200 but less than
$4,061,200
equal to or greater than $65,000
$4,061,200 but less than
$4,161,200
equal to or greater than $71,000
$4,161,200 but less than
$4,261,200
equal to or greater than $77,000
$4,261,200 but less than
$4,361,200
equal to or greater than $83,000
$4,361,200
</TABLE>
FISCAL YEAR 2000
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $3,906,100 $ 0
equal to or greater than $35,000
$3,906,100 but less than
$4,006,100
equal to or greater than $41,000
$4,006,100 but less than
$4,106,100
equal to or greater than $47,000
$4,106,100 but less than
$4,206,100
equal to or greater than $53,000
$4,206,100 but less than
$4,306,100
</TABLE>
<PAGE>
<TABLE>
<S> <C>
equal to or greater than $59,000
$4,306,100 but less than
$4,406,100
equal to or greater than $65,000
$4,406,100 but less than
$4,506,100
equal to or greater than $71,000
$4,506,100 but less than
$4,606,100
equal to or greater than $77,000
$4,606,100 but less than
$4,706,100
equal to or greater than $83,000
$4,706,100
</TABLE>
FISCAL YEAR 2001
----------------
<TABLE>
<CAPTION>
If Operating Income is: The Amount of Bonus will be:
----------------------- ----------------------------
<S> <C>
less than $4,152,800 $ 0
equal to or greater than $35,000
$4,152,800 but less than
$4,252,800
equal to or greater than $41,000
$4,252,800 but less than
$4,352,800
equal to or greater than $47,000
$4,352,800 but less than
$4,452,800
equal to or greater than $53,000
$4,452,800 but less than
$4,552,800
equal to or greater than $59,000
$4,552,800 but less than
$4,652,800
equal to or greater than $65,000
$4,652,800 but less than
$4,752,800
equal to or greater than $71,000
$4,752,800 but less than
$4,852,800
equal to or greater than $77,000
$4,852,800 but less than
$4,952,800
equal to or greater than $83,000
$4,952,800
</TABLE>
<PAGE>
EXHIBIT 10.8
PMT HOLDINGS, INC.
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
December 16, 1997
Mr. Gary I. Goldfein
229 N. Cliffwood Ave.
Los Angeles, CA 90049
Employment Agreement
--------------------
Dear Gary:
This letter sets forth the terms of your employment with PMT Holdings,
Inc. ("Holdings"), Interstate Consolidation, Inc. ("ICI"), and Interstate
-------- ---
Consolidation Service, Inc. ("ICSI"). ICI and ICSI (together, "Interstate") are
----
wholly owned subsidiaries of Holdings. Holdings, ICI and ICSI are each herein
referred to as a "Company" and collectively as the "Companies".
------- ---------
Section 1. Duties. On the terms and subject to the conditions
------
contained in this Agreement, you will be employed as the Executive Vice
President of Holdings and as the President and Chief Executive Officer of each
of ICI and ICSI, and will have complete authority and responsibility for ICI's
and ICSI's international and domestic consolidation, drayage and related
intermodal marketing operations (including the operations of ABL-TRANS),
reporting to and subject to the supervision and direction of the Board of
Directors and the Chairman of the Board of each Company (provided, however, that
-------- -------
you will not be required to relocate your principal office to any location
outside a 50 mile radius from your current principal office located at 5800 East
Sheila Street, Los Angeles, California).
Section 2. Term. Unless sooner terminated in accordance with the
----
applicable provisions of this Agreement, your employment hereunder shall be for
the period (the "Employment Period") commencing on the date hereof (the
-----------------
"Commencement Date") and ending on December 31, 2000.
-----------------
Section 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 during normal business hours exclusively to the
business and affairs of the Companies (except for reasonable time devoted to the
procedures contemplated by Article III of the Purchase Agreement (as defined in
Section 9(a) below) on your own behalf). You will not engage in any other
business or activity which, in the
1
<PAGE>
reasonable judgment of the Board or the Chairman of each Company, as applicable,
would conflict or interfere, in any material respect, with the performance of
your duties as set forth herein, whether or not such activity is pursued for
gain, profit or other pecuniary advantage.
Section 4. Base Salary; Bonus; Benefits.
----------------------------
(a) During the Employment Period, you will be entitled to a minimum
annual base salary (the "Base Salary") of $235,000, payable by Interstate in
such installments (but not less often than bi-weekly) as is generally the policy
of the Companies 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 Holdings' Board. During the Employment Period, you will also
be entitled to the benefits set forth in Part I on Schedule 4(a) attached
------ -------------
hereto, which include four weeks vacation per year and such other benefits as
may from time to time be made available to other executive officers of the
Companies generally, including, without limitation, (i) participation in such
health, life and disability insurance programs and retirement or savings plans
as the Companies may from time to time maintain in effect (provided, however,
-------- -------
that, during the period ending on the first anniversary of the date hereof (or
April 1, 1999, in the case of group health plans), the Companies will not amend
or modify, in any manner that would have a materially adverse effect on the
benefits made available thereunder, any of the employee benefit plans and
programs set forth in Part II on Schedule 4(a) attached hereto that are
------- -------------
maintained by ICI and ICSI required to be maintained by Section 7.6 of the
Purchase Agreement; provided further, however, that you may elect to not be
-------- ------- -------
covered by the Companies benefit plans by so notifying the Companies, and the
Companies shall pay you an amount equal to the benefits cost savings realized by
the Company, as reasonably determined by the Companies and you in consultation
with the Companies' benefits consultants), (ii) participation in such stock
option plans of Holdings as may be adopted from time to time for the executive
officers of the Companies on terms determined by the Board of Holdings and (iii)
during the Employment Period and for a period of six years thereafter, with
respect to your position as a director or officer (as the case may be),
directors' and officers' liability insurance. Part III of Schedule 4(a)
attached hereto sets forth the benefits made available on the date hereof to the
other executive officers of Holdings and its subsidiaries generally.
(b) In addition to the Base Salary and benefits set forth in paragraph
(a) above, during the Employment Period you will be entitled to receive a bonus,
if any, with respect to each full calendar year occurring during the Employment
Period, commencing with the calendar year ending December 31, 1998, such bonus
to be paid in a lump sum following the end of the calendar year with respect to
which such bonus is payable (such payment to be made at the same time
performance bonuses are paid to the other senior managers of Holdings and its
subsidiaries). If your employment with the Companies is terminated for any
reason other than without "cause" pursuant to Section 8(b), the Companies will
not pay you a bonus with respect to the calendar year in which your employment
is terminated or thereafter. If your employment with the Companies is
terminated without "cause" pursuant to Section 6(b) below, you will be entitled
to receive that portion of the bonus payable for the calendar year during which
such termination occurs pro rated through the date of such termination based on
the number of days
2
<PAGE>
elapsed through the termination date over 365 days, payable in accordance with
first sentence of this Section 4(b). The bonus payable for each such calendar
year shall be subject to and determined based on the achievement by Holdings and
its subsidiaries of specified performance targets applicable to the other senior
managers of Holdings and its subsidiaries, such bonus to range from $35,000 upon
the achievement of the minimum specified targets to $90,000 upon the achievement
of the maximum specified targets. The minimum specified target for the year
ending December 31, 1998, is $9.0 million in Operating Income (as defined on
Schedule 4(b)) and the maximum specified target for the year ending December 31,
1998, is $9.9 million in Operating Income (as defined on Schedule 4(b)), subject
in each case to the adjustment of such targets pursuant to Schedule 4(b).
Section 5. Reimbursement of Expenses. During the Employment Period,
-------------------------
the Companies shall reimburse you in accordance with their policies for all
reasonable and necessary traveling expenses and other disbursements incurred by
you for or on behalf of the Companies 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
Companies.
Section 6. Termination.
-----------
(a) Holdings 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 6, "cause"
shall mean any of the following (whether occurring before or after the date
hereof): (i) willful misconduct with respect to the business and affairs of the
Companies or any of their respective subsidiaries, (ii) willful neglect of your
duties or the failure to follow the lawful and reasonable directions of the
Board or the Chairman of each Company, including, without limitation, the
violation of any material written policy (or oral policy of which you are aware)
of the Companies or any of their respective subsidiaries applicable to you, and,
if such neglect or failure is capable of being cured, your failure to cure the
same as soon as practicable, but in any event within 30 days of receipt of
written notice thereof from Holdings, (iii) the material breach of any of the
provisions of this Agreement, and, if such breach is capable of being cured,
your failure to cure such breach as soon as practicable, but in any event within
30 days of receipt of written notice thereof from Holdings, (iv) the commission
of a felony, (v) the commission of an act of fraud or financial dishonesty with
respect to any of the Companies or their respective subsidiaries or affiliates
or (vi) any conviction for a crime involving moral turpitude or fraud. A
termination pursuant to this Section 6(a) shall take effect immediately upon the
giving of notice contemplated hereby (subject to any applicable cure period).
(b) Holdings may terminate your employment hereunder at any time
without "cause" by giving you written notice of such termination, which
termination shall be effective as of the date set forth in such notice, provided
that such date shall not be earlier than the date of such notice (provided that
you shall be afforded a reasonable period of time after such termination to
remove your personal effects from the Companies' premises). Any material breach
of Section 1 of this Agreement by any of the
3
<PAGE>
Companies that remains uncured for more than 30 days after your delivery to the
Companies of written notice of such breach shall be deemed to be a termination
without "cause" for purposes of this Agreement. For purposes of the immediately
preceding sentence, a substantial reduction of your duties, responsibilities and
status set forth in Section 1 of this Agreement shall be deemed to be a
"material breach" of such Section 1.
(c) If, during the Employment Period, you are incapacitated or disabled
by accident, sickness or otherwise so as to render you mentally or physically
incapable of performing substantially all of the services required to be
performed by you under this Agreement for an aggregate of 210 days in any period
of 360 consecutive days (hereinafter, a "Disability"), the Companies may, at any
time thereafter, at their 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 your death.
Section 7. 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 6(b), neither you nor your beneficiaries or estate shall have any
further rights under this Agreement or any claims against the Companies or any
of their respective subsidiaries or affiliates arising out of this Agreement,
except the right to receive the following as soon as reasonably practicable
following the effective date of such termination (but in any event within the
applicable time period (if any) mandated by applicable law):
(i) the unpaid portion of the Base Salary payable pursuant to
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, that 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 a Company as of the end of such period.
(b) Upon termination of your employment under this Agreement pursuant
to Section 6(b), neither you nor your beneficiaries or estate shall have any
further rights under this Agreement or any claims against the Companies or any
of their respective subsidiaries or affiliates arising out of this Agreement,
except the right to receive the following, as soon as reasonably practicable
following the effective date of such termination (but in any event within the
applicable time period (if any) mandated by applicable law in the case of
amounts due pursuant to clause (i) below, and at such other times as provided in
clauses (ii) and (iii) below in the case of amounts due thereunder):
4
<PAGE>
(i) the payments, if any, referred to in Section 7(a) above,
to the extent not covered by clause (ii) of this Section 7(b);
(ii) the right to continue to receive the Base Salary from the
effective date of such termination until December 31, 2000, payable during
such period in such manner as the Base Salary is payable pursuant to
Section 4(a), reduced by 50% of any amounts you (or your beneficiaries or
estate) receive or are entitled to receive as salary or other cash
compensation from your subsequent employment or for services rendered by
you for one or more other parties (other than such services that are
rendered by you in the aggregate for less than 20 hours per calendar week
and less than 260 hours per calendar quarter) during such period (other
than such compensation earned by you from a business controlled by you), up
to a maximum of 50% of all amounts due to you under this Section 7(b)(ii)
(in order to carry out the intent of the immediately preceding sentence,
you agree, for yourself and your beneficiaries or estate, to provide the
Companies with such information as the Companies may reasonably request
regarding your receipt of salary and other cash compensation from
subsequent 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(b) with respect to the fiscal year in which such termination
occurs.
Notwithstanding anything contained in this Agreement to the contrary, your
beneficiaries or estate will be entitled to continue to receive all payments
specified in this Section 7(b) if you die after the date of a termination
without "cause."
Section 8. 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 Companies), 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 Companies or their respective subsidiaries.
(b) For purposes of this Agreement, "Confidential Information" shall
mean (i) the Intellectual Property Rights (as hereinafter defined) of the
Companies and their respective subsidiaries and affiliates and (ii) all other
information of a proprietary or confidential nature relating to the Companies or
their respective subsidiaries and affiliates, or the business or assets of the
Companies or their respective subsidiaries and affiliates, 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,
5
<PAGE>
budgets and projections, other than, with respect to both clauses (i) and (ii),
(x) 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 (y) information which you receive from a third party who does
not have any independent obligation to any of the Companies or their respective
subsidiaries or affiliates 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.
Section 9. 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
Companies and their respective 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 the Companies and their respective
subsidiaries, and their respective properties and assets, are of special and
unique value to the Companies and their affiliates and that the Companies would
find it extremely difficult to replace you. In addition, you acknowledge and
agree that this Agreement is being executed and delivered in connection with,
and as a mutual condition to the respective obligations of the parties at the
closing on the date hereof under, the Stock Purchase Agreement dated as of the
date hereof (the "Purchase Agreement") between each of the Companies, you and
the other seller thereunder; provided, however, that the Companies agree that a
-------- -------
breach by you of this Section 9 shall in no event constitute a breach under the
Purchase Agreement (it being acknowledged by you, however, that this proviso
shall in no way limit or affect the separate and independent provisions of
Section 7.4 of the Purchase Agreement). As a material inducement to Holdings to
enter into and perform its obligations under the Purchase Agreement, and in
consideration of the payments and other benefits (including the further
experience and expertise to be gained during your employment hereunder) to be
received by you under the Purchase Agreement and this Agreement (including,
without limitation, the severance compensation described in Section 7(b)(ii), if
applicable), you shall not, without the prior written consent of the Companies,
at any time during the Employment Period and the period beginning on the
effective date of any termination of your employment with the Companies and
their respective subsidiaries or affiliates and ending on the later of (i) the
second anniversary thereof and (ii) the fifth anniversary of the Commencement
Date, (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
6
<PAGE>
other participant in any Competing Business, (b) assist others in engaging in
any Competing Business in any manner described in clause (a) above, (c) induce
other employees of the Companies or any of their respective subsidiaries or
affiliates to terminate their employment with any of the Companies or any of
their respective subsidiaries or affiliates or to engage in any Competing
Business or in any manner described in clause (a) above or (d) induce any
customer, vendor or agent or any other person or entity with which any of the
Companies or their respective subsidiaries or affiliates has a business
relationship 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 any of the
Companies or any subsidiary or affiliate thereof, but you nevertheless believe
that you have received and will receive sufficient consideration and other
benefits under the Purchase Agreement and as an employee of the Companies 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 engaged in providing any of the following transportation services to
third party customers:
(i) intermodal marketing or transportation services in any
city or county in any state or province located in the continental United
States, Canada or Mexico;
(ii) less-then-truckload common carrier services in any city or
county in any state or province located in the continental United States,
Canada or Mexico;
(iii) intra-state trucking of truckload or less-than-truckload
freight in any city or county located in the state of California;
(iv) drayage, consolidation, deconsolidation or distribution
services in any city or county in any state or province located in the
continental United States, Canada or Mexico where any of the Companies
conducts business or provides any drayage, consolidation, deconsolidation
or distribution services at the time of, or where there are fixed plans for
any of the Companies to conduct business or provide any drayage,
consolidation, deconsolidation or distribution services at any time within
12 months after, the termination of your employment with the Companies; or
(v) contract warehousing, freight handling or logistics
services in any city or county in any state or province located in the
continental United States, Canada or Mexico where any of the Companies
conducts business or
7
<PAGE>
provides such services at the time of, or where there are fixed plans for
any of the Companies to conduct business or provide such services at any
time within 12 months after, the termination of your employment with the
Companies.
Anything contained in the immediately preceding sentence to the contrary
notwithstanding,
(A) any entity which has separate divisions or
business units, one or more of which are engaged in a business described in
the immediately preceding sentence, will not be deemed to be a Competing
Business with respect to those separate divisions or business units of such
entity that are not engaged in a business described in the immediately
preceding sentence 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 (1) involve
existing customers of any of the Companies at the time of the termination
of your employment with the Companies or former customers of any of the
Companies at any time during the 12 months preceding such termination or
(2) relate in any material respect to such portion of such business which
would be a Competing Business hereunder;
(B) the provision of consulting services to a direct
shipper who is not a customer of any of the Companies at the time of the
termination of your employment with the Companies, or a former customer of
any of the Companies at any time during the 12 months preceding such
termination, shall not be deemed to be "engaging in a Competing Business"
for purposes of this SECTION 9; and
---------
(C) the provision of any drayage, consolidation,
deconsolidation, distribution, contract warehousing, freight handling or
logistics services in any location described in clause (iv) or (v) of the
immediately preceding sentence shall only be deemed to be a "Competing
Business" if (1) you were the President or Chief Executive Officer of any
Company (or any of its separate divisions or business units), that was
engaged in providing any drayage, consolidation, deconsolidation,
distribution, contract warehousing, freight handling or logistics services
at the time of (or at any time within the 12 months prior to) the
termination of your employment with the Companies or where such Company (or
such division or business unit) had fixed plans at the time of such
termination to provide any drayage, consolidation, deconsolidation,
distribution, contract warehousing, freight handling or logistics services
at any time within 12 months after such termination, or (2) any drayage,
consolidation, deconsolidation, distribution, contract warehousing, freight
handling or logistics services are being provided to any Person who was a
customer of the Company at the time of the termination of your employment
with the Companies or at any time during the 12 months prior to such
termination.
Section 10. Inventions Assignment. During the Employment Period, you
---------------------
shall promptly disclose, grant and assign to the Companies for their sole use
and benefit
8
<PAGE>
any and all inventions, improvements, technical information and suggestions
reasonably relating to the business of the Companies or any of their respective
subsidiaries or affiliates (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 Companies (including a reasonable payment (based on your last per diem
earnings) for the time involved if you are not then in the employ of any of the
Companies or receiving severance payments from the Companies pursuant to Section
7(b)(ii)), promptly execute and deliver such applications, assignments,
descriptions and other instruments as may be necessary or proper in the opinion
of the Companies to vest title to the Inventions and any patent applications,
patents, copyrights, reissues or other proprietary rights related thereto in the
Companies and to enable them to obtain and maintain the entire right and title
thereto throughout the world; and (b) you shall render to the Companies, at
their expense (including a reasonable payment (based on your last per diem
earnings) for the time involved if you are not then in the employ of any of the
Companies or receiving severance payments from the Companies pursuant to Section
7(b)(ii)), such reasonable assistance as they may require in the prosecution of
applications for said patents, copyrights, reissues or other proprietary rights,
in the prosecution or defense of interferences which may be declared involving
any said applications, patents, copyrights or other proprietary rights and in
any litigation in which any of the Companies may be involved relating to the
Inventions.
Section 11. Assistance in Litigation.
------------------------
(a) At all times during the Employment Period, and thereafter upon
reasonable notice from the Board or the Chairman of Holdings you shall furnish
such information and assistance to the Companies as any of them may reasonably
require in connection with the actions entitled Irwin Albillo et. al. v.
------------------------
Intermodal Container Service, Inc. et. al. (Case No. B0174508), and Paul
- ------------------------------------------ ----
Cardoza, et al., vs. Air Rail Truck Service-Air Cargo, et al. (Case No. BC 153
- ------------------------------------------------------------------------------
522), as any such action may be amended, modified, restated or refiled, whether
- ------
by the plaintiffs Albillo, Cardoza or one or more other independent contractor
drivers against one or more of the Companies and the Subsidiary asserting claims
based on the facts alleged in the Albillo action or the Cardoza action cited
------- -------
above. Such information and assistance shall include, but not be limited to,
appearing from time to time at the offices of the Companies or Companies'
counsel for conferences and interviews and in general providing the officers of
the Companies, the Companies and Companies' counsel with the full benefit of
your knowledge with respect to such actions. The Companies shall pay or
reimburse you for all reasonable out-of-pocket expense incurred by you in
connection with your furnishing such information and assistance upon
presentation of appropriate receipts or other documentation therefor.
(b) At all times during the Employment Period, and thereafter upon
reasonable notice from the Board or the Chairman and at the expense of the
Companies (including a reasonable payment (based on your last per diem earnings)
for the time involved if you are not then in the employ of any of the Companies
or collecting payments pursuant to Section 7(b)), you shall furnish such
information and assistance to
9
<PAGE>
the Companies as any of them may reasonably require in connection with any
issue, claim or litigation in which any of the Companies may be involved
(excluding the matters covered by Section 11(a) above). Such information and
assistance shall include, but not be limited to, appearing from time to time at
the offices of the Companies or Companies' counsel for conferences and
interviews and in general providing the officers of the Companies, the Companies
and Companies' counsel with the full benefit of your knowledge with respect to
such issue, claim or litigation.
Section 12. Entire Agreement; Amendment and Waiver. This Agreement
--------------------------------------
embodies the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersedes and preempts any and all
prior and contemporaneous understandings, agreements, arrangements or
representations by or among the parties, written or oral, which may relate to
the subject matter hereof in any way. Other than this Agreement, there are no
other agreements continuing in effect relating to the subject matter hereof
(except that the parties acknowledge the existence of the separate and
independent provisions contained in Section.7.4 of the Purchase Agreement). 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.
Section 13. 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):
if to any Company, to:
PMT Holdings, Inc.
3746 Mt. Diablo Boulevard, Suite 100
Lafayette, CA 94549
Attention: Chairman of the Board
Telecopier: (510) 299-
Telephone: (510) 283-1938
with a copy to:
Eos Partners, L.P.
320 Park Avenue
22nd Floor
New York, NY 10022
Attention: Douglas R. Korn
Telecopier: (212) 832-5815
Telephone: (212) 832-5803
10
<PAGE>
if to you, to:
Mr. Gary I. Goldfein
229 N. Cliffwood Ave.
Los Angeles, CA 90049
Telephone: (310) 471-2974
Telecopier: (310) 471-7483
with copies to:
Manatt, Phelps & Phillips, LLP
11355 W. Olympic Blvd.
Los Angeles, CA 90064
Attention: Ronald S. Barak
Telecopier: (310) 312-4224
Telephone: (310) 312-4000
Mr. Allen E. Steiner
1537 Amalfi Drive
Pacific Palisades, CA 90272-2754
Telephone: (310) 459-3926
Telecopier: (310) 459-8124
Section 14. 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.
Section 15. 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 enforceability 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.
Section 16. 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 Companies irreparable harm. You further acknowledge that in the
event of a breach of any of the covenants contained in paragraphs 8, 9, or 10,
the Companies 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
11
<PAGE>
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.
Section 17. Representation.
--------------
(a) You hereby represent and warrant to Holdings that (i) the
execution, delivery and performance of this Agreement by you and ICI and ICSI
does not breach, violate or cause a default under any agreement, contract or
instrument to which any of you, ICI or ICSI is a party or any judgment, order or
decree to which any of you, ICI OR ICSI is subject, and (ii) none of you, ICI or
ICSI is a party to or bound by any employment agreement, consulting agreement,
noncompete agreement, confidentiality agreement or similar agreement regarding
your employment or retention with or by any other person or entity.
(b) Holdings hereby represents and warrants to you that the execution,
delivery and performance of this Agreement by Holdings does not breach, violate
or cause a default under any agreement, contract or instrument to which Holdings
is a party or any judgment, order or decree to which Holdings is subject.
Section 18. 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. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by any party hereto
without the consent of the other parties hereto.
Section 19. 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.
Section 20. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
SECTION 21. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
---------------------------
CONNECTION WITH COMPLEX 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
12
<PAGE>
OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED
HERETO.
* * * *
13
<PAGE>
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,
PMT HOLDINGS, INC.
By:_____________________
Name:
Title:
INTERSTATE CONSOLIDATION, INC.
By:_____________________
Name:
Title:
INTERSTATE CONSOLIDATION SERVICE, INC.
By:_____________________
Name:
Title:
Accepted and agreed to:
________________________
Gary I. Goldfein
14
<PAGE>
SCHEDULE 4(A)
PART I
------
. One German Luxury Company Car each including gasoline, repairs, maintenance,
insurance, taxes, etc. (to be replaced not less often than once every three
years after the date of acquisition of such vehicle)
. Country Club Dues (approx. $475/mo.)
. WPO\YPO Dues (approx. $5,000/yr.)
. YPO Seminars
. Membership in Trade and Business Organizations and airline and automobile club
memberships
. Misc. Business Tools including computer links, cell phones, car phones, etc.
. Health Insurance
. Disability Pay as per standard for employees with 25 years service
. Sick Leave as per standard for employees with 25 years service
. Vacation time as per standard for employees with 25 years Service
PART II
-------
The following are the employee benefits for senior executive officers of
Holdings as of the date hereof:
Group Health Insurance
Connecticut General Life Insurance Company - Policy 2233560-01
Coverage: standard group plan
Group Term Life Insurance
Fortis Benefits Insurance Company - Policy 4009662
Coverage: $350,000
Additional Term Life Insurance
CNA/Valley Forge Life Insurance
Coverage: $700,000
Accidental Death and Dismemberment
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Short Term Disability
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Long Term Disability
15
<PAGE>
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Massachusetts Casualty Insurance Company
Gerry Angeli - $6,200 per month
Robert Cross - $4,750 per month
Group Dental Insurance
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Pacific Motor Transport 401(k) Plan
Merrill Lynch
Company matching contribution: 3% of first 100% if participant's contribution
Company Automobiles
Gerry Angeli - Buick Park Avenue
Bob Cross - Buick Park Avenue
Don Orris - Car Allowance of $1,076 per month
16
<PAGE>
SCHEDULE 4(B)
OPERATING INCOME
----------------
For purposes of Section 4(b) 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 Holdings 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 Holdings 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 Holdings and such other non-cash items as shall be
determined by the Board of Directors of Holdings (provided that, with regard to
recognition of income due to customer credit balances and the reversal of prior
period accounts payable, such recognition will be made on a basis consistent
with past practice as to amount and timing of such recognition) and (y) be
determined after giving effect to any and all bonuses payable by Holdings and/or
any of its subsidiaries to management or employees of Holdings and/or any of its
subsidiaries hereunder or otherwise. In the event that Holdings 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 Holdings 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.
17
<PAGE>
EXHIBIT 10.9
PMT HOLDINGS, INC.
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
December __16, 1997
Mr. Allen E. Steiner
1537 Amalfi Drive
Pacific Palisades, CA 90272-2754
Employment Agreement
--------------------
Dear Allen:
This letter sets forth the terms of your employment with PMT Holdings,
Inc. ("Holdings"), Interstate Consolidation, Inc. ("ICI"), and Interstate
-------- ---
Consolidation Service, Inc. ("ICSI"). ICI and ICSI (together, "Interstate") are
----
wholly owned subsidiaries of Holdings. Holdings, ICI and ICSI are each herein
referred to as a "Company" and collectively as the "Companies".
------- ---------
Section 1. Duties. On the terms and subject to the conditions
------
contained in this Agreement, you will be employed as an Executive Vice President
of each of Holdings, ICI and ICSI (and one or more of Holdings' other
subsidiaries as the Board of Directors of Holdings may reasonably determine),
and will have such duties and responsibilities consistent with such positions as
may reasonably be assigned to you from time to time by the President, the
Chairman of the Board or the Board of Directors of each Company, as applicable,
regarding the following areas: general corporate administration, including some
or all of the following: human resources, employment benefits, finance,
management information systems, contracts and insurance (provided, however, that
-------- -------
you will not be required to relocate your principal office to any location
outside a 50 mile radius from your current principal office located at 5800 East
Sheila Street, Los Angeles, California).
Section 2. Term. Unless sooner terminated in accordance with the
----
applicable provisions of this Agreement, your employment hereunder shall be for
the period (the "Employment Period") commencing on the date hereof (the
-----------------
"Commencement Date") and ending on December 31, 2000.
-----------------
Section 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 during normal business hours exclusively to the
business and affairs of the Companies (except for reasonable time devoted to the
procedures contemplated by Article III of the Purchase Agreement (as defined in
Section 9(a) below) on your own behalf). You will not engage in any other
business or activity which, in the
<PAGE>
reasonable judgment of the Board, the Chairman or the President of each Company,
as applicable, would conflict or interfere, in any material respect, with the
performance of your duties as set forth herein, whether or not such activity is
pursued for gain, profit or other pecuniary advantage.
Section 4. Base Salary; Bonus; Benefits.
----------------------------
(a) During the Employment Period, you will be entitled to a
minimum annual base salary (the "Base Salary") of $220,000 payable by Interstate
in such installments (but not less often than bi-weekly) as is generally the
policy of the Companies 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 Holdings' Board. During the Employment Period, you will
also be entitled to the benefits set forth in Part I on Schedule 4(a) attached
hereto, which include four weeks vacation per year and such other benefits as
may from time to time be made available to other executive officers of the
Companies generally, including, without limitation, (i) participation in such
health, life and disability insurance programs and retirement or savings plans
as the Companies may from time to time maintain in effect (provided, however,
-------- -------
that, during the period ending on the first anniversary of the date hereof (or
April 1, 1999, in the case of group health plans), the Companies will not amend
or modify, in any manner that would have a materially adverse effect on the
benefits made available thereunder, any of the employee benefit plans and
programs required to be maintained by Section 7.6 of the Purchase Agreement set
forth in Part II on Schedule 4(a) attached hereto that are maintained by ICI and
------- -------------
ICSI; provided further however, that you may elect to not be covered by the
-------- ------- -------
Companies' benefit plans by so notifying the Companies, and the Companies shall
pay you an amount equal to the benefits cost savings realized by the Company, as
reasonably determined by the Companies and you in consultation with the
Companies' benefits consultants), (ii) participation in such stock option plans
of Holdings as may be adopted from time to time for the executive officers of
the Companies on terms determined by the Board of Holdings and (iii) during the
Employment Period and for a period of six years thereafter, with respect to your
position as a director or officer (as the case may be), directors' and officers'
liability insurance. Part III of Schedule 4(a) attached hereto sets forth the
benefits made available on the date hereof to the other executive officers of
Holdings and its subsidiaries generally.
(b) In addition to the Base Salary and benefits set forth in
paragraph (a) above, during the Employment Period you will be entitled to
receive a bonus, if any, with respect to each full calendar year occurring
during the Employment Period, commencing with the calendar year ending December
31, 1998, such bonus to be paid in a lump sum following the end of the calendar
year with respect to which such bonus is payable (such payment to be made at the
same time performance bonuses are paid to the other senior managers of Holdings
and its subsidiaries). If your employment with the Companies is terminated for
any reason other than without "cause" pursuant to Section 8(b), the Companies
will not pay you a bonus with respect to the calendar year in which your
employment is terminated or thereafter. If your employment with the Companies is
terminated without "cause" pursuant to Section 6(b) below, you will be entitled
to receive that portion of the bonus payable for the calendar year during which
such termination occurs pro rated through the date of such termination based on
the
<PAGE>
number of days elapsed through the termination date over 365 days, payable in
accordance with the first sentence of this Section 4(b). The bonus payable for
each such calendar year shall be subject to and determined based on the
achievement by Holdings and its subsidiaries of specified performance targets
applicable to the other senior managers of Holdings and its subsidiaries, such
bonus to range from $35,000 upon the achievement of the minimum specified
targets to $90,000 upon the achievement of the maximum specified targets. The
minimum specified target for the year ending December 31, 1998, is $9.0 million
in Operating Income (as defined in Schedule 4(b)) and the maximum specified
target for the year ending December 31, 1998, is $9.9 million in Operating
Income (as defined in Schedule 4(b)), subject in each case to the adjustment of
such targets pursuant to Schedule 4(b).
-------------
Section 5. Reimbursement of Expenses. During the Employment Period,
-------------------------
the Companies shall reimburse you in accordance with their policies for all
reasonable and necessary traveling expenses and other disbursements incurred by
you for or on behalf of the Companies 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
Companies.
Section 6. Termination.
-----------
(a) Holdings 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 6,
"cause" shall mean any of the following (whether occurring before or after the
date hereof): (i) willful misconduct with respect to the business and affairs of
the Companies or any of their respective subsidiaries, (ii) willful neglect of
your duties or the failure to follow the lawful and reasonable directions of the
Board, the Chairman or the President of each Company, including, without
limitation, the violation of any material written policy (or oral policy of
which you are aware) of the Companies or any of their respective subsidiaries
applicable to you, and, if such neglect or failure is capable of being cured,
your failure to cure the same as soon as practicable, but in any event within 30
days of receipt of written notice thereof from Holdings, (iii) the material
breach of any of the provisions of this Agreement), and, if such breach is
capable of being cured, your failure to cure such breach as soon as practicable,
but in any event within 30 days of receipt of written notice thereof from
Holdings, (iv) the commission of a felony, (v) the commission of an act of fraud
or financial dishonesty with respect to any of the Companies or their respective
subsidiaries or affiliates or (vi) any conviction for a crime involving moral
turpitude or fraud. A termination pursuant to this Section 6(a) shall take
effect immediately upon the giving of notice contemplated hereby (subject to any
applicable cure period).
(b) Holdings may terminate your employment hereunder at any
time without "cause" by giving you written notice of such termination, which
termination shall be effective as of the date set forth in such notice, provided
that such date shall not be earlier than the date of such notice (provided that
you shall be afforded a reasonable period of time after such termination to
remove your personal effects from the
<PAGE>
Companies' premises). Any material breach of Section 1 of this Agreement by any
of the Companies that remains uncured for more than 30 days after your delivery
to the Companies of written notice of such breach shall be deemed to be a
termination without "cause" for purposes of this Agreement. For purposes of the
immediately preceding sentence, a substantial reduction of your duties,
responsibilities and status set forth in Section 1 of this Agreement shall be
deemed to be a "material breach" of such Section 1. In connection with the
foregoing, however, you acknowledge that the Companies intend to and may hire a
Chief Financial Officer.
(c) If, during the Employment Period, you are incapacitated or
disabled by accident, sickness or otherwise so as to render you mentally or
physically incapable of performing substantially all of the services required to
be performed by you under this Agreement for an aggregate of 210 days in any
period of 360 consecutive days (hereinafter, a "Disability"), the Companies may,
at any time thereafter, at their 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
your death.
Section 7. 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 6(b), neither you nor your beneficiaries or estate
shall have any further rights under this Agreement or any claims against the
Companies or any of their respective subsidiaries or affiliates arising out of
this Agreement, except the right to receive the following as soon as reasonably
practicable following the effective date of such termination (but in any event
within the applicable time period (if any) mandated by applicable law):
(i) the unpaid portion of the Base Salary payable
pursuant to 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, that
-------- -------
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 a Company as of the end of such period.
(b) Upon termination of your employment under this Agreement
pursuant to Section 6(b), neither you nor your beneficiaries or estate shall
have any further rights under this Agreement or any claims against the Companies
or any of their respective subsidiaries or affiliates arising out of this
Agreement, except the right
<PAGE>
to receive the following as soon as reasonably practicable following the
effective date of such termination (but in any event within the applicable time
period (if any) mandated by applicable law in the case of amounts due pursuant
to clause (i) below, and at such other times as provided in clauses (ii) and
(iii) below in the case of amounts due thereunder):
(i) the payments, if any, referred to in Section 7(a)
above, to the extent not covered by clause (ii) of this Section 7(b);
(ii) the right to continue to receive the Base Salary
from the effective date of such termination until December 31, 2000, payable
during such period in such manner as the Base Salary is payable pursuant to
Section 4(a), reduced by 50% of any amounts you (or your beneficiaries or
estate) receive or are entitled to receive as salary or other cash compensation
from your subsequent employment or for services rendered by you for one or more
other parties (other than such services that are rendered by you in the
aggregate for less than 20 hours per calendar week and less than 260 hours per
calendar quarter) during such period (other than such compensation earned by you
from a business controlled by you), up to a maximum of 50% of all amounts due to
you under this Section 7(b)(ii) (in order to carry out the intent of the
immediately preceding sentence, you agree, for yourself and your beneficiaries
or estate, to provide the Companies with such information as the Companies may
reasonably request regarding your receipt of salary and other cash compensation
from subsequent 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(b) with respect to the fiscal year in which such
termination occurs.
Notwithstanding anything contained in this Agreement to the contrary, your
beneficiaries or estate will be entitled to continue to receive all payments
specified in this Section 7(b) if you die after the date of a termination
without "cause."
Section 8. 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 Companies), 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 Companies or their respective subsidiaries.
(b) For purposes of this Agreement, "Confidential Information"
shall mean (i) the Intellectual Property Rights (as hereinafter defined) of the
Companies and their respective subsidiaries and affiliates and (ii) all other
information of a proprietary or confidential nature relating to the Companies or
their respective
<PAGE>
subsidiaries and affiliates, or the business or assets of the Companies or their
respective subsidiaries and affiliates, 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, with respect to both clauses
(i) and (ii), (x) 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 (y) information which you receive from a third
party who does not have any independent obligation to any of the Companies or
their respective subsidiaries or affiliates 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.
Section 9. 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
Companies and their respective 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 the Companies and their respective
subsidiaries, and their respective properties and assets, are of special and
unique value to the Companies and their affiliates and that the Companies would
find it extremely difficult to replace you. In addition, you acknowledge and
agree that this Agreement is being executed and delivered in connection with,
and as a mutual condition to the respective obligations of the parties at the
closing on the date hereof under, the Stock Purchase Agreement dated as of the
date hereof (the "Purchase Agreement") between each of the Companies, you and
the other seller thereunder; provided, however, that the Companies agree that a
-------- -------
breach by you of this Section 9 shall in no event constitute a breach under the
Purchase Agreement (it being acknowledged by you, however, that this proviso
shall in no way limit or affect the separate and independent provisions of
Section 7.4 of the Purchase Agreement). As a material inducement to Holdings to
enter into and perform its obligations under the Purchase Agreement, and in
consideration of the payments and other benefits (including the further
experience and expertise to be gained during your employment hereunder) to be
received by you under the Purchase Agreement and this Agreement (including,
without limitation, the severance compensation described in Section 7(b)(ii), if
applicable), you shall not, without the prior written consent of the Companies,
at any time during the Employment Period and the period beginning on the
effective date of any termination of your employment with the Companies and
their respective subsidiaries or
<PAGE>
affiliates and ending on the later of (i) the second anniversary thereof and
(ii) the fifth anniversary of the Commencement Date, (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 any manner
described in clause (a) above, (c) induce other employees of the Companies or
any of their respective subsidiaries or affiliates to terminate their employment
with any of the Companies or any of their respective subsidiaries or affiliates
or to engage in any Competing Business or in any manner described in clause (a)
above or (d) induce any customer, vendor or agent or any other person or entity
with which any of the Companies or their respective subsidiaries or affiliates
has a business relationship 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 any
of the Companies or any subsidiary or affiliate thereof, but you nevertheless
believe that you have received and will receive sufficient consideration and
other benefits under the Purchase Agreement and as an employee of the Companies
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 engaged in providing any of the following transportation services
to third party customers:
(i) intermodal marketing or transportation services in
any city or county in any state or province located in the continental United
States, Canada or Mexico;
(ii) less-then-truckload common carrier services in any
city or county in any state or province located in the continental United
States, Canada or Mexico;
(iii) intra-state trucking of truckload or less-than-
truckload freight in any city or county located in the state of California;
(iv) drayage, consolidation, deconsolidation or
distribution services in any city or county in any state or province located in
the continental United States, Canada or Mexico where any of the Companies
conducts business or provides any drayage, consolidation, deconsolidation or
distribution services at the time of, or where there are fixed plans any of the
Companies to conduct business or provide any drayage, consolidation,
deconsolidation or distribution services at any time within 12 months after, the
termination of your employment with the Companies; or
<PAGE>
(v) contract warehousing, freight handling or logistics
services in any city or county in any state or province located in the
continental United States, Canada or Mexico where any of the Companies conducts
business or provides such services at the time of, or where there are fixed
plans for any of the Companies to conduct business or provide such services at
any time within 12 months after, the termination of your employment with the
Companies.
Anything contained in the immediately preceding sentence to the contrary
notwithstanding,
A. any entity which has separate divisions or
business units, one or more of which are engaged in a business
described in the immediately preceding sentence, will not be deemed to
be a Competing Business with respect to those separate divisions or
business units of such entity that are not engaged in a business
described in the immediately preceding sentence 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 (1) involve existing customers of
any of the Companies at the time of the termination of your employment
with the Companies or former customers of any of the Companies at any
time during the 12 months preceding such termination or (2) relate in
any material respect to such portion of such business which would be a
Competing Business hereunder;
B. the provision of consulting services to a
direct shipper who is not a customer of any of the Companies at the
time of the termination of your employment with the Companies, or a
former customer of any of the Companies at any time during the 12
months preceding such termination, shall not be deemed to be "engaging
in a Competing Business" for purposes of this SECTION 9; and
---------
C. the provision of any drayage, consolidation,
deconsolidation, distribution, contract warehousing, freight handling
or logistics services in any location described in clause (iv) or (v)
of the immediately preceding sentence shall only be deemed to be a
"Competing Business" if (1) you had direct managerial authority at any
Company (or any of its separate divisions or business units), or
otherwise had ongoing contact with the customers of such Company (or
division or business unit), that was engaged in providing any
drayage, consolidation, deconsolidation, distribution, contract
warehousing, freight handling or logistics services at the time of (or
at any time within the 12 months prior to) the termination of your
employment with the Companies or where such Company (or such division
or business unit) had fixed plans at the time of such termination to
provide any drayage, consolidation, deconsolidation, distribution,
contract warehousing, freight handling or logistics services at any
time within 12 months after such termination, or (2) any drayage,
consolidation, deconsolidation, distribution, contract warehousing,
freight
<PAGE>
handling or logistics services are being provided to any Person who
was a customer of the Company at the time of the termination of your
employment with the Companies or at any time during the 12 months
prior to such termination.
Section 10. As used herein, the term "Competing Business" shall mean
------------------
any business engaged in providing any of the following transportation services
to third party customers: (i) intermodal marketing or transportation services
in any city or county in any state or province located in the continental United
States, Canada or Mexico; (ii) less-than-truckload common carrier services in
any city or county in any state or province located in the continental United
States, Canada or Mexico; (iii) intra-state trucking of truckload or less-than-
truckload freight in any city or county located in the state of California; (iv)
drayage, consolidation, deconsolidation or distribution services in any city or
county in any state or province located in the continental United States, Canada
or Mexico where the Business is conducted or provides such services, or where
there are fixed plans for the Business to be conducted or to provide such
services within 12 months of the time in question; or (v) contract warehousing,
freight handling or logistics services in any city or county in any state or
province located in the continental United States, Canada or Mexico where the
Business is conducted or provides such services, or where there are fixed plans
for the Business to be conducted or to provide such services within 12 months of
the time in question; provided, however, that (A) any entity which has separate
-------- -------
divisions or business units, one or more of which are engaged in a business
described above in this sentence, will not be deemed a Competing Business with
respect to those portions of such entity which are not engaged in a business
described above in this sentence so long as a Seller's association with any such
separate division or business unit (fully taking into account his functions and
the nature of his work at such division or business unit) does not hereunder;
and (B) providing consulting services to direct shippers who are not customers
of the Companies at the time in question shall not be deemed to be "engaging in
a Competing Business" for purposes of this Section. For purposes of the
foregoing clauses (iv) and(v), the services described therein shall only be
deemed to be a "Competing Business" if you had direct managerial authority at
the Company or its division that was providing such services to customers at the
time in question or which provided such services to persons who were customers
of the Company or such division at any time in the preceding twelve months, or
if you otherwise had ongoing contact with such customers or other persons.
Inventions Assignment. During the Employment Period, you shall promptly
- ---------------------
disclose, grant and assign to the Companies for their sole use and benefit any
and all inventions, improvements, technical information and suggestions
reasonably relating to the business of the Companies or any of their respective
subsidiaries or affiliates (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 Companies (including a reasonable payment (based on your last per
diem earnings) for the time involved if you are not then in the employ of any of
the Companies or receiving severance payments from the Companies pursuant to
Section 7(b)(ii)), promptly execute and deliver such applications, assignments,
descriptions and other instruments as may be
<PAGE>
necessary or proper in the opinion of the Companies to vest title to the
Inventions and any patent applications, patents, copyrights, reissues or other
proprietary rights related thereto in the Companies and to enable them to obtain
and maintain the entire right and title thereto throughout the world; and (b)
you shall render to the Companies, at their expense (including a reasonable
payment (based on your last per diem earnings) for the time involved if you are
not then in the employ of any of the Companies or receiving severance payments
from the Companies pursuant to Section 7(b)(ii)), such reasonable assistance as
they may require in the prosecution of applications for said patents,
copyrights, reissues or other proprietary rights, in the prosecution or defense
of interferences which may be declared involving any said applications, patents,
copyrights or other proprietary rights and in any litigation in which any of the
Companies may be involved relating to the Inventions.
Section 11. Assistance in Litigation.
------------------------
(a) At all times during the Employment Period, and thereafter
upon reasonable notice from the Board or the Chairman of Holdings you shall
furnish such information and assistance to the Companies as any of them may
reasonably require in connection with the actions entitled Irwin Albillo et. al.
--------------------
v. Intermodal Container Service, Inc. et. al. (Case No. B0174508), and Paul
- -------------------------------------------- ----
Cardoza, et al., vs. Air Rail Truck Service-Air Cargo, et al. (Case No. BC 153
- ------------------------------------------------------------------------------
522), any other related case contemplated by the Cardoza Court's Ruling on
- --------------------------------------------------------------------------
Submitted Matter entered on October 31, 1997, or any other action, federal or
- --------------------------------------------
state, arising from the facts alleged in the Albillo case referred to above, as
any such action may beamended, modified, restated or refiled, whether by the
plaintiffs Albillo, Cardoza or one or more other independent contractor drivers
against one or more of the Companies and the Subsidiary asserting claims based
on the facts alleged in the Albillo action or the Cardoza action cited above.
------- -------
Such information and assistance shall include, but not be limited to, appearing
from time to time at the offices of the Companies or Companies' counsel for
conferences and interviews and in general providing the officers of the
Companies, the Companies and Companies' counsel with the full benefit of your
knowledge with respect to such actions. The Companies shall pay or reimburse
you for all reasonable out-of-pocket expense incurred by you in connection with
your furnishing such information and assistance upon presentation of appropriate
receipts or other documentation therefor.
(b) At all times during the Employment Period, and thereafter
upon reasonable notice from the Board or the Chairman and at the expense of the
Companies (including a reasonable payment (based on your last per diem earnings)
for the time involved if you are not then in the employ of any of the Companies
or collecting payments pursuant to Section 7(b)), you shall furnish such
information and assistance to the Companies as any of them may reasonably
require in connection with any issue, claim or litigation in which any of the
Companies may be involved (excluding the matters covered by Section 11(a)
above). Such information and assistance shall include, but not be limited to,
appearing from time to time at the offices of the Companies or Companies'
counsel for conferences and interviews and in general providing the officers of
the Companies, the Companies and Companies' counsel with the full benefit of
your knowledge with respect to such issue, claim or litigation.
<PAGE>
Section 12. Entire Agreement; Amendment and Waiver. This Agreement
--------------------------------------
embodies the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof and supersedes and preempts any and all
prior and contemporaneous understandings, agreements, arrangements or
representations by or among the parties, written or oral, which may relate to
the subject matter hereof in any way. Other than this Agreement, there are no
other agreements continuing in effect relating to the subject matter hereof
(except that the parties acknowledge the existence of the separate and
independent provisions contained in Section 7.4 of the Purchase Agreement). 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.
Section 13. 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 any Company, to:
PMT Holdings, Inc.
3746 Mt. Diablo Boulevard, Suite 100
Lafayette, CA 94549
Attention: Chairman of the Board
Telecopier: (510) 299-
Telephone: (510) 283-1938
with a copy to:
Eos Partners, L.P.
320 Park Avenue
22nd Floor
New York, NY 10022
Attention: Douglas R. Korn
Telecopier: (212) 832-5815
Telephone: (212) 832-5803
(b) if to you, to:
Mr. Allen E. Steiner
1537 Amalfi Drive
Pacific Palisades, CA 90272-2754
Telephone: (310) 459-3926
Telecopier: (310) 459-8124
<PAGE>
with copies to:
Manatt, Phelps & Phillips, LLP
11355 W. Olympic Blvd.
Los Angeles, CA 90064
Attention: Ronald S. Barak
Telecopier: (310) 312-4224
Telephone: (310) 312-4000
Mr. Gary I. Goldfein
229 N. Clifford Avenue
Los Angeles, CA 90049
Telephone: (310) 471-2974
Telecopier: (310) 471-7438
Section 14. 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.
Section 15. 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 enforceability 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.
Section 16. 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 Companies irreparable harm. You further acknowledge that in the
event of a breach of any of the covenants contained in paragraphs 8, 9, or 10,
the Companies 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.
Section 17. Representation.
--------------
<PAGE>
(a) You hereby represent and warrant to Holdings that (i) the
execution, delivery and performance of this Agreement by you and ICI and ICSI
does not breach, violate or cause a default under any agreement, contract or
instrument to which any of you, ICI or ICSI is a party or any judgment, order or
decree to which any of you, ICI OR ICSI is subject, and (ii) none of you, ICI or
ICSI is a party to or bound by any employment agreement, consulting agreement,
noncompete agreement, confidentiality agreement or similar agreement regarding
your employment or retention with or by any other person or entity.
(b) Holdings hereby represents and warrants to you that the
execution, delivery and performance of this Agreement by Holdings does not
breach, violate or cause a default under any agreement, contract or instrument
to which Holdings is a party or any judgment, order or decree to which Holdings
is subject.
Section 18. 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. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assignable by any party hereto
without the consent of the other parties hereto.
Section 19. 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.
Section 20. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the domestic laws of the State of California
without giving effect to any choice or conflict of law provision or rule
(whether of the State of California or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
California.
Section 21. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
---------------------------
CONNECTION WITH COMPLEX 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>
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,
PMT HOLDINGS, INC.
By:_____________________
Name:
Title:
INTERSTATE CONSOLIDATION, INC.
By:_____________________
Name:
Title:
INTERSTATE CONSOLIDATION
SERVICE, INC.
By:_____________________
Name:
Title:
Accepted and agreed to:
________________________
Allen E. Steiner
<PAGE>
SCHEDULE 4(A)
PART I
------
. One German Luxury Company Car each including gasoline, repairs, maintenance,
insurance, taxes, etc. (to be replaced not less often than once every three
years after the date of acquisition of such vehicle)
. Country Club Dues (approx. $475/mo.)
. WPO\YPO Dues (approx. $5,000/yr.)
. YPO Seminars
. Membership in Trade and Business Organizations and airline and automobile
club memberships
. Misc. Business Tools including computer links, cell phones, car phones, etc.
. Health Insurance
. Disability Pay as per standard for employees with 25 years service
. Sick Leave as per standard for employees with 25 years service
. Vacation time as per standard for employees with 25 years Service
PART II
-------
The following are the employee benefits for senior executive officers of
Holdings as of the date hereof:
Group Health Insurance
Connecticut General Life Insurance Company - Policy 2233560-01
Coverage: standard group plan
Group Term Life Insurance
Fortis Benefits Insurance Company - Policy 4009662
Coverage: $350,000
Additional Term Life Insurance
CNA/Valley Forge Life Insurance
Coverage: $700,000
Accidental Death and Dismemberment
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Short Term Disability
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Long Term Disability
<PAGE>
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Massachusetts Casualty Insurance Company
Gerry Angeli - $6,200 per month
Robert Cross - $4,750 per month
Group Dental Insurance
Fortis Benefits Insurance Company - Policy 4009662
Coverage: standard group plan
Pacific Motor Transport 401(k) Plan
Merrill Lynch
Company matching contribution: 3% of first 100% if participant's contribution
Company Automobiles
Gerry Angeli - Buick Park Avenue
Bob Cross - Buick Park Avenue
Don Orris - Car Allowance of $1,076 per month
<PAGE>
SCHEDULE 4(B)
OPERATING INCOME
----------------
For purposes of Section 4(b) 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 Holdings 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 Holdings 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 Holdings and such other non-cash items as shall be
determined by the Board of Directors of Holdings (provided that, with regard to
recognition of income due to customer credit balances and the reversal of prior
period accounts payable, such recognition will be made on a basis consistent
with past practice as to amount and timing of such recognition) and (y) be
determined after giving effect to any and all bonuses payable by Holdings and/or
any of its subsidiaries to management or employees of Holdings and/or any of its
subsidiaries hereunder or otherwise. In the event that Holdings 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 Holdings 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 10.10
EXECUTION COPY
--------------
PACIFIC MOTOR TRANSPORT COMPANY
3746 MT. DIABLO BOULEVARD, SUITE 110
LAFAYETTE, CALIFORNIA 94549
April 3, 1998
Mr. John Wayne Hein
22804 East 28th Street Court
Blue Spring, Missouri 64015
Employment Agreement
--------------------
Dear John:
This letter sets forth the terms of your employment with Pacific Motor
Transport Company, Pacer Division (the "Pacer Division" or "Company"). Pacific
-------------- -------
Motor Transport Company ("PMTC") is a California corporation and a wholly-owned
----
subsidiary of PMT Holdings, Inc. ("Holdings"). Holdings is also the sole
--------
stockholder of Pacer Integrated Logistics, Inc. ("PIL"), a Delaware corporation,
---
which is the successor to Intraco, Inc., d/b/a Stutz & Company, by merger of
Intraco, Inc., with and into PIL. Holdings, PMTC and PIL are all affiliates of
one another.
1. Duties. On the terms and subject to the conditions contained in
------
this Agreement, you will be employed as the Vice President of Business
Development, Pacer Division, and shall perform such duties and services
consistent with such position as may reasonably be assigned to you from time to
time by the President of the Pacer Division or the Board of Directors of PMTC.
You will report to the President of the Pacer Division and your principal office
will not be relocated without your sole consent to any location that is more
than 50 miles from the city limits of Kansas City, Kansas.
2. Term. Unless sooner terminated in accordance with the applicable
----
provisions of this Agreement, your employment hereunder shall be for the period
(the "Employment Period") commencing on the date hereof (the "Commencement
----------------- ------------
Date") and ending on the third anniversary of the date hereof.
- ----
3. Time to be Devoted to Employment. During the Employment Period, you
--------------------------------
will devote your working energies, efforts, interest, abilities and time
exclusively to the business and affairs of the Company. You will not engage in
any other business or activity which, in the reasonable judgment of the Board of
Directors of PMTC 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.
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 2
4. Base Salary; Bonus; Benefits.
----------------------------
(a) During the Employment Period, the Company (or any of its
affiliates) shall pay you a minimum annual base salary (the "Base Salary") of
-----------
$100,000, payable in such installments (but not less often than semi-monthly) as
is generally the policy of the Company from time to time 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 PMTC. 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 generally, including, without limitation, (i)
participation in such health, life and disability insurance programs and
retirement or savings plans as the Company may from time to time maintain in
effect and (ii) the use of a vehicle provided by the Company or an equivalent
monthly car allowance in accordance with the policy of the Company in effect
from time to time with respect to its executive officers.
(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, of up
to $50,000 (with the actual amount thereof to be determined by the President of
the Pacer Division) with respect to each fiscal year of the Company occurring
during the Employment Period. Such bonus shall be due and payable as soon as
practicable, but in no event later than 30 days, following Holdings' receipt
from its public accountants of the audited consolidated financial statements of
Holdings and its subsidiaries. If your employment with Company is terminated
for any reason other than without "cause" pursuant to Section 7(b), the Company
(or any of its affiliates) 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" as provided in Section 7(b), 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).
5. Reimbursement of Expenses. During the Employment Period, the
-------------------------
Company shall reimburse you in accordance with the policy of the Company in
effect from time to time for all reasonable and necessary traveling expenses and
other disbursements incurred by you for or on behalf of the Company 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 in effect from time to time.
6. Termination for 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 an aggregate of 210 days in any period of 360
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 3
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.
7. Termination for or without "Cause".
----------------------------------
(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 Agreement, "cause"
shall mean (i) willful misconduct with respect to the business and affairs of
the Company or Holdings or any of their respective subsidiaries or affiliates,
(ii) willful neglect of your duties or the failure to follow the lawful
directions of the Board of Directors or more senior officers of the Company to
whom you report, including, without limitation, the violation of any material
policy of the Company or Holdings or any of their respective subsidiaries or
affiliates applicable to you, (iii) the material breach of any of the provisions
of this Agreement or the Stockholders 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 Holdings or any of their respective subsidiaries or
affiliates or (vi) any conviction for a crime involving moral turpitude or
fraud. 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 "Stockholders Agreement" means the Amended and Restated
----------------------
Stockholders Agreement dated as of December 16, 1997, among Holdings, you
(pursuant to the Joinder Agreement executed by you as of the date hereof) 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, which
termination shall be effective as of the date set forth in such notice, provided
--------
that such date shall not be earlier than the date of the notice.
8. Effect of Termination; Forfeiture of Unvested Shares.
----------------------------------------------------
(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
Holdings or any of their respective subsidiaries or affiliates arising out of
this Agreement, 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;
--- ----
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 4
(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,
-------- -------
that 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
requires that the beneficiary be employed by the Company 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
Holdings or any of their respective subsidiaries or affiliates arising out of
this Agreement, except such rights as may arise under Section 8(c) below and 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 clauses (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 clauses (ii) and (iii) of this Section 8(b);
(ii) the right to continue to receive the Base Salary from the
effective date of such termination until the third anniversary of the
Commencement Date, payable during such period in such manner as the Base
Salary is payable pursuant to Section 4(a), reduced by 50% of 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, up to a maximum of 50% of all amounts
due to you under this Section 8(b)(ii). In order to carry out the intent
of the immediately preceding sentence, 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 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(b) with respect to the fiscal year in which such termination
occurs.
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" or if
your termination is due to your death or Disability.
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 5
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), 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, Holdings or any subsidiary or affiliates
thereof.
(b) For purposes of this Agreement, "Confidential Information" shall
------------------------
mean (i) the Intellectual Property Rights (as hereinafter defined) of the
Company, Holdings and their respective subsidiaries and affiliates and (ii) all
other information of a proprietary or confidential nature relating to the
Company, Holdings or any subsidiary or affiliate thereof, or the business or
assets of the Company or any such subsidiary or affiliate, 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 the Company, Holdings or such subsidiary or affiliate
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.
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 6
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/or its affiliates 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 the Company and its properties and assets are of
special and unique value to the Company and its affiliates and that the Company
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 Noncompetition Period (as defined
below), (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 (other than your spouse) of the Company, Holdings or any of
their respective subsidiaries or affiliates to terminate their employment with
the Company, Holdings or any such subsidiaries or affiliates or to engage in any
Competing Business or (d) induce any customer, vendor, agent, owner/operator,
fleet owner or any other person or entity with which the Company, Holdings 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, Holdings 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 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 providing any of the following services: freight consolidation and
deconsolidation; traffic management; railroad signal project management,
consolidation and/or deconsolidation or reclamation and salvage; intermodal
marketing; or flatbed specialized hauling utilizing owner-operators or agents;
provided, however, that:
- -------- -------
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 7
(i) any entity which has separate divisions or business units,
one or more of which are engaged in any business activity described above
will not be deemed a Competing Business with respect to those portions of
such entity which are not engaged in any business activity 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 relate in any material respect
to such portion of such business which would be a Competing Business
hereunder; and
(ii) the provision of freight consolidation consulting services
to a direct shipper who is not a customer of the Company or any of its
affiliates or any railroad at the time of the termination of your
employment with the Company, or a former customer of the Company or any of
its affiliates or any railroad at any time during the 12 months preceding
such termination, shall not be deemed to be "engaging in a Competing
Business" for purposes of this Section 10; and
(iii) the term "Noncompetition Period" means the Employment
---------------------
Period and the period beginning on the effective date of any termination of
your employment with the Company and ending on the later to occur of the
(i) second anniversary thereof and (ii) the fifth anniversary of the
Commencement Date.
(d) Notwithstanding anything contained in this Agreement to the
contrary, if, following the termination of your employment with the Company, the
Company fails to pay to you any sums due under Section 8(b)(ii) hereof and (i)
you have complied in all material respects with all of the provisions of the
last sentence of Section 8(b)(ii) and (ii) such failure to pay continues for a
period of fifteen (15) days following receipt by the Company of written notice
thereof, the restrictions contained in this Section 10 shall terminate and be of
no further force or effect. Any termination of the restrictions contained in
this Section 10 pursuant to this subsection (d) shall not affect the Company's
obligations under this Agreement or constitute a waiver by you of any other
rights or remedies you may have against the Company for breach of any term
hereof.
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, Holdings or any of their
respective subsidiaries or affiliates (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 (including a reasonable payment (based on your last per
diem earnings) for the time involved if you are not then in the Company's employ
or receiving severance payments from the Company pursuant to Section
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 8
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 employ or receiving
severance payments from the Company pursuant to Section 8(b)(ii)), reasonable
assistance as they 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 involving any said applications,
patents, copyrights or other proprietary rights and in any litigation in which
the Company 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 employ or receiving severance
payments from the Company pursuant to Section 8(b)(ii)) and upon reasonable
notice, 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 may be
involved. If such a request for assistance occurs after the expiration of the
Employment Period, then you will only be required to render assistance to the
Company to the extent that you can do so without materially affecting your other
business obligations.
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 affiliate of
the Company (including any predecessor of the Company or any of its affiliates).
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. John Wayne Hein
April 3, 1998
Page 9
(i) if to the Company, to:
Pacific Motor Transport Company
Pacer Division
1229 East Pleasant Run Road
DeSoto, Texas 75123
Attention: President
Telecopier: (972) 228-2661
Telephone: (972) 224-8121
with a copy to:
Eos Partners, L.P.
320 Park Avenue
22nd Floor
New York, NY 10022
Attention: Douglas R. Korn
Telecopier: (212) 832-5805
Telephone: (212) 832-5800
(ii) if to you, to:
Mr. John Wayne Hein
22804 East 28th Street Court
Blue Spring, Missouri 64015
Telephone: (816) 220-1948
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 enforceability 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.
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 10
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 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.
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, permitted assigns, representatives, heirs and
estate, as applicable. Holdings shall be an intended third party beneficiary of
the respective covenants and agreements contained in this Agreement. This
Agreement shall not be assignable by any party hereto without the consent of the
other party hereto, except that the Company and Holdings may each assign their
rights hereunder to any person succeeding to all or a substantial portion of
their respective businesses.
20. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counter part 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 of the State of Missouri without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Missouri or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Missouri.
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
<PAGE>
Mr. John Wayne Hein
April 3, 1998
Page 11
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. John Wayne Hein
April 3, 1998
Page 12
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,
PACIFIC MOTOR TRANSPORT COMPANY
By:
---------------------------------
Gerry Angeli
President, Pacer Division
Accepted and agreed to:
- ---------------------------------
John Wayne Hein
<PAGE>
EXHIBIT 10.11
EXECUTION COPY
--------------
STOCK PURCHASE AGREEMENT
by and among
UNION PACIFIC RAILROAD COMPANY
and
SOUTHERN PACIFIC TRANSPORTATION COMPANY
and
PACIFIC MOTOR TRANSPORT COMPANY
and
PMT HOLDINGS, INC.
dated as of March 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions..................................................................... 1
2. Purchase and Sale of Company Shares............................................. 7
(a) Basic Transaction.......................................................... 7
(b) Purchase Price............................................................. 7
(c) The Closing................................................................ 8
(d) Deliveries at the Closing.................................................. 8
3. Representations and Warranties of the Company and the Seller.................... 8
(a) Corporate Authority........................................................ 8
(b) Binding Obligation......................................................... 8
(c) Noncontravention........................................................... 9
(d) Company Shares............................................................. 9
(e) Financial Statements.......................................................10
(f) Undisclosed Liabilities....................................................10
(g) Brokers Fees...............................................................10
(h) Acquisition of Demand Note and Warrant for Investment......................10
(i) Conduct of Business of the Company.........................................10
(j) Credit Enhancements........................................................11
4. Representations and Warranties of the Buyer.....................................11
(a) Corporate Authority........................................................11
(b) Noncontravention...........................................................12
(c) Brokers' Fees..............................................................12
(d) Acquisition of Company Shares for Investment...............................12
(e) Capitalization.............................................................12
5. Pre-Closing Covenants...........................................................13
(a) General....................................................................13
(b) Dividend by the Company to the Seller......................................13
(c) Notices and Consents.......................................................13
(d) Full Access................................................................13
(e) Notice of Developments.....................................................13
(f) Conduct of Business of the Company.........................................14
(g) Exclusivity................................................................15
(h) Financing..................................................................15
(i) Cancellation of Intercompany Obligations...................................16
(j) No Additional Representations or Warranties................................16
(k) Disclaimer Regarding, Financial Statements, Estimates and Projections......17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
6. Post-Closing Covenants.............................................17
(a) Incentive Payments............................................17
(b) Non-Solicitation of Employees.................................17
(c) Further Assurances............................................18
(d) Confidentiality...............................................18
(e) General.......................................................18
7. Employee Matters...................................................18
(a) WARN Matters..................................................18
(b) Benefit Plan Matters..........................................19
8. Tax Matters........................................................20
(a) Termination of Tax Sharing Agreements.........................20
(b) Section 338 Elections.........................................21
(c) Tax Indemnity.................................................22
(d) Refunds.......................................................22
(e) Cooperation...................................................23
(f) Contests......................................................23
(g) Survival......................................................23
9. Credit Enhancements................................................23
10. Conditions to Obligation to Close..................................25
(a) Conditions to Obligation of the Buyer.........................25
(b) Conditions to Obligation of the Seller........................26
11. Indemnification....................................................27
(a) Survival of Representations and Warranties....................27
(b) Indemnification Provisions for Benefit of the Buyer...........27
(c) Indemnification Provisions for Benefit of the Seller..........30
(d) Matters Involving Third Parties...............................30
(e) Matters Not Involving Third Parties...........................31
(f) Determination of Losses; Adjustments to Purchase Price........31
(g) Procedures Regarding Remedial Work............................32
(h) Additional Provisions Regarding Indemnification...............33
(i) Exclusive Remedy..............................................33
12. Termination........................................................33
(a) Termination of Agreement......................................33
(b) Effect of Termination.........................................34
13. Miscellaneous......................................................34
(a) Press Releases and Public Announcements.......................34
(b) No Third-Party Beneficiaries..................................35
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
(c) Entire Agreement..............................................35
(d) Succession and Assignment.....................................35
(e) Counterparts..................................................35
(f) Headings......................................................35
(g) Notices.......................................................35
(h) Governing Law.................................................37
(i) Amendments and Waivers........................................37
(j) Severability..................................................37
(k) Expenses......................................................37
(l) Construction..................................................37
(m) Incorporation of Exhibits and Schedules.......................37
(n) Disclosure Schedule...........................................38
</TABLE>
EXHIBITS
- --------
Exhibit A Pacific Motor Transport Company, Pacer Division Key Employee Change
in Control Retention Program
Exhibit B Form of Management Certificates
Exhibit C Form of Demand Note
Exhibit D Form of Pledge Agreement
Exhibit E Form of Warrant
Exhibit F-1 Financial Statements
Exhibit F-2 Pro Forma Balance Sheet
Exhibit G Credit Enhancements
Exhibit H Form of Seller's Counsel Legal Opinions
Exhibit I Form of Buyer's Counsel Legal Opinion
Exhibit J Form of Release Agreement
Exhibit K Form of Stockholders Agreement
SCHEDULES
- ---------
Schedule I Incentive Payments
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of March
---------
31, 1997, by and among PMT Holdings, Inc., a Delaware corporation (the "Buyer"),
-----
Pacific Motor Transport Company, a California corporation (the "Company"),
-------
Southern Pacific Transportation Company, a Delaware corporation (the "Seller")
------
and Union Pacific Railroad Company, a Utah corporation ("Union Pacific"). The
-------------
Buyer, the Company, the Seller and Union Pacific are each referred to in this
Agreement as a "Party" and collectively as the "Parties."
----- -------
The Seller directly owns all of the outstanding capital stock of the
Company.
This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, the Parties agree as follows:
1. Definitions.
-----------
"Acquisition Proposal" has the meaning set forth in (S)5(g) below.
--------------------
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
---------
promulgated under the Securities Exchange Act.
"Applicable Laws" means any and all federal, state, local or foreign laws,
---------------
statutes, rules, directives, ordinances, requirements, rules, regulations,
Orders and restrictions of any Governmental Authority applicable to any Person
or other subject matter in question.
"Assumed Taxes" means, with respect to any Person, all road taxes, fuel
-------------
taxes, and property taxes imposed by any foreign, federal, state, or local
taxing authority (but excluding all Other Taxes and Income Taxes), together with
any interest, penalties, additions to tax, and other additional amounts imposed
by any such taxing authority on such Person on or with respect to any of the
foregoing taxes.
"BNSF Guarantee" means that certain letter dated September 10, 1996
--------------
pursuant to which the Seller unconditionally and irrevocably guaranteed the full
and punctual payment of all valid freight and assessorial charges incurred by
ABL-TRANS for traffic handled under that certain BNSF Contract T-399 for
Domestic Intermodal Transportation dated October 1, 1996 by and among Burlington
Northern Railroad Company, The Atchison, Topeka and Santa Fe Railway Company and
ABL-TRANS during the course of such contract (from October 1, 1996 to September
30, 1997) and all other amounts payable by ABL-TRANS under such contract.
"Business Day" means any day that is not a Saturday, Sunday or other day
------------
on which banks are not required to be open in Chicago, Illinois, or New York,
New York.
<PAGE>
"Buyer" has the meaning set forth in the preface above.
-----
"Buyer Common Stock" means the common stock, $.01 par value per share, of
------------------
the Buyer.
"Buyer Preferred Stock" means the Series A Preferred Stock, $.01 par value
---------------------
per share, of the Buyer.
"Cash Purchase Price" has the meaning set forth in (S)2(b)(i) below.
-------------------
"Closing" has the meaning set forth in (S)2(c) below.
-------
"Closing Date" has the meaning set forth in (S)2(c) below.
------------
"COBRA" has the meaning set forth in (S)7(b)(iii) below.
-----
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Company" has the meaning set forth in the preface above.
-------
"Company Shares" means the common stock, $100.00 par value per share, of
--------------
the Company.
"Computer Assistance Agreement" means that certain Computer Assistance
-----------------------------
Agreement dated October 1, 1992 among the Seller, St. Louis Southwestern Railway
Company and ABL-TRANS, as further described in paragraph 3.H. of (S)3(f) of the
Disclosure Schedule.
"Confidential Information" has the meaning set forth in (S)6(d) below.
------------------------
"Credit Enhancements" has the meaning set forth in (S)9 below.
-------------------
"Continuing Credit Enhancement Fee" has the meaning set forth in (S)9
---------------------------------
below.
"Current Employees" has the meaning set forth in (S)7(b)(iii) below.
-----------------
"Debt Agreements" means that certain Credit Agreement dated April 1, 1997
----------------
by and between The Company and The First National Bank of Chicago and any other
instruments, notes, guarantees, collateral documents and agreements executed by
the Company or the Buyer in connection with any indebtedness for borrowed money
incurred in connection with the Financing, as each of the same may be amended,
restated or otherwise modified from time to time.
"December 31, 1996 Balance Sheet" has the meaning set forth in (S)3(e).
-------------------------------
"Demand Note" has the meaning set forth in (S)2(b)(i) below.
-----------
"Disclosure Schedule" has the meaning set forth in (S)3 below.
-------------------
-2-
<PAGE>
"Encumbrance" has the meaning set forth in (S)3(d).
-----------
"Environmental Conditions" means (i) any violation by the Company, any of
------------------------
its Affiliates or any of their respective agents or independent contractors in
connection with the ownership or operation of the Company's business, of any
Environmental, Health and Safety Requirement existing or occurring on or prior
to the Closing Date or (ii) any conditions in the soil, surface water, ground
water or air caused directly or indirectly by the use, manufacture, handling,
storage, treatment, disposal, arrangement for the storage, treatment or
disposal, discharge or release of Hazardous Substances (A) by the Company, any
of its Affiliates or any of their respective agents or independent contractors
in connection with the ownership or operation of the Company's business prior to
the Closing or (B) by any other Person prior to the Closing on any property at
the time or thereafter owned, leased or operated by the Company (excluding,
however, any property acquired or first occupied or operated by the Company
after the Closing).
"Environmental, Health and Safety Requirements" means all Applicable Laws
---------------------------------------------
concerning workplace health and safety and pollution or protection of the
environment, including 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, including, but not limited to, the Solid Waste
Disposal Act, as amended, 42 U.S.C. (S)(S)6901 et seq., the Federal Water
-- ---
Pollution Control Act, as amended, 33 U.S.C. (S)(S)1251 et seq., the Emergency
-- ---
Planning and Community Right-to-Know Act, 42 U.S.C. (S)(S)11001 et seq., the
-- ---
Comprehensive Environmental Response, Compensation, and Liability Act, as
amended, 42 U.S.C. (S)(S)9601 et seq., the Hazardous Materials Transportation
-- ---
Uniform Safety Act, as amended, 49 U.S.C. (S)1804 et seq., the Clean Air Act, as
-- ---
amended, 42 U.S.C. (S)(S)7401 et seq., the Occupational Safety and Health Act of
-- ---
1970, and the regulations promulgated under each of the foregoing, each as
amended and as now or hereafter in effect.
"ERISA Affiliate" means, with respect to any Person, any trade or business
---------------
(whether or not incorporated) which, together with such Person, is under common
control as described in Section 414(c) of the Code, is a member of a "controlled
group", as defined in Section 414(b) of the Code, or is a member of an
"affiliated service group", as defined in Section 414(m) of the Code which
includes such Person.
"Excluded Liabilities" means any obligation, commitment or liability of the
--------------------
Company (whether asserted or unasserted, whether matured or unmatured, whether
absolute or contingent, whether served or unserved, whether liquidated or
unliquidated and whether known or unknown) that relates to, arises out of or
results from any fact, circumstance or condition existing on or prior to the
Closing but only to the extent the same does not relate to, arise out of or
result from, directly or indirectly, the ownership or operation (whether or not
in the Ordinary Course of Business) of the business, assets or properties of the
Company's PACER or ABL-TRANS divisions (which divisions shall not include any of
the business, assets or properties of SP Logistics).
-3-
<PAGE>
"Financial Statements" means the financial statements of the Company
--------------------
attached hereto as Exhibit F-1.
-----------
"Financing" has the meaning set forth in (S)5(h) below.
---------
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
"GE Vehicle Leases" means the leases between the Seller and GE Capital
-----------------
Fleet Services, relating to the 24 vehicles described in paragraph A of (S)3(i)
of the Disclosure Schedule, which leases are to be transferred from the Seller
to the Company as soon as practicable.
"Governmental Entity" or "Governmental Authority" means any government,
-----------------------------------------------
governmental or quasi-governmental authority, instrumentality, department,
commission, board, bureau, agency, commission, court or tribunal, whether
domestic or foreign, and whether federal, state or local.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
---------------------
Act of 1976, as amended.
"Hazardous Substances" means any pollutant, contaminant, toxic or hazardous
--------------------
substance, waste, or chemical defined, listed or regulated pursuant to any
Environmental, Health and Safety Requirements, including, without limitation,
asbestos, polychlorinated biphenyls, petroleum, crude oil or any fraction
thereof.
"Incentive Agreements" means (i) the Pacific Motor Transport Company, Pacer
--------------------
Division Key Employee Change in Control Retention Program executed by the
Company on September 10, 1996 (a copy of which is attached hereto as Exhibit A)
---------
and (ii) the letter agreement between SPRC and Robert L. Cross dated August 21,
1995 regarding SPRC's Management Continuity Plan.
"Incentive Payments" means those payments to be made by the Company
------------------
immediately after the Closing in the amounts and to the individuals indicated on
Schedule 1 hereto pursuant to the Incentive Agreements.
- ----------
"Incentive Payment Deduction Amount" has the meaning set forth in (S)2(d)
----------------------------------
below.
"Income Tax" means, with respect to any Person, (A) any tax (including any
----------
franchise tax) that is on, based upon, measured by, or imposed with respect to
gross or net receipts, gross or net earnings, or gross or net income (including
minimum and alternative minimum taxes, capital gains taxes, personal holding
company taxes, and excess profit taxes), but excluding all Other Taxes and
Assumed Taxes, by any foreign, federal, state, or local taxing authority
together with any interest or penalties thereon or additions thereto imposed by
any such taxing authority on such Person on or with respect to any of the
foregoing taxes, and (B) any liability for the payment of any of the foregoing
types of taxes as a result of being a (i) transferee within the meaning of Code
section 6901
-4-
<PAGE>
of another Person, (ii) being a member of an affiliated, combined, or
consolidated group, or (iii) a contractual agreement.
"Incremental FICA Payments" has the meaning set forth in (S)2(d) below.
-------------------------
"Indemnified Party" has the meaning set forth in (S)11(d)(i) below.
-----------------
"Indemnifying Party" has the meaning set forth in (S)11(d)(i) below.
------------------
"Loss" or "Losses" means any loss, liability, damage or expense (including
---- ------
reasonable attorneys' fees and expenses) that the subject Person may suffer or
sustain.
"Management Certificates" means those certain certificates, dated the date
-----------------------
hereof, substantially in the form of Exhibit B hereto, delivered to the Seller
---------
by each of the Management Investors to the effect that (A) each is familiar with
the provisions of this Agreement and (B) to the best of such officer's
knowledge, the representations, warranties and disclosures contained in (S)3
hereof are true and correct insofar as they relate to the business and
operations of the Company.
"Management Investors" means each of Gerry Angeli, Robert L. Cross and Don
--------------------
C. Orris.
"Material Adverse Change" means a material adverse change in the assets,
-----------------------
liabilities, business, financial condition or results of operations or prospects
of the Company taken as a whole, except for changes due to general economic
conditions.
"Orders" means any and all judgments, rulings, writs, decrees, injunctions,
------
orders, compliance agreements or settlement agreements or decrees of any
Governmental Authority.
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Other Taxes" means, with respect to any Person, any sales, use, transfer,
-----------
ad valorem, franchise (other than a "franchise tax" that is an Income Tax),
withholding, payroll, employment, excise, goods and services, severance, stamp,
occupation, premium, windfall profits, customs duty, or other tax, but excluding
all Assumed Taxes and Income Taxes, imposed by any foreign, federal, state, or
local taxing authority, together with any interest or penalties thereon or
additions thereto imposed by such taxing authority with respect to such Person
on or with respect to any of the foregoing taxes.
"Party" has the meaning set forth in the preface above.
-----
"Person" means an individual, a partnership, a corporation, a limited
------
liability company or partnership, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization or other entity or a
Governmental Entity.
-5-
<PAGE>
"Pledge Agreement" has the meaning set forth in (S)2(b)(i) below.
----------------
"Pro Forma Balance Sheet" has the meaning set forth in (S)5(b) below.
-----------------------
"PST Maintenance Agreement" means that certain Maintenance Agreement dated
-------------------------
September 1, 1993 by and between PS Technology, Inc. and ABL-TRANS, as further
described in paragraph 3.A. of (S)3(f) of the Disclosure Schedule.
"Purchase Price" has the meaning set forth in (S)2(b) below.
--------------
"Release Agreement" means that certain Release Agreement, dated on or
-----------------
before the date hereof, substantially in the form of Exhibit J hereto, by and
---------
among Robert L. Cross, SPRC and the Company.
"Remedial Work" has the meaning set forth in (S)11(g) below.
-------------
"Section 338 Elections" has the meaning set forth in (S)8(b)(i) below.
---------------------
"Section 338 Election Forms" has the meaning set forth in (S)8(b)(ii)
--------------------------
below.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations promulgated thereunder,
all as the same shall be in effect at the time in question.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Seller" has the meaning set forth in the preface above.
------
"SPRC" means Southern Pacific Rail Corporation, a Delaware corporation.
----
"SPRC Benefit Plans" has the meaning set forth in (S)7(b)(i) below.
------------------
"Stockholders Agreement" means that certain Stockholders Agreement dated as
----------------------
of March 31, 1997, substantially in the form of Exhibit K hereto, by and among
---------
the Buyer, Eos Partners, L.P., a Delaware limited partnership, the Seller and
each of the Management Investors.
"Tax Indemnified Party" has the meaning set forth in (S)8(f) below.
---------------------
"Tax Indemnifying Party" has the meaning set forth in (S)8(f) below.
----------------------
"Tax" means Assumed Taxes, Income Taxes, and Other Taxes.
---
-6-
<PAGE>
"Tax Claim" means any claim arising from any covenant or agreement of the
---------
Parties contained in (S)8 below, including, without limitation, any claim for
Losses arising from any breach 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.
"Termination Fee" has the meaning set forth in (S)12(b) below.
---------------
"Third Party Claim" has the meaning set forth in (S)11(d)(i) below.
-----------------
"UP Group" has the meaning set forth in (S)11(b)(i) below.
--------
"Union Pacific" has the meaning set forth in the preface above.
-------------
"Warrant" has the meaning set forth in (S)2(b)(ii) below.
-------
2. Purchase and Sale of Company Shares.
-----------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of this
-----------------
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, all of the issued and outstanding Company Shares for the
consideration specified below in this (S)2.
(b) Purchase Price. The aggregate purchase price (the "Purchase Price") to
-------------- --------------
be paid for the Company Shares shall consist of:
(i) an amount in cash equal to the sum of $13,162,500 (the "Cash
----
Purchase Price"). The Cash Purchase Price shall be payable in cash at the
--------------
Closing in the form of a demand note issued by the Buyer for the benefit of
the Seller in the form of Exhibit C hereto (the "Demand Note"). The
--------- -----------
principal amount of the Demand Note shall be reduced by the Incentive
Payment Deduction Amount as described in (S)2(d) below. The obligations
evidenced by the Demand Note shall be secured by a pledge of the Company
Shares by the Buyer for the benefit of the Seller, pursuant to a pledge
agreement substantially in the form of Exhibit D hereto (the "Pledge
--------- ------
Agreement"); and
---------
(ii) a Warrant to purchase 18,421 units (consisting of 18,421 shares
of Buyer Preferred Stock and 18,421 shares of Buyer Common Stock)
substantially in the form of Exhibit E hereto (the "Warrant").
--------- -------
-7-
<PAGE>
(c) The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Winston & Strawn
-------
in Chicago, Illinois, commencing at 10:00 a.m. local time on March 31, 1997
(the "Closing Date").
------------
(d) Deliveries at the Closing. At the Closing, (i) the Company and the
-------------------------
Seller will deliver to the Buyer the various certificates, instruments, and
documents referred to in (S)10(a) below, (ii) the Buyer will deliver to the
Seller the various certificates, instruments, and documents referred to in
(S)10(b) below, (iii) the Seller will deliver to the Buyer stock certificates
representing all of the Company Shares, endorsed in blank or accompanied by
duly executed assignment documents and (iv) the Buyer will execute and deliver
or cause to be executed and delivered the Demand Note, the Pledge Agreement and
the Warrant. Prior to the delivery thereof by the Buyer, the principal amount of
the Demand Note shall be decreased by $978,419 in lieu of requiring the Seller
to make certain cash transfers to the Buyer at the time of Closing. Such amount
is the sum of (i) the Incentive Payments ($960,060) and (ii) the incremental
FICA tax payable (the "Incremental FICA Payments") is respect of the Incentive
-------------------------
Payments ($18,359) (such sum, the "Incentive Payment Deduction Amount").
----------------------------------
3. Representations and Warranties of the Company and the Seller. The
------------------------------------------------------------
Company and the Seller jointly and severally represent and warrant that the
statements contained in this (S)3 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this (S)3), except as set forth in the disclosure
schedule accompanying this Agreement and initialed by the Parties (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged by paragraphs
-------------------
corresponding to the lettered paragraphs contained in this (S)3. Anything
contained in this Agreement (including the exhibits and schedules hereto) to the
contrary notwithstanding, any matter or item disclosed on a particular schedule
in response to the corresponding representation or warranty contained in this
Agreement shall not be deemed to be disclosed on any other schedule in response
to any other representation or warranty contained in this Agreement unless it is
explicitly evident from the disclosure of such matter or item that such
disclosure is also responsive to such other representation or warranty.
(a) Corporate Authority, Etc. Each of the Company, the Seller and Union
------------------------
Pacific is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and each of the Company, the Seller
and Union Pacific has full corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by the Company, the Seller and Union Pacific and the
performance by each of them of their respective obligations hereunder have been
duly and validly authorized by all necessary corporate action on the part of
such Party, and this Agreement has been duly and validly executed and delivered
by such Party.
(b) Binding Obligation. This Agreement constitutes the valid and legally
------------------
binding obligation of Union Pacific, the Seller and the Company, enforceable
against each of such Parties in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, moratorium,
-8-
<PAGE>
reorganization or other similar laws affecting creditors' rights and remedies
generally and judicial limitations upon the specific performance of certain
types of obligations.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement by Union Pacific or the Seller, nor the performance of their
respective obligations hereunder, nor the consummation of the transactions
contemplated hereby, will (i) violate any Applicable Law to which Union Pacific
or the Seller is subject, (ii) violate or conflict with any provision of the
charter or bylaws of Union Pacific, the Seller or the Company, or (iii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice under any agreement, contract, lease, license
or instrument to which Union Pacific or the Seller is a party or by which it is
bound or to which any of its assets is subject, except where the violation,
conflict, breach, default, acceleration, termination, modification, cancellation
or failure to give notice would not have a material adverse effect on the
ability of Union Pacific or the Seller to consummate the transactions
contemplated by this Agreement. Except as set forth in (S)3(c) of the
Disclosure Schedule, neither Union Pacific nor the Seller is required to give
any notice to, make any filing with, or obtain any authorization, consent or
approval of any Governmental Entity in order for Union Pacific and the Seller to
consummate the transactions contemplated by this Agreement, except where the
failure to give notice, or to file or obtain any authorization, consent or
approval would not have a material adverse effect on the ability of Union
Pacific and the Seller to consummate the transactions contemplated by this
Agreement.
(d) Company Shares. There are no outstanding shares of capital stock of
--------------
the Company other than the five (5) Company Shares held of record and owned
beneficially by the Seller. The Seller owns and holds of record and beneficially
the Company Shares free and clear of any and all Encumbrances, other than
restrictions on transfer of the Company Shares imposed under the Securities Act
and applicable state securities laws. As used in this Agreement, the term
"Encumbrance" means, with respect to any asset, (a) any mortgage, indenture,
-----------
deed of trust, lien, pledge charge, claim, escrow, security agreement or
interest or other encumbrance of any kind whatsoever (whether written or oral
and whether or not relating in any way to credit or the borrowing of money) in
on or with respect to such asset (including the filing of or agreement to give
any financing statement under the Uniform Commercial Code of any jurisdiction
and including any right of first offer, right of first refusal, option or other
right to purchase, lease, license or otherwise use or occupy such asset), (b)
the interest of a vendor or a lessor under any conditional sale agreement,
capital lease or title retention agreement relating to such asset and (c) in the
case of securities, any purchase or call option, appreciation right or similar
right of a third party with respect to such securities. All of the Company
Shares have been duly authorized and are validly issued, fully paid and
nonassessable. The Seller is not a party to, and is not otherwise subject to or
bound by, any voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of the Company, other than the rights
of the Buyer under this Agreement. Except for the rights of the Buyer under the
Agreement, there are no outstanding options, warrants or rights to purchase or
acquire, or otherwise entitling the holder thereof to participate in or
otherwise receive any payment based on the value of, any securities of the
Company (including the Company Shares). The Seller acquired the Company Shares
in one or more transactions exempt from registration under the Securities Act
and in compliance with all applicable state securities laws.
-9-
<PAGE>
(e) Financial Statements. Attached hereto as Exhibit F-1 are the unaudited
-------------------- -----------
balance sheet of the Company as of December 31, 1996 (the "December 31, 1996
-----------------
Balance Sheet") and the related unaudited statements of income and cash flows
- -------------
for the year then ended and the unaudited balance sheet of the Company as of
December 31, 1995, and the related unaudited statements of income and cash flows
for the year then ended. The Financial Statements present fairly the financial
condition of the Company as of such dates and the results of operations and cash
flows of the Company for such periods.
(f) Undisclosed Liabilities. The Company does not have any liability
-----------------------
(whether asserted or unasserted, whether matured or unmatured, whether absolute
or contingent, whether secured or unsecured, whether liquidated or unliquidated,
and whether known or unknown) except for (i) liabilities set forth on the face
of the December 31, 1996 Balance Sheet, (ii) liabilities arising in the Ordinary
Course of Business since December 31, 1996 (none of which results from or is
related to any Environmental Condition, breach of contract, breach of warranty,
tort, infringement or violation of Applicable Law), (iii) liabilities for Income
Taxes, (iv) liabilities for future performance of executory contracts arising in
the Ordinary Course of Business except to the extent required under GAAP to be
reflected on the face of a balance sheet of the Company as of the date hereof
(none of which results from or is related to any Environmental Condition, breach
of contract, breach of warranty, tort, infringement or violation of Applicable
Law), and (v) liabilities reflected on the Disclosure Schedule (none of which
results from or is related to any Environmental Condition, breach of contract,
breach of warranty, tort, infringement or violation of Applicable Law, except
for any of the foregoing which is expressly disclosed in (S)3(f) of the
Disclosure Schedule).
(g) Brokers Fees. Except as set forth in (S)3(g) of the Disclosure
------------
Schedule, neither Union Pacific nor the Seller has any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement for which the Buyer or the
Company could become liable or obligated.
(h) Acquisition of Demand Note and Warrant for Investment. The Seller
-----------------------------------------------------
acknowledges that the Demand Note and the Warrant being acquired by it hereunder
have not been registered under the Securities Act or registered or qualified
under applicable state securities laws by reason of their issuance in a
transaction that does not require such registration or qualification. The
Demand Note and the Warrant acquired by the Seller pursuant to this Agreement
are being acquired for investment only and not with a view to any public
distribution thereof, and the Seller will not offer to sell or otherwise dispose
of the Demand Note or the Warrant so acquired by it in violation of any of the
registration requirements of the Securities Act or any comparable state laws.
(i) Conduct of Business of the Company. Except as set forth on (S)3(i) of
----------------------------------
the Disclosure Schedule, since December 31, 1996, the Company has conducted its
business and affairs only in the Ordinary Course of Business of the Company and
has not:
(i) disposed of any material portion of its assets, except for the
sale or other disposition of assets in the Ordinary Course of Business of
the Company for fair value (if
-10-
<PAGE>
any), or acquired or agreed to acquire by merging or consolidating with,
or by purchasing any material portion of the capital stock or other equity
interests or assets of, any Person;
(ii) amended or modified in any way its certificate or articles of
incorporation, by-laws or similar document or instrument;
(iii) declared, paid or otherwise set aside any funds or assets for
the payment of, any dividend, distribution or other payment on or with
respect to any of its capital stock, or otherwise become obligated to do
any of the foregoing, except payments expressly contemplated by this
Agreement, including without limitation pursuant to (S)5(b) or (S)5(i)(ii)
hereof, or
(iv) entered into any transaction with the Seller, Union Pacific or
any of their Affiliates other than transactions (A) expressly contemplated
by this Agreement, (B) in the Ordinary Course of Business relating to the
provision of railroad, trucking, trailer or related transportation
services or transportation brokerage or logistics services by or for the
Seller, Union Pacific or any of their Affiliates to or from the Company,
(C) reflected in the adjustments listed on Exhibit F-2 needed to derive the
-----------
Pro Forma Balance Sheet or (D) disclosed in (S)3(i) of the Disclosure
Schedule.
(j) Credit Enhancements. The bonds, letters of credit, guarantees, credit
-------------------
support obligations and other credit enhancements listed on Exhibit G hereto
---------
(the "Credit Enhancements") are the only bonds, letters of credit, guarantees,
credit support obligations or other credit enhancements pursuant to which Union
Pacific, the Seller or any of their respective Affiliates (other than the
Company) are, as of the Closing, liable for any liability or obligation of the
Company.
4. Representations and Warranties of the Buyer. The Buyer represents and
-------------------------------------------
warrants to the Seller and the Company that the statements contained in this
(S)4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
(S)4), except as set forth in the Disclosure Schedule. The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this (S)4. Anything contained in this Agreement
(including the exhibits and schedules hereto) to the contrary notwithstanding,
any matter or item disclosed on a particular schedule in response to the
corresponding representation or warranty contained in this Agreement shall not
be deemed to be disclosed on any other schedule in response to any other
representation or warranty contained in this Agreement unless it is explicitly
evident from the disclosure of such matter or item that such disclosure is also
responsive to such other representation or warranty.
(a) Corporate Authority. The Buyer is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and the Buyer has full corporate power and authority to execute
and deliver this Agreement, the Demand Note, the Pledge Agreement and the
Warrant and to perform its obligations hereunder and thereunder. The execution
and delivery of this Agreement, the Demand Note, the Pledge Agreement and the
Warrant by the
-11-
<PAGE>
Buyer and the performance by the Buyer of its respective obligations hereunder
and thereunder have been duly and validly authorized by all necessary corporate
action on the part of the Buyer, and this Agreement, the Demand Note, the Pledge
Agreement and the Warrant have been duly and validly executed and delivered by
the Buyer.
(b) Binding Obligation. This Agreement constitutes, and on and after the
------------------
Closing Date each of the Demand Note, the Pledge Agreement and the Warrant will
constitute, the valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting
creditors' rights and remedies generally and judicial limitations upon the
specific performance of certain types of obligations.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement by the Buyer, nor the performance of its obligations hereunder nor the
consummation of the transactions contemplated hereby, will (i) violate any
Applicable Law to which the Buyer is subject or any provision of its charter or
bylaws or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel, or require any notice under any agreement,
contract, lease, license or instrument to which the Buyer is a party or by which
it is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation or failure to give notice would not have a material adverse effect
on the ability of the Buyer to consummate the transactions contemplated by this
Agreement. Except as set forth in (S)4(c) of the Disclosure Schedule, the Buyer
is not required to give any notice to, make any filing with, or obtain any
authorization, consent or approval of any Governmental Entity in order for the
Buyer to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent or approval would not have a material adverse effect on the ability of
the Buyer to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. Except as set forth in (S)4(d) of the Disclosure
-------------
Schedule, the Buyer has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement for which the Seller or the Company could become
liable or obligated.
(e) Acquisition of Company Shares for Investment. The Buyer acknowledges
--------------------------------------------
that the Company Shares being acquired by it hereunder have not been registered
under the Securities Act or registered or qualified under applicable state
securities laws by reason of their issuance in a transaction that does not
require such registration or qualification. The Company Shares purchased by the
Buyer pursuant to this Agreement are being acquired for investment only and not
with a view to any public distribution thereof, and the Buyer will not offer to
sell or otherwise dispose of the Company Shares so acquired by it in violation
of any of the registration requirements of the Securities Act or any comparable
state laws.
(f) Capitalization. (S)4(f) of the Disclosure Schedule sets forth on the
--------------
date hereof for the Buyer (i) the number of shares of authorized capital stock
of each class of its capital stock, (ii) the
-12-
<PAGE>
number of issued and outstanding shares of each class of its capital stock, the
names of the holders of record thereof, and the number of shares held by each
such holder, and (iii) the number of shares of its capital stock (if any) held
in treasury. Except for the Warrant, and except as otherwise disclosed in
(S)4(f) of the Disclosure Schedule, as of the date hereof there are no
outstanding stock appreciation, phantom stock or similar rights with respect to
the Buyer, and the Buyer is not a party to any option, warrant, purchase right,
or other contract or commitment that could require the Buyer to issue, sell,
transfer or otherwise dispose of any capital stock of the Buyer. Upon issuance,
the Warrant will evidence the right to purchase 5.0% of the shares of Buyer
Common Stock and 5.0% of the shares of Buyer Preferred Stock outstanding on the
Closing Date (in each case, after giving effect to the exercise of the Warrant).
5. Pre-Closing Covenants. The Parties agree as follows with respect to
---------------------
the period between the execution of this Agreement and the Closing:
(a) General. Each of the Parties will use reasonable efforts to take all
-------
action and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
(S)10 below).
(b) Dividend by the Company to the Seller. Prior to the Closing, the
-------------------------------------
Parties shall adjust the December 31, 1996 Balance Sheet to reflect the items
set forth in Exhibit F-2 attached hereto. The resulting pro forma balance sheet
-----------
(the "Pro Forma Balance Sheet") reflects the net amount of cash ($3,114,880) to
-----------------------
be transferred by the Company to the Seller by means of a dividend which is to
be declared by the Company and paid to the Seller prior to the Closing. Anything
to the contrary in this Agreement notwithstanding, the Buyer hereby expressly
consents to the declaration and payment of such dividend and the other dividends
described in Exhibit F-2 hereto.
-----------
(c) Notices and Consents. Each of the Parties will give any notices to,
--------------------
make any filings with and use reasonable efforts to obtain any authorizations,
consents and approvals of governments and governmental agencies in connection
with consummation of the transaction, including, without limitation, any
authorizations, consents or approvals described in (S)3(c) and (S)4(c) of the
Disclosure Schedule.
(d) Full Access. The Seller shall cause the Company to permit
-----------
representatives of the Buyer and any prospective lender or investor relating to
the Financing to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Company, to the
premises, properties, personnel, books, records (including tax records),
contracts and documents of or pertaining to the Company.
(e) Notice of Developments.
----------------------
(i) The Seller may elect at any time on or prior to the fifth
Business Day preceding the Closing Date to notify the Buyer in writing of
any development of which the Seller becomes aware after the date hereof
that causes a breach of any of the representations
-13-
<PAGE>
or warranties in (S)3(e), (f), (i) or (j) above. Unless the Buyer exercises
the right to terminate this Agreement pursuant to (S)12(a)(ii) below by
reason of any such development, the written notice pursuant to this
(S)5(e)(i) will be deemed to have amended the Disclosure Schedule, to have
qualified the representations and warranties contained in (S)3(e), (f), (i)
or (j) above, and to have cured any misrepresentation or breach of warranty
that otherwise might have existed under (S)3(e), (f), (i) or (j) above by
reason of such development.
(ii) Each Party will give prompt written notice to the other Parties
of any material adverse development causing a breach of any of its own
representations and warranties in (S)3 or (S)4 above. Except as otherwise
provided in (S)5(e)(i) above, no disclosure by any Party pursuant to this
(S)5(e)(ii), however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentation or breach of warranty.
(iii) Subject to (S)11(a) hereof, prior to the Closing, each of the
Seller and the Buyer shall promptly notify the other if it obtains
knowledge that any representation or warranty of any other party in this
Agreement or in the Disclosure Schedule is not true and correct or if it
obtains knowledge of any material errors in, or omissions from, the
Disclosure Schedule.
(f) Conduct of Business of the Company. Except as otherwise consented to
----------------------------------
in writing by the Buyer, from and after the date of this Agreement until the
Closing, the Seller shall cause the Company to:
(i) conduct its business and affairs only in the Ordinary Course of
Business of the Company;
(ii) not dispose of any material portion of its assets, except for
the sale or other disposition of assets in the Ordinary Course of Business
of the Company for fair value (if any);
(iii) use its commercially reasonable efforts to maintain its
business, assets, relationships with its employees, agents, customers and
suppliers, and operations in accordance with past custom and practice;
(iv) not increase or promise to increase the compensation payable to
any of its officers, employees or agents (other than normal raises in the
Ordinary Course of Business of the Company), except for the payment of the
Incentive Payments;
(v) not reclassify, combine, split, subdivide or redeem or
otherwise repurchase any of its capital stock, or issue, deliver, pledge or
encumber any additional capital stock or other securities equivalent to or
exchangeable for capital stock of the Company;
(vi) not acquire or agree to acquire by merging or consolidating
with, or by purchasing any material portion of the capital stock or other
equity interests or assets of, any Person;
-14-
<PAGE>
(vii) not pay, discharge or satisfy any material claim, liability
or obligation (whether absolute, accrued, contingent or otherwise), other
than the payment, discharge or satisfaction of liabilities in the Ordinary
Course of Business of the Company and as reflected in the adjustments
contained on Exhibit F-2 hereto;
-----------
(viii) not change in any material respect any of its accounting
methods or practices, including any material change in any assumption
underlying, or method of calculating, any bad debt, contingency or other
reserve, except as may be required by GAAP;
(xi) not amend or modify in any way its articles of incorporation,
by-laws or similar document or instrument; and
(x) refrain from declaring or paying, or otherwise setting aside
any funds or assets for the payment of, any dividend, distribution or
other payment on or with respect to any of its capital stock, or otherwise
become obligated to do any of the foregoing, except as may otherwise be
expressly contemplated by this Agreement, including without limitation by
(S)5(b) or (S)5(i)(ii) hereof.
(g) Exclusivity. The Seller will not (and the Seller will not cause or
-----------
permit the Company or any of its Affiliates to) (i) solicit, initiate, or
encourage the submission of any proposal (an "Acquisition Proposal") from any
--------------------
Person (other than the Buyer, any Person controlling the Buyer or any
representative retained by the Buyer or such controlling Person) relating to the
acquisition of any capital stock or other securities, or any portion of the
assets (except in the Ordinary Course of Business) of the Company or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person (other than the Buyer, any
Person controlling the Buyer or any representative retained by the Buyer or such
controlling Person) to do or seek any of the foregoing. If the Seller, the
Company or any of their respective Affiliates receives any offer or proposal to
enter into negotiations or discussions relating to any Acquisition Proposal, the
Seller shall promptly notify the Buyer 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 to the Buyer.
(h) Financing. To facilitate the consummation of the transactions
---------
contemplated hereby, the Buyer shall use its commercially reasonable efforts to
obtain such debt and equity financing from financial institutions and other
investors which the Buyer shall in its sole discretion deem necessary for (i)
the consummation of the transactions contemplated hereby, (ii) working capital
and other purposes of the Buyer and the Company after the Closing and (iii) the
payment of all costs and expenses incurred by the Buyer in connection with any
of the foregoing (the "Financing"). The Seller and the Company shall cooperate
---------
with the Buyer and shall provide any information which the Buyer may reasonably
request in connection with its efforts in obtaining the Financing.
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<PAGE>
(i) Cancellation of Intercompany Obligations.
----------------------------------------
(i) Cancellation of Intercompany Obligations Owing From the Company.
---------------------------------------------------------------
Prior to the Closing, the Seller shall transfer to the Company in the form
of a capital contribution all of its right, title and interest in and to
any account, note or other obligation owing from the Company to the Seller
or any Affiliate of the Seller (other than any account, note or other
obligation (A) arising under or in connection with this Agreement, (B)
arising from the provision by the Seller or its Affiliates of railroad,
trucking, trailer or related transportation services or transportation
brokerage or logistics services to the Company in the Ordinary Course of
Business or (C) arising pursuant to the Computer Assistance Agreement or
the PST Maintenance Agreement, which agreements shall remain in full force
and effect) and the Company shall thereby be relieved of any and all
duties, liabilities and obligations with regard to any such account, note
or other obligation.
(ii) Cancellation of Intercompany Obligations Owing From the Seller.
--------------------------------------------------------------
Prior to the Closing, the Company shall transfer to the Seller by dividend
all of its right, title and interest in and to any account, note or other
obligation owing from the Seller or any Affiliate of the Seller to the
Company (other than any account, note or other obligation arising under or
in connection with this Agreement or arising from the Company's provision
of railroad, trucking, trailer or related transportation services or
transportation brokerage or logistics services to the Seller or any
Affiliate of Seller in the Ordinary Course of Business) and the Seller
shall thereby be relieved of any and all duties, liabilities and
obligations with regard to any such account, note or other obligation.
(j) No Additional Representations or Warranties. The Buyer acknowledges
-------------------------------------------
that its principal officers and certain of its stockholders include persons who
have been actively involved in the day-to-day management of the Company. The
Buyer also acknowledges and represents that it has conducted its own
investigation of the Company's business and operations and such other matters as
the Buyer has determined to be worthy of its investigation in connection with
the transactions contemplated hereby. The Buyer further acknowledges that none
of the Seller, the Company, Union Pacific nor any other Person has made any
representation or warranty, express or implied, as to the accuracy or
completeness of any information regarding the Company, except as expressly set
forth in this Agreement or the Disclosure Schedule, and the Buyer further agrees
that none of the Seller, the Company, Union Pacific nor any other Person will
have or be subject to any liability to the Buyer or any other Person resulting
from the distribution to the Buyer, or the Buyer's use of, any such information,
including, without limitation, any Confidential Financing Memorandum prepared by
Pedersen Kammert & Co. LLC and The Chart Group, L.P. and any information,
document or material made available to the Buyer or its lenders in expectation
of the transactions contemplated by this Agreement. EXCEPT FOR THE
REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH IN (S)3, NEITHER THE SELLER
NOR THE COMPANY MAKES ANY REPRESENTATION OF WARRANTY, EXPRESS OR IMPLIED, AT LAW
OR IN EQUITY, IN RESPECT OF THE SELLER OR THE COMPANY OR ANY OF THE ASSETS,
LIABILITIES OR OPERATIONS OF THE COMPANY, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED REPRESENTATION OR WARRANTY AS TO THE
-16-
<PAGE>
CONDITION, MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND
THE SELLER EXPRESSLY DISCLAIMS ANY SUCH REPRESENTATION OR WARRANTY. EXCEPT FOR
THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN (S)3, THE BUYER AGREES
THAT IT IS PURCHASING THE COMPANY ON AN "AS IS" AND "WHERE IS" BASIS
(k) Disclaimer Regarding Financial Statements, Estimates and Projections.
--------------------------------------------------------------------
The Buyer acknowledges that the Financial Statements have not been prepared in
accordance with GAAP and that the Buyer shall have no claim against Union
Pacific, the Seller or the Company based solely on the failure of the Financial
Statements to reflect information or liabilities otherwise required to be
disclosed by GAAP. In connection with the Buyer's investigation of the Company,
the Buyer has received from or on behalf of the Company certain estimates,
forecasts, plans and financial projections. The Buyer acknowledges that there
are uncertainties inherent in attempting to make such estimates, forecasts,
plans and projections, that the Buyer is familiar with such uncertainties, that
the Buyer is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all estimates, forecasts, plans and projections so
furnished to it (including the reasonableness of the assumptions underlying such
estimates, forecasts, plans and projections), and that the Buyer shall have no
claim against the Seller, Union Pacific or the Company with respect thereto.
Accordingly, neither the Seller nor the Company makes any representation or
warranty with respect to such estimates, forecasts, plans and projections
(including any such underlying assumptions).
(6) Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) Incentive Payments. The Buyer shall cause the Company (i) promptly
------------------
after the Closing, to make the Incentive Payments in the amounts and to the
individuals specified on Schedule 1 hereto and (ii) to make the corresponding
----------
Incremental FICA Payments when such payments are due.
(b) Non-Solicitation of Employees.
-----------------------------
(i) the Buyer agrees that for a period of two years from the Closing
Date, neither the Company nor the Buyer nor any of their respective
Affiliates will directly or indirectly through another Person, solicit for
employment or hire any employee of the Seller or any of the Seller's
Affiliates; provided, however, that the foregoing provision will not
prevent the Buyer or the Company from employing any such person who
contacts the Buyer or the Company on his or her own initiative without any
solicitation by or encouragement from the Buyer or the Company directly or
indirectly through another Person.
(ii) The Seller agrees that for a period of two years from the
Closing Date, neither the Seller nor any of its Affiliates will directly or
indirectly through another Person, solicit for employment or hire any
employee of the Company; provided, however, that the foregoing provision
will not prevent the Seller (or its Affiliates) from employing any such
-17-
<PAGE>
person who contacts the Seller (or its Affiliates) on his or her own
initiative without any solicitation by or encouragement from the Seller (or
its Affiliates) directly or indirectly through another Person.
(c) Further Assurances. The Seller shall, at any time after the Closing,
------------------
upon the reasonable request of the Buyer and at the expense of the Buyer, 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 or assurances as may be necessary or desirable
to transfer, convey, grant and confirm to and vest in the Buyer good title to
all of the Company Shares, free and clear of any restrictions or transfers
(other than restrictions under the Securities Act or state securities laws),
security interests, claims and demands. To the extent that any asset, property,
interest in property or right that is used primarily in the business or
operations of the Company is owned by any Affiliate of the Seller (other than
the Company), then the Seller shall do, and shall cause such Affiliate to do,
any and all things necessary to convey to the Company all rights, title and
interest of such Affiliate, free and clear of all encumbrances (or, in the case
such assets, property, interest in property or right is also used by any
Affiliate of the Seller, provide the benefit thereof to the Company to the same
extent, and on terms and conditions no less favorable to the Company, than those
applicable prior to the Closing).
(d) Confidentiality. The Seller acknowledges that the Buyer and the
---------------
Company would be irreparably damaged if after the Closing, the Confidential
Information (as defined below) were disclosed to or utilized by or on behalf of
Persons other than the Buyer, the Company or their respective Affiliates. The
Seller and its Affiliates will treat and hold as confidential any and all
information relating to the business and affairs of the Company (i) as conducted
on or prior to the Closing Date or (ii) furnished to the Seller or it Affiliates
pursuant to the other terms of this Agreement and, in either case, not generally
known or available to the public (other than as a result of breach of this
Agreement) (the "Confidential Information"), and shall refrain from using any
------------------------
of the Confidential Information except in connection with this Agreement or as
compelled by judicial or administrative process or by requirement of law.
(e) General. In the event that at any time after the Closing any further
-------
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as the other Party may reasonably
request, all at the sole cost and expense of the requesting Party.
7. Employee Matters.
----------------
(a) WARN Matters. The Buyer represents that it does not currently
------------
contemplate taking any actions which, in themselves, would constitute a plant
closing involving, or mass lay-off of, employees of the Company or any
terminations that, in the aggregate for all such terminations by the Buyer after
the Closing, would constitute a mass lay-off of employees of the Company, within
one year following the Closing Date (such terms "plant closing" and "mass
lay-off" having the meanings herein that are ascribed to them in the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. (S)2101 et seq.) The
-- ---
Buyer and the Company, jointly and severally, shall indemnify
-18-
<PAGE>
and hold the Seller harmless from and against any Loss which the Seller incurs
under the Worker Adjustment and Retraining Notification Act of 1988, as
amended, or any similar state law arising out of, or relating to, any actions
taken solely by the Buyer or the Company with respect to the employees of the
Company on or after the Closing Date.
(b) Benefit Plan Matters.
--------------------
(i) Except as provided in this (S)7(b), effective on and after
March 31, 1997 the Company shall cease to be a participating employer in
any employee benefit plan sponsored by SPRC or any of its Affiliates (other
than the Company), and employees of the Company shall cease to actively
participate or accrue benefits or service under any such benefit plans
(collectively, the "SPRC Benefit Plans"). The Company shall cease to be a
------------------
participating employer in the Southern Pacific Rail Corporation Pension
Plan, and employees of the Company shall cease to actively participate and
accrue benefits and service under such plan, effective on and after the
Closing Date.
(ii) The Buyer and the Company, jointly and severally, agree to
reimburse the Seller, on or prior to April 15, 1997, for all amounts
contributed by SPRC as employer matching contributions to the Southern
Pacific Rail Corporation Thrift Plan for the month ending March 31, 1997 on
behalf of employees of the Company. As soon as practical after the Closing
Date, the Seller shall cause SPRC to amend the Southern Pacific Rail
Corporation Thrift Plan, subject to the requirements of Applicable Laws, to
permit distributions to participants in such plan who are employees of the
Company after the Closing Date.
(iii) On and after the Closing Date, the Company shall establish and
maintain in force a health plan for its employees who are actively employed
by the Company or are absent from active employment due to vacation or
leave with a right to return to active employment under the Family Medical
Leave Act (collectively, the "Current Employees"). The Company shall, on
-----------------
and after the Closing Date, comply in all respects with the health plan
continuation coverage requirements of Section 4980B of the Code ("COBRA")
-----
including, without limitation, providing COBRA coverage to the extent
required by COBRA under the Company's health plan to former employees of
the Company and/or their dependents who had a "qualifying event" under
COBRA prior to the Closing Date. Notwithstanding anything to the contrary
contained in this Agreement, the Buyer reserves the right to cause the
Company to modify, amend or terminate any of its employee benefit plans in
any respect at any time from and after the Closing.
(iv) As soon as practical after the Closing Date, the Seller shall
cause SPRC to amend the Southern Pacific Rail Corporation Pension Plan,
subject to the requirements of Applicable Law, to fully vest each
participant in such plan who is a Current Employee as of the Closing Date.
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<PAGE>
(v) The Seller shall permit those Current Employees who have health
flexible spending accounts in the Southern Pacific Rail Corporation Health
Care Reimbursement Plan on the Closing Date to continue receiving
reimbursements from such accounts, subject to the terms of such plan,
through the end of the current benefit year. The Buyer and the Company,
jointly and severally, agree to reimburse the Seller for any amounts paid
to Current Employees from their health flexible spending accounts which
exceed the premiums and/or contributions paid by Current Employees as of
the Closing Date.
(vi) The Seller shall, subject to the terms and conditions of the
Southern Pacific Rail Corporation Medical, Dental and Health Care
Reimbursement Plan and the Southern Pacific Rail Corporation Life, Personal
Accident, and Business Travel Accident Income Plan, provide retiree medical
and retiree life insurance benefits to (A) participants in such plans who
are retired employees of the Company on the Closing Date, and (B) employees
of the Company who have fulfilled all requirements for coverage under such
plans (except for actual retirement) as of the Closing Date; provided,
however, that the Seller reserves the right to cause SPRC to modify, amend
or terminate such plans in any respect at any time.
(vii) The Seller shall, subject to the terms and conditions of the
Southern Pacific Rail Corporation Long Term Disability Plan, provide long
term disability benefits to former active employees of the Company who are
receiving benefit payments under such plan as of the Closing Date;
provided, however, that the Seller reserves the right to cause SPRC to
modify, amend or terminate such plan in any respect at any time.
(viii) The Buyer and the Company, jointly and severally, shall
indemnify the Seller and its Affiliates from and against any Losses the
Seller may suffer with respect to any claim for (A) COBRA coverage by or on
behalf of any employee, former employee or dependent of any employee or
former employee of the Company, or (B) retiree medical or retiree life
insurance coverage by or on behalf of any employee or former employee of
the Company except individuals described in clause (A) or (B) of paragraph
(vi) above.
(ix) The Seller and Union Pacific, jointly and severally, shall
indemnify and hold the Buyer and the Company harmless from and against any
Loss arising out of or relating to any claim under the SPRC Benefit Plans
or any other benefit plan or arrangement of any Affiliate or ERISA
Affiliate of the Seller or Union Pacific.
(x) The Buyer and the Company agree to promptly provide, at the
request of the Seller or any of its Affiliates, all information in the
Buyer's or the Company's possession which is reasonably required by the
Seller to administer the SPRC Benefit Plans.
8. Tax Matters.
-----------
(a) Termination of Tax Sharing Agreements. Any and all Tax allocation
-------------------------------------
agreements, Tax sharing agreements, intercompany agreements, or other similar
agreements between the
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<PAGE>
Company and the Seller or any Affiliate of the Seller that relates to any Tax or
Tax matter shall be terminated as of the Closing.
(b) Section 338 Elections.
---------------------
(i) The Seller and the Buyer 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 Company Shares.
(ii) The Seller and the Buyer 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 Purchase Agreement) and any related
and comparable forms for state, local, or foreign law (collectively,
"Section 338 Election Forms").
--------------------------
(iii) As reasonably requested from time to time by the Seller
(whether before, at, or after the Closing), the Buyer shall assist the
Seller in, and shall provide the necessary information to the Seller, in
connection with the preparation of any Section 338 Election Form. The Buyer
also agrees on or before the Closing to cause each Section 338 Election
Form reasonably requested by the Seller to be duly executed by the Buyer or
any Affiliate of the Buyer, as appropriate, and delivered to the Seller at
the Closing. If the Seller reasonably determines that a change is required
to any Section 338 Election Form previously executed by the Buyer or an
Affiliate of the Buyer, the Seller may prepare a new Section 338 Election
Form and deliver it to the Buyer and the Buyer shall cause such form to be
duly executed by the Buyer or an Affiliate of the Buyer, as appropriate,
and promptly delivered to the Seller. Anything contained in this (S)8(b) to
the contrary notwithstanding, the Buyer shall have the right to approve all
Section 338 Election Forms prior to filing, such approval not to be
unreasonably withheld or delayed.
(iv) The Seller shall file, or cause to be filed, all Section 338
Election Forms and shall provide the Buyer with notice of such filings.
(v) The Seller, the Buyer, and the Company agree to report, or
cause to be reported, the purchase by the Buyer of the Company consistent
with 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.
(vi) The Buyer, the Company, and the Seller 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
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<PAGE>
1.338(h)(10)-1(e)(5)) among the assets of the Company that complies with
the applicable treasury regulations promulgated under Section 338 of the
Code.
(c) Tax Indemnity.
-------------
(i) Union Pacific and the Seller shall, jointly and severally,
indemnify and hold the Company and the Buyer and their respective
Affiliates harmless (A) from any and all Income Taxes attributable to or
payable with respect to or as a result of the operation of the Company or
the Seller's ownership of the Company for any period that ended on or prior
to the Closing Date and (B) from any and all Losses incurred as a result of
Union Pacific's or the Seller's failure to perform any other covenant or
agreement contained in this (S)8.
(ii) Union Pacific and the Seller shall, jointly and severally,
indemnify and hold the Company and the Buyer and their respective
Affiliates harmless from any and all Other Taxes attributable to or payable
with respect to or as a result of the operation of the Company that accrued
or became payable on or prior to December 31, 1996, provided, however, that
Union Pacific and the Seller will be obligated to indemnify the Company,
the Buyer and their respective Affiliates for such Other Taxes only (A) if
the aggregate amount of all such Other Taxes exceeds $50,000, in which case
Union Pacific and the Seller shall be obligated to indemnify the Company,
the Buyer and their respective Affiliates only for such excess, and (B) if
the Buyer provides Union Pacific and the Seller with written notice of such
Other Taxes on or prior to March 31, 1999 (with such notice stating with
reasonable specificity the nature, basis and amount of such Other Taxes).
(iii) The Buyer and the Company shall, jointly and severally,
indemnify and hold the Seller and its Affiliates harmless from any and all
(A) Assumed Taxes attributable to or payable with respect to or as a result
of the operation of the Company; (B) Income Taxes attributable to or
payable with respect to or as a result of the operation of the Company or
the Buyer's ownership of the Company for any period commencing after the
Closing Date; (C) Other Taxes attributable to the operation of the Company
that accrued after December 31, 1996; and (D) Losses incurred as a result
of the Buyer's or the Company's failure to perform any other covenant or
agreement contained in this (S)8.
(d) Refunds.
-------
(i) Any refund (and interest thereon) of any Income Tax or Other
Tax for which Union Pacific and the Seller are liable under (S)8(c)(i) or
(S)8(c)(ii), regardless of when paid, shall be property of the Seller. If
the Buyer or the Company or any of their respective Affiliates receives a
refund (and interest) of any Income Tax or Other Tax that is property of
the Seller, the Buyer or the Company, as the case may be, shall pay to the
Seller the amount of such refund (and interest) within fifteen (15) days of
receipt.
(ii) Any refund (and interest thereon) of any Tax for which the
Buyer and the Company are liable under (S)8(c)(iii) shall be the property
of the Buyer and the Company, as
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<PAGE>
the case may be. If the Seller or any of its Affiliates receives a refund
(and interest) of any Tax that is property of the Buyer or the Company, the
Seller shall pay to the Buyer or the Company, as the case may be, the
amount of such refund (and interest) within fifteen (15) days of receipt.
(e) Cooperation. The Company, the Buyer, and the Seller shall provide
-----------
each other Party with such assistance (including reasonable access to books,
records, and employees) as may reasonably be requested by each of them in
connection with the preparation of any Tax Return or other return or report of
Taxes, any audit or other examination by any taxing authority, or any judicial
or administrative proceedings relating to liability for Taxes. The Company, the
Buyer, and the Seller shall, and shall cause their respective Affiliates to,
retain for the full period of the statute of limitations any records or
information that may be relevant to such preparation, audit, examination,
proceeding, or determination. The party requesting assistance hereunder shall
reimburse the assisting party for reasonable out-of-pocket expenses incurred in
providing such assistance.
(f) Contests. If in connection with any audit, examination,
--------
investigation, or other proceeding, a Party (the "Tax Indemnified Party")
---------------------
receives a written or oral communication with respect to any question,
adjustment, assessment, or other matter which may give rise to a claim for
indemnification under this (S)8 against another Party (the "Tax Indemnifying
----------------
Party"), then the Tax Indemnified Party shall notify the Tax Indemnifying Party
- -----
within fifteen (15) days of such communication. No failure or delay in
notification shall reduce or otherwise affect the obligations of the Tax
Indemnifying Party pursuant to this (S)8, except to the extent that such failure
or delay shall have prejudicial effect on the ability of the Tax Indemnifying
Party to defend against, settle or satisfy any liability or claim for Taxes that
the Tax Indemnifying Party is obligated to pay hereunder. The respective rights
and obligations of the Tax Indemnifying Party and the Tax Indemnified Party to
participate in and control such proceedings shall be as set forth in (S)11(d)
(ii) and (iii) below.
(g) Survival. The provisions of this (S)8 shall survive the Closing and
--------
shall remain in full force and effect until the expiration of the statute of
limitations applicable to the particular Tax Claim in question.
9. Credit Enhancements. Subject to the satisfaction of the Buyer's and
-------------------
the Company's obligations pursuant to this (S)9, Union Pacific shall, and shall
cause its Affiliates to, maintain in place until March 31, 1999 such of the
Credit Enhancements, or such alternative or replacement bonds, letters of
credit, guarantees, credit support obligations or other credit enhancements that
are substantially equivalent thereto as determined by the beneficiary thereof,
as are reasonably requested by the Buyer (collectively, the "Continuing Credit
-----------------
Enhancements"), provided, however, that (A) in no event shall the maximum
- ------------
aggregate obligation of Union Pacific and its Affiliates under the Continuing
Credit Enhancements exceed $300,000, (B) the Buyer shall use commercially
reasonable efforts to exclude from the Continuing Credit Enhancements those
Credit Enhancements reasonably requested by the Seller and (C) in no event shall
the BNSF Guarantee be a Continuing Credit Enhancement. The Company and the
Buyer, jointly and severally, agree to pay to Union Pacific a fee (the "Credit
------
Enhancement Fee") of 3.0% per annum of the greater of the principal or face
- ---------------
amount
-23-
<PAGE>
of the Credit Enhancements, provided, however, that solely for the purposes of
calculating the Credit Enhancement Fee the principal amount of the obligation of
Union Pacific and its Affiliates under the BNSF Guarantee shall be deemed to be
$0 until May 31, 1997 and $100,000 thereafter. Such fee shall be payable
quarterly in advance with respect to any Credit Enhancements outstanding on the
first day of each calendar quarter, provided that the first such payment shall
be due within 5 Business Days following the Closing Date. If, and to the extent,
any Credit Enhancement outstanding on the date of any such quarterly payment is
terminated prior to the date of the next such quarterly payment, then the
Company is entitled to a refund of a portion of the Credit Enhancement Fee
allocable to such terminated Credit Enhancement calculated by multiplying the
Credit Enhancement Fee which was paid in respect of such terminated Credit
Enhancement for the current calendar quarter by a fraction the numerator of
which is the number of days remaining in the current calendar quarter after the
date such Credit Enhancement is terminated and the denominator of which is 90.
In the event that after the Closing Date Union Pacific or any of its
Affiliates makes any payment as a result or on account of any of the Credit
Enhancements, the Company and the Buyer, jointly and severally, agree to
reimburse Union Pacific, on demand (accompanied by reasonable evidence of such
payment), for the amount of such payment, plus interest thereon at a rate per
annum equal to 12% from the date payment is made by Union Pacific or its
Affiliate to the date of such reimbursement.
The Buyer and the Company agree to use their commercially reasonable
efforts to, as soon as practicable but in any event prior to May 31, 1997,
terminate, without expense or liability, contingent or otherwise, to Union
Pacific or its Affiliates, each of the Credit Enhancements other than the
Continuing Credit Enhancements. Without limiting the foregoing, the Buyer
acknowledges and agrees that neither Union Pacific nor any of its Affiliates
shall have any obligation to maintain any of the Credit Enhancements after May
31, 1997 other than the Continuing Credit Enhancements and, after May 31, 1997,
Union Pacific and its Affiliates shall have the right to take whatever steps
they reasonably deem necessary to terminate such Credit Enhancements.
Without limiting the foregoing, the Buyer and the Company, jointly and
severally, agree to indemnify and hold the Seller and its Affiliates harmless
from and against any Loss which any such Party incurs as a result of, or
relating to, any of the Credit Enhancements.
The Buyer further agrees that following the Closing neither the Buyer nor
the Company will (A) (i) engage in any merger, consolidation, combination or
sale of assets, (ii) incur any indebtedness for borrowed money or Encumbrance,
(iii) make any investment, loan or advance, (iv) engage in any transactions with
any of their respective Affiliates or (v) declare or pay any dividend in respect
of their capital stock or repurchase, redeem or otherwise make any payment in
respect of their outstanding indebtedness or capital stock, in each case, to the
extent the same is prohibited by the Debt Agreements (after giving effect to any
consent or waiver granted thereunder) or (B) refinance with a lender other than
(i) The First National Bank of Chicago or (ii) a syndicate of lenders led by The
First National Bank of Chicago, or pay off all of its obligations under or
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terminate the Debt Agreements, in each case, unless the Credit Enhancements
shall have been terminated without expense or liability, contingent or
otherwise, to Union Pacific and its Affiliates.
10. Conditions to Obligation to Close.
---------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
-------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S)3 above
shall be true and correct in all material respects at and as of the Closing
Date as though made on and as of the Closing Date;
(ii) the Seller and the Company shall have performed and complied
in all material respects with all of the covenants to be performed by the
Seller and the Company on or prior to the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Seller and the Company shall have delivered to the Buyer a
certificate to the effect that the conditions specified above in
(S)(S)10(a)(i) and (ii) have been satisfied in all respects;
(v) all of the directors of the Company shall have delivered duly
signed resignations effective at the time of the Closing (or the Seller or
the Company shall have taken such other action as is necessary to ensure
that such persons are not directors of the Company at the time of the
Closing);
(vi) (A) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise
been terminated and (B) the other authorizations, consents or approvals
described in (S)3(c) and (S)4(c) of the Disclosure Schedule shall have been
received;
(vii) the Buyer shall have obtained the Financing;
(viii) At the Closing, there shall be delivered to the Buyer the
opinions of Richard J. Ressler, Esq., Assistant General Counsel to Union
Pacific and the Seller, Steven A. Goodsell, Esq., General Solicitor in Utah
of Union Pacific, and Louis P. Warchot, Esq., counsel to Union Pacific and
the Seller, dated the Closing Date, in the form set forth in Exhibit H
---------
hereto; and
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<PAGE>
(xi) Except for the transactions contemplated by this Agreement,
including those reflected in the adjustments made to derive the Pro Forma
Balance Sheet, no event or condition shall have occurred or arisen since
December 31, 1996 that has resulted in or would be reasonably expected to
result in a Material Adverse Change.
The Buyer may waive any condition specified in this (S)10(a) (other than
(S)10(a)(vi)(A)) if it executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller
--------------------------------------
to consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in (S)4 above
shall be true and correct in all material respects at and as of the Closing
Date as though made on and as of the Closing Date;
(ii) the Buyer shall have performed and complied in all material
respects with all of the covenants to be performed by the Buyer on or prior
to the Closing;
(iii) there shall not be any injunction, judgment, order, decree,
ruling or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in (S)10(b)(i) and
(ii) is satisfied in all respects;
(v) (A) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated) and (B) the other authorizations, consents or approvals
described in (S)3(c) and (S)4(c) of the Disclosure Schedule shall have been
received;
(vi) at the Closing, there shall be delivered to the Seller the
opinion of O'Sullivan Graev & Karabell, LLP, counsel to the Buyer, dated
the Closing Date, in form set forth in Exhibit I hereto;
---------
(vii) the Management Investors shall have executed and delivered to
the Seller the Management Certificates dated the Closing Date;
(viii) Robert L. Cross shall have executed and delivered to the Seller
the Release Agreement dated on or before the Closing Date; and
(ix) the Stockholders Agreement shall have been executed and
delivered by each of the parties thereto on or before the Closing Date.
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<PAGE>
The Seller may waive any condition specified in this (S)10(b) (other than
(S)10(b)(v)(A)) if it executes a writing so stating at or prior to the Closing.
11. Indemnification.
---------------
(a) Survival of Representations and Warranties. Subject to (S)11(b) and
------------------------------------------
(c) below, the representations and warranties of the Seller contained in (S)3,
and the Buyer contained in (S)4, shall survive the Closing and continue in full
force and effect. Subject to (S)11(h) below, the representations and warranties
of the Company shall not survive the Closing and shall terminate simultaneously
therewith, and if the Closing occurs, neither the Seller nor any of its
Affiliates shall, from and after the Closing, have any recourse against the
Company for any breach of any representation or warranty or covenant required to
be performed on or prior to the Closing by the Company set forth in this
Agreement or in any certificate or other writing delivered in connection with
this Agreement. Each of the covenants and other agreements of the Parties
contained in this Agreement shall survive the Closing and continue in full force
and effect until the full performance thereof or the expiration or termination
thereof in accordance with its terms; provided, however, that subject to
(S)11(h) below the covenants and other agreements of the Company contained in
this Agreement shall not survive the Closing and shall terminate simultaneously
therewith. Notwithstanding the Buyer's obligations pursuant to (S)5(e)(iii)
above, no right of the Buyer or its Affiliates, on the one hand, or the Seller
or its Affiliates, on the other hand, for indemnification hereunder shall be
affected by any examination made for or on behalf of such Party or its
Affiliates or any of their respective directors, officers, employees,
representatives or agents, the knowledge of any of the foregoing Persons, or the
acceptance by any of the foregoing Persons of any certificate or opinion.
(b) Indemnification Provisions for Benefit of the Buyer.
---------------------------------------------------
(i) Subject to the limitations set forth in this (S)11(b), Seller and
Union Pacific (collectively, the "UP Group") jointly and severally agree to
--------
indemnify and hold the Buyer and its Affiliates harmless against any Losses
which any of them may suffer, sustain, or become subject to, as the result
of:
(A) the breach of any representation or warranty contained in
(S)3 above (other than the representations and warranties set forth in
(S)3(e) or (f) above);
(B) the breach of any representation or warranty contained in
(S)3(e) or (f) above;
(C) the breach of any covenant or agreement to be performed by
the Seller or Union Pacific under this Agreement;
(D) any Excluded Liabilities; or
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<PAGE>
(E) any Environmental Conditions if, and only to the extent
that, such Loss is incurred or imposed (1) pursuant to any agreement,
Order, notice of responsibility, directive (including requirements
embodied in Environmental, Health and Safety Requirements),
injunction, judgment or similar documents (including settlements)
attributable to, connected with or arising out of or under,
Environmental, Health and Safety Requirements or (2) pursuant to any
claim by a Governmental Entity or other Person for personal injury,
property damage, damage to natural resources, remediation or response
costs or other corrective actions arising out of, connected with or
attributable to, any Environmental Condition.
(ii) With respect to claims for breaches of representations and
warranties referred to in (S)11(b)(i)(A) above, (A) the UP Group will be
liable to the Buyer for Losses only if the aggregate amount of all such
Losses relating to all such breaches exceeds $250,000, in which case Seller
will be liable only for such excess, (B) the UP Group will not be liable
for any Losses arising from the breach of any representation or warranty
contained in (S)3(i) or (j) hereof unless written notice of such breach is
given by the Buyer to the Seller on or prior to September 30, 1998 (with
such notice stating with reasonable specificity the nature and basis of the
assertion and the amount thereof to the extent known) and the
indemnification obligations of the UP Group shall continue in full force
and effect indefinitely with regard to the breach of any other
representation or warranty referred to in (S)11(b)(i)(A) above, and (C) in
no event shall the aggregate amount of Losses that the UP Group is
obligated to satisfy pursuant to (S)11(b)(i)(A) and (B) exceed $13,162,500
in the aggregate. If any Loss arising from a breach of a representation or
warranty referred to in (S)11(b)(i)(A) above also constitutes a Loss
arising out of or relating to an Excluded Liability or an Environmental
Condition, such Loss will be deemed to be arising out of or relating to an
Excluded Liability or an Environmental Condition, as applicable, for
purposes of this (S)11, and, thus, not subject to the limitations set forth
in the first sentence of this (S)11(b)(ii).
(iii) With respect to claims for breaches of representations and
warranties referred to in (S)11(b)(i)(B) above, (A) the UP Group will be
liable to the Buyer for Losses only if the aggregate amount of all such
Losses relating to all such breaches exceeds $1,000,000, in which case the
UP Group will be liable only for such excess, (B) the UP Group will not be
liable for any Losses arising therefrom unless written notice of such
breach is given by the Buyer to the Seller on or prior to March 31, 1999
(with such notice stating with reasonable specificity the nature and basis
of the assertion and the amount thereof to the extent known) and (C) in no
event shall the aggregate amount of Losses that the UP Group is obligated
to satisfy pursuant to (S)11(b)(i)(B) exceed $6,581,250. If any Loss for
which the UP Group is obligated to provide indemnification pursuant to
(S)11(b)(i)(B) above also constitutes a Loss arising out of a relating to
an Excluded Liability or an Environmental Condition, such Loss will be
deemed to be arising out of or relating to an Excluded Liability or an
Environmental Condition, as applicable, for purposes of this (S)11, and,
thus, not subject to the limitations set forth in the first sentence of
this (S)11(b)(iii).
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<PAGE>
(iv) With respect to claims for Excluded Liabilities referred to in
(S)11(b)(i)(D) above, (A) the UP Group will be liable to the Buyer for the first
dollar of any such Losses, (B) the UP Group will not be liable for any such
Losses unless written notice of the claim relating to such Excluded Liability is
given by the Buyer to the Seller on or prior to March 31, 2002 (with such notice
stating with reasonable specificity the nature and basis of the assertion and
the amount thereof to the extent known) and (C) except as set forth in
(S)11(b)(vi) below, there shall be no dollar limit on the aggregate amount of
Losses relating to Excluded Liabilities that the UP Group is obligated to
satisfy pursuant to (S)11(b)(i)(D). If any Loss arising from an Excluded
Liability pursuant to (S)11(b)(i)(D) above also constitutes a Loss arising out
of or relating to an Environmental Condition, such Loss will be deemed to be an
Excluded Liability for purposes of (S)11, and, thus, subject to the provisions
of this (S)11(b)(iv).
(v) With respect to claims for Environmental Conditions referred to in
(S)11(b)(i)(E) above, (A) the UP Group will be liable to the Buyer for Losses
only if the aggregate amount of all such Losses relating to all such
Environmental Conditions exceeds $100,000, in which case the UP Group will be
liable only for such excess, (B) the UP Group will not be liable to Buyer for
any such Losses unless written notice of the applicable Environmental Condition
is given by the Buyer to Seller on or prior to March 31, 2002 (with such notice
stating with reasonable specificity the nature and basis of the assertion and
the amount thereof to the extent known); provided, however, if the Buyer, on or
prior to March 31, 2002, gives the UP Group written notice of a potential Loss
relating to an Environmental Condition that has not been incurred or imposed
pursuant to the conditions set forth in (S)11(b)(i)(E) above and with regard to
which the Buyer reasonably believes it prudent to perform Remedial Work or other
reasonable corrective or safety measures in order to avoid a potential Loss as a
result of an Environmental Condition and the Seller determines that Remedial
Work or such other measures are not required with respect to such Environmental
Condition (it being expressly acknowledged that the Seller has the right to
assume, conduct and control the performance of the proposed Remedial Work or
other measures pursuant to (S)11(g) hereof) then this (S)11(b)(v)(B) shall not
apply to any Loss subsequently incurred or imposed pursuant to the conditions
set forth in (S)11(b)(i)(E) which relates to or results from the Environmental
Condition described in such written notice, and (C) except as set forth in
(S)11(b)(vi) below, there shall be no dollar limit on the aggregate amount of
Losses relating to Environmental Conditions that the UP Group is obligated to
satisfy pursuant to (S)11(b)(i)(E). If any Loss arising from a claim for an
Environmental Condition referred to in (S)11(b)(i)(E) above also constitutes a
Loss arising out of an Excluded Liability such Loss will be deemed to be an
Excluded Liability for purposes of this (S)11, and, thus, subject to the
provisions of (S)11(b)(iv).
(vi) The obligations of the UP Group under this (S)11 to indemnify the
Buyer in respect of Environmental Conditions and Excluded Liabilities shall be
reduced to the extent that any intentional act or failure to act by, or gross
negligence of, the Buyer or its Affiliates, successors or assigns occurring
after the Closing adversely affects such obligations, other than failures to act
where such failure is based on the Seller's determination, after receiving
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<PAGE>
written notice from the Buyer as provided in (S)11(b)(v) above, that
Remedial Work or other measures are not required.
(c) Indemnification Provisions for Benefit of the Seller Subject to the
----------------------------------------------------
limitations set forth in the following sentence, prior to the Closing, the
Buyer agrees, and on and after the Closing, the Buyer and the Company jointly
and severally agree to indemnify and hold the Seller, Union Pacific and their
respective Affiliates harmless against any Losses which any of them may suffer,
sustain or become subject to, as the result of (A) a breach by the Buyer (or,
solely with respect to the covenants to be performed by it after the Closing,
the Company) of any representation, warranty, covenant, or agreement of the
Buyer (or the Company, as applicable) contained in this Agreement or (B) any
obligation of the Seller, Union Pacific or their respective Affiliates arising
after the Closing pursuant to the GE Vehicle Leases (it being further understood
that the Parties shall cooperate and use reasonable commercial efforts in
seeking to obtain an assignment of the GE Vehicle Leases from the Seller to the
Company as soon as practicable after the Closing). The Parties acknowledge and
agree that (i) the Buyer (and the Company, as applicable) will be liable to the
Seller and Union Pacific for the first dollar of any such Losses, (ii) the
indemnification obligations of the Buyer shall continue in full force and effect
indefinitely and (iii) in no event shall the aggregate amount of Losses that the
Buyer is obligated to satisfy pursuant to this (S)11(c) for the breach of any
representation or warranty exceed $13,162,500.
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the "Indemnified
-----------
Party") with respect to any matter (a "Third Party Claim") which may give
----- -----------------
rise to a claim for indemnification against the other Party (the
"Indemnifying Party") under this (S)11, then the Indemnified Party shall
------------------
promptly notify the Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
the Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to assume the defense
of the Third Party Claim with counsel of its choice reasonably satisfactory
to the Indemnified Party so long as (A) the Indemnifying Party notifies the
Indemnified Party in writing within 30 days after the Indemnified Party has
given notice of the applicable Third Party Claim that the Indemnifying
Party will indemnify the Indemnified Party from and against any Losses the
Indemnified Party may suffer resulting from such Third Party Claim to the
extent required by this (S)11 and (B) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief,
provided, however, the Indemnifying Party will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnified Party (which
consent shall not be unreasonably withheld or delayed) unless the judgment
or proposed settlement involves only the payment of money damages by the
Indemnifying Party and does not impose an injunction or other equitable
relief upon the Indemnified Party.
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<PAGE>
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with (S)11(d)(ii) above, (A) the
Indemnified Party may retain separate counsel at its sole cost and expense
and participate in the defense of the Third Party Claim provided that the
Indemnified Party and, to the extent consistent with its professional
responsibilities, such separate counsel shall cooperate with the
Indemnifying Party and any counsel retained by the Indemnifying Party and
(B) the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior consent of the Indemnifying Party. In the event the Indemnifying
Party does not assume and conduct the defense of the Third Party Claim in
accordance with (S)11(d)(ii) above, however, the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate and the Indemnifying Party will pay the
reasonable fees and expenses of any legal counsel retained by the
Indemnified Party in connection with such Third Party Claim. The
Indemnifying Party will also pay the reasonable fees and expenses of any
legal counsel retained by the Indemnified Party in the event the
Indemnified Party reasonably determines that having separate counsel would
be appropriate under the circumstances because of the existence of separate
defenses or because of conflicts of interest that could arise that, in
either case, would materially prejudice the Indemnified Party if it did not
have separate counsel; provided, however, that the Indemnifying Party shall
not be required to pay the expense of more than one legal counsel of the
Indemnified Parties in any single action and that such counsel shall, to
the extent consistent with its professional responsibilities, cooperate
with the Indemnifying Party and any counsel designated by the Indemnifying
Party.
(e) Matters Not Involving Third Parties. If an Indemnified Party's notice
-----------------------------------
of indemnification does not relate to a Third Party Claim, the Indemnifying
Party shall have 30 days after receipt of such notice to object to the subject
matter and the amount of the claim for indemnification set forth in such notice
by delivering written notice thereof to the Indemnified Party. If the
Indemnifying Party does not so object within such 30-day period, it shall be
conclusively deemed to have agreed to the matters set forth in such notice of
indemnification. If the Indemnifying Party sends notice to the Indemnified Party
objecting to the matters set forth in such notice of indemnification, the
Parties shall use their best efforts to settle such claim for indemnification.
If the Parties are unable to settle such dispute, each of the Parties shall be
entitled to pursue any and all rights and remedies available to it in connection
with such matter.
(f) Determination of Losses; Adjustments to Purchase Price. For purposes
------------------------------------------------------
of determining the amount of any Losses that are the subject matter of a claim
for indemnification hereunder, the Parties shall make appropriate adjustments
for insurance proceeds actually received by the Indemnified Party. All
indemnification payments under this (S)11 shall be deemed adjustments to the
Purchase Price.
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<PAGE>
(g) Procedures Regarding Remedial Work.
----------------------------------
Notwithstanding anything set forth in (S)11(d) above, in the event that any
cleanup, remediation, containment, investigation, restoration, removal,
treatment or other remedial work ("Remedial Work") is required with respect to
-------------
any Environmental Condition as a result of the conditions described in
(S)11(b)(i)(E)(1) or (2) or in the event that Seller otherwise elects to conduct
Remedial Work after written notice from the Buyer pursuant to (S)11(b)(v)
hereof, the Seller will have the right to assume, conduct and control the
performance of the required Remedial Work using consultants and contractors of
its own choice reasonably satisfactory to the Buyer, provided that the Seller
notifies the Buyer of the Seller's intent to conduct the Remedial Work in
writing within 30 days of receipt of written notice from the Buyer of the
Environmental Condition that is the basis for the required Remedial Work. The
Seller shall keep the Buyer reasonably apprised of the status of the Remedial
Work, provide the Buyer with material non-privileged documents and information
relating to the performance of the Remedial Work for review and comment and
permit the Buyer and its representatives to attend non-privileged material
meetings and conferences relating thereto. In addition, the Buyer shall have the
right to approve in advance (which approval shall not be unreasonably withheld
or delayed) material decisions and actions of the Seller relating to the
Remedial Work (which decisions and actions shall include, without limitation,
any reports to Governmental Authorities, the determination of appropriate
cleanup levels, the use of risk-based cleanup standards, or any other decisions
or actions, in each case, which the Buyer reasonably concludes could materially
impair or impede the ongoing ownership, operation, use or value of the business
or facilities of the Company). In connection with any Remedial Work completed
pursuant to this (S)11(g), the Buyer and the Seller shall reasonably cooperate
with one another and their respective representatives and agents, including,
without limitation, providing reasonable access to the appropriate facilities
and properties, in the exercise of their rights and obligations hereunder.
In the event that the Seller does not assume and conduct the performance
of the Remedial Work in accordance with this (S)(11)(g), the Buyer may assume
and conduct the performance of the required Remedial Work in compliance with
such Environmental, Health and Safety Requirements or orders using consultants
and contractors of its choice reasonably satisfactory to the UP Group. The
reasonable costs and expenses incurred by the Buyer in performance of such
required Remedial Work, including, the reasonable costs and fees of consultants
and contractors, and assessment, investigation, remediation, cleanup and other
necessary response costs, shall be paid as Losses by the UP Group to the extent
required under this (S)11, provided that the Buyer shall keep the Seller
reasonably apprised of the status of the Remedial Work, provide the Seller with
material non-privileged documents and information relating to the performance
of the Remedial Work for review and comment and permit the Seller and its
representatives and agents to attend non-privileged material meetings and
conferences related thereto. In addition, the Seller shall have the right to
approve (which approval shall not be unreasonably withheld or delayed) material
decisions and actions of the Buyer relating to the Remedial Work (which
decisions and actions shall include, without limitation, any reports to
Governmental Authorities, the determination of appropriate cleanup levels, the
use of risk-based cleanup standards, or any other decisions or actions, in each
case, which the Seller reasonably concludes could unreasonably increase the
cost and expenses of the Remedial Work). If the Seller is not reasonably kept
apprised of the status of the Remedial
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<PAGE>
Work, or permitted to review non-privileged documents and information or attend
material non-privileged meetings, the UP Group shall not be required to pay the
costs and expenses of the Remedial Work to the extent the UP Group is prejudiced
as a result thereof
Any Remedial Work completed pursuant to this (S)11(g) shall be deemed
adequate for purposes of satisfying the UP Group's obligations under this (S)11
to the extent that the Remedial Work (i) attains compliance in a reasonably
cost-effective manner with Environmental, Health and Safety Requirements and
applicable risk-based or other cleanup standards promulgated thereunder, and
(ii) to the extent applicable, complies with any order, decree, judgment or
directive issued by a Governmental Authority.
(h) Additional Provisions Regarding Indemnification.
-----------------------------------------------
(i) Nothing in this (S)11 shall in any way limit the duties and
obligations of the Buyer under the Demand Note, the Pledge Agreement or the
Warrant.
(ii) Nothing in this (S)11 shall in any way limit the
indemnification obligations of (A) the Buyer or the Company pursuant to
(S)7(a), (S)7(b)(viii) and (S)9 of this Agreement or (B) the UP Group
pursuant to (S)7(b)(ix) of this Agreement, which indemnification
obligations shall be without limit as to amount and shall continue in full
force and effect indefinitely.
(iii) With respect to any Tax Claim, the terms and provisions of (S)8
hereof shall govern and control and this (S)11 (other than (S)11(d) hereof,
as expressly provided in (S)8 above) shall be of no force or effect.
(i) Exclusive Remedy. The Parties acknowledge and agree that the
----------------
foregoing indemnification provisions in this (S)11 and elsewhere in this
Agreement and referred to in this (S)11 shall be the exclusive remedy of the
Buyer, the Seller, Union Pacific and the Company with respect to transactions
contemplated by this Agreement. Without limiting the generality of the
foregoing, the Buyer, the Seller, Union Pacific and the Company hereby waive any
statutory, equitable or common law rights or remedies relating to any
environmental health and safety matters, including, without limitation, any such
matters arising under any Environmental, Health and Safety Requirements, the
Comprehensive Environmental Response, Compensation and Liability Act or any
analogous state law. Notwithstanding the foregoing, this (S)11(j) shall not bar
any Party from (i) pursuing any and all remedies available to it (in addition to
rights of indemnification pursuant to this (S)11) in the event of any claim of
fraud against another Party or (ii) seeking or obtaining any remedy of specific
performance or other injunctive relief.
12. Termination.
-----------
(a) Termination of Agreement. The Parties may terminate this Agreement as
------------------------
provided below:
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<PAGE>
(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing in the event the Seller has
within the then previous five (5) Business Days given the Buyer any notice
pursuant to (S)5(e)(i) above;
(iii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event that the
Seller has breached any material representation, warranty or covenant
contained in this Agreement (other than (S)3(e) or (f) above) in any
material respect, the Buyer has notified the Seller of the breach, and the
breach has continued without cure for a period of 30 days after the notice
of breach or (B) if the Closing shall not have occurred on or before April
30, 1997 by reason of the failure of any condition precedent under (S)10(a)
hereof (unless the failure results primarily from the Buyer breaching any
representation, warranty or covenant contained in this Agreement); and
(iv) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event the
Buyer has breached any material representation, warranty or covenant
contained in this Agreement in any material respect, the Seller has
notified the Buyer of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before April 30, 1997, by reason of the
failure of any condition precedent under (S)10(b) hereof (unless the
failure results primarily from the Seller breaching any representation,
warranty or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
---------------------
pursuant to (S)12(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to the other Party (except
for any liability of any Party then in breach). Notwithstanding any other
provision in this Agreement to the contrary, upon termination of this Agreement
pursuant to (S)12(a)(ii), Seller shall pay to Buyer as liquidated damages and in
full satisfaction of any claim or remedy otherwise available to the Buyer
hereunder, in cash, an amount equal to 80% of all out-of-pocket fees and
expenses incurred by Buyer in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, fees and
expenses payable to counsel, prospective lenders, accountants and other third
parties in connection with this Agreement and the transactions contemplated
hereby but excluding any fees or expenses of the Buyer that the Seller is
otherwise required to reimburse pursuant to (S)13(k) below and any fees or
expenses of Buyer's financial advisor) (the "Termination Fee"); provided,
---------------
however, that in no event shall the Termination Fee exceed $300,000. Buyer
shall furnish Seller with such information and documentation as Seller shall
reasonably request to substantiate the calculation of the Termination Fee.
13. Miscellaneous.
-------------
(a) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or public announcement relating to the subject matter of this
Agreement without prior approval
-34-
<PAGE>
of the other Party; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Party prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided, however, that, unless expressly prohibited
hereunder, the Buyer may (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 (in any or all of which
cases the Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then five
Business Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
-35-
<PAGE>
If to the Seller or Union Pacific or, prior to the Closing, the Company, to
Union Pacific Railroad Company or
Southern Pacific Transportation Company
c/o Union Pacific Corporation
Eighth and Eaton Avenues
Bethlehem, PA 18018
Attention: Treasurer
Telephone: (610) 861-3200
Telecopy: (610) 861-3111
With a copy to (which shall not constitute notice to the Seller, Union
Pacific or the Company, as applicable):
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attention: Steve J. Gavin, Esq.
Telephone: (312) 558-5600
Telecopy: (312) 558-5700
If to the buyer or, after the Closing, the Company to:
PMT Holdings, Inc.
c/o Eos Partners, L.P.
320 Park Avenue, 22nd Floor
New York, NY 10022
Attention: Mr. Douglas R. Korn
Telephone: (212) 832-5800
Telecopy: (212) 832-5815
With a copy to (which shall not constitute notice to the Buyer or the
Company, as applicable):
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: Michael F. Killea, Esq.
Telephone: (212) 408-2400
Telecopy: (212) 408-2420
-36-
<PAGE>
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Any Party
may change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other Party notice in
the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of New York without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
(i) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer, the Seller and the Company. 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.
(j) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Except as otherwise provided in this Agreement, each of the
--------
Parties will bear its own costs and expenses (including legal and investment
advisory fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby; provided, however, that the Seller agrees to
(i) pay the fee of $45,000 due upon the filing of the Buyer's Notification
Report Form with the Federal Trade Commission and the United States Department
of Justice pursuant to the Hart-Scott-Rodino Act and (ii) bear any costs or
expenses up to an aggregate of $10,000 associated with the Company's obtaining
the authorizations, consents and approvals set forth in (S)3(c) of the
Disclosure Schedule. Without limiting the foregoing, the Seller agrees that the
Company has not borne and will not bear any of the costs and expenses of the
Seller or Union Pacific (including any of the legal fees and expenses) in
connection with this Agreement.
(l) Construction. The Parties have participated jointly in the negotiation
------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
(m) Incorporation of Exhibits and Schedules. The exhibits and schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
-37-
<PAGE>
(n) Disclosure Schedule. The inclusion of information in the Disclosure
-------------------
Schedule shall not be construed as an admission that such information is
material to the Company and shall not imply that such matters, or similar
matters, would otherwise constitute a breach of a representation or warranty
contained in this Agreement. In addition, matters reflected in the Disclosure
Schedule are not necessarily limited to matters required by this Agreement to be
reflected in the Disclosure Schedule. Such additional matters are set forth for
informational purposes only and do not necessarily include other matters of a
similar nature.
* * * * *
-38-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
PMT HOLDINGS, INC.,
a Delaware corporation
By: /s/ Douglas R. Korn
-----------------------------
Name: Douglas R. Korn
Its: Vice President
PACIFIC MOTOR TRANSPORT COMPANY,
a California corporation
By: /s/ John B. Larsen
-----------------------------
Name: John B. Larsen
Its: Assistant Treasurer
SOUTHERN PACIFIC TRANSPORTATION
COMPANY, a Delaware corporation
By: /s/ John B. Larsen
-----------------------------
Name: John B. Larsen
Its: Assistant Treasurer
UNION PACIFIC RAILROAD COMPANY,
a Utah corporation
By: /s/ John B. Larsen
-----------------------------
Name: John B. Larsen
Its: Assistant Treasurer
-39-
<PAGE>
EXHIBIT 10.12
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
AMONG
PMT HOLDINGS, INC.,
INTERSTATE CONSOLIDATION, INC.,
INTERSTATE CONSOLIDATION SERVICE, INC.,
GARY I. GOLDFEIN
AND
ALLEN E. STEINER
DATED AS OF DECEMBER 16, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I PURCHASE AND SALE OF SHARES............................... 1
1.1. Transfer of Shares........................................... 1
1.2. Purchase Price............................................... 2
1.3. Payments at Closing.......................................... 2
1.4. Delivery of Shares........................................... 3
1.5. Further Assurances........................................... 3
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...................................... 5
3.3. Reimbursement of Transaction Expenses........................ 6
3.4. Affiliate Payments From December 1 to Closing................ 6
3.5. Dividends; Etc............................................... 6
ARTICLE IV SEVERAL REPRESENTATIONS AND WARRANTIES OF EACH SELLER.... 7
4.1. Title to the Shares.......................................... 7
4.2. Authority; Noncontravention; Consents........................ 7
4.3. Investment Representations................................... 8
ARTICLE V SEVERAL REPRESENTATIONS AND WARRANTIES OF EACH SELLER..... 9
5.1. Organization, Power, Authority and Good Standing............. 9
5.2. Authorization, Execution and Enforceability.................. 9
5.3. Consents..................................................... 10
5.4. Capitalization............................................... 11
5.5. Subsidiaries; Investments.................................... 12
5.6. Financial Information........................................ 12
5.7. Absence of Undisclosed Liabilities........................... 13
5.8. Absence of Changes........................................... 13
5.9. Tax Matters.................................................. 14
5.10. Title to Assets, Properties and Rights and Related Matters... 16
5.11. Real Property-Owned or Leased................................ 17
5.12. Intellectual Property........................................ 18
5.13. Agreements, No Defaults, Etc................................. 18
5.14. Litigation, Etc.............................................. 21
5.15. Compliance with Laws......................................... 21
5.16. Insurance.................................................... 22
5.17. Labor Relations; Employees................................... 22
5.18. ERISA Compliance............................................. 23
5.19. Environmental Matters........................................ 24
5.20. Brokers...................................................... 26
5.21. Related Party Transactions................................... 26
5.22. Accounts and Notes Receivable................................ 26
5.23. Bank Accounts; Powers of Attorney............................ 27
5.24. Suppliers and Vendors........................................ 27
5.25. Customers.................................................... 27
5.26. Conflicts of Interest........................................ 28
5.27. Disclosure................................................... 28
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................................. 28
6.1. Organization; Corporate Authority................................................................... 28
6.2. Corporate Action; Authority; No Conflict............................................................ 29
6.3. Consents............................................................................................ 29
6.4. Capitalization...................................................................................... 30
6.5. Brokers............................................................................................. 30
6.6. Duly Authorized, Validly Issued PMT Shares.......................................................... 30
6.7. Investment Representations.......................................................................... 30
6.8. Financial Information............................................................................... 31
6.9. Absence of Undisclosed Liabilities.................................................................. 32
6.10. Absence of Changes.................................................................................. 32
6.11. Agreements, No Defaults, Etc........................................................................ 33
6.12. Litigation, Etc..................................................................................... 33
6.13. Compliance with Laws................................................................................ 33
ARTICLE VII COVENANTS AND AGREEMENTS........................................................................ 34
7.1. Transfer of A&G Investments Assets.................................................................. 34
7.2. Cooperation Regarding Tax Filings................................................................... 34
7.3. Real Property Lease................................................................................. 34
7.4. Noncompetition Covenant............................................................................. 35
7.5. Employee Matters.................................................................................... 37
7.6. Purchaser Covenants and Treatment of Transferred Employees Under Purchaser Employee Benefit Plans... 38
7.7. Termination of Certain Agreements................................................................... 38
7.8. Use of Certain Power Intermodal Assets.............................................................. 38
ARTICLE VIII DELIVERIES AT CLOSING.......................................................................... 39
8.1. Deliveries by the Sellers........................................................................... 39
8.2. Deliveries by the Purchaser......................................................................... 40
ARTICLE IX INDEMNIFICATION.................................................................................. 41
9.1. Indemnification Generally; Etc...................................................................... 41
9.2. Assertion of Claims................................................................................. 42
9.3. Notice and Defense of Third Party Claims............................................................ 43
9.4. Survival of Representations and Warranties.......................................................... 44
9.5. Limitations on Indemnification...................................................................... 44
9.6. Satisfaction of Indemnification Obligations of the Seller Indemnifying Persons...................... 45
9.7. Special Indemnification............................................................................. 46
9.8. Satisfaction of Claims by Purchaser................................................................. 47
9.9. Cooperation Regarding Tax Proceedings............................................................... 47
ARTICLE X MISCELLANEOUS PROVISIONS.......................................................................... 49
10.1. Amendment........................................................................................... 49
10.2. Entire Agreement.................................................................................... 49
10.3. Severability........................................................................................ 49
10.4. Benefits of Agreement............................................................................... 49
10.5. Expenses............................................................................................ 50
10.6. Headings............................................................................................ 50
10.7. Notices............................................................................................. 50
10.8. Counterparts........................................................................................ 51
10.9. Governing Law....................................................................................... 51
10.10. Independence of Covenants and Representations and Warranties........................................ 52
10.11. Interpretation; Construction........................................................................ 52
10.12. Remedies............................................................................................ 53
10.13. Consent of Spouses.................................................................................. 53
</TABLE>
-ii-
<PAGE>
ANNEXES, SCHEDULES AND EXHIBITS
-------------------------------
ANNEXES
-------
Annex I - Shareholder Ownership
Annex II - Certain Definitions
Annex III - Determination of Additional Amount
SCHEDULES
- ---------
Schedule 1.5 - Further Assurances
Schedule 4.1 - Title to the Shares
Schedule 4.2(a) - Authority; Noncontravention; Consents
Schedule 5.1 - Foreign Jurisdictions
Schedule 5.1(b) - A&G Documents
Schedule 5.2(b) - A&G Documents
Schedule 5.3 - Consents
Schedule 5.4 - Capitalization
Schedule 5.5 - Subsidiaries; Investments
Schedule 5.6 - Financial Information
Schedule 5.7 - Absence of Undisclosed Liabilities
Schedule 5.8 - Absence of Changes
Schedule 5.9(a) - Tax Matters
Schedule 5.9(c) - Taxing Authority Notifications
Schedule 5.10 - Encumbrances
Schedule 5.10(a) - Location of Material Tangible Personal Property
Schedule 5.10(b) - Acquisitions and Dispositions in Past 24 Months
Schedule 5.11(a) - Leased Real Property
Schedule 5.11(b) - Leased Property Notices
Schedule 5.12(a) - Licensed Requisite Rights
Schedule 5.12(b) - Patents, Trademarks and Service marks
Schedule 5.13 - Contracts
Schedule 5.13(b) - Oral Items
Schedule 5.13(c) - Funded Indebtedness
Schedule 5.14(a) - Proceedings, Orders
Schedule 5.14(b) - Certain Litigation Matters
Schedule 5.15 - Compliance with Laws
Schedule 5.16(a) - Insurance Policies
Schedule 5.16(b) - Insurance Claims, Etc.
Schedule 5.17 - Employees
Schedule 5.18(a) - Employee Benefit Plans
Schedule 5.18(b) - ERISA Compliance
Schedule 5.19(a) - Environmental Laws - Violations
Schedule 5.19(b) - Previous Facilities - Environmental Compliance
-i-
<PAGE>
Schedule 5.21 - Related Transactions
Schedule 5.22 - Accounts and Notes Receivable
Schedule 5.23 - Bank Accounts; Powers of Attorney
Schedule 5.24 - Suppliers and Vendors
Schedule 5.25 - Customers
Schedule 5.26 - Conflicts of Interest
Schedule 6.1 - Foreign Jurisdictions
Schedule 6.3 - Consents
Schedule 6.4 - Capitalization
Schedule 6.5 - Brokers
Schedule 6.8 - Financial Information
Schedule 6.9 - Absence of Undisclosed Liabilities
Schedule 6.10 - Absence of Changes
Schedule 6.12 - Certain Litigation Matters
Schedule 6.13 - Compliance With Laws
Schedule 7.1 - Transferred A&G Assets
Schedule 7.3 - Real Property Lease
Schedule 7.6 - ICI Plans to be continued
Schedule 7.7 - Terminated Agreements
EXHIBITS
- --------
Exhibit A - Form of Seller Note
Exhibit B - Form of Letter of Credit
Exhibit C-1 - Form of Headquarters Lease
Exhibit C-2 - Form of Lease Guaranty
Exhibit C-3 - Form of Material Inducement
Exhibit D - Form of Opinion of Seller Group's Counsel
Exhibit E - Form of General Release
Exhibit F-1 - Form of Employment Agreement of Gary I. Goldfein
Exhibit F-2 - Form of Employment Agreement of Allen E. Steiner
Exhibit G - Form of Amended and Restated Stockholders Agreement
Exhibit H-1 - Form of A&G Bill of Sale
Exhibit H-2 - Form of A&G Assignment Agreement
Exhibit I - Form of Opinion of Purchaser's Counsel
Exhibit J - Spousal Consent
-ii-
<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:
<TABLE>
<CAPTION>
SECTION
OR OTHER
TERM LOCATION
- ---- --------
<S> <C>
A&G 5.2(b)
A&G Assigned Leases 7.1
A&G Bill of Sale 7.1
A&G Documents 5.2(b)
Acquisition Proposal Annex II
Actual Knowledge Annex II
Additional Amount Annex III
Affiliate Annex II
Agreement 10.2
Audited Financial Statements 5.6(a)(i)
Best Knowledge Annex II
Business Preamble
Business Day Annex II
Capital Leases Annex II
Cash Portion 1.2
Charter Documents Annex II
Closing Article III
Closing Date Article III
Closing Date Financial Statements 3.1(a)
Closing Payment 1.3
Company Caption
Company Common Stock Preamble
Company Employee Plans 5.18(a)
Competing Business 7.4(c)
Contract Annex II
Control Annex II
Covered Properties 5.19(b)
EMI 6.10
Employee Benefit Plan Annex II
Employment Agreements 8.1(f)
Encumbrances Annex II
Environmental, Health and Safety Laws Annex II
Environmental/Tax Cap 9.5(a)
ERISA Affiliate Annex II
Estimated Additional Amounts 1.3
Financial Statements 5.6(a)(ii)
Funded Indebtedness Annex II
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
SECTION
OR OTHER
TERM LOCATION
- ---- --------
<S> <C>
General Release 8.1(e)
Governmental Entity Annex II
Guaranty Annex II
Headquarters Lease 6.3
ICI Caption
ICS Caption
Indemnified Persons Annex II
Indemnifying Persons Annex II
Independent Accounting Firm 3.1(b)
Intellectual Property Rights Annex II
Key Employees Annex II
Latest Balance Sheet Date 5.6(a)(iii)
Latest Balance Sheet 5.6(a)(iii)
Law Annex II
Lawsuit Annex II
Leased Property 5.11(a)
Letter of Credit 1.3
Letters of Credit 1.3
Liability Annex II
Licensed Requisite Rights 5.12(a)(i)
Litigation Cap 9.7
Litigation Expense Annex II
Losses Annex II
Orders Annex II
Owned Requisite Rights 5.12(a)(i)
Pacific Motor 6.8
Permits Annex II
Permitted Encumbrances Annex II
Person Annex II
PMT Caption
PMT Annual Financial Statements 6.8
PMT Interim Financial Statements 6,8(a)(ii)
PMT Latest Balance Sheet 6.8(a)(ii)
PMT Remainder Cap 9.5(b)
PMT Unaudited Financial Statements 6.8(a)(ii)
PMT Shares 1.3
Power Intermodal 1.3(c)
Pre-Closing Dividend Annex IV
Proceedings Annex II
Proportionate Percentage Annex II
Purchase Price 1.2
Purchaser Caption
Purchaser's Accountants 3.1(b)
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
SECTION
OR OTHER
Term LOCATION
- ---- ---------
<S> <C>
Purchaser Indemnified Persons Annex II
Purchaser Indemnifying Persons Annex II
Purchaser Losses Annex II
Purchaser Representation Cap 9.5(b)
Real Property Lease 6.3
Related Documents Annex II
Remainder Cap 9.5(a)
Representation Cap 9.5(a)
Requisite Rights 5.12(a)(i)
Securities Annex II
Securities Act Annex II
Seller Group Caption
Seller Indemnified Persons Annex II
Seller Indemnifying Persons Annex II
Seller Losses Annex II
Seller(s) Caption
Seller Note 1.3
Seller Notes 1.3
Sellers' Accountants 3.1
Shares Preamble
Special Liabilities 9.7
Special Tax Losses Annex II
Spousal Consent 10.13
Stockholders Agreement 8.1(g)
Subsidiary Annex II
Survival Date 9.4
Tax Return Annex II
Tax(es) Annex II
Third Party Claim 9.3
Transferred Employees 7.6
Unaudited Financial Statements 5.6(a)(ii)
</TABLE>
-iii-
<PAGE>
STOCK PURCHASE AGREEMENT dated as of December 16, 1997, by and among, PMT
HOLDINGS, INC., a Delaware corporation (the "Purchaser" or "PMT"), INTERSTATE
--------- ---
CONSOLIDATION, INC., a California corporation ("ICI"), INTERSTATE CONSOLIDATION
---
SERVICE, INC., a California corporation ("ICS"; and ICI and ICS collectively,
---
the "Companies" and each individually, a "Company"), and GARY I. GOLDFEIN and
--------- -------
ALLEN E. STEINER (each, a "Seller," and collectively, the "Sellers," and
------ -------
together with the Companies prior to the Closing, the "Seller Group").
------------
PREAMBLE
The Companies are engaged in the business (the "Business") of providing the
--------
following transportation services to third party customers: (i) nationwide
trailer load intermodal transportation services throughout the United States,
Canada and Mexico; (ii) less-than-truckload common carrier services with 48-
state operating authority from Southern California origins to all points in the
continental United States; (iii) local container and railroad intermodal
drayage, consolidation, deconsolidation and distribution services; and (iv)
contract warehousing, freight handling and customized logistics services through
its U.S. customs bonded container freight station. The Sellers are the sole
shareholders of the Companies, with each Seller owning that number of shares of
common stock, no par value, of each of the Companies (collectively, the "Company
-------
Common Stock"), as is set forth opposite such Seller's name on ANNEX I attached
- ------------ -------
hereto. The shares of Company Common Stock owned by the Sellers are
collectively referred to herein as the "Shares." The Sellers desire to sell to
------
the Purchaser, and the Purchaser desires to purchase from the Sellers, 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 II 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 Sellers shall sell, transfer, convey and assign to the Purchaser,
and the Purchaser shall
<PAGE>
purchase and acquire from the Sellers, 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 Sellers for the Shares shall be an aggregate amount equal to
the sum of the Cash Portion plus the PMT Shares issued and delivered by PMT to
----
the Sellers at the Closing pursuant to SECTION 1.3. As used herein, the term
-----------
"Cash Portion" means the sum of (i) the amount set forth in CLAUSE (I) of
- ------------- ----------
SECTION 1.3(A), plus (ii) the Additional Amount, as finally determined pursuant
- -------------- ----
to ARTICLE III, plus (iii) the amount determined pursuant to CLAUSE (III) of
----------- ------------
SECTION 1.3(A). As used herein, the term "Additional Amount" shall be defined
- -------------- -----------------
on, and determined in accordance with the provisions of, ANNEX III attached
---------
hereto.
1.3. PAYMENTS AT CLOSING.
-------------------
(a) At the Closing, the Purchaser shall pay to each Seller an amount
equal to such Seller's Proportionate Percentage of the sum of (i) $16,851,719,
plus (ii) $3,062,082, constituting the Estimated Additional Amount, plus (iii)
- ---- ----
$69,562, constituting interest accrued on the sum of the amounts described in
clauses (i) and (ii) at the rate of 8.5% per annum for the period from (and
including) December 1, 1998, through (but excluding) the Closing Date,
calculated based on the actual number of days elapsed over a year of 365 days
(the sum of the amounts in clauses (i), (ii) and (iii) being called the "Closing
-------
Payment" herein), by delivery to such Seller of (A) a non-negotiable promissory
- -------
note of the Purchaser in such principal amount due January 2, 1998, in the form
attached hereto as EXHIBIT A (each, a "Seller Note," and collectively, the
--------- -----------
"Seller Notes") and (B) a non-negotiable, stand-by, irrevocable letter of credit
------------
issued by The First National Bank of Chicago, in a face amount equal to the
principal amount of such Seller Note and securing the Purchaser's payment
obligations under such Seller Note, in the form attached hereto as EXHIBIT B
---------
(each, a "Letter of Credit," and collectively, the "Letters of Credit"). As used
---------------- -----------------
herein, the term "Estimated Additional Amount" means the parties' joint good
---------------------------
faith estimate of the Additional Amount as set forth on ANNEX III.
---------
(b) At the Closing, the Purchaser shall issue and deliver to each Seller
that number of shares of common stock, $.01 par value, of PMT (the "PMT Shares")
----------
set forth opposite such Seller's name on ANNEX I.
-------
(c) Prior to the Closing, the Sellers shall pay (or cause to be paid, as
applicable) the following amounts to the Companies:
(i) $285,135 in satisfaction of the outstanding accounts
receivable due to the Companies from Power Intermodal, Inc. ("Power
-----
Intermodal") (such amount to be paid by Power Intermodal Inc.);
----------
(ii) $501,954 in satisfaction of outstanding notes receivable
due to the Companies from the Sellers for amounts advanced to the Sellers
to fund payment of life insurance premiums; and
- 2 -
<PAGE>
(iii) $247,174 in reimbursement of amounts paid by the Companies prior
to the Closing with respect to fees, costs and expenses incurred by the
Sellers in connection with the transactions contemplated by this Agreement.
1.4. DELIVERY OF SHARES.
------------------
At the Closing, in consideration of the Purchaser's delivery of the Seller
Notes, Letters of Credit and PMT Shares pursuant to Section 1.3 hereof, the
-----------
Sellers shall each deliver to the Purchaser the certificate or certificates
representing the Shares of each Company owned by such 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.
1.5. FURTHER ASSURANCES.
------------------
The Sellers 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 reasonably required to transfer, convey, grant and confirm
to and vest in the Purchaser good title to (i) all of the Shares, and (ii) any
asset used in or necessary to conduct the Business that is owned by a Seller or
any Affiliate of any Seller (other than fee title to the real estate subject to
the Headquarters Lease and those assets listed on SCHEDULE 1.5), in each case
------------
free and clear of all Encumbrances.
ARTICLE II
THE CLOSING
The closing (the "Closing") of the transactions contemplated by this
-------
Agreement shall take place at the offices of Manatt, Phelps & Phillips, LLP,
counsel for the Seller Group, at their address set forth in SECTION 11.7, on
------------
December 16, 1997, or at such other place or on such other date as shall be
mutually agreeable to the parties hereto (the "Closing Date"), provided that all
------------
of the deliveries set forth in ARTICLE VIII have been made or waived.
------------
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
90 days after the Closing Date, the Sellers shall cause KPMG Peat Marwick, LLP
(the "Sellers' Accountants"), to prepare and deliver to the Purchaser and the
--------------------
Sellers (i)audited
- 3 -
<PAGE>
combined balance sheets of the Companies and Subsidiary as of the Closing Date,
together with related footnotes, and related audited combined statements of
earnings, stockholders' equity and cash flows of the Companies and Subsidiary
for the period from January 1, 1997, through the Closing Date (collectively, the
"Closing Date Financial Statements") and (ii) a certificate signed by the
---------------------------------
Sellers' Accountants setting forth the Sellers' Accountants' calculation of the
Additional Amount and certifying that such calculation was made in accordance
with ANNEX III. The Closing Date Financial Statements shall include a
---------
supplemental schedule to the audited combined financial statements presenting a
combined statement of earnings and stockholders equity of the Companies and
Subsidiary for the periods from January 1, 1997, through June 30, 1997, and from
July 1, 1997, through November 30, 1997, adjusting for the provisions of Annex
III. Such supplemental schedule will be subjected to the auditing procedures
applied in the audit of the Closing Date Financial Statements referred to in
clause (i) above in relation to the Closing Date Financial Statements taken as a
whole and will be utilized for the calculation of the Additional Amount and,
accordingly, will be covered in the Sellers' Accountants' report thereon. The
Closing Date Financial Statements shall be prepared in accordance with GAAP
consistently applied; provided, however, that with respect to the Closing Date
-------- -------
Financial Statements, the Purchaser may specify changes in GAAP that are
reasonably acceptable to the Sellers but such changes shall not affect the
calculation of the Additional Amount. If not disputed by the Purchaser in
accordance with SECTION 3.1(B), the Closing Date Financial Statements and the
--------------
Sellers' Accountants' calculation of the Additional Amount shall be final and
binding on the Sellers and the Purchaser for purposes of determining the
adjustment to the Purchase Price, if any, to be made under this ARTICLE III.
-----------
(b) If the Purchaser disputes any amounts reflected on the Closing Date
Financial Statements or in the Sellers' Accountants' calculation of the
Additional Amount, the Purchaser shall notify the Sellers in writing of each
disputed item, specifying the amount thereof in dispute and setting forth in
reasonable detail the basis for such dispute, within 30 days of the Purchaser's
receipt of the Closing Date Financial Statements. The Purchaser shall be
entitled to have Arthur Andersen (the "Purchaser's Accountants") review the
-----------------------
Closing Date Financial Statements and the Sellers' Accountants calculation of
the Additional Amount. The Sellers shall provide, and shall use their
commercially reasonable efforts to cause the Sellers' Accountants to provide, to
the Purchaser and the Purchaser's Accountants timely access to the work papers,
trial balances and similar materials used in connection with or relating to the
preparation and calculation of the Closing Date Financial Statements and the
Additional Amount. In the event of such a dispute by the Purchaser, each of the
Purchaser and the Sellers shall negotiate in good faith to resolve such dispute.
If the Purchaser and the Sellers are unable to reach a resolution within 30 days
following the Purchaser's delivery to the Sellers of its written notice of such
dispute, the Purchaser and the Sellers shall submit the items in dispute for
resolution to Price Waterhouse LLP or, in the event such persons are unable or
unwilling to act, such other independent accounting firm as may be mutually
acceptable to the Purchaser and the Sellers (the "Independent Accounting Firm"),
---------------------------
which Independent Accounting Firm shall be instructed by the parties to
determine and report to the Sellers and the Purchaser within upon such remaining
disputed items within 30 Business Days of the submission of such items to the
Independent Accounting Firm, and such report shall
- 4 -
<PAGE>
have the legal effect of an arbitral award and shall be final, binding and
conclusive on the Sellers and the Purchaser.
(c) The reasonable fees and disbursements of the Independent Accounting
Firm shall be allocated between the Sellers on the one hand and the Purchaser on
the other hand in the same proportion that the aggregate amount of such disputed
items so 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. Up to
$70,000 of the reasonable fees and disbursements of the Sellers' Accountants for
the preparation, audit and delivery of the Closing Date Financial Statements
shall be paid by the Purchaser. Each of the Sellers, on the one hand, and the
Purchaser, on the other hand, shall bear all fees and disbursements of the
Sellers' Accountants and the Purchaser's Accountants, respectively, incurred in
connection with the discussion and negotiation of any and all disputes that may
arise as to the determination of the Additional Amount and the Closing Date
Financial Statements; provided, however, that in the event any such disputes are
-------- -------
submitted to and resolved by the Independent Accounting Firm, then all such
reasonable fees and disbursements of the Sellers' Accountants and the
Purchaser's Accountants shall be allocated between and borne by the Sellers, on
the one hand, and the Purchaser, on the other hand, in the manner provided in
the first sentence of this SECTION 3.1(C).
--------------
3.2. ADJUSTMENTS AND PAYMENT.
-----------------------
Upon the final determination of the Additional Amount pursuant to SECTION
-------
3.1, the following adjustment and payment, as applicable, shall be made:
- ---
(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, within 5 days after
such final determination, pay to each Seller such Seller's Proportionate
Percentage of the amount by which the Additional Amount as finally
determined exceeds the Estimated Additional Amount, such payment to be made
by wire transfer of immediately available funds to the account designated
by such Seller;
(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 Sellers shall jointly and severally
pay to the Purchaser within 5 days after such final determination, by wire
transfer of immediately available funds to an account designated by the
Purchaser, the amount by which the Additional Amount as finally determined
is less than the Estimated Additional Amount; and
(iii) if the Additional Amount as finally determined equals the
Estimated Additional Amount, then no adjustment shall be made to the
Purchase Price and no payment shall be made under this ARTICLE III.
-----------
- 5 -
<PAGE>
3.3. REIMBURSEMENT OF TRANSACTION EXPENSES.
-------------------------------------
All transaction expenses (excluding expenses for travel by the Sellers) of
the Companies or the Sellers either charged or chargeable against net income
through the Closing Date will reimbursed to the Companies by the Sellers prior
to or at the Closing. If the actual amount of such transaction expenses for
such period is subsequently found to differ from the amount reimbursed to the
Companies by the Sellers, the Companies will promptly reimburse the Sellers for
the difference (if the actual amount is less than the amount reimbursed) or the
Sellers will promptly reimburse the Companies for the difference (if the actual
amount is greater than the amount reimbursed). All such transaction expenses
arising after November 30, 1997, and not paid by the Companies (and thus subject
to the reimbursement provisions of the preceding sentences of this Section)
shall be paid directly by the Sellers, or, if any of the Companies is required
(contractually or otherwise) to pay such amount, such Company will promptly be
reimbursed by the Sellers for such amount so paid by it.
3.4. AFFILIATE PAYMENTS FROM DECEMBER 1 TO CLOSING.
---------------------------------------------
As promptly as practicable, but in any event within 30 days, after the
Closing, the Sellers shall determine and pay to the Companies the sum of the
following amounts: (i) the net amount by which any and all payments made by any
of the Companies to any Seller or Affiliate of a Seller during the period from
December 1, 1997, through the Closing Date exceeded that which would have been
payable in accordance with this Agreement, the Headquarters Lease and the
Employment Agreements as if such agreements had been in effect on and since
December 1, 1997 (including salary and other compensation paid to the Sellers in
excess of such amounts that would have been payable under their respective
Employment Agreements), less the amount by which rent paid by the Companies for
the headquarters premises plus truck parking rentals is less than $45,000, (ii)
the net amount by which rents and other charges paid by the Companies to A&G
during the period from December 1, 1997, through the Closing Date with respect
to the trailers and other equipment leased by third parties to A&G under the A&G
Assigned Leases exceeded the amounts paid by A&G to such third parties for such
period with respect to such trailers and equipment, and (iii) the aggregate
amount of all out-of-pocket expenses (including travel of third party advisers
and representatives, but excluding expenses for travel by the Sellers) paid or
incurred by the Companies in connection with the transactions contemplated by
this Agreement to the extent the same were not paid by or reimbursed to the
Companies by the Sellers pursuant to SECTION 3.3. In the event that the
-----------
Purchaser's Accountants dispute the Sellers' determination of any of the
foregoing amounts, such dispute shall be resolved by the Independent Accounting
Firm in an manner consistent with the provisions of SECTION 3.1.
-----------
3.5. DIVIDENDS; ETC.
--------------
The Sellers covenant and agree with the Purchaser that prior to the Closing
(i) the Sellers have reimbursed the Companies for transaction expenses paid by
the Company in the amount of $247,174, (ii) the Sellers have reimbursed the
Companies for advances previously made to the Sellers for insurance premiums in
the amount of $501,954, (iii)
- 6 -
<PAGE>
the Sellers have caused Power Intermodal to satisfy its obligations to the
Companies by the payment to the Companies of $285,135, and (iv) the aggregate
amount of all dividends and distributions received by the Sellers from the
Companies during the period from July 1, 1997, through the Closing equaled
$2,030,000. In the event that any of the foregoing payments in clauses (i), (ii)
and (iii) shall not have been made, in whole or in part, the Sellers shall make
such payment promptly upon written demand from the Purchaser, and in the event
that the aggregate amount of all dividends and distributions on or with respect
to the capital stock of the Companies received by the Sellers from the Companies
during the period from July 1, 1997, through the Closing exceeded $2,030,000,
the Sellers shall reimburse the Companies for such excess amount promptly upon
written demand from the Purchaser.
ARTICLE IV
SEVERAL REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller represents and warrants severally as to himself on and as of
the date hereof as follows:
4.1. TITLE TO THE SHARES.
-------------------
Such Seller is the lawful owner, of record and beneficially, of those
Shares set forth opposite his name on ANNEX I attached hereto and has good and
-------
marketable title to such Shares, free and clear of any Encumbrances whatsoever
and with no restriction on the voting and transfer rights and other incidents of
record and beneficial ownership pertaining thereto. Such Seller is not the
subject of any bankruptcy, reorganization or similar proceeding. Except for
this Agreement and except as set forth on SCHEDULE 4.1, there are no agreements
------------
or understandings between such Seller and any other 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 of the Companies. Such Seller does not have any right whatsoever to
receive or acquire any additional capital stock of the Companies.
4.2. AUTHORITY; NONCONTRAVENTION; CONSENTS.
-------------------------------------
(a) Such Seller has the full and absolute legal right, capacity, power and
authority to enter into this Agreement and each Related Document to which such
Seller is or will be a party, this Agreement and each Related Document to which
such Seller is or will be a party has been, or upon the execution thereof will
be, duly and validly executed and delivered by such Seller, and except as set
forth on SCHEDULE 4.2(A) this Agreement and each Related Document is, or upon
---------------
the execution thereof will be, the valid and binding obligation of such Seller,
enforceable against such Seller in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to general principles of
equity, good faith and fair dealing (regardless of whether enforcement is sought
in a proceeding at law or in equity).
- 7 -
<PAGE>
(b) Neither the execution, delivery or performance by such Seller of this
Agreement or the Related Documents to which such Seller is or will be a party
nor the consummation of the transactions contemplated hereby or thereby nor
compliance by such 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 material benefit under, any term, condition or
provision of any Contract to which such Seller is a party, or by which such
Seller or its assets may be bound or (ii) violate any Law applicable to such
Seller, which conflict or violation could prevent the consummation of the
transactions contemplated by this Agreement or any of the Related Documents to
which such Seller is or will be a party or result in an Encumbrance on or
against any assets, rights or properties of such Seller, or on or against any
capital stock of any Company, or give rise to any claim against either Company
or the Purchaser.
(c) Except as contemplated by this Agreement, 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 such Seller of this Agreement or the Related Documents to
which such Seller is or will be a party or the consummation by such Seller of
the transactions contemplated hereby or thereby.
4.3. INVESTMENT REPRESENTATIONS.
--------------------------
(a) Such Seller is acquiring the PMT Shares to be acquired by such 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) Such Seller understands that the PMT 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 that
the PMT Shares must be held by such Seller indefinitely unless a subsequent
disposition thereof is registered or qualified, as the case may be, under the
Securities Act and applicable state securities laws or is exempt from
registration or qualification, as the case may be.
(c) Such 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 such Seller or his attorneys and other representatives all
agreements, documents, records and books that such Seller has requested relating
to his acquisition of the PMT Shares. Such 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 such Seller's
acquisition of the PMT Shares hereunder, and answers have been provided to all
of such questions to the full satisfaction of such Seller. Such Seller
(together with his adviser representative) 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 PMT Shares hereunder.
- 8 -
<PAGE>
(d) Such 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.
ARTICLE V
SEVERAL REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller severally represents and warrants on and as of the date hereof
as follows:
5.1. ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING.
------------------------------------------------
(a) Each of the Companies and their respective subsidiaries 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 and 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. Each of the Companies and their respective
subsidiaries is duly qualified and in good standing to transact business as a
foreign Person in those jurisdictions set forth on SCHEDULE 5.1, which
------------
constitute all the jurisdictions in which the character of the property owned,
leased or operated by such Company or subsidiary or the nature of the business
or activities conducted by such Company or subsidiary makes such qualification
necessary. The Purchaser has been furnished with true, correct and complete
copies of the Charter Documents of each of the Companies and their respective
subsidiaries, in each case as amended and in effect on the date hereof. Except
as set forth on SCHEDULE 5.1, none of the Companies nor any of their respective
------------
subsidiaries 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.
(b) A&G Investments ("A&G") is a validly existing general partnership
---
and is in good standing under the laws of the jurisdiction of its formation and
has all requisite partnership power and authority to own, lease and operate its
assets and properties.
5.2. AUTHORIZATION, EXECUTION AND ENFORCEABILITY.
-------------------------------------------
(a) Each of the Companies has all requisite power and authority (corporate
and otherwise) 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 and
delivery by each of the Companies of this Agreement and each Related Document to
which it is or will be a party, and the performance by such Company of its
obligations hereunder and thereunder have been duly and validly authorized by
all requisite action on the part of such Company and its shareholders, and this
Agreement and each Related Document to which such Company is or will be a party
has been, or upon the execution thereof will be, duly and validly executed and
delivered by such Company and constitutes, or upon its execution and delivery
will constitute, a valid and binding obligation of such Company, enforceable
against such Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws
- 9 -
<PAGE>
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding at law or in
equity). Neither the execution and delivery by each of the Companies 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, will (a) violate, or result in the creation of
an Encumbrance upon any of such Company's assets as a result of, any Laws
applicable to such Company or any of its properties or assets or (b) 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 or give rise to any right of contingent payment, termination,
cancellation or acceleration, or result in the creation of any Encumbrance upon
any of the properties or assets of such Company under, any provision of such
Company's Charter Documents or any Contract to which it is a party or by which
it or any of its assets or properties is or may be bound.
(b) A&G has all requisite partnership power and authority to execute,
deliver and perform its obligations under each of the documents listed on
SCHEDULE 5.2(B) (the "A&G DOCUMENTS") and to consummate the transactions
- --------------- -------------
contemplated thereby. The execution and delivery by A&G of each A&G Document,
and the performance by A&G of its obligations thereunder have been duly and
validly authorized by all requisite action on the part of A&G and its partners,
and each A&G Document has been, or upon the execution thereof will be, duly and
validly executed and delivered by A&G and, except for the Headquarters Lease,
constitutes ,a valid and binding obligation of A&G, enforceable against A&G in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity). Neither the
execution and delivery by A&G of, nor the performance of its obligations under,
each A&G Document (other than the Headquarters Lease), nor the consummation of
the transactions contemplated thereby, will (a) violate, or result in the
creation of any Encumbrance upon any of A&G's assets as a result of, any Laws
applicable to A&G or any of its properties or assets or (b) 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 or give
rise to any right of contingent payment, termination, cancellation or
acceleration, or result in the creation of any Encumbrance upon any of the
properties or assets of A&G under, any provision of A&G's certificate and/or
agreement of partnership or any Contract to which it is a party or by which it
or any of its assets or properties is or may be bound.
5.3. CONSENTS.
--------
Except as set forth on SCHEDULE 5.3, 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 each of the Companies 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. Except as set
- 10 -
<PAGE>
forth on SCHEDULE 5.3, 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 A&G of
the A&G Documents (other than the Headquarters Lease) to which it is or will be
a party or the consummation of the transactions contemplated thereby (except
where the failure to obtain or make such authorization, consent, approval,
notification or filing will not have an adverse effect on A&G's ability to
perform its obligations under the A&G Documents).
5.4. CAPITALIZATION.
--------------
(a) The authorized capital stock of each of the Companies and their
respective subsidiaries is as set forth on SCHEDULE 5.4, which schedule also
------------
sets forth the total number of outstanding shares of each of the Companies and
their respective subsidiaries. All such outstanding shares disclosed on
SCHEDULE 5.4 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 Persons, and in the amounts, set
forth on SCHEDULE 5.4.
------------
(b) Except as set forth on SCHEDULE 5.4, 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 any of the Companies or their respective
subsidiaries, or subscriptions, warrants, options, calls, puts, convertible
securities, registration or other rights, arrangements or commitments obligating
any of the Companies or their respective subsidiaries 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 of the Companies or their respective subsidiaries is
bound with respect to the voting of such Company's or subsidiary's capital
stock. There are no stock appreciation rights, phantom stock rights or similar
rights or arrangements outstanding with respect to any of the Companies or their
respective subsidiaries. Except as set forth on SCHEDULE 5.4, there are no
------------
Contracts, commitments, arrangements, understandings or restrictions to which
any Company or any of its subsidiaries, any Seller or any other Person is bound
relating in any way to any shares of capital stock or other securities of any
Company or any of its subsidiaries.
(c) All securities issued by the Companies and their respective
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 Companies nor
any of their respective subsidiaries has violated the Securities Act or any
applicable state securities or "blue sky" laws in connection with the issuance
of any such securities.
- 11 -
<PAGE>
5.5. SUBSIDIARIES; INVESTMENTS.
-------------------------
Except as set forth on SCHEDULE 5.4 and SCHEDULE 5.5, none of the Companies
------------ ------------
or their respective subsidiaries owns or holds, directly or indirectly, any
equity interest in any other Person.
5.6. FINANCIAL INFORMATION.
---------------------
(a) SCHEDULE 5.6 attached hereto contains copies of:
------------
(i) the following audited financial statements (collectively,
the "AUDITED FINANCIAL STATEMENTS"):
-----------------------------
(A) the audited combining balance sheets of the Companies
and Subsidiary as of December 31, 1994, and the related audited
combining statements of income and retained earnings and
combining statements of cash flows of the Companies and
Subsidiary for the fiscal year then ended, including the
footnotes and schedules thereto, as audited by (and together with
the report of their audit) Belinkoff & Barry CPAs; and
(B) the audited combined balance sheets of the Companies
and Subsidiary as of December 31, 1995 and 1996, and the related
audited combined statements of earnings and retained earnings and
combined statements of cash flows of the Companies and Subsidiary
for the fiscal years then ended, including the footnotes and
schedules thereto, as audited by (and together with the report of
their audit) KPMG Peat Marwick LLP; and
(ii) the following unaudited financial statements (collectively,
the "UNAUDITED FINANCIAL STATEMENTS"; and the Audited Financial Statements
------------------------------
and the Unaudited Financial Statements collectively, the "FINANCIAL
---------
STATEMENTS"):
----------
(A) the unaudited (internally prepared) combining balance
sheets of the Companies and Subsidiary as of June 30, 1997 (the
"LATEST BALANCE SHEET"; and such date being the "LATEST BALANCE
-------------------- --------------
SHEET DATE"), and the related unaudited (internally prepared)
----------
combined statements of operations of each of the Companies and
subsidiary for the six-month period then ended; and.
(B) the unaudited (internally prepared) combining balance
sheets of the Companies and Subsidiary as of September 30, 1997,
and the related unaudited (internally prepared) combined
statements of operations of the Companies and Subsidiary for the
nine-month period ending September 30, 1997.
(b) The Audited Financial Statements (i) are true, complete and correct in
all material respects, (ii) fairly present the financial position of the
Companies as of the dates indicated and the results of operations of the
Companies for the periods indicated, (iii)
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<PAGE>
have been prepared in accordance with GAAP consistently applied throughout the
periods covered thereby (except as disclosed in the notes thereto) and (iv) are
in accordance with the books and records of the Companies which have been
maintained in a manner consistent with historical practice.
(c) The Unaudited Financial Statements (i) fairly present the financial
position of the Companies as of the date indicated, (ii) have been prepared in
accordance with GAAP consistently applied throughout the periods covered thereby
(subject to (A) normal, recurring year-end adjustments which are not material
individually or in the aggregate, (B) the absence of a statement of cash flows,
(C) the absence of any or all footnote disclosures, (D) matters expressly
disclosed in the Audited Financial Statements, and (E) the absence of
allocations made for accruals of rail refunds, charges for split dollar life
insurance expense for key employees, accrued vacation pay and accrued bonuses
arising in the ordinary course of business and (iii) are in accordance with
books and records of the Companies which have been maintained in a manner
consistent with historical practice.
5.7. ABSENCE OF UNDISCLOSED LIABILITIES.
----------------------------------
Except as set forth on SCHEDULE 5.7, (a) none of the Companies or their
------------
respective subsidiaries has any Liabilities except (i) to the extent expressly
reflected or reserved against on the Latest Balance Sheet, (ii) Liabilities
under Contracts (except resulting from any breach thereof) and (iii) Liabilities
incurred since the date of the Latest Balance Sheet in the ordinary course of
business consistent with past practice (other than any such Liability arising
from breach of contract, breach of warranty, tort, infringement, any
environmental matter, including any Liability arising under Environmental Health
and Safety Laws, or violation of any Law or any Proceeding), (b) there are no
loss contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) of or affecting any of the Companies or their respective subsidiaries
which are not adequately provided for or disclosed on the Latest Balance Sheet
or in the notes thereto and (c) none of the Companies or their respective
subsidiaries 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. Anything
contained herein to the contrary notwithstanding, this Section 5.7 shall not
supercede or obviate any other representation or warranty made in this Agreement
by any Seller, and this Section 5.7 shall not be breached with respect to the
subject matter of any undisclosed liability that is the subject of a more
specific representation or warranty made in this Agreement by a Seller unless
such other representation or warranty is also breached with respect to the
subject matter of such undisclosed liability.
5.8. ABSENCE OF CHANGES.
------------------
Since the Latest Balance Sheet Date, except as set forth on SCHEDULE 5.8,
------------
each of the Companies and its subsidiaries has been operated in the ordinary
course, consistent with past practice, and there has not been:
- 13 -
<PAGE>
(a) (i) any material adverse change or changes 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 of its subsidiaries (it being agreed that any such change or
changes shall only be deemed "material," for purposes of this clause (i) only,
if such change or changes have resulted, or would reasonably be expected to
result, individually or in the aggregate for all such changes, in Losses having
the effect of reducing the value of such Company or subsidiary by $500,000) or
more, or (ii) any material casualty loss or damage to the assets of any Company
or any of its subsidiaries, whether or not covered by insurance;
(b) any declaration, setting aside or payment of any dividend or
distribution on or with respect to any shares of capital stock of any Company or
its subsidiaries, 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 or its subsidiaries whether or not on or with respect to any
shares of capital stock of such Company or its subsidiaries owned by such
Affiliate (excluding salaries and benefits paid in the ordinary course of
business consistent with past practices at rates equal to those in effect since
December 31, 1996);
(c) 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 its subsidiaries, or any increase in any
such compensation payable to any officer, director, manager or key employee;
(d) any change in the tax or other accounting methods or practices
followed by any Company or its subsidiaries, any material change in depreciation
or amortization policies or rates previously adopted or any write-up of
inventory or other assets;
(e) any material change in the manner in which products or services of any
Company or its subsidiaries are marketed (including any material change in
prices), any material change in the manner in which any Company or its
subsidiaries extends discounts or credit to customers or any material change in
the manner or terms by which any Company or its subsidiaries collects in
accounts receivable or otherwise deals with customers;
(f) any failure by any Company or its subsidiaries to pay trade accounts
payable or any other Liability of such Company or subsidiary when due; or
(g) any agreement, whether in writing or otherwise, to take any of the
actions specified in the foregoing CLAUSES (A) through (F).
----------- ---
5.9. TAX MATTERS.
-----------
(a) Except as set forth on SCHEDULE 5.9(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:
- 14 -
<PAGE>
(i) has timely paid or caused to be paid all Taxes required to be
paid by it through the Latest Balance Sheet Date and through the date
hereof (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) The Companies have 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 the Companies that remain open for audit or
review by the relevant taxing authority. All such Tax Returns were complete and
correct in all material respects.
(c) Except as set forth in SCHEDULE 5.9(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 of the Companies for all Taxes payable by the Companies for all
periods beginning on or after the Latest Balance Sheet Date;
(iii) none of the Companies 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) none of the Companies (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;
(v) the Companies have 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) none of the Companies is or has ever been a party to any Tax
sharing agreement with any Person;
- 15 -
<PAGE>
(vii) none of the Companies 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) none of the Companies 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; no claim has ever been made by any
taxing authority in a jurisdiction in which any of the Companies do not
file Tax Returns that any Company is or may be subject to taxation by that
jurisdiction; and
(ix) none of the Companies 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 a true and
accurate certificates of the Companies so stating which complies in all
respects with Section 1.1445-2(b)(1) of such rules and regulations.
(d) ICSI has had in effect at all times since January 1, 1994, through the
date hereof a valid election under Section 1362(a) of the Code to be taxed as an
S corporation.
5.10. TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
----------------------------------------------------------
(a) Each Company has good and marketable title to (or a valid leasehold
interest in) 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 5.10 and
-------------
Permitted Encumbrances. Upon the execution and delivery of the Headquarters
Lease by the Companies, the Companies will have a valid leasehold interest in
the premises and improvements to be leased pursuant thereto, as purported to be
granted in accordance with the terms thereof. To the Actual Knowledge of the
Sellers, such assets (and the premises and improvements to be leased to the
Companies pursuant to the Headquarters Lease) are in good operating condition
and repair (normal wear and tear excepted), are suitable for the uses for which
they are used in the Business, are not subject to any condition which materially
interferes with the economic value or use thereof. Except as set forth on
SCHEDULE 5.10, 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
- 16 -
<PAGE>
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 material tangible personal
property of the Companies is located on the premises of the Companies listed on
SCHEDULE 5.10(A).
- ----------------
(b) SCHEDULE 5.10(B) lists all of the trailers, yard equipment and
----------------
related personal property and other assets of A&G and all of A&G's dispositions
of such property and assets made in the past 24 months.
5.11. REAL PROPERTY-OWNED OR LEASED.
-----------------------------
(a) None of the Companies owns any real property. SCHEDULE 5.11(A)
----------------
contains a list of all real property leased by the Companies and their
subsidiaries (the "Leased Property"), true, correct and complete copies of all
---------------
of which leases have been delivered to the Buyer prior to the date hereof. The
Leased Property constitutes all real property used or occupied by the Companies
and their subsidiaries in connection with the Business.
(b) With respect to the Leased Property, except as set forth on SCHEDULE
--------
5.11(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 Sellers, there is no threatened condemnation
Proceeding with respect thereto;
(ii) the physical condition of the Leased Property is
sufficient to permit the continued conduct of the Business as presently
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 or subsidiary indicated on SCHEDULE 5.11(B) is
----------------
the owner and holder of all the leasehold estates purported to be
granted by such leases;
(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 the parcels of
the Leased Property;
(v) there are no parties (other than the Companies and their
subsidiaries or lessees disclosed pursuant to clause (iv) above) in
possession of the Leased Property;
(vi) 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 or subsidiary and to the Best Knowledge of
the Sellers, there is no threatened increase in assessed valuation or
threatened special assessment pertaining to any of the Leased Property;
and
-17-
<PAGE>
(vii) to the Best Knowledge of the Sellers, the current lease
between A&G and the Companies is at a rental rate that does not exceed
fair market value.
5.12. INTELLECTUAL PROPERTY.
---------------------
(a) Except in each case as set forth on SCHEDULE 5.12(A):
----------------
(i) the Companies and their subsidiaries own, have the right
to use, sell, license and dispose of, and have 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 a Company or subsidiary has a valid license, all of which are
listed on SCHEDULE 5.12(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) the Companies and their subsidiaries have 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) the Companies and their subsidiaries have not 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) none of the Companies or their subsidiaries have 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
or subsidiary by such other Person or any acts of unfair competition by
such other Person, nor to the Best Knowledge of the Sellers, is any such
infringement, misappropriation, conflict or act of unfair competition
occurring or threatened.
(b) SCHEDULE 5.12(B) contains a true and complete list of all
----------------
applications, filings and other formal actions made or taken pursuant to any
Laws by the Companies and their subsidiaries to perfect or protect their
respective interests in their Intellectual Property Rights, including, all
patents, patent applications, trademarks, trademark applications, service marks
and service mark applications.
5.13. AGREEMENTS, NO DEFAULTS, ETC.
-----------------------------
(a) SCHEDULE 5.13 contains a true and complete list and brief
-------------
description of all written or oral Contracts, to which any Company or subsidiary
of a 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
-18-
<PAGE>
CLAUSES (I) through (XIII) of this SECTION 5.13. Except as set forth on SCHEDULE
- ----------- ------ ------------ --------
5.13, none of the Companies or their respective subsidiaries is a party to any
- ----
of the following, whether written or oral:
(i) any distributorship, dealer, sales, advertising, agency,
sales representative or other Contract relating to the payment of a
commission providing for the payment of more than $100,000 annually or
$750,000 annually in the aggregate for all such Contracts;
(ii) any 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) any 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) any Contract providing for charitable contributions in
excess of $10,000 annually or $20,000 annually in the aggregate for all
such Contracts;
(v) any Contract for capital expenditures in excess of
$250,000 annually or $500,000 in the aggregate for all such Contracts;
(vi) any 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;
(vii) any 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 providing for the payment of more
than $100,000 annually;
(viii) any Contract with respect to the lending or investing of
funds;
(ix) any Contract with respect to any form of intangible
property, including any Intellectual Property Rights;
(x) any Contract which restricts such Company or subsidiary
from engaging in any aspect of the Business or any other business
anywhere in the world;
(xi) any 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
-19-
<PAGE>
Contracts between the same Person and such Company or subsidiary) has a
selling price in excess of $50,000;
(xii) any 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); and
(xiii) any other Contract providing for the payment of more than
$100,000 annually or that is otherwise material to the Business.
The Contracts disclosed on SCHEDULE 5.4, the leases described on SCHEDULE
------------ --------
5.11(A), the licenses described on SCHEDULE 5.12(A), the insurance policies on
- ------- ----------------
SCHEDULE 5.16(A), the Company Employee Plans and the Contracts on SCHEDULE 5.21
- ---------------- -------------
are incorporated by reference onto SCHEDULE 5.13.
-------------
(b) Each of the items listed on SCHEDULE 5.13 (or incorporated therein by
-------------
reference) is in full force and effect, constitutes legal, valid and binding
obligation of such Company or subsidiary party thereto and, to the Actual
Knowledge of the Sellers, the other parties thereto, and is enforceable against
such Company or subsidiary party thereto in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights generally, and subject,
as to enforceability, to general principles of equity, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law or
in equity). Each of the Companies and their respective subsidiaries has in all
material respects performed all of the obligations required to be performed by
it to date thereunder, and there exists no material 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 material default in the performance by any Company or its subsidiary
or, to the Actual Knowledge of the Sellers, 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 5.13 (and items incorporated therein by reference) and SCHEDULE 5.13
- ------------- -------------
contains a fair and reasonable summary description of the material terms of all
oral items listed on SCHEDULE 5.13(B) (and items incorporated therein by
----------------
reference).
(c) SCHEDULE 5.13 contains a true and complete list of all Funded
-------------
Indebtedness of each of the Companies and their subsidiaries, all of which is to
be repaid or canceled 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.
(d) Each of the Assigned A&G Leases is in full force and effect,
constitutes a legal, valid and binding obligation of A&G and, to the Actual
Knowledge of the Sellers, the other parties thereto, and is enforceable against
A&G in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights generally, and subject, as to enforceability, to general
principles of equity, good faith and fair dealing (regardless of
-20-
<PAGE>
whether enforcement is sought in a proceeding at law or in equity). A&G has in
all material respects performed all of the obligations required to be performed
by it to date thereunder, and there exists no material 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 material default in the performance by A&G or, to the Actual
Knowledge of the Sellers, 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 of the Assigned A&G Leases.
5.14. LITIGATION, ETC.
---------------
(a) Except for workers' compensation claims made in the ordinary course
of business and except as set forth on SCHEDULE 5.14(A), there are no (i)
----------------
Proceedings pending or, to the Best Knowledge of the Sellers, threatened against
any of the Companies or their subsidiaries, whether at law or in equity, whether
civil or criminal in nature or before or by any Governmental Entity or
arbitrator, nor to the Actual Knowledge of the Sellers does there exist any
basis therefor, or (ii) Orders of any Governmental Entity or arbitrator with
respect to, involving or against any of the Companies or their subsidiaries. The
Companies have delivered to the Purchaser all material documents and
correspondence relating to such matters referred to on SCHEDULE 5.14(A).
----------------
(b) SCHEDULE 5.14(B) lists each matter described in SECTION 5.14(A)
---------------- ---------------
that (i) was in existence at any time since the inception of such Company and
resulted in any criminal sanctions or (ii) was in existence at any time within
the last three years and resulted in payments in excess of $50,000 by any
Company or subsidiary (whether as a result of a judgment, civil fine, settlement
or otherwise).
5.15. COMPLIANCE WITH LAWS.
--------------------
Each of the Companies and their subsidiaries (a) has complied in all
material respects with, and is in compliance in all material respects with, all
material 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 5.15 and are in full force and effect, no material 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 Sellers, threatened to
revoke or limit any thereof. No investigation or review by any Governmental
Entity with respect to any of the Companies or their subsidiaries is pending or,
to the Best Knowledge of the Sellers, threatened, nor has any Governmental
Entity notified any of the Companies or their subsidiaries of its intention to
conduct the same. Except as set forth on SCHEDULE 5.15 none of the Companies or
-------------
their subsidiaries has received any written 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.
-21-
<PAGE>
5.16. INSURANCE.
---------
(a) SCHEDULE 5.16(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 any of the Companies or their subsidiaries, or any Seller for the benefit
of the Company (specifying the insurer, amount of coverage, type of insurance,
policy number, and any pending claims thereunder). All such coverages under the
non-health insurance policies set forth on Schedule 5.16(a) have been maintained
----------------
at all times on an occurrence (as opposed to a claims made) basis. With respect
to all periods prior to the coverage periods set forth on Schedule 5.16(a), the
----------------
Companies have maintained such insurance coverages as the Sellers have
reasonably believed to be adequate.
(b) Except as set forth on SCHEDULE 5.16(B), with respect to each
----------------
policy of insurance listed on SCHEDULE 5.16(A), (i) all premiums with respect
----------------
thereto are currently paid and are not subject to adjustment, and neither any
Seller nor any Company or subsidiary is in material 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 and material claims currently pending under such policy; and (iii)
none of the Companies or their subsidiaries 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 the premium on such policy
shall be materially increased on the renewal thereof.
5.17. LABOR RELATIONS; EMPLOYEES.
--------------------------
(a) SCHEDULE 5.17 sets forth a list of all directors, officers and Key
-------------
Employees of each of the Companies and their subsidiaries 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 5.17 indicates the nature of such leave of absence and such
-------------
employee's anticipated date of return to active employment. To the Best
Knowledge of the Sellers, no Key Employee has given written notice of his or her
intention to leave the service of such Company or subsidiary. During the 90
days immediately preceding the date hereof, there have been no terminations of
employees of any of the Companies or their respective subsidiaries other than
for cause.
(b) Except as set forth on SCHEDULE 5.17, (i) each of the Companies and
-------------
their subsidiaries generally enjoys good relations with its employees, and there
is no labor strike, dispute or grievance, slowdown or stoppage actually pending
or, to the Best Knowledge of the Sellers, threatened against or involving any
Company or subsidiary; and (ii) none of the Companies or their subsidiaries is a
party to or bound by any collective bargaining agreement, union contract or
singular agreement, no such agreement is currently being negotiated by any
Company or subsidiary, no labor union has taken any action with respect to
organizing employees of any Company or subsidiary
-22-
<PAGE>
and to the Best Knowledge of the Sellers, no representation question exists with
respect to any such employees.
5.18. ERISA COMPLIANCE.
----------------
(a) Company Employee Plans. SCHEDULE 5.18(A) contains a true, complete
---------------------- ----------------
and correct list of all Employee Benefit Plans (collectively, the "Company
-------
Employee Plans") (i) that cover any employees, contract employees or former
- --------------
employees of the Company or any spouses, family members or beneficiaries thereof
(A) that are maintained, sponsored or contributed to by any Company or
subsidiary or (B) with respect to which any Company or subsidiary is obligated
to contribute or has any actual or potential Liability, or (ii) with respect to
which any Company or subsidiary has any actual or potential liability or
obligation on account of the maintenance or sponsorship thereof or contribution
thereto by any present or former ERISA Affiliate of any Company or subsidiary.
(b) Administration and Compliance. Except as set forth on SCHEDULE
----------------------------- --------
5.18(B), with respect to each Company Employee Plan:
- -------
(i) such Company Employee Plan has been established,
maintained, operated and administered in accordance with its terms and
in compliance in all material respects 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 or
subsidiary and all amounts withheld from employees have been timely
deposited into the appropriate trust or account;
(iii) there is no unfunded actual or potential Liability
relating to such 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
or subsidiary;
(iv) none of the Companies, its subsidiaries 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
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 Sellers, threatened against
or relating to any Company Employee Plan or any fiduciary thereof, and
there is, to the Best
-23-
<PAGE>
Knowledge of the Sellers, no basis for any such Proceeding against any
Company Employee Plan;
(vi) such 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, such Company Employee Plan does not obligate any Company or
subsidiary 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) if such Company Employee Plan is a "group health plan"
within the meaning of Section 5000 of the Code, such Company Employee
Plan has been maintained in compliance with Section 4980B of the Code
and Title I, Subtitle B, Part 6 of ERISA and no material amount of Tax
payable on account of Section 4980B of the Code has been or is expected
to be incurred; and
(ix) neither any Company nor any subsidiary or 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).
(c) The Purchaser has been provided with true and complete copies, to
the extent applicable, of all documents pursuant to which each such 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
such 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 or subsidiary to make any prospective amendments or
terminate such Company Employee Plan).
5.19. ENVIRONMENTAL MATTERS.
---------------------
(a) Except as set forth on SCHEDULE 5.19(A), none of the Companies or
----------------
their subsidiaries or 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 or potential Liabilities arising under any Environmental, Health
and Safety Law, including any investigatory, remedial or corrective obligations,
relating to any of the Companies or its
-24-
<PAGE>
subsidiaries, the Business or any of the Companies' or its subsidiaries' current
or former owned or leased properties or operations or (ii) that any of the
Companies or its subsidiaries 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 5.19(B) sets forth a complete and accurate list of all
----------------
properties and facilities previously owned, leased or operated by any of the
Companies or its subsidiaries or any of their respective predecessors, (together
with the Leased Properties, the "Covered Properties"). To the Best Knowledge of
------------------
the Sellers, 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 of the Companies or its subsidiaries under any Environmental, Health and
Safety Laws. Except as set forth on SCHEDULE 5.19(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 Leased Properties.
(c) To the Best Knowledge of the Sellers, none of the Companies or
their subsidiaries or 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 to the Best Knowledge of the Sellers, 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) To the Best Knowledge of the Sellers, no facts, events or
conditions relating to the past or present operations of any of the Companies or
its subsidiaries or Affiliates, nor any of their respective predecessors or any
of the Covered Properties will prevent continued compliance by the Companies and
its subsidiaries 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.
(f) The Companies have provided the Purchaser with correct and complete
copies of all reports and studies within the possession or control of the
Companies with respect
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<PAGE>
to past or present environmental conditions or events at any of the Covered
Properties and to the Best Knowledge of the Sellers, there are no other
environmental reports or studies with respect thereto.
(g) Solely for purposes of those representations and warranties
contained in this Section 5.19 that relate to those matters described in the
------------
draft Phase I Environmental Assessment of Interstate Consolidation Facilities by
-----------------------------------------------------------------------
Environ Corporation dated December 2, 1997, the term "Best Knowledge" of the
Sellers shall mean the "Actual Knowledge" of the Sellers without any duty to
investigate any such matter described in such Phase I Environmental Assessment.
5.20. BROKERS.
-------
Other than Huntington Holdings, Inc., neither the Sellers 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
Huntington Holdings, Inc., with respect to the transactions contemplated herein,
will be paid, or if paid by any of the Companies will be reimbursed to the
Companies prior to or at the Closing, by the Sellers.
5.21. RELATED PARTY TRANSACTIONS.
--------------------------
Except as set forth on SCHEDULE 5.21, and except for compensation to
-------------
bona--fide employees of the Companies and their subsidiaries for services
rendered in the ordinary course of business, no current or former Affiliate of
any Company or subsidiary 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 or subsidiary (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 or subsidiary (other than non--affiliated holdings in
publicly held companies). Except as set forth on SCHEDULE 5.21, none of the
-------------
Companies or their subsidiaries is a guarantor or otherwise liable for any
actual or potential Liability of its Affiliates and their Associates. Except as
set forth on SCHEDULE 5.21, none of the Companies or their subsidiaries (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 or subsidiary and/or any of its executives.
5.22. ACCOUNTS AND NOTES RECEIVABLE.
-----------------------------
Except as set forth on SCHEDULE 5.22, all the accounts receivable and
-------------
notes receivable owing to any of the Companies or their subsidiaries as of the
date hereof constitute valid and enforceable claims, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors'
-26-
<PAGE>
rights generally, and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity), arising from bona fide transactions in the ordinary course of business,
and to the Best Knowledge of the Sellers, 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 5.22, 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 Sellers, threatened to refuse to pay its obligations to
any of the Companies or their subsidiaries 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 Sellers, no account debtor or note debtor that owes any of the
Companies or their subsidiaries amounts in excess of $10,000 in the aggregate
that is insolvent or bankrupt.
5.23. BANK ACCOUNTS; POWERS OF ATTORNEY.
---------------------------------
SCHEDULE 5.23 sets forth a true and complete list of (i) all bank
-------------
accounts and safe deposit boxes of the Companies and their subsidiaries 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 the Companies
and their subsidiaries and a summary of the material terms thereof (excluding
ministerial powers of attorney granted to representatives of the Companies and
their subsidiaries which are terminable at will).
5.24. SUPPLIERS AND VENDORS.
---------------------
Except in the ordinary course of business or as set forth on SCHEDULE
--------
5.24, no material supplier or vendor to any of the Companies or its subsidiaries
- ----
has canceled or otherwise terminated, or, to the Best Knowledge of the Sellers,
threatened to cancel or otherwise terminate, its relationship with any of the
Companies or its subsidiaries or has decreased, limited or otherwise modified,
or to the Best Knowledge of the Sellers, threatened to decrease, limit or
otherwise modify, the services, supplies or materials it provides to any of the
Companies or its subsidiaries.
5.25. CUSTOMERS.
---------
Except as set forth on SCHEDULE 5.25(i), no customer of any of the
----------------
Companies or its subsidiaries to which more than $50,000 of annual sales are
attributable has notified any of the Companies or its subsidiaries that it
intends to terminate or materially curtail its relationship and dealings with
any of the Companies or its subsidiaries, or(ii) to the Best Knowledge of the
Sellers, no customer of any of the Companies or its subsidiaries to which more
than $50,000 of annual sales are attributable has threatened to terminate or
materially curtail its relationship and dealings with any of the Companies or
its subsidiaries.
-27-
<PAGE>
5.26. CONFLICTS OF INTEREST.
---------------------
Except as set forth on SCHEDULE 5.26, to the Best Knowledge of the
-------------
Sellers, none of the Sellers, the Companies or any of their subsidiaries, or 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 of the Companies or its
subsidiaries (or assist in connection with any actual or proposed transaction)
that (i) has subjected or would reasonably be expected to subject, any of the
Companies or its subsidiaries to any damage or penalty in any Proceeding, (ii)
if not given in the past, would have resulted in a material adverse effect on
the business, operations, assets, condition (financial or otherwise), operating
results, liabilities, relations with employees, customers or suppliers or
prospects of any of the Companies or their respective Subsidiaries (a "Material
--------
Adverse Effect"), or (iii) if not continued in the future, could reasonably be
- --------------
expected to result in a Material Adverse Effect. There is not now, and there has
never been, any employment by any of the Companies or its subsidiaries of, or
beneficial ownership in any of the Companies or its subsidiaries by, any
governmental or political official in any jurisdiction in which any of the
Companies or its subsidiaries has conducted or proposes to conduct business.
5.27. DISCLOSURE.
----------
To the Best Knowledge of the Sellers, neither this Agreement, including
the schedules, attachments or exhibits hereto, nor any other written material
delivered by or on behalf of any of the Companies or the Sellers to the
Purchaser or any of its representatives (excluding financial statements and the
notes thereto and the schedules and other statistical data included therein as
to which no representation is made in this SECTION 5.27) contains any untrue
------------
statement of a material fact or omits 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 any of the Companies or the Sellers
are aware and which constitutes or could reasonably be anticipated to result in
a Material Adverse Effect.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants on and as of the date hereof as
follows:
6.1. 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
-28-
<PAGE>
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 6.1, 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 Sellers have 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.
6.2. CORPORATE ACTION; AUTHORITY; NO CONFLICT.
----------------------------------------
The Purchaser has all requisite power and authority (corporate and
otherwise) 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, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity). 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 any 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 Laws applicable to the Purchaser or any of its properties or assets.
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 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 (other than those which have
been or will be timely made or obtained).
-29-
<PAGE>
6.4. CAPITALIZATION.
--------------
(a) The authorized capital stock of the Purchaser and its subsidiaries
is as set forth on SCHEDULE 6.4, which schedule also sets forth the total number
------------
of outstanding shares of the Purchaser and its subsidiaries. All such
outstanding shares disclosed on SCHEDULE 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 Persons
and in the amounts set forth on SCHEDULE 6.4.
------------
(b) Except as set forth on SCHEDULE 6.4, 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 6.4, 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 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 the Purchaser has not violated the Securities Act or any
applicable state securities or "blue sky" laws in
6.5. BROKERS
-------
Except as set forth on SCHEDULE 6.5, the Purchaser has not employed any
------------
broker or finder or incurred any Liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated hereby other
than the closing fee payable to Eos Partners, L.P., or its Affiliate.
6.6. DULY AUTHORIZED, VALIDLY ISSUED PMT SHARES.
------------------------------------------
The PMT Shares have been duly authorized and, when issued and delivered
to the Sellers against payment therefor in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and free of any preemptive
or similar rights upon such issuance.
6.7. INVESTMENT REPRESENTATIONS.
--------------------------
(a) PMT is acquiring the Shares to be acquired by PMT hereunder for its
own account, for investment and not with a view to the distribution thereof in
violation of the Securities Act or applicable state securities laws.
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<PAGE>
(b) PMT understands that the Shares have not been registered under the
Securities Act or applicable state securities laws by reason of their issuance
by the Companies in a transaction exempt from the registration requirements of
the Securities Act and applicable state securities laws and that the Shares must
be held by PMT indefinitely unless a subsequent disposition thereof is
registered or qualified, as the case may be, under the Securities Act and
applicable state securities laws or is exempt from registration or
qualification, as the case may be.
(c) PMT is an "accredited investor" (as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act). The Sellers have made
available to PMT or its attorneys and other representatives all agreements,
documents, records and books that PMT has requested relating to its acquisition
of the Shares. PMT has had an opportunity to ask questions of, and receive
answers from, persons acting on behalf of the Sellers concerning the Companies
and the terms and conditions of PMT's acquisition of the Shares hereunder, and
answers have been provided to all of such questions to the full satisfaction of
PMT. PMT has such knowledge and experience in financial and business matters
that it is capable of evaluating the risks and merits of his acquisition of the
PMT Shares hereunder.
6.8. FINANCIAL INFORMATION.
---------------------
(a) SCHEDULE 6.8 attached hereto contains copies of the following:
------------
(i) unaudited (internally prepared) balance sheets of Pacific
Motor Transport Company as of December 31, 1995 and 1996 and the related
unaudited (internally prepared) statements of operations of Pacific Motor
Transport Company ("Pacific Motor")for the fiscal years then ended (all of
-------------
foregoing being hereinafter collectively called the "PMT Annual Financial
--------------------
Statements"); and
----------
(ii) the unaudited (internally prepared) balance sheet of PMT
and its subsidiaries as of June 30, 1997 (the "PMT Latest Balance Sheet";
------------------------
and such date being the "PMT Latest Balance Sheet Date"), and the related
-----------------------------
unaudited (internally prepared) statements of operations of PMT and its
subsidiaries for the six-month period then ended; and
(iii) the unaudited (internally prepared) balance sheet of PMT
and its subsidiaries as of September 30, 1997, and the related unaudited
(internally prepared) statements of operations of PMT and its subsidiaries
for the nine-month period then ended (all of the foregoing, including the
PMT Latest Balance Sheet, being hereinafter collectively referred to as
the "PMT Interim Financial Statements"; and the PMT Annual Financial
--------------------------------
Statements and the PMT Interim Financial Statements collectively, the "PMT
---
Unaudited Financial Statements").
------------------------------
(b) Except as set forth on SCHEDULE 6.8, the PMT Unaudited Financial
------------
Statements (i) are true, complete and correct in all material respects, (ii)
fairly present the financial position of the companies covered thereby as of the
dates indicated and the results of operations of the companies covered thereby
for the periods indicated, (iii) have been
-31-
<PAGE>
prepared in accordance with GAAP consistently applied throughout the periods
covered thereby (subject, in the case of the PMT Unaudited Financial Statements,
to (A) normal, recurring year-end adjustments which are not material
individually or in the aggregate, (B) the absence of statements of cash flows
and any or all footnote disclosures and (C) such other matters described on
SCHEDULE 6.8) and (iv) are in accordance with the books and records of the
- ------------
companies covered thereby which have been maintained in a manner consistent with
historical practice.
6.9. ABSENCE OF UNDISCLOSED LIABILITIES.
----------------------------------
Except as set forth on SCHEDULE 6.9, (a) none of PMT and its subsidiaries
-------------
has any Liabilities (other than Liabilities under Environmental Health and
Safety Laws), (b) to the Best Knowledge of PMT, none of PMT and its subsidiaries
has any Liabilities arising under Environmental Health and Safety Laws, (c)
there are no loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) of or affecting any of PMT or its subsidiaries which are not
adequately provided for or disclosed on the PMT Latest Balance Sheet or in the
notes thereto and (d) none of PMT or its subsidiaries 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.
6.10. ABSENCE OF CHANGES.
------------------
Since the PMT Latest Balance Sheet Date, except as set forth on SCHEDULE
--------
6.10, each of PMT and its subsidiaries has been operated in the ordinary course,
- ----
consistent with past practice, and there has not been:
(a) (i) any material adverse change or changes in the business,
operations, assets, condition (financial or otherwise), operating results,
liabilities, relations with employees, customers or suppliers, or prospects of
PMT or any of its subsidiaries (it being agreed that any such change or changes
shall only be deemed "material," for purposes of this clause (i) only, if such
----------
change or changes have resulted, or would reasonably be expected to result,
individually or in the aggregate for all such changes, in Losses having the
effect of reducing the value of PMT or such subsidiary by $500,000 or more), or
(ii) any material casualty loss or damage to the assets of PMT or any of its
subsidiaries, whether or not covered by insurance;
(b) any declaration, setting aside or payment of any distribution with
respect to any shares of capital stock of PMT or its subsidiaries, or any direct
or indirect redemption, purchase or other acquisition of any thereof, or any
other payments of any nature to any Affiliate of PMT or its subsidiaries whether
or not on or with respect to any shares of capital stock of PMT or its
subsidiaries owned by such Affiliate (excluding salaries and benefits paid in
the ordinary course of business consistent with past practices, payments
pursuant to the Management Consulting Agreement with Eos Management, Inc.
("EMI") and the transaction fee payable to EMI as contemplated by SECTION 10.5);
------------
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<PAGE>
(c) 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 PMT or its subsidiaries, or any increase in any such
compensation payable to any officer, director, manager or Key Employee;
(d) any change in the tax or other accounting methods or practices
followed by PMT or its subsidiaries, any material change in depreciation or
amortization policies or rates previously adopted or any write-up of inventory
or other assets;
(e) any material change in the manner in which products or services of PMT
or its subsidiaries are marketed (including any material change in prices), any
material change in the manner in which PMT or its subsidiaries extends discounts
or credit to customers or any material change in the manner or terms by which
PMT or its subsidiaries collects in accounts receivable or otherwise deals with
customers;
(f) any failure by PMT or its subsidiaries to pay trade accounts payable
or any other Liability of PMT or subsidiary when due; or
(g) any agreement, whether in writing or otherwise, to take any of the
actions specified in the foregoing CLAUSES (A) through (F).
----------- ---
6.11. AGREEMENTS, NO DEFAULTS, ETC.
-----------------------------
Each of PMT and its subsidiaries has in all material respects performed
all of the obligations required to be performed by it to date under each
material Contract to which it is a party, and there exists no material 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 material default in the performance by PMT or
subsidiary or, to the Actual Knowledge of PMT, any other party to any of the
foregoing of their respective obligations thereunder.
6.12. LITIGATION, ETC.
----------------
Except for workers' compensation claims made in the ordinary course of
business and except as set forth on SCHEDULE 6.12, there are no (i) Proceedings
-------------
pending or, to the Best Knowledge of PMT, threatened against any of PMT or its
subsidiaries, whether at law or in equity, whether civil or criminal in nature
or before or by any Governmental Entity or arbitrator, nor to the Actual
Knowledge of PMT does there exist any basis therefor, or (ii) Orders of any
Governmental Entity or arbitrator with respect to, involving or against any of
PMT or its subsidiaries.
6.13. COMPLIANCE WITH LAWS.
--------------------
Except as set forth on SCHEDULE 6.13, each of PMT and its subsidiaries (a)
-------------
has complied in all material respects with, and is in compliance in all material
respects with, all material Laws, Orders and Permits applicable to it and (b)
has all Permits used or necessary in the conduct of its business. Such Permits
are in full force and effect, no material violations with respect to any thereof
have occurred or are or have been recorded, and no Proceeding is pending or, to
the Best Knowledge of PMT, threatened to
-33-
<PAGE>
revoke or limit any thereof. No investigation or review by any Governmental
Entity with respect to PMT or any of its subsidiaries is pending or, to the Best
Knowledge of PMT, threatened, nor has any Governmental Entity notified PMT or
any of its subsidiaries of its intention to conduct the same.
ARTICLE III
COVENANTS AND AGREEMENTS
7.1. TRANSFER OF A&G INVESTMENTS ASSETS.
----------------------------------
Concurrently with the Closing the Sellers shall cause A&G to sell,
transfer, convey and assign to ICI all right, title and interest of A&G in, to
and under those assets, properties and rights listed on SCHEDULE 7.1 and the
------------
agreements listed as items 1.b. and 1.c. on SCHEDULE 5.3 (collectively, the "A&G
------------ ---
Assigned Leases"), in consideration of the payment by ICI to A&G of $398,535 by
- ---------------
wire transfer of immediately available funds at the Closing and in consideration
of ICI's assumption of A&G's obligations under the A&G Assigned Leases, free and
clear of all Encumbrances (other than the A&G Assigned Leases, to the extent any
of the same constitute an encumbrance on the equipment leased or sold
thereunder), pursuant to a bill of sale in the form attached hereto as EXHIBIT
-------
H-1 (the "A&G Bill of Sale"), and, in the case each of the A&G Assigned Leases,
- --- ----------------
an Assignment and Assumption Agreement in the form attached hereto as EXHIBIT H-
---------
2 (collectively, the "A&G Assignment Agreements") (provided that, in the case of
- - -------------------------
such item 1.b. (the "TIP Lease"), in the event the consent of the vendor or
---------
lessor thereunder is not obtained prior to the Closing then from and after the
Closing, the Sellers shall use their commercially reasonable efforts to obtain
such consent after the Closing, and the Purchaser shall cooperate in all
commercially reasonable respects in connection therewith, and unless and until
such consent is obtained, the Sellers shall cause A&G to provide to the
Companies all of the benefits thereunder (including use of the equipment leased
or sold thereunder) including enforcement by A&G for the benefit of the
Companies of A&G's rights thereunder, and the Companies shall pay, or reimburse
A&G for, all rent and other charges due and payable to vendor or the lessor
thereunder and shall otherwise perform the obligations of A&G thereunder).
7.2. COOPERATION REGARDING TAX FILINGS.
---------------------------------
After the Closing, the Purchaser, the Companies and the Sellers shall act
in good faith and cooperate with one another for the purpose of filing all Tax
Returns and reports to be filed by any of them.
7.3. REAL PROPERTY LEASE.
-------------------
At or prior to the Closing, the Sellers shall cause A&G and the Companies
to enter into a lease in the form attached hereto as EXHIBIT C-1 for the
-----------
premises described on SCHEDULE 7.3 (the "Headquarters Lease"), the Purchaser
------------ ------------------
shall enter into a guarantee for such lease commitment in the form attached
hereto as EXHIBIT C-2 and the
-----------
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<PAGE>
Companies and the Purchaser shall enter into a Material Inducement in the form
attached hereto as EXHIBIT C-3.
-----------
7.4. NONCOMPETITION COVENANT.
-----------------------
(a) The Sellers each acknowledge and agree that the nature of the
Business is providing services to customers, that a significant asset of the
Companies being acquired by the Purchaser hereunder is the knowledge of the
Sellers relating to the Business and its existing and potential customers and
that the value of the Business would be significantly impaired in the absence of
such asset from and after the Closing. Accordingly, the Sellers acknowledge 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 Sellers under this Agreement, the Sellers 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
any manner described in clause (i) above, (iii) induce other employees of the
Companies or any of their respective subsidiaries or affiliates to terminate
their employment with any of the Companies or any of their respective
subsidiaries or affiliates or to engage in any Competing Business in any manner
described in clause (i) above or (iv) induce any customer, vendor or agent or
any other person or entity with which any of the Companies or their respective
subsidiaries or affiliates has a business relationship to terminate or alter
such business relationship. This covenant is considered an integral part of this
Agreement. The foregoing restriction shall not apply to any Seller's ownership
of publicly traded securities which represent not more than 5% of the ownership
interests of the issuer.
(b) The Sellers understand that the foregoing restrictions may limit
their ability to earn a livelihood in a business similar to the business of any
of the Companies or any subsidiary or affiliate thereof, but each 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
such Seller's education, skills and ability), such Seller does not believe would
prevent him from earning a living.
(c) As used herein, the term "Competing Business" shall mean, as to any
------------------
Seller, any business engaged in providing any of the following transportation
services to third party customers:
(i) intermodal marketing or transportation services in any city
or county in any state or province located in the continental United
States, Canada or Mexico;
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<PAGE>
(ii) less-then-truckload common carrier services in any city or
county in any state or province located in the continental United States,
Canada or Mexico;
(iii) intra-state trucking of truckload or less-than-truckload
freight in any city or county located in the state of California;
(iv) drayage, consolidation, deconsolidation or distribution
services in any city or county in any state or province located in the
continental United States Canada or Mexico where the Business is conducted
or provides such services at the time of, or where there are fixed plans
for the Business to be conducted or to provide such services at any time
within 12 months after, the termination of such Seller's employment with
the Purchaser and the Companies; or
(v) contract warehousing, freight handling or logistics
services in any city or county in any state or province located in the
continental United States, Canada or Mexico where the Business is conducted
or provides such services at the time of, or where there are fixed plans
for the Business to be conducted or to provide such services at any time
within 12 months after, the termination of such Seller's employment with
the Purchaser and the Companies.
Anything contained in the immediately preceding sentence to the contrary
notwithstanding,
(A) any entity which has separate divisions or business
units, one or more of which are engaged in a business described
in the immediately preceding sentence, will not be deemed to be a
Competing Business with respect to those separate divisions or
business units of such entity that are not engaged in a business
described in the immediately preceding sentence so long as such
Seller's association with any such separate division or business
unit (fully taking into account his functions and the nature of
his work at such division or business unit) does not (1) involve
existing customers of any of the Companies at the time of the
termination of such Seller's employment with the Purchaser and
the Companies or former customers of any of the Companies at any
time during the 12 months preceding such termination or (2)
relate in any material respect to such portion of such business
which would be a Competing Business hereunder;
(B) the provision of consulting services to a direct
shipper who is not a customer of any of the Companies at the time
of the termination of such Seller's employment with the Purchaser
and the Companies, or a former customer of any of the Companies
at any time during the 12 months preceding such termination,
shall not be deemed to be "engaging in a Competing Business" for
purposes of this SECTION 7.4;
-----------
(C) in the case of Goldfein, the provision of any
drayage, consolidation, deconsolidation, distribution, contract
warehousing, freight
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<PAGE>
handling or logistics services in any location described in
clause (iv) or (v) of the immediately preceding sentence shall
only be deemed to be a "Competing Business" if (1) Goldfein was
the President or Chief Executive Officer of the Purchaser or any
Company (or any of their separate divisions or business units)
that was engaged in providing any drayage, consolidation,
deconsolidation, distribution, contract warehousing, freight
handling or logistics services at the time of (or at any within
the 12 months prior to) the termination of Goldfein's employment
with the Purchaser and the Companies or where the Purchaser or
such Company (or such division or business unit) had fixed plans
at the time of such termination to provide any drayage,
consolidation, deconsolidation, distribution, contract
warehousing, freight handling or logistics services at any time
within 12 months after such termination, or (2) any drayage,
consolidation, deconsolidation, distribution, contract
warehousing, freight handling or logistics services are being
provided to any Person who was a customer of the Company at the
time of the termination of Goldfein's employment with the
Purchaser and the Companies or at any time during the 12 months
prior to such termination; and
(D) in the case of Steiner, the provision of any drayage,
consolidation, deconsolidation, distribution, contract
warehousing, freight handling or logistics services in any
location described in clause (iv) or (v) of the immediately
preceding sentence shall only be deemed to be a "Competing
Business" if (1) Steiner had direct managerial authority at the
Purchaser or any Company (or any of their separate divisions or
business units), or otherwise had ongoing contact with the
customers of the Purchaser or such Company (or division or
business unit), that was engaged in providing any drayage,
consolidation, deconsolidation, distribution, contract
warehousing, freight handling or logistics services at the time
of (or at any time within the 12 months prior to) the termination
of Steiner's employment with the Purchaser and the Companies or
where the Purchaser or such Company (or such division or business
unit) had fixed plans at the time of such termination to provide
any drayage, consolidation, deconsolidation, distribution,
contract warehousing, freight handling or logistics services at
any time within 12 months after such termination, or (2) any
drayage, consolidation, deconsolidation, distribution, contract
warehousing, freight handling or logistics services are being
provided to any Person who was a customer of the Company at the
time of the termination of Steiner's employment with the
Purchaser and the Companies or at any time during the 12 months
prior to such termination.
7.5. EMPLOYEE MATTERS.
----------------
Subject to the exclusions set forth in this Section, and in reliance upon
the representations and warranties of the Sellers made in SECTION 5.17(A), the
---------------
Purchaser will not cause the Companies or the Subsidiary, for a period of 90
days after the Closing Date,
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<PAGE>
to terminate the employment of any employees of the Companies and the Subsidiary
on the date hereof, except for cause, in any manner that would cause the Sellers
to incur any liability under the Worker Adjustment Retraining and Notification
Act.
7.6. PURCHASER COVENANTS AND TREATMENT OF TRANSFERRED EMPLOYEES UNDER
----------------------------------------------------------------
PURCHASER EMPLOYEE BENEFIT PLANS.
- --------------------------------
(a) The Purchaser covenants and agrees that as of the Closing Date,
persons employed by the Companies immediately prior to the Closing Date who
became employees of the Purchaser as of the Closing Date ("Transferred
-----------
Employees") shall be entitled to participate in all employee benefit plans and
- ---------
arrangements maintained by the Purchaser for the benefit of its employees
generally in accordance with the terms thereof; (provided, however, that during
-------- -------
the period ending on the first anniversary of the date hereof (or April 1, 1999,
in the case of group health plans), the Purchaser shall cause the Companies to
maintain in effect and not to amend or modify, in any manner that would have a
materially adverse effect on the benefits made available thereunder, any of the
employee benefit plans and programs set forth in SCHEDULE 7.6 that are currently
------------
maintained by the Companies). For purposes of determining each such Transferred
Employee's eligibility and vesting under such employee benefit plans and
arrangements the Purchaser shall recognize such Transferred Employee's service
with the Companies beginning on the date such Transferred Employee commenced
employment with the Companies.
(b) The Purchaser also covenants and agrees that any pre-existing
condition limitation or exclusion in its health plans shall not apply to
Transferred Employees or their covered dependents who are covered under similar
health plans of the Companies on the Closing Date and who change coverage to the
Purchaser's health plans at the time such Transferred Employees are first given
the option to enroll in the Purchaser's health plans.
7.7. TERMINATION OF CERTAIN AGREEMENTS.
---------------------------------
The Seller Group agrees that, effective as of the Closing, those
agreements listed on SCHEDULE 7.7 shall be automatically terminated without any
------------
further action by the parties thereto or any further liability of the Companies
or their subsidiaries thereunder.
7.8. USE OF CERTAIN POWER INTERMODAL ASSETS.
--------------------------------------
From and after the Closing for such period of time as shall be reasonably
determined by the Companies, the Sellers shall cause Power Intermodal to provide
the Companies with the use of those assets listed on Attachment 6A to SCHEDULE
------------- --------
1.5 in connection with the Companies' conduct of the Business. The Companies
- ---
shall pay, or reimburse Power Intermodal for, all costs and expenses to third
parties incurred by Power Intermodal to provide the use of such assets to the
Companies, and in connection with such use, none of the Companies shall take any
action that would cause Power Intermodal to be in breach of or default under any
lease, license or other agreement
-38-
<PAGE>
between Power Intermodal and any third party that relates to such assets or
governs Power Intermodal's right to the use of the same.
ARTICLE VIII
DELIVERIES AT CLOSING
8.1. DELIVERIES BY THE SELLERS.
-------------------------
The Sellers shall cause to be delivered, unless waived by the Purchaser,
the following:
(a) OPINION OF THE SELLER GROUP'S COUNSEL. An opinion of Manatt, Phelps &
-------------------------------------
Phillips LLP, counsel for the Seller Group, dated the Closing Date,
substantially in the form of EXHIBIT D attached hereto.
---------
(b) CONSENTS AND APPROVALS. Duly executed copies of all consents and
----------------------
approvals required for or in connection with the execution and delivery by the
Companies and the Sellers 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
--------
4.3), in form and substance reasonably satisfactory to the Purchaser and its
- ---
counsel.
(c) EVIDENCE OF PAYMENTS. Evidence reasonably satisfactory to the
--------------------
Purchaser of the payments required to be made to the Companies pursuant to
SECTION 1.3(C).
- --------------
(d) HEADQUARTERS LEASE. A lease for the premises described therein
------------------
executed by A&G, as landlord, with the Companies to execute the same after the
Closing as the tenant and the Purchaser to execute the same after the Closing as
the guarantor, substantially in the form of EXHIBIT C-1 attached hereto (the
-----------
"Headquarters Lease");
------------------
(e) GENERAL RELEASES. A General Release in favor of the Companies from
----------------
the Seller and their respective Affiliates substantially in the of EXHIBIT E
---------
attached hereto (each, a "General Release");
---------------
(f) EMPLOYMENT AGREEMENTS. An employment agreement with each of the
---------------------
Sellers and the Purchaser and the Companies substantially in the forms of
EXHIBITS F-1 and F-2 attached hereto, as applicable (the "Employment
- ------------ --- ----------
Agreements");
- ----------
(g) STOCKHOLDERS AGREEMENT. A counterpart of the Amended and Restated
----------------------
Stockholders Agreement substantially in the form of EXHIBIT G attached hereto
---------
(the "Stockholders Agreement") executed by each of the Sellers;
----------------------
(h) A&G BILL OF SALE AND ASSIGNMENT AGREEMENTS. The A & G Bill of Sale
------------------------------------------
and A&G Assignment Agreements from A & G to ICI in the forms attached hereto as
EXHIBITS H-1 and H-2.
- ------------ ---
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<PAGE>
(i) SELLER CERTIFICATES. Each of the following certificates by the Person
-------------------
who or which is the subject thereof:
(i) a certificate of the secretary of each of the Companies,
their respective subsidiaries and A&G, dated as of the Closing Date,
certifying:
(A) that true and complete copies of such Person'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 such Person; and
(C) 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;
(ii) certificates dated as of a recent date prior to the Closing
Date of the secretaries of state of the states in which such Person is
organized and qualified to do business dated as of the Closing Date,
certifying as to the good standing and nondelinquent tax status of such
Person; and
(iii) 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.
(j) PAY-OFF LETTERS; TERMINATION AGREEMENTS. Pay-off letters and/or
---------------------------------------
termination agreements relating to the payment of the Funded Indebtedness, all
on terms and substance reasonably satisfactory to the Purchaser.
8.2. DELIVERIES BY THE PURCHASER.
---------------------------
The Purchaser shall cause to be delivered, unless waived by the Sellers,
the following:
(a) OPINION OF THE PURCHASER'S COUNSEL. An opinion of O'Sullivan Graev &
----------------------------------
Karabell, LLP, counsel for the Purchaser, dated the Closing Date, substantially
in the form of EXHIBIT I attached hereto.
---------
(b) CONSENTS AND APPROVALS. 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 may be a party
and the consummation of the transactions contemplated hereby and thereby, in
form and substance reasonably satisfactory to the Sellers and their counsel.
-40-
<PAGE>
(c) RELATED DOCUMENTS. Each of the Related Documents to which the
-----------------
Purchaser is a party.
(d) PURCHASER CERTIFICATES. Each of the following certificates 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 (x) that true and complete copies of Purchaser's
Charter Documents as in effect on the Closing Date are attached thereto,
(y) 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 (z) 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; and
(ii) certificates dated as of a recent date prior to the Closing
Date of the secretaries of state of the states in which Purchaser is
organized or qualified to do business dated as of the Closing Date,
certifying as to the good standing and nondelinquent tax status of
Purchaser.
ARTICLE IX
INDEMNIFICATION
9.1. INDEMNIFICATION GENERALLY; ETC.
-------------------------------
(a) Subject to the further provisions of this ARTICLE IX, each of the
----------
Sellers shall severally, and not jointly, 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 either of the Sellers contained herein (other than ARTICLE IV)
----------
or any certificate delivered by any of the Companies or any of the Sellers
in connection herewith at the Closing (or any facts or circumstances
constituting any such untruth, inaccuracy or breach);
(ii) the breach of any agreement or covenant of any of the
Companies contained in this Agreement
Subject to the further provisions of this Article IX, the Sellers shall jointly
and severally 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 (A) any and all Special Tax Losses and (B) any and all Losses
arising from or in connection with the letter dated January 19, 1990, between
the Subsidiary and George Kirtley regarding
-41-
<PAGE>
payments due Kirtley upon or following a change in control. Anything contained
herein to the contrary notwithstanding, each Seller shall only be liable for 50%
of the sum of all Losses incurred by the Purchaser Indemnified Persons for which
indemnification is payable by the Seller Indemnifying Persons pursuant to clause
(i) of the first sentence of this SECTION 9.1(A).
--------------
(b) Subject to the further terms of this ARTICLE IX, each of the Sellers
----------
shall severally, and not jointly, 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 such Seller contained in ARTICLE IV hereof or in any
----------
certificate delivered by such Seller relating thereto delivered in
connection herewith at the Closing (or any facts or circumstances
constituting any such untruth, inaccuracy or breach); and
(ii) the breach of any agreement or covenant of such Seller
contained in this Agreement.
(c) Subject to the further terms of this ARTICLE IX, the Purchaser shall
----------
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 the Purchaser contained herein or any certificate delivered by
the Purchaser in connection herewith at 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; and
(iii) any claim by PaineWebber Incorporated for brokers' or
finders' fees arising from an alleged agreement or arrangement with the
Purchaser in connection with the transactions contemplated by this
Agreement (excluding, however, any such claim to the extent it arises from
any written agreement or arrangement between PainWebber Incorporated and
any Seller); provided, however, that for purposes of this clause (iii)
-------- -------
"Seller Losses" shall consist only of direct Losses incurred by the Seller
Indemnified Persons, or any of them, and not any Losses resulting from any
diminution in value of the PMT Shares or other securities of PMT or its
subsidiaries held by any Seller Indemnified Person, whether resulting from
any payment made by PMT, other liability incurred by PMT or otherwise.
9.2. ASSERTION OF CLAIMS.
-------------------
No claim shall be brought for a breach of a representation or warranty
under SECTION 9.1 hereof unless the Indemnified Persons, or any of them, at any
-----------
time prior to the applicable Survival Date (as defined below), give the
Indemnifying Persons (a)
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<PAGE>
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 9.3 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 9.1.
-----------
9.3. 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"), other than Tax Claims, 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 and the Indemnifying Persons shall
have the financial resources to meet such indemnification obligations, 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 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 counsel
for the Indemnifying Persons could not adequately represent the interests of the
Indemnified Persons because such interests are 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
-------
9.3(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
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<PAGE>
defense of a Third Party Claim by giving the written acknowledgment referred to
in SECTION 9.3(B), or are otherwise restricted from so assuming by the proviso
--------------
to the first sentence of SECTION 9.3(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 9.3(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,
conditioned 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 9.3(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, delayed or
conditioned.
9.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
------------------------------------------
(a) Subject to the further provisions of this SECTION 9.4, the
-----------
representations and warranties contained in this Agreement or in any certificate
or other writing delivered in connection with this Agreement shall survive the
Closing until May 31, 1999; provided, however, that the representations and
-------- -------
warranties contained in SECTIONS 4.1, 5.4, 6.4 AND 6.6 shall survive
------------------------------
indefinitely and the representations and warranties contained in SECTION 5.9
-----------
shall survive the Closing Date until 30 days after the expiration of the
applicable statutes of limitations for Third Party Claims applicable to the
matters covered thereby.
(b) The covenants and other agreements of the parties contained in this
Agreement shall survive the Closing Date until they are otherwise terminated by
their terms. For convenience of reference, the date upon which any
representation or warranty contained herein shall terminate, if any, is referred
to herein as the "Survival Date."
-------------
(c) From and after the Closing, no member of the Seller Group shall have
any recourse against any Company for any breach of any representation, warranty,
covenant or agreement of any Company or any other member of the Seller Group set
forth in this Agreement or in any certificate or other writing delivered in
connection with this Agreement.
9.5. LIMITATIONS ON INDEMNIFICATION.
------------------------------
(a) The Purchaser Indemnified Persons shall not have the right to be
indemnified for breaches of representations and warranties pursuant to clause
------
(i) of the first sentence of SECTION 9.1(A) unless and until the Purchaser
- --- --------------
Indemnified Persons (or any member thereof) shall have incurred on a cumulative
basis aggregate Losses in an amount exceeding $100,000, in which event the right
to be indemnified shall apply only to the extent such Losses exceed $100,000.
The sum of all Losses pursuant to which indemnification is payable by the Seller
Indemnifying Persons pursuant to clause (i) of
----------
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<PAGE>
the first sentence of SECTION 9.1(A) with respect to the representations and
-------------
warranties set forth in this Agreement shall not exceed an amount equal to 12.5%
of the Cash Portion plus 12.5% of the aggregate value of the PMT Shares
----
(determined in accordance with SECTION 9.6) (the "Representation Cap");
----------- -------------------
provided, however, that the sum of all Losses pursuant to which indemnification
- -------- -------
is payable by the Seller Indemnifying Persons pursuant to clause (i) of the
----------
first sentence of SECTION 9.1(A) with respect to the representations and
-------------
warranties set forth in SECTIONS 5.9 and 5.19 shall not exceed an amount equal
------------ ----
to 15% of the Cash Portion plus 15% of the aggregate value of the PMT Shares
----
(determined in accordance with SECTION 9.6) (the "Environmental/Tax Cap");
----------- ---------------------
provided, further, that the sum of all Losses pursuant to which indemnification
- -------- -------
is payable by the Seller Indemnifying Persons pursuant to clause (i) of the
----------
first sentence of SECTION 9.1(A) with respect to the representations and
-------------
warranties set forth in SECTIONS 4.1 and 5.4 shall not exceed the Cash Portion
------------ ---
plus the aggregate value of the PMT Shares (determined in accordance with
SECTION 9.6) (the "Remainder Cap"). Notwithstanding anything to the contrary
- ----------- -------------
stated above, any payment by the Seller Indemnifying Persons pursuant to SECTION
-------
9.5 hereof shall reduce, dollar for dollar, the dollar amount required to be
- ---
paid by the Seller Indemnifying Persons under the Representation Cap, the
Environmental/Tax Cap, the Remainder Cap and the Litigation Cap (as defined
below).
(b) The Seller Indemnified Persons shall not have the right to be
indemnified for breaches of representations and warranties pursuant to SECTION
-------
9.1(C)(I) unless and until the Seller Indemnified Persons (or any member
- --------
thereof) shall have incurred on a cumulative basis aggregate Losses in an amount
exceeding $100,000, in which event the right to be indemnified shall apply only
to the extent such Losses exceed $100,000. The sum of all Losses pursuant to
which indemnification is payable by the Purchaser Indemnifying Persons pursuant
to SECTION 9.1(C)(I) with respect to the representations and warranties set
----------------
forth in this Agreement shall not exceed $625,000 (the "Purchaser Representation
------------------------
Cap"); provided, however, that the sum of all Losses pursuant to which
- ---- -------- -------
indemnification is payable by the Purchaser Indemnifying Persons pursuant to
SECTION 9.1(C)(I) with respect to the representations and warranties contained
- ----------------
in SECTION 6.4. shall not exceed $5 million (the "PMT Remainder Cap").
----------- -----------------
Notwithstanding anything to the contrary stated above, any payment by the
Purchaser Indemnifying Persons pursuant to any provision of SECTION 9.1(C) shall
-------------
reduce, dollar for dollar, the dollar amount required to be paid by the
Purchaser Indemnifying Persons under the PMT Representation Cap and the PMT
Remainder Cap.
9.6. SATISFACTION OF INDEMNIFICATION OBLIGATIONS OF THE SELLER INDEMNIFYING
----------------------------------------------------------------------
PERSONS.
- -------
The obligations of the Seller Indemnifying Persons pursuant to SECTION
-------
9.1(A) to indemnify the Purchaser Indemnified Persons for Purchaser Losses
- ------
arising from or in connection with the matters described in CLAUSE (I) of such
----------
SECTION 9.1(A) shall be satisfied in the following manner: (i) an amount equal
- --------------
to 17/18ths 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 1/18th of each such Purchaser Loss shall be paid by the
surrender to the Purchaser for no consideration of that number of
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<PAGE>
PMT Shares having an aggregate value on the Closing Date equal to such amount
(unless all of the PMT 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
- ----------
SECTION 9.5(A) and this SECTION 9.6 on the Closing Date the aggregate value of
- -------------- -----------
the PMT Shares is $1,000,000 and the per share value of the PMT Shares is $7.02
per share.
9.7. SPECIAL INDEMNIFICATION.
-----------------------
Notwithstanding anything to the contrary contained in ARTICLE IX hereof,
----------
all settlement or judgment liabilities (collectively, the "Special Liabilities")
-------------------
directly resulting from the Lawsuit (as defined below) shall be handled as
follows: (a) up to the first $2 million of such Special Liabilities shall
remain an obligation solely of the Companies and the Purchaser after the
Closing, as to which the Companies and the Purchaser shall indemnify and hold
harmless the Sellers, and neither the Purchaser nor the Companies shall have any
indemnification rights against the Sellers therefor; (b) of the next $2 million
of any such Special Liabilities, on a pari passu basis, (i) the Companies and
the Purchaser shall bear (and indemnify and hold harmless the Sellers from and
against) one-half thereof (and neither the Purchaser nor the Companies shall
have any indemnification rights against the Sellers for such portion of any such
Special Liabilities) and (ii) each of the Sellers shall, severally, and not
jointly, bear (and indemnify the Purchaser and the Companies from and against
such Seller's Proportionate percentage of the other one-half thereof (and
neither of the Sellers shall have any indemnification rights against the
Purchaser or the Companies for such portion of any such Special Liabilities)
(such $1 million obligation by the Sellers to be referred to as the "Litigation
----------
Cap"); (c) any and all such Special Liabilities in excess of the first $4
- ---
million thereof shall be borne solely by the Companies and the Purchaser, as to
which the Companies and the Purchaser shall indemnify and hold harmless the
Sellers, and neither the Purchaser nor the Companies shall have any
indemnification rights against the Sellers therefor; and (d) the Purchaser shall
have complete control of all aspects of the Companies' investigation and
defense, and any settlement, of the Lawsuit and shall bear all costs and
expenses, including attorneys' fees, incurred in connection with such
investigation, defense and settlement, which costs and expenses, including
attorneys' fees, incurred in connection with such investigation, defense and
settlement shall not, for purposes of this Agreement, be considered a part of
the Liabilities. Anything contained in this SECTION 9.7 to the contrary
-----------
notwithstanding, the indemnification obligations of the Purchaser under this
SECTION 9.7 shall be subject to any limitations thereon imposed by or under
- -----------
applicable law. The obligations of the Sellers under the Litigation Cap shall
be subject to and limited by the available dollar amount under any limitation of
liability in ARTICLE IX hereof. Any payment made by the Sellers pursuant to
----------
CLAUSE (B) above also shall reduce, dollar for dollar, the available dollar
- ----------
amount under any other provision of ARTICLE IX hereof to be paid by the Seller
----------
Indemnifying Persons that is subject to the Representation Cap, the
Environmental/Tax Cap or the Remainder Cap.
-46-
<PAGE>
9.8. SATISFACTION OF CLAIMS BY PURCHASER.
-----------------------------------
In the event of a claim by the Purchaser Indemnified Persons, or any of
them, for indemnification pursuant to SECTION 9.1(A)(I), the Purchaser
-----------------
Indemnified Persons shall use all commercially reasonable efforts to seek such
indemnification from both of the Sellers simultaneously.
9.9. COOPERATION REGARDING TAX PROCEEDINGS.
-------------------------------------
(a) Each of the Purchaser, on the one hand, and the Sellers, 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 a 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 Sellers shall acknowledge in a writing delivered to the
Purchaser that such Tax Claim is properly subject to their indemnification
obligations hereunder and the Sellers shall have the financial resources to meet
such indemnification obligations, then subject to the further provisions of this
SECTION 9.9, the Sellers shall have the right to assume the defense of such Tax
- -----------
Claim at their own expense and by their own counsel and other advisers, which
counsel and other advisors shall be reasonably satisfactory to the Purchaser
Indemnified Persons; provided, however, that the Sellers 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 Sellers or the Sellers shall not have assumed the defense of
such Tax Claim in a timely fashion.
(c) If the Sellers shall assume the defense of a Tax Claim pursuant to and
in accordance with SECTION 9.9 (B), the Sellers 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 Sellers do not exercise
their right to assume the defense of a Tax Claim or are otherwise restricted
from doing so pursuant to SECTION 9.9(B), the Sellers shall nevertheless be
--------------
entitled to participate in such defense with their 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
Sellers, which consent shall not be unreasonably withheld, delayed or
conditioned.
(d) If the Sellers exercise their right to assume the defense of a Tax
Claim pursuant to and in accordance with SECTION 9.9(B), (i) the Purchaser
--------------
Indemnified Persons shall be entitled to participate in such defense with their
own counsel and other advisors
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<PAGE>
at their own expense and (ii) the Sellers 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.
(e) Anything contained in this SECTION 9.9 to the contrary notwithstanding,
-----------
if the Purchaser Indemnified Persons (or any of them) or the Sellers 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. Each of the Sellers, 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 Sellers are 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 Sellers, 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 9.9(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 9.9(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 Sellers shall indemnify the Purchaser
Indemnified Persons (but only to the extent they are required to do so under the
applicable provisions of this ARTICLE 9) 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 Sellers the
amount of Tax (but not interest) refunded, up to the amount of the
indemnification payment actually made by the Sellers to the Purchaser
Indemnified Persons, together with interest on such refund of Tax from the date
the Sellers made such indemnification payment, at the rates in effect from time
to time under Section 6621(a)(1) of the Code.
During the course of any Proceeding regarding any Tax Claim, the Purchaser
Indemnified Persons and the Sellers 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 Sellers, 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.
-48-
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. 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
in writing 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.
10.2. ENTIRE AGREEMENT.
----------------
This Agreement and the other agreements and documents referred to herein
and to be executed and delivered in connection herewith (including, but not
limited to, the schedules and the exhibits (in their executed form) attached
hereto) embody the entire agreement and understanding among the parties hereto
with respect to the subject matter hereof and thereof and supersede and preempt
all prior and contemporaneous understandings, agreements or arrangements or
representations by or among the parties, written or oral, which relate to the
subject matter hereof and thereof in any way (including the Letter of Intent
dated as of August 13, 1997, as amended, among the Companies, the Sellers and
the Purchaser). Other than this Agreement and the other agreements referred to
herein and to be executed and delivered in connection herewith, there are no
other agreements continuing in effect relating to the subject matter hereof.
10.3. 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.
10.4. 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. No
party may assign either this Agreement or any
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<PAGE>
of his or its rights, interests or obligations hereunder without the prior
written approval of the other parties; provided, however, that, unless expressly
-------- -------
prohibited hereunder, 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, in any or
all of which cases the Purchaser nonetheless shall remain responsible for the
performance of all of its obligations hereunder.
10.5. EXPENSES.
--------
Except as otherwise provided in this Agreement, the Purchaser on the one
hand and the Seller Group on the other hand shall each bear their own expenses
(with the Sellers reimbursing the Companies for expenses of the Sellers paid by
the Companies (or any of them) at or prior to the Closing) incurred in
connection with this Agreement and the Related Documents. If the Closing
occurs, a transaction fee of not more than $100,000 shall be paid by the
Purchaser to EMI.
10.6. HEADINGS.
--------
Descriptive headings are for convenience only and shall not control or
affect in any way the meaning or construction of any provision of this
Agreement.
10.7. 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 any of the Sellers, to each Seller at his address below:
Gary I. Goldfein
229 N. Cliffwood Ave.
Los Angeles, CA 90049
Telephone No.: (310) 471-2974
Facsimile No.: (310) 471-7483
Allen E. Steiner
1537 Amalfi Drive
Pacific Palisades, CA 90272-2754
Telephone No.: (310) 459-3926
Facsimile No.: (310) 459-8124
with a copy to:
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<PAGE>
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064-1614
Attention: Ronald S. Barak, Esq.
Telephone No.: (310) 312-4000
Facsimile No.: (310) 312-4224
(b) if to the Purchaser or, after the Closing, any Company, to:
PMT Holdings, Inc.
c/o Eos Partners, L.P.
320 Park Avenue
New York, New York 10022
Attention: Mr. Douglas R. Korn
Telephone No.: (212) 832-5803
Facsimile No.: (212) 832-5815
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telephone No.: (212) 480-2400
Facsimile No.: (212) 408-2420
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.
10.8. 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.
10.9. GOVERNING LAW.
-------------
THE PARTIES HERETO ACKNOWLEDGE AND AGREE THAT, ALTHOUGH THE CLOSING
HEREUNDER MAY PHYSICIALLY OCCUR OUTSIDE THE STATE OF CALIFORNIA FOR
ADMINISTRATIVE PURPOSES, ALL OR SUBSTANTIALLY ALL NEGOTIATIONS WITH THE SELLERS
AND INVESTIGATIONS AND OTHER ACTIONS IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREBY OCCURRED IN THE STATE OF CALIFORNIA. IT IS THE PARTIES
AGREEMENT AND
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<PAGE>
INTENTION THAT THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE DOMESTIC LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF
CALIFORNIA, OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF CALIFORNIA TO BE APPLIED. 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.
10.10. 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 (as modified and supplemented by the Schedules attached
hereto) 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. Any matter disclosed on any Schedule
to this Agreement shall be deemed to be disclosed on all other Schedules to this
Agreement provided that such disclosure is, on its face, responsive to the other
provisions of this Agreement with respect to which such matter is deemed
disclosed.
10.11. INTERPRETATION; CONSTRUCTION.
----------------------------
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
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<PAGE>
them under GAAP. Unless expressly provided otherwise, the measure of a 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.
10.12. 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.
10.13. CONSENT OF SPOUSES.
------------------
Each Seller shall cause his spouse to execute and deliver a separate
consent and agreement in substantially the form attached hereto as EXHIBIT J or
---------
otherwise reasonably acceptable to the Purchaser and such Seller (a "Spousal
-------
Consent").
- -------
* * * * * * *
-53-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the date first written above.
THE PURCHASER:
PMT HOLDINGS, INC.
By:___________________________
Name:
Title:
THE COMPANIES:
INTERSTATE CONSOLIDATION, INC.
By:___________________________
Name:
Title:
INTERSTATE CONSOLIDATION
SERVICE, INC.
By:___________________________
Name:
Title:
THE SELLERS:
___________________________________
Gary I. Goldfein
____________________________________
Allen E. Steiner
<PAGE>
ANNEX I
SHAREHOLDER OWNERSHIP
---------------------
<TABLE>
<CAPTION>
SELLER ICI ICS PROPORTIONATE COMMON SHARES
SHARES SHARES PERCENTAGE AT CLOSING
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Gary I. Goldfein 100.00 100.00 50% 71,250
Allen E. Steiner 100.00 100.00 50% 71,250
200.00 200.00 100% 142,500
======== ======= === =========
</TABLE>
<PAGE>
ANNEX II
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.
"ACTUAL KNOWLEDGE" of any Person means the actual knowledge of such Person
----------------
without any obligation of additional inquiry on the part of such Person as to
the matter in question. When used with respect to the Purchaser, "Actual
Knowledge" shall mean only the Actual Knowledge (as defined in the foregoing
sentence) of Doug Korn, Don Orris, Joseph Atturio, Robert Cross and Gerry
Angeli, and the Actual Knowledge of each of them shall be imputed to the
Purchaser. The Actual Knowledge of any Seller shall be imputed to the other
Seller.
"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.
"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.
"BEST KNOWLEDGE" of any Person means (i) the actual knowledge of such
--------------
Person and (ii) that knowledge which such Person would have obtained after
making such reasonable inquiry and exercising such reasonable diligence as a
prudent businessperson would have made or exercised in the management of his or
her business affairs. When used with respect to the Purchaser, "Best Knowledge"
shall mean only the Best Knowledge (as defined in the foregoing sentence) of
Doug Korn, Don Orris, Joseph Atturio, Robert Cross and Gerry Angeli, and the
Best Knowledge of each of them shall be imputed to the Purchaser. The knowledge
(actual and constructive) of any Seller shall be imputed to the other Seller.
"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.
-1-
<PAGE>
"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.
"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, 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
-2-
<PAGE>
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 subsidiary or in effect guaranteed,
directly or indirectly, in any manner by any Company or subsidiary 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 or subsidiary even though such
Company or subsidiary 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.
"GOVERNMENTAL ENTITY" means any governmental authority or instrumentality,
-------------------
whether Federal, state, local or foreign and whether legislative, executive,
judicial or otherwise.
"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.
"KEY EMPLOYEE" means any employee of the Company or any of its subsidiaries
------------
or of PMT or any of its subsidiaries, as the case may be, earning in excess of
$150,000 per annum in regular salary and bonuses.
"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).
"LAWSUIT" means the action entitled Irwin Albillo et al. vs. Intermodal
------- -----------------------------------
Container Service, Inc., et al. (Case No. BO174508), as such action may be
- -------------------------------
amended, modified, restated or refiled, whether by the plaintiff Albillo or one
or more other independent
-3-
<PAGE>
owner/operator truck drivers against one or more of the Sellers, the Companies
and the Subsidiary asserting claims based on the facts alleged in the Albillo
-------
action cited above.
"LIABILITY" means any 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 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 IX, as reduced
----------
by tax benefits actually realized under Tax Laws in respect of such Losses, in
each case net of all reasonable costs and expenses of recovering any such tax
benefits. For purposes of determining tax benefits actually realized, there
shall be included tax benefits resulting from such Loss that are actually
realized before the taxable year in which a payment for a Loss is received and
tax benefits resulting from such Loss that are resulting from such Loss that are
actually realized in the taxable year in which a payment for a Loss is received
and in the two subsequent taxable years, as increased by (x) the amount of any
---------
Taxes payable on such indemnification payment and (y) the amount of any Taxes
payable on the payment referred to in clause (x) hereof. Any tax benefit
realized within the two taxable years subsequent to the year in which a payment
for a Loss is received shall be paid to the Indemnifying Party (less of all
expenses).
"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 (other than any
of the foregoing of general applicability, the loss of which would not have a
materially adverse effect).
"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,
-4-
<PAGE>
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.
"PROPORTIONATE PERCENTAGE" means, as to each Seller, a fraction, the
------------------------
numerator of which is the number of Shares owned by such Seller prior to the
Closing and reflected on ANNEX I, and the denominator of which is the aggregate
-------
number of Shares owned by all Sellers prior to the Closing and reflected on
ANNEX I.
- -------
"PURCHASER INDEMNIFIED PERSONS" means and includes the Purchaser and its
-----------------------------
subsidiaries (including, following the Closing, the Companies), 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 any 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 IX.
----------
"RELATED DOCUMENTS" means, collectively, the following:
-----------------
(i) General Releases of the Companies from each of Goldfein,
Steiner, A&G and Power Intermodal;
(ii) Employment Agreements between the Purchaser and the Companies
and each of the Sellers;
(iii) Stockholders Agreement; and
(iv) A&G Bill of Sale.
"SECURITIES" means "SECURITIES" as defined in SECTION 2(1) of the
---------- ---------- ------------
Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
--------------
-5-
<PAGE>
"SELLER INDEMNIFIED PERSONS" means and includes the Sellers and their
--------------------------
respective personal representatives, estates and heirs.
"SELLER INDEMNIFYING PERSONS" means and includes the Sellers and their
---------------------------
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 IX.
----------
"SPECIAL TAX LOSSES" means (i) all Taxes payable by the Companies with
------------------
respect to all periods through the Closing Date and (ii) any and all Losses
sustained, suffered or incurred by any Purchaser Indemnified Person arising from
or in connection with the existence of any facts or circumstances that
constitute (or would constitute notwithstanding the disclosure of such facts or
circumstances or such Losses) any untruth, inaccuracy or breach of the
representations and warranties of the Sellers contained in SECTION 5.9, in each
-----------
case in clause (i) and clause (ii) that relate to or arise out of any
compensation, dividends, distributions or other payments made (including by way
of expenses incurred by the Companies on behalf of such Persons) by any of the
Companies or their Affiliates to any Seller, former shareholder of any of the
Companies or their respective Affiliates or any officer of any of the Companies
or their respective Affiliates.
"SUBSIDIARY" shall mean Intermodal Container Service, Inc., a California
----------
corporation.
"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 (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) 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.
-6-
<PAGE>
ANNEX III
ADDITIONAL AMOUNT
-----------------
The Additional Amount shall be calculated as follows:
An amount equal to: a) $3,030,958, plus b) net income for the period from
and including July 1, 1997, through and including November 30, 1997
(calculated on a pre-tax basis for ICI and an after-tax basis for ICS and
its subsidiary, as defined below), minus c) dividends paid by the Company
during the period from and including July 1, 1997, through and including
the Closing Date.
For the purpose of the above calculation, the following will apply:
(i) Net income will be calculated in accordance with GAAP, as
applied by the Company for the periods 1995 and 1996 plus the interim
period through June 30, 1997, except that no allocations that might
otherwise be required by GAAP will be made for (A) accruals for rail
refunds, (B) charges for split-dollar life insurance policies maintained
for the benefit of key employees, and (C) accruals for vacation pay and
bonuses arising in the ordinary course of business, as and to the extent
consistent with the Companies' historical practice.
(ii) Net income will not be reduced by any extraordinary or one-time
write-off or write-down of goodwill during the period.
(iii) With regard to the recognition of income due to customer
credit balances and the reversal of prior period accounts payable, such
recognition will be made on a basis consistent with past practice as to
amount and timing of such recognition. Notwithstanding the foregoing, the
offsets made since June 30, 1997, of $18,859in accounts receivable from
Riverwood International against $17,880 in accounts payable to Riverwood
International will not be taken into account in determining net income for
purposes of calculating the Additional Amount.
(iv) Income tax expense for the above calculation will be based on
pre-tax income for the period from July 1, 1997, through November 30, 1997,
and will not take into account any reversal of, or additions to, tax
reserves based on prior periods.
(v) Net income used in the calculation of the Additional Amount and
the Estimated Additional Amount will be adjusted by the after-tax amount of
the estimated pre-tax expense reimbursement of $247,174 made by the Sellers
prior to the Closing and referred to in Section 1.3(c) of this Agreement,
--------------
which shall increase November's net income.
<PAGE>
EXHIBIT 10.13
EXECUTION COPY
--------------
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
PACER INTEGRATED LOGISTICS
INTRACO, INC.,
PMT HOLDINGS, INC.
AND
THE SHAREHOLDER OF INTRACO, INC.
DATED AS OF APRIL 3, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I MERGER; EFFECT ON CONSTITUENT CORPORATIONS...................1
1.1 The Merger......................................................1
1.2 Effective Time of the Merger....................................2
1.3 Effect of the Merger............................................2
1.4 Charter and By-laws of Surviving Corporation....................2
1.5 Authorization of the Merger, this Agreement, the Delaware
Certificate and the Missouri Certificate........................2
1.6 Effect on Securities............................................3
1.7 Delivery of Funds; Surrender of Certificates....................3
1.8 After the Effective Time........................................4
1.9 Further Assurances..............................................4
1.10 Contingent Shares; Earn-out.....................................4
ARTICLE II THE CLOSING.................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES REGARDING THE SHAREHOLDER
AND THE MERGER SHARES..................................................6
3.1 Title to the Merger Shares......................................6
3.2 Authority; Noncontravention; Consents...........................7
3.3 Investment Representations......................................7
3.4 Affiliate Assets................................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER REGARDING
THE COMPANY............................................................8
4.1 Organization, Power, Authority and Good Standing................8
4.2 Authorization, Execution and Enforceability.....................9
4.3 Consents........................................................9
4.4 Capitalization.................................................10
4.5 Subsidiaries; Investments......................................10
4.6 Financial Information..........................................10
4.7 Absence of Undisclosed Liabilities.............................11
4.8 Absence of Changes.............................................11
4.9 Tax Matters; Certain Definitions...............................12
4.10 Title to Assets, Properties and Rights and Related Matters.....14
4.11 Real Property-owned or Leased..................................14
4.12 [Omitted.].....................................................15
4.13 Agreements, No Defaults, Etc...................................15
4.14 Litigation, Etc................................................17
4.15 Compliance with Laws...........................................17
4.16 Insurance......................................................18
4.17 Labor Relations; Employees.....................................18
4.18 Erisa Compliance...............................................19
4.19 Environmental Matters..........................................21
4.20 Brokers........................................................22
4.21 Related Party Transactions.....................................22
4.22 Accounts and Notes Receivable..................................23
4.23 Bank Accounts; Powers Of Attorney..............................23
4.24 Customers......................................................23
4.25 Conflicts of Interest..........................................23
4.26 Disclosure.....................................................24
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND
HOLDINGS...............................................................24
5.1 Organization; Corporate Authority..............................24
5.2 Corporate Action; Authority; No Conflict.......................24
5.3 Brokers........................................................25
5.4 Consents.......................................................25
5.5 Organization; Corporate Authority..............................25
5.6 Corporate Action; Authority; No Conflict.......................25
5.7 Capitalization.................................................26
5.8 Duly Authorized, Validly Issued Holdings Shares................26
5.9 Financial Information..........................................27
ARTICLE VI COVENANTS AND AGREEMENTS....................................27
6.1 [Omitted.].....................................................27
6.2 Confidential Information.......................................27
6.3 Public Announcements...........................................27
6.4 Cooperation Regarding Tax Filings..............................28
6.5 Non-Compete; Non-Solicitation..................................28
ARTICLE VII DELIVERIES AT CLOSING......................................29
7.1 Deliveries By The Shareholder..................................29
7.2 Deliveries By The Purchaser....................................31
ARTICLE VIII INDEMNIFICATION...........................................31
8.1 Indemnification Generally; Etc.................................31
8.2 Assertion of Claims............................................32
8.3 Notice and Defense of Third Party Claims.......................32
8.4 Survival of Representations and Warranties.....................33
8.5 Limitations on Indemnification.................................34
8.6 Satisfaction of Shareholder's Indemnification Obligations......35
8.7 Cooperation Regarding Tax Proceedings..........................35
8.8 Dispute Resolution.............................................36
ARTICLE IX [OMITTED.]..................................................36
ARTICLE X MISCELLANEOUS PROVISIONS.....................................36
10.1 Amendment......................................................36
10.2 Entire Agreement...............................................37
10.3 Severability...................................................37
10.4 Benefits of Agreement..........................................37
10.5 Expenses.......................................................38
10.6 Notices........................................................38
10.7 Counterparts...................................................39
10.8 Governing Law..................................................39
10.9 Independence of Covenants and Representations and Warranties...40
10.10 Interpretation; Construction...................................40
10.11 Remedies.......................................................41
10.12 Waiver of Jury Trial...........................................41
</TABLE>
<PAGE>
EXECUTION COPY
--------------
AGREEMENT AND PLAN OF MERGER dated as of April 3, 1998 (the "AGREEMENT"),
---------
by and among PACER INTEGRATED LOGISTICS, INC., a Delaware corporation (the
"PURCHASER"), INTRACO, INC., a Missouri corporation (the "COMPANY"), JOHN WAYNE
--------- -------
HEIN, the sole shareholder of the Company (the "SHAREHOLDER"), and PMT HOLDINGS,
-----------
INC., a Delaware corporation and the sole stockholder of the Purchaser
("HOLDINGS").
--------
PREAMBLE
The Company is engaged in the business of providing trucking, freight
consolidation, traffic management, third party logistics and railroad signal
reclamation and salvage services (the "BUSINESS"). The Shareholder is the sole
--------
shareholder of the Company, owning 500 shares of the Company's common stock, par
value $1.00 per share (the "COMPANY COMMON STOCK").
--------------------
The respective Boards of Directors of each of the Purchaser, the Company,
and Holdings have duly approved and adopted this Agreement and the proposed
Merger of the Company with and into the Purchaser, which shall be the surviving
corporation of the Merger, in accordance with, and subject to, the terms and
conditions of this Agreement, the Delaware General Corporation Law (the
"DELAWARE ACT") and the Missouri General and Business Corporation Law (the
------------
"MISSOURI ACT"). Certain capitalized terms used herein are defined on ANNEX I
------------ -------
hereto.
NOW, THEREFORE, in consideration of the premises and the mutual
representations hereinafter set forth, the parties hereto hereby agree as
follows:
ARTICLE I
MERGER; EFFECT ON CONSTITUENT CORPORATIONS
1.1 THE MERGER.
----------
In accordance with, and subject to, the provisions of this Agreement, the
Delaware Act and the Missouri Act, the Company shall be merged with and into the
Purchaser which, at and after the Effective Time, shall be and is hereinafter
sometimes referred to as the "SURVIVING CORPORATION." The Company and the
---------------------
Purchaser are hereinafter sometimes collectively referred to as the "CONSTITUENT
-----------
CORPORATIONS."
- ------------
<PAGE>
1.2 EFFECTIVE TIME OF THE MERGER.
----------------------------
The Merger shall become effective upon the filing of a certificate of
merger in the form required under the Delaware Act (the "DELAWARE CERTIFICATE")
--------------------
with the Secretary of State of the State of Delaware and the filing of articles
of merger in the form required under the Missouri Act (the "MISSOURI
--------
CERTIFICATE") with the Secretary of State of the State of Missouri. The
- -----------
Delaware Certificate shall be executed and delivered in the manner provided
under the Delaware Act and the Missouri Certificate shall be executed and
delivered in the manner provided under the Missouri Act. The date and time when
the Merger shall become effective is referred to herein as the "EFFECTIVE TIME."
--------------
1.3 EFFECT OF THE MERGER.
--------------------
Except as specifically set forth herein or in the Delaware Certificate , at
the Effective Time, the identity, existence, corporate organization, purposes,
powers, objects, franchises, privileges, rights, immunities, restrictions,
debts, liabilities and duties (collectively, the "CORPORATE RIGHTS") of the
----------------
Purchaser shall continue in effect and be unimpaired by the Merger, and, subject
to the provisions hereof, the Corporate Rights of the Company shall be merged
with and into the Purchaser, which shall, as the Surviving Corporation, be fully
vested therewith. At the Effective Time, the separate existence and corporate
organization of the Company shall cease, and the Company shall be merged with
and into the Surviving Corporation.
1.4 CHARTER AND BY-LAWS OF SURVIVING CORPORATION.
--------------------------------------------
From and after the Effective Time, (a) the Certificate of Incorporation of
the Purchaser shall be the Certificate of Incorporation of the Surviving
Corporation until altered, amended or repealed as provided in the Delaware Act,
(b) the By-laws of the Purchaser shall become the By-laws of the Surviving
Corporation, unless and until altered, amended or repealed as provided in the
Delaware Act, the Surviving Corporation's Certificate of Incorporation or such
By-laws, and (c) the officers and directors of the Purchaser shall,
respectively, become the officers and directors of the Surviving Corporation
unless and until removed or until their respective terms of office shall have
expired in accordance with the Delaware Act or the Surviving Corporation's
Formation Documents, as applicable.
1.5 AUTHORIZATION OF THE MERGER, THIS AGREEMENT, THE DELAWARE CERTIFICATE AND
--------------------------------------------------------------------------
THE MISSOURI CERTIFICATE.
- ------------------------
(a) Simultaneously with or prior to the execution and delivery of this
Agreement, the Shareholder, being the holder of all of the issued and
outstanding shares of Company Common Stock, shall execute a written consent in
lieu of a meeting, and Holdings, being the sole shareholder of the Purchaser,
shall execute a written consent in lieu of a meeting, each of which written
consents shall include resolutions approving and adopting the Merger, this
Agreement, the Delaware Certificate, the Missouri Certificate
-2-
<PAGE>
and the consummation of the transactions contemplated hereby and thereby, in
each case in accordance with the provisions of the Delaware Act and the Missouri
Act.
(b) The Shareholder shall take, as promptly as practicable, all such
other actions as may be necessary or advisable under the Delaware Act, the
Missouri Act and any other applicable law or regulation in connection with this
Agreement, the Merger, the Delaware Certificate or the Missouri Certificate. The
Shareholder shall cause to be prepared and distributed any written notice or
other materials relating to the shareholder action contemplated by SECTION
-------
1.5(A) required to be delivered pursuant to the Company's Formation Documents,
- ------
the Delaware Act, the Missouri Act or any other federal or state law applicable
to this Agreement, the Merger, the Delaware Certificate, the Missouri
Certificate or such shareholder action (collectively, the "SHAREHOLDER
-----------
MATERIALS"); provided, however, that the Purchaser and its counsel shall have a
- --------- -------- -------
reasonable opportunity to review all Shareholder Materials and all Shareholder
Materials shall be reasonably satisfactory in form and substance to the
Purchaser and its counsel.
1.6 EFFECT ON SECURITIES.
--------------------
Anything contained in this Agreement, the Delaware Certificate or the
Missouri Certificate to the contrary notwithstanding, the entire consideration
payable in the Merger with respect to all shares of capital stock of the Company
shall not exceed the Aggregate Merger Consideration. The manner and basis of
converting, exchanging or canceling the shares of capital stock of each of the
Constituent Corporations into cash and the Holdings Shares shall be as follows:
(a) each Merger Share shall, by virtue of the Merger and without any
action on the part of the Shareholder or the Company, cease to be outstanding
and be converted into the right to receive at and after the Effective Time in
accordance herewith the Per Share Merger Consideration;
(b) each authorized but unissued or treasury share of Company Common
Stock immediately prior to the Effective Time shall be canceled for no
consideration; and
(c) each share of the common stock, par value $.01 per share, of the
Purchaser issued and outstanding prior to the Effective Time shall be unaffected
by the Merger and shall remain outstanding.
1.7 DELIVERY OF FUNDS; SURRENDER OF CERTIFICATES.
--------------------------------------------
At the Effective Time, upon the surrender to the Surviving Corporation of
the certificate or certificates which, immediately prior to the Effective Time,
represented the Merger Shares, the Shareholder shall, from and after the
Effective Time, in accordance with the provisions hereof, be entitled to receive
in exchange for the Merger Shares so surrendered (i) an amount in cash equal to
the Merger Cash Consideration and (ii) a certificate representing the Holdings
Shares (of which the Contingent Shares shall be subject to forfeiture as
provided in SECTION 1.10 below).
------------
-3-
<PAGE>
1.8 AFTER THE EFFECTIVE TIME.
------------------------
The Aggregate Merger Consideration paid in respect of the surrender of
certificates representing the Merger Shares in accordance with the provisions of
this Agreement, the Delaware Certificate and the Missouri Certificate shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
Merger Shares. At and after the Effective Time, the stock transfer books of the
Surviving Corporation shall be closed with respect to the capital stock of the
Company, and thereafter there shall be no further registration of transfers of
the capital stock of the Company on the records of the Surviving Corporation.
1.9 FURTHER ASSURANCES.
------------------
The Shareholder 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 or
assurances as may be reasonably required to effect the Merger.
1.10 CONTINGENT SHARES; EARN-OUT.
---------------------------
(a) Within thirty (30) days after the end of each fiscal quarter of
the Surviving Corporation, commencing with the fiscal quarter ended December 31,
1998, the Surviving Corporation shall deliver to the Shareholder an income
statement prepared in accordance with GAAP (subject to the absence of footnotes
and year-end adjustments) showing the Surviving Corporation's revenues for the
fiscal quarter then ended. In the event that the revenues reflected on such
income statement are equal to or greater than the revenues set forth in the
schedule below for the corresponding fiscal quarter, the Contingent Shares set
forth opposite such corresponding fiscal quarter shall be deemed earned as of
the first day of the next fiscal quarter thereafter and shall no longer be
Contingent Shares subject to forfeiture pursuant to this section, but shall be
Earned Shares for all purposes of this Agreement. In the event that the
revenues reflected on such income statement are less than the revenues set forth
in the schedule below for the corresponding fiscal quarter, the Contingent
Shares set forth opposite such corresponding fiscal quarter, as well as all
Contingent Shares for each subsequent fiscal quarter thereafter, shall
automatically, without any action on the part of any of the parties hereto or
any other Person, be forfeited by the Shareholder to Holdings for no
consideration and deemed to be cancelled and to cease to be outstanding for all
purposes. The schedule referred to above is as follows:
<TABLE>
<CAPTION>
FISCAL
QUARTER ENDED REVENUES CONTINGENT SHARES
------------- -------- -----------------
<S> <C> <C>
12/31/98 $500,000 5,476
3/31/99 $500,000 1,905
6/30/99 $500,000 1,905
9/31/99 $500,000 1,905
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
12/31/99 $500,000 1,905
3/31/99 $500,000 237
</TABLE>
provided, however, that in the event Holdings consummates an Initial Public
- -------- -------
Offering (as defined in the Holdings Stockholder Agreement) prior to December
31, 1998, then (i) 3,571 of the 5,476 Contingent Shares set forth opposite
December 31, 1998, in the above schedule shall be deemed earned as of the
effective date of the registration statement for such Initial Public Offering
and shall no longer be Contingent Shares subject to forfeiture pursuant to this
section, but shall be Earned Shares for all purposes of this Agreement, and (ii)
if such effective date occurs prior to September 30, 1998, then each "Fiscal
Quarter Ended" date in the above schedule shall be accelerated and changed to be
the last day of the previous fiscal quarter (e.g. the fiscal quarter ended
----
December 31, 1998, will be changed to be the fiscal quarter ended September 30,
1998, and so on, with the final "Fiscal Quarter Ended" date in the above
schedule being changed to December 31, 1999).
(b) In the event that Holdings, Pacific Motor or the Surviving
Corporation consummates a Corporate Transaction (as defined below), then all
Contingent Shares on the date of such transaction shall immediately be deemed
Earned Shares as of such date. As used herein, "CORPORATE TRANSACTION" shall
---------------------
mean, with respect to Holdings, Pacific Motor or the Surviving Corporation, (i)
a sale by such entity to one entity or group of entities (who are not Affiliated
with Holdings, Pacific Motor or the Surviving Corporation as of the date
hereof), whether in a single transaction or a series of related transactions, of
assets having an aggregate fair market value greater than 50% of the aggregate
fair market value of all of the assets of such entity and its subsidiaries on a
consolidated basis or (ii) the transfer by such entity or its stockholders
existing as of the date of this Agreement to one entity or group of entities
(who are not Affiliated with Holdings, Pacific Motor or the Surviving
Corporation as of the date hereof) in a single transaction or series of related
transactions (including a merger or similar consolidation) of capital stock
possessing the right to elect a majority of the members of its board of
directors.
(c) Upon any forfeiture of Contingent Shares pursuant TO SECTION
-------
1.10(A), the Shareholder shall promptly deliver to Holdings the certificate or
- -------
certificates representing such Contingent Shares so forfeited, duly endorsed or
accompanied by duly executed stock powers for transfer to Holdings (or, in the
event the loss or theft of such certificate(s), an affidavit of loss and
indemnity reasonably acceptable to Holdings), but the Shareholder's failure to
do so shall not affect in any way such forfeiture. In addition to the
restrictions and limitations placed on the Contingent Shares pursuant to the
Stockholders Agreement, the Shareholder may not Transfer (as defined in the
Stockholders Agreement) any Contingent Shares without the prior written consent
of Holdings in its sole discretion, and any such Transfer attempted without
Holdings' consent shall be void ab initio. All certificates representing
-- ------
Contingent Shares shall bear such legends and notices as may be reasonably
required by Holdings to effectuate and evidence the provisions of this SECTION
-------
1.10. In the event of a Material Adverse Change affecting the Surviving
- ----
Corporation as a result of a loss of, or a material reduction in the
-5-
<PAGE>
business conducted with, a significant customer of the business due to
circumstances beyond the control of the Shareholder, the Surviving Corporation
agrees that it shall, at the Shareholder's request (provided that the
Shareholder is employed by the Surviving Corporation or any of its Affiliates at
the time of such request), in good faith negotiate reasonable and appropriate
adjustments to the quarterly revenue targets contained in the foregoing schedule
to account for such loss or reduction. The Shareholder acknowledges that the
President of the Surviving Corporation, who shall be Gerry Angeli, or in his
absence, Don C. Orris or Douglas R. Korn, or such other person who shall be
reasonably acceptable to the Shareholder for so long as the Shareholder is
employed by the Surviving Corporation or any of its Affiliates, shall have sole
discretion, in consultation with the Shareholder for so long as the Shareholder
is employed by the Surviving Corporation or any of its Affiliates, with respect
to the business and affairs, including strategic matters, of the Surviving
Corporation.
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,
30 Rockefeller Plaza, New York, New York 10112, simultaneously with the
execution and delivery of this Agreement on April 3, 1998, or such other date as
shall be mutually agreeable to the parties hereto (the "CLOSING DATE").
------------
ARTICLE III
REPRESENTATIONS AND WARRANTIES REGARDING
THE SHAREHOLDER AND THE MERGER SHARES
The Shareholder represents and warrants as of the date hereof and as of the
Closing Date as follows:
3.1 TITLE TO THE MERGER SHARES.
--------------------------
The Shareholder is the lawful owner, of record and beneficially, of all of
the Merger Shares and has good and marketable title to the Merger Shares, free
and clear of any and all Encumbrances whatsoever and with no restriction on the
voting rights and other incidents of record and beneficial ownership pertaining
thereto. The Shareholder is not the subject of any bankruptcy, reorganization
or similar proceeding. Except for this Agreement and except as set forth on
SCHEDULE 3.1, there are no agreements or understandings between the Shareholder
- ------------
and any other Person with respect to the acquisition, disposition, transfer,
registration or voting of, or otherwise relating to, any of the capital stock of
the Company.
-6-
<PAGE>
3.2 AUTHORITY; NONCONTRAVENTION; CONSENTS.
-------------------------------------
(a) The Shareholder has the full and absolute legal right, capacity,
power and authority to enter into this Agreement and each Related Document to
which the Shareholder is or will be a party, and this Agreement and each Related
Document to which the Shareholder is or will be a party has been, or upon the
Shareholder's execution and delivery thereof will be, duly and validly executed
and delivered by the Shareholder. This Agreement and each Related Document to
which the Shareholder is a party is, or upon the Shareholder's execution and
delivery thereof will be, the valid and binding obligation of the Shareholder,
enforceable against the Shareholder in accordance with its respective terms.
(b) Neither the execution, delivery and/or performance by the
Shareholder of this Agreement or any Related Document to which the Shareholder
is or will be a party, nor the consummation of the transactions contemplated
hereby or thereby, nor compliance by the Shareholder with any of the provisions
hereof or thereof will (i) 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, any term, condition or provision of any Contract to which the
Shareholder is a party, or by which the Shareholder or his assets may be bound
or (ii) violate any Law applicable to the Shareholder.
(c) Except as contemplated by this Agreement, 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 Shareholder of this Agreement or any
Related Document to which the Shareholder is a party or the consummation by the
Shareholder of the transactions contemplated hereby or thereby.
3.3 INVESTMENT REPRESENTATIONS.
--------------------------
(a) The Shareholder is acquiring the Holdings Shares 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 law.
(b) The Shareholder understands that (i) the Holdings Shares have not
been registered under the Securities Act or applicable state securities laws by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act and applicable state securities laws and (ii)
the Holdings Shares must be held by the Shareholder indefinitely unless a
subsequent disposition thereof is registered or qualified, as the case may be,
under the Securities Act and applicable state securities laws or is exempt from
registration or qualification, as the case may be.
(c) The Shareholder acknowledges that there is no public market for
the Holdings Common Stock and that an investment in the Holdings Shares is
speculative
-7-
<PAGE>
and that no assurance has been or can be given as to the prospects of Holdings
and its subsidiaries or as to the likelihood or probability that such a public
market will develop.
(d) The Shareholder is an "accredited investor" (as defined in Rule
501(a) of Regulation D promulgated under the Securities Act). The Shareholder
and his attorneys and other representatives have had free and full access to all
agreements, documents, records and books of Holdings and its subsidiaries that
the Shareholder has requested in connection with his acquisition of the Holdings
Shares. The Shareholder has had an opportunity to ask questions of, and receive
answers from, persons acting on behalf of Holdings and its subsidiaries
concerning Holdings and its subsidiaries and the terms and conditions of the
Shareholder's acquisition of the Holdings Shares hereunder, and answers have
been provided to all of such questions to the full satisfaction of the
Shareholder. The Shareholder (together with his adviser representative, if any)
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 Holdings
Shares hereunder.
(e) The Shareholder is not a person who is, or would cause the
Purchaser to be, disqualified pursuant to Rule 262 promulgated under the
Securities Act.
3.4 AFFILIATE ASSETS.
----------------
The Affiliate Assets listed on SCHEDULE 3.4 hereto constitute all of the
------------
assets, properties and rights owned by the Shareholder or any of his Affiliates
(other than the Company) that are used in or necessary for the conduct of the
Business as currently conducted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER REGARDING THE COMPANY/1/
The Shareholder represents and warrants as of the date hereof and as of the
Closing Date as follows:
4.1 ORGANIZATION, POWER, AUTHORITY AND GOOD STANDING.
------------------------------------------------
The 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 (corporate and 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 Company is duly
qualified and in good standing to transact business as a foreign Person in those
jurisdictions set forth on SCHEDULE 4.1, which constitute all the
------------
______________________
/1/ Additional Representations and Warranties, if any, to come upon completion
of due diligence.
-8-
<PAGE>
jurisdictions in which the character of the property owned, leased or operated
by the Companyor the nature of the business or activities conducted by the
Company makes such qualification necessary. The Purchaser has been furnished
with true, correct and complete copies of the articles of incorporation of the
Company (the "COMPANY'S CHARTER") and the by-laws of the Company (the "COMPANY'S
----------------- ---------
BY-LAWS"), in each case as amended and in effect on the date hereof. Except as
- -------
set forth on SCHEDULE 4.1, the Company has (i) never engaged in any business
------------
other than the Business and (ii) not used within the last five years any other
trade name or assumed names.
4.2 AUTHORIZATION, EXECUTION AND ENFORCEABILITY.
-------------------------------------------
The 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. The 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 the
Company of its obligations hereunder and thereunder have been duly and validly
authorized by all requisite action on the part of the Company and its
shareholders, and this Agreement and each Related Document to which the Company
is or will be a party has been, or upon the Company's execution and delivery
thereof will be, duly and validly executed and delivered by the Company and
constitutes, or upon its execution and delivery will constitute, a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms. Neither the Company's execution and delivery of, and/or
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, shall (a) violate, or result in the creation of
an Encumbrance upon any of the Company's assets as a result of, any Laws
applicable to the Company or any of its properties or assets or (b) 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 or give rise to
any right of contingent payment, termination, cancellation or acceleration, or
result in the creation of any Encumbrance upon any of the properties or assets
of the Company, under, any provision of the Company's Charter or the Company's
By-laws or any Contract listed on SCHEDULE 4.13 (or incorporated onto such
-------------
Schedule by reference).
4.3 CONSENTS.
--------
Except as set forth on SCHEDULE 4.3, 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 the Company of this Agreement or any Related Document to which it
is or will be a party or the consummation of the transactions contemplated
hereby or thereby.
-9-
<PAGE>
4.4 CAPITALIZATION.
--------------
(a) The authorized capital stock of the Company consists of 30,000
duly authorized shares of Company Common Stock, of which 500 shares of Company
Common Stock are duly and validly issued and outstanding, fully paid and
nonassessable, with no personal Liability attached to the ownership thereof, and
all of which are held of record and beneficially by the Shareholder.
(b) There are no securities presently outstanding which are
convertible into, exchangeable for, or carry the right to acquire, equity
securities of the Company, and there are no subscriptions, warrants, options,
calls, puts, convertible securities, registration or other rights, arrangements
or commitments obligating the 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 the
Company is bound with respect to the voting of the Company's capital stock.
There are no stock appreciation rights, phantom stock rights or similar rights
or arrangements outstanding. Except as set forth on SCHEDULE 4.4, there are no
------------
Contracts to which the Company, the Shareholder or any other Person is a party
relating in any way to any shares of capital stock or other securities of the
Company.
(c) All securities issued by the 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 the Company has not violated the Securities Act or any applicable
state securities or "blue sky" laws in connection with the issuance of any such
securities.
4.5 SUBSIDIARIES; INVESTMENTS.
-------------------------
Except as set forth on SCHEDULE 4.5, the Company does not own or hold,
------------
directly or indirectly, any equity interest in any Person.
4.6 FINANCIAL INFORMATION.
---------------------
(a) SCHEDULE 4.6 attached hereto contains true, correct and complete
------------
copies of (i) the unaudited balance sheet of the Company as of December 31,
1997 (the "LATEST BALANCE SHEET"; and such date being the "LATEST BALANCE SHEET
-------------------- --------------------
DATE"), and the related unaudited statement of income of the Company for the
- ----
twelve-month period then ended, including any footnotes thereto, (ii) the
unaudited balance sheet of the Company as of January 31, 1998, and the related
unaudited statement of income of the Company for the month then ended and (iii)
the unaudited balance sheet of the Company as of February 28, 1998, and the
related unaudited statement of income of the Company for the month then ended
(all of the foregoing, including the Latest Balance Sheet, being collectively
referred to as the "UNAUDITED FINANCIAL STATEMENTS").
------------------------------
(b) The Unaudited Financial Statements (i) are true, complete and
correct in all material respects to the Actual Knowledge of the Shareholder, and
(ii) have been
-10-
<PAGE>
prepared in accordance with the books and records of the Company which have been
maintained in a manner consistent with historical practice.
(c) The Purchaser acknowledges that the Unaudited Financial Statements
have not been prepared in accordance with GAAP and shall have no claim against
the Shareholder or the Company based on an alleged breach of this SECTION 4.6
-----------
arising from any failure of the Unaudited Financial Statements to be in
accordance with GAAP.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES.
----------------------------------
To the Actual Knowledge of the Shareholder, except as set forth on SCHEDULE
--------
4.7, (a) the Company has no Liabilities except (i) to the extent expressly
- ---
reflected or reserved against on the Latest Balance Sheet, (ii) Liabilities
under Contracts (except arising from any breach thereof) and (iii) Liabilities
incurred in the ordinary course of business since the date of the Latest Balance
Sheet (other than any such Liability arising from or under any breach of
contract, breach of warranty, tort, infringement, Environmental, Health and
Safety Law or any other Law or any Proceeding) and (b) there are no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975). To the Actual Knowledge of the Shareholder, except as may be disclosed
on SCHEDULE 4.19(A) or SCHEDULE 4.19(B), the Company has not, 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.
4.8 ABSENCE OF CHANGES.
------------------
Since the Latest Balance Sheet Date, except as set forth on SCHEDULE 4.8,
------------
the Company has been operated in the ordinary course of the Business, consistent
with past practice, and there has not been:
(a) to the Actual Knowledge of the Shareholder, any material adverse
change in the business, operations, assets, condition (financial or otherwise),
operating results, liabilities, relations with employees, customers or
suppliers, or prospects of the Company or any material casualty loss or damage
to the assets of the Company, whether or not covered by insurance (a "MATERIAL
--------
ADVERSE CHANGE");
- --------------
(b) any declaration, setting aside or payment of any distribution with
respect to any shares of capital stock of the 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 the Company, whether or not on or with respect
to any shares of capital stock of the Company owned by such Affiliate (other
than (i) salaries and benefits paid in the ordinary course of the Business as
previously disclosed to the Purchaser, (ii) dividends of not more than $325,391
and (iii) the transfer of a certificate of deposit from the Company to the
Shareholder in the face amount of $8,500 issued by Mercantile Bank);
-11-
<PAGE>
(c) 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 the Company, or any increase in any such compensation
payable to any officer, director, manager or key employee, except as may be
contained in the Employment Agreement and as previously disclosed to the
Purchaser;
(d) any change in the tax or other accounting methods or practices
followed by the Company, any change in depreciation or amortization policies or
rates previously adopted or any write-up of inventory or other assets;
(e) any material change in the manner in which (i) products or
services of the Company are marketed (including any change in prices), (ii) the
Company extends discounts or credit to customers or (iii) the Company collects
accounts receivable or otherwise deals with customers;
(f) any failure by the Company to pay trade accounts payable or any
other Liability of the Company when due; or
(g) any agreement, whether in writing or otherwise, to take any of the
actions specified in the foregoing CLAUSES (A) through (F).
----------- ---
4.9 TAX MATTERS; CERTAIN DEFINITIONS.
--------------------------------
(a) Except as set forth on SCHEDULE 4.9(A), the 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 the 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) Except as set forth on SCHEDULE 4.9(B):
---------------
(i) the Company has not 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 the
Company, there are no pending Tax audits and no waivers of statutes of
limitations have been given or requested with respect to the Company;
-12-
<PAGE>
(ii) the Company has not incurred any Tax Liability from and
after the Latest Balance Sheet Date other than Taxes incurred in the
ordinary course of business;
(iii) the Company is not and has not (A) made an election to be
treated as a "consenting corporation" under Section 341(f) of the Code or
(B) been a "personal holding company" within the meaning of Section 542 of
the Code;
(iv) the Company has made an election under the provisions of
Section 1362 (a) of the Code to be taxed as an S Corporation and the
Company has been since __________, and continues to be, taxed as an S
Corporation for federal income tax purposes for each of such taxable
periods and has made a corresponding election under the tax laws of each of
the states in which it does business for each of such taxable years, and
such elections have been accepted and, to the Actual Knowledge of the
Shareholder, have never been challenged by the Internal Revenue Service or
any other taxing authority;
(v) the 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) the Company is not and has not ever been a party to any
Tax sharing agreement with any Person except as may be implied under
Section 1362(a) of the Code for shareholders who have made an election to
be treated under Subchapter S of the Code;
(vii) the Company has not agreed to and is not 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 the Company;
(viii) no claim has ever been made by any taxing authority in a
jurisdiction in which the Company does not file Tax Returns that the
Company is or may be subject to taxation by that jurisdiction;
(ix) the Company will not be liable for any Taxes under Section
1374 of the Code in connection with the transactions contemplated hereby,
and the Company has not, within the past ten years, (A) acquired assets
from another corporation in a transaction in which the Company's Tax basis
is determined by reference to the Tax basis of the acquired assets (or any
other property) in the hands of the transferor or (B) acquired the stock of
any corporation which is a qualified subchapter S subsidiary; and
-13-
<PAGE>
(x) the Company is not a foreign Person within the meaning of
(S)(S)1.1445-2(b) of the rules and regulations promulgated under Section
1445 of the Code, and the Purchaser has been furnished with a true and
accurate certificate of the Company so stating which complies in all
respects with (S)(S)1.1445-2(b)(1) of such rules and regulations.
4.10 TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS.
----------------------------------------------------------
(a) The Company has good and marketable title to (or a valid leasehold
interest in) 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 inventory or other 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 4.10(A) and
----------------
Permitted Encumbrances. Such assets comprise substantially all of the assets
used in or required for the conduct of the Business as currently conducted.
Such assets are generally in good operating condition and repair (normal wear
and tear excepted), are suitable for the uses for which they are used in the
Business. To the Actual Knowledge of the Shareholder, with respect to any
Leased Property, such assets are in such condition as to permit the surrender
thereof by the Company 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
inventory, supplies, trucks and trailers in transit in the ordinary course of
the Business, all material tangible personal property is located on the premises
of the Company.
(b) SCHEDULE 4.10(B) contains a true, correct and complete list of all
----------------
property, plant and equipment owned by the Company as of the Closing Date.
4.11 REAL PROPERTY-OWNED OR LEASED.
-----------------------------
(a) The Company does not own any real property. SCHEDULE 4.11(A)
----------------
contains a list and brief description of all of the real property leased by the
Company subject to one or more leases (the "LEASED PROPERTY"). True, correct and
---------------
complete copies of such leases covering the Leased Property have been delivered
to the Purchaser prior to the date hereof. The Leased Property constitutes all
real property used or occupied by the Company in connection with the Business.
(b) With respect to the Leased Property, except as set forth on
SCHEDULE 4.11(B):
- ----------------
(i) to the Actual Knowledge of the Shareholder, no portion
thereof is subject to any pending condemnation Proceeding or Proceeding by
any public
-14-
<PAGE>
or quasi-public authority and there is no threatened condemnation or
Proceeding with respect thereto;
(ii) the physical condition of the Leased Property is sufficient
to permit the continued conduct of the Business as presently 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) subject to the terms of the leases (and any subleases)
covering the Leased Property, the Company is the holder of all the
leasehold estates purported to be granted by such leases;
(iv) there are no Contracts, written or oral, to which the
Company or any Affiliate thereof is a party, granting to any party or
parties the right of use or occupancy of any portion of the parcels of the
Leased Property;
(v) there are no parties (other than the Company or its lessees
disclosed pursuant to CLAUSE (IV) above) in possession of the Leased
------ ----
Property; and
(vi) to the Actual Knowledge of the Shareholder, no notice of
any increase in the assessed valuation of the Leased Property, no notice of
any contemplated special assessment has been received by the Company, and
there is no threatened increase in assessed valuation or threatened special
assessment pertaining to any of the Leased Property.
4.12 [OMITTED.]
-------
4.13 AGREEMENTS, NO DEFAULTS, ETC.
----------------------------
(a) SCHEDULE 4.13 contains a true and complete list and brief
-------------
description of all written or oral Contracts to which the 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 (XII) of this SECTION 4.13(A). Except as set
----------- ----- ---------------
forth on SCHEDULE 4.13, the Company is not 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;
(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;
-15-
<PAGE>
(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 $5,000
individually or $10,000 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;
(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 which restricts the Company from engaging in any
aspect of the Business or any other business anywhere in the world;
(x) 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) for the purchase or sale of
products or services under which the undelivered balance thereof (including
the aggregate undelivered balance under any such Contracts between the same
Person and the Company) has a selling price in excess of $25,000;
(xi) 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); and
(xii) other Contract material to the Business or with any
Affiliate of the Shareholder or any "associate" of the Shareholder (as
defined in the rules promulgated under the Securities Exchange Act of 1934,
as amended).
The Contracts disclosed on SCHEDULE 4.4, the leases described on SCHEDULE
------------ --------
4.11(A), the insurance policies on SCHEDULE 4.16, the Company Employee Plans and
- ------- -------------
the Contracts on SCHEDULE 4.21, are incorporated by reference onto SCHEDULE
------------- --------
4.13.
- ----
(b) All items listed on SCHEDULE 4.13 (or incorporated thereon by
-------------
reference) are in full force and effect, constitute legal, valid and binding
obligations of the Company, and are enforceable in accordance with their
respective terms. To the
-16-
<PAGE>
Actual Knowledge of the Shareholder, the Company has in all material respects
performed all of the obligations required to be performed by it to date, and
there exists no material 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 material
default in the performance by the Company or 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 4.13 and SCHEDULE 4.13 contains accurate descriptions of all oral items
- ------------- -------------
listed on SCHEDULE 4.13 (and items incorporated thereon by reference).
-------------
(c) SCHEDULE 4.13 contains a true and complete list of all Funded
-------------
Indebtedness of the Company, 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. As of the
Closing, the aggregate principal amount of outstanding Funded Indebtedness of
the Company is not greater than $190,000.
4.14 LITIGATION, ETC.
---------------
Except as set forth on SCHEDULE 4.14, and except 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
Actual Knowledge of the Shareholder, threatened against the Company, whether at
law or in equity and whether civil or criminal in nature or before or by any
Governmental Entity or arbitrator, nor to the Actual Knowledge of the
Shareholder does there exist any basis therefor, or (ii) Orders of any
Governmental Entity or arbitrator naming the Company. The Company has delivered
to the Purchaser all material documents and correspondence in its or the
Shareholder's possession relating to such matters referred to on SCHEDULE 4.14.
-------------
4.15 COMPLIANCE WITH LAWS.
--------------------
To the Actual Knowledge of the Shareholder, (a) the Company has complied in
all material respects with, and is in compliance in all material respects with,
all Laws, Orders and Permits applicable to it and the Business, (b) the Company
has all Permits used or necessary in the conduct of the Business and (c) such
Permits listed on SCHEDULE 4.15 are in full force and effect, and no material
-------------
violations with respect to any thereof have occurred or are or have been
recorded, and no proceeding is pending or, to the Actual Knowledge of the
Shareholder, threatened, to revoke or limit any thereof. No investigation or
review by any Governmental Entity with respect to the Company is pending or, to
the Actual Knowledge of the Shareholder, threatened, nor has any Governmental
Entity notified the Company of its intention to conduct the same.
-17-
<PAGE>
4.16 INSURANCE.
---------
(a) SCHEDULE 4.16(A) contains a true and complete list of all
----------------
policies of liability, theft, fidelity, life, fire, product liability, cargo,
workers' compensation, health and other forms of insurance held by the Company
and/or the Shareholder for the benefit of the Company (specifying the insurer,
amount and basis (i.e., claims made or occurrence based) of coverage, type of
insurance and policy number). The Company and/or the Shareholder have maintained
such insurance coverage at all times during the course of the operation of the
Business.
(b) Except as set forth on SCHEDULE 4.16(B), with respect to each
----------------
policy of insurance listed on SCHEDULE 4.16(A):
----------------
(i) all premiums with respect thereto are currently paid or
prepaid and are not subject to adjustment, and neither the Shareholder nor
the Company is in material default in any respect with respect to its
obligations under such policy, and, to the Actual Knowledge of the
Shareholder, 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; and
(iii) the Company has not received any notice that such policy
has been or will 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 will be materially increased upon the renewal thereof.
4.17 LABOR RELATIONS; EMPLOYEES.
--------------------------
(a) SCHEDULE 4.17 sets forth a list of all directors, officers and
-------------
employees of the 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 4.17
-------------
indicates the nature of such leave of absence and such employee's anticipated
date of return to active employment. To the Actual Knowledge of the
Shareholder, none of the key employees listed on SCHEDULE 4.17 has any plans or
-------------
intends to terminate his or their employment or engagement with the Company and
no former key employee has left the service of the Company within the last 6
months.
(b) To the Actual Knowledge of the Shareholder, except as set forth on
SCHEDULE 4.17:
- -------------
-18-
<PAGE>
(i) the Company generally enjoys good relations with all of its
employees, and there is no labor strike, dispute or grievance, slowdown or
stoppage actually pending or threatened against or involving the Company;
and
(ii) the Company is not a party to or bound by any collective
bargaining agreement, union contract or similar agreement, no such
agreement is currently being negotiated by the Company, no labor union has
taken any action with respect to organizing employees of the Company and no
representation question exists with respect to any such employees.
4.18 ERISA COMPLIANCE.
----------------
(a) SCHEDULE 4.18(A) contains a true, complete and correct list of all
----------------
Employee Benefit Plans (collectively, the "COMPANY EMPLOYEE PLANS"):
----------------------
(i) that cover any employees, contract employees or former employees
of the Company or any spouses, family members or beneficiaries thereof (A)
that are maintained, sponsored or contributed to by the Company or (B) with
respect to which the Company is obligated to contribute or has any actual
or potential Liability or obligation on account of the maintenance or
sponsorship thereof or contribution thereto by any present or former ERISA
Affiliate of the Company; or
(ii) with respect to which the Company has any actual or potential
liability or obligation on account of the maintenance or sponsorship
thereof or contribution thereto by any present or former ERISA Affiliate of
the Company.
(b) To the Actual Knowledge of the Shareholder, except as set forth on
SCHEDULE 4.18(B), with respect to each Company Employee Plan:
- ----------------
(i) such Company Employee Plan has been established, maintained, and
administered in accordance with its terms and in compliance in all material
respects 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 the Company and all amounts withheld from employees have
been timely deposited into the appropriate trust or account;
(iii) there is no unfunded actual or potential Liability relating to
such Company Employee Plan which is not reflected on the Latest Balance
Sheet, or
-19-
<PAGE>
with respect to accruals properly made after the Latest Balance Sheet Date,
on the books and records of the Company;
(iv) neither the Company nor any of 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 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 (1) of ERISA;
(v) no Proceedings (other than routine claims for benefits)
are pending or threatened against or relating to any Company Employee Plan
or any fiduciary thereof, and there is no basis for any such Proceeding
against any Company Employee Plan;
(vi) such 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, such Company Employee Plan does not obligate the 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) if such Company Employee Plan is a "group health plan"
within the meaning of Section 5000 of the Code, such Company Employee Plan
has been maintained in compliance with Section 4980B of the Code and Title
I, Subtitle B, Part 6 of ERISA and no tax payable on account of Section
4980 B of the Code has been or is expected to be incurred;
(ix) neither the Company nor any ERISA Affiliate thereof is or
has ever maintained or been obligated to contribute to a Multiemployer Plan
(as defined 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) all bonding and reporting and disclosure obligations
imposed under ERISA and the Code have been satisfied with respect to each
Company Employee Plan.
(c) The Purchaser has been provided with true and complete copies, to
the extent applicable, of all documents pursuant to which such Company Employee
Plan is
-20-
<PAGE>
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 such
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, without limitation, any agreement or provision
which would limit the ability of the Company to make any prospective amendments
or terminate such Company Employee Plan).
4.19 ENVIRONMENTAL MATTERS.
---------------------
(a) Except as set forth on SCHEDULE 4.19(A), to the Actual Knowledge
----------------
of the Shareholder, neither the Company nor any of its 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 or potential
Liabilities, including any investigatory, remedial or corrective obligations,
relating to the Company, the Business or any of the Company's current or former
owned or leased properties or operations or (ii) that the 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 4.19(B) sets forth a complete and accurate list of all
----------------
properties and facilities previously owned, leased or operated by the Company or
any predecessor of the Company (together with the Leased Properties, the
"COVERED PROPERTIES"). Except as set forth on SCHEDULE 4.19(B), to the Actual
------------------ ----------------
Knowledge of the Shareholder, 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 the Company under any Environmental, Health and Safety Laws. To
the Actual Knowledge of the Shareholder, except as set forth on SCHEDULE
--------
4.19(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 Leased
Properties.
(c) To the Actual Knowledge of the Shareholder, except as set forth
on SCHEDULE 4.19(B), neither the Company nor any of its 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.
-21-
<PAGE>
(d) To the Actual Knowledge of the Shareholder, no facts, events or
conditions relating to the past or present operations of the Company or any of
its Affiliates, nor any of their respective predecessors or any of the Covered
Properties will prevent continued compliance by the Company and the Business
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, without limitation, 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) To the Actual Knowledge of the Shareholder, 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.
(f) The Company has provided the Purchaser with correct and complete
copies of all reports and studies within the possession or control of the
Company or the Shareholder with respect to past or present environmental
conditions or events at any of the Covered Properties and, to the Actual
Knowledge of the Shareholder, there are no other environmental reports or
studies with respect thereto.
4.20 BROKERS.
-------
Neither the Shareholder nor the 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.
4.21 RELATED PARTY TRANSACTIONS.
--------------------------
Except as set forth on SCHEDULE 4.21, no current or former Affiliate of the
-------------
Company or any "associate" (as defined in the rules promulgated under the
Securities Exchange Act of 1934, as amended) thereof, is now, or has been during
the last five fiscal years, the direct or indirect owner of an interest in any
Person which is a present or potential competitor, supplier or customer of the
Company (other than non-affiliated holdings in publicly held companies). Except
as set forth on SCHEDULE 4.21, the Company is not a guarantor or otherwise
-------------
liable for any actual or potential Liability of its Affiliates and their
associates. Except as set forth on SCHEDULE 4.21, the Company does not (x) own
-------------
or operate any vehicles, boats, aircraft, apartments or other residential or
recreational properties or facilities for executive, administrative or sales
purposes or (y) own or pay for any social club memberships, whether or not for
the benefit of the Company and/or its executives.
-22-
<PAGE>
4.22 ACCOUNTS AND NOTES RECEIVABLE.
-----------------------------
Except as set forth on SCHEDULE 4.22, all the accounts receivable and notes
-------------
receivable owing to the Company or its subsidiaries as of the date hereof
constitute valid and enforceable claims, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, 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 at law or in equity), arising from bona fide transactions in the
ordinary course of business, and to the Best Knowledge of the Shareholder, 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 4.22, there is (i) no
-------------
account that is delinquent by more than 90 days or subject to an actual or, to
the Best Knowledge of the Shareholder, threatened refusal to pay for any reason,
or a claim of set-off or similar claim.
4.23 BANK ACCOUNTS; POWERS OF ATTORNEY.
---------------------------------
SCHEDULE 4.23 sets forth a true and complete list of (i) all bank accounts
-------------
and safe deposit boxes of the 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 the Company and a summary of the terms thereof
(excluding ministerial powers of attorney granted to representatives of the
Company which are terminable at will).
4.24 CUSTOMERS.
---------
The Company's sole customer is Union Pacific Railroad, which has not
notified the Company that it intends, nor, to the Best Knowledge of the
Shareholder, has it threatened, to terminate, curtail or otherwise alter its
relationship or dealings (including with respect to pricing, scope or volume of
services) with the Company in a manner that has had or would reasonably be
likely to have a Material Adverse Change.
4.25 CONFLICTS OF INTEREST.
---------------------
Neither the Shareholder, the Company nor any officer, employee, agent or
other Person acting on behalf of the Shareholder or the Company 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 the Company (or assist in
connection with any actual or proposed transaction) that (i) might subject the
Company to any damage or penalty in any Proceeding, (ii) if not given in the
past, would have resulted in a Material Adverse Change to the Company 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
-23-
<PAGE>
been, any employment by the Company of, or beneficial ownership in the Company
by, any governmental or political official in any jurisdiction in which the
Company has conducted or proposes to conduct business.
4.26 DISCLOSURE.
----------
Neither this Agreement, including the schedules, attachments or exhibits
hereto, nor any other written material delivered by or on behalf of the Company
or the Shareholder to the Purchaser or any of its representatives contains any
untrue statement of a material fact or omits 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.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND HOLDINGS
The Purchaser and Holdings represent and warrant as of the Closing Date as
follows:
5.1 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 5.1, 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 Shareholder has been furnished with true, correct
and complete copies of the certificate of incorporation (the "PURCHASER'S
-----------
CHARTER") and by-laws (the "PURCHASER'S BY-LAWS") of Purchaser, in each case as
- ------- -------------------
amended and in effect on the date hereof.
5.2 CORPORATE ACTION; AUTHORITY; 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 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 Purchaser
and its shareholders. This Agreement and each
-24-
<PAGE>
Related Document to which it is or will be a party has been or upon the
Purchaser's execution and delivery thereof will be, duly and validly executed
and delivered by Purchaser, and constitutes, or upon its execution and delivery
will constitute, a valid and binding obligation of Purchaser, enforceable
against it in accordance with its terms. Neither Purchaser's execution and
delivery of, and/or 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 shall (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
Purchaser under provision of Purchaser's Charter or Purchaser's By-laws or any
Contract to which 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 Purchaser's assets as a result of, any Laws applicable
to Purchaser or any of its properties or assets.
5.3 BROKERS.
-------
Except as set forth on SCHEDULE 5.3, Purchaser has not employed any broker
------------
or finder or incurred any Liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated hereby.
5.4 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 and performance by Purchaser of this Agreement or
the Related Documents to which Purchaser is or will be a party or the
consummation of the transactions contemplated hereby or thereby.
5.5 ORGANIZATION; CORPORATE AUTHORITY.
---------------------------------
Holdings 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 Shareholder has been furnished
with true, correct and complete copies of the certificate of incorporation (the
"HOLDINGS CHARTER") and by-laws (the "HOLDINGS BY-LAWS") of Holdings, in each
---------------- ----------------
case as amended and in effect on the date hereof.
5.6 CORPORATE ACTION; AUTHORITY; NO CONFLICT.
----------------------------------------
Holdings 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 Holdings of this
Agreement and each Related
-25-
<PAGE>
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 Holdings and its shareholders. This Agreement
and each Related Document to which it is or will be a party has been or upon
Holdings' execution and delivery thereof will be, duly and validly executed and
delivered by Holdings' and constitutes, or upon its execution and delivery will
constitute, a valid and binding obligation of Holdings, enforceable against it
in accordance with its terms. Neither Holdings' execution and delivery of,
and/or 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 shall 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 under any provision of the Holdings
Charter or the Holdings By-laws or any material Contract to which Holdings is a
party or by which it or any of its assets or properties is or may be bound.
5.7 CAPITALIZATION.
--------------
(a) The authorized capital stock of Holdings is as set forth on
SCHEDULE 5.7, which schedule also sets forth the total number of outstanding
- ------------
shares of Holdings. All such outstanding shares disclosed on SCHEDULE 5.7 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 5.7.
------------
(b) Except as set forth on SCHEDULE 5.7, 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 Holdings, or subscriptions, warrants, options,
calls, puts, convertible securities, registration or other rights, arrangements
or commitments obligating Holdings 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 5.7, there are no
------------
Contracts to which Holdings or any of its subsidiaries is a party with respect
to the voting of such Person's capital stock.
5.8 DULY AUTHORIZED, VALIDLY ISSUED HOLDINGS SHARES.
-----------------------------------------------
The Holdings Shares have been duly authorized and, when issued and
delivered to the Shareholder against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and, based on
the truthfulness and accuracy of the Shareholder's representations in SECTION
-------
3.3, exempt from registration under the Securities Act and the rules and
- ---
regulations promulgated thereunder.
-26-
<PAGE>
5.9 FINANCIAL INFORMATION.
---------------------
(a) SCHEDULE 5.9 attached hereto contains copies of the following:
------------
(i) unaudited (internally prepared) preliminary consolidated
balance sheet of Holdings and its subsidiaries as of December 31, 1997;
(ii) the unaudited (internally prepared) consolidated statements of
operations of Holdings and its subsidiaries for the nine-month period ended
September 30, 1997; and (iii) the unaudited (internally prepared)
preliminary consolidated statements of income of Holdings and its
subsidiaries for the one-month periods ended January 31, 1998, and February
28, 1998 (collectively, the "HOLDINGS UNAUDITED FINANCIAL STATEMENTS").
---------------------------------------
(b) Except as set forth on SCHEDULE 5.9, the Holdings Unaudited
------------
Financial Statements (i) are true, complete and correct in all material
respects, and (ii) have been prepared in accordance with the books and records
of Holdings and its subsidiaries which have been maintained in a manner
consistent with historical practice. The Shareholder acknowledges that the
Holdings Unaudited Financial Statements have not been prepared in accordance
with GAAP in all respects.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 [OMITTED.]
----------
6.2 CONFIDENTIAL INFORMATION.
------------------------
The Shareholder agrees that all confidential or proprietary information
relating to the Business which is known to the Shareholder as of the Closing
Date will be the sole property of the Company. The Shareholder agrees that it
will not use or disclose such information except for the benefit of the Company
and the Shareholder will take reasonable steps to protect such information from
misuse, loss, theft or accidental disclosure.
6.3 PUBLIC ANNOUNCEMENTS.
--------------------
Each party agrees that, except (i) as otherwise required by Law and (ii)
for disclosure to its respective directors, officers, employees, financial
advisors, potential 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, 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
-27-
<PAGE>
transactions contemplated hereby or thereby, without the prior consent of the
Company and the Purchaser, which consent shall not unreasonably be withheld or
delayed.
6.4 COOPERATION REGARDING TAX FILINGS.
---------------------------------
After the Closing, the Purchaser, the Company and the Shareholder 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.
6.5 NON-COMPETE; NON-SOLICITATION.
-----------------------------
(a) The Shareholder acknowledges and agrees that as a mutual
condition to the respective obligations of the parties at the Closing, as a
material inducement to the Purchaser and Holdings to enter into and perform
their obligations hereunder, and in consideration of the payments to be received
by the Shareholder under this Agreement, the Shareholder shall not, without the
prior written consent of Holdings, 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 the
----------
Company (other than the Shareholder's spouse) or any of its subsidiaries or
Affiliates to terminate their employment with the Company or any of its
subsidiaries or Affiliates or to engage in any Competing Business or (iv) induce
any customer, vendor, agent, owner/operator, fleet owner or any other person or
entity with which the Company or any of its 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 Shareholder's
ownership of securities of any publicly traded securities which represent not
more than 5% of the ownership interests of the issuer.
(b) The Shareholder understands that the foregoing restrictions may
limit his ability to earn a livelihood in a business similar to the business of
the Company or any subsidiary or Affiliate thereof, but the Shareholder
nevertheless believes that he has received and will receive sufficient
consideration and other benefits under this Agreement and the Related Documents
to which he is or will be a party to justify clearly such restrictions which, in
any event (given the Shareholder's education, skills and ability), the
Shareholder 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 providing any of the following services: freight consolidation and
deconsolidation; traffic management; railroad signal project management,
consolidation
-28-
<PAGE>
and/or deconsolidation or reclamation and salvage; intermodal marketing; or
flatbed specialized hauling using owner-operators or agents; provided, however,
-------- -------
that:
(i) 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
Shareholder's association with any such separate division or business unit
(fully taking into account his functions and the nature of his work at such
division or business unit) does not relate in any material respect to such
portion of such business which would be a Competing Business hereunder; and
(ii) the provision of freight consolidation consulting services
to a direct shipper who is not a customer of the Company or any of its
affiliates or any railroad at the time of the termination of the
Shareholder's employment with the Company, or a former customer of the
Company or any of its affiliates or any railroad at any time during the 12
months preceding such termination, shall not be deemed to be "engaging in a
Competing Business" for purposes of this SECTION 6.5.
-----------
ARTICLE VII
DELIVERIES AT CLOSING
7.1 DELIVERIES BY THE SHAREHOLDER.
-----------------------------
At the Closing, the Shareholder shall deliver or cause to be delivered to
the Purchaser the following items:
(A) DELIVERY OF ALL MERGER SHARES. The certificate or certificates
-----------------------------
representing all of the Merger Shares, duly endorsed for transfer and free and
clear of all Encumbrances.
(B) CONSENTS AND APPROVALS. Duly executed copies of all consents and
----------------------
approvals required for or in connection with the execution and delivery by the
Company and the Shareholder 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 and all material consents identified on
SCHEDULE 4.3), in form and substance reasonably satisfactory to the Purchaser
- ------------
and its counsel.
(C) RELATED DOCUMENTS. Each of the following documents (each, a
-----------------
"RELATED DOCUMENT," and collectively, the "RELATED DOCUMENTS") executed and
- ----------------- -----------------
delivered by the parties thereto (the transactions contemplated thereby to be
completed at
-29-
<PAGE>
or prior to the Closing substantially consummated or effected, as the case may
be, in accordance with the terms thereof):
(i) Delaware Certificate.
(ii) Missouri Certificate.
(iii) EMPLOYMENT AGREEMENT. The Employment Agreement between the
--------------------
Shareholder and Pacific Motor, substantially in the form of EXHIBIT A
---------
attached hereto;
(iv) HOLDINGS STOCKHOLDERS AGREEMENT. A joinder agreement
-------------------------------
substantially in the form of EXHIBIT B attached hereto (the "JOINDER
--------- -------
AGREEMENT") duly executed and delivered by the Shareholder, pursuant to
---------
which the Shareholder will become a party to, and be bound by and obligated
to comply with the terms and provisions of, the Holdings Stockholders
Agreement;
(v) SIDE LETTER AGREEMENT. The side letter agreement (the
--------------------- ----
"SIDE LETTER AGREEMENT") relating to the Holdings Stockholders Agreement,
---------------------
substantially the form of EXHIBIT C attached hereto, executed and delivered
---------
by each of the parties thereto.
(d) CLOSING CERTIFICATES. Each of the following certificates 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 the Company, dated as of
the Closing Date, certifying (i) that true and complete copies of the
Company's Charter and the Company's By-laws as in effect on the date of the
adoption of the resolutions referred to below and 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 the Company authorizing the execution, delivery and
performance of this Agreement and the Related Documents to which the
Company is a party and the consummation of the transactions contemplated
hereby and thereby; and
(ii) certificates dated within five days of the Closing Date of
the secretaries of state of the states in which the Company is organized
and qualified to do business as of the Closing Date, certifying as to the
good standing and nondelinquent tax status of the Company.
(e) PAY-OFF LETTERS; TERMINATION AGREEMENTS. Pay-off and/or
---------------------------------------
termination agreements relating to the payment of Funded Indebtedness, duly
executed and delivered by the holders thereof, all on terms and in substance
reasonably satisfactory to the Purchaser.
-30-
<PAGE>
7.2 DELIVERIES BY THE PURCHASER.
---------------------------
At the Closing the Purchaser shall deliver or cause to be delivered to the
Shareholder the following items:
(a) CLOSING CERTIFICATES. Each of the following certificates 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 (i) that true and complete copies of Purchaser's
Charter and Purchaser's By-laws as in effect on the date of the adoption of
the resolutions referred to below and 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 Purchaser, and (iii) 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; and
(ii) certificates dated within five days of the Closing Date of
the secretaries of state of the states in which Purchaser is organized or
qualified to do business as of the Closing Date, certifying as to the good
standing and nondelinquent tax status of Purchaser.
(b) HOLDINGS SHARES CERTIFICATE. A certificate representing 22,857
---------------------------
Holdings Shares duly issued in the name of the Shareholder, containing all
legends required by the Holdings Stockholders Agreement and the Employment
Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION GENERALLY; ETC.
-------------------------------
(a) Subject to the further provisions of this ARTICLE VIII, the
------------
Shareholder 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 the Shareholder contained herein or in any certificate
delivered by the Shareholder or the Company in connection herewith at the
Closing (or any facts or circumstances constituting any such untruth,
inaccuracy or breach);
-31-
<PAGE>
(ii) the breach of any agreement or covenant of the Shareholder
contained in this Agreement; and
(iii) liabilities for Taxes payable by the Shareholder or the
Company for or with respect to periods ending on or prior to the Closing
Date.
(b) Subject to the further terms of this ARTICLE VIII, the Purchaser
------------
shall indemnify the Shareholder Indemnified Persons for, and hold each of them
harmless from and against, any and all Shareholder Losses arising from or in
connection with any of the following:
(i) the untruth, inaccuracy or breach of any representation or
warranty of the Purchaser contained herein or in any certificate delivered
by the Purchaser in connection herewith at 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.
8.2 ASSERTION OF CLAIMS.
-------------------
No claim shall be brought for a breach of a representation or warranty
under SECTION 8.1 hereof unless the Indemnified Persons, or any of them, at any
-----------
time prior to the applicable Survival Date (as defined below), 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 8.3 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 8.1, provided that they
-----------
use their commercially reasonable efforts to diligently pursue the same.
8.3 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"), other than Tax Claims (which are dealt with in SECTION 8.7
----------------- -----------
below), 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 materially prejudiced by such delay.
-32-
<PAGE>
Such notice shall be accompanied by copies of all relevant documentation with
respect to such Third Party Claim to the extent available to the Indemnified
Persons, 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 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, or if an actual
conflict of interest exists between the Indemnified Persons and 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, but
in no event later than 60 days of receipt of written notice thereof.
(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 8.3(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 8.3(B), or are
--------------
otherwise restricted from so assuming such defense by the proviso to the first
sentence of SECTION 8.3(B), the Indemnifying Persons shall nevertheless be
--------------
entitled to participate in such defense with their own counsel and at their own
expense.
(d) If the Indemnifying Persons exercise their right to assume the
defense of a Third Party Claim pursuant to SECTION 8.3(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, delayed or conditioned.
8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
------------------------------------------
Subject to the further provisions of this SECTION 8.4, the
-----------
representations and warranties contained in this Agreement or in any certificate
or other writing delivered in connection with this Agreement shall survive the
Closing until October 3, 1999; provided, however, that (i) except as provided in
-------- -------
clause (ii) of this proviso, the
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<PAGE>
representations and warranties contained in SECTIONS 3.1, 3.2, 3.3, 4.1, 4.2,
--------------------------------
4.3, 4.4, 4.20 AND 4.21 shall survive the Closing indefinitely and the
- -----------------------
representations and warranties contained in SECTION 4.9 shall survive the
-----------
Closing Date until 90 days after the expiration of the applicable statutes of
limitations for Third Party Claims applicable to the matters covered thereby.
For convenience of reference, the date upon which any representation or warranty
contained herein shall terminate, if any, is referred to herein as the "SURVIVAL
--------
DATE." The covenants and other agreements of the parties contained in this
- ----
Agreement shall survive the Closing Date until they are otherwise terminated by
their terms. From and after the Closing, the Shareholder shall not have any
recourse against the Company for any breach of any representation, warranty,
covenant or agreement of the Company or the Shareholder set forth in this
Agreement or in any certificate or other writing delivered in connection with
this Agreement.
8.5 LIMITATIONS ON INDEMNIFICATION.
------------------------------
(a) The Purchaser Indemnified Persons shall not have the right to be
indemnified for breaches of representations and warranties pursuant to CLAUSE
------
(I) of the first sentence of SECTION 8.1(A) unless and until the Purchaser
- --- --------------
Indemnified Persons shall have incurred on a cumulative basis aggregate Losses
in an amount exceeding $25,000, in which case the Purchaser Indemnified Persons
shall be entitled to indemnification for all Losses incurred by the Purchaser
Indemnified Persons; provided, however, that (i) except as provided in CLAUSE
-------- ------- ------
(II) of this proviso, the sum of all Losses pursuant to which indemnification is
- ----
payable by the Shareholder Indemnifying Persons pursuant to CLAUSE (I) of the
----------
first sentence of SECTION 8.1(A) shall not exceed $750,000 and (ii) the sum of
---------------
all Losses pursuant to which indemnification is payable by the Shareholder
Indemnifying Persons pursuant to CLAUSE (I) of the first sentence of SECTION
---------- -------
8.1(A) with respect to the representations and warranties set forth in SECTIONS
- ------ --------
3.1 and 4.4 shall not exceed the Aggregate Merger Consideration.
- --- ---
Notwithstanding anything to the contrary stated above, any payment by the
Shareholder Indemnifying Persons pursuant to SECTION 8.1(A)(I) hereof shall
-----------------
reduce, dollar for dollar, the maximum dollar amount required to be paid by the
Shareholder Indemnifying Persons under CLAUSES (I) and (II) of the immediately
----------- ----
preceding sentence.
(b) The Shareholder Indemnified Persons shall not have the right to be
indemnified for breaches of representations and warranties pursuant to CLAUSE
------
(I) of SECTION 8.1(B) unless and until the Shareholder Indemnified Persons have
- --- --------------
incurred on a cumulative basis aggregate Losses in an amount exceeding $25,000,
in which case the Shareholder Indemnified Persons shall be entitled to
indemnification for all Losses incurred by the Shareholder Indemnified Persons;
provided, however, that (i) except as provided in CLAUSE (II) of this proviso
- -------- ------- -----------
the sum of all Losses pursuant to which indemnification is payable by the
Purchaser Indemnifying Persons pursuant to CLAUSE (I) of SECTION 8.1(B) shall
---------- --------------
not exceed $750,000 and (ii) the sum of all Losses pursuant to which
indemnification is payable by the Purchaser Indemnifying Persons pursuant to
SECTION 8.1(C)(I) with respect to the representations and warranties contained
- -----------------
in SECTIONS 5.7 and 5.8 shall not exceed $1,599,990. Notwithstanding anything
------------ ---
to the contrary stated
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<PAGE>
above, any payment by the Purchaser Indemnifying Persons pursuant to any
provision of SECTION 8.1(B)(I) shall reduce, dollar for dollar, the maximum
-----------------
dollar amount required to be paid by the Purchaser Indemnifying Persons under
the CLAUSES (I) and (II) of the immediately preceding sentence.
----------- ----
8.6 SATISFACTION OF SHAREHOLDER'S INDEMNIFICATION OBLIGATIONS.
---------------------------------------------------------
The obligations of the Shareholder pursuant to SECTION 8.1(A) to indemnify
--------------
the Purchaser Indemnified Persons for Purchaser Losses arising from or in
connection with the matters described in CLAUSE (I) of such SECTION 8.1(A) shall
---------- --------------
be satisfied in cash by the Shareholder to the Purchaser Indemnified Persons by
wire transfer of immediately available funds to an account specified by the
Purchaser. In the event that the Shareholder shall not have made any such
payment within 120 days after receipt of a written final nonappealable order of
a court of competent jurisdiction or written notice of a binding arbitral award
providing that the Shareholder is obligated under SECTION 8.1 to make such
-----------
payment, the Purchaser Indemnified Persons shall have the option of causing such
obligation to be satisfied in whole or in part by the surrender to Holdings for
no consideration of up to that number of Holdings Shares having an aggregate
value equal to the amount of such payment obligation (unless all of the Holdings
Shares have been previously surrendered). Solely for purposes of the
immediately preceding sentence, then (i) the per share value of the Holdings
Shares shall be the Market Price (as defined in the Holdings Stockholders
Agreement) at the time of such surrender or (ii) if the Holdings Common Stock is
not listed on any United States securities exchange or quoted in The NASDAQ
Stock Market or the United States over-the-counter market, the per share value
of the Holdings Shares shall be $70 (subject to proportionate adjustment in the
event of any stock dividends, stock splits, stock combinations or other similar
pro rata recapitalization events affecting the Holdings Common Stock after the
- --- ----
date hereof).
8.7 COOPERATION REGARDING TAX PROCEEDINGS.
-------------------------------------
(a) Each of the Purchaser, on the one hand, and the Shareholder, 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
---------
the Company or the Shareholder 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 materially prejudiced by such delay. Such notice shall be
accompanied by copies of all relevant documentation with respect to such Tax
Claim to the extent available to such party.
(b) For purposes of this SECTION 8.7 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 and the Purchaser Indemnified Persons are
entitled to indemnification therefor
-35-
<PAGE>
under SECTION 8.1(A), the Shareholder shall indemnify the Purchaser Indemnified
--------------
Persons (but only to the extent they are required to do so under the applicable
provisions of this ARTICLE VIII) 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 Shareholder the amount of
Tax (but not interest) refunded, up to the amount of the indemnification payment
actually made by the Shareholder to the Purchaser Indemnified Persons, together
with interest on such refund of Tax from the date the Shareholder made such
indemnification payment, at the rates in effect from time to time under Section
6621(a)(1) of the Code.
(c) During the course of any Proceeding regarding any Tax Claim, the
Purchaser Indemnified Persons and the Shareholder 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
Shareholder, 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.
8.8 DISPUTE RESOLUTION.
------------------
The parties acknowledge and agree that they shall cooperate in good faith
to resolve promptly any disputes arising under this Agreement. In the event the
parties are unable to resolve any such dispute on an amicable basis, the parties
agree that arbitration will afford them a quick, effective and relatively
inexpensive method of dispute resolution. Therefore, the parties agree that any
and all disputes arising under this Agreement that remain unresolved for more
than 30 days after notice by any party to submit the same to arbitration
hereunder will be adjudicated exclusively through use of the arbitration
services provided by the American Arbitration Association ("AAA"), using the
---
AAA's Commercial Rules. Any such arbitration shall take place in New York, New
York. The parties agree that any attempt by the arbitrator to exercise power
other than as provided for herein, or to issue an award that violates any
express provision of this Agreement shall be null, void and unenforceable in any
form.
ARTICLE IX
[OMITTED.]
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 AMENDMENT.
---------
This Agreement shall not be altered or otherwise amended except pursuant to
an instrument in writing signed by each party, except that any party may waive
any
-36-
<PAGE>
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.
10.2 ENTIRE AGREEMENT.
----------------
This Agreement and the other agreements and documents referenced herein
(including the schedules and the exhibits (in their executed form) attached
hereto) and any other document or agreement contemporaneously entered into with
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. Other than
this Agreement and the other agreements referred to herein and to be executed
and delivered in connection herewith, there are no other agreements continuing
in effect relating to the subject matter hereof.
10.3 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.
10.4 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;
provided, however, that the Purchaser may, without the consent of any other
- -------- -------
party hereto, assign any or all of its rights and interests under this Agreement
and any other agreements or documents executed and delivered in connection
herewith as collateral for the benefit of the agent and lenders under the Credit
Agreement, which agent and lenders shall be permitted to exercise any and all of
such rights, or transfer and assign all such rights to any purchaser upon the
foreclosure or other exercise of remedies as to such collateral.
-37-
<PAGE>
10.5 EXPENSES.
--------
Except as otherwise provided in this Agreement, the Purchaser on the one
hand and the Shareholder on the other hand shall each bear their own expenses
(with the Shareholder bearing the expenses of the Company incurred in connection
with the transactions contemplated by this Agreement) incurred in connection
with this Agreement and the Related Documents. All sales taxes and all
registration, recording or transfer or stamp taxes which may be payable in
connection with the transactions contemplated by this Agreement and the Related
Documents shall be borne 50% by the Shareholder and 50% by the Purchaser.
10.6 NOTICES.
-------
All notices or other communications pursuant to this Agreement shall be in
writing and shall be deemed to be sufficient if (A) delivered personally, (B)
telecopied, (C) sent by nationally-recognized, overnight courier, or (D) 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 Company, to:
Intraco, Inc.
30 Funston Road
Kansas City, Kansas 66115
Attention: John Wayne Hein
Telephone No.: (913) 281-3143
Facsimile No.: (913) 281-9248
and, if prior to the Closing, with a copy to:
Duquette & Tipton, LLP
405 Lexington Avenue, Suite 4500
New York, New York 10174
Attention: Patrick B. Tipton, Esq.
Telephone No.: (212) 687-1636
Facsimile No.: (212) 687-2835
(b) if to the Shareholder to the most recent address of the
Shareholder on the books of the Company, with a copy to Duquette & Tipton LLP,
at its address set forth above;
-38-
<PAGE>
(c) if to the Purchaser, to:
Pacer Integrated Logistics, Inc.
c/o Pacific Motor Transport Company
Pacer Division
1229 East Pleasant Run Road
DeSoto, Texas 75123
Telephone No.: (972) 224-8121
Facsimile No.: (972) 228-2661
Attention: President
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telephone No.: (212) 408-2400
Facsimile No.: (212) 728-5950
All such notices and other communications shall be deemed to have been given and
received (A) in the case of personal delivery, on the date of such delivery, (B)
in the case of delivery by telecopy, on the date of such delivery, (C) in the
case of delivery by nationally-recognized, overnight courier, on the Business
Day following dispatch, and (D) in the case of mailing, on the third Business
Day following such mailing.
10.7 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.
10.8 GOVERNING LAW.
-------------
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 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
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY.
-39-
<PAGE>
10.9 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.
10.10 INTERPRETATION; CONSTRUCTION.
----------------------------
The term "AGREEMENT" means this agreement together with all annexes,
---------
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 "ACTUAL KNOWLEDGE" of any Person means the actual knowledge
----------------
of such Person without being deemed to have undertaken any inquiry as to the
matter in question, and the term "BEST KNOWLEDGE" of any Person means (i) the
--------------
Actual Knowledge of such Person and (ii) that knowledge which such Person would
have obtained from exercising such due care and attention to the management of
his business affairs as a prudent businessperson would have made or exercised in
the management of his business affairs. 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 annexes,
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, annexes,
schedules and exhibits mean such provisions of this Agreement and the annexes,
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
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
-40-
<PAGE>
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.
10.11 REMEDIES.
--------
Subject to the exclusive application of SECTION 8.8 with respect to
-----------
claims by any party for money damages, the parties shall each have and retain
all rights and remedies existing in their favor under this Agreement, at law or
equity, including rights to bring actions for specific performance and
injunctive and other equitable relief (including, without limitation, the remedy
of rescission) to enforce or prevent a breach or any violation of this
Agreement. All such rights and remedies shall, to the extent permitted by
applicable Law, be cumulative.
10.12 WAIVER OF JURY TRIAL.
--------------------
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.
* * *
-41-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first written above.
THE PURCHASER:
-------------
PACER INTEGRATED LOGISTICS, INC.
By: ________________________________
Gerry Angeli
President
THE COMPANY:
-----------
INTRACO, INC.
By: _______________________________
John Wayne Hein
President
THE SHAREHOLDER:
----------------
____________________________________
John Wayne Hein
HOLDINGS:
--------
PMT HOLDINGS, INC.
By:_________________________________
Gerry Angeli
Vice President
<PAGE>
ANNEX I
DEFINITIONS
-----------
"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.
"AFFILIATED PERSONS" means any group of two or more affiliates.
------------------
"AGGREGATE MERGER CONSIDERATION" means (i) the Merger Cash Consideration
------------------------------
and (ii) the Holdings Shares.
"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.
"COMPANY" shall have the meaning ascribed thereto in the Caption and, with
-------
respect to the period from and after the Effective Time, shall include the
Purchaser as successor by merger to Intraco, Inc.
"CONTINGENT SHARES" means those shares of Holdings Common Stock that, at
-----------------
any time in question, are subject to forfeiture to Holdings pursuant to SECTION
-------
1.10 based on the Surviving Corporation's failure to meet the earn-out targets
- ----
as provided therein.
"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.
"CREDIT AGREEMENT" means that certain Amended and Restated Credit Agreement
----------------
dated as of December 16, 1997, among Holdings, Pacific Motor, Interstate
Consolidation, Inc., Interstate Consolidation Service, Inc., Intermodal
Container Service, Inc., ICI Acquisition Company, American International Rail
Services LLC, American International Mechanical Services LLC, the Lenders from
time to time named therein and The First National Bank of Chicago, as agent.
<PAGE>
"EARNED SHARES" means those shares of Holdings Common Stock that, at any
-------------
time in question, are earned and not subject to forfeiture pursuant to SECTION
-------
1.10.
- ----
"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, 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.
"EMPLOYMENT AGREEMENT" means the Employment Agreement dated as of the date
--------------------
hereof between the Shareholder and Pacific Motor, pursuant to which the
Shareholder shall be employed as the Vice President of Business Development for
the Pacer Division of Pacific Motor, subject to and on the terms and conditions
set forth therein.
"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.
"FORMATION DOCUMENTS" means the documents which shall govern a corporation,
-------------------
including the Certificate or Articles of Incorporation and the By-Laws of such
corporation.
"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
<PAGE>
type described in clause (i) above guaranteed, directly or indirectly, in any
manner by the Company or in effect guaranteed, directly or indirectly, in any
manner by the 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
the Company even though the 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.
"GAAP" means Generally Accepted Accounting Principles.
----
"GOVERNMENTAL ENTITY" means any governmental authority or instrumentality,
-------------------
whether Federal, state, local or foreign and whether legislative, executive,
judicial or otherwise.
"GUARANTY" has the meaning set forth in the definition of "Funded
--------
Indebtedness".
"HOLDINGS COMMON STOCK" means the common stock, $.01 par value, of
---------------------
Holdings.
"HOLDINGS SHARES" means, collectively, 22,857 shares of Holdings Common
---------------
Stock, of which an aggregate of 13,333 shares constitute Contingent Shares as of
the Effective Time and an aggregate of 9,524 shares constitute Earned Shares as
of the Effective Time.
"HOLDINGS STOCKHOLDERS AGREEMENT" means that certain Amended and Restated
-------------------------------
Shareholders Agreement dated as of December 16, 1997, among Holdings and the
Shareholders from time to time listed therein.
"INDEMNIFIED PERSONS" means and includes the Shareholder Indemnified
-------------------
Persons and/or the Purchaser Indemnified Persons, as the case may be.
"INDEMNIFYING PERSONS" means and includes the Shareholder Indemnifying
--------------------
Persons and/or the Purchaser Indemnifying Persons, as the case may be.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual property rights,
----------------------------
including, without limitation, patents, patent applications, trademarks,
trademark applications, tradenames, servicemarks, servicemark 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
<PAGE>
and media constituting, describing or relating to the foregoing, including,
without limitation, manuals, memoranda and records.
"LAW" means any applicable 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 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 reasonable 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, without limitation, 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, claims, shortages, damages, expenses
------
(including reasonable attorneys' and accountants' and other professionals' fees
and Litigation 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 VIII, as
------------
reduced by (i) the amount actually recovered under insurance policies (net of
- -------
deductibles and incidental expenses resulting therefrom) and (ii) tax benefits
actually realized under Tax Laws in respect of such Losses, in each case net of
all costs and expenses of recovering any such amount. For purposes of
determining tax benefits actually realized, there shall be included tax benefits
actually realized before the taxable year in which a payment for a Loss is
received and tax benefits reasonably expected to be realized in the taxable year
in which a payment for a Loss is received.
"MERGER" means the merger of the Company with and into the Purchaser such
------
that the Company shall cease to exist and become part of the Surviving
Corporation, in accordance with this Agreement, the Delaware Act and the
Missouri Act.
"MERGER CASH CONSIDERATION" means $400,000.
-------------------------
"MERGER SHARES" means, collectively, the shares of Company Common Stock
-------------
outstanding immediately prior to the Effective Time.
"ORDERS" means judgments, writs, decrees, compliance agreements,
------
injunctions or judicial or administrative orders and determinations of any
Governmental Entity or arbitrator.
"PACIFIC MOTOR" means Pacific Motor Transport Company, a California
-------------
corporation and a direct, wholly owned subsidiary of Holdings.
<PAGE>
"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.
"PER SHARE MERGER CASH CONSIDERATION" means the Merger Cash Consideration
-----------------------------------
divided by the number of Merger Shares.
"PER SHARE MERGER CONSIDERATION " means (i) the Per Share Merger Cash
-------------------------------
Consideration and (ii) the Per Share Merger Stock Consideration.
"PER SHARE MERGER STOCK CONSIDERATION" means the number of Holdings Shares
------------------------------------
divided by the number of Merger Shares.
"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).
"PROCEEDING" means any action, suit, investigation or proceeding before any
----------
Governmental Entity or arbitrator.
"PURCHASER INDEMNIFIED PERSONS" means and includes the Purchaser and its
-----------------------------
subsidiaries (including, following the Closing, the 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 the Company 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 VIII.
------------
"SECURITIES" means "SECURITIES" as defined in SECTION 2(1) of the
---------- ---------- ------------
Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
--------------
<PAGE>
"SHAREHOLDER INDEMNIFIED PERSONS" means and includes the Shareholder and
-------------------------------
his personal representatives, estates and heirs.
"SHAREHOLDER INDEMNIFYING PERSONS" means and includes the Shareholder and
--------------------------------
his personal representatives, estates and heirs.
"SHAREHOLDER LOSSES" shall mean any and all Losses sustained, suffered or
------------------
incurred by any Shareholder Indemnified Person arising from or in connection
with any matter which is the subject of indemnification under ARTICLE VIII.
------------
"TAX LIABILITY" means the amount of Taxes owed.
-------------
"TAX LOSSES" means (i) all Taxes payable by the Company with respect to all
----------
periods through the Closing Date and (ii) any and all Losses sustained, suffered
or incurred by any Purchaser Indemnified Person arising from or in connection
with the untruth, inaccuracy or breach of the representations and warranties of
the Company and the Shareholder contained in SECTION 4.9.
-----------
"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 (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) 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.
<PAGE>
SCHEDULES AND EXHIBITS
----------------------
ANNEXES
-------
Annex I - Definitions
SCHEDULES
---------
Schedule 3.1 - Title to the Shares
Schedule 3.4 - Affiliate Assets
Schedule 4.1 - Jurisdictions
Schedule 4.3 - Consents
Schedule 4.4 - Capitalization
Schedule 4.5 - Subsidiaries; Investments
Schedule 4.6 - Financial Information
Schedule 4.7 - Absence of Undisclosed Liabilities
Schedule 4.8 - Absence of Changes
Schedule 4.9(a) - Tax Matters
Schedule 4.9(b) - Taxing Authority Notifications
Schedule 4.10(a) - Encumbrances
Schedule 4.10(b) - Property, Plant and Equipment
Schedule 4.11(a) - Leased Property
Schedule 4.11(b) - Leased Property Notices
Schedule 4.13 - Contracts
Schedule 4.14 - Litigation
Schedule 4.15 - Compliance with Laws
Schedule 4.16(a) - Insurance Policies
Schedule 4.16(b) - Insurance Claims, Etc.
Schedule 4.17 - Employees
Schedule 4.18(a) - Employee Benefit Plans
Schedule 4.18(b) - ERISA Compliance
Schedule 4.19(a) - Environmental Laws - Violations
Schedule 4.19(b) - Previous Facilities - Environmental Compliance
Schedule 4.21 - Related Party Transactions
Schedule 4.22 - Accounts and Notes Receivables
Schedule 4.23 - Bank Accounts; Powers of Attorney
Schedule 5.1 - Jurisdictions
Schedule 5.3 - Brokers of Purchaser
Schedule 5.7 - Capitalization
Schedule 5.9 - Financial Information
<PAGE>
EXHIBITS
--------
Exhibit A - Form of Hein Employment Agreement
Exhibit B - Form of Joinder Agreement to Stockholders Agreement
Exhibit C - Form of Side Letter Agreement
<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:
<TABLE>
<CAPTION>
Term Location
- ---- --------
<S> <C>
AAA........................................................Section 8.8
Actual Knowledge.........................................Section 10.10
Affiliate......................................................Annex I
Affiliated Persons.............................................Annex I
Aggregate Merger Consideration.................................Annex I
Agreement......................................................Caption
Best Knowledge...........................................Section 10.10
Business......................................................Preamble
Business Day...................................................Annex I
Capital Lease..................................................Annex I
Closing.....................................................Article II
Closing Date................................................Article II
Code....................................................Section 4.9(a)
Company........................................................Annex I
Company Common Stock..........................................Preamble
Company Employee Plans.................................Section 4.18(a)
Company's By-laws..........................................Section 4.1
Company's Charter..........................................Section 4.1
Competing Business......................................Section 6.5(c)
Constituent Corporations...................................Section 1.1
Contingent Shares..............................................Annex I
Contract.......................................................Annex I
Control........................................................Annex I
Corporate Rights...........................................Section 1.3
Corporate Transactions.................................Section 1.10(b)
Covered Properties.....................................Section 4.19(b)
Credit Agreement...............................................Annex I
Delaware Act..................................................Preamble
Delaware Certificate ......................................Section 1.2
Earned Shares..................................................Annex I
Effective Time.............................................Section 1.2
Employee Benefit Plan..........................................Annex I
Employment Agreement...........................................Annex I
Encumbrances...................................................Annex I
Environmental, Health and Safety Laws..........................Annex I
ERISA Affiliate................................................Annex I
Formation Documents............................................Annex I
Funded Indebtedness............................................Annex I
GAAP...........................................................Annex I
Governmental Entity............................................Annex I
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Guaranty.......................................................Annex I
Holdings.......................................................Caption
Holdings By-Laws...........................................Section 5.5
Holdings Charter...........................................Section 5.5
Holdings Common Stock..........................................Annex I
Holdings Shares................................................Annex I
Holdings Stockholders Agreement................................Annex I
Holdings Unaudited Financial Statements.................Section 5.9(a)
Indemnified Persons............................................Annex I
Indemnifying Persons...........................................Annex I
Intellectual Property Rights...................................Annex I
Joinder Agreement...................................Section 7.1(c)(iv)
Latest Balance Sheet....................................Section 4.6(a)
Latest Balance Sheet Date...............................Section 4.6(a)
Law............................................................Annex I
Leased Property........................................Section 4.11(a)
Liability......................................................Annex I
Litigation Expense.............................................Annex I
Losses.........................................................Annex I
Material Adverse Change.................................Section 4.8(a)
Merger.........................................................Annex I
Merger Cash Consideration......................................Annex I
Merger Shares..................................................Annex I
Missouri Act..................................................Preamble
Missouri Certificate ......................................Section 1.2
Orders.........................................................Annex I
Pacific Motor..................................................Annex I
Permits........................................................Annex I
Permitted Encumbrances.........................................Annex I
Per Share Merger Cash Consideration............................Annex I
Per Share Merger Consideration.................................Annex I
Per Share Merger Stock Consideration...........................Annex I
Person.........................................................Annex I
Proceeding.....................................................Annex I
Purchaser......................................................Caption
Purchaser Indemnified Persons..................................Annex I
Purchaser Indemnifying Persons.................................Annex I
Purchaser Losses...............................................Annex I
Purchaser's By-Laws........................................Section 5.1
Purchaser's Charter........................................Section 5.1
Related Document(s).....................................Section 7.1(c)
Securities.....................................................Annex I
Securities Act.................................................Annex I
Shareholder ...................................................Caption
Shareholder Indemnified Persons................................Annex I
Shareholder Indemnifying Persons...............................Annex I
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Shareholder Losses.............................................Annex I
Shareholder Materials...................................Section 1.5(b)
Side Letter Agreement................................Section 7.1(c)(v)
Survival Date..............................................Section 8.4
Surviving Corporation......................................Section 1.1
Tax Claim..................................................Section 8.7
Tax Liability..................................................Annex I
Tax Losses.....................................................Annex I
Tax Return.....................................................Annex I
Tax(es)........................................................Annex I
Third Party Claim..........................................Section 8.3
Unaudited Financial Statements..........................Section 4.6(a)
</TABLE>
<PAGE>
EXHIBIT 10.14
EXECUTION COPY
--------------
________________________________________________________________________________
________________________________________________________________________________
WARRANT
To Purchase 18,421 Units, initially consisting of 18,421 Shares of
Series A Preferred Stock, $.01 par value
and
18,421 Shares of Common Stock, $.01 par value
of
PMT HOLDINGS, INC.
March 31, 1997
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Definitions......................................................................... -1-
1.1 Definitions of Terms.......................................................... -1-
1.2 Other Definitions............................................................. -5-
2. Exercise of Warrant................................................................. -5-
2.1 Right to Exercise; Notice..................................................... -5-
2.2 Manner of Exercise; Issuance of Underlying Securities......................... -5-
2.3 Effectiveness of Exercise..................................................... -6-
2.4 Continued Validity............................................................ -6-
2.5 Automatic Exercise on Qualifying Offering Date................................ -7-
3. Registration, Transfer, Exchange and Replacement of Securities; Legends............. -7-
3.1 Registration, Transfer, Exchange and Replacement of Securities................ -7-
3.2 Legends....................................................................... -8-
4. Anti-Dilution Provisions............................................................ -9-
4.1 Adjustment of Number of Shares of Stock Purchasable........................... -9-
4.2 Adjustment of Exercise Price.................................................. -9-
(a) Dividends, Distributions, Subdivisions and Combinations.................. -9-
(b) Reorganization, Reclassification or Recapitalization
of the Company......................................................... -10-
(c) Other Dilutive Events.................................................... -10-
4.3 Adjustments to Exercise Price................................................. -11-
Extraordinary Events..................................................... -11-
5. Reservation of Shares............................................................... -12-
6. Various Covenants of the Company.................................................... -12-
6.1 No Impairment or Amendment; Continued Validity................................ -12-
6.2 Listing on Securities Exchanges, etc.......................................... -13-
6.3 Preemptive Rights............................................................. -13-
6.4 Indemnification............................................................... -14-
6.5 Certain Expenses.............................................................. -14-
6.6 Financial Statements and Other Information.................................... -15-
6.7 Registration Rights........................................................... -15-
7. Miscellaneous....................................................................... -15-
7.1 Nonwaiver..................................................................... -15-
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
7.2 Amendment and Waiver........................................ -16-
7.3 Like Tenor.................................................. -16-
7.4 Remedies.................................................... -16-
7.5 Successors and Assigns...................................... -16-
7.7 Governing Law............................................... -16-
</TABLE>
Exhibit 2.2(a) Form of Notice of Exercise
Exhibit 3.1 Form of Assignment
-ii-
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1993, AS
AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAW, AND MAY NOT BE TRANSFERRED IN
THE ABSENCE OF REGISTRATION THEREUNDER OR AN EXEMPTION THEREFROM
WARRANT
To Purchase Units of Equity Interests
of
PMT HOLDINGS, INC.
N0.W-I March 31, 1997
THIS IS TO CERTIFY that, for value received, SOUTHERN PACIFIC
TRANSPORTATION COMPANY, a Delaware corporation ("Southern Pacific"), or
registered assigns, is entitled upon the due exercise hereof at any time during
the Exercise Period (as hereinafter defined) to purchase in the aggregate 18,421
Units (as hereinafter defined), consisting of 18,421 shares of Preferred Stock
and 18,421 shares Common Stock, of PMT Holdings, Inc., a Delaware corporation
(the "Company"), at an Exercise Price of $10.00 per Unit, and to exercise the
other rights, powers and privileges hereinafter provided, all on the terms and
subject to the conditions hereinafter set forth.
This Warrant is the Company's Warrant to Purchase Units of Equity Interests
(herein, together with any warrants issued in exchange therefor or replacement
thereof, all as amended, restated, supplemented or otherwise modified from time
to time, called the "Warrant") exercisable in the aggregate, for 18,421 Units of
the Company and issued pursuant to that certain Stock Purchase Agreement, dated
as of March 31, 1997, by and among Union Pacific Railroad Company, Southern
Pacific, Pacific Motor Transport Company and the Company.
1. Definitions.
-----------
1.1 Definitions of Terms. The terms defined in this Section I, whenever
--------------------
used and capitalized in this Warrant, shall, unless the context otherwise
requires, have the following respective meanings:
"Arbitration Procedure" shall mean, if applicable, the following procedure
---------------------
to determine the Fair Value or the Market Price. as applicable (the "valuation
amount"). The valuation amount shall be determined by an investment banking firm
of national recognition, which firm shall be reasonably acceptable to the
Company and the Requisite Holders. If the Company and the Requisite Holders are
unable to agree upon an acceptable investment banking firm within 10 days after
the date either party proposed that one be selected, the investment banking firm
will be selected by an arbitrator located in New York City selected by the
American Arbitration Association (or if such organization ceases to exist, the
arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator
shall select the investment banking firm (within 10 days of his appointment)
from a list, jointly
<PAGE>
prepared by the Company and the Requisite Holders, of not more than four
investment banking firms of national standing in the United States, of which no
more than two may be named by the Company and no more than two may be named by
the Requisite Holders. The arbitrator may consider, within the 10-day period
allotted, arguments from the parties regarding which investment banking firm to
choose, but the selection by the arbitrator shall be made in its sole discretion
from the list of four. As soon as practicable following its selection, the
investment banking firm shall make its own calculation of the valuation amount.
The determination of the final valuation amount by such investment banking firm
shall be final and binding upon the parties. If the valuation amount determined
by such investment banking firm is more than 110% of the valuation amount set
forth in the applicable Company Proposal, the Company shall pay the fees and
expenses of the investment banking firm and arbitrator (if any) used to
determined the valuation amount. If the valuation amount determined by such
investment banking firm is not more than 110% of the valuation amount set forth
in the applicable Company Proposal, the Warrant Holders shall, ratably based on
the number of Warrants held by each of them, pay the fees and expenses of the
investment banking firm and arbitrator (if any) used to determine the valuation
amount. During the period commencing with the delivery of the Company Proposal
and ending with the conclusion of the applicable Joint Determination Period, if
any, the Company shall afford the Requisite Holders and their representatives
reasonable access to the books, records and properties of the Company for the
sole purpose of ascertaining the valuation amount.
"Assignment" shall mean the form of Assignment appearing at the end of this
----------
Warrant.
"Common Exercise Price" shall mean $1.00, as such price may be adjusted
---------------------
pursuant to section 4 hereof.
"Common Stock" shall mean the common stock $.01 par value per share, of the
------------
Company as constituted on April 1, 1997 and any Shares into which such Common
Stock shall have been changed or any Shares resulting from any reclassification
of the Common Stock.
"Company Proposal" shall have the meaning specified in the definition of
----------------
"Fair Value" contained below.
"Equity Interests" shall mean any equity securities of the Company or
----------------
securities or other rights convertible into, exercisable or exchangeable for or
otherwise representing the right to acquire equity securities of the Company,
including this Warrant.
"Exercise Period" shall mean the period commencing on April 1, 1997 and
---------------
terminating at the close of business on March 31, 2007.
"Exercise Price" shall mean the sum of Common Exercise Price and the
--------------
Preferred Exercise Price, as each such price may be adjusted pursuant to section
4 hereof.
"Fair Value" shall mean, with respect to any Equity Interest, its Market
----------
Price, and with respect to any property or assets other than cash or securities,
the fair value thereof determined in
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<PAGE>
good faith by the Board of Directors of the Company and delivered in writing to
the Warrant Holders, together with any supporting documentation or other data
that the Board of Directors shall deem appropriate (the "Company Proposal"),
provided, however, that if, within 10 days following receipt of the Company
- -------- -------
Proposal the Requisite Holders notify the Company in writing of their
disagreement with the Company Proposal the Fair Value shall be determined
jointly by the Company and the Requisite Holders; provided further, however,
-------- ------- -------
that if the parties are not able to agree within a reasonable period of time,
not to exceed 20 days (the "Joint Determination Period"), what amount
constitutes Fair Value, then the Fair Value will be determined pursuant to the
Arbitration Procedure.
"Joint Determination Period" shall have the meaning specified in the
--------------------------
definition of "Fair Value" contained above.
"Market Price" means, as to any 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 System 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 System, 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. If at any time such security is not
listed on any domestic securities exchange or quoted in the NASDAQ System or the
domestic over-the-counter market, the "Market Price" of such security shall be
the fair value thereof as determined in good faith by the Board of Directors of
the Company and set forth in writing in a Company Proposal delivered to the
Warrant Holders; provided, however, that if within 10 days following receipt of
-------- -------
such Company Proposal the Requisite Holders notify the Company in writing of
their disagreement with the Company Proposal the Market Price shall be
determined jointly by the Company and the Requisite Holders; provided further,
-------- -------
however, that if the parties are not able to agree within the Joint
- -------
Determination Period what amount constitutes the Market Price, then the Market
Price will be determined pursuant to the Arbitration Procedure.
"Notice of Assignment" shall mean the form of Notice of Assignment
--------------------
appearing at the end of this Warrant.
"Notice of Exercise" shall mean the form of Notice of Exercise appearing at
------------------
the end of this Warrant.
"Officers' Certificate" shall mean a certificate signed on behalf of the
---------------------
Company by its President, Vice President or Treasurer.
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<PAGE>
"Organizational Documents" of any Person shall mean such Person's charter
------------------------
and by-laws, partnership agreement, operating agreement, trust agreement, as
applicable, and/or any other similar agreement, document or instrument.
"Other Securities" shall mean with reference to the exercise privilege of
----------------
the Warrant Holder, any Shares (other than Units) of the Company and any other
securities of the Company or of any other Person which the Warrant Holder at any
time shall be entitled to receive, or shall have received, upon the exercise
or partial exercise of the Warrant, in lieu of or in addition to Units, or which
at any time shall be issuable or shall have been issued in exchange for or in
replacement of Units (or Other Securities) pursuant to the terms of the Warrant
or otherwise.
"Person" shall mean an individual, a partnership, a corporation, an
------
association, a joint stock company, a trust, a limited liability company, a
joint venture, an unincorporated organization or a governmental entity (or any
agency, instrumentality or political subdivision thereof).
"Preferred Exercise Price" shall mean $9.00, as such price may be adjusted
------------------------
pursuant to sction 4 hereof.
"Preferred Stock" shall mean the Series A Preferred Stock, $.01 par value
---------------
per share, of the Company as constituted on April 1, 1997 and any Shares into
which such Preferred Stock shall have been changed or any Shares resulting from
reclassification of the Preferred Stock.
"Qualifying Offering" shall mean the consummation of one or more
-------------------
underwritten public offerings by the Company and/or selling stockholders as a
result of which there exists a broad distribution of more than 20% of the Common
Stock outstanding after consummation thereof.
"Requisite Holders" shall mean, at any time, the registered holders of
-----------------
Warrants representing a majority of the Underlying Securities obtainable upon
exercise of the then outstanding Warrants.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
from time to time.
"Securities Exchange Act" shall mean the Securities Exchange Act of 1934,
-----------------------
as amended, or any successor federal statute, and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder, all as the same
shall be in effect from time to time.
"Shares" of any Person shall include any and all shares of capital stock,
------
partnership interests, limited liability company interests, membership
interests, or other shares, interests, participations, or other equivalents
(however designated and of any class) in the capital of, or other ownership
interest in, such Person and, as applied to the Company, shall include shares of
Preferred Stock and Common Stock.
"Special Distribution" shall have the meaning specified in section 4.2(b)
--------------------
hereof.
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<PAGE>
"Stockholders Agreement" shall mean that certain agreement, dated as of
----------------------
March 31, 1997, by and among the Company, Eos Partners, L.P., Southern Pacific,
Don Orris, Gerry Angeli and Robert Cross.
"Subsidiary" shall mean any corporation with respect to which a specified
----------
Person (or Subsidiary thereof) owns, directly or indirectly, a majority of the
common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors. As used herein, unless the
context clearly requires otherwise, the term "Subsidiary" refers to a Subsidiary
of the Company.
"Underlying Securities" shall mean the Units (and/or Other Securities)
---------------------
issued or issuable, as the case may be, from time to time upon exercise of this
Warrant, including, without limitation, any shares of Preferred Stock and/or
Common Stock (and/or Other Securities) issued or issuable with respect thereto
by way of dividend or distribution or in connection with a combination of shares
of Preferred Stock or Common Stock, recapitalization, merger, consolidation,
other reorganization or otherwise.
"Unit" shall mean an Equity Interest consisting of one share of Preferred
----
Stock and one share of Common Stock, as adjusted pursuant to section 4 hereof.
"Warrant" shall have the meaning specified in the preamble to this Warrant.
-------
"Warrant Holder" shall mean the holder of this Warrant.
--------------
1.2 Other Definitions. The terms defined in this section 1.2, whenever
-----------------
used in this Warrant, shall, unless the context otherwise requires, have the
following respective meanings:
"this Warrant" (and similar references to any other document) shall mean
---- -------
this Warrant together with any warrants issued in exchange therefor or
replacement thereof, all as amended, restated, supplemented or otherwise
modified from time to time, and the words "herein" (and "therein"), "hereof"
------ ------- ------
(and "thereof"), "hereunder" (and "thereunder") and words of similar import
------- --------- ----------
shall, unless the context clearly requires otherwise, refer to such instruments
as they may from time to time be amended, restated, supplemented or otherwise
modified.
2. Exercise of Warrant.
-------------------
2.1 Right to Exercise; Notice. On the terms and subject to the conditions
------------------------
of this section 2, the Warrant Holder shall have the right at its option, to
exercise this Warrant, in whole or in part, at any time or from time to time
during the Exercise Period, all as more fully specified below.
2.2 Manner of Exercise, Issuance of Underlying Securities. To exercise
-----------------------------------------------------
this Warrant, the Warrant Holder shall deliver to the Company (a) a Notice of
-
Exercise (substantially in the form of Exhibit 2.2(a) attached hereto) duly
--------------
executed by the Warrant Holder (or its attorney) specifying the number of
Underlying Securities to be purchased, (b) an amount equal to the aggregate
-
Exercise
-5-
<PAGE>
Price for all Underlying Securities as to which this Warrant is then being
exercised and (c) this Warrant. At the option of the Warrant Holder, payment of
-
the Exercise Price shall be made (w) by wire transfer of funds to an account in
-
a bank located in the United States designated by the Company for such purpose,
(x) by check payable to the order of the Company, (y) by application of any
- -
Underlying Securities, as provided below, or (z) by any combination of such
-
methods.
Upon the exercise of this Warrant in whole or in part, the Warrant Holder
hereof may, at its option, submit to the Company written instructions from such
Warrant Holder to apply any specified portion of the Underlying Securities
issuable upon such exercise in payment of the Exercise Price required upon such
exercise, in which case the Company will accept such specified portion of the
Underlying Securities (at a value per Underlying Security equal to the then Fair
Value thereof less, in each case, the Exercise Price then in effect), in lieu of
a like amount of such cash payment.
Upon receipt of the items referred to in this section 2.2, the Company
shall, as promptly as practicable, and in any event within five days thereafter,
cause to be issued and delivered to the Warrant Holder (or its nominee) or the
transferee designated in the Notice of Exercise, a certificate or certificates
representing the number of Underlying Securities (including fractional shares)
specified in the Notice of Exercise (but not exceeding the maximum number
thereof issuable upon exercise of this Warrant) minus the number of Underlying
Securities, if any, applied in payment of the Exercise Price. Such certificates
shall be registered in the name of the Warrant Holder (or its nominee) or in the
name of such transferee, as the case may be.
If this Warrant is exercised in part, the Company shall, at the time of
delivery of such certificate or certificates, issue and deliver to the Warrant
Holder or the transferee so designated in the Notice of Exercise, a new Warrant
evidencing the right of the Warrant Holder or such transferee to purchase at the
Exercise Price then in effect the aggregate number of Underlying Securities for
which this Warrant shall not have been exercised (and which have not been
applied in payment of the Exercise Price) and this Warrant shall be canceled.
2.3 Effectiveness of Exercise. Unless otherwise requested by the Warrant
-------------------------
Holder, this Warrant shall be deemed to have been exercised and such
certificate or certificates representing Underlying Securities shall be deemed
to have been issued, and the holder or transferee so designated in the Notice of
Exercise shall be deemed to have become the holder of record of such Underlying
Securities for all purposes, as of the close of business on the date on which
the Notice of Exercise, the Exercise Price and this Warrant shall have been
received by the Company.
2.4 Continued Validity. A holder of Underlying Securities issued upon the
------------------
exercise of this Warrant, in whole or in part, shall continue to be entitled to
all rights to which a holder of this Warrant is entitled pursuant to the
provisions of this Warrant except such rights as by their terms apply solely to
the holder of a Warrant, notwithstanding that his Warrant is canceled following
such exercise. The Company will, at the time of any exercise of this Warrant,
upon the request of the holder of the Underlying Securities issued upon the
exercise hereof, acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation to afford such holder all rights to which such
holder shall continue to be entitled after such exercise in accordance with the
provisions
-6-
<PAGE>
of this Warrant and the Stockholders Agreement, including, without limitation,
those set forth in sections 3.2 and 3.3 of the Stockholders Agreement and
sections 6.1, 6.2, 6.3, 6.4 and 6.5 of this Warrant; provided that if such
holder shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such holder all such rights.
2.5 Automatic Exercise on Qualifying Offering Date. If this Warrant
----------------------------------------------
shall not have been exercised in full on or before the date of the consummation
of a Qualifying Offering (the "Qualifying Offering Date"), then this Warrant
shall be automatically exercised, without further action on the part of the
Warrant Holder, in full on and as of the Qualifying Offering Date. Payment of
the Exercise Price due in connection with any such automatic exercise pursuant
to this section 2.5 shall be made by application of that portion of the
Underlying Securities issuable upon such exercise (at a value per share equal to
the then Fair Value thereof) unless before the Qualifying Offering Date the
Warrant Holder shall notify the Company that such holder elects one of the other
payment options set forth in section 2.2. Upon any such automatic exercise, the
Company shall immediately cause to be issued and delivered to the Warrant Holder
certificates registered in the name of the Warrant Holder (unless the Warrant
Holder shall specifically instruct the Company otherwise) representing the
Underlying Securities issued in connection with such automatic exercise of this
Warrant minus the number of Underlying Securities, if any, applied in payment of
-----
the Exercise Price. Upon receipt of such certificates, the Warrant Holder shall
promptly surrender this Warrant to the Company for cancellation. The Company
hereby agrees that it shall provide the Warrant Holders with prior written
notice not less than 30 days in advance of the consummation of any Qualifying
Offering.
3. Registration, Transfer, Exchange and Replacement of Securities; Legends.
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3.1 Registration, Transfer, Exchange and Replacement of Securities.
--------------------------------------------------------------
(a) The Company shall keep at its principal executive office
(which is now located at the address set forth in the Stockholders
Agreement) or at such other address (including that of any transfer agent)
as the Company shall notify the Warrant Holder of in writing, registers in
which it shall provide for the registration and transfer of any Equity
Interests, including the Warrant and the Underlying Securities. The name
and address of each holder of any Equity Interest shall be registered in
such registers. The Company shall give to the Warrant Holder promptly (but
in any event within 10 business days) following request therefor, a
complete and correct copy of the names and addresses of all registered
holders of any Equity Interests and the amount and kind of Equity Interest
or Equity Interests held by each. Whenever any Equity Interest or Equity
Interests of the Company held by a Warrant Holder shall be surrendered by
such Warrant Holder for transfer or exchange, the Company at its expense
will execute and deliver in exchange therefor a new Equity Interest or
Equity Interests (in such denominations and registered in such name or
names as may be requested in writing by the holder of the surrendered
Equity Interest or Equity Interests) exercisable for the same aggregate
number of Shares (in the case of the Warrant) or in the same aggregate
number of Units (in the case of any Underlying Security), as applicable, as
that of the Equity Interest or Equity Interests so surrendered, provided
--------
that
-7-
<PAGE>
any transfer tax relating to such transaction shall be paid by the holder
requesting the exchange or the transferee of the applicable Equity Interest
or Equity Interests. The Company may treat that Person in whose name any
Equity Interest is registered as owner of such Equity Interest for all
purposes.
(b) Upon receipt of reasonably satisfactory evidence of the loss,
theft, destruction or mutilation of any Equity Interest and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnity, and
(in the case of mutilation) upon surrender of such Equity Interest, the
Company at its expense will execute and deliver in lieu of such Equity
Interest a new Equity Interest of like tenor. An unsecured agreement to
indemnify and/or affidavit from such holder shall constitute satisfactory
indemnity and/or satisfactory evidence of loss, theft, or destruction for
the purpose of this section 3.1(b).
(c) To transfer this Warrant, the Warrant Holder shall deliver to the
Company a Notice of Assignment (substantially in the form of Exhibit 3.1
-----------
attached hereto) duly executed by the Warrant Holder (or its attorney)
specifying that this Warrant (or any portion hereof) is to be transferred
to the Person(s) named therein.
(d) Prior to the transfer of this Warrant or any Underlying
Securities, the Person to whom such transfer is to be made shall have
executed an agreement joining in the Stockholders Agreement and agreeing to
be bound by all provisions in the Stockholders Agreement applicable to a
Warrant Holder. Any attempted transfer not permitted by, or effected in
accordance with the terms of this Warrant or the Stockholders Agreement
shall be null and void and neither the Company as the issuer of the Warrant
or the Underlying Securities nor any transfer agent shall give any effect
to such attempted transaction.
3.2 Legends. Neither this Warrant nor any Underlying Securities may be
-------
transferred or assigned unless registered under the Securities Act or unless an
exemption from such registration is available. Until the date on which a
registration statement covering the Warrant becomes effective under the
Securities Act, each Warrant shall bear a legend in substantially the following
form:
"THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1993, AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES LAW, AND MAY NOT BE TRANSFERRED
IN THE ABSENCE OF REGISTRATION THEREUNDER OR AN
EXEMPTION THEREFROM."
Until the date on which a registration statement covering the Underlying
Securities becomes effective under the Securities Act, each certificate
evidencing Underlying Securities shall bear a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES
-8-
<PAGE>
ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAW,
AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF REGISTRATION
THEREUNDER OR AN EXEMPTION THEREFROM."
4. Anti-Dilution Provisions
------------------------
4.1 Adjustment of Number of Shares of Stock Purchasable. Upon any
---------------------------------------------------
adjustment of the Common Exercise Price or the Preferred Exercise Price as
provided in section 4.2, each Unit shall thereafter consist of (a) that number
of shares of Common Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Common Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock evidenced by a Unit
immediately prior to such adjustment and dividing the product thereof by the
Common Exercise Price resulting from such adjustment and (b) that number of
shares of Preferred Stock (calculated to the nearest 1/100th of a share)
obtained by multiplying the Preferred Exercise Price in effect immediately prior
to such adjustment by the number of shares of Preferred Stock evidenced by a
Unit immediately prior to such adjustment and dividing the product thereof by
the Preferred Exercise Price resulting from such adjustment.
4.2 Adjustment of Exercise Price. The Exercise Price shall be subject to
----------------------------
adjustment from time to time as set forth in this section 4.2.
(a) Dividends, Distributions, Subdivisions and Combinations. If and
-------------------------------------------------------
whenever the Company subsequent to the date hereof:
(i) declares a dividend upon, or makes any distribution in
respect of, any shares of Preferred Stock and/or Common Stock (or any
other Shares of the Company), payable in shares of Preferred Stock
and/or Common Stock, as the case may be, or
(ii) subdivides its outstanding shares of Preferred Stock
and/or Common Stock into a larger number of shares of Preferred Stock
and/or Common Stock, as the case may be, or
(iii) combines its outstanding shares of Preferred Stock and/or
Common Stock into a smaller number of shares of Preferred Stock and/or
Common Stock, as the case may be, or
then (x) the Common Exercise Price shall be adjusted to that price determined by
multiplying the Common Exercise Price in effect immediately prior to such event
by a fraction (1) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event, and (2) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event, and (y) the Preferred Exercise Price shall
be adjusted to that price determined by multiplying the Preferred Exercise Price
in effect immediately prior to
-9-
<PAGE>
such event by a fraction (1) the numerator of which shall be the total number of
outstanding shares of Preferred Stock immediately prior to such event, and (2)
the denominator of which shall be the total number of outstanding shares of
Preferred Stock immediately after such event.
(b) Reorganization, Reclassification or Recapitalization of the Company.
-------------------------------------------------------------------
Subject to Section 3.3 of the Stockholders Agreement, if and whenever subsequent
to the date hereof the Company shall effect (i) any reorganization,
-
reclassification or recapitalization of any Shares of the Company (other than in
the cases referred to in section 4.2 (a)), (ii) any consolidation or merger of
--
the Company with or into another Person, (iii) the sale, transfer or other
---
disposition of the property, assets or business of the Company as an entirety or
substantially as an entirety or (iv) any other transaction (or any other event
--
shall occur) as a result of which holders of the Underlying Securities become
entitled to receive any Shares of the Company, any of its Subsidiaries or any
other Person or other securities and/or property (including, without limitation,
cash and/or Shares of any Subsidiary of the Company) with respect to or in
exchange for the Underlying Securities (the transactions referred to in the
foregoing clauses (i), (ii), (iii), and (iv) being each hereinafter referred to
as a "Special Distribution"), there shall thereafter be deliverable upon the
exercise of this Warrant (including any partial exercise) (in lieu of or in
addition to the Underlying Securities theretofore deliverable, as appropriate)
the highest number of the Underlying Securities and/or the greatest amount of
property (including, without limitation, cash and/or Shares of any Subsidiary of
the Company) which the Warrant Holder would have received if this Warrant had
been exercised (or the appropriate proportion thereof upon any partial exercise)
immediately prior to such Special Distribution (or the applicable record date
therefor).
Prior to and as a condition of the consummation of any Special
Distribution, the Company shall make equitable, written adjustments in the
application of the provisions set forth herein for the benefit of the Warrant
Holder, in a manner reasonably satisfactory to the Warrant Holder so that all
such provisions shall thereafter be applicable, as nearly as possible, in
relation to any Underlying Securities or other securities or other property
thereafter deliverable upon exercise of the Warrants and so that the holders of
the Warrants will (prior to exercise) enjoy all of the rights and benefits
enjoyed by any Person who shall have acquired any such Underlying Securities
other securities or other property (including, without limitation, cash and/or
Shares of any Subsidiary of the Company) in connection with any such Special
Distribution, including, without limitation, any subsequent tender offer or
redemption of any such Shares or other securities. Any such adjustment shall be
made by and set forth in a supplemental agreement of the Company and/or the
successor entity as applicable, for the benefit of the Warrant Holder and in
form and substance acceptable to the Warrant Holder, which agreement shall bind
the Company and/or the successor entity, as applicable, and the Warrant Holder
and shall be accompanied by a favorable opinion of the regular outside counsel
to the Company or the successor entity, as applicable (or such other firm as is
reasonably acceptable to the Warrant Holder), as to the enforceability of such
agreement and as to such other matters as the Warrant Holder may reasonably
request.
(c) Other Dilutive Events. If any other transaction or event shall occur as
---------------------
to which the other provisions of this section 4 are not strictly applicable but
the failure to make any adjustment to the Exercise Price or to any of the other
terms of this Warrant would not fairly protect the
-10-
<PAGE>
purchase rights and other rights represented by this Warrant in accordance with
the essential intent and principles hereof, then, and as a condition to the
consummation of any such transaction or event, and in each such case, the
Company shall appoint a firm of independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company),
which shall give its opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established in this section 4,
necessary to preserve, without dilution, the rights represented by this Warrant.
The certificate of any such firm of accountants shall be conclusive evidence of
the correctness of any computation made under this section 4. The Company shall
pay the fees and expenses of such firm of accountants in connection with any
such opinion. Upon receipt of such opinion, the Company will promptly deliver a
copy thereof to the Warrant Holder and shall make the adjustments described
therein.
4.3 Adjustment to Exercise Price. As promptly as practicable (but in any
----------------------------
event not later than five days) after the occurrence of any event requiring any
adjustment under this section 4 to the Exercise Price (or to the number or kind
of securities or other property deliverable upon the exercise of this Warrant),
the Company shall, at its expense, deliver to the holder of this Warrant either
(i) an Officers' Certificate or (ii) a certificate signed by a firm of
- --
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company), setting forth in reasonable detail
the events requiring the adjustment and the method by which such adjustment was
calculated and specifying the adjusted Exercise Price and the number of Units
(or Other Securities) purchasable upon exercise of this Warrant after giving
effect to such adjustment. The certificate of any such firm of accountants shall
be conclusive evidence of the correctness of any computation made under this
section 4.
4.4 Extraordinary Events. If and whenever the Company subsequent to the
--------------------
date hereof shall propose the (i) pay any dividend to the holders of any Shares
of the Company or to make any other distribution to the holders of any Shares of
the Company (including, without limitation, any cash distribution), (ii) offer
to the holders of any Shares of the Company rights to subscribe for or purchase
any additional Shares of the Company or any other rights or options, (iii)
effect any reclassification of the Shares of the Company (other than a
reclassification involving merely the subdivision or combination of outstanding
shares of Preferred Stock or Common Stock referred to in section 4.2(a)), (iv)
engage in any reorganization or recapitalization or any consolidation or merger,
(v) consummate any sale, transfer or other disposition of its property, assets
and business as an entirety or substantially as an entirety, (vi) effect any
other transaction which might require an adjustment to the Exercise Price (or to
the number of Units, securities or other property deliverable upon the exercise
of this Warrant), including, without limitation, any transaction of the kind
described in section 4.2(b), (vii) commence or effect the liquidation,
dissolution or winding up of the Company or (viii) amend or modify any terms,
condition or provision of its Organizational Documents then, in each such case,
the Company shall deliver to the Warrant Holder an Officers' Certificate giving
notice of such proposed action, specifying (A) the date on which the books of
the Company shall close, or a record shall be taken, for determining the
holders of Shares of the Company entitled to receive such dividend or other
distribution or such rights or options or entitled to vote in respect of any
such amendment or modification, or the date on which such reclassification,
reorganization, recapitalization, consolidation, merger, sale, transfer, other
disposition, transaction,
-11-
<PAGE>
liquidation, dissolution or winding up shall take place or commence, as the case
may be, and (B) the date as of which it is expected that holders of Shares of
the Company shall be entitled to receive Shares of the Company, securities or
other property deliverable upon such action, if any such date is to be fixed, or
to vote in respect of any such amendment or modification. Such Officers'
Certificate shall be delivered in the case of any action covered by clause (i)
or (ii) above, at least 30 days prior to the record date for determining holders
of Shares of the Company for purposes of receiving such payment or offer, and,
in any other case, at least 30 days prior to the date upon which such action
takes place and 20 days prior to any record date to determine holders of Shares
of the Company entitled to receive such securities or other property or to vote
in respect of any such amendment or modification.
5. Reservation of Shares. The Company has reserved and after the date hereof
---------------------
will at all times reserve and keep available, solely for issuance, sale and
delivery upon the exercise of this Warrant, such number of shares of Preferred
Stock and Common Stock (and/or Other Securities) equal to the number of shares
of Preferred Stock and Common Stock (and/or Other Securities) included in the
Units purchasable upon the exercise of this Warrant. All such shares of
Preferred Stock and Common Stock (and/or Other Securities) shall be duly
authorized and, when issued upon exercise of this Warrant in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable with no
liability on the part of the holders thereof and not subject to preemptive
rights on the part of any other Person or to any lien, charge or other security
interest imposed by, or arising from, any act or omission of the Company.
6. Various Covenants of the Company.
--------------------------------
6.1 No Impairment or Amendment: Continued Validity. The Company shall not
----------------------------------------------
by any action, including, without limitation, amending its Organizational
Documents, any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of Shares or other securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate to protect the rights of the Warrant
Holder against impairment. Without limiting the generality of the foregoing, the
Company, (a) will not permit the par value of any Underlying Securities issuable
-
upon exercise of this Warrant to be greater than the amount payable therefor
upon exercise, (b) will take all such action as may be necessary or appropriate
-
in order that the Company may validly issue fully paid and nonassessable
Underlying Securities, (c) will obtain and maintain all such authorizations,
-
exemptions or consents from any public regulatory body having jurisdiction, as
may be necessary to enable the Company to perform its obligations under this
Warrant, (d) will not issue any capital stock or enter into any agreement or
-
transaction, the terms of which would have the effect, directly or indirectly,
of preventing the Company from honoring its obligations hereunder for the
benefit of any Warrant Holder and/or the Underlying Securities, and (e) will not
-
amend or modify any term, condition or provision of its Organizational
Documents, or any related agreement, document or instrument, in a manner which
would impair the Company's ability to perform its obligations hereunder
-12-
<PAGE>
So long as any Warrant or Underlying Securities are outstanding, the
Company will upon the occurrence of any of the foregoing events acknowledge in
writing, in form satisfactory to any holder of any such security, the continued
validity of the Company's obligations hereunder.
6.2 Listing on Securities Exchanges, etc. At all times following the
-----------------------------------
exercise of this Warrant the Company will maintain the listing of all Underlying
Securities on each securities exchange or market or trading system on which such
securities are then or at any time thereafter listed or traded.
6.3 Preemptive Rights.
-----------------
(a) If the Company wishes to issue, grant or sell any Equity
Interests for a consideration per Equity Interest less than the Fair Value
per Equity Interest, the Company shall give the Warrant Holder notice (the
"Issue Notice") in writing stating, as to such proposed offering, the
number and type of Equity Interests to be issued, granted or sold (the
"Issuable Securities"), the cash price, if any, per security at which such
Equity Interests are to be issued, granted or sold (the "Cash Price"), the
percentage of such Issuable Securities that the Warrant Holder shall have
the right to acquire (determined as set forth below), and any other terms
and conditions pertaining to such proposed issuance, grant or sale (the
"Proposed Conditions") The Issue Notice shall be deemed to constitute an
irrevocable offer (open to acceptance for a period of 30 days from the date
of receipt by the Warrant Holder of the Issue Notice ("the Issue Period"))
to the Warrant Holder to participate in the issuance, grant or sale. The
Warrant Holder shall have the right to acquire up to that percentage of
Issuable Securities equal to the percentage of the Units that it then owns
or has the right to acquire at the Cash Price and otherwise upon the
Proposed Conditions. Notwithstanding anything to the contrary contained
herein, this section 6.3(a) shall not apply to (i) the issuance by the
Company to employees or directors of or consultants to the Company or any
of its Subsidiaries pursuant to any employment, compensation or similar
arrangements of options to purchase shares of Common Stock and/or Preferred
Stock or (ii) the issuance of Equity Interests upon the exercise of any
such options.
(b) The Warrant Holder may elect to participate in the issuance,
grant or sale by delivering a written notice of such participation (which
notice shall indicate the amount of Issuable Securities the Warrant Holder
elects to acquire, which may be all or any portion of the Issuable
Securities the Warrant Holder is entitled to acquire and, in the case of a
sale, the date, which shall be a business day within 60 days after the
notice of participation is given, on which the Warrant Holder elects to
close such purchase) on or prior to the last day of the Issue Period.
(c) (i) The closing of a purchase of Issuable Securities by the
Warrant Holder shall take place at the principal executive offices of the
Company on the date specified in the Warrant Holder's notice of
participation. At such closing, the Company shall deliver to the Warrant
Holder certificates representing the Issuable Securities so purchased, free
and clear of all liens, which Issuable Securities shall be validly issued,
fully paid and non-assessable,
-13-
<PAGE>
and the Warrant Holder shall deliver to the Company a bank check in the
amount of the product of (i) the Cash Price per Issuable Security and (ii)
the number of Issuable Securities being purchased by the Warrant Holder.
(ii) Notwithstanding anything to the contrary herein, if there
shall occur a material adverse change in the Company's business, assets,
liabilities or financial condition at any time prior to the acquisition of
the Issuable Securities by the Warrant Holder and after giving the Issue
Notice, then the Warrant Holder may abandon the acquisition of the Issuable
Securities pursuant to this section 6.3 by giving notice to the Company
within five (5) days of the date on which the Warrant Holder learned of the
facts giving rise to its determination that a material adverse change has
occurred, which notice shall specify such facts and the reason for the
Warrant Holder's conclusion that a material adverse change has occurred in
reasonable detail. Notwithstanding anything to the contrary contained
herein, the Warrant Holder shall not be obligated to acquire any Issuable
Securities to this section 6.3 if the Warrant Holder is legally barred from
consummating such acquisition (whether as the result of the absence of a
necessary consent, the presence of an injunction or restraining order or
otherwise).
(d) Upon the expiration of the Issue Period described above or, with
respect to any Issuable Securities the acquisition of which has been
abandoned pursuant to section 6.3(c)(ii), upon receipt of the notice of
abandonment, the Company will be free to issue, grant or sell such Issuable
Securities which the Warrant Holder has not elected to so acquire or the
acquisition of which has been abandoned during the 120 days following such
expiration or the receipt of such notice, as the case may be, for at least
the Cash Price and otherwise on terms and conditions no more favorable to
the acquirors thereof than the Proposed Conditions. Any securities not
issued, granted or sold by the Company within such 120 day period shall
once again be subject to all terms of this section 6.3 and must be offered
to the Warrant Holder pursuant to the terms of this section 6.3 prior to
any offering thereof or otherwise.
(e) The rights granted to the Warrant Holder pursuant to this section
6.3 shall terminate upon the completion of a Qualifying Offering.
6.4 Indemnification. The Company shall indemnify, save and hold harmless
---------------
the Warrant Holder and the holder of any Underlying Securities from and against
any and all liability, loss, cost, damage, reasonable attorneys' and
accountants' fees and expenses, court costs and other out-of-pocket expenses
reasonably incurred by the Warrant Holder in connection with the enforcement of
any of the terms hereof.
6.5 Certain Expenses. The Company shall pay all expenses in connection
----------------
with, and all taxes (other than transfer taxes and expenses of transfer incurred
by the Warrant Holder) and other governmental charges that may be imposed in
respect of, the issue, sale and delivery of this Warrant and any Underlying
Securities.
-14-
<PAGE>
6.6 Financial Statements and Other Information. The Company shall deliver
------------------------------------------
to the Warrant Holder:
(a) as soon as available but in any event within 45 days after the
end of each quarterly accounting period in each fiscal year, unaudited
consolidating (if available) and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such quarterly period and for
the period from the beginning of the fiscal year to the end of such
quarterly period, and consolidating (if available) and consolidated
balance sheets of the Company and its Subsidiaries as of the end of such
quarterly period, setting forth in each case comparisons to the
corresponding period or periods in the preceding fiscal year, and all such
statements shall be prepared in accordance with generally accepted
accounting principles, consistently applied, subject to the absence of
footnote disclosures and to normal year-end adjustments:
(b) within 105 days after the end of each fiscal year, consolidating
(if available) and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating (if
available) and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, setting forth in each case
comparisons to the preceding fiscal year, all prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by, with respect to the consolidated portions of such
statements, an opinion containing no exceptions or qualifications of an
independent accounting firm of recognized national standing;
(c) with reasonable promptness, such other non-privileged information
and financial data concerning the Company and its Subsidiaries (excluding,
however, any information or financial data the disclosure of which would
be detrimental to the competitive position, business or affairs of the
Company as determined in good faith by the Board of Directors of the
Company) as any Warrant Holder may reasonably request; and
(d) the rights granted to the Warrant Holder pursuant to this Section
6.6 shall terminate upon the completion of a Qualifying Offering.
6.7 Registration Rights. The Company shall not grant to any Persons the
-------------------
right to request the Company to register any equity securities of the Company,
or any securities convertible or exchangeable into or exercisable for such
securities unless the Warrant Holder is granted the right to participate in any
registrations with such Persons pro rata on the basis of the number of
Underlying Securities owned by or issuable to the Warrant Holder.
7. Miscellaneous.
-------------
7.1 Nonwaiver. No course of dealing or any delay or failure to exercise
---------
any right, power or remedy hereunder on the part of the holder of this Warrant
or of any Underlying Securities shall operate as a waiver of or otherwise
prejudice such holder's rights, power or remedies.
-15-
<PAGE>
7.2 Amendment and Waiver. Any term, covenant, agreement or condition of
--------------------
this Warrant may, with the consent of the Company, be amended, or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), by one or more substantially concurrent written
instruments signed by the Requisite Holders and the Company, provided that (a)
-------- -
no such amendment or waiver shall change (i) the number of Underlying
-
Securities issuable upon the exercise of this Warrant, (ii) the manner of
--
exercise, (iii) the amount of any payment due upon the exercise or (iv) the
--- --
duration of Exercise Period without the prior written consent of the
warrant Holder and (b) no such amendment or waiver shall extend to or affect
-
any obligation not expressly amended or waived or impair any right consequent
thereon.
7.3 Like Tenor. All Warrants shall at all times be identical, except as to
----------
the preamble to each Warrant.
7.4 Remedies. The Company stipulates that the remedies at law of the
--------
holder or holders of this Warrant and/or of any Underlying Securities in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this warrant are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise. No remedy conferred in this Warrant on the Warrant Holder
is intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or under any other agreement, document or instrument or now hereafter
existing at law or in equity or by statute or otherwise.
7.5 Successors and Assigns. This Warrant and the rights evidenced hereby
---------------------
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the holder or holders of this Warrant and, as applicable, of any
Underlying Securities, to the extent provided herein, and shall be enforceable
by such holder or holders.
7.6 Confidentiality. The Warrant Holder shall hold in confidence all
---------------
nonpublic information of the Corporation provided or made available to it
pursuant to this Warrant until such time as such information has become publicly
available other than as a consequence of any breach by such Warrant Holder of
its confidentiality obligations hereunder (provided that such information may be
disclosed to the extent required by judicial or administrative process or by
requirement of law) and to any such Warrant Holder's employees or
representatives who agree to be bound by this Section.
7.7 Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other juridiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
7.8 Headings; Entire Agreement; Partial Invalidity, etc. The table of
--------------------------------------------------
contents and headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect
-16-
<PAGE>
the meaning hereof. This Warrant, together with the Stockholders Agreement,
embodies the entire agreement and understanding between the holder hereof and
the Company and supersedes all prior agreements and understandings relating to
the subject matter hereof. In case any provision in this Warrant or the
Stockholders Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
-17-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed as
an instrument under seal by its duly authorized officer as of the date first
above written.
PMT HOLDINGS, INC.,
a Delaware corporation
By: /s/ Douglas R. Korn
--------------------------
Name: Douglas R. Korn
Title: Vice President
<PAGE>
Exhibit 2.2(a)
--------------
FORM OF NOTICE EXERCISE
(To be executed only upon partial or full exercise
of the within Warrant)
The undersigned registered holder of the within Warrant irrevocable
exercises the within Warrant for and purchases _____________ Units, consisting
of ________ shares of Series A Preferred Stock and ___________ shares of Common
Stock, of PMT Holdings, Inc. and herewith makes payment therefor in the amount
of $_________, all at the price, in the manner and on the terms and conditions
specified in the within Warrant, and requests that a certificate for the
Underlying Securities hereby purchased be issued in the name of and delivered to
[choose one] (a) the undersigned or (b) _____________, whose address is
---------- - -
___________________________________________________ and, if Units shall not
include all the Underlying Securities issuable as provided in the within
Warrant, that a new Warrant of like tenor for the Underlying Securities not
being purchased hereunder be issued in the name of and delivered to [choose one]
----------
(a) the undersigned or (b) __________________________________, whose address is
- -
____________________________.
Dated: __________, _____
[ ]
By ________________________________
(Signature of Registered Holder)
NOTICE: The signature on this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
-19-
<PAGE>
Exhibit 3.1
-----------
FORM OF ASSIGNMENT
(To be executed only upon the assignment of the within Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of the within
Warrant hereby sells, assigns and transfers unto ______________________________,
whose address is __________________________________, all of the rights of the
undersigned under the within Warrant, with respect to ______ Units of Equity
Interests of PMT Holdings, Inc. and, if such Units shall not include all the
Underlying Securities issuable as provided in the within Warrant, that a new
Warrant of like tenor for the Underlying Securities not being transferred
hereunder be issued in the name of and delivered to [choose one] (a) the
---------- -
undersigned or (b) _____________________________, whose address is
-
______________________________, and does hereby irrevocably constitute and
appoint _______________ Attorney to register such transfer on the books of PMT
Holdings, Inc. maintained for the purpose, with full power of substitution in
the premises.
Dated: ___________________, 19__.
[ ]
By:_____________________________________
(Signature of Registered Holder)
NOTICE: The signature on this Assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever.
-20-
<PAGE>
EXHIBIT 10.15
SUPPLEMENTAL STOCK OPTION AGREEMENT dated as
of March 31, 1997 between PMT HOLDINGS, INC., a
Delaware corporation (the "Company"), and ROBERT
CROSS (the "Optionee").
The Board of Directors of the Company (the "Board") has granted to the
Optionee, effective as of the date of this Agreement, an option under the
Company's 1997 Stock Option Plan (the "Plan") to purchase that a number of Units
set forth below, each unit consisting of one (1) share of Common Stock par value
$.01 per share, of the Company and one (1) share of Series A Preferred Stock par
value $.01 per share of the Company, on the terms and subject to the conditions
set forth in this Agreement and the Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, the parties hereto agree as follows:
SECTION 1. THE PLAN. The terms and provisions of the Plan are hereby
--------
incorporated into this Agreement as if set forth herein in their entirety. In
the event of a conflict between any provision of this Agreement and the Plan,
the provisions of the Plan shall control. A copy of the Plan may be obtained
from the Company by the Optionee upon request. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed thereto in the Plan.
SECTION 2. OPTION; OPTION PRICE. (a) On the terms and subject to the
--------------------
conditions of the Plan and this Agreement, the Optionee shall have the option
(the "Option") to purchase up to 13,333.33 Units as adjusted pursuant to Section
4 (the "Option Units") at the price of $40.00 per Option Unit (the "Option
Price") at the times and in the manner provided herein. Payment of the Option
Price may be made in any manner set forth in Section 9(a) of the Plan. The
Option is intended to qualify for federal income tax purposes as an "incentive
stock option" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
(b) Except as otherwise provided in Section 7(a) of the Plan and
Section 4 hereof, the Option shall be exercisable at any time on or after the
date hereof during the Option Term, and the Option shall remain exercisable as
to all Option Units until the expiration of the Option Term.
SECTION 3. TERM. The term of the Option (the "Option Term") shall
----
commence on the date hereof (the "Grant Date") and expire on the sixth
anniversary of the Grant Date, unless the Option shall have sooner been
terminated in accordance with the
<PAGE>
terms of the Plan (including, without limitation, Section 7 of the Plan) or this
Agreement.
SECTION 4. REDUCTIONS TO OPTION UNITS. If at any time prior to the
--------------------------
second anniversary of the Grant Date the Company decides to issue any option or
options to acquire Units to any employee or consultant or prospective employee
or consultant of the Company and such issuance is approved by any two of
Optionee, Don C. Orris or Gerry Angeli, then the number of Option Units which
the Optionee has the right to purchase hereunder shall be reduced by an amount
equal to one-third of the number of Units which the Company proposes to issue to
such employee or consultant and the Optionee shall forfeit any rights with
respect thereto. Notwithstanding anything to the contrary contained in the
foregoing sentence, the number of Option Units which the Optionee has the right
to purchase hereunder shall not be reduced below 10,000. The Optionee
acknowledges and agrees that (i) if Messrs. Orris and Angeli approve any
issuance described in the first sentence of this Section 4 the number of Option
Units may be reduced by the operation of this paragraph without Optionee's prior
consent or approval, (ii) subject to the approval rights described above, the
Board shall have the authority to issue such forfeited Units at a price and on
terms determined by the Board, (iii) subject to the approval rights described
above, one or more reductions to the Option Units may be made in accordance with
this Section 4 and (iv) the Optionee may not exercise the Option with respect to
3,333.33 Units prior to the second anniversary of the Grant Date without the
written consent of the Board (such Units being treated as ineligible Units for
purposes hereof).
SECTION 5. RESTRICTION ON TRANSFER. The Option may not be
-----------------------
transferred, pledged, assigned, hypothecated or otherwise disposed of in any way
by the Optionee and may be exercised during the lifetime of the Optionee only by
the Optionee. If the Optionee dies, the Option shall thereafter be exercisable,
during the period specified in Section 7 of the Plan and subject to any
reductions made to the number of Option Units during such period pursuant to
Section 4, by his executors or administrators to the full extent to which the
Option was exercisable by the Optionee at the time of his death. The Option
shall not be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of the Option
contrary to the provisions hereof, and the levy of any execution, attachment or
similar process upon the Option, shall be null and void and without effect.
SECTION 6. SALE OF THE COMPANY AFTER TERMINATION OF OPTION. If the
-----------------------------------------------
Option is terminated pursuant to Section 7(a) (iii) of the Plan as a result of a
Termination of Relationship by the Company without "Cause" and the Company
consummates a Sale of the Company at any time during the one year period
following the date that the Optionee ceases to be employed by the Company (the
"Termination Date"), then the Optionee shall be entitled to receive, in
connection with such Sale of the Company, an amount
-2-
<PAGE>
equal to the sum of (i) the per Unit consideration (payable in cash or such
other property received in such Sale of the Company, at the Company's election)
paid to holders of Units in connection therewith multiplied by the number of
Eligible Option Units on the Termination Date less (ii) the exercise price
----
payable for such Eligible Option Units. For purposes hereof "Eligible Option
Units" means the number of Option Units which the Optionee was entitled to
purchase hereunder on the Termination Date less the amounts by which such Option
Units would have been reduced pursuant to actions taken pursuant to Section 4
hereof after the Termination Date and on or prior to the date of a Sale of the
Company.
SECTION 7. OPTIONEE'S EMPLOYMENT. Nothing in the Option shall confer
---------------------
upon the Optionee any right to continue in the employ of the Company or any of
its affiliates or interfere in any way with the right of the Company or its
affiliates or stockholders, as the case may be, to terminate the Optionee's
employment or to increase or decrease the Optionee's compensation at any time.
SECTION 8. NOTICES. All notices, claims, certificates, requests,
-------
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given and delivered 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 as
follows:
(a) if to the Company, to it at:
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) 832-5800
(b) if to the Optionee, to him addressed as 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 party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) in the case of
personal delivery, on the date of such delivery (or if such date is not a
business day, on the next business after the date of delivery), (ii) in the case
of nationally-recognized overnight courier, on the next business day after the
date sent, (iii) in the case of telecopy transmission, when received (or if not
sent on a business day, on the next business day after the date sent), and (iv)
in the case of mailing, on the third business day following
-3-
<PAGE>
that on which the piece of mail containing such communication is posted.
SECTION 9. WAIVER OF BREACH. The waiver by either party of a breach
----------------
of any provision of this Agreement must be in writing and shall not operate or
be construed as a waiver of any other or subsequent breach.
SECTION 10. OPTIONEE'S UNDERTAKING. The Optionee hereby agrees to
----------------------
take whatever additional actions and execute whatever additional documents the
Company may in its reasonable judgment deem necessary or advisable in order to
carry out or effect one or more of the obligations or restrictions imposed on
the Optionee pursuant to the express provisions of this Agreement and the Plan.
SECTION 11. MODIFICATION OF RIGHTS. The rights of the Optionee are
----------------------
subject to modification and termination in certain events as provided in this
Agreement and the Plan; provided, however, that no amendment of the Plan or this
-------- -------
Agreement that would materially adversely affect the rights of the Optionee
under this Agreement shall be effective against the Optionee without his written
consent.
SECTION 12. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE
STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF
THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
SECTION 13. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts, and each such counterpart shall be deemed to be an original,
but all such counterparts together shall constitute but one agreement.
SECTION 14. ENTIRE AGREEMENT. This Agreement and the Plan (and the
----------------
other writings referred to herein) constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof and supersede all
prior written or oral negotiations, commitments, representations and agreements
with respect thereto.
SECTION 15. SEVERABILITY. 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
-4-
<PAGE>
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.
SECTION 16. 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.
* * * * *
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Supplemental
Stock Option Agreement as of the date first written above.
PMT HOLDINGS, INC.
By:
------------------------------
Name:
Title:
----------------------------------
ROBERT CROSS
Address:
-------------------------
-------------------------
Telecopier:
Telephone:
<PAGE>
SCHEDULE A TO EXHIBIT 10.15
The following agreements are substantially identical in all material
respects (except for the named parties) to Exhibit 10.15:
Supplemental Stock Option Agreement dated as of March 31, 1997 between
the Company and Angeli.
Supplemental Stock Option Agreement dated as of March 31, 1997 between
the Company and Orris.
<PAGE>
EXHIBIT 10.16
SERVICE STOCK OPTION AGREEMENT dated as of
March 31, 1997 between PMT HOLDINGS, INC., a
Delaware corporation (the "Company"), and ROBERT
CROSS (the "Optionee").
The Company's Board of Directors (the "Board") has granted to the
Optionee, effective as of the date of this Agreement, an option under the
Company's 1997 Stock Option Plan (the "Plan") to purchase that number of Units
set forth below, each Unit consisting of one (1) share of Common Stock par value
$.01 per share, of the Company and one (1) share of Series A Preferred Stock par
value $.01 per share of the Company, on the terms and subject to the conditions
set forth in this Agreement and the Plan.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained in this Agreement, the parties hereto agree as follows:
SECTION 1. THE PLAN. The terms and provisions of the Plan are hereby
--------
incorporated into this Agreement as if set forth herein in their entirety. In
the event of a conflict between any provision of this Agreement and the Plan,
the provisions of the Plan shall control. A copy of the Plan may be obtained
from the Company by the Optionee upon request. Capitalized terms used herein
and not otherwise defined shall have the meanings ascribed thereto in the Plan.
SECTION 2. OPTION; OPTION PRICE. (a) On the terms and subject to the
--------------------
conditions of the Plan and this Agreement, the Optionee shall have the option
(the "Option") to purchase up to 23,333.33 Units (the "Option Units") at the
price of $11.24 per Option Unit (the "Option Price") at the times and in the
manner provided herein. Payment of the Option Price may be made in the manner
specified in Section 9(a) of the Plan. The Option is intended to qualify for
federal income tax purposes as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
the maximum extent permitted thereunder.
(b) Except as otherwise provided in Section 7(a) of the Plan, the
Option shall remain exercisable as to all Vested Option Units (as defined in
Section 4) until the expiration of the Option Term. Except as otherwise
provided in Section 7(a) of the Plan and Section 4(c) hereof, upon a Termination
of Relationship, the unvested portion of the Option (i.e. that portion which
does not constitute Vested Option Units) shall
<PAGE>
terminate.
SECTION 3. TERM. The term of the Option (the "Option Term") shall
----
commence on the date hereof (the "Grant Date") and expire on the tenth
anniversary of the Grant Date, unless the Option shall have sooner been
terminated in accordance with the terms of the Plan (including, without
limitation, Section 7 of the Plan) or this Agreement.
SECTION 4. TIME VESTING. (a) On the terms and subject to the
------------
conditions contained in the Plan and this Agreement, unless accelerated in the
sole discretion of the Committee or pursuant to Section 4(b) or 4(c) hereto or
Section 5(c) of the Plan, the Option shall vest and become exercisable on April
1 of each of 1998, 1999, 2000 and 2001 as to 25% of the Option Units (such
vested Option Units are referred to herein as "Vested Option Units").
(b) Notwithstanding Section 4(a) above, the Option shall vest with
respect to the entire number of Option Units immediately upon the occurrence of
a Sale of the Company.
(c) Notwithstanding Section 4(a) above, upon a Termination of
Relationship by the Company without "Cause", a pro rata portion (based on the
--- ----
number of months elapsed since the April 1 occurring immediately prior to such
Termination of Relationship divided by twelve) of the Option Units which would
have vested on the April 1 following the date of such Termination of
Relationship will vest and become immediately exercisable in accordance with the
terms of the Plan.
SECTION 5. SALE OF THE COMPANY AFTER TERMINATION OF OPTION. If the
-----------------------------------------------
Option is terminated pursuant to Section 7(a)(iii) of the Plan as a result of a
Termination of Relationship by the Company without "Cause" and the Company
consummates a Sale of the Company at any time during the one year period
following the date that the Optionee ceases to be employed by the Company (the
"Termination Date"), then the Optionee shall be entitled to receive, in
connection with such Sale of the Company, an amount equal to the sum of (i) the
per Unit consideration (payable in cash or such other property received in such
Sale of the Company, at the Company's election) paid to holders of Units in
connection therewith multiplied by the aggregate number of Option Units which
were either unvested on the Termination Date or which remain unexercised on the
date of termination of the Option as of the date of such Sale of the Company
less (ii) the exercise price payable for such unvested or unexercised Option
- ----
Units.
SECTION 6. RESTRICTION ON TRANSFER. The Option may
-----------------------
-2-
<PAGE>
not be transferred, pledged, assigned, hypothecated or otherwise disposed of in
any way by the Optionee and may be exercised during the lifetime of the Optionee
only by the Optionee. If the Optionee dies, the Option shall thereafter be
exercisable, during the period specified in Section 7 of the Plan, by his
executors or administrators to the full extent to which the Option was
exercisable by the Optionee at the time of his death. The Option shall not be
subject to execution, attachment or similar process. Any attempted assignment,
transfer, pledge, hypothecation or other disposition of the Option contrary to
the provisions hereof, and the levy of any execution, attachment or similar
process upon the Option, shall be null and void and without effect.
SECTION 7. OPTIONEE'S EMPLOYMENT. Nothing in the Option shall confer
---------------------
upon the Optionee any right to continue in the employ of the Company or any of
its affiliates or interfere in any way with the right of the Company or its
affiliates or stockholders, as the case may be, to terminate the Optionee's
employment or to increase or decrease the Optionee's compensation at any time.
SECTION 8. NOTICES. All notices, claims, certificates, requests,
-------
demands and other communications hereunder shall be in writing and shall be
deemed to have been duly given and delivered 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 as
follows:
(a) if to the Company, to it at:
PMT Holdings, Inc.
c/o Eos Partners, L.P.
320 Park Avenue, 22nd Floor
New York, New York 10022
Attention: Douglas R. Korn
Telephone: (212) 832-5805
Telecopier: (212) 832-5800; and
(b) if to the Optionee, 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 party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (i) in the case of
personal delivery, on the date of such delivery (or if such date is not a
business day, on the next business after the date of delivery), (ii) in the case
of nationally-recognized overnight courier, on the next business day after the
date sent, (iii) in the case of telecopy transmission, when received (or if not
sent on a business day, on the next business day after the date sent), and (iv)
in the case of mailing, on the third business day following
-3-
<PAGE>
that on which the piece of mail containing such communication is posted.
SECTION 9. WAIVER OF BREACH. The waiver by either party of a breach
----------------
of any provision of this Agreement must be in writing and shall not operate or
be construed as a waiver of any other or subsequent breach.
SECTION 10. OPTIONEE'S UNDERTAKING. The Optionee hereby agrees to
----------------------
take whatever additional actions and execute whatever additional documents the
Company may in its reasonable judgment deem necessary or advisable in order to
carry out or effect one or more of the obligations or restrictions imposed on
the Optionee pursuant to the express provisions of this Agreement and the Plan.
SECTION 11. MODIFICATION OF RIGHTS. The rights of the Optionee are
----------------------
subject to modification and termination in certain events as provided in this
Agreement and the Plan; provided, however, that no amendment of the Plan or this
-------- -------
Agreement that would materially adversely affect the rights of the Optionee
under this Agreement shall be effective against the Optionee without his written
consent.
SECTION 12. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE
STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF DELAWARE TO BE APPLIED. IN FURTHERANCE OF
THE FOREGOING, THE INTERNAL LAW OF THE STATE OF DELAWARE WILL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
SECTION 13. COUNTERPARTS. This Agreement may be executed in one or
------------
more counterparts, and each such counterpart shall be deemed to be an original,
but all such counterparts together shall constitute but one agreement.
SECTION 14. ENTIRE AGREEMENT. This Agreement and the Plan (and the
----------------
other writings referred to herein) constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof and supersede all
prior written or oral negotiations, commitments, representations and agreements
with respect thereto.
SECTION 15. SEVERABILITY. 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
-4-
<PAGE>
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.
SECTION 16. 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.
* * * * *
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Service Stock Option
Agreement as of the date first written above.
PMT HOLDINGS, INC.
By:
-------------------------------
Name:
Title:
-----------------------------------
ROBERT CROSS
Address:
--------------------------
---------------------------
Telephone:
------------------------
Telecopier:
------------------------
<PAGE>
SCHEDULE B TO EXHIBIT 10.16
The following agreements are substantially identical in all material
respects (except for the named parties) to Exhibit 10.16:
Service Stock Option Agreement dated as of March 31, 1997 between
the Company and Angeli.
Service Stock Option Agreement dated as of March 31, 1997 between
the Company and Orris.
<PAGE>
EXHIBIT 10.18
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 16, 1997
among
PMT HOLDINGS, INC.,
PACIFIC MOTOR TRANSPORT COMPANY,
AMERICAN INTERNATIONAL RAIL SERVICES LLC,
AMERICAN INTERNATIONAL MECHANICAL SERVICES LLC,
ICI ACQUISITION COMPANY,
INTERSTATE CONSOLIDATION, INC.,
INTERSTATE CONSOLIDATION SERVICE, INC.,
INTERMODAL CONTAINER SERVICE, INC.,
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS LENDERS
and
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I: DEFINITIONS...........................................................................................1
- -----------------------
1.1 Certain Defined Terms...............................................................................1
---------------------
1.2 References.........................................................................................25
----------
1.3 Supplemental Disclosure............................................................................25
-----------------------
ARTICLE II: THE CREDITS.........................................................................................25
- ------------------------
2.1. Term Loans.........................................................................................25
----------
(i) Amount of Term Loan.....................................................................25
-------------------
(ii) Borrowing Notice........................................................................26
----------------
(iii) Making of Term Loans....................................................................26
--------------------
(iv) Repayment of the Term Loans.............................................................26
---------------------------
2.2 Revolving Loans....................................................................................28
---------------
2.3 Rate Options for all Advances......................................................................28
-----------------------------
2.4 Optional Payments..................................................................................28
-----------------
2.5 Mandatory Prepayments..............................................................................29
---------------------
2.6 Reduction of Commitments...........................................................................30
------------------------
2.7 Method of Borrowing................................................................................30
-------------------
2.8 Method of Selecting Types and Interest Periods for Advances........................................31
-----------------------------------------------------------
2.9 Minimum Amount of Each Advance.....................................................................31
------------------------------
2.10 Method of Selecting Types and Interest Periods for Conversion and Continuation of
---------------------------------------------------------------------------------
Advances.......................................................................................31
--------
(A) Right to Convert..........................................................................31
----------------
(B) Automatic Conversion and Continuation.....................................................31
-------------------------------------
(C) No Conversion Post-Default or Post-Unmatured Default......................................32
----------------------------------------------------
(D) Conversion/Continuation Notice............................................................32
------------------------------
2.11 Default Rate.......................................................................................32
------------
2.12 Method of Payment..................................................................................32
-----------------
2.13 Notes..............................................................................................32
-----
2.14 Telephonic Notices.................................................................................32
------------------
2.15 Promise to Pay; Interest and Fees; Interest Payment Dates; Interest and Fee Basis;
---------------------------------------------------------------------------------
Taxes; Loan and Control Accounts...............................................................33
--------------------------------
(A) Promise to Pay............................................................................33
--------------
(B) Interest Payment Dates....................................................................33
----------------------
(C) Commitment Fees...........................................................................33
---------------
(D) Interest and Fee Basis; Applicable Eurodollar Margin; Applicable Floating
-------------------------------------------------------------------------
Rate Margin and Applicable Commitment Fee Percentage..................................33
----------------------------------------------------
(E) Credit Taxes..............................................................................35
------------
(F) Loan Account..............................................................................38
------------
(G) Control Account...........................................................................38
---------------
(H) Entries Binding...........................................................................38
---------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.16 Notification of Advances, Interest Rates, Prepayments and Aggregate Revolving
-----------------------------------------------------------------------------
Loan Commitment Reductions......................................................................38
--------------------------
2.17 Lending Installations.............................................................................38
---------------------
2.18 Non-Receipt of Funds by the Agent.................................................................39
---------------------------------
2.19 Termination Date..................................................................................39
----------------
2.20 Replacement of Certain Lenders....................................................................39
------------------------------
2.21 Letter of Credit Facility.........................................................................40
-------------------------
2.22 Letter of Credit Participation....................................................................41
------------------------------
2.23 Reimbursement Obligation..........................................................................41
------------------------
2.24 Cash Collateral...................................................................................42
---------------
2.25 Letter of Credit Fees.............................................................................42
---------------------
2.26 Indemnification; Exoneration......................................................................43
----------------------------
2.27 Issuing Lender Reporting Requirements.............................................................44
-------------------------------------
ARTICLE III: CHANGE IN CIRCUMSTANCES............................................................................44
- -------------------------------------
3.1 Yield Protection...................................................................................44
----------------
3.2 Changes in Capital Adequacy Regulations............................................................45
---------------------------------------
3.3 Availability of Types of Advances..................................................................46
---------------------------------
3.4 Funding Indemnification............................................................................46
-----------------------
3.5 Lender Statements; Survival of Indemnity...........................................................46
----------------------------------------
ARTICLE IV: CONDITIONS PRECEDENT................................................................................46
- ---------------------------------
4.1 Initial Advances and Letters of Credit.............................................................47
--------------------------------------
4.2 Each Advance and Letter of Credit..................................................................48
---------------------------------
ARTICLE V: REPRESENTATIONS AND WARRANTIES.......................................................................48
- ------------------------------------------
5.1 Organization; Corporate Powers.....................................................................48
------------------------------
5.2 Authority..........................................................................................49
---------
5.3 No Conflict; Governmental Consents.................................................................49
----------------------------------
5.4 Financial Statements...............................................................................50
--------------------
5.5 No Material Adverse Change.........................................................................50
--------------------------
5.6 Taxes..............................................................................................51
-----
(A) Tax Examinations..........................................................................51
----------------
(B) Payment of Taxes..........................................................................51
----------------
5.7 Litigation; Loss Contingencies and Violations......................................................51
---------------------------------------------
5.8 Subsidiaries.......................................................................................52
------------
5.9 ERISA..............................................................................................52
-----
5.10 Accuracy of Information............................................................................53
-----------------------
5.11 Securities Activities..............................................................................53
---------------------
5.12 Material Agreements................................................................................53
-------------------
5.13 Compliance with Laws...............................................................................53
--------------------
5.14 Assets and Properties..............................................................................53
---------------------
5.15 Statutory Indebtedness Restrictions................................................................54
-----------------------------------
5.16 Post-Retirement Benefits...........................................................................54
------------------------
5.17 Insurance..........................................................................................54
---------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.18 Indebtedness of Pacific Motor and Holdings; Refinanced Indebtedness; Contingent
-------------------------------------------------------------------------------
Obligations....................................................................................54
-----------
5.19 Restricted Payments...............................................................................55
-------------------
5.20 Labor Matters.....................................................................................55
-------------
5.21 The Stock Acquisition.............................................................................55
---------------------
5.22 Environmental Matters.............................................................................55
---------------------
5.23 Solvency..........................................................................................56
--------
ARTICLE VI: COVENANTS...........................................................................................56
- ----------------------
6.1 Reporting..........................................................................................56
---------
(A) Financial Reporting.......................................................................56
-------------------
(B) Notice of Default.........................................................................58
-----------------
(C) Lawsuits..................................................................................58
--------
(D) Insurance.................................................................................59
---------
(E) ERISA Notices.............................................................................59
-------------
(F) Labor Matters.............................................................................60
-------------
(G) Other Indebtedness........................................................................60
------------------
(H) Other Reports.............................................................................60
-------------
(I) Environmental Notices.....................................................................61
---------------------
(J) Borrowing Base Certificate................................................................61
--------------------------
(K) Other Information.........................................................................61
-----------------
6.2 Affirmative Covenants..............................................................................61
---------------------
(A) Corporate Existence, Etc..................................................................61
------------------------
(B) Corporate Powers; Conduct of Business.....................................................61
-------------------------------------
(C) Compliance with Laws, Etc.................................................................62
-------------------------
(D) Payment of Taxes and Claims; Tax Consolidation............................................62
----------------------------------------------
(E) Insurance.................................................................................62
---------
(F) Inspection of Property; Books and Records; Discussions....................................62
------------------------------------------------------
(G) Insurance and Condemnation Proceeds.......................................................63
-----------------------------------
(H) ERISA Compliance..........................................................................64
----------------
(I) Maintenance of Property...................................................................64
-----------------------
(J) Environmental Compliance..................................................................64
------------------------
(K) Use of Proceeds...........................................................................64
---------------
(L) Hedging Agreements........................................................................64
------------------
(M) Further Assurances........................................................................65
------------------
6.3 Negative Covenants.................................................................................65
------------------
(A) Indebtedness..............................................................................65
------------
(B) Sales of Assets...........................................................................66
---------------
(C) Liens.....................................................................................67
-----
(D) Investments...............................................................................67
-----------
(E) Contingent Obligations....................................................................67
----------------------
(F) Restricted Payments.......................................................................68
-------------------
(G) Conduct of Business; Subsidiaries; Acquisitions...........................................68
-----------------------------------------------
(H) Transactions with Shareholders and Affiliates.............................................68
---------------------------------------------
(I) Restriction on Fundamental Changes........................................................69
----------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(J) Sales and Leasebacks; Off Balance Sheet Liabilities.......................................69
---------------------------------------------------
(K) Margin Regulations........................................................................69
------------------
(L) ERISA.....................................................................................69
-----
(M) Corporate Documents.......................................................................69
-------------------
(N) Fiscal Year...............................................................................70
-----------
(O) Hedging Obligations.......................................................................70
-------------------
6.4 Financial Covenants................................................................................70
-------------------
(A) Defined Terms for Financial Covenants.....................................................70
-------------------------------------
(B) Fixed Charge Coverage Ratio...............................................................71
---------------------------
(C) Maximum Leverage Ratio....................................................................72
----------------------
(D) Capital Expenditures......................................................................73
--------------------
ARTICLE VII: DEFAULTS...........................................................................................74
- ----------------------
7.1 Defaults...........................................................................................74
--------
ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS; WAIVERS,
- --------------------------------------------------------
AMENDMENTS AND REMEDIES.................................................................................76
-----------------------
8.1 Termination of Commitments; Acceleration...........................................................76
----------------------------------------
8.2 Defaulting Lender..................................................................................77
-----------------
8.3 Amendments.........................................................................................78
----------
8.4 Preservation of Rights.............................................................................78
----------------------
ARTICLE IX: GENERAL PROVISIONS..................................................................................78
- -------------------------------
9.1 Survival of Representations........................................................................79
---------------------------
9.2 Governmental Regulation............................................................................79
-----------------------
9.3 Performance of Obligations.........................................................................79
--------------------------
9.4 Headings...........................................................................................79
--------
9.5 Entire Agreement...................................................................................79
----------------
9.6 Several Obligations; Benefits of this Agreement....................................................80
-----------------------------------------------
9.7 Expenses; Indemnification..........................................................................80
-------------------------
(A) Expenses..................................................................................80
--------
(B) Indemnity.................................................................................80
---------
(C) Waiver of Certain Claims..................................................................81
------------------------
(D) Survival of Agreements....................................................................81
----------------------
9.8 Numbers of Documents...............................................................................81
--------------------
9.9 Accounting.........................................................................................81
----------
9.10 Severability of Provisions.........................................................................81
--------------------------
9.11 Nonliability of Lenders............................................................................82
-----------------------
9.12 GOVERNING LAW......................................................................................82
-------------
9.13 CONSENT TO JURISDICTION; JURY TRIAL................................................................82
-----------------------------------
(A) EXCLUSIVE JURISDICTION....................................................................82
----------------------
(B) OTHER JURISDICTIONS.......................................................................82
-------------------
(C) WAIVER OF JURY TRIAL......................................................................83
--------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE X: THE AGENT............................................................................................83
- ---------------------
10.1 Appointment; Nature of Relationship...............................................................83
-----------------------------------
10.2 Powers............................................................................................84
------
10.3 General Immunity..................................................................................84
----------------
10.4 No Responsibility for Loans, Creditworthiness, Collateral, Recitals, Etc..........................84
------------------------------------------------------------------------
10.5 Action on Instructions of Lenders.................................................................84
---------------------------------
10.6 Employment of Agents and Counsel..................................................................84
--------------------------------
10.7 Reliance on Documents; Counsel....................................................................85
------------------------------
10.8 The Agent's Reimbursement and Indemnification.....................................................85
---------------------------------------------
10.9 Rights as a Lender................................................................................85
------------------
10.10 Lender Credit Decision............................................................................85
----------------------
10.11 Successor Agent...................................................................................85
---------------
10.12 Collateral Documents..............................................................................86
--------------------
ARTICLE XI: SETOFF; RATABLE PAYMENTS............................................................................87
- -------------------------------------
11.1 Setoff............................................................................................87
------
11.2 Ratable Payments..................................................................................87
----------------
11.3 Application of Payments...........................................................................87
-----------------------
11.4 Relations Among Lenders...........................................................................88
-----------------------
ARTICLE XII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS..................................................88
- ---------------------------------------------------------------
12.1 Successors and Assigns............................................................................88
----------------------
12.2 Participations....................................................................................88
--------------
(A) Permitted Participants; Effect............................................................88
------------------------------
(B) Voting Rights.............................................................................89
-------------
(C) Benefit of Setoff.........................................................................89
-----------------
12.3 Assignments.......................................................................................89
-----------
(A) Permitted Assignments.....................................................................89
---------------------
(B) Effect; Effective Date....................................................................90
----------------------
(C) The Register..............................................................................90
------------
12.4 Confidentiality...................................................................................90
---------------
12.5 Dissemination of Information......................................................................91
----------------------------
12.6 First Chicago Minimum Share.......................................................................91
---------------------------
ARTICLE XIII: NOTICES...........................................................................................91
- ----------------------
13.1 Giving Notice.....................................................................................91
-------------
13.2 Change of Address.................................................................................91
-----------------
ARTICLE XIV: COUNTERPARTS.......................................................................................91
- --------------------------
ARTICLE XV: REPLACEMENT OF COMMITMENT LETTER, ETC...............................................................92
- --------------------------------------------------
</TABLE>
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBITS
--------
EXHIBIT A -- Borrowing Base Certificate
(Definitions)
EXHIBIT B -- Commitments
(Definitions)
EXHIBIT C -- Form of Revolving Note
(Definitions)
EXHIBIT D -- Stock Purchase Agreement for ICI Stock Acquisition
(Definitions)
EXHIBIT E -- Form of Term Loan Note
(Definitions)
EXHIBIT F -- Form of Assignment Agreement
(S)(S) 2.19, 12.3)
EXHIBIT G -- Form of Borrower's Counsel's Opinion
(S) 4.1)
EXHIBIT H -- List of Closing Documents
(S) 4.1)
EXHIBIT I -- Form of Officer's Certificate
(S)(S) 4.2, 6.1(A)(iv))
EXHIBIT J -- Pro Forma Financial Statements
(S) 5.4(A))
EXHIBIT K -- Money Transfer Instructions
(S) 4.1)
EXHIBIT L -- Form of Seller Letter of Credit
<PAGE>
SCHEDULES
---------
Schedule 1.1.1 - Permitted Existing Contingent Obligations (Definitions)
Schedule 1.1.2 - Permitted Existing Indebtedness (Definitions)
Schedule 1.1.3 - Permitted Existing Investments (Definitions)
Schedule 1.1.4 - Permitted Existing Liens (Definitions)
Schedule 1.1.5 - Refinanced Indebtedness (Definitions)
Schedule 2.14 - Persons Authorized to Give Telephone Notice
Schedule 5.3 - Conflicts; Governmental Consents ((S) 5.3)
Schedule 5.6 - Tax Examinations
Schedule 5.7 - Litigation; Loss Contingencies ((S) 5.7)
Schedule 5.8 - Subsidiaries ((S) 5.8)
Schedule 5.12 - Material Agreements ((S) 5.12)
Schedule 5.17 - Insurance ((S)(S) 5.17, 6.2(E))
Schedule 5.18 - Contingent Obligations ((S)(S) 5.7, 5.18)
Schedule 5.19 - Restricted Payments ((S) 5.19)
Schedule 5.20 - Labor Matters; Compensation Agreements ((S) 5.20)
Schedule 5.22 - Environmental Matters ((S) 5.22)
Schedule 6.3(H) - Transactions with Shareholders and Affiliates
<PAGE>
CREDIT AGREEMENT
This Amended and Restated Credit Agreement dated as of December 16, 1997 is
entered into among PMT Holdings, Inc., a Delaware corporation ("Holdings"),
Pacific Motor Transport Company, a California corporation ("Pacific Motor"),
American International Rail Services LLC, a Colorado limited liability company
("AIRS"), American International Mechanical Services LLC, a Colorado limited
liability company ("AIMS"), ICI Acquistion Company, a Delaware corporation
("Acquisition Company"), Interstate Consolidation, Inc., a California
corporation. ("ICI"), Interstate Consolidation Service, Inc., a California
corporation ("ICS"), and Intermodal Container Service, Inc., a California
corporation ("IMCS"), the institutions from time to time parties hereto as
Lenders, whether by execution of this Agreement or an assignment and acceptance
pursuant to Section 13.3, and The First National Bank of Chicago, in its
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capacity as contractual representative for itself and the other Lenders. The
parties hereto agree as follows:
ARTICLE I: DEFINITIONS
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1.1 Certain Defined Terms. In addition to the terms defined elsewhere in
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this Agreement, the following terms used in this Agreement shall have the
following meanings, applicable both to the singular and the plural forms of the
terms defined.
As used in this Agreement:
"A&G" is defined in the definition of "Affiliate" below.
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"ACCOUNT DEBTOR" means the account debtor or obligor with respect to any of
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the Receivables and/or the prospective purchaser with respect to any contract
right, and/or any party who enters into or proposes to enter into any contract
or other arrangement with either Borrower.
"ACQUISITION" means any transaction, or any series of related transactions,
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consummated on or after the date of this Agreement, by which any Borrower or any
of any Borrower's Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage of voting power) of the
outstanding partnership interests of a partnership.
"ADVANCE" means a borrowing hereunder consisting of the aggregate amount of
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the several Loans made by the Lenders to either Borrower of the same Type and,
in the case of Eurodollar Rate Advances, for the same Interest Period.
"AFFECTED LENDER" is defined in Section 2.20 hereof.
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"AFFILIATE" of any Person means any other Person directly or indirectly
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controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of greater than ten percent (10%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise. Notwithstanding the foregoing, no
employee, officer, director, partner or stockholder of, and no Person who
directly or indirectly controls, is under common control with or is controlled
by, Eos or any of its Affiliates shall be deemed to be an Affiliate of any
Borrower solely as a result of such Person's affiliation with Eos or its
Affiliates and, in addition, A&G Investments, a California general partnership
("A&G"), shall not be considered an Affiliate of any Borrower for purposes
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hereof so long as the Sellers hold directly or indirectly no more than 50% of
the Capital Stock of any Borrower.
"AGENT" means First Chicago in its capacity as contractual representative
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for itself and the Lenders pursuant to Article XI hereof and any successor Agent
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appointed pursuant to Article XI hereof.
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"AGGREGATE REVOLVING LOAN COMMITMENT" means the aggregate of the Revolving
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Loan Commitments of all the Lenders, as reduced or increased from time to time
pursuant to the terms hereof. The initial Aggregate Revolving Loan Commitment
is Twelve Million and 00/100 Dollars ($12,000,000.00).
"AGGREGATE TERM LOAN COMMITMENT" means the aggregate of the Term Loan
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Commitments of all the Lenders. The Aggregate Term Loan Commitment is Twenty
Million and 00/100 Dollars ($20,000,000.00).
"AGREEMENT" means this Amended and Restated Credit Agreement, as it may be
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amended, restated or otherwise modified and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
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principles in effect from time to time, applied in a manner consistent with that
used in preparing the financial statements referred to in Section 5.4(B) hereof;
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provided, however, that with respect to the calculation of financial ratios and
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other financial tests (and each of the components thereof) utilized in or
required by this Agreement, "Agreement Accounting Principles" means generally
accepted accounting principles as in effect as of the date of this Agreement,
applied in a manner consistent with that used in preparing the financial
statements referred to in Section 5.4(B) hereof.
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"ALTERNATE BASE RATE" means, for any day, a fluctuating rate of interest
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per annum equal to the higher of (i) the Corporate Base Rate for such day and
(ii) the sum of (a) the Federal Funds Effective Rate for such day and (b) one-
half of one percent (0.5%) per annum.
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"APPLICABLE COMMITMENT FEE PERCENTAGE" means, as at any date of
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determination, the rate per annum then applicable in the determination of the
amount payable under Section 2.15(C) hereof determined in accordance with the
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provisions of Section 2.15(D)(ii) hereof.
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"APPLICABLE EURODOLLAR MARGIN" means, as at any date of determination, the
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rate per annum then applicable to Eurodollar Rate Loans determined in accordance
with the provisions of Section 2.15(D)(ii) hereof.
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"APPLICABLE FLOATING RATE MARGIN" means, as at any date of determination,
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the rate per annum then applicable to Floating Rate Loans determined in
accordance with the provisions of Section 2.15(D)(ii) hereof.
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"APPLICABLE L/C FEE PERCENTAGE" means, as at any date of determination, a
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rate per annum for standby Letters of Credit, equal to the Applicable Eurodollar
Margin for Revolving Loans in effect on such date.
"ASSET SALE" means, with respect to any Person, the sale, lease,
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conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person);
provided, however, that notwithstanding the foregoing, the term "Asset Sale"
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shall not include (i) the sale, lease, conveyance, disposition or other transfer
of any inventory in the ordinary course of business, (ii) ordinary course cash
management related transactions with respect to cash and Cash Equivalents, (iii)
sale, lease, conveyance, disposition or other transfer of assets in the ordinary
course of the Borrower's business consistent with past practice, and (iv) the
sale, disposition or other transfer of Receivables to Allied Carriers, Inc. (or
such other factoring company on terms reasonably acceptable to the Agent) by any
Borrower in the ordinary course of business in an aggregate amount for all
Borrowers not to exceed $10,000,000 in any fiscal year.
"AUTHORIZED OFFICER" means any of the Chairman, Chief Executive Officer,
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President, Treasurer, Controller and Secretary of any Borrower, acting singly.
"BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of
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ERISA (other than a Multiemployer Plan) in respect of which either Borrower or
any other member of the Controlled Group is, or within the immediately preceding
six (6) years was, an "employer" as defined in Section 3(5) of ERISA.
"BORROWERS" means, collectively, Holdings, Pacific Motor, AIRS, AIMS,
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Acquisition Company, ICI, ICS and IMCS and, individually, Borrower means any of
Holdings, Pacific Motor, Acquisition Company, ICI, ICS or IMCS.
"BORROWING BASE" means, as of any date of calculation, an amount, as set
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forth on the most current Borrowing Base Certificate delivered to the Agent,
equal to the sum of (i) the amount of funds up to $300,000 held in the
Borrowers' demand deposit accounts held with the Agent or with another
depository subject to terms satisfactory to the Agent and (ii) eighty-five
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percent (85%) of the Gross Amount of Eligible Receivables or such higher
percentage, as the Agent may determine in its discretion, of Eligible
Receivables which are insured by a Person and in a form satisfactory to the
Agent. The Agent shall give the Borrowers commercially reasonable notice,
taking into account all facts and circumstances known by the Agent at such time,
of any change in the criteria to determine the eligibility of any Receivables of
the Borrowers or of the establishment by the Agent of any reserves which, in any
such case, might reasonably be expected to materially decrease the amount of the
Borrowing Base.
"BORROWING BASE CERTIFICATE" means a certificate, in substantially the form
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of Exhibit A attached hereto and made a part hereof, setting forth the Borrowing
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Base and the component calculations thereof.
"BORROWING DATE" means a date on which an Advance is made hereunder.
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"BORROWING NOTICE" is defined in Section 2.8 hereof.
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"BUSINESS ACTIVITY REPORT" means (A) a Notice of Business Activities Report
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from the State of Minnesota, Department of Revenue or (B) any similar report
required by any other State as a prerequisite to the ability of any Borrower to
enforce its accounts receivable claims against account debtors located in any
such state.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
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selection of Loans bearing interest at the Eurodollar Rate, a day (other than a
Saturday or Sunday) on which banks are open for business in Chicago, Illinois
and New York, New York and on which dealings in Dollars are carried on in the
London interbank market and (ii) for all other purposes a day (other than a
Saturday or Sunday) on which banks are open for business in Chicago, Illinois
and New York, New York.
"CAPITAL EXPENDITURES" is defined in Section 6.4(A) hereof.
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"CAPITALIZED LEASE" of a Person means any lease of property by such Person
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as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
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obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
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(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership (whether general or limited) or membership interests and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
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"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
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unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations for any such deposits with a term of more than ten (10)
days); (iii) shares of money market, mutual or similar funds having assets in
excess of $100,000,000 and the investments of which are limited to investment
grade securities (i.e., securities rated at least Baa by Moody's Investors
Service, Inc. or at least BBB by Standard & Poor's Corporation) and (iv)
commercial paper of United States banks and bank holding companies and their
subsidiaries and United States finance, commercial industrial or utility
companies which, at the time of acquisition, are rated A-1 (or better) by
Standard & Poor's Ratings Group or P-1 (or better) by Moody's Investors
Services, Inc.; provided that the maturities of such Cash Equivalents shall not
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exceed 365 days.
"CASH FLOW PERIOD" means each 12-month period ending on December 31 of each
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calendar year commencing with such period ending on December 31, 1998.
"CHANGE" is defined in Section 3.2 hereof.
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"CHANGE OF CONTROL" means any transaction or event as a result of which Eos
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Partners, L.P., a Delaware limited partnership, shall cease to own of record and
beneficially, in the aggregate, at least thirty-five percent (35%) of the shares
of the issued and outstanding common stock of Holdings.
"CLOSING DATE" means the date on which the Term Loans and the initial
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Revolving Loans are advanced hereunder.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
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otherwise modified from time to time or any successor statute.
"COLLATERAL" means all property and interests in property now owned or
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hereafter acquired by any Borrower or any of any Borrower's Subsidiaries in or
upon which a security interest, lien or mortgage is granted to the Agent, for
the benefit of the Holders of Secured Obligations, or to the Agent, for the
benefit of the Lenders, whether under the Security Agreements, under any of the
other Collateral Documents or under any of the other Loan Documents.
"COLLATERAL DOCUMENTS" means all agreements, instruments and documents
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executed in connection with this Agreement that are intended to create or
evidence Liens to secure the Secured Obligations, including, without limitation,
the Security Agreements, the Pledge Agreements and all other security
agreements, mortgages, deeds of trust, loan agreements, notes, guarantees,
subordination agreements, pledges, powers of attorney, consents, assignments,
contracts, fee letters, notices, leases, financing statements and all other
written matter whether heretofore, now, or hereafter executed by or on behalf of
any Borrower or any of any Borrower's
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Subsidiaries and delivered to the Agent or any of the Lenders, together with all
agreements and documents referred to therein or contemplated thereby.
"COMMISSION" means the Securities and Exchange Commission and any Person
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succeeding to the functions thereof.
"COMMITMENT" means, for each Lender, collectively, such Lender's Revolving
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Loan Commitment and Term Loan Commitment.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
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substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos or polychlorinated biphenyls ("PCBS"), and includes
but is not limited to these terms as defined in Environmental, Health or Safety
Requirements of Law.
"CONTINGENT OBLIGATION", as applied to any Person, means any Contractual
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Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another or other obligation or liability of another, including,
without limitation, any such Indebtedness, obligation or liability of another
directly or indirectly guaranteed, endorsed (other than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including Contractual Obligations (contingent or
otherwise) arising through any agreement to purchase, repurchase, or otherwise
acquire such Indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or to
make payment other than for value received.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision of
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any equity or debt securities issued by that Person or any indenture, mortgage,
deed of trust, security agreement, pledge agreement, guaranty, in any case in
writing, to which that Person is a party or by which it or any of its properties
is bound, or to which it or any of its properties is subject.
"CONTROLLED GROUP" means the group consisting of (i) any corporation which
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is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as any Borrower; (ii) a partnership or other trade
or business (whether or not incorporated) which is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member
of the same affiliated service group (within the meaning of Section 414(m) of
the Code) as any Borrower, any corporation described in clause (i) above or any
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partnership or trade or business described in clause (ii) above.
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"CONVERSION/CONTINUATION NOTICE" is defined in Section 2.10(D) hereof.
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"CORPORATE BASE RATE" means the corporate base rate of interest announced
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by First Chicago from time to time, changing when and as said corporate base
rate changes.
"CREDIT TAXES" is defined in Section 2.15(E)(i) hereof.
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"CURE LOAN" is defined in Section 8.2(iii) hereof.
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"CUSTOMARY PERMITTED LIENS" means:
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(i) Liens (other than Environmental Liens and Liens in favor of the
IRS or the PBGC) with respect to the payment of taxes, assessments or
governmental charges in all cases which are not yet due or which are being
contested in good faith by appropriate proceedings and with respect to
which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with Agreement
Accounting Principles;
(iii) Liens (other than Environmental Liens and Liens in favor of the
IRS or the PBGC) incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment insurance
or other types of social security benefits or to secure the performance of
bids, tenders, sales, contracts (other than for the repayment of borrowed
money), surety, appeal and performance bonds; provided that (A) all such
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Liens do not in the aggregate materially detract from the value of the
Borrower's or such Subsidiary's assets or property taken as a whole or
materially impair the use thereof in the operation of the businesses taken
as a whole, and (B) all Liens securing bonds to stay judgments or in
connection with appeals do not secure at any time an aggregate amount
exceeding $500,000;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use
of real property which do not in any case prevent the ordinary conduct of
the business of any Borrower or any of any Borrower's Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments, writs
or warrants of attachment, or similar process against any Borrower or any
of any Borrower's Subsidiaries which do not constitute a Default under
Section 7.1(h); and
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(vi) any interest or title of the lessor in the property subject to
any operating lease entered into by any Borrower or any of any Borrower's
Subsidiaries in the ordinary course of business.
"DECISION PERIOD" is defined in Section 6.2(G) hereof.
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"DECISION RESERVE" is defined in Section 6.2(G) hereof.
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"DEFAULT" means an event described in Article VII hereof.
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"DESIGNATED PREPAYMENT" is defined in Section 2.5(i)(d) hereof.
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"DOL" means the United States Department of Labor and any Person succeeding
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to the functions thereof.
"DOLLAR" and "$" means dollars in the lawful currency of the United States.
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"EBITDA" is defined in Section 6.4(A) hereof.
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"ELIGIBLE RECEIVABLES" means Receivables created by any Borrower in the
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ordinary course of its respective business arising out of the sale of goods or
rendition of services by such Borrower, which Receivables are not ineligible
pursuant to the standards set forth below. Such standards of eligibility may be
fixed and revised from time to time by the Agent in the Agent's reasonable
credit judgment (which credit judgment shall be exercised in a manner that is
not arbitrary or capricious or inconsistent with the manner in which the initial
eligibility standards were determined). In general, without limiting the
foregoing, the following Receivables are not Eligible Receivables:
(i) Receivables (other than Investment Grade Receivables) which
remain unpaid ninety (90) days after the date of the original applicable
invoice;
(ii) all Receivables (other than Investment Grade Receivables) owing
by a single Account Debtor (including a Receivable which remains unpaid
fewer than ninety (90) days after the date of the original applicable
invoice) if ten percent (10%) of the balance owing by such Account Debtor,
calculated without taking into account any credit balances of such Account
Debtor, remains unpaid ninety (90) days after the date of the original
applicable invoice or has otherwise become ineligible;
(iii) Receivables in the amount equal to the excess of (a) the amount
of all Receivables from any single Account Debtor and its Affiliates which
otherwise constitute Eligible Receivables comprising more than thirty
percent (30%) of all Eligible Receivables over (b) the amount equal to
thirty percent (30%) of all Eligible Receivables;
(iv) Receivables with respect to which the Account Debtor is a
director, officer, employee, Subsidiary or Affiliate of any Borrower;
(v) Receivables with respect to which the Account Debtor is any
federal Governmental Authority, the United States of America, or, in each
case, any department, agency or instrumentality thereof, unless with
respect to any such Account, the applicable Borrower has complied to the
Agent's satisfaction with the provisions of the Federal Assignment of
Claims Act or other applicable statutes, including, without limitation,
executing and delivering to Agent all statements of assignment and/or
notification which
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are in form and substance acceptable to Agent and which are deemed
necessary by Agent to effectuate the assignment to the Agent of such
Accounts on behalf of the Lenders;
(vi) Receivables with respect to which the Account Debtor is any
state or municipal Governmental Authority or any agency or instrumentality
thereof;
(vii) Receivables not denominated in U.S. Dollars or with respect to
which the Account Debtor is not a resident of the United States unless the
Account Debtor has supplied the applicable Borrower with an irrevocable
letter of credit, issued by a financial institution satisfactory to the
Agent, sufficient to cover such Receivable in form and substance
satisfactory to the Agent;
(viii) Receivables with respect to which the Account Debtor has (a)
asserted a counterclaim, (b) a legal or contractual right of setoff binding
upon the applicable Borrower whether or not asserted, but in each case in
clauses (a) and (b), only to the extent of such counterclaim or setoff;
(ix) Receivables for which the prospect of payment or performance by
the Account Debtor is or will be impaired as determined by the Agent in the
exercise of its reasonable credit judgment (which credit judgment shall not
be exercised in a manner that is arbitrary or capricious or inconsistent
with the manner in which the initial eligibility standards were
determined);
(x) Receivables with respect to which the Agent does not have a
first and valid fully perfected and enforceable security interest;
(xi) Receivables with respect to which the Account Debtor is the
subject of bankruptcy or a similar insolvency proceeding or has made an
assignment for the benefit of creditors or whose assets have been conveyed
to a receiver, trustee or assignee for the benefit of creditors;
(xii) Receivables with respect to which the Account Debtor's
obligation to pay the Receivable is conditional upon the Account Debtor's
approval or is otherwise subject to any repurchase obligation or return
right, as with sales made on a bill-and-hold, guaranteed sale, sale-and-
return, sale on approval (except with respect to Receivables in connection
with which Account Debtors are entitled to return Inventory on the basis of
the quality of such Inventory) or consignment basis;
(xiii) Receivables with respect to which the Account Debtor is
located in Minnesota (or any other jurisdiction which adopts a statute or
other requirement with respect to which any Person that obtains business
from within such jurisdiction or is otherwise subject to such
jurisdiction's tax law requiring such Person to file a Business Activity
Report or make any other required filings in a timely manner in order to
enforce its claims in such jurisdiction's courts or arising under such
jurisdiction's laws); provided, however, such Receivables shall nonetheless
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be eligible if the applicable Borrower has
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filed a Business Activity Report (or other applicable report) with the
applicable state office or is qualified to do business in such jurisdiction
and, at the time the Receivable was created, was qualified to do business
in such jurisdiction or had on file with the applicable state office a
current Business Activity Report (or other applicable report);
(xiv) Receivables with respect to which the Account Debtor's
obligation does not constitute its legal, valid and binding obligation,
enforceable against it in accordance with its terms (other than as a result
of the potential application of bankruptcy, insolvency and other similar
laws affecting creditors' rights generally and principles of equity);
(xv) Receivables with respect to which the applicable Borrower has
not yet shipped the applicable goods, performed the applicable service or
issued the applicable invoice;
(xvi) any Receivable which is not in conformity in material respects
with the representations and warranties made by the Borrowers to the Agent
with respect thereto, whether contained in this Agreement or the Security
Agreement;
(xvii) Receivables in connection with which the applicable Borrower
has not complied with all material requirements contained in the charter
and by-laws or other organizational or governing documents of the
applicable Borrower, and any law, rule or regulation, or determination of
an arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Borrower or any of its property or to
which such Borrower or any of its property is subject, including, without
limitation, all laws, rules, regulations and orders of any Governmental
Authority or judicial authority relating to truth in lending, billing
practices, fair credit reporting, equal credit opportunity, debt collection
practices and consumer debtor protection, applicable to such Receivable (or
any related contracts) or affecting the collectability of such Receivables;
and
(xviii) Receivables in connection with which the applicable Borrower
or any other party to such Receivable, is in default in the performance or
observance of any of the terms thereof in any material respect.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
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Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S) 9601 et seq., the Occupational Safety and Health Act of 1970,
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29 U.S.C. (S) 651 et seq., and the Resource Conservation and Recovery Act of
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1976, 42 U.S.C. (S) 6901 et seq., in each case including any amendments thereto,
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any successor statutes, and any regulations promulgated thereunder, and any
state or local equivalent thereof.
"ENVIRONMENTAL LIEN" means a lien in favor of any Governmental Authority
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for (a) any liability under Environmental, Health or Safety Requirements of Law,
or (b) damages arising
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from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.
"ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable Requirement of
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Law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"EOS" and "EOS PARTNERS, L.P." means Eos Partners, L.P., a Delaware limited
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partnership, together with its Affiliates.
"EQUIPMENT" means all of the Borrowers' present and future (i) equipment,
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including, without limitation, machinery, manufacturing, distribution, selling,
data processing and office equipment, assembly systems, tools, molds, dies,
fixtures, appliances, furniture, furnishings, vehicles, vessels, aircraft,
aircraft engines, and trade fixtures, and (ii) any and all accessions, parts and
appurtenances attached to any of the foregoing or used in connection therewith,
and any substitutions therefor and replacements, products and proceeds thereof.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
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rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Rate Loan for
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the relevant Interest Period, the rate determined by the Agent to be the rate at
which deposits in Dollars are offered by First Chicago to first-class banks in
the London interbank market at approximately 11 a.m. (London time) two Business
Days prior to the first day of such Interest Period, in the approximate amount
of First Chicago's relevant Eurodollar Rate Loan and having a maturity
approximately equal to such Interest Period, as adjusted for Reserves.
"EURODOLLAR RATE" means, with respect to a Eurodollar Rate Loan for the
---------------
relevant Interest Period, the Eurodollar Base Rate applicable to such Interest
Period plus the then Applicable Eurodollar Margin, changing when and as the
----
Applicable Eurodollar Margin changes. The Eurodollar Rate shall be rounded to
the next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"EURODOLLAR RATE ADVANCE" means an Advance which bears interest at the
-----------------------
Eurodollar Rate.
"EURODOLLAR RATE LOAN" means a Loan, or portion thereof, which bears
--------------------
interest at the Eurodollar Rate.
11
<PAGE>
"EXCESS CASH FLOW" means, for any Cash Flow Period, an amount, calculated
----------------
without duplication, equal to the Borrowers' and their Subsidiaries'
consolidated (i) Net Income for such period plus (ii) amortization expense for
----
such period, including, without limitation, amortization of goodwill and other
intangible assets, plus (iii) depreciation for such period, plus (iv) all other
---- ----
non-cash charges to the extent deducted in computing Net Income, minus (v)
-----
Capital Expenditures, whether paid in cash or accrued during such period, minus
-----
(vi) principal payments made on the Term Loans (excluding mandatory prepayments
made from Excess Cash Flow) and principal payments made on all other
Indebtedness of the Borrowers and their Subsidiaries (other than the
Obligations) during such period, plus (vii) 50% of the net reduction, if any, in
----
Working Capital as of the last day of such period from the Working Capital as of
the end of the preceding Cash Flow Period, minus (viii) 50% of the net
-----
increase, if any, in Working Capital as of the last day of such period from the
Working Capital as of the end of the preceding Cash Flow Period, minus (ix) the
-----
aggregate amount (without duplication) of (x) cash dividends or cash redemptions
paid during such period with respect to the Borrowers' Capital Stock, (y)
Restricted Payments paid during such period pursuant to Section 6.3(F) and (z)
--------------
amounts paid in respect of management fees (to the extent not already deducted
in computing Net Income) permitted under section 6.3(H). All such amounts shall
--------------
be calculated in accordance with Agreement Accounting Principles and, with
respect to Working Capital, shall be calculated assuming that the Borrowers have
conducted their business in the ordinary course and in accordance with past
practices.
"EXCLUDED PROCEEDS" is defined in Section 6.2(G) hereof.
----------------- --------------
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FEES" is defined in Section 6.4(A) hereof.
---- --------------
"FIRST CHICAGO" means The First National Bank of Chicago, in its individual
-------------
capacity, and its successors.
"FIXED CHARGE COVERAGE RATIO" is defined in Section 6.4(B) hereof.
--------------------------- --------------
"FLOATING RATE" means, for any day for any Loan, a rate per annum equal to
-------------
(i) the Alternate Base Rate for such day plus (ii) the then Applicable Floating
Rate Margin applicable to such Loan, changing when and as the Alternate Base
Rate and/or Applicable Floating Rate Margin changes.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
---------------------
Floating Rate.
12
<PAGE>
"FLOATING RATE LOAN" means a Loan, or portion thereof, which bears interest
------------------
at the Floating Rate.
"GOVERNMENTAL ACTS" is defined in Section 2.26(a) hereof.
----------------- ---------------
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
----------------------
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROSS AMOUNT OF ELIGIBLE RECEIVABLES" means the outstanding face amount of
------------------------------------
Eligible Receivables, determined in accordance with Agreement Accounting
Principles, consistently applied, less (i) all finance charges, late fees and
other fees that are unearned and (ii) the value of any accrual which has been
recorded by the applicable Borrower with respect to downward price adjustments.
"GROSS NEGLIGENCE" means either recklessness, the absence of the slightest
----------------
care or actions taken or omitted with conscious indifference to or the complete
disregard of consequences. Gross Negligence does not mean merely the absence of
ordinary care or diligence or an inadvertent act or inadvertent failure to act.
If the term "gross negligence" is used with respect to the Agent or any Lender
or any indemnitee in any of the other Loan Documents, it shall have the meaning
set forth herein.
"GUARANTOR" means, each of the Borrowers and "GUARANTORS" means all of
--------- ----------
the Borrowers.
"HEDGING AGREEMENTS" is defined in Section 6.3(Q) hereof.
------------------ --------------
"HEDGING OBLIGATIONS" of a Person means any and all obligations of such
-------------------
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or cross-
currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency, interest rate options, puts and warrants or any similar derivative
agreement, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any of the foregoing.
"HOLDERS OF SECURED OBLIGATIONS" means the holders of the Secured
------------------------------
Obligations from time to time and shall refer to (i) each Lender in respect of
its Loans, (ii) the Issuing Lender in respect of Reimbursement Obligations,
(iii) the Agent, the Lenders and the Issuing Lender in respect of all other
present and future obligations and liabilities of the Borrowers or any of any
Borrower's Subsidiaries of every type and description arising under or in
connection with this Agreement or any other Loan Document, (iii) each Indemnitee
in respect of the obligations and liabilities of any Borrower to such Person
hereunder, (iv) each Lender (or affiliate thereof), in
13
<PAGE>
respect of all Hedging Obligations of any Borrower to such Lender (or such
affiliate) as exchange party or counterparty under any Hedging Agreement, and
(v) their respective successors, transferees and assigns.
"HOLDINGS" means PMT Holdings, Inc., a Delaware corporation, and its
--------
successors and assigns, including a debtor-in-possession on behalf of Holdings.
"ICI ACQUISITION DOCUMENTS" means the ICI Stock Purchase Agreement and all
-------------------------
other documents, instruments and agreements entered into by Holdings or any of
its Affiliates in connection with the ICI Stock Acquisition.
"ICI STOCK ACQUISITION" means the acquisition by Holdings of all of the
---------------------
issued and outstanding Capital Stock of ICI and ICS on the terms and conditions
set forth in that certain Stock Purchase Agreement ("ICI STOCK PURCHASE
AGREEMENT") dated as of December 16, 1997, by and among Holdings, ICI, ICS and
the Sellers substantially in the form attached as Exhibit D hereto.
---------
"ICI STOCK PURCHASE AGREEMENT" is defined in the definition of "ICI Stock
----------------------------
Acquisition" above.
"INDEBTEDNESS" of any Person means (i) any indebtedness of such Person,
------------
contingent or otherwise, (a) in respect of borrowed money, including all
principal, interest, fees and expenses with respect thereto (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to a
portion thereof), or (b) evidenced by bonds, notes, acceptances, debentures or
other instruments or letters of credit (or reimbursement obligations with
respect thereto, including, in the case of the Borrowers, Reimbursement
Obligations under the Letters of Credit) or (c) representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
Capitalized Leases) or services, if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles (except that any
such balance that constitutes a trade payable and/or an accrued liability
arising in the ordinary course of business shall not be considered
Indebtedness); (ii) to the extent not otherwise included, (a) interest accruing
after the commencement of any bankruptcy, insolvency, receivership or similar
proceedings and other interest that would have accrued but for the commencement
of such proceedings, (b) any Capitalized Lease Obligations, (c) the maximum
fixed repurchase price of any Redeemable Stock (unless (x) the terms thereof
provide that none of the Borrowers or their Subsidiaries may make any payment
thereon with respect to such Redeemable Stock without the consent of the
Required Lenders and (y) the Required Lenders have not, as of the date of
determination, given any such consent, and, in any case where such consent has
been given, the amount includable as Indebtedness shall only be that amount
permitted to be paid pursuant to the terms of such consent), (d) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from property now or hereafter owned or acquired by such Person, and
(e) Hedging Obligations. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Redeemable Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were
14
<PAGE>
repurchased on any date on which Indebtedness shall be required to be determined
pursuant to this Agreement. The amount of Indebtedness of any Person at any date
shall be, without duplication, (i) the outstanding balance at such date of all
unconditional obligations as described above and (ii) in the case of
Indebtedness of others secured by a Lien to which the property or assets owned
or held by such Person is subject, the lesser of the fair market value at such
date of any asset subject to a Lien securing the Indebtedness of others and the
amount of the Indebtedness secured.
"INDEMNIFIED MATTERS" is defined in Section 10.7(B) hereof.
------------------- ---------------
"INDEMNITEES" is defined in Section 10.7(B) hereof.
----------- ---------------
"INTEREST EXPENSE" is defined in Section 6.4(A) hereof.
---------------- --------------
"INTEREST PERIOD" means, with respect to a Eurodollar Rate Loan, a period
---------------
of one (1), two (2), three (3), six (6) or twelve (12) months commencing on a
Business Day selected by any Borrower pursuant to this Agreement. Such Interest
Period shall end on (but exclude) the day which corresponds numerically to such
date one, two, three, six or twelve months thereafter; provided, however, that
-------- -------
if there is no such numerically corresponding day in such next, second, third,
sixth or twelfth succeeding month, such Interest Period shall end on the last
Business Day of such next, second, third, sixth or twelfth succeeding month. If
an Interest Period would otherwise end on a day which is not a Business Day,
such Interest Period shall end on the next succeeding Business Day, provided,
--------
however, that if said next succeeding Business Day falls in a new calendar
- -------
month, such Interest Period shall end on the immediately preceding Business Day.
"INVESTMENT" means, with respect to any Person, (i) any purchase or other
----------
acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business conducted by another
Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and agents and similar items made or incurred
in the ordinary course of business) or capital contribution by that Person to
any other Person, including all Indebtedness to such Person arising from a sale
of property by such Person other than in the ordinary course of its business.
"INVESTMENT GRADE RECEIVABLE" means, at any time, a Receivable owed by an
---------------------------
Account Debtor (i) whose (or whose direct or indirect controlling stockholder's
or other parent entity's) long term, senior unsecured, non-credit enhanced
Indebtedness is rated, at such time, at least BBB- by Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc., or its successor
("S&P") or Baa3 by Moody's Investors Services, Inc., or its successor
("MOODY'S"), or (ii) if such Account Debtor's (or its direct or indirect
controlling stockholder's or other parent entity's) Indebtedness is not rated
by S&P or Moody's if such Account Debtor maintains a rating, at such time, of
not less than 5A1 by Dunn & Bradstreet, Inc.
15
<PAGE>
"IRS" means the Internal Revenue Service and any Person succeeding to the
---
functions thereof.
"ISSUING LENDER" is defined in Section 2.21 hereof.
-------------- ------------
"L/C DOCUMENTS" is defined in Section 2.21.
------------- ------------
"L/C DRAFT" means a draft drawn on an Issuing Lender pursuant to a Letter
---------
of Credit.
"L/C INTEREST" is defined in Section 2.22.
------------ ------------
"L/C OBLIGATIONS" means, without duplication, an amount equal to the sum of
---------------
(i) the aggregate of the amount then available for drawing under each of the
Letters of Credit (other than the amount of the Term Portion then available for
drawing under the Seller Letters of Credit), (ii) the face amount of all
outstanding L/C Drafts corresponding to the Letters of Credit (other than with
respect to the Term Portion of the Seller Letters of Credit), which L/C Drafts
have been accepted by the applicable Issuing Lender, (iii) the aggregate
outstanding amount of all Reimbursement Obligations (other than with respect to
the Term Portion of the Seller Letters of Credit) at such time and (iv) the
aggregate face amount of all Letters of Credit requested by the Borrowers but
not yet issued (unless the request for an unissued Letter of Credit has been
denied).
"LENDERS" means the lending institutions listed on the signature pages of
-------
this Agreement and their respective successors and assigns.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent, any
--------------------
office, branch, subsidiary or affiliate of such Lender or the Agent.
"LETTER OF CREDIT" means the letters of credit issued by the Issuing
----------------
Lenders pursuant to Section 2.21 hereof.
------------
"LEVERAGE RATIO" is defined in Section 6.4(C) below.
-------------- --------------
"LIEN" means any lien (statutory or other), mortgage, pledge,
----
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, the interest of a vendor or lessor
under any conditional sale, Capitalized Lease or other title retention
agreement, but excluding any lease in which title to the property subject
thereto is not intended thereby to pass to the lessee thereunder).
"LOAN(S)" means, with respect to a Lender, such Lender's portion of any
-------
Advance made pursuant to Section 2.1 or Section 2.2, as applicable, and
----------- -----------
collectively all Term Loans and Revolving Loans, whether made or continued as or
converted to Floating Rate Loans or Eurodollar Rate Loans.
16
<PAGE>
"LOAN ACCOUNT" is defined in Section 2.15(F) hereof.
------------ ---------------
"LOAN DOCUMENTS" means this Agreement, the Notes, the L/C Documents, the
--------------
Collateral Documents and all other documents, instruments and agreements
executed in connection therewith or contemplated thereby, as the same may be
amended, restated or otherwise modified and in effect from time to time (but
excluding the commitment letter dated October 1, 1997, from First Chicago to
Holdings and EOS, which is, so long as all fees agreed to thereunder are paid in
full, superseded in its entirety by this Agreement).
"MANAGEMENT" means, at any time, those employees or former employees of any
----------
Borrower holding Equity Interests of any Borrower at such time.
"MANAGEMENT AGREEMENT" means the Amended and Restated Management Services
--------------------
Agreement dated as of the date hereof among the Borrowers and Eos Management
Inc.
"MARGIN STOCK" shall have the meaning ascribed to such term in Regulation
------------
U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrowers and their Subsidiaries, taken as a
whole, (b) the ability of any Borrower or any of its Subsidiaries to perform
their respective obligations under the Loan Documents in any material respect,
or (c) the ability of the Lenders or the Agent to enforce in any material
respect the Obligations or their rights with respect to the Collateral.
"MAXIMUM REVOLVING CREDIT AMOUNT" means, at any particular time: (i) the
-------------------------------
lesser of (A) the Aggregate Revolving Loan Commitment at such time minus the
-----
aggregate outstanding L/C Obligations at such time and (B) the Borrowing Base at
such time minus the aggregate outstanding L/C Obligations at such time, minus
----- -----
(ii) the amount of any Decision Reserve in effect at such time.
"MULTIEMPLOYER PLAN" means a "Multiemployer Plan" as defined in Section
------------------
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by any Borrower or any member of the Controlled Group.
"NET CASH PROCEEDS" means, with respect to any Asset Sale of any Person,
-----------------
(a) cash (freely convertible into U.S. Dollars) received by such Person or any
Subsidiary of such Person from such Asset Sale (including cash received as
consideration for the assumption or incurrence of liabilities incurred in
connection with or in anticipation of such Asset Sale), after (i) provision for
all income or other taxes measured by or resulting from such Asset Sale, (ii)
payment of all brokerage commissions and other fees and expenses related to such
Asset Sale, (iii) all amounts used to repay Indebtedness secured by a Lien on
any asset disposed of in such Asset Sale or which is or may be required (by the
express terms of the instrument governing such Indebtedness) to be repaid in
connection with such Asset Sale (including payments made to obtain or avoid the
need for the consent of any holder of such Indebtedness), and (iv) deduction of
appropriate amounts to be provided by such Person or a Subsidiary of such Person
as a
17
<PAGE>
reserve, in accordance with Agreement Accounting Principles, against any
liabilities associated with the assets sold or disposed of in such Asset Sale
and retained by such Person or a Subsidiary of such Person after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters or against any
indemnification obligations associated with the assets sold or disposed of in
such Asset Sale; and (b) cash payments in respect of any Indebtedness, Capital
Stock or other consideration received by such Person or any Subsidiary of such
Person from such Asset Sale upon receipt of such cash payments by such Person or
such Subsidiary.
"NET INCOME" is defined in Section 6.4(A) hereof.
---------- --------------
"NON PRO RATA LOAN" is defined in Section 8.2 hereof.
----------------- -----------
"NOTES" means the Revolving Notes and the Term Notes.
-----
"NOTICE OF ASSIGNMENT" is defined in Section 13.3(B) hereof.
-------------------- ---------------
"OBLIGATIONS" means all Loans, advances, debts, liabilities, obligations,
-----------
covenants and duties owing by any Borrower to the Agent, any Lender, any
Affiliate of the Agent or any Lender, or any Indemnitee, of any kind or nature,
present or future, arising under this Agreement, the Notes, the L/C Documents,
the Collateral Documents, any other Loan Document, whether or not evidenced by
any note, guaranty or other instrument, whether or not for the payment of money,
whether arising by reason of an extension of credit, loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired. The term includes, without
limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements, paralegals' fees (in each case whether or not allowed), and any
other sum chargeable to the Borrowers under this Agreement or any other Loan
Document.
"OFF BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase
-----------------------------
obligation or other similar liability of such Person or any of its Subsidiaries
with respect to accounts or notes receivable sold by such Person or any of its
Subsidiaries, (b) any liability of such Person under any Sale and Leaseback
Transactions which do not create a liability on the consolidated balance sheet
of such Person and its Subsidiaries, (c) any liability of such Person under any
financing lease or so-called "synthetic" lease transaction, or (d) any
obligations of such Person arising with respect to any other transaction which
is the functional equivalent of or takes the place of the borrowing of money but
which does not constitute a liability on the consolidated balance sheets of such
Person and its Subsidiaries.
"OFFICER'S CERTIFICATE" is defined in Section 6.1(A)(iv) hereof.
--------------------- ------------------
"OTHER TAXES" is defined in Section 2.15(E)(ii) hereof.
----------- -------------------
"PACIFIC MOTOR" means Pacific Motor Transport Company, a California
-------------
corporation, and its successors and assigns, including a debtor-in-possession on
behalf of Borrower.
18
<PAGE>
"PARTICIPANTS" is defined in Section 13.2(A) hereof.
------------ ---------------
"PAYMENT DATE" means the last Business Day of each calendar quarter.
------------
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
----
thereto.
"PERMITTED EXISTING CONTINGENT OBLIGATIONS" means the Contingent
-----------------------------------------
Obligations of any Borrower identified as such on Schedule 1.1.1 to this
--------------
Agreement.
"PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of any Borrower
-------------------------------
identified as such on Schedule 1.1.2 to this Agreement.
--------------
"PERMITTED EXISTING INVESTMENTS" means the Investments of any Borrower
------------------------------
identified as such on Schedule 1.1.3 to this Agreement.
--------------
"PERMITTED EXISTING LIENS" means the Liens on assets of any Borrower or any
------------------------
of its Subsidiaries identified as such on Schedule 1.1.4 to this Agreement.
--------------
"PERMITTED INSURANCE COLLATERALIZED FINANCING" is defined in Section
-------------------------------------------- -------
6.3(A)(ii)(n) hereof.
- -------------
"PERMITTED SALE AND LEASEBACK" is defined in Section 6.3(B)(iv) hereof.
---------------------------- ------------------
"PERMITTED PURCHASE MONEY INDEBTEDNESS" is defined in Section 6.3(A)(ii)(j)
------------------------------------- ---------------------
hereof.
"PERSON" means any natural person, corporation, firm, joint venture,
------
partnership, association, enterprise, trust or other entity or organization, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"PLAN" means an employee benefit plan defined in Section 3(3) of ERISA in
----
respect of which any Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"PLEDGE AGREEMENTS" means (i) that certain Amended and Restated Pledge
-----------------
Agreement dated as of the date hereof executed by Holdings, (ii) that certain
Limited Liability Company Pledge Agreement dated as of the date hereof executed
by Holdings and (iii) that certain Pledge Agreement dated as of the date hereof
executed by ICS, each in favor of First Chicago, individually and as agent for
the Holders of Secured Obligations as set forth therein.
"PMT STOCK ACQUISITION" means the acquisition by Holdings of all of the
---------------------
issued and outstanding Capital Stock of Pacific Motor on the terms and
conditions set forth in that certain Stock Purchase Agreement ("PMT STOCK
PURCHASE AGREEMENT") dated as of March 31, 1997, by and among Holdings, Union
Pacific Railroad Corporation, Southern Pacific Transportation Company and
Pacific Motor.
19
<PAGE>
"PMT STOCK PURCHASE AGREEMENT" is defined in the definition of "PMT Stock
----------------------------
Acquisition" above.
"PRO RATA SHARE" means, with respect to any Lender, (i) at any time prior
--------------
to the Closing Date, the percentage obtained by dividing (A) such Lender's
Commitments at such time (in each case, as adjusted from time to time in
accordance with the provisions of this Agreement) by (B) the sum of the
Aggregate Term Loan Commitments and the Aggregate Revolving Loan Commitments at
such time and (ii) at any time after the Closing Date, the percentage obtained
by dividing (A) the sum of such Lender's Term Loans and Revolving Loan
Commitment at such time (in each case, as adjusted from time to time in
accordance with the provisions of this Agreement) by (B) the sum of the
aggregate amount of all of the Term Loans and the Aggregate Revolving Loan
Commitment at such time; provided, however, if all of the Commitments are
-------- -------
terminated pursuant to the terms of this Agreement, then "Pro Rata Share" means
the percentage obtained by dividing (x) the sum of such Lender's Term Loans and
Revolving Loans by (y) the aggregate amount of all Term Loans and Revolving
Loans.
"PUBLIC OFFERING" means a public offering of Equity Interests pursuant to a
---------------
registration statement declared effective under the Securities Act, except that
a Public Offering shall not include an offering of Equity Interests to be issued
as consideration in connection with a business acquisition or an offering of
Equity Interests issuable pursuant to an employee benefit plan.
"PURCHASERS" is defined in Section 13.3(A) hereof.
---------- ---------------
"RATE OPTION" means the Eurodollar Rate or the Floating Rate.
-----------
"RECEIVABLE(S)" means and includes all of any Borrower's presently existing
-------------
and hereafter arising or acquired accounts, accounts receivable, and all present
and future rights of such Borrower to payment for goods sold or leased or for
services rendered (except those evidenced by instruments or chattel paper),
whether or not they have been earned by performance, and all rights in any
merchandise or goods which any of the same may represent, and all rights, title,
security and guaranties with respect to each of the foregoing, including,
without limitation, any right of stoppage in transit.
"REDEEMABLE STOCK" means any Capital Stock which by its terms (or by the
----------------
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, in whole or in part, prior to the maturity of the Obligations
(including any extensions thereof contemplated by this Agreement), or is, by its
terms or upon the happening of any event, redeemable at the option of the holder
thereof, in whole or in part, prior to the maturity of the Obligations
(including any extensions thereof contemplated by this Agreement).
"REFINANCED INDEBTEDNESS" means the aggregate outstanding Indebtedness of
-----------------------
ICI, ICS and IMCS (incurred jointly or severally) as of the Closing Date which
is being discharged as of the Closing Date as more specifically set forth on
Schedule 1.1.5 hereto.
- --------------
20
<PAGE>
"REGISTER" is defined in Section 13.3(C) hereof.
-------- ---------------
"REGULATION G" means Regulation G of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by nonbank, nonbroker lenders for the purpose of purchasing
or carrying margin stock (as defined therein).
"REGULATION T" means Regulation T of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
"REGULATION U" means Regulation U of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
"REGULATION X" means Regulation X of the Board of Governors of the Federal
------------
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
obtaining of credit by borrowers for the purpose of purchasing or carrying
margin stock (as defined therein).
"REIMBURSEMENT OBLIGATION" is defined in Section 2.23 hereof.
------------------------ ------------
"RELEASE" means any release, spill, emission, leaking, pumping, injection,
-------
deposit, disposal, discharge, dispersal, leaching or migration into the
environment.
"RENTALS" is defined in Section 6.4(A) hereof.
------- --------------
"REPLACEMENT LENDER" is defined in Section 2.20 hereof.
------------------ ------------
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
----------------
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days after
such event occurs, provided, however, that a failure to meet the minimum funding
-------- -------
standards of Section 412 of the Code and of Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waiver of the notice
requirement in accordance with any Section 4043(a) of ERISA or Section 412(d) of
the Code.
"REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the aggregate,
----------------
are equal to or greater than fifty percent (50%); provided, however, that, if
-------- -------
any of the Lenders shall have failed to fund its Pro Rata Share of any Revolving
Loan requested by the Borrowers as requested by the Agent, which such Lenders
are obligated to fund under the terms of this Agreement and any such failure has
not been cured, then for so long as such failure continues, "REQUIRED
21
<PAGE>
LENDERS" means Lenders (excluding all Lenders whose failure to fund their
respective Pro Rata Shares of such Revolving Loans has not been so cured) whose
Pro Rata Shares represent fifty percent (50%) or greater of the aggregate Pro
Rata Shares of such Lenders; provided, further, however, that, if the
------- -------- -------
Commitments have been terminated pursuant to the terms of this Agreement,
"REQUIRED LENDERS" means Lenders (without regard to such Lenders' performance of
their respective obligations hereunder) whose aggregate ratable shares (stated
as a percentage) of the aggregate outstanding principal balance of all Loans,
L/C Obligations and any outstanding obligations with respect to the Term Portion
of the Seller Letters of Credit are equal to or greater than fifty percent
(50%).
"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or
-------------------
other organizational or governing documents of such Person, and any law, rule or
regulation, or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject including,
without limitation, the Securities Act of 1933, the Securities Exchange Act of
1934, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker
Adjustment and Retraining Notification Act, Americans with Disabilities Act of
1990, and any certificate of occupancy, zoning ordinance, building,
environmental or land use requirement or Permit or environmental, labor,
employment, occupational safety or health law, rule or regulation, including
Environmental, Health or Safety Requirements of Law.
"RESERVES" shall mean the maximum reserve requirement, as prescribed by the
--------
Board of Governors of the Federal Reserve System (or any successor) with respect
to "Eurocurrency liabilities" or in respect of any other category of liabilities
which includes deposits by reference to which the interest rate on Eurodollar
Rate Loans is determined or category of extensions of credit or other assets
which includes loans by a non-United States office of any Lender to United
States residents.
"RESTRICTED PAYMENT" means, at any time after the ICI Stock Acquisition:
------------------
(i) any dividend or other distribution, direct or indirect, on account of any
shares of any class of Capital Stock of any Borrower now or hereafter
outstanding, except a dividend payable solely in shares of that class of stock
or in any junior class of stock to the holders of that class; (ii) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of Capital
Stock of any Borrower; and (iii) any payment made to redeem, purchase,
repurchase or retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of Capital Stock of any
Borrower now or hereafter outstanding.
"REVOLVING CREDIT AVAILABILITY" means, at any particular time, the lesser
-----------------------------
of (a) (i) the Aggregate Revolving Loan Commitment at such time minus (ii) the
-----
Revolving Credit Obligations outstanding at such time and (b) (i) the Borrowing
Base at such time, minus (ii) the principal amount of the Revolving Loans
-----
outstanding at such time, minus (iii) the L/C Obligations outstanding at such
-----
time.
22
<PAGE>
"REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of
----------------------------
(i) the outstanding principal amount of the Revolving Loans at such time, plus
----
(ii) the L/C Obligations at such time.
"REVOLVING LOAN" is defined in Section 2.2.
-------------- -----------
"REVOLVING LOAN COMMITMENT" means, for each Lender, the obligation of such
-------------------------
Lender to make Revolving Loans and to purchase participations in Letters of
Credit not exceeding the amount set forth on Exhibit B to this Agreement
---------
opposite its name thereon under the heading "Revolving Loan Commitment" or on
Schedule 1 to the Assignment and Acceptance by which it became a Lender, as such
amount may be modified from time to time pursuant to the terms of this Agreement
or to give effect to any applicable Assignment and Acceptance.
"REVOLVING LOAN TERMINATION DATE" means December 16, 2002.
-------------------------------
"REVOLVING NOTE" means a promissory note, in substantially the form of
--------------
Exhibit C hereto, duly executed by the applicable Borrower and payable to the
- ---------
order of a Lender in the amount of its Revolving Loan Commitment, including any
amendment, restatement modification, renewal or replacement of such Revolving
Note.
"RISK-BASED CAPITAL GUIDELINES" is defined in Section 3.2 hereof.
----------------------------- -----------
"SALE AND LEASEBACK TRANSACTION" means any sale or other transfer of
------------------------------
Property by any Person with intent to lease such Property as lessee.
"SECURED OBLIGATIONS" means, collectively, (i) the Obligations and (ii) all
-------------------
Hedging Obligations owing under Hedging Agreements to any Lender or any
affiliate of any Lender.
"SECURITY AGREEMENTS" means collectively and "SECURITY AGREEMENT" means
------------------- ------------------
individually: (i) that certain Amended and Restated Security Agreement dated as
of the date hereof, executed by Pacific Motor, (ii) that certain Security
Agreement dated the date hereof, executed by Holdings, (iii) that certain
Security Agreement dated the date hereof, executed by AIRS, (iv) that certain
Security Agreement dated the date hereof, executed by AIMS, (v) that certain
Security Agreement dated the date hereof, executed by Acquisition Company, (vi)
that certain Security Agreement dated the date hereof, executed by ICI, (iv)
that certain Security Agreement dated the date hereof, executed by ICS and (v)
that certain Security Agreement dated the date hereof, executed by IMCS, each in
favor of the Agent for the benefit of the Holders of Secured Obligations and
each as amended, restated or otherwise modified from time to time.
"SELLER" means Gary Goldfein or Allen E. Steiner and "SELLERS" means Gary
------ -------
Goldfein and Allen E. Steiner.
"SELLER DRAW DATE" means each date on which a Seller Letter of Credit is
----------------
drawn upon pursuant to the terms thereof.
23
<PAGE>
"SELLER LETTERS OF CREDIT" means the Letters of Credit issued by First
------------------------
Chicago for the account of Acquisition Company and the benefit of each of the
Sellers, dated as of the Closing Date and in the form of Exhibit L.
---------
"SINGLE EMPLOYER PLAN" means a Plan maintained by any Borrower or any
--------------------
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SOLVENT", when used with respect to any Person, means that at the time of
-------
determination: (i) the fair market value (i.e., the value of the consideration
obtainable in a sale of assets on a going-concern basis in the open market,
assuming a sale by a willing seller to a willing purchaser dealing at arm's
length and arranged in an orderly manner over a reasonable period of time, each
having reasonable knowledge of the nature and characteristics of such assets,
neither being under any compulsion to act, determined in good faith) of its
assets is in excess of the total amount of its liabilities (including, without
limitation, contingent liabilities); (ii) the present fair saleable value of its
assets (as determined on a going-concern basis) is greater than its probable
liability on its existing debts as such debts become absolute and matured; (iii)
it is then able and expects to be able to pay its debts (including, without
limitation, contingent debts and other commitments) as they mature; and (iv) it
has capital sufficient to carry on its business as conducted and as proposed to
be conducted. With respect to contingent liabilities (such as litigation,
guarantees and pension plan liabilities), such liabilities shall be computed at
the amount which, in light of all the facts and circumstances existing at the
time, represent the amount which can be reasonably be expected to become an
actual or matured liability.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
----------
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"TAXES" is defined in Section 6.4 hereof.
----- -----------
"TERMINATION DATE" means the earlier of (a) the Revolving Loan Termination
----------------
Date and (b) the date of termination of the Commitments pursuant to Section 2.6
-----------
or Section 8.1.
-----------
"TERMINATION EVENT" means (i) a Reportable Event with respect to any
-----------------
Benefit Plan; (ii) the withdrawal of any Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which any Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on any Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of
24
<PAGE>
proceedings to terminate a Benefit Plan; (v) any event or condition which would
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit Plan;
or (vi) the partial or complete withdrawal of any Borrower or any member of the
Controlled Group from a Multiemployer Plan.
"TERM LOAN" is defined in Section 2.1.
--------- -----------
"TERM LOAN COMMITMENT" means, for each Lender, the obligation of such
--------------------
Lender to make its Term Loans pursuant to the terms and conditions of this
Agreement, and which shall not exceed the principal amount set forth on Exhibit
-------
B to this Agreement opposite its name thereon under the heading "Term Loan
- -
Commitment", as such amount may be modified from time to time pursuant to the
terms hereof.
"TERM LOAN NOTE" means a promissory note, in substantially the form of
--------------
Exhibit E hereto, duly executed by the applicable Borrower and payable to the
- ---------
order of a Lender in the amount of its Term Loan Commitment, including any
amendment, restatement modification, renewal or replacement of such Term Loan
Note.
"TERM LOAN TERMINATION DATE" means the seventh anniversary of the Closing
--------------------------
Date.
"TERM PORTION" is defined in Section 2.23.
------------ ------------
"TRANSACTION COSTS" means the fees, costs and expenses payable by any
-----------------
Borrower in connection with the execution, delivery and performance of the
Transaction Documents and the consummation of the ICI Stock Acquisition and the
PMT Stock Acquisition.
"TRANSACTION DOCUMENTS" means the Loan Documents, the ICI Acquisition
---------------------
Documents and the PMT Acquisition Documents.
"TRANSFEREE" is defined in Section 13.5 hereof.
---------- ------------
"TYPE" means, with respect to any Loan, its nature as a Floating Rate Loan
----
or a Eurodollar Rate Loan.
"UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans, the
--------------------
amount (if any) by which the present value of all vested nonforfeitable benefits
under all Single Employer Plans exceeds the fair market value of all such Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plans, and (ii) in the case of Multiemployer Plans, the
withdrawal liability that would be incurred by the Controlled Group if all
members of the Controlled Group completely withdrew from all Multiemployer
Plans.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or the
-----------------
giving of notice, or both, would constitute a Default.
25
<PAGE>
"WORKING CAPITAL" means, as at any date of determination and determined
---------------
without duplication, the excess, if any, of (i) each of the Borrowers' and their
Subsidiaries' consolidated current assets, except cash and Cash Equivalents,
over (ii)each of the Borrowers' and their Subsidiaries' consolidated current
liabilities, except current maturities of long-term debt and Revolving Credit
Obligations as of such date and all accrued interest as of such date.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. Any accounting terms used in this
Agreement which are not specifically defined herein shall have the meanings
customarily given them in accordance with Agreement Accounting Principles.
1.2 References. The existence throughout the Agreement of references to
----------
the Borrowers' Subsidiaries is for a matter of convenience only. Any references
to Subsidiaries of any Borrower set forth herein shall not shall not in any way
be construed as consent by the Agent or any Lender to the establishment,
maintenance or acquisition of any Subsidiary.
1.3 Supplemental Disclosure. At any time at the reasonable request of
-----------------------
the Agent and at such additional times as the Borrowers determine, the Borrowers
shall supplement each schedule or representation herein or in the other Loan
Documents with respect to any matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described in such schedule or as an exception to such representation or
which is necessary to correct any information in such schedule or representation
which has been rendered inaccurate thereby. If any such supplement to such
schedule or representation discloses the existence or occurrence of events,
facts or circumstances which are prohibited by the terms of this Agreement or
any other Loan Documents, such supplement to such schedule or representation
shall not be deemed an amendment thereof unless expressly consented to in
writing by Agent and the Required Lenders, and no such amendments, except as the
same may be consented to in a writing which expressly includes a waiver, shall
be or be deemed a waiver by the Agent or any Lender of any Default disclosed
therein. Any items disclosed in any such supplemental disclosures shall be
included in the calculation of any applicable baskets, limits or similar
restrictions contained in this Agreement or any other Loan Document.
ARTICLE II: THE CREDITS
------------------------
2.1. Term Loans.
----------
(i) Amount of Term Loan. Subject to the terms and conditions
-------------------
set forth in this Agreement, on the Closing Date and on each Seller Draw Date,
each Lender severally and not jointly agrees to make, a term loan, in Dollars,
to Acquisition Company 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 Closing Date and
each Seller Draw Date simultaneously and proportionately to their respective Pro
Rata Shares, it being understood that no Lender shall be responsible for any
failure by any other
26
<PAGE>
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.
(ii) Borrowing Notice. Acquisition Company shall deliver to the
----------------
Agent a Borrowing Notice, signed by it, on the Closing Date. Such Borrowing
Notice shall specify (i) the aggregate amount of the Term Loans to be made on
the Closing Date and each Seller Draw Date and (ii) instructions for the
disbursement of the proceeds of the Term Loans. The Term Loans made on the
Closing Date 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. The Term Loans
----------
made on each Seller Draw Date may be Floating Rate Loans or Eurodollar Rate
Loans as determined by Acquisition Company in accordance with Section 2.10. Any
------------
Borrowing Notice given pursuant to this Section 2.1(a)(ii) shall be irrevocable.
------------------
(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 Closing 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 applicable Borrower at the Agent's office in
Chicago, Illinois on such Closing Date and shall disburse such proceeds in
accordance with the applicable Borrower's disbursement instructions set forth in
such Borrowing Notice. The failure of any Lender to deposit the amount described
above with the Agent on the Closing Date shall not relieve any other Lender of
its obligations hereunder to make its Term Loan on the Closing Date.
(iv) Repayment of the Term Loans.
---------------------------
(A) The Term Loans shall be repaid in twenty-seven
(27) consecutive quarterly principal installments on the last day of each
calendar quarter commencing June 30, 1997, 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:
<TABLE>
<CAPTION>
Date of Installment Amount of Installment
------------------- ---------------------
<S> <C>
June 30, 1998 $ 500,000
September 30, 1998 $ 500,000
December 31, 1998 $ 630,000
March 31, 1999 $ 630,000
June 30, 1999 $ 630,000
September 30,1999 $ 630,000
</TABLE>
27
<PAGE>
<TABLE>
<S> <C>
December 31, 1999 $ 630,000
March 31, 2000 $ 680,000
June 30, 2000 $ 680,000
September 30, 2000 $ 680,000
December 31, 2000 $ 680,000
March 31, 2001 $ 730,000
June 30, 2001 $ 730,000
September 30, 2001 $ 730,000
December 31, 2001 $ 730,000
March 31, 2002 $ 850,000
June 30, 2002 $ 850,000
September 30, 2002 $ 850,000
December 31, 2002 $ 850,000
March 31, 2003 $ 900,000
June 30, 2003 $ 900,000
September 30, 2003 $ 900,000
December 31, 2003 $ 900,000
March 31, 2004 $ 900,000
June 30, 2004 $ 900,000
September 30, 2004 $ 900,000
December 16, 2004 $ 510,000.
</TABLE>
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.
- ---
2.2 Revolving Loans. Upon the satisfaction of the applicable conditions
---------------
precedent set forth in Sections 4.1 and 4.2 hereof, from and including the date
------------ ---
of this Agreement and prior to the Termination Date, each Lender severally and
not jointly agrees, on the terms and conditions set forth in this Agreement, to
make revolving loans to Borrower from time to time, in Dollars, in an amount not
to exceed such Lender's Pro Rata Share of Revolving Credit Availability at such
time (each individually, a "REVOLVING LOAN" and, collectively, the "REVOLVING
LOANS"). Notwithstanding the foregoing, no Lender shall make a Revolving Loan
to AIRS or AIMS if,
28
<PAGE>
after giving effect to such Revolving Loan, the aggregate outstanding principal
amount of Revolving Loans at such time owing by AIRS or AIMS, as applicable,
would be greater than $1,000,000. Subject to the terms of this Agreement, the
Borrowers may borrow, repay and reborrow Revolving Loans at any time prior to
the Termination Date. The Revolving Loans made on the Closing Date 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. On the Termination Date, the Borrowers
----------
shall repay in full the outstanding principal balance of the Revolving Loans.
Each Advance under this Section 2.2 shall consist of Revolving Loans made by
-----------
each Lender ratably in proportion to such Lender's respective Pro Rata Share.
Each Advance under this Section 2.2 shall consist of Revolving Loans made by
-----------
each Lender ratably in proportion to such Lender's respective Pro Rata Share.
2.3 Rate Options for all Advances. The Advances may be Floating Rate
-----------------------------
Advances or Eurodollar Rate Advances, or a combination thereof, selected by the
applicable Borrower in accordance with Section 2.10. The applicable Borrower
------------
may select, in accordance with Section 2.10, Rate Options and Interest Periods
------------
applicable to portions of the Revolving Loans and the Term Loans; provided that
--------
there shall be no more than six (6) Interest Periods in effect with respect to
all of the Loans at any time.
2.4 Optional Payments. The Borrowers may from time to time repay or
-----------------
prepay, without penalty or premium all or any part of outstanding Floating Rate
Advances, provided that the Borrowers may not so prepay Floating Rate Advances
--------
consisting of Term Loans unless any Borrower shall have provided to the Agent
notice of such prepayment at least one Business Day prior to the making thereof.
Eurodollar Rate Advances may be voluntarily repaid or prepaid prior to the last
day of the applicable Interest Period, subject to the indemnification provisions
contained in Section 3.4, provided, that the Borrowers may not so prepay
----------- --------
Eurodollar Rate Advances unless any Borrower shall have provided at least three
Business Days' written notice to the Agent of such prepayment. Unless the
aggregate outstanding principal balance thereof is being paid in full,
repayments or prepayments of Floating Rate Advances (including as a result of
any reduction of the Aggregate Revolving Loan Commitment pursuant to Section
-------
2.6) shall be in an aggregate minimum amount of $100,000 and integral multiples
- ---
of $25,000 in excess thereof. Unless the aggregate outstanding principal balance
thereof is being paid in full, prepayments of Eurodollar Rate Advances
(including as a result of any reduction of the Aggregate Revolving Loan
Commitment pursuant to Section 2.6) shall be in an aggregate minimum amount of
-----------
$100,000 and integral multiples of $50,000 in excess thereof. Each voluntary
prepayment of the Term Loans shall be applied at the discretion of the
Borrowers.
2.5 Mandatory Prepayments.
---------------------
(i) Mandatory Prepayments of Term Loans.
-----------------------------------
(a) Upon the consummation of any Asset Sale other than a Permitted Sale
and Leaseback by any Borrower or any Subsidiary of any Borrower, except as
provided in the immediately following sentence, or any issuance or sale of
Equity Interests in any Borrower by the applicable
29
<PAGE>
Borrower pursuant to a Public Offering or any issuance of debt by any Borrower
(other than Indebtedness permitted pursuant to Section 6.3(A)(f)), within three
-----------------
(3) Business Days after the applicable Borrower's or any Subsidiaries' (i)
receipt of any Net Cash Proceeds from any such Asset Sale or such sale or
issuance of Equity Interests or debt, or (ii) conversion to cash or Cash
Equivalents of non-cash proceeds (whether principal or interest and including
securities, release of escrow arrangements or lease payments) received from any
such Asset Sale or such sale or issuance of Equity Interests or debt, the
applicable Borrower shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such Net Cash
Proceeds or such proceeds converted from non-cash to cash or Cash Equivalents.
Net Cash Proceeds of Asset Sales with respect to which the applicable Borrower
shall have given the Agent written notice of its intention to replace the assets
with assets of a like nature to those sold within six months before or after
such Asset Sale shall not be subject to the provisions of the first sentence of
this Section 2.5(i)(a) unless and to the extent that such period shall have
-----------------
expired without such replacement having been made; provided, however, that
-------- -------
notwithstanding the foregoing, during the existence of a Default, if the
applicable Borrower or any Subsidiary shall consummate any such Asset Sale or
shall not have so reinvested proceeds of any Asset Sale consummated prior to the
occurrence of such a Default, then the applicable Borrower shall immediately
make or cause to be made a mandatory prepayment in an amount equal to 100% of
such Net Cash Proceeds.
(b) Within thirty (30) days after the required date for delivery of the
annual audited financial statements required to be delivered pursuant to Section
-------
6.1(A)(iii) for each Cash Flow Period, the Borrowers shall calculate Excess Cash
- -----------
Flow for such Cash Flow Period and shall make a mandatory prepayment in an
amount equal to sixty-five percent (65%) of such Excess Cash Flow.
(c) Nothing in this Section 2.5(i) shall be construed to constitute the
--------------
Lenders' consent to any transaction referred to in clause (a) above which is not
----------
expressly permitted by the terms of this Agreement.
(d) Each mandatory prepayment required by clauses (a) and (b) of this
----------- ---
Section 2.5 shall be referred to herein as a "DESIGNATED PREPAYMENT".
- -----------
Designated Prepayments shall be allocated and applied to the Obligations as
follows: (i) the amount of each Designated Prepayment shall be applied first
pro rata to the unpaid installments of the Term Loans which will become due and
payable in the six month period immediately following the date of such
Designated Prepayment, and, if the amount of such Designated Prepayment exceeds
the amount necessary to repay such installments in full, the balance shall be
applied to the payment of the unpaid installments of the Term Loans in the
inverse order of their maturity; and (ii) following the payment in full of the
Term Loans, the amount of each Designated Prepayment shall be applied to repay
Revolving Loans (but shall reduce Revolving Loan Commitments only at the option
of the Required Lenders) and following the payment in full of the Revolving
Loans, the amount of each Designated Prepayment shall be applied first to
interest on the Reimbursement Obligations, then to principal on the
Reimbursement Obligations, then to fees on account of Letters of Credit and
then, to the extent any L/C Obligations or obligations under the Term Portion of
the Seller
30
<PAGE>
Letters of Credit are contingent, deposited with the Agent as cash collateral in
respect of such obligations.
(e) On the date any Designated Prepayment is received by the Agent, such
prepayment shall be applied first to Floating Rate Loans and to any Eurodollar
Rate Loans maturing on such date. The Agent shall hold the remaining portion of
such Designated Prepayment as cash collateral in an interest bearing deposit
account and shall apply funds from such account to subsequently maturing
Eurodollar Rate Loans in order of maturity.
(ii) Mandatory Prepayments of Revolving Loans. In addition to repayments
----------------------------------------
under Section 2.5(i)(d)(ii), if at any time and for any reason the Revolving
---------------------
Credit Obligations are greater than the Maximum Revolving Credit Amount, the
Borrowers shall immediately make a mandatory prepayment of the Obligations in an
amount equal to such excess.
(iii) Subject to the preceding provisions of this Section 2.5, all of the
-----------
mandatory prepayments made under this Section 2.5 shall be applied first to
-----------
Floating Rate Loans and to any Eurodollar Rate Loans maturing on such date. The
Agent shall hold the remaining portion of such mandatory prepayment as cash
collateral in an interest bearing deposit account and shall apply funds from
such account to subsequently maturing Eurodollar Rate Loans in order of
maturity.
2.6 Reduction of Commitments. The Borrowers may permanently reduce the
------------------------
Aggregate Revolving Loan Commitment in whole, or in part ratably among the
Lenders, in an aggregate minimum amount of $500,000 and integral multiples of
$250,000 in excess of that amount (unless the Aggregate Revolving Loan
Commitment is reduced in whole), upon at least three Business Days' written
notice to the Agent, which notice shall specify the amount of any such
reduction; provided, however, that the amount of the Aggregate Revolving Loan
-------- -------
Commitment may not be reduced below the aggregate principal amount of the
outstanding Revolving Credit Obligations; and provided, further, that in
-------- -------
addition to the minimum amounts and integrals stated above, if as a result of
any such reduction of the Aggregate Revolving Loan Commitment prepayments of the
Revolving Loans must be made then unless all of the Revolving Credit Obligations
are being paid in full, such prepayments of Floating Rate Advances shall be in
an aggregate minimum amount of $100,000 and integral multiples of $25,000 in
excess thereof and such prepayments of Eurodollar Rate Advances shall be in an
aggregate minimum amount of $100,000 and integral multiples of $50,000 in excess
thereof. All accrued commitment fees relating to the terminated portion of the
Aggregate Revolving Loan Commitment shall be payable on the effective date of
such termination.
2.7 Method of Borrowing. Not later than 12:00 p.m. (Chicago time) on
-------------------
each Borrowing Date, each Lender shall make available its Revolving Loan or
Revolving Loans, in funds immediately available in Chicago to the Agent at its
address specified pursuant to Article XIII hereof. The Agent will promptly make
------------
the funds so received from the Lenders available to the Borrowers at the Agent's
aforesaid address.
31
<PAGE>
2.8 Method of Selecting Types and Interest Periods for Advances. The
-----------------------------------------------------------
applicable Borrower shall select the Type of Advance and, in the case of each
Eurodollar Rate Advance, the Interest Period applicable to each Advance from
time to time. The applicable Borrower shall give the Agent irrevocable notice
(a "BORROWING NOTICE") not later than 11:00 a.m. (Chicago time) on the Borrowing
Date of each Floating Rate Advance and not later than 11:00 a.m. (Chicago time)
three Business Days before the Borrowing Date for each Eurodollar Rate Advance,
specifying: (i) the Borrowing Date (which shall be a Business Day) of such
Advance; (ii) the aggregate amount of such Advance; (iii) the Type of Advance
selected; and (iv) in the case of each Eurodollar Rate Advance, the Interest
Period applicable thereto. The applicable Borrower shall select Interest
Periods so that, to the knowledge of the applicable Borrower, it will not be
necessary to prepay all or any portion of any Eurodollar Rate Advance prior to
the last day of the applicable Interest Period in order to make mandatory
prepayments as required pursuant to the terms hereof. Each Floating Rate
Advance and all Obligations other than Loans shall bear interest from and
including the date of the making of such Advance to (but not including) the date
of repayment thereof at the Floating Rate, changing when and as such Floating
Rate changes. Changes in the rate of interest on that portion of any Advance
maintained as a Floating Rate Loan will take effect simultaneously with each
change in the Alternate Base Rate. Each Eurodollar Rate Advance shall bear
interest from and including the first day of the Interest Period applicable
thereto to (but not including) the last day of such Interest Period at the
interest rate determined as applicable to such Eurodollar Rate Advance, changing
(only as to the Applicable Eurodollar Margin portion thereof) with each change
in the Applicable Eurodollar Margin.
2.9 Minimum Amount of Each Advance. Each Eurodollar Rate Advance shall
------------------------------
be in the minimum amount of $750,000 (and in multiples of $100,000 if in excess
thereof), and each Floating Rate Advance (other than an Advance to repay a
Reimbursement Obligation pursuant to Section 2.23) shall be in the minimum
------------
amount of $100,000 (and in multiples of $25,000 if in excess thereof), provided,
--------
however, that any Floating Rate Advance may be in the amount of the unused
- -------
Revolving Credit Availability.
2.10 Method of Selecting Types and Interest Periods for Conversion and
-----------------------------------------------------------------
Continuation of Advances.
- ------------------------
(A) Right to Convert. The applicable Borrower may elect from time to
----------------
time, subject to the provisions of Section 2.3 and this Section 2.10, to convert
----------- ------------
all or any part of a Loan of any Type into any other Type or Types of Loans;
provided that any conversion of any Eurodollar Rate Advance shall be made on,
- --------
and only on, the last day of the Interest Period applicable thereto.
(B) Automatic Conversion and Continuation. Floating Rate Loans shall
-------------------------------------
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurodollar Rate Loans. Eurodollar Rate Loans shall continue as
Eurodollar Rate Loans until the end of the then applicable Interest Period
therefor, at which time such Eurodollar Rate Loans shall be automatically
converted into Floating Rate Loans unless the applicable Borrower shall have
32
<PAGE>
given the Agent notice in accordance with Section 2.10(D) requesting that, at
---------------
the end of such Interest Period, such Eurodollar Rate Loans continue as a
Eurodollar Rate Loan.
(C) No Conversion Post-Default or Post-Unmatured Default.
----------------------------------------------------
Notwithstanding anything to the contrary contained in Section 2.10(A) or Section
--------------- -------
2.10(B), no Loan may be converted into or continued as a Eurodollar Rate Loan
- -------
(except with the consent of the Required Lenders) when any Default or Unmatured
Default has occurred and is continuing.
(D) Conversion/Continuation Notice. The applicable Borrower shall give
------------------------------
the Agent irrevocable notice (a "CONVERSION/CONTINUATION NOTICE") of each
conversion of a Floating Rate Loan into a Eurodollar Rate Loan or continuation
of a Eurodollar Rate Loan not later than 11:00 a.m. (Chicago time) three
Business Days prior to the date of the requested conversion or continuation,
specifying: (1) the requested date (which shall be a Business Day) of such
conversion or continuation; (2) the amount and Type of the Loan to be converted
or continued; and (3) the amount of Eurodollar Rate Loan(s) into which such Loan
is to be converted or continued and the duration of the Interest Period
applicable thereto.
2.11 Default Rate. After the occurrence and during the continuance of a
------------
Default, at the option of the Agent or at the direction of the Required Lenders,
the interest rate(s) applicable to the Obligations and the fees payable under
Section 2.25 with respect to Letters of Credit shall be the greater of (i) two
- ------------
percent (2.0%) per annum above the Floating Rate in effect from time to time and
(ii) the Eurodollar Rate or Letter of Credit Fees, as applicable, applicable to
such Obligations or Letters of Credit at such time plus two percent (2.0%) per
----
annum.
2.12 Method of Payment. All payments of principal, interest, and fees
-----------------
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Agent at the Agent's address specified
pursuant to Article XIV, or at any other Lending Installation of the Agent
-----------
specified in writing by the Agent to the applicable Borrower, by 2:00 p.m.
(Chicago time) on the date when due and shall be made ratably among the Lenders
(unless such amount is not to be shared ratably in accordance with the terms
hereof). Each payment delivered to the Agent for the account of any Lender
shall be delivered promptly by the Agent to such Lender in the same type of
funds which the Agent received at its address specified pursuant to Article XIV
-----------
or at any Lending Installation specified in a notice received by the Agent from
such Lender. The Borrowers authorize the Agent to charge the account of any
Borrower maintained with First Chicago for each payment of principal, interest,
fees and other Obligations as it becomes due hereunder.
2.13 Notes. Each Lender is authorized to record the principal amount of
-----
each of its Loans and each repayment with respect to its Loans on the schedule
attached to its respective Note; provided, however, that the failure to so
-------- -------
record shall not affect the Borrowers' obligations under any such Note.
2.14 Telephonic Notices. The Borrowers authorize the Lenders and the
------------------
Agent to extend Advances, effect selections of Types of Advances and to transfer
funds based on telephonic notices made by any person or persons the Agent or any
Lender in good faith believes to be a
33
<PAGE>
person or persons set forth on Schedule 2.14 (each, an "AUTHORIZED PERSON"). The
-------------
Borrowers agree to deliver promptly to the Agent a written confirmation, signed
by an Authorized Person, if such confirmation is requested by the Agent or any
Lender, of each telephonic notice. If the written confirmation differs in any
material respect from the action taken by the Agent and the Lenders, (i) the
telephonic notice shall govern absent manifest error and (ii) the Agent or the
Lender, as applicable, shall promptly notify the Borrowers of such difference.
2.15 Promise to Pay; Interest and Fees; Interest Payment Dates; Interest
-------------------------------------------------------------------
and Fee Basis; Taxes; Loan and Control Accounts.
- -----------------------------------------------
(A) Promise to Pay. Each Borrower unconditionally and jointly and
--------------
severally promises to pay when due the principal amount of each Loan and all
other Obligations incurred by any of the Borrowers, and to pay all unpaid
interest accrued thereon, in accordance with the terms of this Agreement and the
Notes.
(B) Interest Payment Dates. Interest accrued on each Floating Rate Loan
----------------------
shall be payable on each Payment Date, commencing with the first such date to
occur after the date hereof, on any date on which the Floating Rate Loan is
prepaid, whether due to acceleration or otherwise, and at maturity (whether by
acceleration or otherwise). Interest accrued on each Eurodollar Rate Loan shall
be payable on the last day of its applicable Interest Period, on any date on
which the Eurodollar Rate Loan is prepaid, whether by acceleration or otherwise,
and at maturity. Interest accrued on each Eurodollar Rate Loan having an
Interest Period longer than three months shall also be payable on the last day
of each three-month interval during such Interest Period. Interest accrued on
the principal balance of all other Obligations shall be payable in arrears (i)
on the last day of each calendar month, commencing on the first such day
following the incurrence of such Obligation, (ii) upon repayment thereof in full
or in part, and (iii) if not theretofore paid in full, at the time such other
Obligation becomes due and payable (whether by acceleration or otherwise).
(C) Commitment Fees. The Borrowers shall pay to the Agent, for the
---------------
account of the Lenders in accordance with their Pro Rata Shares, from and after
the date of this Agreement until the date on which the Aggregate Revolving Loan
Commitment shall be terminated in whole, a commitment fee accruing at the rate
of the then Applicable Commitment Fee Percentage, on the amount by which (A) the
Aggregate Revolving Loan Commitment in effect from time to time exceeds (B) the
Revolving Credit Obligations in effect from time to time. All such commitment
fees payable under this Section 2.15(C) shall be payable quarterly in arrears on
---------------
the last day of each calendar quarter occurring after the Closing Date, and, in
addition, on the date on which the Aggregate Revolving Loan Commitment shall be
terminated in whole or on the date of any reduction of the Aggregate Revolving
Loan Commitment with respect to the portion so reduced.
(D) Interest and Fee Basis; Applicable Eurodollar Margin; Applicable
----------------------------------------------------------------
Floating Rate Margin and Applicable Commitment Fee Percentage.
- -------------------------------------------------------------
(i) All computations of interest and fees based on the Alternate Base Rate
which are computed by reference to the Corporate Base Rate shall be calculated
on the basis of a year of 365 or 366 days, as the case may be, and all other
computations of interest and fees shall be
34
<PAGE>
calculated for actual days elapsed on the basis of a 360-day year. Interest
shall be payable for the day an Obligation is incurred but not for the day of
any payment on the amount paid if payment is received prior to 2:00 p.m.
(Chicago time) at the place of payment. If any payment of principal of or
interest on a Loan or any payment of any other Obligations shall become due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
(ii) The Applicable Eurodollar Margin, Applicable Floating Rate Margin and
Applicable Commitment Fee Percentage shall be determined from time to time by
reference to the table set forth below, on the basis of the then applicable
Leverage Ratio as described in this Section 2.15(D)(ii):
-------------------
<TABLE>
<CAPTION>
===============================================================================================================================
APPLICABLE MARGINS/FEES FOR OBLIGATIONS
- -------------------------------------------------------------------------------------------------------------------------------
LEVERAGE RATIO APPLICABLE APPLICABLE APPLICABLE APPLICABLE APPLICABLE
FLOATING EURODOLLAR FLOATING EURODOLLAR COMMITMENT
RATE MARGIN RATE MARGIN RATE RATE MARGIN FEE
FOR FOR MARGIN FOR TERM PERCENTAGE
OBLIGATIONS OBLIGATIONS FOR TERM LOANS
OTHER THAN OTHER THAN LOANS
TERM LOANS TERM LOANS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LEVEL 1 equals to or less than 3.25 to 1.0 0.50% 3.00% 1.25% 3.50% 0.50%
- -------------------------------------------------------------------------------------------------------------------------------
equals to or less than 3.00 to 1.00
LEVEL 2 0.25% 2.50% 1.00% 3.25% 0.50%
and greater than 3.25 to
1.00
- -------------------------------------------------------------------------------------------------------------------------------
equals to or less than 2.75 to 1.00
LEVEL 3 0.00% 2.25% 0.75% 3.00% 0.50%
and greater than 3.00 to
1.00
- -------------------------------------------------------------------------------------------------------------------------------
equals to or less than 2.25 to 1.00
LEVEL 4 0.00% 2.00% 0.50% 2.75% 0.50%
and greater than 2.75 to
1.00
- -------------------------------------------------------------------------------------------------------------------------------
LEVEL 5 greater than 2.25 to 1.00 0.00% 1.75% 0.25% 2.50% 0.50%
===============================================================================================================================
</TABLE>
Except as set forth in clause (iii) below, for purposes of this Section
-------
2.15(D)(ii), the Leverage Ratio shall be determined as of the last day of each
- -----------
fiscal quarter on a basis consistent with the calculation under Section 6.4.
-----------
Upon receipt of the financial statements delivered pursuant to Section
-------
6.1(A)(ii), the Applicable Eurodollar Margin, Applicable Floating Rate Margin
- ----------
and
35
<PAGE>
Applicable Commitment Fee Percentage shall be adjusted, such adjustment being
effective five (5) Business Days following the Agent's receipt of such financial
statements and the Officer's Certificate required to be delivered in connection
therewith pursuant to Section 6.1(A)(iv); provided, that if the Borrower shall
------------------ --------
not have timely delivered its financial statements in accordance with Section
------------
6.1(A)(ii), then commencing on the date upon which such financial statements
- ----------
should have been delivered and continuing until such financial statements are
actually delivered, it shall be assumed for purposes of determining the
Applicable Eurodollar Margin, Applicable Floating Rate Margin and Applicable
Commitment Fee Percentage that the Leverage Ratio was greater than 3.25 to 1.0
and the Level 1 pricing shall be applicable.
(iii) Notwithstanding anything herein to the contrary, the initial
Applicable Eurodollar Margin, Applicable Floating Rate Margin and Applicable
Commitment Fee Percentage shall be at the Level 3 pricing level and no
adjustment which would otherwise be made during the period from the Closing Date
through March 31, 1998 shall be made but the Level 3 pricing shall remain in
effect for such period. Thereafter, the Applicable Eurodollar Margin,
Applicable Floating Rate Margin and Applicable Commitment Fee Percentage shall
be adjusted pursuant to the provisions of this Section 2.15 set forth above.
------------
(E) Credit Taxes.
------------
(i) Any and all payments by the Borrowers hereunder shall be made free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings or any liabilities with
respect thereto including those arising after the date hereof as a result of the
adoption of or any change in any law, treaty, rule, regulation, guideline or
determination of a Governmental Authority or any change in the interpretation or
application thereof by a Governmental Authority, but excluding, in the case of
each Lender and the Agent, such taxes (including income taxes, franchise taxes
and branch profit taxes) as are imposed on or measured by such Lender's or
Agent's, as the case may be, income by the United States of America or any
Governmental Authority of the jurisdiction under the laws of which such Lender
or Agent, as the case may be, is organized or maintains a Lending Installation
(all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings, and liabilities which the Agent or a Lender determines to be
applicable to this Agreement, the other Loan Documents, the Revolving Loan
Commitments, the Loans or the Letters of Credit being hereinafter referred to as
"CREDIT TAXES"). If any Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder or under the other Loan
Documents to any Lender or the Agent, (i) the sum payable shall be increased as
may be necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.15(E))
---------------
such Lender or the Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the applicable
Borrower shall make such deductions, and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law. If a withholding tax of the United States of
America or any other Governmental Authority shall be or become applicable (y)
after the date of this Agreement, to such payments by the applicable Borrower
made to the Lending Installation or any other office that a Lender may claim as
its Lending Installation, or (z) after such Lender's selection and designation
of any other Lending Installation, to such payments
36
<PAGE>
made to such other Lending Installation, such Lender shall use reasonable
efforts to make, fund and maintain its Loans through another Lending
Installation of such Lender in another jurisdiction so as to reduce the
Borrowers' liability hereunder, if the making, funding or maintenance of such
Loans through such other Lending Installation of such Lender does not, in the
good faith reasonable judgment of such Lender, otherwise adversely affect such
Loans, or obligations under the Revolving Loan Commitments or such Lender.
(ii) In addition, the Borrowers agree to pay any present or future stamp
or documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made hereunder, from the issuance of Letters
of Credit hereunder, or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement, the other Loan Documents, the
Revolving Loan Commitments, the Loans or the Letters of Credit (hereinafter
referred to as "OTHER TAXES").
(iii) Subject to Section 2.15(E)(vii), the Borrowers jointly and severally
--------------------
indemnify each Lender and the Agent for the full amount of Taxes and Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
Governmental Authority on amounts payable under this Section 2.15(E)) paid by
---------------
such Lender or the Agent (as the case may be) and any liability (including
penalties, interest, and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within thirty (30) days after the date such
Lender or the Agent (as the case may be) makes written demand therefor. A
certificate as to any additional amount payable to any Lender or the Agent under
this Section 2.15(E) submitted to any Borrower and the Agent (if a Lender is so
---------------
submitting) by such Lender or the Agent shall show in reasonable detail the
amount payable and the calculations used to determine such amount and shall,
absent manifest error, be final, conclusive and binding upon all parties hereto.
With respect to such deduction or withholding for or on account of any Taxes and
to confirm that all such Taxes have been paid to the appropriate Governmental
Authorities, the Borrowers shall promptly (and in any event not later than
thirty (30) days after receipt) furnish to each Lender and the Agent such
certificates, receipts and other documents as may be required (in the judgment
of such Lender or the Agent) to establish any tax credit to which such Lender or
the Agent may be entitled.
(iv) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes by any Borrower, the applicable Borrower shall furnish to the Agent
the original or a certified copy of a receipt evidencing payment thereof.
(v) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 2.15(E) shall survive the payment in full of principal and
---------------
interest hereunder, the termination of the Letters of Credit and the termination
of this Agreement.
(vi) Each Lender that is not created or organized under the laws of the
United States of America or a political subdivision thereof shall deliver to the
Borrowers and the Agent on or before the Closing Date, or, if later, the date on
which such Lender becomes a Lender pursuant to Section 13.3 hereof, a true and
------------
accurate certificate executed in duplicate by a duly authorized
37
<PAGE>
officer of such Lender, in a form satisfactory to the Borrowers and the Agent,
to the effect that such Lender is capable under the provisions of an applicable
tax treaty concluded by the United States of America (in which case the
certificate shall be accompanied by two executed copies of Form 1001 of the IRS)
or under Section 1442 of the Code (in which case the certificate shall be
accompanied by two copies of Form 4224 of the IRS) of receiving payments of
interest hereunder without deduction or withholding of United States federal
income tax. Each such Lender further agrees to deliver to the Borrowers and the
Agent from time to time a true and accurate certificate executed in duplicate by
a duly authorized officer of such Lender substantially in a form satisfactory to
the Borrowers and the Agent, before or promptly upon the occurrence of any event
requiring a change in the most recent certificate previously delivered by it to
the Borrowers and the Agent pursuant to this Section 2.15(E)(vi). Further, each
-------------------
Lender which delivers a certificate accompanied by Form 1001 of the IRS
covenants and agrees to deliver to the Borrowers and the Agent within fifteen
(15) days prior to January 1, 1998, and every third (3rd) anniversary of such
date thereafter on which this Agreement is still in effect, another such
certificate and two accurate and complete original signed copies of Form 1001
(or any successor form or forms required under the Code or the applicable
regulations promulgated thereunder), and each Lender that delivers a certificate
accompanied by Form 4224 of the IRS covenants and agrees to deliver to the
Borrowers and the Agent within fifteen (15) days prior to the beginning of each
subsequent taxable year of such Lender during which this Agreement is still in
effect, another such certificate and two accurate and complete original signed
copies of IRS Form 4224 (or any successor form or forms required under the Code
or the applicable regulations promulgated thereunder). Each such certificate
shall certify as to one of the following: (a) that such Lender is capable of
receiving payments of interest hereunder without deduction or withholding of
United States of America federal income tax; (b) that such Lender is not capable
of receiving payments of interest hereunder without deduction or withholding of
United States of America federal income tax as specified therein but is capable
of recovering the full amount of any such deduction or withholding from a source
other than the Borrowers and will not seek any such recovery from the Borrowers;
or (c) that, as a result of the adoption of or any change in any law, treaty,
rule, regulation, guideline or determination of a Governmental Authority or any
change in the interpretation or application thereof by a Governmental Authority
after the date such Lender became a party hereto, such Lender is not capable of
receiving payments of interest hereunder without deduction or withholding of
United States of America federal income tax as specified therein and that it is
not capable of recovering the full amount of the same from a source other than
the Borrowers.
Each Lender shall promptly furnish to the Borrowers and the Agent such
additional documents as may be reasonably required by the Borrower or the Agent
to establish any exemption from or reduction of any Taxes or Other Taxes
required to be deducted or withheld and which may be obtained without undue
expense to such Lender.
(vii) No Borrower shall be required to pay any additional amounts under
subsection (i) above or indemnification under subsection (iii) above to the
extent that the obligation to pay such additional amounts or indemnification
would not have arisen but for (a) a failure by a Lender or the Agent to comply
with the provisions of subsection (vi) above or (b) the certifications referred
to in subsection (vi) above not being true.
38
<PAGE>
(viii) Each of the Lenders and the Agent agrees that if it shall become
aware that it is entitled to receive a refund in respect of Credit Taxes or
Other Taxes as to which it has been indemnified by the Borrowers pursuant to
this Section 2.15(E), it shall promptly notify the Borrowers of the availability
of such refund and at the request of the Borrowers will apply for such refund;
provided, however, that the failure to provide such notice shall not relieve the
- -------- -------
Borrowers of any of their Obligations hereunder. Upon receipt of such refund,
such Lender or the Agent agrees to pay such refund to the applicable Borrower
along with any interest actually received from the taxing authority, net of all
out-of-pocket expenses of such Lender or the Agent incurred with respect to such
refund.
(F) Loan Account. Each Lender shall maintain in accordance with its
------------
usual practice an account or accounts (a "LOAN ACCOUNT") evidencing the
Obligations of the Borrowers to such Lender owing to such Lender from time to
time, including the amount of principal and interest payable and paid to such
Lender from time to time hereunder and under the Notes.
(G) Control Account. The Register maintained by the Agent pursuant to
---------------
Section 13.3(C) shall include a control account, and a subsidiary account for
- ---------------
each Lender, in which accounts (taken together) shall be recorded (i) the date
and amount of each Advance made hereunder, the type of Loan comprising such
Advance and any Interest Period applicable thereto, (ii) the effective date and
amount of each assignment and acceptance delivered to and accepted by it and the
parties thereto pursuant to Section 13.3, (iii) the amount of any principal or
------------
interest due and payable or to become due and payable from the Borrowers to each
Lender hereunder or under the Notes, (iv) the amount of any sum received by the
Agent from the Borrowers hereunder and each Lender's share thereof, and (v) all
other appropriate debits and credits as provided in this Agreement, including,
without limitation, all fees, charges, expenses and interest.
(H) Entries Binding. The entries made in the Register and each Loan
---------------
Account shall be conclusive and binding for all purposes, absent manifest error,
unless the Borrowers object to information contained in the Register and each
Loan Account within thirty (30) days of any Borrower's receipt of such
information.
2.16 Notification of Advances, Interest Rates, Prepayments and Aggregate
-------------------------------------------------------------------
Revolving Loan Commitment Reductions. Promptly after receipt thereof, the Agent
- ------------------------------------
will notify each Lender of the contents of each Aggregate Revolving Loan
Commitment reduction notice, Borrowing Notice, Continuation/Conversion Notice,
and repayment notice received by it hereunder. The Agent will notify each
Lender of the interest rate applicable to each Eurodollar Rate Loan promptly
upon determination of such interest rate and will give each Lender prompt notice
of each change in the Alternate Base Rate.
2.17 Lending Installations. Each Lender may book its Loans at any
---------------------
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written or
facsimile notice to the Agent and any Borrower, designate a Lending Installation
through which Loans will be made by it and for whose account Loan payments are
to be made.
39
<PAGE>
2.18 Non-Receipt of Funds by the Agent. Unless the applicable Borrower
---------------------------------
or a Lender, as the case may be, notifies the Agent prior to the date on which
it is scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrowers, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption.
If such Lender or the applicable Borrower, as the case may be, has not in fact
made such payment to the Agent, the recipient of such payment shall, on demand
by the Agent, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (i) in the case of payment by a Lender,
the Federal Funds Effective Rate for such day or (ii) in the case of payment by
the applicable Borrower, the interest rate applicable to the relevant Loan.
2.19 Termination Date. This Agreement shall be effective until the Term
----------------
Loan Termination Date. Notwithstanding the termination of this Agreement on the
Term Loan Termination Date, until all of the Obligations (other than contingent
indemnity obligations) shall have been fully and indefeasibly paid and
satisfied, all financing arrangements among the Borrower and the Lenders shall
have been terminated and all of the Letters of Credit shall have expired, been
canceled or terminated, all of the rights and remedies under this Agreement and
the other Loan Documents shall survive and the Agent shall be entitled to retain
its security interest in and to all existing and future Collateral for the
benefit of itself and the Holders of Secured Obligations.
2.20 Replacement of Certain Lenders. In the event a Lender ("AFFECTED
------------------------------
LENDER") shall have: (i) failed to fund its Pro Rata Share of any Advance
requested by any Borrower which such Lender is obligated to fund under the terms
of this Agreement and which failure has not been cured, (ii) requested
compensation from the Borrowers under Sections 2.15(E), 3.1 or 3.2 to recover
---------------- --- ---
Taxes, Other Taxes or other additional costs incurred by such Lender which are
not being incurred generally by the other Lenders, (iii) delivered a notice
pursuant to Section 3.3 claiming that such Lender is unable to extend Eurodollar
-----------
Rate Loans to the Borrower for reasons not generally applicable to the other
Lenders or (iv) has invoked Section 11.2, then, in any such case, the Borrowers
------------
or the Agent may make written demand on such Affected Lender (with a copy to the
Agent in the case of a demand by the Borrowers and a copy to the Borrowers in
the case of a demand by the Agent) for the Affected Lender to assign, and such
Affected Lender shall use its best efforts to assign pursuant to one or more
duly executed assignment and acceptance agreements in substantially the form of
Exhibit F five (5) Business Days after the date of such demand, to one or more
- ---------
financial institutions that comply with the provisions of Section 13.3(A) (and,
---------------
if selected by the Borrowers is reasonably acceptable to the Agent) which the
Borrowers or the Agent, as the case may be, shall have engaged for such purpose
("REPLACEMENT LENDER"), all of such Affected Lender's rights and obligations
under this Agreement and the other Loan Documents (including, without
limitation, its Revolving Loan Commitment, all Loans owing to it, all of its
participation interests in existing Letters of Credit, and its obligation to
participate in additional Letters of Credit hereunder) in accordance with
Section 13.3. The Agent agrees, upon
- ------------
40
<PAGE>
the occurrence of such events with respect to an Affected Lender and upon the
written request of the Borrowers, to use its reasonable efforts to obtain the
commitments from one or more financial institutions to act as a Replacement
Lender. The Agent is authorized to execute one or more of such assignment
agreements as attorney-in-fact for any Affected Lender failing to execute and
deliver the same within five (5) Business Days after the date of such demand.
Further, with respect to such assignment the Affected Lender shall have
concurrently received, in cash, all amounts due and owing to the Affected Lender
hereunder or under any other Loan Document, including, without limitation, the
aggregate outstanding principal amount of the Loans owed to such Lender,
together with accrued interest thereon through the date of such assignment,
amounts payable under Sections 2.15(E), 3.1, and 3.2 with respect to such
--------------------- ---
Affected Lender and compensation payable under Section 2.15(C) in the event of
---------------
any replacement of any Affected Lender under clause (ii) or clause (iii) of this
------ ------
Section 2.20; provided that upon such Affected Lender's replacement, such
- ------------
Affected Lender shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 2.15(E), 3.1, 3.2, 3.4, and 9.7, as well as
---------------- --- --- --- ---
to any fees accrued for its account hereunder and not yet paid, and shall
continue to be obligated under Section 11.8. Upon the replacement of any
------------
Affected Lender pursuant to this Section 2.20, the provisions of Section 8.2
------------ -----------
shall continue to apply with respect to Borrowings which are then outstanding
with respect to which the Affected Lender failed to fund its Pro Rata Share and
which failure has not been cured.
2.21 Letter of Credit Facility. Subject to the terms and conditions of
-------------------------
this Agreement and in reliance upon the representations, warranties and
covenants set forth herein, First Chicago shall issue or any other Lender
acceptable to the Borrowers, may, in its sole discretion, issue standby letters
of credit, in each case for the account of the applicable Borrower (First
Chicago and each such other Lender in such capacity being referred to as an
"ISSUING LENDER"), on terms as are reasonably satisfactory to such Issuing
Lender upon three (3) days' notice and receipt of duly executed applications for
such Letter of Credit, and such other customary documents, instructions and
agreements as may be required pursuant to the terms thereof (all such
applications, documents, instructions, and agreements being referred to herein
as the "L/C Documents") as the applicable Issuing Lender may require; provided,
--------
however, that no Letter of Credit will be issued (or amended) for the account of
- -------
any Borrower by an Issuing Lender if on the date of issuance, before or after
taking such Letter of Credit into account, (A) the Revolving Credit Obligations
at such time would exceed the Maximum Revolving Credit Amount at such time, or
(B) the aggregate outstanding amount of the L/C Obligations in respect of
standby Letters of Credit exceeds $2,000,000; and provided, further, that no
-------- -------
Letter of Credit shall be issued (or amended) which has an expiration date later
than the date which is the earlier of one (1) year after the date of issuance
thereof or five (5) Business Days immediately preceding the Termination Date.
The designation of any Lender as an Issuing Lender after the date hereof with
respect to standby Letters of Credit shall be subject to the prior written
consent of the Agent. If any Borrower applies for a standby Letter of Credit
from any Lender other than First Chicago, the applicable Borrower shall
simultaneously notify the Agent of the proposed amount, expiration date and
nature of such Letter of Credit. The Agent shall promptly notify the Lender to
which such application has been made and the applicable Borrower whether the
issuance of such Letter of Credit would comply with the terms of this Section
-------
2.21. Each Issuing Lender shall be entitled to assume that the applicable
- ----
conditions set forth in Article IV hereof have been satisfied
----------
41
<PAGE>
unless it shall have received notice to the contrary from the Agent or such
Issuing Lender has knowledge that the applicable conditions have not been met.
To the extent that any provision of any L/C Document cannot reasonably be
construed to be consistent with this Agreement, requires greater collateral
security or imposes additional obligations not reasonably related to customary
letter of credit arrangements, such provision shall be invalid and this
Agreement shall control. All references in the expense, indemnity and similar
provisions of this Agreement to the Lenders shall include First Chicago and any
other Lender in its capacity as an Issuing Lender. No Issuing Lender shall
extend or amend any Letter of Credit unless the requirements of this Section
2.21 are met as though a new Letter of Credit was being requested and issued.
2.22 Letter of Credit Participation. Immediately upon the issuance of
------------------------------
each Letter of Credit hereunder, each Lender shall be deemed to have
automatically, irrevocably and unconditionally purchased and received from the
applicable Issuing Lender an undivided interest and participation in and to such
Letter of Credit, the obligations of the applicable Borrower in respect thereof,
and the liability of the applicable Issuing Lender thereunder (collectively, an
"L/C INTEREST") in an amount equal to the amount available for drawing under
such Letter of Credit multiplied by such Lender's Pro Rata Share. The Agent
will notify each Lender (or in the case of an Issuing Lender other than First
Chicago, such Issuing Lender shall notify the Agent who in turn will notify each
Lender) promptly upon presentation to it of an L/C Draft or upon any other draw
under a Letter of Credit. On or before the Business Day on which the applicable
Issuing Lender makes payment of each such L/C Draft or, in the case of any other
draw on a Letter of Credit, on demand of the Agent, each Lender shall make
payment to the Agent, for the account of the applicable Issuing Bank, in
immediately available funds, in an amount equal to such Lender's Pro Rata Share
of the amount of such payment or draw. Any Issuing Lender may direct the Agent
to make such a request with respect to Letters of Credit issued by such Issuing
Lender. Upon the Agent's receipt of funds as a result of an Issuing Lender's
payment on an L/C Draft or any other draw on a Letter of Credit issued by such
Issuing Lender, the Agent shall promptly pay such funds to the Issuing Lender.
If an Issuing Lender has not directed the Agent to make such a request and the
applicable Borrower fails to repay the amount of any draft in accordance with
Section 2.23, then, upon direction from the Issuing Lender, the Agent shall
- ------------
notify each Lender of such failure, and each Lender shall promptly make payment
to the Agent, in immediately available funds, in an amount equal to such
Lender's Pro Rata Share of the amount of such payment or draw. The obligation
of each Lender to reimburse the Agent under this Section 2.22 shall be
------------
unconditional, continuing, irrevocable and absolute. In the event that any
Lender fails to make payment to the Agent of any amount due under this Section
-------
2.22, the Agent shall be entitled to receive, retain and apply against such
- ----
obligation the principal and interest otherwise payable to such Lender hereunder
until the Agent receives such payment from such Lender or such obligation is
otherwise fully satisfied; provided, however, that nothing contained in this
-------- -------
sentence shall relieve such Lender of its obligation to reimburse the applicable
Issuing Lender for such amount in accordance with this Section 2.22.
------------
2.23 Reimbursement Obligation. Each of the Borrowers agrees, jointly and
------------------------
severally, unconditionally, irrevocably and absolutely to pay immediately to the
Agent (whether directly, or from the application of the proceeds of Revolving
Loans, or in the case of the Term Portion of the Seller Letters of Credit, from
the proceeds of Term Loans made as contemplated by this
42
<PAGE>
Section), upon receipt of notice from the Agent, for the account of the
applicable Issuing Lenders or the account of Lenders, as the case may be, the
amount of each advance which may be drawn under or pursuant to a Letter of
Credit issued for its account or an L/C Draft related thereto (such obligation
of the Borrowers to reimburse the Issuing Lender or the Agent for an advance
made under a Letter of Credit or L/C Draft being hereinafter referred to as a
"REIMBURSEMENT OBLIGATION" with respect to such Letter of Credit or L/C Draft).
If any Borrower at any time does not directly repay a Reimbursement Obligation
pursuant to this Section 2.23, the applicable Borrower shall be deemed to have
------------
elected to borrow a Revolving Loan from the Lenders, as of the date of the
advance giving rise to the Reimbursement Obligation equal in amount to the
amount of the unpaid Reimbursement Obligation; provided, however, that the
Reimbursement Obligations with respect to the Seller Letters of Credit shall
automatically be paid first from the proceeds of Term Loans made pursuant to
Section 2.1 in an amount equal to and to the extent of excess of the aggregate
- -----------
Term Loan Commitments of the Lenders over the outstanding principle balance of
the Term Loans, each as of the Closing Date after giving effect to any Term
Loans made on the Closing Date (such amount being hereinafter referred to as the
"TERM PORTION"), with the remaining outstanding amount of such Reimbursement
Obligations being paid from the proceeds of Revolving Loans as set forth in this
Section 2.23. Revolving Loans made in payment of any Reimbursement Obligations
- ------------
shall be made as of the date of the payment giving rise to such Reimbursement
Obligation, automatically, without notice and without any requirement to satisfy
the conditions precedent otherwise applicable to an Advance of Revolving Loans.
Each such Revolving Loan shall be made regardless of any failure of the
Borrowers to meet the conditions precedent set forth in Article IV and shall
----------
constitute a Floating Rate Advance, the proceeds of which Advance shall be used
to repay such Reimbursement Obligation. If, for any reason, the applicable
Borrower fails to repay a Reimbursement Obligation on the day such Reimbursement
Obligation arises and, for any reason, the Lenders are unable to make or have no
obligation to make a Revolving Loan, then such Reimbursement Obligation shall
bear interest from and after such day, until paid in full, at the interest rate
applicable to a Floating Rate Advance.
2.24 Cash Collateral. Notwithstanding anything to the contrary herein or
---------------
in any application for a Letter of Credit, after the occurrence and during the
continuance of a Default, the Borrowers shall, upon the Agent's demand, deliver
to the Agent for the benefit of the Lenders and the Issuing Lenders, cash, or
other collateral of a type satisfactory to the Required Lenders, having a value,
as determined by such Lenders, equal to the aggregate outstanding L/C
Obligations plus the outstanding obligations, if any, with respect to the Term
Portion of the Seller Letters of Credit. Any such collateral shall be held by
the Agent in a separate interest bearing account appropriately designated as a
cash collateral account in relation to this Agreement and the Letters of Credit
and retained by the Agent for the benefit of the Lenders and the Issuing Lenders
as collateral security for the Borrowers' obligations in respect of this
Agreement and each of the Letters of Credit and L/C Drafts. Such amounts (plus
interest which has accrued thereon) shall be applied to reimburse the Agent or
each Issuing Lender, as the case may be, for drawings or payments under or
pursuant to Letters of Credit or L/C Drafts, or if no such reimbursement is
required, to payment of such of the other Obligations as the Agent shall
determine. If no Default shall be continuing, amounts remaining in any cash
collateral account established pursuant to this Section 2.24 which are not to be
------------
applied to reimburse the Agent
43
<PAGE>
for amounts actually paid or to be paid by the Agent in respect of a Letter of
Credit or L/C Draft, shall be returned promptly to the Borrowers (after
deduction of the Agent's expenses incurred in connection with such cash
collateral account).
2.25 Letter of Credit Fees. (a) The Borrowers shall pay to the Agent,
---------------------
for the ratable account of the Lenders, based upon the Lenders' respective Pro
Rata Shares, a fee with respect to each Letter of Credit, for the period from
the issuance date thereof to and including the final expiration date thereof, at
a rate per annum equal to the Applicable L/C Fee Percentage on the average daily
outstanding face amount available for drawing under all Letters of Credit during
such period. The Letter of Credit fees shall be due and payable in arrears on
each Payment Date and, to the extent any such fees are then due and unpaid, on
the Termination Date. The Agent shall promptly remit such Letter of Credit
fees, when paid, to the other Lenders in accordance with their Pro Rata Shares
thereof.
(b) The Borrower shall pay to the Agent for the benefit of each Issuing
Lender, a fronting fee of one-quarter of one percent (0.25%) per annum on the
average daily outstanding face amount available for drawing under all Letters of
Credit issued by such Issuing Bank, plus all reasonable out-of-pocket costs of
----
issuing and servicing Letters of Credit and all customary fees and other
issuance, amendment, document examination, negotiation and presentment expenses
and related charges and commissions in connection with the issuance, amendment,
and presentation of Letters of Credit (and L/C Drafts related thereto) and the
like, customarily charged by such Issuing Lenders with respect to standby
Letters of Credit, payable at the time of invoice of such amounts. The fronting
fee shall be due and payable in arrears on each Payment Date and, to the extent
any such fees are then due and unpaid, on the Termination Date.
2.26 Indemnification; Exoneration. (a) In addition to amounts payable
----------------------------
as elsewhere provided in this Agreement, the Borrowers agree to protect,
indemnify, pay and save harmless the Agent, each Issuing Lender and each Lender
from and against any and all liabilities and costs which the Agent, such Issuing
Lender or any Lender may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit other than, in the case of
the issuer thereof, as a result of its Gross Negligence or willful misconduct,
as determined by the final judgment of a court of competent jurisdiction, or
(ii) the failure of the applicable Issuing Lender to honor a drawing under such
Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto Governmental Authority
(all such acts or omissions herein called "GOVERNMENTAL ACTS").
(b) As among the Borrowers, the Lenders, the Issuing Lenders and the
Agent, the Borrowers assume all risks of the acts and omissions of, or misuse of
such Letter of Credit by, the beneficiary of any Letter of Credit. In
furtherance and not in limitation of the foregoing, subject to the provisions of
the Letter of Credit applications and Letter of Credit reimbursement agreements
executed by any Borrower at the time of request for any Letter of Credit,
neither the Agent, any Issuing Lenders nor any of the Lenders shall be
responsible (in the absence of Gross Negligence or willful misconduct in
connection therewith, as determined by the final judgment of a court of
competent jurisdiction): (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and
44
<PAGE>
issuance of the Letters of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex, or
other similar form of teletransmission or otherwise; (v) for errors in
interpretation of technical trade terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Agent, the Issuing Lenders and the Lenders
including, without limitation, any Governmental Acts. None of the above shall
affect, impair, or prevent the vesting of any Issuing Lenders' rights or powers
under this Section 2.26.
------------
(c) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Lender under or in connection with the Letters of Credit or any related
certificates shall not, in the absence of Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, put the applicable Issuing Lender, the Agent or any Lender under
any resulting liability to the Borrowers or relieve the Borrowers of any of
their obligations hereunder to any such Person.
(d) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 2.26 shall survive the payment in full of all principal and
------------
interest hereunder, the termination of the Letters of Credit and the termination
of this Agreement.
2.27 Issuing Lender Reporting Requirements. Each Issuing Lender other
-------------------------------------
than the Agent shall give the Agent written or telex notice, or telephonic
notice confirmed promptly thereafter in writing, of the issuance of any Letter
of Credit, provided, however, that the failure to provide such notice shall not
-------- -------
result in any liability on the part of such Issuing Lender. Each Issuing Lender
shall, no later than the tenth Business Day following the last day of each
month, provide to the Agent, upon the Agent's request, schedules, in form and
substance reasonably satisfactory to the Agent, showing the date of issue,
account party, amount, expiration date and the reference number of each Letter
of Credit issued by such Issuing Lender and outstanding at any time during such
month and the aggregate amount payable by the Borrowers during such month. In
addition, upon the request of the Agent, each Issuing Lender shall furnish to
the Agent copies of any Letter of Credit and any application for or
reimbursement agreement with respect to a Letter of Credit to which the Issuing
Lender is party and such other documentation as may reasonably be requested by
the Agent. Upon the request of any Lender, the Agent will provide to such
Lender information concerning such Letters of Credit.
ARTICLE III: CHANGE IN CIRCUMSTANCES
-------------------------------------
45
<PAGE>
3.1 Yield Protection. If any law or any governmental or quasi-
----------------
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) adopted after the date of this Agreement and having
general applicability to all banks within the jurisdiction in which such Lender
operates (excluding, for the avoidance of doubt, the effect of and phasing in of
capital requirements or other regulations or guidelines passed prior to the date
of this Agreement), or any interpretation or application thereof by any
Governmental Authority charged with the interpretation or application thereof,
or the compliance of any Lender therewith, (i) subjects any Lender or any
applicable Lending Installation to any tax, duty, charge or withholding on or
from payments due from the Borrowers (excluding federal taxation of the overall
net income of any Lender or applicable Lending Installation), or changes the
basis of taxation of payments to any Lender in respect of its Loans, its L/C
Interests, the Letters of Credit or other amounts due it hereunder, or (ii)
imposes or increases or deems applicable any reserve, assessment, insurance
charge, special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, any Lender or any applicable
Lending Installation (other than reserves and assessments taken into account in
determining the interest rate applicable to Eurodollar Rate Loans) with respect
to its Loans, L/C Interests or the Letters of Credit, or (iii) imposes any
other condition the result of which is to increase the cost to any Lender or any
applicable Lending Installation of making, funding or maintaining the Loans, the
L/C Interests or the Letters of Credit or reduces any amount received by any
Lender or any applicable Lending Installation in connection with Loans or
Letters of Credit, or requires any Lender or any applicable Lending Installation
to make any payment calculated by reference to the amount of Loans or L/C
Interests held or interest received by it or by reference to the Letters of
Credit, by an amount deemed material by such Lender; and the result of any of
the foregoing is to increase the cost to that Lender of making, renewing or
maintaining its Loans, L/C Interests or Letters of Credit or to reduce any
amount received under this Agreement, then, within 15 days after receipt by the
Borrowers of written demand by such Lender pursuant to Section 3.5, the
-----------
Borrowers shall pay such Lender that portion of such increased expense incurred
or reduction in an amount received which such Lender determines is attributable
to making, funding and maintaining its Loans, L/C Interests, Letters of Credit
and its Revolving Loan Commitment.
3.2 Changes in Capital Adequacy Regulations. If a Lender determines (i)
---------------------------------------
the amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a "Change" (as defined below), and (ii) such
increase in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its obligation to
make Loans hereunder, then, within 15 days after receipt by any Borrower of
written demand by such Lender pursuant to Section 3.5, the Borrowers shall pay
-----------
such Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines is
attributable to this Agreement, its Loans, its L/C Interests, the Letters of
Credit or its obligation to make Loans hereunder (after taking into account such
Lender's policies as to capital adequacy). "CHANGE" means (i) any change after
the date of this Agreement in the "Risk-Based Capital Guidelines" (as defined
below) excluding, for the avoidance of doubt, the effect of any phasing in of
such Risk-Based Capital Guidelines or any other capital requirements passed
prior to the date hereof, or (ii) any adoption of or change in any other law,
governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or
46
<PAGE>
directive (whether or not having the force of law) after the date of this
Agreement and having general applicability to all banks and financial
institutions within the jurisdiction in which such Lender operates which affects
the amount of capital required or expected to be maintained by any Lender or any
Lending Installation or any corporation controlling any Lender. "RISK-BASED
CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in effect in the
United States on the date of this Agreement, including transition rules, and
(ii) the corresponding capital regulations promulgated by regulatory authorities
outside the United States implementing the July 1988 report of the Basle
Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards,"
including transition rules, and any amendments to such regulations adopted prior
to the date of this Agreement.
3.3 Availability of Types of Advances. If (i) any Lender determines that
---------------------------------
maintenance of its Eurodollar Rate Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation or directive, whether or not
having the force of law, or (ii) the Required Lenders determine that (x)
deposits of a type and maturity appropriate to match fund Eurodollar Rate
Advances are not available or (y) the interest rate applicable to a Type of
Advance does not accurately reflect the cost of making or maintaining such an
Advance, then the Agent shall suspend the availability of the affected Type of
Advance and, in the case of any occurrence set forth in clause (i) require any
Advances of the affected Type to be repaid.
3.4 Funding Indemnification. If any payment of a Eurodollar Rate Advance
-----------------------
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment, or otherwise, or a Eurodollar Rate
Advance is not made on the date specified by any Borrower for any reason other
than default by the Lenders, the Borrowers indemnify each Lender for any loss or
cost incurred by it resulting therefrom, including, without limitation, any loss
or cost in liquidating or employing deposits acquired to fund or maintain the
Eurodollar Rate Advance.
3.5 Lender Statements; Survival of Indemnity. If reasonably possible,
----------------------------------------
each Lender shall designate an alternate Lending Installation with respect to
its Eurodollar Rate Loans to reduce any liability of the Borrowers to such
Lender under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of
------------ ---
Advance under Section 3.3, so long as such designation is not disadvantageous to
-----------
such Lender. Each Lender requiring compensation pursuant to Section 2.15(E) or
---------------
to this Article III shall use its best efforts to notify the Borrowers and the
-----------
Agent in writing of any Change, law, policy, rule, guideline or directive giving
rise to such demand for compensation not later than ninety (90) days following
the date upon which the responsible account officer of such Lender knows or
should have known of such Change, law, policy, rule, guideline or directive.
Any demand for compensation pursuant to this Article III shall be in writing and
-----------
shall state the amount due, if any, under Section 3.1, 3.2 or 3.4 and shall set
----------- --- ---
forth in reasonable detail the calculations upon which such Lender determined
such amount. Such written demand shall be rebuttably presumed correct for all
purposes. Notwithstanding anything in this Agreement to the contrary, none of
the Borrowers shall be obligated to pay any amount or amounts under Section
-------
2.15(E) or this Article III to the extent any such amount results from any
- ------- -----------
Change, law, policy, rule, guideline or directive which took effect more than
120 days prior to
47
<PAGE>
the date of delivery of the notice described above. Determination of amounts
payable under such Sections in connection with a Eurodollar Rate Loan shall be
calculated as though each Lender funded its Eurodollar Rate Loan through the
purchase of a deposit of the type and maturity corresponding to the deposit used
as a reference in determining the Eurodollar Rate applicable to such Loan,
whether in fact that is the case or not. The obligations of the Borrower under
Sections 3.1, 3.2 and 3.4 shall survive payment of the Obligations and
- ------------ --- ---
termination of this Agreement.
ARTICLE IV: CONDITIONS PRECEDENT
---------------------------------
4.1 Initial Advances and Letters of Credit. The Lenders shall not be
--------------------------------------
required to make the initial Loans or issue any Letters of Credit on the Closing
Date unless:
(a) Holdings shall have provided assurances acceptable to the Agent that
all of the conditions to the closing of the ICI Stock Purchase Agreement have
been met and that the ICI Stock Acquisition is ready to be consummated;
(b) all of the conditions precedent set forth in that certain Commitment
Letter and Term Sheet, dated October 1, 1997 among First Chicago, Eos Partners,
L.P. and Holdings shall have been met to the satisfaction of the Agent and each
of the Lenders;
(c) the Borrower shall have made all necessary arrangements for the payment
in full of all Indebtedness and liabilities in connection with the Refinanced
Indebtedness (if any) and release of all Liens (if any) in connection therewith
pursuant to payoff, estoppel and release documentation reasonably acceptable to
the Agent;
(d) the Borrower has furnished to the Agent each of the following, with
sufficient copies for the Lenders:
(1) Copies of the Certificate of Incorporation for each of the
Borrowers together with all amendments and a certificate of good standing,
both certified by the appropriate governmental officer in its jurisdiction
of incorporation;
(2) Copies certified by an Authorized Officer of the Borrowers of
their By-Laws and of their Board of Directors' resolutions authorizing the
execution of the Transaction Documents;
(3) An incumbency certificate, executed by an Authorized Officer of
each of the Borrowers which shall identify by name and title and bear the
signature of the officers of such entities authorized to sign the
Transaction Documents (other than the PMT Transaction Documents) and to
make borrowings hereunder, upon which certificate the Lenders shall be
entitled to rely until informed of any change in writing by the Borrowers;
(4) An Officer's Certificate, in form and substance satisfactory to
the Agent, signed by an Authorized Officer of Holdings, stating that on
Closing Date no Default or
48
<PAGE>
Unmatured Default has occurred and is continuing and that the requirements
of Section 4.1 (e) have been fulfilled;
---------------
(5) A written opinion of the Borrowers' counsel, addressed to the
Lenders in substantially the form attached as Exhibit G hereto containing
---------
such assumptions and qualifications and otherwise in form and substance
acceptable to the Agent and the Lenders;
(6) Notes payable to the order of each of the Lenders;
(7) Written money transfer instructions in substantially the form of
Exhibit K hereto, addressed to the Agent and signed by an Authorized
---------
Officer, together with such other related money transfer authorizations as
the Agent may have reasonably requested; and
(8) Such other documents as the Agent or any Lender or its counsel
may have reasonably requested, including, without limitation all of the
documents reflected on the List of Closing Documents attached as Exhibit H
---------
to this Agreement; and
(e) As of the Closing Date: (i) the ICI Acquisition Documents are in full
force and effect; (ii) no material breach, default or waiver of any term or
provision of any of the ICI Acquisition Documents by Holdings or, to the
knowledge of Holdings, the other parties thereto has occurred (except for such
breaches, defaults and waivers, if any, consented to in writing by the Agent and
the Required Lenders); (iii) no action has been taken by any competent
authority which restrains, prevents or imposes any material adverse condition
upon, or seeks to restrain, prevent or impose any material adverse condition
upon, the ICI Stock Acquisition; (iv) the representations and warranties of any
Borrower contained in the ICI Acquisition Documents, if any, are true and
correct in all material respects; (v) all conditions precedent to, and all
consents necessary to permit, the ICI Stock Acquisition pursuant to the ICI
Acquisition Documents have been satisfied or waived, in the case of the
conditions to Holdings' obligations, with the prior written consent of the Agent
and the Required Lenders, and simultaneously with the funding of the initial
Loan and/or the issuance of the Seller Letters of Credit under this Agreement,
the ICI Stock Acquisition is consummated in accordance with the ICI Acquisition
Documents and Holdings is obtaining (directly or indirectly) at such time good
and marketable title to all of the outstanding Equity Interests of ICI and ICS
free and clear of any Liens other than Liens permitted under Section 6.3(C); and
--------------
(vi) ICS is the sole and exclusive owner of 100% of the Capital Stock of IMCS.
4.2 Each Advance and Letter of Credit. The Lenders shall not be required
---------------------------------
to make any Advance or issue any Letter of Credit, unless on the applicable
Borrowing Date, or in the case of a Letter of Credit, the date on which the
Letter of Credit is to be issued:
(i) There exists no Default or Unmatured Default; and
49
<PAGE>
(ii) The representations and warranties contained in Article V are
---------
true and correct in all material respects as of such Borrowing Date except
for (A) representations and warranties that are made expressly as of or
relate to an earlier date or (B) changes in the Schedules to this Agreement
pursuant to Section 1.3 above.
-----------
Each Borrowing Notice with respect to each such Advance and the letter of
credit application with respect to a Letter of Credit shall constitute a
representation and warranty by the Borrowers that the conditions contained in
Sections 4.2(i) and (ii) have been satisfied. Any Lender may require a duly
- --------------- ----
completed Officer's Certificate in substantially the form of Exhibit I hereto as
---------
a condition to making an Advance.
ARTICLE V: REPRESENTATIONS AND WARRANTIES
------------------------------------------
In order to induce the Agent and the Lenders to enter into this Agreement
and to make the Loans and the other financial accommodations to the Borrowers
and to issue or participate the Letters of Credit described herein, the
Borrowers represent and warrant as follows to each Lender and the Agent as of
the Closing Date, after giving effect to the ICI Stock Acquisition and the
consummation of the other transactions contemplated by the Transaction
Documents, and thereafter on each date as required by Section 4.2:
-----------
5.1 Organization; Corporate Powers. Each of the Borrowers and each of
------------------------------
their Subsidiaries (i) is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (ii) is duly qualified
to do business and is in good standing under the laws of each jurisdiction in
which the failure to be so qualified and in good standing would reasonably be
expected to have a Material Adverse Effect, (iii) has filed and maintained
effective (or within thirty (30) days of the Closing Date will file and
maintain) (unless exempt from the requirements for filing) a current Business
Activity Report with the appropriate Governmental Authority in the States in
which it is required to do so and (iv) has all requisite corporate or equivalent
power and authority to own, operate and encumber its property and to conduct its
business as presently conducted after giving effect to the ICI Stock Acquisition
and as proposed to be conducted in connection with and following the
consummation of the transactions contemplated by this Agreement.
5.2 Authority.
---------
(A) Each of the Borrowers and each of their Subsidiaries has the requisite
corporate or equivalent power and authority (i) to execute, deliver and perform
each of the Transaction Documents which are to be executed by it in connection
with the ICI Stock Acquisition or which have been executed by it as required by
this Agreement on or prior to Closing Date and (ii) to file the Transaction
Documents which must be filed by it in connection with the ICI Stock Acquisition
or which have been filed by it as required by this Agreement on or prior to the
Closing Date with any Governmental Authority.
(B) The execution, delivery, performance and filing, as the case may be,
of each of the Transaction Documents which must be executed or filed by the
Borrowers or any of their
50
<PAGE>
Subsidiaries in connection with the ICI Stock Acquisition or which have been
executed or filed as required by this Agreement on or prior to the Closing Date
and to which any Borrower or any of its Subsidiaries is party, and the
consummation of the transactions contemplated thereby, have been duly approved
by the respective boards of directors (or other similar governing body, if any,
of any Borrower which is a limited liability company) and, if necessary, the
shareholders or members of the applicable Borrower and its Subsidiaries, and
such approvals have not been rescinded. No other corporate or equivalent actions
or proceedings on the part of any Borrower or its Subsidiaries are necessary to
consummate such transactions.
(C) Each of the Transaction Documents to which any Borrower or any of its
Subsidiaries is a party has been duly executed, delivered or filed, as the case
may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms (except as enforceability
may be limited by bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally), is in full force and effect and no
material term or condition thereof has been amended, modified or waived from the
terms and conditions contained in the Transaction Documents delivered to the
Agent pursuant to Section 4.1 without the prior written consent of the Required
-----------
Lenders, and the Borrower and its Subsidiaries have, and, to the Borrowers'
knowledge, all other parties thereto have, performed and complied with all the
terms, provisions, agreements and conditions set forth therein and required to
be performed or complied with by such parties on or before the Closing Date, and
no unmatured default, default or breach of any covenant by any such party exists
thereunder.
5.3 No Conflict; Governmental Consents. The execution, delivery and
----------------------------------
performance of each of the Loan Documents and other Transaction Documents to
which any Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the certificate or articles of incorporation or association, or
by-laws or other operating agreement of a similar nature of such Borrower or any
such Subsidiary, (ii) constitute a tortious interference with any Contractual
Obligation of any Person or conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of such Borrower or any such Subsidiary,
or require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect, (iii) with respect to
the Loan Documents and, to such Borrower's and its Subsidiaries' knowledge with
respect to the other Transaction Documents, result in or require the creation or
imposition of any Lien whatsoever upon any of the property or assets of such
Borrower or any such Subsidiary, other than Liens permitted by the Loan
Documents, or (iv) require any approval of such Borrower's or any such
Subsidiary's shareholders or members, where applicable, except such as have been
obtained. Except as set forth on Schedule 5.3 to this Agreement, the execution,
------------
delivery and performance of each of the Transaction Documents to which any
Borrower or any of its Subsidiaries is a party do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by any Governmental Authority, including under any Environmental
Property Transfer Act, except (i) filings, consents or notices which have been
made, obtained or given, or which, if not made, obtained or given, individually
or in the aggregate would not reasonably be
51
<PAGE>
expected to have a Material Adverse Effect, and (ii) filings necessary to create
or perfect security interests in the Collateral.
5.4 Financial Statements.
--------------------
(A) The pro forma financial statements of the Borrowers and their
--- -----
Subsidiaries, copies of which are attached hereto as Exhibit J, present on a pro
--------- ---
forma basis the financial condition of the Borrowers and their Subsidiaries as
- -----
of such date, and reflect on a pro forma basis those liabilities reflected in
--- -----
the notes thereto and resulting from consummation of the ICI Stock Acquisition,
and the payment or accrual of all Transaction Costs payable on the Closing Date
with respect to any of the foregoing. The projections and assumptions expressed
in the pro forma financials referenced in this Section 5.4(A) were prepared in
--- ----- --------------
good faith and represent management's opinion based on the information available
to the Borrowers at the time so furnished.
(B) Complete and accurate copies of the following financial statements and
the following related information have been delivered to the Agent: (1) the
unaudited (internally prepared) balance sheets of Pacific Motor as of December
31, 1996 and 1995 and the related unaudited (internally prepared) statements of
operations of Pacific Motor for the fiscal years then ended; (2) the audited
combining balance sheets of ICI and ICS as of December 31, 1996 and 1995, and
the related audited combining statements of earnings and retained earnings and
cash flows of ICI and ICS for the fiscal years then ended; (3) the unaudited
(internally prepared) balance sheet of Holdings and its Subsidiaries as of
September 30, 1997, and the related income statements (internally prepared) for
the nine month period then ended; and (4) the unaudited (internally prepared)
combining balance sheets of ICI and ICS as of September 30, 1997, and the
related unaudited (internally prepared) separate statements of income of such
Borrowers for the nine-month period then ended.
5.5 No Material Adverse Change. (a) Since September 30, 1997 (tested by
--------------------------
reference to the financial statements of the Borrowers as of such date) up to
the Closing Date (but including the consummation of the ICI Stock Acquisition
and the related transactions anticipated in connection therewith), there has
occurred no change in the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Borrowers and their
respective Subsidiaries taken as a whole or any other event which has had or
would reasonably be expected to have a Material Adverse Effect.
(b) Since the Closing Date, there has occurred no change in the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any Borrower and their Subsidiaries taken as a whole or any other
event which has had or would reasonably be expected to have a Material Adverse
Effect.
5.6 Taxes.
-----
(A) Tax Examinations. Except as set forth on Schedule 5.6, all
---------------- ------------
deficiencies which have been asserted against any Borrower, Holdings or any of
their Subsidiaries as a result of any federal, state, local or foreign tax
examination for each taxable year in respect of which an
52
<PAGE>
examination has been conducted have been fully paid or finally settled or are
being contested in good faith by appropriate proceedings, and as of the Closing
Date no issue has been raised by any taxing authority in any such examination
which, by application of similar principles, reasonably can be expected to
result in assertion by such taxing authority of a material deficiency for any
other year not so examined which has not been reserved for in the Borrowers'
financial statements to the extent, if any, required by Agreement Accounting
Principles. Except as permitted pursuant to Section 6.2(D), none of the
--------------
Borrowers nor any of their Subsidiaries anticipates any material tax liability
with respect to the years which have not been closed pursuant to applicable law;
provided, however, notwithstanding any other provision of this Section 5.6, the
- ------------------ -----------
Agent and the Lenders acknowledge that the PMT Stock Acquisition will be treated
as an asset sale for tax purposes pursuant to Code Section 338 and that, as a
result, Holdings may not be liable for income tax for periods ending on or prior
to the Closing Date.
(B) Payment of Taxes. Except as set forth on Schedule 5.6, all tax
---------------- ------------
returns and reports of each of the Borrowers required to be filed have been
timely filed, and all taxes, assessments, fees and other governmental charges
thereupon and upon their respective property, assets, income and franchises
which are shown in such returns or reports to be due and payable have been paid
except those items which are being contested in good faith by appropriate
proceedings and have been reserved for in accordance with Agreement Accounting
Principles. The Borrowers have no knowledge of any proposed tax assessment
against any Borrower that will have or would reasonably be expected to have a
Material Adverse Effect.
5.7 Litigation; Loss Contingencies and Violations. Except as set forth
---------------------------------------------
in Schedule 5.7 which lists all litigation involving claims against any Borrower
------------
in excess of $100,000 and Schedule 5.18 to this Agreement, there is no action,
-------------
suit, proceeding, investigation of which any Borrower has knowledge or
arbitration before or by any Governmental Authority or private arbitrator
pending or, to the knowledge of any Borrower or any of its Subsidiaries,
threatened against any Borrower or any property of any of them (i) challenging
the validity or the enforceability of any material provision of the Transaction
Documents or (ii) which if resolved in a manner adverse to any Borrower will
have or would reasonably be expected to have a Material Adverse Effect. There
is no material loss contingency within the meaning of Agreement Accounting
Principles which has not been reflected in the financial statements delivered
pursuant to Section 5.4 or the consolidated financial statements of the
-----------
Borrowers prepared and delivered pursuant to Section 6.1(A) for the fiscal
--------------
period during which such material loss contingency was incurred. No Borrower is
(A) in violation of any applicable Requirements of Law which violation will have
or would reasonably be expected to have a Material Adverse Effect, or (B)
subject to or in default with respect to any final judgment, writ, injunction,
restraining order or order of any nature, decree, rule or regulation of any
court or Governmental Authority which will have or would reasonably be expected
to have a Material Adverse Effect.
5.8 Subsidiaries. Schedule 5.8 to this Agreement (i) contains a list of
------------ ------------
the Persons in which any Borrower or any of its Subsidiaries holds an equity
interest after taking into account the consummation of the Stock Acquisition;
and (ii) accurately sets forth (A) the correct legal name, the jurisdiction of
incorporation and the jurisdictions in which each of the Borrowers and the
direct and indirect Subsidiaries of any Borrower is qualified to transact
business, (B) the
53
<PAGE>
authorized, issued and outstanding shares (or membership interests, where
applicable) of each class of Capital Stock of each Borrower and each of its
Subsidiaries and the owners of such shares (both as of the Closing Date and on a
fully-diluted basis), and (C) a summary of the direct and indirect partnership,
joint venture, or other Equity Interests, if any, of each Subsidiary of any
Borrower in any Person that is not a corporation. Except as set forth on
Schedule 5.8, none of the issued and outstanding Capital Stock of any Borrower
- ------------
or any of its Subsidiaries is subject to any vesting, redemption, or repurchase
agreement, and there are no warrants or options outstanding with respect to such
Capital Stock. The outstanding Capital Stock of all Borrowers is duly
authorized, validly issued, fully paid and nonassessable and is not Margin
Stock. As of the date hereof: (i) Holdings has no Subsidiaries other than ICI,
ICS and Pacific Motor, (ii) ICS has no Subsidiaries other than IMCS, (iii)
Pacific Motor has no Subsidiaries other than Logistics International, L.L.C.,
AIRS and AIMS and (iv) IMCS has no Subsidiaries.
5.9 ERISA. No Benefit Plan has incurred any accumulated funding
-----
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither Holdings nor any member of the Controlled Group
has incurred any liability to the PBGC which remains outstanding other than the
payment of premiums, and there are no premium payments which have become due
which are unpaid. Schedule B to the most recent annual report filed with the
IRS with respect to each Benefit Plan and furnished to the lenders is complete
and accurate. Since the date of each such Schedule B, there has been no material
adverse change in the funding status or financial condition of the Benefit Plan
relating to such Schedule B. Neither Holdings nor any member of the Controlled
Group has (i) failed to make a required contribution or payment to a
Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections
4203 or 4205 of ERISA from a Multiemployer Plan. Neither Holdings nor any
member of the Controlled Group has failed to make a required installment or any
other required payment under Section 412 of the Code on or before the due date
for such installment or other payment. Neither Holdings nor any member of the
Controlled Group is required to provide security to a Benefit Plan under Section
401(a)(29) of the Code due to a Plan amendment that results in an increase in
current liability for the plan year. Neither Holdings nor any of its
Subsidiaries maintains or contributes to any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA which provides benefits to employees
after termination of employment other than as required by Section 601 of ERISA.
Each Plan which is intended to be qualified under Section 401(a) of the Code as
currently in effect is so qualified, and each trust related to any such Plan is
exempt from federal income tax under Section 501(a) of the Code as currently in
effect. Except as set forth as item 5 on Schedule 5.6, Holdings and all its
------------
Subsidiaries are in compliance in all respects with the responsibilities,
obligations and duties imposed on them by ERISA and the Code with respect to all
Plans, except where such noncompliance would not reasonably be expected to
subject Holdings to liability, individually or in the aggregate, in excess of
$500,000. Neither Holdings nor any of its Subsidiaries nor any fiduciary of any
Plan has engaged in a nonexempt prohibited transaction described in Sections 406
of ERISA or 4975 of the Code which would reasonably be expected to subject
Holdings to liability, individually or in the aggregate, in excess of $500,000.
Neither Holdings nor any member of the Controlled Group has taken or failed to
take any action which would constitute or result in a Termination Event, which
action or inaction would reasonably be expected to subject Holdings to
liability, individually or in the aggregate, in excess of $500,000. Neither
Holdings nor any Subsidiary is subject to any liability under Sections 4063,
54
<PAGE>
4064, 4069, 4204 or 4212(c) of ERISA and no other member of the Controlled Group
is subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of
ERISA which would reasonably be expected to subject Holdings to liability,
individually or in the aggregate, in excess of $500,000. Neither Holdings nor
any of its Subsidiaries has, by reason of the transactions contemplated hereby,
any obligation to make any payment to any employee pursuant to any Plan or
existing contract or arrangement.
5.10 Accuracy of Information. The information, exhibits and reports
-----------------------
furnished by or on behalf of the Borrowers or any of their Subsidiaries to the
Agent or to any Lender in connection with the negotiation of, or compliance
with, the Loan Documents, the representations and warranties of the Borrowers
contained in the Loan Documents, and all certificates and documents delivered to
the Agent and the Lenders pursuant to the terms thereof, when taken together, do
not contain as of the date furnished any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5.11 Securities Activities. No Borrower is engaged in the business of
---------------------
extending credit for the purpose of purchasing or carrying Margin Stock.
5.12 Material Agreements. No Borrower is a party to any agreement or
-------------------
instrument or subject to any charter or other corporate restriction which will
have or would reasonably be expected to have a Material Adverse Effect. Except
as set forth on Schedule 5.12, no Borrower has received notice or has knowledge
-------------
that (i) it is in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any Contractual
Obligation applicable to it, or (ii) any condition exists which, with the giving
of notice or the lapse of time or both, would constitute a default with respect
to any such Contractual Obligation, in each case under clauses (i) and (ii)
except where such default or defaults, if any, will not have or would not
reasonably be expected to have a Material Adverse Effect.
5.13 Compliance with Laws. The Borrowers are in compliance with all
--------------------
Requirements of Law applicable to them and their respective businesses, in each
case where the failure to so comply individually or in the aggregate will have
or would reasonably be expected to have a Material Adverse Effect.
5.14 Assets and Properties. Each Borrower has good and marketable title
---------------------
to all of its assets and properties (tangible and intangible, real or personal)
owned by it or a valid leasehold interest in all of its leased assets (except
insofar as marketability may be limited by any laws or regulations of any
Governmental Authority affecting such assets), and all such assets and property
are free and clear of all Liens, except Liens securing the Secured Obligations
and Liens permitted under Section 6.3(C). Substantially all of the assets and
--------------
properties owned by, leased to or used by each Borrower are in adequate
operating condition and repair, ordinary wear and tear excepted. Except for
Liens granted to the Agent for the benefit of the Agent and the Holders of
Secured Obligations, neither this Agreement nor any other Transaction Document,
nor any transaction contemplated under any such agreement, will affect any
right, title or interest of any
55
<PAGE>
Borrower in and to any of such assets in a manner that would reasonably be
expected to have a Material Adverse Effect.
5.15 Statutory Indebtedness Restrictions. None of the Borrowers and
-----------------------------------
their respective Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
or the Investment Company Act of 1940, or any other federal or state statute or
regulation which limits its ability to incur indebtedness or its ability to
consummate the transactions contemplated hereby or in connection with Stock
Acquisition.
5.16 Post-Retirement Benefits. As of the Closing Date, no Borrower has
------------------------
any expected cost of post-retirement medical and insurance benefits payable by
any Borrower to its employees and former employees, as estimated in accordance
with Financial Accounting Standards Board Statement No. 106.
5.17 Insurance. Schedule 5.17 to this Agreement accurately sets forth as
--------- -------------
of the Closing Date all insurance policies and programs currently in effect with
respect to the respective properties and assets and business of the Borrowers,
specifying for each such policy and program, (i) the amount thereof, (ii) the
risks insured against thereby, (iii) the name of the insurer and each insured
party thereunder, (iv) the policy or other identification number thereof, (v)
the expiration date thereof, (vi) the annual premium with respect thereto and
(vii) describes any reserves, relating to any self-insurance program that is in
effect. Such insurance policies and programs reflect coverage that is
reasonably consistent with prudent industry practice.
5.18 Indebtedness of the Borrowers; Refinanced Indebtedness; Contingent
------------------------------------------------------------------
Obligations. Schedule 1.1.5 sets forth all Indebtedness of the Borrowers and all
- ----------- --------------
Indebtedness to be discharged in connection with the consummation of the Stock
Acquisition under the heading "Refinanced Indebtedness." The Refinanced
Indebtedness and all accrued and unpaid interest thereon has been paid in full
or provision for payment has been made in accordance with the express provisions
of the instruments governing such Indebtedness. ICI, ICS and IMCS have been or
will be upon payment in full of the Refinanced Indebtedness irrevocably released
from all liability and Contractual Obligations with respect thereto other than
customary continuing indemnities provided for in the Contractual Obligation
evidencing such Refinanced Indebtedness, a copy of which has been delivered to
the Lenders. Any and all Liens securing the Refinanced Indebtedness have been
released or provision for release of such Liens satisfactory to the Agent has
been made. Except as set forth on Schedule 5.18 to this Agreement, none of the
-------------
Borrowers has any Contingent Obligation not reflected in its financial
statements delivered to the Agent on or prior to the Closing Date or otherwise
disclosed to the Agent and the Lenders in the other Schedules to this Agreement,
which would reasonably be expected to subject any Borrower to liability,
individually or in the aggregate, in excess of $150,000.
5.19 Restricted Payments. Except as listed on Schedule 5.19 no Borrower
------------------- -------------
has directly or indirectly declared, ordered, paid or made or set apart any sum
or properties for any Restricted Payment, or agreed to do so, except as
permitted pursuant to Section 6.3(F) of this Agreement.
--------------
56
<PAGE>
5.20 Labor Matters.
-------------
(A) Except as listed on Schedule 5.20, to this Agreement, there are on the
-------------
Closing Date no collective bargaining agreements, other labor agreements or
Multiemployer Plans covering any of the employees of any Borrower. As of the
Closing Date, no attempt to organize the employees of any Borrower, and no labor
disputes, strikes or walkouts affecting the operations of any Borrower, have
commenced and are continuing, or, to the Borrowers' knowledge, are threatened,
planned or contemplated.
(B) Set forth in Schedule 5.20 to this Agreement is a list, as of the
-------------
Closing Date, of all material consulting agreements, executive compensation
plans, deferred compensation agreements, employee pension plans or retirement
plans, employee profit sharing plans, employee stock purchase and stock option
plans, severance plans, group life insurance, hospitalization insurance or other
plans or arrangements of any Borrower providing for benefits for employees
thereof.
5.21 Solvency. After giving effect to the (i) Loans to be made on the
--------
Closing Date or such other date as Loans requested hereunder are made, (ii) the
disbursement of the proceeds of such Loans pursuant to the instructions of
Holdings; (iii) consummation of the Stock Acquisition and (iv) execution of the
Credit Agreement by each Borrower, each Borrower is Solvent.
5.22 Environmental Matters. (a) Except as disclosed on Schedule 5.22
--------------------- -------------
to this Agreement, (i) the operations of the Borrowers are in material
compliance with Environmental, Health or Safety Requirements of Law; (ii) the
Borrowers have all material permits, licenses or other authorizations required
under Environmental, Health or Safety Requirements of Law and are in material
compliance with such permits; (iii) none of the Borrowers nor any of their
respective present property or operations, or any of their respective past
property or operations, are subject to or the subject of, any investigation
known to any Borrower, or any judicial or administrative proceeding, order,
judgment, decree, settlement or other agreement respecting: (A) any material
violation of Environmental, Health or Safety Requirements of Law; (B) any
material remedial action; or (C) any material claims or liabilities arising from
the Release or threatened Release of a Contaminant into the environment; (iv)
there is not now, nor to the knowledge of any Borrower has there ever been, on
or in the present property of the Borrowers any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface impoundment or
hazardous waste storage facility of any kind, any polychlorinated biphenyls
(PCBs) used in hydraulic oils, electric transformers or other equipment, or any
asbestos containing material, in each case or collectively, the presence of
which would reasonably be likely to subject the Borrowers to a material
liability; and (v) none of the Borrowers has any material Contingent Obligation
in connection with any Release or threatened Release of a Contaminant into the
environment.
(b) For purposes of this Section 5.22, "material" means any noncompliance
------------
or basis for liability which would reasonably be likely to subject any Borrower
to liability, individually or in the aggregate, in excess of $500,000.
57
<PAGE>
ARTICLE VI: COVENANTS
----------------------
The Borrowers covenant and agree that so long as any Commitments are
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations), unless the Required Lenders shall
otherwise give prior written consent:
6.1 Reporting. The Borrowers shall maintain a system of accounting
---------
established and administered in accordance with Agreement Accounting Principles
and shall:
(A) Financial Reporting. Furnish to the Lenders:
-------------------
(i) Monthly Reports. As soon as practicable, and in any event within
---------------
twenty (20) days after the end of each calendar month, the consolidated and
consolidating balance sheets of each Borrower and its divisions and its
Subsidiaries as at the end of such period and the related consolidated and
consolidating statements of income and statement of cash flow of each Borrower
and its divisions and its Subsidiaries for such calendar month, certified by an
Authorized Officer of such Borrower on behalf of such Borrower as fairly
presenting in all material respects the consolidated and consolidating financial
position of such Borrower and its divisions and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the calendar
months indicated in accordance with Agreement Accounting Principles, subject to
normal year end adjustments and to the absence of footnotes required by
Agreement Accounting Principles, provided, however, that notwithstanding the
-------- -------
foregoing, the above-noted financial reports with respect to Holdings (on a
consolidated and consolidating basis), ICI, ICS and IMCS for the months ending
prior to April 1998, shall be delivered no later than forty (40) days after the
end of such month.
(ii) Quarterly Reports. (a) As soon as practicable, and in any event
-----------------
within forty-five (45) days after the end of each fiscal quarter in each fiscal
year, the consolidated and consolidating balance sheets of each Borrower and its
divisions and its Subsidiaries as at the end of such period and the related
consolidated and consolidating statements of income, and cash flow of each
Borrower and its divisions and its Subsidiaries for such fiscal quarter and for
the period from the beginning of the then current fiscal year to the end of such
fiscal quarter, and a forecasted consolidated and consolidating balance sheet
and a consolidated statement of earnings and cash flow of each Borrower for and
as of the end of the next succeeding fiscal quarter and a comparison of the
statement of earnings and cash flow to the budget, certified an Authorized
Officer of each Borrower on behalf of each Borrower as fairly presenting the
consolidated and consolidating financial position of each Borrower and its
divisions and its Subsidiaries as at the dates indicated and the results of
their operations and cash flow for the periods indicated in accordance with
Agreement Accounting Principles, subject to normal year end adjustments and to
the absence of footnotes required by Agreement Accounting Principles.
(b) As soon as practicable, and in any event within forty-five (45)
days after the end of the last fiscal quarter in each fiscal year, the
preliminary annual unaudited consolidated and consolidating balance sheets of
each Borrower and its divisions and its Subsidiaries as at the end of such
fiscal year and the related consolidated and consolidating statements of income,
58
<PAGE>
stockholders' equity and cash flow of such Borrower and its divisions and its
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding actual and forecasted figures for the previous fiscal
year, subject to revisions based on the annual reports delivered pursuant to
clause (iii) below, along with consolidating schedules in form and substance
- ------------
sufficient to calculate the financial covenants set forth in Section 6.4.
-----------
(iii) Annual Reports. As soon as practicable, and in any event
--------------
within ninety (90) days after the end of each fiscal year, (a) the consolidated
balance sheets of each Borrower and its Subsidiaries as at the end of such
fiscal year and the related consolidated statements of income, stockholders'
equity and cash flow of each Borrower and its Subsidiaries for such fiscal year,
together with any accompanying notes thereto, and in comparative form the
corresponding figures for the previous fiscal year along with consolidating
schedules in form and substance sufficient to calculate the financial covenants
set forth in Section 6.4, (b) a schedule from each Borrower setting forth for
-----------
each item in clause (a) hereof, the corresponding figures from the consolidated
----------
financial budget for the current fiscal year delivered pursuant to Section
-------
6.1(A)(v), and (c) an audit report on the items listed in clause (a) hereof of
- --------- ----------
independent certified public accountants of recognized national standing, which
audit report shall be unqualified and shall state that such financial statements
fairly present in all material respects the consolidated and consolidating
financial position of each Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flow for the periods
indicated in conformity with Agreement Accounting Principles and that the
examination by such accountants in connection with such consolidated and
consolidating financial statements has been made in accordance with generally
accepted auditing standards. The deliveries made pursuant to this clause (iii)
------------
shall be accompanied by (y) any management letter prepared by the above-
referenced accountants and (z) a certificate of such accountants that, in the
course of their examination necessary for their certification of the foregoing,
they have obtained no knowledge of any Default or Unmatured Default, or if, in
the opinion of such accountants, any Default or Unmatured Default shall exist,
stating the nature and status thereof.
(iv) Officer's Certificate. Together with each delivery of any
---------------------
financial statement (or otherwise if requested pursuant to the terms of Section
-------
4.2) an officer's certificate substantially in the form of Exhibit I hereto (an
- --- ---------
"OFFICER'S CERTIFICATE") (a) stating that no Default or Unmatured Default
exists, or if any Default or Unmatured Default exists, stating the nature and
status thereof for each such Officer's Certificate accompanying the financial
statements delivered pursuant to clauses (i), (ii) and (iii) of this Section
----------- ---- ----- -------
6.1(A), and (b) in addition for each such Officer's Certificate accompanying the
- ------
financial statements delivered pursuant to clauses (ii) and (iii) of this
------------ -----
Section 6.1(A), setting forth calculations for the period then ended for Section
- -------------- -------
2.5, if applicable, setting forth the Borrowers' calculations reflecting the
- ---
applicable pricing level under Section 2.15(D) which the Borrowers have
---------------
determined to be the applicable level, and which demonstrate compliance, when
applicable, with the provisions of Section 6.4, in each case such Officer's
-----------
Certificate to be signed by an Authorized Officer of Holdings.
(v) Budgets; Business Plans; Financial Projections. As soon as
----------------------------------------------
practicable and in any event not later than thirty (30) days prior to the
beginning of each fiscal year, a copy of the
59
<PAGE>
plan and forecast (including a projected balance sheet, income statement and
funds flow statement) of each Borrower for the upcoming fiscal year prepared in
such detail as shall be reasonably satisfactory to the Agent.
(B) Notice of Default. Promptly upon any of the chief executive officer,
-----------------
chief operating officer, chief financial officer, treasurer or controller of any
Borrower obtaining knowledge (i) of any condition or event which constitutes a
Default or Unmatured Default, or becoming aware that any Lender or Agent has
given any written notice with respect to a claimed Default or Unmatured Default
under this Agreement, or (ii) that any Person has given any written notice to
any Borrower or taken any other action with respect to a claimed default or
event or condition of the type referred to in Section 7.1(e), deliver to the
--------------
Agent and the Lenders an Officer's Certificate specifying (a) the nature and
period of existence of any such claimed default, Default, Unmatured Default,
condition or event, (b) the notice given or action taken by such Person in
connection therewith, and (c) what action such Borrower has taken, is taking and
proposes to take with respect thereto.
(C) Lawsuits. (i) Promptly upon any Borrower obtaining knowledge of the
--------
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration against or affecting such Borrower or any of its
property not previously disclosed pursuant to Section 5.7, which action, suit,
-----------
proceeding, governmental investigation or arbitration exposes, or in the case of
multiple actions, suits, proceedings, governmental investigations or
arbitrations arising out of the same general allegations or circumstances which
expose, in such Borrower's reasonable judgment, such Borrower to liability,
individually or in the aggregate, in an amount aggregating $500,000 or more
(exclusive of claims covered by insurance policies of such Borrower unless the
insurers of such claims have disclaimed coverage or reserved the right to
disclaim coverage on such claims), give written notice thereof to the Agent and
the Lenders and provide such other information as may be reasonably available to
enable each Lender and the Agent and its counsel to evaluate such matters; and
(ii) in addition to the requirements set forth in clause (i) of this Section
---------- -------
6.1(C), upon request of the Agent or the Required Lenders, promptly give written
- ------
notice of the status of any action, suit, proceeding, governmental investigation
or arbitration covered by a report delivered pursuant to clause (i) above and
----------
provide such other information as may be reasonably available to it that would
not result in the loss of any attorney-client privilege by disclosure to the
Lenders to enable each Lender and the Agent and its counsel to evaluate such
matters.
(D) Insurance. As soon as practicable and in any event within ninety
---------
(90) days of the end of each fiscal year, deliver to the Agent and the Lenders
(i) a report in form and substance reasonably satisfactory to the Agent and the
Lenders outlining all material insurance coverage maintained as of the date of
such report by the Borrowers and their Subsidiaries and the duration of such
coverage and (ii) an insurance broker's statement that all premiums with respect
to such coverage have been paid when due.
(E) ERISA Notices. Deliver or cause to be delivered to the Agent and the
-------------
Lenders, at the Borrowers' expense, the following information and notices as
soon as reasonably possible, and in any event: (i) (a) within ten (10) Business
Days after Holdings obtains knowledge that a
60
<PAGE>
Termination Event has occurred, a written statement of the chief financial
officer of Holdings describing such Termination Event and the action, if any,
which Holdings has taken, is taking or proposes to take with respect thereto,
and when known, any action taken or threatened by the IRS, DOL or PBGC with
respect thereto and (b) within ten (10) Business Days after any member of the
Controlled Group obtains knowledge that a Termination Event has occurred which
would reasonably be expected to subject Holdings to liability, individually or
in the aggregate, in excess of $100,000, a written statement of the chief
financial officer of Holdings describing such Termination Event and the action,
if any, which the member of the Controlled Group has taken, is taking or
proposes to take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto; (ii) within ten (10)
Business Days after Holdings or any of its Subsidiaries obtains knowledge that a
prohibited transaction (defined in Sections 406 of ERISA and Section 4975 of the
Code) has occurred, a statement of the chief financial officer of Holdings
describing such transaction and the action which Holdings or such Subsidiary has
taken, is taking or proposes to take with respect thereto; (iii) within ten (10)
Business Days after the material increase in the benefits of any existing Plan
or the establishment of any new Benefit Plan or the commencement of, or
obligation to commence, contributions to any Benefit Plan or Multiemployer Plan
to which Holdings or any member of the Controlled Group was not previously
contributing, notification of such increase, establishment, commencement or
obligation to commence and the amount of such contributions; (iv) within ten
(10) Business Days after Holdings or any of its Subsidiaries receives notice of
any unfavorable determination letter from the IRS regarding the qualification of
a Plan under Section 401(a) of the Code, copies of each such letter; (v) within
ten (10) Business Days after the establishment of any foreign employee benefit
plan or the commencement of, or obligation to commence, contributions to any
foreign employee benefit plan to which Holdings or any Subsidiary was not
previously contributing, notification of such establishment, commencement or
obligation to commence and the amount of such contributions; (vi) within ten
(10) Business Days after the filing thereof with the DOL, IRS or PBGC, copies of
each annual report (form 5500 series), including Schedule B thereto, filed with
respect to each Benefit Plan; (vii) within ten (10) Business Days after receipt
by Holdings or any member of the Controlled Group of each actuarial report for
any Benefit Plan or Multiemployer Plan and each annual report for any
Multiemployer Plan, copies of each such report; (viii) within ten (10) Business
Days after the filing thereof with the IRS, a copy of each funding waiver
request filed with respect to any Benefit Plan and all communications received
by Holdings or a member of the Controlled Group with respect to such request;
(ix) within ten (10) Business Days after receipt by Holdings or any member of
the Controlled Group of the PBGC's intention to terminate a Benefit Plan or to
have a trustee appointed to administer a Benefit Plan, copies of each such
notice; (x) within ten (10) Business Days after receipt by Holdings or any
member of the Controlled Group of a notice from a Multiemployer Plan regarding
the imposition of withdrawal liability, copies of each such notice; (xi) within
ten (10) Business Days after Holdings or any member of the Controlled Group
fails to make a required installment or any other required payment under Section
412 of the Internal Revenue Code on or before the due date for such installment
or payment, a notification of such failure; and (xii) within ten (10) Business
Days after Holdings or any member of the Controlled Group knows or has reason to
know that (a) a Multiemployer Plan has been terminated, (b) the administrator or
plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan,
or (c) the PBGC has instituted or will institute proceedings under Section 4042
of ERISA
61
<PAGE>
to terminate a Multiemployer Plan. For purposes of this Section 6.1(E),
--------------
Holdings, any of its Subsidiaries and any member of the Controlled Group shall
be deemed to know all facts known by the Administrator of any Plan of which
Holdings or any member of the Controlled Group or such Subsidiary is the plan
sponsor.
(F) Labor Matters. Notify the Agent and the Lenders in writing, promptly
-------------
upon any Borrower's learning thereof, of (i) any labor dispute to which Holdings
or any of its Subsidiaries may become a party, including, without limitation,
any strikes, lockouts or other disputes relating to such Persons' plants and
other facilities and (ii) any Worker Adjustment and Retraining Notification Act
liability incurred with respect to the closing of any plant or other facility of
any Borrower or any of its Subsidiaries, which in each case in clauses (i) and
(ii) would reasonably be expected to have a Material Adverse Effect.
(G) Other Indebtedness. Deliver to the Agent (i) a copy of each regular
------------------
report, notice or communication regarding potential or actual defaults
(including any accompanying officers' certificate) delivered by or on behalf of
any Borrower to the holders of or trustee for the holders of funded Indebtedness
pursuant to the terms of the agreements governing such Indebtedness, such
delivery to be made at the same time and by the same means as such notice or
other communication is delivered to such holders or trustee, and (ii) a copy of
each notice or other communication received by any Borrower from the from the
holders of or trustee for the holders of funded Indebtedness pursuant to the
terms of such Indebtedness, such delivery to be made promptly after such notice
or other communication is received by any Borrower.
(H) Other Reports. Promptly deliver or cause to be delivered to the
-------------
Agent and the Lenders copies of all financial statements, reports and notices,
if any, sent or made available generally by any Borrower to its securities
holders, filed with the Commission, all press releases made available generally
by any Borrower or any of its Subsidiaries to the public concerning material
developments in the business of such Borrower or any such Subsidiary and all
notifications received from the Commission by such Borrower or its Subsidiaries
pursuant to the Securities Exchange Act of 1934 and the rules promulgated
thereunder.
(I) Environmental Notices. Deliver or cause to be delivered to the Agent
---------------------
after receipt by Holdings, a copy of (i) any notice or claim to the effect that
any Borrower or any of its Subsidiaries is or may be liable to any Person as a
result of the Release by such Borrower, any of its Subsidiaries, or any other
Person of any Contaminant into the environment, and (ii) any notice alleging any
violation of any Environmental, Health or Safety Requirements of Law by any
Borrower or any of its Subsidiaries if, in either case, such notice or claim
relates to an event which would reasonably be expected to subject each and any
of the Borrowers to liability, individually or in the aggregate, in excess of
$100,000.
(J) Borrowing Base Certificate. As soon as practicable, and in any event
--------------------------
within forty (40) days after the close of each calendar month prior to April,
1998, and within twenty (20) days after the close of each calendar month
thereafter (and more often if requested by the Agent or the Required Lenders),
the Borrowers shall provide the Agent and the Lenders with a Borrowing Base
Certificate, together with such supporting documents as the Agent reasonably
deems
62
<PAGE>
desirable (including, without limitation, a list of Account Debtors whose
Receivables are being considered Investment Grade Receivables for purposes of
such Borrowing Base Certificate), all certified as being true and correct by the
chief financial officer or treasurer of Holdings. Holdings may update the
Borrowing Base Certificate and supporting documents more frequently than monthly
and the most recently delivered Borrowing Base Certificate shall be the
applicable Borrowing Base Certificate for purposes of determining the Borrowing
Base at any time.
(K) Other Information. Promptly upon receiving a request therefor from
-----------------
the Agent, prepare and deliver to the Agent and the Lenders such other
information with respect to any Borrower, any of its Subsidiaries, or the
Collateral, including, without limitation, schedules identifying and describing
the Collateral and any dispositions thereof or any Asset Sale (and the use of
the Net Cash Proceeds thereof), as from time to time may be reasonably requested
by the Agent.
6.2 Affirmative Covenants.
---------------------
(A) Corporate Existence, Etc. Each of the Borrowers shall, and shall
-------------------------
cause each of its Subsidiaries to, at all times maintain its corporate existence
and preserve and keep, or cause to be preserved and kept, in full force and
effect its rights and franchises material to its businesses; provided, however,
--------
that any Borrower may merge into another Borrower and any Subsidiary of a
Borrower may merge into a Borrower so long as the Borrower is the surviving
entity of such merger.
(B) Corporate Powers; Conduct of Business. Each of the Borrowers shall,
-------------------------------------
and shall cause each of its Subsidiaries to, qualify and remain qualified to do
business in each jurisdiction in which the nature of its business requires it to
be so qualified and where the failure to be so qualified will have or would
reasonably be expected to have a Material Adverse Effect. Each of the Borrowers
will, and will cause each Subsidiary to, carry on and conduct its business in
substantially the same manner and in substantially the same fields of enterprise
as it is presently conducted.
(C) Compliance with Laws, Etc. Each of the Borrowers shall, and shall
--------------------------
cause its Subsidiaries to, (a) comply with all Requirements of Law and all
restrictive covenants affecting such Person or the business, properties, assets
or operations of such Person, and (b) obtain as needed all Permits necessary for
its operations and maintain such Permits in good standing unless failure to
comply or obtain would not reasonably be expected to have a Material Adverse
Effect.
(D) Payment of Taxes and Claims; Tax Consolidation. Each of the
----------------------------------------------
Borrowers shall pay, and cause each of its Subsidiaries to pay, (i) all taxes,
assessments and other governmental charges imposed upon it or on any of its
properties or assets or in respect of any of its franchises, business, income or
property before any penalty or interest accrues thereon, and (ii) all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien (other than a Lien permitted by Section 6.3(C)) upon any of
---------------
the Borrowers' or such Subsidiary's property or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided,
--------
63
<PAGE>
however, that no such taxes, assessments and governmental charges referred to in
- -------
clause (i) above or claims referred to in clause (ii) above (and interest,
- ---------- -----------
penalties or fines relating thereto) need be paid if being contested in good
faith by appropriate proceedings diligently instituted and conducted and if such
reserve or other appropriate provision, if any, as shall be required in
conformity with Agreement Accounting Principles shall have been made therefor.
(E) Insurance. The Borrowers shall maintain in full force and effect the
---------
insurance policies and programs listed on Schedule 5.17 to this Agreement or
-------------
substantially similar policies and programs or other policies and programs as
reflect coverage that is reasonably consistent with prudent industry practice.
The Borrowers shall deliver to the Agent endorsements (y) to all "All Risk"
physical damage insurance policies on all of any Borrower's tangible real and
personal property and assets and business interruption insurance policies naming
the Agent loss payee, and (z) to all general liability and other liability
policies naming the Agent an additional insured. In the event the Borrowers, at
any time or times hereafter shall fail to obtain or maintain any of the policies
or insurance required herein or to pay any premium in whole or in part relating
thereto, then the Agent, without waiving or releasing any obligations or
resulting Default hereunder, may at any time or times thereafter (but shall be
under no obligation to do so) obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto which the Agent
deems advisable. All sums so disbursed by the Agent shall constitute part of
the Obligations, payable as provided in this Agreement.
(F) Inspection of Property; Books and Records; Discussions. Upon
------------------------------------------------------
reasonable notice by the Agent, the Borrowers shall permit any authorized
representative(s) designated by either the Agent or any Lender to visit and
inspect any of the properties of the Borrowers, to examine, audit, check and
make copies of their respective financial and accounting records, books,
journals, orders, receipts and any correspondence and other data relating to
their respective businesses or the transactions contemplated hereby and by the
Stock Acquisition (including, without limitation, in connection with
environmental compliance, hazard or liability), and to discuss their affairs,
finances and accounts with their officers and independent certified public
accountants, all upon reasonable notice and at such reasonable times during
normal business hours, as often as may be reasonably requested; provided, that
--------
neither the Agent nor any of the Lenders shall be deemed authorized hereunder to
retain an independent accountant to perform any accounting audit unless an event
of Default has occurred and is continuing. The Borrowers shall keep and
maintain, in all material respects, proper books of record and account in which
entries in conformity with Agreement Accounting Principles shall be made of all
dealings and transactions in relation to their respective businesses and
activities, including, without limitation, transactions and other dealings with
respect to the Collateral. If a Default has occurred and is continuing, the
Borrowers, upon the Agent's request, shall turn over any such records to the
Agent or its representatives.
(G) Insurance and Condemnation Proceeds. The Borrowers direct all
-----------------------------------
insurers under policies of property damage, boiler and machinery and business
interruption insurance and payors of any condemnation claim or award relating to
the property to pay all proceeds payable under such policies or with respect to
such claim or award for any loss with respect to the Collateral directly to the
Agent, for the benefit of the Agent and the Holders of the Secured
64
<PAGE>
Obligations; provided, however, in the event that such proceeds or award are
-------- -------
less than $250,000 ("EXCLUDED PROCEEDS"), unless a Default shall have occurred
and be continuing, the Agent shall remit such Excluded Proceeds to the
Borrowers. Each such policy shall contain a long-form loss-payable endorsement
naming the Agent as loss payee, which endorsement shall be in form and substance
acceptable to the Agent. The Agent shall, upon receipt of such proceeds (other
than Excluded Proceeds) and at the Borrowers' direction, either apply the same
to the principal amount of the Loans outstanding at the time of such receipt and
create a corresponding reserve against Revolving Credit Availability in an
amount equal to such application (the "DECISION RESERVE") or hold them as cash
collateral for the Obligations. For up to 180 days from the date of any loss
(the "DECISION PERIOD"), the Borrowers may notify the Agent that they intend to
restore, rebuild or replace the property subject to any insurance payment or
condemnation award and shall, as soon as practicable thereafter, provide the
Agent detailed information, including a construction schedule and cost
estimates. Should a Default occur at any time during the Decision Period, should
the Borrowers notify the Agent that they have decided not to rebuild or replace
such property during the Decision Period, or should the Borrowers fail to notify
the Agent of the Borrowers' decision during the Decision Period, then the
amounts held as cash collateral pursuant to this Section 6.2(G) or as the
--------------
Decision Reserve shall upon the Required Lenders' direction be applied as a
Designated Prepayment of the Term Loans pursuant to Section 2.5. Proceeds held
-----------
as cash collateral pursuant to this Section 6.2(G) or constituting the Decision
--------------
Reserve shall be disbursed as payments for restoration, rebuilding or
replacement of such property become due; provided, however, should a Default
--------- -------
occur after the Borrowers have notified the Agent that they intend to rebuild or
replace the property, the Decision Reserve or amounts held as cash collateral
may, or shall, upon the Required Lenders' direction, be applied as a Designated
Prepayment of the Term Loans pursuant to Section 2.5. In the event the Decision
-----------
Reserve is to be applied as a mandatory prepayment to the Term Loans, the
Borrowers shall be deemed to have requested Revolving Loans in an amount equal
to the Decision Reserve, and such Loans shall be made regardless of any failure
of the Borrowers to meet the conditions precedent set forth in Article IV. Upon
----------
completion of the restoration, rebuilding or replacement of such property, the
unused proceeds shall constitute Net Cash Proceeds of an Asset Sale and shall be
applied as a Designated Prepayment of the Term Loans pursuant to Section 2.5.
-----------
(H) ERISA Compliance. The Borrowers shall establish, maintain and
----------------
operate all Plans to comply in all respects with the provisions of ERISA, the
Code, all other applicable laws, and the regulations and interpretations
thereunder and the respective requirements of the governing documents for such
Plans, except where such noncompliance, individually or in the aggregate, would
not reasonably be expected to subject the Borrowers to liability in excess of
$100,000.
(I) Maintenance of Property. The Borrowers shall cause all property used
-----------------------
or useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order, ordinary wear
and tear excepted, and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Borrowers may be necessary
so that the business carried on in connection therewith may be properly
conducted at all times; provided, however, that nothing in this Section 6.2(I)
-------- ------- --------------
shall prevent the Borrowers from discontinuing the operation or maintenance of
any of such property if such discontinuance is, in
65
<PAGE>
the judgment of the Borrowers, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Agent or the Lenders.
(J) Environmental Compliance. The Borrowers shall each comply with all
------------------------
Environmental, Health or Safety Requirements of Law, except where noncompliance
will not, or would not reasonably be expected to, subject such Borrower to
liability, individually or in the aggregate, in excess of $500,000.
(K) Use of Proceeds. The Borrowers shall use the proceeds of the
---------------
Revolving Loans (i) to effect the Stock Acquisition and the payment of
Transaction Costs, (ii) to provide funds for the repayment of the Refinanced
Indebtedness, and (iii) to provide funds for the working capital needs and other
general corporate purposes of the Borrowers and to repay outstanding Loans.
Holdings shall use the proceeds of the Term Loans solely for the purpose of
facilitating the Stock Acquisition and paying Transaction Costs. The Borrowers
will not, nor will it permit any Subsidiary to, use any of the proceeds of the
Loans to purchase or carry any "Margin Stock" or to make any Acquisition, other
than the Stock Acquisition.
(L) Hedging Agreements. Within ninety (90) days after the Closing Date,
------------------
the Borrowers shall have entered into, and shall thereafter maintain for a
period of two years after the Closing Date, Hedging Agreements on terms and with
counterparties determined by the Borrowers and reasonably acceptable to the
Agent by which the Borrowers are is protected against increases in interest
rates from and after the date of such contracts as to $13,000,000 in notional
amount, such amount to be subject to reduction at a rate comparable to the
scheduled reduction of the outstanding principal balance of the Term Loans. In
the event a Lender elects to enter into any Hedging Agreement with the Borrowers
required under this Section 6.2(L) or permitted under the terms of Section
-------------- -------
6.3(O), the obligations of the Borrowers, or any one of them, with respect to
- ------
such Hedging Agreement shall be Secured Obligations secured by the Collateral.
(M) Opinion of the Borrowers' Special Counsel. Within thirty (30) days
-----------------------------------------
after the Closing Date, the Borrowers shall deliver to the Agent written
opinions addressed to the Lenders of the Borrowers' special counsel licensed in
California and Colorado as to, among other things, the corporate authorization,
execution and delivery of the Loan Documents and the valid security interest
created thereunder with respect to Pacific Motor, ICI, ICS, IMCS, AIRS and AIMS.
6.3 Negative Covenants.
------------------
(A) Indebtedness. No Borrower shall directly or indirectly create,
------------
incur, assume or otherwise become or remain directly or indirectly liable with
respect to any Indebtedness, except:
(a) the Obligations;
(b) the Transaction Costs;
(c) Permitted Existing Indebtedness and Refinanced Indebtedness,
and in each case any extension, renewal, refunding or refinancing thereof;
provided, however, that
-------- -------
66
<PAGE>
any such extension, renewal, refunding or refinancing is in an aggregate
principal amount not greater than the principal amount of and interest on,
fees and expenses accrued on, such Permitted Existing Indebtedness
outstanding at the time thereof and is on terms (including, without
limitation, maturity, amortization, interest rate, premiums, fees,
covenants, events of default, and remedies) not materially less favorable
to the obligor or materially adverse to the Lenders than the terms of such
Indebtedness on the date hereof;
(d) Indebtedness in respect of taxes, assessments, governmental
charges and claims for labor, materials or supplies, to the extent that
payment thereof is not required pursuant to Section 6.2(D);
--------------
(e) Indebtedness constituting Contingent Obligations permitted
by Section 6.3(E) and Indebtedness with respect to warranties and
--------------
indemnities made in connection with permitted Asset Sales;
(f) Indebtedness arising from intercompany loans (i) from any
Borrower to any other Borrower or (ii) from any Subsidiary of a Borrower
to any Borrower;
(g) Indebtedness in respect of Hedging Agreements permitted
under Section 6.3(Q);
--------------
(h) secured or unsecured purchase money Indebtedness (including
Capitalized Leases) incurred by any Borrower or any of its Subsidiaries
after the Closing Date to finance the acquisition of fixed assets, if (1)
at the time of such incurrence, no Default or Unmatured Default has
occurred and is continuing or would result from such incurrence, (2) such
Indebtedness has a scheduled maturity and is not due on demand, (3) such
Indebtedness does not exceed $1,000,000 in the aggregate outstanding at
any time (without taking into account any Permitted Sale and Leasebacks),
and (4) any Lien securing such Indebtedness is permitted under Section
-------
6.3(C) (such Indebtedness being referred to herein as "PERMITTED PURCHASE
------
MONEY INDEBTEDNESS");
(i) Indebtedness with respect to any appeal, surety and
performance bonds obtained by any Borrower or any of its Subsidiaries in
the ordinary course of business;
(j) Indebtedness incurred for ordinary administrative expenses,
franchise taxes, accounting expenses, legal expenses, employee expenses,
lease and office expenses, consultant expenses, investment banker expenses
incurred by the Borrowers;
(k) unsecured Indebtedness with respect to management fees (or
other fees of a similar nature), to the extent that payment thereof would
not be prohibited by Section 6.3(F);
--------------
(l) Indebtedness relating to any Permitted Sale and Leaseback;
67
<PAGE>
(m) Indebtedness of Acquisition Company owing to the Sellers in
an aggregate principal amount equal to the aggregate face amount of the
Seller Letters of Credit (plus any accrued interest thereon); provided
--------
that the outstanding principal amount of such Indebtedness shall be paid
in full as provided in Sections 2.1 and 2.23; and
------------ -----
(n) Indebtedness of any Borrower or any of its Subsidiaries
owing to a financial institution with respect to collateralization of
insurance coverage of such Borrower or such Subsidiary provided the
Required Lenders have consented in writing, in their sole discretion, to
the terms and form of such Indebtedness ("PERMITTED INSURANCE
COLLATERALIZED FINANCING").
(B) Sales of Assets. No Borrower shall sell, assign, transfer, lease,
---------------
convey or otherwise dispose of any property, whether now owned or hereafter
acquired, or any income or profits therefrom, or enter into any agreement to do
so, except:
(i) sales of Inventory in the ordinary course of business;
(ii) the disposition of obsolete Equipment in the ordinary
course of business;
(iii) transfers of assets pursuant to Investments permitted by
Section 6.3(D) and Restricted Payments permitted by Section 6.3(F);
-------------- --------------
(iv) Sale and Leaseback Transactions which, in the aggregate for
all Borrowers in any fiscal year, involve assets with a book value not
greater than $1,000,000 ("PERMITTED SALE AND LEASEBACKS");
(v) sales of assets from one Borrower to another;
(vi) sales, dispositions or other transfers of Receivables to
Allied Carriers, Inc. (or such other factoring company on terms reasonably
acceptable to the Agent) by any Borrower in the ordinary course of
business in an aggregate amount for all Borrowers not to exceed
$10,000,000 in any fiscal year; and
(vii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets, provided that any such transaction (a) is
--------
for all cash consideration, (b) is for not less than fair market value (as
determined by the board of directors of the applicable Borrower in good
faith, whose determination shall be conclusive evidence thereof and shall
be evidenced by a resolution of such board of directors set forth in an
Authorized Officer's certificate delivered to the Agent), and (c) when
combined with all such other transactions pursuant to this clause (iv)
-----------
(each such transaction being valued at book value) (i) during the
immediately preceding twelve-month period, represents the disposition of
assets aggregating not more than $300,000, and (ii) during the period from
the Closing Date to the date of such proposed transaction, represents the
disposition of assets aggregating not more than $1,000,000.
68
<PAGE>
Not fewer than five (5) Business Days prior to the consummation of any
transaction permitted by clause (iv) above, the Borrowers shall deliver to the
-----------
Agent a certificate of an Authorized Officer certifying compliance with the
requirements of clause (iv) and showing in reasonable detail the calculations on
-----------
which such certification is based.
(C) Liens. No Borrower shall directly or indirectly create, incur,
-----
assume or permit to exist any Lien on or with respect to any of their respective
property or assets except:
(i) Liens created by the Loan Documents or otherwise securing
the Secured Obligations;
(ii) Permitted Existing Liens;
(iii) Customary Permitted Liens;
(iv) purchase money Liens (including the interest of a lessor
under a Capitalized Lease and Liens to which any property is subject at
the time of the Borrower's acquisition thereof) securing Permitted
Purchase Money Indebtedness; provided that such Liens shall not apply to
--------
any property of any Borrower or its Subsidiaries other than that purchased
or subject to such Capitalized Lease; and
(v) Liens securing any Permitted Insurance Collateralized
Financing in a form and on terms acceptable to the Required Lenders.
In addition, no Borrower shall become a party to any agreement, note, indenture
or other instrument, or take any other action, which would prohibit the creation
of a Lien on any of its properties or other assets in favor of the Agent for the
benefit of itself and the Holders of Secured Obligations, as additional
collateral for the Obligations; provided that any agreement, note, indenture or
--------
other instrument in connection with Permitted Purchase Money Indebtedness
(including Leases) may prohibit the creation of a Lien in favor of the Agent for
the benefit of itself and the Holders of the Secured Obligations on the items of
property obtained with the proceeds of such Permitted Purchase Money
Indebtedness.
(D) Investments. No Borrower shall directly or indirectly make or own
-----------
any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater
not greater than the on the Closing Date;
(iii) Investments received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising
in the ordinary course of business;
69
<PAGE>
(iv) Investments of any Borrower in any other Borrower; and
(v) Investments of Pacific Motor in, and Contingent Obligations
with respect to, Logistics International, L.L.C. in an aggregate amount
not to exceed $400,000.
(E) Contingent Obligations. No Borrower shall directly or indirectly
----------------------
create or become or be liable with respect to any Contingent Obligation, except:
(i) recourse obligations resulting from endorsement of negotiable instruments
for collection in the ordinary course of business; (ii) Permitted Existing
Contingent Obligations and any extensions, renewals or replacements thereof,
provided that any such extension, renewal or replacement is not greater than the
- --------
Indebtedness under, and shall be on terms no less favorable to the applicable
Borrower than the terms of, the Permitted Existing Contingent Obligation being
extended, renewed or replaced; (iii) obligations, warranties, and indemnities,
not relating to Indebtedness of any Person, which have been or are undertaken or
made in the ordinary course of business and not for the benefit of or in favor
of an Affiliate of any Borrower; (iv) Contingent Obligations arising under the
Transaction Documents; (v) Contingent Obligations with respect to surety and
performance bonds obtained by any Borrower or any of its Subsidiaries in the
ordinary course of business, and (vi) Contingent Obligations with respect to,
and Investments in, Logistics International, L.L.C. in an aggregate amount not
to exceed $400,000.
(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 and (ii) 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.
(G) Conduct of Business; Subsidiaries; Acquisitions. No Borrower shall
-----------------------------------------------
engage in any business other than the businesses engaged in by the Borrowers on
the date hereof and any business or activities which are substantially similar,
related or incidental thereto. The Borrowers shall not create, capitalize or
acquire any Subsidiary after the date hereof. No Borrower shall enter into any
transaction or series of transactions in which it acquires all or any
significant portion of the assets of another Person.
(H) Transactions with Shareholders and Affiliates. Except for the
---------------------------------------------
transactions evidenced by the agreements set forth on Schedule 6.3(H) as such
---------------
agreements are in effect as of the date hereof (or hereafter amended with the
Agent's consent) and except as permitted pursuant to the provisions of Section
-------
6.3(F), no Borrower shall directly or indirectly (i) except as otherwise
- ------
permitted by clause (ii) below, pay any management fees or other similar fees or
compensation to any of Management or any other Affiliate of any Borrower or of
Eos, other than (w) wages, salaries, bonuses and other employee benefits
provided in the ordinary course of business under board approved policies, of
employees who are also stockholders of any Borrower in the ordinary course and
consistent with past practices, (x) payment of directors fees not to exceed
$75,000 per fiscal year and directors' out-of-pocket costs and expenses, (y) the
payment of up to $125,000 in
70
<PAGE>
any fiscal year and reimbursement of out-of-pocket expenses pursuant to the
Management Agreement, and (z) payment of an advisors fee to EOS for services
rendered thereby in respect to the ICI Stock Acquisition; provided, however,
-------- -------
that no amounts described in clauses (y) and (z) above shall be permitted if
either a Default or an Unmatured Default shall have occurred and be continuing
at such time or as a result thereof, or (ii) enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service, but other than the
rendering of services pursuant to ordinary course employment relationships) with
any of Management or any Affiliate of the Borrower or Eos, on terms that are
less favorable to the applicable Borrower than those that might be obtained in
an arm's length transaction at the time from Persons who are not such an
Affiliate (as determined in good faith by such Borrower's Board of Directors).
(I) Restriction on Fundamental Changes. No Borrower shall enter into any
----------------------------------
merger or consolidation, or liquidate, wind-up or dissolve (or suffer any
liquidation or dissolution), or convey, lease, sell, transfer or otherwise
dispose of, in one transaction or series of transactions, all or substantially
all of such Borrower's business or property, whether now or hereafter acquired
(other than a merger of any Borrower into another Borrower or any Subsidiary of
a Borrower into a Borrower or any other Subsidiary of a Borrower in which case
the Borrowers shall promptly notify the Agent of any such merger).
(J) Sales and Leasebacks; Off Balance Sheet Liabilities. No Borrower will
---------------------------------------------------
enter into or suffer to exist any (i) Sale and Leaseback Transaction (other than
Permitted Sale and Leasebacks) or (ii) any other transaction pursuant to which
it incurs or has incurred Off Balance Sheet Liabilities (other than Permitted
Sale and Leasebacks or Rate Hedging Obligations permitted to be incurred under
the terms of Section 6.3(O) below).
--------------
(K) Margin Regulations. No Borrower shall use all or any portion of the
------------------
proceeds of any credit extended under this Agreement to purchase or carry Margin
Stock.
(L) ERISA. Holdings shall not (i) engage, or permit any of its
-----
Subsidiaries to engage, in any prohibited transaction described in Sections 406
of ERISA or 4975 of the Code for which a statutory or class exemption is not
available or a private exemption has not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding deficiency (as defined in Sections
302 of ERISA and 412 of the Internal Revenue Code), with respect to any Benefit
Plan, whether or not waived; (iii) fail, or permit any Controlled Group member
to fail, to pay timely required contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan; (iv) terminate, or
permit any Controlled Group member to terminate, any Benefit Plan which would
result in any liability of the Borrower or any Controlled Group member under
Title IV of ERISA; (v) fail to make any contribution or payment to any
Multiemployer Plan which Holdings or any Controlled Group member may be required
to make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto; (vi) fail, or permit any Controlled Group member to fail, to
pay any required installment or any other payment required under Section 412 of
the Internal Revenue Code on or before the due date for such installment or
other payment; or (vii) amend, or permit any Controlled Group member to amend, a
Plan resulting in an increase in current liability for the plan year such that
Holdings or
71
<PAGE>
any Controlled group member is required to provide security to such Plan under
Section 401(a)(29) of the Code.
(M) Corporate Documents. No Borrower shall amend, modify or otherwise
-------------------
change any of the terms or provisions in any of their respective corporate
documents (other than the by-laws and, in the case of by-laws, any of the
material terms or provisions thereof) as in effect on the date hereof in any
manner adverse to the interests of the Lenders without the prior written consent
of the Required Lenders.
(N) Fiscal Year. No Borrower shall change its fiscal year for accounting
-----------
or tax purposes from a period consisting of the 12-month period ending on
December 31 of each calendar year.
(O) Hedging Obligations. The Borrowers shall not enter into any interest
-------------------
rate, commodity or foreign currency exchange, swap, collar, cap or similar
agreements other than with respect to hedging arrangements made pursuant to
Section 6.2(L) hereof or pursuant to which the Borrowers have hedged actual
- --------------
interest rate, foreign currency or commodity exposure (such hedging agreements
are sometimes referred to herein as "HEDGING AGREEMENTS").
(P) Subsidiaries. Except for Subsidiaries of any Borrower existing as of
------------
the date hereof, the Borrowers shall not, and shall not permit any Subsidiary
to, form or acquire any Subsidiary without the prior written consent of the
Required Lenders.
6.4 Financial Covenants. The Borrowers shall comply with the following:
-------------------
(A) Defined Terms for Financial Covenants. The following terms used in
-------------------------------------
this Agreement shall have the following meanings (such meanings to be
applicable, except to the extent otherwise indicated in a definition of a
particular term, both to the singular and the plural forms of the terms
defined):
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
--------------------
expenditures (whether paid in cash or accrued as liabilities and including
Capitalized Leases and Permitted Purchase Money Indebtedness) by Holdings and
its Subsidiaries, determined on a consolidated basis without duplication, during
that period that, in conformity with Agreement Accounting Principles, are
required to be included in or reflected by the property, plant, equipment or
similar fixed asset accounts reflected in the consolidated balance sheet of
Holdings and its Subsidiaries less the aggregate amount of all proceeds received
----
by Holdings and its Subsidiaries during such period (in cash or other property
valued at the fair value thereof determined by Holdings in good faith) from
sales and other dispositions of assets in the ordinary course of business.
"EBITDA" means, for any period, on a consolidated basis for Holdings and
------
its consolidated Subsidiaries, the sum, without duplication, of the amounts for
such period of (i) Net Income, plus (ii) charges against income and all other
----
accruals for Taxes, plus (iii) Interest Expense, plus (iv) Fees, plus (v)
---- ---- ----
amortization expense, including, without limitation, amortization of goodwill
and other intangible assets and Transaction Costs, plus (vi) depreciation
----
expense, plus (vii) other non-cash charges classified as long-term deferrals in
----
accordance with
72
<PAGE>
Agreement Accounting Principles, plus (viii) an amount equal to the amount of
----
any reduction of Net Income for such period attributable to any non-recurring
expenses incurred in connection with the ICI Stock Acquisition, minus (ix)
-----
extraordinary gains, plus (x) extraordinary losses.
----
"FEES" means fees (including, without limitation, agency and unused
----
commitment fees) and discounts with respect to (i) Letters of Credit and (ii)
Indebtedness evidenced by this Agreement.
"INTEREST EXPENSE" means, for any period, the total interest expense of
----------------
Holdings and its consolidated Subsidiaries, whether paid or accrued (including
the interest component of Capitalized Leases), but excluding interest expense
not payable in cash (including amortization of discount and deferred financing
fees), less all interest income of the Borrowers and their Subsidiaries for such
period, as determined in conformity with Agreement Accounting Principles.
"NET INCOME" means, for any period, the net earnings (or loss) after taxes
----------
of Holdings and its Subsidiaries, determined on a consolidated basis, for such
period taken as a single accounting period determined in conformity with
Agreement Accounting Principles.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
-------
Person under any lease of real or personal property but does not include any
amounts payable under Capitalized Leases of such Person; provided, however, that
-------- -------
"Rentals" shall not include payments on or with respect to leased automobiles
provided as an employee benefit or revenue-based, mileage-based or other similar
payments in the nature thereof, made to truck owner-operators.
"TAXES" means, for any period, all federal, state and local income or
-----
similar taxes charged against earnings for such period; provided, however, that
-------- -------
Taxes shall not include, for any period, the aggregate payment of $216,000 made
by the Borrowers to the Seller and its Affiliates with respect to the one-time
adjustment under the PMT Stock Purchase Agreement in connection with the
termination at the closing under the PMT Stock Purchase Agreement of Pacific
Motor's tax sharing agreements and arrangements relating thereto.
(B) Fixed Charge Coverage Ratio. Holdings and its Subsidiaries,
---------------------------
determined on a consolidated basis, shall maintain a ratio ("FIXED CHARGE
COVERAGE RATIO") of: (i) the sum of (a) EBITDA during such period, plus (b)
----
Rentals paid during such period minus (c) Capital Expenditures incurred during
-----
such period to (ii) the sum of (a) Interest Expense during such period, plus (b)
----
Rentals scheduled during such period, plus (c) Taxes paid during such period,
----
plus (d) scheduled amortization of the principal portion of the Term Loans and
- ----
scheduled amortization of the principal portion of all other Indebtedness of the
Borrowers during such period of at least:
(1) 1.00 to 1.00 for the fiscal quarters ending December 31, 1997 and
March 31, 1998;
73
<PAGE>
(2) 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, 2000;
(3) 1.15 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending December 31, 2000 through the fiscal quarter
ending September 30, 2001;
(4) 1.20 to 1.00 for each fiscal quarter for the period commencing
with the fiscal quarter ending December 31, 2001 through the fiscal quarter
ending September 30, 2002; and
(5) 1.25 to 1.00 for each fiscal quarter thereafter until the Term
Loan Termination Date.
In each case, the Fixed Charge Coverage Ratio shall be determined as of the last
day of each fiscal quarter for the four-quarter period ending on such day
(provided, however, that (a) for the fiscal quarter ending December 31, 1997,
--------- -------
the Fixed Charge Coverage Ratio shall be calculated using EBITDA, Rentals,
Interest Expense, Taxes, Capital Expenditures and scheduled amortization for the
month ending December 31, 1997 (on a pro forma basis as if the transactions
---------
contemplated by the ICI Stock Purchase Agreement and hereunder were consummated
on November 30, 1997), (b) for the fiscal quarter ending March 31, 1998, the
Fixed Charge Coverage Ratio shall be calculated using EBITDA, Rentals, Interest
Expense, Taxes, Capital Expenditures and scheduled amortization for the one
fiscal quarter ending March 31, 1998, (c) for the fiscal quarter ending June 30,
1997, the Fixed Charge Coverage Ratio shall be calculated using EBITDA, Rentals,
Interest Expense, Taxes, Capital Expenditures and scheduled amortization for the
two fiscal quarters ending June 30, 1998 and (d) for the fiscal quarter ending
September 30, 1998, the Fixed Change Coverage Ratio shall be calculated using
EBITDA, Rentals, Interest Expense, Taxes, Capital Expenditures and scheduled
amortization for the three fiscal quarters ending September 30,1998. For the
period ending December 31, 1997, the Fixed Charge Coverage Ratio will exclude
non-cash year-end charges relating to changes in accounting policy and certain
year-end accruals for amounts expended or liabilities incurred ratably during
1997 will be treated as if they were expensed evenly over the course of the
year.
(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:
74
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDING MAXIMUM LEVERAGE RATIO
------------- ----------------------
<S> <C>
March 31, 1998 3.75 to 1.00
June 30, 1998 3.50 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
</TABLE>
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, (a) for the
-------- -------
fiscal quarter ending March 31, 1998, the Leverage Ratio shall be calculated
using EBITDA for the one fiscal quarter ending March 31, 1998 divided by .125,
(b) for the fiscal quarter ending June 30, 1998, the Leverage Ratio shall be
calculated using EBITDA for the two fiscal quarters ending June 30, 1998 divided
by .40625 and (c) for the fiscal quarter ending September 20, 1998, the Leverage
Ratio shall be calculated using EBITDA for the three fiscal quarters ending
September 30, 1998 divided by .6875).
(D) Minimum EBITDA. Holdings and its Subsidiaries, determined on a
--------------
consolidated basis, shall not permit EBITDA to be less than the amounts set
forth below for the fiscal periods ending on the dates set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending on or About
the Dates Set Forth Below: Minimum EBITDA
-------------------------- --------------
<S> <C>
March 31, 1998 $1,000,000
June 30, 1998 $3,250,000
September 30, 1998 $5,500,000
December 31, 1998 $8,000,000
March 31, 1999 $8,000,000
June 30, 1999 $8,000,000
September 30, 1999 $8,000,000
December 31, 1999 and each
quarter thereafter $9,000,000
</TABLE>
75
<PAGE>
In each case, EBITDA shall be determined as of the last day of each fiscal
quarter for the four quarter period ending on such day (provided, however, (a)
-------- -------
for the fiscal quarter ending March 31, 1998, EBITDA shall be calculated using
EBITDA for the one fiscal quarter ending March 31, 1998, (b) for the fiscal
quarter ending June 30, 1998, EBITDA shall be calculated using EBITDA for the
two fiscal quarters ending June 30, 1998, and (c) for the fiscal quarter ending
September 30, 1998, EBITDA shall be calculated using EBITDA for the three fiscal
quarters ending September 30, 1998).
(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 $750,000 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; provided,
--------
however, that (i) notwithstanding any other provision of this Section 6(E),
- ------- ------------
Capital Expenditures made or committed to be made in the fiscal quarter ended
March 31, 1997, shall not be taken into account in determining the Borrowers'
compliance with the foregoing restrictions for the fiscal year ending December
31, 1997, and (ii) notwithstanding any other provision of this Section 6.4(E),
--------------
in no event shall the aggregate amount of all Capital Expenditures made in any
fiscal year exceed $1,000,000.
ARTICLE VII: DEFAULTS
----------------------
7.1 Defaults. Each of the following occurrences shall constitute a
--------
Default under this Agreement:
(a) Failure to Make Payments When Due. The Borrowers shall (i) fail to
---------------------------------
pay when due any of the Obligations consisting of principal with respect to the
Loans or (ii) shall fail to pay within five (5) days of the date when due any of
the other Obligations under this Agreement or the other Loan Documents.
(b) Breach of Certain Covenants. The Borrowers shall fail duly and
---------------------------
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrowers under:
(i) Sections 6.1(C), 6.1(D), 6.1(E), 6.1(F), 6.1(G), 6.1(H),
--------------- ------ ------ ------ ------ ------
6.1(I), 6.1(K), 6.2(B), 6.2(F) or 6.2(M) and such failure shall continue
------ ------ ------ ------ ------
unremedied for fifteen (15) days;
(ii) Section 6.1(A), 6.1(B) or 6.1(J) and such failure shall
-------------- ------ ------
continue unremedied for five (5) Business Days; or
(iii) Section 6.3 or 6.4(B), 6.4(C), 6.4(D), or 6.4(E).
----------- ------ ------ ------ ------
(c) Breach of Representation or Warranty. Any representation or warranty
------------------------------------
made or deemed made by the Borrower to the Agent or any Lender herein or by the
Borrowers in any of
76
<PAGE>
the other Loan Documents or in any statement or certificate at any time given by
any such Person pursuant to any of the Loan Documents shall be false or
misleading in any material respect on the date as of which made (or deemed
made).
(d) Other Defaults. The Borrowers shall default in the performance of or
--------------
compliance with any term contained in this Agreement (other than as covered by
paragraphs (a), (b) or (c) of this Section 7.1), or the Borrowers shall default
- -------------- --- --- -----------
in the performance of or compliance with any term contained in any of the other
Loan Documents, and such default shall continue for thirty (30) days after any
Borrower or any of its Subsidiaries knew of such default or should have known of
such default after exercising such reasonable diligence and making such
reasonable inquiry as a prudent person in the management of his business affairs
would have exercised or made with respect to the matter in question.
(e) Default as to Other Indebtedness; Operating Leases. Any of the
--------------------------------------------------
Borrowers shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness (other than the Obligations) the outstanding principal
amount of which Indebtedness is in excess of $500,000; or any breach, default or
event of default shall occur, or any other condition shall exist under any
instrument, agreement or indenture pertaining to any such Indebtedness, if the
effect thereof is to cause an acceleration, mandatory redemption, a requirement
that such Borrower offer to purchase such Indebtedness or other required
repurchase of such Indebtedness, or permit the holder(s) of such Indebtedness to
accelerate the maturity of any such Indebtedness or require a redemption or
other repurchase of such Indebtedness; or any such Indebtedness shall be
otherwise declared to be due and payable (by acceleration or otherwise) or
required to be prepaid, redeemed or otherwise repurchased by such Borrower
(other than by a regularly scheduled required prepayment) prior to the stated
maturity thereof.
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc.
-----------------------------------------------------
(i) An involuntary case shall be commenced against any Borrower
and the petition shall not be dismissed, stayed, bonded or discharged
within sixty (60) days after commencement of the case; or a court having
jurisdiction in the premises shall enter a decree or order for relief in
respect of any Borrower in an involuntary case, under any applicable
bankruptcy, insolvency or other similar law now or hereinafter in effect;
or any other similar relief shall be granted under any applicable federal,
state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over any
Borrower or over all or a substantial part of the property of any Borrower
shall be entered; or an interim receiver, trustee or other custodian of
any Borrower or of all or a substantial part of the property of any
Borrower shall be appointed or a warrant of attachment, execution or
similar process against any substantial part of the property of any
Borrower shall be issued and any such event shall not be stayed,
77
<PAGE>
dismissed, bonded or discharged within sixty (60) days after entry,
appointment or issuance.
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. Any Borrower
---------------------------------------------------
shall (i) commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (ii) consent to the entry of an
order for relief in an involuntary case, or to the conversion of an involuntary
case to a voluntary case, under any such law, (iii) consent to the appointment
of or taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property, (iv) make any assignment for the benefit of
creditors or (v) take any corporate action to authorize any of the foregoing.
(h) Judgments and Attachments. Any money judgment(s) (other than a money
-------------------------
judgment covered by insurance as to which the insurance company has not
disclaimed or reserved the right to disclaim coverage), writ or warrant of
attachment, or similar process against any Borrower or any of their respective
assets involving in any single case or in the aggregate an amount in excess of
$500,000 is (are) entered and shall remain undischarged, unvacated, unbonded or
unstayed for a period of sixty (60) days or in any event later than fifteen (15)
days prior to the date of any proposed sale thereunder.
(i) Dissolution. Any order, judgment or decree shall be entered against
-----------
any Borrower decreeing its involuntary dissolution or split up and such order
shall remain undischarged and unstayed for a period in excess of sixty (60)
days; or any Borrower shall otherwise dissolve or cease to exist except as
specifically permitted by this Agreement.
(j) Loan Documents; Failure of Security. At any time, for any reason, (i)
-----------------------------------
any Loan Document as a whole that materially affects the ability of the Agent,
or any of the Lenders to enforce the Obligations or enforce their rights against
the Collateral ceases to be in full force and effect or any Borrower party
thereto seeks to repudiate its obligations thereunder and the Liens intended to
be created thereby are, or any Borrower seeks to render such Liens, invalid and
unperfected, or (ii) Liens on Collateral with a fair market value in excess of
$100,000 in favor of the Agent contemplated by the Loan Documents shall, at any
time, for any reason, be invalidated or otherwise cease to be in full force and
effect, or such Liens shall not have the priority contemplated by this Agreement
or the Loan Documents.
(k) Termination Event. Any Termination Event occurs which the Required
-----------------
Lenders believe would reasonably be expected to subject any Borrower to
liability, individually or in the aggregate, in excess of $500,000.
(l) Waiver of Minimum Funding Standard. If the plan administrator of any
----------------------------------
Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is based
would reasonably be expected to subject any Borrower or any Controlled Group
member to liability, individually or in the aggregate, in excess of $500,000.
(m) Change of Control. A Change of Control shall occur.
-----------------
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(n) Hedging Agreements. Nonpayment by the applicable Borrower of any
------------------
obligation under the any Hedging Agreements entered into with any Lender or the
breach by the applicable Borrower of any term, provision or condition contained
in any such Hedging Agreements.
(o) Environmental Matters. Any Borrower shall be the subject of any
---------------------
proceeding or investigation pertaining to (i) the Release by such Borrower of
any Contaminant into the environment, (ii) the liability of such Borrower
arising from the Release by any other Person of any Contaminant into the
environment, or (iii) any violation of any Environmental, Health or Safety
Requirements of Law by such Borrower, which, in the case of clauses (i), (ii) or
(iii), has or would reasonably be expected to subject such Borrower to
liability, individually or in the aggregate, in excess of $500,000.
A Default shall be deemed "continuing" until cured or until waived in
writing in accordance with Section 8.3.
-----------
ARTICLE VIII: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND
------------------------------------------------------------------------
REMEDIES
- --------
8.1 Termination of Commitments; Acceleration. If any Default described
----------------------------------------
in Section 7.1(f) or 7.1(g) occurs, the obligations of the Lenders to make Loans
-------------- ------
hereunder and the obligation of the Agent to issue Letters of Credit hereunder
shall automatically terminate and the Obligations shall immediately become due
and payable without any election or action on the part of the Agent or any
Lender. If any other Default occurs, the Required Lenders may do either or both
of the following: (i) terminate or suspend the obligations of the Lenders to
make Loans hereunder and the obligation of the Agent to issue Letters of Credit
hereunder, and (ii) declare the Obligations to be due and payable whereupon the
Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrowers expressly
waive.
8.2 Defaulting Lender. In the event that any Lender fails to fund its
-----------------
Pro Rata Share of any Advance requested or deemed requested by any Borrower
which such Lender is obligated to fund under the terms of this Agreement (the
funded portion of such Advance being hereinafter referred to as a "NON PRO RATA
LOAN"), until the earlier of such Lender's cure of such failure and the
termination of the Revolving Loan Commitments, the proceeds of all amounts
thereafter repaid to the Agent by the Borrowers and otherwise required to be
applied to such Lender's share of all other Obligations pursuant to the terms of
this Agreement shall be advanced to the applicable Borrower by the Agent on
behalf of such Lender to cure, in full or in part, such failure by such Lender,
but shall nevertheless be deemed to have been paid to such Lender in
satisfaction of such other Obligations. Notwithstanding anything in this
Agreement to the contrary: (i) the foregoing provisions of this Section 8.2
-----------
shall apply only with respect to the proceeds of payments of Obligations and
shall not affect the conversion or continuation of Loans pursuant to Section
-------
2.10; (ii) any such Lender shall be deemed to have cured its failure to fund
- ----
its Pro Rata Share of any Advance at such time as an amount equal to such
Lender's original Pro Rata Share of the requested principal portion of such
Advance is fully funded to the applicable Borrower, whether made by such Lender
itself or by operation of the terms of this Section 8.2, and whether or not
-----------
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<PAGE>
the Non Pro Rata Loan with respect thereto has been repaid, converted or
continued; (iii) amounts advanced to the applicable Borrower to cure, in full or
in part, any such Lender's failure to fund its Pro Rata Share of any Advance
("CURE LOANS") shall bear interest at the rate applicable to Floating Rate Loans
in effect from time to time, and for all other purposes of this Agreement shall
be treated as if they were Floating Rate Loans; (iv) regardless of whether or
not a Default has occurred or is continuing, and notwithstanding the
instructions of the applicable Borrower as to its desired application, all
repayments of principal which, in accordance with the other terms of this
Agreement, would be applied to the outstanding Floating Rate Loans shall be
applied first, ratably to all Floating Rate Loans constituting Non Pro Rata
-----
Loans, second, ratably to Floating Rate Loans other than those constituting Non
------
Pro Rata Loans or Cure Loans and, third, ratably to Floating Rate Loans
-----
constituting Cure Loans; (v) for so long as and until the earlier of any such
Lender's cure of the failure to fund its Pro Rata Share of any Advance and the
termination of the Revolving Loan Commitments, the term "Required Lenders" for
purposes of this Agreement shall mean Lenders (excluding all Lenders whose
failure to fund their respective Pro Rata Shares of such Advance have not been
so cured) whose Pro Rata Shares represent equal to or greater than fifty percent
(50%) of the aggregate Pro Rata Shares of such Lenders; and (vi) for so long as
and until any such Lender's failure to fund its Pro Rata Share of any Advance is
cured in accordance with Section 8.2(ii), (A) such Lender shall not be entitled
---------------
to any commitment fees with respect to its Revolving Loan Commitment and (B)
such Lender shall not be entitled to any letter of credit fees, which commitment
fees and letter of credit fees shall accrue in favor of the Lenders which have
funded their respective Pro Rata Share of such requested Advance, shall be
allocated among such performing Lenders ratably based upon their relative
Revolving Loan Commitments, and shall be calculated based upon the average
amount by which the aggregate Revolving Loan Commitments of such performing
Lenders exceeds the sum of (I) the outstanding principal amount of the Loans
owing to such performing Lenders, plus (II) the outstanding Reimbursement
----
Obligations owing to such performing Lenders, plus (III) the aggregate
----
participation interests of such performing Lenders arising pursuant to Section
-------
2.21 with respect to undrawn and outstanding Letters of Credit.
- ----
8.3 Amendments. Subject to the provisions of this Article VIII, the
---------- ------------
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrowers may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrowers hereunder or waiving
any Default hereunder; provided, however, that no such supplemental agreement
-------- -------
shall, without the consent of each Lender affected thereby: (i) postpone or
extend the Revolving Loan Termination Date, the Term Loan Termination Date or
any other date fixed for any payment of principal of, or interest on, the Loans,
the Reimbursement Obligations or any fees or other amounts payable to such
Lender (except with respect to (a) any modifications of the provisions relating
to prepayments of Loans and other Obligations and (b) a waiver of the
application of the default rate of interest pursuant to Section 2.11 hereof);
------------
(ii) reduce the principal amount of any Loans or L/C Obligations or the rate of
interest thereon or any fees or other amounts payable to such Lender; (iii)
reduce the percentage specified in the definition of Required Lenders or any
other percentage of Lenders specified to be the applicable percentage in this
Agreement to act on specified matters; (iv) increase the amount of the Revolving
Loan Commitment or any Term Loan Commitment of any Lender hereunder (except with
respect to an
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<PAGE>
increase in the amount, or other modification to the terms or components, of the
Borrowing Base); (v) permit the Borrowers to assign its rights under this
Agreement; (vi) amend this Section 8.3; or (vii) release all or substantially
-----------
all of the Collateral. No amendment of any provision of this Agreement relating
to the Agent shall be effective without the written consent of the Agent. The
Agent may waive payment of the fee required under Section 13.3(B) without
---------------
obtaining the consent of any of the Lenders.
8.4 Preservation of Rights. No delay or omission of the Lenders or the
----------------------
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Letter of Credit notwithstanding the
existence of a Default or the inability of the Borrowers to satisfy the
conditions precedent to such Loan or issuance of such Letter of Credit shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.3, and then only
-----------
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE IX: GUARANTEE
- ----------------------
9.1 Guarantee; Modifications to Obligations. In order to induce the
---------------------------------------
Lenders to extend credit hereunder and the Issuing Lenders to issue the Letters
of Credit hereunder, each Guarantor fully and unconditionally guarantees, as a
primary obligor and not merely as a surety, jointly with the other Guarantors
and severally, the Obligations (including, without limitation, interest accruing
hereunder after the commencement of any case under the United States Bankruptcy
Code, whether or not allowed as a claim in such case). Each Guarantor further
agrees that the Obligations may be extended or renewed, in whole or in part,
without notice to or further assent from it, and that it will remain bound upon
its guarantee ("GUARANTEE") hereunder notwithstanding any such extension or
renewal of any Obligation.
9.2 Waivers. Each Guarantor waives presentment to, demand of payment
-------
from and protest to any Borrower of any of the Obligations, and also waives
notice of acceptance of its obligations and notice of protest for nonpayment.
The obligations of the Guarantors hereunder shall not be affected by the failure
of any Lender, any Issuing Lender or any Agent to assert any claim or demand or
to enforce any right or remedy against any Borrower or any other Guarantor under
the provisions of this Agreement or any of the other Loan Documents or
otherwise, or, except as specifically provided therein, by any rescission,
waiver, amendment or modification of any of the terms or provisions of this
Agreement, any of the other Loan Documents or any other agreement. Each
Guarantor further agrees that its Guarantee hereunder constitutes a promise of
payment when due and not merely of collection, and waives any right to require
that resort be had by any Lender or any Issuing Lender to any balance of any
deposit account or credit on the books of any Lender or any Issuing Lender in
favor of any Borrower or any other person.
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<PAGE>
9.3 Guarantee Unconditional. Each Guarantor agrees that its obligations
-----------------------
under this Guarantee shall be unconditional, irrespective of:
(i) the validity, enforceability, avoidance, novation or
subordination of any of the Obligations or any of the Loan Documents;
(ii) the absence of any attempt by, or on behalf of, any Lender, any
Issuing Lender or any Agent to collect, or to take any other action to
enforce, all or any part of the Obligations whether from or against any
Borrower, any other guarantor of the Obligations or any other Person;
(iii) the election of any remedy by, or on behalf of, any Lender, any
Issuing Lender or any Agent with respect to all or any part of the
Obligations;
(iv) the waiver, consent, extension, forbearance or granting of any
indulgence by, or on behalf of, any Lender, any Issuing Lender or any Agent
with respect to any provision of any of the Loan Documents;
(v) the failure of the Agent to take any steps to perfect and
maintain its security interest in, or to preserve its rights to, any
security or collateral for the Obligations;
(vi) the election by, or on behalf of, any one or more of the Lenders
or Issuing Lenders, in any proceeding instituted under Chapter 11 of Title
11 of the United States Code (11 U.S.C. 101 et seq.) (the "BANKRUPTCY
CODE"), of the application of Section 1111(b)(2) of the Bankruptcy Code;
(vii) any borrowing or grant of a security interest by any Borrower,
as debtor-in-possession, under Section 364 of the Bankruptcy Code;
(viii) the disallowance, under Section 502 of the Bankruptcy Code, of
all or any portion of the claims of any of the Lenders, any of the Issuing
Lenders or the Agent for repayment of all or any part of the Obligations;
or
(ix) any other circumstance which might otherwise constitute a legal
or equitable discharge or defense of any Borrower or any Guarantor.
The obligations of the Guarantors hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, and shall
not be subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever, by reason of the invalidity, illegality or unenforceability of the
Obligations, any impossibility in the performance of the Obligations or
otherwise.
9.4 Extensions and Other Modifications of Obligations. The Lenders and
-------------------------------------------------
Issuing Lenders, either themselves or acting through the Agent, are authorized,
without notice or demand and without affecting the liability of any Guarantor
hereunder, from time to time, (a) to renew,
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<PAGE>
extend, accelerate or otherwise change the time for payment of, or other terms
relating to, all or any part of the Obligations, or to otherwise modify, amend
or change the terms of any of the Loan Documents; (b) to accept partial payments
on all or any part of the Obligations; (c) to take and hold security or
collateral for the payment of all or any part of the Obligations, this
Guarantee, or any other guaranties of all or any part of the Obligations, (d) to
exchange, enforce, waive and release any such security or collateral; (e) to
apply such security or collateral and direct the order or manner of sale thereof
as in their discretion they may determine; (f) to settle, release, exchange,
enforce, waive, compromise or collect or otherwise liquidate all or any part of
the Obligations, this Guarantee, any other guaranty of all or any part of the
Obligations, and any security or collateral for the Obligations or for any such
guaranty.
9.5 No Marshalling; Reinstatement of Guarantee. The Guarantors consent
------------------------------------------
and agree that none of the Lenders, Issuing Lenders, the Agent nor any Person
acting for or on behalf of the Lenders, Issuing Lenders or the Agent shall be
under any obligation to marshall any assets in favor of any Guarantor or against
or in payment of any or all of the Obligations. The Guarantors further agree
that, to the extent that any Borrower, any Guarantor or any other guarantor of
all or any part of the Obligations makes a payment or payments to any Lender,
any Issuing Lender or any Agent, or any Lender, any Issuing Lender or any Agent
receives any proceeds of collateral for all or any part of the Obligations,
which payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to such Borrower, such Guarantor, such other guarantor or any other
Person, or their respective estates, trustees, receivers or any other party,
under any bankruptcy law, state or federal law, common law or equitable cause,
then, to the extent of such payment or repayment, the part of the Obligations
which has been paid, reduced or satisfied by such amount shall be reinstated and
continued in full force and effect as of the time immediately preceding such
initial payment, reduction or satisfaction.
9.6 Agreement to Pay Obligations. In furtherance of the foregoing and
----------------------------
not in limitation of any other right which the Agent or any Lender may have at
law or in equity against the Guarantors by virtue hereof, upon the failure of
any Borrower to pay any of the Obligations when and as the same shall become
due, whether at maturity, by acceleration, after notice of prepayment or
otherwise, each Guarantor promises to and will, upon receipt of written demand
by the Agent, forthwith pay, or cause to be paid, in cash, the amount of such
unpaid Obligations.
9.7 Subordination of Subrogation. Until the Obligations have been
----------------------------
indefeasibly paid in full in cash, the Guarantors (i) shall have no right of
subrogation with respect to such Obligations and (ii) waive any right to enforce
any remedy which the Lenders, Issuing Lenders or the Agent (or any of them) now
have or may hereafter have against any Borrower, any endorser or any guarantor
of all or any part of the Obligations or any other Person, and the Guarantors
waive any benefit of, and any right to participate in, any security or
collateral given to the Lenders, the Issuing Lenders and the Agent (or any of
them) to secure the payment or performance of all or any part of the Obligations
or any other liability of the Borrowers to the Lenders or Issuing Lenders.
Should any Guarantor have the right, notwithstanding the foregoing to exercise
its subrogation rights, except as set forth in Section 9.9, each Guarantor
-----------
hereby expressly and irrevocably subordinates to payment of the Secured
Obligations any and all rights at law or in
83
<PAGE>
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off and any and all defenses available to a surety, guarantor or
accommodation co-obligor until the Secured Obligations are indefeasibly paid in
full in cash. Each Guarantor acknowledges and agrees that this subordination is
intended to benefit the Agents, the Lenders and the other Holders of Secured
Obligations and shall not limit or otherwise affect such Guarantor's liability
hereunder or the enforceability of this Article IX, and that the Agent, the
----------
Lenders and their respective successors and assigns are intended third party
beneficiaries of the waivers and agreements set forth in this Section 9.7.
-----------
9.8 Election of Remedies. If the Agent or any Lender may, under
--------------------
applicable law, proceed to realize its benefits under any of the Loan Documents
giving the Agent or such Lender a Lien upon any Collateral, whether owned by any
Borrower or by any other Person, either by judicial foreclosure or by non-
judicial sale or enforcement, the Agent or any Lender may, at its sole option,
determine which of its remedies or rights it may pursue without affecting any of
its rights and remedies under this Article IX. If, in the exercise of any of
----------
its rights and remedies, the Agent or any Lender shall forfeit any of its rights
or remedies, including its right to enter a deficiency judgment against any
Borrower or any other Person, whether because of any applicable laws pertaining
to "election of remedies" or the like, each Guarantor hereby consents to such
action by the Agent or such Lender and waives any claim based upon such action,
even if such action by the Agent or such Lender shall result in a full or
partial loss of any rights of subrogation which each Guarantor might otherwise
have had but for such action by the Agent or such Lender. Any election of
remedies which results in the denial or impairment of the right of the Agent or
any Lender to seek a deficiency judgment against any Borrower or any other
Guarantor shall not impair any other Guarantor's obligation to pay the full
amount of the Obligations guaranteed by it under this Article IX. In the event
----------
the Agent or any Lender shall bid at any foreclosure or trustee's sale or at any
private sale permitted by law or the Loan Documents, the Agent or any Lender may
bid all or less than the amount of the Obligations and the amount of such bid
need not be paid by the Agent or such Lender but shall be credited against the
Obligations. The amount of the successful bid at any such sale, whether by the
Agent, any Lender or any other party is the successful bidder, shall be
conclusively deemed to be the fair market value of the Collateral and the
difference between such bid amount and the remaining balance of the Obligations
shall be conclusively deemed to be the amount of the Obligations guaranteed
under this Article IX notwithstanding that any present or future law or court
----------
decision or ruling may have the effect of reducing the amount of any deficiency
claim to which the Agent or any Lender might otherwise be entitled but for such
bidding at any such sale.
9.9 Limitation. Notwithstanding any provision herein contained to the
----------
contrary, each Guarantor's liability under this Article IX (which liability is
----------
in any event in addition to amounts for which such entity may be primarily
liable as a Borrower or otherwise) shall be limited to an amount not to exceed
as of any date of determination the amount which could be claimed by the Agent
and the Lenders from such Guarantor under this Article IX without rendering such
----------
claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy
Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform
Fraudulent Conveyance Act or similar statute or common law after taking into
account, among other things, such Guarantor's right of contribution and
indemnification from each other Guarantor under Section 9.9.
-----------
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<PAGE>
9.9 Contribution with Respect to Guaranty Obligations.
-------------------------------------------------
(a) To the extent that any Guarantor shall make a payment under this
Article IX of all or any of the Secured Obligations (other than Loans made to
- ----------
that Guarantor as a Borrower for which it is primarily liable) (a "GUARANTOR
PAYMENT") which, taking into account all other Guarantor Payments then
previously or concurrently made by any other Guarantor, exceeds the amount which
such Guarantor would otherwise have paid if each Guarantor had paid the
aggregate Obligations satisfied by such Guarantor Payment in the same proportion
that such Guarantor's "Allocable Amount" (as defined below) (as determined
immediately prior to such Guarantor Payment) bore to the aggregate Allocable
Amounts of each of the Guarantors as determined immediately prior to the making
of such Guarantor Payment, then, following indefeasible payment in full in cash
----
of the Obligations and termination of the Commitments, such Guarantor shall be
entitled to receive contribution and indemnification payments from, and be
reimbursed by, each other Guarantor for the amount of such excess, pro rata
--- ----
based upon their respective Allocable Amounts in effect immediately prior to
such Guarantor Payment.
(b) As of any date of determination, the "ALLOCABLE AMOUNT" of any
Guarantor shall be equal to the maximum amount of the claim which could then be
recovered from such Guarantor under this Article IX without rendering such claim
----------
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
(c) This Section 9.9 is intended only to define the relative rights
-----------
of the Guarantors and nothing set forth in this Section 9.9 is intended to or
-----------
shall impair the obligations of the Guarantors, jointly and severally, to pay
any amounts as and when the same shall become due and payable in accordance with
the terms of this Agreement, including Section 9.1. Nothing contained in this
-----------
Section 9.9 shall limit the liability of any Borrower to pay the Loans made
- -----------
directly or indirectly to that Borrower and accrued interest, fees and expenses
with respect thereto for which such Borrower shall be primarily liable.
(d) The parties hereto acknowledge that the rights of contribution
and indemnification hereunder shall constitute assets of the Guarantor to which
such contribution and indemnification is owing.
(e) The rights of the indemnifying Guarantors against other Borrowers
or Guarantors under this Section 9.9 shall be exercisable upon the full and
-----------
indefeasible payment of the Secured Obligations and the termination of the
Commitments.
9.10 Liability Cumulative. The liability of the Guarantors under this
--------------------
Article IX is in addition to and shall be cumulative with all liabilities of
- ----------
each Guarantor or Borrower to the Agent and the Lenders under this Agreement and
the other Loan Documents to which such Guarantor or Borrower is a party or in
respect of any Obligations or obligation of any other Guarantor or Borrower,
without any limitation as to amount, unless the instrument or agreement
evidencing or creating such other liability specifically provides to the
contrary.
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<PAGE>
9.11 No Revocation; Term of Guarantee. This Guarantee shall continue in
--------------------------------
full force and effect and may not be terminated or otherwise revoked until the
Secured Obligations shall have been fully and indefeasibly paid (in cash) and
discharged and this Agreement and all financing arrangements among the
Borrowers, the Guarantors, the Lenders, the Agents and the Issuing Lenders shall
have been terminated. If, notwithstanding the foregoing, the Guarantors (or any
of them) shall have any right under applicable law to terminate or revoke this
Guarantee, the Guarantors agree that such termination or revocation shall not be
effective until a written notice of such revocation or termination, specifically
referring hereto, signed by the Guarantors, is actually received by the Agent.
Such notice shall not affect the right and power of any of the Lenders, any of
the Issuing Lenders or the Agent to enforce rights arising prior to receipt
thereof by the Agent. If any Lender or the Agent grants loans or takes other
action, or any Issuing Lender issues Letters of Credit, after a Guarantor
terminates or revokes this Guarantee but before the Agent receives such written
notice, the rights of such Lender or Issuing Lender with respect thereto shall
be the same as if such termination or revocation had not occurred. The
provisions of this Article IX shall remain in full force and effect,
----------
notwithstanding any termination of this Agreement, until the Secured Obligations
shall have been fully and indefeasibly paid (in cash) and discharged.
ARTICLE X: GENERAL PROVISIONS
- ------------------------------
10.1 Survival of Representations. All representations and warranties of
---------------------------
the Borrowers contained in this Agreement shall survive delivery of the Notes
and the making of the Loans herein contemplated.
10.2 Governmental Regulation. Anything contained in this Agreement to
-----------------------
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrowers in violation of any limitation or prohibition provided by any
applicable statute or regulation.
10.3 Performance of Obligations. The Borrowers agree that the Agent may,
--------------------------
but shall have no obligation to (i) at any time, pay or discharge taxes, liens,
security interests or other encumbrances levied or placed on or threatened
against any Collateral and (ii) after the occurrence and during the continuance
of a Default make any other payment or perform any act required of the Borrowers
under any Loan Document or take any other action which the Agent in its
discretion deems necessary or desirable to protect or preserve the Collateral,
including, without limitation, any action to (y) effect any repairs or obtain
any insurance called for by the terms of any of the Loan Documents and to pay
all or any part of the premiums therefor and the costs thereof and (z) pay any
rents payable by any Borrower which are more than 30 days past due, or as to
which the landlord has given notice of termination, under any lease. The Agent
shall use its best efforts to give the Borrowers notice of any action taken
under this Section 10.3 prior to the taking of such action or promptly
------------
thereafter provided the failure to give such notice shall not affect the
Borrowers' obligations in respect thereof. The Borrowers agree to pay the
Agent, upon demand, the principal amount of all funds advanced by the Agent
under this Section 10.3, together with interest thereon at the rate from time to
------------
time applicable to Floating Rate Loans from the date of such advance until the
outstanding principal balance thereof is paid in full. If the Borrowers fail to
make payment in respect of any such advance under this Section
-------
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<PAGE>
10.3 within one (1) Business Day after the date the Borrowers receive written
- ----
demand therefor from the Agent, the Agent shall promptly notify each Lender and
each Lender agrees that it shall thereupon make available to the Agent, in
Dollars in immediately available funds, the amount equal to such Lender's Pro
Rata Share of such advance. If such funds are not made available to the Agent by
such Lender within one (1) Business Day after the Agent's demand therefor, the
Agent will be entitled to recover any such amount from such Lender together with
interest thereon at the Effective Federal Funds Rate for each day during the
period commencing on the date of such demand and ending on the date such amount
is received. The failure of any Lender to make available to the Agent its Pro
Rata Share of any such unreimbursed advance under this Section 10.3 shall
------------
neither relieve any other Lender of its obligation hereunder to make available
to the Agent such other Lender's Pro Rata Share of such advance on the date such
payment is to be made nor increase the obligation of any other Lender to make
such payment to the Agent. All outstanding principal of, and interest on,
advances made under this Section 10.3 shall constitute Obligations secured by
------------
the Collateral until paid in full by the Borrowers.
10.4 Headings. Section headings in the Loan Documents are for
--------
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
10.5 Entire Agreement. The Loan Documents embody the entire agreement
----------------
and understanding among the Borrowers, the Agent and the Lenders and supersede
all prior agreements and understandings among the Borrowers, the Agent and the
Lenders relating to the subject matter thereof.
10.6 Several Obligations; Benefits of this Agreement. The respective
-----------------------------------------------
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
10.7 Expenses; Indemnification.
-------------------------
(A) Expenses. The Borrowers shall reimburse the Agent for any reasonable
--------
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' and paralegals' fees and reasonable time charges of attorneys and
paralegals for the Agent, which attorneys and paralegals may be employees of the
Agent) paid or incurred by the Agent in connection with the preparation,
negotiation, execution, delivery, syndication, review, amendment, modification,
and administration of the Loan Documents. The Borrowers also jointly and
severally agree to reimburse the Agent and the Lenders for any reasonable costs,
internal charges and out-of-pocket expenses (including reasonable attorneys' and
paralegals' fees and reasonable time charges of attorneys and paralegals for the
Agent and the Lenders, which attorneys and paralegals may be employees of the
Agent or the Lenders) paid or incurred by the Agent or any Lender in connection
with the collection of the Obligations and enforcement (whether by legal
proceedings,
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negotiation, or otherwise) of the Loan Documents. In addition to expenses set
forth above, the Borrowers agree to reimburse the Agent, promptly after the
Agent's request therefor, for each audit, collateral analysis or other business
analysis performed by or for the benefit of the Lenders in connection with this
Agreement or the other Loan Documents in an amount equal to the Agent's then
customary and reasonable charges for each person employed to perform such audit
or analysis, plus all reasonable costs and expenses (including without
limitation, reasonable travel expenses) incurred by the Agent in the performance
of such audit or analysis; provided, however, that prior to the occurrence of a
-------- -------
Default, the Borrowers shall be obligated to reimburse the Agent for not more
than one (1) such audit in any twelve-month period. Agent shall provide the
Borrower with a detailed statement of all reimbursements requested under this
Section 10.7(A).
- ---------------
(B) Indemnity. The Borrowers further agree jointly and severally to
---------
defend, protect, indemnify, and hold harmless the Agent and each and all of the
Lenders and each of their respective Affiliates, and each of such Agent's,
Lender's, or Affiliate's respective officers, directors, employees, attorneys
and agents (including, without limitation, those retained in connection with the
satisfaction or attempted satisfaction of any of the conditions set forth in
Article IV) (collectively, the "INDEMNITEES") from and against any and all
- ----------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees in any
manner relating to or arising out of: (i) this Agreement, the other Loan
Documents or any of the Transaction Documents, or any act, event or transaction
related or attendant thereto or to the Stock Acquisition, the making of the
Loans, and the issuance of and participation in Letters of Credit hereunder, the
management of such Loans or Letters of Credit, the use or intended use of the
proceeds of the Loans or Letters of Credit hereunder, or any of the other
transactions contemplated by the Transaction Documents; or (ii) any liabilities,
obligations, responsibilities, losses, damages, personal injury, death, punitive
damages, economic damages, consequential damages, treble damages, intentional,
willful or wanton injury, damage or threat to the environment, natural resources
or public health or welfare, costs and expenses (including, without limitation,
reasonable attorney, expert and consulting fees and reasonable costs of
investigation, feasibility or remedial action studies), fines, penalties and
monetary sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future relating to violation of any Environmental,
Health or Safety Requirements of Law arising from or in connection with the
past, present or future operations of the Borrowers or any predecessors in
interest, or, the past, present or future environmental, health or safety
condition of any respective property of the Borrowers, the presence of asbestos-
containing materials at any respective property of any Borrower or the Release
or threatened Release of any Contaminant into the environment by the Borrowers
or any of their Subsidiaries or any of their respective properties
(collectively, the "INDEMNIFIED MATTERS"); provided, however, the Borrowers
-------- -------
shall have no obligation to an Indemnitee hereunder with respect to Indemnified
Matters to the extent caused by or resulting from the willful misconduct or
Gross Negligence of such Indemnitee or breach of contract by such Indemnitee
with respect to the Loan Documents as determined by the final non-appealed
judgment of a court of competent
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jurisdiction. If the undertaking to indemnify, pay and hold harmless set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrowers shall contribute the maximum portion which
it is permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees.
(C) Waiver of Certain Claims. The Borrowers further agree to assert no
------------------------
claim against any of the Indemnitees on any theory of liability for
consequential, special, indirect, exemplary or punitive damages.
(D) Survival of Agreements. The obligations and agreements of the
----------------------
Borrowers under this Section 10.7 shall survive the termination of this
------------
Agreement.
10.8 Numbers of Documents. All statements, notices, closing documents,
--------------------
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
10.9 Accounting. Except as provided to the contrary herein, all
----------
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
10.10 Severability of Provisions. Any provision in any Loan Document
--------------------------
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
10.11 Nonliability of Lenders. The relationship between the Borrowers
-----------------------
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities to
the Borrowers. Neither the Agent nor any Lender undertakes any responsibility
to the Borrowers to review or inform the Borrowers of any matter in connection
with any phase of the Borrowers' business or operations.
10.12 GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
-------------
ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT
THERE. ANY DISPUTE BETWEEN THE BORROWERS AND THE AGENT, ANY LENDER, OR ANY
OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO,
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH,
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE
INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE
OF ILLINOIS.
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<PAGE>
10.13 CONSENT TO JURISDICTION; JURY TRIAL.
-----------------------------------
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH
---------------------- --------------
OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE
PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES
HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY
--------------
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWERS AGREE THAT THE AGENT, ANY LENDER
-------------------
OR ANY HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST ANY
BORROWER OR THE PROPERTY OF ANY BORROWER IN A COURT IN ANY LOCATION TO ENABLE
SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER ANY BORROWER OR (2) REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWERS
AGREE THAT NO BORROWER WILL ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY
PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF SUCH PERSON. EACH BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED
IN THIS SUBSECTION (B).
--------------
(C) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
--------------------
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
ARTICLE XI: THE AGENT
- ----------------------
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<PAGE>
11.1 Appointment; Nature of Relationship. The First National Bank of
-----------------------------------
Chicago is appointed by the Lenders as the Agent hereunder and under each other
Loan Document, and each of the Lenders irrevocably authorizes the Agent to act
as the contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. The Agent agrees to
act as such contractual representative upon the express conditions contained in
this Article XI. Notwithstanding the use of the defined term "Agent," it is
----------
expressly understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Holder of Secured Obligations by reason of this
Agreement and that the Agent is merely acting as the representative of the
Holders of Secured Obligations with only those duties as are expressly set forth
in this Agreement and the other Loan Documents. In its capacity as the
contractual representative of the Holders of Secured Obligations, the Agent (i)
does not assume any fiduciary duties to any of the Holders of Secured
Obligations, (ii) is a "representative" of the Holders of Secured Obligations
within the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is
acting as an independent contractor, the rights and duties of which are limited
to those expressly set forth in this Agreement and the other Loan Documents.
Each of the Lenders, for itself and on behalf of its affiliates as Holders of
Secured Obligations, agrees to assert no claim against the Agent on any agency
theory or any other theory of liability for breach of fiduciary duty, all of
which claims each Holder of Secured Obligations waives.
11.2 Powers. The Agent shall have and may exercise such powers under the
------
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties or fiduciary duties to the Lenders, or any
obligation to the Lenders to take any action hereunder or under any of the other
Loan Documents except any action specifically provided by the Loan Documents
required to be taken by the Agent.
11.3 General Immunity. Neither the Agent nor any of its directors,
----------------
officers, agents or employees shall be liable to any Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is found in a final judgment by a court of
competent jurisdiction to have arisen solely from (i) the Gross Negligence or
willful misconduct of such Person or (ii) breach of contract by such Person with
respect to the Loan Documents.
11.4 No Responsibility for Loans, Creditworthiness, Collateral, Recitals,
--------------------------------------------------------------------
Etc. Neither the Agent nor any of its directors, officers, agents or employees
- ----
shall be responsible for or have any duty to ascertain, inquire into, or verify
(i) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document; (iii) the
satisfaction of any condition specified in Article IV, except receipt of items
----------
required to be delivered solely to the Agent; (iv) the existence or possible
existence of any Default or (v) the validity, effectiveness or genuineness of
any Loan Document or any other instrument or writing furnished in connection
therewith. The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or in any of the other Loan
Documents, for the perfection or priority of any of the Liens on any of the
Collateral, or for the execution,
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<PAGE>
effectiveness, genuineness, validity, legality, enforceability, collectibility,
or sufficiency of this Agreement or any of the other Loan Documents or the
transactions contemplated thereby, or for the financial condition of any
guarantor of any or all of the Obligations, any Borrower or any of their
respective Subsidiaries.
11.5 Action on Instructions of Lenders. The Agent shall in all cases be
---------------------------------
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders pro rata against any and all
liability, cost and expense that it may incur by reason of taking or continuing
to take any such action.
11.6 Employment of Agents and Counsel. The Agent may execute any of its
--------------------------------
duties as the Agent hereunder and under any other Loan Document by or through
employees, agents, and attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
11.7 Reliance on Documents; Counsel. The Agent shall be entitled to rely
------------------------------
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
11.8 The Agent's Reimbursement and Indemnification. The Lenders agree to
---------------------------------------------
reimburse and indemnify the Agent ratably in proportion to their respective Pro
Rata Shares (i) for any amounts not reimbursed by the Borrowers for which the
Agent is entitled to reimbursement by the Borrowers under the Loan Documents,
(ii) for any other expenses incurred by the Agent on behalf of the Lenders, in
connection with the preparation, execution, delivery, administration and
enforcement of the Loan Documents and (iii) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of the Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby, or the enforcement of any of the terms
thereof or of any such other documents, provided that no Lender shall be liable
for any of the foregoing to the extent any of the foregoing is found in a final
non-appealable judgment by a court of competent jurisdiction to have arisen
solely from the Gross Negligence or willful misconduct of the Agent.
11.9 Rights as a Lender. With respect to its Revolving Loan Commitment,
------------------
its Term Loan Commitment, Loans made by it and the Notes issued to it, the Agent
shall have the same
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<PAGE>
rights and powers hereunder and under any other Loan Document as any Lender and
may exercise the same as through it were not the Agent, and the term "Lender" or
"Lenders" shall, unless the context otherwise indicates, include the Agent in
its individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrowers which is not prohibited hereby.
11.10 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrowers and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
11.11 Successor Agent. The Agent may resign at any time by giving
---------------
written notice thereof to the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right to appoint, on behalf of
the Borrowers and the Lenders, a successor Agent. If no successor Agent shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within thirty days after the retiring Agent's giving notice of
resignation, then the retiring Agent may appoint, on behalf of the Borrowers and
the Lenders, a successor Agent. Notwithstanding anything herein to the contrary,
so long as no Default has occurred and is continuing, each such successor Agent
shall be subject to approval by the Borrowers, which approval shall not be
unreasonably withheld. Such successor Agent shall be a commercial bank having
capital and retained earnings of at least $500,000,000. Upon the acceptance of
any appointment as the Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder and under the other Loan
Documents. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XI shall continue in effect for its benefit in
----------
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent hereunder and under the other Loan Documents.
11.12 Collateral Documents. (a) Each Lender authorizes the Agent to
--------------------
enter into each of the Collateral Documents to which it is a party and to take
all action contemplated by such documents. Each Lender agrees that no Holder of
Secured Obligations other than the Agent shall have the right individually to
seek to realize upon the security granted by any Collateral Document, it being
understood and agreed that such rights and remedies may be exercised solely by
the Agent for the benefit of the Holders of Secured Obligations upon the terms
of the Collateral Documents.
(b) In the event that any Collateral is hereafter pledged by any
Person as collateral security for the Obligations, the Agent is hereby
authorized to execute and deliver on behalf of the Holders of Secured
Obligations any Loan Documents necessary or appropriate to grant and
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<PAGE>
perfect a Lien on such Collateral in favor of the Agent on behalf of the Holders
of Secured Obligations.
(c) The Lenders hereby authorize the Agent, at its option and in its
discretion, to release any Lien granted to or held by the Agent upon any
Collateral (i) upon termination of the Commitments and payment and satisfaction
of all of the Obligations (other than contingent indemnity obligations) at any
time arising under or in respect of this Agreement or the Loan Documents or the
transactions contemplated hereby or thereby; (ii) as permitted by, but only in
accordance with, the terms of the applicable Loan Document; or (iii) if
approved, authorized or ratified in writing by the Required Lenders, unless such
release is required to be approved by all of the Lenders hereunder. Upon
request by the Agent at any time, the Lenders will confirm in writing the
Agent's authority to release particular types or items of Collateral pursuant to
this Section 11.12(c).
----------------
ARTICLE XII: SETOFF; RATABLE PAYMENTS
- --------------------------------------
12.1 Setoff. In addition to, and without limitation of, any rights of
------
the Lenders under applicable law, if any Default occurs and is continuing, any
indebtedness from any Lender to any Borrower (including all account balances,
whether provisional or final and whether or not collected or available, but
excluding, for the avoidance of doubt, the obligations of any Issuing Lender
under a Seller Letter of Credit owing to a Seller) may be offset and applied
toward the payment of the Obligations owing to such Lender, whether or not the
Obligations, or any part hereof, shall then be due.
12.2 Ratable Payments. If any Lender, whether by setoff or otherwise,
----------------
has payment made to it upon its Loans (other than payments received pursuant to
Sections 3.1, 3.2 or 3.4) in a greater proportion than that received by any
- ------------ --- ---
other Lender, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligation or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to the obligations owing to them. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made.
12.3 Application of Payments. Subject to the provisions of Section 8.2,
----------------------- -----------
the Agent shall, unless otherwise specified at the direction of the Required
Lenders which direction shall be consistent with the last sentence of this
Section 12.3, apply all payments and prepayments in respect of any Obligations
- ------------
and all proceeds of Collateral in the following order: (A) first, to pay
interest on and then principal of any portion of the Loans which the Agent may
have advanced on behalf of any Lender for which the Agent has not then been
reimbursed by such Lender or the Borrowers; (B) second, to pay interest on and
then principal of any advance made under Section 10.3 for which the Agent has
------------
not then been paid by the Borrowers or reimbursed by the Lenders;
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(C) third, to pay Obligations in respect of any fees, expense reimbursements or
indemnities then due to the Agent; (D) fourth, to pay Obligations in respect of
any fees, expenses, reimbursements or indemnities then due to the Lenders and
the issuer(s) of Letters of Credit; (E) fifth, to pay interest due in respect of
Loans, L/C Obligations or the Term Portion of the Seller Letters of Credit; (F)
sixth, to the ratable payment or prepayment of principal outstanding on Loans,
Reimbursement Obligations and Hedging Obligations under Hedging Agreements with
any Lender (or affiliate thereof) in such order as the Agent may determine in
its sole discretion; (G) seventh, to provide required cash collateral if any
pursuant to Section 2.24; and (H) eighth, to the ratable payment of all other
------------
Obligations. The order of priority set forth in this Section 12.3 and the
related provisions of this Agreement are set forth solely to determine the
rights and priorities of the Agent, the Lenders, the issuer(s) of Letters of
Credit and other Holders of Secured Obligations as among themselves. The order
of priority set forth in clauses (D) through (H) of this Section 12.3 may at any
----------- --- ------------
time and from time to time be changed by the Required Lenders without necessity
of notice to or consent of or approval by the Borrowers, or any other Person.
The order of priority set forth in clauses (A) through (C) of this Section 12.3
----------- --- ------------
may be changed only with the prior written consent of the Agent.
12.4 Relations Among Lenders.
-----------------------
Except with respect to the exercise of set-off rights of any Lender in
accordance with Section 12.1, the proceeds of which are applied in accordance
------------
with this Agreement, each Lender agrees that it will not take any action, nor
institute any actions or proceedings, against any Borrower or any other obligor
hereunder or with respect to any Collateral or Loan Document, without the prior
written consent of the Required Lenders or, as may be provided in this Agreement
or the other Loan Documents, at the direction of the Agent.
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
- ----------------------------------------------------------------
13.1 Successors and Assigns. The terms and provisions of the Loan
----------------------
Documents shall be binding upon and inure to the benefit of the Borrowers and
the Lenders and their respective successors and assigns, except that (i) the
Borrowers shall not have the right to assign their rights or obligations under
the Loan Documents and (ii) any assignment by any Lender must be made in
compliance with Section 13.3 hereof. Notwithstanding clause (ii) of this
------------
Section 13.1, any Lender may at any time, without the consent of the Borrowers
- ------------
or the Agent, assign all or any portion of its rights under this Agreement and
its Notes to a Federal Reserve Bank; provided, however, that no such assignment
-------- -------
shall release the transferor Lender from its obligations hereunder. The Agent
may treat the payee of any Note as the owner thereof for all purposes hereof
unless and until such payee complies with Section 13.3 hereof in the case of an
------------
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Agent. Any assignee or transferee of a Note
agrees by acceptance thereof to be bound by all the terms and provisions of the
Loan Documents. Any request, authority or consent of any Person, who at the
time of making such request or giving such authority or consent is the holder of
any Note, shall be conclusive and binding on any subsequent holder, transferee
or assignee of such Note or of any Note or Notes issued in exchange therefor.
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13.2 Participations.
--------------
(A) Permitted Participants; Effect. Subject to the terms set forth in
------------------------------
this Section 13.2, any Lender may, in the ordinary course of its business and in
------------
accordance with applicable law, at any time sell to one or more banks or other
entities ("PARTICIPANTS") participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Revolving Loan Commitment of such
Lender, any L/C Interest of such Lender or any other interest of such Lender
under the Loan Documents on a pro-rata or non pro-rata basis; provided, however,
-------- -------
that (i) without the prior consent of the Agent the amount of such participation
shall not be for less than $5,000,000 and (ii) no such participation shall be
permitted without the Borrowers' prior written consent (which shall not be
unreasonably withheld or delayed). Notice of such participation to Holdings and
the Agent shall be required prior to any participation becoming effective with
respect to a Participant that is not a Lender or an Affiliate thereof. In the
event of any such sale by a Lender of participating interests to a Participant,
such Lender's obligations under the Loan Documents shall remain unchanged, such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the holder of any such
Note for all purposes under the Loan Documents, all amounts payable by the
Borrowers under this Agreement shall be determined as if such Lender had not
sold such participating interests, and the Borrowers and the Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under the Loan Documents except that, for
purposes of Article III hereof, the Participants shall be entitled to the same
-----------
rights as if they were Lenders; provided, however, that no Participant shall be
-------- -------
entitled to receive any greater payment under such Article III than the Lender
would have been entitled to receive with respect to the rights participated.
(B) Voting Rights. Each Lender shall retain the sole right to approve,
-------------
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan or Revolving Loan Commitment in which such
Participant has an interest which forgives principal, interest or fees or
reduces the interest rate or fees payable pursuant to the terms of this
Agreement with respect to any such Loan or Revolving Loan Commitment, postpones
any date fixed for any regularly-scheduled payment of principal of, or interest
or fees on, any such Loan or Revolving Loan Commitment, or releases all or
substantially all of the Collateral, if any, securing any such Loan.
(C) Benefit of Setoff. The Borrowers agree that each Participant shall
-----------------
be deemed to have the right of setoff provided in Section 13.1 hereof in respect
------------
to its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under the Loan Documents, provided that each Lender shall
--------
retain the right of setoff provided in Section 13.1 hereof with respect to the
------------
amount of participating interests sold to each Participant except to the extent
such Participant exercises its right of set off. The Lenders agree to share
with each Participant, and each Participant, by exercising the right of setoff
provided in Section 13.1 hereof, agrees to share with each Lender, any amount
------------
received pursuant to the exercise of its right of setoff, such amounts to be
shared in accordance with Section 13.2 as if each Participant were a Lender.
------------
96
<PAGE>
13.3 Assignments.
-----------
(A) Permitted Assignments. Any Lender may, in the ordinary course of its
---------------------
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("PURCHASERS") all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Revolving
Loan Commitment, all Loans owing to it, all of its participation interests in
existing Letters of Credit, and its obligation to participate in additional
Letters of Credit hereunder) in accordance with the provisions of this Section
-------
13.3; provided, however, that no such assignment shall be permitted without the
- ---- -------- -------
Borrowers' prior written consent (which consent shall not be unreasonably
withheld) unless a Default shall have occurred and be continuing at the time
thereof. Each assignment shall be of a constant, and not a varying, ratable
percentage of all of the assigning Lender's rights and obligations under this
Agreement. Such assignment shall be substantially in the form of Exhibit F
---------
hereto and shall not be permitted hereunder unless such assignment is either for
all of such Lender's rights and obligations under the Loan Documents or, without
the prior written consent of the Agent, involves loans and commitments in an
aggregate amount of at least $5,000,000. Notice to the Agent and consent of the
Agent (which consent shall not be unreasonably withheld) shall be required prior
to an assignment becoming effective with respect to a Purchaser which is not a
Lender or an Affiliate thereof.
(B) Effect; Effective Date. Upon (i) delivery to the Agent of a notice
----------------------
of assignment, substantially in the form attached as Appendix I to Exhibit G
---------- ---------
hereto (a "NOTICE OF ASSIGNMENT"), together with any consent required by Section
-------
13.3(A) hereof, and (ii) payment of a $2,500 fee by the assignee or assignor (as
- -------
agreed) to the Agent for processing such assignment, such assignment shall
become effective on the effective date specified in such Notice of Assignment.
The Notice of Assignment shall contain a representation by the Purchaser to the
effect that none of the consideration used to make the purchase of the
Commitment, Loans and L/C Obligations under the applicable assignment agreement
are "plan assets" as defined under ERISA and that the rights and interests of
the Purchaser in and under the Loan Documents will not be "plan assets" under
ERISA. On and after the effective date of such assignment, such Purchaser, if
not already a Lender, shall for all purposes be a Lender party to this Agreement
and any other Loan Documents executed by the Lenders and shall have all the
rights and obligations of a Lender under the Loan Documents, to the same extent
as if it were an original party hereto, and no further consent or action by the
Borrowers, the Lenders or the Agent shall be required to release the transferor
Lender with respect to the percentage of the Aggregate Revolving Loan
Commitment, Loans and Letter of Credit participations assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this Section 13.3(B), the transferor Lender, the Agent and the Borrowers shall
---------------
make appropriate arrangements so that replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes, are
issued to such Purchaser, in each case in principal amounts reflecting their
Revolving Loan Commitment and their Term Loans, as adjusted pursuant to such
assignment.
(C) The Register. The Agent shall maintain at its address referred to in
------------
Section 13.1 a copy of each assignment delivered to and accepted by it pursuant
- ------------
to this Section 13.3 and a register (the "REGISTER") for the recordation of the
------------
names and addresses of the Lenders and the
97
<PAGE>
Revolving Loan Commitment of and principal amount of the Loans owing to, each
Lender from time to time and whether such Lender is an original Lender or the
assignee of another Lender pursuant to an assignment under this Section 13.3.
-------------
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrowers, the Agent and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
13.4 Confidentiality. Subject to Section 13.5, the Agent and the Lenders
--------------- ------------
shall hold all nonpublic information obtained pursuant to the requirements of
this Agreement and identified as such by the Borrowers in accordance with such
Person's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices and in any event
may make disclosure reasonably required by a prospective Transferee in
connection with the contemplated participation or assignment or as required or
requested by any Governmental Authority or representative thereof or pursuant to
legal process and shall require any such Transferee to agree (and require any of
its Transferees to agree) to comply with this Section 13.4. In no event shall
------------
the Agent or any Lender be obligated or required to return any materials
furnished by the Borrowers; provided, however, each prospective Transferee shall
-------- -------
be required to agree that if it does not become a participant or assignee it
shall return all materials furnished to it by or on behalf of the Borrowers in
connection with this Agreement.
13.5 Dissemination of Information. The Borrowers authorize each Lender
----------------------------
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in such Lender's possession
concerning the Borrowers and the Collateral; provided that prior to any such
--------
disclosure, such prospective Transferee shall agree to preserve in accordance
with Section 13.4 the confidentiality of any confidential information described
------------
therein.
13.6 First Chicago Minimum Share. Notwithstanding any other provision of
---------------------------
this Article XIII to the contrary, no participation or assignment by First
------------
Chicago shall become effective under Sections 13.2 and 13.3 if, after giving
------------- ----
effect thereto, the aggregate amount of the un-participated Commitments of First
Chicago would become an amount representing less than 40% of the aggregate total
Commitments of the Lenders hereunder.
ARTICLE XIV: NOTICES
- ---------------------
14.1 Giving Notice. Except as otherwise permitted by Section 2.14 with
------------- ------------
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by facsimile and addressed or delivered to such party at its address
set forth below its signature hereto or at such other address as may be
designated by such party in a notice to the other parties; provided, however,
-------- -------
that borrowing notices shall be delivered to the Agent at One First National
Plaza, Suite 0374, Chicago, Illinois 60670-0374, Attention: Timothy King,
Telephone No.: (312) 732-8142, Facsimile No.: (312) 732-3885. Any notice, if
mailed and properly addressed with postage
98
<PAGE>
prepaid, shall be deemed given when received; any notice, if transmitted by
telex or facsimile, shall be deemed given when transmitted.
14.2 Change of Address. The Borrowers, the Agent and any Lender may each
-----------------
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XV: COUNTERPARTS
- -------------------------
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by at least one of the Borrowers, the Agent
and the Lenders and each party has notified the Agent by telex or telephone,
that it has taken such action.
ARTICLE XVI: REPLACEMENT OF PRIOR AGREEMENTS
- ---------------------------------------------
(a) Upon the Closing Date, this Agreement shall be deemed to terminate and
supersede, in entirety, that certain commitment letter dated as of October 1,
1997, delivered by the Agent to the Borrowers and Eos and any term sheet or
sheets which have been delivered by the Agent to the Borrowers and Eos
concerning or contemplating the transactions hereby documented (and none of the
parties shall have any continuing obligations or liabilities thereunder).
(b) On the Closing Date, that certain Credit Agreement (the "ORIGINAL
CREDIT AGREEMENT") among Holdings, Pacific Motor, PMT Acquisition Company, the
"Lenders" thereto and First Chicago, as "Agent", dated as of March 31, 1997,
shall be superseded by this Agreement, and the outstanding "Secured Obligations"
under the Original Credit Agreement at such time shall become Secured
Obligations under this Agreement. Each "Lender" under the Original Credit
Agreement shall use its best efforts to return the "Notes" issued under the
Original Credit Agreement (the "ORIGINAL NOTES") to the issuers thereof. The
Notes issued under this Agreement shall re-evidence the indebtedness heretofore
evidenced by the Original Notes. It is expressly understood that the Notes
issued hereunder are not in payment or satisfaction of the Original Notes, nor
are the Notes issued hereunder in any way intended to constitute a novation of
the Original Notes.
[Remainder of This Page Intentionally Blank]
99
<PAGE>
IN WITNESS WHEREOF, the Borrowers, the Lenders and the Agent have executed
this Agreement as of the date first above written.
PMT HOLDINGS, INC.
as a Borrower
By:___________________________
Name:
Title:
Address:
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone No.: (510) 229-2238
Facsimile No.: (510) 283-1938
PACIFIC MOTOR TRANSPORT COMPANY
as a Borrower
By:___________________________
Name:
Title:
Address:
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone No.: (510) 229-2238
Facsimile No.: (510) 283-1938
S-1
<PAGE>
AMERICAN INTERNATIONAL RAIL
SERVICES LLC,
as a Borrower
By: Pacific Motor Transport Company
Its: Manager
By:___________________________
Name:
Title:
Address: c/o PMT Holdings, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
AMERICAN INTERNATIONAL
MECHANICAL SERVICES LLC,
as a Borrower
By: Pacific Motor Transport Company
Its: Manager
By:___________________________
Name:
Title:
Address: c/o PMT Holdings, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
S-2
<PAGE>
ICI ACQUISITION COMPANY, as a Borrower
By:___________________________
Name:
Title:
Address: c/o PMT Holdings, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
INTERSTATE CONSOLIDATION, INC.,
as a Borrower
By:___________________________
Name:
Title:
Address: c/o PMT Holdings, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
S-3
<PAGE>
INTERSTATE CONSOLIDATION SERVICE, INC.,
as a Borrower
By:___________________________
Name:
Title:
Address: c/o PMT Holdings, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
INTERMODAL CONTAINER SERVICE, INC.,
as a Borrower
By:___________________________
Name:
Title:
Address: c/o PMT Holdings, Inc.
3746 Mt. Diablo Boulevard
Lafayette, CA 94549
Attention: President
Telephone: (510) 229-2238
Facsimile: (510) 283-1938
S-4
<PAGE>
EXHIBIT 10.19
EXECUTION COPY
AMENDMENT NO. 1
TO AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 31, 1998
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment") is made as of March 31, 1998 by and among PMT Holdings, Inc., a
Delaware corporation ("Holdings"), Pacific Motor Transport Company, a California
corporation ("Pacific Motor"), American International Rail Services LLC, a
Colorado limited liability company ("AIRS"), American International Mechanical
Services LLC, a Colorado limited liability company ("AIMS"), Interstate
Consolidation, Inc., a California corporation. ("ICI"), Interstate Consolidation
Service, Inc., a California corporation ("ICS"), and Intermodal Container
Service, Inc., a California corporation ("IMCS") (Holdings, Pacific Motor, AIRS,
AIMS, Acquisition Company, ICI, ICS and IMCS, being collectively referred to as
the "Existing Borrowers"), Pacer Integrated Logistics, Inc., a Delaware
corporation ("PIL"), 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 Lenders under
that certain Amended and Restated Credit Agreement (the "Credit Agreement")
dated as of December 16, 1997. Each defined term used herein and not otherwise
defined herein shall have the meaning given to it in the Credit Agreement.
WITNESSETH
WHEREAS, the Existing Borrowers, ICI Acquisition Company, a Delaware
corporation ("Acquisition Company"), the Lenders and the Agent are parties to
the Credit Agreement;
WHEREAS, Acquisition Company has, subsequent to the execution of the
Credit Agreement, merged into Pacific Motor with Pacific Motor being the
surviving corporation;
WHEREAS, the Existing Borrowers have notified the Lenders and the
Agent of (i) the proposed indirect acquisition (the "Acquisition") by Holdings
of substantially all the assets of Intraco, Inc. (d/b/a Stutz & Company) (the
"Target") and (ii) the formation of PIL, a wholly-owned subsidiary of Holdings,
for the purpose of effectuating the Acquisition by means of a merger of the
Target into PIL;
WHEREAS, the Existing 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 PIL as a "Borrower" under the Credit Agreement and make
certain other accommodations; and
WHEREAS, the Lenders and the Agent are willing to amend the Credit
Agreement on the terms and conditions set forth herein;
<PAGE>
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:
1. Amendments to Credit Agreement. 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:
1.1. The definition of "Borrowers" set forth in Section 1.1 of the
Credit Agreement is hereby amended by inserting the term "PIL," immediately
after the term "Pacific Motor," as and where "Pacific Motor," now appears in
such definition.
1.2. A new definition of the term "PIL" shall be inserted into Section
1.1 of the Credit Agreement in its appropriate alphabetical order and shall read
as follows:
"PIL" means Pacer Integrated Logistics, Inc., a Delaware corporation.
---
2. Consent; Limited Waivers. 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), (G) and (P) of the Credit
Agreement solely with respect to the formation of PIL and the Acquisition, (b)
the affirmative covenant of the Borrowers set forth Section 6.2 (K) of the
Credit Agreement solely for the limited purpose of permitting the Borrowers to
use the proceeds of Loans under the Credit Agreement to effectuate the
Acquisition, (c) the Defaults or Unmatured Defaults, if any, arising out of any
breach by the Borrowers of the Sections 6.1 (A)(i), (ii), (iii) or (iv) of the
Credit Agreement prior to and as of the date hereof, and (d) other Defaults or
Unmatured Defaults, if any, which may have occurred prior to the effectiveness
of this Amendment only if and to the extent that, had this Amendment been
effective at the time of such occurrence, the circumstances causing such Default
or Unmatured Default would not then have caused a Default or Unmatured Default.
3. Conditions of Effectiveness. 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
Existing Borrowers, PIL and each of the Lenders;
(b) duly executed Revolving Loan Note of PIL;
(c) duly executed original counterparts of a Security Agreement ("PIL
Security Agreement") evidencing the granting of a security interest by PIL
to and in favor of the Agent, for the benefit of the Lenders;
2
<PAGE>
(d) duly executed original counterparts of a Pledge Agreement (the
"Pledge") evidencing the pledge by Holdings of 100% of the Capital Stock of
PIL to and in favor of the Agent, for the benefit of the Lenders, together
with the stock certificates representing such Capital Stock of PIL and
related stock powers signed in blank;
(e) duly executed Uniform Commercial Code financing statements naming
PIL as debtor and the Agent as Secured Party to be filed with the Secretary
of State of Missouri, Wyandotte County, Missouri Recorder, the Secretary of
State of California and the Secretary of State of Kansas;
(e) Secretary's Certificate of PIL certifying (i) copies of the
resolutions of the Board of Directors (as attached thereto) of PIL
approving PIL's execution and delivery of this Amendment and all other
documents relating hereto, (ii) a copy of the Articles of Incorporation of
PIL (as attached thereto) as true and correct, (iii) a copy of the By-Laws
of PIL (as attached thereto) as true and correct, and (iv) the names,
titles and signatures of the officers of PIL authorized to sign this
Amendment and all other documents relating hereto; and
(f) Secretary's Certificate of Holdings certifying copies of the
resolutions of the Board of Directors (as attached thereto) of Holdings
approving Holding's execution and delivery of the Pledge and the names,
titles and signatures of the officers of Holdings authorized to sign the
Pledge; and
(g) the following certificates:
(1) the Borrowers' Officer's Certificate for the month ended
December 31, 1997, required to accompany the Borrowers' financial
statements for such month ended, all as more fully set forth in
Section 6.1(A)(iv) of the Credit Agreement; and
(2) the Borrowers' Borrowing Base Certificate for the months
ended December 31, 1997 and January 31, 1998, as set forth in Section
6.1(J) of the Credit Agreement.
4. Representations and Warranties of the Company. The Existing Borrowers
---------------------------------------------
and PIL 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) Upon the effectiveness of this Amendment, the Borrowers hereby
reaffirm all covenants, representations and warranties made in the Credit
Agreement, to the extent the same are not specifically waived hereby, and
agree that all such covenants,
3
<PAGE>
representations and warranties shall be deemed to have been remade as of
the effective date of this Amendment.
5. PIL as Borrower; Reference to the Effect on the Credit Agreement and
--------------------------------------------------------------------
other Loan Documents.
- --------------------
(a) PIL 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. PIL 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. PIL's notice address under the Credit Agreement shall be as set
forth on the signature page hereof.
(b) 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 Amended and Restated Credit Agreement dated as of December
16, 1997, as amended previously and as amended hereby.
(c) 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.
(d) 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.
6. Further Assurances. (a) The Borrowers shall furnish the Agent their
------------------
audited financial statements for the year ended December 31, 1997, as set forth
in Section 6.1(A)(iii) of the Credit Agreement prior to May 15, 1998, the
failure of such delivery being deemed and shall be considered a Default under
and pursuant to the Credit Agreement, as hereby amended.
(b) Within five days of the effectiveness hereof, the Borrowers shall
furnish the Agent an opinion of O'Sullivan Graev & Karabell, LLP, counsel to the
Existing Borrowers and PIL, as to the due authorization, enforceability and
validity of the documents executed and delivered pursuant to Section 3 hereof by
Holdings and PIL, the failure of such delivery being deemed and shall be
considered a Default under and pursuant to the Credit Agreement, as hereby
amended.
(c) Within 60 days of a request by any Lender, the Borrowers shall furnish
the Lenders a written opinion(s) of Missouri and/or Kansas counsel as to the
perfection of liens granted by PIL pursuant to the PIL Security Agreement.
4
<PAGE>
7. 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.
8. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS)
OF THE STATE OF ILLINOIS.
9. 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.
10. 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.
5
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first above written.
PACER INTEGRATED LOGISTICS, INC.
By:___________________________
Name:
Title:
Address: c/o Pacific Motor Transport
Company, Pacer Division
1229 East Pleasant Run Road
DeSoto, Texas 75123
Attention: President
Telephone: (972) 224-8121
Facsimile: (972) 228-2661
PMT HOLDINGS, INC.
By:___________________________
Name:
Title:
PACIFIC MOTOR TRANSPORT COMPANY
By:___________________________
Name:
Title:
AMERICAN INTERNATIONAL RAIL
SERVICES LLC
By: Pacific Motor Transport Company
Its: Manager
By:___________________________
Name:
Title:
<PAGE>
AMERICAN INTERNATIONAL
MECHANICAL SERVICES LLC
By: Pacific Motor Transport Company
Its: Manager
By:___________________________
Name:
Title:
INTERSTATE CONSOLIDATION, INC.
By:___________________________
Name:
Title:
INTERSTATE CONSOLIDATION SERVICE, INC.,
By:___________________________
Name:
Title:
INTERMODAL CONTAINER SERVICE, INC.
By:___________________________
Name:
Title:
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent and as a Lender
By:___________________________
Name: Greg Sjullie
Title: Vice President
<PAGE>
EXHIBIT 10.20
EXECUTION COPY
AMENDMENT NO. 2
TO AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 1, 1998
THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment") is made as of May 1, 1998 by and among PMT Holdings, Inc., a
Delaware corporation ("Holdings"), Pacific Motor Transport Company, a California
corporation ("Pacific Motor"), American International Rail Services LLC, a
Colorado limited liability company ("AIRS"), American International Mechanical
Services LLC, a Colorado limited liability company ("AIMS"), Interstate
Consolidation, Inc., a California corporation. ("ICI"), Interstate
Consolidation Service, Inc., a California corporation ("ICS"), and Intermodal
Container Service, Inc., a California corporation ("IMCS"), Pacer Integrated
Logistics, Inc., a Delaware corporation ("PIL") (Holdings, Pacific Motor, AIRS,
AIMS, Acquisition Company, ICI, ICS, IMCS and PIL being collectively referred to
as the "Existing Borrowers"), Pacer Logistics, Inc., a California corporation
("Pacer"), 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 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 "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 Existing Borrowers, ICI Acquisition Company, a Delaware
corporation ("Acquisition Company"), the Lenders and the Agent are parties to
the Credit Agreement;
WHEREAS, Acquisition Company has, subsequent to the execution of the
Credit Agreement, merged into ICI with ICI being the surviving corporation;
WHEREAS, the Existing Borrowers have notified the Lenders and the
Agent of the corporate restructuring (the "Restructuring") whereby, among other
things:
(a) Holdings will change its name to Pacer International, Inc.;
(b) Pacific Motor will transfer all membership interests it holds of
AIMS and AIRS certain other subsidiaries to Holdings;
(c) AIMS will change its name to Pacer Rail Services, LLC;
(d) AIRS will change its name to Pacer International Rail Services,
LLC;
<PAGE>
(e) Holdings will form a new subsidiary call Pacer Logistics, Inc, a
California corporation;
(f) Pacific Motor will assign all of the assets of its ABL Trans
Division to ICS, and ICS will assume all of the liabilities of the ABL
Trans Division; and
(g) Holdings will transfer all of the common stock of ICS and all of
the common stock of Interstate Consolidation, Inc. to Pacer.
WHEREAS, the Existing Borrowers have requested that the Lenders
consent to the Restructuring, waive certain covenants under the Credit Agreement
in respect thereof, amend the Credit Agreement in certain respects in order to
integrate Pacer as a "Borrower" under the Credit Agreement and make certain
other accommodations; and
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:
1. Amendments to Credit Agreement. 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:
1.1. The definition of "Borrowers" set forth in Section 1.1 of the
Credit Agreement is hereby amended by inserting the term "Pacer," immediately
after the term "Pacific Motor," as and where "Pacific Motor," now appears in
such definition.
1.2. A new definition of the term "Pacer" shall be inserted into
Section 1.1 of the Credit Agreement in its appropriate alphabetical order and
shall read as follows:
"PACER" means Pacer Logistics, Inc., a California corporation.
-----
2. Consent; Limited Waivers. Upon the effectiveness of this Amendment,
------------------------
the Lenders hereby consent to the consummation of the Restructuring and waive
the restrictions set forth in Sections 6.3(D), (G) and (P) of the Credit
Agreement solely with respect to the formation of Pacer.
3. Conditions of Effectiveness. 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:
2
<PAGE>
(a) duly executed original counterparts of this Amendment from the
Existing Borrowers, Pacer and each of the Lenders;
(b) duly executed Revolving Loan Note of Pacer;
(c) duly executed original counterparts of a Security Agreement
("Pacer Security Agreement") evidencing the granting of a security interest
by Pacer to and in favor of the Agent, for the benefit of the Lenders;
(d) duly executed original counterparts of a Pledge Agreement
evidencing the pledge by Holdings of 100% of the Capital Stock of certain
of its Subsidiaries and in favor of the Agent, for the benefit of the
Lenders, together with the stock certificates representing such Capital
Stock and related stock powers signed in blank;
(e) duly executed original counterparts of a Pledge Agreement
(together with the Pledge Agreement of Holdings noted in subparagraph (d)
above, the "Pledges") evidencing the pledge by Pacer of 100% of the Capital
Stock of certain of its Subsidiaries and in favor of the Agent, for the
benefit of the Lenders, together with the stock certificates representing
such Capital Stock and related stock powers signed in blank;
(f) duly executed Uniform Commercial Code financing statements naming
Pacer as debtor and the Agent as Secured Party to be filed with the
Secretary of State of of California;
(g) duly executed UCC-3 financing statements amending the names of
any Borrowers whose names are changing to be filed in jurisdictions where
financing statements already are on file;
(h) Secretary's Certificate of Pacer certifying (i) copies of the
resolutions of the Board of Directors (as attached thereto) of Pacer
approving Pacer's execution and delivery of this Amendment and all other
documents relating hereto, (ii) a copy of the Articles of Incorporation of
Pacer (as attached thereto) as true and correct, (iii) a copy of the By-
Laws of Pacer (as attached thereto) as true and correct, and (iv) the
names, titles and signatures of the officers of Pacer authorized to sign
this Amendment and all other documents relating hereto; and
(i) Secretary's Certificate of Holdings certifying copies of the
resolutions of the Board of Directors (as attached thereto) of Holdings
approving Holding's execution and delivery of the Pledge and the names,
titles and signatures of the officers of Holdings authorized to sign the
Pledge.
4. Representations, Warranties and Further Assurances of the Company.
-----------------------------------------------------------------
The Existing Borrowers and Pacer hereby represent and warrant as follows:
3
<PAGE>
(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) Upon the effectiveness of this Amendment, the Borrowers hereby
reaffirm all covenants, representations and warranties made in the Credit
Agreement, to the extent the same are not specifically waived hereby, and
agree that all such covenants, representations and warranties shall be
deemed to have been remade as of the effective date of this Amendment.
(c) Immediately upon the effectiveness of this Amendment, the
Borrowers shall cause to be delivered an opinion of counsel to the Existing
Borrowers and Pacer, as to the due authorization, enforceability and
validity of the documents executed and delivered pursuant to Section 3
hereof by Holdings and Pacer and the validity and perfection of the
security interests created by the Pacer Security Agreement and the Pledges.
5. Pacer as Borrower; Reference to the Effect on the Credit Agreement and
----------------------------------------------------------------------
other Loan Documents.
- --------------------
(a) Pacer 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. Pacer 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. Pacer's notice address under the Credit Agreement shall be as set
forth on the signature page hereof.
(b) 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 Amended and Restated Credit Agreement dated as of December
16, 1997, as amended previously and as amended hereby.
(c) 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.
(d) 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.
4
<PAGE>
6. 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.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS)
OF THE STATE OF ILLINOIS.
8. 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.
9. 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.
5
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first above written.
PACER LOGISTICS, INC.
By:___________________________
Name:
Title:
Address: c/o Pacific Motor Transport Company,
Pacer Division
1229 East Pleasant Run Road
DeSoto, Texas 75123
Attention: President
Telephone: (972) 224-8121
Facsimile: (972) 228-2661
PACER INTEGRATED LOGISTICS, INC.
By:___________________________
Name:
Title:
PMT HOLDINGS, INC.
By:___________________________
Name:
Title:
PACIFIC MOTOR TRANSPORT COMPANY
By:___________________________
Name:
Title:
<PAGE>
AMERICAN INTERNATIONAL RAIL
SERVICES LLC
By: Pacific Motor Transport Company
Its: Manager
By:____________________________________
Name:
Title:
AMERICAN INTERNATIONAL
MECHANICAL SERVICES LLC
By: Pacific Motor Transport Company
Its: Manager
By:___________________________
Name:
Title:
INTERSTATE CONSOLIDATION, INC.
By:___________________________
Name:
Title:
INTERSTATE CONSOLIDATION SERVICE, INC.,
By:___________________________
Name:
Title:
INTERMODAL CONTAINER SERVICE, INC.
By:___________________________
Name:
Title:
<PAGE>
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent and as a Lender
By:___________________________
Name: Greg Sjullie
Title: Vice President
<PAGE>
EXHIBIT 10.21
EXECUTION COPY
AMENDMENT NO. 3
TO AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 29, 1998
THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT
("Amendment") is made as of May 29, 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"), and Intermodal Container Service, Inc., a
California corporation ("IMCS"), Pacer Integrated Logistics, Inc., a Delaware
corporation ("PIL"), Pacer Logistics, Inc., a California corporation ("Pacer
Logistics") (Pacer International, Pacific Motor, Pacer Rail, Pacer Services,
ICI, ICS, IMCS, Pacer Logistics and PIL being collectively referred to 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 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 and the
Amendment No. 2 dated May 1, 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, the Lenders and the Agent are parties to
the Credit Agreement;
WHEREAS, the Borrowers have requested that the Lenders increase the
Revolving Loan Commitment under the Credit Agreement; and
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:
1. Amendments to Credit Agreement. Effective as of the date hereof and
------------------------------
subject to the satisfaction of the conditions precedent set forth in Section 2
below, the Credit Agreement is hereby amended as follows:
<PAGE>
(a) The definitions of the terms "Permitted Insurance Collateralized
Financing" and "Permitted Purchase Money Indebtedness" appearing in
Section 1.1 of the Credit Agreement are hereby amended to read in their
-----------
entirety as follows:
"PERMITTED INSURANCE COLLATERALIZED FINANCING" is defined in
--------------------------------------------
Section 6.3(A)(n).
"PERMITTED PURCHASE MONEY INDEBTEDNESS" is defined in Section
------------------------------------- -------
6.3(A)(h).
---------
(b) A new definition of the term "Year 2000 Issues" shall be inserted
in its appropriate alphabetical order into Section 1.1 of the Credit
-----------
Agreement and shall read in its entirety as follows:
"YEAR 2000 ISSUES" mean the anticipated costs, problems and
----------------
uncertainties associated with the inability of certain computer
applications to effectively handle data including dates on and after
January 1, 2000, as it affects the business, operations, and
financial condition of the Borrowers, or each Borrower and its
respective Subsidiaries."
(c) A new section is hereby inserted in the Credit Agreement
immediately after Section 5.22 and shall read in its entirety as follows:
------------
" 5.23 Year 2000 Issues. Each of the Borrowers and their
----------------
respective Subsidiaries has made a full and complete assessment in all
material respects of the Year 2000 Issues and has a realistic and
achievable program to remedy the year 2000 Issues on a timely basis. Based
on this assessment and program, the Borrowers do not reasonably anticipate
any Material Adverse Effect as a result of Year 2000 Issues."
(d) A new section is hereby inserted in the Credit Agreement
immediately after Section 6.2(N) and shall read in its entirety as
--------------
follows:
" (N) Year 2000 Issues. Each Borrower shall and shall cause each
----------------
of its Subsidiaries to take all actions reasonably necessary to assure
that the Year 2000 Issues will not have a Material Adverse Effect."
(e) Exhibit B to the Credit Agreement is hereby replaced in its
---------
entirety by Exhibit B attached hereto.
---------
(f) Exhibit I to the Credit Agreement is hereby replaced in its
---------
entirety by Exhibit I attached hereto.
---------
2
<PAGE>
2. Conditions of Effectiveness. This Amendment shall become effective
---------------------------
and be deemed effective as of the dated 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;
(b) duly executed Amended and Restated Revolving Loan Note of the
Borrowers (the "Note");
(c) Secretary's Certificate of each Borrower certifying (i) copies of
the resolutions of the Board of Directors or the equivalent thereof (as
attached thereto) of such Borrower approving such Borrower's execution
and delivery of this Amendment and all other documents relation hereto,
(ii) a copy of the Articles of Incorporation of such Borrower or the
equivalent thereof (as attached thereto) as true and correct, (iii) a
copy of the By-Laws of each Borrower or the 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; and
(d) opinions of counsel to the Borrowers and addressed to the
Lenders, as to the due authorization, enforceability and validity of
this Amendment and the Notes executed and delivered by each Borrower
(covering legal jurisdictions of California, Colorado and Delaware) and
in form reasonably acceptable to the Lenders; and
(e) a duly executed Assignment Agreement from each of BankBoston,
N.A. and Union Bank of California, N.A. (collectively, the "New
Lenders") evidencing the assignment by The First National Bank of
Chicago of a portion of its commitment to the New Lenders.
4. Representations and Warranties of the Company. 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) Upon the effectiveness of this Amendment, the Borrowers hereby
reaffirm all covenants, representations and warranties made in the
Credit Agreement, to the extent the same are not specifically waived
hereby, and agree that all such covenants, representations and
warranties shall be deemed to have been remade as of the effective date
of this Amendment.
3
<PAGE>
5. Reference to the Effect on the Credit Agreement and other Loan
--------------------------------------------------------------
Documents.
---------
(a) 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 Amended and Restated Credit Agreement dated as of
December 16, 1997, as amended previously and as amended hereby.
(b) 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.
(c) 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.
(d) The Borrowers have heretofore executed and delivered to the
Agent, for the benefit of the Lenders, 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.
6. 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.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS)
OF THE STATE OF ILLINOIS.
8. 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.
9. 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.
4
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first above written.
PACER LOGISTICS, INC.
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
PACER INTEGRATED LOGISTICS, INC.
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
PACER INTERNATIONAL, INC.
(f/k/a/ PMT Holdings, Inc.)
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: President and CEO
PACIFIC MOTOR TRANSPORT COMPANY
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
PACER INTERNATIONAL RAIL SERVICES
LLC
(f/k/a American International Rail Services LLC)
By: Pacific Motor Transport Company
Its: Manager
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
<PAGE>
PACER RAIL SERVICES LLC
(f/k/a/ American International Mechanical Services
LLC)
By: Pacific Motor Transport Company
Its: Manager
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
INTERSTATE CONSOLIDATION, INC.
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
INTERSTATE CONSOLIDATION SERVICE,
INC.,
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
INTERMODAL CONTAINER SERVICE, INC.
By: /s/ Don Orris
-------------------------
Name: Don Orris
Title: Chairman
THE FIRST NATIONAL BANK OF
CHICAGO, as Agent and as a Lender
By:
-------------------------
Name: Greg Sjullie
Title: Vice President
<PAGE>
EXHIBIT B
TO
AMENDED AND RESTATED CREDIT AGREEMENT
COMMITMENTS
-----------
I. REVOLVING LOAN COMMITMENTS
<TABLE>
<CAPTION>
Amount of Revolving % of Revolving
Lender Loan Commitment Loan Commitment
- ------ ------------------- ---------------
<S> <C> <C>
The First National
Bank of Chicago $20,000,000 100.000000%
TOTAL $20,000,000.00 100.000000%
II. TERM LOAN COMMITMENTS
Amount of Term % of Term
Lender Loan Commitment Loan Commitment
- ------ ------------------- ---------------
The First National
Bank of Chicago $20,000,000 100.000000%
TOTAL $20,000,000.00 100.000000%
</TABLE>
<PAGE>
EXHIBIT 1
TO
AMENDED AND RESTATED CREDIT AGREEMENT
FORM OF COMPLIANCE CERTIFICATE
------------------------------
Pursuant to [Section 4.2] [Section 6.1(A)(iv)] of the Amended and
Restated Credit Agreement dated as of December __, 1997 among PMT Holdings,
Inc., Pacific Motor Transport Company, American International Rail Services,
L.L.C., American International Mechanical Services, L.L.C, ICI Acquisition
Company, Interstate Consolidation, Inc., Interstate Consolidation Service, Inc.,
Intermodal Container Service, Inc., the institutions from time to time party
thereto as lenders (the "Lenders"), and The First National Bank of Chicago, in
its capacity as contractual representative for itself and the other Lenders, the
Borrower, through its __________________________, hereby delivers to the Agent[,
together with the financial statements being delivered to the Agent pursuant to
Section 6.1(A) of the Credit Agreement,] this Compliance Certificate (the
- --------------
"Certificate") [for the accounting period from _________, 19__ to ___________,
19__]. Capitalized terms used herein shall have the meanings set forth in the
Credit Agreement. Subsection references herein relate to subsections of the
Credit Agreement.
I. MANDATORY PREPAYMENTS (Section 2.5(B))
--------------
A. Section 2.5(B)(i)(a)
--------------------
(1) State whether upon the consummation of any Asset Sale or
issuance of Equity Interests or debt any Net Cash Proceeds
have arisen. Yes/No
(2) If the answer to question(1) is yes, state the date of and the
nature of the transaction giving rise to the Net Cash Proceeds,
the aggregate principal amount of such Net Cash Proceeds, and
the amount, if required, of any mandatory prepayment on
Schedule A.
----------
B. Section 2.5(B)(i)(b)/1/ The Borrowers' calculation of Excess Cash
--------------------
Flow for the Cash Flow Period ended December 31, ____ is as follows:
Net Income $________
Amortization expense +________
- --------------------
/1/ To be included for the Compliance Certificate accompanying the annual
audited financial statements.
I-1
<PAGE>
Depreciation +________
Non-cash charges +________
Capital Expenditures -________
Principal payments (including -________
prepayments) in respect of the
Term Loans and other Indebtedness
Net Change in Working Capital +/-________
Cash dividends/redemptions,
Restricted Payments during such period -________
Excess Cash Flow =________
II. FINANCIAL COVENANTS
A. MINIMUM FIXED CHARGE COVERAGE RATIO (Section 6.4(B))
----------------
1. Net Income + taxes + Interest Expense + depreciation
and amortization + Fees + other non-cash charges +
non-recurring expenses - interest income -
extraordinary gains + extraordinary losses ("EBITDA")
+ Rentals - Capital Expenditures
for the period from ____ to _____ $________
2. Interest Expense + Rentals + Taxes + Scheduled amortization
of Term Loans and other Indebtedness of the Borrower
for the period from ____ to ____ $________
3. Fixed Charge Ratio (Ratio of (1) to (2)) __ to 1.0
B. MAXIMUM LEVERAGE RATIO (Section 6.4(C))
----------------
1. Total Debt of the Borrowers $________
2. EBITDA (as determined under item II(A) above) $________
3. Leverage Ratio (Ratio of (1) to (2) __ to 1.0
C. MINIMUM EBITDA (Section 7.4(D)) EBITDA (as determined under item
--------------
II(A) above) $________.
I-2
<PAGE>
PMT Holdings, Inc. hereby certifies, through its ____________________,
that the information set forth above is accurate as of _________________, ____,
to the best of such officer's knowledge, after diligent inquiry, and that the
financial statements delivered herewith present fairly in all material respects
the financial position of the Borrowers and their Subsidiaries at the dates
indicated and the results of their operations and their cash flows for the
periods indicated in conformity with Agreement Accounting Principles,
consistently applied.
Dated: _______________, ____
PMT HOLDINGS, INC.
By: ___________________
Name:
Title:
I-3
<PAGE>
EXHIBIT 10.22
Execution Copy
AMENDED AND RESTATED SECURITY AGREEMENT
DATED AS OF DECEMBER 16, 1997
between
PACIFIC MOTOR TRANSPORT COMPANY
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SECTION 1. Defined Terms...................................................................................... 1
-------------
SECTION 2. Grant of Security.................................................................................. 2
-----------------
SECTION 3. Authorization...................................................................................... 4
-------------
SECTION 4. Grantor Remains Liable............................................................................. 4
----------------------
SECTION 5. Representations and Warranties..................................................................... 4
------------------------------
SECTION 6. Perfection and Maintenance of Security Interest and Lien........................................... 5
--------------------------------------------------------
SECTION 7. Financing Statements............................................................................... 6
--------------------
SECTION 8. Filing Costs....................................................................................... 6
------------
SECTION 9. Schedule of Collateral............................................................................. 6
----------------------
SECTION 10. Equipment and Inventory............................................................................ 6
-----------------------
SECTION 11. Accounts........................................................................................... 7
--------
SECTION 12. Leased Real Property............................................................................... 8
--------------------
SECTION 13. General Covenants.................................................................................. 8
-----------------
SECTION 14. Agent Appointed Attorney-in-Fact................................................................... 8
--------------------------------
SECTION 15. Agent May Perform................................................................................... 9
-----------------
SECTION 16. Agent's Duties...................................................................................... 9
--------------
SECTION 17. Remedies............................................................................................ 9
--------
SECTION 18. Exercise of Remedies............................................................................... 10
--------------------
SECTION 19. License............................................................................................ 10
-------
SECTION 20. Injunctive Relief.................................................................................. 11
-----------------
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict Construction................................. 11
------------------------------------------------------------------
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 22. Expenses........................................................................................... 11
--------
SECTION 23. Amendments, Etc.................................................................................... 11
---------------
SECTION 24. Notices............................................................................................ 11
-------
SECTION 25. Continuing Security Interest; Termination.......................................................... 11
-----------------------------------------
SECTION 26. Severability....................................................................................... 12
------------
SECTION 27. GOVERNING LAW...................................................................................... 12
-------------
SECTION 28. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL............................................ 12
-------------------------------------------------------
(A) EXCLUSIVE JURISDICTION........................................................................ 12
----------------------
(B) OTHER JURISDICTIONS........................................................................... 12
-------------------
(C) SERVICE OF PROCESS............................................................................ 13
------------------
(D) WAIVER OF JURY TRIAL.......................................................................... 13
--------------------
(E) WAIVER OF BOND................................................................................ 13
--------------
(F) ADVICE OF COUNSEL............................................................................. 13
-----------------
</TABLE>
EXHIBITS AND SCHEDULES
EXHIBITS
--------
EXHIBIT A-1 -- Form of Landlord Agreement
EXHIBIT A-2 -- Form of Mortgagee Agreement
EXHIBIT B -- Form of Bailee Letter
SCHEDULES
---------
Schedule 1 -- Pledged Debt
Schedule 2 -- Locations of Collateral
Schedule 2-A -- Third Party Locations
Schedule 2-B -- Financing Statement Filing Locations
Schedule 3 -- Trade Names
-ii-
<PAGE>
AMENDED AND RESTATED SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT ("Agreement"), dated as of
---------
December ___, 1997 is made by PACIFIC MOTOR TRANSPORT COMPANY., a California
corporation ("Grantor"), in favor of THE FIRST NATIONAL BANK OF CHICAGO (the
-------
"Agent"), for its benefit and for the benefit of the "Holders of Secured
-----
Obligations" (as defined below) who are, or may hereafter become, parties to the
Credit Agreement referred to below.
PRELIMINARY STATEMENT
Grantor has entered into a certain Amended and Restated Credit Agreement of
even date herewith among PMT Holdings, Inc. ("Holdings"), Pacific Motor
--------
Transport Company ("Pacific Motor"), American International Rail Services,
L.L.C. ("AIRS"), American International Mechanical Services, L.L.C. ("AIMS"),
---- ----
ICI Acquisition Company ("Acquisition Company."), Interstate Consolidation, Inc.
-------------------
("ICI"), Interstate Consolidation Service, Inc. ("ICS"), Intermodal Container
--- ---
Service, Inc. ("IMCS")(Holdings, Pacific Motor, AIRS, AIMS, Acquisition Company,
----
ICI, ICS and ICMS being referred to as the "Borrowers"), the institutions from
---------
time to time party thereto as lenders (the "Lenders") and the Agent, as the
-------
contractual representative for the Lenders (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "Credit
------
Agreement"), providing for the making of loans, advances and other financial
- ---------
accommodations (including, without limitation issuing letters of credit) (all
such loans, advances and other financial accommodations being hereinafter
referred to collectively as the "Loans") to or for the benefit of the Borrowers.
-----
It is a condition precedent to the making of the Loans under the Credit
Agreement that Grantor shall have granted the security interest contemplated by
this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in
-------------
the Credit Agreement are used herein as therein defined, and the following terms
shall have the following meanings (such meanings being equally applicable to
both the singular and the plural forms of the terms defined):
"Agreement" shall mean this Amended and Restated Security Agreement, as the
---------
same may from time to time be amended, restated, modified or supplemented, and
shall refer to this Agreement as the same may be in effect at the time such
reference becomes operative.
"Collateral" shall mean all property and rights in property now owned or
----------
hereafter at any time acquired by Grantor in or upon which a Lien is granted in
favor of the Agent by Grantor or a Subsidiary of Grantor under this Agreement,
including, without limitation, the property described in Section 2.
---------
<PAGE>
"UCC" shall mean the Uniform Commercial Code as the same may, from time to
---
time, be in effect in the State of Illinois; provided, however, in the event
-------- -------
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the Agent's and the Holders of Secured Obligations'
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of Illinois, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
SECTION 2. Grant of Security. To secure the prompt and complete payment,
-----------------
observance and performance of the Secured Obligations, Grantor hereby assigns
and pledges to Agent, for the benefit of itself and the Holders of Secured
Obligations, and hereby grants to Agent, for the benefit of itself and the
Holders of Secured Obligations, a security interest in all of Grantor's right,
title and interest in and to the following, whether now owned or existing or
hereafter arising or acquired and wheresoever located:
ACCOUNTS: All "accounts" as such term is defined in Section 9-106 of the
UCC, whether now owned or hereafter acquired or arising; Grantor intends that
the term "accounts", as used herein, be construed in its broadest sense, and
such term shall include, without limitation, all present and future accounts,
accounts receivable and other rights of Grantor to payment for goods sold or
leased or for services rendered (except those evidenced by instruments or
chattel paper), whether now existing or here after arising and wherever
arising, and whether or not they have been earned by performance (collectively,
"Accounts");
--------
INVENTORY: All "inventory" as defined in Section 9-109(4) of the UCC,
whether now owned or hereafter acquired or arising; Grantor intends that the
term "inventory", as used herein, be construed in its broadest sense, and such
term shall include, without limitation, all goods now owned or hereafter
acquired by Grantor (wherever located, whether in the possession of Grantor or
of a bailee or other person for sale, storage, transit, processing, use or
otherwise and whether consisting of whole goods, spare parts, components,
supplies, materials, or consigned, returned or repossessed goods) which are held
for sale or lease, which are to be furnished (or have been furnished) under any
contract of service or which are raw materials, work in process or materials
used or consumed in Grantor's business (collectively, "Inventory");
---------
EQUIPMENT: All "equipment" as such term is defined in Section 9-109(2) of
the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "equipment", as used herein, be construed in its broadest sense,
and such term shall include, without limitation, all machinery, all
manufacturing, distribution, selling, data processing and office equipment, all
furniture, furnishings, appliances, fixtures and trade fixtures, tools, tooling,
molds, dies, vehicles, vessels, trucks, buses, motor vehicles and all other
goods of every type and description (other than Inventory), in each instance
whether now owned or hereafter acquired by Grantor and wherever located
(collectively, "Equipment");
---------
GENERAL INTANGIBLES: All "general intangibles" as defined in Section 9-106
of the UCC, whether now owned or hereafter acquired or arising; Grantor intends
that the term "general intangibles", as used herein, be construed in its
broadest sense, and such term shall include, without limitation, all rights,
interests, chosen in action, causes of actions, claims and all other intangible
property of Grantor of every kind and nature (other than Accounts), in each
instance whether now owned or hereafter acquired by Grantor and however and
whenever arising, including, without limitation, all corporate and
-2-
<PAGE>
other business records; all loans, royalties, and other obligations receivable;
customer lists, credit files, correspondence, and advertising materials; firm
sale orders, other contracts and contract rights; all interests in partnerships,
joint ventures and limited liability companies; all tax refunds and tax refund
claims; all right, title and interest under leases, subleases, licenses and
concessions and other agreements relating to real or personal property; all
payments due or made to Grantor in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of any property by any person
or governmental authority; all deposit accounts (general or special) with any
bank or other financial institution, including, without limitation, any deposits
or other sums at any time credited by or due to Grantor from any of the Holders
of Secured Obligations or any of their respective Affiliates with the same
rights therein as if the deposits or other sums were credited by or due from
such Holder of Secured Obligations; all credits with and other claims against
carriers and shippers; all rights to indemnification; all patents, and patent
applications (including all reissues, divisions, continuations and extensions);
all service marks and service mark applications; all trade secrets and
inventions; all copyrights and copyright applications (including all computer
software and related documentation); all rights and interests in and to
trademarks, trademark registrations and applications therefor, trade names,
corporate names, brand names, slogans, all goodwill associated with the
foregoing; all license agreements and franchise agreements, all reversionary
interests in pension and profit sharing plans and reversionary, beneficial and
residual interest in trusts; all proceeds of insurance of which Grantor is
beneficiary; and all letters of credit, guaranties, liens, security interests
and other security held by or granted to Grantor; and all other intangible
property, whether or not similar to the foregoing;
LAB PROCESSING AND ENGINEERING INFORMATION: All rights and interests in
and to processes, lab journals, and notebooks, data, trade secrets, know-how,
product formulae and information, manufacturing, engineering and other drawings
and manuals, technology, blueprints, research and development reports, agency
agreements, technical information, technical assistance, engineering data,
design and engineering specifications, and similar materials recording or
evidencing expertise used in or employed by Grantor (including any license for
the foregoing);
CONTRACT RIGHTS: All rights and interests in and to any pending or
executory contracts, requests for quotations, invitations for bid, agreements,
leases and arrangements of which Grantor is a party to or in which Grantor has
an interest, excluding any license agreement under which the Grantor is the
licensee;
CHATTEL PAPER, INSTRUMENTS AND DOCUMENTS: All chattel paper, leases, all
instruments, including, without limitation, the notes and debt instruments
described in Schedule 1 (the "Pledged Debt") and all payments thereunder and
---------- ------------
instruments and other property from time to time delivered in respect thereof or
in exchange therefor, and all bills of sale, bills of lading, warehouse receipts
and other documents of title, in each instance whether now owned or hereafter
acquired by Grantor;
INTEREST AND CURRENCY CONTRACTS: Any and all interest rate, commodity or
currency exchange agreements or derivative agreements, including without
limitation, cap, collar, floor, forward or similar agreements or other rate,
currency or price protection arrangements; and
OTHER PROPERTY: All property or interests in property now owned or
hereafter acquired by Grantor which now may be owned or hereafter may come into
the possession, custody or control of Agent or any of the Holders of Secured
Obligations or any agent or Affiliate of any of them in any way and for any
purpose (whether for safekeeping, deposit, custody, pledge, transmission,
collection or
-3-
<PAGE>
otherwise); and all rights and interests of Grantor, now existing or hereafter
arising and however and wherever arising, in respect of any and all (i) notes,
drafts, letters of credit, stocks, bonds, and debt and equity securities,
whether or not certificated, investment property (as defined in Section 9-
115(1)(f) of the UCC) and warrants, options, puts and calls and other rights to
acquire or otherwise relating to the same; (ii) money; (iii) proceeds of loans,
including, without limitation, loans made under the Credit Agreement; and (iv)
insurance proceeds and books and records relating to any of the property covered
by this Agreement; together, in each instance, with all accessions and additions
thereto, substitutions therefor, and replacements, proceeds and products
thereof; provided, however, that there is expressly excluded from the foregoing
-------- -------
any such item of Collateral with respect to which any consent or waiver from a
third party is required for the assignment or pledge thereof pursuant to this
Section 2 if and to the extent such consent or waiver is not obtained.
- ---------
SECTION 3. Authorization. Grantor hereby authorizes Agent to retain and
-------------
each Holder of Secured Obligations, and each Affiliate of Agent and of each
Holder of Secured Obligations, to pay or deliver to Agent, for the benefit of
the Holders of Secured Obligations, without any necessity on the part of any
Holder of Secured Obligations to resort to other security or sources of
reimbursement for the Secured Obligations, at any time following the occurrence
and during the continuance of any Default, and without further notice to Grantor
(such notice being expressly waived), any of the deposits referred to in Section
-------
2 (whether general or special, time or demand, provisional or final) or other
- -
sums or property held by such Person, for application against any portion of the
Secured Obligations, irrespective of whether any demand has been made or whether
such portion of the Secured Obligations is mature. Agent will promptly notify
Grantor of Agent's receipt of such funds or other property for application
against the Secured Obligations, but failure to do so will not affect the
validity or enforceability thereof. Agent may give notice of the above grant of
security interest and assignment of the aforesaid deposits and other sums, and
authorization, to, and make any suitable arrangements with, any such Holder of
Secured Obligations for effectuation thereof, and Grantor hereby irrevocably
appoints Agent as its attorney to collect, following the occurrence and during
the continuance of a Default, any and all such deposits or other sums to the
extent any such payment is not made to Agent by such Holder of Secured
Obligations or Affiliate thereof.
SECTION 4. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) Grantor shall remain solely liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Agent of any of its rights
hereunder shall not release Grantor from any of its duties or obligations under
the contracts and agreements included in the Collateral, and (c) neither Agent
nor the Holders of Secured Obligations shall have any responsibility, obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement, nor shall Agent or the Holders of Secured Obligations
be required or obligated, in any manner, to (i) perform or fulfill any of the
obligations or duties of Grantor thereunder, (ii) make any payment, or make any
inquiry as to the nature or sufficiency of any payment received by Grantor or
the sufficiency of any performance by any party under any such contract or
agreement or (iii) present or file any claim, or take any action to collect or
enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties. Grantor represents and
------------------------------
warrants, as of the date of this Agreement and as of each date hereafter (except
for changes permitted or contemplated by or under this Agreement or the Credit
Agreement) until termination of this Agreement pursuant to Section 25:
----------
-4-
<PAGE>
(a) The correct corporate name of Grantor is set forth in the first
paragraph of this Agreement. The locations listed on Schedule 2 constitute all
----------
locations at which Inventory and/or Equipment is located and Grantor has
exclusive possession and control of such Equipment and Inventory, except for
such Inventory and Equipment which is (i) temporarily in transit between such
locations, or (ii) temporarily stored with third parties or held by third
parties for storage, processing, engineering, evaluation, repairs or sale, the
proper corporate names of which third parties, the location of such Inventory
and/or Equipment, and the nature of the relationship between Grantor and such
third parties is set forth in Schedule 2-A. The chief place of business and
------------
chief executive office of Grantor are located at the address of Grantor set
forth below the Grantor's signature on the Credit Agreement. All records
concerning any Accounts and all originals of all chattel paper which evidence
any Account are located at the addresses listed on Schedule 2 and none of the
----------
Accounts is evidenced by a promissory note or other instrument except for such
notes and other instruments delivered to Agent as Pledged Debt.
(b) Grantor is the legal and beneficial owner of the Collateral free and
clear of all Liens except for Liens permitted by Section 6.3(C) of the Credit
--------------
Agreement. Grantor currently conducts business under the name Pacific Motor
Transport Company and, in certain areas and for certain operations, the trade
names listed on Schedule 3. The Grantor uses no trade names or fictitious
----------
names, except as set forth on Schedule 3.
----------
(c) This Agreement creates in favor of Agent a legal, valid and
enforceable security interest in the Collateral. When financing statements have
been filed in the appropriate offices against Grantor in the locations listed on
Schedule 2-B, Agent will have a fully perfected first priority lien on, and
- ------------
security interest in, the Collateral in which a security interest may be
perfected by such filing, subject only to Liens permitted by Section 6.3(C) of
--------------
the Credit Agreement.
(d) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority that has not already been taken or made
and which is in full force and effect, is required (i) for the grant by Grantor
of the security interest in the Collateral granted hereby; or (ii) for the
execution, delivery or performance of this Agreement by Grantor.
(e) The Pledged Debt issued by any Affiliate of Grantor, and to the best
of Grantor's knowledge, all other Pledged Debt, has been duly authorized, issued
and delivered, and is the legal, valid, binding and enforceable obligation of
the respective issuer thereof.
SECTION 6. Perfection and Maintenance of Security Interest and Lien.
--------------------------------------------------------
Grantor agrees that until all of the Secured Obligations (other than contingent
indemnity Obligations) have been fully satisfied and the Credit Agreement has
been terminated, Agent's security interests in and Liens on and against the
Collateral and all proceeds and products thereof, shall continue in full force
and effect. Grantor shall perform any and all steps reasonably requested by
Agent to perfect, maintain and protect Agent's security interests in and Liens
on and against the Collateral granted or purported to be granted hereby or to
enable Agent to exercise its rights and remedies hereunder with respect to any
Collateral, including, without limitation, (i) executing and filing financing or
continuation statements, or amendments thereof, in form and substance reasonably
satisfactory to Agent, (ii) delivering to Agent all certificates, notes and
other instruments (including, without limitation, all letters of credit on which
Grantor is named as a beneficiary) representing or evidencing Collateral, which
certificates, notes and other instruments have been duly endorsed and are
accompanied by duly executed instruments of transfer or assignment, including,
but not limited to, note powers, all in form and substance satisfactory
-5-
<PAGE>
to Agent, (iii) delivering to Agent warehouse receipts covering that portion of
the Collateral, if any, located in warehouses and for which warehouse receipts
are issued, (iv) after the occurrence and during the continuance of a Default,
transferring Inventory and Equipment to warehouses designated by Agent or taking
such other steps as are deemed necessary by Agent to maintain Agent's control of
the Inventory and Equipment, (v) marking conspicuously each document, contract,
chattel paper and all records pertaining to the Collateral with a legend, in
form and substance satisfactory to Agent, indicating that such document,
contract, chattel paper, or Collateral is subject to the security interest
granted hereby, (vi) using commercially reasonable efforts to obtain within
ninety (90) days after the Closing Date (a) waivers of Liens and access
agreements in substantially the form of Exhibit A-1 hereto (or such other form
-----------
as may be agreed to by the Agent) from landlords with respect to Grantor's
leased premises as of the Closing Date, (b) mortgagee agreements in
substantially the form of Exhibit A-2 hereto (or such other form as may be
agreed to by the Agent) from mortgagees with respect to Grantor's leased
premises as of the Closing Date and (c) as requested by Agent, waivers of Liens
and access agreements in substantially the form of Exhibit B (or such other form
---------
as may be agreed to by Agent) from the appropriate Person with respect to any of
the Inventory temporarily stored with third parties or held by third parties for
storage, processing, engineering, evaluation, repair or sale as of the Closing
Date, (vii) obtaining waivers of Liens and access agreements in substantially
the form of Exhibit A-1 hereto (or such other form as may be agreed to by Agent)
-----------
from landlords and Exhibit A-2 hereto (or such other form as may be agreed to by
-----------
Agent) from mortgagees with respect to all leases executed after the Closing
Date and obtaining waivers of Liens and access agreements in substantially the
form of Exhibit B hereto (or such other form as may be agreed to by Agent) from
---------
the appropriate Person with respect to all arrangements pursuant to which
Inventory will be temporarily stored with third parties or held by third parties
for storage, processing, engineering, evaluation, repair or sale after the
Closing Date (in connection with which the Grantor shall be permitted to and
hereby required to update Schedule 2-A), and (vii) executing and delivering all
------------
further instruments and documents, and taking all further action, as Agent may
reasonably request.
SECTION 7. Financing Statements. To the extent permitted by applicable
--------------------
law, Grantor hereby authorizes Agent to file one or more financing or
continuation statements and amendments thereto, disclosing the security interest
granted to Agent under this Agreement without Grantor's signature appearing
thereon and Agent agrees to notify Grantor when such a filing has been made.
Grantor agrees that a carbon, photographic, photostatic, or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement. If any Inventory or Equipment is in the possession or control of any
warehouseman or Grantor's agents or processors, Grantor shall, upon Agent's
request, notify such warehouseman, agent or processor of Agent's security
interest in such Inventory and Equipment and, upon Agent's request, instruct
them to hold all such Inventory or Equipment for Agent's account and subject to
Agent's instructions.
SECTION 8. Filing Costs. Grantor shall pay the costs of, or incidental to,
------------
all recordings or filings of all financing statements, including, without
limitation, any filing expenses incurred by Agent pursuant to Section 7.
---------
SECTION 9. Schedule of Collateral. Grantor shall furnish to Agent from
-----------------------
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Agent may
reasonably request, all in reasonable detail.
-6-
<PAGE>
SECTION 10. Equipment and Inventory. Grantor covenants and agrees with
-----------------------
Agent that from the date of this Agreement and until termination of this
Agreement pursuant to Section 25, Grantor shall:
----------
(a) Keep the Equipment and Inventory (other than Equipment or Inventory
sold or disposed of as permitted by the Credit Agreement in the ordinary course
of business) at the places specified in Section 5(a), except for Equipment and
------------
Inventory (i) temporarily in transit between such locations or (ii) temporarily
stored with the third parties or held by third parties for storage, processing,
engineering, evaluation, repair or sale and set forth on Schedule 2-A and in
------------
connection with which the Grantor has complied with the requirements set forth
in Section 6, and deliver written notice to Agent at least thirty (30) days
---------
prior to establishing any other location at which or third party with which it
reasonably expects to maintain Inventory and/or Equipment in which location or
with which third party all action required by this Agreement shall have been
taken with respect to all such Equipment and Inventory;
(b) Maintain or cause to be maintained in good repair, working order and
condition, excepting ordinary wear and tear and damage due to casualty, all of
the Equipment, and make or cause to be made all appropriate repairs, renewals
and replacements thereof, as quickly as practicable after the occurrence of any
loss or damage thereto which are necessary or desirable to such end; and
(c) Comply with the terms of the Credit Agreement with respect to such
Equipment and Inventory, including, without limitation, the maintenance and
insurance provisions set forth in Section 6.2(E), (G) and (I) of the Credit
-------------- --- ---
Agreement.
SECTION 11. Accounts. Grantor covenants and agrees with Agent that from
--------
and after the date of this Agreement and until termination of this Agreement
pursuant to Section 25, Grantor shall:
----------
(a) Keep its chief place of business and chief executive office at its
address set forth below the Grantor's signature on the Credit Agreement, and
keep the offices where it keeps all records concerning the Accounts and
originals of all chattel paper which evidence Accounts at the locations therefor
specified in Section 5(a) or, upon thirty (30) days' prior written notice to
------------
Agent, at such other locations within the United States in a jurisdiction where
all actions required by Section 6 shall have been taken with respect to the
---------
Accounts. Grantor will hold and preserve such records (in accordance with
Grantor's usual document retention practices) and chattel paper and upon
reasonable prior notice will permit representatives of Agent at any time during
normal business hours to inspect and make abstracts from such records and
chattel paper; and
(b) In any suit, proceeding or action brought by Agent under any Account
comprising part of the Collateral, Grantor will save, indemnify and keep each of
the Holders of Secured Obligations harmless from and against all expenses, loss
or damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by Grantor of any obligation or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such Holder of
Secured Obligations from Grantor, and all such obligations of Grantor shall be
and shall remain enforceable against and only against Grantor and shall not be
enforceable against any of the Holders of Secured Obligations.
SECTION 12. Leased Real Property. Grantor covenants and agrees with Agent
--------------------
that from and after the date of this Agreement and until termination of this
Agreement pursuant to Section 25, that:
----------
-7-
<PAGE>
(a) Promptly following, but not later than ninety (90) days after the
date hereof, and thereafter as requested by Agent, but no more often than once
each fiscal year, Grantor will furnish to Agent a report certified to be true
and correct in all material respects by Grantor containing a list of each of the
Grantor's leased premises; the name or names of all owners; rentals being paid;
and whether Grantor has obtained waivers of Liens and access agreements from
landlords and mortgagees with respect to such premises in accordance with
Section 6;
- ---------
(b) Grantor agrees that, from and after the occurrence of a Default, Agent
may, but need not, make any payment or perform any act hereinbefore required of
Grantor with respect to the Grantor's leased premises in any form and manner
deemed expedient. All money paid for any of the purposes herein authorized and
all other moneys advanced by Agent to protect the lien hereof shall be
additional Secured Obligations secured hereby and shall become immediately due
and payable without notice and shall bear interest thereon at the default
interest rate as provided in Section 2.11 of the Credit Agreement until paid to
------------
Agent in full; and
(c) Grantor agrees that it will not amend any lease in a manner that
materially adversely affects the interests of the Holders of Secured Obligations
without the Agent's prior written consent.
SECTION 13. General Covenants. Grantor covenants and agrees with Agent
-----------------
that from and after the date of this Agreement and until termination of this
Agreement pursuant to Section 25, Grantor shall:
----------
(a) Keep and maintain at Grantor's own cost and expense satisfactory and
complete records of Grantor's Collateral in a manner consistent with Grantor's
current business practice, including, without limitation, a record of all
material payments received and all material credits granted with respect to such
Collateral. Grantor shall, for Agent's further security, upon Agent's
reasonable request deliver and turn over to Agent or Agent's designated
representatives at any time following the occurrence and during the continuation
of a Default, any such books and records (including, without limitation, copies
of any and all material computer tapes, programs and source and object codes
owned by Grantor relating to such Collateral in which Grantor has an interest or
any part or parts thereof); and
(b) Grantor will not create, permit or suffer to exist, and will defend
the Collateral against, and take such other action as is necessary to remove,
any Lien on such Collateral other than Liens permitted under Section 6.3(C) of
--------------
the Credit Agreement, and will defend the right, title and interest of Agent in
and to Grantor's rights to such Collateral, including, without limitation, the
proceeds and products thereof, against the claims and demands of all Persons
whatsoever.
SECTION 14. Agent Appointed Attorney-in-Fact. Grantor hereby irrevocably
--------------------------------
appoints Agent as Grantor's attorney-in-fact, with full authority in the place
and stead of Grantor and in the name of Grantor or otherwise, from time to time
in Agent's reasonable discretion, to take any action and to execute any
instrument which Agent may reasonably deem necessary or advisable to accomplish
the purposes of this Agreement, including, without limitation, (a) following the
occurrence and during the continuance of a Default, to:
(i) obtain and adjust insurance required to be paid to the Agent or
any Holders of Secured Obligations pursuant to the Credit Agreement;
-8-
<PAGE>
(ii) ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;
(iii) receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (i) or (ii) above;
---------- ----
and
(iv) file any claims or take any action or institute any proceedings
which Agent may deem necessary or desirable for the collection of any of
the Collateral, or otherwise to enforce the rights of Agent with respect to
any of the Collateral;
and (b) at any time, to:
(i) obtain access to records maintained for Grantor by computer
services companies and other service companies or bureaus;
(ii) send requests under Grantor's, the Agent's or a fictitious name
to Grantor's customers or account debtors for verification of Accounts
provided that the Agent gives the Grantor notice prior to initiating any
such verifications; and
(iii) do all other things consistent with the terms of this Agreement
as may be reasonably necessary to carry out the terms hereof.
SECTION 15. Agent May Perform. If Grantor fails to perform any agreement
-----------------
contained herein or in the Credit Agreement, Agent may, upon three business days
prior written notice to the Grantor, perform, or cause performance of, such
agreement, and the reasonable expenses of Agent incurred in connection therewith
shall be payable by Grantor under Section 22.
----------
SECTION 16. Agent's Duties. The powers conferred on Agent hereunder are
--------------
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Agent shall not have any duty as to any Collateral. Agent shall
be deemed to have exercised reasonable care in the custody and preservation of
the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Agent accords its own property of similar
amount, value and nature, it being understood that Agent shall be under no
obligation to take any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral, but may do so at its option,
and all reasonable expenses incurred in connection therewith shall be for the
sole account of Grantor and shall be added to the Secured Obligations. In
exercising any of its rights and remedies hereunder or otherwise enforcing this
Agreement, Agent shall at all times act in good faith and in a commercially
reasonable manner.
SECTION 17. Remedies. (a) If any Default shall have occurred and be
--------
continuing:
(i) Agent shall have, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party upon default under the UCC (whether or not the UCC applies to the
affected Collateral) and further, Agent may, without notice, demand or legal
process of any kind (except as may be required by law), all of which Grantor
waives, at any time or
-9-
<PAGE>
times, (x) enter Grantor's owned or leased premises and take physical possession
of the Collateral and maintain such possession on Grantor's owned or leased
premises, at no cost to Agent or any of the Holders of Secured Obligations, or
remove the Collateral, or any part thereof, to such other place(s) as Agent may
desire, (y) require Grantor to, and Grantor hereby agrees that it will at its
expense and upon request of Agent forthwith, assemble all or any part of the
Collateral as directed by Agent and make it available to Agent at a place to be
designated by Agent which is reasonably convenient to Agent and (z) without
notice except as specified below, sell, lease, assign, grant an option or
options to purchase or otherwise dispose of the Collateral or any part thereof
at public or private sale, at any exchange, broker's board or at any of the
offices of Agent or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as Agent may deem commercially reasonable. Grantor agrees
that, to the extent notice of sale shall be required by law, at least ten (10)
days' notice to Grantor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned;
(ii) Agent shall apply all cash proceeds received by Agent in respect of
any sale of, collection from, or other realization upon all or any part of the
Collateral (after payment of any amounts payable to Agent pursuant to Section
-------
22), for the benefit of the Holders of Secured Obligations, against all or any
- --
part of the Secured Obligations in such order as may be required by the Credit
Agreement or, to the extent not specified therein, as is determined by the
Required Lenders. Any surplus of such cash or cash proceeds held by Agent and
remaining after payment in full of all the Secured Obligations shall be paid
over to Grantor or as may be lawfully required pursuant to an order of a court
of confident jurisdiction;
(b) Grantor waives all claims, damages and demands against Agent arising
out of the repossession, retention or sale of any of the Collateral or any part
or parts thereof, except any such claims, damages and awards arising out of the
Gross Negligence or willful misconduct or breach of Section 16 hereof of or by
----------
Agent or any of the Holders of Secured Obligations, as the case may be, as
determined in a final non-appealed judgment of a court of competent
jurisdiction; and
(c) The rights and remedies provided under this Agreement are cumulative
and may be exercised singly or concurrently and are not exclusive of any rights
and remedies provided by law or equity.
SECTION 18. Exercise of Remedies. In connection with the exercise of its
--------------------
remedies pursuant to Section 17, Agent may, (i) exchange, enforce, waive or
----------
release any portion of the Collateral and any other security for the Secured
Obligations; (ii) apply such Collateral or security and direct the order or
manner of sale thereof as Agent may, from time to time, determine; and (iii)
settle, compromise, collect or otherwise liquidate any such Collateral or
security in any manner following the occurrence of a Default, without affecting
or impairing Agent's right to take any other further action with respect to any
Collateral or security or any part thereof.
SECTION 19. License. Agent is hereby granted a license or other right to
-------
use, following the occurrence and during the continuance of a Default, without
charge, (a) Grantor's labels, patents, copyrights, trade secrets, trade names,
trademarks, service marks, customer lists and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral, provided that
Agent uses quality standards at least
-10-
<PAGE>
substantially equivalent to those of Grantor for the manufacture, advertising,
sale and distribution of Grantor's products and services and (b) Grantor's
rights under all licenses and all franchise agreements shall inure to Agent's
benefit (to the extent permitted by such licenses and franchise agreements).
SECTION 20. Injunctive Relief. Grantor recognizes that in the event
-----------------
Grantor fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy of law may prove to be inadequate
relief to the Holders of Secured Obligations; therefore, Grantor agrees that the
Holders of Secured Obligations, if Agent so determines and requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
SECTION 21. Interpretation and Inconsistencies; Merger; No Strict
-----------------------------------------------------
Construction.
- ------------
(a) The rights and duties created by this Agreement shall, in all cases, be
interpreted consistently with, and shall be in addition to (and not in lieu of),
the rights and duties created by the Credit Agreement and the other Loan
Documents. In the event that any provision of this Agreement shall be
inconsistent with any provision of any other Loan Document, such provision of
the other Loan Document shall govern.
(b) Except as provided in subsection (a) above, this Agreement represents
the final agreement of the Grantor and the Agent with respect to the matters
contained herein and may not be contradicted by evidence of prior or
contemporaneous agreements, or subsequent oral agreements, between the Grantor
and the Agent or any other Holder of Secured Obligations.
SECTION 22. Expenses. Grantor will upon demand pay to Agent and/or the
--------
Holders of Secured Obligations the amount of any and all reasonable expenses,
including the reasonable fees and disbursements of their counsel and of any
experts and agents, as provided in Section 9.7 of the Credit Agreement.
-----------
SECTION 23. Amendments, Etc. No amendment or waiver of any provision of
----------------
this Agreement nor consent to any departure by Grantor herefrom shall in any
event be effective unless the same shall be in writing and signed by Agent and
Grantor, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 24. Notices. All notices and other communications provided for
-------
hereunder shall be delivered in the manner set forth in Section 13.1 of the
------------
Credit Agreement.
SECTION 25. Continuing Security Interest; Termination. (a) Except as
-----------------------------------------
provided in Section 25(b), this Agreement shall create a continuing security
-------------
interest in the Collateral and shall (i) remain in full force and effect until
the later of the payment or satisfaction in full of the Secured Obligations
(other than contingent indemnity obligations) and the termination of the Credit
Agreement, (ii) be binding upon Grantor, its successors and assigns and (iii)
except to the extent that the rights of any transferor, or assignor are limited
by the terms of the Credit Agreement, inure, together with the rights and
remedies of Agent hereunder, to the benefit of Agent and any of the Holders of
Secured Obligations. Nothing set forth herein or in any other Loan Document is
intended or shall be construed to give any other Person any right, remedy or
claim under, to or in respect of this Agreement or any other Loan Document or
any Collateral. Grantor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession thereof or therefor.
-11-
<PAGE>
(b) Upon the payment in full in cash of the Secured Obligations (other
than contingent indemnity obligations) and the termination of the Credit
Agreement, this Agreement and the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to Grantor. Upon any
such termination of security interest, Grantor shall be entitled to the return,
upon its request and at its expense, of such of the Collateral held by Agent as
shall not have been sold or otherwise applied pursuant to the terms hereof and
Agent will, at Grantor's expense, execute and deliver to Grantor such other
documents as Grantor shall reasonably request to evidence such termination. In
connection with any sales of assets permitted under the Credit Agreement, the
Agent will release and terminate the liens and security interests granted under
this Agreement with respect to such assets.
SECTION 26. Severability. It is the parties' intention that this
------------
Agreement be interpreted in such a way that it is valid and effective under
applicable law. However, if one or more of the provisions of this Agreement
shall for any reason be found to be invalid or unenforceable, the remaining
provisions of this Agreement shall be unimpaired.
SECTION 27. GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
-------------
ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT
THERE. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO CONFLICTS OF LAW
PROVISIONS) OF THE STATE OF ILLINOIS. WITHOUT LIMITING THE FOREGOING, ANY
DISPUTE BETWEEN THE GRANTOR AND THE AGENT, ANY LENDER, OR ANY OTHER HOLDER OF
SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO
THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
SECTION 28. CONSENT TO JURISDICTION; JURY TRIAL.
-----------------------------------
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF
---------------------- --------------
THE PARTIES HERETO AGREES THAT ALL DISPUTES BETWEEN THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN CON TRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL
COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
CHICAGO, ILLINOIS. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT
PURSUANT TO THIS SUBSECTION ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. GRANTOR AGREES THAT THE AGENT, ANY LENDER OR ANY
-------------------
HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST GRANTOR OR
ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN
PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. GRANTOR AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON
THE COLLATERAL OR
-12-
<PAGE>
ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF SUCH PERSON. GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING
DESCRIBED IN THIS SUBSECTION.
(C) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
--------------------
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed
and delivered by its officer thereunto duly authorized as of the date first
above written.
PACIFIC MOTOR TRANSPORT COMPANY
By:_______________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as AGENT
By:_______________________________
Name: Greg Sjullie
Title: Vice President
-13-
<PAGE>
EXHIBIT A-1
To
Amended and Restated Security Agreement
Form of Landlord Agreement
--------------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0374
Chicago, Illinois 60670-0374
Attention: Timothy King
Ladies and Gentlemen:
Pacific Motor Transport Company, a California corporation ("Borrower"), is
the lessee under that certain lease dated ___________ with the undersigned,
covering certain premises located at _________________ (the "Premises") more
fully described in the lease attached hereto as Exhibit A (the "Lease"). The
---------
under signed is the sole owner of the Premises. Borrower has certain of its
assets located on the Premises.
Borrower has entered into certain financing arrangements with a group of
lenders (together with their sucessors and assigns and any replacement lenders,
the "Lenders") including The First National Bank of Chicago, as contractual
representative for the Lenders (together with its successors and assigns, the
"Agent") and, as a condition to the loans and other financial accommodations of
the Lenders to Borrower, the Agent and the Lenders require, among other things,
that Borrower grant liens in favor of the Agent for the benefit of itself and
the Lenders on all of Borrower's property located on the Premises
("Collateral").
To induce the Agent and the Lenders (together with their respective agents,
successors and assigns) to enter into said financing arrangements, and for other
good and valuable consideration, the undersigned hereby agrees that:
(i) the Lease is in full force and effect in the form attached
hereto as Exhibit A and represents the full and complete agreement between
Borrower and the undersigned concerning the Premises and the Lease shall
not be amended or modified in any material respect without Agent's prior
written consent, which consent shall not be unreasonably withheld;
(ii) it will not assert against any of Borrower's assets any
statutory or possessory liens, including, without limitation, rights of
levy or distraint for rent, all of which it hereby waives;
(iii) none of the Collateral located on the Premises shall be deemed
to be fixtures;
(iv) it will endeavor to notify Agent if it has knowledge of
Borrower's default on its lease obligations to the undersigned and allow
Agent thirty (30) days from the Agent's receipt of notice in which to cure
or cause Borrower to cure any such defaults; provided if such default
--------
cannot reasonably be cured within the thirty (30) day period, and provided
the Agent is diligently pursuing a cure, then Agent shall have a reasonable
period to cure such default;
<PAGE>
(vi) if, for any reason whatsoever, the undersigned either deems
itself entitled to redeem or to take possession of the Premises during the
term of Borrower's lease or intends to sell or otherwise transfer all or
any part of its interest in the Premises, the undersigned will notify Agent
five (5) days before taking such action;
(vii) if Borrower defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises,
will permit Agent to remain on the Premises for ninety (90) days after the
Agent gives the undersigned notice of default, provided Agent pays the
rental payments due under the Lease for the period of time Agent uses the
Premises and otherwise complies with the applicable terms of the Lease
during such period, or, at Agent's option, to remove the Col lateral from
the Premises within a reasonable time, not to exceed ninety (90) days after
the Agent gives the undersigned notice of default, provided Agent pays the
rental payments due under the Lease for the period of time Agent uses the
Premises and otherwise complies with the applicable terms of the Lease
during such period, and will not hinder Agent's actions in enforcing its
liens on the Collateral;
(viii) Borrower is not in default in any payment due under the Lease
and to the undersigned's knowledge, Borrower is not otherwise in default
under the Lease and there are no events or conditions which, by the passage
of time or giving of notice or both, would constitute a default thereunder
by Borrower;
(ix) the undersigned shall accept performance by the Agent of the
Borrower's obligations under the Lease as though the same had been
performed by the holder of the Borrower's interest therein at the time of
such performance. Upon the cure of any such default, any notice of
Landlord advising of any default or any action of the undersigned to
terminate the Lease or to interfere with the occupancy, use or enjoyment of
the Premises by reason thereof, which action has not been completed, shall
be deemed rescinded and the Lease shall continue in full force and effect.
The undersigned shall not be required to continue any possession or
continue any action to obtain possession upon the cure of any such default;
(x) if Borrower defaults on its obligations to the Lenders and the
Agent undertakes to enforce its security interest in the Collateral, the
Agent may, at its option and by written notice to the undersigned, (1)
lease the Premises from the undersigned on the same terms as set forth in
the Lease and exercise the other rights as lessee thereunder as described
therein and/or (2) assign the Lease and/or the attornment rights hereunder
to, or enter into a sublease with, a purchaser of the Collateral which
purchaser is reasonably acceptable to the undersigned, and the undersigned
shall cooperate with any such enforcement action or foreclosure and consent
to the assumption of the Lease, the sublet of the Premises or foreclosure
sale of the leasehold estate; and
(xi) in the event that Borrower shall become a debtor under the
Federal Bankruptcy Code (or any similar state law proceeding) and, in
connection therewith, Borrower shall reject the Lease as an executory
contract, then within thirty (30) days following such rejection, upon the
written request by the Agent, the undersigned shall enter into a new lease
of the Premises with the Agent or its designee (who shall be reasonably
acceptable to the undersigned), for the benefit of the Lenders which new
lease (1) shall be effective as of the date of the termination of the
Lease, (2) shall be for a term expiring as of the last day of the term of
the Lease, and (3) shall be on substantially the same terms and conditions
as the Lease (including any provisions for renewal or extension
-2-
<PAGE>
of the term of the Lease); provided that the Lender or such designee, as
--------
the case may be, shall be required, as a condition to the effectiveness of
such new lease, to pay the Lessor any amount equal to any rent remaining
unpaid by Borrower under the Lease.
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
Executed and delivered this ____ day of __________, 199_, at _____________.
THE LESSOR AGREES THAT NOTHING CONTAINED IN THIS WAIVER SHALL BE
CONSTRUED AS AN ASSUMPTION BY THE AGENT OR ANY OF THE OTHER LENDERS OF ANY
OBLIGATIONS OF BORROWER CONTAINED IN THE LEASE.
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S OBLIGATIONS
TO PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE PERFORM ITS
OBLIGATIONS TO THE LESSOR PURSUANT TO THE TERMS OF THE LEASE.
[Name of Lessor]
By:__________________________
Title:_______________________
Address:
____________________
____________________
____________________
EXHIBIT A
to
Landlord Agreement
Lease
-----
(attached hereto)
-3-
<PAGE>
EXHIBIT A-2
To
Amended and Restated Security Agreement
Form of Mortgagee Agreement
---------------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0374
Chicago, Illinois 60670-0374
Attention: Timothy King
Ladies and Gentlemen:
Pacific Motor Transport Company, a California corporation ("Borrower"), is
the lessee under that certain lease dated ___________ between Borrower, and
____________________ (the "Landlord[s]"), covering certain premises located at
_________________ (the "Premises") as more fully described on Exhibit A
---------
attached hereto (the "Lease"). The undersigned is the mortgagee under a
mortgage between the Landlord[s] and the undersigned covering the Premises (the
"Mortgage"). The undersigned is the sole mortgagee of the Premises. Borrower
has certain of its assets located on the Premises.
Borrower has entered into certain financing arrangements with a group of
lenders ("Lenders") including The First National Bank of Chicago, as contractual
representative for the Lenders (the "Agent") and, as a condition to the loans
and other financial accommodations of the Lenders to Borrower, the Agent and the
Lenders require, among other things, that Borrower grant liens in favor of the
Agent for the benefit of itself and the Lenders on all of Borrower's property
located on the Premises ("Collateral").
To induce the Agent and the Lenders (together with their respective agents,
successors and assigns) to enter into said financing arrangements, and for other
good and valuable consideration, the undersigned hereby agrees that:
(i) it consents to the merger referred to in the first paragraph
hereof and agrees that such merger shall not in any way be deemed to be a
default under the Mortgage;
(ii) it will not assert against any of the Collateral any statutory or
possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives;
(iii) none of the Collateral located on the Premises shall be deemed
to be fixtures;
(iv) it will notify Agent if the Landlord[s] default[s] on
[its][their] mortgage obligations to the undersigned and allow Agent thirty
(30) days from the Agent's receipt of notice in which to cure or cause
Borrower to cure any such defaults; provided if such default cannot
--------
reasonably be cured within the thirty (30) day period, and provided the
Agent is diligently pursuing a cure, then Agent shall have a reasonable
period to cure such default;
-4-
<PAGE>
(v) if, for any reason whatsoever, the undersigned either deems
itself entitled to take possession of the Premises during the term of the
Mortgage or intends to sell or otherwise transfer all or any part of its
interest in the Premises, the undersigned will notify Agent five (5) days
before taking such action;
(vi) if Borrower defaults on its obligations to the Agent or any
Lender and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises,
will permit Agent to remain on the Premises for ninety (90) days after
Agent gives the undersigned notice of default, provided Agent pays the
Lease payments due under the Lease for the period of time Agent uses the
Premises, or, at Agent's option, to remove the Collateral from the Premises
within a reasonable time, not to exceed ninety (90) days after Agent gives
the undersigned notice of default, provided Agent pays the rental payments
due under the Lease for the period of time Agent uses the Premises, and
will not hinder Agent's actions in enforcing its liens on the Collateral;
(viii) Landlord is not in default under the Mortgage, nor, to the
undersigned's knowledge, are there any events or conditions which, by the
passage of time or giving of notice or both, would constitute a default
thereunder by Landlord;
[(ix) the undersigned shall accept performance by the Agent of the
Landlord's obligations under the Mortgage as though the same had been
performed by the holder of the Landlord's interest therein at the time of
such performance. Upon the cure of any such default, any notice of the
undersigned advising of any default or any action of the undersigned to
terminate the Mortgage or to interfere with the occupancy, use or enjoyment
of the Premises by reason thereof, which action has not been completed,
shall be deemed rescinded and the Mortgage shall continue in full force and
effect. The undersigned shall not be required to continue any possession
or continue any action to obtain possession upon the cure of any such
default;]
[(x) if Borrower defaults on its obligations to the Lenders and the
Agent undertakes to enforce its security interest in the Collateral, the
Agent may, at its option and by written notice to the undersigned, (1)
lease the Premises from the Landlord on the same terms as set forth in the
Lease and exercise the other rights as lessee thereunder as described
therein and/or (2) assign the Lease and/or the attornment rights hereunder
to, or enter into a sublease with, a purchaser of the Collateral which
purchaser is reasonably acceptable to the Landlord, and the undersigned
shall cooperate with any such enforcement action or foreclosure and consent
to the assumption of the Lease, the sublet of the Premises or foreclosure
sale of the leasehold estate; and]
[(xi) in the event that Borrower shall become a debtor under the
Federal Bankruptcy Code (or any similar state law proceeding) and, in
connection therewith, Borrower shall reject the Lease as an executory
contract, then within thirty (30) days following such rejection, upon the
written request by the Agent, the Landlord shall enter into a new lease of
the Premises with the Agent or its designee (who shall be reasonably
acceptable to the undersigned), for the benefit of the Lenders which new
lease (1) shall be effective as of the date of the termination of the
Lease, (2) shall be for a term expiring as of the last day of the term of
the Lease, and (3) shall be on substantially the same terms and conditions
as the Lease (including any provisions for renewal or extension of the term
of the Lease); provided that the Lender or such designee, as the case may
--------
be, shall be
-5-
<PAGE>
required, as a condition to the effectiveness of such new lease, to pay the
Lessor any amount equal to any rent remaining unpaid by Borrower under the
Lease.]
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and the Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this waiver. The agreements contained herein
may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
Executed and delivered this ____ day of __________, 199_, at ____________.
THE UNDERSIGNED AGREES THAT NOTHING CONTAINED IN THIS WAIVER SHALL BE
CONSTRUED AS AN ASSUMPTION BY THE AGENT OR ANY OF THE OTHER LENDERS OF ANY
OBLIGATIONS OF THE LANDLORD CONTAINED IN THE MORTGAGE.
THIS WAIVER SHALL NOT IMPAIR OR OTHERWISE AFFECT BORROWER'S OBLIGATIONS
TO PAY RENT AND ANY OTHER SUMS PAYABLE BY BORROWER OR TO OTHERWISE PERFORM ITS
OBLIGATIONS TO THE LANDLORD PURSUANT TO THE TERMS OF THE LEASE.
[Name of Mortgagee]
By:__________________________
Title:_______________________
Address:
___________________
___________________
___________________
EXHIBIT A
to
Mortgagee Agreement
Lease
-----
(attached hereto)
-6-
<PAGE>
EXHIBIT B
TO
AMENDED AND RESTATED SECURITY AGREEMENT
Form of Bailee Letter
---------------------
The First National Bank
of Chicago, as Agent
One First National Plaza
Suite 0374
Chicago, Illinois 60670-0374
Attention: Timothy King
Ladies and Gentlemen:
Pacific Motor Transport Company, a California corporation ("Borrower"), now
does or hereafter may store certain of its merchandise, inventory, or other of
its personal property at premises located at _______________ (the "Premises")
owned or leased by the undersigned.
Borrower has entered into certain financing arrangements with a group of
lenders (the "Lenders") including The First National Bank of Chicago, as
contractual representative for the Lenders (the "Agent") and, as a condition to
the loans and other financial accommodations of the Lenders to Borrower, the
Agent and the Lenders require, among other things, that Borrower grant liens in
favor of the Agent for the benefit of itself and the Lenders on all of
Borrower's property located on the Premises ("Collateral").
To induce the Agent and the Lenders (together with their respective agents,
successors and assigns) to enter into said financing arrangements, and for other
good and valuable consideration, the undersigned hereby agrees that:
(i) it will not assert against any of Borrower's assets any statutory
or possessory liens, including, without limitation, rights of levy or
distraint for rent, all of which it hereby waives;
(ii) the Collateral shall be identifiable as being owned by Borrower
and kept reasonably separate and distinct from other property in our
possession;
(iii) none of the Collateral located on the Premises shall be deemed
to be fixtures;
(iv) if Borrower defaults on its obligations to the Lenders or the
Agent and, as a result, the Agent undertakes to enforce its security
interest in the Collateral, the undersigned will cooperate with the Agent
in its efforts to assemble all of the Collateral located on the Premises
and will permit the Agent to either remain on the Premises for ninety (90)
days after the Agent gives the undersigned notice of default or, at the
Agent's option, to remove the Collateral from the Premises within a
reasonable time, not to exceed ninety (90) days after the Agent gives the
undersigned notice of default, provided that the Agent leaves the Premises
in the same condition as existed immediately prior to such ninety (90) day
period, and
-7-
<PAGE>
shall indemnify the undersigned for any damages arising solely out of its
occupancy of the Premises, and will not hinder the Agent's actions in
enforcing its liens on the Collateral.
Any notice(s) required or desired to be given hereunder shall be directed
to the party to be notified at the address stated herein.
The agreements contained herein shall continue in force until all of
Borrower's obligations and liabilities to the Agent and Lenders are paid and
satisfied in full and all financing arrangements among the Agent, the Lenders
and Borrower have been terminated.
The undersigned will notify all successor owners, transferees, purchasers
and mortgagees of the existence of this agreement. The agreements contained
herein may not be modified or terminated orally and shall be binding upon the
successors, assigns and personal representatives of the undersigned, upon any
successor owner or transferee of any of the Premises, and upon any purchasers,
including any mortgagee, from the undersigned.
Executed and delivered this ____ day of __________, 199_, at
______________________.
[Name and Address of Warehouseman/Bailee/Consignee]
(By)_______________________
<PAGE>
SCHEDULE 1
TO
AMENDED AND RESTATED SECURITY AGREEMENT
Pledged Debt:
------------
None.
-2-
<PAGE>
SCHEDULE 2
TO
AMENDED AND RESTATED SECURITY AGREEMENT
Locations of Collateral:
-----------------------
1. 3746 Mt. Diablo Boulevard
Suite 220
Lafayette, California 94549
2. 1229 East Pleasant Run Road
Suite 300
De Soto, Texas 75115
3. 5329 South Main Street
Suite 100
Downers Grove, Illinois 60515
4. Imperial Square Office Park
Building B, Suite 204
12631 East Imperial Highway
Santa Fe Springs, California
5. 2861 South Beltline Road
Dallas, Texas 75253
6. 14 Embarcadero Cove
Oakland, California 94606
<PAGE>
SCHEDULE 2-A
TO
AMENDED AND RESTATED SECURITY AGREEMENT
Third Party Locations:
----------------------
Corporate Name of Description Maximum
Third Party Address of Relationship Amount
- ----------- ------- --------------- ------
None.
<PAGE>
SCHEDULE 2-B
TO
AMENDED AND RESTATED SECURITY AGREEMENT
Financing Statement Filing Locations:
-------------------------------------
1. 3746 Mt. Diablo Boulevard
Suite 220
Lafayette, California 94549
2. 1229 East Pleasant Run Road
Suite 300
De Soto, Texas 75115
3. 5329 South Main Street
Suite 100
Downers Grove, Illinois 60515
4. Imperial Square Office Park
Building B, Suite 204
12631 East Imperial Highway
Santa Fe Springs, California
5. 2861 South Beltline Road
Dallas, Texas 75253
6. 14 Embarcadero Cove
Oakland, California 94606
<PAGE>
SCHEDULE 3
TO
AMENDED AND RESTATED SECURITY AGREEMENT
Trade Names:
------------
1. Pacer
2. ABL-Trans
<PAGE>
SCHEDULE D TO EXHIBIT 10.22
The following agreements are substantially identical in all material respects
(except for the named parties) to Exhibit 10.22:
Security Agreement dated as of December 16, 1997 executed by the Company in
favor of the Agent.
Security Agreement dated as of December 16, 1997 executed by PIRS in favor of
the Agent.
Security Agreement dated as of December 16, 1997 executed by PRS in favor of
the Agent.
Security Agreement dated as of December 16, 1997 executed by ICI in favor of
the Agent.
Security Agreement dated as of December 16, 1997 executed by ICS in favor of
the Agent.
Security Agreement dated as of December 16, 1997 executed by IMCS in favor of
the Agent.
<PAGE>
EXHIBIT 10.23
Execution Copy
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (the "Pledge Agreement"), dated as of May 1,
1998, is executed by and between Pacer Logistics, Inc., a California corporation
(the "Pledgor"), and The First National Bank of Chicago, as "Agent" for itself
and for the "Holders of Secured Obligations" under the Credit Agreement defined
below. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed to such terms in the Credit Agreement (as
defined below).
WITNESSETH:
-----------
WHEREAS, the Pledgor has entered into an Amended and Restated Credit
Agreement dated as of December 16, 1997, by and among Pledgor, Pacific Motor
Transport Company, a California corporation ("Pacific Motor"), American
International Rail Services LLC, a Colorado limited liability company ("AIRS"),
American International Mechanical Services LLC, a Colorado limited liability
company ("AIMS"), Interstate Consolidation, Inc., a California corporation.
("ICI"), Interstate Consolidation Service, Inc., a California corporation
("ICS"), and Intermodal Container Service, Inc., a California corporation
("IMCS"), Pacer Integrated Logistics, Inc., a Delaware corporation ("PIL"),
Pacer Logistics, Inc., a California corporation ("Pacer") (Pledgor, Pacific
Motor, AIRS, AIMS, Acquisition Company, ICI, ICS, IMCS, PIL and Pacer being
collectively referred to as the "Borrowers"), the financial institutions party
thereto (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
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 and that certain Amendment No. 2 dated as of May 1, 1998, and as further
amended, supplemented, restaed or otherwise modified from time to time, the
"Credit Agreement"), pursuant to which the Lenders have agreed, subject to
certain conditions precedent, to make loans and other financial accommodations
to the Borrowers from time to time;
WHEREAS, Schedule I hereto sets forth certain of the Pledgor's
----------
Subsidiaries (the "Initial Pledged Subsidiaries");
WHEREAS, Pledgor may from time to time execute and deliver to the
Agent a supplement to this agreement substantially in the form of Exhibit A
---------
hereto (each such supplement, a "Pledge Supplement") setting forth additional
Subsidiaries of the Pledgor (the "Additional Pledged Subsidiaries") (the Initial
Pledged Subsidiaries and the Additional Pledged Subsidiaries, collectively
referred to herein as the "Pledged Subsidiaries"); and
WHEREAS, the Agent and the Lenders have required, as a condition to
their entering into the Credit Agreement, that the Pledgor execute and deliver
this Pledge Agreement;
<PAGE>
NOW, THEREFORE, for and in consideration of the foregoing and of any
financial accommodations or extensions of credit (including, without limitation,
any loan or advance by renewal, refinancing or extension of the agreements
described hereinabove or otherwise) heretofore, now or hereafter made to or for
the benefit of the Pledgor pursuant to the Credit Agreement or any other
agreement, instrument or document executed pursuant to or in connection
therewith, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor and the Agent hereby
agree as follows:
1. Pledge. The Pledgor hereby pledges to the Agent, for the benefit
------
of the Agent and the Holders of Secured Obligations, and grants to the Agent for
the benefit of the Agent and the Holders of Secured Obligations, a security
interest in, the collateral described in subsections 1.1 through 1.5 below
(collectively, the "Pledged Collateral"):
1.1 (a) The shares of the capital stock of the Pledged Subsidiaries
which are corporations, now or at any time or times hereafter owned by the
Pledgor (such shares being identified on Schedule I attached hereto or on
----------
any Schedule I attached to any applicable Pledge Supplement), and the
----------
certificates representing the shares of such capital stock, all options and
warrants for the purchase of shares of the stock of such Pledged
Subsidiaries now or hereafter held in the name of the Pledgor (all of said
capital stock, options and warrants and all capital stock held in the name
of the Pledgor as a result of the exercise of such options or warrants
being hereinafter collectively referred to as the "Pledged Stock"),
herewith, or from time to time, delivered to the Agent accompanied by stock
powers in the form of Exhibit B attached hereto and made a part hereof (the
---------
"Powers") duly executed in blank, and all dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of, or in exchange for, any or all of the Pledged
Stock.
(b) All additional shares of stock of the Pledged Subsidiaries
described in Section 1.1(a) above from time to time acquired by the Pledgor
--------------
in any manner, and the certificates representing such additional shares
(any such additional shares shall constitute part of the Pledged Stock and
the Agent is irrevocably authorized to unilaterally amend Schedule I hereto
----------
or any Schedule I to any applicable Pledge Supplement to reflect such
----------
additional shares), and all options, warrants, dividends, cash, instruments
and other rights and options from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares.
1.2 (a) The membership interest of Pledgor in the Pledged
Subsidiaries which are limited liability companies now or at any time or
times hereafter owned by the Pledgor, and any certificates representing
such membership interest in the Pledged Subsidiaries (such membership
interests being identified on Schedule I attached hereto or on any
----------
Schedule I attached to any applicable Pledge Supplement), all of the right,
----------
title and interest of the Pledgor in, to and under its respective
percentage interest, shares or units as a member and all investment
property in respect of such membership interest, including, without
limitation, Pledgor's interest in (or allocation of) the profits, losses,
income, gains, deductions, credits or similar items of such Pledged
Subsidiaries and the right to
-2-
<PAGE>
receive distributions of such Pledged Subsidiaries' cash, other property,
assets, and all options and warrants for the purchase of membership
interests, whether now existing or hereafter arising, whether arising under
the terms of the Certificates of Formation, the Limited Liability Company
Agreements or any of the other organizational documents (such documents
hereinafter collectively referred to as the "Operating Agreements") of such
Pledged Subsidiaries, or at law or in equity, or otherwise and any and all
of the proceeds thereof (all of said membership interests, certificates,
and warrants being hereinafter collectively referred to as the "Pledged
Membership Interests") herewith delivered to the Agent, and all
distributions, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of, or in exchange
for, any or all of the Pledged Membership Interests.
(b) Any additional membership interests in the Pledged Subsidiaries
described in Section 1.2(a) above from time to time acquired by the Pledgor
--------------
in any manner, and any certificates representing such additional membership
interests or any additional percentage interests, shares, units, options or
warrants of membership interests in Pledged Subsidiaries (any such
additional interests shall constitute part of the Pledged Membership
Interests and the Agent is irrevocably authorized to unilaterally amend
Schedule I hereto or any Schedule I to any applicable Pledge Supplement
---------- ----------
from time to time to reflect such additional interests), and all options,
warrants, distributions, investment property, cash, instruments and other
rights and options from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such interests
and will promptly thereafter deliver to the Agent, a certificate duly
executed by the Pledgor describing such percentage interests, certificates,
units, options or warrants and certifying that the same have been duly
pledged hereunder.
1.3 (a) All of the partnership interests of the Pledgor, in and to
the Pledged Subsidiaries which are partnerships now or at any time or times
hereafter owned by the Pledgor (such partnership interests being identified
on Schedule I attached hereto to or on Schedule I to any applicable Pledge
---------- ----------
Supplement), the property (and interests in property) that is owned by such
Pledged Subsidiaries, all of the Pledgor's rights, if any, to participate
in the management of such Pledged Subsidiaries, all rights, privileges,
authority and powers of the Pledgor as owner or holder of its partnership
interest in such Pledged Subsidiaries, including, but not limited to, all
contract rights related thereto, all rights, privileges, authority and
powers relating to the economic interests of the Pledgor as owner or holder
of its partnership interests in such Pledged Subsidiaries, including,
without limitation, all contract rights related thereto, all options and
warrants of the Pledgor for the purchase of any partnership interest in
such Pledged Subsidiaries, all documents and certificates representing or
evidencing the Pledgor's partnership interest in such Pledged Subsidiaries,
all of the Pledgor's interest in and to the profits and losses of such
Pledged Subsidiaries and the Pledgor's right as a partner of such Pledged
Subsidiaries to receive distributions of such Pledged Subsidiaries' assets,
upon complete or partial liquidation or otherwise, all of the Pledgor's
right, title and interest to receive payments of principal and interest on
any loans and/or other extensions of credit made by the Pledgor or its
Affiliates to such Pledged Subsidiaries, all distributions, cash,
-3-
<PAGE>
instruments and other property from time to time received, receivable or
otherwise distributed in respect of, or in exchange for, the Pledgor's
partnership interest in such Pledged Subsidiaries, and any other right,
title, interest, privilege, authority and power of the Pledgor in or
relating to such Pledged Subsidiaries, all whether now existing or
hereafter arising, and whether arising under any partnership agreements of
such Pledged Subsidiaries (as the same may be amended, modified or restated
from time to time, the "Partnership Agreements") or otherwise, or at law or
in equity and all books and records of the Pledgor pertaining to any of the
foregoing (all of the foregoing being referred to collectively as the
"Pledged Partnership Interests").
(b) Any additional partnership interests in the Pledged Subsidiaries
described in Section 1.3(a) above from time to time acquired by the Pledgor
--------------
in any manner, (any such additional interests shall constitute part of the
Pledged Partnership Interests and the Agent is irrevocably authorized to
unilaterally amend Schedule I hereto or any Schedule I to any applicable
---------- ----------
Pledge Supplement from time to time to reflect such additional interests),
and all options, warrants, distributions, investment property, cash,
instruments and other rights and options from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of such interests and will promptly thereafter deliver to the Agent, a
certificate duly executed by the Pledgor describing such percentage
interests, options or warrants and certifying that the same have been duly
pledged hereunder.
1.4 The property and interests in property described in Section 3
---------
below; and
1.5 All proceeds of the collateral described in subsections 1.1
through 1.4 above.
2. Security for Obligations. The Pledged Collateral secures the
------------------------
prompt payment, performance and observance of the Secured Obligations.
3. Pledged Collateral Adjustments. If, during the term of this
------------------------------
Pledge Agreement:
(a) Any stock dividend, reclassification, readjustment or other
change is declared or made in the capital structure of any of the Pledged
Subsidiaries, or any option included within the Pledged Collateral is
exercised, or both, or
(b) Any subscription warrants or any other rights or options shall be
issued in connection with the Pledged Collateral,
then all new, substituted and additional membership or partnership interests,
certificates, shares, warrants, rights, options or other securities, issued by
reason of any of the foregoing, shall be immediately delivered to and held by
the Agent under the terms of this Pledge Agreement and shall constitute Pledged
Collateral hereunder; provided, however, that nothing contained in this Section
-------- ------- -------
3 shall be deemed to permit any distribution or stock dividend, issuance of
- -
additional membership or partnership interests or stock, warrants, rights or
options, reclassification,
-4-
<PAGE>
readjustment or other change in the capital structure of any Pledged Subsidiary
which is not expressly permitted in the Credit Agreement.
4. Subsequent Changes Affecting Pledged Collateral. The Pledgor
-----------------------------------------------
represents and warrants that it has made its own arrangements for keeping itself
informed of changes or potential changes affecting the Pledged Collateral
(including, but not limited to, rights to convert, rights to subscribe, payment
of dividends, cash distributions or other distributions, reorganization or other
exchanges, tender offers and voting rights), and the Pledgor agrees that neither
the Agent nor any of the Holders of Secured Obligations shall have any
obligation to inform the Pledgor of any such changes or potential changes or to
take any action or omit to take any action with respect thereto. The Agent may,
after the occurrence of a Default, without notice and at its option, transfer or
register the Pledged Collateral or any part thereof into its or its nominee's
name with or without any indication that such Pledged Collateral is subject to
the security interest hereunder. In addition, the Agent may after the
occurrence of a Default exchange certificates or instruments representing or
evidencing Pledged Shares, Pledged Membership Interests or Pledged Partnership
Interests for certificates or instruments of smaller or larger denominations.
5. Representations and Warranties. The Pledgor represents and
------------------------------
warrants as follows:
(a) The Pledgor is the sole legal and beneficial owner of 100% of the
issued and outstanding common stock, membership interests or
partnership interests, as applicable, of the Pledged Subsidiaries,
free and clear of any Lien except for the security interest created by
this Pledge Agreement;
(b) The Pledgor has full corporate power and authority to enter into
this Pledge Agreement;
(c) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Collateral (other than
those arising under applicable federal and state securities laws);
(d) The Pledgor has the right to vote, pledge and grant a security
interest in or otherwise transfer such Pledged Collateral free of any
Liens (other than those arising under applicable federal and state
securities laws);
(e) The Pledgor owns the Pledged Collateral free and clear of any
pledge, mortgage, hypothecation, lien, charge, encumbrance or any
security interest therein, except for the pledge and security interest
granted to the Agent and the Holders of Secured Obligations hereunder;
(f) The pledge of the Pledged Collateral does not violate (1) the
articles, by-laws, Operating Agreements or Partnership Agreements, as
applicable, of the Pledged Subsidiaries, or any indenture, mortgage,
bank loan or credit agreement to which
-5-
<PAGE>
the Pledgor or any of the Pledged Subsidiaries is a party or by which
any of their respective properties or assets may be bound; or (2) any
restriction on such transfer or encumbrance of such Pledged
Collateral.
(g) The Pledgor shall cause the Pledged Subsidiaries which are
limited liability companies or partnerships to make a notation on
their respective records, which notation shall indicate the security
interest granted hereby, and the Pledgor agrees to execute and deliver
to each such Pledged Subsidiary a pledge instruction ("Pledge
Instruction") substantially in the form of Exhibit C hereto;
---------
(h) No authorization, approval, or other action by, and no notice to
or filing with, any governmental authority or regulatory body is
required either (i) for the pledge of the Pledged Collateral pursuant
to this Pledge Agreement or for the execution, delivery or performance
of this Pledge Agreement by the Pledgor or (ii) for the exercise by
the Agent of the voting or other rights provided for in this Pledge
Agreement or the remedies in respect of the Pledged Collateral
pursuant to this Pledge Agreement (except as may be required in
connection with such disposition by laws affecting the offering and
sale of securities generally);
(i) Upon delivery of each of the certificates representing the
Pledged Shares, the pledge of the Pledged Shares pursuant to this
Pledge Agreement will create a valid and perfected first priority
security interest in the Pledged Shares, in favor of the Agent for the
benefit of the Agent and the Holders of Secured Obligations, securing
the payment and performance of the Secured Obligations; and
(j) The Powers are duly executed and give the Agent the authority
they purport to confer.
6. Voting Rights. During the term of this Pledge Agreement, and
-------------
except as provided in this Section 6 below, the Pledgor shall have (i) the right
---------
to vote the Pledged Stock, Pledged Membership Interests or Pledged Partnership
Interests on all governing questions in a manner not inconsistent with the terms
of this Pledge Agreement, the Credit Agreement and any other agreement,
instrument or document executed pursuant thereto or in connection therewith and
(ii) the right to be a member or a partner of all the Pledged Subsidiaries which
are limited liability companies or partnerships, respectively. After the
occurrence of a Default, the Agent or the Agent's nominee may, at the Agent's or
such nominee's option and following written notice from the Agent to the
Pledgor, (i) exercise all voting powers pertaining to the Pledged Collateral,
including the right to take action by shareholder consent and (ii) become a
member or partner of each and all of the Pledged Subsidiaries which are limited
liability companies or partnerships, respectively, and as such (x) exercise, or
direct the Pledgor as to the exercise of all voting, consent, managerial,
election and other membership rights to the applicable Pledged Collateral and
(y) exercise, or direct the Pledgor as to the exercise of any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to the applicable Pledged Collateral, as if the Agent were the
absolute owner thereof, all without liability except to account for property
actually received by it, but the Agent shall have no duty to exercise any of
-6-
<PAGE>
the aforesaid rights, privileges or options and shall not be responsible for any
failure so to do or delay in so doing. Such authorization shall constitute an
irrevocable voting proxy from the Pledgor to the Agent or, at the Agent's
option, to the Agent's nominee.
7. Dividends and Other Distributions. (a) So long as no Default
---------------------------------
shall have occurred:
(i) The Pledgor shall be entitled to receive and retain any and all
dividends, cash distributions and interest paid in respect of the Pledged
Collateral to the extent such distributions are not prohibited by the
Credit Agreement, provided, however, that any and all
-------- -------
(A) distributions, dividends and interest paid or payable
other than in cash with respect to, and instruments and other property
received, receivable or otherwise distributed with respect to, or in
exchange for, any of the Pledged Collateral;
(B) dividends and other distributions paid or payable in
cash with respect to any of the Pledged Collateral on account of a
partial or total liquidation or dissolution or in connection with a
reduction of capital, capital surplus or paid-in surplus; and
(C) cash paid, payable or otherwise distributed with
respect to principal of, or in redemption of, or in exchange for, any
of the Pledged Collateral;
shall be Pledged Collateral, and shall be forthwith delivered to the Agent
to hold, for the benefit of the Agent and the Lenders, as Pledged
Collateral and shall, if received by the Pledgor, be received in trust for
the Agent, for the benefit of the Agent and the Holders of Secured
Obligations, be segregated from the other property or funds of the Pledgor,
and be delivered immediately to the Agent as Pledged Collateral in the same
form as so received (with any necessary endorsement); and
(ii) The Agent shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
receive the dividends or interest payments which it is authorized to
receive and retain pursuant to clause (i) above.
----------
(b) After the occurrence of a Default:
(i) All rights of the Pledgor to receive the dividends, distributions
and interest payments which it would otherwise be authorized to receive and
retain pursuant to Section 7(a)(i) hereof shall cease, and all such rights
---------------
shall thereupon become vested in the Agent, for the benefit of the Agent
and the Holders of Secured Obligations, which shall thereupon have the sole
right to receive and hold as Pledged Collateral such dividends,
distributions and interest payments;
-7-
<PAGE>
(ii) All dividends, distributions and interest payments which are
received by the Pledgor contrary to the provisions of clause (i) of this
----------
Section 7(b) shall be received in trust for the Agent, for the benefit of
------------
the Agent and the Holders of Secured Obligations, shall be segregated from
other funds of the Pledgor and shall be paid over immediately to the Agent
as Pledged Collateral in the same form as so received (with any necessary
endorsements);
(iii) After the occurrence and during the continuation of a Default,
the Pledgor shall, upon the request of the Agent, at Pledgor's expense, do
or cause to be done all such other acts and things as may be necessary to
make such sale of the Pledged Collateral or any part thereof valid and
binding and in compliance with applicable law.
The Pledgor will reimburse the Agent and/or the Holders of Secured Obligations
for all expenses incurred by the Agent and/or the Holders of Secured
Obligations, including, without limitation, reasonable attorneys' and
accountants' fees and expenses in connection with the foregoing. Upon or at any
time after the occurrence of a Default, if the Agent determines that, prior to
any public offering of any securities constituting part of the Pledged
Collateral, such securities should be registered under the Securities Act and/or
registered or qualified under any other federal or state law and such
registration and/or qualification is not practicable, then the Pledgor agrees
that it will be commercially reasonable if a private sale, upon at least five
(5) Business Days' notice to the Pledgor, is arranged so as to avoid a public
offering, even though the sales price established and/or obtained at such
private sale may be substantially less then prices which could have been
obtained for such security on any market or exchange or in any other public
sale. The Pledgor hereby indemnifies and holds harmless the Agent and the
Holders of Secured Obligations for any and all liabilities incurred by either
the Agent or the Holders of Secured Obligations as a result of becoming a member
or a partner of any of the Pledged Subsidiaries, except to the extent caused by
the gross negligence or wilful misconduct of the Agent and the Holders of
Secured Obligations.
8. Transfers and Other Liens. The Pledgor agrees that it will not
-------------------------
(i) sell or otherwise dispose of, or grant any option with respect to, any of
the Pledged Collateral without the prior written consent of the Agent, or (ii)
create or permit to exist any Lien upon or with respect to any of the Pledged
Collateral, except for the security interest under this Pledge Agreement.
9. Remedies. (a) The Agent shall have, in addition to any other
--------
rights given under this Pledge Agreement or by law, all of the rights and
remedies with respect to the Pledged Collateral of a secured party under the
Uniform Commercial Code as in effect in the State of Illinois. After the
occurrence of a Default and following written notice to the Pledgor, the Agent
(personally or through an agent) is hereby authorized and empowered to transfer
and register in its name or in the name of its nominee the whole or any part of
the Pledged Collateral, to exercise all voting rights with respect thereto, to
collect and receive all cash dividends or distributions and other distributions
made thereon, and to otherwise act with respect to the Pledged Collateral as
though the Agent were the outright owner thereof (in the case of a limited
liability company, the sole member and manager thereof and, in the case of a
partnership, a
-8-
<PAGE>
partner thereof), the Pledgor hereby irrevocably constituting and appointing the
Agent as the proxy and attorney-in-fact of the Pledgor, with full power of
substitution to do so, such proxy becoming effective upon the occurrence of a
Default and following written notice thereof; provided, however, that the Agent
shall have no duty to exercise any such right or to preserve the same and shall
not be liable for any failure to do so or for any delay in doing so. In
addition, after the occurrence of a Default, the Agent shall have such powers of
sale and other powers as may be conferred by applicable law. With respect to the
Pledged Collateral or any part thereof which shall then be in or shall
thereafter come into the possession or custody of the Agent or which the Agent
shall otherwise have the ability to transfer under applicable law, the Agent
may, in its sole discretion, without notice except as specified below, after the
occurrence of a Default, sell or cause the same to be sold at any exchange,
broker's board or at public or private sale, in one or more sales or lots, at
such price as the Agent may deem best, for cash or on credit or for future
delivery, without assumption of any credit risk, and the purchaser of any or all
of the Pledged Collateral so sold shall thereafter own the same, absolutely free
from any claim, encumbrance or right of any kind whatsoever. The Agent and each
of the Holders of Secured Obligations may, in its own name, or in the name of a
designee or nominee, buy the Pledged Collateral at any public sale and, if
permitted by applicable law, buy the Pledged Collateral at any private sale. The
Pledgor will pay to the Agent all reasonable expenses (including, without
limitation, court costs and reasonable attorneys' and paralegals' fees and
expenses) of, or incidental to, the enforcement of any of the provisions hereof.
The Agent agrees to distribute any proceeds of the sale of the Pledged
Collateral in accordance with the Credit Agreement and the Pledgor shall remain
liable for any deficiency following the sale of the Pledged Collateral.
(b) Unless any of the Pledged Collateral threatens to decline
speedily in value or is or becomes of a type sold on a recognized market, the
Agent will give the Pledgor reasonable notice of the time and place of any
public sale thereof, or of the time after which any private sale or other
intended disposition is to be made. Any sale of the Pledged Collateral
conducted in conformity with reasonable commercial practices of banks,
commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, the Pledgor agrees that any requirements of
reasonable notice shall be met if such notice is received by the Pledgor as
provided in Section 19 below at least five (5) Business Days before the time of
----------
the sale or disposition; provided, however, that Agent may give any shorter
notice that is commercially reasonable under the circumstances. Any other
requirement of notice, demand or advertisement for sale is waived, to the extent
permitted by law.
(c) In view of the fact that federal and state securities laws may
impose certain restrictions on the method by which a sale of the Pledged
Collateral may be effected after a Default, the Pledgor agrees that after the
occurrence of a Default, the Agent may, from time to time, attempt to sell all
or any part of the Pledged Collateral by means of a private placement
restricting the bidders and prospective purchasers to those who are qualified
and will represent and agree that they are purchasing for investment only and
not for distribution. In so doing, the Agent may solicit offers to buy the
Pledged Collateral, or any part of it, from a limited number of investors deemed
by the Agent, in its reasonable judgment, to be financially responsible parties
-9-
<PAGE>
who might be interested in purchasing the Pledged Collateral. If the Agent
solicits such offers from not less than four (4) such investors, then the
acceptance by the Agent of the highest offer obtained therefrom shall be deemed
to be a commercially reasonable method of disposing of such Pledged Collateral;
provided, however, that this Section does not impose a requirement that the
Agent solicit offers from four or more investors in order for the sale to be
commercially reasonable.
10. Security Interest Absolute. All rights of the Agent and
--------------------------
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of:
(i) Any lack of validity or enforceability of the Credit Agreement
or any other agreement or instrument relating thereto;
(ii) Any change in the time, manner or place of payment of, or in
any other term of, all or any part of the Liabilities, or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement;
(iii) Any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guaranty, for all or any part of the Liabilities; or
(iv) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Pledgor in respect of the
Liabilities or of this Pledge Agreement.
11. Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints
--------------------------------
the Agent its attorney-in-fact, with full authority, in the name of the Pledgor
or otherwise, after the occurrence of a Default, from time to time in the
Agent's sole discretion, to take any action and to execute any instrument which
the Agent may deem necessary or advisable to accomplish the purposes of this
Pledge Agreement, including, without limitation, to receive, endorse and collect
all instruments made payable to the Pledgor representing any dividend,
distribution, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same and to
arrange for the transfer of all or any part of the Pledged Collateral on the
books of the Pledged Subsidiaries to the name of the Agent or the Agent's
nominee.
12. Waivers. (i) The Pledgor waives presentment and demand for
-------
payment of any of the Liabilities, protest and notice of dishonor or Default
with respect to any of the Liabilities and all other notices to which the
Pledgor might otherwise be entitled except as otherwise expressly provided
herein or in the Credit Agreement.
(ii) The Pledgor understands and agrees that its obligations and
liabilities under this Pledge Agreement shall remain in full force and effect,
notwithstanding foreclosure of any real property securing all or any part of the
Secured Obligations by trustee sale or any other reason impairing the right of
the Pledgor, the Agent or any of the Holders of Secured Obligations
-10-
<PAGE>
to proceed against any Pledged Subsidiary, any other guarantor of any Pledged
Subsidiary or their respective or such guarantor's property. The Pledgor agrees
that all of its obligations under this Pledge Agreement shall remain in full
force and effect without defense, offset or counterclaim of any kind,
notwithstanding that the Pledgor's rights against any Pledged Subsidiary may be
impaired, destroyed or otherwise affected by reason of any action or inaction on
the part of the Agent or any Holder of Secured Obligations.
(iii) The Pledgor hereby expressly waives the benefits of Section
2815 of the California Civil Code (or any similar law in any other jurisdiction)
purporting to allow a guarantor or pledgor to revoke a continuing guaranty or
pledge with respect to any transactions occurring after the date of the guaranty
or pledge.
13. Term. This Pledge Agreement shall remain in full force and
----
effect until the Secured Obligations have been fully and indefeasibly paid in
cash and the Credit Agreement has terminated pursuant to its terms. Upon the
termination of this Pledge Agreement as provided above (other than as a result
of the sale of the Pledged Collateral), the Agent will release the security
interest created hereunder and, if it then has possession of the Pledged Stock,
will deliver the Pledged Stock and the Powers to the Pledgor.
14. Definitions. The singular shall include the plural and vice
-----------
versa and any gender shall include any other gender as the context may require.
15. Successors and Assigns. This Pledge Agreement shall be binding
----------------------
upon and inure to the benefit of the Pledgor, the Agent, for the benefit of
itself and the Holders of Secured Obligations, and their respective successors
and assigns. The Pledgor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession of or for the Pledgor.
16. GOVERNING LAW. THIS PLEDGE AGREEMENT HAS BEEN EXECUTED AND
-------------
DELIVERED BY THE PARTIES HERETO IN CHICAGO, ILLINOIS. ANY DISPUTE BETWEEN THE
AGENT AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT
TO WHICH THE PLEDGOR IS A PARTY, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY,
OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT
THE CONFLICTS OF LAW PROVISIONS, OF THE STATE OF ILLINOIS.
17. Consent to Jurisdiction; Counterclaims. (a) Exclusive
-------------------------------------- ---------
Jurisdiction. Except as provided in subsection (b) of this Section 17, the
- ------------ -------------- ----------
Agent, on behalf of itself and the Holders of Secured Obligations, and the
Pledgor agree that all disputes between them arising out of or related to the
relationship established between them in connection with this Pledge Agreement
or any other Loan Document to which the Pledgor is a party, whether arising in
contract, tort, equity, or otherwise, shall be resolved only by state or federal
courts located in Chicago, Illinois, but the parties acknowledge that any
appeals from those courts may have to be heard by a court located outside of
Chicago, Illinois.
(b) Other Jurisdictions. The Agent shall have the right to proceed
-------------------
against the Pledgor or its real or personal property in a court in any location
to enable the Agent to obtain
-11-
<PAGE>
personal jurisdiction over the Pledgor, to realize on the Pledged Collateral or
any other security for the Liabilities or to enforce a judgment or other court
order entered in favor of the Agent. The Pledgor shall not assert any permissive
counterclaims in any proceeding brought by the Agent arising out of or relating
to this Pledge Agreement.
18. Venue; Forum Non Conveniens. Each of the Pledgor and the Agent
---------------------------
waives any objection that it may have (including, without limitation, any
objection to the laying of venue or based on forum non conveniens) to the
----- --- ----------
location of the court in which any proceeding is commenced in accordance with
Section 17.
- ----------
19. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE AGENT WAIVES
--------------------
ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE, BETWEEN THE AGENT AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE
TRANSACTIONS CONTEMPLATED BY THIS PLEDGE AGREEMENT, ANY LOAN DOCUMENT TO WHICH
THE PLEDGOR IS A PARTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED
OR DELIVERED IN CONNECTION THEREWITH. EITHER THE PLEDGOR OR THE AGENT MAY FILE
AN ORIGINAL COUNTERPART OR A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
20. Waiver of Bond. The Pledgor waives the posting of any bond
--------------
otherwise required of the Agent in connection with any judicial process or
proceeding to realize on the Pledged Collateral or any other security for the
Liabilities, to enforce any judgment or other court order entered in favor of
the Agent, or to enforce by specific performance, temporary restraining order,
or preliminary or permanent injunction, this Pledge Agreement or any other
agreement or document between the Agent and the Pledgor.
21. Advice of Counsel. The Pledgor represents and warrants to the
-----------------
Agent and the Holders of Secured Obligations that it has consulted with its
legal counsel regarding all waivers under this Pledge Agreement, including
without limitation those under Section 12 and Sections 16 through 20 hereof,
---------- ----------- --
that it believes that it fully understands all rights that it is waiving and the
effect of such waivers, that it assumes the risk of any misunderstanding that it
may have regarding any of the foregoing, and that it intends that such waivers
shall be a material inducement to the Agent and the Holders of Secured
Obligations to extend the indebtedness secured hereby.
22. Severability. Whenever possible, each provision of this Pledge
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but, if any provision of this Pledge Agreement shall be held to
be prohibited or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Pledge Agreement.
23. Further Assurances. The Pledgor agrees that it will cooperate
------------------
with the Agent and will execute and deliver, or cause to be executed and
delivered, all such other stock powers, proxies, instruments and documents, and
will take all such other actions, including, without
-12-
<PAGE>
limitation, the execution and filing of financing statements, as the Agent may
reasonably request from time to time in order to carry out the provisions and
purposes of this Pledge Agreement.
24. The Agent's Duty of Care. The Agent shall not be liable for any
------------------------
acts, omissions, errors of judgment or mistakes of fact or law including,
without limitation, acts, omissions, errors or mistakes with respect to the
Pledged Collateral, except for those arising out of or in connection with the
Agent's (i) gross negligence or willful misconduct, or (ii) failure to use
reasonable care with respect to the safe custody of the Pledged Collateral in
the Agent's possession. Without limiting the generality of the foregoing, the
Agent shall be under no obligation to take any steps necessary to preserve
rights in the Pledged Collateral against any other parties but may do so at its
option. All expenses incurred in connection therewith shall be for the sole
account of the Pledgor, and shall constitute part of the Liabilities secured
hereby.
25. Notices. All notices and other communications required or
-------
desired to be served, given or delivered hereunder shall be made in writing or
by a telecommunications device capable of creating a written record and shall be
given in the manner and to the addresses set forth in the Credit Agreement.
26. Amendments, Waivers and Consents. No amendment or waiver of any
--------------------------------
provision of this Pledge Agreement nor consent to any departure by the Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Agent pursuant to the terms of the Credit Agreement, and then
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
27. Section Headings. The section headings herein are for
----------------
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.
28. Execution in Counterparts. This Pledge Agreement may be executed
-------------------------
in any number of counterparts, each of which shall be an original, but all of
which shall together constitute one and the same agreement.
29. Merger. This Pledge Agreement represents the final agreement of
------
the Pledgor with respect to the matters contained herein and may not be
contradicted by evidence of prior or contemporaneous agreements, or subsequent
oral agreements, between the Pledgor and the Agent or any Holder of Secured
Obligations.
30. No Strict Construction. The parties hereto have participated
----------------------
jointly in the negotiation and drafting of this Pledge Agreement. In the event
an ambiguity or question of intent or interpretation arises, this Pledge
Agreement shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Pledge Agreement.
-13-
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Agent have executed this
Pledge Agreement as of the date set forth above.
PACER LOGISTICS, INC.
By:_____________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO, as
Agent for itself and the Holders of
Secured Obligations
By:_____________________________________
Name:
Title:
-14-
<PAGE>
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing
Pledge Agreement, agrees promptly to note on its books the security interests
granted under such Pledge Agreement, and waives any rights or requirement at any
time hereafter to receive a copy of such Pledge Agreement in connection with the
registration of any Pledged Collateral in the name of the Agent or its nominee
or the exercise of voting rights by the Agent or its nominee.
INTERSTATE CONSOLIDATION, INC.
By:_________________________________
Name:
Title:
INTERSTATE CONSOLIDATION SERVICE, INC.
By: _______________________________
Name:
Title:
-15-
<PAGE>
SCHEDULE I
----------
to
PLEDGE AGREEMENT
dated as of May 1, 1998
PLEDGED SUBSIDIARIES
--------------------
Pledged Stock Certificates
--------------------------
<TABLE>
<CAPTION>
# Shares owned by
the Pledgor
Name Subject to Pledge Certificate Number
- ---- ----------------- ------------------
<S> <C> <C>
Interstate Consolidation, Inc.
Interstate Consolidation Service, Inc.
</TABLE>
Pledged Membership Interests
----------------------------
% Membership Interest
owned by the
Name Pledgor being Pledged
- ---- -------------------------
Pledged Partnership Interests
-----------------------------
% Partnership Interest
owned by the
Name Pledgor being Pledged
- ---- ---------------------
<PAGE>
EXHIBIT A
to
PLEDGE AGREEMENT
dated as of May 1, 1998
Form of Pledge Supplement
-------------------------
Reference is hereby made to the Pledge Agreement (the "Pledge Agreement")
dated as of the 1st day of May, 1998, by and between Pacer Logistics, Inc. (the
"Pledgor") and The First National Bank ofChicago, as agent (the "Agent"),
whereby the Pledgor has pledged certain capital stock of certain of its
subsidiaries as collateral to the Agent, for the ratable benefit of the Holders
of Secured Obligations, as more fully described in the Pledge Agreement. This
Supplement is a "Pledge Supplement" as defined in the Pledge Agreement and is,
together with the acknowledgments, certificates and Powers delivered herewith,
subject in all respects to the terms and provisions of the Pledge Agreement.
Capitalized terms used herein and not defined herein shall have the meanings
given to them in the Pledge Agreement.
By its execution below, the Pledgor hereby agrees that (i) the [capital
stock of the corporation(s)] [membership interests of the limited liability
company(s)] [partnership interests of the partnership(s)] listed on the Schedule
--------
I hereto shall be pledged to the Agent as additional collateral pursuant to
- -
Section 1[1][2][3](b) of the Pledge Agreement, (ii) such property shall be
- ---------------------
considered [Pledged Stock] [Pledged Membership Interests] [Pledged Partnership
Interests] under the Pledge Agreement and be a part of the Pledged Collateral
pursuant to Section 1 of the Pledge Agreement, and (iii) each such
---------
[[corporation(s)] [limited liability company(ies)] [partnership(s)] listed on
the Schedule I hereto shall be considered a Pledged Subsidiary for purposes of
----------
the Pledge Agreement.
By its execution below, the Pledgor represents and warrants that it has
full corporate power and authority to execute this Pledge Supplement and that
the representations and warranties contained in Section 5 of the Pledge
---------
Agreement are true and correct in all respects as of the date hereof and after
taking into account the pledge of the additional [Pledged Stock] [Pledged
Membership Interests] [Pledged Partnership Interests] relating hereto.
IN WITNESS WHEREOF, the Pledgor has executed and delivered this Pledge
Supplement to the Pledge Agreement as of this __________ day of _________, ____.
PACER LOGISTICS, INC.
By:___________________________
Its:
<PAGE>
SCHEDULE I
TO
PLEDGE SUPPLEMENT
ADDITIONAL PLEDGED STOCK
------------------------
Shares of Common
Stock owned by
the Pledgor Subject
Name Certificate Number to Pledge
- ---- ------------------ -------------------
[Name of
Additional
Pledged
Subsidiary] [______] [______]
PLEDGED MEMBERSHIP INTERESTS
----------------------------
Percentage of
Membership Interest
owned by the
Name Pledgor being Pledged
- ---- -------------------------
[Name of Additional
Pledged Subsidiary] 100%
PLEDGED PARTNERSHIP INTERESTS
-----------------------------
Percentage of
Partnership Interest
owned by the
Name Pledgor being Pledged
- ---- -------------------------
[Name of Additional
Pledged Subsidiary] 100%
<PAGE>
ACKNOWLEDGMENT
TO
PLEDGE SUPPLEMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing
Pledge Supplement together with a copy of the Pledge Agreement, agrees promptly
to note on its books the security interests granted under such Pledge Agreement,
and waives any rights or requirement at any time hereafter to receive a copy of
such Pledge Agreement in connection with the registration of any Pledged
Collateral in the name of the Agent or its nominee or the exercise of voting
rights by the Agent or its nominee.
[NAME[S] OF ADDITIONAL PLEDGED
SUBSIDIARY[IES]]
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT B
to
PLEDGE AGREEMENT
dated as of May 1, 1998
Form of Stock Power
-------------------
STOCK POWER
-----------
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to _____________________________ _____ Shares of Common Stock of
____________, a __________ corporation, represented by Certificate No. __ (the
"Stock"), standing in the name of the undersigned on the books of said
corporation and does hereby irrevocably constitute and appoint
___________________________________ as the undersigned's true and lawful
attorney, for it and in its name and stead, to sell, assign and transfer all or
any of the Stock, and for that purpose to make and execute all necessary acts of
assignment and transfer thereof; and to substitute one or more persons with like
full power, hereby ratifying and confirming all that said attorney or substitute
or substitutes shall lawfully do by virtue hereof.
Dated: _______________
PACER LOGISTICS, INC.
By:________________________________
Name:
Title:
<PAGE>
EXHIBIT C
to
PLEDGE AGREEMENT
dated as of May 1, 1998
Form of Instruction
-------------------
INSTRUCTION
PLEDGED SUBSIDIARY: [MEMBERSHIP][PARTNERSHIP]
INTEREST OWNER:
[Name of Pledged Subsidiary] Pacer Logistics, Inc.
Reference is hereby made to that certain Pledge Agreement dated as of May
1, 1998 (the "Pledge Agreement") betweenPacer Logistics, Inc. (the "Pledgor"), a
[member][partner] of [Name of Pledged Subsidiary], a [_____________]
[limited][liability company][partnership] (a "Pledged Subsidiary") and The First
National Bank of Chicago, as Agent (the "Agent").
1. Pledge Instructions. Pledged Subsidiary is hereby instructed by the
-------------------
Pledgor to register all of the Pledgor's right, title and interest in and to all
of the Pledgor's rights in connection with any [membership][partnership]
interest in Pledged Subsidiary now and hereafter owned by the Pledgor as subject
to a pledge (or assignment) in favor of Agent who, upon such registration of
pledge and without further action, shall become the registered pledgee (or
assignee) of such interests with all rights incident thereto.
2. Initial Transaction Statement. Pledged Subsidiary is further
-----------------------------
instructed by the Pledgor to promptly inform the Agent of the registration of
the pledge by sending the initial transaction statement, in the form attached
hereto as Annex A, to Agent at its office located at
-------
[________________________________].
3. Warranties of the Interest Owner. The Pledgor hereby warrants that (i)
--------------------------------
the Pledgor is an appropriate person to originate this instruction; (ii) the
Pledgor is entitled to effect the instruction here given; and (iii) the
Pledgor's taxpayer identification number is _______________.
IN WITNESS WHEREOF, the Pledgor has caused this Pledge Instruction to be
duly signed and delivered by its officer duly authorized as of this ___ day of
[_______________], [_______];
PACER LOGISTICS, INC.
By:________________________________
Name:
Title:
<PAGE>
Annex A
to
Pledge Instruction
The First National Bank of Chicago Pacer Logistics, Inc.
[______________] Attention: Chief Financial Officer
On [_______], [_________], the undersigned, [Name of Pledged
Subsidiary] (the "Pledged Subsidiary") caused the pledge of a 100%
[membership][partnership] interest in the Pledged Subsidiary (the "Pledged
[Membership][Partnership] Interests") by the Company, a Delaware corporation, in
favor of The First National Bank of Chicago, as Agent for the Holders of Secured
Obligations, to be indicated in the records of the Pledged Subsidiary. The
undersigned has no knowledge of any liens, restriction or adverse claims to
which the Pledged [Membership] [Partnership] Interests is or may be subject, as
of the date hereof.
[Name of Pledged Subsidiary]
By:________________________________
Name:
Title:
<PAGE>
SCHEDULE E TO EXHIBIT 10.23
The following agreements are substantially identical in all material respects
(except for the named parties) to Exhibit 10.23:
Amended and Restated Pledge Agreement dated as of April 3, 1998 executed by
Pacer in favor of the Agent.
<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
</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- ).
May 29, 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.
KPMG Peat Marwick LLP
Los Angeles, CA
May 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and statements of operations of PACER INTERNATIONAL,
INC. and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 86
<SECURITIES> 0
<RECEIVABLES> 21,492
<ALLOWANCES> 763
<INVENTORY> 0
<CURRENT-ASSETS> 21,580
<PP&E> 1,880
<DEPRECIATION> 146
<TOTAL-ASSETS> 57,067
<CURRENT-LIABILITIES> 21,891
<BONDS> 26,855
0
4
<COMMON> 5
<OTHER-SE> 9,450
<TOTAL-LIABILITY-AND-EQUITY> 57,067
<SALES> 81,102
<TOTAL-REVENUES> 81,102
<CGS> 68,713
<TOTAL-COSTS> 68,713
<OTHER-EXPENSES> 9,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 659
<INCOME-PRETAX> 2,528
<INCOME-TAX> 983
<INCOME-CONTINUING> 1,545
<DISCONTINUED> 0
<EXTRAORDINARY> 129
<CHANGES> 0
<NET-INCOME> 1,416
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.34
</TABLE>
