FRITZ COMPANIES, INC. FORM 10-K
25
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended May 31, 1999
Commission File Number 0-20548
FRITZ COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State of other jurisdiction of incorporation or organization
94-3083515
(IRS Employer Identification Number)
706 Mission Street, Suite 900, San Francisco, California 94103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 904-8360
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name on each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.[ X ] Yes
[ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
At June 28, 1999, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $229
million.
At June 28, 1999, the number of shares outstanding of registrant's
Common Stock was 36,434,661
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the 1999
annual meeting of shareholders have been
incorporated by reference -- Part III of the
Form 10-K ( Items 10, 11, 12 and 13 )
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Recent Developments:
Strategy: During the second half of the 1999 fiscal year, building on
strategic plans laid out more than two years ago, the Company made
several strategic moves to accelerate the planned changes. The
construction of our unique franchise, reinforced by our worldwide
locations and multiple services, has essentially been completed. For
the past two years, we have involved ourselves in the execution phase.
In order to maximize these efforts, best-in-class processes,
measurements and methods must be put in place. To this end, the skill
set of the top management team was significantly broadened with the
addition of several new key executives with diverse backgrounds. Also,
a series of new initiatives were undertaken to increase customer focus,
reduce costs and build employee loyalty. The Company believes these
actions will contribute directly to enhancing profitable growth and
building shareholder value.
Strategic Update: With the new management team in place, a series of
actions have been initiated to enhance our strategic plans and make the
company increasingly customer focused and responsive. This strategic
update focuses on the following:
o building employee loyalty while reducing costs,
o enhancing customer focus,
o applying important new management models.
As a first step, the Company's mission statement was revised to include
best-in-class customer satisfaction as the stated organizational
purpose. Then the Company formalized and disseminated to all employees
the core values that are the foundation of the "Fritz Way." A series of
customer surveys have been conducted to evaluate satisfaction levels
and provide specific targets for improvement. Further, a model of
continuous improvement in customer satisfaction has been designed and
communicated throughout the organization, providing the underlying
logic for all operational decisions.
Consistent with the continuous improvement model, a new sales
management structure has been put in place. This structure includes new
training and incentive programs that are designed to assure
significantly improved company response to customer requirements.
Similarly, the Company has established a global Fritz University, to
facilitate training and assure consistency in worldwide practices, as
well as a reliable and predictable level of service to our customers.
This employee-run training organization reflects the belief that
employees are our most valuable assets in providing best-in-class
customer satisfaction.
The Company values its employees and its loyal base of customers who
are working with the Company during this period of re-engineering and
revitalization. The Company believes the results will increasingly be
seen in improved levels of service, efficiency, accountability and
measurable quality performance. The enhancements the Company has made
to its strategic plan constitute essential steps toward placing the
Company on a path toward stable, profitable growth which the Company
feels will contribute meaningfully to enhanced shareholder value.
PART I
Item 1- Business
General
Fritz Companies, Inc. (the Company) is a leader in providing global
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logistics services and related information services for importers and
shippers worldwide. The Company is primarily engaged in providing
logistics management, international air and ocean freight forwarding,
customs brokerage, and material management and distribution services.
The Company also provides value-added services through logistics
information as well as international and domestic movement of goods
customarily provided by traditional freight forwarders. These services
are designed to provide integrated global logistics solutions for
customers to streamline their operations, improve their inventory
management information and enhance their profitability and to provide
customers with more efficient and effective international
transportation strategies.
The Company was incorporated in Delaware in August 1988, and is a
successor to a company incorporated in California in 1933.
Internationally, the Company operates a number of subsidiaries under
the names "Fritz Transportation International," "Fritz Air Freight,"
"Fritz Starber," "Fritz Fliway," "Fritz Logistics," and "Fritz
Companies," among others. Unless the context otherwise requires,
references in this Form 10-K to the Company include Fritz Companies,
Inc., its subsidiaries and its predecessor companies. Although the
Company's executive office is located in the United States at 706
Mission Street, Suite 900, San Francisco, California 94103, its network
is global. The Company has offices throughout North America, Australia,
New Zealand, South Africa, Asia, Europe, Latin America, and the Middle
East.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations and the Company's Consolidated Financial
Statements, including the Notes thereto, for data related to the
Company's revenues, operating profit and long-lived assets by
geographic regions. Unless otherwise stated, all amounts in this Form
10-K are in thousands, except per share amounts.
The following table presents revenue and net revenue in thousands of
dollars and as a percentage of total revenue or net revenue, as the
case may be, attributable to the Company's principal logistics
services:
<TABLE>
For the Year Ended May 31,
----------------------------------------------------------------------------------
1999 1998 1997
--------------------- ------------------------------ -----------------------------
Amount % Amount % Amount %
------------ -------- ------------ -------- ------------ --------
Revenue
<S> <C> <C> <C> <C> <C> <C>
Customs Brokerage $ 163,701 11.8 $ 165,055 12.7 $ 152,257 13.2
Ocean Freight Forwarding 416,108 30.0 375,933 28.9 334,701 28.9
Airfreight Forwarding 606,526 43.7 576,643 44.4 531,100 45.9
Material Management
& Distribution 201,392 14.5 182,452 14.0 138,712 12.0
------------ --------
== == ============ ======== === ============ ========
Total Revenue $ 1,387,727 100.0 $ 1,300,083 100.0 $ 1,156,770 100.0
== ============ ======== == ============ ======== === ============ ========
Net Revenue
Customs Brokerage $ 163,701 28.3 $ 165,055 29.6 $ 152,257 29.9
Ocean Freight Forwarding 126,060 21.8 120,497 21.6 107,480 21.1
Airfreight Forwarding 166,832 28.9 158,514 28.4 149,333 29.3
Material Management
& Distribution 121,384 21.0 114,199 20.4 100,301 19.7
------------ --------
== == ============ ======== === ============ ========
Total Net Revenue $ 577,977 100.0 $ 558,265 100.0 $ 509,371 100.0
== ============ ======== == ============ ======== === ============ ========
</TABLE>
Narrative Description of Business
International Airfreight and Ocean Freight Forwarding The Company is
among the largest forwarders of international air and ocean freight in
the United States.
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The Company's revenue from international ocean freight forwarding is
derived from logistics services both as an indirect ocean carrier (a
"Non-Vessel Operating Common Carrier" or NVOCC) and as an authorized
agent for shippers and importers. The Company may also function as an
agent for steamship companies. The Company's revenue from international
airfreight forwarding is derived from logistics services both as an
indirect air carrier (IAC) and as an authorized cargo sales agent of
various airlines.
The Company also provides logistics services including warehousing,
protective packing, cargo consolidation, document preparation and
electronic transmittal, electronic purchase order/shipment tracking,
inventory management, expedited document delivery for customs
clearance, priority notification to consignee of cargo arrival, and
inland transportation of freight from point of origin to a distribution
center or the carrier's cargo terminal.
The Company serves a broad range of freight forwarding customers. The
Company's ocean freight forwarding customers include retailers and
industrial companies shipping automotive parts, heavy equipment, steel,
chemicals, forest products, clothing, and produce. In general,
airfreight has a high value relative to its weight and the cost of
shipment is usually a small portion of its value. The Company's
principal airfreight customers are shippers of medical equipment and
parts, drugs and pharmaceuticals, computer and high technology
equipment and parts, aircraft and automotive parts, electrical
equipment, machinery and machine parts, measuring and testing
instruments, chemicals and fashion apparel.
As a NVOCC and an IAC, the Company procures customer shipments,
consolidates shipments bound for a particular destination, determines
the routing for consolidated shipments, selects the direct carrier or
charters an ocean vessel or aircraft and tenders each consolidated lot
as a single shipment to the direct carrier for transportation to a
distribution point.
The Company's rates are based on the shipment weight and/or volume.
Rates charged by the Company are ordinarily less than the rate the
shipper would be charged by a steamship line or an airline. The
consolidation of customers' shipments allows the Company to obtain
lower rates from steamship lines or airlines than the rates the Company
charges to its customers for individual shipments. In addition, in
certain tradelanes the Company controls a high volume of freight and,
accordingly, is able to obtain reduced rates from certain carriers or
charter operators. This rate differential is the primary source of the
Company's net ocean and airfreight revenue as an indirect carrier.
By accepting goods for ocean or air shipment as a NVOCC or IAC, the
Company assumes the role as a carrier and becomes responsible to the
shipper for the safe delivery of the shipments, subject to a legal
limitation on liability of $500 (not in thousands) per ordinary
shipping unit of ocean freight and $20 (not in thousands) per kilogram
of airfreight. Because the Company's relationship with the steamship
line or airline is as a shipper, the steamship line or airline
generally assumes the same responsibility to the Company as the Company
assumes to its clients.
As an authorized agent for shippers and importers, and as an authorized
cargo agent of various airlines and steamship companies, the Company
arranges transportation of individual shipments and receives a
commission from the direct carrier for arranging the shipments. When
acting as such an agent, the Company does not consolidate shipments and
does not have responsibility for shipments once they have been accepted
by the direct carrier.
As part of the Company's freight forwarding activities, the Company
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provides project forwarding and logistics services involving
governmental and commercial projects, including foreign military sales,
power plant construction, shipbuilding, construction of manufacturing
assembly facilities, civil infrastructures and other large scale
installations. The Company's project forwarding services include
integrated logistics for conveying heavy materials and equipment from
multiple origins to project sites. Such services may include managing
the customer's transportation, customs clearance and material
management and distribution. Most of these shipments are transported by
ocean carrier. The government portion of the Company's project
forwarding business requires a United States Government Department of
Defense security clearance of the Company's management team and those
employees assigned to the project. The warehouses receiving and storing
the cargo must have a security clearance.
In addition to ocean and airfreight forwarding services, the Company
provides forwarding services and cross marketing in the United States
for a number of its agents. The Company is compensated by sharing in
the agents' profits on their consolidation shipments.
The Company is licensed by the Federal Maritime Commission of the
United States and is a member of the International Air Transport
Association.
Customs Brokerage: The Company is the largest customs broker in the
United States according to the United States Customs Service. The
Company's customs brokerage operations for air and ocean imports cover
over 400 (not in thousands) ports of entry in the United States. The
Company's customs brokerage operation is among the most sophisticated
in the United States as a result of its size, technology and
integration with other transportation logistics services provided to
its customers. In addition, the Company provides overseas customs
brokerage services in countries such as Australia, Canada, the United
Kingdom, Mexico and many Latin American countries.
As a customs broker in the United States, the Company is engaged by
importers to prepare the documentation required for entering
merchandise into the United States. In this capacity, the Company is
responsible for coordinating all events and communicating the status of
shipments from the time of shipment arrival through customs clearance.
The Company receives commercial and transportation documentation,
reviews it for completeness and accuracy, prepares and files documents
necessary to clear customs, obtains customs bonds, assists the importer
in obtaining the appropriate commodity classification and arranges for
payment of collect freight charges. In most cases, the Company also
deposits import duties with the United States Customs Service on behalf
of the importer. In addition, the Company provides ancillary customs
brokerage services to its customers, including placement of surety
bonds, duty reduction programs and duty-drawback (recovery of duties
paid when imported merchandise is re-exported). The Company also
provides bonded warehouse services which enable importers to defer
payment of customs duties until the cargo is released from bond in
conjunction with their production or distribution schedules. See
"Material Management and Distribution".
In providing customs brokerage services, the Company has access to
information concerning a shipment's origin and value, destination and
mode of transportation. As a result, the Company has been able to
obtain additional business by identifying opportunities to improve
customer service or reduce customers' expenses through expanded
utilization of the Company's other services, including container
unloading, inventory warehousing and arranging delivery of cleared
cargo to its final destination.
The Company is a leader in the use of computer technology for customs
brokerage activities on behalf of its clients. The Company was one of
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the first customs brokerage operations to link with the United States
Customs Service through the Automated Broker Interface information
system and to develop a comprehensive, proprietary, on-line,
interactive customs brokerage system which permits customers to monitor
the status of a shipment as it passes through the government clearance
process. The Company's information systems enable the Company to
electronically prepare documents, transmit information necessary for
cargo pre-clearance through customs, expedite cargo release and provide
nationwide control of customs clearance at multiple ports of entry for
its customers. See "Information Systems."
The Company's customs brokerage services are provided by the Company's
licensed customs brokers and support staff who have substantial
knowledge regarding the complex tariff and government regulations
applicable to customs duty payments and other fees, commodity
classifications, valuation and import restrictions. In addition, the
Company has developed substantial customs brokerage expertise within
particular client industries. The Company believes its industry
specialization is unique among competitors and enables the Company to
provide high levels of service to customers in these industries. The
Company provides ongoing training programs, which include preparation
for the United States customs broker license examination to employees,
as well as to customers.
The following table sets forth the number (in 000's) of United States
Customs entries filed by the Company:
<TABLE>
For the Year Ended May 31,
-----------------------------------------------------------
1999 1998 1997
---- ---- ----
Number of Entries Filed
<S> <C> <C> <C>
2,699 2,652 2,204
</TABLE>
As a customs broker operating in the United States, the Company is
licensed by the United States Department of the Treasury and regulated
by the United States Customs Service. The Company's fees for customs
brokerage services are not regulated and the Company does not have a
fixed fee schedule for such services. Instead, customs brokerage fees
are based on the complexity of the transaction and the type of services
required, but are generally not related to the value of the customers'
goods. In addition to its fees, the Company bills the importer for
amounts which the Company pays on the importer's behalf, including
duties, taxes, collect freight charges and similar payments.
The Company offers its customs brokerage services primarily to
purchasers of imported goods. The Company's largest customs brokerage
customer in 1999 accounted for 21.1% of customs brokerage revenue and
2.5% of the total consolidated revenue. The Company believes the loss
of this customer would not have a material adverse effect on results
from operations.
Material Management and Distribution: As part of its integrated global
logistics services, the Company provides an array of material
management and distribution services to its customers. The Company uses
state of the art warehouse management systems to deliver material
management solutions to its global customer base.
The Company manages a mixture of multi-client facilities as well as
stand-alone contract logistics operations. The Company supports clients
from a wide variety of industry segments with emphasis on high-tech,
retail, footwear, and manufacturing.
Warehousing services are available for the Company's customers in
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certain of its facilities, as well as in space leased from others. The
Company maintains approximately 7.3 million square feet of owned and
leased warehouse space. The Company's warehousing services include
receiving, deconsolidation and decontainerization, cargo loading and
unloading, assembly of freight, customer inventory management and
protective packing and storage. For import shipments, the Company
provides bonded warehouse services at certain locations to importers so
they can defer payment of customs duties until cargo releases are
required to meet customers' production or distribution schedules. The
goods stored in bonded warehouses are held until the importer is ready
to withdraw or re-export them. The Company is paid storage charges for
use of its warehouses and fees for other services.
The Company provides surface transportation and domestic distribution
services involving the movement of shipments for local and long-haul
delivery to and from customers' doors. In this capacity, the Company
procures shipments from its customers, consolidates less than truckload
quantities, determines the routing, selects the carrier and tenders
each shipment to such carrier for transportation. The Company provides
this service as an indirect carrier and as an agent. The Company also
provides logistics services by coordinating the most efficient and
cost-effective mode of long-haul surface transportation to its
customers.
No single customer accounted for ten percent or more of total
consolidated revenue in fiscal 1999.
Information Systems
The Company invests substantial resources in its information systems to
accomplish the global objective of developing and maintaining an
integrated logistics system. The Company's information system strategy
is to provide accurate, reliable and timely access to information
regarding logistics and internal operations through responsive and
cost-effective information systems technologies.
The Company developed the Fritz Logistics Expediting System (FLEX) to
enable customers to track the flow of goods throughout the
transportation process. Customers can complete queries to receive the
current status of shipments. Most customers utilizing FLEX are
multi-national corporations with a large number of foreign suppliers.
Customers can use FLEX to generate special reports on supplier
compliance with purchase order requirements to enhance the
effectiveness of their merchandising programs. Development and
enhancements to the FLEX system have continued since its inception, and
include linking automated customs brokerage systems to FLEX to monitor
the status of shipments as they pass through the customs clearance
process. The Company's on-line, interactive, nationwide customs
brokerage system was one of the first to link with the United States
Customs Service's information systems.
An important component of the Company's business strategy is to expand
the concept and use of the FLEX system. The Company intends to
accomplish this objective by further developing FLEX and replacing
several domestic and international systems with one, global, integrated
system referred to as the Global Business System (GBS). This system is
designed to improve internal productivity while providing an
unparalleled level of customer service for this industry. Segments or
all components of this system have been deployed in over ten countries,
with new countries coming on-line every quarter.
The Company has also developed a Web-based software system which
provides visibility to shipping information and customs entry activity
for any customer with access to the Internet. The Company continues to
invest in Internet capabilities for our customers and adds new features
to our Web-based products every quarter.
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For information regarding the Company's Year 2000 compliance program,
see Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000.
Marketing: An important part of the Company's business strategy is its
client-oriented marketing approach. The Company's marketing efforts
focus on senior transportation and logistics executives, financial
officers and purchasing directors of large and medium sized users of
international transportation logistics services. In connection with the
Company's emphasis on developing and maintaining long-term
relationships with such clients, the Company has developed several
strategic marketing programs, including a National Accounts Program,
Global Logistics Councils and a Global Advisory Board.
Competition and Business Conditions: The Company's principal businesses
are directly affected by the volume of international trade,
particularly trade between the United States and foreign nations, which
is influenced by many factors. These influences include economic and
political conditions in the United States and abroad, major work
stoppages, exchange controls, currency fluctuations, wars and other
armed conflicts, and United States and foreign laws relating to
tariffs, trade restrictions, foreign investments and taxation. The
global logistics services industry is intensely competitive and
expected to remain so for the foreseeable future. The Company
encounters competition from a large number of firms. Much of this
competition is from local or regional firms which have only one or a
small number of offices and do not offer the breadth of services and
integrated approach offered by the Company. However, some of the
competition is from major United States and foreign-owned firms which
have networks of offices and offer a wide variety of services. The
Company believes quality of service, including information systems
capability, global network capacity, reliability, responsiveness,
expertise, convenience, scope of operations, customized program designs
and price are important competitive factors in its industry.
The Company encounters strong competition in the markets for each of
its principal services, identified as: customs brokerage, air and ocean
freight forwarding and material management and distribution. The
Company has customs brokerage offices in most major ports in the United
States, Canada, United Kingdom and other selected foreign locations.
Although the Company competes with several large United States and
foreign firms in virtually all of its locations, the principal customs
brokerage competition comes from local and regional firms.
As an ocean freight forwarder, the Company's competition includes
steamship companies, large forwarders with multiple offices and local
and regional forwarders with one or a small number of offices. As an
airfreight forwarder, the Company's principal competition comes from
other airfreight forwarders in the United States and overseas. As a
material management and distribution service provider, the Company's
principal competition includes local, regional, national and
international providers of the same or similar services.
Approximately 63% of the Company's revenue was recorded by non-United
States subsidiaries in 1999. The strength of the United States Dollar,
coupled with the economic contraction in Asia, are having an impact on
the Company's operations. For example, the Company has experienced flat
volumes to Asia and modest volume increases to the United States and
Europe from Asia. In addition, competitive pressures continue to exert
downward pressure on transportation pricing.
Regulation: As a customs broker operating in the United States, the
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Company is licensed by the United States Department of the Treasury and
regulated by the United States Customs Service. The Company's fees as a
customs broker are not regulated. The Company's airfreight forwarding
business is subject to regulation, as an indirect air cargo carrier,
under the Federal Aviation Act by the Department of Transportation
(DOT), the successor to the Civil Aeronautics Board, although Part 296
of the DOT's Economic Aviation Regulations exempts airfreight
forwarders from most of the act's requirements. In its ocean freight
forwarding business, the Company is licensed as an ocean transportation
intermediary by the Federal Maritime Commission (FMC). The FMC does not
regulate the Company's fees in any material respect. The Company's
NVOCC business is subject to regulation under the FMC tariff filing and
surety bond requirements, and under the Shipping Act of 1984 and the
Ocean Reform Shipping Act of 1998, particularly those terms proscribing
rebating practices. The Company is regulated as a direct and an
indirect truck cargo carrier by the DOT, previously the Interstate
Commerce Commission, by which the Company is licensed as both a common
carrier and a property broker. For dispatch purposes, the Company also
holds an FCC Radio License. The Company's marine cargo insurance
brokerage business is licensed by the California Department of
Insurance.
The Company's offshore operations are subject to similar regulation by
the regulatory authorities of the respective foreign jurisdictions.
Some of the Company's warehouse operations are approved by the United
States Customs Service as container freight stations, and/or cargo
examination stations and/or Class III bonded warehouses.
Trademarks: The Company holds registered trademarks and/or service
marks in the United States and numerous foreign countries for "Fritz
Companies" and certain related names and the Company's logo.
Employees: As of May 31, 1999, the Company had approximately 10,000
(not in thousands) employees located throughoutthe world. The Com
considers its relationship with its employees to be satisfactory.
Management: The Company's executive officers are as follows:
<TABLE>
Name Age
---------------------------------- --------
<S> <C>
Lynn C. Fritz 57 Chairman of the Board and Chief Executive Officer
Raymond L. Smith 44 Chief Operating Officer
Dennis L. Pelino 51 President
Ronald F. Dutt 52 Executive Vice President and Chief Financial Officer
Joseph Carnes 42 Executive Vice President
Jan H. Raymond 50 Executive Vice President, Secretary and General Counsel
Eugene E.Wojciechowski 44 Executive Vice President and Chief Information Officer
Brad Skinner 51 Executive Vice President Sales, Marketing and Process
Improvement
Janice J. Washburn 50 Controller and Principal Accounting Officer
Janet Helvey 47 Vice President - Accounts Receivable
Seamus M. Owen 55 Vice President - Human Resources
</TABLE>
Lynn C. Fritz became Chief Executive Officer of the Company in
1986 after serving in numerous positions sincejoining the Company
on a full-time basis in 1965. Mr. Fritz received his B.A. degree from
Georgetown University and his J.D. degree from Lincoln University
School of Law.
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Raymond L. Smith joined the Company in January 1999 as Chief Operati
Officer. Prior to joining the Company, he served six years as
President of US Fleet Leasing. Previously, Mr. Smith was with
GE Capital for 15 years where he graduated from GE's Financial
Management Program and held numerous progressively higher
responsibilities. Mr. Smith received his BA degree, with distinction,
from the University of Nebraska and MBA from Emory University.
Dennis L. Pelino joined the Company in 1986 as Director of Sales and
Marketing, became a Director of the Company in 1991 and was appointed
Chief Operating Officer in October of 1993. He was promoted to
Executive Vice President in May 1995 and President in August 1996.
Since 1988, Mr. Pelino has been responsible for the Company's
international operations, as well as the Company's transportation
services as an indirect carrier, and key warehousing and distribution
services.
Ronald F. Dutt joined the Company in May 1999 as Executive Vice
President and Chief Financial Officer. Prior to joining the Company, he
was Senior Vice President of Financial Planning and Analysis at Visa
International. Previously, Mr. Dutt served in senior financial
positions at USL Capital, and held positions of increasing
responsibilities in the Controller's Office and Corporate Treasurer's
Office at Ford Motor Company. He received his MBA from the University
of Washington and BA from the University of North Carolina.
Joseph Carnes joined the Company in September 1987. During his 12 years
with the Company he has held several operational positions of
increasing responsibility. In December 1998, Mr. Carnes was promoted to
Executive Vice President of North American Operations having
responsibility for all services including warehousing.
Jan H. Raymond has been General Counsel of the Company since 1985,
Secretary since 1991, Senior Vice President since 1993 and Executive
Vice President since 1998. Prior to joining the Company, Mr. Raymond
was an associate with the law firm of Brobeck, Phleger & Harrison.
Mr. Raymond, who is a licensed customs broker, holds a B.S. degree
from Cornell University with a J.D. degree from the University of
California at Berkeley's Boalt Hall School of Law.
Eugene E. Wojciechowski joined the Company in January 1997 as Senior
Vice President and Chief Information Officer and became an Executive
Vice President in April 1999. Prior to joining the Company, he was Vice
President of Information Systems at USL Capital Corporation, a division
of Ford Motor Company, and held positions of increasing responsibility
at GE Capital, PHH Group Inc., and ADP Network Services. Mr.
Wojciechowski holds a MBA in Information Systems from the University of
Maryland and a B.S. in Mathematics and Business Administration from
Towson State University.
Brad Skinner joined the Company in January 1999 as Vice President of
Sales, Marketing and Worldwide Process Improvement and became an
Executive Vice President in April 1999. A twenty year veteran of the
transportation and logistics industries, he joined the Company after
serving as Executive Vice President of Transportacion Ferroviaria
Mexicana (TFM), where he was a principle architect of the newly
privatized Mexican railroad and logistics company. Mr. Skinner
previously served as Vice President at Southern Pacific Rail
Corporation, and has held management positions with American President
Company, Burlington Northern Motor Carriers and Schneider National.
Janice J. Washburn joined the Company in September 1998 as Controlle
and Principal Accounting Officer. For the prior year she was the
Controller for CIS Consulting, Inc. Previously, Ms. Washburn held
financial positions of increasing responsibility at APL Limite, Inc.,
Pacific Gas & Electric Co. and Arthur Andersen & Co. Ms. Washburn
holds a B.A. in accounting from the University of Puget Sound and is
Certified Public Accountant in the state of California.
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Janet Helvey joined the Company in March 1997 as Vice President of
Accounts Receivable. Prior to joining the Company, she was the
Controller - Accounts Receivable of BAX Global, Inc. (formerly
Burlington Air Express, Inc.). Ms. Helvey holds a B.A. degree from
Muskingum College.
Seamus M. Owen joined the Company in April 1998 as Vice President of
Human Resources. Prior to joining the Company, he served as Vice
President of Human Resources for Sydran Services, Inc. Prior to joinin
Sydran Services, Mr. Owen held increasingly responsible roles with
United Airlines, Sea-Land Services and Ross Stores, Inc. Mr. Owen holds
a B.S. degree from San Francisco State University.
Item 2 - Properties (Not in thousands)
As of May 31, 1999, the Company operated approximately 400 offices and
logistics centers worldwide, including its headquarters in San
Francisco. The Company also operated approximately 115 warehousing and
distribution centers, which range in size from approximately 1,000
square feet to approximately 595,000 square feet. The warehousing and
distribution centers totaled approximately 7.3 million square feet as
of May 31, 1999 of which the Company owns approximately 647,000 square
feet and leases the remaining space. The leases for the Company's
principal properties generally have terms of three years or more and
often include options to renew. While some of the Company's leases are
month-to-month and others expire in the near term, the Company does not
believe the expiration of any of its leases will have a material
adverse effect on its operations. See Note 6 of Notes to Consolidated
Financial Statements.
Item 3 - Legal Proceedings
The Company is party to routine litigation incident to its business,
primarily claims for goods lost or damaged in transit or improperly
shipped. Most of the lawsuits in which the Company is the defendant are
covered by insurance and are being defended by the Company's insurance
carriers.
In 1996, a total of six complaints were filed (three in federal court
and three in state court of California) against the Company and certain
of its then officers and directors, purporting to be brought on behalf
of a class of purchasers or holders of the Company's stock between
August 28, 1995 and July 23, 1996. The complaints allege various
violations of Federal Securities law and California Corporate
Securities law in connection with prior disclosures made by the Company
and seek unspecified damages.
The three class action suits filed against the Company in state court
were dismissed with prejudice by the Superior Court of California for
the County of San Francisco on grounds the claims asserted under the
California Corporate Securities law and common law fraud were not
legally tenable. One of the dismissals was reversed on appeal,
permitting the plaintiff to file an amended complaint. That amended
complaint was dismissed with leave to amend. A further amended
complaint was filed and was dismissed without leave to amend. That
dismissal is on appeal.
The three class action suits filed against the Company in federal court
were consolidated into one suit which was dismissed with prejudice,
finding that plaintiffs had not alleged any statement that was false
and misleading in violation of the federal securities laws. Plaintiffs
have filed an appeal with the Ninth Circuit Court of Appeals.
That appeal is pending.
11
<PAGE>
The Company is unable to predict the ultimate outcome of these suits
and it is possible the outcome could have a significant adverse impact
on the Company's future consolidated results of operations. However,
the Company believes the ultimate outcome of these matters will not
have a significant adverse impact on the Company's consolidated
financial position.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5 - Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's common stock is traded on the NASDAQ national market
system under the symbol FRTZ.
The following table sets forth the high and low sales price in the
NASDAQ national market system for the Company's common stock for the
period from June 1, 1997 to May 31, 1999.
<TABLE>
Price Range
----------------------------------------
High Low
---------- ----------
Fiscal Period 1999
--------------------------
<S> <C> <C>
First Quarter $ 13.875 $ 7.438
Second Quarter 10.250 5.875
Third Quarter 12.438 7.125
Fourth Quarter 11.812 6.875
Fiscal Period 1998
--------------------------
First Quarter $ 13.500 $ 8.500
Second Quarter 16.000 11.500
Third Quarter 14.750 11.000
Fourth Quarter 16.812 12.625
</TABLE>
There were approximately 598 stockholders of record as of May 31, 1999.
No cash dividends were paid to stockholders during the year ended May
31, 1999.
The Company intends to retain its future earnings for use in its
business and, accordingly, anticipates no cash dividends will be paid
to holders of shares of common stock in the foreseeable future.
12
<PAGE>
Item 6 - Selected Financial Data
(In Thousands Except Per Share Data)
<TABLE>
For the Year Ended May 31,
-------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(a)
------------- ------------- ------------- ------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue $ 1,387,727 $ 1,300,083 $ 1,156,770 $ 1,043,858 $ 870,903
Net Revenue 577,977 558,265 509,371 457,568 366,487
Merger and related costs ---- ---- ---- 14,555 ----
Income from operations 25,051 25,813 2,858 (b) 38,659 50,645
Net income 13,452 18,090 308 25,001 32,310
Net income per share - basic
.37 .51 .01 .73 1.00
Net income per share - diluted
.37 .50 .01 .71 .99
Total assets 726,908 720,813 723,516 733,462 576,698
Long-term obligations, net of
current portion 89,606 101,346 84,884 89,505 33,567
Stockholders' equity 264,082 250,328 234,695 230,747 174,215
</TABLE>
a) On May 30, 1995, the Company completed its merger with Intertrans
Corporation (Intertrans), which was accounted as a pooling of
interests. Accordingly, the Company's financial statements were
restated for all periods prior to the merger, to include the results of
operations, financial position and cash flows of Intertrans. The
twelve months ended May 31, 1995 period represents combined operating
results reported for the Company and Intertrans for the twelve months
ended March 31, 1995 and April 30, 1995, respectively. In May 1995
the Company recorded merger and related costs in connection with the
merger with Intertrans of approximately $30.0 million. In 1996, the
Company recorded additional merger and related costs of $14.6 million
which were incurred in association with the Intertrans merger.
b) The results in 1997 include a third quarter increase to the
Allowance for Doubtful Accounts of approximately $17.0 million due
to less than satisfactory collection performance.
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company operates its integrated logistics business as two segments
comprised of four principal services. The segments are comprised of
United States Operations and Foreign Operations. The Company's
principal services are customs brokerage, international airfreight and
ocean freight forwarding and material management and distribution.
Revenue for ocean and airfreight forwarding and surface transportation
consolidation as an indirect carrier includes the consolidation and
transportation costs (e.g., ocean freight costs). Revenue for customs
brokerage, ocean and airfreight forwarding and surface transportation
as an agent includes only the fees and commissions related to such
shipments. Margin represents the ratio of net revenue to revenue.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
13
<PAGE>
Results of Operations:
For comparative purposes, the following tables are provided for the
results of operations, for the business segments, for the years ended
May 31, 1999, 1998 and 1997.
<TABLE>
UNITED STATES OPERATIONS
For the Year Ended May 31,
--------------------------------------------------------------------
1999 1998 1997
--------------- ---------------- -------------
Revenue
<S> <C> <C> <C>
Customs Brokerage $ 107,100 $ 101,834 $ 94,751
Ocean Freight Forwarding 107,166 112,176 100,845
Airfreight Forwarding 195,528 206,515 197,212
Material Management and Distribution 97,327 87,776 75,822
-------------- --------------- -------------
Total Revenue $ 507,121 $ 508,301 $ 468,630
=============== ================ =============
Net Revenue
Customs Brokerage $ 107,100 $ 101,834 $ 94,751
Ocean Freight Forwarding 56,022 57,715 55,229
Airfreight Forwarding 66,930 63,253 57,889
Material Management and Distribution 76,973 69,565 60,911
-------------- --------------- -------------
Total Net Revenue $ 307,025 $ 292,367 $ 268,780
=============== ================ =============
Operating Expenses $ 294,830 $ 277,856 $ 267,751
--------------- ---------------- -------------
Income From Operations $ 12,195 $ 14,511 $ 1,029
=============== ================ =============
Long-lived Assets $ 148,817 $ 139,800 $ 142,521
=============== ================ =============
FOREIGN OPERATIONS
For the Year Ended May 31,
--------------------------------------------------------------------
1999 1998 1997
------ --------------- ----------------- -------------
Revenue
Customs Brokerage $ 56,601 $ 63,221 $ 57,506
Ocean Freight Forwarding 308,942 263,757 233,856
Airfreight Forwarding 410,998 370,128 333,888
Material Management and Distribution 104,065 94,676 62,890
--------------- ----------------- -------------
Total Revenue $ 880,606 $ 791,782 $ 688,140
=============== ================= =============
Net Revenue
Customs Brokerage $ 56,601 $ 63,221 $ 57,506
Ocean Freight Forwarding 70,038 62,782 52,251
Airfreight Forwarding 99,902 95,261 91,444
Material Management and Distribution 44,411 44,634 39,390
--------------- ----------------- -------------
Total Net Revenue $ 270,952 $ 265,898 $ 240,591
=============== ================= =============
Operating Expenses $ 258,096 $ 254,596 $ 238,762
--------------- ----------------- -------------
Income From Operations $ 12,856 $ 11,302 $ 1,829
=============== ================= =============
Long-lived Assets $ 195,957 $ 191,047 $ 190,232
=============== ================= =============
</TABLE>
14
<PAGE>
Fiscal Year Ended May 31, 1999 Compared to Fiscal Year Ended
May 31, 1998
General:
Revenue increased 6.7% to $1,387.7 million. Net revenue increased 3.5%
to $578.0 million. Operating expenses increased 3.8%, marginally higher
than the net revenue increase. The net gains on currency transactions
dropped significantly to $1.9 million from $7.3 million in the prior
year. This drop was partially offset by a $0.6 million increase in
interest income and a $0.8 million decrease in interest expense.
United States Operations:
Revenue and Net Revenue: Revenue was flat for the current year but
net revenue increased by 5.0%. Operating expenses increased by 6.1%.
Customs brokerage revenue and net revenue increased 5.2%. The increase
was largely due to growth in the retail and electronics industries from
both new and existing customers. Most of this growth involved goods
being shipped from Asia, fueled by the robust American economy. A
significant portion of this growth stemmed from our existing client
base reflecting a strong client retention rate. Pricing continued to be
relatively stable, though slight erosions occurred in our border
locations. The number of United States Customs entries filed by the
Company increased approximately 1.8% to 2.70 million from 2.65 million
in the prior year. Border operations, which account for almost
one-fifth of the total entries for the period, continue to reflect
double-digit growth rates driven mostly by Canadian imports. Rescoping
major accounts contributed to the improvement of margin. In addition,
approximately one-half of the customs brokerage processing
documentation has been centralized to improve the quality of the
product.
Ocean freight forwarding revenue and net revenue decreased 4.5% and
2.9%, respectively. Inbound ocean freight demand remained strong
throughout 1999. In addition the Company added a number of new
accounts. Ocean freight rates from the Far East, the Company's largest
trade lane, increased in the last half of the year. Conversely, ocean
export activity was down significantly due to the economic situation in
Asia, Latin America and Russia. U.S. export orders and volume were down
in all three regions. While ocean outbound NVOCC revenue from the U.S.
increased only slightly, net revenue increased by more than 10%. Lack
of growth in revenue was a direct reflection of the erosion of ocean
container rates in all of the major trade lanes. Growth in net revenue
was due to our ability to buy ocean container spaces, either through
service contracts, or on the spot market at favorable rate levels.
Airfreight forwarding revenue decreased 5.3%, due to decreased volume
to Asia, Europe and Latin America and the strength of the U.S. dollar.
However, net revenue increased by 5.8% due to the use of centralized
gateways to improve consolidation, cost control, and increased volume
purchasing.
Material management and distribution revenue and net revenue increased
10.9% and 10.6%, respectively. The greatest growth was in Seattle,
Dallas, Atlanta, Rochester and Los Angeles where new customers and
increased volumes drove the increase in revenue. In addition, the
growth in revenue and net revenue was due to increased demand from
existing integrated logistics customers, expansion of overseas
services, expansion of warehouse facilities and the strong United
States economy. Rescoping of certain customers led to an increase in
revenue and margin.
15
<PAGE>
Operating Expenses: Operating expenses increased 6.1%. Salaries and
related costs increased due to higher labor costs associated with Year
2000 compliance and the Company's new global transportation and
financial systems, and higher medical insurance costs. Operating
expenses as a percentage of net revenue rose to 96.0% from 95.0% in the
prior year. The Company is committed to the reduction of operating
expenses through the continuing implementation of its strategic plan,
previously discussed, by focusing resources, training personnel, and
emphasizing customer satisfaction.
Foreign Operations:
Revenue and Net Revenue: Revenue increased by 11.2% but net revenue
increased only 1.9% reflecting the higher costs associated with the
imbalance of trade with the U.S. The effect of translation rate changes
during the period resulted in a decrease in net revenue during 1999 of
approximately $12.4 million. The resultant growth rate was adversely
affected by approximately 4.6 percentage points.
Customs brokerage revenue and net revenue decreased 10.5% reflecting
the large reduction in traffic going into the foreign locations from
the U.S.
Ocean freight forwarding revenue increased by 17.1% while net revenue
increased by 11.6%. The margin decrease reflected the soft European
market and the resultant pressure on margins. The Company is focusing
on increasing NVOCC business in an attempt to improve margins. Ocean
Export revenue, which consists of documentation fees and commissions,
was negatively impacted because lower shipping costs produce lower
commissions.
Air freight forwarding revenue increased by 11.0% while net revenue
increased 4.9%, the pressure on margins again reflecting the soft
European markets. The perceived turnaround of the Asian economies in
the third quarter of fiscal 1999 began to improve air margins.
Material management and distribution revenue increased by 9.9%, however
net revenue remained at prior year levels. The scheduled opening of our
400,000 plus square foot warehouse in South China in the first quarter
of fiscal 2000 should position the Company for further growth in
revenue and net revenue for these services.
Operating Expenses: Operating expenses increased 1.4%. Salaries and
related costs increased due to higher labor costs associated with Year
2000 compliance and the implementation of the Company's new global
transportation and financial systems. Operating expenses as a
percentage of net revenue were 95.3% in 1999 and 95.7% in 1998.
Fiscal Year Ended May 31, 1998 Compared to Fiscal Year Ended
May 31, 1997
General:
Revenue increased 12.4% to $1,300.0 million. Net revenue increased 9.6%
to $558.3 million. Operating expenses increased 5.1%, considerably
lower than the net revenue increase. The net gains on currency
transactions increased by 126% to $7.3million. This increase, together
with higher levels of interest income, was sufficient to offset
interest expense which remained unchanged at $8.2 million.
16
<PAGE>
United States Operations:
Revenue and Net Revenue: Revenue increased by 8.5% while net revenue
increased 8.8%. Operating expenses increased by 3.8%.
Customs brokerage revenue and net revenue increased 7.5%. The number of
United States Customs entries filed by the Company increased
approximately 20.3% to 2.65 million from 2.20 million in the prior
year. The increase in revenue and number of United States Customs
entries filed was caused principally by increased Canadian border
activity, expansion of business with existing customers, continued
NAFTA incentives and increased import activity from Asian countries.
Ocean freight forwarding revenue and net revenue increased 11.2% and
4.5% respectively, due to increased shipping volumes from new and
existing customers. During 1998, management continued to expand market
share, increased ocean tonnage and increased net ocean freight revenues
while offering competitive market rates to customers.
Airfreight forwarding revenue decreased by 4.7% due primarily to
decreased exports from the U.S. to Asia, Europe and Latin America and
pricing pressures. However, net revenue improved by 9.3% due primarily
to cost reductions achieved through the use of gateways and shipment
consolidations.
Material management and distribution revenue and net revenue increased
15.8% and 14.2%, respectively. The greatest growth was in the United
States where new customers and increased volumes led to growth in
revenue in Seattle, Dallas, Atlanta and Rochester. In addition, the
growth in revenue and net revenue was due to increased demand from
existing integrated logistics customers, expansion of overseas
services, expansion of warehouse facilities and the strong United
States economy.
Operating Expenses: Operating expenses increased 3.8%, significantly
less then the 8.8% growth in net revenue. Salaries and related costs
increased due to growth in the number of personnel. Operating expenses
as a percentage of net revenue improved to 95.0% from 99.6% in the
prior year.
Foreign Operations:
Revenue and Net Revenue: Revenue increased by 15.1% but net revenue
increased only 10.5% reflecting the higher costs associated with the
imbalance of trade with the U.S. The effect of translation rate changes
during the period resulted in a decrease in net revenue during 1998 of
approximately $20.2 million. The resultant growth rate was adversely
affected by approximately 7.6 percentage points.
Customs brokerage revenue and net revenue increased 9.9% due to
improvement of traffic going into the foreign locations from the U.S.
Ocean freight forwarding revenue increased by 12.8 % while net revenue
increased by 20.2%, due to increased shipping volumes from existing and
new customers, with additional products being shipped to North America
and Europe. Increased NVOCC shipments helped to improve revenue as well
as improving the margin. The trend towards NVOCC business continues at
a rapid rate as certain of our customers realize the improved transit
times provided by this service.
17
<PAGE>
Air freight forwarding revenue increased by 10.9% while net revenue
increased 4.2%. There was significant erosion in margin, primarily in
the Asia-Pacific area due primarily to higher airline costs, which
could not be passed on to customers. The increase in revenue came
primarily in Hong Kong from both new and existing customers. Europe was
another growth area for air freight activity.
Material management and distribution revenue increased 50.5% while net
revenue increased by 13.3%. A significant portion of the increased
revenue and net revenue resulted from the expansion of cross border
trucking operations in Europe. The decrease in margin was due primarily
to increased warehousing and transportation operating costs in Europe.
New facilities were opened in Holland and Venezuela.
Operating Expenses: Operating expenses increased 6.6%, significantly
less than the 10.5% growth in net revenue. Operating expenses as a
percentage of net revenue decreased to 95.7% from 99.2% in the prior
year.
Liquidity and Capital Resources:
Cash and equivalents were $50.6 million at May 31, 1999, representing a
6.1% decrease from $53.9 million at May 31, 1998. Positive operational
cash flow of $57.4 million was used to fund capital expenditures of
$35.7 million resulting in free cash flow of $21.7 million. Capital
expenditures consisted mostly of expenditures for computer hardware and
software, leasehold improvements, and warehouse equipment.
The Company paid cash of $9.0 million relating to acquisitions. These
payments consisted of reductions to existing debt totaling $4.3 million
and $4.7 million for contingency payments to the sellers of previously
acquired businesses and to purchase all or part of the remaining
minority interest in previously acquired companies.
On March 27, 1998, the Company entered into a $100 million syndicated
multi-currency credit facility (Credit Facility), maturing March 2001.
This facility was extended to March 2002 upon its one-year anniversary.
Borrowings under this facility are classified as long-term debt. The
purpose of the Credit Facility is to provide letters of credit and
working capital as required. The Company must comply with certain
financial covenants such as: 1) minimum working capital, 2) minimu
net worth, 3) maximum leverage ratio, 4) minimum fixed charge coverag
ratio, and 5) maximum capital expenditures.
As of May 31, 1999, utilization of the Credit Facility was $15.2
million, comprised of $4.5 million of borrowings under the Credit
Facility and $10.7 million for outstanding letters of credit.
Therefore, the Company's total available borrowing capacity under the
Credit Facility as of May 31, 1999 was approximately $84.8 million.
The Company makes significant disbursements on behalf of its customers
for items such as customs duty and taxes. Billings to customers for
these disbursements, which can be several times the amount of the
revenue derived from these transactions, are not recorded as revenue
and expenses in the Company's income statement. These obligations,
which greatly exceed reported revenues, are recorded as amounts due
from customers and trade accounts payable.
New Accounting Standards:
18
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. The Company is currently evaluating the impact, if any, of SFAS
no. 133 which is effective for all quarters of fiscal years beginning
after June 15, 2001.
"Safe Harbor" Statement Under the Private Securities Litigation Reform
Act of 1995:
In this filing, the Company makes forward-looking statements that are
subject to risks and uncertainties. These forward-looking statements
include information about possible or assumed future results of our
operations, plans, events, expectations or objectives. Also, when any
of the words "believes", "expects", "anticipates" or similar
expressions are used the Company is making forward-looking statements.
Many possible events or factors could affect the future financial
results and performance of the Company. Any of these events or factors
could cause results or performance to differ materially from those
expressed in our forward-looking statements. These possible events or
factors include the following:
Year 2000
Many computer systems, including some utilized by the Company, use only
two digits to represent the year in date fields. These systems may be
unable to accurately process certain data before, during, or after the
year 2000. Business and governmental entities are at risk for possible
miscalculations or systems failures, possibly causing disruptions in
their business operations. This is commonly known as the Year 2000
(Y2K) problem.
The Company is reliant on its internal computer systems and
applications, located in numerous countries, to conduct its business as
an international freight forwarder, customs broker and logistics
provider. The Company is also reliant upon the external system
capabilities of third parties, with which the Company has major
business relationships.
The key computer systems of the Company are its transportation (ocean
freight, airfreight and trucking), customs brokerage, material
management, communications, marketing, and financial systems. The
Company has established a Y2K program management office to identify and
resolve specific Y2K issues and problems. A Y2K inventory, assessment,
and plan of action has been completed for all of the Company's global
systems. All of the Company's key business systems, with minor
exceptions, were Y2K compliant by the end of June 1999. There are
several locations including Singapore, Indonesia, and Peru that, for
tactical purposes, have deferred completion dates and will be compliant
on or before September 30, 1999.
The Company believes its greatest Y2K risk for disruption to its
business is the potential noncompliance of third parties. The Company
believes these third party risks are an inherent risk to the industry
and are not specific to the Company. As a result, the Company has
contacted third parties (i.e. vendors, governmental agencies, etc.)
around the world with whom the Company has material direct and indirect
business relationships. The business partners that have responded to
the Company's inquiries indicate that they will be Y2K compliant on a
timely basis. The Company successfully completed Year 2000 testing with
the U.S. Customs Service. Year 2000 efforts of Customs bureaus in other
countries are being monitored and are varying in scope and progress.
Despite written assurances, there are no guarantees that the systems of
other parties, on which the Company and its competitors rely, will be
19
<PAGE>
compliant. These potential interruptions may have a material adverse
effect on the Company's operations.
Total costs to replace or modify the Company's business systems for Y2K
are currently estimated to be $6.1 million. However, there can be no
assurance that the costs to replace or modify the Company's business
systems will not exceed this estimate. As of May 31, 1999,
approximately $5.5 million had been spent on Y2K efforts. The cost
estimates include, but are not limited to, the cost of internal staff
and outside consultants who are working on modifying, upgrading and
testing systems; the Y2K project management office; new or upgraded
software; and various Y2K tools. These costs are being expensed as
incurred. The funding of all past and future Y2K expenses has been, or
will be paid through internally generated cash flows from operations or
borrowed funds. The costs associated with the replacement of the
selected international stations' operating and financial systems are
not included in the above estimates. The cost of the replacement
systems are being capitalized and amortized in accordance with the
Company's normal accounting policies as Y2K compliance is an incidental
benefit expected from these systems. The primary reasons for installing
these replacement systems include productivity gains, improved customer
service, improved operating procedures, and controls.
The Company's business may be materially affected if its systems or the
systems of critical third parties are not Y2K compliant by January 1,
2000. The possible consequences of noncompliance include, among other
things, the inability to provide services to certain areas of the
world, delays in product delivery, invoicing errors, and possible
collection difficulties. The Company may be required to shift portions
of its daily operations to manual processes and thus face time delays
in its operations as well as increased processing costs. In addition,
the Company may not be able to provide customers with timely and
pertinent information regarding their orders or shipments. This may
negatively affect customer relations and potentially lead to the loss
of customers. The Company is unable to estimate the potential financial
impact of these scenarios. However, the Company believes that its Y2K
readiness program, including its contingency plans, should help to
reduce material adverse effects that such disruptions may create.
As part of the Company's contingency planning, it has determined that
operating in a manual mode, for a limited time, is a workable
alternative with the exception of its U.S. customshouse brokerage
system. The Company is currently identifying and developing specific
contingency plans intended to mitigate the effects of Y2K disruptions.
In the event of a Y2K disruption resulting from the Company system or
other third party system failure, the Company believes it will be able
to provide adequate resources to successfully transition from automated
systems processing to manual processing. In addition, the Company will
have the ability to engage outside temporary labor. Also, the Company
will secure alternate carriers who are Y2K ready in order to continue
to provide basic business services.
Currency and Other Risk Factors:
The Company's worldwide operations are transacted in many currencies
other than the U.S. dollar. Accordingly, the Company is exposed to
inherent risks of international currency markets and governmental
regulations. The Company manages these currency exposures through a
variety of means such as hedging, conversion of local cash to U.S.
dollars, and accelerating and decelerating international payments among
the Company's offices and agents. The Company's translation adjustment
and foreign exchange losses for fiscal year 1999 increased due to the
strengthening of the U.S. dollar relative to certain currencies of
Asia, Europe and Latin America. The charge to equity in the currency
translation adjustment during 1999 was $6.1 million while net foreign
20
<PAGE>
currency gains realized during fiscal year 1999 were approximately $1.9
million. Devaluation of foreign currencies could adversely impact the
financial results of operations in future periods.
The Company's ability to provide service to its customers is highly
dependent on good working relationships with a variety of entities such
as airlines, steamship carriers and governmental agencies. Changes in
space allotments available from carriers, governmental deregulation
efforts, regulations governing the Company's products, and/or the
international trade and tariff environment could affect the Company's
business in unpredictable ways.
The Company routinely commits to purchasing space with carriers for
expected volumes based on anticipated future demands. The Company then
solicits freight from its customers to fill that committed space.
Failure to utilize that space because of a downturn in the economy
could have a adverse effect on operating results.
Management believes the Company's business has not been significantly
or adversely affected by inflation in the past. Historically, the
Company has generally been successful in passing cost increases to its
customers by means of price increases. However, competitive marketplace
conditions could impede the Company's ability to pass on future cost
increases to customers and could erode the Company's operating margins.
Additional risks and uncertainties include:
(i) The Company's ability to continue its program to improve
operating results and cash flows,
(ii) Dependence of the Company on international trade
resulting from favorable worldwide economic conditions,
(iii) Dependence of the Company on continued services of key
executives and managers,
(iv) Risks associated with the Company's acquisition strategy,
including:
(a) Diversion of management's attention to assimilation of
operations and personnel of acquired companies,
(b) Potential adverse short-term effects of acquisitions
on the Company's operating results,
and
(c) Integration of financial reporting systems and acquired
assets.
(v) The possible inability of the Company's information
systems to keep pace with the increasing complexity and
growth of the Company's business and Y2K issues,
(vi) The increasing level of investment required by the
transition of the Company from prior predominance of
customs brokerage revenue to an increasing emphasis on
integrated logistics and providing a full range of
international transportation and supply chain
management services,
(vii Other risks disclosed elsewhere in this Form 10-K or in
the Company's other filings with the Securities and
Exchange Commission.
The Company is continuing its comprehensive review of its pricing
structure of its various services and customer credit terms. The
Company is also continuing to review its expenses to improve the
quality and efficiencies of the Company's processes.
Item 7a- Quantitative and Qualitative Market Risk Disclosure
21
<PAGE>
The Company is exposed to market risks in the ordinary course of
business. These risks relate primarily to fluctuations in foreign
currency exchange rates and short term interest rates. Financial
derivatives are employed to manage these risks in certain countries
under certain circumstances. Under no circumstances are financial
derivatives utilized for trading or speculative purposes.
Foreign Exchange Sensitivity
The Company maintains worldwide operations and transacts business in
many currencies other than the U.S. dollar. Because the Company's
foreign subsidiaries are typically local-currency functional entities,
the Company is exposed to transactional and translational gains and
losses as relative currency values fluctuate. As a result, the
Company's consolidated cash flow and net income are subject to
variations due to changes in exchange rates.
The Company manages its currency risks through a variety of means, such
as employing financial derivatives, converting local cash to U.S.
dollars, and accelerating and decelerating payments among the Company's
offices and agents. Financial derivatives typically take the form of
forward foreign exchange contracts, though options are occasionally
purchased to hedge certain transactions. As of May 31, 1999, the
Company had forward contracts outstanding of $1.5 million equivalent
value and had no option contracts. A 10% change in value of the U.S.
dollar relative to the underlying currency of these forward contracts
would have an immaterial effect on the Company's earnings.
The Company's earnings are sensitive to changes in foreign exchange
rates due to the revaluation of monetary assets and liabilities. These
balance sheet items, denominated in non-functional currency include
cash, accounts receivable, accounts payable and debt. The table below
provides the U.S. dollar equivalent of these balances summarized as
assets and liabilities and shows the sensitivity of the net exposure to
a 10% change in value of the functional currency relative to the
non-functional currency.
($ amounts in millions)
<TABLE>
Gain / (Loss) if
Functional Currency
Non-Functional Cash A/P & Appreciates Depreciates
Currency & A/R Debt Net Exposure 10% 10%
--------- --------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
U.S. Dollar 94.7 (52.3) 42.4 (4.2) 4.2
Chinese Renminbi 12.4 (7.9) 4.5 (0.5) 0.5
U.K. Pound 1.1 (9.2) (8.1) 0.8 (0.8)
German Mark 1.2 (6.2) (5.0) 0.5 (0.5)
Belgian Franc 0.5 (3.7) (3.2) 0.3 (0.3)
Japanese Yen 0.1 (1.9) (1.8) 0.2 (0.2)
French Franc 1.0 (2.8) (1.8) 0.2 (0.2)
Finnish Mark 0.0 (1.8) (1.8) 0.2 (0.2)
Other 6.1 (10.7) (4.6) 0.5 (0.5)
</TABLE>
Interest Rate Sensitivity
The Company's exposure to interest rate risk relates primarily to its
cash and short-term investments and its debt obligations. The Company
22
<PAGE>
currently does not employ any financial derivatives to manage the risk
associated with its cash investments. It does however, currently employ
a swap to convert a portion of its variable rate debt to a fixed rate.
At May 31, 1999 the Company had $50.6 million of cash and cash
equivalents, subject to variable, short-term interest rates. On the
same date, the Company had debt obligations of $93.9 million, of which
$8.6 million was subject to variable, short-term interest rate risk. In
addition, the Company had $13.7 million of off-balance sheet
transactions which were subject to variable interest rate risk. The net
exposure of the Company to variable, short-term interest rate risk is
therefore $28.3 million. A hypothetical increase or decrease in
variable, short-term interest rates of 1% would have an immaterial
effect on the Company's earnings.
Item 8 - Financial Statements and Supplementary Data
The information required by this item is set forth at the pages
indicated in Item 14(a) of this Annual Report.
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10 - Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by
reference from the sections entitled "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" of the
Company's definitive proxy statement to be filed with the Securities
and Exchange Commission no later than 120 days after the Company's year
end and to be delivered by the Company to its shareholders in
conjunction with the 1999 Annual Meeting of Shareholders. See also Item
1 above.
Item 11 - Executive Compensation
The information required by this item is incorporated herein by
reference from the sections entitled "Compensation of Executive
Officers," "Options Granted to Executive Officers" and "Employment
Agreements" of the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission no later than 120 days
after the Company's year end and to be delivered by the Company to its
shareholders in conjunction with the 1999 Annual Meeting of
Shareholders.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
--------------------------------------------------------------
The information required by this item is incorporated herein by
reference from the section entitled "Ownership of Management and
Principal Stockholders" of the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission no later than 120
23
<PAGE>
days after the Company's year end and to be delivered by the Company to
its shareholders in conjunction with the 1999 Annual Meeting of
Shareholders.
Item 13 - Certain Relationships and Related Transactions
----------------------------------------------
The information required by this item is incorporated herein by
reference from the section entitled "Transactions with the Company" of
the Company's definitive proxy statement to be filed with the
Securities and Exchange Commission no later than 120 days after the
Company's year end and to be delivered by the Company to its
shareholders in conjunction with the 1999 Annual Meeting of
Shareholders.
PART IV
Item 14-Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this report on
Form 10-K: Page No.
(1) Consolidated Financial Statements of the Company:
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-2
Consolidated Statements of Stockholders' Equity
And Comprehensive Income F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5
Independent Auditors' Report F-19
(2) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts F-20
All other schedules are omitted by absence of
conditions under which they would be required or
because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits:
See attached Exhibit Index F-21
(b) The Company filed the following reports on Form 8-K from March 1, 1999
through the date hereof in 1999.
None.
24
<PAGE>
Signatures
Pursuant to requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 22, 1999
FRITZ COMPANIES, INC.
By /s/ Lynn C. Fritz
Lynn C. Fritz
Chairman of the Board
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on July 22, 1999 by the following
persons on behalf of the registrant and in the capacities indicated.
Signature Title Date
<S> <C> <C>
/s/ Lynn C. Fritz Chairman of the Board July 22, 1999
Lynn C. Fritz and Chief Executive Officer
(Principal Executive Officer)
/s/ Raymond L. Smith Chief Operating Officer July 22, 1999
Raymond L. Smith
/s/ Dennis L. Pelino President and Director July 22, 1999
Dennis L. Pelino
/s/ Ronald F. Dutt Executive Vice President and July 22, 1999
Ronald F. Dutt Chief Financial Officer and
Principal Financial Officer
/s/ Janice J. Washburn Controller and July 22, 1999
Janice J. Washburn Principal Accounting Officer
/s/ James E. Gilleran Director July 22, 1999
James E. Gilleran
/s/ Preston Martin Director July 22, 1999
Preston Martin
/s/ Paul Otellini Director July 22, 1999
Paul Otellini
/s/ William J. Razzouk Director July 22, 1999
William J. Razzouk
</TABLE>
25
<PAGE>
FRITZ COMPANIES, INC. FORM 10-K
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
May 31, May 31,
1999 1998
------------ ----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 50,599 $ 53,935
Accounts receivable, net of allowance for
doubtful accounts of $20,466 in 1999 and $23,232 in 1998 396,640 406,381
Deferred income taxes 16,461 16,978
Prepaids and other current assets 17,860 23,142
------------ ----------
Total current assets 481,560 500,436
------------ ----------
PROPERTY AND EQUIPMENT - NET 103,535 92,049
------------ ----------
OTHER ASSETS:
Intangibles, net of accumulated amortization of $21,362
in 1999 and $16,866 in 1998 112,666 112,965
Deferred income taxes 13,395 3,399
Other assets 15,752 11,964
------------ ----------
Total other assets 141,813 128,328
------------ ----------
TOTAL ASSETS $ 726,908 $ 720,813
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations and short-term
borrowings $ 4,333 $ 4,764
Accounts payable 255,706 266,863
Accrued liabilities 87,562 74,880
Income tax payable 15,348 12,394
------------ ----------
Total current liabilities 362,949 358,901
------------ ----------
LONG-TERM OBLIGATIONS 89,606 101,346
OTHER LIABILITIES 10,271 10,238
------------ ----------
TOTAL LIABILITIES 462,826 470,485
------------ ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: par value $.01 per share;
60,000 shares authorized, 36,420 shares
issued and outstanding, (35,896 shares
issued and outstanding in 1998) 364 359
Additional paid-in capital 138,369 131,797
Treasury stock - at cost (174) ---
Retained earnings 144,437 130,985
Accumulated other comprehensive loss (18,914) (12,813)
------------ ----------
Total stockholders' equity 264,082 250,328
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 726,908 $ 720,813
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended May 31,
--------------- -- ------------- --- -------------
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
REVENUE $ 1,387,727 $ 1,300,083 $ 1,156,770
FREIGHT CONSOLIDATION COSTS 809,750 741,818 647,399
--------------- ------------- -------------
NET REVENUE 577,977 558,265 509,371
--------------- ------------- -------------
OPERATING EXPENSES
Salaries and related costs 342,211 326,025 302,555
General and administrative 210,715 206,427 203,958
--------------- ------------- -------------
Total operating expenses 552,926 532,452 506,513
--------------- ------------- -------------
INCOME FROM OPERATIONS 25,051 25,813 2,858
OTHER INCOME (EXPENSE) (5,268) 789 (2,384)
--------------- ------------- -------------
INCOME BEFORE INCOME TAX EXPENSE 19,783 26,602 474
INCOME TAX EXPENSE 6,331 8,512 166
--------------- ------------- -------------
NET INCOME $ 13,452 $ 18,090 $ 308
=============== ============= =============
Weighted average shares outstanding - Basic 36,203 35,744 35,128
=============== ============= =============
Net Income per share - Basic $ .37 $ .51 $ .01
=============== ============= =============
Weighted average shares outstanding - Diluted 36,290 36,128 35,473
=============== ============= =============
Net Income per share - Diluted $ .37 $ .50 $ .01
=============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In Thousands)
Accumulated
Additional Other Total
Paid-In Retained Treasury Stock Comprehensive Stockholders'
------------------
Shares Amount Capital Earnings Shares Amount Loss Equity
--------- -------- ----------- ----------- --------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996 34,898 $ 349 $ 118,485 $ 112,587 0 $ 0 $ (674) $ 230,747
Net income 308 308
Foreign currency translation
adjustment (2,304) (2,304)
-----------
Comprehensive loss (1,996)
Common stock issued in acquisition
of companies 215 2 350 352
Stock grants and option
exercised 292 3 5,158 5,161
Employee Stock Purchase Plan 40 431 431
--------- ------ -------- --------- --------- ---------- ---------------------
Balance, May 31, 1997 35,445 $ 354 $ 124,424 $ 112,895 0 $ 0 $ (2,978) $234,695
Net income 18,090 18,090
Foreign currency translation (9,835) (9,835)
adjustment
-------------
Comprehensive income 8,255
Common stock issued in acquisition
of companies 161 2 2,155 2,157
Stock grants and options exercised 251 3 4,796 4,799
Employee stock purchase plan 39 422 422
--------- ------ -------- --------- --------- ---------- ---------------------
Balance, May 31, 1998 35,896 $ 359 $ 131,797 $ 130,985 0 $ 0 $ (12,813) $ 250,328
Net income 13,452 13,452
Foreign currency translation (6,101) (6,101)
adjustment
-------------
Comprehensive income 7,351
Common stock issued in acquisition
of companies 90 1 699 700
Stock grants and options exercised 388 4 5,484 5,488
Employee stock purchase plan 46 389 389
Treasury stock purchases (27) (174) (174)
========= ====== ======== ========= ========= ========== =========== =========
Balance, May 31, 1999 36,420 $ 364 $ 138,369 $ 144,437 (27) $ (174) $ (18,914) $ 264,082
========= ====== ======== ========= ========= ========== =====================
</TABLE>
See accompanying notes to consolidated
financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
Year Ended May 31,
-------------- --- ---------------- --- ----------------
1999 1998 1997
-------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 13,452 $ 18,090 $ 308
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation and amortization 27,508 26,385 24,600
Deferred income taxes (9,479) (6,358) (5,005)
Stock compensation 1,922 4,412 2,299
Other 485 (1,073) (1,559)
Effect of changes in:
Receivables, net 9,741 14,253 (15,314)
Prepaids and other current assets 5,282 4,954 391
Payables and accrued liabilities 8,441 (5,605) (36,231)
-------------- ---------------- ----------------
Net cash provided by (used in) operating activities 57,352 55,058 (30,511)
-------------- ---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (35,749) (21,797) (42,481)
Acquisitions, net of cash acquired (4,701) (6,621) (12,237)
Payment of acquisition related debt (4,313) (8,758) (11,873)
Purchase of treasury stock (174) ---- ----
Proceeds from sale of fixed assets 3,802 3,485 33,747
Acquisition of long term lease (5,160) ---- ----
Other (717) (2,806) (1,093)
-------------- ---------------- ----------------
Net cash used in investing activities (47,012) (36,497) (33,937)
-------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in short-term borrowings ---- (11,991) 22,833
Proceeds from issuance of long-term obligations 1,180 11,695 8,016
Payments of debt (9,197) (4,378) (11,513)
Proceeds from stock options exercised 925 389 5,161
Employee stock purchases 388 422 431
Other ---- (303) (1,269)
-------------- ---------------- ----------------
Net cash (used in) provided by financing activities (6,704) (4,166) 23,659
----------------
-------------- ----------------
Foreign currency translation effect on cash (6,972) (3,828) (2,304)
-------------- ---------------- ----------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS (3,336) 10,567 (43,093)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD $ 53,935 43,368 86,461
-------------- ---------------- ----------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 50,599 53,935 43,368
============== ================ ================
OTHER CASH FLOW INFORMATION:
Income taxes paid $ 13,940 9,640 8,185
================
============== ================
Interest paid $ 7,222 8,471 8,622
============== ================ ================
Noncash investing and financing activities in
connection with acquisitions:
Receivables assumed $ ---- (6,084) ----
============== ================ ================
Payables and accrued liabilities assumed ---- 6,557 2,189
============== ================ ================
Capital stock issued $ 700 2,155 350
============== ================ ================
Other ---- (2,628) ----
============== ================ ================
</TABLE>
See accompanying notes to consolidated
financial statements.
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
Note 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation: The consolidated financial statements include
the accounts of Fritz Companies, Inc. (the Company) and all significant
domestic and international companies wherein the Company has more than
a 50% equity ownership or otherwise exercises control. The Company's
interest in 20% to 50% owned companies are recorded on the equity
method. All significant intercompany balances and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform with the current year's financial statement
presentation.
The Company's consolidated financial statements reflect certain
estimates and assumptions which affect amounts reported and disclosed
in these financial statements and related notes in accordance with
generally accepted accounting principles. Actual results could differ
from those estimates.
Cash and Equivalents Cash and equivalents include demand deposits and
short-term investments with original maturities of three months or
less.
Property and Equipment: Property and equipment are stated at cost.
Depreciation and amortization are determined using the straight-line
method for the estimated useful lives of assets as follows:
Buildings 40 years
Furniture and equipment 5 - 10 years
Computer hardware and software 3 - 5 years
Leasehold improvements are amortized over their estimated useful lives
or terms of the related lease, whichever is shorter. Certain costs
related to internally developed software are capitalized and amortized
on a straight-line basis over their expected useful life (not to exceed
five years), commencing when the asset is placed in service.
Maintenance and repair expenditures are charged to expense when
incurred.
Intangibles: Intangibles, including goodwill and covenants-not-to-
compete, result from business acquisitions. Amortization is determine
using the straight-line method over the estimated useful lives of the
intangible assets as follows:
Goodwill 40 years
Covenants-not-to-compete 2 - 5 years
Net intangibles as of May 31,1999 include goodwill of $112,453 and
covenants-not-to-compete of $213.
Long-lived assets, including goodwill, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of long-term
assets is measured by a comparison of the carrying amount of such
F-5
<PAGE>
assets against the undiscounted future cash flows expected to be
generated by the assets. If such assets are determined to be impaired,
the impairment to be recognized is measured by the amount by which the
assets' carrying amounts exceed the assets' discounted future cash
flows.
Foreign Currency Translation Adjustment: Foreign assets and liabilities
have been translated at year-end exchange rates and related revenues
and expenses have been translated at average rates of exchange in
effect during the year. The impact of exchange rate changes is shown as
"Accumulated Other Comprehensive Income" in stockholders' equity.
Transaction gains and losses from foreign exchange transactions are
included in results of operations.
Comprehensive Income Effective June 1, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting of
comprehensive income and its components in financial statements.
Comprehensive income consists of net income and other gains and losses
affecting shareholders' equity that, under generally accepted
accounting principles, are excluded from net income. For the Company,
the components of comprehensive income consist of net income and
foreign currency translation gains and losses.
During the years ended May 31, 1999 and 1998, the Company maintained
its policy to reinvest the earnings of the non-United States
subsidiaries as a long-term commitment. Accordingly, the "foreign
currency translation adjustments" have not been adjusted for United
States taxes.
Off-Balance Sheet Risk and Concentration of Credit Risk: Financial
instruments which potentially subject the Company to concentrations of
credit risk are principally represented by temporary cash investments
and accounts receivable. The Company places its temporary cash
investments with financial institutions to limit its risk of loss.
The Company's customer base is representative of a wide range of
industries and includes customers located throughout the world. The
Company had no significant concentration of credit risk as of May 31,
1999 or 1998. See Notes 3 and 8 of Notes to Consolidated Financial
Statements for discussion of the Company's off-balance sheet risks.
Revenue Recognition: Revenues and expenses related to the
transportation of freight are recognized at the time the freight
departs the terminal of origin. This method approximates recognizing
revenues and expenses when the shipment is completed. Customs brokerage
revenues are recognized upon completing documents necessary for customs
entry purposes. Material management and distribution revenue is
recognized upon execution of the service provided.
Revenue realized by the Company as an indirect carrier includes the
direct carrier's charges to the Company for transporting the shipment.
Revenue realized in other capacities includes only the commissions and
fees charged for applicable services rendered.
Net Revenue for air and ocean freight forwarding and consolidation of
surface transportation as an indirect carrier is determined by
deducting freight consolidation and transportation costs from such
revenue.
F-6
<PAGE>
<TABLE>
Net Income Per Share: The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," effective December 1, 1997. Basic and diluted earnings per share are presented below:
Year Ended May 31,
------------------------------------
1999 1998 1997
----------- ----------- -----------
Basic:
<S> <C> <C> <C>
Net income $ 13,452 $ 18,090 $ 308
Weighted-average number of common shares outstanding 36,203 35,744 35,128
Basic earnings per common share $ 0.37 $ 0.51 $ 0.01
=========== =========== ===========
Diluted:
Net income $ 13,452 $ 18,090 $ 308
Shares:
Weighted-average number of common shares outstanding 36,203 35,744 35,128
Potentially dilutive common shares 87 384 345
----------- ----------- -----------
Total shares 36,290 36,128 35,473
Diluted earnings per common share $ 0.37 $ 0.50 $ 0.01
=========== =========== ===========
</TABLE>
Options with an exercise price greater than the average market price of
common shares were not included in the computation of diluted earnings
per share, as they were anti-dilutive.
Income Taxes: The Company uses the asset and liability method. Under
this method, the net deferred tax asset or liability is determined
based on the tax effects of differences between book and tax bases of
various balance sheet assets and liabilities and gives current
recognition to the effect of any change in tax rates and laws.
Stock Options: The Company accounts for its stock compensation plans
using the intrinsic method as allowed under SFAS No. 123; therefore,
costs are reflected in the consolidated statements of operations only
when stock options are granted at less than 90% of fair value at date
of grant. The Company realizes an income tax benefit from the exercise
or early disposition of certain stock options. This benefit reduces
current income taxes payable and increases additional paid in capital.
See Note 10 of Notes to Consolidated Financial Statements.
Note 2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
May 31,
--------------------------------------------
1999 1998
--- ------------- --------------
<S> <C> <C>
Land $ 950 $ 1,006
Building and leasehold improvements 40,479 40,018
Furniture and equipment 72,836 61,637
Computer hardware and software 82,414 65,103
Software development in progress 3,482 3,488
------------- --------------
Total 200,161 171,252
Less accumulated depreciation and amortization (96,626) (79,203)
------------- --------------
Total $ 103,535 $ 92,049
============= ==============
</TABLE>
Depreciation and amortization of property and equipment amounted to
$22,611 in 1999, $21,125 in 1998, and $19,639 in 1997. Software
development in progress includes external costs incurred to develop
software which has not been completed as of balance sheet date. During
the years ended May 31, 1999 and 1998, $444 and $1,495, respectively,
F-7
<PAGE>
represented software development costs completed and transferred to
"Computer hardware and software."
Note 3: OBLIGATIONS AND BORROWINGS
Short-term borrowings and long-term obligations consist of the
following:
<TABLE>
May 31,
----------------------------------
1999 1998
------------ ---- --- ------------
Long-term obligations:
6.43% Senior Notes due on April 15, 2003, interest payable
<S> <C> <C>
semi-annually $ 75,000 $ 75,000
Bank credit agreement providing a $100 million
credit facility maturing March 27, 2002 with interest at LIBOR
(6.3% as of May 31, 1999) plus 0.325% to 0.750% as determined by
fixed charge coverage ratio . 4,500 10,000
Installment obligations related to acquisitions,
non-interest bearing, due 1999 - 2002 (less unamortized discount
based on imputed interest rate of 7.0% - approximately $117 and
$229 in 1999 and 1998, respectively) 3,888 6,678
Term note, paid during 1999 --- 1,851
Term note payable to a bank dated June 18, 1997, bearing interest at
SIBOR (6.4% as of May 31, 1999) plus a margin ranging from 0.5% to
0.7% with seven quarterly payments of $250 beginning the 40th
month from date of the agreement and remaining balance outstanding
due at the end of the 60th month 7,245 8,294
Other obligations 3,306 4,287
------------ ------------
Total long-term obligations 93,939 106,110
Less current portion (4,333) (4,764)
------------ ------------
Net long-term obligations $ 89,606 $ 101,346
============ ============
</TABLE>
At May 31, 1999, the Company's aggregate maturing long-term obligations
and short-term borrowings for the years 2000 through 2004 were $4,333;
$2,765; $5,376; $81,372 and $93, respectively and none thereafter. The
carrying value of the Company's long-term obligations approximates
their fair value.
On March 27, 1998, the Company entered into a $100 million syndicated
multi-currency credit facility (Credit Facility), maturing March 2001.
In March 1999, this facility was extended to expire in March 2002. The
purpose of the Credit Facility is to provide letters of credit and
working capital not covered by internally generated funds. The Company
must maintain compliance with certain financial covenants such as: 1)
minimum working capital, 2) minimum net worth, 3) maximum leverage
ratio, 4) minimum fixed charge coverage ratio, and 5) maximum capital
expenditures. As of May 31, 1999, the balance outstanding under the
Credit Facility was $4.5 million and the weighted average floating
interest rate as of that date was 5.8%. At May 31, 1999, the Company
was contingently liable for letters of credit of $10.7 million which
reduces the Company's borrowing capacity under the current credit
facility. The Company had $15.5 million in similar letters of credit
outstanding at May 31, 1998 under the Company's credit facility then in
effect.
The Company is required to comply with various financial covenants such
F-8
<PAGE>
as leverage, fixed charge coverage and current ratios within its other
credit agreements, many of which include cross default provisions tied
to the Credit Facility.
Information regarding the Company's activity in the Credit Facility is
as follows:
<TABLE>
For the Year Ended May 31,
----------------------------------------------------
--
1999 1998 1997
-- ----------- ------------- -----------
<S> <C> <C> <C>
Maximum amount outstanding during period $ 25,500 $ 41,000 $ 55,120
Average amount outstanding during period $ 7,316 $ 20,184 $ 29,669
Weighted average interest rate during period 6.0% 6.7% 5.8%
</TABLE>
Note 4 - INCOME TAXES
The current and deferred components of income tax expense (benefit) are
as follows:
<TABLE>
For the Year Ended May 31,
-----------------------------------------------------
1999 1998 1997
------------ ------------- ------------
Current
<S> <C> <C> <C>
Federal $ --- $ 2,022 $ (5,674)
State --- 2,334 (338)
Foreign 15,810 10,514 11,183
------------ ------------- ------------
Total current 15,810 14,870 5,171
------------ ------------- ------------
Deferred
Federal (9,231) (4,237) (5,446)
State (1,438) (2,662) (363)
Foreign 1,190 541 804
------------ ------------- ------------
Total deferred (9,479) (6,358) (5,005)
------------ ------------- ------------
Total $ 6,331 $ 8,512 $ 166
============ ============= ============
</TABLE>
Sources of income (loss) before income taxes are as follows:
<TABLE>
For the Year Ended May 31,
-----------------------------------------------------------------
1999 1998 1997
------------- --------------- --------------
<S> <C> <C> <C>
United States $ (28,839) $ (7,944) $ (33,768)
Foreign 48,622 34,546 34,242
------------- -------------- -------------
Total $ 19,783 $ 26,602 $ 474
============= =============== ==============
</TABLE>
F-9
<PAGE>
The following provides a reconciliation of the statutory federal income
tax rate and provision to the effective income tax rate and provision:
<TABLE>
For the Year Ended May 31,
---------------------------------------------------------------------------------
1999 % 1998 % 1997 %
-------- -------- --------- --------- ---------- ---------
Statutory federal income
<S> <C> <C> <C> <C> <C> <C>
tax expense $ 6,924 35.0 $ 9,311 35.0 $ 166 35.0
Increases (decreases) resulted from:
Difference between foreign tax rate
and federal rate 60 0.3 (1,147) (4.3) (540) (113.9)
State taxes benefit, net of federal
income tax effect (1,516) (7.7) (328) (1.2) (159) (33.5)
Amortization of Goodwill
(Non-Section 338) 309 1.6 280 1.1 275 58.1
Meals and Entertainment 219 1.1 197 0.7 273 57.4
Others 335 1.7 199 0.7 151 31.9
-------- -------- -------- --------- ---------- ---------
Total $ 6,331 32.0 $ 8,512 32.0 $ 166 35.0
======== ======== ========= ========= ========== =========
</TABLE>
The significant components of net deferred income tax assets are as
follows:
<TABLE>
May31,
-------------------------------------
1999 1998
-- ----------- --- -----------
Deferred income tax assets:
Current: <C> <C>
Compensated absences 2,361 1,913
Net operating loss carryforward ---- 1,721
Foreign tax credits and other tax credits 2,201 2,511
Capital loss carryforward 595 600
Allowance for doubtful accounts 6,354 7,186
Write-off of duplicate information
systems and facilities 53 308
Other reserves and accruals 5,841 3,983
-- ----------- --- -----------
Subtotal 17,405 18,222
Less: valuation allowance (944) (1,244)
-- ----------- --- -----------
<S>
Total current deferred income tax assets 16,461 16,978
-- ----------- --- -----------
Noncurrent:
Net operating loss carryforward 9,735 ----
Deferred compensation 2,866 2,117
Other reserves and accruals 3,143 2,867
-- ----------- --- -----------
Subtotal 15,744 4,984
-- ----------- --- -----------
Total deferred income tax assets 32,205 21,962
-- ----------- --- -----------
Deferred noncurrent income tax liabilities:
Depreciation and amortization (1,234) (1,585)
Other deferred tax liabilities (1,115) ----
-- ----------- --- -----------
Subtotal (2,349) (1,585)
------------- --- -----------
Net deferred income tax assets 29,856 20,377
============ === ===========
</TABLE>
The valuation allowance for current deferred income tax assets as of
May 31, 1999 and 1998, results from capital loss carryforwards and
foreign tax credits. The Company has evaluated the long-term deferred
tax assets and determined no valuation allowance is required as
management believes it is more likely than not the long-term deferred
income tax assets will be realized in the future.
F-10
<PAGE>
During the years ended May 31, 1999, 1998 and 1997, the Company
maintained its policy to reinvest the earnings of the non-United States
subsidiaries as a long-term commitment. Accordingly, the "Accumulated
other comprehensive income" included in the equity section of the
balance sheets have not been adjusted for the effect of U.S. taxes.
Undistributed earnings of the Company's foreign subsidiaries amounted
to approximately $197 million at May 31, 1999. Additional United States
income taxes may be due upon remittance of those earnings (net of
foreign tax). If all earnings were distributed, approximately $32
million would be payable at May 31,1999.
Note 5 - RELATED PARTY TRANSACTIONS
The Company has previously leased office space from the Company's
Chairman and Chief Executive Officer (the Chairman). The Company did
not rent any property from the Chairman during the current year;
however, rental expense applicable to previous leases was $263 for the
year ended May 31, 1997. No leases with the Chairman were in effect as
of May 31, 1998 or May 31, 1999.
In connection with the Company's U.S. customs brokerage operations,
customers are required to obtain surety bonds. The Company places such
customs bonds with Intercargo Corporation (Intercargo) and other
underwriters of customs bonds. The Chairman owned approximately 3.1% of
the outstanding common stock of Intercargo in prior years. As of May
31, 1999 all Intercargo shares owned by the Chairman have been sold. In
1999, 1998 and 1997 the Company placed approximately $4,558; $4,343;
and $4,400, respectively, of insurance business with Intercargo and
received approximately $573; $589; $373, respectively, in insurance
commissions and fees from Intercargo. The Company believes the amounts
paid and received are substantially the same as the Company would have
incurred and realized from other third parties.
The Company paid premiums until 1992 on life insurance policies on the
Chairman though the Company is not the beneficiary. Such cumulative
premium payments, which approximate surrender value, of $1,400 at May
31, 1999 and 1998, are included in other assets. The premiums will be
refunded by the beneficiary upon death of the insured or cancellation
of the policies, whichever comes first. The Company has no future
obligation to pay premiums on these policies.
Note 6 - COMMITMENTS
The Company leases office and warehouse space and computer and other
office equipment from third parties, including certain operating leases
financed by special purpose entities, under operating leases expiring
through 2013. Minimum future rental payments by the Company as of May
31, 1999 are as follows:
<TABLE>
Rental Sublease Net Rental
Payments Income Payments
--------------- -------------- ---------------
Year ending May 31,
--------------------------------------------
<S> <C> <C> <C> <C>
2000 40,011 1,211 38,800
2001 30,433 812 29,621
2002 20,408 286 20,122
2003 16,504 226 16,278
2004 13,268 173 13,095
2005 and thereafter 45,194 130 45,064
--------------- ------------- ---------------
Total 165,818 2,838 162,980
=============== ============== ===============
</TABLE>
F-11
<PAGE>
Net rental expense from these leases was as follows:
<TABLE>
For the Year Ended May 31,
-----------------------------------------------------
1999 1998 1997
-- ---------- ----------- -----------
<S> <C> <C> <C>
Gross lease expense 59,226 $ 54,453 $ 42,834
Less sublease rental income (4,083) (2,603) (2,336)
--------- ----------- -----------
Net rental expense 55,143 $ 51,850 $ 40,498
========== =========== ===========
</TABLE>
Note 7 - ACQUISITIONS
Purchases:
In 1999, the Company acquired the remaining interests in five freight
forwarding companies and one third of the remaining interest in another
for $2,593 in cash and $74 in debt. Intangible assets of $1,307 were
recorded in connection with the acquisitions.
In 1998, the Company acquired the equity interest of a freight
forwarding company for an aggregate purchase price of approximately
$1,552 through the issuance of 120 shares of the Company's stock. The
acquired company included current assets of approximately $6,413; fixed
assets of approximately $342; and assumed liabilities, which are
primarily current in nature, of approximately $6,659. An intangible
asset of approximately $526 was recorded in connection with the
acquisition.
In 1997, the Company acquired assets and remaining interests in several
freight forwarding companies for an aggregate purchase price of
approximately $10,000 consisting of cash of $8,600 and payable
obligations of $1,400. Relative to total 1997 acquisitions, the Company
acquired current assets of approximately $2,300; fixed assets of
approximately $1,300 and assumed liabilities, which are primarily
current in nature, of approximately $2,200. Intangible assets of
approximately $8,200 were recorded in connection with those
acquisitions which are amortized on a straight-line basis. The
remainder was recorded to eliminate the Company's minority interest
payable.
The Company entered into certain acquisition agreements which have
provisions regarding contingent future payments. As of May 31, 1999,
approximately $1,588 of such future contingent payments exist which
have not been recorded by the Company and are dependent upon full
achievement of specified net revenue or pretax income levels.
Intangible assets, including goodwill and covenants not to compete,
totaling approximately $4,130 and $2,936 were recorded in 1999 and
1998, respectively, in connection with current and previous
acquisitions. Cash payments made during 1999 of $6,421 represent
payments to reduce acquisition debt payable and payments related to
contingent purchase price. Amortization expense for intangible assets
was approximately $4,331, $4,474 and $4,700 in 1999, 1998, and 1997,
respectively.
The purchase method of accounting was used for all acquisitions made in
fiscal years presented herein. The operations of acquired companies are
reflected in the Company's consolidated financial statements from their
respective dates of acquisition.
F-12
<PAGE>
Note 8 - CONTINGENCIES
The Company is party to routine litigation incident to its business,
primarily claims for goods lost or damaged in transit or improperly
shipped. Most of the lawsuits in which the Company is the defendant are
covered by insurance and are being defended by the Company's insurance
carriers.
In 1996, a total of six complaints were filed (three in federal court
and three in state court of California) against the Company and certain
of its then officers and directors, purporting to be brought on behalf
of a class of purchasers or holders of the Company's stock between
August 28, 1995 and July 23, 1996. The complaints allege various
violations of Federal Securities law and California Corporate
Securities law in connection with prior disclosures made by the Company
and seek unspecified damages.
The three class action suits filed against the Company in state court
were dismissed with prejudice by the Superior Court of California for
the County of San Francisco on grounds the claims asserted under the
California Corporate Securities law and common law fraud were not
legally tenable. One of the dismissals was reversed on appeal,
permitting the plaintiff to file an amended complaint. That amended
complaint was dismissed with leave to amend. A further amended
complaint was filed and was dismissed without leave to amend. That
dismissal is on appeal.
The three class action suits filed against the Company in federal court
were consolidated into one suit which was dismissed with prejudice,
finding that plaintiffs had not alleged any statement that was false
and misleading in violation of the federal securities laws. Plaintiffs
have filed an appeal with the Ninth Circuit Court of Appeals.
That appeal is pending.
The Company is unable to predict the ultimate outcome of these suits
and it is possible the outcome could have a significant adverse impact
on the Company's future consolidated results of operations. However,
the Company believes the ultimate outcome of these matters will not
have a significant adverse impact on the Company's consolidated
financial position.
Note 9 - SEGMENT DISCLOSURE AND GEOGRAPHIC AREA INFORMATION
The Company operates in the international freight forwarding industry,
which encompasses customs brokerage, airfreight and ocean freight
forwarding, and material management and distribution. No single
customer accounted for ten percent or more of consolidated revenue.
The Company manages its operations in two segments, United States and
Foreign. The Company's Chief Operating Officer reviews operating
results and creates operating plans based on these two segments. The
Company's two key operations executives represent these segments.
Bonuses and other incentives are distributed based on the segment
results.
F-13
<PAGE>
Certain information regarding the Company's principal logistics
services and operations by geographic areas is summarized below:
<TABLE>
Year Ended May 31,
-------------- ---- --------------- --- ---------------
1999 1998 1997
-------------- --------------- ---------------
Net Revenue:
<S> <C> <C> <C>
Customs Brokerage $ 163,701 $ 165,055 $ 152,257
Ocean Freight Forwarding 126,060 120,497 107,480
Airfreight Forwarding 166,832 158,514 149,333
Material Manaagement & Distribution 121,384 114,199 100,301
-------------- --------------- ---------------
Total Net Revenue $ 577,977 $ 558,265 $ 509,371
============== =============== ===============
Net Revenue
United States $ 307,025 $ 292,367 $ 268,780
-------------- --------------- ---------------
Canada 45,349 42,939 38,048
Other North America 2,103 1,985 1,774
Europe 96,755 96,157 87,957
China 37,071 34,431 35,018
Singapore 10,199 10,888 11,015
Other Asia 38,579 39,282 36,150
Latin America 40,896 40,216 30,629
-------------- --------------- ---------------
Total Foreign 270,952 265,898 240,591
-------------- --------------- ---------------
Total Net Revenue $ 577,977 $ 558,265 $ 509,371
============== =============== ===============
Income From Operations
United States $ 12,195 $ 14,511 $ 1,029
-------------- --------------- ---------------
Canada 1,180 (489) 9
Other North America 17 376 440
Europe 562 5,028 826
China 8,007 4,436 6,424
Singapore 1,349 617 (56)
Other Asia 2,582 2,835 146
Latin America ( 841) (1,501) (5,960)
-------------- --------------- ---------------
Total Foreign 12,856 11,302 1,829
-------------- --------------- ---------------
Total Income from Operations $ 25,051 $ 25,813 $ 2,858
============== =============== ===============
Long-lived Assets
United States 148,817 $ 139,800 $ 142,521
-------------- --------------- ---------------
Canada 36,997 39,112 37,211
Other North America 575 695 762
Europe 48,340 49,116 49,156
China 68,883 59,520 61,829
Singapore 14,240 14,505 17,342
Other Asia 6,416 5,621 6,581
Latin America 20,506 22,478 17,351
-------------- --------------- ---------------
Total Foreign 195,957 191,047 190,232
-------------- --------------- ---------------
Total Long-lived Assets $ 344,774 $ 330,847 $ 332,753
============== =============== ===============
</TABLE>
F-14
<PAGE>
Note 10 COMMON STOCK (In thousands, except share and per share amounts)
In October 1992, the Company established the 1992 Omnibus Equity
Incentive Plan ("1992 Plan"), pursuant to which an aggregate of
1,520,000 shares of common stock was reserved for issuance to key
employees of the Company. The 1992 Plan was amended to increase the
number of shares of common stock available for award by an additional
1,520,000 shares in May 1994, 1,500,000 shares in October 1996 and
1,500,000 shares in September 1998. The 1992 Plan permits awards of
non-qualified stock options and incentive stock options within the
meaning of Section 422 of the Internal Revenue Code, as well as stock
appreciation rights, restricted stock, and performance awards entitling
the recipient to receive cash or common stock in the future following
attainment of performance goals determined by the committee
administering the 1992 Plan.
The majority of options granted under the Company's 1992 Plan are
exercisable one-third each on the day after the first, second and third
anniversary of the original grant. The majority of restricted stock
vests 100% on the day after the fifth anniversary of the original
grant. Both options and stock were granted at a price equal to fair
market value on the respective dates of grant except for 240,000 shares
of options which were granted at 90% of fair market value at date of
grant. Total stock-based compensation expense of approximately $2,590;
$3,520; and $3,300 was recorded in 1999, 1998, and 1997, respectively.
Each employee stock option assumed by the Company under a previous
merger agreement will continue to have and be subject to, the same
terms and conditions set forth in the relevant stock option plans. The
plans required stock options granted to key employees be at a price not
less than the stock's fair market value on the respective dates of
grant. The majority of options granted are exercisable one-third after
first anniversary date of the grant, two-thirds after two years and are
fully exercisable three years from date of grant. No options have been
granted under this plan since the merger on May 30, 1995.
Effective February 1993, the Company adopted the Non-Employee Director
Restricted Stock Plan (Director Plan) with an aggregate of 50,000
shares of common stock for issuance to outside directors as a portion
of their annual compensation, which vest six months from date of grant.
Shares issued to outside directors under the Director Plan were 4,844,
4,468 and 2,490 during 1999, 1998 and 1997, respectively. Separately,
1,200 restricted shares were granted in 1996 to non-employee directors
under the 1992 Plan and vest three years from date of grant.
The Company adopted SFAS No.123, "Accounting for Stock-Based
Compensation," and exercised the election to continue to apply the
provisions of APB No. 25, "Accounting for Stock Issued to Employees,"
to its stock option plans. Accordingly, compensation expense has only
been recognized in the Consolidated Statements of Operations in
connection with the shares related to options granted at 90% of fair
market value on the respective dates of grant. Compensation expense was
$134; $161; and $161 in 1999, 1998, and 1997, respectively. Had
compensation expense of the Company's stock-based compensation plans
been determined using the fair value based method described in SFAS 123
in 1999, 1998 and 1997, the Company's pro forma net income and earnings
per share would have been:
F-15
<PAGE>
<TABLE>
Year Ended May 31,
-------------- --- --------------- --- ---------------
1999 1998 1997
-------------- --------------- ---------------
Net Income:
<S> <C> <C> <C>
As reported $ 13,452 $ 18,090 $ 308
Pro forma $ 12,231 $ 17,180 $ (192)
-------------- --------------- ---------------
Earnings per share:
Basic-
As reported $ .37 $ .51 $ .01
Pro forma $ .34 $ .48 $ (.01)
-------------- --------------- ---------------
Diluted-
As reported $ .37 $ .50 $ .01
Pro forma $ .34 $ .48 $ (.01)
-------------- --------------- ---------------
</TABLE>
The fair value of each option grant is estimated based on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
Year Ended May 31,
------------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Expected volatility 40.00% 40.00% 40.00%
Risk-free interest rates for terms of:
2 years 5.64% 5.71% 6.45%
3 years 5.72% 5.81% 6.60%
4 years 5.79% 5.86% 6.66%
Dividend yield 0 0 0
Expected option life in years 4 4 4
</TABLE>
Stock option activity was as follows:
<TABLE>
Year Ended May 31,
------------- --- -------------- ---- --------------
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Outstanding, beginning of period 1,960,000 1,509,000 2,135,000
Granted 496,000 660,000 300,000
Canceled (31,000) (158,000) (761,000)
Exercised (16,000) (51,000) (165,000)
------------- -------------- --------------
Outstanding, end of period 2,409,000 1,960,000 1,509,000
============= ============== ==============
Options exercisable 1,447,000 1,115,000 1,137,000
============= ============== ==============
Restricted stock activity
Outstanding, beginning of period 539,000 372,000 320,000
Granted 263,000 187,000 69,000
Canceled (34,000) (20,000) (17,000)
------------- -------------- --------------
Outstanding, end of period 768,000 539,000 372,000
============= ============== ==============
Restricted stock exercisable 222,000 184,000 67,000
============= ============== ==============
Weighted Average Exercise Price:
Outstanding, beginning of period $ 12.04 $ 13.25 $ 16.96
Granted 9.62 10.39 8.86
Canceled 12.65 14.74 21.68
Exercised 7.80 7.90 14.21
Outstanding, end of period 11.47 12.04 13.25
Weighted average fair value of options granted $ 3.31 $ 3.60 $ 3.17
============= ============== ==============
</TABLE>
F-16
<PAGE>
The relevant information regarding stock options outstanding at May 31,
1999:
<TABLE>
Options Outstanding Options Exercisable
------------------------- ------------------------------------------------------- ----------------------------------
Number Weighted Weighted Number Weighted Average
Range of Outstanding Average Average Exercisable May Exercise Price
Exercise Price May 31, 1999 Remaining Exercise Price 31, 1999
Contractual
Life
------------------------- ----------------- ---------------- --------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 6.0625 to 8.1250 444,536 5.71 years $ 7.8034 360,121 $ 7.7477
8.5000 to 8.9041 21,650 6.16 years 8.7028 8,783 8.8614
9.3125 to 9.3125 455,000 9.16 years 9.3125 30,000 9.3125
9.7500 to 10.0620 18,082 5.51 years 9.9792 9,082 9.9315
10.1250 to 10.1250 526,999 8.15 years 10.1250 198,930 10.1250
10.1875 to 11.8750 99,330 7.68 years 11.1428 42,853 11.2478
12.0375 to 12.0375 420,000 4.59 years 12.0375 420,000 12.0375
12.3750 to 15.0000 263,260 5.49 years 14.5940 219,603 14.7869
15.0685 to 23.4375 51,703 5.56 years 21.7276 49,403 21.6480
28.6250 to 28.6250 108,333 5.75 years 28.6250 108,333 28.6250
-------------- --------------
$ 6.0625 to 28.6250 2,408,893 6.76 years $ 11.4741 1,447,108 $ 12.5818
==================== ============== ============= ============== ============== ===============
</TABLE>
The number of shares available for issuance under the 1992 Plan as of
May 31, 1999 was 1,757,947 shares.
On April 25, 1997, the Company conducted a discretionary repricing
exchange program for all options issued under the 1992 Omnibus Equity
Incentive Plan, other than those issued to certain senior officers.
Under the terms of the program, option holders could elect to exchange
outstanding options for half of that number of options at an option
price equal to fair market value on April 25, 1997. Fair market value
as of that date was $8.125 per share. A total of 482,000 previously
issued options were exchanged for 241,000 new options issued in
connection with the program.
The Company initiated a three-year employee retention program whereby
selected managers and administrative personnel were awarded a total of
33,192 shares effective September 1, 1996, 27,036 shares effective July
31, 1997, and 24,226 shares effective July 31, 1998, at no cost to the
employee.
Effective July 1, 1996, the Company adopted an Employee Stock Purchase
Plan (ESPP). A maximum of 200,000 shares of common stock is available
for issuance pursuant to the ESPP. To be eligible to participate in the
Plan an employee must have completed one year of service and have been
scheduled to work more than twenty hours per week. Certain highly
compensated employees may be excluded from participation at the
discretion of the Compensation Committee of the Board of Directors.
The ESPP purchases stock based on the lower of 100% of market value on
the business day preceding the first day of the quarter in which the
stock is purchased or 90% of the average closing price on the pre-set,
quarterly purchase date. Approximately 8.7% of eligible employees have
participated in the Plan in the past year. During 1999, the Company
sold shares at a weighted average issue price of $8.4306.
Under SFAS 123, compensation expense is recognized for the fair value
of the employees' purchase rights if the discount from market price is
greater than 5%. This was estimated using the Black-Scholes
option-pricing model with the following assumptions for 1999: expected
volatility -- 40%; weighted average risk-free interest rate - 4.67%;
dividend yield -- zero; and purchase term -- 3 months. The weighted
F-17
<PAGE>
average fair value of those purchase rights granted in 1999 was $62.
This compensation cost has been included in calculating the pro forma
net income and earnings per share.
On September 16, 1998, the Company announced that its Board of
Directors authorized the purchase of up to $5,000 of the Company's
common stock. As of May 31, 1999, the Company has made purchases
totaling $174, at an average price of $6.45 per share.
NOTE 11. RETIREMENT PLAN
The Company has a 401(k) retirement plan covering substantially all
U.S. employees. The Company has recorded matching contributions in the
amount of $577; $689; and $594 in 1999, 1998, and 1997, respectively.
NOTE 12. QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth selected quarterly financial data for
the years ended May 31, 1999 and 1998:
<TABLE>
Three Months Ended
-----------------------------------------------------------------------------
August 31, November 30, February 28, May 31,
1998 1998 1999 1999 *
-------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 342,329 $ 381,946 $ 317,553 $ 345,899
Net revenue 145,146 153,716 134,914 144,201
Income (loss) from operations 9,831 15,003 (2,993) 3,210
Net income (loss) 6,676 8,552 (2,958) 1,182
Net income (loss) per share - Basic .19 .24 (.08) .03
Net income (loss) per share - Diluted .19 .24 (.08) .03
Three Months Ended
-----------------------------------------------------------------------------
August 31, November 30, February 28, May 31,
1997 1997 1998 1998
-------------- ----------------- -------------- --------------
Revenue $ 326,699 $ 343,611 $ 307,210 $ 322,563
Net Revenue 139,239 145,164 132,282 141,580
Income from operations 6,723 10,546 1,672 6,872
Net income (loss) 3,806 6,885 2,636 4,763
Net income (loss) per share - Basic .11 .19 .07 .13
Net income (loss) per share - Diluted .11 .19 .07 .13
</TABLE>
* As a result of the Company's improved collection performance over the
past two years an adjustment was made in the fourth quarter of 1999 to
reduce bad debt reserves by $2.5 million which resulted in an increase
in earnings of
$0.05 per share.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Fritz Companies, Inc.:
We have audited the accompanying consolidated balance sheets of
Fritz Companies, Inc. and subsidiaries as of May 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity
and comprehensive income and cash flows for each of the years in the
three-year period ended May 31, 1999. In connection with our audits of
the consolidated financial statements, we also audited the related
consolidated financial statement schedule as of and for the years ended
May 31, 1999, 1998 and 1997. These consolidated financial statements
and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Fritz Companies, Inc. and subsidiaries as of May 31, 1999 and 1998,
and the results of their operations and their cash flows for each of
the years in the three-year period ended May 31, 1999, in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
San Francisco, California
June 28, 1999
F-19
<PAGE>
Schedule II - Valuation and Qualifying Accounts
For the Years Ended May 31, 1999, 1998 and 1997
(In thousands)
<TABLE>
Net
Balance Write-Offs
Beginning Charges Charged Balance At
Of Period To Income to Reserves End of Period
and Other
-------------- -------------- --------------- ---------------
For the Year Ended May 31, 1999
<S> <C> <C> <C> <C>
Allowance for doubtful accounts 23,232 4,005 $ (6,771) $ 20,466
============== ============== =============== ===============
For the Year Ended May 31, 1998
Allowance for doubtful accounts 22,292 8,740 $ (7,800) $ 23,232
============== ============== =============== ===============
For the Year Ended May 31, 1997
Allowance for doubtful accounts 6,401 23,786 $ (7,895) $ 22,292
============== ============== =============== ===============
</TABLE>
F-20
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
2.1 Agreement and Plan of Reorganization entered by and
among the Registrant, Fritz Air
Freight and Intertrans Corporation and Amendment No. 1
thereto dated as of April 12, 1995. (Incorporated by
reference to Exhibit 2.1 to Form 8-K dated February
14, 1995 filed on or about February 21, 1995 and to
Appendix A to the Joint Proxy Statement/Prospectus
filed on or about April 13, 1995, respectively.).
3.1 Registrant's Restated Certificate of Incorporation.
(Incorporated by reference to Exhibit 3.1 to
Registration Statement No 33-50808, filed on August
17, 1992.)
3.2 Registrant's Restated Bylaws. F-23
4.1 Specimen certificate of Registrant's Common Stock. (
Incorporated by reference to Exhibit 4.1 to
Registration Statement No. 33-50808, filed on August
17, 1992.)
10.1 Fritz Companies, Inc. Salary Investment and Retiremen
Plan, and amendments thereto. (Incorporated by
reference to Exhibit 10.8 to Registration Statement No.
33-50808, filed on August 17, 1992.)*
10.2 1992 Omnibus Equity Incentive Plan, as amended.
(Incorporated by reference to Exhibit 10.9 to
Registration Statement No. 33-50808, filed on August
17, 1992.)*
10.3 Nonemployee Director Restricted Stock Plan.
(Incorporated by reference to Exhibit A to the
definitive proxy materials of Registrant, filed on or
about April 10, 1993.)*
10.4 Employment Agreement between Registrant and Dennis
Pelino dated June 1, 1995. (Incorporated by reference
to Exhibit 10.21 to Form 10-Q for the quarter ended
August 31, 1995.)
10.5 Purchase Agreement between Registrant and Gestion
J.L.G., Inc. dated as of April 29, 1994. (Incorporated
by reference to Exhibit 1.2 to Form 8-K dated May 2,
1994 filed on or about May 16, 1994.)
10.6 Addendum to the purchase agreements between the
Registrant and Gestion J.L.G., Inc. dated as of April
26, 1994. (Incorporated by reference to Exhibit 10.23
to Form 10-Q for the quarter ended September 30, 1994.)
10.7 Note Purchase Agreement between the Registrant and
various other parties dated April 15, 1996 for
$75,000,000 of 6.43% notes due April 15, 2003.
(Incorporated by reference to Exhibit 10.24 to Form
10-K for the year ended May 31, 1996.)
10.8 Fritz Companies, Inc. Employee Stock Purchase Plan.
(Incorporated by reference to Exhibit 10.26 to the
Registration Statement on Form S-8 No. 33-07639 filed
on July 3, 1996.)
10.9 Employment and Performance Based Retention Plan
between the Registrant and Dennis L. Pelino dated as
of October 31, 1996. (Incorporated by reference to
Exhibit 10.28 to Form 10-Q for the quarter ended
November 30, 1996.)**
10.10 Term Loan Facility agreement dated June 18, 1997
between Standard Chartered Bank and the Registrant
totaling $13.9 million (denominated in Singapore
dollars), maturity is five years from date of
agreement, payments are scheduled quarterly beginning
thirty-nine months from the date of the agreement,
interest rate equivalent to the Singapore Interbank
Offer Rate (SIBOR) plus 50 to 70 basis points
depending on the amount borrowed, and is
collateralized by certain property owned by the
Company.
10.11 Syndicated multi-currency credit facility agreement
dated March 27, 1998 for $100 million maturing on
March 27, 2001
10.12 Extension of syndicated multi-currency credit facility
agreement dated March 27,1998 for $100 million
changing the maturing date to March 27, 2002, Dated
March 30, 1999 F-34
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<PAGE>
EXHIBIT PAGE
10.13 First Amendment Agreement dated March 1, 1998 to the
Note Purchase Agreement dated April 15, 1996 for $75
million of 6.43% senior notes due April 15, 2003
10.14 U.S. Customs Brokerage service agreement between the
Registrant and Federal Express Corporation dated
August 25, 1998 F-41
10.15 Employment and Non-Compete Agreement between
Registrant and Brad Lee Skinner dated December 1,
1998. * F-85
10.16 Employment Offer Letter from the Registrant to Raymond
L. Smith dated December 7, 1998. * F-90
10.17 Guarantee Agreement between the Registrant and Joseph
L. Carnes dated December 16, 1998. F-96
10.18 Employment and Non-Compete Agreement between
Registrant and Jan H. Raymond dated January 1, 1999. * F-98
10.19 Employment and Non-Compete Agreement between
Registrant and Ronald F. Dutt dated April 30, 1999. * F-104
10.20 Amendment # 3 to Registrants Salary Investment and
Retirement Plan dated May 12, 1998 F-109
21.1 Subsidiaries of the Registrant F-119
23.1 Consent of KPMG LLP on Form S-8 Registration Statement
No. 33-57238, 33-78472, 33-93070, 333-15921 and
333-07639, and on Form S-4 Registration Statement No.
33-70674 F-124
27 Financial Data Schedule F-125
* Indicates, as required by Item 14(a)(3), a management contract of
compensatory plan required to be filed as an exhibit to this Form
10-K.
** Confidential Treatment has been requested for portions of this
Exhibit.
F-22
<PAGE>
RESTATED
BYLAWS
OF
FRITZ COMPANIES, INC.
ARTICLE I
OFFICES
Section 1.
Registered Office.
The registered office of the corporation in the State of Delaware shall be
1013 Centre Rd, city of Wilmington, county of New Castle, State of Delaware. The
name of the registered agent is Corporation Service Company. Such registered
agent has a business office identical with such registered office.
Section 2.
Other Offices.
The Corporation also may have offices at such other places both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Corporation may require.
ARTICLE 11
STOCKHOLDERS
Section 1.
Stockholder Meetings.
(a) Time and Place of Meetings. Meetings of the stockholders shall be held
at such times and places, either within or without the State of Delaware, as may
from time to time be fixed by the Board of Directors and stated in the notices
or waivers of notice of such meetings.
(b) Annual Meeting. The annual meeting of the stockholders shall be held at
11:00 A.M. on the last Tuesday in September or on such other date and at such
other time as may be designated by the Board of Directors, for the election of
directors and the transaction of such other business properly brought before
such annual meeting of the stockholders and within the powers of the
stockholders.
(c) Special Meetings. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time by the
Chairman of the Board of Directors, the Chief Executive Officer of the
Corporation or the Board of Directors, or at the request in writing of
stockholders owning not less than ten percent (10%) of the voting power of the
Corporation. Business transacted at anv special meeting of the stockholders
shall be limited to the purposes stated in the notice of such meeting.
(d) Notice of Meetings. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, written notice of each meeting of
the stockholders shall be given not less than ten (10) calendar days nor more
than sixty (60) calendar days before the date of such meeting to each
stockholder entitled to vote thereat, directed to such stockholder's address as
it appears upon the books of the corporation, such notice to specify the place,
date, hour and, in the case of special meeting, the purpose or purposes of such
meeting. When a meeting of the stockholders is adjourned to another time and/or
place, notice need not be given of such adjourned meeting if the time and place
thereof are announced at the meeting of the stockholders at which the
adjournment is taken, unless the adjournment is for more than
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<PAGE>
thirty (30) calendar days or unless after the adjournment a new record date
is fixed for such adjourned meeting, in which event a notice os such adjourned
meeting shall be given to each stockholder of record entitled to vote thereat.
Notice fo the time, place and purpose of any meeting of the stockholders may be
waived in writing either before or after such meeting and will be waived by any
stock-holder by such stockholder's attendance thereat in person or by proxy. Any
stock-holder so waiving notice of such a meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given.
(e) Quorum. Except as otherwise required by law, the Certificate of
Incorporation or these Bylaws, the holders of not less than a majority of the
shares entitled to vote at any meeting of the stock-holders, present in present
in person or by proxy, shall constitute a quorum and the affirmative vote of the
majority of such quorum shall be deemed the act of the stockholders. If a quorum
shall fail to attend any meeting of the stockholders, the presiding officer of
such meeting may adjourn such meeting from time to time to another place, date
or time, without notice other than announcement at such meeting, until a quorum
is present or represented. At such adjourned meeting at which a quorum is
present or represented, any business may be transacted that might have been
transacted at the meeting of th~, stock-holders as originally noticed. The
foregoing notwithstanding, if a notice of any adjourned special meeting of the
stockholders is sent to all stockholders entitled to vote thereat which states
that such adjourned special meeting will be held with those present in person or
by proxy constituting a quorum, then, except as otherwise required by law, those
present at such adjourned special meeting of the stockholders shall constitute a
quorum and all matters shall be determined by a majority of the votes cast at
such special meeting.
Section 2.
Determination of Stockholder Entitled to Notice and to Vote.
To determine the stockholders entitled to notice of any meeting of the
stockholder or to vote thereat, the Board of Directors may fix in advance a
record date as provided in Article VII, Section I of these Bylaws, or if no
record date is fixed by the Board of Directors, a record date shall be
determined as provided by law.
Section 3.
Voting.
(a) Except as otherwise required by law, the Certificate of Incorporation
or these Bylaws, each stockholder present in person or by proxy at a meeting of
the stockholders shall be entitled to one vote for each full share of stock
registered in the name of such stockholder a the time fixed by the Board of
Directors or by law as the record date for the determination of stockholders
entitled to vote at such meeting.
(b) Every stockholder entitled to vote at a meeting of the stockholders may
do so either in person or by one or more agents authorized by a written proxy
executed by the person or such stockholder's duly authorized agent whether by
manual signature, typewriting, telegraphic transmission or otherwise.
(c) Voting may be by voice or by ballot as the presiding officer of the
meeting of the stockholders shall determine. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by such stockholder's proxy, and
shall state the number of shares voted.
(d) In advance of any meeting of the stockholders, the Board of Directors
my appoint one or more persons as inspectors of election ("Inspectors") to act
at such meeting. If Inspectors are not so appointed, or if an appointed
Inspector fails to appear or fails or refuses to act at a meeting of the
stockholders, the presiding officer of such meeting may, and at the request of
any stockholder or such stockholder's proxy shall, appoint Inspectors at such
meeting. Such Inspectors shall take charge of the
F-24
<PAGE>
ballots at such meeting. After the balloting thereat on any question, the
Inspectors shall count the ballots cast thereon and make a written report to the
secretary of such meeting of the results thereof. An Inspector need not be a
stockholder of the corporation and any officer of the Corporation may be an
Inspector on any question other than a vote for or against such officer's
election to any position with the Corporation or of any other questions in which
such officer may be directly interested. If there are three Inspectors, the
determination, report or certificate of two such Inspectors shall be effective
as if unanimously made by all Inspectors.
Section 4.
List of Stockholders.
The officer who has charge of the stock ledger of the Corporation shall prepare
and make available, at least ten (10) days before every meeting of
stock-holders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, showing the address of and the number of shares
registered in the name of each such stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to such meeting, during
ordinary business hours, for a period of at least ten (10) days prior to such
meeting, either at a place within the city where such meeting is to be held and
which place shall be specified in the notice of such meeting, or if not so
specified, at the place where such meeting is to be held. The list also shall be
produced and kept at the time and place of the meeting of the stockholders
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5.
Action By Consent of Stockholders.
Except as otherwise restricted by law or the Certificate of Incorporation
any action required or permitted to be taken at any annual or special meeting of
the stockholders may be taken with out a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
Section 1.
General Powers.
Unless otherwise provided by law, the Certificate of Incorporation or these
Bylaws, all corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed by, the Board
of Directors.
Section 2.
Election of Directors.
(a) Number, Qualification and Term of Office. The authorized number of
directors of the Corporation shall be fixed from time to time by the Board of
Directors, but shall not be less than three (3). The exact number of directors
shall be determined from time to time, either by a reselution or Bylaw provision
duly adopted by the Board of Directors. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, each of the directors of the
Corporation shall be elected at the annual meeting of the stockholders and each
director so elected shall hold office until such director's successor is elected
or until such director's death, resignation or removal. Directors need not be
stockholders.
F-25
<PAGE>
(b) Vacancies. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Unless
otherwise restricted by law or by the Certificate of Incorporation, newly
created directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
removal or other cause may be filled by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum of the
Board of Directors, or by the stockholders. Any director elected in accordance
with the preceding sentence shall hold office until the next annual meeting of
the stockholders and until such director's successor shall have been elected or
until such director's death, resignation or removal.
(c) Resignation. Any director may resign from the Board of Directors at any
time by giving written notice thereof to the Chairman of the Board, the Chief
Executive Officer or the Secretary of the Corporation. Any such resignation
shall take effect at the time specified therein, or, if the time when such
resignation shall become effective shall not be so specified, then such
resignation shall take effect immediately upon its receipt by the Secretary;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
(d) Removal. Except as provided in the Certificate of Incorporation, any
director of the Corporation may be removed from office with or without cause,
but only by the affirmative vote of the holders of not less than a majority of
the outstanding capital stock of the corporation entitled to vote generally in
the election of directors, voting together as a single class.
Section 3.
at the following times:
Meetings of the Board of Directors.
(a) Regular Meetings. Regular meetings of the Board of Directors shall be
held without call
(i) at such times as the Board of Directors shall from time to time by
resolution determine; and
(ii) immediately following the adjournment of any annual or speicial
meeting of the stockholders.
Notice of all such regular meeting hereby is dispensed with.
(b) Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors, by the Chief Executive
Officer, by the Board of Directors or by any three (3) directors. Notice of the
time and place of special meeting of the Board of Directors shall be given by
the Secretary or an Assistant Secretary of the Corporation, or by any other
officer authorized by the Board of Directors. Such notice shall be given to each
director personally or by mail, messenger, courrier telephone, telecopy,
facsimile, telegraph, email or any other form of recorded communication at such
director's business or residence address. Notice by mail shall be deposited in
the United States mail postage prepaid, not later than the third day prior to
the date filed for such special meeting. Notice by telephone, telecopy,
facsimile or telegraph shall be sent, and notice given personally, by email or
by messenger or courrier to any other form of recorded communication shall be
delivered, at least twenty-four (24) hours prior to the time set for such
special meeting. Notice of a special meeting of the Board of Directors need not
contain a statement of the purpose of such special meeting.
(c) Adjourned Meetings. A majority of directors present at any regular or
special meeting of the Board of Directors or any committee thereof, whether or
not constituting a quorum, may adjourn any meeting from time to time until a
quorum is present or otherwise. Notice of the time and place of holding
F-26
<PAGE>
ny adjourned meeting shall not be required if the time and place are fixed at
the meeting adjourned.
(d) Place of Meetings. Meetings of the Board of Directors, both regular and
special, may be held at any place within or without the state of Delaware which
has been designated in the notice of the meeting or, if not stated in the notice
or if there is not notice, designated by resolution of the Board of Directors.
In the absence of any such designation, meetings of the Board of Directors shall
be held at the Corporation's principal executive office.
(e) Participation by Telephone. Members of the Board of Directors or any
committee thereof may participate in any meeting of the Board of Directors or
committee through the use of conference telephone or similar communications
equipment, so long as all members participating in such meeting can hear one
another, and such participation shall constitute presence in person at such
meeting.
(f) Quorum. At all meeting of the Board of Directors or any committee
thereof, a majority of the total number of directors then in office or such
committee, shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any such meeting at which there is a
quorum shall be the act of the Board of Directors or any committee thereof,
except as may be otherwise specifically provided by law, the Certificate of
Incorporation or these Bylaws. A meeting of the Board of Directors or any
committee thereof at which a quorum initially is present may continue to
transact business notwithstanding the withdrawal of directors so long as any
action is approved by at least a majority of the required quorum for such
meeting.
(g) Waiver of Notice. The transactions of any meeting of the Board of
Directors or any committee thereof, however called and noticed or wherever held,
shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum be present and if, either before or after the meeting,
quorum be present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, or a consent to hold
such meeting, or an approval of the minutes thereof. All such waivers, consents
or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Notice of a special meeting will be automatically waived
by any director's attendance or participation at such meeting.
Section 4.
Action Without Meeting.
Any action required or permitted to be taken by the Board of Directors at
any meeting thereof may be taken without a meeting thereof or at any meeting of
a committee thereof may be taken without a meeting if all members of the Board
of Directors or such committee thereof consent thereto in writing and the
writing or writings are filed with the minutes of the proceeding of the Board of
Directors or such committee thereof.
Section 5.
Compensation of Directors.
Unless otherwise restricted by law, the Certificate of Incorporation or
these Bylaws, the Board of Directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Member of
committees of the Board of Directors may be allowed like compensation for
attending committee meetings.
Section 6.
Committees of the Board.
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<PAGE>
Board of Directors, each committee to consist of one or more directors. Each
such committee, to the extent permitted by law, the Certificate of Incorporation
and these Bylaws, shall have and may exercise such of the powers of the Board of
Directors in the management and affairs of the Corporation as may be prescribed
by the resolutions creating such committee. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. The Board of Directors shall have the power, at any time for any such
reason, to change the members of any such committee, to fill vacancies, and to
discontinue any such committee.
(b) Minutes of Meetings. Each committee shall keep regular minutes of its
meetings and report the same to the Board
of Directors when required.
(c) Limits on Authori~y of Committee. No committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151 (a) of the General Corporation Law of the State of
Delaware, fix the designations and any of the preferences or rights of such
share relating to dividends, redemption, dissolution, any distribution of assets
of the corporation, or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of stock or authorize
the increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending any provision of these Bylaws; nor,
unless the resolutions establishing such committee or the certificate of
Incorporation expressly so provide, shall have the power or authority to declare
a dividend, to authorize the issuance of stock, to adopt a certificate of
ownership and merger, or to fill vacancies in the Board of Directors.
ARTICLE IV
OFFICERS
Section 1.
Officers.
(a) Number. The officers of the Corporation shall be chosen by the Board of
Directors. There shall be two classes of officer: executive officers and
non-executive officers. Executive officers shall include Chairman of the Board
of Directors, Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, President and Executive Vice Presidents. Non-executive officers shall
include Vice Presidents, Treasurer, Controller and Secretary. The Board of
Directors also may appoint one or more Assistant Vice-Presidents, Assistant
Secretaries or Assistant Treasurers and such other officers and agents with such
powers and duties as it shall deem necessary. Any Executive Vice President or
Vice President may be given such specific designation as may be determined from
time to time by the Board of Directors. Any number of offices may be held by the
same person, unless otherwise by law, the Certificate of Incorporation or these
Bylaws.
(b) Election and Tenn of Office. The officers shall be elected annually by
the Board of
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<PAGE>
Directors at its regular meeting following the annual meeting of the
stockholders and each officer shall hold office until the next annual election
of officers or until such officer's successor is elected, or until such
officer's death, resignation or removal. Any officer may be removed at any time,
with or without cause, by a vote of the majority of the Board of Directors. Any
vacancy occurring in any office may be filled by the Board of Directors.
(c) Delegation ofAuthoriy. The Board of Directors may from time to time
delegate the powers or duties of any officer to any other officers or agents,
notwithstanding any provision hereof.
Section 2.
Chairman of the Board of Directors.
The Chairman of the board of Directors shall preside at meeting of the
stockholders and the
Board of Directors. Unless otherwise designated by the Board of Directors,
the Chairman of the Board shall be the chief executive'officer of th ' e
Corporation. Subject to the provision of these Bylaws and to the direction of
the Board of Directors, he or she shall have the responsibility for the general
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers that are commonly incident to the office
of the chief executive or that are delegated to him or her by the Board of
Directors. He or she shall have power to sign all stock certificates, contracts
and other instruments of the Corporation that are authorized and shall have
general supervision and direction of all of the duties, employees and agents of
the Corporation.
Section 3.
Chief Executive Officer.
In the absence of the Chairman of the Board, or if there is none, the Chief
Executive Officer shall preside at meetings of the stockholders and the Board of
Directors. The Chief Executive Officer shall assume and perform the duties of
the Chairman of the Board in the absence or disability of the Chairman of the
Board or whenever the office of the Chairman of the Board is vacant.
Section 4.
President.
In the absence of the Chairman of the Board and the Chief Executive Officer, or
if there is none, the President shall preside at meetings of the stockholders
and the Board of Directors. The President shall assume and perform the duties of
the Chairman of the Board in the absence or disability of the Chairman of the
Board and the Chief Executive Officer or whenever the office of the Chairman of
the Board and the Chief Executive Officer is vacant.
Section 5.
Chie Operating Officer.
Subject to the provisions of these Bylaws and to the direction of the Board
of Directors and the Chairman of the Board, the Chief Operating Officer shall
have responsibility for the day-to-day operations of the Corporation and shall
perform all duties and have all powers that are commonly incident to the office
of chief operation officer or that are delegated to him or her by the Board of
Directors or the Chairman of the Board.
Section 6.
Vice Presidents.
The Executive Vice Presidents and Vice Presidents shall have such powers
and perform such duties as from time to time may be prescribed for them,
respectively, by the Board of Directors or Chief Executive Officer.
Section 7.
Secretary and Assistant Secretaries.
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<PAGE>
The Secretary shall record or cause to be recorded, in books provided for
the purpose, minutes of the meeting of the stocl~holders, the Board of Directors
and all committees of the Board of Directors; see that all notices are duly
given in accordance with the provisions of these Bylaws as required by law; be
custodian of all corporate records (other than financial) and of the seal of the
Corporation, and have authority to affix the seal to all documents requiring it
and attest to the same; give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors; and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him by the Board of
Directors, Chief Executive Officer or by the President. At the request of the
Secretary, or in the Secretary's absence or disability, any Assistant Secretary
shall perform any of the duties of the Secretary and, when so acting, shall have
all the powers of, and be subject to all the restrictions upon, the Secretary.
Section 8.
Chief Financial Officercer, Chief Accounting Officer, Treasurer and Assistant
Treasurers.
The Chief Financial Officer shall render statements of the financial
affairs of the Corporation in such form and as often as required by the Board of
Directors, Chief Executive Officer or the President. The Chief Accounting
Officer shall keep or cause to be kept the books of account of the Corporation,
shall perform all other duties commonly incident to his office and shall perform
such other duties and have such other powers as the Board of Directors, Chief
Executive Officer or the President shall designate from time to time. At the
request of the Chief Financial Officer, or in the Chief Financial Officer's
absence or disability, the Chief Accounting Officer or the Controller may
perform any of the duties of the Chief Financial Officer and, when so acting,
shall have all powers of, and be subject to all the restrictions upon, the Chief
Financial Officer. At the request of the Chief Accounting Officer, or in the
Accounting Officer's absence or disability, any Treasurer or Assistant Treasurer
may perform any of the duties of the Chief Accounting Officer and, when so
acting, shall have all the powers of, and be subject to all the restrictions
upon, the Chief Accounting Officer. Except where by law the signature of the
Chief Financial Officer or Chief Accounting Officer, as applicable, is required,
each of the Controller or the Treasurer shall possess the same power as the
Chief Financial Officer or Chief Accounting Officer, as applicable, to sign all
certificates, contracts, obligation and other instruments of the Corporation.
ARTICLE V
INDEMNIFICATION AND INSURANCE
Section 1.
Actions Against Directors and Officers.
The Corporation shall indemnify to the fullest extent permitted by, and in
the manner permissible under, the laws of the State of Delaware any person made,
or threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative (a "Proceeding"), by reason of the fact
that such person or such person's testator or intestate is or was a director or
officer of the Corporation or any predecessor of the Corporation, or served any
other enterprise as a director or officer at the request of the Corporation or
any predecessor of the Corporation (the "Indemnitee"), including without
limitation, all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by the Indemnitee in
connection with such Proceeding.
In furtherance and not in limitation of the foregoing provisions, all
reasonable expenses incurred by or on behalf of the Indemnitee in connection
with any Proceeding shall be advanced to the Indemnitee by the corporation
within 20 calendar days after the receipt by the Corporation of a statement or
statements from the Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the
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<PAGE>
expenses incurred by the Indemnitee and, if required by law at the time of
such advance, shall include or be accompanied by an undertaking by or on behalf
of the Indemnitee to repay the amounts advanced if it should ultimately be
determined that the Indemnitee is not entitled to be indemnified against such
expenses pursuant to this Article V.
Section 2.
Contract.
The provisions of Section I of this Article V shall be deemed to be a
contract between the Corporation and each director and officer who serves in
such capacity at any time while such Bylaws is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
Section 3.
Nonexclusivi~y.
The rights of indemnification provided by this Article V shall not be
deemed exclusive of any other rights to which any director or officer of the
corporation may be entitled apart from the provisions of this Article V.
Section 4.
Indemnocation of Employee and Agents.
The Board of Directors in its discretion shall have the power on behalf of
the Corporation to indemnify any person, other than a director or officer, made
a party to any action, suit or proceeding by reason of the fact that such person
or such person's testator or intestate, is or was an employee or agent of the
Corporation.
Section 5.
Insurance.
Upon a resolution or resolutions duly adopted by the Board of Directors of
the Corporation, the Corporation may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of the
Corporation against any liability asserted against such person and incurred by
him in any capacity, or arising out of his capacity as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of applicable law, the Certificate of Incorporation or
these Bylaws.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1.
Certificatesfor Shares.
Unless otherwise provided by a resolution of the Board of Directors, the
shares of the Corporation shall be represented by a certificate. The
certificates of stock of the Corporation shall be numbered ans shall be entered
in the books of the Corporation as they are issued. They shall exhibit the
holder's name and number of shares and shall be signed by or in the name of the
Corporation by (a) the Chairman of the Board of Directors, the Chief Executive
Officer, the Chief Operating Officer, the President or any Executive Vice
President and (b) the Chief Financial Officer or the Secretary or any Assistant
Secretary. Any or all of the signatures on a certificate may be facsimile. In
case any officer of the Corporation, transfer agent or registrar who has signed,
or whose facsimile signature has been placed upon such certificate, shall have
ceased to be such officer, transfer agent or registrar before such certificate
is
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<PAGE>
issued, such certificate may nevertheless be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at the
date of issuance.
Section 2.
Transfer.
Upon surrender to the Corporation or the transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3.
Record Owner.
The Corporation shall be entitled to treat the holder of record of any
shares of stock as the holder in fact thereof, aiid,'accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State of Delaware.
Section 4.
Lost Certificates.
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it mav direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
ARTICLE VII
MISCELLANEOUS
Section 1.
Record Date.
(a) In order that the Corporation may determine the stocl~holders entitled
to notice of or to vote at any meeting of the stockholders or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days prior to the date of
such meeting nor more than sixty (60) days prior to any other action. If not
fixed by the Board of Directors, the record date shall be determined as provided
by law.
(b) A determination of stockholders of record entitled to notice of or to
vote at a meeting of the stockholders shall apply to any adjournments of the
meeting, unless the Board of Directors fixes a new record date for the adjourned
meeting.
(c) Holders of stock on the record date are entitled to notice and to vote
or to receive the dividend, distribution or allotment of rights or to exercise
the rights, as the case may be, notwithstanding any transfer of any shares on
the books of the Corporation after the record date, except as otherwise provided
by agreement or by law, the Certificate of Incorporation or these Bylaws.
F-32
<PAGE>
Execution of Instruments.
The Board of Directors may, in its discretion, determine the method and
designate the signatory officer of officers, or other persons, to execute any
corporate instrument or document or to sign the corporate name without
limitation, except where otherwise provided by law, the Certificate of
Incorporation or these Bylaws. Such designation may be general or confined to
specific instances. In any event, any executive officer may execute any
instrument in the name of and on behalf of the Corporation.
Section 3.
Voting of Securities Owned by the Corporation.
All stock and other securities of other corporations held by the
Corporation shall be voted, and all proxies with respect thereto shall be
executed, by the person so authorized by resolution of the Board of Directors,
or, in the absence of such authorization, by the Chief Executive Officer or
Secretary.
Section 4.
Corporate Seal.
The Corporation shall have a corporate seal in such form as shall be
prescribed and adopted by the Board of Directors.
Section 5.
Construction and Definitions.
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of the State of
Delaware shall govern the construction of these Bylaws.
Section 6.
Amendments.
These Bylaws may be altered, amended or repealed or new Bylaws may be
adopted by the stockholders at any meeting or by the Board of Directors.
F-33
<PAGE>
Bank of America
March 30, 1999
To All Lenders via First Clais Mail
RE: Credit Agreement (the "Agreement") dated as of March 27, 1998 among, t~
t~ Fritz Companies, Inc. (as "Borrower"), Certain Subsidiaries of the Borrower
(as "Guarantors"), the Several Lenders from time to time party hereto, and
NationsBank N.A. (as "Agent")
Bank of America NT&SA
555 California Street, 41st Floor
San Francisco, CA 94104-1502
Carl Fye
Vice President
Credit Products 5771
Direct Dial: (415) 953-6903
FAX: (415) 622-2385
On behalf of NationsBank, N.A., as Agent for the Lenders, enclosed is a
complete set of executed signature pages for all Lenders approving the extension
of the Maturity Date for an additional one-year period to March 27, 2002 (the
"Extension Date") as provided for under Section 2.5 of the above referenced
Credit Agreement. As you are aware the effective date for this Extension was
March 10, 1999.
Very truly yours,
NationsBank N.A., as Agent
/s/ Carl Fye
Carl Fye
Vice President
cc: t, Lee Reamy, Assistant Treasurer, Fritz Companies, Inc.
Jason Morris, NationsBank (copy only/via interbranch)
Donna Cornell, NationsBank (originals/via interbranch)
Re: Fritz Companies, Inc. February 3, 1999 Paae 2
F-34
<PAGE>
The undersigned Lender consents to the foregoing one-year period "Extension
Date" requested by Fritz Companies, Inc. for the Credit Agreement dated March
27, 1998. The "Maturitv Date" for such extension would be March 27, 2002.
NationsBank N.A.
By:/s/Kevin C. Leader
Name: Kevin C. Leader
Title: Vice President
KEVIN Q. LEADER
Vice President
F-35
<PAGE>
Re: Fritz Companies, Inc.
February 8,.1999
Page 2
The undersigned Lender consents to the foregoing one-year period "Extension
Date" requested by*Fritz Companies, Inc. for the Credit Agreement dated March
27, 1998. The "Maturity Date" for such extension would be March 27,2002.
BankBoston N.A
By: /s/ Alicia Szendiuch
Name: Alicia Szendiuch
Title: Director
Fax to: Carl Fye, V.P.
(415) 622-2385
RESPONSE DUE NO LATER THAN
FRIDAY, February 26, 1999
F-36
<PAGE>
The undersianed Lender consents to the foregoing one-year period "Extension
Date" reque ted by Fritz Companies, Inc. for the Credit A2reement dated March
27, 1998. The "Maturity Date" for such extension would be March 27, 2002.
Standard Chartered Bank
[fill in complete name ofLender]
By: /s/ Sylvia D. Rivers/ /s/ Woo Young Song
Name: SvIvia D. Rivera/Woo Youn-g Song
Title:. Assistant VP/ Vice President
Fax to: Carl Fye, V.P.
(415) 622-2385
F-37
<PAGE>
The undersigned Lender consents to the foregoing one-year period "Extension
Date" requested by Fritz Companies, Inc. for the Credit Agreement dated March
27, 1"S. The "Maturity Date" for such extemion would be March 27,2002.
MELLON BANK, N.A.
[fill in complete name of Lender]
By: /s/ Gill S. Realon.
Name: GILL S. REALON
7-Itle: VICE PRESIDENT
Fax toi Carl F'ye, V.P
(415) 622-2385
RESPONSE DUE NO LATER 77-IAN
FBIDA Y. February 26, 1999
[GRAPHIC OMITTED][GRAPHIC OMITTED]
F-38
<PAGE>
Re: Fritz Companies, Inc.
February 8, 1999
Page 2
The undersigned Lender consents to the foregoing one-year period "Extension
Date" requested by Fritz Companies, Inc. for the Credit Agreement dated March
27,1998. The "Maturity Date" for such extension would be March 27,2002:
Bank One, Texas N.A.
Name of lender]
By: /s/Richard L. Kogers
Vice President
Fax to: Carl Fye, V.P.
(415) 622-2385
Name: RESPONSE DUE NO LATER
THAN
Title: FRIDAY, February 26, 1999
F-39
<PAGE>
Re: Fritz Companies, Inc.
February 8, 1999
Page 2
The undersigned Lender consents to the foregoing one-year period "Extension
Date" requested by Fritz Com2anies, Inc. for the Credit Agreement dated March
27, 1998. The "Maturity Date" for such extension would be March 27, 2002.
I THE FIRST NATIONAL BANK OYCHICAGO
[fill in complete name ofLender]
By./s/ Aaron S Lanski
Title:
Name: AARON S LANSKI
Corporate Banking Officer
Fax to: Carl Fye, V.P.
(415) 622-2385
RESPONSE DUE NO LATER THAN.
FRIDAY, February 26,1999
F-40
<PAGE>
Contract No. 99-0239
U.S. CUSTOMS BROKERAGE
SERVICE AGREEMENT
MEMPHIS
between
Federal Express Corporation
and
Fritz Companies, Inc.
F-41
<PAGE>
U.S. CUSTOMS BROKERAGE
SERVICE AGREEMENT
Contract No. 99-023 9
This Agreement made and entered into as of the 25th day of August, 1998
between Federal Express Corporation ("Federal") and Fritz Companies, Inc.
("Contractor").
RECITALS
1. Federal transports packages from various points, worldwide to locations
within the United States as set forth in Exhibit F of this Agreement (the
"Locations") for expedited delivery through an "Express Consignment and Carrier
Facility or Hub Facility" ("Hub") (each collectively or individually referred to
herein as "Hub") as defined in 19 CFR - 128.
2. Packages arriving from foreign countries must be reported to and
processed by, various government agencies either before or on arrival in the
United States.
3. The various reports and processes involved are extremely technical in
nature and errors in the proper handling of which may subject the importer to
severe civil and/or criminal penalties.
4. The obligations of Federal to its customers require that every package
be reported, and required processing completed, in
time to make delivery commitments.
5. The volumes and short time frames combine to make it possible to meet
these commitments only by dedicating several licensed Customs Brokers, large
numbers of individuals trained in brokerage services and functions, and
dedicated computer systems and resources to this task.
6. Contractor is a commercial firm offering Customs Brokerage services to
the general public and has the computer systems, resources and personnel capable
of providing these regulatory reporting and processing requirements with the
professionalism and timeliness described herein.
7. Contractor is willing to provide such services to Federal and Federal is
willing to employ Contractor.
Now therefore, in consideration of the foregoing, and/or other good and
valuable considerations set forth in this Agreement,
the parties agree as follows:
I . TERM. (a) The terms for each of the Locations as shall be from time to
time governed by this Agreement (the "Term") in Exhibit F attached hereto.
F-42
<PAGE>
(b) Either party shall have the unlimited right to terminate any Location
for which Services are being provided under this Agreement prior to the related
expiration date by giving not less than one hundred and eighty (180) days'
written notice to the other party. Neither party may terminate more than one of
the Locations at any one time. Should a party exercise this right of termination
for any of the Locations, neither party may exercise its right to terminate any
remaining Locations for a period not to exceed one hundred and twenty (120) days
from the effective date of the termination of the most recently terminated
Location. In the event of a notice of a termination of any of the Locations,
Contractor shall be entitled only to the Fee earned and Reimbursable actually
incurred as of the effective date of termination for that particular Location.
If Federal terminates any Location pursuant to this clause, Contractor shall
have the right to an increase in the pricing for the Services provided by
Contractor at the remaining Locations. The par-ties shall mutually agree on the
revised pricing within sixty (60) days of the notice by Contractor to increase
the rates; however in no event may the increase in the rates exceed the
following: (a) In the event that the Anchorage Location is terminated early, the
Memphis and Oakland Location pricing shall each increase by three percent (3%);
(b) In the event that the Memphis Location is terminated early, the Anchorage
and Oakland Location pricing shall each increase by nineteen percent (19%); and
(c) In the event that the Oakland Location is terminated early, the Anchorage
and Memphis Location pricing shall each increase by one percent (1%); The
increase in pricing for the remaining Locations shall commence upon the
termination of the particular Location terminated by Federal.
(c) In the event of a material change in the U.S. Regulations or the
Regulations of any applicable foreign government which directly impacts
Contractor's ability to perform the Services or directly affects the costs
incurred by Contractor in performing the Services, then Contractor may request a
renegotiation of the terms of this Agreement. In such event, Contractor shall
provide Federal with written notice of its desire to renegotiate this Agreement
specifically referencing the changed regulation(s) which affect Contractor's
ability to perform the Services. Contractor shall submit a report which explains
and substantiates the effect of such changes. Federal and Contractor shall
renegotiate the contract with terms acceptable to Federal and Contractor within
sixty (60) days of Federal's receipt of such notice.
(d) Regardless of the Effective Date of this Agreement, Federal agrees that
the pricing of this Agreement, as specified in Exhibit B, is effective as of
March 1, 1998. Therefore, upon execution of this Agreement, Federal agrees to
pay Contractor pursuant to the March 1, 1998 pricing of Two Hundred Ninety One
Thousand Four Hundred Forty-Six Dollars ($291,446) per month and Federal shall
reimburse Contractor for any shortfall from March 1, 1998 to the Effective Date.
In addition, the invoice for the broker performance incentive from September
1997 through January 1998 in the amount of $188,900.00 and the invoice for the
UPS strike costs in the amount of $149,774.00 shall also be paid by Federal.
Federal agrees to pay all of these charges within seven (7) days of the
execution of this Agreement.
2. SERVICES. (a) In consideration of Federal's payments under this
Agreement, and upon the request of Federal, Contractor shall perform in
accordance with the terms of this Agreement the services described in this
Section 2 (the "Services"). For all shipments transported by Federal
F-43
<PAGE>
arriving at the Hub and destined to points within the United States and
which require entry and clearance through United States Customs, and for which
Federal is empowered to arrange such entry and clearance, Federal hereby
designates Contractor and Contractor hereby accepts such designation, as
Federal's Licensed Customs Brokers; to enter and clear all such shipments in
accordance with the provisions of 19 CFR Section 1 1 1 et. seq., and in
accordance with the Broker Performance Standards and provisions of Exhibit A to
this Agreement. Contractor shall be the "Importer of Record" for all shipments
except those for which the ultimate consignee requests that it be the "Importer
of Record" and provides Contractor with a duly executed Power of Attorney and
has a surety bond in favor of the United States. In connection with the
Services:
(i) Contractor will provide all forms and supplies necessary for Customs
and Regulatory Agency clearance.
(ii) Contractor shall provide all equipment required for the preparation
and filing of Customs entries and Regulatory Agency Documents and at its own
expense supply, support, and maintain such equipment and associated costs
thereof.
(iii) Federal will have the option to provide data lines to the Hub at no
cost to Contractor for use to perform Customs Clearance services. Federal will
provide fax machines and maintenance and toner supplies required to receive and
process clearance documentation. Contractor will supply paper required for fax
machines.
(iv) Contractor shall provide to Federal opportunities to improve services
or reduce costs through better procedural changes or investment. Federal shall
evaluate such suggestions and decide if such changes shall be made. If such
investment decision is made by Federal, the amortization of the cost of the
investment and the interest shall be agreed to in writing by the parties and
shall be paid by Federal over the remaining term of this Agreement.
(v) Contractor shall maintain and provide to Federal at Federal's request,
a hit showing the customers that have requested that a customer be listed as the
importer of record.
(b) As part of the Services, Contractor will advise Federal of all cargo
which should go into and out of Federal's In-Bond cage. Contractor will maintain
a package-hold log detailing Contractor's advised movements into and out of
Federal's In-Bond cage. Shipments caged will be processed by Contractor in
accordance with Federal's established standards and billed as set forth in
Exhibit B. Responsibility for the actual physical content of the In-Bond cage
shall remain with Federal. Corrections to the manifest, Immediate Transportation
(IT) or Inward Cargo Manifest shall be made by Federal.
F-44
<PAGE>
(c) Federal will provide to Contractor at no charge adequate facilities as
necessary for Customs shipment release processing and equipment (exclusive of
equipment needed to generate Customs forms and associated documents and to
process shipments through U.S. Customs and other government agencies, which will
be provided by Contractor) for use by Contractor in performance of duties
required of Contractor by this Agreement at the Hub. The pricing of adequate
facilities of the current facilities are incorporated in the current
compensation in Exhibit B of this Agreement. The cost for any additional changes
or improvement to the facilities that are necessary for Contractor to perform
the Services under this Agreement, shall be agreed upon by the parties in
advance. Contractor will provide additional offsite space at its expense to
facilitate increased volumes and service.
(d) Federal will provide at each of the Locations two (2) parking spaces
for Contractor owned or leased vehicles during Hub operating hours. This space
shall be used by Contractor for the purpose of parking vehicles employed in the
movement of staff, supplies and files between Federal's Hub and the Contractor's
offices. This space shall be located at a site mutually agreeable by Contractor
and Federal. Contractor's personnel will be allowed to park in the Federal
employee parking area and Federal will provide transportation (if parking spaces
allotted are not within walking distance of the Hub) from parking area to
entrance of the Hub.
(e) Contractor will provide Federal with a statistic's report for each
month of the Term (the "Statistic's Report") which Statistic's Report will
itemize the volume of each type of Services provided by Contractor during the
immediately preceding month for each billed category described in Exhibit B. The
Statistic's Report will fully substantiate each invoice submitted to Federal for
Fees.
(f) Except as expressly provided in this Agreement, Contractor shall
advance and pay to the applicable governmental agency all duties and taxes and
fees required in connection with Contractor's performance of the Services (the
"Reimbursables"). Notwithstanding the foregoing, when Federal is listed as the
importer of record of a shipment (which shall occur only if specifically
requested by Federal) and the duties for such shipment exceed the applicable
amount set forth in Exhibit B, Federal shall remit any such payment directly to
U.S. Customs. Contractor will be responsible for timely communication to Federal
when such direct payment of duties by Federal is necessary. Reimbursement by
Federal of Reimbursables advanced by Contractor under this Agreement shall be in
accordance with Section 4.
3. PAYMENT FOR SERVICES. In consideration of Contractor's complete
performance of the Services in accordance with this Agreement, Federal shall pay
Contractor a fee (the "Fee") based on the rates for the specific location as set
forth in Exhibit B and payable as provided in this Section 3. However, no
portion of the Fee shall be payable unless properly documented in accordance
with this Agreement. On a monthly basis, Contractor shall submit to Federal an
invoice (original and two copies) for its Fee for Services completed during each
month of the Tenn. Each invoice must include a statistical volume sheet
inclusive of all service types charged on the invoice. Each Customized Process
Account ("CPA") surcharge invoiced must include statistical volumes by customer
name, type of entry and category. All CPA designated accounts
F-45
<PAGE>
must be pre-approved in writing by the Customs Brokerage Administration
("CBA") in Memphis prior to invoicing. No unauthorized CPA account charges shall
be reimbursed by Federal. All charges invoiced to Federal must appear on the
Price List except for compensation for expenses outside of the Agreement which
must be itemized and approved in writing. Contractor's invoices for Fees must be
accompanied by any other documentation as may be reasonably requested by Federal
f6r its proper review of such invoice. Federal shall promptly review
Contractor's invoice and approve for payment such amounts as Federal reasonably
determines to be properly due under the Agreement. Payment by Federal shall be
made within seven (7) business days of Federal's receipt and approval of
Contractor's invoice. Federal shall state in writing its reason for withholding
any or all of the monies requested by Contractor.
4. PAYMENT OF DUTIES/TAXES. (a) In addition to the Fee, Federal shall
reimburse Contractor for the Reimbursables . No Reimbursable claimed will be
payable unless properly documented in accordance with this Agreement. Contractor
will submit to Federal an itemized invoice of all Reimbursables within four (4)
business days from Custom's release of the shipment, which invoices shall be in
the form of a Daily Customer Invoice Summary ("DCIS") provided by Contractor to
Federal in hard copy or electronically through a Duties and Taxes Revenue
Control ("DTRC") system transmission. Payment by Federal of Contractor's
invoices for Reimbursables shall be made within seven (7) business days of
Federal's receipt and approval of such Reimbursable invoice. Federal shall state
in writing its reason for withholding any or all of the Reimbursables requested
by Contractor.
(b) Notwithstanding the foregoing, the four (4) business day invoice
provision set forth above shall not apply to those entries which have
"Customized Processing" involved. For the purpose of invoicing, " Customized
Processing" is defined as follows:
(i) Those shipments processed under the Post Operations Services (POPS)
program where Federal or a customer has failed to immediately provide required
Entry/Entry Summary information.
(ii) Those shipments for which written customer instructions on Entry/Entry
Summary Verification exist, provided that such Customer
written instructions must be on file and present in Federal's System.
(iii) Any invoices which Federal rejects for lack of proper additional
documentation provided that Contractor researches such reject within 48 hours of
receipt of the reject and corrects the error or the parties mutually agree that
the cause of the reject is because of Federal's error and not an error of
Contractor.
(iv) All invoices for CPA and FDA shipments.
In the case of Customized Processing, all Reimbursables invoices shall be
presented to Federal within three (3) business days after
receipt of the applicable information from the customer. The
F-46
<PAGE>
6
Contractor shall maintain all proof of receipt of such information and all
correspondence made to secure such information.
(c) Contractor will utilize Federal's overnight service or hand deliver
Reimbursables invoices to the applicable department designated by Federal at no
charge to Contractor.
(d) If Entry Summary Transactions exceed the amount specified in Exhibit B,
Reimbursables will be invoiced to Federal within three (3) business days, except
where Federal's customer has requested a review of the entry prior to payment of
duties and taxes, or requires other Special Handling.
(e) In the event of an additional billing request for payment by U.S.
Customs, Contractor will invoice to Federal any and all additional Federal,
Federal's customer, or U.S. Customs imposed duties/taxes due to voluntary
tenders/disclosures, liquidation, reliquidation or suspension within five (5)
business days of Contractor's receipt of the additional amount required by the
billing request for payment. Federal shall have no obligation for payment should
Contractor fail to invoice within this time period. Contractor will maintain a
dated receipt for each additional billing request received from Federal, the
customer or U.S. Customs. Contractor may bill a customer directly only after
receiving Federal's written consent to do so; which consent shall not be
unreasonably withheld. Only upon Contractor's request and Federal's consent
shall Contractor communicate with the customer relating to any matter in
connection with the preparation of the entry/entry summary and provide such
information as the customer requests.
(f) Notwithstanding the foregoing, in cases where Contractor fails to meet
the time frames set forth above in 4 (b) (iii), the obligation of the Contractor
and Federal shall be as follows: If Contractor invoices Federal between the day
of U.S. Customs release ("Release") and up to the fifteenth (15th) calendar day
thereafter, Federal will pay Contractor its Fee and all Reimbursables. If
Contractor invoices Federal between the sixteenth(16th) and the thirtieth (30th)
business day after Release, Federal shall assess a late penalty fee to
Contractor of fifteen dollars ($15) per entry but Federal shall still pay all
Reimbursables. If Contractor invoices Federal between the thirty-first (3 1 st)
and the forty-fifth calendar day after Release, Federal will assess a late
penalty fee of $20 per entry and shall be under an obligation to pay the related
Reimbursables. If Contractor invoices Federal on or after the forty-sixth (46th)
calendar day, Federal shall assess a late penalty of twenty dollars ($20) per
entry and Federal shall have no obligation to pay any Reimbursables. All such
invoices invoiced by Contractor after the thirtieth (30th) calendar day shall
invoiced to Federal in hard copy paper form. Federal shall have no obligation
for payment of consolidated informal entry invoicing which is greater than
fifteen (1 5)calendar days after the date of entry. However, Contractor may
invoice the client of Federal directly for payment of such Reimbursables upon
Federal's consent, which shall not be unreasonably withheld. The late penalty
fees set forth above shall be shown as a deduction from fees owed Contractor in
the invoices delivered pursuant to Section 3 above.
F-47
<PAGE>
(g) Any refunds due to Federal or Federal's customers shall be refunded to
Federal within fifteen (15) business days of receipt of any refunded amounts
from U.S. Customs, mutually agreed to vendor rebilled invoices or corrected
entries. All refunds shall be accompanied by all necessary information and
documentation to specifically identify the subject transaction.
5. QUALIFIED PERSONNEL. (a) Contractor warrants that it holds all necessary
bonds and licenses required to provide the Services; that it will provide
sufficient numbers of qualified personnel and licensed Customs Brokers to
provide responsible supervision for the Services, that it will provide at least
one (1) Licensed Customs Broker available and on site at the Hub during
clearance time, and will exercise reasonable care and due diligence in its
performance of the Services, provided that Contractor may rely upon all
information contained in the documents provided by the customer and, in the
absence of such information, may employ its professional judgment in preparing
the entry/entry summary. Upon request of Federal, Contractor shall furnish to
Federal appropriate evidence of adequate workers' compensation insurance
coverage on all employees. All Contractor employees shall abide by Federal's
security rules and regulations.
(b) Neither Contractor nor Federal will negotiate for the employ, nor
employ, the other's employees without prior written consent of the other party.
The covenant contained in the immediately preceding sentence shall survive the
term of this Agreement by one (1) year. In the event of any breach of the
foregoing covenant, the injured party shall be entitled to injunctive relief in
addition to such other relief available at law or equity.
(c) The Contractor shall, in the event of any technical non-performance or
severe personality problems on the part of the Contractor's personnel, recall
such personnel at the written request of a Senior Manager or above of Federal,
upon forty-eight (48) hours notice. Contractor shall make best efforts to
immediately assign new personnel in this situation and will assume the cost of
this replacement as well as any learning period necessary to bring such new
personnel to productive status.
(d) The selection and minimum specifications for Contractor's employees is
attached herein as Exhibit E and becomes an
integral part of this Agreement as to any of Contractor's
employees working on Federal's premises.
6. EVENTS OF DEFAULT AND TERMINATION. (a) If any one or more of the
following events of default occur, then this Agreement may, in addition to the
remedies set forth below, be terminated at the option of the party not in
default, provided that the non-defaulting party's option to terminate shall not
be deemed an election of remedies:
(b) Failure of either party to pay when due any payment which may be
required under this Agreement which failure shall remain uncured for a period of
seven (7) business days after the defaulting party's receipt of written notice
of such non-payment;
F-48
<PAGE>
(c) Any breach or failure of either party to observe or perform any other
term, condition, or covenant required to be observed under this Agreement, which
breach or failure remains uncured for a period of ten (10) business days after
the defaulting party's receipt of written notice of such breach or failure;
(d) The breach of any warranty or falsity of any material representation as
of the time made by either party, which breach or falsity shall entitle Federal
to immediately terminate this Agreement;
(e) The dissolution, liquidation, cessation of business or termination of
existence of
either party;
(f) The insolvency, bankruptcy, or assignment for the benefit of creditors,
the consent of the appointment of a trustee or receiver for a substantial part
of the business or the admission in writing of either party of its inability to
pay its debt as they may mature;
(g) The institution against either party of bankruptcy, reorganization,
insolvency, or liquidation proceedings or any other proceedings for relief under
any bankruptcy or similar federal, state or local law for the relief of debtors,
provided that such proceeding is not dismissed within thirty (30) calendar days
after such institution.
7. REMEDIES. In addition to any other remedy provided in his Agreement,
upon the occurrence of any of the above events of default, either party shall be
entitled to all remedies available in equity or pursuant to applicable law.
8. INDEPENDENT CONTRACTOR. The parties intend that an independent
contractor relationship shall be created by this Agreement. Federal is
interested only in the results to be achieved, and the conduct and control of
the work will lie solely with Contractor. Contractor shall not be considered an
agent or employee of Federal for any purpose.
9. PROPRIETARY INFORMATION. (a) Contractor and Federal agree that in the
performance of Contractor's services for Federal, each party has or may have
acquired information ("Proprietary Information") which is (i) confidential,
secret, unique and proprietary to the other party, having been developed or
accumulated over a lengthy period of time by the other at a great expense or
developed by both parties, and (ii) other technical, business or financial
information including, but not limited to customer lists, trade secrets,
operational processes and the party's method of brokerage processing, the use or
disclosure of which by third parties is, or may reasonably be construed to be,
contrary to the other party's interest. Contractor and Federal agree that such
Proprietary Information has been disclosed to the other party in confidence and
for use only by the recipient of such Proprietary Information for the sole and
exclusive benefit of the disclosing party and only in connection with the
performance of the matters contemplated under this Agreement. Federal and
Contractor further agree that each will: (i) hold in confidence such Proprietary
Information at all times during and after termination of this Agreement; (ii)
except for agents of the United States Government authorized to obtain such
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<PAGE>
information pursuant to 19 CFR - 111.24 or other applicable statutes or
regulations, not disclose or communicate Proprietary Information to any third
party; and (iii) not make use of Proprietary Information on its behalf or on
behalf of any third party.
(b) Federal and Contractor agree that in the event of any violation or
threatened violation of the provisions of this Section 9, the injured party
shall be authorized and entitled to obtain from any court of competent
jurisdiction preliminary and permanent injunctive relief as well as an equitable
accounting of all profits or benefits arising from such violation, which rights
and remedies shall be cumulative and in addition to any other rights or remedies
at law or in equity to which the injured party, may be entitled.
(c) The obligations of confidentiality set forth above shall not apply to
information (i) which is or becomes part of the public domain through no action
of the recipient, (ii) which the recipient can prove to the disclosing party's
reasonable satisfaction that such information was existing in Contractor's files
prior to the disclosure, (iii) which the recipient can prove to the disclosing
party's reasonable satisfaction that such information is developed independently
without reference to the other party's confidential information, or (iv) is
required by applicable law to be disclosed.
10. NON-COMPETITION. During the Term, Contractor shall not, without prior
written consent of Federal, perform advisory, and/or brokerage services,
directly or indirectly, at any Hub or Express Consignment Carrier Facility as
defined in 19 CFR - 128 for any other person or entity engaged in the express
courier or parcel industry, unless otherwise agreed in writing by Federal.
INDEMNIFICATION. (a) Contractor hereby agrees to indemnify and hold
harmless Federal, its officers, agents, and employees from any liabilities,
damages, expenses, demands, claims, suits, or judgments including reasonable
attorneys' fees, costs, and expenses incidental thereto, that are caused by the
negligence of Contractor in performing or negligent failure to perform the
Services for Federal under this Agreement that results in financial loss to
Federal. However, this indemnity obligation and any other such liability of
Contractor arising out of the Services provided by Contractor shall be limited
to the amount of three million. dollars ($3,000,000) per year (beginning on the
Effective Date of this Agreement) in the aggregate for any such claims. However,
under no circumstances shall Contractor be liable for incidental or
consequential damages.
(b) Federal agrees to defend, indemnify and hold harmless Contractor, its
parents, affiliated companies, officers, agents, and employees from any and all
liabilities, damages, expenses, demands, claims, suits, and judgments including
all reasonable attorneys' fees, costs and expenses incidental thereto, as a
result of the following in connection with Contractor's performance of the
Services under this Agreement: the consignee's failure to redeliver shipments or
parts thereof due to U.S. Customs or other agencies or the consignee's or
consignor's failure to furnish information to U.S. Customs; the consignee's or
consignor's failure to furnish documents covered under a missing document bond;
fraudulent, negligent, or erroneous actions on the part
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<PAGE>
of parties other than Contractor and its officers, agents, or employees;
failure of U.S. Customs to require entry until after post-sort review of the
manifest; any procedural operations that are directed by Federal and for which
Contractor has provided written notice to Federal that such operation may
violate provisions of applicable law or regulations; errors as a result of
documents not in compliance with Section 141.86 of the Customs Regulations and
all claims for duties, paperwork, cargo, or any other claims (not to include
recurring incidents brought to the attention of Contractor) not under the
control of Contractor made by U.S. Customs or other parties and all or any of
these arising out of, or related to Services provided by Contractor to Federal
under this Agreement. Federal's obligation of indemnity shall not cover any
claims arising out of the negligence, gross negligence or willful misconduct of
Contractor or out of situations in which Contractor has rendered the consignee
or consignor post entry services at the consignee's or consignor's direction,
for additional compensation from the consignee or consignor separate from
Services described in this Agreement or any other claims which do not arise out
of the performance by Contractor of the Services under this Agreement.
12. SERVICE FAILURES. Any Contractor error (e.g. improper release,
unnecessary cage, rejected entry) resulting in a service failure for which
Federal must reimburse customers shall be so reimbursed by Contractor in
addition to those caused by failure to file entries timely. In the event that
the Contractor fails to present an entry to U.S. Customs on a shipment after
timely receipt of the required documentation, or information, or as a result of
Contractor's Automated Systems (primary and/or backup) being down and access to
information is unavailable which causes service failures for Federal. Contractor
shall reimburse Federal for all losses to the customer actually incurred equal
to the entry fee charged to Federal by Contractor for the individual shipment on
days where no incentive payment has been earned by Contractor. On days where an
incentive payment has been received by Contractor and in the event that
Contractor fails to present an entry to U.S. Customs on a shipment after timely
receipt of the required documentation, or information, or as a result of
Contractor's Automated Systems (primary and/or backup) being down and access to
information is unavailable which causes service failures for Federal and Federal
provides Contractor with written proof of reimbursement to the customer,
Contractor shall reimburse Federal an amount equal to the actual refund(s) paid
by Federal to the customer not to exceed the incentive paid Contractor for the
given day. At no time will the total reimbursement exceed the daily incentive
paid the Contractor.
In the event any error is solely the fault of Contractor and is shown to be
the direct cause of shipment delay and such delay would cause the shipment to
miss its service commitment, and results in the shipment being expedited to the
customer, Contractor will be responsible for such additional cost as mutually
determined by Contractor and Federal's U.S. Brokerage Department, but such cost
shall not exceed the cost of expediting the shipment to the destination.
13. CHANGES IN WORK. (a) Federal may order extra Services or make changes
by altering, adding to or deducting from the Services by signing a change order
in the form of Exhibit C ("Change Order"). Services performed pursuant to a
valid Change Order shall be performed subject to the conditions of this
Agreement.
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(b) Federal also by written instruction to Contractor may make changes in
the Services not involving extra cost and not inconsistent with the purposes of
the Services without execution of a Change Order, but otherwise, no extra
Services shall be done or changes made unless pursuant to a Change Order, and no
claim for an addition to the Fee or an extension of the Term shall be valid
unless so ordered in a signed Change Order.
(c) Upon receipt of a written request from Federal for changes in the
Services which would affect the Fee or the Termination Date, Contractor shall
submit a statement detailing Contractor's proposal for accomplishing the changes
proposed by Federal and the effect, if any, on the Fee and the Termination,
Date. If Federal accepts Contractor's proposal, a Change Order shall be executed
by the parties and the Fee, Maximum Reimbursable Amount and Termination Date
shall be adjusted as agreed, subject to any special conditions applicable to
Change Orders set forth in Exhibits A and B.
(d) Significant operational irregularities which occur in the course of
performing the Services under this Agreement that cause the Contractor to incur
additional and uncontrollable costs shall be documented in writing to Federal.
Such occurrences shall be mutually agreed by the parties and shall be designated
as "Mass Exceptions" which will include, but not be limited to, the following
occurrences upon the mutual agreement of the parties: (a) flights that arrive
later than thirty (30) minutes prior to the scheduled sort down time and Federal
directs Contractor to process that flight the same night; (b) unscheduled Hub
closures; (c) changes in holiday work schedules without thirty (30) days' notice
from Federal; (d) a Federal system outage in excess of one (1) hour during the
brokerage process that creates significant delays or costs for the Contractor
(such as, IMS, VISA, BTS, etc.) or (e) flight routing changes initiated by
Federal without providing Contractor at least one (1) hour notice prior to
flight departure. This Mass Exception shall be properly documented by Contractor
and both parties must, in connection with events described in (b) and (c) above,
mutually agree upon the compensation for such Mass Exception prior to its
occurrence. Federal shall pay the compensation to Contractor for such Mass
Exception as agreed by the parties. In the case of the occurrence of events
described in (a), (d), or (e) above, Contractor shall be reimbursed for the
additional costs at the rates set forth in Exhibit B.
14. RIGHT OF AUDIT AND DOCUMENTATION. (a) Contractor shall keep full and
accurate financial and other records in connection with the performance of the
Services all of which records shall be open to audit by Federal or any
authorized representative of Federal during the Term during normal business
hours and upon a reasonable amount of written notice, taking into consideration
the age, number and type of records and until five (5) years following the
expiration of the term or earlier termination of this Agreement. In addition,
Contractor shall make it a condition of all subcontracts relating to the
Services that all subcontractors will keep accurate financial and other records
in connection with their work and that such records shall be open to audit by
Federal or any authorized representative of Federal during the performance of
the subcontractor's work and until five (5) years following the subcontractor's
completion of its work.
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(b) All customer profile information on file with Contractor and obtained
in connection with this Agreement, shall be provided to Federal upon request by
Federal during the Term and until two (2) years following the expiration of the
Term.
(c) Contractor shall maintain and update an internal operational procedures
manual. A copy of this manual will be provided to Federal within thirty (30)
days of entering into this Agreement. Any updates to the manual(s) will be made
within seven (7) days of the final implementation of the operational or
procedural change. All such updates will be provided to Federal within seven (7)
days of request by Federal's Customs Brokerage Department following the
completion of the manual update.
(d) Contractor shall provide Federal with an organizational chart of the
operations within thirty (3 M days of entering into this Agreement. The
organizational chart should contain a listing of all personnel (including job
titles). Any updates or changes made to the organizational information shall be
provided to Federal within seven (7) days after request by Federal's Customs
Brokerage Department following such change or update.
15.
INSURANCE. (a) At all times during the performance of the Services, the
Contractor shall maintain in force the insurance described in Exhibit D, in the
amounts and with the endorsements there specified and as further provided in
this Section 15.
(b) All insurance policies maintained by the Contractor shall provide that
insurance as applying to Federal shall be primary and Federal's insurance shall
be noncontributing irrespective of any insurance Federal maintains.
(c) All insurance maintained by the Contractor pursuant to this Article 15
shall be written by insurance companies licensed to do business in the state in
which the Services are performed, shall be in form and substance satisfactory to
Federal and shall provide that insurance will not be subject to cancellation,
termination, or change except after thirty (30) days' prior written notice to
Federal.
(d) All liability insurance policies, except for any worker's compensation
insurance policies and professional errors and omissions insurance policies,
maintained by the Contractor pursuant to this Agreement shall be endorsed to
name Federal and its respective officers, directors and employees as additional
insureds, and all property damage insurance shall be endorsed with a waiver of
subrogation by the insurer as to Federal.
(e) Prior to the execution of this Agreement, the Contractor shall furnish
to Federal certificates of insurance reflecting policies in force. Contractual
liability insurance shall specifically acknowledge the provisions of Article I I
(f) Contractor shall also maintain insurance in order to satisfy its
obligation pursuant to Section I I hereof. Federal shall pay for the cost of
such insurance policy in the manner set forth in Exhibit D.
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16. WARRANTY AND PERFORMANCE DELIVERABLES. Contractor warrants and agrees
that all work and Services performed hereunder will represent best efforts,
reasonable care and will be of the highest professional standards and quality.
The Services performed will be in a good, professional, workmanlike and
competent manner in conformity with the requirements of this Agreement.
Contractor agrees that it will exercise reasonable care and due diligence in its
performance of the Services. Contractor agrees and commits to use its best
efforts to provide any deliverables required by this Agreement by the specific
time required under this Agreement. This includes, but is not limited to, such
deliverables as reports, computer programs, project modifications, research,
findings,, procedural enhancements. Deliverable time commitments may be extended
with written approval of Federal.
17. CONTROLLING LAW. The interpretation of this Agreement shall be governed
in all respects by the laws of the State of New York.
18. ASSIGNMENTS. This Agreement may not be assigned without the prior and
express written consent of the other party except that upon prior written notice
either party may assign all or any part of its rights and delegate its duties
under this Agreement to a wholly-owned subsidiary or affiliate.
19. ENTIRE AGREEMENT. This Agreement represents the entire Agreement
between the parties and supersedes all previous written or oral agreement
between the parties. This Agreement shall not be modified or affected by any
course of dealing, course of performance or usage of trade.
20. EXHIBITS. All exhibits described in this Agreement shall be deemed to
be incorporated in and made a part of this Agreement, except that if there is
any inconsistency between this Agreement and the provisions of any exhibit, the
provisions of this Agreement shall control. Terms used in an exhibit and also
used in this Agreement shall have the same meaning in the exhibit as in this
Agreement.
21. MODIFICATION. Except as otherwise provided, this Agreement shall not be
modified except by written agreement signed on behalf of
Federal and Contractor by their re'*spective authorized officers.
22. SEVERABILITY. If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall in no way be affected or impaired.
23. NOTICES. All notices, approvals, requests, consents and other
communications given pursuant to this Agreement shall be in writing and shall be
effective when received, if hand delivered, sent by telex, sent by Federal
Express service or sent by certified or registered mail, addressed as follows:
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<PAGE>
If to Contractor: Fritz Companies, Inc.
2005 Nonconnah Blvd., Suite 31
Memphis, TN 38132
Attn: Director,
Express Clearance Customs,
With a Copy to: General Counsel
Fritz Companies, Inc.
706 Mission Street
San Francisco, CA 94103
If to Federal: Federal Express Corporation
2600 Nonconnah Blvd., Suite 191
Memphis, Tennessee 38132
Attn: Sr. Manager, Brokerage Services
With a Copy to: Federal Express Corporation
1980 Nonconnah Blvd.
Memphis, TN 38132
Attn: Managing Director,
Business Transactions
and
Federal Express Corporation
2600 Nonconnah Blvd., Suite 307
Memphis, TN 38132
Attn.: Sr. Supply Chain Specialist;
Brokerage Services
14
24. VALIDITY OF AGREEMENT. This Agreement shall not be valid nor binding
upon Federal unless it shall have been executed by an officer of Federal and
legally approved as evidenced by the signature of Federal's attorney in the
space provided.
25. SURVIVAL. The provisions of this Agreement which by their nature extend
beyond the expiration or earlier termination of the Agreement will survive and
remain in effect "until all obligations are satisfied. Specifically, the
Contractor's obligations to indemnify Federal and Federal's obligations to
indemnify Contractor shall survive this Agreement.
26. WAIVER. The failure of either party at any time to require performance
by the other of any provision of this Agreement shall in no way affect that
party's right to enforce such provision, nor shall the waiver by either party of
any breach of any provision of this Agreement be taken or held to be a waiver of
any further breach of the same provision or any other provision.
27. SECTION HEADINGS. All section headings and captions used in this
Agreement are purely for convenience and shall not affect the interpretation of
this Agreement.
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<PAGE>
28. DISCLOSURE. The Contractor shall in each instance obtain the prior
written approval of Federal concerning exact text and timing of news releases,
articles, brochures, advertisements, prepared speeches and other information
releases concerning this Agreement.
29. CHANGE OF CONTROL. In addition to such other rights as Federal may
have, Federal shall have the right to immediately terminate this Agreement upon
the acquisition of a majority ownership or voting control of the capital stock,
business or assets of Contractor by any third party which is not an affiliate or
subsidiary of the Fritz Companies, Inc. Contractor shall promptly notify Federal
in writing of any such change in control.
30. FURTHER ASSURANCES. Each party agrees that it will take such actions,
provide such documents, do such things and provide such further assurances as
may reasonably be requested by the other party during the term of this
Agreement. Contractor agrees to provide to Federal, from time to time, such
public financial information as Federal may reasonably request to determine
Contractor's ability to perform its obligations under this Agreement.
31. SET OFF. There shall be no right of set-off of sums due and payable to
Contractor hereunder, whether for duties and taxes or other payables unpaid by
consignee or shipper to Federal or for claims of Federal alleged to have arisen
under this Agreement.
32. MILLENNIUM COMPLIANCE (a) "Four-Digit Year Format" shall mean a format
that allows entry or processing of a four-digit year date where the first two
digits will designate the century and the second two digits will designate the
year within the century. "Leap Year" shall mean the year during which an extra
day is added in February (February 29th). Leap Year occurs in all years evenly
divisible by the number four (4), except that a year that is divisible by 100 is
not a Leap Year (unless it is also divisible by 400, i.e., making the year 2000
a Leap Year). "Year/2000 Compliant" shall mean that dates outside of the range
1900-1998, including the years 1999, 2000 and thereafter, encountered and/or
processed by the equipment will be correctly recognized, calculated, sorted,
stored, displayed and/or otherwise processed in any level of computer hardware
or software including, but not limited to, microcode, firmware, application
programs, system software, utilities, files and databases.
(b) Contractor shall use its best efforts to ensure: (i) that the equipment
is Year/2000 Compliant; is designed to be used prior to, during and after the
calendar year 2000 A.D.; will operate consistently, predictably and accurately,
without interruption or manual intervention, and in accordance with all
requirements of this Agreement, including without limitation all specifications
and/or functionality and performance requirements, during each such time period,
and the transitions between them, in relation to dates it encounters or
processes; (ii) that all date recognition and processing by the equipment will
include the four digit year format and will correctly recognize and process the
date of February 29, and any related data, during Leap Year; and (iii) that all
date sorting by the equipment that includes a "year category" shall be done
based on the four-digit year format.
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(c) Contractor shall use its best efforts to ensure that the equipment will
accept data from other systems and sources that are not Year/2000 Compliant, the
equipment must properly recognize, calculate, sort, store, output and otherwise
process such data in a manner that eliminates any century ambiguity so that the
equipment remains Year/2000 Compliant.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
FRITZ COMPANIES, INC. FEDERAL EXPRESS CORPORATION
By: /s/ R. Arovas By: Gerald L. Leary
Title: Executive Vice President Title: V.P. GTS
(Contractor) (Federal)
.40977
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EXHIBIT A
to that certain
Services Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
SERVICES/SPECIFICATION
1. RELATIONSHIPS
A. Contractor is employed by Federal on a contractual basis to act as a
customs broker, and the importer of record on the behalf of the
consignee/shipper/Federal to customs clear import packages as stated and defined
in the contractual Agreement. Contractor will be the importer of record for all
shipments covered by this Agreement unless otherwise specifically requested by
the Consignee of a shipment.
B. Federal will provide adequate personnel and facilities to and be
responsible for the movement, staging, opening and closing of import packages
for U.S. Customs.
11. SUPERVISION
Employees of Contractor must observe all safety, security, and placard
requirement and regulations while on Federal's premises.
Ill. RESPONSIBILITY
A. Entry Preparation
From manifests and documentation of entry information, Contractor will
supply and/or verify the Harmonized Code classification number and duty rate to
be applied and correct formal/informal entry number to be assigned to each
shipment.
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2. Contractor is responsible for using its best efforts for the timely
production of entry forms necessary for:
(a) Completion of rating and selection of all items in a timely manner
necessary for Customs Entry/Entry Summary to federal agencies.
(b) The Customs release of the cargo, unless such is not possible due to
the lack of quality, quantity, complexity, or timeliness of the documentation
available to Contractor or governmental restrictions on Customs release (i.e.
,quota, contraband, etc.).
(c) Lawful, timely entry/entry summary submission to U.S. Customs.
3. Contractor shall take all reasonable precautions to avoid the release of
merchandise from the Hub that would be subject to a post-release redelivery by
U.S Customs or redelivery by U.S. Customs for other government agencies.
Contractor to reimburse Federal penalties incurred if the return is not
successful provided Contractor is clearly at fault.
B. Aircraft Arrival
1. Contractor will receive aircraft manifests and other documents from
Federal.
2. From these, Contractor will match document and complete entry packets
for each shipment.
C. Handling of In-Bond Cargo
1. Federal's aircraft off loader will insure that all in-bond shipments are
kept together and loaded in a separate container(s).
2. Federal's pull-in-driver will take in-bond shipments to designated
in-bond area and drop container(s).
3. Federal is responsible for all physical handling of in-bond cargo
including timely display of contents to U.S. Customs and Contractor when so
instructed by either U.S. Customs or Contractor.
D. Customs Inspection
1. Package inspection and method of opening and presentation of entry
packets will be at the discretion of the Customs Inspector.
2. Federal's employee(s) will open and close packages by the method
prescribed by the Customs Inspector.
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<PAGE>
E. Customs Cleared Packages
1. After package clearance, Federal's employee(s) will close package and
cover in-bond sticker with a Federal's promotional sticker, mark final
destination I.D. on packages and take them to the sort input.
2. After package clearance, Federal will be responsible for matching the
released shipment with the released documents provided to
Federal by Contractor.
F. Duty Verification
Contractor agrees to the terms of the Duty Verification Program as outlined
and mutually agreed to. Disputes which arise involving transactions whereby
Contractor has failed to follow the agreed upon procedures will be rebilled to
the Contractor. Contractor will be responsible for the amount of the incorrect
duty assessed as well as absorb the cost of the custom entry fee and the cost of
initial post entry petitioning/protests.
G. Caged or Detained Freight
Contractor will handle all direct customer contact and resolutions to caged
or detained freight, as well as attempt to reduce the potential caged shipments
through preventative means such as POPS and PREVENTATIVE programs.
IV. ABILITY TO MAKE SORT
A. Provided Federal meets the aforementioned requirements as outlined in
Exhibit A and the following overall standard, Contractor will ensure that on
all* shipments requiring clearance, an appropriate entry will be lodged with
U.S. Customs in a manner which will allow Customs clearance by sort down.
(*)Does not apply to commodities that require a higher level of technical
assistance or other government agency release (i.e. live/quota entries, liquor,
TIB entries, etc.); shipments in excess of ten (10) line items per air waybill;
and shipments where further documentation or information is required resulting
in detainment.
1. Manifest download of information must be received two (2) hours prior to
aircraft arrival.
2. Contractor must receive usable advanced faxes of required documentation
for Customs clearance on minimum of seventy five (75) percent of the shipments
requiring formal entry processing (To Exclude Textiles).
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<PAGE>
3. Federal must have the last document available and to the Contractor as
mutually agreed to before the end of the sort.
4. Contractor and Federal to mutually agree on standards for live quota
entries. To be defined in "Broker Performance Standards".
5. Shipments in excess of ten (10) HS Codes to be considered complex unless
usable faxes are received at least one (1) hour in advance of cargo arrival and
the total HS Codes do not exceed one hundred (100).
B. In the event that Contractor fails to present an entry to U.S. Customs
in a timely manner (after all standards and requirements. are met) which causes
service failures, Contractor shall be subject to the terms and conditions of
Section 12, Service Failures.
V. PERFORMANCE STANDARDS
The performance standards will be determined by Federal and Contractor
publication "Broker Performance Standards". Changes to this publication will be
as mutually agreed to by both parties or as required by U.S. Customs. The
Contractor will also provide publication "Automated Report Card" (ARC) on a
quarterly basis, no later than 14 calendar days after the end of the quarter.
The ARC information will be made available to Federal in electronic and hardcopy
formats. The categories reported are to be mutually agreed upon and will include
but will not be limited to Broker Performance, Invoicing, Clearance Support and
Duty Disputes.
VI. EXCEPTIONS
A. If for any reason a shipment does not qualify for Customs clearance, it
will be held in Federal's secured area. Contractor will make timely notification
to Federal in order for Federal to make notification to the origin and
destination. Contractor will assist Federal as necessary in resolving all issues
involved in detention.
B. Contractor will be available to act on the request(s) of the ultimate
consignee regarding "post entry services" such as drawbacks, protests, and
reductions of duty and will make its best efforts to complete these request(s)
to the satisfaction of the ultimate Consignee and U.S. Customs. Compensation for
such post entry services will be for the account of the ultimate Consignee and
charges by Contractor shall be dictated by Contractor's Memphis standard fee
schedule in effect at the time the service is rendered. Contractor is not
required to extend credit to any ultimate Consignee/Consignor and is not
required to perform any post-entry services without reasonable compensation. If
credit cannot be established with the ultimate Consignee, Contractor has the
option not to perform the services required until payment is received.
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<PAGE>
C. limit the liability for fines, penalties, or other claim by any agency
of the U.S. Government as a result of false, misleading, incomplete or
insufficient documentation or information supplied by Consignors or Consignees.
Contractor will attempt to collect handling fees and any duties due from the
Consignor/Consignee in advance; however, if the Consignor/Consignee refuses to
render an advance payment, those fees and duties necessary to protect the
correctness of the entry will be invoiced to Federal and will be due and payable
within seven (7) business day of invoice date.
D. All duties and user fees will be paid to Contractor by Federal. Federal
will collect duties and user fees from Consignor/Consignees. Federal invoices
for duties and user fees will be supported by a copy of the Customs Entry CF7501
as well as any other documentation needed to support the Customs Entry as
supplied to Federal by Contractor.
E. Post Entry and Express Customs clearance do not include extensive
research and copying to satisfy Customs audit requirements on behalf of Federal.
Federal is to provide adequate personnel and equipment to produce needed backup
to satisfy Customs requirements made in conjunction with such audits. This
section does not include Customs audit of Contractor's company as a licensed
broker.
F. At the written request of Federal, Contractor will provide appropriate
personnel to meet with Federal's clients to resolve pending problems and/or to
avoid potential future problems. Prior to travel, Contractor and Federal will
mutually agree which party will be responsible for reimbursable travel and
lodging expenses.
G. Where specifically requested by Federal, and the request does not cause
additional handling or additional undue cost to Contractor, Contractor shall
allow for services regarding Automated Clearing House (ACH) payment direct from
customers.
H. Where specifically requested by Federal, Contractor shall work with
Federal and its customers to develop and complete operational procedures to
allow for Services regarding remote entry filing. Where cost is a consideration
the Contractor will work with Federal and Federal's customers to a mutual
agreement.
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EXHIBIT B- 1
to that certain
Services Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
Memphis, Tennessee.
Term for this Location: Commence as of the date of this Agreement and shall
expire on September
1, 2000 unless earlier terminated as provided in this Agreement.
MEM PRICE LIST FOR CUSTOMS CLEARANCE SERVICES
1) Formal Entries (1,2)
From I - 1250 Entries per day $18.75 ea.
From 1251 and above Entries per day $16.00 ea.
2) Caged or Detained Shipments requiring Formal or Informal Entry (3)
$21.25 ea.
3) Informal Entries (1)
From I - 750 Entries per day $ 8.50 ea.
From 751 and above Entries per day $ 8.00 ea.
4) Customer Service (4)
a) Direct with Federal's Clients and Shippers $ 9.35 ea.
b) Delay Notification (CDN) $ 6.75 ea.
5) Consolidated Entries $21.25 ea.
Each additional AWB line item $ 1.65 ea.
6) Consolidated Entries/Customer Specific Shipments $21.25 ea.
Additional Invoices on Consolidated Entries $ 2.00 ea.
7) Section 321 Entries (5) $ 1.65 ea.
Notes to Price List Entries are located on pages 4 and 5
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8) Entries Filed Via Importers System (6) $21.25 ea.
9) Customized Process Accounts (CPA) (7) Applicable Entry Fee(s), plus
Applicable Category Fee(s) listed below
Category 1) Use of Proprietary System/Database $5.00 per entry
Category 2) Customized Broker System and/or HTSUS PC $ 1.00 per entry
Database-PARTS reference
Category 3) Extensive research/supplemental documentation $2.00 per entry
(Trademark letters, Copyright, Licensing, Radiation
Declarations)
Category 4) Elevated levels of communication required $4.00 per entry
a) Verification Handling (Pre-and Post-clearance)
b) IPD freight movement coordination with Federal's Ops
C) Special monitoring requests (shipper/consignee/carrier)
Category 5) Special Data Entry (Landed Cost Reports, Customized 750
and other various customer reportin) $2.00 per entry
10) TIB Entries (8) $75.00 ea.
11) Surety Bond (9) $40.00 minimum
12) Liquor Entries (10) $65.00 ea.
13) Transportation Entries 0 1) $35.00 ea.
14) Federal Express Corporate Entries (12) $50.00 ea.
15) Protest Fees
a) Customer Requested $75.00 ea.
b) Federal Express Requested $40.00 ea.
16) Food and Drug Administration Shipment Processing
a) FDA (EEPS Processing) $ 2.50 ea.
$ 2.50 e
b) FDA Single 701 Manual Processing $ 2.50 ea.
c) FDA Disclaims $ 1.00 ea.
Notes to Price List Entries are located on pages 4 and 5
F-64
<PAGE>
17) Department of Defense Entries (13) $38.50 ea.
18) Extra Harmonized Tariff Classifications (14) $ 1.10 ea.
19) Marking/Mutilation of "Sample" Merchandise (15) $3.50 per piece
20) Preprocessed Formal Entries (16) $24.19 ea.
2 1) Mass Exceptions Overtime Rate $25.00 per hour
22) Additional Interim Monthly Billing (17) $291,446
NOTES TO PRICE LIST
The fees listed are based on present service requirements and daily volume
projections as outlined by Federal.
Contractor effects U.S. Customs clearance and release of shipments with:
o One air way bill/commercial invoice, or its electronic equivalent.
o All necessary documents are on hand and correctly completed
(i.e. visas, export licenses, TSCA, FCC740, HS7, textile
declarations, import and state department licenses, or other preentr
required documentation).
As discussed, the fees include technical support. The listed fees are predicated
on Contractor receiving manifest information electronically from Federal.
Federal shall advance Contractor the sum of $500,000 per month, which sum is to
be applied against the monthly amount invoiced to Federal under Section 3 and
this Exhibit B- I -
Notwithstanding the actual monthly amount invoiced to Federal under Section 3,
Federal agrees to pay Contractor the following monthly minimum Fees for each
year of the term of this Agreement:
Months 1-24 $750,000.00
Entry summary transactions exceeding One Thousand Dollars ($ 1,000) (duties and
taxes) will be invoiced within three ('3) business days as specified in Section
5A, except where Federal's client has requested a review of the entry prior to
payment of duties or requires other Customized Processing.
When Federal is listed as the importer of record (which shall occur only if
specifically requested by Federal) and duties exceed
$5,000.00, Federal shall remit payment directly to US Customs.
Notes to Price List Entries are located on pages 4 and 5
F-65
<PAGE>
It is understood and agreed that the price and rates set forth in this
Agreement presume and are premised upon the regulations, procedures and
requirements as of the date of this Agreement.
Given Federal's time and service commitments and the necessity to make sort
100% of the time and Contractor's commitment to achieving same, the
following shall apply: Federal shall provide Contractor with additional
incentives at the compensation levels indicated in the "Broker Peformance
Standards". Contractor will re-imburse Federal for any and all service
deficiencies as determined under the "Broker Performance Standards", at the
rates indicated in those standards. Contractor must submit all proof
necessary for Federal's payment of any incentives determined to be payable
to Contractor. This proof shall be submitted with Contractor's monthly
service billing. The incentives payout is not an'accruable amount. The
perfon-nance incentives/disincentives are separate and apart from all other
fees and minimums and only applies to locations where we employ a
performance incentive program.
These standards need to be completed and in place upon contract signing.
NOTE: Contractor will provide a reduction in contract fees as follows:
A. On all days where the four largest volume flights arrive within 1
minutes of schedule, the formal entry fee would be reduced by $.40/entry.
This is to be reported by Contractor as an amendment to the monthly ent
volume statistics presented with invoicing. Flight arrival times will
be those as reported by Federal's Hub Control Center.
B. On all days where Federal achieves a 95%+ of original faxing compliance, a
reduction of all formal entries by $1.05 will occur. This will be reporte
by Contractor as an amendment to the monthly entry volume statistics
presented with invoicing.
All payments to be made to Contractor's Memphis location.
NOTES TO PRICE LIST ENTRIES
(1) Formal and Informal Entries - Prices are tiered.
(2) Formal Entries - Includes Formal Dutiable, Formal Free, Live/Quota Entries
and Customer Processing Accounts. It does not include, Cages.
(3) Caged or Detained Shipments - Does not include the Customer Service Fee
which covers a separate service excluding the Customs Entry.
(4) Customer Service - For Cages. Does not apply at this time. Implementation
to be mutually agreed upon and Federal's Senior Manager or above to issue a
letter of authorization.
Direct contact by Contractor with Federal's Clients and Shippers -
Regulatory Delays.
Notes to Price List Entries are located on pages 4 and 5
F-66
<PAGE>
(5) Section 321 Entries - "Mod Act" Review Process and Validation.
(6) Entries Filed Via Importers System - Entries requiring data input into the
shipper or importer's proprietary system for Billing, Regulatory compliance,
or other business requirements.
(7) Customized Processing Accounts (CPA)- To be applied to all Entries
designated by Customs Brokerage Administration as CPA. All CPA entries are
included in the Entry volumes. Multiple Categories may apply to individual
accounts/shipments/entries. In these cases, Contractor will invoice Federal the
applicable entry fee plus each applicable Category fee.
(8) TIB Entries - Includes Initial Entry, Tracking and Export Entry. Not
including the cost of the Surety Bond.
(9) Surety Bond - TIB Entries Only, other rates apply to other types of
Bonds. Bond cost are $10.00 per $1,000 of the Bond Amount -
$40.00 minimum.
(10) Liquor Entries - Requires the Importer's Bond, Import Permit, and Label
Approval.
(11) Transportation Entries - IT's, T&E's, IE's.
(12) Federal Express Corporate Entries - Non-Express Shipments Only. This
fee applies to any U.S. port of entry, but does not apply to shipments moving
through Federal's express revenue system. Governmental Agency overtime services
are not included in flat fee.
(13) Department of Defense Entries - Including the Initial Filing for DSCAR
Certification.
(14) Extra Harmonized Tariff Classifications - Over 10 per Entry with a
Maximum of 100.
(15) Marking/Mutilation of "Sample" Merchandise - Must be pre-approved in
writing by Federal's Customs Brokerage Administration.
(16) Preprocessed Formal Entries - For all Formal Entries which are
preprocessed at C ontractor's Anchorage, AK location in the Pacific Earl
Entry Center (P.E.E.C.) for designated shipments on Federal's Super Express
freighter flight. Audit documentation will be submitted with the billing packet
supporting the modified fee.
(17) Additional Interim Monthly Billing - Covers additional negotiated amounts
payable to compensate Contractor for additional costs incurred. It is assumed
by the parties, that upon any renegotiation of the rates set forth in this
Exhibit, the dollar amount of this line item will be included in
the re-negotiated rates and this item shall no longer be payable.
Notes to Price LAst Entries are located on pages 4 and 5
F-67
<PAGE>
EXHIBIT B-2
to that certain
Services Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
Anchorage, Alaska.
Term for this Location: Commence as of the date of this Agreement and shall
expire on February 28, 2000 unless earlier terminated as provided in thi
Agreement.
ANC PRICE LIST FOR CUSTOMS CLEARANCE SERVICES
FORMAL ENTRIES
1) Formal/Live/Quota Entries (1, 2)
From I - 100 Entries per day $24.19 ea.
From I - 200 Entries per day $24.19 ea.
From I - 300 Entries per day $23.97 ea.
From I - 400 Entries per day $23.70 ea.
From I - 500 Entries per day $23.53 ea.
From I - 600 Entries per day $23.05 ea.
From I - 700 Entries per day $22.70 ea.
From I - 800 Entries per day $22.30 ea.
From I - 900 Entries per day $21.87 ea.
From I - 1000 Entries per day $21.52 ea.
From I - 1100 Entries per day $20.82 ea.
From I - 1200 Entries per day $20.25 ea.
From I - 1300 Entries per day $19.75 ea.
From I - 1400 Entries per day $19.34 ea.
From 1 1401 or more Entries per day $18.97 ea.
2) Caged or Detained Shipments - Requiring Formal EntEy (3, 4) $24.45 ea.
3) Consolidated Formal Entries/Customer Specific Shipments (2) $26.46 ea.
Additional Invoices/AWB on Consolidated Formal Entries $ 3.31 ea.
Notes to Price List Entries are located on pages 5 and 6
F-68
<PAGE>
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Category 4) Elevated levels of communication required $ 4.00 per entry
a) Verification Handling (Pre-and Post-clearance)
b) IPD freight movement coordination with Federal's Ops
c) Special monitoring requests (shipper/consignee/carrier)
Category 5) Special Data Entry (Landed Cost Reports,
Customized 7501 $2.00 per entry
and other various customer reporting)
10) TIB Entries (8) $85-00 ea.
11) Surety Bond (9) $40.00 minimum
12) Liquor Entries (10) $65.00 ea.
13) Transportation Entries (11) $35.00 ea.
14) Federal Express Colporate Entries (12) $50.00 ea.
15) Protest Fees
a) Customer Requested $75.00 ea.
b) Federal Express Requested $40.00 ea.
16) Food and Drug Administration Shipment Processing
a) FDA Shipment (OASIS Processing) $ 3.00 ea.
b) FDA Single 701 Manual Processing $ 3.00
ea.
c) FDA
Disclaims $ 1.00 ea.
17) Dep ment of Defense Entries (13) $42.50 ea.
18) Extra Harmonized Tariff Classifications (14) $ 1.00 ea.
19) U.S. Wildlife and Fisheries (15)
a) Processing and Filing of U.S. Wildlife Form 3177
(First 5 Items) $10.00 ea.
b) Additional Items over 5 $ 2.50 ea.
20) Marking/Mutilation of "Sample" Merchandise (16) $10.00 ea.
21) Mass Exceptions Overtime Rate $32.50 per hour
Notes to Price List Entries are located on pages 5 and 6
F-69
<PAGE>
NOTES TO PRICE LIST
The fees listed are based on present service requirements and daily volume
projections as outlined by Federal and also:
a) If FedEx introduces a Super Freighter which does not exceed an entry
volume reduction in Anchorage of more than 50%.
b) If U.S. Customs informal entry threshold does not increase above $2,500.
0
Contractor effects U.S. Customs, clearance and release of shipments with:
o One air way bill/commercial invoice, or its electronic equivalent.
o All necessary documents are on hand and correctly completed (i.e. visas,
export licenses, TSCA, FCC740, HS7, textile declarations, import and state
department licenses, or other pre-entry required documentation).
As discussed, the fees include technical support. The listed fees are
predicated on Contractor receiving manifest information electronically fro
Federal.
Federal shall advance Contractor the sum of $350,000 per month (*), which
sum is to be applied against the monthly amount invoiced to Federal under
Section 3 and this Exhibit B-2.
Notwithstanding the actual monthly amount invoiced to Federal under Section
3, Federal agrees to pay Contractor the following monthly minimum Fees for
each year of the term of this Agreement:
Months 1 to 12 $500,000.00
Months 13 to 24 $550,000.00
(a) Monthly minimums and advances are established to ensure Contractor will
be able to maintain consistent staffing and equipment, regardless of
operational fluctuations. Contractor agrees to mutually adjust the Monthly
Minimum and Advance to reflect operational modifications or other changes
in Contractor's responsibilities. Adjustments to the Monthly Minimum and
Advance will be proportional to volume changes, operational changes, or
regulatory changes.
Entry summary transactions exceeding One Thousand Dollars ($1,000) (duties
and taxes) will be invoiced within three (3) business days as specified in
Section 4, except where Federal or Federal's client has requested a review
of the entry prior to payment of duties or requires other Customized
Processing.
When Federal is listed as the importer of record (which shall occur only if
specifically requested by Federal) and duties exceed $5,000.00, Federal
shall remit payment directly to US Customs.
It is understood and agreed that the price and rates set forth in this
Agreement presume and are premised upon the regulations,
procedures and requirements as of the date of this Agreement.
Notes to Price List Entries are located on pages 5 and 6
F-70
<PAGE>
Given Federal's time and service commitments and the necessity to make sort
100% of the time and Contractor's commitment to achieving same, the
following shall apply: Federal shall provide Contractor with additional
incentives at the compensation levels indicated in the "Broker Peformance
Standards". Contractor will re-imburse Federal for any and all service
deficiencies as determined under the "Broker Performance Standards", at the
rates indicated in those standards. Contractor must submit all proof
necessary for Federal's payment of any incentives determined to be payable
to Contractor. This proof shall be submitted with Contractor's monthly
service billing. The incentives payout is not an accruable amount. The
performance incentives/disincentives are separate and apart from all other
fees and minimums and only applies to locations where we employ a
performance incentive program.
These standards need to be completed and in place upon contract signing.
NOTE: Contractor will provide a reduction in contract fees as follows:
A. On all days where the four (4) largest volume flights arrive within
fifteen (15) minutes of schedule, and are in excess of the number of
days in which the (4) largest volume flights arrive over (30) minutes
of schedule, and all primary scans are completed by 1:30 P.M. (ANC
local time), the formal entry fee would be reduced by $0.20 per formal
entry. All reductions would be eliminated for each calendar week
(Sunday-Saturday) if there are any roll-overs of flights to the next
day. Flight arrival times will be those as reported by Federal's hub
control center.
B. On all days where Federal achieves a ninety-five (95) percent or
greater faxing compliance rate from all routes and/or origin
locations, the formal entry fee will be reduced by $0.55 per formal
entry. Faxing compliance will be in accordance with established fax
guidelines for Far East origin locations mutually agreed to by the
parties.
C. Contractor assumes the responsibility for the cost of maintaining
personnel to manage the pre-review of textiles in Hong Kong.
All payments to be made to Contractor's Memphis location.
NOTES TO PRICE LIST ENTRIES
(1) Formal and Informal Entries - Prices are Not Tiered. Total Formal or
total Informal volumes will be used to determine one price
for each type of entry.
(2) Formal Entries - Includes Formal Dutiable, Formal Free, Live/Quota
Entries and Customer Processing Accounts. It does not include, Cages.
(3) Entry volumes for each category includes all Dutiable, Free,
Live/Quota Entries if applicable.
Notes to Price List Entries are located on pages 5 and 6
F-71
<PAGE>
(4) Caged or Detained Shipments - Does not include the Customer Service
Fee which covers a separate service excluding the Customs Entry.
(5) Customer Service - For Cages. Implementation to be mutually agreed
upon and Federal's Customs Brokerage Administration/Memphis Senior
Manager or above to issue a letter of authorization. Responsibilities
will include customer contact to notify Customers of shipment delays
and to rectify those regulatory deficiencies which lead to a detention
and caging of U.S. inbound shipments. Also responsible for obtaining
regulatory information, updating Federal's COSMOS System, and eventual
release of shipments.
(6) Section 321 Entries - Only applies to those shipments involving a
Floor/Document Review.
(7) Customized Processing Accounts (CPA)- To be applied to all Entries
designated by Customs Brokerage Administration as CPA. All CPA entries
are included in the Entry volumes. Multiple Categories may apply to
individual accounts/shipments/entries. In these cases, Contractor will
invoice Federal the applicable entry fee plus each applicable Category
fee.
(8) TIB Entries - Includes Initial Entry, Tracking and Export Entry. Not
including the cost of the Surety Bond.
(9) Surety Bond - TIB Entries Only, other rates apply to other types of
Bonds. Bond cost are $10.00 per $1,000 of the Bond Amount - $40.00
minimum.
(10) Liquor Entries - Requires the Importer's Bond, Import Permit, and
Label Approval. May also require approval from Federal's Legal
Department.
(11) Transportation Entries - IT's, T&E's, IE's.
(12) Federal Express Corporate Entries - Non-Express Shipments Only. This
fee applies to any U.S. port of entry, but does not apply to shipments
moving through Federal's express revenue system. Governmental Agency
overtime services are not included in flat fee.
(13) Department of Defense Entries - Includes the Initial Filing for DSCAR
Certification.
(14) Extra Harmonized Tariff Classifications - Over 10 per Entry with a
Maximum of 100.
(15) U.S. Wildlife and Fisheries - These are additional and are not
included in the Entry Fees listed.
(16) Marking/Mutilation of "Sample" Merchandise - Must be pre-approved in
writing by Federal's Customs Brokerage Administration.
Notes to Price List Entries are located on pages 5 and 6
F-72
<PAGE>
EXHIBIT B-3
to that certain
Services Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
Oakland, California Term for this Location: Commence as of the date of this
Agreement and shall expire on August 31, 1999 unless earlier terminated as
provided in this Agreement...
OAKLAND PRICE LIST FOR CUSTOMS CLEARANCE SERVICES
FORMAL ENTRIES
1) Formal/Live/Quota Entries (1, 2)
From I - 100 Entries per day $21.45 ea.
From I - 200 Entries per day $20.40 ea.
From I - 300 Entries per day $20.00 ea.
From I - 400 Entries per day $19.00 ea.
From I - 500 Entries per day $18.75 ea.
From 1 - 600 Entries per day $18.50 ea.
From 1 - 700 Entries per day $18.15 ea.
From I - 800 Entries per day $17.75 ea.
From I - 900 Entries per day $17.75 ea.
From 1 - 1000 Entries per day $17.75 ea.
2) Caged or Detained Shipments - Requiring Fonnal Ent!y (3, 4) $20.40 ea.
3) Consolidated Formal Entries/Customer Specific Shipments (2) $23.95 ea.
Additional Invoices/AWB on Consolidated Formal Entries $3.30 ea.
Notes to Price List Entries are located on pages 5 and 6
F-73
<PAGE>
4) Informal Entries (1, 2)
INFORMAL ENTRIES
From I - 100 Entries per day $7.50 ea.
From I - 200 Entries per day $7.25 ea.
From I - 300 Entries per day $6.75 ea.
From I - 400 Entries per day $6.50 ea.
From I - 500 Entries per day $6.25 ea.
From I - 600 Entries per day $6.00 ea.
From I - 700 Entries per day $6.00 ea.
From I - 800 Entries per day $6.00 ea.
From I - 900 Entries per day $6.00 ea.
From I - 1000 Entries per day $5.88 ea.
5) Caged or Detained Shipments - Requiring Informal Ently (3, 4) $20.40 ea.
6) Consolidated Informal Entries - Non Customer SpecificM $21.45 ea.
Each additional AWB line item $1.75 ea.
OTHER ENTRIES
7) Customer Service (5)
a) Direct with Federal's Clients and Shippers $9.15 ea.
b) Delay Notification (CDN) $6.75 ea.
8) Section 321 Entries (3, 6) $2.25
ea.
9) Customized Process Accounts (CPA) (7) Applicable Entry Fee(s), plus
Applicable Categor Fee(s)
listed below
Category 1) Use of Proprietary System/Database $5.00 per entry
Category 2) Customized Broker System and/or HTSUS PC $ 1. 00 per entry
Database-PARTS reference
Category 3) Extensive research/supplemental documentation $2.00 per entry
(Trademark letters, Copyright, Licensing, Radiation
Declarations)
Category 4) Elevated levels of communication required $4.00 per entry
a) Verification Handling (Pre-and Post-clearance)
b) IPD freight movement coordination with Federal's Ops
Notes to Price List Entries are located on pages 5 and 6
F-74
<PAGE>
c) Special monitoring requests (shipper/consignee/carrier)
Category 5) Special Data Entry (Landed Cost Reports,
Customized 7501 $2.00 per entry
and other various customer reporting)
10) TIB Entries (8) $85.00 ea.
11) Liquor Entries (9) $50.00 ea.
12) Transportation Entries (10) $32.50 ea.
13) Federal Express Corporate Entries (11) $50.00 ea.
14) Protest Fees
a) Customer Requested $75.00 ea.
b) Federal Express Requested $40.00 ea.
15) Food and Drug Administration Shipment Processing
a) FDA Shipment (OASIS Processing) $4.00 ea.
b) FDA Single 701 Manual Processing $4.00 ea.
c) FDA Disclaims $1.00 ea.
16) Department of Defense Entries (12) $42.50 ea.
17) Extra Harmonized Tariff Classifications (13) $1.00 ea.
18) U.S. Wildlife and Fisheries (14)
a) Processing and Filing of U.S. Wildlife Form 3177
(First 5 Items) $ 10.00 ea.
b) Additional Items over 5 $2.50 ea.
19) Marking/Mutilation of "Sample" Merchandise (15) $3.50 per piece
20) Preprocessed Formal Entries (16) $24.19 ea.
21) Mass Exceptions Overtime Rate $32.50 per hour
NOTES TO PRICE LIST
The fees listed are based on present service requirements and daily volume
projections as outlined by Federal if U.S. Customs informal entry threshold
does not increase above $2,500.
Notes to Price List Entries are located on pages 5 and 6
F-75
<PAGE>
Contractor effects U.S. Customs clearance and release of shipments with:
o One air way bill/commercial invoice, or its electronic equivalent.
o All necessary documents are on hand and correctly completed (i.e. visas,
export licenses, TSCA, FCC740, HS7, textile declarations, import and state
department licenses, or other pre-entry required documentation).
Fees listed below include technical support and are based on Federal
providing Contractor an equivalent of approximately 1,000 sq.ft. office
space next to Customs and approximately 2,500 sq. ft. of additional office
space (*) at the Oakland facility for Contractor use in providing clearance
services. The quoted fees are predicated on Contractor receiving manifest
information electronically from Federal.
(*) The additional 2,500 sq. ft. of office space may be provided as a
trailer but must be at least within a reasonable vicinity of the Customs
clearance operation.
Federal shall advance Contractor the sum of $75,000 per month (*), which
sum is to be applied against the monthly amount invoiced to Federal under
Section 3 and this Exhibit B-3.
Notwithstanding the actual monthly amount invoiced to Federal under Section
3 , Federal agrees to pay Contractor the following monthly minimum Fees for
each year of the term of this Agreement:
Months 1-24 $100,000.00 (*)
(*) Monthly minimums and advances are established to ensure Contractor will
be able to maintain consistent staffing and equipment, regardless of
operational fluctuations. Contractor agrees to mutually adjust the Monthly
Minimum and Advance to reflect operational modifications or other changes
in Contractor's responsibilities. Adjustments to the Monthly Minimum and
Advance will be proportional to volume changes, operational changes, or
regulatory changes.
Entry summary transactions exceeding One Thousand Dollars ($1,000) (duties
and taxes) will be invoiced within three (3) business days as specified in
Section 4, except where Federal or Federal's client has requested a review
of the entry prior to payment of duties or requires other Customized
Processing.
When Federal is listed as the importer of record (which shall occur only if
specifically requested by Federal) and duties exceed $5,000.00, Federal
shall remit payment directly to US Customs.
It is understood and agreed that the price and rates set forth in this
Agreement presume and are premised upon the regulations, procedures and
requirements as of the date of this Agreement.
Notes to Price List Entries are located on pages 5 and 6
F-76
<PAGE>
All payments to be made to Contractor's Memphis location.
NOTES TO PRICE LIST ENTRIES
(1) Formal and Informal Entries - Prices are Not Tiered. Total Formal or
total Informal volumes will be used to determine one price for each
type of entry.
(2) Formal Entries - Includes Formal Dutiable, Formal Free, Live/Quota
Entries and Customer Processing Accounts. 'It does not include, Cages.
(3) Entry volumes for each category includes all Dutiable, Free,
Live/Quota Entries if applicable.
(4) Caged or Detained Shipments - Does not include the Customer Service
Fee which covers a separate service excluding the Customs Entry.
(5) Customer Service - For Cages. Implementation is currently
authorized by Federal's Customs Brokerage Administration/Memphis
Senior Manager. Responsibilities include customer contact to
notify Customers of shipment delays and to rectify those
regulatory deficiencies which lead to a detention and caging of
U.S. inbound shipments. Also responsible for obtaining regulatory
information, updating Federal's COSMOS System, and eventual
release of shipments.
(6) Section 321 Entries - Only applies to those shipments involving a
Floor/Document Review.
(7) Customized Processing Accounts (CPA)- To be applied to all
Entries designated by Customs Brokerage Administration as
CPA. All CPA entries are included in the Entry volumes.
Multiple Categories may apply to individual
accounts/shipments/entries. In these cases, Contractor will
invoice Federal the applicable entry fee plus each
applicable Category fee.
(8) TIB Entries - Includes Initial Entry, Tracking and Export Entry. Not
including the cost of the Surety Bond.
(9) Liquor Entries - Requires the Importer's Bond, Import Permit, and
Label Approval. May also require approval from Federal's Legal
Department.
(10) Transportation Entries - IT's, T&E's, IE's.
(11) Federal Express Corporate Entries - Non-Express Shipments Only.
This fee applies to any U.S. port of entry, but does not apply
to shipments moving through Federal's express revenue system.
Governmental Agency overtime services are not included in flat fee.
Notes to Price List Entries are located on pages 5 and 6
F-77
<PAGE>
(12) Department of Defense Entries - Includes the Initial Filing for DSCA
Certification.
(13) Extra Harmonized Tariff Classifications - Over 10 per Entry with a
Maximum of 100.
(14) U.S. Wildlife and Fisheries - These are additional and are not
included in the Entry Fees listed.
(15) Marking/Mutilation of "Sample" Merchandise - Must be pre-approved in
writing by Federal's Customs Brokerage Administration.
(16) Preprocessed Formal Entries - For all Formal Entries which are
preprocessed at Contractor's Anchorage, AK location in the
Pacific Early Entry Center (P.E.E.C.) for designated shipments on
Federal's Super Express freighter flight. Audit documentation will
be submitted with the billing packet supporting the modified fee.
Notes to Price List Entries are located on pages 5 and 6
F-78
<PAGE>
EXHIBIT C
to that certain
Service Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
CHANGE ORDER FORM
Service Agreement No:
Change Order Date:
TO: Contractor:
Address:
City/State:
As provided in your Service Agreement with Federal Express Corporation dated
, the following changes in the Services are made:
This Change Order when signed by the parties will have the following effect:
a. Fee:
(increase/decrease/NA)
b. Termination Date:
F-79
<PAGE>
This Change Order in no other way alters the terms and conditions of the
Service Agreement which are ratified and confirmed other than as amended by
this Change Order.
FRITZ COMPANIES, INC. FEDERAL EXPRESS CORPORATION
By: /s/ R. Arovas By: /s/ Gerald P. Leary
Title: Title: Vice President
("Contractor") ("Federal")
F-80
<PAGE>
Exhibit D
to that certain
Service Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
INSURANCE REQUIREMENTS
I Workers' Compensation
(a) State Statutory
(b) Applicable Federal Statutory
(e.g., Longshoremen's)
(c) Employer's Liability$ 250,000.00
2. Comprehensive General Liability
Including Premises - Operations' Contractual Liability;
Products and Completed Operations; with a Combined
Single Limit not less than $ 1,000,000.00
3. Completed Operations and Products Liability shall be
maintained for 2 years after final payment.
4. Comprehensive Automobile Liability with a Combined Single
limit not less than $ 1,000,000.00
5. Employee Fidelity Bond, naming Federal as obligee, in an
amount not less than
$25,000.00 per employee per
occurrence
6. Surety Bond with U.S. Customs in an amount not less than
$ 5,000,000.00
Federal shall pay the amount of $ 10,000.00 per month in order to reimburse
Contractor for the insurance required pursuant to Section 15(f) of the
Agreement.
F-81
<PAGE>
[GRAPHIC OMITTED][GRAPHIC OMITTED]
11 1
Exhibit E
to that certain
Service Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
SELECTION AND MINIMUM SPECIFICATION FOR EMPLOYEES
Criminal Reference Checks
Contractor may utilize the company of their choice to provide the criminal
background check and must meet the enclosed criteria. The results of these
investigations and copies of the appropriate supporting documentation must
be made available to Federal upon request.
A criminal background check must be performed for all employees first being
assigned to Federal prior to reporting for work. Criminal checks performed
120 days or less prior to the report date will be considered valid. The
background checks must be for the county of residence & county of
employment, and must cover the last 7 years (or as otherwise permitted
under applicable law), prior to the employee being assigned to Federal.
If the completed criminal background check indicates that the prospective
employee has been convicted of a misdemeanor or a felony
within the last 7 years (or as otherwise permitt9d under applicable law),
the Sr. Manager of the contracting security department at
Federal must be consulted prior to assigning the employee to Federal.
Contractor shall not assign anyone convicted of a job related crime
without first consulting with the Sr. Manager of the contracting
security department at Federal or a pre-designated representative. The
criminal background check is good for the same time period as
the I.D. badge.
Drug Screening
A drug screen that meets Federal's Protocol Standards will be conducted for
each employee first being assignment at Federal. A negative test result
will be required for assignment.
F-82
<PAGE>
The 5 drugs that each prospective employee is to be tested for are: (1)
Marijuana, (2) Cocaine, (3) Opiates, (4) Phencyclidines (PCP), and (5)
Amphetamines.
The testing laboratories must be SAMHSA (Substance Abuse and Mental Health
Services) approved and must contact the Department of Transportation (DOT)
for the minimum allowable levels established by the DOT. The drug screen is
required initially and the employee is subject to future drug screens if
there is probable cause.
Badges
As required, Contractor will provide suitable identification badges as
approved by Federal, any government agencies, and local airport authorities
for each employee assigned to Federal.
.40977
F-83
<PAGE>
Exhibit F
to that certain
Service Agreement
between
Federal Express Corporation
("Federal")
and
Fritz Companies, Inc.
("Contractor")
LOCATIONS AND TERMS
Locations:
1) Memphis, Tennessee
2) Anchorage, Alaska
3) Oakland, California
Terms:
Memphis, Tennessee
The term of this Agreement for Contractor's Services in Memphis,
Tennessee shall commence as of the date of this Agreement and shall
expire on September 1, 2000 unless earlier terminated as provided in
this Agreement.
Anchorage, Alaska
The term of this Agreement for Contractor's Services in Anchorage,
Alaska shall commence as of the date of this Agreement and shall
expire on February 28, 2000 unless earlier termipated as provided in
this Agreement.
Oakland, California
The term of this Agreement for Contractor's Services in Oakland,
California shall commence as of the date of this Agreement and shall
expire on August 31, 1999 unless earlier terminated as provided in
this Agreement.
LLMEM1 40977.3 08/ 24/98 11:07 AM
F-84
<PAGE>
EMPLOYMENT AND NON-COMPETE AGREEMENT
This Agreement is entered into this 1st day of December, 1998 by and
between FRITZ COMPANIES, INC., a Delaware Corporation (Fritz) and
Brad Lee Skinner ('Executive").
Whereas Executive has certain knowledge and skills in the
International Logistics business and wishes to be employed by Fritz;
and
Whereas Fritz desires to employ Executive in its business;
Wherefore, Fritz and Executive in consideration of the covenants
contained herein agree as follows:
I - Fritz shall employ Executive as of January 1, 1999 in the position
of Vice President-Global Sales and Marketing, resident in the San
Francisco Bay Area reporting to The Office of the Chairman (or its
successor).
2. Fritz shall compensate Executive for such employment as follows:
a. Twenty Thousand Eight Hundred Thirty-Three Dollars ($ 20,833) gross
salary per month;
b. Fringe Benefits as provided to all Fritz Executives reporting to
The Office of the Chairman.
C Participation in the Performance Based Retention Plan under the
terms and conditions of such Plan as are determined by the Executive
Committee and/or Compensation Comrnittee of the Board of Directors of
Fritz frorn time to time. For Fiscal Year 1999, such Plan provides for
eligibility for payment in Fritz common stock (30% vested and 70%
cliff vesting at 5 years) in an amount. up to the equivalent of one
year's base salary.
d. A one-time giant, subject to approval by the Compensation Committee
of the Board of Directors of Fritz, of ten thousand (10,000)
non-qualified stock options with an exercise price equal to the dosing
price of Fritz common stock. on the NASDAQ stock exchange on the first
day of employment of Executive hereunder (if such date is not a =cling
day on the NASDAQ stock exchange, then the exercise price shall be the
dosing price on the last trading day prior to such first day of
employment), and subject to the tem-is and conditions of the standard
Fritz Non-qualified stock option Agreement
F-85
<PAGE>
e Grants of restricted stock and/or stock options from time to time as
approved in the sole discretion of the Board of Directors of Fritz.
f A one-time interest-free loan of Five Hundred Thousand Dollars
($500,000) to be used exclusively towards the purchase and/or
remodeling of a residence for Executive in the San Francisco) Bay
Area, which loan shall be forgiven in One Hundred Thousand Dollar ($
100,000) increments at the completion of each full year of continuous
employment hereunder. The balance of such loan is repayable in full
upon the termination of employment of Executive with Fritz regardless
of cause. In the event of the death of Executive while in the, employ
of Fritz, the balance of such loan shah be forgiven.
g. Reimbursernent of documented closing costs and/or points on the
aforementioned residence in an amount not to exceed two percent (2%)
of the purchase price of such residence.
h. Fritz shall make its corporate apartment in San Francisco available
to Executive for the months of January and February, 1999 for the use
exclusively of Executive and his wife and children. In the event of
unavailability of such apartment, Fritz shall reimburse Executive for
Iodging expenses for him and his wife and children for A or part of
such period until such time as Executive takes possession of the
residence referred to above. In addition, Fritz shall reimburse
Executive for any other temporary Irving expenses incurred by
Executive up to the date of taking of possession of the residence
referred to above,. However, in no event shall total reimbursements
for the items in this subsection h. exceed Ten Thousand Dollars
($10,000.00).
3. This Agreement shall have a term of five (5) years expiring on
December 31, 2003. All terms herein shall remain unchanged for the
duration of the ten-n of this Agreement unless changed or modified by
a written document signed by The Office of the Chairman of Fritz.
4. Either party may terminate this Agreement with no further liability
or obligations hereunder for good cause or material breach of contract
by the other party. For purposes hereof, 'good cause shah mean:
a. Executive materially fails to meet the mutually agreed upon
performance objectives agreed upon at the commencement of each fiscal
year through the normal management by objectives process as
established by Fritz; or
b. commission of any felony or any crime involving moral turpitude or
dishonesty-, or
C. participation in a fraud or act of dishonesty against the Company;
or
F-86
<PAGE>
d. intentional damage to Company property-, or
e. material breach of this Agreement or any written policies of the
Company, or
f. conduct by the Executive that, in the good faith and reasonable
determination of the Board of Directors of Fritz, demonstrates gross
unfitness to serve in your position hereunder, or
g. any material reduction in the compensation of Executive.
5. In the event that Fritz elects to terminate Executive's employment
without good cause at any time during the term of this Agreement,
Fritz shall pay Executive a lump sum payment equal to one year's base
salary. Such payment shall be Executives sole legal remedy for such
termination and Executive shall execute a full legal release of Fritz
to that effect.
6. Should Executive continue in the employ of Fritz after the
expiration of this Agreement, he should be an at will Executive whose
employment may be terminated by Executive or Fritz with or without
cause. Compensation and other terms and conditions of such at will
employment shall be those mutually agreed upon by Executive and Fritz
as of the commencement date of such at-will employment
7. Executive shall not engage in any activity whatsoever which
conflicts with the interests of Fritz or with Executive,s
duties as an Executive of Fritz. Executive understands that Executives
employment is on a full-time basis, and Executive agrees not
to engage in any other employment or business-related activity without
the prior written consent of an officer of Fritz. Executive
hereby represents that Executive has no agreements with, or
obligations to, any person or entity which conflicts, or may conflict,
with the interests of Fritz or with Executives duties as an Executi
of Fritz.
8. Executive understands and acknowledges that during Executive's
employment with Fritz, Executive has been and shall be exposed to
Confidential Information (defined below), all of which is proprietary
and which rightfully belongs to Fritz. Executive shall hold in a
fiduciary capacity for the benefit of Fritz all such Confidential
Information obtained by Executive during Executives employment with
Fritz and shall not directly or indirectly, at any time, either during
or after Executive's employment with Fritz, without Fritz prior
written consent, use any of such Confidential Information. or disclose
any of such Confidential Information to any individual or entity other
than authorized Executives of Fritz except as required in the
performance of Executives duties for Fritz. Executive shall take all
reasonable steps to safeguard such Confidential Information and to
protect such Confidential Information against disclosure, misuse, loss
or theft. The term "Confidential Information" shall mean any
information not generally known in the relevant trade or industry,
which was
F-87
<PAGE>
obtained from Fritz or which was learned, discovered, developed,
conceived, originated or prepared during or as a result of the
performance of any services by Executive as an Executive of Fritz or
on behalf of Fritz, including, without limitation, information
concerning the provision of freight forwarding services such as the
cost of such services, price fists, marketing program or plans, lists
of customers, potential customers, dealers and contacts and other
compilations of confidential information.
9. Upon termination. of Executive's employment (regardless of cause),
Fritz agrees to pay Executive, in consideration of Executive's
Covenants and Agreements in this Section 9, base salary, payable in
equal semimonthly installments for a period up to six (6) months the
length of which shall be in Fritz' sole discretion ("Non-Competition
Period); provided, however, that no payments shall be due under this
Section 9 if Fritz waives in writing the noncompetition/nonsolication
provisions set forth in this Section 9 within thirty (30) days of the
effective date of such termination. Unless waived in writing by Fritz,
the following shall apply
a. during the term hereof and for the Non-Competition period after
Executive ceases to be employed by Fritz, Executive shall not,
directly or indirectly, either for himself or any other person, own,
manage, control, participate in, invest in, permit his name to be used
by, act as consultant or advisor to, render services for (whether
alone or in association with any individual, entity, or other business
organization), or otherwise assist in any manner any individual or
entity that engages in or owns, invests in, manages or controls any
venture for enterprise engaged in the provision of services that are
sirnilar to, or in competition with, or may materially detract from,
any services provided by Fritz or as to which Fritz had firm plans as
of the date Executive ceased to be employed by Fritz. Nothing herein
shall prohibit Executive from being a passive owner of not more than
two percent (20/6) of the outstanding stock,, of any class of
securities of a corporation engaged in such business which is publicly
traded, so long as he has no active participation in the business of
such corporation.
b. during the Non-Competition Period, Executive shall not, directly or
indirectly, (i) induce or attempt to induce or aid another in inducing
any Executive of Fritz to leave the employ of Fritz, or in any way
interfere with the relationship between Fritz and any Executive of
Fritz, or (H) induce or attempt to induce any customer of Fritz to
cease doing business with Fritz, or in any way interfere with the
relationship between Fritz and any customer or other business relation
of Fritz.
c. during the Non-Competition Period, Executive shall not, directly or
indirectly employ any Executive of Fritz who voluntarily terminates
such employment until three months have passed following termination
of such employment
d. in the event a court shall refuse to enforce the agreements
contained herein, either because of the scope of to the geographical
area specified in this Agreement or the duration of the restrictions,
the parties hereto expressly confirm their intention that the
geographical area
F-88
<PAGE>
covered hereby and the time period of the restrictions be deemed
automatically reduced to the minimum extent necessary to permit
enforcement
10. Each of the parties hereto acknowledges and agrees that the extent
of damages to Fritz in the event of a breach by Executive of d-ds
Agreement would be impossible to ascertain and there is and will be
available to Fritz no adequate remedy at law to compensate it in the
event of such a breach. Consequently, Executive agrees that, in the
event that he breaches any of such covenants, Fritz shall be entitled,
in addition to any other relief to which it may be entitled including
without lirnitation money damages, to enforce any or all of such
covenants by injunctive or other equitable relief ordered by any court
of competent jurisdiction.
11. This Agreement shall be governed by and construed in accordance
with the laws of the State of California excluding its choice of
laws/conflict. of laws jurisprudence and venue shall exist,
exclusively in the Federal or State courts situated in San Francisco,
California.
FRITZ COMPANIES, INC. BRAD LEE SKINNER
By:/s/Jan H.Raymond /s/ Brad Lee Skinner
Title: General Counsel/Sr. Vice-President
F-89
<PAGE>
Fritz Companies, Inc.
December 7, 1998
Mr. Raymond L. Smith
30 Ralston Court
Hillsborough, CA 94010
Dear Ray:
Fritz Companies, Inc. ("Fritz" or "the Company") is pleased to offer
you the position of Chief Operating Officer ("COO") on the terms
described below.
As COO of Fritz, you will report to the Chief Executive Officer
("CEO") and you will be part of the Office of the Chairman along with
me, acting in my capacity as CEO. All Company senior executives will
report to the Office of the Chairman. You will work in the San
Francisco Bay Area, California, and perform the duties customarily
associated with this position, and such duties as may be assigned to
you by the CEO or the Board of Directors. Your initial assignment will
be to oversee the successful completion of the GBS and Y2K projects.
Over time your responsibilities will be expanded to include executing
the strategies and policies of the Company; achieving the Company's
financial, operational, and performance objectives; and preparing an
action plan to be approved by the CEO. You also will be a member of
the Executive Committee. Your date of hire will be January 18, 1999.
Your initial base salary will be $300,000 per year less standard
deductions and withholdings, paid semi-monthly. Unless otherwise
mutually agreed in writing, your annual base compensation with the
Company will not be less than $300,000. You will participate in the
Company's performance-based retention plan. Under this plan, at the
end of each year you will be eligible for a restricted stock bonus in
an amount of stock equivalent to one year's salary. Under the current
plan, thirty percent (30%) of such restricted stock shall be
immediately vested. The remaining 70% shall vest in its entirety five
years after the date of the stock grant. You will be eligible to
participate in the current fiscal year's Performance Based Retention
Plan after you and the Chairman have set mutually agreed upon goals
and objectives for this fiscal year. As with all executives, receipt
of stock bonuses will be subject to the achievement of our annual
financial plan and individual management objectives pursuant to the
terms of the plan. You will also be eligible for additional stock
bonuses at the discretion of the Board.
F-90
<PAGE>
Mr. Raymond L. Smith
December 7, 1998
Page Two
Upon approval by the Board on or about the date your employment
commences with Fritz, you will receive an incentive stock option
grant, under the terms of the Company's Option Plan, in the total
amount of 10,000 shares of Fritz Common Stock at an exercise price
equal to the fair market value of Fritz Common Stock on the date of
grant. One-third of this grant shall vest on the first anniversary of
your date of hire. The remaining two-thirds of this grant will vest in
equal amounts on the second and third anniversaries of your date of
hire in accordance with the Company's standard vesting policy. Other
terms of the option shall be consistent with the Company's Option Plan
and with the terms set forth in your stock option grant. From time to
time, the Board reviews the outstanding option grants for senior
Company executives and may issue additional options in the future at
its discretion.
The Company will reimburse you for reasonable, documented business
expenses pursuant to Company policy.
In addition to your salary and incentive compensation, you will be
eligible for the following Company benefits consistent with
Company policy: three weeks of vacation per year, annual physical
examination, life insurance, and medical and dental coverage for
yourself and your dependents.
Of course, you will be expected to abide by all of the Company's
policies and procedures. As a further condition of your employment,
you agree to refrain from any unauthorized use or disclosure of the
Company's proprietary or confidential information or materials. You
also agree to sign and comply with the enclosed Confidentiality
Agreement. By accepting this offer, you are representing that you are
not a party to any agreement (e.g., a non-compete) with any third
party or prior employer that would conflict with or inhibit your
performance of your duties with Fritz.
You will be expected to devote your full time and attention to the
business activities of the Company, except that you may continue to
serve upon boards of directors upon which you presently serve. You may
not serve upon additional boards of directors or engage in other
outside professional activities without the Company's consent.
Either you or the Company may terminate your employment relationship
at any time for any reason whatsoever, with or without cause or
advance notice. If the Company terminates your employment without
cause at any time within the first five years of employment, or if you
terminate your employment for good reason within that period, the
Company will pay you, as the only severance compensation, the amount
of $500,000, subject to standard payroll deductions and withholdings.
This payment will be made in a lump sum as soon as practicable
following your termination. You will be required to sign a general
release of claims in order to obtain this severance. If you resign for
other than good reason or your employment is terminated for cause, all
compensation and benefits will cease immediately, and you will receive
no severance benefits.
F-91
<PAGE>
Mr. Raymond L. Smith
December 7, 1998
Page Three
For purposes of this letter agreement, "cause" means misconduct,
including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company; (iii) willful breach of the Company's
policies; (iv) intentional damage to the Company's property: (v)
material breach of this Agreement, your Confidentiality Agreement or
any Employment Agreement; (vi) material failure to meet the mutually
agreed upon performance objectives set at the commencement of each
fiscal year through the normal management by objectives process as
established by the Company; or (vii) conduct by you that, in the good
faith and reasonable determination of the Board, demonstrates gross
unfitness to serve. For purposes of this letter agreement, "good
reason" means (i) any material reduction in your compensation,
including but not limited to any such material reduction following a
change in control of the Company; or (ii) termination of your
employment by the Company within twelve (12) months after a change in
control of the Company. For purposes hereof, "change in control" shall
mean (a) the disposition by Mr. Lynn Fritz (other than to related
persons or companies or trusts beneficially controlled by Mr. Fritz)
of thirty percent (30%) or more of the issued and outstanding shares
of voting stock in the -Company; or (b) the accumulation by one person
or entity of a quantity of voting stock of Fritz equal to or greater
than one hundred ten percent (110%) of the beneficial holdings of
voting stock of Fritz by Mr. Lynn Fritz.
In consideration of the Company vesting, one year from the last day of
your employment with the Company, all options previously granted to
you but not yet vested as of your last day of employment by the
Company, you shall not compete with the Company (either directly or
indirectly) or solicit the employees or clients of the Company for a
period of one year from the last day of employment by the Company. In
the event that your employment is terminated by the Company for cause,
the Company shall have the right to void this clause.
This letter constitutes the complete, final and exclusive embodiment
of the entire agreement between you and Fritz with respect to the
terms and conditions of your employment. In entering into this
agreement, neither party is relying upon any promise or
representation, written or oral, other than those expressly contained
herein, and this agreement supersedes any other such promises,
representations or agreements. It may not be amended or modified
except in a written agreement signed by you and a duly authorized
Company officer. As required by law, this offer of employment is
subject to proof of your right to work in the United States.
To ensure rapid and economical resolution of any disputes which may
arise under this agreement, you and the Company agree that any and all
disputes or controversies of any nature whatsoever, regarding the
interpretation, performance, enforcement or breach of this agreement
shall be resolved by confidential, final and binding arbitration
(rather than trial by jury or court or resolution in some other forum)
under the then-existing rules of Judicial Arbitration and Mediation
Services ("JAMS") in San Francisco, California. The prevailing party
in the arbitration shall be entitled to recover his or its attorneys'
fees.
F-92
<PAGE>
Mr. Raymond L. Smith
December 7, 1998
Page Four
If you choose to accept our offer as described above, please sign
below and return this letter to me by the close of business on
December 11, 1998.
I am enthusiastic about the prospect of your joining the Fritz team. I
look forward to a productive and enjoyable relationship helping Fritz
grow.
Very truly yours,
Fritz Companies, Inc.
By:/s/ Lynn C. Fritz
Chairman and Chief Executive Officer
Agreed and Accepted.
By: /s/Raymond L. Smith
Date: 12/7/99
F-93
<PAGE>
CONFIDENTUALITY AGREEMENT
This Confidentiality Agreement is entered into this 7th day of
December, 1998 by and between Fritz Companies, Inc., on behalf of
itself and its worldwide network of subsidiaries and affiliates
(collectively "Fritz") and Raymond Smith ("Executive").
Whereas Fritz Companies, Inc. desires to employ Executive in a
position where he will be exposed to and have access to confidential
information of Fritz; and
Whereas Executive desires to be employed by Fritz Companies, Inc.;
Wherefore, as a material consideration for Fritz Companies, Inc.
employing Executive, Executive agrees and covenants that:
Executive understands and acknowledges that during his employment with
Fritz, he has shall be exposed to Confidential Information (defined
below), all of which is proprietary and which rightfully belongs to
Fritz. Executive shall hold in a fiduciary capacity for the benefit of
Fritz all such Confidential Information obtained by Executive during
his employment with Fritz and shall not, directly or indirectly, at
any time, either during or after his employment with Fritz, without
Fritz' prior written consent, use any of such Confidential Information
or disclose any of such Confidential Information to any individual. or
entity other than, authorized employees of Fritz except as required in
the performance of Executive's duties for Fritz. Executive shall take
all reasonable steps to safeguard such Confidential Information and to
protect such Confidential Information against disclosure, misuse, loss
or theft. The term "Confidential Information" shall mean any
information not generally known in the relevant trade or industry,
which was obtained from Fritz or which was learned, discovered,
developed, conceived, originated or prepared during or as a result of
the performance of any services by Executive as an employee of Fritz
or on behalf of Fritz, including, without limitation, information
concerning the provision of freight forwarding services such as .the
cost of such services, price lists, marketing programs or plans, lists
of customers, potential customers, dealers and contacts and other
compilations of confidential information.
Executive acknowledges and agrees that the extent of damages to Fritz
in the event of a breach by Executive of this Agreement would be
impossible to ascertain and there is and will be available to Fritz no
adequate remedy at law to compensate it in the event of such a breach.
Consequently, Executive agrees that, in the event that he breaches any
of such covenants, Fritz shall be entitled, in addition to any other
relief to which it may be entitled including without limitation money
damages, to enforce any or all of such covenants by injunctive or
other equitable relief ordered by any court of competent jurisdiction.
F-94
<PAGE>
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
FRITZ COMPANIES, INC. /s/ RAYMOND SMITH
By: Title:
F-95
<PAGE>
Fritz Companies, Inc.
December 16, 1998
Mr. Joseph L. Carnes
406 Lighthouse Lane
Peachtree City, GA 30269
Dear Joey:
As a result of our discussions, I am proposing the following guarantee
to you over the next four years. In order to guarantee your access to
the stock that you are currently vesting, the vesting time will be
modified as follows for your three existing stock grants:
Grant Date # RS
2/15/97 20,000
7/23/97 8,988 Will vest on January 1, 2001
7/27/98 11,275
In order to guarantee a minimum stock grant to you and an accelerated
vesting date, I am proposing the following schedule:
Grant Date # RS Vesting
7/99 20,000 30% immediate vesting,
70% cliff vesting at 3 years.
7/2000 20,000 30% immediate vesting,
70% cliff vesting at 2 years.
7/2001 20,000 Immediate vesting.
7/2002 20,000 Immediate vesting.
In addition to the above, you will receive an immediate grant
equivalent to 15,000 shares gross on January 1, 1999, at the market
price on the grant date. This will be provided on an after-tax net
grant basis such that the withholding taxes will be paid in cash and
the after-tax net shares will be deposited into your Alex. Brown
brokerage account. The foregoing is conditioned, of course, upon your
being employed by Fritz on the respective vesting dates.
On January 1, 1999, your salary will be increased to $275,000 per
year, and your title will be changed to Executive Vice President. You
will be made an officer of the Company at a mutually agreed-upon date
in the near future.
F-96
<PAGE>
Mr. Joseph Carnes
December 16, 1998
Page Two
Either you or the Company may terminate your employment relationship
at any time for any reason whatsoever, with or without cause or
advance notice. If the Company terminates your employment without
cause at any time within the next five years of employment, the
Company will pay you, as the only severance compensation, the amount
of $400,000, subject to standard payroll deductions and withholdings.
This payment will be made in a lump sum as soon as practicable
following your termination. You will be required to sign a general
release of claims in order to obtain this severance. If you resign,
your employment is terminated for cause, all compensation and benefits
will cease immediately, and you will receive no severance benefits.
For purposes of this letter agreement, "cause" means misconduct,
including: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company; (iii) willful breach of the Company's
policies; (iv) intentional damage to the Company's property; (v)
material breach of this Agreement or your Proprietary Information and
Inventions Agreement; or (vi) conduct by you that, in the good faith
and reasonable determination of the Board, demonstrates gross
unfitness to serve.
Joey, you are a key member of the Fritz management team, and I am
taking this special action both to state your value to the company and
to insure your continued employment with us.
Sincerely,
/s/ Lynn C. Fritz
Agreed:
/s/ Joseph L. Carnes
Date:12/30/98
F-97
<PAGE>
Fritz Companies, Inc.
EMPLOYMENT AND NON-COMPETE AGREEMENT
THIS AGREEMENT is entered into this 1" day of January, 1999, by and between
FRITZ COMPANIES INC., a Delaware Corporation ("Fritz" or "the Company") and JAN
H. RAYMOND ("Employee").
WHEREAS, Employee has certain knowledge and skills in the freight
forwarding/customs brokerage business and wishes to continue to be employed by
Fritz; and
WHEREAS Fritz desires to continue to employ Employee in its business;
WHEREFORE, Fritz and Employee in consideration of the covenants contained
herein agree as follows:
1. Fritz shall employ Employee as of January 1, 1999 in the
position of Executive Vice President/General Counsel/Secretary
and as a member of the Executive Committee of Fritz in San
Francisco reporting to the Office of the Chairman (or its
successor).
2. Fritz shall compensate Employee for such employment as follows:
(a) Base salary equal to no less than eighty percent (80%) of the average
base salary of the three highest paid officers of Fritz (excluding the Office of
the Chairman). For purposes of this Agreement, the Office of the Chairman shall
be limited to the CEO and the COO. In no event shall Employee's base salary be
reduced at any time during the term of this Agreement. Such salary shall be
adjusted to comport with the above percentage initially as of January 1, 1999
and thereafter at the first meeting of each fiscal year of the Compensation
Committee of the Board of Directors of Fritz or July 31 of each year, whichever
comes earlier.
(b) Eligibility to receive stock options in the discretion of the
Compensation Committee of the Board of Directors of Fritz ("the Board").
However, Employee shall receive during each fiscal year of the term of this
Agreement, stock option shares equal to no less than eighty percent (80%) of the
average number of stock option shares granted during that fiscal year to the
three highest paid officers of Fritz (excluding the Office of the Chairman).
(c) Eligibility to receive stock grants in the discretion of the
Compensation Committee of the Board of Directors of Fritz. However, Employee
shall receive during each fiscal year of the term of this Agreement, stock
grants equal to no less than eighty percent (80%) of the average number of
shares of stock granted during that fiscal year to the three highest paid
officers of Fritz (excluding the Office of the Chairman).
(d) Participation in the Performance Based Retention Plan (or such other
plan as succeeds it) at the level prescribed therein for executive officers of
Fritz. The level of award thereunder shall be as provided for in such plan for
executive officers of Fritz, but, in no event, shall any such award be less than
eighty (80%) of the average award to the three highest paid officers of Fritz
(excluding the Office of the Chairman).
F-98
<PAGE>
(e) In calculating any awards to Employee under subparts (b), (c) and (d)
above, any awards to persons who were employed by Fritz for less than the entire
fiscal year shall be annualized.
(f) An award of seven thousand five hundred (7,500) unrestricted shares of
Fritz stock as of the signing of this Agreement. This award shall not be
considered in calculating any award under subparts (c) or (d) above.
(g) Company benefits as provided to all Executive Officers of Fritz
reporting to the Office of the Chairman (or its successor).
3. This Agreement shall have a term of three (3) years, expiring on
December 31, 2001. If Fritz terminates Employee's employment without cause at
any time prior to December 31, 2001, and if Employee complies with the terms set
forth in Paragraph 8 herein, Fritz will pay Employee's then current base salary
through December 31, 2001 as Employee's only severance compensation. These
payments will be made on Fritz's regular payroll dates, subject to standard
payroll deductions and withholdings. Employee may resign at any time for any
reason whatsoever. If Employee resigns, or his employment is terminated for
cause, or if Employee breaches the tenns of Paragraphs 7, 8 or 9 herein, all
compensation and benefits will cease immediately, and Employee will receive no
severance benefits or, if he has already begun receiving severance benefits, he
shall receive no further severance benefits.
4. For purposes of this Agreement, "cause" means misconduct, including: (i)
conviction of any felony or any crime involving moral turpitude or dishonesty;
(ii) participation in a fraud or act of dishonesty against the Company, or other
form of gross misconduct; (iii) willful breach of the Company's policies; (iv)
intentional damage to the Company's property; or (v) material breach of this
Agreement or Employee's Proprietary Information Agreement.
5. Should Employee continue in the employ of Fritz after the expiration of
this Agreement, he will be an at-will employee whose employment may be
terminated by Employee or Fritz with or without cause. Compensation and the
other terms and conditions of such at-will employment shall be those provided
for in this Agreement unless otherwise mutually agreed by the parties in
writing.
6. Employee shall not engage in any activity whatsoever which conflicts
with the interests of Fritz or with Employee's duties as an employee of Fritz.
Employee understands that Employee's employment is on a full-time basis, and
Employee agrees not to engage in any other employment or business-related
activity without the prior written consent of the Office of the Chairman of
Fritz. Employee hereby represents that Employee has no agreements with, or
obligations to, any person or entity which conflict, or may conflict, with the
interests of Fritz or with Employee's duties as an employee of Fritz.
7. Employee understands and acknowledges that during Employee's employment
with Fritz, Employee has been and shall be exposed to Confidential Information
(defined below), all of which is proprietary and which rightfully belongs to
Fritz. Employee shall hold in a fiduciary capacity for the benefit of Fritz all
such Confidential Information obtained by Employee during Employee's employment
F-99
<PAGE>
with Fritz and shall not, directly or indirectly, at any time, either during or
after Employee's employment with Fritz, without Fritz' prior written consent,
use any of such Confidential Information or disclose any of such Confidential
Information to any individual or entity other than authorized employees of Fritz
except as required in the performance of Employee's duties for Fritz. Employee
shall take all reasonable steps to safeguard such Confidential Information and
to protect such Confidential Information against disclosure, misuse, loss or
theft. The term "Confidential Information" shall mean any information not
generally known in the relevant trade or industry, which was obtained from Fritz
or which was learned, discovered, developed, conceived, originated or prepared
during or as a result of the performance of any services by Employee as an
employee of Fritz or on behalf of Fritz, including, without limitation,
information concerning the provision of freight forwarding services such as the
cost of such services, price lists, marketing programs or plans, lists of
customers, potential customers; dealers and contacts and other compilations of
confidential information. Employee also agrees to continue to comply with any
proprietary information and inventions agreement previously signed by Employee.
8. Upon termination of Employee's employment (regardless of cause), for a
period which may be extended for up to six months in Fritz's sole discretion
(the "Non-Competition Period"), Employee agrees to the following:
(a) During the Employee's employment and the Non-Competition Period,
Employee shall not, directly or indirectly, either for himself or any other
person, own, manage, control, participate in, invest in, permit his name to be
used by, act as consultant or advisor to, render services for (whether alone or
in association with any individual, entity, or other business organization), or
otherwise assist in any manner any individual or entity that engages in or owns,
invests in, manages or controls any venture or enterprise engaged in the
provision of services that are similar to, or in competition with, or may
materially detract from, any services provided by Fritz or any services which
Fritz has firm plans to provide as of the termination of Employee's employment.
Nothing herein shall prohibit Employee from being a passive owner of not more
than two percent (2%) of the outstanding stock of any class of securities of a
corporation engaged in such business which is publicly traded, so long as he has
no active participation in the business of such corporation.
(b) During the Non-Competition Period, Employee shall not, directly or
indirectly induce or attempt to induce any customer of Fritz to cease doing
business with Fritz, or in any way interfere with the relationship between Fritz
and any customer or other business relation of Fritz.
(c) During the Non-Competition Period, Employee shall not, directly or
indirectly, employ any employee of Fritz who voluntarily terminates his or her
employment at Fritz until three months have passed following termination of such
employment.
F-100
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F-101
<PAGE>
If Employee's employment is terminated without cause and the
Non-Competition Period extends beyond December 31, 2001, Employee shall receive
the equivalent of his base salary at the time of the termination of his
employment through the end of the Non-Competition Period. If Employee's
employment is terminated with cause or Employee resigns and Fritz elects to
invoke the Non-Competition Period, Employee shall receive the equivalent of his
base salary at the time of the termination of his employment for the duration of
the Non-Competition Period. These payments will be made on Fritz' regular
payroll dates, subject to standard payroll deductions and withholdings.
9. For the period of Employee's employment with Fritz and for any
Non-Competition Period thereafter, Employee shall not, either directly or
indirectly, solicit or attempt to solicit any employee, consultant or
independent contractor of Fritz to terminate his or her relationship with Fritz
to become an employee, consultant or independent contractor to or for any other
person or entity.
10. All restricted stock grants and stock options of Employee not then
vested shall immediately vest upon any of the following events:
(a) The death of Employee.
(b) The permanent disability of Employee.
(c) The termination of the employment of Employee by Fritz other than
for cause as defined in Section 4 above.
(d) Change of control of Fritz. For purposes hereof, change of control
shall be defined as: (i) the disposition by Lynn Fritz or his heirs of thirty
percent (30%) or more of the issued and outstanding shares of voting stock of
Fritz (other than to parties whose ownership would be deemed to be beneficial
ownership by Mr. Fritz under SEC reporting rules and regulations); or (ii) the
accumulation by one person or entity of a quantity of voting stock of Fritz
equal to or greater than the beneficial holdings of voting stock of Fritz by
Lynn Fritz or his heirs.
Employee shall have the full term of each stock option in which to exercise
any such stock option in the event of the occurrence of any of the events listed
in subparts (a) through (d) above (regardless of whether the stock option was
already vested as of the date of such event or vesting was accelerated as of the
date of such event.
(e) Attainment of twenty years of service in the employ of Fritz.
11. In the event that Employee's employment is terminated other than for
cause (as defined in Paragraph 4 herein) within one year of a change of control,
as defined in Paragraph 10(d) herein, Fritz shall pay Employee, in addition to
any other legal obligations under this Agreement, a lump sum equal to one year
of Employee's then current base salary. For purposes of this Paragraph 11 only,
resignation by Employee due to any adverse change in title, reporting structure,
responsibilities, functions, compensation, office space or any material
denigration in the working conditions of Employee shall be considered to be a
termination of Employee's employment by Fritz other than for cause.
12. To ensure rapid and economical resolution of any disputes which may
arise under this agreement, Employee and Fritz agree that any and all disputes
or controversies of any nature whatsoever, regarding the interpretation,
performance, enforcement or breach of this Agreement shall be resolved by
confidential, final and binding arbitration (rather than trial by jury or court
or resolution in some other forum), to the fullest extent permitted by law, by
Judicial Arbitration and Mediation Services ("JAMS") in San Francisco,
California under the then-existing JAMS
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rules. The prevailing party in the arbitration shall be entitled to recover
his or its attorneys' fees. Nothing in this paragraph is intended to prevent
either party from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration.
13. In the event that any one or more of the provisions contained in this
Agreement is, for any reason, held to be invalid, illegal or, unenforceable in
any respect, such invalidity, illegality or unenforceability will not affect the
other provisions of this Agreement, and then the remaining terms and provisions
hereof shall be unimpaired, the invalid, illegal or unenforceable term or
provision shall be modified or replaced so as to render it valid, lawful, and
enforceable in a manner which represents the parties' intention with respect to
the invalid or unenforceable term or provision insofar, as possible.
14. This Agreement is intended to bind and inure to the benefit of and be
enforceable by Employee and Fritz, and their respective successors, assigns,
heirs, executors and administrators, except that Employee may not assign any of
his duties hereunder and he may not assign any of his rights hereunder without
the written consent of the Office of the Chairman.
15. This Agreement constitutes the complete, final and exclusive embodiment
of the entire agreement between you and Fritz with respect to the terms and
conditions of Employee's employment. In entering into this Agreement, neither
party is relying upon any promise or representation, written or oral, other than
those expressly contained herein, and this Agreement supersedes any other such
promises, representations or agreements. It may not be amended or modified
except in a written agreement signed by Employee and a duly authorized officer
of Fritz.
16. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
FRITZ COMPANIES, INC. /s/ JAN H. RAYMOND
By: /s/ Lynn C. Fritz
Title: Chairman of the Board of Directors/
Chief Executive Officer
F-103
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EMPLOYMENT AND NON-COMPETE AGREEMENT
This Agreement is entered into this 30th day of April, 1999 by and between
FRITZ COMPANIES, INC., a Delaware Corporation
("Fritz!) and Ron Dutt ("Dud).
Whereas Dutt has certain knowledge and skills in the management of
financial functions and wishes to be employed by Fritz; and
Whereas Fritz desires to employ Dutt in its business;
Wherefore, Fritz and Dutt in consideration of the covenants contained
herein agree as follows:
1 . Fritz shall employ Dutt as of May 17, 1999 in the position of Chief
Financial Officer in the San Francisco Bay Area reporting to the Office of the
Chairman (or its successor).
2. Fritz shall compensate Dutt for such employment as follows:
a. Nineteen Thousand Five Hundred Eighty Three Dollars ($ 19,583.00) gross
salary per month;
b. Participation in the Fritz Performance Based Retention Plan;
C Fringe Benefits as provided to all Fritz executives on the Executive
Committee;
d. Three weeks paid vacation per year,
e. Reimbursement of reasonable business related expenses in accordance with
the Fritz travel and entertainment policy,
f. A one-time grant of Seven Thousand Five Hundred (7500) stock, options
pursuant to the standard terms and conditions of the standard Fritz stock,
option agreement.
g. A one-time cash payment of Thirty Thousand Dollars ($30,000.00) payable
on the first day of employment hereunder.
F-104
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3. This Agreement shall have a terrn of two (2) years expiring on May 16-,
200 1. All terms herein shall remain unchanged for the duration of the term of
this Agreement unless changed or modified by a written document signed by Dutt
and the Office of the Chairman of Fritz.
4. Fritz may terminate this agreement with no further liability or
obligation hereunder for "cause". For purposes hereof, "cause" shall mean
misconduct including, but not limited to: i. Conviction of any felony or any
crime involving moral turpitude or dishonesty, ii. Participation in a fraud or
act of dishonesty against the company; iii. Willful breach of the oompany,s
policies; iv. Intentional damage to the cornpany,s property; v. Material breach
of this agreement; vi. Material failure to meet the mutually agreed upon
performance objectives set at the commencement of each fiscal year through the
normal management by objectives process as established by the company, or vii.
Conduct that in the good faith and reasonable judgement of the Board of
Directors of Fritz demonstrates gross unfitness to perform your job functions.
5. In the event that Dutt's employment hereunder is terminated, other than
for cause, or in the event that Dutt's employment is terminated within one year
after a change in control of Fritz, Fritz shall, as Dutt's sole remedy for such
termination of employment: i. Pay Dutt the sum of Three Hundred Thousand Dollars
($ 300,000); and ii. Immediately vest all stock options previously granted to
Dutt by Fritz.
For purposes hereof, "change in control" shall mean:
i. The cessation of employment by Fritz of either Lynn Fritz or Ray Smith;
or ii. The disposition by Lynn Fritz (to parties other dim those deemed to be
beneficially controlled by Lynn Fritz for SEC reporting purposes) of thirty
percent (309/6) or more of the issued and outstanding shares of voting stock in
the Company; or iii. The accumulation by one person or entity (other than those
deemed to be beneficially controlled by Lynn Fritz for SEC reporting purposes)
of a quantity of voting stock of Fritz equal to or greater than one hundred ten
percent (110%) of the beneficial holdings of voting stock of Fritz held by Lynn
Fritz.
6. Should Dutt continue in the employ of Fritz after the expiration of
tl-~s Agreement, he will be an at-will employee whose employment may be
terminated by Dutt or Fritz with or wiithout cause. Compensation and other
tern-is and conditions of such at-will employment shall be those mutually agreed
upon by Dutt and Fritz as of the commencement date of such at-will employment.
F-105
<PAGE>
7. Dutt shall not engage in any activity whatsoever which conflicts with
the interests of Fritz or with Duds duties as an employee of Fritz. Dutt
understands that Dutt's employment is on a full-time basis, and Dutt agrees not
to engage in any other employment or business-related activity without the prior
written consent of the Office of the Chairman of Fritz. Dutt hereby represents
that Dutt has no agreements with, obligations to, any person or entity which
conflicts, or may conflict, with the interests of Fritz or with Dutt's duties as
an employee of Fritz.
8. Dutt understands and acknowledges that during Dutt's employment with
Fritz, Dutt has been and shall be exposed to Confidential Information (defined
below), all of which is proprietary and which rightfully belongs to Fritz. Dutt
shall hold in a fiduciary capacity for the benefit of Fritz all such
Confidential Information obtained by Dutt during Dutt's employment with Fritz
and shall not, directly or indirectly, at any time, either during or after
Dutt's employment with Fritz, without Fritz' prior written consent, use any of
such Confidential Information or disclose any of such Confidential Information
to any individual or entity other than authorized employees of Fritz except as
required in the performance of Dutt's duties for Fritz. Dutt shall take all
reasonable steps to safeguard such Confidential Information and to protect such
Confidential Information against disclosure, misuse, loss or theft. The term
"Confidential Information" shall mean any information not generally known in the
relevant trade or industry, which was obtained from Fritz or which was learned,
discovered, developed, conceived, originated. or prepared during or as a result
of the performance of any services by Dutt as an employee of Fritz or on behalf
of Fritz, including, without limitation, information concerning the provision of
freight forwarding services such as the cost of such services, price lists,
marketing programs or plans, fists of customers, potential customers, dealers
and contacts and other compilations of confidential information.
9. Upon termination of Dutt's employment (regardless of cause), Fritz
agrees to pay Dutt, in consideration of Dutt's Covenants and Agreements in this
Section 9, base salary, payable in equal semi-monthly installments for a period
up to six (6) months the length of which shall be in Fritz' sole discretion
("Non-Competition Period); provided, however, that no payments shall be due
under this Section 9 if Fritz makes a payment to Dutt. pursuant to Section 5 of
this Agreement or if Fritz waives in writing the noncompetition/nonsolication
provisions set forth in this Section 9. Unless waived in writing by Fritz, the
following shall apply:
a. during the term hereof and for the Non-Competition period after Dutt
ceases to be employed by Fritz, Dutt shall not, directly or indirectly, either
for himself or any other person, own, manage, control, participate in, invest
in, permit his name to be used by, act as consultant or advisor to, render
services for (whether alone or in association with any individual, entity, or
other business organization), or otherwise assist in any manner any individual
or entity that engages in or owns, invests in, manages or controls any venture
for enterprise engaged in the provision of services that are similar to, or in
competition with, or may materially detract from, any services provided by Fritz
or as to which Fritz had firm plans as of the date Dutt ceased to be employed by
Fritz. Nothing herein shall prohibit Dutt
F-106
<PAGE>
from being a passive owner of not more
than two percent (2%) of the outstanding stock of any class of securities of a
corporation engaged in such business which is publicly traded, so long as he has
no active participation in the business of such corporation.
b. during the Non-Competition Period, Dutt shall not, directly or
indirectly, (i) induce or attempt to induce or aid another in inducing any
employee of Fritz to leave the employ of Fritz, or in any way interfere with the
relationship between Fritz and any employee of Fritz, or (H) induce or attempt
to induce any customer of Fritz to cease doing business with Fritz, or in any
way interfere with the relationship between Fritz and any customer or other
business relation of Fritz.
C. during the Non-Competition Period, Dutt shall not, directly or
indirectly employ any employee of Fritz who voluntarily terminates such
employment until three months have passed following termination of such
employment.
d. in the event a court shall refuse to enforce the agreements contained
herein, either because of the scope of the geographical area specified in this
Agreement or the duration of the restrictions, the parties hereto expressly
confirm their intention that the geographical areas covered hereby and the time
period of the restrictions be deemed automatically reduced to the minimum extent
necessary to permit enforcement
10. Each of the parties hereto acknowledges and agrees that the extent of
damages to Fritz in the event of a breach by Dutt of this Agreement would be
impossible to ascertain and there is and will be available to Fritz no adequate
remedy at law to compensate it in the event of such a breach. Consequently, Dutt
agrees that, in the event that he breaches any of such covenants, Fritz shall be
entitled, in addition to any other relief to which it may be entitled including
without limitation money damages, to enforce any or all of such covenants by
injunctive or other equitable relief ordered by any court of competent
jurisdiction.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
12. To ensure rapid and economical resolution of any disputes which may
arise under this agreement, Dutt and Fritz agree that any and all disputes or
controversies of any nature whatsoever, regarding the interpretation,
performance, enforcement or breach of this agreement shall be resolved by
confidential, final and binding arbitration (rather than trial by jury or court
or resolution in any other forum) under the then existing rules of judicial
Arbitration and Mediation Services ("JAMS") in San Francisco, California. In the
event that JAMS ceases to exist as an arbitration service, any such matter shall
be resolved by confidential, final and
F-107
<PAGE>
binding arbitration under the then existing rules of the American
Arbitration Association in San Francisco, California. The prevailing party in
the arbitration shall be entitled to recover his or its attorneys' fees and
costs.
FRITZ COMPANIES, INC. RON DUTT
By: /s/ Raymond Smith /s/ Ron Dutt
Title: Office of the Chairman
F-108
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AMENDMENT NO. 3
TO THE
FRITZ COMPANIES, INC.
SALARY INVESTMENT & RETIREMENT PLAN
The Fritz Companies, Inc" Salary Investment & Retirement Plan (1992
Restatement) (the "Plan") is hereby amended as follows, effective January 1,
1999unless otherwise noted:
1 . Effective January 1, 1997, the last paragraph of Section 1.5(c) is
amended in its entirety to read as follows:
In addition, in any Plan Year any Basic Compensation in excess of $150,000,
or such other amount established by the Secretary of the Treasury, in accordance
with Section 401(a)(17) of the Code (the "Compensation Limit"), shall be
disregarded.
2. A new Section 1.8A is added directly after Section 1.8 to read as
follows:
1.8A Common Stock means the common stock of the Company.
3. Effective July 1, 1985, in order to clarify the intended meaning of the
Plan provisions limiting eligibility to individuals classified by the Company or
an Employer as common law employees, Section 1. 15 is amended in its entirety to
read as follows:
1.15 Eligible Employe means every Employee on the U.S. dollar payroll of an
Employer, except the following Employees:
(a) Employees whose compensation and conditions of employment are subject
to determination by collective bargaining, provided that retirement entitlements
have been a subject of good-faith bargaining between an Employer and the
person's lawful representative or bargaining agent;
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(b) Employees who have not attained age 21;
and
(c) Employees who, as to any period of time are classified or treated by
the Company or an Employer as an independent contractor, a consultant, a leased
employee (within the meaning of section 414(n) of the Code) or any employee of
an employment agency, even if such individual is subsequently determined to have
been a common law employee of the Company or an Employer during such period.
4. Effective January 1, 1997, Section 1.20 is deleted in its entirety.
5. Effective January 1, 1997, Sections 1.22 and 1.23 are amended in their
entirety to
read as follows:
1.22 Highly Compensated Active Employee means any Employee who performs
services for an Employer during the Determination Year and who, during the
Look-Back Year, (a) received Basic Compensation from an Employer in excess of
$80,000 (as adjusted pursuant to sections 414(q)(1) and 415 (d) of the Code),
and (b) and was a member of the "top-paid group" for such year; provided,
however, that subject to the satisfaction of such conditions as may be
prescribed under section 414(q)(1) of the Code, the Company may elect for any
Plan Year not to apply the requirement of clause (b) above. The term Highly
Compensated Active Employee also includes an Employee who is a 5% owner at any
time during the Look-Back Year or Determination Year. An Employee shall be
considered to be in the "top-paid group" for any Look-Back Year if the Employee
is in the group consisting of the top 20% of Employees when ranked on the basis
of Basic Compensation paid during such year.
1.23 Highly Compensated Employee means an Employee who is either a Highly
Compensated Active Employee or a Highly Compensated Former Employee. The
determination of who is a Highly Compensated Employee, including the
determination of the number and identity of Employees in the "top-paid group,"
will be made in accordance with Section 414(q) of the Code and the regulations
thereunder.
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<PAGE>
6. Section 3.2 is revised in its entirety to read as follows:
3.2 Matching Contributions.
(a) At the end of each Plan Year an Employer may make a Matching
Contribution to the Matching Contributions Account of each Participant who is
employed on the last day of the Plan Year (or who died, retired or incurred an
ongoing Disability during such Plan Year) and for whom Salary Deferral
Contributions were made during such Plan Year.
(b) Matching Contributions shall be equal to a percentage of the
Participant's Basic Compensation. The percentage shall be determined based on
the pre-tax United States profits of the Company for the Plan Year, as
determined by the Compensation Committee of the Company in its sole discretion,
in accordance with the following schedule:
Amount of Profit Match Percentage Level
Less than $5 Million 0%
$ 5 Million but less than $10 Million 1%
$10 Million but less than $15 Million 2%
$15 Million but less than $20 Million 3%
$20 Million or more 4%
Notwithstanding the foregoing, in no event will a Participant's Matching
Contribution for a Plan Year exceed the Salary Deferral Contribution made by the
Employer on behalf of the Participant for the Plan Year.
(c) Matching Contributions shall be paid in cash or in the form of shares
of Common Stock, in the sole discretion of the Compensation Committee of the
Company. To the extent that Matching Contributions to be made by Employers other
than the Company are to be made in the form of shares of Common Stock, such
Employers shall transfer the amount of their Matching Contributions to the
Company in cash, and the Company shall transfer the appropriate number of shares
of Common Stock (as determined in accordance with the paragraph (d) below) to
the Trust Fund on such Employers' behalf.
(d) When Matching Contributions are to be made in the form of shares of
Common Stock, the number of shares to be contributed shall be determined (a) by
dividing the amount of the Matching Contribution (expressed as a dollar
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amount) by an amount equivalent to the average of the closing prices of
Common Stock as reported on NASD National Market system (or such other stock
exchange on which the Common Stock is reported) for the two consecutive trading
days immediately preceding the date of the transfer, or (b) pursuant to such
other method as shall be selected by the Committee and communicated to the
Participants.
(e) To the extent that the Employer Contributions are made in cash, they
shall be invested in shares of Common Stock.
7. Effective January 1, 1998, Section 5.5 shall be amended to substitute
the phrase
"$5,000" for the phrase "$3,500" each time it appears.
8. Effective January 1, 1997, Section 6.2(a)(iv) is deleted in its
entirety.
10. Effective January 1, 1997, Section 6.2(e)(iv) is deleted in its
entirety.
11. Effective January 1, 1997, Section 6.2(f) is amended in its entirety to
read as
follows:
(f) "Excess Aggregate Contributions" means, with respect to any Plan Year,
the excess of
(i) the aggregate amount of the Matching Contributions and Participant
Contributions allocated to a Highly Compensated
Employee for a Plan Year, over
(ii) the maximum amount of such contributions that may be allocated to the
Highly Compensated Employee without violating the limitations set forth in
paragraph 6.3.
The maximum amount that may be allocated to a Highly Compensated Employee
shall be determined by ranking the Highly Compensated Employees by the amount of
their aggregate Matching and Participant Contributions (the "Aggregate
Contribution Amount") in descending order and then reducing the Matching
Contributions and Participant Contributions from the Accounts of the Highly
Compensated Employees starting with the Highly Compensated Employee with the
highest Aggregate Contribution Amount to the extent required to: (i) enable the
Plan to satisfy the limitations set forth in paragraph 6.3, or (ii) cause such
Highly Compensated Employee's Aggregate Contribution Amount to equal the
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Aggregate Contribution Amount of the Highly Compensated Employee with the
next highest Aggregate Contribution Amount. This process shall be repeated until
the Plan satisfies the limitations set forth in paragraph 6.3. In no event shall
the amount of Excess Aggregate Contributions exceed the amount of Matching
Contributions and Participant Contributions made on behalf of a Highly
Compensated Employee for a Plan Year.
12. Effective January 1, 1997, Section 6.2(g) is amended in its entirety to
read as
follows:
(g) "Excess Contributions" means, with respect to any Plan Year, the excess
of:
(i) the Salary Deferral Contributions allocated to a Highly Compensated
Employee for a Plan Year, over
(ii) the maximum amount of Salary Deferral Contributions that may be
allocated to the Highly Compensated Employee without violating the limitations
set forth in paragraph 6.3.
The maximum amount that may be allocated to a Highly Compensated Employee
shall be determined by ranking the Highly Compensated Employees by amount of
their Salary Deferral Contributions (the "Salary Deferral Contribution Amount")
in descending order and then reducing the Salary Deferral Contributions from the
Accounts of the Highly Compensated Employees starting with the Highly
Compensated Employee with the highest Salary Deferral Contribution Amount to the
extent required to: (i) enable the Plan to satisfy the limitations set forth in
paragraph 6.3, or (ii) cause such Highly Compensated Employee's Salary Deferral
Contribution Amount to equal the Salary Deferral Contribution Amount of the
Highly Compensated Employee with the next highest Salary Deferral Contribution
Amount. This process shall be repeated until the Plan satisfies the limitations
set forth in paragraph 6.3. In no event shall Excess Contributions exceed the
amount of Salary Deferral Contributions made on behalf of a Highly Compensated
Employee for a Plan Year.
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13. Effective January 1, 1998, Section 6.3 is amended in its entirety to
read as
follows:
6.3 Percentage Limitations on Contributions
Notwithstanding anything in the Plan to the contrary, the Average ADP and
the Average ACP of Participants must each satisfy either the basic limitation or
the alternative limitation set forth below:
(a) Basic Limitation
The Average Percentage for eligible Highly Compensated Employees (those who
are eligible to participate in the Plan under Section 2, whether or not such
Employees elect to have their Basic Compensation reduced) shall not exceed for
the Plan Year the Average Percentage for eligible Non-Highly Compensated
Employees (those who are eligible to participate in the Plan under Section 2,
whether or not such Employees elect to have their Basic Compensation reduced)
for the preceding Plan Year multiplied by 1.25.
(b) Alternative Limitation
The Average Percentage of Highly Compensated Employees who are eligible to
participate in the Plan under Section 2 (whether or not such Employees elect to
have their Basic Compensation reduced) shall not exceed for the Plan Year the
Average Percentage for Non-Highly Compensated Employees who are eligible to
participate in the Plan under Section 2 (whether or not such Employees elect to
have their Basic compensation reduced) for the preceding Plan Year multiplied by
two, provided that the Average Percentage for Highly Compensated Employees for
the Plan Year does not exceed the Average Percentage for Non-Highly Compensated
Employees for the preceding Plan Year by more than two percentage points.
(c) Multiple Use Limitation
If both the average actual deferral percentage test and the average
contribution percentage test do not satisfy the basic limitation set forth in
paragraph (a)
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<PAGE>
of this paragraph 6.3 and one or more Highly Compensated Employees are
eligible to have Salary Deferral Contributions made on their behalf and to have
Matching Contributions made on their behalf or to make Participant Contributions
to the Plan, then the sum of the Actual Deferral Percentages of Highly
Compensated Employees for the Plan Year shall not exceed the greater of.
(i) The sum of- (A) 1.25 times the greater of the Actual Deferral
Percentages or Contributions Percentages of Non-Highly Compensated Employees for
the preceding Plan Year, plus (B) two percentage points plus the lesser of the
Actual Deferral Percentages or Contribution Percentages of Non-Highly
Compensated Employees for the preceding Plan Year; or
(ii) The sum of (A) 1.25 times the lesser of the Actual Deferral
Percentages or Contribution Percentages of Non-Highly Compensated Employees for
the preceding Plan Year, plus (B) two percentage points plus the greater of the
Actual Deferral Percentages or Contribution Percentages of Non-Highly
Compensated Employees for the preceding Plan Year.
If the multiple use limitation sets forth in this paragraph (c) is
exceeded, the Administrator shall determine the maximum percentage to be used in
place of the calculated percentage for all Highly Compensated Employees that
would reduce either or both the Actual Deferral Percentage or Contribution
Percentage for the Highly Compensated Employees in order that the multiple use
limitation shall be satisfied. Any excess shall be handled in the same manner
that Excess Contributions or Excess Aggregate Contributions are handled.
14. Effective January 1, 1998, Sections 7. 1 (1) and (in) are amended in
their entirety to
read as follows:
(1) No loan shall be made unless the Participant agrees to make loan
payments by payroll deduction in accordance with rules established by the
Committee.
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<PAGE>
(m) Notwithstanding the foregoing, if during the term of a loan a
Participant who has been making loan payments by payroll withholding ceases to
receive periodic compensation payments from an Employer, and if distribution of
the Participant's Account has not begun, the Participant shall make the
remaining loan payments by check or an automatic payment method which the
Committee (in its sole discretion) determines provides security comparable to
that of payroll withholding. If a Participant who has been making loan payments
by a method described above begins receiving periodic compensation payments from
an Employer, the Participant shall authorize payroll withholding for the
remaining loan payments.
15. Effective January 1, 1999, Section 7. 1 (p) is amended in its entirety
to read as
follows:
(p) In the event a loan is to be made to a Participant in accordance with
this Section 7. 1, a loan subaccount shall be established as an investment of
the Participant under each Account used to fund the loan. The Accounts used to
fund the loan, and the order in which Accounts are used to fund the loan, shall
be determined in accordance with uniform and nondiscriminatory procedures
adopted by the Committee and modified by it from time to time.
16. Effective January 1, 1998, Section 8.1 is amended by substituting the
phrase
"$5,000" for the phrase "$3,500" each time it appears.
17. Effective January 1, 1998, Section 8.4 is amended by substituting the
phrase
"$5,000" for the phrase "$3,500" each time it appears.
18. Effective January 1, 1999, a new Section 8.4A is added directly after
Section 8.4
to read as follows:
8.4A Form of Lump Sum Distribution
(a) Cash. With respect to any portion of a Participant's Account that is
not invested in Common Stock, any lump sum distribution from such portion of the
Account shall be made in the form of a single lump sum payment of cash (or its
F-116
<PAGE>
equivalent) equal to the vested balance credited to such portion of the
Account as of the relevant Valuation Date.
(b) Common Stock - Any lump sum distribution from such portion of a
Participant's Account that is invested in Common Stock as of the Valuation Date
shall be made in the form of a single lump sum payment of such whole number of
shares of Common Stock as is equivalent to the full value of the shares of
Common Stock then credited to such portion of the Account.
(c) Fractional Shares. If shares of Common Stock are to be distributed,
only full shares shall be distributed and cash (or its equivalent) shall be
distributed in lieu. of any fractional share.
19. Effective January 1, 1998, the second sentence of Section 8.6(a) is
amended in its
entirety to read as follows.
A Participant's benefits shall commence no later than April I of the
calendar year in which the Participant attains age 70!/2 or terminates his or
her employment with all Employers (whichever is later), provided however, that
the benefits of a Participant who is a 5% owner shall commence no later than
April I of the calendar year in which the Participant attains age 70 1/2.
20. Effective January 1, 1998, Section 8.8 is amended by substituting the
phrase
"$5,000" for the phrase "$3,500" each time it appears.
21. Effective January 1, 1998, Section 9.5 is amended by substituting the
phrase
"$5,000" for the phrase "$3,500" each time it appears.
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<PAGE>
22. Effective October 13, 1996, a new Section 14. 10 is added to the Plan
to read as
follows:
14. 10 Military Duty
Notwithstanding any provision of this Plan to the contrary, contributions,
benefits and service credit with respect to qualified military service will be
provided in accordance with section 414(u) of the Code. Loan repayments will be
suspended under this Plan as permitted under section 414(u)(4) of the Code.
20. Effective January 1, 1996, Appendix A is amended by substituting the
phrase
"Logistics Service (U.S.A.) Co., Inc. (effective January 1, 1996)" for the
phrase "Logistics
Service (U.S.A.) Co., Inc."
IN WITNESS WHEREOF, FRITZ COMPANIES, INC., by its duly authorized officer,
has executed this Amendment No. 3 on the date indicated below.
FRITZ COMPANIES, INC.
Dated: May 12, 1998 By/s/ Jan H. Raymond
Title:Sr. V. P.
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<PAGE>
<TABLE>
<S> <C>
EXHIBIT 21.1
DOMESTIC STATE OF INCORPORATION
FAF Domestic Air Freight Services California
FNC International, Inc California
Fritz International Insurance Broker California
Fritz Transportation International California
Fritz Government Services, Inc. California
Arthur J. Fritz & Co. Delaware
Fritz Companies, Inc Delaware
Frontier Freight Forwarders, Inc. Florida
Unlimited National, Inc Illinois
Unlimited Warehousing, Inc Illinois
Logistics Service (U.S.A.) Co. Inc. New Jersey
Trade Management Services New Jersey
Wall Shipping Co., Inc New Jersey
FCI Logistics, Inc. Oklahoma
Air Compak International, Inc. Pennsylvania
Fritz Air Freight, Inc. Texas
Fritz Export Packing, Inc. Texas
Russian Gateway Holding Company, Inc. Delaware
TG International, Inc. Texas
F-119
<PAGE>
EUROPE COUNTRY OF INCORPORATION
Fritz Companies (Austria) GmbH Austria
Fritz Companies Belgium N.V. Belgium
Fritz Companies (Czech) S.R.O. Czech Republic
Oy Nielsen Global Freight AB Finland
Fritz Companies France S.A. France
Fritz Companies (Deutschland) GmbH Germany
Fritz Companies Hungaria Kft. Hungary
Fritz Companies (Ireland) Limited Ireland
Fritz Global Technologies Limited Ireland
Fritz Companies C.B. Ltd. Israel
Fritz Companies Israel T. Ltd. Israel
Fritz Companies (Italy) S.R.L. Italy
Globe Financial S.A. Luxembourg
Airtex International B.V. Netherlands
FCI Holdings International B.V. Netherlands
Fritz Companies Nederlands B.V. Netherlands
Fritz Companies Norway AS Norway
Fritz Companies Portugal-Transitarios Ld Portugal
Fritz Companies (C.I.S.) Russia
Fritz Companies Sweden AB Sweden
Fritz Companies (Switzerland) AG Switzerland
Fritz International Transport Trade Ltd. Turkey
Fritz Companies Ukraina Ukraine
Fritz Companies (UK) Limited United Kingdom
F-120
<PAGE>
AMERICAS COUNTRY OF INCORPORATION
Fritz De Argentina S.A Argentina
Laugus Cargo S.A. Argentina
Fritz Do Brasil Transportes Internacionais Ltda. Brazil
Fritz Trans-Shoes Agenciamento De Transportes
Nacionais E Internacionais, Ltda Brazil
Fritz Express Logistica Integrada Transportes
Nacionais E Internacionais, Ltda Brazil
Air Compak International (Canada) Inc. Canada
Amstel Inc. Canada(Federal)
Denpha Customs Brokers Inc. Canada(Federal)
243393 Ontario Limited Canada(Ontario)
Fritz Companies Canada Inc. Canada (N.B.)
Fritz Starber Inc. Canada(Ontario)
Secomat Inc. Canada (Quebec)
Fritz Chile S.A. Chile
Fritz de Colombia Ltda. Colombia
Fritz Internacional S.A. Costa Rica
Fritz De Santo Domingo S.A. Dominican Rep.
Transportadora Maritima De Carga S.A. Dominican Rep.
Fritz El Salvador S.A. de C.V. El Salvador
Fritz Guatemala S.A. Guatemala
FCI Companies De Mexico S.A. de C.V. Mexico
Fritz Companies de Mexico S.A. de C.V. Mexico
Trade and Service I.D.M. S.A. de C.V. Mexico
Fritz Companies (Panama) Inc. Panama
Fritz Container Line Inc. Panama
Mirabel International Transport S.A. Panama
Fritz del Peru S.A. Peru
Fritz Companies Peru S.A Peru
Fritz Companies Puerto Rico, Inc. Puerto Rico
Fritz Almacenes Generales C.A. Venezuela
Fritz Customs Brokers S.A Venezuela
Fritz Venezuela S.A. Venezuela
F-121
<PAGE>
ASIA COUNTRY OF INCORPORATION
Fritz Air Freight (Bangladesh) Ltd. Bangladesh
Fritz Ocean Freight (Bangladesh) Ltd. Bangladesh
Amel Express Limited Hong Kong
Fritz Air Freight Beijing (H.K.) Limited Hong Kong
Fritz Air Freight (H.K.) Limited Hong Kong
Fritz Air Freight Shanghai (H.K.) Limited Hong Kong
Fritz China Services (H.K.) Limited Hong Kong
Fritz Companies India (H.K.) Ltd. Hong Kong
Fritz Transportation International (H.K.) Limited Hong Kong
Fritz Transportation International
Xiamen (H.K.) Limited Hong Kong
Intertrans Cargo Services (H.K.) Ltd. Hong Kong
Intertrans Consulting Services Ltd. Hong Kong
Integrated Systems Ltd. Hong Kong
J.F.T. Sea-Air Consolidation, Ltd. Hong Kong
Logistics Air Service Ltd. Hong Kong
Logistics Euro-Freight Ltd. Hong Kong
Logistics Far East Co. Ltd. Hong Kong
Logistics (Holdings) Ltd. Hong Kong
Logistics Services (H.K.) Co. Ltd. Hong Kong
Logistics Terminal Limited Hong Kong
United Great Shipping Ltd. Hong Kong
Fritz Freight Forwarding India Private Ltd. India
P.T. Fritz Ritra International
Transportation Services Indonesia
Fritz Air Freight Korea, Inc. Korea
Fritz Transportation International (Korea) Co. Ltd. Korea
Fritz Logistics Services (M) SDN. BHD. Malaysia
FIT Forwarding SDN. BHD Malaysia
FIT Logistics SDN. BHD Malaysia
Fritz Logistics SDN. BHD. Malaysia
Fritz Transportation International (Malaysia) SDN BHD Malaysia
Fritz Air Freight Nepal (Private) Limited Nepal
Fritz Companies Pakistan (Private) Limited Pakistan
Fritz Logistics Service (Tianjin) Co. Ltd. PRC
Shanghai Outer GAO QIAO Fritz Co., Ltd. PRC
Shenzhen Fritz Warehouse Distribution Service Co., Ltd. PRC
Fritz Logistics Phils., Inc. Philippines
FTI (Philippines) Inc. Philippines
Philippine Logistics Services, Inc. Philippines
FAF-Fritz PTE Ltd. Singapore
Fritz Logistics (s) Pte. Ltd. Singapore
FTI-Fritz PTE Ltd. Singapore
Logistics Transport (s) Pte. Ltd. Singapore
Masters Airfreight Pte. Ltd. Singapore
Fritz Companies Lanka (Private) Limited Sri Lanka
Fritz Transportation International (Private) Limited Sri Lanka
Union Transport (Private) Limited Sri Lanka
Fong Ching Airfreight Co. Ltd./
Fritz Air Freight (Taiwan) Co., Ltd. Taiwan
Fritz Transportation International (Taiwan) Co., Ltd. Taiwan
Logistics Service (Taiwan) Co. Ltd. Taiwan
FAF-Fritz (Thailand) Limited Thailand
Fritz Transportation International (Thailand) Limited Thailand
F-122
<PAGE>
MISCELLANEOUS COUNTRY OF INCORPORATION
Air Compak International
(Australia) Pty. Ltd. Australia
AFA AirFreight Pty. Ltd Australia
Fritz-Fliway Pty. Ltd. Australia
Global Sky Express (Aust.) Pty. Ltd. Australia
Hargrave Edwards, Co. Pty. Ltd. Australia
Intertrans Australia Pty. Ltd. Australia
Mavin (Aust.) Pty. Ltd. Australia
Park Freight International Pty. Ltd. Australia
QAFCO Pty. Ltd. Australia
Specialized Logistics Services Pty. Ltd. Australia
Trade Management Australia Pty. Ltd. Australia
Fritz Companies, Botswana
(Proprietary) Limited Botswana
Intermodal (Botswana) (Proprietary)
Limited Botswana
Fritz Egypt Company W.L.L. Egypt
Fritz (NZ) Limited New Zealand
Fritz Companies South Africa
(Proprietary) Ltd. South Africa
</TABLE>
F-123
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Fritz Companies, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-78472), (No. 33-57238), (No. 33-93070), (No. 333-15921) and (No. 333-07639)
on Forms S-8 and (No. 33-70674) on Form S-4 of Fritz Companies, Inc. of our
report dated June 28, 1999 relating to the consolidated balance sheets of Fritz
Companies, Inc. and subsidiaries as of May 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended May
31, 1999, and the related schedule, which report appears in the May 31, 1999
annual report on Form 10-K of Fritz Companies, Inc.
KPMG LLP
San Francisco, California
July 22, 1999
F-124
<PAGE>
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 50,599
<SECURITIES> 0
<RECEIVABLES> 417,106
<ALLOWANCES> 20,466
<INVENTORY> 0
<CURRENT-ASSETS> 481,560
<PP&E> 200,162
<DEPRECIATION> 96,627
<TOTAL-ASSETS> 726,908
<CURRENT-LIABILITIES> 362,949
<BONDS> 0
0
0
<COMMON> 364
<OTHER-SE> 263,718
<TOTAL-LIABILITY-AND-EQUITY> 726,908
<SALES> 0
<TOTAL-REVENUES> 1,387,727
<CGS> 0
<TOTAL-COSTS> 809,750
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,613
<INCOME-PRETAX> 19,783
<INCOME-TAX> 6,331
<INCOME-CONTINUING> 13,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,452
<EPS-BASIC> .37
<EPS-DILUTED> .37
</TABLE>
