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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-27754
__________________
HUB GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-4007085
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
377 E. Butterfield Road, Suite 700
Lombard, Illinois 60148
(Address and zip code of principal executive offices)
(630) 271-3600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A 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. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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]
The aggregate market value of the Registrant's voting stock held by non-
affiliates on March 6, 1997, based upon the last reported sale price on that
date on the Nasdaq National Market of $27 3/4 per share, was $145,314,262.
On March 17, 1997, the Registrant had 5,262,750 outstanding shares of Class A
common stock, par value $.01 per share, and 662,296 outstanding shares of Class
B common stock, par value $.01 per share.
Documents Incorporated by Reference
The Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on May 14, 1997, (the "Proxy Statement") is incorporated
by reference in Part III of this Form 10-K to the extent stated herein. Except
with respect to information specifically incorporated by reference in this Form
10-K, the Proxy Statement is not deemed to be filed as a part hereof.
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PART I
Item 1. BUSINESS
General
Hub Group, Inc. ("Hub Group" or the "Company") is a Delaware
corporation which was incorporated on March 8, 1995. Since its founding as an
intermodal marketing company ("IMC") in 1971, the Company has become a full
service transportation provider. As the largest IMC in the United States, Hub
Group, acting as agent, arranges for the movement of its customers' freight in
containers and trailers over long distances. In addition, Hub Group arranges
for the transportation of freight by truck where intermodal transportation is
not available or economical and performs comprehensive logistics services.
The Company operates through an extensive nationwide network of 34
offices or "Hubs." Each Hub is strategically located in a market that has a
significant concentration of shipping customers and one or more railheads. Each
Hub functions essentially as a stand alone business managed locally by an
executive, known as a "Principal," with significant transportation
experienceand, with the exception of Hub Chicago (defined below), Hub Tennessee
(defined below), Hub North Central (defined below) and Hub City New Orleans,
L.P., an equity ownership interest in that Hub. Local management is responsible
for operations, customer service and regional marketing, while corporate
management is responsible for group strategic planning and administration,
financial services, relationships with the railroads, management of the
Company's logistics services business and management information systems
support. Hub Group also maintains a National Accounts sales force to provide
centralized marketing of the Company's services to large and geographically
diversified shippers.
On March 18, 1996, Hub Group purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition. Concurrent with the acquisition of
Hub Chicago, Hub Group completed the initial public offering of 4,261,250 shares
of its Class A common stock (the "Class A Common Stock"), with net proceeds to
Hub Group of $52.9 million. Simultaneously with the initial public offering,
Hub Group, through its new wholly owned subsidiary, Hub Chicago, acquired with
cash the general partnership interests in 26 operating partnerships, each with
one or more offices. In addition, Hub Group directly acquired with cash a
controlling interest in the Hub Group Distribution Services partnership ("Hub
Distribution") which performs certain specialized logistics functions (each of
the 26 operating partnerships and Hub Distribution are a "Hub Partnership" and
collectively are the "Hub Partnerships"). With the exception of Hub
Distribution, the Company has the continuing option, exercisable any time after
the Principal currently associated with a Hub Partnership ceases to be an
employee, to purchase the limited partnership interest in that Hub Partnership.
The decision as to whether or when to exercise an option to acquire the limited
partnership interest in a Hub Partnership will be made by the independent
members of the Company's Board of Directors. Unless the context otherwise
requires, references to "Hub Group" or the "Company" include Hub Chicago, the
Hub Partnerships and their respective subsidiaries.
In addition to the acquisitions made in connection with the initial
public offering, the Company made the following strategic investments in 1996.
In April 1996, the Company's newly formed joint venture with Norton Lilly
International Inc. ("Norton Lilly"), a large steamship agent, began operations.
The joint venture facilitates international shipments of freight originating in
or destined for the United States. The North American intermodal freight
movements arranged by the joint venture are handled by the Hub network. Norton
Lilly is responsible for arranging steamship passage and local transportation in
foreign countries. On May 2, 1996, the Company acquired the domestic
intermodal marketing business of American President Lines Domestic Distribution
Services ("APLDDS") from American President Companies, Ltd. ("APC"). As a
result of the APLDDS acquisition, the Company acquired the right to service
APLDDS customers, but did not assume any assets or liabilities associated with
that business. The Company hired 36 experienced intermodal personnel from the
APLDDS organization. On August 1, 1996, the Company purchased the remaining 70%
minority interest in one of the Hub Partnerships, Hub City Tennessee, L.P. ("Hub
Tennessee"). On December 12, 1996, the Company purchased the remaining 70%
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minority interest in another Hub Partnership, Hub City North Central, L.P. ("Hub
North Central").
Services Provided
The Company's transportation services can be broadly placed into the
following categories:
Intermodal As part of its intermodal services, the Company contracts
with railroads to provide transportation over the long-haul portion of the
shipment and, when not providing the services itself, contracts with drayage
companies for local pickup and delivery. The Company also negotiates rail and
drayage rates, electronically tracks shipments in transit, consolidates billing
and handles claims for freight loss or damage on behalf of its customers. The
Company uses its Hub network, connected through its proprietary advanced
intermodal management ("AIM") system, to access containers and trailers owned by
leasing companies, railroads and steamship lines. Because each Hub not only
handles its own outbound shipments but also handles inbound shipments from other
Hubs, each Hub is able to track trailers and containers entering its service
area and use that equipment to fulfill its customers' outbound shipping
requirements. This effectively allows the Company to "capture" containers and
trailers and keep them within the Hub network without having to make a capital
investment in transportation equipment.
The Company's ability to deliver its intermodal customers' freight on
time depends on the quality and service provided by the drayage companies with
which it does business. Due to the size of these drayage companies and their
limited access to capital for expansion, the Company's future growth will depend
in part on its ability to identify additional local drayage capacity to service
the Company's customers. In some locations, drayage service is limited or
customers require an enhanced level of service which cannot be competitively
accommodated by a third-party provider. In these locations, the Company has
begun to supplement third party drayage operations with company-owned tractors
to service portions of the Company's intermodal business. See Item 7
Management's Discussion and Analysis - Liquidity and Capital Resources.
Brokerage The Company arranges for the transportation of freight by
truck, providing customers another option for their transportation needs. This
is accomplished by matching customers' needs with carriers' capacity to provide
the best service and price combination. The Company has contracts with a
substantial base of carriers allowing it to meet the varied needs of its
customers. The Company negotiates rates, tracks shipments in transit,
consolidates billing and handles claims for freight loss and damage on behalf of
its customers. The Company's brokerage operation also provides customers with
specialized programs. Through the Dedicated Trucking program, certain carriers
agree to move freight for Hub's customers on a continuous basis. This
arrangement allows Hub to gain control of the trucking equipment to effectively
meet its customer's needs without owning the equipment. Through the Managed
Carrier program, Hub assumes the responsibility for all truckloads the
customer's core carriers cannot handle. This program is tailored to each
customer, and provides the customer with increased control and improved service
due to Hub's resources and expertise.
Logistics The Company has expanded its service capabilities as
customers increasingly outsource their logistics needs. Logistics functions
currently offered include comprehensive transportation management, arranging for
delivery to multiple locations at the shipment's destination, third party
warehousing and other customized logistics services, as well as other non-
traditional logistics services such as installation of point of sale merchandise
displays.
The Company operates its comprehensive transportation management
business from its corporate headquarters in Lombard, Illinois. From this
central location, the Company's Hub Logistics division provides complete
transportation services, essentially replacing the customer's transportation
department. Once the Company is hired as a single source logistics provider,
Hub Logistics negotiates with intermodal, railcar, truckload and less-than-
truckload carriers to move the customer's product through the supply chain and
then dispatches the move for the customer. Using its advanced transportation
management software, Hub Logistics consolidates orders into full truckload
shipments, chooses a shipping route, electronically tenders loads to carriers
and reports the move to the customer.
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Hub Network
Over the past 25 years, Hub Group has grown from a single office with
two employees into a network of 32 Hubs in the United States, one Hub in Canada
and one Hub in Mexico. Hub Group also has several satellite sales offices. In
developing this network, the Company has carefully selected each location to
ensure coverage in areas with significant concentrations of shipping customers
and one or more railheads. Hub Group currently has Hubs in the following cities:
Atlanta Grand Rapids Milwaukee Rochester
Baltimore Houston Minneapolis St. Louis
Birmingham Indianapolis New Haven Salt Lake City
Boston Jacksonville New Orleans San Antonio
Chicago(3) Kansas City New York City San Francisco
Cleveland Los Angeles Philadelphia Seattle
Dallas Memphis Pittsburgh Toledo
Detroit Mexico City Portland Toronto
The entire Hub network is interactively connected through the Company's AIM
system. This enables Hub Group to move freight into and out of every major city
in the United States and most locations in Canada and Mexico.
Each Hub manages the freight originating in or destined for its
service area. In a typical intermodal transaction, the customer contacts the
local Hub to obtain shipping schedules and a price quote for a particular
freight movement. The local Hub obtains the necessary intermodal equipment,
arranges for it to be delivered to the customer by a drayage company and, after
the freight is loaded, arranges for the transportation of the container or
trailer to the rail ramp. Information is entered into the AIM system by the
local Hub, which monitors the shipment to ensure that it will arrive as
scheduled. This information is simultaneously transmitted through the AIM system
to the Hub closest to the point of delivery, which arranges for and confirms
delivery by a drayage company. This arrangement among the Hubs is transparent
to the customer and allows the customer to maintain its relationship solely with
the originating Hub.
The Company provides brokerage services to its customers in a similar
manner. In a typical brokerage transaction, the customer contacts the local Hub
to obtain transit information and a price quote for a particular freight
movement. The customer then provides appropriate shipping information to the
local Hub. The local Hub makes the delivery appointment and arranges with the
appropriate carrier to pick up the freight. Once it receives confirmation that
the freight has been picked up, the local Hub monitors the movement of the
freight until it reaches its destination and the delivery has been confirmed. If
the carrier notifies Hub Group that after delivering the load it will need
additional freight, the Hub located nearest the destination is notified
electronically of the carrier's availability. The ability of Hub to provide
reloads for carriers reduces the risk that the carrier will return empty.
Marketing and Customers
The Company believes that fostering long-term customer relationships
is critical to the Company's success. Through these long-term relationships, the
Company is able to better understand its customer's needs and to tailor
transportation services for a specific customer, regardless of the customer's
size or volume. The Company has created a database of current and prospective
customers, profiling each customer's shipping patterns, which the Company
periodically updates. This database allows the Company to target its marketing
to meet each customer's specific requirements.
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The Company currently has full time marketing representatives at each
Hub with primary responsibility for servicing local and regional accounts. These
sales representatives work from the 34 Hubs and the Company's satellite sales
offices. This network provides a local marketing contact for small and medium
shippers in most major metropolitan areas within the United States.
In 1985, the Company organized National Accounts to service the needs
of the nation's largest shippers. The Company recognized that although large
shippers originate freight from multiple locations throughout the country, their
logistics function is usually centralized. The Company essentially mirrored this
structure by servicing national accounts from a central location and parceling
out the servicing of individual freight shipments to the appropriate Hub. The
are currently 16 National Accounts sales representatives who report to the
Company's Executive Vice President of National Accounts. The National Accounts
sales representatives regularly call on the nation's largest shippers to develop
business relationships and to expand the Company's participation in servicing
their transportation needs. When a business opportunity is identified by a
National Accounts sales representative, the Company's market development and
pricing personnel and the local Hubs work together to provide a transportation
solution tailored to the customer's needs. Local Hubs provide transportation
services to National Accounts customers. After the plan is implemented, National
Accounts' personnel maintain regular contact with the shipper to ensure customer
satisfaction and to refine the process as necessary.
This unique combination of local and regional marketing has produced a
large, diverse customer base. The Company services customers in a wide variety
of industries, including consumer products, printing, paper, retail, chemicals
and electronics.
Management Information System
A primary component of the Company's business strategy is the
continued improvement of its AIM system and other technology to ensure that the
Company will remain a leader among transportation providers in information
processing for intermodal transportation. The AIM system consists of a network
of IBM AS/400 computers located at the Hubs and linked to a host computer at the
Company's headquarters. Hub Group uses IBM's Global Network as the nucleus for
linking its computers and databases. This configuration provides a real time
environment for transmitting data among the Hubs and the Company's headquarters
using electronic data interchange ("EDI"), electronic mail and other protocols.
It also allows Hub to communicate electronically with each railroad, certain
drayage companies and those customers with EDI capabilities.
The Company's proprietary AIM system is the primary mechanism used by
the Hubs to process customer transportation requests, schedule and track
shipments, prepare customer billing, establish account profiles and retain
critical information for analysis. The AIM system provides mainframe-to-
mainframe connectivity with each of the major rail carriers, enabling the
Company to electronically schedule and track shipments in a real time
environment. In addition, the AIM system's EDI features offer customers with EDI
capability a completely paperless process, including load tendering, shipment
dispatch, shipment tracking, customer billing and remittance processing. The
Company aggressively pursues opportunities to establish EDI interfaces with its
customers and carriers.
Relationship with Railroads
A key element of the Company's business strategy is to strengthen its
close working relationship with each of the major intermodal railroads in the
United States. The Company views its relationship with the railroads as a
partnership. Due to the Company's size and relative importance, many railroads
have dedicated support personnel to focus on the Company's day-to-day service
requirements. On a semi-annual basis, senior executives of the Company and each
of the railroads meet to discuss major strategic issues concerning intermodal
transportation. Several of the Company's executive officers, including both the
Company's Chairman and President, are former railroad employees, which makes
them well-suited to understand the railroads' service capabilities.
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The Company has contracts with each of the following railroads:
Atchison, Topeka & Santa Fe Illinois Central
Burlington Northern Kansas City Southern
Canadian Pacific Norfolk Southern
Conrail Southern Pacific
CSX Union Pacific
These contracts govern the transportation services and payment terms
pursuant to which the Company's intermodal shipments are handled by the
railroads. The contracts have staggered renewal terms with the earliest
expiration at the end of June 1997. While there can be no assurances that these
contracts will be renewed, the Company has in the past successfully negotiated
extensions of the contracts with the railroads. Transportation rates are market
driven and are typically negotiated between the Company and the railroads on a
customer specific basis. Consistent with industry practice, many of the rates
negotiated by the Company are special commodity quotations ("SCQs"), which
provide discounts from published price lists based on competitive market factors
and are designed by the railroads to attract new business or to retain existing
business. SCQ rates are generally issued for the account of a single IMC. SCQ
rates apply to specific customers in specified shipping lanes for a specific
period of time, usually six to 12 months.
Relationship with Drayage Companies
In 1990, the Company instituted its "Quality Drayage Program," which
consists of agreements and rules that govern the framework pursuant to which the
drayage companies perform services for the Company. Participants in the program
commit to provide high quality service, clean and safe equipment, maintain a
certain on-time performance level and follow specified procedures designed to
minimize freight loss and damage. Whenever possible, the Company uses the
services of drayage companies that participate in its Quality Drayage Program.
However, during periods of high demand for drayage services or at the request of
a customer, the Company will use the services of other drayage companies. The
local Hubs negotiate drayage rates for transportation between specific origin
and destination points. These rates generally are valid, with minor exceptions
for fuel surcharge increases, for a period of one year.
Relationship with Truckload Carriers
The Company's brokerage operation has a large and growing number of
active carriers in its database which it uses to transport freight. The local
Hubs deal daily with these carriers on an operational level. Hub Highway
Services handles the administrative and regulatory aspects of the carrier
relationship. Hub views its relationships with its carriers as important since
these relationships determine pricing, load coverage and overall service.
Risk Management and Insurance
The Company requires all drayage companies participating in the
Quality Drayage Program to carry at least $1.0 million in general liability
insurance and $1.0 million in cargo insurance. Railroads, which are self
insured, provide limited common carrier liability protection, generally up to
$250,000 per shipment, although higher coverage is available on a load-by-load
basis. To cover freight damage when a carrier's liability cannot be established
or a carrier's insurance is insufficient to cover freight loss or damage, the
Company carries its own $1.5 million cargo insurance and $2.0 million general
liability insurance. The Company also carries a companion $10.0 million umbrella
policy on its general liability insurance.
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Government Regulation
Hub Highway Services, a partnership controlled by the Company, is
licensed by the Department of Transportation ("DOT") as a broker in arranging
for the transportation of general commodities by motor vehicle. To the extent
that the Hubs perform truck brokerage services, they do so under the license
granted to Hub Highway Services. The DOT prescribes qualifications for acting in
this capacity, including certain surety bonding requirements. While the DOT
requires a $10,000 surety bond to maintain this license, the Company has
voluntarily posted a $100,000 surety bond. To date, compliance with these
regulations has not had a material adverse effect on the Company's results of
operations or financial condition. However, the transportation industry is
subject to legislative or regulatory changes that can affect the economics of
the industry by requiring changes in operating practices or influencing the
demand for, and cost of providing, transportation services.
Competition
The transportation services industry is highly competitive. The
Company competes against other IMCs, as well as logistics companies, third party
brokers and railroads that market their own intermodal services. In addition,
there is an emerging trend for larger truckload carriers to enter into
agreements with railroads to market intermodal services nationwide. Competition
is based primarily on freight rates, quality of service, reliability, transit
time and scope of operations. Several transportation service companies and
truckload carriers, and all of the major railroads, have substantially greater
financial and other resources than the Company.
General
Employees As of February 28, 1997, the Company had approximately
1,050 employees. The Company is not a party to any collective bargaining
agreement and considers its relationship with its employees to be satisfactory.
Other No material portion of the Company's operations is subject to
renegotiation of profits or termination of contracts at the election of the
federal government. The Company has not spent a material amount on company
sponsored research and development activities or on customer sponsored research
activities. None of the Company's patents and trademarks is believed to be
material to the Company. The Company's business is seasonal to the extent that
certain customer groups, such as retail, are seasonal.
Item 2. PROPERTIES
The Company directly, or indirectly through the Hub Partnerships,
operates 40 offices throughout the United States and in Canada and Mexico,
including the Company's headquarters in Lombard, Illinois, its National Accounts
office in Stamford, Connecticut, four National Accounts sales offices, Hub
Logistics offices in Lombard and Stamford and Hub Distribution's office. The
office buildings used by the Hubs located in Milwaukee, Toledo, Detroit and
Kansas City are owned, and the remainder are leased. The office building in
Kansas City is subject to a mortgage. Most office leases have initial terms of
more than one year, and many 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 that it will have difficulty in renewing them or in
finding alternative office space. The Company believes that its offices are
adequate for the purposes for which they are currently used.
Item 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incident to its business,
primarily claims for freight lost or damaged in transit or improperly shipped.
Most of the lawsuits to which the Company is party are covered by
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insurance and are being defended by the Company's insurance carriers. Management
does not believe that the litigation to which it is currently a party, if
determined adversely to the Company, would individually or in the aggregate have
a materially adverse effect on the Company's financial position or results of
operations. See Item 1 Business - Risk Management and Insurance.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of 1996.
Executive Officers of the Registrant
In reliance on General Instruction G to Form 10-K, information on
executive officers of the Registrant is included in this Part I. The table sets
forth certain information as of March 20, 1997 with respect to each person who
is an executive officer of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- --- ----------------------------------------------------
<S> <C> <C>
Phillip C. Yeager 69 Chairman of the Board of Directors
David P. Yeager 44 Vice Chairman of the Board of Directors and Chief
Executive Officer
Thomas L. Hardin 51 President, Chief Operating Officer and Director
William L. Crowder 54 Vice President--Finance, Chief Financial Officer
and Treasurer
Daniel F. Hardman 48 President--Chicago Region
Mark A. Yeager 32 Vice President, Secretary and General Counsel
John T. Donnell 57 Executive Vice President--Marketing
Robert L. Maro 44 Vice President--Information Services
Robert J. Jensen 42 President--Hub Group Operations Management
</TABLE>
Phillip C. Yeager, the Company's founder, has been Chairman of the
Board since October 1985. From April 1971 to October 1985, Mr. Yeager served as
President of Hub Chicago. Mr. Yeager became involved in intermodal
transportation in 1959, five years after the introduction of intermodal
transportation in the United States, as an employee of the Pennsylvania and
Pennsylvania Central Railroads. He spent 19 years with the Pennsylvania and
Pennsylvania Central Railroads, 12 of which involved intermodal transportation.
In 1991, Mr. Yeager was named the Man of the Year by the Intermodal
Transportation Association. In 1995, he received the Salzburg Practitioners
Award from Syracuse University in recognition of his lifetime achievements in
the transportation industry. In October 1996, Mr. Yeager was inducted into the
Chicago Area Entrepreneurship Hall of Fame sponsored by the University of
Illinois at Chicago. In March 1997, he received the Presidential Medal from
Dowling College for his achievements in transportation services. Mr. Yeager
graduated from the University of Cincinnati in 1951 with a Bachelor of Arts
degree in Economics. Mr. Yeager is the father of David P. Yeager and Mark A.
Yeager and the father-in-law of Robert J. Jensen.
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David P. Yeager has served as the Company's Vice Chairman of the Board
since January 1992 and as Chief Executive Officer of the Company since March
1995. From October 1985 through December 1991, Mr. Yeager was President of Hub
Chicago. From 1983 to October 1985, he served as Vice President, Marketing of
Hub Chicago. Mr. Yeager founded the St. Louis Hub in 1980 and served as its
President from 1980 to 1983. Mr. Yeager founded the Pittsburgh Hub in 1975 and
served as its President from 1975 to 1977. Mr. Yeager received a Masters in
Business Administration degree from the University of Chicago in 1987 and a
Bachelor of Arts degree from the University of Dayton in 1975. Mr. Yeager is the
son of Phillip C. Yeager, the brother of Mark A. Yeager and the brother-in-law
of Robert J. Jensen.
Thomas L. Hardin has served as the Company's President since October
1985 and has served as Chief Operating Officer and a director of the Company
since March 1995. From January 1980 to September 1985, Mr. Hardin was Vice
President-Operations and from June 1972 to December 1979, he was General Manager
of the Company. Prior to joining the Company, Mr. Hardin worked for the Missouri
Pacific Railroad where he held various marketing and pricing positions. During
1996, Mr. Hardin was Chairman of the Intermodal Association of North America.
William L. Crowder has been the Company's Vice President of Finance
and Chief Financial Officer since April 1994 and Treasurer since July 1996. From
January 1990 through December 1993, Mr. Crowder was Vice President of Finance
and Treasurer of Sears Logistics Services, Inc., a transportation, distribution
and home delivery subsidiary of Sears Roebuck & Company. Mr. Crowder worked at
Sears Roebuck & Company from 1966 through 1989 in various senior financial
management positions. Mr. Crowder received a Bachelors of Business
Administration degree from Georgia State University in 1966.
Daniel F. Hardman has been the President--Chicago Region since
February 1996. Mr. Hardman has been employed by the Hub Group since 1982,
serving as President of Hub Chicago from December 1992 to February 1996, Vice
President of Hub Chicago from January 1987 to December 1992, General Manager of
Sales of Hub Chicago from August 1985 to January 1987, President of Hub
Charlotte from June 1984 to August 1985 and Regional Sales Manager of Hub
Chicago from December 1982 to June 1984. Mr. Hardman is a former Director of the
Intermodal Transportation Association and is presently a member of the Chicago
Traffic Club and the Chicago Intermodal Transportation Association. Mr. Hardman
is a 1991 graduate of the Certificate Program in Business Administration from
the University of Illinois.
Mark A. Yeager has been the Company's Vice President, Secretary and
General Counsel since March 1995. From May 1992 to March 1995, Mr. Yeager served
as the Company's Vice President--Quality. Prior to joining the Company in 1992,
Mr. Yeager was an associate at the law firm of Grippo & Elden from January 1991
through May 1992 and an associate at the law firm of Sidley & Austin from May
1989 through January 1991. Mr. Yeager received a Juris Doctor degree from
Georgetown University in 1989 and a Bachelor of Arts degree from Indiana
University in 1986. Mr. Yeager is the son of Phillip C. Yeager, the brother of
David P. Yeager and the brother-in-law of Robert J. Jensen.
John T. Donnell has been Executive Vice President of Marketing since
October 1993. From October 1985 through October 1993, Mr. Donnell served as Vice
President of National Accounts. Prior to joining the Company in 1985, Mr.
Donnell worked for Transamerica Leasing as Vice President of Marketing where he
was responsible for marketing 40,000 intermodal trailers to the railroads and
the intermodal marketing industry. Mr. Donnell received a Master of Business
Administration degree from Northwestern University in 1981 and a Bachelor of
Science degree in Marketing from Northeast Louisiana University in 1961.
Robert L. Maro has been Vice President of Information Services since
November 1991. From January 1978 through November 1991, Mr. Maro worked as
Director of Operations for Zink & Katich, an information technology consulting
firm that provided consulting services to the Company. Mr. Maro received a
Bachelor of Science degree in Mathematics from Chicago State University in 1974.
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Robert J. Jensen has been President of Hub Group Operations Management
since July 1991. He served as President of Hub St. Louis from July 1985 through
July 1991 and as General Manager of Hub St. Louis from October 1980 through July
1985. Mr. Jensen received a Bachelor of Science degree in Finance from the
University of Illinois in 1977. Mr. Jensen is the son-in-law of Phillip C.
Yeager and the brother-in-law of both David P. Yeager and Mark A. Yeager.
PART II
Item 5. MARKETS FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Class A Common Stock of the Company trades on the Nasdaq National
Market tier of The Nasdaq Stock Market ("Nasdaq") under the symbol "HUBG." The
Class A Common Stock was first traded on Nasdaq on March 13, 1996, concurrent
with the underwritten initial public offering of the Company's Class A Common
Stock at an initial price to the public of $14.00 per share (the "Offering").
Prior to the Offering, there was no established public trading market for the
Class A Common Stock. Set forth below are the high and low prices for shares of
the Class A Common Stock of the Company in 1996 from March 13, 1996, the date of
the Offering, through the end of the first quarter of 1996 and for each full
quarterly period thereafter in 1996.
<TABLE>
<CAPTION>
1996
--------
High Low
---- ---
<S> <C> <C>
First Quarter (From March 13, 1996) $19 $14
Second Quarter 24 1/4 17 5/8
Third Quarter 22 5/8 16
Fourth Quarter 27 1/2 21 1/4
</TABLE>
On March 24, 1997, there were approximately 41 stockholders of
record of the Class A Common Stock and, in addition, there were an estimated
3,325 beneficial owners of the Class A Common Stock whose shares were held by
brokers and other fiduciary institutions. On March 24, 1997, there were nine
holders of record of the Company's Class B common stock (the "Class B Common
Stock" together with the Class A Common Stock, the "Common Stock").
The Company was incorporated in 1995 and has never paid cash dividends
on either the Class A Common Stock or the Class B Common Stock. The declaration
and payment of dividends by the Company are subject to the discretion of the
Board of Directors. Any determination as to the payment of dividends will depend
upon the results of operations, capital requirements and financial condition of
the Company, and such other factors as the Board of Directors may deem relevant.
Accordingly, there can be no assurance that the Board of Directors will declare
or pay dividends on the shares of Common Stock in the future. The certificate of
incorporation of the Company requires that any cash dividends must be paid
equally on each outstanding share of Class A Common Stock and Class B Common
Stock.
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<PAGE>
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data
(in thousands except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1992 1993 1994 1995 1996(1)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $64,446 $73,123 $86,876 $81,408 $754,243
Purchased transportation 59,360 67,985 80,588 75,142 662,679
----------------------------------------------------
Net revenue 5,086 5,138 6,288 6,266 91,564
Costs and expenses 3,007 3,295 3,940 3,699 63,639
----------------------------------------------------
Operating income 2,079 1,843 2,348 2,567 27,925
Other income (expense) 96 96 58 71 (221)
----------------------------------------------------
Income before minority interest and taxes 2,175 1,939 2,406 2,638 27,704
Minority interest -- -- -- -- 16,366
----------------------------------------------------
Income before taxes 2,175 1,939 2,406 2,638 11,338
Income taxes 29 32 37 39 4,294
----------------------------------------------------
Net income (as reported) 2,146 1,907 2,369 2,599 7,044
----------------------------------------------------
Pro forma provision for additional income taxes(2) 841 744 925 1,016 241
----------------------------------------------------
Pro forma net income $ 1,305 $ 1,163 $ 1,444 $ 1,583 $ 6,803
----------------------------------------------------
Pro forma earnings per share $ 0.79 $ 0.70 $ 0.87 $ 0.95 $ 1.35
----------------------------------------------------
Pro forma weighted average shares outstanding 1,662 1,662 1,662 1,662 5,058
----------------------------------------------------
As of December 31,
----------------------------------------------------
1992 1993 1994 1995 1996(1)
----------------------------------------------------
Balance Sheet Data:
Working capital $ 110 $ 1,125 $ 1,457 $ 804 $ 15,877
Total assets 7,239 9,511 10,360 9,083 201,225
Long-term debt, excluding current portion -- -- -- -- 28,714
Stockholders' equity 576 1,553 1,769 1,165 46,124
</TABLE>
(1) On March 18, 1996, Hub Group, Inc. purchased Hub City Terminals, Inc. ("Hub
Chicago") in a stock-for-stock acquisition through the issuance of 1,000,000
shares of the Company's Class A common stock and 662,296 shares of the Company's
Class B common stock. Hub Chicago has been accounted for similar to the pooling
of interests method of accounting and has been included in all periods presented
on a historical cost basis. Concurrent with the acquisition of Hub Chicago, the
Company completed the initial public offering of 4,261,250 shares of its Class A
common stock, with net proceeds to the Company of approximately $52,945,000.
Coincident with the initial public offering, a selling stockholder sold
1,000,000 shares of the Company's Class A common stock through a secondary
offering. The Company did not receive any net proceeds from the sale of the
shares by the selling stockholder. Concurrent with the initial public offering,
the Company acquired with cash a controlling interest in each of 27 operating
partnerships. On May 2, 1996, the Company acquired the rights to service the
customers of American President Lines Domestic Distribution Services. See the
Notes to the Company's Consolidated Financial Statements.
(2) Prior to March 18, 1996, the Company was an S corporation and not subject
to Federal corporate income taxes. On March 18, 1996, the Company changed its
status from an S corporation to a C corporation. The statement of operations
data reflects a pro forma provision for income taxes as if the Company were
subject to Federal and state corporate income taxes for all period presented.
The pro forma provision reflects a combined Federal and state tax rate of 40%.
See the Notes to the Company's Consolidated Financial Statements.
10
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL STRUCTURE
Hub Group, Inc. was incorporated on March 8, 1995. On March 18, 1996,
Hub Group, Inc. purchased Hub City Terminals, Inc. ("Hub Chicago") in a stock-
for stock acquisition through the issuance of 1,000,000 shares of Class A common
stock and 662,296 shares of Class B common stock. Hub Chicago has been
accounted for similar to the pooling of interests method of accounting and has
been included in all periods presented on a historical cost basis.
Concurrent with the acquisition of Hub Chicago in March 1996, Hub Group,
Inc. completed the initial public offering of 4,261,250 shares of its Class A
common stock. Coincident with the initial public offering, a selling
stockholder sold 1,000,000 shares of Hub Group, Inc.'s Class A common stock
through a secondary offering.
BUSINESS COMBINATIONS
Concurrent with the initial public offering, Hub Group, Inc., together
with its wholly owned subsidiary, Hub Chicago, acquired a controlling interest
in each of 27 operating partnerships (collectively referred to as "Hub
Partnerships"). Prior to March 18, 1996, Hub Chicago and Hub Partnerships were
under common control and formed a network that collectively worked with
customers and vendors. On May 2, 1996, Hub Group, Inc. purchased the rights to
service the customers of American President Lines Domestic Distribution Services
("APLDDS"), a division of APL Land Transport Services, Inc, from its parent
American President Companies, Ltd.
The revenue of the acquired businesses is many multiples of the revenue
of Hub Chicago. As a result, consolidated revenue and operating expense for Hub
Group, Inc. and its subsidiaries (the "Company") increased dramatically in the
periods subsequent to March 17, 1996.
As a result of the APLDDS acquisition, the Company acquired the right to
service APLDDS customers, but did not assume any assets or liabilities
associated with that business. Furthermore, the Company hired only 36 of the
more than 200 employees in the APLDDS organization. The APLDDS business was
absorbed directly into the operations of Hub Chicago and Hub Partnerships and
management believes the associated incremental operating costs are significantly
less than the historical operating costs experienced by APLDDS. Management does
not track the incremental purchased transportation and operating costs
attributable to the acquired APLDDS business. Consequently, discussion of
results of operations excluding acquisitions is limited to comparisons of
revenue. Discussion of pro forma financial data reflects results of operations
as if Hub Group, Inc. had acquired Hub Partnerships and APLDDS as of January 1,
1995.
RESULTS OF OPERATIONS
Year Ended December 31, 1996, Compared to Year Ended December 31, 1995
Revenue
Revenue totaled $754.2 million for 1996, representing an increase of
826.5% over 1995. Without the acquisitions, Company revenues totaled $85.2
million for 1996 for an increase of 4.7% over 1995. The minor increase in
revenue without acquisitions is attributed principally to Hub Chicago's loss of
a portion of a significant customer's business. This consumer products
manufacturer moved the production of one of its major products to a facility
which is now being served by one of the operating partnerships that comprise Hub
Partnerships.
Pro forma revenue increased 5.3% to $938.9 million from $891.8 million in
1995. The 1995 pro forma revenue was impacted significantly by the addition of
the revenue reported by APLDDS. The business acquired from APLDDS on May 2,
1996, had been experiencing significant decline during 1995 and the first
quarter of 1996. This decline had a negative influence on the pro forma revenue
growth rate. Despite the declining trend, management believes the Company has
successfully transitioned and retained greater than 90% of the APLDDS business
that existed on May 2, 1996.
11
<PAGE>
Excluding the revenue relating to APLDDS prior to the acquisition on May
2, 1996, Hub Chicago and Hub Partnerships, on a combined basis assuming Hub
Chicago had acquired Hub Partnerships on January 1, 1995, experienced a revenue
increase of 25.7% to $893.2 million in 1996 from $710.8 million in 1995. This
percentage increase is primarily attributable to strong growth in truckload
brokerage and logistics as well as the acquisition of the APLDDS business.
Intermodal revenues, excluding APLDDS from all periods, increased moderately on
a percentage basis.
Net Revenue
Net revenue as a percentage of revenue increased to 12.1% for 1996
compared to 7.7% in 1995. This increase is primarily a reflection of the higher
net revenue as a percentage of revenue that is experienced by Hub Partnerships
as compared to Hub Chicago. Hub Chicago has a larger proportion of high
volume/low margin accounts than does Hub Partnerships.
Pro forma net revenue as a percentage of revenue increased to 11.9% in
1996 from 11.3% in 1995. On a pro forma basis, net revenue as a percentage of
revenue for the APLDDS business was 7.3% and 4.1% for 1995 and the period
January 1, 1996 through May 1, 1996, respectively. Management believes that the
net revenue percentage on the transitioned APLDDS business has improved modestly
over the APLDDS 1995 pro forma net revenue percentage. The lower pro forma
percentages experienced by APLDDS causes the current year percentages to compare
favorably to the prior year percentages. This favorable pro forma comparison is
partially offset by the lower net revenue percentage experienced by the addition
of new logistics customers in late 1995 and early 1996.
Salaries and Benefits
Salaries and benefits increased to $43.9 million in 1996 from $2.5
million in 1995. Pro forma salaries and benefits increased to $55.9 million in
1996 from $50.4 million in 1995. APLDDS was a division of APL Land Transport
Services, Inc. ("APL") and consequently received much of its support services
from APL. In return for these services, APLDDS was assessed a management fee.
This arrangement had the effect of deflating salaries and benefits while
inflating selling, general and administrative expenses. As a result, salaries
and benefits reported by APLDDS in servicing their customers were lower as a
percentage of revenue than traditionally experienced by the Company. For 1995
and the period January 1, 1996 through May 1, 1996, salaries and benefits as a
percentage of revenue for APLDDS were 3.8% and 4.8%, respectively. Pro forma
salaries and benefits as a percentage of revenue increased to 6.0% for 1996 from
5.7% in 1995, which is partially attributed to the historical cost structure of
APLDDS. The Company's investment in additional personnel in 1996 also
contributed to this increase. These additional personnel were hired to handle
additional truckload brokerage and logistics business, to expand the local and
national sales forces and to provide the financial and administrative services
required for continued growth.
Selling, General and Administrative
Selling, general and administrative expenses increased to $17.1 million
in 1996 from $1.2 million in 1995. Pro forma selling, general and
administrative expenses decreased to $23.2 million in 1996 from $29.8 million in
1995. As a percentage of revenue these pro forma expenses were 2.5% in 1996 and
3.3% for 1995. As explained in "Salaries and Benefits," APLDDS received much of
its support services through a management fee arrangement with APL. This caused
the APLDDS historical selling, general and administrative expenses to be a
significantly greater percentage of revenue than the percentage traditionally
experienced by the Company. For 1995 and the period January 1, 1996, through
May 1, 1996, selling, general and administrative expenses as a percentage of
revenue for APLDDS were 7.3% and 6.0%, respectively.
Depreciation and Amortization
Depreciation and amortization expense increased to $2.6 million in 1996
from a negligible amount in 1995. Pro forma depreciation and amortization
increased to $3.3 million in 1996 from $3.1 million in 1995. As a percentage of
revenue, pro forma depreciation and amortization increased to 0.4% in 1996 from
0.3% in 1995.
12
<PAGE>
Other Income (Expense)
Interest expense was $1.0 million in 1996 and zero in 1995. All of the
interest expensed in 1996 was incurred subsequent to March 17, 1996. Pro forma
interest expense increased to $1.3 million in 1996 from $1.2 million in 1995.
There are three primary components of interest expense. First, the
Company assumed or issued $13.2 million of five-year balloon notes in
conjunction with the acquisition of Hub Partnerships in March 1996. These notes
bear interest at an annual rate of 5.45%. Interest expense on these notes began
to decline in the third quarter of 1996 as discretionary payments were made.
Second, in conjunction with the acquisition of APLDDS in May 1996, the Company
issued notes for $6.0 million bearing interest at an annual rate of 6%. There
were no payments made on these notes in 1996. Third, the Company has borrowed
to purchase tractors as it continues its strategy of starting small drayage
operations to service portions of its own business in those areas where it is
needed to enhance customer service (see "Liquidity and Capital Resources"). The
annual rate of interest on these loans is determined at the time each tractor is
purchased at a rate equal to 3% over the two-year Treasury note rate.
Interest income was $0.8 million in 1996 and $0.1 million in 1995. Pro
forma interest income was $0.8 million in 1996 and $0.7 million in 1995.
Minority Interest
Minority interest was $16.4 million in 1996 and zero in 1995. On a pro
forma basis, minority interest was $17.4 million in 1996 and $11.7 million in
1995. Management estimates that 20% of the acquired APLDDS business has accrued
to Hub Chicago. To calculate a pro forma minority interest factor, it was
estimated that the minority interest will accrue its 70% ownership in Hub
Partnerships which operates 80% of the APLDDS business. As such, minority
interest as a percentage of income before minority interest and provision for
income taxes of 56% was applied to pro forma income before minority interest for
APLDDS for 1995 and the period January 1, 1996, through May 1, 1996.
On a pro forma basis, minority interest as a percentage of income before
minority interest and provision for income taxes was 61.0% for 1996 and 69.2%
for 1995. The higher minority interest percentage in 1995 was the result of the
significant loss reported by APLDDS combined with a lower pro forma minority
interest factor that was applied to that loss as compared to the factor applied
to the rest of the Company's income.
The Company owns 100% of Hub Chicago. The Company acquired 30% of 26
operating partnerships and approximately 21% of another operating partnership
(collectively Hub Partnerships). On August 1, 1996, the Company purchased the
remaining 70% of Hub City Tennessee, L.P. ("Hub Tennessee"). On December 12,
1996, the Company purchased the remaining 70% minority interest in Hub City
North Central, L.P. ("Hub North Central").
Income Taxes
Income taxes were $4.3 million in 1996 and negligible in 1995. Other
than an insignificant provision for Illinois replacement tax, the Company had no
provision for income taxes prior to March 18, 1996, as the Company was a
federally non-taxable subchapter S corporation. The Company is providing for
income taxes at an effective rate of 40% for all income subsequent to March 17,
1996.
Pro Forma Provision For Additional Income Taxes
Additional pro forma income taxes were $0.2 million in 1996 and $1.0
million in 1995. Additional pro forma provision for income taxes are shown to
provide an assumed effective federal and state income tax rate of 40% of income
before taxes for periods prior to March 18, 1996.
Pro Forma Net Income
Pro forma net income (pro forma only regarding income taxes) increased to
$6.8 million in 1996 from $1.6 million in 1995. Pro forma net income (pro forma
to provide for income taxes and for the acquisitions of
13
<PAGE>
Hub Partnerships and APLDDS) increased to $6.7 million in 1996 from $3.1 million
in 1995. The increase in pro forma net income, which gives effect to the
Company's acquisitions, is 113.3% when comparing 1996 to 1995. This large
increase was significantly influenced by the losses incurred by APLDDS before
being acquired by the Company.
Pro Forma Earnings Per Share
Pro forma earnings per share (pro forma only to provide for income taxes)
increased to $1.35 in 1996 from $0.95 in 1995. Pro forma earnings per share
(pro forma to provide for income taxes and for the Company's acquisitions)
increased to $1.15 in 1996 from $0.59 in 1995. The increase in pro forma
earnings per share, which gives effect to the Company's acquisitions, is 94.9%.
This large increase was significantly influenced by the losses incurred by
APLDDS before being acquired by the Company.
Year Ended December 31, 1995, Compared to Year Ended December 31, 1994
Revenue
Revenue decreased 6.3% to $81.4 million in 1995 from $86.9 million in
1994. Approximately 45% of the decrease resulted from a significant customer
moving it headquarters and distribution facility out of Hub Chicago's territory
and into the territory of one of the partnerships that comprise Hub Partnerships
at the end of the fourth quarter of 1994. A slowdown in the economy in 1995
reduced shipments by the Company's customers. However, Hub Chicago had been
increasingly successful in passing along to the customer, where appropriate,
additional trailer storage and detention charges, many of which were formerly
not billed by the Company, thus offsetting to some extent the effects of the
economic slowdown.
Net Revenue
Net revenue as a percentage of revenue increased to 7.7% in 1995 compared
to 7.2% in 1994. In 1995, the Company was able to negotiate reduced freight
charges with vendors due to the weakened demand for freight transportation.
Management also believes that net revenue as a percentage of revenue in 1995
increased as a result of the continued improvement in the Hubs' ability to
control equipment through the network the Company shares with Hub Partnerships.
The Company had also been successful in reducing trailer storage and detention
charges that it previously absorbed.
Salaries and Benefits
Salaries and benefits decreased $0.1 million but increased slightly a
percentage of revenues to 3.0% of revenues in 1995 compared to 2.9% of revenues
in 1994. This increase in salaries and benefits as a percentage of revenue was
a result of a decrease in revenue. Staffing levels, which increased in the
third and fourth quarters of 1994 to accommodate volume growth and service
levels required by customers, decreased during 1995 in response to reduced
revenue levels.
Selling, General and Administrative
Selling, general and administrative expenses remained constant at 1.5% of
revenues in 1994 and 1995.
Depreciation and Amortization
Depreciation and amortization expense was negligible in 1994 and 1995.
Other Income (Expense)
Interest income was negligible in 1994 and 1995.
Income Taxes
Income taxes were negligible in 1994 and 1995.
14
<PAGE>
Pro Forma Provision For Additional Income Taxes
Additional pro forma income taxes were $1.0 million in 1995 and $0.9
million in 1994. Additional pro forma provision for income taxes are shown to
provide an assumed effective federal and state income tax rate of 40% of income
before taxes.
Pro Forma Net Income
Pro forma net income (pro forma only regarding income taxes) increased to
$1.6 million in 1995 from $1.4 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, the Company had several significant transactions that
affected liquidity. These transactions were the initial public offering of the
Company's Class A common stock and the subsequent acquisition of a controlling
interest in Hub Partnerships, the APLDDS acquisition and the purchase of the
remaining 70% minority interest in Hub Tennessee and Hub North Central. These
items represented a cash inflow of $52.9 million and cash outflows of $35.5
million, $2.0 million, $2.5 million and zero, respectively. Related to the
acquisitions and purchases, the Company assumed long-term debt, including
current portions, of $35.9 million, approximately $12.5 million of which are
five-year balloon notes due in March of 2001, bearing interest at an annual rate
of 5.45%. Approximately $6.0 million bears interest at 6% and is due in three
equal annual installments beginning May 1997. Approximately $15.0 million is
due on January 1, 1998, and bears interest at an annual rate of 7%. Immediately
prior to the initial public offering and Hub Partnership acquisition, Hub
Chicago issued five-year balloon notes, due in March 2001, to its shareholders
for approximately $0.7 million, bearing interest at an annual rate of 5.45%. An
additional $1.7 million of miscellaneous debt was assumed in connection with the
acquisition of Hub Partnerships. The acquisitions resulted in the recognition
of a $12.8 million deferred tax asset, which will offset cash payments for taxes
ratably over the next 15 years. The resulting $42.8 million of goodwill from
the acquisitions and the minority interest purchases represents a tax deductible
expense to be recognized over the next 15 years.
Capital expenditures are principally made to enhance or expand the
Company's information systems and network capabilities and, most recently, to
acquire a number of tractors to support Company-owned drayage operations. Part
of the Company's strategy is to supplement third party drayage operations with
Company-owned tractors to service portions of the Company's intermodal business
in those locations where drayage service is limited or where customers require
an enhanced level of service which cannot be competitively accommodated by a
third-party provider.
As of December 31, 1996, the Company owned 83 tractors as part of
Company-owned drayage operations for the operating companies located in
Missouri, Michigan, New Jersey, Georgia, Kansas and Illinois. The Company-owned
drayage operation in Missouri has been functioning since 1994. The Michigan
operation started in the second quarter of 1996, the New Jersey and Illinois
operations started in the third quarter of 1996 and the Georgia and Kansas
operations started in the fourth quarter of 1996. Of the 83 tractors in
operation at December 31, 1996, 62 were acquired in 1996 at a cost of
approximately $65,000 each. Ten of these tractors were purchased with cash and
the remainder were financed at a rate of 3% over the two-year Treasury note rate
after an initial down payment of 10%.
The Company maintains a bank line of credit for $5.0 million. The
interest rate is set at the bank's discretion at a rate less than or equal to
the bank's prime rate. At December 31, 1996, the rate was 7.75%. As of
December 31, 1996, the unused and available portion of this credit line was $5.0
million. Although there are no assurances, management believes it can obtain an
additional line of credit, if necessary.
OUTLOOK, RISKS AND UNCERTAINTIES
This "Outlook, Risks and Uncertainties" section contains statements
regarding expectations, hopes, beliefs, intentions or strategies regarding the
future which are forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and involve risks and uncertainties
described below that could cause actual results to differ materially from those
projected. The Company assumes no liability to update any such forward
15
<PAGE>
looking statements. In addition to those mentioned elsewhere in this section,
such risks and uncertainties include the impact of competitive pressures in the
marketplace, the degree and rate of market growth in the markets served by the
Company, changes in industry-wide capacity, further consolidation of rail
carriers, changes in governmental regulation, changes in the cost of services
from vendors and fluctuations in interest rates.
Revenue
Management estimates that in 1997 revenue growth will decline from
current levels. This estimate is based on management's opinion that the
dramatic growth in the truckload brokerage and logistics businesses experienced
in 1996 provides too large of a revenue base to sustain the same growth rate in
1997. Furthermore, management cannot predict an acquisition similar to APLDDS
in 1997.
Net Revenue
Historically, the Company contracted for all its drayage needs with 100%
of the attendant costs being classified as purchased transportation. As the
Company sets up its own drayage operations, the salaries and benefits for non-
driver employees as well as general and administrative expenses are classified
below the net revenue line as operating expenses. Assuming that the Company
fulfills its drayage needs at or below the previously contracted cost, the
classification of a portion of the cost below net revenue will cause net revenue
as a percentage of revenue related to the Company's drayage operations to
increase. Management expects fluctuations in the net revenue percentage from
quarter-to-quarter caused by changes in business mix, changes in highway
brokerage margins, changes in logistics business margins, changes in trailer and
container capacity, changes in vendor pricing, changes in intermodal industry
growth and changes in accounting estimates. Some of the Company's rail vendors
have increased rates in the first quarter of 1997. The Company may not be able
to pass some or all of these rate increases along to its customers.
Salaries and Benefits
It is anticipated that salaries and benefits as a percentage of revenue
could fluctuate from quarter-to-quarter as there are timing differences between
revenue increases and changes in levels of staffing. Factors that could affect
the percentage from staying in the recent historical range are revenue growth
rates significantly higher or lower than forecasted, a management decision to
invest in additional personnel to stimulate new or existing businesses or
changes in customer requirements that result in a higher cost of labor per move.
Depreciation and Amortization
Management estimates that as a percentage of revenue, depreciation and
amortization will remain at current levels or increase in the future. Factors
that could cause an increase in the percentage are increased leasehold
improvement amortization as operating companies transition to larger facilities,
increased software amortization on planned implementation of new packages in the
truckload brokerage and logistics businesses and increased goodwill amortization
that would arise if the Company exercised any of its options to purchase the
remaining minority interest in any of its operating partnerships.
Other Income (Expense)
Interest expense in 1997 will increase significantly due to the issuance,
on December 12, 1996, of a note for approximately $15.0 in connection with the
purchase of the remaining 70% minority interest in Hub North Central. Interest
expense related to tractor purchases will continue to increase as the Company
continues expansion into Company-owned drayage operations. Management estimates
interest expense as it relates to the balloon notes assumed or issued in
connection with the acquisition of Hub Partnerships will continue to decline on
a quarterly basis as the various operating partnerships continue to make
discretionary principal payments. Interest expense related to the notes issued
in conjunction with the acquisition of APLDDS will decline from current levels
in May of 1997, 1998 and 1999, coincident with the required principal payment
terms.
Management estimates that interest income will likely decrease from
current levels. Factors that could cause such a decrease are the possible use
of cash to (i) make payments on the balloon notes, (ii) make payments on
16
<PAGE>
the APLDDS notes, (iii) make payments on the note issued to acquire the
remaining interest in Hub North Central, (iv) make down payments on tractors,
(v) fund working capital needs for those operating companies starting their own
Company-owned drayage operations, (vi) fund the purchase of the remaining
minority interest in any of its operating partnerships and (vii) increase the
Company's capital investment in an international joint venture.
Minority Interest
Factors that could have a material impact and result in minority interest
percentages of income before minority interest to be outside the historical
range are (i) the exercise of any of the Company's options to purchase the
remaining minority interest in any of its operating companies and (ii)
disproportionate changes in the profitability of businesses between those which
are owned 100% by the Company and those which are owned less than 100% by the
Company. The purchase of the remaining minority interest in Hub North Central,
assuming all other factors affecting minority interest are equal, should cause
minority interest as a percentage of income before minority interest to decline.
Net Income
Management expects that net income growth rates after May 1997 will be
significantly less than the pro forma net income growth rates experienced since
May 1996. The Company acquired APLDDS in May 1996 and management cannot predict
a similar acquisition in 1997.
Earnings Per Share
Management expects that earnings per share growth rates after May 1997
will be significantly less than the pro forma net income growth rates
experienced since May 1996. The Company acquired APLDDS in May 1996 and
management cannot predict a similar acquisition in 1997.
Liquidity and Capital Resources
The Company expects to continue to pay down, as a prepayment, the balloon
notes from time to time as cash availability permits. The Company expects to
meet all other liabilities as they become due.
Management is considering additional sites for Company-owned tractors,
and it is anticipated that Company-owned drayage operations, in total, will
require the acquisition of approximately 110 tractors in 1997. The Company may
purchase up to 20 of these tractors with cash with the remainder being financed.
Management estimates that each start-up of a Company-owned drayage operation
requires working capital of $0.3 million to $0.4 million above and beyond the
cost of acquiring the tractors. Management estimates that an additional three
to five locations may start Company-owned drayage operations by the end of 1997.
Management intends to carefully evaluate existing and new drayage operations
before committing additional capital resources.
The Company has the continuing option, exercisable any time after the
President currently associated with an operating partnership ceases to be an
employee, to purchase the remaining interest in that partnership. The future
exercise of such options could result in the need for significant funds. Those
funds may come from existing cash, third-party debt, other financing or any
combination thereof.
The Company believes that existing cash, cash provided by operations and
cash available under a line of credit and its other financing commitment will be
sufficient to meet the Company's short-term working capital and capital
expenditure needs. The Company is currently negotiating a $15.0 million line of
credit. Although no assurances can be made, it is anticipated that this line of
credit will become effective in 1997. The Company believes that the
aforementioned items are sufficient to meet its anticipated long-term working
capital, capital expenditure and debt repayment needs through at least the year
2001.
17
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants 19
Consolidated Balance Sheets--December 31, 1996 and December 31, 1995 20
Consolidated Statements of Operations--Years ended December 31, 1996,
December 31, 1995 and December 31, 1994 21
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1996, December 31, 1995 and December 31, 1994 22
Consolidated Statements of Cash Flows--Years ended December 31, 1996,
December 31, 1995 and December 31, 1994 23
Notes to Consolidated Financial Statements 24
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Hub Group, Inc.:
We have audited the accompanying consolidated balance sheets of Hub
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements and schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and 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, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Hub
Group, Inc. and subsidiaries as of December 31, 1995 and 1996, and the results
of its operations and cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule on page S-1 is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 6, 1997
19
<PAGE>
HUB GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2 $ 13,893
Accounts receivable, net
Trade 6,197 114,125
Affiliate 2,376 -
Prepaid expenses and other current assets 147 3,532
---------- -----------
TOTAL CURRENT ASSETS 8,722 131,550
PROPERTY AND EQUIPMENT, net 137 14,058
GOODWILL, net - 42,255
DEFERRED TAXES - 11,357
OTHER ASSETS 224 2,005
---------- -----------
TOTAL ASSETS $ 9,083 $ 201,225
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $ 5,620 $ 94,884
Affiliate 1,774 -
Other 89 8,144
Accrued expenses
Payroll 286 4,988
Other 149 3,186
Deferred taxes - 1,307
Current portion of long-term debt - 3,164
---------- -----------
TOTAL CURRENT LIABILITIES 7,918 115,673
LONG-TERM DEBT, EXCLUDING CURRENT PORTION - 28,714
CONTINGENCIES AND COMMITMENTS
MINORITY INTEREST - 10,714
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 26 59
Additional paid-in capital 18 55,083
Purchase price in excess of predecessor basis - (25,764)
Tax benefit of purchase price in excess of
predecessor basis - 10,306
Retained earnings 1,121 6,440
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,165 46,124
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,083 $ 201,225
========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
20
<PAGE>
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1994 1995 1996
---------- ----------- --------------
<S> <C> <C> <C>
REVENUE:
Trade $ 74,991 $ 66,696 $ 750,784
Affiliate 11,885 14,712 3,459
---------- ----------- --------------
Total revenue 86,876 81,408 754,243
PURCHASED TRANSPORTATION 80,588 75,142 662,679
---------- ----------- --------------
Net revenue 6,288 6,266 91,564
COSTS AND EXPENSES:
Salaries and benefits 2,556 2,457 43,913
Selling, general and administrative 1,345 1,196 17,147
Depreciation and amortization 39 46 2,579
---------- ----------- --------------
Total costs and expenses 3,940 3,699 63,639
Operating income 2,348 2,567 27,925
---------- ----------- --------------
OTHER INCOME (EXPENSE):
Interest expense - - (996)
Interest income 58 71 786
Other, net - - (11)
---------- ----------- --------------
Total other income (expense) 58 71 (221)
INCOME BEFORE MINORITY INTEREST AND
PROVISION FOR INCOME TAXES 2,406 2,638 27,704
---------- ----------- --------------
MINORITY INTEREST - - 16,366
---------- ----------- --------------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,406 2,638 11,338
PROVISION FOR INCOME TAXES 37 39 4,294
---------- ----------- --------------
NET INCOME $ 2,369 $ 2,599 $ 7,044
========= ========== =============
PRO FORMA PROVISION FOR ADDITIONAL INCOME
TAXES 925 1,016 241
---------- ----------- --------------
PRO FORMA NET INCOME $ 1,444 $ 1,583 $ 6,803
========= ========== =============
PRO FORMA EARNINGS PER SHARE $ 0.87 $ 0.95 $ 1.35
========= ========== =============
PRO FORMA WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,662 1,662 5,058
========= ========== =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
21
<PAGE>
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three years ended December 31, 1996
(in thousands, except shares)
<TABLE>
<CAPTION>
Tax Benefit
Purchase of Purchase
Price in Price
Common Stock Additional Excess of in Excess of Total
------------------- Paid-in Predecessor Predecessor Retained Stockholders'
Shares Amount Capital Basis Basis Earnings Equity
--------- ------ ---------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 200 $ 25 $ 17 $ - $ - $ 1,512 $ 1,554
Net income - - - - - 2,369 2,369
Distributions to stockholders - - - - - (2,154) (2,154)
--------- ---- ------- -------- ------- ------- --------
Balance at December 31, 1994 200 25 17 - - 1,727 1,769
Net income - - - - - 2,599 2,599
Distributions to stockholders - - - - - (3,205) (3,205)
Issuance of common stock 100 1 1 - - - 2
--------- ---- ------- -------- ------- ------- --------
Balance at December 31, 1995 300 26 18 - - 1,121 1,165
Net income - - - - - 7,044 7,044
Distributions to stockholders - (25) (17) - - (1,725) (1,767)
Issuance of common stock
in acquisition 1,662,296 - - - - - -
Retirement of shares acquired (200) - - - - - -
Sale of common stock in
initial public offering, net 4,261,250 59 55,083 - - - 55,142
Acquisition of general
partnership interests - - - (25,764) 10,306 - (15,458)
Purchase of common stock (100) (1) (1) - - - (2)
--------- ---- ------- -------- ------- ------- --------
Balance at December 31, 1996 5,923,546 $ 59 $55,083 $(25,764) $10,306 $ 6,440 $ 46,124
========= ==== ======= ======== ======= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
22
<PAGE>
HUB GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,369 $ 2,599 $ 7,044
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 39 46 2,786
Deferred taxes - - 2,722
Minority interest - - 16,366
Loss(gain) on sale of assets 3 - (59)
Changes in working capital, net of effects of purchase transactions:
Accounts receivable, net (141) (757) (29,976)
Prepaid expenses and other current assets (21) 14 (1,801)
Accounts payable 626 (629) 20,851
Accrued expenses 7 (44) 2,549
Other assets 133 48 (1,153)
------- ------- --------
Net cash provided by operations 3,015 1,277 19,329
------- ------- --------
Cash flows from investing activities:
Cash used in acquisitions, net - - (37,459)
Purchase of minority interest - - (2,513)
Purchases of property and equipment, net (31) (98) (6,815)
------- ------- --------
Net cash used in investing activities (31) (98) (46,787)
------- ------- --------
Cash flows from financing activities:
Proceeds from sale of common stock in initial public offering, net - - 52,945
Proceeds from sale of common stock - 2 -
Purchase of common stock - - (2)
Distributions to stockholders (2,154) (3,205) (1,104)
Distributions to minority interest - - (5,814)
Payments on long-term debt - - (7,271)
Proceeds from issuance of long-term debt - - 2,595
------- ------- --------
Net cash provided by (used in) financing activities (2,154) (3,203) 41,349
------- ------- --------
Net increase (decrease) in cash 830 (2,024) 13,891
Cash, beginning of period 1,196 2,026 2
------- ------- --------
Cash, end of period $ 2,026 $ 2 $ 13,893
======= ======= ========
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ - $ - $ 117
Income taxes 32 41 2,344
Non-cash investing and financing activities:
Note payable issued for purchase of minority interest $ - $ - $ 14,970
Notes payable issued as distributions to stockholders - - 663
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
23
<PAGE>
HUB GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Description of Business and Summary of Significant Accounting
Policies
Business: Hub Group, Inc. and its subsidiaries (the "Company") provide
intermodal transportation services utilizing third party arrangements with
railroads and drayage companies. The Company also arranges for transportation of
freight by truck and performs logistics services.
Principles of Consolidation: The consolidated financial statements include the
accounts of Hub Group, Inc. and all entities in which the Company has more than
a 50% equity ownership or otherwise exercises unilateral control. All
significant intercompany balances and transactions have been eliminated.
Cash and cash equivalents: The Company considers as cash equivalents all highly
liquid instruments with an original maturity of three months or less. Checks
outstanding, net, of approximately $474,000 and $1,548,000 at December 31, 1995
and 1996, respectively, are included in accounts payable.
Receivables: The Company's reserve for uncollectible accounts receivable was
approximately $125,000 and $1,355,000 at December 31, 1995, and 1996,
respectively.
Property and Equipment: Property and equipment are stated at cost. Depreciation
of property and equipment is computed using the straight-line and various
accelerated methods at rates adequate to depreciate the cost of applicable
assets over their expected useful lives: buildings and improvements 15 to 40
years; leasehold improvements the shorter of useful life or lease term; computer
equipment and software 3 to 5 years; furniture and equipment 3 to 10 years; and
transportation equipment and automobiles 3 to 12 years. Direct costs related to
internally developed software projects are capitalized and amortized over the
expected useful life on a straight-line basis not to exceed five years,
commencing when the asset is placed into service. Maintenance and repairs are
charged to operations as incurred and major improvements are capitalized. The
cost of assets retired or otherwise disposed of and the accumulated depreciation
thereon are removed from the accounts with any gain or loss realized upon sale
or disposal charged or credited to operations.
Goodwill: Goodwill is amortized on the straight-line method over 40 years. On
an ongoing basis, the Company estimates the future undiscounted cash flows
before interest of the operating units to which goodwill relates in order to
evaluate impairment. If impairment exists, the carrying amount of the goodwill
is reduced by the estimated shortfall of cash flows. Goodwill amortization
expense was $0, $0 and approximately $525,000 for the years ended December 31,
1994, 1995, and 1996, respectively.
Concentration of Credit Risk: The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places its cash and
temporary investments with high quality financial institutions. At times, such
investments may be in excess of the FDIC insurance limit. Temporary investments
are valued at the lower of cost or market and at the balance sheet dates
approximate fair market value. The Company primarily serves customers located
throughout the United States with no significant concentration in any one
region. One customer in the food industry accounted for approximately 28% and
30% of revenue in 1994 and 1995, respectively. The same customer accounted for
less than 10% of revenue in 1996. Another customer in the consumer household
products industry accounted for 11.2% of revenue in 1995. This customer
accounted for less than 10% of revenue in 1994 and 1996. The Company reviews a
customer's credit history before extending credit. In addition, the Company
routinely assesses the financial strength of its customers and, as a
consequence, believes that its trade accounts receivable risk is limited.
Revenue Recognition: Revenue represents sales of services to customers.
Revenue is recognized based on relative transit time.
24
<PAGE>
Income Taxes: Prior to March 18, 1996, the Company had elected to be taxed as an
S corporation under the Internal Revenue Code. The income of an S corporation is
taxable to its stockholders rather than the Company itself. Income tax expense
incurred prior to March 18, 1996, represents Illinois replacement tax. On March
18, 1996, the Company became a taxable C corporation. The pro forma provision
for additional income taxes was calculated assuming the Company was operating as
a taxable C corporation since January 1, 1994. The Company accounts for certain
income and expense items differently for financial reporting and income tax
purposes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities applying enacted statutory tax rates in effect for the year in which
the differences are expected to reverse.
Earnings Per Share: Earnings per share are based on the average quarterly
weighted average number of Class A and Class B shares of common stock
outstanding, adjusted for the assumed conversion of dilutive stock options. In
computing the per share effect of assumed conversion, funds which would have
been received from the exercise of options, including tax benefits assumed to be
realized, are considered to have been used to purchase shares at current market
prices, and the resulting net additional shares are included in the calculation
of weighted average shares outstanding.
Distributions: During the period prior to March 18, 1996, the Company operated
as an S corporation and made periodic distributions of income to its
stockholders which are reflected in the accompanying statements of stockholders'
equity.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Reclassifications: Certain items previously reported have been reclassified to
conform with the 1996 presentation.
NOTE 2. Capital Structure
On March 8, 1995, Hub Group, Inc. was incorporated and issued 100
shares of Class A common stock to the sole incorporator. On March 18, 1996, Hub
Group, Inc. purchased Hub City Terminals, Inc. ("Hub Chicago") in a stock-for-
stock acquisition through the issuance of 1,000,000 shares of the Company's
Class A common stock and 662,296 shares of the Company's Class B common stock.
Hub Chicago has been accounted for similar to the pooling of interests method of
accounting and has been included in all periods presented on a historical cost
basis.
Concurrent with the acquisition of Hub Chicago in March 1996, the
Company completed the initial public offering of 4,261,250 shares of its Class A
common stock, with net proceeds to the Company of approximately $52,945,000.
Coincident with the initial public offering, a selling stockholder sold
1,000,000 shares of the Company's Class A common stock through a secondary
offering. The Company did not receive any net proceeds from the sale of the
shares by the selling stockholder.
Concurrent with the initial public offering, Hub Group, Inc., together
with its new wholly owned subsidiary, Hub Chicago, acquired with cash a
controlling interest in each of 27 operating partnerships (collectively referred
to as "Hub Partnerships"). The combined financial statements of Hub
Partnerships, the predecessor to the majority of the business of the Company,
are included under Item 14 of the Company's Form 10-K, filed with the Securities
and Exchange Commission.
25
<PAGE>
NOTE 3. Business Combinations
On March 18, 1996, the Company acquired a controlling interest in Hub
Partnerships for a total purchase price of approximately $43,309,000 in cash.
The purchase price of these acquisitions was allocated to the assets acquired
and liabilities assumed based on the fair value at the date of acquisition using
the purchase method of accounting.
The portion of the difference between fair value and historical cost
of individual assets acquired and liabilities assumed attributable to interests
acquired by the Company from non-control group stockholders was recorded at fair
market value. This resulted in goodwill of approximately $17,207,000. The
remaining portion of the difference between fair value and historical cost
attributable to interests acquired from control group stockholders,
approximately $25,764,000, has been charged to equity as purchase price in
excess of predecessor basis.
In connection with the purchase of the controlling interest in Hub
Partnerships, approximately $10,306,000 has been recorded as a deferred tax
benefit utilizing an assumed effective tax rate of 40% representing the tax
effect of the purchase price in excess of predecessor basis, with the
corresponding credit recorded as an increase to equity.
On May 2, 1996, the Company purchased the rights to service the
customers of American President Lines Domestic Distribution Services, a division
of APL Land Transport Services, Inc., for approximately $8,000,000. The
$8,000,000 was financed with $2,000,000 in cash and $6,000,000 in notes. The
notes bear interest at an annual rate of 6% with three equal annual principal
payments due beginning May 2, 1997. The acquisition was recorded using the
purchase method of accounting resulting in goodwill of approximately $8,090,000.
Results of operations from acquisitions recorded under the purchase
method of accounting are included in the Company's financial statements from
their respective dates of acquisition. The purchase price allocations presented
are preliminary.
The following summarizes the effects of businesses acquired and
accounted for as purchases in 1996 as if they had been acquired as of January 1,
1995:
<TABLE>
<CAPTION>
(Unaudited)
Years Ended December 31,
-------------------------
1995 1996
-------------------------
<S> <C> <C>
(000's)
Revenue as reported $ 81,408 $ 754,243
Revenue of purchased business for
period prior to acquisitions,
net of eliminations 810,343 184,660
-------------- ----------
Pro forma revenue $ 891,751 $ 938,903
-------------- ----------
Net income as reported $ 2,599 $ 7,044
Net income (loss) of purchased
businesses for period prior to
acquisitions 920 (260)
Adjustment for goodwill amortization (383) (96)
-------------- ----------
Pro forma net income $ 3,136 $ 6,688
-------------- ----------
Earnings per share as reported $ 0.95 $ 1.35
Effect of purchased businesses prior to
acquisitions (0.36) (0.20)
-------------- ----------
Pro forma earnings per share $ 0.59 $ 1.15
-------------- ----------
</TABLE>
26
<PAGE>
Business acquisitions which involved the use of cash were accounted for as
follows:
<TABLE>
Year Ended
December 31,
1996
-----------------
(000's)
<S> <C>
Accounts receivable $ 75,576
Prepaid expenses and other current assets 1,584
Property and equipment 9,308
Goodwill 25,297
Deferred tax benefit, net 10,575
Other assets 628
Accounts payable (74,694)
Accrued expenses (5,190)
Long-term debt (20,921)
Minority interest (162)
Purchase price in excess of predecessor basis 25,764
Tax benefit of purchase price in excess of predecessor basis (10,306)
-----------------
Cash used in acquisitions, net $ 37,459
-----------------
</TABLE>
NOTE 4. Purchase of Minority Interest
On August 1, 1996, the Company purchased the remaining 70% minority
interest in Hub City Tennessee, L.P. for approximately $2,513,000 in cash. On
December 12, 1996, the Company purchased the remaining 70% minority interest in
Hub City North Central, L.P. in exchange for a note for approximately
$14,970,000, bearing interest at an annual rate of 7%. The entire purchase
price of each acquisition was recorded as goodwill. See Note 11.
NOTE 5. Property and Equipment
Property and equipment consist of the following:
<TABLE>
December 31,
--------------------------------
1995 1996
--------------------------------
(000's)
<S> <C> <C>
Land $ - $ 92
Building and improvements - 841
Leasehold improvements 17 629
Computer equipment and software 478 7,258
Furniture and equipment 221 3,419
Transportation equipment and automobiles 29 4,541
--------------------------------
745 16,780
Less: Accumulated depreciation and amortization (608) (2,722)
---------------------------------
PROPERTY AND EQUIPMENT, net $ 137 $ 14,058
--------------------------------
</TABLE>
27
<PAGE>
NOTE 6. Income Taxes
The following is a reconciliation of the Company's effective tax
rate to the federal statutory tax rate:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
------------------------
<S> <C>
U.S. federal statutory rate 34.0%
State taxes, net of federal benefit 6.0
Income earned as
non-taxable Subchapter S
corporation prior to
March 18, 1996 (2.1)
------------------------
Net effective rate 37.9%
------------------------
</TABLE>
The following is a summary of the Company's provision for income
taxes:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
------------------------
(000's)
<S> <C>
Current
Federal $ 1,336
State and local 236
------------------------
1,572
------------------------
Deferred
Federal 2,314
State and local 408
------------------------
2,722
-----------------------
Total provision $ 4,294
</TABLE> -----------------------
The following is a summary of the Company's deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
December 31,
1996
------------------------
(000's)
<S> <C>
Reserve for uncollectible accounts receivable $ 152
Accrued compensation 206
------------------------
Current deferred tax asset 358
Income tax basis in excess of financial basis of
goodwill 11,845
-----------------------
Total deferred tax asset $ 12,203
-----------------------
Prepaids $ (43)
Receivables (1,622)
------------------------
Current deferred tax liability (1,665)
Property and equipment (293)
Goodwill (195)
------------------------
Long-term deferred tax liability (488)
------------------------
Total deferred tax liability $ (2,153)
------------------------
</TABLE>
28
<PAGE>
NOTE 7. Long-Term Debt and Financing Arrangements
Fair value approximates book value at the balance sheet dates.
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
-------- -------
(000's)
<S> <C> <C>
Installment notes payable due through 2000, monthly
installments ranging from $325 - $16,898, including
interest, ranging from 7.9% to 12%, collateralized by
certain equipment $ - $ 2,976
Unsecured balloon notes, interest compounded annually
at 5.45%, interest and principal due March, 2001 (see Note 11) - 7,533
Mortgage note payable due in 1998 with monthly installments of
$2,381, including interest at 8.5%, collateralized by certain
property - 206
Notes payable due in three equal annual principal payments of
$2,000,000 beginning on May 2, 1997, interest is due at the
time the principal is paid at 6% compounded annually - 6,000
Note payable due January 1, 1998, with interest at an annual
rate of 7% (see Note 11) - 14,970
Capital lease obligations, collateralized by certain equipment - 193
------- ------
Total long-term debt - 31,878
Less current portion - (3,164)
------- ------
$ - $28,714
------- ------
</TABLE>
Aggregate principal payments, in thousands, due subsequent to December
31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $ 3,164
1998 18,141
1999 2,772
2000 268
2001 7,533
------
$31,878
------
</TABLE>
On March 18, 1996, the Company assumed a line of credit for $5,000,000
which was unused at December 31, 1996. At December 31, 1996, the interest rate
was 7.75%. The interest rate is set at the bank's discretion at a rate less than
or equal to the bank's prime rate. Borrowings are secured by certain assets. The
line of credit has no expiration date. In October 1996, the Company authorized
the issuance of a standby letter of credit for $1,000,000, which has no
expiration date.
NOTE 8. Rental Expense and Lease Commitments
Minimum annual rental commitments, in thousands, at December 31, 1996,
under noncancellable operating leases, principally for real estate and
equipment, are payable as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $2,251
1998 1,878
1999 1,389
2000 999
2001 732
2002 383
-----
$7,632
-----
</TABLE>
29
<PAGE>
Total rental expense was approximately $100,000, $121,000 and
$1,896,000 for 1994, 1995 and 1996, respectively. Many of the leases contain
renewal options and escalation clauses which require payments of additional rent
to the extent of increases in the related operating costs.
NOTE 9. Stock-Based Compensation Plan
Concurrent with the initial public offering the Company adopted a
Long-Term Incentive Plan (the "1996 Incentive Plan"). The number of shares of
Class A Common Stock reserved for issuance under the 1996 Incentive Plan was
450,000. Under the 1996 Incentive Plan, stock options, and stock appreciation
rights, restricted stock and performance units may be granted for the purpose of
attracting and motivating key employees and non-employee directors of the
Company. Concurrent with the adoption of the Incentive Plan the Company granted
326,500 options to key employees and 36,000 options to non-employee directors.
All options granted have an exercise price of $14.00 per share, the initial
public offering price. The options granted to key employees vest ratably over a
five-year period and expire 10 years after the date they were granted. The
options granted to the non-employee directors vest ratably over a three-year
period and expire 10 years after the date of grant. As of December 31, 1996,
none of the options granted have vested. The Company canceled 5,000 options
during 1996. There were 92,500 shares available to be granted as of December 31,
1996.
The Company currently utilizes Accounting Principles Board Opinion No.
25 in its accounting for stock options. In October, 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 ("Statement 123"), "Accounting for Stock-based Compensation." The
accounting method as provided in the pronouncement is not required to be
adopted; however, it is encouraged. The Company is not adopting the accounting
provisions of Statement 123. Had the Company accounted for its stock options in
accordance with Statement 123, pro forma net income and pro forma earnings per
share would have been approximately $6,599,000 and $1.30 for the year ended
December 31, 1996. The pro forma disclosure is not likely to be indicative of
pro forma results which may be expected in future years because of the fact that
options vest over several years, pro forma compensation expense is recognized as
the options vest and additional awards may also be granted.
For purposes of determining the pro forma effect of these options, the
fair value of each option is estimated on the date of grant based on the Black-
Scholes option pricing model assuming no dividend yield, a risk free interest
rate of 6.5%, a volatility factor of 25.0% and an expected life of 6.0 years.
The weighted average fair value of options granted under the Company's 1996
Incentive Plan for the year ended December 31, 1996, was $5.54.
NOTE 10. Profit-Sharing Plan
The Company has numerous profit-sharing plans and trusts under section
401(k) of the Internal Revenue Code. Generally, for every dollar the employee
contributes, the Company will contribute an additional $.20 up to $100. In
addition, the Company may make a profit sharing contribution at its discretion.
Historically, the Company has contributed an amount equal to 3% of each
participant's compensation up to a maximum of $4,500. The Company's
contributions to the Plan were approximately $57,000, $50,000 and $704,000 for
1994, 1995 and 1996, respectively.
NOTE 11. Related Party Transactions
In connection with the acquisition of a controlling interest in each
of the Hub Partnerships, the Company paid cash to the Class B Common Stock
("Class B") stockholders, some of whom are officers of the Company, as well as
officers of the Company who are not Class B stockholders totaling approximately
$16,571,000. The Company, related to this acquisition, also assumed balloon
notes that are payable, in part, to the above related parties totaling
approximately $4,758,000. Approximately 33% of the balloon notes payable at
December 31, 1996, is due to the related parties. The Class B stockholders have
voting control over the Company. The same related parties described above also
continue to receive
30
<PAGE>
approximately 33% of minority interest distributions of income from the Company.
Furthermore, these parties received cash and notes from the Company totaling
approximately $6,062,000 when it acquired the remaining minority interest in Hub
City Tennessee, L.P. and Hub City North Central, L.P.
The Company provided transportation services to Hub Partnerships prior
to acquiring Hub Partnerships on March 18, 1996. Revenue from Hub Partnerships
was $11,885,000, $14,712,000 and $3,459,000 for 1994, 1995 and the period
January 1, through March 17, 1996, respectively. Net fees were approximately
$307,000, $440,000 and $104,000 for the same periods, respectively.
Hub Partnerships provided transportation services to the Company prior
to being acquired, which resulted in costs of $13,535,000, $21,720,000 and
$3,880,000 for 1994, 1995 and the period January 1, through March 17, 1996,
respectively.
The Company paid assessment fees based primarily on volume and sales
commission expenses to Hub Partnerships prior to acquiring Hub Partnerships.
These charges totaled approximately $657,000, $670,000 and $112,000 for 1994,
1995 and the period January 1, through March 17, 1996, respectively.
The Company leased a building from a shareholder. Monthly payments in
1995 were $9,178 and extended through November 1996. The Company no longer
leased the building from a shareholder beginning in December 1996.
NOTE 12. Legal Matters
In the ordinary course of conducting its business, the Company becomes
involved in various lawsuits related to its business. The Company does not
believe that the ultimate resolution of these matters will be material to its
business, financial position or results of operations.
NOTE 13. Equity
<TABLE>
<CAPTION>
December 31, 1995
--------------------------
Issued and
Authorized Outstanding
------------ -------------
<S> <C> <C>
Preferred stock, $.01 par value 2,000,000 -
Common stock, no par value 200 200
Class A common stock, $.01 par value 12,337,700 100
Class B common stock, $.01 par value 662,300 -
December 31, 1996
--------------------------
Issued and
Authorized Outstanding
------------ -------------
Preferred stock, $.01 par value 2,000,000 -
Class A common stock, $.01 par value 12,337,700 5,261,250
Class B common stock, $.01 par value 662,300 662,296
</TABLE>
NOTE 14. Selected Quarterly Financial Data (Unaudited)
The following table sets forth selected quarterly financial data for each
of the quarters in 1995 and 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarters
-----------------------------------------
First Second Third Fourth
-----------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
Revenue $18,934 $ 20,735 $ 20,590 $ 21,149
Net revenue 1,564 1,488 1,542 1,672
Operating income 610 588 667 702
Net income 634 599 668 698
Pro forma net income 386 365 407 425
Pro forma earnings per share $ 0.23 $ 0.22 $ 0.24 $ 0.26
Quarters
-----------------------------------------
First Second Third Fourth
-----------------------------------------
Year Ended December 31, 1996:
Revenue $48,797 $209,236 $238,584 $257,626
Net revenue 5,385 25,124 28,707 32,348
Operating income 1,755 6,843 8,951 10,376
Net income 883 1,662 2,105 2,394
Pro forma net income 642 1,662 2,105 2,394
Pro forma earnings per share $ 0.29 $ 0.28 $ 0.35 $ 0.40
</TABLE>
31
<PAGE>
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 sections entitled "Election of Directors" and "Ownership of the Capital
Stock of the Company" appearing in the Registrant's proxy statement for the
annual meeting of stockholders to be held on May 14, 1997, sets forth certain
information with respect to the directors of the Registrant and Section 16
compliance and is incorporated herein by reference. Certain information with
respect to persons who are or may be deemed to be executive officers of the
Registrant is set forth under the caption "Executive Officers of the Registrant"
in Part I of this report.
Item 11. EXECUTIVE COMPENSATION
The section entitled "Compensation of Directors and Executive Officers"
appearing in the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 14, 1997, sets forth certain information with
respect to the compensation of management of the Registrant and is incorporated
herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Ownership of the Capital Stock of the Company"
appearing in the Registrant's proxy statement for the annual meeting of
stockholders to be held on May 14, 1997, sets forth certain information with
respect to the ownership of the Registrant's Common Stock and is incorporated
herein by reference.
Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" appearing in the Registrant's
proxy statement for the annual meeting of stockholders to be held on May 14,
1997, sets forth certain information with respect to certain business
relationships and transactions between the Registrant and its directors and
officers and its incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES & REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Registrant are
included under Item 8 of this Form 10-K:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1996 and December 31, 1995
32
<PAGE>
Consolidated Statements of Operations - Years ended December 31, 1996,
December 31, 1995 and December 31, 1994
Consolidated Statements of Stockholders' Equity - Years ended December
31, 1996, December 31, 1995 and December 31, 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
December 31, 1995 and December 31, 1994
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules
The remaining financial statements and statement schedule for which
provision is made in Regulation S-X are set forth in the Index immediately
preceding such financial statements and statement schedule and are incorporated
herein by reference.
(a) (3) Exhibits
The exhibits included as part of this Form 10-K are set forth in the
Exhibit Index immediately preceding such Exhibits and are incorporated herein by
reference.
(b) Reports on Form 8-K
Registrant filed a Report on Form 8-K dated December 12, 1996
reporting under Item 5 the purchase of the remaining 70% minority interest in
Hub City North Central, L.P. in exchange for a note of approximately $15.0
million due January 1, 1998, which bears interest at an annual rate of 7%. No
financial statements were filed in connection with this Report.
33
<PAGE>
SIGNATURES
Pursuant to the 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: March 26, 1997 HUB GROUP, INC.
By /s/ David P. Yeager
-------------------
David P. Yeager
Chief Executive Officer and Vice Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
Title Date
<S> <C> <C>
/s/ Phillip C. Yeager Chairman and Director March 26, 1997
- -------------------------
Phillip C. Yeager
/s/ David P. Yeager Vice Chairman, Chief Executive Officer and March 26, 1997
- ------------------------- Director
David P. Yeager
/s/ William L. Crowder Vice President-Finance and Chief Financial March 26, 1997
- ------------------------- Officer (Principal Financial and Accounting
William L. Crowder Officer)
/s/ Thomas L. Hardin President, Chief Operating Officer and March 26, 1997
- ------------------------- Director
Thomas L. Hardin
/s/ Charles R. Reaves Director March 26, 1997
- -------------------------
Charles R. Reaves
/s/ Martin P. Slark Director March 26, 1997
- -------------------------
Martin P. Slark
/s/ Gary D. Eppen Director March 26, 1997
- -------------------------
Gary D. Eppen
</TABLE>
34
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Hub Partnerships
- ----------------
<S> <C>
Report of Independent Accountants F-2
Combined Balance Sheet - December 31, 1995 F-3
Combined Statements of Operations - Years ended December 31, 1994
and December 31, 1995 and the period January 1 through March 17, 1996 F-4
Combined Statements of Stockholders' Equity - Years ended December 31, 1994
and December 31, 1995 and the period January 1 through March 17, 1996 F-5
Combined Statements of Cash Flows - Years ended December 31, 1994 and
December 31, 1995 and the period January 1 through March 17, 1996 F-6
Notes to Combined Financial Statements F-7
Hub Group, Inc.
- ---------------
Schedule II - Valuation and Qualifying Accounts S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Hub Partnerships:
We have audited the accompanying combined balance sheet of Hub
Partnerships as of December 31, 1995 and the related combined statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1995 and the period January 1, 1996 through March 17,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hub Partnerships as
of December 31, 1995 and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 1995 and the period
January 1, 1996 through March 17, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 6, 1997
F-2
<PAGE>
HUB PARTNERSHIPS
COMBINED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31,
------------
1995
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $10,949
Accounts receivable, net
Trade 74,406
Affiliate 1,774
Prepaid expenses and other current assets 2,473
-------
TOTAL CURRENT ASSETS 89,602
PROPERTY AND EQUIPMENT, net 8,993
OTHER ASSETS 367
-------
TOTAL ASSETS $98,962
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Trade $64,212
Affiliate 2,376
Other 3,323
Accrued expenses
Payroll 4,125
Other 1,115
Current portion of long-term debt 681
-------
TOTAL CURRENT LIABILITIES 75,832
LONG-TERM DEBT, EXCLUDING CURRENT PORTION 1,007
CONTINGENCIES AND COMMITMENTS
MANDATORILY REDEEMABLE COMMON STOCK 10,386
STOCKHOLDERS' EQUITY:
Common stock 1,943
Additional paid-in capital 629
Treasury stock (32)
Retained earnings 9,197
-------
TOTAL STOCKHOLDERS' EQUITY 11,737
-------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $98,962
=======
</TABLE>
The accompanying notes to combined financial statements are an integral part of
this balance sheet.
F-3
<PAGE>
<TABLE>
<CAPTION>
HUB PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
Years Ended December 31, January 1,
--------------------------------- through
1994 1995 March 17, 1996
----------- ------------ --------------
<S> <C> <C> <C>
REVENUE:
Trade $611,694 $644,124 $142,413
Affiliate 14,192 22,390 3,992
-------- -------- --------
Total revenue 625,886 666,514 146,405
PURCHASED TRANSPORTATION 558,263 584,840 128,405
-------- -------- --------
Net revenue 67,623 81,674 18,000
COSTS AND EXPENSES:
Salaries and benefits 33,751 41,049 9,807
Selling, general and administrative 12,875 16,052 3,393
Depreciation and amortization 1,755 2,453 553
-------- -------- --------
Total costs and expenses 48,381 59,554 13,753
Operating income 19,242 22,120 4,247
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense (258) (147) (56)
Interest income 709 623 120
Other, net 320 462 95
-------- -------- --------
Total other income (expense) 771 938 159
INCOME BEFORE INCOME TAXES 20,013 23,058 4,406
INCOME TAXES 310 290 126
-------- -------- --------
NET INCOME $ 19,703 $ 22,768 $ 4,280
======== ======== ========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-4
<PAGE>
HUB PARTNERSHIPS
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
For the two years ended December 31, 1995 and
January 1, 1996 to March 17, 1996
(in thousands, except shares)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------- Paid-in Treasury Retained Stockholders'
Shares Amount Capital Stock Earnings Equity
--------- --------- --------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 102,217 $ 1,893 $ 509 $(42) $ 10,437 $ 12,797
Net income - - - - 19,703 19,703
Distributions to stockholders - - - - (15,085) (15,085)
Stock issued 4,633 25 - 14 - 39
Stock purchased (1,100) - - (4) - (4)
Retained earnings allocable to -
mandatorily redeemable stock - - - - (1,724) (1,724)
------- ------- ----- ---- --------- ---------
Balance at December 31, 1994 105,750 1,918 509 (32) 13,331 15,726
Net income - - - - 22,768 22,768
Distributions to stockholders - - - - (24,122) (24,122)
Stock issued 50 25 120 - - 145
Retained earnings allocable to
mandatorily redeemable stock - - - - (2,780) (2,780)
------- ------- ----- ---- --------- -------
Balance at December 31, 1995 105,800 1,943 629 (32) 9,197 11,737
Net income - - - - 4,280 4,280
Distributions to stockholders - (1,730) (629) 32 (13,477) (15,804)
------- ------- ----- ---- --------- ---------
Balance at March 17, 1996 105,800 $ 213 $ - $ - $ - $ 213
======= ======= ===== ==== ========= =========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
HUB PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31, January 1,
--------------------------------- through
1994 1995 March 17, 1996
------------ ----------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 19,703 $ 22,768 $ 4,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,755 2,453 553
Loss (gain) on sale of assets 58 (92) 3
Changes in working capital:
Accounts receivable, net (16,447) (2,822) 604
Prepaid expenses and other current assets (1,122) (780) 889
Accounts payable 13,088 1,794 4,783
Accrued expenses 1,789 508 (140)
Other assets 198 (58) (407)
------------ ----------- ---------------
Net cash provided by operations 19,022 23,771 10,565
------------ ----------- ---------------
Cash flows from investing activities:
Purchases of property and equipment, net (3,688) (4,485) (775)
------------ ----------- ---------------
Cash flows from financing activities:
Proceeds from sale of common stock 39 145 -
Distributions to stockholders (15,085) (24,122) (13,014)
Purchase and retirement of common stock (4) - -
Payments on long-term debt (511) (927) (361)
Proceeds from issuance of long-term debt 371 1,762 418
------------ ----------- ---------------
Net cash used in financing activities (15,190) (23,142) (12,957)
------------ ----------- ---------------
Net increase (decrease) in cash 144 (3,856) (3,167)
Cash, beginning of period 14,661 14,805 10,949
------------ ----------- ---------------
Cash, end of period $ 14,805 $ 10,949 $ 7,782
=========== =========== ===============
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 75 $ 116 $ 56
Income taxes 335 262 130
Non-cash financing activity:
Notes payable issued as distributions to stockholders $ - $ - $ 13,176
The accompanying notes to combined financial statements are an integral part of these statements.
</TABLE>
F-6
<PAGE>
HUB PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1. Description of Business and Summary of Significant Accounting Policies
Business: The Company (defined below) provides intermodal transportation
services utilizing third party arrangements with railroads and drayage
companies. The Company also arranges for transportation of freight by truck and
performs logistics services.
Principles of Combinations: These combined financial statements include the
financial statements of 26 S corporations and one partnership which are
substantially all under common ownership control (collectively referred to as
the "Company" or "Hub Partnerships"). The financial statements of Hub
Partnerships are presented herein to reflect the financial condition and results
of operations of Hub Partnerships as of and for the periods in which Hub
Partnerships was the predecessor to the business acquired by Hub Group, Inc., as
required pursuant to the rules and regulations of the Securities and Exchange
Commission. All significant intercompany transactions and balances have been
eliminated.
Cash and Cash Equivalents: The Company considers as cash equivalents all highly
liquid investments with an original maturity of three months or less.
Receivables: The Company has recorded a reserve for uncollectible accounts
receivable of approximately $898,000 at December 31, 1995.
Property and Equipment: Property and equipment are stated at cost. Depreciation
of property and equipment is computed using the straight-line and various
accelerated methods at rates adequate to depreciate the cost of applicable
assets over their expected useful lives: buildings and improvements 15 to 40
years; leasehold improvements the shorter of useful life or lease term;
furniture and equipment 3 to 10 years; and transportation equipment 3 to 12
years. Maintenance and repairs are charged to operations as incurred and major
improvements are capitalized. The cost of assets retired or otherwise disposed
of and the accumulated depreciation thereon are removed from the accounts with
any gain or loss realized upon sale or disposal charged or credited to
operations.
Concentration of Credit Risk: The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places its cash and
temporary investments with high quality financial institutions. At times, such
investments may be in excess of the FDIC insurance limit. Temporary investments
are valued at the lower of cost or market and at the balance sheet date,
approximates fair market value. The Company primarily serves customers located
throughout the United States with no significant concentration in any one
region. The Company reviews a customer's credit history before extending credit.
In addition, the Company routinely assesses the financial strength of its
customers and, as a consequence, believes that its trade accounts receivable
risk is limited.
Revenue Recognition: Revenue represents sales of services to customers.
Revenue is recognized based on relative transit time.
Income Taxes: The majority of the entities included in Hub Partnerships have
elected to be taxed as S Corporations. By this election, income of an S
Corporation is taxable to the stockholders rather than the Company itself.
Income tax expense primarily represents applicable state income taxes of those
states that do not recognize Subchapter S Corporations or states which impose
taxes on S Corporation income.
Distributions: The Company makes periodic distributions of income which are
reflected in the accompanying statements of stockholders' equity.
F-7
<PAGE>
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Reclassifications: Certain items previously reported have been reclassified to
conform with the 1996 presentation.
NOTE 2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1995
------------
(000's)
<S> <C>
Land $ 92
Building and improvements 1,376
Leasehold improvements 674
Furniture and equipment 11,980
Transportation equipment 2,353
-----------
16,475
Less: Accumulated depreciation and
amortization (7,482)
-----------
PROPERTY AND EQUIPMENT, net $ 8,993
-----------
</TABLE>
NOTE 3. Long-Term Debt and Financing Arrangements
Fair value approximates book value at the balance sheet date.
<TABLE>
December 31,
1995
------------
(000's)
<S> <C>
Line of credit loans due May 1996 and October 1996,
interest payable monthly, ranging from 1%
above the bank's prime lending rate to prime plus
2%, secured by certain property and equipment,
chattel paper, and intangibles $ 125
Installment notes payable through the
year 1999, monthly installments ranging from
$263-$10,929, including interest, ranging from
2.9% to 12%, collateralized by certain property 1,159
Mortgage note payable due in 1998 with
monthly installments of $2,381, including interest,
at 8.5% collateralized by certain receivables,
certain property and personally guaranteed by a
stockholder 217
Note payable to Hub Group, Inc., due on
demand, with interest payable quarterly at prime
plus 1% 100
Capital lease obligations, collateralized by certain
equipment 87
-----------
Total long-term debt 1,688
Less current maturities (681)
------------
$ 1,007
------------
</TABLE>
F-8
<PAGE>
Aggregate principal payments, in thousands, due subsequent to December
31, 1995, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 681
1997 406
1998 500
1999 101
-----------
$ 1,688
-----------
</TABLE>
The Company had unused aggregate lines of credit of approximately
$5,975,000 at December 31, 1995 with expiration dates beginning in January 1996.
$5,000,000 has no expiration date. Interest rates range from prime less 3/4% to
prime plus 2%. Borrowings are secured by certain assets.
NOTE 4. Rental Expense and Lease Commitments
Minimum annual rental commitments, in thousands, at December 31, 1995,
under noncancellable operating leases, principally for real estate and
equipment, are payable as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $ 2,198
1997 1,557
1998 966
1999 716
2000 624
2001 & thereafter 853
-----------
Total minimum lease payments $ 6,914
-----------
</TABLE>
Total rental expense was approximately $1,629,000, $2,190,000 and
$423,000 for 1994, 1995 and the period January 1, through March 17, 1996,
respectively. Many of the leases contain renewal options and escalation clauses
which require payments of additional rent to the extent of increases in the
related operating costs.
NOTE 5. Legal Matters
In the ordinary course of conducting its business, the Company becomes
involved in various lawsuits related to its business. The Company does not
believe that the ultimate resolution of these matters will be material to its
business, financial position or results of operations.
NOTE 6. Profit-Sharing Plan
The Company has numerous profit-sharing plans and trusts under section
401(k) of the Internal Revenue Code. Generally, for every dollar the employee
contributes the Company will contribute an additional $.20 up to $100. In
addition, the Company may make a profit sharing contribution at its discretion.
Historically, the Company has contributed an amount equal to 3% of each
participant's compensation up to a maximum of $4,500. The Company's
contributions to the Plan were approximately $562,000, $713,000 and $287,000 for
1994, 1995 and the period January 1, through March 17, 1996, respectively.
NOTE 7. Related Party Transactions
The Company provides transportation services to Hub Group, Inc. Revenue
from Hub Group, Inc. was $13,535,000, $21,720,000 and $3,880,000 for 1994, 1995
and the period January 1, through March 17, 1996, respectively. Net fees earned
were $670,000, $734,000 and $116,000 for the same periods, respectively.
F-9
<PAGE>
Hub Group, Inc. provides transportation services to the Company, which
resulted in costs of $11,885,000, $14,712,000 and $3,459,000 for 1994, 1995 and
the period January 1 through March 17, 1996, respectively.
The Company charges assessment fees based primarily on volume and
sales commission expense to Hub Group, Inc. Revenue for such fees were
approximately $657,000, $670,000 and $112,000 for 1994, 1995 and the period
January 1 through March 17, 1996, respectively.
During 1994, the Company leased four facilities from stockholders.
During 1995 and the period January 1, through March 17, 1996, the Company leased
two facilities from stockholders. Rental expense relating to these agreements
was approximately $193,000, $147,000 and $39,000 for 1994, 1995 and the period
January 1 through March 17, 1996, respectively. The terms of the leases extend
through 2000.
NOTE 8. Stockholder Agreements
The majority of the entities included in Hub Partnerships have agreements
with certain of their stockholders which set forth rights of the stockholders
and the corporation. Generally, the agreements require that any stockholder
wishing to sell his shares must first offer the shares for sale to the
corporation and then to the other stockholders, before offering them to a third
party. Generally the agreements state that upon death, disability, or retirement
of a stockholder, the stockholder is required to offer to sell all of the shares
owned by the stockholder to the corporation. Certain agreements stipulate the
corporation is required to purchase these shares. Under the majority of the
agreements, selling price approximates book value, and under two agreements the
selling price approximates fair market value. Generally the agreements also
state that, in the event that a stockholder is terminated, the stockholder is
required to offer to sell his shares to the corporation. Certain agreements
stipulate the corporation is required to purchase the stockholder's shares.
Redemption amounts relating to agreements with mandatory redemption features are
included in Mandatorily Redeemable Common Stock in the accompanying balance
sheet. Payments for shares generally is made over a five-year period.
Additionally, these agreements generally contain non-compete clauses which
preclude a stockholder, while employed by the corporation, from managing,
operating, or controlling a business either similar or dissimilar to the
business carried on by the corporation. The clause also states that following
employment by the corporation, a stockholder may not be employed by or perform
services for any competitor for a period of up to two years. These agreements
continue with respect to the S Corporations' limited partnership interests in
the operating partnerships of Hub Group, Inc.
NOTE 9. Special Distribution
Immediately prior to March 18, 1996, the Company distributed substantially
all of its equity, including retained earnings through March 17, 1996, to its
shareholders in the form of cash and notes. The notes are five-year balloon
notes bearing interest at an annual rate of 5.45%. Interest is compounded
annually with all principal and interest due in March 2001.
F-10
<PAGE>
NOTE 10. Stock
The following tables outline the shares of common stock and
mandatorily redeemable stock authorized, issued, outstanding and in treasury.
<TABLE>
<CAPTION>
December 31,
Common Stock 1995
- ----------------------------------------------- ------------
<S> <C>
Authorized 156,500
Issued 89,000
Outstanding 84,733
Treasury Stock 4,267
</TABLE>
<TABLE>
<CAPTION>
December 31,
Mandatorily Redeemable Stock 1995
- ------------------------------------------------ ------------
<S> <C>
Authorized 33,967
Issued 21,067
Outstanding 21,067
Treasury Stock -
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
HUB GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to
Beginning Costs & Balance at
of Year Expenses Deduction End of Year
<S> ------------- ------------ ------------- ---------------
Year Ended December 31: <C> <C> <C> <C>
Allowance for uncollectible accounts receivable
1996 $ 125,000 $ 768,000 $ (488,000) $ 405,000
1995 110,000 15,000 - 125,000
1994 - 110,000 - 110,000
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Number Exhibit Page
- ------ ------- ------------
<C> <S> <C>
2.1 Purchase Agreement among the Registrant, American President Companies,
Ltd. and APL Land Transport Services, Inc. (incorporated by reference to
the Registrants report on Form 8-K dated May 2, 1996 and filed May 17,
1996, File No. 0-27754)......................................................
2.2 Purchase and Sale Agreement among Hub Holdings, Inc. and Hub City North
Central, Inc.................................................................
3.1 Amended Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 and 3.3 to the Registrant's registration
statement on Form S-1, File No. 33-9021).....................................
3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 to
the Registrant's registration statement on Form S-1, File No. 33-9021).......
10.1 Form of Amended and Restated Limited Partnership Agreement...................
10.2 Amended and Restated Limited Partnership Agreement of Hub City Canada,
L.P..........................................................................
10.3 Form of Non-Competition Agreement............................................
10.4 Purchase and Sale Agreement between the Registrant and the Stockholders
of Hub City Terminals, Inc. (incorporated by reference to Exhibit 10.3
to the Registrant's registration statement on Form S-1, File No.
33-90210)....................................................................
10.5 Hub Group Distribution Services Purchase and Sale Agreement..................
10.6 Management Agreement.........................................................
10.7 Stockholders' Agreement......................................................
11.1 Statement re computation of per share earnings...............................
21 Subsidiaries of the Registrant...............................................
23.1 Consent of Arthur Andersen LLP...............................................
27 Financial Data Schedule......................................................
</TABLE>
<PAGE>
EXHIBIT 2.2
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of November
21, 1996, is between Hub Holdings, Inc., a Delaware corporation ("Hub
Holdings"), and Hub City North Central, Inc., a Wisconsin corporation
("Seller").
WHEREAS, Seller is the sole limited partner of Hub City North Central,
L.P., a Delaware limited partnership (the "Partnership"), and Hub Group, Inc. is
the sole shareholder of the sole general partner of the Partnership; and
WHEREAS, Seller desires to sell to Hub Holdings all of Seller's limited
partnership interest (the "Interest") in the Partnership and Hub Holdings
desires to purchase such Interest on the terms and subject to the conditions
described herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and warranties herein contained, the parties hereto agree
as follows:
1. Purchase and Sale. Subject to the terms and conditions herein set
forth, Hub Holdings agrees to purchase from Seller, and Seller agrees to sell to
Hub Holdings, the Interest owned by Seller in exchange for $14,969,576, to be
paid in the form of the promissory note attached hereto as Exhibit A (the
"Note").
2. Closing. The purchase of the Interest shall occur as soon as
practicable after the approval of this Agreement as contemplated by Section 7
hereof. The closing shall take place at the offices of Mayer, Brown & Platt, 190
South LaSalle Street, Chicago, Illinois 60603. At the closing, Hub Holdings
shall deliver to Seller a duly executed original of the Note, and Seller shall
deliver to Hub Holdings such instruments of transfer as Hub Holdings shall
reasonably request.
3. Representations and Warranties of Hub Holdings. Hub Holdings hereby
represents and warrants to Seller as follows:
(a) Due Organization. Hub Holdings is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, with corporate power to own its properties and to conduct its
business as now conducted.
(b) Authorization. Hub Holdings has the requisite power to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement has been, and the Note will be, duly authorized, executed and
delivered by Hub Holdings and constitutes a valid and binding agreement,
enforceable against Hub Holdings in accordance with its terms except to the
extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights
<PAGE>
generally or by general equitable principles. Neither the execution and
delivery of this Agreement, the consummation of the transactions
contemplated hereby, nor compliance with the terms, conditions or
provisions of this Agreement will be a violation of any of the terms,
conditions or provisions of Hub Holdings's Certificate of Incorporation or
bylaws or of any material agreement or instrument to which it is a party or
by which it or its material properties may be bound, or constitute a
default or create a right of termination or acceleration thereunder.
(c) Consents and Approvals. No consent, authorization or approval
of, filing or registration with, or cooperation from, any governmental
authority or any other person not a party to this Agreement is necessary in
connection with the execution, delivery and performance by Hub Holdings of
this Agreement and the consummation of the transactions contemplated
hereby.
4. Representations and Warranties of Seller. Seller hereby represents and
warrants to Hub Holdings as follows:
(a) Due Organization. Seller is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization,
with corporate power to own its properties and to conduct its business as
now conducted.
(b) Authorization. Seller has the requisite power and authority to
enter into this Agreement and, subject to receiving the Required
Shareholder Approval (as defined below), to carry out its obligations
hereunder. This Agreement has been duly executed and delivered by Seller
and constitutes a valid and binding agreement of Seller, enforceable
against Seller in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles. None of the execution and
delivery of this Agreement, consummation of the transactions contemplated
hereby or compliance with the terms, conditions or provisions of this
Agreement, will be a violation of any of the terms, conditions or
provisions of any material agreement or instrument to which Seller is a
party or by which Seller may be bound, or constitute a default or create a
right of termination or acceleration thereunder.
(c) Title. Seller has good and marketable title to its Interest and
owns such Interest free and clear of all liens, encumbrances, claims,
security interests and defects. Such Interest was duly and validly issued
and fully paid.
(d) Complete Transfer of Interest. The assignments, endorsements,
powers and other instruments of transfer delivered by Seller to Hub
Holdings will be sufficient to transfer its Interest. Subject to receiving
the Required Shareholder Approval, Seller has full power and authority to
convey good and marketable title to the Interest, and upon such
-2-
<PAGE>
transfer, Hub Holdings will receive good and marketable title thereto, free
and clear of all liens.
5. Conditions to the Obligations of Hub Holdings. The obligations of Hub
Holdings under this Agreement are subject to the fulfillment of each of the
following conditions:
(a) Representations and Warranties. The representations and
warranties in this Agreement made by Seller shall be true in all material
respects on the date hereof.
(b) Performance. Seller shall have performed and complied in all
material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
Seller.
(c) Injunctions. No preliminary or permanent injunction or other
final order by any United States Federal or state court shall have been
issued which prevents the consummation of the transactions contemplated
hereby.
(d) Required Shareholder Approval. Seller shall have received the
Required Shareholder Approval.
(e) Material Adverse Affect. There shall not have occurred any event
or development that, in the sole and absolute judgment of Hub Holdings,
would materially and adversely affect the value of the transactions
contemplated hereby to Hub Holdings or its sole shareholder.
6. Conditions to the Obligations of Seller. The obligations of Seller
under this Agreement are subject to the fulfillment of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties in this Agreement made by Hub Holdings shall be true in all
material respects on the date hereof.
(b) Performance. Hub Holdings shall have performed and complied in
all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
it.
(c) Injunctions. No preliminary or permanent injunction or other
final order by any United States Federal or state court shall have been
issued which prevents the consummation of the transactions contemplated
hereby.
(d) Required Shareholder Approval. Seller shall have received the
Required Shareholder Approval.
-3-
<PAGE>
7. Required Shareholder Approval. Seller shall promptly take such action
as may be required by its governing instruments and applicable law to seek to
obtain the requisite approval of its shareholders of this Agreement and the
transactions contemplated hereby (the "Required Shareholder Approval"). Seller
shall use its best efforts to receive the Required Shareholder Approval and the
board of directors shall recommend to the shareholders of Seller the approval of
this Agreement and the transactions contemplated hereby.
8. Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors, assigns and affiliates, but shall not be assignable
by any party hereto without the prior written consent of the other parties
hereto.
9. Notices. Any notice or other communication provided for herein or
given hereunder to a party hereto shall be in writing and shall be given by
delivery, by telex, telecopier or by mail (registered or certified mail, postage
prepaid, return receipt requested) to the respective parties as follows:
If to Hub Holdings:
Hub Holdings, Inc.
377 East Butterfield Road
Suite 700
Lombard, IL 60148
Attention: David P. Yeager
Facsimile: (708) 964-6475
If to Seller:
Hub City North Central, Inc.
9242 W. National Avenue
Milwaukee, WI 53227
Facsimile: (414) 545-7424
10. Waiver. No party may waive any of the terms or conditions of this
Agreement except by a duly signed writing referring to the specific provision to
be waived.
11. Entire Agreement. This Agreement constitutes the entire agreement,
and supersedes all other prior agreements and understandings, both written and
oral, among the parties hereto and their affiliates with respect to the matters
set forth herein.
12. Expenses. Except as otherwise expressly contemplated herein to the
contrary, regardless of whether the transactions contemplated hereby are
consummated, each party shall
-4-
<PAGE>
bear its own expenses incident to preparing for, entering into and carrying out
this Agreement and the consummation of the transactions contemplated hereby.
13. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and, no provision of this Agreement shall be
deemed to confer upon other third parties any remedy, claim, liability,
reimbursement, cause of action or other right.
14. Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
15. Captions. The Section and Paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
17. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first executed.
HUB HOLDINGS, INC.
By: /s/ David P. Yeager
-------------------
David P. Yeager
Authorized Officer
HUB CITY NORTH CENTRAL, INC.
By: /s/ David P. Yeager
-------------------
David P. Yeager
Authorized Officer
-5-
<PAGE>
EXHIBIT A
Form of Promissory Note
December 12, 1996 US$14,969,576
For value received, the undersigned, Hub Holdings, Inc., a Delaware
corporation or its assigns (herein the "PAYOR"), promises to pay to the order of
Hub City North Central, Inc., FOURTEEN MILLION, NINE HUNDRED SIXTY-NINE THOUSAND
FIVE HUNDRED SEVENTY-SIX DOLLARS (US$14,969,576), plus interest on the unpaid
principal amount hereof outstanding from time to time at the applicable Rate of
Interest (as defined below), at such times and on such terms as described below.
1. Repayment of Principal. The aggregate principal amount of this
Promissory Note shall be payable in whole on January 1, 1998, such date being
referred to as the Final Maturity Date.
2. Payment of Interest. Interest will be payable at maturity, whether by
optional prepayment or on the Final Maturity Date. All interest will be
calculated for the actual number of days elapsed on the basis of a 365-day year.
3. Rate of Interest. The Rate of Interest shall be seven percent (7%).
In the event of any default in the payment of interest or principal hereunder,
the Rate of Interest shall be nine percent (9%) for such period that the PAYOR
shall be in default.
4. Optional Prepayment. The PAYOR, at its option, may prepay this
Promissory Note, together with all accrued interest on the principal balance
prepaid, in whole or in part at any time prior to the Final Maturity Date.
In addition to, and not in limitation of, the foregoing, the undersigned
further agrees, subject only to any limitation imposed by applicable law, to pay
all expenses, including reasonable attorneys' fees and expenses, incurred by the
holder of this Promissory Note in seeking to collect any amounts payable
hereunder which are not paid when due.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, protest, and notice of dishonor. Recourse under
this Promissory Note shall be limited solely to the assets of the PAYOR.
This Promissory Note may not be changed or modified orally.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
IN WITNESS WHEREOF, the undersigned has executed this Promissory Note as of
the date first above written.
HUB HOLDINGS, INC.
By:
-----------------------------------
Name: David P. Yeager
Title: Authorized Officer
A-1
<PAGE>
GUARANTY
The undersigned hereby absolutely and unconditionally guarantees the due
and punctual payment and performance under the foregoing Promissory Note from
Hub Holdings, Inc. in favor of Hub City North Central, Inc. in the original
principal amount of $14,969,576.
HUB GROUP, INC.
By:
----------------------------------
David P. Yeager
Vice Chairman
A-2
<PAGE>
EXHIBIT 10.1
FORM OF AMENDED AND RESTATED PARTNERSHIP AGREEMENT FOR
HUB CITY ALABAMA, L.P.
HUB CITY ATLANTA, L.P.
HUB CITY BOSTON, L.P.
HUB CITY CLEVELAND, L.P.
HUB CITY DALLAS, L.P.
HUB CITY DETROIT, L.P.
HUB CITY FLORIDA, L.P.
HUB CITY GOLDEN GATE, L.P.
HUB CITY HOUSTON, L.P.
HUB CITY INDIANAPOLIS, L.P.
HUB CITY KANSAS CITY, L.P.
HUB CITY LOS ANGELES, L.P.
HUB CITY MID-ATLANTIC, L.P.
HUB CITY NEW HAVEN, L.P.
HUB CITY NEW ORLEANS, L.P.
HUB CITY NEW YORK STATE, L.P.
HUB CITY NEW YORK-NEW JERSEY, L.P.
HUB CITY NORTH CENTRAL, L.P.
HUB CITY OHIO, L.P.
HUB CITY PHILADELPHIA, L.P.
HUB CITY PITTSBURGH, L.P.
HUB CITY PORTLAND, L.P.
HUB CITY RIO GRANDE, L.P.
HUB CITY ST. LOUIS, L.P.
HUB CITY TENNESSEE, L.P.
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HUB CITY ALABAMA, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINED TERMS......................1
"Act".............................................................. 1
"Adjusted Capital Account"......................................... 2
"Adjusted Capital Account Deficit"................................. 2
"Adjusted Property"................................................ 2
"Affiliate"........................................................ 2
"Agreed Value"..................................................... 2
"Agreement"........................................................ 2
"Available Cash"................................................... 2
"Average Net After-Tax Profit"..................................... 3
"Book-Tax Disparities"............................................. 3
"Business Day"..................................................... 4
"Capital Account".................................................. 4
"Capital Contribution"............................................. 4
"Carrying Value"................................................... 4
"Certificate"...................................................... 4
"Code"............................................................. 4
"Common Stock"..................................................... 4
"Contributed Property"............................................. 4
"Depreciation"..................................................... 4
"Discount Rate".................................................... 5
"Event of Dissolution"............................................. 5
"Formation General Partner"........................................ 5
"Formation Limited Partner"........................................ 5
"General Partner".................................................. 5
"General Partnership Interest"..................................... 5
"IRS".............................................................. 5
"Incapacity"....................................................... 5
"Indemnitee"....................................................... 6
"Limited Partner".................................................. 6
"Limited Partnership Interest"..................................... 6
"Liquidator"....................................................... 6
"Net After-Tax Profit"............................................. 6
"Net Income"....................................................... 6
"Net Loss"......................................................... 6
"Non-Competition Agreement"........................................ 6
"Nonrecourse Built-in Gain"........................................ 6
"Nonrecourse Deductions"........................................... 7
"Nonrecourse Liability"............................................ 7
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"Original Agreement"............................................. 7
"Partner"........................................................ 7
"Partner Minimum Gain"........................................... 7
"Partner Nonrecourse Debt"....................................... 7
"Partner Nonrecourse Deductions"................................. 7
"Partnership".................................................... 7
"Partnership Interest"........................................... 7
"Partnership Minimum Gain"....................................... 7
"Partnership Year"............................................... 7
"Percentage Interest"............................................ 7
"Person"......................................................... 8
"Price/Earnings Multiple"........................................ 8
"Purchase Amount"................................................ 8
"Purchase Notice"................................................ 8
"Purchase Right"................................................. 8
"Recapture Income"............................................... 8
"Regulations".................................................... 8
"Residual Gain" or "Residual Loss"............................... 8
"704(c) Value"................................................... 8
"Subsidiary"..................................................... 9
"Substituted Limited Partner".................................... 9
"Unrealized Gain"................................................ 9
"Unrealized Loss"................................................ 9
"Value".......................................................... 9
ARTICLE II
ORGANIZATIONAL MATTERS....................... 10
Section 2.1 Continuation; Application of Act.............. 10
Section 2.2 Name.......................................... 10
Section 2.3 Registered Office and Agent; Principal Office. 10
Section 2.4 Term.......................................... 11
ARTICLE III
PURPOSE......................... 11
Section 3.1 Purpose and Business.......................... 11
Section 3.2 Powers........................................ 12
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF INTERESTS; CAPITAL ACCOUNTS..... 11
Section 4.1 Capital Contributions of the Partners......... 11
Section 4.2 Capital Accounts of the Partners.............. 12
ARTICLE V
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<TABLE>
<S> <C> <C>
DISTRIBUTIONS.............................. 15
Section 5.1 Requirement and Characterization of Distributions............ 15
Section 5.2 Amounts Withheld............................................. 15
Section 5.3 Distributions Upon Liquidation............................... 15
ARTICLE VI
ALLOCATIONS................................ 15
Section 6.1 Allocations For Capital Account Purposes..................... 15
Section 6.2 Special Allocation Rules..................................... 16
Section 6.3 Allocations for Tax Purposes................................. 18
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS........................... 19
Section 7.1 Management................................................... 19
Section 7.2 Certificate of Limited Partnership........................... 22
Section 7.3 Restrictions on General Partner's Authority.................. 22
Section 7.4 Responsibility for Expenses.................................. 22
Section 7.5 Outside Activities of the General Partner.................... 23
Section 7.6 Contracts with Affiliates.................................... 23
Section 7.7 Indemnification.............................................. 24
Section 7.8 Liability of the General Partner............................. 26
Section 7.9 Other Matters Concerning the General Partner................. 27
Section 7.10 Title to Partnership Assets.................................. 27
Section 7.11 Reliance by Third Parties.................................... 27
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER....................... 28
Section 8.1 Limitation of Liability...................................... 28
Section 8.2 Management of Business....................................... 28
Section 8.3 Outside Activities of Limited Partner........................ 28
Section 8.4 Priority Among Partners...................................... 29
Section 8.5 Rights of Limited Partner Relating to the Partnership........ 29
Section 8.6 Purchase Right............................................... 30
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS.......................... 31
Section 9.1 Records and Accounting....................................... 31
Section 9.2 Fiscal Year.................................................. 31
Section 9.3 Reports...................................................... 31
ARTICLE X
TAX MATTERS..................................................... 31
Section 10.1 Preparation of Tax Returns.................................. 31
</TABLE>
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<TABLE>
<S> <C> <C>
Section 10.2 Tax Elections.............................................. 32
Section 10.3 Tax Matters Partner........................................ 32
Section 10.4 Organizational Expenses.................................... 33
Section 10.5 Withholding................................................ 33
</TABLE>
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ARTICLE XI
<TABLE>
<S> <C> <C>
TRANSFERS AND WITHDRAWALS........................ 34
Section 11.1 Transfer.................................................... 34
Section 11.2 Transfer of General Partner's Partnership Interest.......... 34
Section 11.3 Limited Partner's Rights to Transfer........................ 35
Section 11.4 General Provisions.......................................... 36
ARTICLE XII
ADMISSION OF PARTNERS.......................... 36
Section 12.1 Admission of Successor General Partner...................... 36
Section 12.2 Admission of Additional Limited Partners.................... 36
Section 12.3 Amendment of Agreement and Certificate...................... 37
ARTICLE XIII
DISSOLUTION AND LIQUIDATION...................... 37
Section 13.1 Dissolution................................................. 37
Section 13.2 Right to Continue the Partnership Business.................. 38
Section 13.3 Winding Up.................................................. 38
Section 13.4 Compliance with Timing Requirements of Regulations;
Allowance for Contingent or Unforeseen Liabilities
or Obligations.............................................. 39
Section 13.5 Deemed Distribution and Recontribution...................... 40
Section 13.6 Rights of Limited Partner................................... 40
Section 13.7 Notice of Dissolution....................................... 41
Section 13.8 Cancellation of Certificate of Limited Partnership.......... 41
Section 13.9 Reasonable Time for Winding-Up.............................. 41
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS................ 41
Section 14.1 Amendments.................................................. 41
ARTICLE XV
GENERAL PROVISIONS........................... 42
Section 15.1 Addresses and Notice........................................ 42
Section 15.2 Titles and Captions......................................... 42
Section 15.3 Pronouns and Plurals........................................ 42
Section 15.4 Further Action.............................................. 42
Section 15.5 Binding Effect.............................................. 43
Section 15.6 Waiver of Partition......................................... 43
Section 15.7 Entire Agreement............................................ 43
Section 15.8 Securities Law Provisions................................... 43
Section 15.9 Remedies Not Exclusive...................................... 43
Section 15.10 Time........................................................ 43
Section 15.11 Creditors................................................... 43
v
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<PAGE>
Section 15.12 Waiver............................................... 43
Section 15.13 Execution Counterparts............................... 43
Section 15.14 Applicable Law....................................... 43
Section 15.15 Invalidity of Provisions............................. 44
ARTICLE XVI
POWER OF ATTORNEY........................... 44
Section 16.1 Power of Attorney.................................... 44
vi
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
HUB CITY ALABAMA, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as
of March 18, 1996, of Hub City Alabama, L.P. (the "Partnership") is entered into
by and among Hub City Terminals, Inc. (the "General Partner"), a Delaware
corporation, as the General Partner and Hub City Alabama Terminals, Inc., an
Alabama corporation (the "Limited Partner"), as the Limited Partner.
WHEREAS, pursuant to the Original Agreement, the Formation General
Partner, the Limited Partner and the Formation Limited Partner formed the
Partnership;
WHEREAS, the Formation General Partner, the Limited Partner and the
Formation Limited Partner desire to admit the General Partner as the general
partner of the Partnership;
WHEREAS, the Formation General Partner desires to sell its general
partnership interest in the Partnership to the General Partner and, upon
consummation of such sale, to withdraw as general partner of the Partnership;
WHEREAS, the Formation Limited Partner desires to withdraw as a
limited partner of the Partnership; and
WHEREAS, the General Partner and the Limited Partner, being all of the
Partners of the Partnership, desire to continue the Partnership as a limited
partnership under the Act, and are entering into this Agreement to amend and
restate the Original Agreement to reflect and confirm the foregoing admission
and withdrawals, and to amend, restate and supersede in its entirety the
Original Agreement, as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual promises
and agreements herein made, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the General Partner
and the Limited Partner, intending to be legally bound, have agreed and do
hereby agree as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as
it may be amended from time to time, and any successor to such statute.
1
<PAGE>
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (a) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (b)
decreased by the items described in Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Adjusted Capital Account as of
the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.2 hereof. Once an Adjusted Property is
deemed distributed by, and recontributed to, the Partnership for Federal income
tax purposes upon a termination thereof pursuant to Section 708 of the Code,
such property shall thereafter constitute a Contributed Property until the
Carrying Value of such property is further adjusted pursuant to Section 4.2
hereof.
"Affiliate" means, with respect to any Person, (a) any Person directly
or indirectly controlling, controlled by or under common control with such
Person, (b) any Person owning or controlling 10 percent or more of the
outstanding voting interests of such Person, (c) any Person of which such Person
owns or controls 10 percent or more of the voting interests, or (d) any officer,
director, general partner or trustee of such Person or any Person referred to in
clauses (a), (b) and (c) above.
"Agreed Value" means (a) in the case of any Contributed Property set
forth in Exhibit B and as of the time of its contribution to the Partnership,
the Agreed Value of such property as set forth in Exhibit B; (b) in the case of
any Contributed Property not set forth in Exhibit B and as of the time of its
contribution to the Partnership, the 704(c) Value of such property or other
consideration, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed, and (c)
in the case of any property distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Available Cash" means with respect to any period for which such
calculation is being made:
2
<PAGE>
(a) all cash revenues and funds received by the Partnership from
whatever source (excluding the proceeds of any Capital Contribution to the
Partnership pursuant to Section 4.1 hereof) plus the amount of any reduction
(including, without limitation, a reduction resulting because the General
Partner determines such amounts are no longer necessary) in reserves of the
Partnership, which reserves are referred to in clause (b)(iv) below;
(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made during
such period by the Partnership,
(ii) all cash expenditures (including capital expenditures) made
by the Partnership,
(iii) investments in any entity (including loans made thereto) to
the extent that such investments are not otherwise described in clauses (b)(i)
or (ii), and
(iv) the amount of any increase in reserves established during
such period which the General Partner determines are necessary or appropriate in
its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any
cash received or reductions in reserves, or take into account any disbursements
made or reserves established, after commencement of the dissolution and
liquidation of the Partnership.
"Average Net After-Tax Profit" means the average annual Net After-Tax
Profit of the Partnership for the most recently completed twelve fiscal quarter
period. If the Partnership has been existence for less than twelve complete
fiscal quarters, Average Net After-Tax Profit shall be calculated using the net
after-tax profit of the Limited Partner (determined on a basis consistent with
that used for determining Net After-Tax Profit for the Partnership) for such
completed fiscal quarters, or portions thereof of the Partnership and of the
Limited Partner as are necessary to include twelve completed fiscal quarters in
the foregoing calculation.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for Federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section
3
<PAGE>
4.2 and the hypothetical balance of such Partner's Capital Account computed as
if it had been maintained strictly in accordance with Federal income tax
accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Chicago, Illinois are authorized or required by law to
close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Section 4.2 hereof.
"Capital Contribution" means, with respect to any Partner, any cash,
cash equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1 hereof.
"Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts and (b) with respect to any other Partnership property, the
adjusted basis of such property for Federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Section 4.2 hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"Certificate" means the Certificate of Limited Partnership relating to
the Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Code" means the Internal Revenue Code of 1986, as amended. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Common Stock" means the shares of Class A Common Stock, $.01 par
value per share, of Hub Group, Inc., a Delaware corporation and the sole
stockholder of the General Partner.
"Contributed Property" means each property or other asset (but
excluding cash), in such form as may be permitted by the Act contributed or
deemed contributed to the Partnership (including for this purpose any property
or other asset deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 4.2 hereof, such
property shall no longer constitute a Contributed Property for purposes of
Section 4.2 hereof, but shall be deemed an Adjusted Property for such purposes.
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"Depreciation" means for each fiscal year, an amount equal to the
Federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for Federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
Federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
that if the Federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Discount Rate" shall mean, for any given Price/Earnings Multiple, the
Discount Rate set forth on Exhibit C opposite such Price/Earnings Multiple.
"Event of Dissolution" has the meaning set forth in Section 13.1.
"Formation General Partner" means Hub City Alabama Terminals, Inc. in
its capacity as general partner under the Original Agreement.
"Formation Limited Partner" means David P. Yeager.
"General Partner" means Hub City Terminals, Inc., a Delaware
corporation, or its successors as a general partner of the Partnership.
"General Partnership Interest" means a Partnership Interest held by a
General Partner that is a general partnership interest.
"IRS" means the Internal Revenue Service, which administers the
internal revenue laws of the United States.
"Incapacity" or "Incapacitated" means, (a) as to any corporation which
is a Partner, the filing of a certificate of dissolution, or its equivalent, for
the corporation or the revocation of its charter, (b) as to any partnership
which is a Partner, the dissolution and commencement of winding up of the
partnership or (c) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (i) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (ii) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (iii) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (iv) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (ii) above, (v) the Partner seeks, consents to or
acquiesces in the
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appointment of a trustee, receiver or liquidator for the Partner or for all or
any substantial part of the Partner's properties, (vi) any proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect has not been dismissed within 120
days after the commencement thereof, (vii) the appointment without the Partner's
consent or acquiescence of a trustee, receiver or liquidator has not been
vacated or stayed within 90 days of such appointment, or (viii) an appointment
referred to in clause (vii) is not vacated within 90 days after the expiration
of any such stay.
"Indemnitee" means (a) any Person made a party to a proceeding by
reason of his status as (i) the General Partner or (ii) an officer of the
Partnership or a director or officer of the General Partner, and (b) such other
Persons (including Affiliates of the General Partner or the Partnership) as the
General Partner may designate from time to time, in its sole and absolute
discretion.
"Limited Partner" means Hub City Alabama Terminals, Inc., an Alabama
corporation, or its successors, as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Partners.
"Liquidator" has the meaning set forth in Section 13.3.
"Net After-Tax Profit" means, with respect to each fiscal quarter of
the Partnership, Net Income, after provision for income taxes as if the
Partnership were a taxable corporation under subchapter C of the Code and before
adjustments for extraordinary items for each quarter.
"Net Income" means for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 4.2. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Sections 6.2 and 6.3, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 4.2. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Loss is subjected to the special
allocation rules in Sections 6.2 and 6.3, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such item.
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"Non-Competition Agreement" means that certain Non-Competition
Agreement dated as of the date hereof between the Partnership and the Principal.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 6.3(b) if such properties
were disposed of in a taxable transaction in full satisfaction of such
liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Original Agreement" means that certain Agreement of Limited
Partnership, dated as of February 12, 1996, between the Formation General
Partner, the Limited Partner and the Formation Limited Partner.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partner.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(i)(2).
"Partnership" means the limited partnership formed under the Act and
continued pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by either Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
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"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease in Partnership Minimum Gain, for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(d).
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in the
Partnership as specified in Exhibit A attached hereto, as such Exhibit may be
amended from time to time.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Price/Earnings Multiple" means the average of (i) the quotient
obtained by dividing (A) the Value by (B) the aggregate net income per share of
Common Stock for the four-quarter period immediately preceding the date of
calculation, and (ii) the aggregate projected price/earnings ratio per share of
Common Stock as reported by First Call for the four-quarter period immediately
following the date of calculation.
"Principal" means John H. Beck, an employee of the Partnership.
"Purchase Amount" means an amount determined by multiplying (i) the
product of (a) the Price/Earnings Multiple times (b) the Average Net After-Tax
Profit by (ii) one (1) minus the Discount Rate.
"Purchase Notice" has the meaning set forth in Section 8.6(b).
"Purchase Right" has the meaning set forth in Section 8.6(a).
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or Section
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Regulations" means the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for Federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such
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item of gain or loss is not allocated pursuant to Section 6.3(b)(1)(i) or
6.3(b)(2)(i) to eliminate Book-Tax Disparities.
"704(c) Value" of any Contributed Property means the value of such
property as set forth in Exhibit B, or if no value is set forth in Exhibit B,
the fair market value of such property or other consideration at the time of
contribution as determined by the General Partner using such reasonable method
of valuation as it may adopt; provided, however, that the 704(c) Value of any
property deemed contributed to the Partnership for Federal income tax purposes
upon termination and reconstitution thereof pursuant to Section 708 of the Code
shall be determined in accordance with Section 4.2 hereof. Subject to Section
4.2 hereof, the General Partner shall use such method as it deems reasonable and
appropriate to allocate the aggregate of the 704(c) Value of Contributed
Properties among each separate property on a basis proportional to its fair
market value.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (a) the voting power of the voting equity
securities or (b) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.3.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property (as determined under Section 4.2 hereof) as of
such date, over (b) the Carrying Value of such property (prior to any adjustment
to be made pursuant to Section 4.2 hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property (prior to any adjustment to be made pursuant to Section
4.2 hereof) as of such date, over (b) the fair market value of such property (as
determined under Section 4.2 hereof) as of such date.
"Value" means, with respect to a share of Common Stock, the average of
the daily market price for the thirty (30) consecutive trading days immediately
preceding the date of determination. The market price for each such trading day
shall be: (a) if the shares of Common Stock are listed or admitted to trading on
any securities exchange or the NASDAQ-National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, (b) if the shares of
Common Stock are not listed or admitted to trading on any securities exchange or
the NASDAQ-National Market System, the last reported sale price on such day or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner, or (c) if the shares of Common Stock are not listed or admitted
to trading on any securities exchange or the NASDAQ-National Market System and
no such last reported sale price or closing bid and asked prices
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are available, the average of the reported high bid and low asked prices on such
day, as reported by a reliable quotation source designated by the General
Partner, or if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than 30 days prior to the date in question) for which prices have been
so reported; provided, that if there are no bid and asked prices reported during
the 30 days prior to the date in question, the Value of the shares of Common
Stock shall be determined by the board of directors of the sole stockholder of
the General Partner acting in good faith on the basis of such quotations and
other information as it considers, in its reasonable judgment, appropriate.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Continuation; Application of Act.
---------------------------------
(a) Continuation of Partnership. The General Partner and the Limited
Partner do hereby continue the Partnership as a limited partnership according to
all of the terms and provisions of this Agreement and otherwise in accordance
with the Act. The General Partner is the sole general partner and the Limited
Partner is the sole limited partner of the Partnership. All Partnership profits,
losses and distributive shares of tax items accruing prior to the effectiveness
of this Agreement shall be allocated in accordance with, and the respective
rights and obligations of partners with respect to the period prior to the
effectiveness of this Agreement shall be governed by, the Original Agreement.
The Formation General Partner hereby withdraws from the Partnership. The
Formation Limited Partner hereby withdraws from the Partnership in exchange for
a return of his original capital contribution.
(b) Application of Act. The Partnership is a limited partnership
subject to the provisions of the Act and the terms and conditions set forth in
this Agreement. Except as expressly provided herein to the contrary, the rights
and obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. No Partner has any interest in any
Partnership property, and the Partnership Interest of each Partner shall be
personal property for all purposes.
Section 2.2 Name. The name of the Partnership is Hub City Alabama,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partner of such change in the next regular communication to
the Limited Partner.
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Section 2.3 Registered Office and Agent; Principal Office. The address
of the registered office of the Partnership in the State of Delaware is located
at 1209 Orange Street, Wilmington, County of New Castle, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office is The Corporation Trust Company. The principal office of the
Partnership is located at Hub Group, Inc., 377 East Butterfield Road, Suite 700,
Lombard, Illinois 60148, or such other place as the General Partner may from
time to time designate by notice to the Limited Partner. The Partnership may
maintain offices at such other place or places within or outside the State of
Illinois as the General Partner deems advisable.
Section 2.4 Term. The term of the Partnership shall commence on the
date hereof, and shall continue until December 31, 2096, unless it is dissolved
sooner pursuant to the provisions of Article XIII or as otherwise provided by
law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the
business to be conducted by the Partnership is (a) to conduct any business that
may be lawfully conducted by a limited partnership organized pursuant to the
Act, (b) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing or the ownership of interests in
any entity engaged in any of the foregoing and (c) to do anything necessary or
incidental to the foregoing.
Section 3.2 Powers. The Partnership is empowered to do any and all
acts and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described herein and for the protection and benefit of the Partnership; provided
that the Partnership shall not take, or refrain from taking, any action which,
in the judgment of the General Partner, in its sole and absolute discretion,
could violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF INTERESTS;
CAPITAL ACCOUNTS
Section 4.1 Capital Contributions of the Partners.
-------------------------------------
(a) Initial Capital Contributions. The General Partner shall
succeed to the capital contribution of the Formation General Partner. At the
time of the execution of this Agreement, the Partners shall make, shall have
made or shall be deemed to have
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made the Capital Contributions set forth in Exhibit A to this Agreement. The
Partners shall have a Percentage Interest in the Partnership as set forth in
Exhibit A.
(b) Additional Capital Contributions. No Partner shall be assessed or,
except as provided for in Section 13.4(b) below, and except for any such amounts
which a Limited Partner may be obligated to repay under Section 10.5, be
required to contribute additional funds or other property to the Partnership.
Any additional funds or other property required by the Partnership, as
determined by the General Partner in its sole discretion, may, at the option of
the General Partner and without an obligation to do so (except as provided for
in Section 13.4(b) below), be loaned by the General Partner to the Partnership
on such terms as the General Partner deems appropriate.
(c) Return of Capital Contributions. Except as otherwise expressly
provided herein, the Capital Contribution of the Limited Partner will be
returned to that Partner only in the manner and to the extent provided in
Article V and Article XIII hereof, and no Partner may withdraw from the
Partnership or otherwise have any right to demand or receive the return of its
Capital Contribution to the Partnership (as such), except as specifically
provided herein. Under circumstances requiring a return of any Capital
Contribution, no Partner shall have the right to receive property other than
cash, except as specifically provided herein. No Partner shall be entitled to
interest on any Capital Contribution or Capital Account notwithstanding any
disproportion therein as between the Partners. Except as specifically provided
herein, the General Partner shall not be liable for the return of any portion of
the Capital Contribution of the Limited Partner, and the return of such Capital
Contributions shall be made solely from Partnership assets.
(d) Liability of Limited Partner. The Limited Partner shall have no
further personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Partnership, nor shall the Limited Partner
be personally liable for any obligations of the Partnership, except as otherwise
provided in this Article IV or in the Act. The Limited Partner shall not be
required to make any contributions to the capital of the Partnership other than
its initial Capital Contribution.
Section 4.2 Capital Accounts of the Partners.
--------------------------------
(a) General. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section 1.704-
1(b)(2)(iv). Such Capital Account shall be increased by (a) the amount of all
Capital Contributions made by such Partner to the Partnership pursuant to this
Agreement and (b) all items of Partnership income and gain (including income and
gain exempt from tax) computed in accordance with Section 4.2(b) hereof and
allocated to such Partner pursuant to Sections 6.1 and 6.2 of this Agreement,
and decreased by (i) the amount of cash or Agreed Value of all actual and deemed
distributions of cash or property made to such
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Partner pursuant to this Agreement and (ii) all items of Partnership
deduction and loss computed in accordance with Section 4.2(b) hereof and
allocated to such Partner pursuant to Sections 6.1 and 6.2 of this
Agreement.
(b) Income, Gains, Deductions and Losses. For purposes of computing
the amount of any item of income, gain, loss or deduction to be reflected
in the Partners' Capital Accounts, unless otherwise specified in this
Agreement, the determination, recognition and classification of any such
item shall be the same as its determination, recognition and classification
for Federal income tax purposes determined in accordance with Section
703(a) of the Code (for this purpose all items of income, gain, loss or
deduction required to be stated separately pursuant to Section 703(a)(1) of
the Code shall be included in taxable income or loss), with the following
adjustments:
(1) Except as otherwise provided in Regulations Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership; provided that
the amounts of any adjustments to the adjusted bases of the assets of
the Partnership made pursuant to Section 734 of the Code as a result
of the distribution of property by the Partnership to a Partner (to
the extent that such adjustments have not previously been reflected in
the Partners' Capital Accounts) shall be reflected in the Capital
Accounts of the Partners in the manner and subject to the limitations
prescribed in Regulations Section 1.704-1(b)(2)(iv)(m).
(2) The computation of all items of income, gain, loss and
deduction shall be made without regard to the fact that items
described in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable in gross income or are neither currently deductible nor
capitalized for Federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(4) In lieu of the depreciation, amortization, and other cash
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 4.2(d) hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
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(6) Any items specially allocated under Section 6.3 hereof shall
not be taken into account.
(c) Transfers of Partnership Interests. A transferee of Partnership
Interests shall succeed to a pro rata portion of the Capital Account of the
transferor; provided, however, that, if the transfer causes a termination
of the Partnership under Section 708(b)(1)(B) of the Code, the
Partnership's properties shall be deemed to have been distributed in
liquidation of the Partnership to the Partners (including the transferee of
Partnership Interests) and recontributed by such Partners in reconstitution
of the Partnership. In such event, the Carrying Values of the Partnership
properties shall be adjusted immediately prior to such deemed distribution
pursuant to Section 4.2(d)(2) hereof. The Capital Accounts of such
reconstituted Partnership shall be maintained in accordance with the
principles of this Section 4.2.
(d) Unrealized Gains and Losses.
---------------------------
(1) Consistent with the provisions of Regulations Section 1.704-
1(b)(2)(iv)(f), and as provided in Section 4.2(d)(2), the Carrying
Values of all Partnership assets shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as of the times of the adjustments provided in
Section 4.2(d)(2) hereof, as if such Unrealized Gain or Unrealized
Loss had been recognized on an actual sale of each such property and
allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (i)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a
de minimis Capital Contribution; (ii) immediately prior to the
distribution by the Partnership to a Partner of more than a de minimis
amount of Property as consideration for an interest in the
Partnership; and (iii) immediately prior to the liquidation of the
Partnership or the General Partner's interest in the Partnership
within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clauses (a) and (b)
above shall be made only if the General Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e)
the Carrying Values of Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as of the
time any such asset is distributed.
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(4) In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the
General Partner using such reasonable method of valuation as it may
adopt, or in the case of a liquidating distribution pursuant to
Article XIII of this Agreement, be determined and allocated by the
Liquidator using such reasonable methods of valuation as it may adopt.
The General Partner, or the Liquidator, as the case may be, shall
allocate such aggregate value among the assets of the Partnership (in
such manner as it determines in its sole and absolute discretion to
arrive at a fair market value for individual properties).
(e) Modification by General Partner. The provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partner
shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the
Partnership, the General Partner or the Limited Partner) are computed in
order to comply with such Regulations, the General Partner may make such
modification; provided that it will not have a material effect on the
amounts distributable to any Person pursuant to Article XIII of this
Agreement upon the liquidation of the Partnership. The General Partner also
shall (a) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the
amount of Partnership capital reflected on the Partnership's balance sheet,
as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (b) make any appropriate modifications in the
event unanticipated events might otherwise cause this Agreement not to
comply with Regulations Section 1.704-1(b).
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. The General
Partner shall distribute within 90 days after the end of each calendar quarter
an amount equal to 100% of Available Cash during such quarter to the Partners in
proportion to their respective Percentage Interests.
Section 5.2 Amounts Withheld. All amounts withheld pursuant to the Code or
any provisions of any state or local tax law and Section 10.5 hereof with
respect to any allocation, payment or distribution to any Partners shall be
treated as amounts distributed to such Partners pursuant to Section 5.1 for all
purposes under this Agreement.
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Section 5.3 Distributions Upon Liquidation. Proceeds from any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, results in the sale or
other disposition of all or substantially all of the assets of the Partnership
shall be distributed to the Partners in accordance with Section 13.3.
ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.2 hereof) shall be allocated among the
Partners for each taxable year (or portion thereof) as provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.2 below, Net Income shall be allocated (i) first, to the
General Partner to the extent that, on a cumulative basis, Net Losses
previously allocated to the General Partner pursuant to the last sentence
of Section 6.1(b) exceed Net Income previously allocated to the General
Partner pursuant to this clause (a) of Section 6.1(a), and (ii) thereafter,
Net Income shall be allocated in proportion to the respective Percentage
Interests of the Partners.
(b) Net Losses. After giving effect to the special allocations set
forth in Section 6.2 below, Net Losses shall be allocated in proportion to
the respective Percentage Interests of the Partners; provided that Net
Losses shall not be allocated to the Limited Partner pursuant to this
Section 6.1(b) to the extent that such allocation would cause the Limited
Partner to have an Adjusted Capital Account Deficit at the end of such
taxable year (or increase any existing Adjusted Capital Account Deficit).
All Net Losses in excess of the limitations set forth in the preceding
sentence of this Section 6.1(b) shall be allocated to the General Partner.
(c) Nonrecourse Liabilities. For purposes of Regulations Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum
Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in proportion to their respective Percentage
Interests.
(d) Gains. Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall to the extent possible,
after taking into account other required allocations of gain pursuant to
Section 6.2 below, be characterized as Recapture Income in the same
proportions and to the same extent as
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such Partners have been allocated any deductions directly or indirectly
giving rise to the treatment of such gains as Recapture Income.
Section 6.2 Special Allocation Rules. Notwithstanding any other provision
of this Agreement, the following special allocations shall be made in the
following order:
(a) Minimum Gain Chargeback. Notwithstanding any other provisions of
Article VI, if there is a net decrease in Partnership Minimum Gain during
any Partnership Year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section 1.704-
2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). This Section 6.2(a)
is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 6.2(a)
only, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of this Agreement
with respect to such fiscal year and without regard to any decrease in
Partner Minimum Gain during such fiscal year.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Article VI (except Section 6.2(a) hereof), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Partnership fiscal year, each Partner who has a share of the
Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(i)(4). This Section 6.2(b)
is intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
Solely for purposes of this Section 6.2(b), each Partner's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant
to Article VI of this Agreement with respect to such fiscal year, other
than allocations pursuant to Section 6.2(a) hereof.
(c) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving
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effect to the allocations required under Sections 6.2(a) and 6.2(b) hereof,
such Partner has an Adjusted Capital Account Deficit, items of Partnership
income and gain shall be specially allocated to such Partner in an amount
and manner sufficient to eliminate, to the extent required by the
Regulations, its Adjusted Capital Account Deficit created by such
adjustments, allocations or distributions as quickly as possible.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated in proportion to the respective Percentage
Interests of the Partners. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements of
the Regulations promulgated under Section 704(b) of the Code, the General
Partner is authorized, upon notice to the Limited Partner, to revise the
prescribed ratio to the numerically closest ratio which does satisfy such
requirements.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any fiscal year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Regulations Section 1.704-2(i)(2).
(f) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as
an item of gain (if the adjustment increases the basis of the asset) or
loss (if the adjustment decreases such basis), and such item of gain or
loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
Section 6.3 Allocations for Tax Purposes.
----------------------------
(a) General. Except as otherwise provided in this Section 6.3, for
Federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to
Sections 6.1 and 6.2 of this Agreement.
(b) To Eliminate Book-Tax Disparities. In an attempt to eliminate
Book-Tax Disparities attributable to a Contributed Property or Adjusted
Property, items of income, gain, loss, and deduction shall be allocated for
Federal income tax purposes among the Partners as follows:
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(1) (i) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners consistent
with the principles of Section 704(c) of the Code that takes into
account the variation between the 704(c) Value of such property and
its adjusted basis at the time of contribution, and (ii) any item of
Residual Gain or Residual Loss attributable to a Contributed Property
shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to
Sections 6.1 and 6.2 of this Agreement.
(2) (i) In the case of an Adjusted Property, such items shall (A)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and
the allocations thereof pursuant to Section 4.2 and (B) second, in the
event such property was originally a Contributed Property, be
allocated among the Partners in a manner consistent with Section
6.3(b)(1)(i), and (ii) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the
Partners in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Sections 6.1 and 6.2 of this Agreement.
(3) All other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their correlative
item of "book" gain or loss is allocated pursuant to Sections 6.1 and
6.2 of this Agreement.
(c) Power of General Partner to Elect Method. To the extent Treasury
Regulations promulgated pursuant to Section 704(c) of the Code permit a
partnership to utilize alternative methods to eliminate the disparities
between the agreed value of property and its adjusted basis, the General
Partner shall have the authority to elect the method to be used by the
Partnership and such election shall be binding on all Partners.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
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(a) Powers of General Partner. Except as otherwise expressly provided
in this Agreement, all management powers over the business and affairs of
the Partnership are exclusively vested in the General Partner, and the
Limited Partner shall have no right to participate in or exercise control
or management power over the business and affairs of the Partnership.
Notwithstanding anything to the contrary in this Agreement, the General
Partner may not be removed by the Limited Partner with or without cause. In
addition to the powers now or hereafter granted a general partner of a
limited
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partnership under applicable law or which are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to Section 7.3 hereof, shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of
the Partnership, to exercise all powers set forth in Section 3.2 hereof and
to effectuate the purposes set forth in Section 3.1 hereof, including,
without limitation:
(1) the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness (including the securing of same by mortgage, deed of
trust or other lien or encumbrance on the Partnership's assets) and
the incurring of any obligations it deems necessary for the conduct of
the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(3) the acquisition, disposition, sale, conveyance, mortgage,
pledge, encumbrance, hypothecation, contribution or exchange of any
assets of the Partnership or the merger or other combination of the
Partnership with or into another entity on such terms as the General
Partner deems proper;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of
this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the
General Partner, the Partnership or any of the Partnership's
Subsidiaries, the lending of funds to other Persons (including the
Partnership's Subsidiaries) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has
an equity investment and the making of capital contributions to its
Subsidiaries, the holding of any real, personal and mixed property of
the Partnership in the name of the Partnership or in the name of a
nominee or trustee (subject to Section 7.10), the creation, by grant
or otherwise, of easements or servitudes, and the performance of any
and all acts necessary or appropriate to the operation of the
Partnership assets including, but not limited to, applications for
rezoning, objections to rezoning, constructing, altering, improving,
repairing, renovating, rehabilitating, razing, demolishing or
condemning any improvements or property of the Partnership;
(5) the negotiation, execution, and performance of any contracts,
conveyances or other instruments (including with Affiliates of the
Partnership to the extent provided in Section 7.6) that the General
Partner considers useful or
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necessary to the conduct of the Partnership's operations or the
implementation of the General Partner's powers under this Agreement;
(6) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other
instruments, and the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(7) the selection and dismissal of employees of the Partnership
or the General Partner (including, without limitation, employees
having titles such as "president," "vice president," "secretary" and
"treasurer"), and the engagement and dismissal of agents, outside
attorneys, accountants, engineers, appraisers, consultants,
contractors and other professionals on behalf of the General Partner
or the Partnership and the determination of their compensation and
other terms of employment or hiring;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(9) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of interests
in, and the contribution of property to, its Subsidiaries and any
other Person in which it has an equity investment from time to time);
(10) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct of litigation
and the incurring of legal expense and the settlement of claims and
litigation, and the indemnification of any Person against liabilities
and contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any
other Person (including, without limitation, the contribution or loan
of funds by the Partnership to such Persons);
(12) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method
of valuation as it may adopt; and
(13) the execution, acknowledgement and delivery of any and all
documents and instruments to effectuate any or all of the foregoing.
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(b) No Approval Required for Above Powers. The Limited Partner agrees
that the General Partner is authorized to execute, deliver and perform the
above-mentioned agreements and transactions on behalf of the Partnership
without any further act, approval or vote of the Partners, notwithstanding
any other provision of this Agreement, the Act or any applicable law, rule
or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under
this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited
Partner or any other Persons under this Agreement or of any duty stated or
implied by law or equity.
(c) Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain casualty,
liability and other insurance on the properties of the Partnership and
liability insurance for the Indemnitees hereunder.
(d) Working Capital Reserves. At all times from and after the date
hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves for the Partnership in such amounts as
the General Partner, in its sole and absolute discretion, deems appropriate
and reasonable from time to time.
(e) No Obligation to Consider Tax Consequences to Limited Partner. In
exercising its authority under this Agreement, the General Partner may, but
shall be under no obligation to, take into account the tax consequences to
any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to the Limited Partner under any
circumstances as a result of an income tax liability incurred by the
Limited Partner as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other jurisdiction
in which the Partnership may elect to do business or own property. Subject to
the terms of Section 8.5(a)(4) hereof, the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate,
as it may be amended or restated from time to time, to the Limited Partner. The
General Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the Limited Partner have limited
liability) in the State of Delaware and any other jurisdiction in which the
Partnership may elect to do business or own property.
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Section 7.3 Restrictions on General Partner's Authority. The General
Partner may not, without the written consent of the Limited Partner, take any
action in contravention of this Agreement, including, without limitation:
(a) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(b) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
(c) admit a Person as a Partner, except as otherwise provided in this
Agreement; or
(d) perform any act that would subject the Limited Partner to
liability as a general partner in any jurisdiction or any other liability
except as provided herein or under the Act.
Section 7.4 Responsibility for Expenses.
---------------------------
(a) No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
(b) Responsibility for Ownership and Operation Expenses. The
Partnership shall be responsible for and shall pay all expenses relating to
the Partnership's ownership of its assets, and the operation of, or for the
benefit of, the Partnership, and the General Partner shall be reimbursed on
a monthly basis, or such other basis as the General Partner may determine
in its sole and absolute discretion, for all expenses it incurs relating to
the Partnership's ownership of its assets and the operation of, or for the
benefit of, the Partnership; provided that the amount of any such
reimbursement shall be reduced by any interest earned by the General
Partner with respect to bank accounts or other instruments held by it as
permitted in Section 7.5(a). Such reimbursements shall be in addition to
any reimbursement to the General Partner as a result of indemnification
pursuant to Section 7.7 hereof.
Section 7.5 Outside Activities of the General Partner.
-----------------------------------------
(a) The General Partner shall not be required to act hereunder as its
sole and exclusive business activity, and the General Partner may have
other business interests and engage in other activities in addition to
those relating to the Partnership, including businesses and activities
which are or may be competitive with the Partnership.
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Neither the Partnership nor the Limited Partner shall have any right by
virtue of this Agreement or the partnership relationship created hereby in
or to any such other ventures or activities or to the income or proceeds
derived therefrom, and the pursuit of such ventures, even if competitive
with the business of the Partnership, shall not be deemed wrongful or
improper. The General Partner and any of its Affiliates, shall not be
obligated to present any particular investment or business opportunity to
the Partnership even if such opportunity is of a character which, if
presented to the Partnership, could be taken by the Partnership, and the
General Partner and each of its Affiliates shall have the right to take for
his or its own account or for any other Person, or to recommend to others,
any such particular investment or business opportunity.
(b) The General Partner may, on behalf of the Partnership, employ or
otherwise acquire services or financing from any Partner or any entity in
which any Partner has an interest (fiduciary or otherwise) and pay from the
Partnership assets reasonable compensation therefor or interest thereon and
may acquire from or sell to any Partner or any entity in which any Partner
has an interest (fiduciary or otherwise) real or personal property or
interests therein and may acquire or sell real or personal property or
interests therein in connection with the acquisition or sale of which any
Partner or any entity in which any Partner has an interest (fiduciary or
otherwise) earns a commission or fee.
(c) The General Partner may commingle Partnership funds with funds of
its own or those of any other entity (either by joint venture or otherwise)
for Partnership purposes; provided that in connection with such funds the
General Partner shall keep adequate records to reflect the Partnership's
proportional interest therein.
Section 7.6 Contracts with Affiliates.
-------------------------
(a) Loans. The Partnership may lend or contribute to its Subsidiaries
or other Persons in which it has an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in
the sole and absolute discretion of the General Partner. The foregoing
authority shall not create any right or benefit in favor of any Subsidiary
or any other Person.
(b) Transfers of Assets. Except as provided in Section 7.5, the
Partnership may transfer assets to joint ventures, other partnerships,
corporations or other business entities in which it is or thereby becomes a
participant upon such terms and subject to such conditions consistent with
this Agreement and applicable law.
(c) Contracts With General Partner. Except as expressly permitted by
this Agreement, neither the General Partner nor any of its Affiliates shall
sell, transfer or convey any property to, or purchase any property from,
the Partnership, directly or indirectly, except pursuant to transactions
that are on terms that are fair and reasonable
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and no less favorable to the Partnership than would be obtained from an
unaffiliated third party in connection therewith.
(d) Employee Benefit Plans. The General Partner, in its sole and
absolute discretion and without the approval of the Limited Partner, may
propose and adopt on behalf of the Partnership employee benefit plans
funded by the Partnership for the benefit of employees of the General
Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate
of any of them in respect of services performed, directly or indirectly,
for the benefit of the Partnership, the General Partner, or any of the
Partnership's Subsidiaries.
Section 7.7 Indemnification.
---------------
(a) General. The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Partnership as set
forth in this Agreement in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to
the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the
Indemnitee actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the Indemnitee did not meet
the requisite standard of conduct set forth in this Section 7.7(a). The
termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee acted in a
manner contrary to that specified in this Section 7.7(a). Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership.
(b) In Advance of Final Disposition. Reasonable expenses incurred by
an Indemnitee who is a party to a proceeding may be paid or reimbursed by
the Partnership in advance of the final disposition of the proceeding upon
receipt by the Partnership of (a) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct
necessary for indemnification by the Partnership as authorized in this
Section 7.7 has been met, and (b) a written undertaking by or on behalf of
the Indemnitee to repay the amount if it shall ultimately be determined
that the standard of conduct has not been met.
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(c) Other Than by This Section. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any
vote of the Partners, as a matter of law or otherwise, and shall continue
as to an Indemnitee who has ceased to serve in such capacity.
(d) Insurance. The Partnership may purchase and maintain insurance, on
behalf of the Indemnitees and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have
the power to indemnify such Person against such liability under the
provisions of this Agreement.
(e) Employee Benefit Plans. For purposes of this Section 7.7, the
Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee benefit plan whenever the performance by it of its
duties to the Partnership also imposes duties on, or otherwise involves
services by, it to the plan or participants or beneficiaries of the plan;
excise taxes assessed on an Indemnitee with respect to an employee benefit
plan pursuant to applicable law shall constitute fines within the meaning
of Section 7.7(a); and actions taken or omitted by the Indemnitee with
respect to an employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the interest of the participants
and beneficiaries of the plan shall be deemed to be for a purpose which is
not opposed to the best interests of the Partnership.
(f) No Personal Liability for Limited Partner. In no event may an
Indemnitee subject the Limited Partner to personal liability by reason of
the indemnification provisions set forth in this Agreement.
(g) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the
terms of this Agreement.
(h) Binding Effect. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the benefit
of any other Persons.
Section 7.8 Liability of the General Partner.
--------------------------------
(a) General. Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner shall not be liable for monetary
damages to the Partnership or any Partners for losses sustained or
liabilities incurred as a result of
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errors in judgment or of any act or omission, unless (i) the General
Partner actually received an improper benefit in money, property or
services (in which case, such liability shall be for the amount of the
benefit in money, property or services actually received), or (ii) the
General Partner's action or failure to act was the result of active and
deliberate dishonesty and was material to the cause of action being
adjudicated.
(b) No Obligation to Consider Interests of Limited Partner. The
Limited Partner expressly acknowledges that the General Partner is acting
on behalf of the Partnership and the sole stockholder of the General
Partner collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partner (including, without
limitation, the tax consequences to the Limited Partner) in deciding
whether to cause the Partnership to take (or decline to take) any actions
which the General Partner has undertaken in good faith on behalf of the
Partnership, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived
by the Limited Partner in connection with such decisions, unless (i) the
General Partner actually received an improper benefit in money, property or
services (in which case, such liability shall be for the amount of the
benefit in money, property or services actually received), or (ii) the
General Partner's action or failure to act was the result of active and
deliberate dishonesty and was material to the cause of action being
adjudicated.
(c) Acts of Agents. Subject to its obligations and duties as General
Partner set forth in Section 7.1(a) hereof, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any
of the duties imposed upon it hereunder either directly or by or through
its agents. The General Partner shall not be responsible for any misconduct
or negligence on the part of any such agent appointed by it in good faith.
(d) Effect of Amendment. Any amendment, modification or repeal of this
Section 7.8 or any provision hereof shall be prospective only and shall not
in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partner under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner.
--------------------------------------------
(a) Reliance on Documents. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties.
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(b) Reliance on Consultants and Advisors. The General Partner may
consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors selected
by it, and any act taken or omitted to be taken in reliance upon the
opinion of such Persons as to matters which such General Partner reasonably
believes to be within such Person's professional or expert competence shall
be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
(c) Action Through Officers and Attorneys. The General Partner shall
have the right, in respect of any of its powers or obligations hereunder,
to act through any of its duly authorized officers and a duly appointed
attorney or attorneys-in-fact. Each such attorney shall, to the extent
provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is
permitted or required to be done by the General Partner hereunder.
Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. The Limited
Partner hereby waives any and all defenses or other remedies which may be
available against the Limited Partner to contest, negate or disaffirm any action
of the General Partner in connection with any such dealing. In no event shall
any Person dealing with the General Partner or its representatives be obligated
to ascertain that the terms of this Agreement have been complied with or to
inquire into the necessity or expedience of any act or action of the General
Partner or its representatives. Each and every certificate, document or other
instrument executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive
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evidence in favor of any and every Person relying thereon or claiming thereunder
that (a) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (c)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
Section 8.1 Limitation of Liability. The Limited Partner shall have no
liability under this Agreement except as expressly provided in this Agreement,
including Section 10.5 hereof, or under the Act.
Section 8.2 Management of Business. The Limited Partner shall not take part
in the operation, management or control (within the meaning of the Act) of the
Partnership's business, transact any business in the Partnership's name nor have
the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partner under this Agreement.
Section 8.3 Outside Activities of Limited Partner.
-------------------------------------
(a) General. Subject to Section 8.3(b) and any agreements entered
into by the Limited Partner or its Affiliates with the Partnership
(including, without limitation, the Non-Competition Agreement), the General
Partner or their respective Affiliates, the Partnership or a Subsidiary,
the following rights shall govern outside activities of the Limited
Partner: (i) the Limited Partner and any officer, director, employee,
agent, trustee, Affiliate or stockholder of any Limited Partner shall be
entitled to and may have business interests and engage in business
activities in addition to those relating to the Partnership, including
business interests and activities in direct competition with the
Partnership; (ii) neither the Partnership nor any Partners shall have any
rights by virtue of this Agreement in any business ventures of the Limited
Partner; (iii) neither the Limited Partner nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person, other than
the General Partner, and such Person shall have no obligation pursuant to
this Agreement to offer any interest in any such business ventures to the
Partnership, the Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, the
Limited Partner or such other Person, could be taken by such Person; (iv)
the fact that the Limited Partner may
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encounter opportunities to purchase, otherwise acquire, lease, sell or
otherwise dispose of real or personal property and may take advantage of
such opportunities itself or introduce such opportunities to entities in
which it has or has not any interest, shall not subject such Partner to
liability to the Partnership or any of the other Partners on account of the
lost opportunity; and (v) except as otherwise specifically provided herein,
nothing contained in this Agreement shall be deemed to prohibit the Limited
Partner or any of its Affiliates from dealing, or otherwise engaging in
business, with Persons transacting business with the Partnership or from
providing services relating to the purchase, sale, rental, management or
operation of real or personal property (including real estate brokerage
services) and receiving compensation therefor, from any Persons who have
transacted business with the Partnership or other third parties.
(b) Limitation. Notwithstanding Section 8.3(a), other than through its
ownership interest in the Partnership and Hub Group Distribution Services,
the Limited Partner shall not directly or indirectly engage in the
ownership, management or operation of any Person who competes, directly or
indirectly, with the Partnership or the General Partner. Nothing in this
Section 8.3(b) shall prohibit the Limited Partner from owning up to 1% of
the outstanding securities of any Person who directly or indirectly
competes with the Company.
Section 8.4 Priority Among Partners. No Partner (Limited or General) shall
have priority over any other Partner (Limited or General) either as to the
return of Capital Contributions or, except to the extent provided by Sections
6.2 or 6.3 hereof, or otherwise expressly provided in this Agreement, as to
profits, losses or distributions.
Section 8.5 Rights of Limited Partner Relating to the Partnership.
-----------------------------------------------------
(a) Copies of Business Records. In addition to other rights provided
by this Agreement or by the Act, and except as limited by Section 8.5(b)
hereof, the Limited Partner shall have the right, for a purpose reasonably
related to the Limited Partner's interest as a limited partner in the
Partnership, upon written demand with a statement of the purpose of such
demand and at the Limited Partner's own expense:
(1) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the sole
stockholder of the General Partner pursuant to the Securities Exchange
Act of 1934, as amended;
(2) to obtain a copy of the Partnership's Federal, state and
local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
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(4) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a partner.
(b) Confidential Information. Notwithstanding any other provision of
this Section 8.5, the General Partner may keep confidential from the
Limited Partner, for such period of time as the General Partner determines
in its sole and absolute discretion to be reasonable, any Partnership
information that (i) the General Partner believes to be in the nature of
trade secrets or other information the disclosure of which the General
Partner in good faith believes is not in the best interests of the
Partnership or (ii) the Partnership is required by law or by agreements
with unaffiliated third parties to keep confidential.
Section 8.6 Purchase Right.
--------------
(a) From and after the date that the Principal is no longer employed
by the Partnership for any reason, the General Partner shall have the right
(the "Purchase Right") to purchase (but not the obligation), from the
Limited Partner all (but not less than all) of the Limited Partner's
Limited Partnership Interest in exchange for the Purchase Amount. For
purposes of this Section 8.6, the Purchase Amount shall be calculated as of
the last date of employment of the Principal by the Partnership. Prior to
any exercise of the Purchase Right, the disinterested members of the board
of directors of the sole stockholder of the General Partner shall have
approved, by a majority vote thereof, the exercise of the Purchase Right by
the General Partner.
(b) The General Partner shall exercise the Purchase Right (if at all)
by delivering a notice (the "Purchase Notice") to the Limited Partner at
the address of the Limited Partner as reflected in the records of the
Partnership. Such notice shall state that the General Partner is exercising
the Purchase Right, shall state that the disinterested members of the board
of directors of the sole stockholder of the General Partner have, by a
majority vote thereof, approved the exercise of the Purchase Right by the
General Partner, shall set forth the Purchase Amount (and the calculation
thereof) and such other matters as the General Partner deems appropriate.
On the thirtieth day following the Purchase Notice, the General Partner
shall deliver to the Limited Partner a certified or cashier's check for the
Purchase Amount (together with an amount representing any distributions
accrued but unpaid prior to the date of the Purchase Notice). The Limited
Partner agrees to execute such documents as the
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General Partner may reasonably request in connection with the exercise of
the Purchase Right.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting. The General Partner shall keep or cause
to be kept at the principal office of the Partnership appropriate books and
records with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partner
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micrographics or any other information
storage device; provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained for financial purposes on an accrual basis
in accordance with generally accepted accounting principles and for tax
reporting purposes on the accrual basis.
Section 9.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
Section 9.3 Reports.
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(a) Annual Reports. As soon as practicable, but in no event later
than 120 days after the close of each Partnership Year, the General Partner
shall cause to be mailed to the Limited Partner as of the close of the
Partnership Year, an annual report containing unaudited financial
statements of the Partnership presented in accordance with generally
accepted accounting principles.
(b) Quarterly Reports. As soon as practicable, but in no event later
than 60 days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be
mailed to the Limited Partner as of the last day of the calendar quarter, a
report containing unaudited financial statements of the Partnership, and
such other information as may be required by applicable law or regulation,
or as the General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall
arrange for the preparation and timely filing of all returns of Partnership
income, gains, deductions, losses and other items required of the Partnership
for Federal and state income tax purposes and shall use all reasonable efforts
to furnish, within 90 days of the close of each taxable year, the tax
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information reasonably required by the General Partner and the Limited Partner
for Federal and state income tax reporting purposes.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code; provided, however, that the
General Partner shall make the election under Section 754 of the Code in
accordance with applicable regulations thereunder. The General Partner shall
have the right to seek to revoke any such election (including, without
limitation, the election under Section 754 of the Code) upon the General
Partner's determination in its sole and absolute discretion that such revocation
is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
-------------------
(a) General. The General Partner shall be the "tax matters partner"
of the Partnership for Federal income tax purposes. Pursuant to Section
6223(c) of the Code, upon receipt of notice from the IRS of the beginning
of an administrative proceeding with respect to the Partnership, the tax
matters partner shall furnish the IRS with the name, address and profit
interest of the Limited Partner; provided, however, that such information
is provided to the Partnership by the Limited Partner. The Limited Partner
shall provide such information to the Partnership as the General Partner
shall reasonably request.
(b) Powers. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner for
income tax purposes (such administrative proceedings being referred to
as a "tax audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the tax matters
partner may expressly state that such agreement shall bind all
Partners, except that such settlement agreement shall not bind any
Partner (a) who (within the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax
matters partner shall not have the authority to enter into a
settlement agreement on behalf of such Partner or (b) who is a "notice
partner" (as defined in Section 6231 of the Code) or a member of a
"notice group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken
into account by a partner for tax purposes (a "final adjustment") is
mailed or otherwise given to the tax matters partner, to seek judicial
review of such final adjustment, including the
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filing of a petition for readjustment with the Tax Court or the United
States Claims Court, or the filing of a complaint for refund with the
District Court of the United States for the district in which the
Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
IRS at any time and, if any part of such request is not allowed by the
IRS, to file an appropriate pleading (petition, complaint or other
document) for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period
for assessing any tax which is attributable to any item required to be
taken into account by a Partner for tax purposes, or an item affected
by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of
the tax matters partner, and the provisions relating to indemnification of
the General Partner set forth in Section 7.7 of this Agreement shall be
fully applicable to the tax matters partner in its capacity as such.
(c) Reimbursement. The tax matters partner shall receive no
compensation for its services. All third-party costs and expenses incurred
by the tax matters partner in performing its duties as such (including
legal and accounting fees) shall be borne by the Partnership. Nothing
herein shall be construed to restrict the Partnership from engaging an
accounting firm and a law firm to assist the tax matters partner in
discharging his duties hereunder, so long as the compensation paid by the
Partnership for such services is reasonable.
Section 10.4 Organizational Expenses. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a 60
month period as provided in Section 709 of the Code.
Section 10.5 Withholding. The Limited Partner hereby authorizes the
Partnership to withhold from, or pay on behalf of, or with respect to, the
Limited Partner any amount of Federal, state, local, or foreign taxes that the
General Partner determines that the Partnership
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is required to withhold or pay with respect to any amount distributable or
allocable to the Limited Partner pursuant to this Agreement, including, without
limitation, any taxes required to be withheld or paid by the Partnership
pursuant to Section 1441, 1442, 1445 or 1446 of the Code. Any amount paid on
behalf of or with respect to the Limited Partner shall constitute a loan by the
Partnership to the Limited Partner, which loan shall be repaid by the Limited
Partner within 15 days after notice from the General Partner that such payment
must be made unless (a) the Partnership withholds such payment from a
distribution which would otherwise be made to the Limited Partner or (b) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (a) or (b) shall be treated as having
been distributed to the Limited Partner. The Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
the Limited Partner's Partnership Interest to secure the Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that the Limited Partner fails to pay any
amounts owed to the Partnership pursuant to this Section 10.5 when due, the
General Partner may, in its sole and absolute discretion, elect to make the
payment to the Partnership on behalf of the defaulting Limited Partner, and in
such event shall be deemed to have loaned such amount to the defaulting Limited
Partner and shall succeed to all rights and remedies of the Partnership as
against the defaulting Limited Partner (including, without limitation, the right
to receive distributions). Any amounts payable by the Limited Partner hereunder
shall bear interest at the base rate on corporate loans at large United States
money center commercial banks, as published from time to time in the Wall Street
Journal, plus four percentage points (but not higher than the maximum lawful
rate) from the date such amount is due (i.e., 15 days after demand) until such
amount is paid in full. The Limited Partner shall take such actions as the
Partnership or the General Partner shall request in order to perfect or enforce
the security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
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(a) Definition. The term "transfer," when used in this Article XI
with respect to a Partnership Interest, shall be deemed to refer to a
transaction by which Partner purports to assign its Partnership Interest to
another Person and includes a sale, assignment, gift, bequest, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by
law or otherwise. The term "transfer" when used in this Article XI does not
include any acquisition of Partnership Interests from a Limited Partner by
the General Partner pursuant to Section 8.6 hereof.
(b) Requirements. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set
forth in this Article XI.
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Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article XI shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interest.
--------------------------------------------------
(a) General. The General Partner may not transfer any of its General
Partnership Interest or withdraw as General Partner except in connection
with a transaction described in Section 11.2(b).
(b) Transfer in Connection With Reclassification, Recapitalization, or
Business Combination Involving General Partner. The General Partner shall
not engage in any merger, consolidation or other combination with or into
another Person or sale of all or substantially all of its assets, or any
reclassification, or recapitalization or change of its outstanding common
stock (other than a change in par value, or from par value to no par value,
or as a result of a subdivision or combination of its common stock), unless
under the terms of such transaction, the Limited Partner will not be deemed
to have engaged in a sale or exchange for Federal income tax purposes of
its Partnership Interest.
Section 11.3 Limited Partner's Rights to Transfer.
------------------------------------
(a) General. Subject to the provisions of Section 8.6, the Limited
Partner may not transfer all or any portion of its Partnership Interest, or
any of the Limited Partner's rights as a Limited Partner, without the prior
written consent of the General Partner, which consent may be given or
withheld by the General Partner in its sole and absolute discretion. The
General Partner's failure or refusal to permit a transfer of the Limited
Partner's Partnership Interest shall not give rise to any cause of action
against the Partnership or the General Partner. The General Partner may
condition its consent to any such transfer on such matters as it deems
appropriate, including without limitation, amendments to this Agreement. In
order to effect such transfer upon consent of the General Partner, the
Limited Partner must deliver to the General Partner a duly executed copy of
the instrument making such transfer and such instrument must evidence the
written acceptance by the assignee of all of the terms and conditions of
this Agreement and represent that such assignment was made in accordance
with all applicable laws and regulations.
(b) Incapacitated Limited Partners. If a Limited Partner is subject to
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by the
Limited Partner for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any
part of his or its interest in the Partnership. The
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Incapacity of a Limited Partner, in and of itself, shall not dissolve or
terminate the Partnership.
(c) Rights and Duties of Substituted Limited Partners. A transferee
who has been admitted as a Substituted Limited Partner in accordance with
this Article XI shall have all the rights and powers and be subject to all
the restrictions and liabilities of the Limited Partner under this
Agreement.
(d) Amendment of Exhibit A. Upon the admission of a Substituted
Limited Partner, the General Partner shall amend Exhibit A to reflect the
name, address, Partnership Interests, and Percentage Interest of such
Substituted Limited Partner and to eliminate or adjust, if necessary, the
name, address and interest of the predecessor of such Substituted Limited
Partner.
Section 11.4 General Provisions.
------------------
(a) Withdrawal or Transfer of Limited Partner. The Limited Partner may
not withdraw from the Partnership other than as a result of a permitted
transfer of all of the Limited Partner's Partnership Interests in
accordance with this Article XI or pursuant to the provisions of Section
8.6 hereof. If the Limited Partner shall transfer all of its Partnership
Interests in a transfer permitted pursuant to this Article XI or pursuant
to the provisions of Section 8.6 hereof shall cease to be a Limited
Partner.
(b) Timing of Transfers. Transfers pursuant to this Article XI may
only be made on the first day of a fiscal quarter of the Partnership,
unless the General Partner otherwise agrees.
(c) Allocation When Transfer Occurs. If any Partnership Interest is
transferred during any quarterly segment of the Partnership's fiscal year
in compliance with the provisions of this Article XI or pursuant to the
provisions of Section 8.6 hereof, Net Income, Net Losses, each item thereof
and all other items attributable to such interest for such fiscal year
shall be divided and allocated between the transferor Partner and the
transferee Partner by taking into account their varying interests during
the fiscal year in accordance with Section 706(d) of the Code, based on the
portion of the year for which the transferor Partner and the transferee
Partner were Partners. Solely for purposes of making such allocations, each
of such items for the calendar month in which the transfer or redemption
occurs shall be allocated to the Person who is a Partner as of midnight on
the last day of said month. All distributions of Available Cash with
respect to which the record date is before the date of such transfer or
redemption shall be made to the transferor Partner, and all distributions
of Available Cash with record dates thereafter shall be made to the
transferee Partner.
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ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to all of
the General Partner's General Partnership Interest pursuant to Section 11.2
hereof who is proposed to be admitted as a successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners. No additional
Limited Partners shall be admitted to the Partnership without the consent of all
of the Partners.
Section 12.3 Amendment of Agreement and Certificate. For the admission to
the Partnership of any Partner, the General Partner shall take all steps
necessary and appropriate under the Act to amend the records of the Partnership
and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Article XVI hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Subject to Section 13.2, the Partnership shall dissolve, and its
affairs shall be wound up, upon the first to occur of any of the following
("Events of Dissolution"):
(a) Expiration of Term--the expiration of its term as provided in
Section 2.5 hereof;
(b) Withdrawal of General Partner--an event of withdrawal of the
General Partner, as defined in the Act, unless, within 90 days after the
withdrawal, all the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the
date of withdrawal, of a substitute General Partner;
(c) Dissolution Prior to 2097--from and after the date of this
Agreement through December 31, 2096, an election to dissolve the
Partnership made by the General Partner, in its sole and absolute
discretion;
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(d) Judicial Dissolution Decree--entry of a decree of judicial
dissolution of the Partnership pursuant to the provisions of the Act;
(e) Sale of Partnership's Assets--the sale of all or substantially all
of the assets and properties of the Partnership;
(f) Merger--the merger or other combination of the Partnership with or
into another entity;
(g) Vote--a vote of all of the Partners;
(h) Bankruptcy or Insolvency of General Partner--the General Partner
(1) makes an assignment for the benefit of creditors;
(2) files a voluntary petition in bankruptcy;
(3) is adjudged a bankrupt or insolvent, or has entered against it
an order for relief in any bankruptcy or insolvency proceeding;
(4) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation;
(5) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature; or
(6) seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of the General Partner or of all or
any substantial part of its properties; or
(i) Readjustment, etc. One hundred and twenty (120) days after the
commencement of any proceeding against the General Partner seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, the
proceeding has not been dismissed, or if within 90 days after the
appointment without the General Partner's consent or acquiescence of a
trustee, receiver or liquidator of the General Partner or of all or any
substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the
appointment is not vacated.
Section 13.2 Right to Continue the Partnership Business. In the event of
the dissolution of the Partnership for any reason, the Limited Partner shall
have the option to form
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a new partnership for the purpose of continuing the Partnership business.
Unless the Limited Partner so elects within 90 days after the occurrence of an
Event of Dissolution, the Partnership shall be liquidated and shall immediately
commence to wind up its affairs as provided in Section 13.3.
Section 13.3 Winding Up.
----------
(a) General. Upon the occurrence of an Event of Dissolution and
subject to Section 13.2, the Partnership shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its
assets, and satisfying the claims of its creditors and Partners. No Partner
shall take any action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Partnership's business and affairs.
The General Partner (or, in the event there is no remaining General
Partner, any Person elected by the Limited Partner (the "Liquidator"))
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities
and property and the Partnership property shall be liquidated as promptly
as is consistent with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the
Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners, pro rata in
accordance with amounts owed to each such Partner; and
(3) The balance, if any, to the General Partner and Limited
Partner in accordance with their respective Capital Accounts, after
giving effect to all contributions, distributions, and allocations for
all periods.
The General Partner shall not receive any additional compensation for
any services performed pursuant to this Article XIII.
(b) Where Immediate Sale of Partnership's Assets Impractical.
Notwithstanding the provisions of Section 13.3(a) hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidator may, in its sole and absolute discretion,
defer for a reasonable time the liquidation of any assets except those
necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or, with the consent of all Partners, distribute to
the Partners, in lieu of cash, as tenants in common and in accordance with
the provisions of Section 13.3(a) hereof,
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undivided interests in the Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only
if, in the good faith judgment of the Liquidator, such distributions in
kind are in the best interest of the Partners, and shall be subject to such
conditions relating to the disposition and management of such properties as
the Liquidator deems reasonable and equitable and to any agreements
governing the operation of such properties at such time. The Liquidator
shall determine the fair market value of any property distributed in kind
using such reasonable method of valuation as it may adopt.
Section 13.4 Compliance with Timing Requirements of Regulations; Allowance
for Contingent or Unforeseen Liabilities or Obligations.
(a) Liquidation. Notwithstanding anything to the contrary in this
Agreement, in the event the Partnership is "liquidated" within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article XIII to the General Partner and the Limited
Partner if it has a positive Capital Account in compliance with Regulations
Section 1.704-1(b)(2)(ii)(b)(2) (including any timing requirements
therein). In the discretion of the General Partner, a pro rata portion of
the distributions that would otherwise be made to the General Partner and
the Limited Partner pursuant to this Article XIII may be: (a) distributed
to a liquidating trust established for the benefit of the General Partner
and Limited Partner for the purposes of liquidating Partnership assets,
collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. (The assets
of any such trust shall be distributed to the General Partner and Limited
Partner from time to time, in the reasonable discretion of the General
Partner, in the same proportions as the amount distributed to such trust by
the Partnership would otherwise have been distributed to the General
Partner and Limited Partner pursuant to this Agreement); or (b) withheld to
provide a reasonable reserve for Partnership liabilities (contingent or
otherwise) and to reflect the unrealized portion of any installment
obligations owed to the Partnership, provided that such withheld amounts
shall be distributed to the General Partner and Limited Partner as soon as
practicable.
(b) Deficit Balance of General Partner. Notwithstanding anything to
the contrary in this Agreement, (i) if the General Partner has a deficit
balance in its Capital Account following the liquidation (within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g)) of its interest in the
Partnership, as determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which such liquidation
occurs (other than any adjustment for a capital contribution of the General
Partner made pursuant to this sentence), the General Partner shall make a
capital contribution to the Partnership in an amount equal to such deficit
balance by the end of the Partnership taxable year during which such
liquidation occurs (or, if later, within
41
<PAGE>
90 days after date of such liquidation); and (ii) such capital contribution
made pursuant to clause (i) of this Section 13.4(b) shall be distributed or
utilized as provided in Section 13.4 or 13.5.
Section 13.5 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article XIII (but subject to Section 13.4(b)), in the
event the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Event of Dissolution has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Property in
kind to the General Partner and Limited Partner who shall be deemed to have
assumed and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
General Partner and Limited Partner shall be deemed to have recontributed the
Partnership property in kind to the Partnership, which shall be deemed to have
assumed and taken such property subject to all such liabilities.
Section 13.6 Rights of Limited Partner. Except as specifically provided in
this Agreement, the Limited Partner shall look solely to the assets of the
Partnership for the return of its Capital Contribution and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as specifically provided in this Agreement, no Partner shall have
priority over any other Partner as to the return of its Capital Contributions,
distributions, or allocations.
Section 13.7 Notice of Dissolution. In the event an Event of Dissolution or
an event occurs that would, but for provisions of Section 13.1 or Section 13.2,
result in a dissolution of the Partnership, the General Partner shall, within 30
days thereafter, provide written notice thereof to each of the Partners and to
all other parties with whom the Partnership regularly conducts business (as
determined in the discretion of the General Partner) and shall publish notice
thereof in a newspaper of general circulation in each place in which the
Partnership regularly conducts business (as determined in the discretion of the
General Partner).
Section 13.8 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership as provided in Section 13.3
hereof, the Partnership shall be terminated and the Certificate and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.
Section 13.9 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.3 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
42
<PAGE>
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments.
----------
(a) General. Subject to Section 14.1(b), this Agreement may only be
amended by a written agreement signed by each of the Partners.
(b) General Partner's Power to Amend. Notwithstanding Section 14.1(a),
the General Partner shall have the power, without the consent of the
Limited Partner, to amend this Agreement as may be required to facilitate
or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partner;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partner in any material respect,
or to cure any ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other provisions, or make
other changes with respect to matters arising under this Agreement
that will not be inconsistent with law or with the provisions of this
Agreement; and
(4) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a
Federal or state agency or contained in Federal or state law.
The General Partner will provide notice to the Limited Partner when
any action under this Section 14.1(b) is taken.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. All notices and demands under this
Agreement shall be in writing, and may be either delivered personally (which
shall include deliveries by courier), by telefax, telex or other wire
transmission (with request for assurance of receipt in a manner appropriate with
respect to communications of that type, provided that a confirmation copy is
concurrently sent by a nationally recognized express courier for overnight
delivery) or mailed, postage prepaid, by certified or registered mail, return
receipt requested, directed to
43
<PAGE>
the parties at their respective addresses set forth on Exhibit A attached
hereto, as it may be amended from time to time, and, if to the Partnership, such
notices and demands sent in the aforesaid manner must be delivered at its
principal place of business set forth above. Unless delivered personally or by
telefax, telex or other wire transmission as above (which shall be effective on
the date of such delivery or transmission), any notice shall be deemed to have
been made three (3) days following the date so mailed. Any party hereto may
designate a different address to which notices and demands shall thereafter be
directed by written notice given in the same manner and directed to the
Partnership at its office hereinabove set forth.
Section 15.2 Titles and Captions. All article or section titles or captions
in this Agreement are for convenience only. They shall not be deemed part of
this Agreement and in no way define, limit, extend or describe the scope or
intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
Section 15.6 Waiver of Partition. The Partners hereby agree that the
Partnership properties are not and will not be suitable for partition.
Accordingly, each of the Partners hereby irrevocably waives any and all rights
(if any) that it may have to maintain any action for partition of any of the
Partnership properties.
Section 15.7 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters contained herein; it
supersedes any prior agreements or understandings among them and it may not be
modified or amended in any manner other than pursuant to Article XIV.
Section 15.8 Securities Law Provisions. The Partnership Interests have not
been registered under the Federal or state securities laws of any state and,
therefore, may not be resold unless appropriate Federal and state securities
laws, as well as the provisions of Article XI hereof, have been complied with.
44
<PAGE>
Section 15.9 Remedies Not Exclusive. Any remedies herein contained for
breaches of obligations hereunder shall not be deemed to be exclusive and shall
not impair the right of any party to exercise any other right or remedy, whether
for damages, injunction or otherwise.
Section 15.10 Time. Time is of the essence of this Agreement.
Section 15.11 Creditors. None of the provisions of this Agreement shall be
for the benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
Section 15.13 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
Section 15.14 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 15.15 Invalidity of Provisions. If any provision of this Agreement
is or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
ARTICLE XVI
POWER OF ATTORNEY
Section 16.1 Power of Attorney.
-----------------
(a) Scope. The Limited Partner constitutes and appoints the General
Partner, any Liquidator, and authorized officers and attorneys-in-fact of
each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full
power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement and
the Certificate and all amendments or restatements thereof) that the
General Partner or the Liquidator
45
<PAGE>
deems appropriate or necessary to form, qualify or continue the
existence or qualification of the Partnership as a limited partnership
(or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all other jurisdictions in
which the Partnership may conduct business or own property; (b) all
instruments that the General Partner deems appropriate or necessary to
reflect any amendment, change, modification or restatement of this
Agreement in accordance with its terms; (c) all conveyances and other
instruments or documents that the General Partner deems appropriate or
necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation; (d) all instruments
relating to the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article XI, XII or
XIII hereof or the Capital Contribution of any Partner; and (e) all
certificates, documents and other instruments relating to the
determination of the rights, preferences and privileges of Partnership
Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action which is made or given by
the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole discretion of the
General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article XIV
hereof or as may be otherwise expressly provided for in this Agreement.
(b) Irrevocability. The foregoing power of attorney is hereby declared
to be irrevocable and a power coupled with an interest, in recognition of
the fact that each of the Partners will be relying upon the power of the
General Partner to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and
not be affected by the subsequent Incapacity of the Limited Partner and the
transfer of all or any portion of the Limited Partner's Partnership
Interests and shall extend to the Limited Partner's heirs, successors,
assigns and personal representatives. The Limited Partner hereby agrees to
be bound by any representation made by the General Partner, acting in good
faith pursuant to such power of attorney; and the Limited Partner hereby
waives any and all defenses which may be available to contest, negate or
disaffirm the action of the General Partner, taken in good faith under such
power of attorney. The Limited Partner shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the
General Partner's request therefor, such further designation, powers of
attorney and
46
<PAGE>
other instruments as the General Partner or the Liquidator, as the
case may be, deems necessary to effectuate this Agreement and the
purposes of the Partnership.
* * * * *
47
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
Hub City Terminals, Inc.
By: *
-----------------------------------
David P. Yeager
Vice Chairman
LIMITED PARTNER:
Hub City Alabama Terminals, Inc.
By: *
-----------------------------------
David P. Yeager
Authorized Officer
FORMATION GENERAL PARTNER:
Hub City Alabama Terminals, Inc.
By: *
-----------------------------------
David P. Yeager
Authorized Officer
FORMATION LIMITED PARTNER:
*
-----------------------------------
David P. Yeager
*
By: /s/ David P. Yeager
------------------------
David P. Yeager
48
<PAGE>
EXHIBIT A
PARTNERSHIP INTERESTS; PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
Name and Address of Percentage Interest Capital Contribution*
Partner
- -------------------------------------------------------------------------
<S> <C> <C>
General Partner
- -----------------------------------------------------------------------
Hub City Terminals, Inc. 30% $294,969.94
1035 Havens Court
Downers Grove, IL 60515
- -----------------------------------------------------------------------
Limited Partner
- -----------------------------------------------------------------------
Hub City Alabama 70% $688,263.10
Terminals, Inc.
2100 Riverchase Center
Suite 110
Birmingham, AL 35244
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
</TABLE>
*The General Partner has succeeded to the Capital Account and Capital
Contribution of the Formation General Partner pursuant to the terms of that
certain Purchase and Sale Agreement dated as of even date herewith, between the
Formation General Partner and the Limited Partner.
A-1
<PAGE>
EXHIBIT B
AGREED VALUE; 704(C) VALUE
B-1
<PAGE>
EXHIBIT C
DISCOUNT RATE
<TABLE>
<CAPTION>
<S>
Price/Earnings Discount
Multiple Rate
-------------- --------
<C> <C>
1 3%
2 5%
3 7%
4 8%
5 11%
6 12%
7 14%
8 15%
9 16%
10 18%
11 20%
12 21%
13 23%
14 24%
15 25%
16 26%
17 28%
18 29%
19 29%
20 31%
21 32%
22 33%
23 34%
24 35%
C-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>
Price/Earnings Discount
Multiple Rate
-------------- --------
<C> <C>
25 36%
26 37%
27 37%
28 39%
29 39%
40 40%
</TABLE>
C-2
<PAGE>
EXHIBIT 10.2
================================================================================
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HUB CITY CANADA, L.P.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I
DEFINED TERMS............................. 1
"Act"...................................................................... 1
"Adjusted Capital Account"................................................. 2
"Adjusted Capital Account Deficit"......................................... 2
"Adjusted Property"........................................................ 2
"Affiliate"................................................................ 2
"Agreed Value"............................................................. 2
"Agreement"................................................................ 2
"Available Cash"........................................................... 2
"Average Net After-Tax Profit"............................................. 3
"Book-Tax Disparities"..................................................... 3
"Business Day"............................................................. 4
"Capital Account".......................................................... 4
"Capital Contribution"..................................................... 4
"Carrying Value"........................................................... 4
"Certificate".............................................................. 4
"Code"..................................................................... 4
"Common Stock"............................................................. 4
"Contributed Property"..................................................... 4
"Depreciation"............................................................. 4
"Discount Rate"............................................................ 5
"Event of Dissolution"..................................................... 5
"Formation General Partners"............................................... 5
"Formation Limited Partner"................................................ 5
"General Partner".......................................................... 5
"General Partnership Interest"............................................. 5
"IRS"...................................................................... 5
"Incapacity"............................................................... 5
"Indemnitee"............................................................... 6
"Limited Partner".......................................................... 6
"Limited Partnership Interest"............................................. 6
"Liquidator"............................................................... 6
"Net After-Tax Profit"..................................................... 6
"Net Income"............................................................... 6
"Net Loss"................................................................. 6
"Non-Competition Agreement"................................................ 6
"Nonrecourse Built-in Gain"................................................ 6
"Nonrecourse Deductions"................................................... 7
"Nonrecourse Liability".................................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
"Original Agreement"....................................................... 7
"Partner".................................................................. 7
"Partner Minimum Gain"..................................................... 7
"Partner Nonrecourse Debt"................................................. 7
"Partner Nonrecourse Deductions"........................................... 7
"Partnership".............................................................. 7
"Partnership Interest"..................................................... 7
"Partnership Minimum Gain"................................................. 7
"Partnership Year"......................................................... 8
"Percentage Interest"...................................................... 8
"Person"................................................................... 8
"Price/Earnings Multiple".................................................. 8
"Purchase Amount".......................................................... 8
"Purchase Notice".......................................................... 8
"Purchase Right"........................................................... 8
"Recapture Income"......................................................... 8
"Regulations".............................................................. 8
"Residual Gain" or "Residual Loss"......................................... 8
"704(c) Value"............................................................. 8
"Sharing Percentage"....................................................... 9
"Subsidiary"............................................................... 9
"Substituted Limited Partner".............................................. 9
"Unrealized Gain".......................................................... 9
"Unrealized Loss".......................................................... 9
"Value".................................................................... 9
ARTICLE II
ORGANIZATIONAL MATTERS......................... 10
Section 2.1 Continuation; Application of Act........................... 10
Section 2.2 Name....................................................... 10
Section 2.3 Registered Office and Agent; Principal Office.............. 10
Section 2.4 Term....................................................... 11
ARTICLE III
PURPOSE................................ 11
Section 3.1 Purpose and Business....................................... 11
Section 3.2 Powers..................................................... 11
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF INTERESTS; CAPITAL ACCOUNTS..... 11
Section 4.1 Capital Contributions of the Partners...................... 11
Section 4.2 Capital Accounts of the Partners........................... 12
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V
DISTRIBUTIONS............................. 15
Section 5.1 Requirement and Characterization of Distributions.......... 15
Section 5.2 Amounts Withheld........................................... 15
Section 5.3 Distributions Upon Liquidation............................. 15
ARTICLE VI
ALLOCATIONS.............................. 15
Section 6.1 Allocations For Capital Account Purposes................... 15
Section 6.2 Special Allocation Rules................................... 16
Section 6.3 Allocations for Tax Purposes............................... 18
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS................. 19
Section 7.1 Management................................................. 19
Section 7.2 Certificate of Limited Partnership......................... 22
Section 7.3 Restrictions on General Partner's Authority................ 22
Section 7.4 Responsibility for Expenses................................ 22
Section 7.5 Outside Activities of the General Partner.................. 23
Section 7.6 Contracts with Affiliates.................................. 24
Section 7.7 Indemnification............................................ 24
Section 7.8 Liability of the General Partner........................... 26
Section 7.9 Other Matters Concerning the General Partner............... 27
Section 7.10 Title to Partnership Assets................................ 27
Section 7.11 Reliance by Third Parties.................................. 28
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............... 28
Section 8.1 Limitation of Liability.................................... 28
Section 8.2 Management of Business..................................... 28
Section 8.3 Outside Activities of Limited Partner...................... 28
Section 8.4 Priority Among Partners.................................... 29
Section 8.5 Rights of Limited Partners Relating to the Partnership..... 29
Section 8.6 Purchase Right............................................. 30
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS................. 31
Section 9.1 Records and Accounting..................................... 31
Section 9.2 Fiscal Year................................................ 31
Section 9.3 Reports.................................................... 31
ARTICLE X
TAX MATTERS.............................. 32
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 10.1 Preparation of Tax Returns................................. 32
Section 10.2 Tax Elections.............................................. 32
Section 10.3 Tax Matters Partner........................................ 32
Section 10.4 Organizational Expenses.................................... 33
Section 10.5 Withholding................................................ 33
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XI
TRANSFERS AND WITHDRAWALS....................... 34
Section 11.1 Transfer................................................... 34
Section 11.2 Transfer of General Partner's Partnership Interest......... 35
Section 11.3 Limited Partners' Rights to Transfer....................... 35
Section 11.4 General Provisions......................................... 36
ARTICLE XII
ADMISSION OF PARTNERS......................... 36
Section 12.1 Admission of Successor General Partner..................... 36
Section 12.2 Admission of Additional Limited Partners................... 37
Section 12.3 Amendment of Agreement and Certificate..................... 37
ARTICLE XIII
DISSOLUTION AND LIQUIDATION...................... 37
Section 13.1 Dissolution................................................ 37
Section 13.2 Right to Continue the Partnership Business................. 38
Section 13.3 Winding Up................................................. 39
Section 13.4 Compliance with Timing Requirements of Regulations;
Allowance for Contingent or Unforeseen Liabilities
or Obligations............................................. 40
Section 13.5 Deemed Distribution and Recontribution..................... 40
Section 13.6 Rights of Limited Partners................................. 41
Section 13.7 Notice of Dissolution...................................... 41
Section 13.8 Cancellation of Certificate of Limited Partnership......... 41
Section 13.9 Reasonable Time for Winding-Up............................. 41
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.............. 41
Section 14.1 Amendments 41
ARTICLE XV
GENERAL PROVISIONS........................... 42
Section 15.1 Addresses and Notice....................................... 42
Section 15.2 Titles and Captions........................................ 43
Section 15.3 Pronouns and Plurals....................................... 43
Section 15.4 Further Action............................................. 43
Section 15.5 Binding Effect............................................. 43
Section 15.6 Waiver of Partition........................................ 43
Section 15.7 Entire Agreement........................................... 43
Section 15.8 Securities Law Provisions.................................. 43
Section 15.9 Remedies Not Exclusive..................................... 43
Section 15.10 Time....................................................... 43
Section 15.11 Creditors.................................................. 43
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 15.12 Waiver..................................................... 44
Section 15.13 Execution Counterparts..................................... 44
Section 15.14 Applicable Law............................................. 44
Section 15.15 Invalidity of Provisions................................... 44
ARTICLE XVI
POWER OF ATTORNEY........................... 44
Section 16.1 Power of Attorney.......................................... 44
</TABLE>
vi
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
HUB CITY CANADA, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated as of
March 18, 1996, of Hub City Canada, L.P. (the "Partnership") is entered into by
and among Hub City Terminals, Inc. (the "General Partner"), a Delaware
corporation, as the General Partner and the persons identified on the signature
pages hereof as the Limited Partners (the "Limited Partners").
WHEREAS, pursuant to the Original Agreement, the Formation General
Partners, the Limited Partners and the Formation Limited Partner formed the
Partnership;
WHEREAS, the Formation General Partners, the Limited Partners and the
Formation Limited Partner desire to admit the General Partner as the general
partner of the Partnership;
WHEREAS, the Formation General Partners desire to sell their general
partnership interests in the Partnership to the General Partner and, upon
consummation of such sale, to withdraw as general partners of the Partnership;
WHEREAS, the Formation Limited Partner desires to withdraw as a limited
partner of the Partnership; and
WHEREAS, the General Partner and the Limited Partners, being all of the
Partners of the Partnership, desire to continue the Partnership as a limited
partnership under the Act, and are entering into this Agreement to amend and
restate the Original Agreement to reflect and confirm the foregoing admission
and withdrawals, and to amend, restate and supersede in its entirety the
Original Agreement, as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, the mutual promises and
agreements herein made, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the General Partner and the
Limited Partners, intending to be legally bound, have agreed and do hereby agree
as follows:
ARTICLE I
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
1
<PAGE>
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each Partnership Year (a) increased by any
amounts which such Partner is obligated to restore pursuant to any provision of
this Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)
and (b) decreased by the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with
the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 4.2 hereof. Once an Adjusted Property is deemed
distributed by, and recontributed to, the Partnership for Federal income tax
purposes upon a termination thereof pursuant to Section 708 of the Code, such
property shall thereafter constitute a Contributed Property until the Carrying
Value of such property is further adjusted pursuant to Section 4.2 hereof.
"Affiliate" means, with respect to any Person, (a) any Person directly or
indirectly controlling, controlled by or under common control with such Person,
(b) any Person owning or controlling 10 percent or more of the outstanding
voting interests of such Person, (c) any Person of which such Person owns or
controls 10 percent or more of the voting interests, or (d) any officer,
director, general partner or trustee of such Person or any Person referred to in
clauses (a), (b) and (c) above.
"Agreed Value" means (a) in the case of any Contributed Property set forth
in Exhibit B and as of the time of its contribution to the Partnership, the
Agreed Value of such property as set forth in Exhibit B; (b) in the case of any
Contributed Property not set forth in Exhibit B and as of the time of its
contribution to the Partnership, the 704(c) Value of such property or other
consideration, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed, and (c)
in the case of any property distributed to a Partner by the Partnership, the
Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as it may be amended, supplemented or restated from time to time.
"Available Cash" means with respect to any period for which such
calculation is being made:
2
<PAGE>
(a) all cash revenues and funds received by the Partnership from
whatever source (excluding the proceeds of any Capital Contribution to the
Partnership pursuant to Section 4.1 hereof) plus the amount of any
reduction (including, without limitation, a reduction resulting because the
General Partner determines such amounts are no longer necessary) in
reserves of the Partnership, which reserves are referred to in clause
(b)(iv) below;
(b) less the sum of the following (except to the extent made with the
proceeds of any Capital Contribution):
(i) all interest, principal and other debt payments made during
such period by the Partnership,
(ii) all cash expenditures (including capital expenditures) made
by the Partnership,
(iii) investments in any entity (including loans made thereto) to
the extent that such investments are not otherwise described in
clauses (b)(i) or (ii), and
(iv) the amount of any increase in reserves established during
such period which the General Partner determines are necessary or
appropriate in its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
"Average Net After-Tax Profit" means the average annual Net After-Tax
Profit of the Partnership for the most recently completed twelve fiscal quarter
period. If the Partnership has been existence for less than twelve complete
fiscal quarters, Average Net After-Tax Profit shall be calculated using the net
after-tax profit of Hub Group Canada, L.L.C. or its predecessors (determined on
a basis consistent with that used for determining Net After-Tax Profit for the
Partnership) for such completed fiscal quarters, or portions thereof of the
Partnership and of Hub Group Canada, L.L.C. or its predecessors as are necessary
to include twelve completed fiscal quarters in the foregoing calculation.
"Book-Tax Disparities" means, with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for Federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 4.2 and the
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hypothetical balance of such Partner's Capital Account computed as if it had
been maintained strictly in accordance with Federal income tax accounting
principles.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Chicago, Illinois are authorized or required by law to
close.
"Capital Account" means the Capital Account maintained for a Partner
pursuant to Section 4.2 hereof.
"Capital Contribution" means, with respect to any Partner, any cash, cash
equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1 hereof.
"Carrying Value" means (a) with respect to a Contributed Property or
Adjusted Property, the 704(c) Value of such property reduced (but not below
zero) by all Depreciation with respect to such Property charged to the Partners'
Capital Accounts and (b) with respect to any other Partnership property, the
adjusted basis of such property for Federal income tax purposes, all as of the
time of determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Section 4.2 hereof, and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"Certificate" means the Certificate of Limited Partnership relating to the
Partnership filed in the office of the Secretary of State of the State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Code" means the Internal Revenue Code of 1986, as amended. Any reference
herein to a specific section or sections of the Code shall be deemed to include
a reference to any corresponding provision of future law.
"Common Stock" means the shares of Class A Common Stock, $.01 par value per
share, of Hub Group, Inc., a Delaware corporation and the sole stockholder of
the General Partner.
"Contributed Property" means each property or other asset (but excluding
cash), in such form as may be permitted by the Act contributed or deemed
contributed to the Partnership (including for this purpose any property or other
asset deemed contributed to the Partnership on termination and reconstitution
thereof pursuant to Section 708 of the Code). Once the Carrying Value of a
Contributed Property is adjusted pursuant to Section 4.2 hereof, such property
shall no longer constitute a Contributed Property for purposes of Section 4.2
hereof, but shall be deemed an Adjusted Property for such purposes.
"Depreciation" means for each fiscal year, an amount equal to the Federal
income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for
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such year, except that if the Carrying Value of an asset differs from its
adjusted basis for Federal income tax purposes at the beginning of such year or
other period, Depreciation shall be an amount which bears the same ratio to such
beginning Carrying Value as the Federal income tax depreciation, amortization,
or other cost recovery deduction for such year bears to such beginning adjusted
tax basis; provided, however, that if the Federal income tax depreciation,
amortization, or other cost recovery deduction for such year is zero,
Depreciation shall be determined with reference to such beginning Carrying Value
using any reasonable method selected by the General Partner.
"Discount Rate" shall mean, for any given Price/Earnings Multiple, the
Discount Rate set forth on Exhibit C opposite such Price/Earnings Multiple.
"Event of Dissolution" has the meaning set forth in Section 13.1.
"Formation General Partners" means Hub Canadian Investors, Inc. and O'Neill
Inc. in their capacities as general partners under the Original Agreement.
"Formation Limited Partner" means David P. Yeager.
"General Partner" means Hub City Terminals, Inc., a Delaware corporation,
or its successors as a general partner of the Partnership.
"General Partnership Interest" means a Partnership Interest held by a
General Partner that is a general partnership interest.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"Incapacity" or "Incapacitated" means, (a) as to any corporation which is a
Partner, the filing of a certificate of dissolution, or its equivalent, for the
corporation or the revocation of its charter, (b) as to any partnership which is
a Partner, the dissolution and commencement of winding up of the partnership or
(c) as to any Partner, the bankruptcy of such Partner. For purposes of this
definition, bankruptcy of a Partner shall be deemed to have occurred when (i)
the Partner commences a voluntary proceeding seeking liquidation, reorganization
or other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect, (ii) the Partner is adjudged as bankrupt or insolvent, or a
final and nonappealable order for relief under any bankruptcy, insolvency or
similar law now or hereafter in effect has been entered against the Partner,
(iii) the Partner executes and delivers a general assignment for the benefit of
the Partner's creditors, (iv) the Partner files an answer or other pleading
admitting or failing to contest the material allegations of a petition filed
against the Partner in any proceeding of the nature described in clause (ii)
above, (v) the Partner seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator for the Partner or for all or any substantial
part of the Partner's properties, (vi) any proceeding seeking liquidation,
reorganization or other relief under any
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bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within 120 days after the commencement thereof, (vii) the
appointment without the Partner's consent or acquiescence of a trustee, receiver
or liquidator has not been vacated or stayed within 90 days of such appointment,
or (viii) an appointment referred to in clause (vii) is not vacated within 90
days after the expiration of any such stay.
"Indemnitee" means (a) any Person made a party to a proceeding by reason of
his status as (i) the General Partner or (ii) an officer of the Partnership or a
director or officer of the General Partner, and (b) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion.
"Limited Partner" means any Person named as a Limited Partner in Exhibit A
attached hereto, as such Exhibit may be amended from time to time, in such
Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests of all Partners.
"Liquidator" has the meaning set forth in Section 13.3.
"Net After-Tax Profit" means, with respect to each fiscal quarter of the
Partnership, Net Income, after provision for income taxes as if the Partnership
were a taxable corporation under subchapter C of the Code and before adjustments
for extraordinary items for each quarter.
"Net Income" means for any taxable period, the excess, if any, of the
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Section 4.2. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to the special
allocation rules in Sections 6.2 and 6.3, Net Income or the resulting Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"Net Loss" means for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Section 4.2. Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Loss is subjected to the special
allocation rules in Sections 6.2 and 6.3, Net Loss or the resulting Net Income,
whichever the case may be, shall be recomputed without regard to such item.
"Non-Competition Agreement" means that certain Non-Competition Agreement
dated as of the date hereof between the Partnership and the Principal.
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"Nonrecourse Built-in Gain" means, with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 6.3(b) if such properties
were disposed of in a taxable transaction in full satisfaction of such
liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.752-1(a)(2).
"Original Agreement" means that certain Agreement of Limited Partnership,
dated as of February 12, 1996, between the Formation General Partners, the
Limited Partners and the Formation Limited Partner.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations
Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(i)(2).
"Partnership" means the limited partnership formed under the Act and
continued pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a Capital Contribution by a Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"Partnership Minimum Gain" has the meaning set forth in Regulations
Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as
any net increase or decrease
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in Partnership Minimum Gain, for a Partnership Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Year" means the fiscal year of the Partnership, which shall be
the calendar year.
"Percentage Interest" means, as to a Partner, its interest in the
Partnership as specified in Exhibit A attached hereto, as such Exhibit may be
amended from time to time.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Price/Earnings Multiple" means the average of (i) the quotient obtained by
dividing (A) the Value by (B) the aggregate net income per share of Common Stock
for the four-quarter period immediately preceding the date of calculation, and
(ii) the aggregate projected price/earnings ratio per share of Common Stock as
reported by First Call for the four-quarter period immediately following the
date of calculation.
"Principal" means Steven R. Gove, an employee of the Partnership.
"Purchase Amount" means an amount determined by multiplying (i) the product
of (a) the Price/Earnings Multiple times (b) the Average Net After-Tax Profit by
(ii) one (1) minus the Discount Rate.
"Purchase Notice" has the meaning set forth in Section 8.6(b).
"Purchase Right" has the meaning set forth in Section 8.6(a).
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Section 734 or Section
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to such
property or asset.
"Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
case may be, of the Partnership recognized for Federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section 6.3(b)(1)(i) or 6.3(b)(2)(i) to eliminate Book-Tax
Disparities.
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"704(c) Value" of any Contributed Property means the value of such property
as set forth in Exhibit B, or if no value is set forth in Exhibit B, the fair
market value of such property or other consideration at the time of contribution
as determined by the General Partner using such reasonable method of valuation
as it may adopt; provided, however, that the 704(c) Value of any property deemed
contributed to the Partnership for Federal income tax purposes upon termination
and reconstitution thereof pursuant to Section 708 of the Code shall be
determined in accordance with Section 4.2 hereof. Subject to Section 4.2 hereof,
the General Partner shall use such method as it deems reasonable and appropriate
to allocate the aggregate of the 704(c) Value of Contributed Properties among
each separate property on a basis proportional to its fair market value.
"Sharing Percentage" means, with respect to any Partner, the percentage set
forth opposite such Partner's name on Exhibit A hereto.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (a) the voting power of the voting equity
securities or (b) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.3.
"Unrealized Gain" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property (as determined under Section 4.2 hereof) as of such date,
over (b) the Carrying Value of such property (prior to any adjustment to be made
pursuant to Section 4.2 hereof) as of such date.
"Unrealized Loss" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the Carrying Value
of such property (prior to any adjustment to be made pursuant to Section 4.2
hereof) as of such date, over (b) the fair market value of such property (as
determined under Section 4.2 hereof) as of such date.
"Value" means, with respect to a share of Common Stock, the average of the
daily market price for the thirty (30) consecutive trading days immediately
preceding the date of determination. The market price for each such trading day
shall be: (a) if the shares of Common Stock are listed or admitted to trading on
any securities exchange or the NASDAQ-National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, (b) if the shares of
Common Stock are not listed or admitted to trading on any securities exchange or
the NASDAQ-National Market System, the last reported sale price on such day or,
if no sale takes place on such day, the average of the closing bid and asked
prices on such day, as reported by a reliable quotation source designated by the
General Partner, or (c) if the shares of Common Stock are not listed or admitted
to trading on any securities exchange or the NASDAQ-National Market System and
no such last reported sale price or closing bid and asked prices are available,
the average of the reported high bid and low asked prices on such day, as
reported by a reliable quotation source designated by the General
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Partner, or if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than 30 days prior to the date in question) for which prices have been
so reported; provided, that if there are no bid and asked prices reported during
the 30 days prior to the date in question, the Value of the shares of Common
Stock shall be determined by the board of directors of the sole stockholder of
the General Partner acting in good faith on the basis of such quotations and
other information as it considers, in its reasonable judgment, appropriate.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Continuation; Application of Act.
--------------------------------
(a) Continuation of Partnership. The General Partner and the Limited
Partners do hereby continue the Partnership as a limited partnership
according to all of the terms and provisions of this Agreement and
otherwise in accordance with the Act. The General Partner is the sole
general partner and the Limited Partners are the sole limited partners of
the Partnership. All Partnership profits, losses and distributive shares of
tax items accruing prior to the effectiveness of this Agreement shall be
allocated in accordance with, and the respective rights and obligations of
partners with respect to the period prior to the effectiveness of this
Agreement shall be governed by, the Original Agreement. The Formation
General Partners hereby withdraw from the Partnership. The Formation
Limited Partner hereby withdraws from the Partnership in exchange for a
return of his original capital contribution.
(b) Application of Act. The Partnership is a limited partnership
subject to the provisions of the Act and the terms and conditions set forth
in this Agreement. Except as expressly provided herein to the contrary, the
rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by the Act. No Partner has
any interest in any Partnership property, and the Partnership Interest of
each Partner shall be personal property for all purposes.
Section 2.2 Name. The name of the Partnership is Hub City Canada, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
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Section 2.3 Registered Office and Agent; Principal Office. The address of
the registered office of the Partnership in the State of Delaware is located at
1209 Orange Street, Wilmington, County of New Castle, and the registered agent
for service of process on the Partnership in the State of Delaware at such
registered office is The Corporation Trust Company. The principal office of the
Partnership is located at Hub Group, Inc., 377 East Butterfield Road, Suite 700,
Lombard, Illinois 60148, or such other place as the General Partner may from
time to time designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside the State of
Illinois as the General Partner deems advisable.
Section 2.4 Term. The term of the Partnership shall commence on the date
hereof, and shall continue until December 31, 2096, unless it is dissolved
sooner pursuant to the provisions of Article XIII or as otherwise provided by
law.
ARTICLE III
PURPOSE
Section 3.1 Purpose and Business. The purpose and nature of the business to
be conducted by the Partnership is (a) to conduct any business that may be
lawfully conducted by a limited partnership organized pursuant to the Act, (b)
to enter into any partnership, joint venture or other similar arrangement to
engage in any of the foregoing or the ownership of interests in any entity
engaged in any of the foregoing and (c) to do anything necessary or incidental
to the foregoing.
Section 3.2 Powers. The Partnership is empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
herein and for the protection and benefit of the Partnership; provided that the
Partnership shall not take, or refrain from taking, any action which, in the
judgment of the General Partner, in its sole and absolute discretion, could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS; ISSUANCE OF INTERESTS;
CAPITAL ACCOUNTS
Section 4.1 Capital Contributions of the Partners.
-------------------------------------
(a) Initial Capital Contributions. The General Partner shall succeed
to the capital contribution of the Formation General Partners. At the time
of the execution of this Agreement, the Partners shall make, shall have
made or shall be deemed to have made the Capital Contributions set forth in
Exhibit A to this Agreement. The Partners shall have a Percentage Interest
in the Partnership as set forth in Exhibit A.
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(b) Additional Capital Contributions. No Partner shall be assessed or,
except as provided for in Section 13.4(b) below, and except for any such
amounts which a Limited Partner may be obligated to repay under Section
10.5, be required to contribute additional funds or other property to the
Partnership. Any additional funds or other property required by the
Partnership, as determined by the General Partner in its sole discretion,
may, at the option of the General Partner and without an obligation to do
so (except as provided for in Section 13.4(b) below), be loaned by the
General Partner to the Partnership on such terms as the General Partner
deems appropriate.
(c) Return of Capital Contributions. Except as otherwise expressly
provided herein, the Capital Contribution of a Limited Partner will be
returned to that Partner only in the manner and to the extent provided in
Article V and Article XIII hereof, and no Partner may withdraw from the
Partnership or otherwise have any right to demand or receive the return of
its Capital Contribution to the Partnership (as such), except as
specifically provided herein. Under circumstances requiring a return of any
Capital Contribution, no Partner shall have the right to receive property
other than cash, except as specifically provided herein. No Partner shall
be entitled to interest on any Capital Contribution or Capital Account
notwithstanding any disproportion therein as between the Partners. Except
as specifically provided herein, the General Partner shall not be liable
for the return of any portion of the Capital Contribution of the Limited
Partners, and the return of such Capital Contributions shall be made solely
from Partnership assets.
(d) Liability of Limited Partners. The Limited Partners shall have no
further personal liability to contribute money to, or in respect of, the
liabilities or the obligations of the Partnership, nor shall the Limited
Partners be personally liable for any obligations of the Partnership,
except as otherwise provided in this Article IV or in the Act. The Limited
Partners shall not be required to make any contributions to the capital of
the Partnership other than their initial Capital Contribution.
Section 4.2 Capital Accounts of the Partners.
--------------------------------
(a) General. The Partnership shall maintain for each Partner a
separate Capital Account in accordance with the rules of Regulations
Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (a)
the amount of all Capital Contributions made by such Partner to the
Partnership pursuant to this Agreement and (b) all items of Partnership
income and gain (including income and gain exempt from tax) computed in
accordance with Section 4.2(b) hereof and allocated to such Partner
pursuant to Sections 6.1 and 6.2 of this Agreement, and decreased by (i)
the amount of cash or Agreed Value of all actual and deemed distributions
of cash or property made to such Partner pursuant to this Agreement and
(ii) all items of Partnership deduction and loss computed in accordance
with Section 4.2(b) hereof and allocated to such Partner pursuant to
Sections 6.1 and 6.2 of this Agreement.
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(b) Income, Gains, Deductions and Losses. For purposes of computing
the amount of any item of income, gain, loss or deduction to be reflected
in the Partners' Capital Accounts, unless otherwise specified in this
Agreement, the determination, recognition and classification of any such
item shall be the same as its determination, recognition and classification
for Federal income tax purposes determined in accordance with Section
703(a) of the Code (for this purpose all items of income, gain, loss or
deduction required to be stated separately pursuant to Section 703(a)(1) of
the Code shall be included in taxable income or loss), with the following
adjustments:
(1) Except as otherwise provided in Regulations Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section
754 of the Code which may be made by the Partnership; provided that
the amounts of any adjustments to the adjusted bases of the assets of
the Partnership made pursuant to Section 734 of the Code as a result
of the distribution of property by the Partnership to a Partner (to
the extent that such adjustments have not previously been reflected in
the Partners' Capital Accounts) shall be reflected in the Capital
Accounts of the Partners in the manner and subject to the limitations
prescribed in Regulations Section 1.704-1(b)(2)(iv)(m).
(2) The computation of all items of income, gain, loss and
deduction shall be made without regard to the fact that items
described in Sections 705(a)(1)(B) or 705(a)(2)(B) of the Code are not
includable in gross income or are neither currently deductible nor
capitalized for Federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(4) In lieu of the depreciation, amortization, and other cash
recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for
such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 4.2(d) hereof, the amount of any such
adjustment shall be taken into account as gain or loss from the
disposition of such asset.
(6) Any items specially allocated under Section 6.3 hereof shall
not be taken into account.
(c) Transfers of Partnership Interests. A transferee of Partnership
Interests shall succeed to a pro rata portion of the Capital Account of the
transferor; provided,
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however, that, if the transfer causes a termination of the Partnership under
Section 708(b)(1)(B) of the Code, the Partnership's properties shall be deemed
to have been distributed in liquidation of the Partnership to the Partners
(including the transferee of Partnership Interests) and recontributed by such
Partners in reconstitution of the Partnership. In such event, the Carrying
Values of the Partnership properties shall be adjusted immediately prior to such
deemed distribution pursuant to Section 4.2(d)(2) hereof. The Capital Accounts
of such reconstituted Partnership shall be maintained in accordance with the
principles of this Section 4.2.
(d) Unrealized Gains and Losses.
---------------------------
(1) Consistent with the provisions of Regulations Section 1.704-
1(b)(2)(iv)(f), and as provided in Section 4.2(d)(2), the Carrying
Values of all Partnership assets shall be adjusted upward or downward
to reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as of the times of the adjustments provided in
Section 4.2(d)(2) hereof, as if such Unrealized Gain or Unrealized
Loss had been recognized on an actual sale of each such property and
allocated pursuant to Section 6.1 of the Agreement.
(2) Such adjustments shall be made as of the following times: (i)
immediately prior to the acquisition of an additional interest in the
Partnership by any new or existing Partner in exchange for more than a
de minimis Capital Contribution; (ii) immediately prior to the
distribution by the Partnership to a Partner of more than a de minimis
amount of Property as consideration for an interest in the
Partnership; and (iii) immediately prior to the liquidation of the
Partnership or the General Partner's interest in the Partnership
within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g);
provided, however, that adjustments pursuant to clauses (a) and (b)
above shall be made only if the General Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e)
the Carrying Values of Partnership assets distributed in kind shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as of the
time any such asset is distributed.
(4) In determining such Unrealized Gain or Unrealized Loss the
aggregate cash amount and fair market value of all Partnership assets
(including cash or cash equivalents) shall be determined by the
General Partner using such reasonable method of valuation as it may
adopt, or in the case of a liquidating distribution pursuant to
Article XIII of this Agreement, be determined and allocated by the
Liquidator using such reasonable methods of valuation as it may adopt.
The General Partner, or the Liquidator, as the case may be, shall
allocate
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such aggregate value among the assets of the Partnership (in such
manner as it determines in its sole and absolute discretion to arrive
at a fair market value for individual properties).
(e) Modification by General Partner. The provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a
manner consistent with such Regulations. In the event the General Partner
shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the
Partnership, the General Partner or any Limited Partner) are computed in
order to comply with such Regulations, the General Partner may make such
modification; provided that it will not have a material effect on the
amounts distributable to any Person pursuant to Article XIII of this
Agreement upon the liquidation of the Partnership. The General Partner also
shall (a) make any adjustments that are necessary or appropriate to
maintain equality between the Capital Accounts of the Partners and the
amount of Partnership capital reflected on the Partnership's balance sheet,
as computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(q), and (b) make any appropriate modifications in the
event unanticipated events might otherwise cause this Agreement not to
comply with Regulations Section 1.704-1(b).
ARTICLE V
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions. The General
Partner shall distribute within 90 days after the end of each calendar quarter
an amount equal to 100% of Available Cash during such quarter to the Partners in
proportion to their respective Sharing Percentages.
Section 5.2 Amounts Withheld. All amounts withheld pursuant to the Code or
any provisions of any state or local tax law and Section 10.5 hereof with
respect to any allocation, payment or distribution to any Partners shall be
treated as amounts distributed to such Partners pursuant to Section 5.1 for all
purposes under this Agreement.
Section 5.3 Distributions Upon Liquidation. Proceeds from any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, results in the sale or
other disposition of all or substantially all of the assets of the Partnership
shall be distributed to the Partners in accordance with Section 13.3.
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ARTICLE VI
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.2 hereof) shall be allocated among the
Partners for each taxable year (or portion thereof) as provided herein below.
(a) Net Income. After giving effect to the special allocations set
forth in Section 6.2 below, Net Income shall be allocated (i) first, to the
General Partner to the extent that, on a cumulative basis, Net Losses
previously allocated to the General Partner pursuant to the last sentence
of Section 6.1(b) exceed Net Income previously allocated to the General
Partner pursuant to this clause (a) of Section 6.1(a), and (ii) thereafter,
Net Income shall be allocated in proportion to the respective Sharing
Percentages of the Partners.
(b) Net Losses. After giving effect to the special allocations set
forth in Section 6.2 below, Net Losses shall be allocated in proportion to
the respective Percentage Interests of the Partners; provided that Net
Losses shall not be allocated to the Limited Partners pursuant to this
Section 6.1(b) to the extent that such allocation would cause the Limited
Partners to have an Adjusted Capital Account Deficit at the end of such
taxable year (or increase any existing Adjusted Capital Account Deficit).
All Net Losses in excess of the limitations set forth in the preceding
sentence of this Section 6.1(b) shall be allocated to the General Partner.
(c) Nonrecourse Liabilities. For purposes of Regulations Section
1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum
Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in proportion to their respective Percentage
Interests.
(d) Gains. Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall to the extent possible,
after taking into account other required allocations of gain pursuant to
Section 6.2 below, be characterized as Recapture Income in the same
proportions and to the same extent as such Partners have been allocated any
deductions directly or indirectly giving rise to the treatment of such
gains as Recapture Income.
Section 6.2 Special Allocation Rules. Notwithstanding any other provision
of this Agreement, the following special allocations shall be made in the
following order:
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(a) Minimum Gain Chargeback. Notwithstanding any other provisions of
Article VI, if there is a net decrease in Partnership Minimum Gain during
any Partnership Year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, as determined under Regulations Section 1.704-
2(g). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). This Section 6.2(a)
is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and for purposes of this Section 6.2(a)
only, each Partner's Adjusted Capital Account Deficit shall be determined
prior to any other allocations pursuant to Section 6.1 of this Agreement
with respect to such fiscal year and without regard to any decrease in
Partner Minimum Gain during such fiscal year.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of Article VI (except Section 6.2(a) hereof), if there is a net
decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any Partnership fiscal year, each Partner who has a share of the
Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Partner's
share of the net decrease in Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(i)(4). This Section 6.2(b)
is intended to comply with the minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted consistently therewith.
Solely for purposes of this Section 6.2(b), each Partner's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant
to Article VI of this Agreement with respect to such fiscal year, other
than allocations pursuant to Section 6.2(a) hereof.
(c) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6), and after giving effect to the allocations
required under Sections 6.2(a) and 6.2(b) hereof, such Partner has an
Adjusted Capital Account Deficit, items of Partnership income and gain
shall be specially allocated to such Partner in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, its
Adjusted Capital Account Deficit created by such adjustments, allocations
or distributions as quickly as possible.
(d) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated in proportion to the respective Percentage
Interests of the Partners. If
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the General Partner determines in its good faith discretion that the
Partnership's Nonrecourse Deductions must be allocated in a different ratio
to satisfy the safe harbor requirements of the Regulations promulgated
under Section 704(b) of the Code, the General Partner is authorized, upon
notice to the Limited Partners, to revise the prescribed ratio to the
numerically closest ratio which does satisfy such requirements.
(e) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
for any fiscal year shall be specially allocated to the Partner who bears
the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Regulations Section 1.704-2(i)(2).
(f) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Regulations Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts,
the amount of such adjustment to the Capital Accounts shall be treated as
an item of gain (if the adjustment increases the basis of the asset) or
loss (if the adjustment decreases such basis), and such item of gain or
loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
Section 6.3 Allocations for Tax Purposes.
----------------------------
(a) General. Except as otherwise provided in this Section 6.3, for
Federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to
Sections 6.1 and 6.2 of this Agreement.
(b) To Eliminate Book-Tax Disparities. In an attempt to eliminate
Book-Tax Disparities attributable to a Contributed Property or Adjusted
Property, items of income, gain, loss, and deduction shall be allocated for
Federal income tax purposes among the Partners as follows:
(1) (i) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners consistent
with the principles of Section 704(c) of the Code that takes into
account the variation between the 704(c) Value of such property and
its adjusted basis at the time of contribution, and (ii) any item of
Residual Gain or Residual Loss attributable to a Contributed Property
shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to
Sections 6.1 and 6.2 of this Agreement.
(2) (i) In the case of an Adjusted Property, such items shall (A)
first, be allocated among the Partners in a manner consistent with the
principles of
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Section 704(c) of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the allocations
thereof pursuant to Section 4.2 and (B) second, in the event such
property was originally a Contributed Property, be allocated among the
Partners in a manner consistent with Section 6.3(b)(1)(i), and (ii)
any item of Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Partners in the same manner as
its correlative item of "book" gain or loss is allocated pursuant to
Sections 6.1 and 6.2 of this Agreement.
(3) All other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their correlative
item of "book" gain or loss is allocated pursuant to Sections 6.1 and
6.2 of this Agreement.
(c) Power of General Partner to Elect Method. To the extent Treasury
Regulations promulgated pursuant to Section 704(c) of the Code permit a
partnership to utilize alternative methods to eliminate the disparities
between the agreed value of property and its adjusted basis, the General
Partner shall have the authority to elect the method to be used by the
Partnership and such election shall be binding on all Partners.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management.
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(a) Powers of General Partner. Except as otherwise expressly provided
in this Agreement, all management powers over the business and affairs of
the Partnership are exclusively vested in the General Partner, and the
Limited Partners shall have no right to participate in or exercise control
or management power over the business and affairs of the Partnership.
Notwithstanding anything to the contrary in this Agreement, the General
Partner may not be removed by the Limited Partners with or without cause.
In addition to the powers now or hereafter granted a general partner of a
limited partnership under applicable law or which are granted to the
General Partner under any other provision of this Agreement, the General
Partner, subject to Section 7.3 hereof, shall have full power and authority
to do all things deemed necessary or desirable by it to conduct the
business of the Partnership, to exercise all powers set forth in Section
3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof,
including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money, the assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness (including the securing of same by mortgage, deed of
trust or other lien or encumbrance on the Partnership's
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assets) and the incurring of any obligations it deems necessary for
the conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(3) the acquisition, disposition, sale, conveyance, mortgage,
pledge, encumbrance, hypothecation, contribution or exchange of any
assets of the Partnership or the merger or other combination of the
Partnership with or into another entity on such terms as the General
Partner deems proper;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of
this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the
General Partner, the Partnership or any of the Partnership's
Subsidiaries, the lending of funds to other Persons (including the
Partnership's Subsidiaries) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has
an equity investment and the making of capital contributions to its
Subsidiaries, the holding of any real, personal and mixed property of
the Partnership in the name of the Partnership or in the name of a
nominee or trustee (subject to Section 7.10), the creation, by grant
or otherwise, of easements or servitudes, and the performance of any
and all acts necessary or appropriate to the operation of the
Partnership assets including, but not limited to, applications for
rezoning, objections to rezoning, constructing, altering, improving,
repairing, renovating, rehabilitating, razing, demolishing or
condemning any improvements or property of the Partnership;
(5) the negotiation, execution, and performance of any contracts,
conveyances or other instruments (including with Affiliates of the
Partnership to the extent provided in Section 7.6) that the General
Partner considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the General
Partner's powers under this Agreement;
(6) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other
instruments, and the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(7) the selection and dismissal of employees of the Partnership
or the General Partner (including, without limitation, employees
having titles such as "president," "vice president," "secretary" and
"treasurer"), and the engagement and dismissal of agents, outside
attorneys, accountants, engineers, appraisers,
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consultants, contractors and other professionals on behalf of the
General Partner or the Partnership and the determination of their
compensation and other terms of employment or hiring;
(8) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(9) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of interests
in, and the contribution of property to, its Subsidiaries and any
other Person in which it has an equity investment from time to time);
(10) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct of litigation
and the incurring of legal expense and the settlement of claims and
litigation, and the indemnification of any Person against liabilities
and contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any
other Person (including, without limitation, the contribution or loan
of funds by the Partnership to such Persons);
(12) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method
of valuation as it may adopt; and
(13) the execution, acknowledgement and delivery of any and all
documents and instruments to effectuate any or all of the foregoing.
(b) No Approval Required for Above Powers. The Limited Partners agree
that the General Partner is authorized to execute, deliver and perform the
above-mentioned agreements and transactions on behalf of the Partnership
without any further act, approval or vote of the Partners, notwithstanding
any other provision of this Agreement, the Act or any applicable law, rule
or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under
this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited
Partners or any other Persons under this Agreement or of any duty stated or
implied by law or equity.
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(c) Insurance. At all times from and after the date hereof, the
General Partner may cause the Partnership to obtain and maintain casualty,
liability and other insurance on the properties of the Partnership and
liability insurance for the Indemnitees hereunder.
(d) Working Capital Reserves. At all times from and after the date
hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves for the Partnership in such amounts as
the General Partner, in its sole and absolute discretion, deems appropriate
and reasonable from time to time.
(e) No Obligation to Consider Tax Consequences to Limited Partners. In
exercising its authority under this Agreement, the General Partner may, but
shall be under no obligation to, take into account the tax consequences to
any Partner of any action taken by it. The General Partner and the
Partnership shall not have liability to the Limited Partners under any
circumstances as a result of an income tax liability incurred by the
Limited Partners as a result of an action (or inaction) by the General
Partner pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership. To the extent that such
action is determined by the General Partner to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate and do all the things to maintain the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) under the laws of the State of Delaware and each other jurisdiction
in which the Partnership may elect to do business or own property. Subject to
the terms of Section 8.5(a)(4) hereof, the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate,
as it may be amended or restated from time to time, to the Limited Partners. The
General Partner shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate for
the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the Limited Partners have limited
liability) in the State of Delaware and any other jurisdiction in which the
Partnership may elect to do business or own property. Section
7.3 Restrictions on General Partner's Authority. The General Partner may
not, without the written consent of the Limited Partners, take any action in
contravention of this Agreement, including, without limitation:
(a) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as otherwise provided in this
Agreement;
(b) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose except as
otherwise provided in this Agreement;
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(c) admit a Person as a Partner, except as otherwise provided in this
Agreement; or
(d) perform any act that would subject the Limited Partners to
liability as a general partner in any jurisdiction or any other liability
except as provided herein or under the Act.
Section 7.4 Responsibility for Expenses.
(a) No Compensation. Except as provided in this Section 7.4 and
elsewhere in this Agreement (including the provisions of Articles V and VI
regarding distributions, payments and allocations to which it may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
(b) Responsibility for Ownership and Operation Expenses. The
Partnership shall be responsible for and shall pay all expenses relating to
the Partnership's ownership of its assets, and the operation of, or for the
benefit of, the Partnership, and the General Partner shall be reimbursed on
a monthly basis, or such other basis as the General Partner may determine
in its sole and absolute discretion, for all expenses it incurs relating to
the Partnership's ownership of its assets and the operation of, or for the
benefit of, the Partnership; provided that the amount of any such
reimbursement shall be reduced by any interest earned by the General
Partner with respect to bank accounts or other instruments held by it as
permitted in Section 7.5(a). Such reimbursements shall be in addition to
any reimbursement to the General Partner as a result of indemnification
pursuant to Section 7.7 hereof.
Section 7.5 Outside Activities of the General Partner.
(a) The General Partner shall not be required to act hereunder as its
sole and exclusive business activity, and the General Partner may have
other business interests and engage in other activities in addition to
those relating to the Partnership, including businesses and activities
which are or may be competitive with the Partnership. Neither the
Partnership nor the Limited Partners shall have any right by virtue of this
Agreement or the partnership relationship created hereby in or to any such
other ventures or activities or to the income or proceeds derived
therefrom, and the pursuit of such ventures, even if competitive with the
business of the Partnership, shall not be deemed wrongful or improper. The
General Partner and any of its Affiliates, shall not be obligated to
present any particular investment or business opportunity to the
Partnership even if such opportunity is of a character which, if presented
to the Partnership, could be taken by the Partnership, and the General
Partner and each of its Affiliates shall have the right to take for his or
its own account or for any other Person, or to recommend to others, any
such particular investment or business opportunity.
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(b) The General Partner may, on behalf of the Partnership, employ or
otherwise acquire services or financing from any Partner or any entity in
which any Partner has an interest (fiduciary or otherwise) and pay from the
Partnership assets reasonable compensation therefor or interest thereon and
may acquire from or sell to any Partner or any entity in which any Partner
has an interest (fiduciary or otherwise) real or personal property or
interests therein and may acquire or sell real or personal property or
interests therein in connection with the acquisition or sale of which any
Partner or any entity in which any Partner has an interest (fiduciary or
otherwise) earns a commission or fee.
(c) The General Partner may commingle Partnership funds with funds of
its own or those of any other entity (either by joint venture or otherwise)
for Partnership purposes; provided that in connection with such funds the
General Partner shall keep adequate records to reflect the Partnership's
proportional interest therein.
Section 7.6 Contracts with Affiliates.
(a) Loans. The Partnership may lend or contribute to its Subsidiaries
or other Persons in which it has an equity investment, and such Persons may
borrow funds from the Partnership, on terms and conditions established in
the sole and absolute discretion of the General Partner. The foregoing
authority shall not create any right or benefit in favor of any Subsidiary
or any other Person.
(b) Transfers of Assets. Except as provided in Section 7.5, the
Partnership may transfer assets to joint ventures, other partnerships,
corporations or other business entities in which it is or thereby becomes a
participant upon such terms and subject to such conditions consistent with
this Agreement and applicable law.
(c) Contracts With General Partner. Except as expressly permitted by
this Agreement, neither the General Partner nor any of its Affiliates shall
sell, transfer or convey any property to, or purchase any property from,
the Partnership, directly or indirectly, except pursuant to transactions
that are on terms that are fair and reasonable and no less favorable to the
Partnership than would be obtained from an unaffiliated third party in
connection therewith.
(d) Employee Benefit Plans. The General Partner, in its sole and
absolute discretion and without the approval of the Limited Partners, may
propose and adopt on behalf of the Partnership employee benefit plans
funded by the Partnership for the benefit of employees of the General
Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate
of any of them in respect of services performed, directly or indirectly,
for the benefit of the Partnership, the General Partner, or any of the
Partnership's Subsidiaries.
Section 7.7 Indemnification.
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(a) General. The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines,
settlements, and other amounts arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative, that relate to the operations of the Partnership as set
forth in this Agreement in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to
the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the
Indemnitee actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
Indemnitee had reasonable cause to believe that the act or omission was
unlawful. The termination of any proceeding by judgment, order or
settlement does not create a presumption that the Indemnitee did not meet
the requisite standard of conduct set forth in this Section 7.7(a). The
termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee acted in a
manner contrary to that specified in this Section 7.7(a). Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership.
(b) In Advance of Final Disposition. Reasonable expenses incurred by
an Indemnitee who is a party to a proceeding may be paid or reimbursed by
the Partnership in advance of the final disposition of the proceeding upon
receipt by the Partnership of (a) a written affirmation by the Indemnitee
of the Indemnitee's good faith belief that the standard of conduct
necessary for indemnification by the Partnership as authorized in this
Section 7.7 has been met, and (b) a written undertaking by or on behalf of
the Indemnitee to repay the amount if it shall ultimately be determined
that the standard of conduct has not been met.
(c) Other Than by This Section. The indemnification provided by this
Section 7.7 shall be in addition to any other rights to which an Indemnitee
or any other Person may be entitled under any agreement, pursuant to any
vote of the Partners, as a matter of law or otherwise, and shall continue
as to an Indemnitee who has ceased to serve in such capacity.
(d) Insurance. The Partnership may purchase and maintain insurance,
on behalf of the Indemnitees and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or
expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have
the power to indemnify such Person against such liability under the
provisions of this Agreement.
(e) Employee Benefit Plans. For purposes of this Section 7.7, the
Partnership shall be deemed to have requested an Indemnitee to serve as
fiduciary of an employee
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benefit plan whenever the performance by it of its duties to the
Partnership also imposes duties on, or otherwise involves services by, it
to the plan or participants or beneficiaries of the plan; excise taxes
assessed on an Indemnitee with respect to an employee benefit plan pursuant
to applicable law shall constitute fines within the meaning of Section
7.7(a); and actions taken or omitted by the Indemnitee with respect to an
employee benefit plan in the performance of its duties for a purpose
reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Partnership.
(f) No Personal Liability for Limited Partners. In no event may an
Indemnitee subject the Limited Partners to personal liability by reason of
the indemnification provisions set forth in this Agreement.
(g) Interested Transactions. An Indemnitee shall not be denied
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by the
terms of this Agreement.
(h) Binding Effect. The provisions of this Section 7.7 are for the
benefit of the Indemnitees, their heirs, successors, assigns and
administrators and shall not be deemed to create any rights for the benefit
of any other Persons.
Section 7.8 Liability of the General Partner.
(a) General. Notwithstanding anything to the contrary set forth in
this Agreement, the General Partner shall not be liable for monetary
damages to the Partnership or any Partners for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or
omission, unless (i) the General Partner actually received an improper
benefit in money, property or services (in which case, such liability shall
be for the amount of the benefit in money, property or services actually
received), or (ii) the General Partner's action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of
action being adjudicated.
(b) No Obligation to Consider Interests of Limited Partners. The
Limited Partners expressly acknowledge that the General Partner is acting
on behalf of the Partnership and the sole stockholder of the General
Partner collectively, that the General Partner is under no obligation to
consider the separate interests of the Limited Partners (including, without
limitation, the tax consequences to the Limited Partners) in deciding
whether to cause the Partnership to take (or decline to take) any actions
which the General Partner has undertaken in good faith on behalf of the
Partnership, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred, or benefits not derived
by the Limited Partners in connection with such decisions, unless (i) the
General Partner actually received an improper benefit in money, property or
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services (in which case, such liability shall be for the amount of the
benefit in money, property or services actually received), or (ii) the
General Partner's action or failure to act was the result of active and
deliberate dishonesty and was material to the cause of action being
adjudicated.
(c) Acts of Agents. Subject to its obligations and duties as General
Partner set forth in Section 7.1(a) hereof, the General Partner may
exercise any of the powers granted to it by this Agreement and perform any
of the duties imposed upon it hereunder either directly or by or through
its agents. The General Partner shall not be responsible for any misconduct
or negligence on the part of any such agent appointed by it in good faith.
(d) Effect of Amendment. Any amendment, modification or repeal of his
Section 7.8 or any provision hereof shall be prospective only and shall not
in any way affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner.
-------------------------------------------
(a) Reliance on Documents. The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties.
(b) Reliance on Consultants and Advisors. The General Partner may
consult with legal counsel, accountants, appraisers, management
consultants, investment bankers and other consultants and advisors selected
by it, and any act taken or omitted to be taken in reliance upon the
opinion of such Persons as to matters which such General Partner reasonably
believes to be within such Person's professional or expert competence shall
be conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
(c) Action Through Officers and Attorneys. The General Partner shall
have the right, in respect of any of its powers or obligations hereunder,
to act through any of its duly authorized officers and a duly appointed
attorney or attorneys-in-fact. Each such attorney shall, to the extent
provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is
permitted or required to be done by the General Partner hereunder.
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Section 7.10 Title to Partnership Assets. Title to Partnership assets,
whether real, personal or mixed and whether tangible or intangible, shall be
deemed to be owned by the Partnership as an entity, and no Partner, individually
or collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
Section 7.11 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. The Limited
Partners hereby waive any and all defenses or other remedies which may be
available against the Limited Partners to contest, negate or disaffirm any
action of the General Partner in connection with any such dealing. In no event
shall any Person dealing with the General Partner or its representatives be
obligated to ascertain that the terms of this Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
General Partner or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner or
its representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (c) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability. The Limited Partners shall have no
liability under this Agreement except as expressly provided in this Agreement,
including Section 10.5 hereof, or under the Act.
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Section 8.2 Management of Business. The Limited Partners shall not take
part in the operation, management or control (within the meaning of the Act) of
the Partnership's business, transact any business in the Partnership's name nor
have the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners under this Agreement.
Section 8.3 Outside Activities of Limited Partners.
--------------------------------------
(a) General. Subject to Section 8.3(b) and any agreements entered into
by the Limited Partners or their Affiliates with the Partnership
(including, without limitation, the Non-Competition Agreement), the General
Partner or their respective Affiliates, the Partnership or a Subsidiary,
the following rights shall govern outside activities of the Limited
Partners: (i) the Limited Partners and any officer, director, employee,
agent, trustee, Affiliate or stockholder of any Limited Partner shall be
entitled to and may have business interests and engage in business
activities in addition to those relating to the Partnership, including
business interests and activities in direct competition with the
Partnership; (ii) neither the Partnership nor any Partners shall have any
rights by virtue of this Agreement in any business ventures of the Limited
Partners; (iii) neither the Limited Partners nor any other Person shall
have any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person, other than
the General Partner, and such Person shall have no obligation pursuant to
this Agreement to offer any interest in any such business ventures to the
Partnership, the Limited Partners or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, the
Limited Partners or such other Person, could be taken by such Person; (iv)
the fact that the Limited Partners may encounter opportunities to purchase,
otherwise acquire, lease, sell or otherwise dispose of real or personal
property and may take advantage of such opportunities itself or introduce
such opportunities to entities in which it has or has not any interest,
shall not subject such Partner to liability to the Partnership or any of
the other Partners on account of the lost opportunity; and (v) except as
otherwise specifically provided herein, nothing contained in this Agreement
shall be deemed to prohibit the Limited Partners or any of their Affiliates
from dealing, or otherwise engaging in business, with Persons transacting
business with the Partnership or from providing services relating to the
purchase, sale, rental, management or operation of real or personal
property (including real estate brokerage services) and receiving
compensation therefor, from any Persons who have transacted business with
the Partnership or other third parties.
(b) Limitation. Notwithstanding Section 8.3(a), no Limited Partner
shall directly or indirectly engage in the ownership, management or
operation of any Person who competes, directly or indirectly, with the
Partnership or the General Partner. Nothing in this Section 8.3(b) shall
prohibit a Limited Partner from owning up to 1% of the
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outstanding securities of any Person who directly or indirectly competes
with the Company.
Section 8.4 Priority Among Partners. No Partner (Limited or General) shall
have priority over any other Partner (Limited or General) either as to the
return of Capital Contributions or, except to the extent provided by Sections
6.2 or 6.3 hereof, or otherwise expressly provided in this Agreement, as to
profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership.
(a) Copies of Business Records. In addition to other rights provided
by this Agreement or by the Act, and except as limited by Section 8.5(b)
hereof, a Limited Partner shall have the right, for a purpose reasonably
related to the Limited Partner's interest as a limited partner in the
Partnership, upon written demand with a statement of the purpose of such
demand and at the Limited Partner's own expense:
(1) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the sole
stockholder of the General Partner pursuant to the Securities Exchange
Act of 1934, as amended;
(2) to obtain a copy of the Partnership's Federal, state and
local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(5) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a partner.
(b) Confidential Information. Notwithstanding any other provision of
this Section 8.5, the General Partner may keep confidential from the
Limited Partners, for such period of time as the General Partner determines
in its sole and absolute discretion to be reasonable, any Partnership
information that (i) the General Partner believes to be in the nature of
trade secrets or other information the disclosure of which the General
Partner in good faith believes is not in the best interests of the
Partnership or (ii) the Partnership is required by law or by agreements
with unaffiliated third parties to keep confidential.
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Section 8.6 Purchase Right.
(a) From and after the date that the Principal is no longer employed
by the Partnership for any reason, the General Partner shall have the right
(the "Purchase Right") to purchase (but not the obligation), from the
Limited Partners all (but not less than all) of the Limited Partners'
Limited Partnership Interests in exchange for the Purchase Amount. For
purposes of this Section 8.6, the Purchase Amount shall be calculated as of
the last date of employment of the Principal by the Partnership. Prior to
any exercise of the Purchase Right, the disinterested members of the board
of directors of the sole stockholder of the General Partner shall have
approved, by a majority vote thereof, the exercise of the Purchase Right by
the General Partner.
(b) The General Partner shall exercise the Purchase Right (if at all)
by delivering a notice (the "Purchase Notice") to the Limited Partners at
the address of the Limited Partner as reflected in the records of the
Partnership. Such notice shall state that the General Partner is exercising
the Purchase Right, shall state that the disinterested members of the board
of directors of the sole stockholder of the General Partner have, by a
majority vote thereof, approved the exercise of the Purchase Right by the
General Partner, shall set forth the Purchase Amount (and the calculation
thereof) and such other matters as the General Partner deems appropriate.
On the thirtieth day following the Purchase Notice, the General Partner
shall deliver to the Limited Partners a certified or cashier's check for
the Purchase Amount (together with an amount representing any distributions
accrued but unpaid prior to the date of the Purchase Notice). The Limited
Partners agree to execute such documents as the General Partner may
reasonably request in connection with the exercise of the Purchase Right.
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting. The General Partner shall keep or
cause to be kept at the principal office of the Partnership appropriate books
and records with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micrographics or any other information
storage device; provided that the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained for financial purposes on an accrual basis
in accordance with generally accepted accounting principles and for tax
reporting purposes on the accrual basis.
Section 9.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
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Section 9.3 Reports.
(a) Annual Reports. As soon as practicable, but in no event later
than 120 days after the close of each Partnership Year, the General Partner
shall cause to be mailed to the Limited Partners as of the close of the
Partnership Year, an annual report containing unaudited financial
statements of the Partnership presented in accordance with generally
accepted accounting principles.
(b) Quarterly Reports. As soon as practicable, but in no event later
than 60 days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be
mailed to the Limited Partners as of the last day of the calendar quarter,
a report containing unaudited financial statements of the Partnership, and
such other information as may be required by applicable law or regulation,
or as the General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
Section 10.1 Preparation of Tax Returns. The General Partner shall arrange
for the preparation and timely filing of all returns of Partnership income,
gains, deductions, losses and other items required of the Partnership for
Federal and state income tax purposes and shall use all reasonable efforts to
furnish, within 90 days of the close of each taxable year, the tax information
reasonably required by the General Partner and the Limited Partners for Federal
and state income tax reporting purposes.
Section 10.2 Tax Elections. Except as otherwise provided herein, the
General Partner shall, in its sole and absolute discretion, determine whether to
make any available election pursuant to the Code; provided, however, that the
General Partner shall make the election under Section 754 of the Code in
accordance with applicable regulations thereunder. The General Partner shall
have the right to seek to revoke any such election (including, without
limitation, the election under Section 754 of the Code) upon the General
Partner's determination in its sole and absolute discretion that such revocation
is in the best interests of the Partners.
Section 10.3 Tax Matters Partner.
(a) General. The General Partner shall be the "tax matters partner"
of the Partnership for Federal income tax purposes. Pursuant to Section
6223(c) of the Code, upon receipt of notice from the IRS of the beginning
of an administrative proceeding with respect to the Partnership, the tax
matters partner shall furnish the IRS with the name, address and profit
interest of the Limited Partners; provided, however, that such information
is provided to the Partnership by the Limited Partners. The Limited
Partners shall provide such information to the Partnership as the General
Partner shall reasonably request.
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(b) Powers. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership
items required to be taken into account by a Partner for income tax
purposes (such administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as "judicial
review"), and in the settlement agreement the tax matters partner may
expressly state that such agreement shall bind all Partners, except that
such settlement agreement shall not bind any Partner (a) who (within the
time prescribed pursuant to the Code and Regulations) files a statement
with the IRS providing that the tax matters partner shall not have the
authority to enter into a settlement agreement on behalf of such Partner or
(b) who is a "notice partner" (as defined in Section 6231 of the Code) or a
member of a "notice group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account by a
partner for tax purposes (a "final adjustment") is mailed or otherwise
given to the tax matters partner, to seek judicial review of such final
adjustment, including the filing of a petition for readjustment with the
Tax Court or the United States Claims Court, or the filing of a complaint
for refund with the District Court of the United States for the district in
which the Partnership's principal place of business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
at any time and, if any part of such request is not allowed by the IRS, to
file an appropriate pleading (petition, complaint or other document) for
judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken
into account by a Partner for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review proceeding
to the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of
the tax matters partner, and the provisions
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relating to indemnification of the General Partner set forth in Section 7.7
of this Agreement shall be fully applicable to the tax matters partner in
its capacity as such.
(c) Reimbursement. The tax matters partner shall receive no
compensation for its services. All third-party costs and expenses incurred
by the tax matters partner in performing its duties as such (including
legal and accounting fees) shall be borne by the Partnership. Nothing
herein shall be construed to restrict the Partnership from engaging an
accounting firm and a law firm to assist the tax matters partner in
discharging his duties hereunder, so long as the compensation paid by the
Partnership for such services is reasonable.
Section 10.4 Organizational Expenses. The Partnership shall elect to
deduct expenses, if any, incurred by it in organizing the Partnership ratably
over a 60 month period as provided in Section 709 of the Code.
Section 10.5 Withholding. The Limited Partners hereby authorize the
Partnership to withhold from, or pay on behalf of, or with respect to, the
Limited Partners any amount of Federal, state, local, or foreign taxes that the
General Partner determines that the Partnership is required to withhold or pay
with respect to any amount distributable or allocable to the Limited Partners
pursuant to this Agreement, including, without limitation, any taxes required to
be withheld or paid by the Partnership pursuant to Section 1441, 1442, 1445 or
1446 of the Code. Any amount paid on behalf of or with respect to the Limited
Partners shall constitute a loan by the Partnership to the Limited Partners,
which loan shall be repaid by the Limited Partners within 15 days after notice
from the General Partner that such payment must be made unless (a) the
Partnership withholds such payment from a distribution which would otherwise be
made to the Limited Partners or (b) the General Partner determines, in its sole
and absolute discretion, that such payment may be satisfied out of the available
funds of the Partnership which would, but for such payment, be distributed to
the Limited Partners. Any amounts withheld pursuant to the foregoing clauses (a)
or (b) shall be treated as having been distributed to the Limited Partners. Each
of the Limited Partners hereby unconditionally and irrevocably grant to the
Partnership a security interest in the Limited Partner's Partnership Interest to
secure the Limited Partner's obligation to pay to the Partnership any amounts
required to be paid pursuant to this Section 10.5. In the event that a Limited
Partner fails to pay any amounts owed to the Partnership pursuant to this
Section 10.5 when due, the General Partner may, in its sole and absolute
discretion, elect to make the payment to the Partnership on behalf of the
defaulting Limited Partner, and in such event shall be deemed to have loaned
such amount to the defaulting Limited Partner and shall succeed to all rights
and remedies of the Partnership as against the defaulting Limited Partner
(including, without limitation, the right to receive distributions). Any amounts
payable by the Limited Partner hereunder shall bear interest at the base rate on
corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four percentage
points (but not higher than the maximum lawful rate) from the date such amount
is due (i.e., 15 days after demand) until such amount is paid in full. The
Limited Partner shall
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take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.
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(a) Definition. The term "transfer," when used in this Article XI
with respect to a Partnership Interest, shall be deemed to refer to a
transaction by which Partner purports to assign its Partnership Interest to
another Person and includes a sale, assignment, gift, bequest, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by
law or otherwise. The term "transfer" when used in this Article XI does not
include any acquisition of Partnership Interests from a Limited Partner by
the General Partner pursuant to Section 8.6 hereof.
(b) Requirements. No Partnership Interest shall be transferred, in
whole or in part, except in accordance with the terms and conditions set
forth in this Article XI. Any transfer or purported transfer of a
Partnership Interest not made in accordance with this Article XI shall be
null and void.
Section 11.2 Transfer of General Partner's Partnership Interest.
--------------------------------------------------
(a) General. The General Partner may not transfer any of its General
Partnership Interest or withdraw as General Partner except in connection
with a transaction described in Section 11.2(b).
(b) Transfer in Connection With Reclassification, Recapitalization, or
Business Combination Involving General Partner. The General Partner shall
not engage in any merger, consolidation or other combination with or into
another Person or sale of all or substantially all of its assets, or any
reclassification, or recapitalization or change of its outstanding common
stock (other than a change in par value, or from par value to no par value,
or as a result of a subdivision or combination of its common stock), unless
under the terms of such transaction, the Limited Partners will not be
deemed to have engaged in a sale or exchange for Federal income tax
purposes of its Partnership Interest.
Section 11.3 Limited Partners' Rights to Transfer.
------------------------------------
(a) General. Subject to the provisions of Section 8.6, a Limited
Partner may not transfer all or any portion of its Partnership Interest, or
any of the Limited Partner's rights as a Limited Partner, without the prior
written consent of the General Partner, which consent may be given or
withheld by the General Partner in its sole and absolute discretion. The
General Partner's failure or refusal to permit a transfer of a Limited
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Partner's Partnership Interest shall not give rise to any cause of action
against the Partnership or the General Partner. The General Partner may
condition its consent to any such transfer on such matters as it deems
appropriate, including without limitation, amendments to this Agreement. In
order to effect such transfer upon consent of the General Partner, a
Limited Partner must deliver to the General Partner a duly executed copy of
the instrument making such transfer and such instrument must evidence the
written acceptance by the assignee of all of the terms and conditions of
this Agreement and represent that such assignment was made in accordance
with all applicable laws and regulations.
(b) Incapacitated Limited Partners. If a Limited Partner is subject
to Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by the
Limited Partner for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any
part of his or its interest in the Partnership. The Incapacity of a Limited
Partner, in and of itself, shall not dissolve or terminate the Partnership.
(c) Rights and Duties of Substituted Limited Partners. A transferee
who has been admitted as a Substituted Limited Partner in accordance with
this Article XI shall have all the rights and powers and be subject to all
the restrictions and liabilities of the Limited Partner under this
Agreement.
(d) Amendment of Exhibit A. Upon the admission of a Substituted
Limited Partner, the General Partner shall amend Exhibit A to reflect the
name, address, Partnership Interests, Sharing Percentage and Percentage
Interest of such Substituted Limited Partner and to eliminate or adjust, if
necessary, the name, address and interest of the predecessor of such
Substituted Limited Partner.
Section 11.4 General Provisions.
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(a) Withdrawal or Transfer of Limited Partner. A Limited Partner may
not withdraw from the Partnership other than as a result of a permitted
transfer of all of the Limited Partner's Partnership Interests in
accordance with this Article XI or pursuant to the provisions of Section
8.6 hereof. If a Limited Partner shall transfer all of its Partnership
Interests in a transfer permitted pursuant to this Article XI or pursuant
to the provisions of Section 8.6 hereof shall cease to be a Limited
Partner.
(b) Timing of Transfers. Transfers pursuant to this Article XI may
only be made on the first day of a fiscal quarter of the Partnership,
unless the General Partner otherwise agrees.
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(c) Allocation When Transfer Occurs. If any Partnership Interest is
transferred during any quarterly segment of the Partnership's fiscal year
in compliance with the provisions of this Article XI or pursuant to the
provisions of Section 8.6 hereof, Net Income, Net Losses, each item thereof
and all other items attributable to such interest for such fiscal year
shall be divided and allocated between the transferor Partner and the
transferee Partner by taking into account their varying interests during
the fiscal year in accordance with Section 706(d) of the Code, based on the
portion of the year for which the transferor Partner and the transferee
Partner were Partners. Solely for purposes of making such allocations, each
of such items for the calendar month in which the transfer or redemption
occurs shall be allocated to the Person who is a Partner as of midnight on
the last day of said month. All distributions of Available Cash with
respect to which the record date is before the date of such transfer or
redemption shall be made to the transferor Partner, and all distributions
of Available Cash with record dates thereafter shall be made to the
transferee Partner.
ARTICLE XII
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner. A successor to
all of the General Partner's General Partnership Interest pursuant to Section
11.2 hereof who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to the
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
Section 12.2 Admission of Additional Limited Partners. No additional
Limited Partners shall be admitted to the Partnership without the consent of all
of the Partners.
Section 12.3 Amendment of Agreement and Certificate. For the admission to
the Partnership of any Partner, the General Partner shall take all steps
necessary and appropriate under the Act to amend the records of the Partnership
and, if necessary, to prepare as soon as practical an amendment of this
Agreement (including an amendment of Exhibit A) and, if required by law, shall
prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Article XVI hereof.
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ARTICLE XIII
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Subject to Section 13.2, the Partnership shall dissolve, and its
affairs shall be wound up, upon the first to occur of any of the following
("Events of Dissolution"):
(a) Expiration of Term--the expiration of its term as provided in
Section 2.5 hereof;
(b) Withdrawal of General Partner--an event of withdrawal of the
General Partner, as defined in the Act, unless, within 90 days after the
withdrawal, all the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the
date of withdrawal, of a substitute General Partner;
(c) Dissolution Prior to 2097--from and after the date of this
Agreement through December 31, 2096, an election to dissolve the
Partnership made by the General Partner, in its sole and absolute
discretion;
(d) Judicial Dissolution Decree--entry of a decree of judicial
dissolution of the Partnership pursuant to the provisions of the Act;
(e) Sale of Partnership's Assets--the sale of all or substantially
all of the assets and properties of the Partnership;
(f) Merger--the merger or other combination of the Partnership with
or into another entity;
(g) Vote--a vote of all of the Partners;
(h) Bankruptcy or Insolvency of General Partner--the General Partner
(1) makes an assignment for the benefit of creditors;
(2) files a voluntary petition in bankruptcy;
(3) is adjudged a bankrupt or insolvent, or has entered against
it an order for relief in any bankruptcy or insolvency proceeding;
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(4) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation;
(5) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding of this nature; or
(6) seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of the General Partner or of all or
any substantial part of its properties; or
(i) Readjustment, etc. One hundred and twenty (120) days after the
commencement of any proceeding against the General Partner seeking
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation, the
proceeding has not been dismissed, or if within 90 days after the
appointment without the General Partner's consent or acquiescence of a
trustee, receiver or liquidator of the General Partner or of all or any
substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the
appointment is not vacated.
Section 13.2 Right to Continue the Partnership Business. In the event of
the dissolution of the Partnership for any reason, the Limited Partners shall
have the option to form a new partnership for the purpose of continuing the
Partnership business. Unless the Limited Partners so elect within 90 days after
the occurrence of an Event of Dissolution, the Partnership shall be liquidated
and shall immediately commence to wind up its affairs as provided in Section
13.3.
Section 13.3 Winding Up.
(a) General. Upon the occurrence of an Event of Dissolution and
subject to Section 13.2, the Partnership shall continue solely for the
purposes of winding up its affairs in an orderly manner, liquidating its
assets, and satisfying the claims of its creditors and Partners. No Partner
shall take any action that is inconsistent with, or not necessary to or
appropriate for, the winding up of the Partnership's business and affairs.
The General Partner (or, in the event there is no remaining General
Partner, any Person elected by the Limited Partners (the "Liquidator"))
shall be responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities
and property and the Partnership property shall be liquidated as promptly
as is consistent with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than the
Partners;
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(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the Partners, pro rata in
accordance with amounts owed to each such Partner; and
(3) The balance, if any, to the General Partner and Limited
Partners in accordance with their respective Capital Accounts, after
giving effect to all contributions, distributions, and allocations for
all periods.
The General Partner shall not receive any additional compensation for
any services performed pursuant to this Article XIII.
(b) Where Immediate Sale of Partnership's Assets Impractical.
Notwithstanding the provisions of Section 13.3(a) hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss
to the Partners, the Liquidator may, in its sole and absolute discretion,
defer for a reasonable time the liquidation of any assets except those
necessary to satisfy liabilities of the Partnership (including to those
Partners as creditors) or, with the consent of all Partners, distribute to
the Partners, in lieu of cash, as tenants in common and in accordance with
the provisions of Section 13.3(a) hereof, undivided interests in the
Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith
judgment of the Liquidator, such distributions in kind are in the best
interest of the Partners, and shall be subject to such conditions relating
to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the
operation of such properties at such time. The Liquidator shall determine
the fair market value of any property distributed in kind using such
reasonable method of valuation as it may adopt.
Section 13.4 Compliance with Timing Requirements of Regulations; Allowance
for Contingent or Unforeseen Liabilities or Obligations.
(a) Liquidation. Notwithstanding anything to the contrary in this
Agreement, in the event the Partnership is "liquidated" within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article XIII to the General Partner and the Limited
Partners if they have a positive Capital Account in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2) (including any timing
requirements therein). In the discretion of the General Partner, a pro rata
portion of the distributions that would otherwise be made to the General
Partner and the Limited Partners pursuant to this Article XIII may be: (a)
distributed to a liquidating trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and paying
any contingent or unforeseen liabilities or obligations of the Partnership
or of the General Partner arising out
40
<PAGE>
of or in connection with the Partnership. (The assets of any such trust
shall be distributed to the General Partner and Limited Partners from time
to time, in the reasonable discretion of the General Partner, in the same
proportions as the amount distributed to such trust by the Partnership
would otherwise have been distributed to the General Partner and Limited
Partners pursuant to this Agreement); or (b) withheld to provide a
reasonable reserve for Partnership liabilities (contingent or otherwise)
and to reflect the unrealized portion of any installment obligations owed
to the Partnership, provided that such withheld amounts shall be
distributed to the General Partner and Limited Partners as soon as
practicable.
(b) Deficit Balance of General Partner. Notwithstanding anything to
the contrary in this Agreement, (i) if the General Partner has a deficit
balance in its Capital Account following the liquidation (within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g)) of its interest in the
Partnership, as determined after taking into account all Capital Account
adjustments for the Partnership taxable year during which such liquidation
occurs (other than any adjustment for a capital contribution of the General
Partner made pursuant to this sentence), the General Partner shall make a
capital contribution to the Partnership in an amount equal to such deficit
balance by the end of the Partnership taxable year during which such
liquidation occurs (or, if later, within 90 days after date of such
liquidation); and (ii) such capital contribution made pursuant to clause
(i) of this Section 13.4(b) shall be distributed or utilized as provided in
Section 13.4 or 13.5.
Section 13.5 Deemed Distribution and Recontribution. Notwithstanding any
other provision of this Article XIII (but subject to Section 13.4(b)), in the
event the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Event of Dissolution has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Property in
kind to the General Partner and Limited Partners who shall be deemed to have
assumed and taken such property subject to all Partnership liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
General Partner and Limited Partners shall be deemed to have recontributed the
Partnership property in kind to the Partnership, which shall be deemed to have
assumed and taken such property subject to all such liabilities.
Section 13.6 Rights of Limited Partners. Except as specifically provided
in this Agreement, the Limited Partners shall look solely to the assets of the
Partnership for the return of its Capital Contribution and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as specifically provided in this Agreement, no Partner shall have
priority over any other Partner as to the return of its Capital Contributions,
distributions, or allocations.
Section 13.7 Notice of Dissolution. In the event an Event of Dissolution
or an event occurs that would, but for provisions of Section 13.1 or Section
13.2, result in a dissolution of the Partnership, the General Partner shall,
within 30 days thereafter, provide written notice
41
<PAGE>
thereof to each of the Partners and to all other parties with whom the
Partnership regularly conducts business (as determined in the discretion of the
General Partner) and shall publish notice thereof in a newspaper of general
circulation in each place in which the Partnership regularly conducts business
(as determined in the discretion of the General Partner).
Section 13.8 Cancellation of Certificate of Limited Partnership. Upon the
completion of the liquidation of the Partnership as provided in Section 13.3
hereof, the Partnership shall be terminated and the Certificate and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such other
actions as may be necessary to terminate the Partnership shall be taken.
Section 13.9 Reasonable Time for Winding-Up. A reasonable time shall be
allowed for the orderly winding-up of the business and affairs of the
Partnership and the liquidation of its assets pursuant to Section 13.3 hereof,
in order to minimize any losses otherwise attendant upon such winding-up, and
the provisions of this Agreement shall remain in effect between the Partners
during the period of liquidation.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments.
(a) General. Subject to Section 14.1(b), this Agreement may only be
amended by a written agreement signed by each of the Partners.
(b) General Partner's Power to Amend. Notwithstanding Section 14.1(a),
the General Partner shall have the power, without the consent of the
Limited Partners, to amend this Agreement as may be required to facilitate
or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of
the General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material
respect, or to cure any ambiguity, correct or supplement any provision
in this Agreement not inconsistent with law or with other provisions,
or make other changes with respect to matters arising under this
Agreement that will not be inconsistent with law or with the
provisions of this Agreement; and
42
<PAGE>
(4) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a
Federal or state agency or contained in Federal or state law.
The General Partner will provide notice to the Limited Partners when
any action under this Section 14.1(b) is taken.
ARTICLE XV
GENERAL PROVISIONS
Section 15.1 Addresses and Notice. All notices and demands under this
Agreement shall be in writing, and may be either delivered personally (which
shall include deliveries by courier), by telefax, telex or other wire
transmission (with request for assurance of receipt in a manner appropriate with
respect to communications of that type, provided that a confirmation copy is
concurrently sent by a nationally recognized express courier for overnight
delivery) or mailed, postage prepaid, by certified or registered mail, return
receipt requested, directed to the parties at their respective addresses set
forth on Exhibit A attached hereto, as it may be amended from time to time, and,
if to the Partnership, such notices and demands sent in the aforesaid manner
must be delivered at its principal place of business set forth above. Unless
delivered personally or by telefax, telex or other wire transmission as above
(which shall be effective on the date of such delivery or transmission), any
notice shall be deemed to have been made three (3) days following the date so
mailed. Any party hereto may designate a different address to which notices and
demands shall thereafter be directed by written notice given in the same manner
and directed to the Partnership at its office hereinabove set forth.
Section 15.2 Titles and Captions. All article or section titles or
captions in this Agreement are for convenience only. They shall not be deemed
part of this Agreement and in no way define, limit, extend or describe the scope
or intent of any provisions hereof. Except as specifically provided otherwise,
references to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
Section 15.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
43
<PAGE>
Section 15.6 Waiver of Partition. The Partners hereby agree that the
Partnership properties are not and will not be suitable for partition.
Accordingly, each of the Partners hereby irrevocably waives any and all rights
(if any) that it may have to maintain any action for partition of any of the
Partnership properties.
Section 15.7 Entire Agreement. This Agreement constitutes the entire
agreement among the parties with respect to the matters contained herein; it
supersedes any prior agreements or understandings among them and it may not be
modified or amended in any manner other than pursuant to Article XIV.
Section 15.8 Securities Law Provisions. The Partnership Interests have
not been registered under the Federal or state securities laws of any state and,
therefore, may not be resold unless appropriate Federal and state securities
laws, as well as the provisions of Article XI hereof, have been complied with.
Section 15.9 Remedies Not Exclusive. Any remedies herein contained for
breaches of obligations hereunder shall not be deemed to be exclusive and shall
not impair the right of any party to exercise any other right or remedy, whether
for damages, injunction or otherwise.
Section 15.10 Time. Time is of the essence of this Agreement.
Section 15.11 Creditors. None of the provisions of this Agreement shall
be for the benefit of, or shall be enforceable by, any creditor of the
Partnership.
Section 15.12 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
Section 15.13 Execution Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one agreement binding on
all the parties hereto, notwithstanding that all such parties are not
signatories to the original or the same counterpart. Each party shall become
bound by this Agreement immediately upon affixing its signature hereto.
Section 15.14 Applicable Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware, without
regard to the principles of conflicts of law.
Section 15.15 Invalidity of Provisions. If any provision of this
Agreement is or becomes invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected thereby.
44
<PAGE>
ARTICLE XVI
POWER OF ATTORNEY
Section 16.1 Power of Attorney.
(a) Scope. Each of the Limited Partners constitutes and appoints the
General Partner, any Liquidator, and authorized officers and attorneys-in-
fact of each, and each of those acting singly, in each case with full power
of substitution, as its true and lawful agent and attorney-in-fact, with
full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents and
other instruments (including, without limitation, this Agreement and
the Certificate and all amendments or restatements thereof) that the
General Partner or the Liquidator deems appropriate or necessary to
form, qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) in the State of Delaware and
in all other jurisdictions in which the Partnership may conduct
business or own property; (b) all instruments that the General Partner
deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its
terms; (c) all conveyances and other instruments or documents that the
General Partner deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms
of this Agreement, including, without limitation, a certificate of
cancellation; (d) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to, or
other events described in, Article XI, XII or XIII hereof or the
Capital Contribution of any Partner; and (e) all certificates,
documents and other instruments relating to the determination of the
rights, preferences and privileges of Partnership Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action which is made or given by
the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole discretion of the
General Partner, to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner to amend this Agreement except in accordance with Article XIV
hereof or as may be otherwise expressly provided for in this Agreement.
45
<PAGE>
(b) Irrevocability. The foregoing power of attorney is hereby declared
to be irrevocable and a power coupled with an interest, in recognition of
the fact that each of the Partners will be relying upon the power of the
General Partner to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and
not be affected by the subsequent Incapacity of the Limited Partner and the
transfer of all or any portion of the Limited Partner's Partnership
Interests and shall extend to the Limited Partner's heirs, successors,
assigns and personal representatives. Each Limited Partner hereby agrees to
be bound by any representation made by the General Partner, acting in good
faith pursuant to such power of attorney; and each Limited Partner hereby
waives any and all defenses which may be available to contest, negate or
disaffirm the action of the General Partner, taken in good faith under such
power of attorney. Each Limited Partner shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the
General Partner's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidator, as
the case may be, deems necessary to effectuate this Agreement and the
purposes of the Partnership.
* * * * *
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
Hub City Terminals, Inc.
By: *
------------------------------
David P. Yeager
Vice Chairman
LIMITED PARTNERS:
Hub Canadian Investors, Inc.
By: *
------------------------------
David P. Yeager
Authorized Officer
O'NEILL INC.
By: /s/ Thomas O'Neill
------------------------------
Thomas O'Neill
President
FORMATION GENERAL PARTNERS:
Hub Canadian Investors, Inc.
By: *
------------------------------
David P. Yeager
Authorized Officer
O'NEILL INC.
By: /s/ Thomas O'Neill
------------------------------
Thomas O'Neill
47
<PAGE>
President
FORMATION LIMITED PARTNER:
*
-----------------------------------
David P. Yeager
*
By: /s/ David P. Yeager
-----------------------------
David P. Yeager
48
<PAGE>
EXHIBIT A
PARTNERSHIP INTERESTS; PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
Name and Address Percentage Sharing Capital
of Partner Interest Percentage Contribution/1/
---------------- ---------- ---------- ---------------
<S> <C> <C> <C>
General Partner
- ---------------
Hub City Terminals, Inc.
1035 Havens Court
Downers Grove, IL 60515............ 30.0% 30.00% $122,904.15
Limited Partners
- ----------------
Hub Canadian Investors, Inc.
800 North Crooks Road, Suite 101
Clawson, Michigan 48017-1311....... 52.5% 47.25% $215,082.23
O'Neill Inc.
2916 South Sheridan Way, Suite 201
Oakville, Ontario L6J 7J8 Canada... 17.5% 22.75% $ 71,694.08
</TABLE>
- ----------------
/1/ The General Partner has succeeded to the Capital Account and Capital
Contributions of the Formation General Partners pursuant to the terms of
that certain Purchase and Sale Agreement dated as of even date herewith,
between the Formation General Partner and the Limited Partner.
A-1
<PAGE>
EXHIBIT B
AGREED VALUE; 704(C) VALUE
Agreed Value:
Receivables, prepaid expenses and other current
assets, property and equipment, investments and
other assets, intangibles including goodwill .................. $409,680.46
704(c) Value:
Agreed Value plus liabilities assumed in
connection with the Contribution Agreement
among the Formation General Partners, the Limited
Partners and the Formation Limited Partners.................... $__________
B-1
<PAGE>
EXHIBIT C
DISCOUNT RATE
Price/Earnings Discount
Multiple Rate
-------------- --------
1 3%
2 5%
3 7%
4 8%
5 11%
6 12%
7 14%
8 15%
9 16%
10 18%
11 20%
12 21%
13 23%
14 24%
15 25%
16 26%
17 28%
18 29%
19 29%
20 31%
21 32%
22 33%
23 34%
24 35%
C-1
<PAGE>
EXHIBIT 10.3
FORM OF NON-COMPETITION AGREEMENT
FOR EACH OF THE PRINCIPALS OF:
HUB CITY TERMINALS, INC.
HUB CITY ALABAMA, L.P.
HUB CITY ATLANTA, L.P.
HUB CITY BOSTON, L.P.
HUB CITY CANADA, L.P.
HUB CITY CLEVELAND, L.P.
HUB CITY DALLAS, L.P.
HUB CITY DETROIT, L.P.
HUB CITY FLORIDA, L.P.
HUB CITY GOLDEN GATE, L.P.
HUB CITY HOUSTON, L.P.
HUB CITY INDIANAPOLIS, L.P.
HUB CITY KANSAS CITY, L.P.
HUB CITY LOS ANGELES, L.P.
HUB CITY MID-ATLANTIC, L.P.
HUB CITY NEW HAVEN, L.P.
HUB CITY NEW ORLEANS, L.P.
HUB CITY NEW YORK STATE, L.P.
HUB CITY NEW YORK-NEW JERSEY, L.P.
HUB CITY NORTH CENTRAL, L.P.
HUB CITY OHIO, L.P.
HUB CITY PHILADELPHIA, L.P.
HUB CITY PITTSBURGH, L.P.
HUB CITY PORTLAND, L.P.
HUB CITY RIO GRANDE, L.P.
HUB CITY ST. LOUIS, L.P.
HUB CITY TENNESSEE, L.P.
<PAGE>
NON-COMPETITION AGREEMENT
-------------------------
THIS NON-COMPETITION AGREEMENT (this "Agreement") is entered into as of
this 18th day of March, 1996 by and among Daniel F. Hardman, an individual (the
"Employee"), and Hub City Terminals, Inc., a Delaware corporation (the "Hub
Chicago").
WHEREAS, Hub Chicago has become a wholly owned subsidiary of Hub Group,
Inc., a Delaware corporation ("Hub Group") in connection with the restructuring
completed simultaneously with the initial public offering of Class A Common
Stock by Hub Group;
WHEREAS, in connection with such transaction, the Employee will remain an
employee of Hub Chicago;
WHEREAS, the Employee and the Employee's Affiliates will continue to engage
in certain businesses after the date hereof; and
WHEREAS, as a condition to the consummation of the transactions described
above, the parties hereto desire to enter into certain agreements restricting
the activities of the Employee and the Employee's Affiliates.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
Section 1. Definitions. In addition to the terms defined elsewhere in this
Agreement, capitalized terms used herein shall have the meanings set forth
below:
"Affiliate" with regard to the Employee, means a Person that is controlled
by the Employee. For purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise. The term "Affiliates" and "Affiliated" shall have correlative
meanings. Hub Chicago and its Subsidiaries shall not be deemed to be Affiliates
of the Employee for purposes of this Agreement.
"Intermodal Transport Business" means the utilization of roads, highways
and/or the railroad system to arrange for the transportation of goods in
trailers and/or containers on behalf of third parties from the point of origin
to their final destination.
-2-
<PAGE>
"Partnerships" means each partnership in which Hub Chicago holds a general
partnership interest.
"Person" means an individual, corporation, proprietorship, firm,
partnership, limited partnership, trust, association or other entity.
"Restricted Area" means any state or other jurisdiction in which Hub
Chicago currently transacts any business such that it is required to obtain a
certificate of authority or to be licensed to transact business in such state or
jurisdiction and each state or other jurisdiction in which Hub Chicago shall,
immediately preceding the date on which the Employee is no longer employed by
Hub Chicago or the sole stockholder of Hub Chicago, transact any business such
that it is required to obtain a certificate of authority or to be licensed to
transact business in such state or jurisdiction. Notwithstanding the foregoing,
the Restricted Area shall not include those areas in which Hub Chicago is
required to obtain a certificate of authority or to be licensed to transact
business solely because Hub Chicago is the general partner of any Partnership.
"Subsidiaries" means any entity, at least 50% of the equity of which is
owned by Hub Chicago and shall include the Partnerships.
Section 2. Agreement not to Compete. During the term beginning on the
date hereof and continuing until one (1) year after the Employee is no longer an
employee of Hub Chicago, the Employee shall not, and will cause the Employee's
Affiliates to not, anywhere within the Restricted Area, directly or indirectly,
engage in the ownership, management or operation of the Intermodal Transport
Business on behalf of any Person other than Hub Chicago or the sole stockholder
of Hub Chicago. In addition, during the term described in the preceding
sentence, the Employee shall be obligated to present to Hub Chicago all
opportunities to acquire any interest in the Intermodal Transport Business,
which opportunities the Employee or the Employee's Affiliates would be entitled
to pursue on their own behalf but for the terms of this Agreement.
Section 3. Limitations on Non-Competition. Notwithstanding anything to
the contrary contained in this Agreement, the Employee and the Employee's
Affiliates may:
(a) be an owner, directly or indirectly, of securities of any class of Hub
Chicago or any of its affiliates or Subsidiaries;
(b) be an owner of up to 1% of the outstanding stock of any class of
securities of a Person (public or private) primarily engaged in the Intermodal
Transport Business, so long as (i) the Employee and any of the Employee's
Affiliates have no active participation (except to the extent permitted by
clause (c) below) in the business
-3-
<PAGE>
of such Person and (ii) the Employee and any of the Employee's Affiliates
do not in the aggregate own more than 5% of such Person; and
(c) be an owner of the outstanding stock of any class of securities
of a Person (public or private) primarily engaged in the business of
providing transportation or logistic services; provided, that such Person
does not directly compete with the Partnerships, Hub Chicago or the sole
stockholder of Hub Chicago within the Restricted Area.
Section 4. Restriction on Purchase of Securities. The Employee agrees
that the Employee will not acquire, directly or indirectly, beneficial ownership
of the shares of capital stock of Hub Group, during the period beginning on the
date of this Agreement and expiring 180 days thereafter.
Section 5. Confidential Information.
(a) The Employee acknowledges that, by virtue of the Employee's
employment by Hub Chicago, the Employee will be granted otherwise
prohibited access to confidential and proprietary data of Hub Chicago, the
Partnerships and the sole stockholder of Hub Chicago, which information is
not known either to competitors of the Partnerships, Hub Chicago or the
sole stockholder of Hub Chicago, or otherwise. This information (herein,
the "Confidential Information") includes, but is not limited to: (i)
specialized strategies, practices and procedures for obtaining and
maintaining clients; (ii) computer systems, software programs and related
enhancements of the Partnerships, Hub Chicago and the sole stockholder of
Hub Chicago or of the clients of the foregoing; (iv) policies, practices
and procedures relating to pricing of services, including agreements with
the providers of transportation and the related fee schedules; (v) ongoing
service agreements information relating to the identity of clients of the
Partnerships, Hub Chicago and the sole stockholder of Hub Chicago; (vi) key
contacts at such clients; (vii) specifics concerning the nature and extent
of services previously or currently being provided to or planned for such
clients; and (viii) any other essential information concerning such
clients' particularized needs. The Employee agrees that, beginning on the
date hereof and continuing until two (2) years after the Employee is no
longer an employee of Hub Chicago, the Employee will not, without the prior
written consent of the Hub Chicago, divulge any Confidential Information or
make use of it for the Employee's own purposes or the purposes of another.
(b) The foregoing restrictions shall not prohibit the Employee from
divulging Confidential Information to the extent required by the lawful
order of a court or agency of competent jurisdiction; provided, however, to
the extent that any such court or agency seeks to compel the Employee to
divulge any Confidential Information,
-4-
<PAGE>
the Employee shall promptly inform Hub Chicago and shall take such
reasonable steps to prevent disclosure of such Confidential Information
until Hub Chicago has been informed of such requested disclosure and Hub
Chicago has had an opportunity to respond to such court or agency.
Section 6. Reasonable and Necessary Restrictions. The Employee
acknowledges that the restrictions, prohibitions and other provisions hereof are
reasonable, fair and equitable in scope, terms and duration, are necessary to
protect the legitimate business interests of Hub Chicago, and are a material
inducement to Hub Chicago to enter into the transactions contemplated in the
recitals hereto.
Section 7. Specific Performance. The Employee acknowledges that the
obligations undertaken by the Employee pursuant to this Agreement are unique and
that Hub Chicago will not have an adequate remedy at law if the Employee shall
fail to perform any of the Employee's obligations hereunder, and the Employee
therefore confirms that Hub Chicago's right to specific performance of the terms
of this Agreement is essential to protect the rights and interests of Hub
Chicago. Accordingly, in addition to any other remedies that Hub Chicago may
have at law or in equity, Hub Chicago shall have the right to have all
obligations, covenants, agreements and other provisions of this Agreement
specifically performed by the Employee, and Hub Chicago shall have the right to
obtain preliminary and permanent injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement by
the Employee, and the Employee submits to the jurisdiction of the courts in the
State of Illinois for this purpose.
Section 8. Operations of Affiliates. The Employee agrees that the
Employee will refrain from authorizing any Affiliate to perform any activities
that would be prohibited by the terms of this Agreement if they were performed
by the Employee directly.
Section 9. Miscellaneous Provisions.
9.1 Interpretation. The parties hereto acknowledge that the fundamental
policies of this Agreement are to protect Hub Chicago's interest in the business
and assets acquired by it on the date hereof and to eliminate potential
conflicts of interest that may exist as a result of actions taken or proposed to
be taken by the Employee after the date hereof, and this Agreement shall be
construed and enforced in a manner consistent with and in furtherance of these
policies.
9.2 Binding Effect. Subject to any provisions hereof restricting
assignment, all covenants and agreements in this Agreement by or on behalf of
any of the parties hereto shall bind and inure to the benefit of their
respective successors, assigns, heirs, and personal representatives.
-5-
<PAGE>
9.3 Assignment. None of the parties hereto may assign any of its rights
under this Agreement, or attempt to have any other entity or individual assume
any of its obligations hereunder, except that Hub Chicago may assign any of its
rights, interests and obligations under this Agreement to any entity
controlling, controlled by or under common control with Hub Chicago.
9.4 Severability. If fulfillment of any provision of this Agreement, at
the time such fulfillment shall be due, shall transcend the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity; and if any clause or provision contained in this
Agreement operates or would operate to invalidate this Agreement, in whole or in
part, then such clause or provision only shall be held ineffective, as though
not herein contained, and the remainder of this Agreement shall remain operative
and in full force and effect. The parties shall negotiate in good faith a
replacement clause or provision as consistent with the ineffective clause or
provision as is practicable under law.
9.5 Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claims or disputes relating thereto shall be governed by
and construed in accordance with the laws of the State of Illinois, without
regard to choice-of-law rules thereof.
9.6 Amendment. Except as otherwise expressly provided in this Agreement,
no amendment, modification or discharge of this Agreement shall be valid or
binding unless set forth in writing and duly executed by each of the parties
hereto.
9.7 Waiver. Any waiver by any party or consent by any party to any
variation from any provision of this Agreement shall be valid only if in writing
and only in the specific instance in which it is given, and such waiver or
consent shall not be construed as a waiver of any other provision or as a
consent with respect to any similar instance or circumstance.
9.8 Headings. Section and subsection headings contained in this Agreement
are inserted for convenience of reference only, shall not be deemed to be a part
of this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
9.9 No Presumption Against Drafter. Each of the parties hereto have
jointly participated in the negotiation and drafting of this Agreement. In the
event of an ambiguity or a question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by each of the parties hereto
and no presumptions or burdens of proof shall arise favoring any party by virtue
of the authorship of any of the provisions of this Agreement.
9.10 Execution in Counterparts. This Agreement may be executed in two or
more counterparts, none of which need contain the signatures of each of the
parties hereto and each of which shall be deemed an original.
-6-
<PAGE>
* * * * *
-7-
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement, or
caused this Agreement to be duly executed on its behalf, as of the date first
set forth above.
HUB CITY TERMINALS, INC.
By: /s/ David P. Yeager
--------------------
Name: David P. Yeager
Title: Chief Executive Officer
EMPLOYEE:
/s/ Daniel F. Hardman
----------------------
Daniel F. Hardman
Attest:
/s/ William L. Crowder
- -----------------------
William L. Crowder
-8-
<PAGE>
Exhibit 10.5
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement"), dated as of March 18,
1996, is among Hub Group, Inc., a Delaware corporation ("Hub Group"), the
sellers identified on the signature pages hereto (each, a "Seller") and Hub
Group Distribution Services, an Illinois general partnership ("Hub
Distribution"), Hub City Terminals, Inc., a Delaware corporation, and Hub Group
Associates, Inc., an Illinois corporation ("Hub Associates").
WHEREAS, each of the Sellers owns an interest in Hub Distribution; and
WHEREAS, the Sellers desire to sell their respective interests (the
"Interests") in Hub Distribution to Hub Group and Hub Group desires to purchase
such Interests on the terms and subject to the conditions described herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and warranties herein contained, the parties hereto agree
as follows:
1. Purchase By Hub Group. Subject to the terms and conditions herein set forth,
Hub Group agrees to purchase the Interests owned by each Seller in exchange for
the Purchase Consideration. For purposes of this Agreement, the following
definitions shall apply:
(a) "Applicable Seller's Percentage" shall mean the percentage set
forth opposite such Seller's name on Exhibit A attached hereto.
(b) "Class A Common Stock" shall mean the shares of Class A Common
Stock, $0.01 par value per share, of Hub Group.
(c) "Hub Distribution Value" shall mean the product of (i) the 1995
projected consolidated after tax net earnings of Hub Group after giving
effect to the IPO, including projected after tax investment income
generated from working capital raised in connection with the IPO and before
provision for minority interest all as determined in the good faith
judgment of the board of directors of Hub Group times (ii) 0.015 times
(iii) the Price/Earnings Multiple.
(d) "IPO" shall mean the initial public offering of shares of Class A
Common Stock by Hub Group.
(e) "Purchase Consideration" shall mean, with respect to any Seller,
an amount in cash equal to the quotient obtained by dividing (1) the
product of (i) the difference between (A) the product of (x) the Hub
Distribution Value, times (y) 0.6305 times (z) 30%
<PAGE>
and (B) the sum of (x) 1.0695% of the estimated costs of the IPO as set
forth in Item 13 of Part II of the registration statement of Hub Group in
connection with the IPO, (y) 1.0695% of the amount of working capital
retained by Hub Group from the proceeds of the IPO as set forth in the
Prospectus and (z) 1.0641% of the aggregate amount received by the
underwriters in connection with the IPO (but not including the commissions
received by the underwriters from the sale of Class A Common Stock by any
selling stockholder of Hub Group and without giving effect to the exercise,
if any, of the underwriters' over-allotment option) times (ii) such
Seller's Applicable Seller's Percentage by (2) 0.6305.
(f) "Per Share IPO Price" shall mean the price per share of Class A
Common Stock of Hub Group as set forth in the Prospectus.
(g) "Price/Earnings Multiple" shall mean the amount determined by
dividing (i) the Per Share IPO Price by (ii) the 1995 projected
consolidated after tax net earnings per share of Hub Group after giving
effect to the IPO, including projected after tax investment income
generated from working capital raised in connection with the IPO and after
giving effect to minority interest all as determined in the good faith
judgment of the board of directors of Hub Group.
(h) "Prospectus" shall mean the prospectus forming a part of Hub
Group's registration statement in connection with the IPO, in the form in
which such prospectus is first filed with the Securities and Exchange
Commission pursuant to Rule 424(b) under the Securities Act of 1933, as
amended.
2. Sale by Sellers. Subject to the terms and conditions herein set forth,
each Seller agrees to sell for the consideration set forth above the Seller's
Interest.
3. Closing. The purchase of the Interests shall occur simultaneously with
the closing of the IPO. The closing shall take place at the offices of Mayer,
Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603.
Notwithstanding anything to the contrary contained in this Agreement, the
transactions contemplated hereby shall not close and this Agreement shall
terminate and no party shall have any liability hereunder (other than as
contemplated by Section 13) if the IPO is not consummated.
4. Representations and Warranties of Hub Group. Hub Group hereby
represents and warrants to each Seller as follows:
(a) Due Organization. Hub Group is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization, with corporate power to own its properties and to conduct its
business as now conducted.
-2-
<PAGE>
(b) Authorization. Hub Group has the requisite power to enter into
this Agreement and to carry out its obligations hereunder. This Agreement
has been duly authorized, executed and delivered by Hub Group and
constitutes a valid and binding agreement, enforceable against Hub Group in
accordance with its terms except to the extent that its enforceability may
be limited by applicable bankruptcy, insolvency, reorganization or other
laws affecting the enforcement of creditors' rights generally or by general
equitable principles. Neither the execution and delivery of this Agreement,
the consummation of the transactions contemplated hereby, nor compliance
with the terms, conditions or provisions of this Agreement will be a
violation of any of the terms, conditions or provisions of Hub Group's
Certificate of Incorporation or bylaws or of any material agreement or
instrument to which it is a party or by which it or its material properties
may be bound, or constitute a default or create a right of termination or
acceleration thereunder.
(c) Consents and Approvals. No consent, authorization or approval
of, filing or registration with, or cooperation from, any governmental
authority or any other person not a party to this Agreement is necessary in
connection with the execution, delivery and performance by Hub Group of
this Agreement and the consummation of the transactions contemplated
hereby, other than such consents, authorizations or approvals of, or
filings or registrations with, or cooperation from, the Securities and
Exchange Commission and state securities commissions in connection with the
IPO.
5. Representations and Warranties of Sellers. Each Seller hereby represents
and warrants to Hub Group as follows:
(a) Due Organization. Seller is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
organization, with corporate power to own its properties and to conduct its
business as now conducted. Seller is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization,
with power to own its properties and to conduct its business as now
conducted.
(b) Authorization. Seller has the requisite power and authority to
enter into this Agreement and to carry out its obligations hereunder. This
Agreement has been duly executed and delivered by Seller and constitutes a
valid and binding agreement of Seller, enforceable against Seller in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general
equitable principles. None of the execution and delivery of this Agreement,
consummation of the transactions contemplated hereby or compliance with the
terms, conditions or provisions of this Agreement, will be a violation of
any of the terms, conditions or provisions of any material agreement or
instrument to which Seller is a party or by which Seller may be bound, or
constitute a default or create a right of termination or acceleration
thereunder.
-3-
<PAGE>
(c) Title. Seller has good and marketable title to its Interest
and owns such Interest free and clear of all liens, encumbrances, claims,
security interests and defects. Such Interest was duly and validly issued
and fully paid
(d) Complete Transfer of Interest. The assignments, endorsements,
powers and other instruments of transfer delivered by Seller to Hub Group
will be sufficient to transfer its Interest. Seller has full power and
authority to convey good and marketable title to the Interest, and upon
such transfer, Hub Group will receive good and marketable title thereto,
free and clear of all liens.
6. Conditions to the Obligations of Hub Group. The obligations of Hub Group
under this Agreement are subject to the fulfillment of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties in this Agreement made by Sellers shall be true in all material
respects on the date hereof.
(b) Performance. Each Seller shall have performed and complied in all
material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
Seller.
(c) Injunctions. No preliminary or permanent injunction or other
final order by any United States Federal or state court shall have been
issued which prevents the consummation of the transactions contemplated
hereby.
7. Conditions to the Obligations of Seller. The obligations of Sellers
under this Agreement are subject to the fulfillment of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties in this Agreement made by Hub Group shall be true in all
material respects on the date hereof.
(b) Performance. Hub Group shall have performed and complied in all
material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
it.
(c) Injunctions. No preliminary or permanent injunction or other final
order by any United States Federal or state court shall have been issued
which prevents the consummation of the transactions contemplated hereby.
8. Option. Each Seller hereby grants to Hub Group an option (the "Option")
on the terms and at the times specified herein to purchase the Seller's
remaining Interest in Hub Distribution. At any time on or prior to the third
anniversary of the closing pursuant to Section 3, Hub Group shall have the right
to purchase all (but not less than all) of the Seller's Interest in
-4-
<PAGE>
Hub Distribution at the price set forth opposite such Seller's name on Exhibit A
attached hereto. Hub Group may exercise its rights hereunder by giving the
applicable Seller written notice of its intention to exercise the Option prior
to the expiration thereof. The closing of any exercise of the Option shall take
place at the offices of Hub Group within 30 days after the date of the notice of
exercise. Upon the closing of the transactions contemplated by an exercise of
the Option, the applicable Seller shall convey to Hub Group its Interest and Hub
Group shall deliver to such Seller the amount in cash set forth opposite such
Seller's name on Exhibit A attached hereto.
9. Successors and Assigns. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto and their respective heirs, personal
representatives, successors, assigns and affiliates, but shall not be assignable
by any party hereto without the prior written consent of the other parties
hereto.
10. Notices. Any notice or other communication provided for herein or given
hereunder to a party hereto shall be in writing and shall be given by delivery,
by telex, telecopier or by mail (registered or certified mail, postage prepaid,
return receipt requested) to the respective parties as follows:
If to Hub Group:
Hub Group, Inc.
377 East Butterfield Road
Suite 700
Lombard, IL 60148
Attention: David P. Yeager
Facsimile: (708) 964-6475
If to any Seller, to such Seller's address set forth on Exhibit A hereto.
Such notice may also be sent to such other address with respect to a party as
such party shall notify the other in writing.
11. Waiver. No party may waive any of the terms or conditions of this
Agreement except by a duly signed writing referring to the specific provision to
be waived. Each party hereto hereby consents to the transfer of the Interests
hereunder on behalf of itself and, in the case of Hub Associates, on behalf of
Hub Distribution.
12. Entire Agreement. This Agreement constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties hereto and their affiliates.
13. Expenses. Except as otherwise expressly contemplated herein to the
contrary, regardless of whether the transactions contemplated hereby are
consummated, Hub Group shall
-5-
<PAGE>
pay all expenses of the parties hereto incident to preparing for, entering into
and carrying out this Agreement and the consummation of the transactions
contemplated hereby.
14. No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and, no provision of this Agreement shall be
deemed to confer upon other third parties any remedy, claim, liability,
reimbursement, cause of action or other right.
15. Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
16. Captions. The Section and Paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
18. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first executed.
HUB GROUP, INC.
By: *
------------------------------
David P. Yeager
Vice Chairman
HUB GROUP DISTRIBUTION SERVICES, an
Illinois general partnership
By: HUB GROUP ASSOCIATES, INC.,
its Managing Partner
By: *
------------------------------
David P. Yeager
Authorized Officer
-6-
<PAGE>
HUB CITY TERMINALS, INC.
HUB GROUP ASSOCIATES, INC.
By: *
-----------------------------
David P. Yeager
Authorized Officer
SELLERS:
HUB CITY ALABAMA TERMINALS, INC.
HUB CITY ATLANTA TERMINALS, INC.
HUB CITY BOSTON TERMINALS, INC.
HUB CITY CLEVELAND TERMINALS, INC.
HUB CITY DALLAS TERMINALS, INC.
HUB CITY DETROIT TERMINALS, INC.
HUB CITY FLORIDA TERMINALS, INC.
HUB CITY GOLDEN GATE TERMINALS, INC.
HUB CITY HOUSTON TERMINALS, INC.
HUB CITY INDIANAPOLIS TERMINALS, INC.
HUB CITY KANSAS CITY TERMINALS, INC.
HUB CITY LOS ANGELES TERMINALS, INC.
HUB CITY MID ATLANTIC TERMINALS, INC.
HUB CITY NEW HAVEN TERMINALS, INC.
HUB CITY TERMINALS OF NEW ORLEANS, INC.
HUB CITY NEW YORK STATE TERMINALS, INC.
HUB CITY TERMINALS, INC.,
NEW YORK-NEW JERSEY
HUB CITY NORTH CENTRAL, INC.
HUB CITY OHIO TERMINALS, INC.
HUB CITY PHILADELPHIA TERMINALS, INC.
HUB CITY PITTSBURGH TERMINALS, INC.
HUB CITY PORTLAND TERMINALS, INC.
HUB CITY RIO GRANDE TERMINALS, INC.
HUB CITY TERMINALS INCORPORATED, ST. LOUIS
HUB CITY TENNESSEE TERMINALS, INC.
HUB GROUP PARTNERS, INC.
By: *
-----------------------------
David P. Yeager
Authorized Officer
*
By: /s/ David P. Yeager
--------------------------
David P. Yeager
-7-
<PAGE>
EXHIBIT A
APPLICABLE SELLER'S PERCENTAGE
------------------------------
<TABLE>
<CAPTION>
Applicable
Seller's Option
Seller Percentage Price
- ------ ---------- -------
<S> <C> <C>
Hub City Alabama Terminals, Inc.......................... 0.65% $15,640
2100 Riverchase Center
Suite 110
Birmingham, AL 35244
Facsimile: (205) 988-3650
Hub City Atlanta Terminals, Inc.......................... 2.60 62,561
3700 Market St.
Bldg. E - Suite 2
Clarkson, GA 30021
Facsimile: (404) 294-0464
Hub City Boston Terminals, Inc........................... 1.95 46,921
225 Turnpike Rd. - 3rd Floor
Southboro, MA 01772
Facsimile: (508) 460-0952
Hub City Cleveland Terminals, Inc........................ 0.65 15,640
7000 Fitzwater Rd.
Suite 201
Brecksville, OH 44141
Facsimile: (216) 526-2672
Hub City Dallas Terminals, Inc........................... 0.65 15,640
1700 Alma Drive - Suite 550
Plano, TX 75075
Facsimile: (214) 422-5876
Hub City Detroit Terminals, Inc.......................... 1.95 46,921
800 N. Crooks
Clawson, MI 48017
Facsimile: (810) 280-6425
Hub City Florida Terminals, Inc.......................... 0.65 15,640
2105 Park Ave. - Suite 17
Orange Park, FL 32073
Facsimile: (904) 264-8588
Hub City Golden Gate Terminals, Inc...................... 1.95 46,921
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Applicable
Seller's Option
Seller Percentage Price
- ------ ---------- -------
<S> <C> <C>
31 Panoramic Way
Walnut Creek, CA 94595
Facsimile: (510) 930-0299
Hub City Houston Terminals, Inc......................... 0.65% $15,640
1770 St. James Place
Suite 602
Houston, TX 77056
Facsimile: (713) 622-7775
Hub City Indianapolis Terminals, Inc.................... 1.95 46,921
921 E. 86th Avenue
Suite 100
Indianapolis, IN 46240
Facsimile: (317) 475-7335
Hub City Kansas City Terminals, Inc..................... 1.30 31,280
9250 Glenwood Street
Overland Park, KS 66212
Facsimile: (913) 381-6334
Hub City Los Angeles Terminals, Inc..................... 1.95 46,921
1698 Greenbriar Land
Suite 224
Brea, CA 92621
Facsimile: (714) 671-0854
Hub City Mid Atlantic Terminals, Inc.................... 0.65 15,640
8600 LaSalle Rd.
Oxford Bldg., Suite 633
Towson, MD 21286
Facsimile: (410) 583-5310
Hub City New Haven Terminals, Inc....................... 1.95 46,921
1171 Main St. - Suite 8
P.O. Box 1085
Branford, CT 06405
Facsimile (203) 481-8328
Hub City Terminals of New Orleans, Inc.................. 0.65 15,640
285 West Esplanade Ave.
Suite 406
Kenner, LA 70065
Facsimile: (504) 469-4922
Hub City New York State Terminals, Inc.................. 0.65 15,640
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Applicable
Seller's Option
Seller Percentage Price
- ------ ---------- -------
<S> <C> <C>
150 Allens Creek Rd.
Rochester, NY 14618
Facsimile: (716) 271-1465
Hub City Terminals, Inc., New York-New Jersey........... 1.95% $46,921
115 Grande Avenue
Englewood, NJ 07631-3521
Facsimile: (201) 816-01343
Hub City North Central, Inc............................. 1.95 46,921
9242 W. National Ave.
Milwaukee, WI 53227
Facsimile: (414) 545-7424
Hub City Ohio Terminals, Inc............................ 3.25 78,201
7015 W. Spring Meadows Drive
Suite 201
Holland, OH 43258
Facsimile: (419) 867-4110
Hub City Philadelphia Terminals, Inc.................... 0.65 15,640
407 W. Lincoln Highway
Suite 100
Exton, PA 19341-2521
Facsimile: (610) 524-6405
Hub City Pittsburgh Terminals, Inc...................... 1.95 46,921
2550 Boyce Plaza Rd.
Suite 200
Pittsburgh, PA 15241
Facsimile: (412) 257-4224
Hub City Portland Terminals, Inc........................ 1.95 46,921
10550 S.W. Allen Blvd.
Suite 211
Beaverton, OR 97005
Facsimile: (503) 626-4002
Hub City Rio Grande Terminals, Inc...................... 0.65 15,640
8209 Roughrider - Suite 200
San Antonio, TX 78239-2420
Facsimile: (210) 656-1257
Hub City Terminals, Incorporated, St. Louis............. 1.95 46,921
10420 Old Olive Street Rd.
3rd Floor
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Applicable
Seller's Option
Seller Percentage Price
- ------ ---------- -------
<S> <C> <C>
St. Louis, MO 63141
Facsimile: (314) 993-1317
Hub City Tennessee Terminals, Inc.............. 1.95% $46,921
751 Walnut Knoll Lane
Memphis, TN 38018
Facsimile: (901) 758-0099
Hub Group Partners, Inc........................ 26.00 625,625
1035 Havens Court
Downers Grove, IL 60515
Facsimile: (708) 971-2421
</TABLE>
A-4
<PAGE>
EXHIBIT 10.6
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of March 18,
1996, is among Hub Group, Inc., a Delaware corporation ("Hub Group"), Hub City
Terminals, Inc., a Delaware corporation ("Hub Chicago") and the parties listed
on the signature pages hereto.
WHEREAS, concurrently with the execution of this Agreement, Hub Group,
through its wholly owned subsidiary Hub Chicago, is entering into a Purchase and
Sale Agreement ("Purchase and Sale Agreement") pursuant to which Hub Chicago
will purchase the general partnership interest in the limited partnerships
identified on the signature pages hereto (each a "Hub Partnership");
WHEREAS, concurrently with the execution of this Agreement, Hub
Chicago is entering into an Amended and Restated Agreement of Limited
Partnership ("Limited Partnership Agreement") pursuant to which Hub Chicago will
act as general partner for each Hub Partnership;
WHEREAS, concurrently with the execution of this Agreement, Hub Group
is consummating an initial public offering of its shares of Class A Common Stock
(the "IPO"); and
WHEREAS, Hub Group, Hub Chicago and each of the Hub Partnerships
desire to enter into this Agreement delineating certain fundamental business
practices which govern the relationship between each Hub Partnership, Hub
Chicago and Hub Group after the IPO; and
WHEREAS, the members of the Board of Directors of Hub Group who are
not employees of Hub Group, Hub Chicago or any of the Hub Partnerships and who
are not descendants or immediate family members of Phillip C. Yeager (the
"Independent Directors") have adopted policies governing the relationship
between each Hub Partnership, Hub Chicago and Hub Group; and
WHEREAS, Hub Group, Hub Chicago and each of the Hub Partnerships wish
to set forth these policies in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto agree as follows:
<PAGE>
A. Operating Procedures.
1. Territorial Boundaries. Previously defined territorial marketing
boundaries set up for each Hub Partnership and Hub Chicago will remain in effect
after the IPO. These boundaries may only be amended from time to time by the
Independent Directors.
2. Administrative Services. Each Hub Partnership and other operating
entities will be charged for administrative services provided by Hub Group,
including, but not limited to, administrative, customer service, national
accounts sales and international sales. Rates and formulas will be used to
assess commissions and fees to each Hub Partnership and other entities for
provided services. The Executive Committee of the Board of Directors of Hub
Group may adjust the rates or formulas from time to time to eliminate any
excess/deficit.
It is expected that total costs for Hub Group administrative services will
be offset with credits from fees and commissions. Any excess or deficit
remaining at the end of each quarter will be charged or distributed, as the case
may be, to the Hub Partnerships or other operating entities.
3. New Business Ventures. Hub Group and Hub Chicago will have the right
of first refusal as to all new business ventures. For purposes of clarification,
and without limitation, examples of new business ventures include air freight,
overseas operations and ocean transportation. A new business venture cannot be
offered to the Hub Partnerships until Hub Group and Hub Chicago have both
indicated by board resolution or other writing that neither Hub Group nor Hub
Chicago, respectively, desire to pursue this new business venture. The Hub
Partnerships will be used for vendor services to new business ventures subject
to cost and service capabilities.
4. Capital Investments. An annual rate equal to the corporate base rate
as most recently announced by The First National Bank of Chicago at Chicago,
Illinois plus 1% will be assessed to the Hub Partnerships for capital
investments made by Hub Group or Hub Chicago on behalf of the Hub Partnerships.
This assessment will be in addition to the monthly depreciation recorded for the
capital expenditures. This assessment will be based on the undepreciated balance
of the aforementioned capital investments.
5. Employee Compensation. With respect to any compensation based on the
equity of Hub Group that is paid by Hub Group to an employee of (or other
service-provider to) the Hub Partnership, the Hub Partnership shall reimburse
Hub Group for the cost of such compensation, based on the fair market value of
the equity as of the date the compensation is includible in the income of the
employee or other
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<PAGE>
service-provider (or, if not includible in the income of the employee or
other service-provider, based on the fair market value of the equity at the
time the compensation is no longer subject to restriction).
B. Modification, Termination and Amendment. This agreement may be changed,
terminated or amended only by a majority of the Independent Directors.
C. Annual Review. In connection with the annual audit of the financial
statements of Hub Group and Hub Chicago, the independent public accountants for
Hub Group and Hub Chicago will determine compliance with the terms of this
Agreement.
D. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware.
E. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
F. Severability. If any provision of this Agreement shall be held invalid,
illegal or unenforceable, the validity, legality or enforceability of the other
provisions hereof shall not be affected thereby, and there shall be deemed
substituted for the provision at issue a valid, legal and enforceable provision
as similar as possible to the provision at issue.
G. No Third Party Beneficiaries. This Agreement is solely for the benefit
of the parties hereto and no provision of this Agreement shall be deemed to
confer upon other third parties any remedy, claim, liability, reimbursement,
cause of action or other right.
H. Waiver. No party may waive any of the terms or conditions of this
Agreement except by a duly signed writing referring to the specified provision
to be waived.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the day and year first executed.
HUB GROUP, INC.
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY TERMINALS, INC.
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY ALABAMA PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY ATLANTA PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
-4-
<PAGE>
HUB CITY BOSTON PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
-------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY CANADA PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY CLEVELAND PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY DALLAS PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
-5-
<PAGE>
HUB CITY DETROIT PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY FLORIDA PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY GOLDEN GATE PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY HOUSTON PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
-6-
<PAGE>
HUB CITY INDIANAPOLIS PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY KANSAS CITY PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY LOS ANGELES PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY MID ATLANTIC PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
-7-
<PAGE>
Title: Chief Executive Officer
HUB CITY NEW HAVEN PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY NEW ORLEANS PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY NEW YORK STATE PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY NEW YORK - NEW JERSEY PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
-8-
<PAGE>
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY NORTH CENTRAL PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY OHIO PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY PHILADELPHIA PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY PITTSBURGH PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
-9-
<PAGE>
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY PORTLAND PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY RIO GRANDE PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
HUB CITY ST. LOUIS PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
------------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
-10-
<PAGE>
HUB CITY TENNESSEE PARTNERS, L.P.
By: HUB CITY TERMINALS, INC., GENERAL PARTNER
By: *
-------------------------------------
Name: David P. Yeager
Title: Chief Executive Officer
*By: /s/ David P. Yeager
---------------------------------------
Name: David P. Yeager
-11-
<PAGE>
EXHIBIT 10.7
STOCKHOLDERS' AGREEMENT
THIS AGREEMENT is made as of March 18, 1996, by and among Phillip C.
Yeager, David P. Yeager, the Laura C. Yeager 1994 GST Trust, the Matthew D.
Yeager 1994 GST Trust, the Phillip D. Yeager 1994 GST Trust, Mark A. Yeager, the
Alexander B. Yeager 1994 GST Trust, the Samantha N. Yeager 1994 GST Trust, and
Debra A. Jensen (each, a "Stockholder" and collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Stockholders are the holders of all of the outstanding shares
of Class B Common Stock, $0.01 par value per share (the "Class B Stock"), of Hub
Group, Inc., a Delaware corporation (the "Company"); and
WHEREAS, the Stockholders wish to record, among other matters, their
understanding regarding the voting of the Class B Stock and their respective
rights to transfer shares of Class B Stock.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. In addition to the terms defined elsewhere
in this Agreement, the following terms shall have the following meanings for the
purposes of this Agreement:
"Company" shall have the meaning ascribed thereto in the preamble.
"Class A Stock" shall mean the shares of Class A Common Stock, $0.01
par value per share, of the Company.
"Class B Stock" shall have the meaning ascribed thereto in the
preamble, together with (i) any shares of Class B Stock that subsequently may be
issued or issuable with respect to the Class B Stock as a result of a stock
split or dividend or any sale, transfer, assignment or other transaction
involving the Class B Stock by the Company, (ii) any securities into which the
Class B Stock may thereafter be changed as a result of merger, consolidation,
recapitalization or otherwise (other than securities issued upon conversion of
Class B Stock pursuant to the terms thereof) and (iii) any shares of Class B
Stock acquired pursuant to this Agreement.
<PAGE>
"Offer" shall have the meaning ascribed thereto in Section 2.2(a).
"Offered Interest" shall have the meaning ascribed thereto in Section
2.2(a).
"Offerees" shall have the meaning ascribed thereto in Section 2.2(a).
"Offering Stockholder" shall have the meaning ascribed thereto in Section
2.2(a).
"Permitted Transferee" shall mean Phillip C. Yeager, the descendants
(whether natural or adopted) of Phillip C. Yeager, the spouse of Phillip C.
Yeager or any descendant (whether natural or adopted) of Phillip C. Yeager, any
estate of any of the foregoing, any trust for the primary benefit of any one or
more of the foregoing and any Person, all of the outstanding equity securities
of which are owned by any one or more of the foregoing.
"Person" shall mean any individual, corporation, proprietorship, firm,
partnership, limited partnership, trust, association or other entity.
"Stockholder" or "Stockholders" shall have the meanings ascribed
thereto in the preamble, together with any Person who becomes subject to this
Agreement pursuant to Article II hereof.
"Transfer" shall mean any transaction by which a Stockholder purports
to assign its shares of Class B Stock to another Person and shall include a
sale, assignment, bequest, pledge, encumbrance, hypothecation, mortgage,
exchange or other disposition by of law or otherwise. For purposes of this
Agreement, the term "Transfer" shall include a conversion of shares of Class B
Stock into shares of Class A Stock of the Company pursuant to the Company's
Certificate of Incorporation.
ARTICLE II
RESTRICTIONS ON TRANSFER
Section 2.1 No Transfer of Class B Stock Except in Compliance with
Agreement. No Stockholder shall Transfer its shares of Class B Stock, except in
compliance with the provisions of this Article II.
Section 2.2 Transfers Pursuant to a Right of First Refusal.
(a) If a Stockholder (the "Offering Stockholder") desires to Transfer
all or any portion of its shares of Class B Stock (all or such portion is
hereinafter referred to as the "Offered Interest") to any Person who is not a
Permitted Transferee, the Offering Stockholder shall first deliver to each other
Stockholder (the "Offerees"), a written notice setting forth an offer to sell
the Offered Interest, pro rata to each Offeree in accordance with its percentage
ownership of Class B Common Stock, for a specified cash dollar
2
<PAGE>
amount per share (which price, in the event of a conversion of Class B Stock
pursuant to the Company's Certificate of Incorporation or any other Transfer for
which a price is not specified, shall be the closing sale price of the shares of
Class A Stock on the Nasdaq Stock Market on the date of the notice) and on
specified terms and conditions (the "Offer"). For a period of 30 days after
receipt by the Offeree of an Offer, the Offeree shall have a first right to
purchase its pro rata portion of the Offered Interest. To exercise its rights
hereunder, an Offeree must deliver to the Offering Stockholder a written notice
setting forth the number of shares of Class B Stock such Offeree desires to
purchase and, if such Offeree desires to purchase more than its pro rata portion
of the Offered Interest, a statement of the maximum additional amount of the
Offered Interest such Offeree would purchase if the other Offerees elect not to
purchase their pro rata share. In the event that any Offeree shall have
declined to exercise its right to purchase a portion of the Offered Interest and
the other Offerees shall have timely exercised their rights to purchase,
indicating in their written notices a desire to purchase a total percentage in
excess of 100% of the Offered Interest, such Offerees shall be allocated shares
of the Offered Interest pro rata in accordance with their percentage ownership
of shares of Class B Stock.
(b) In the event that any Offerees shall have timely elected to
purchase all or a portion of the Offered Interest in accordance with Section
2.2(a), the Offering Stockholder shall sell the Offered Interest to such
Offerees at the cash price and upon the terms and conditions set forth in the
Offer, and the parties shall otherwise consummate said transaction no later than
45 days after the delivery of the Offer to the Offerees.
(c) To the extent that the Offerees have not elected to purchase all
of the Offered Interest, the Offering Stockholder may, within 90 days after the
expiration of the Offerees' right to purchase referred to in Section 2.2(a),
Transfer the Offered Interest to a Person other than a Permitted Transferee;
provided, however, that such Transfer shall be effected at a price no less than
the price specified in the Offer and on other terms and conditions no more
favorable to the transferees than those contained in the Offer. After the
expiration of such 90-day period, any proposed Transfer of all or any portion of
the shares of Class B Stock held by the Offering Stockholder shall once again be
subject to the provisions of this Section 2.2.
Section 2.3 Transfers to Permitted Transferees. A Stockholder may
Transfer its shares of Class B Stock to a Permitted Transferee who is not a
party to this Agreement if and only if such Permitted Transferee (or the
guardian or other legal representative) has agreed in writing to be bound by all
of the terms and conditions of this Agreement.
3
<PAGE>
ARTICLE III
VOTING AGREEMENT
Section 3.1 Voting Agreement. Each Stockholder hereby agrees to vote
all of its shares of Class B Stock or to cause all of its shares of Class B
Stock to be voted as directed by a majority in interest of the outstanding
shares of Class B Stock.
Section 3.2 Stockholder Vote. For purposes of effecting the
agreement set forth in Section 3.1, the Stockholders shall, within 5 days after
receipt by the Stockholders of a notice from the Company calling for a meeting
and vote of its stockholders upon any matter, vote (in accordance with their
percentage ownership of shares of Class B Stock) to determine how the
Stockholders shall vote their shares of Class B Stock pursuant to Section 3.1.
The vote required by this Section 3.2 shall take place at the Company's
principal executive offices and Stockholders may participate in such vote in
person (which may include presence by telephone conference call) or by proxy.
Any shares of Class B Stock not represented at such meeting shall be deemed to
have voted against the matter presented by the Company for stockholder action.
Section 3.3 Action by Written Consent. In the event that any
Stockholder desires that the Stockholders take any action by written consent,
the Stockholder proposing such action shall deliver to the other Stockholders a
written notice setting forth the matter proposed to be acted upon by the
Stockholders and setting forth the date, time and place of the meeting of
Stockholders to consider and act upon the proposal (which meeting shall take
place within 5 days after receipt by the Stockholders of such notice). At such
meeting, the Stockholders shall vote (in accordance with their percentage
ownership of shares of Class B Stock) to determine how the Stockholders shall
vote their shares of Class B Stock pursuant to Section 3.1 for purposes of
taking the proposed action. Stockholders may participate in the vote required
by this Section 3.3 in person (which may include presence by telephone
conference call) or by proxy. Any shares of Class B Stock not represented at
such meeting shall be deemed to have voted against the matter presented by the
proposing Stockholder.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. Any notice, request, instruction or other
document to be given hereunder by a party hereto shall be in writing and shall
be deemed to have been given, (a) when received if delivered in person or by
courier or a courier service, (b) on the date of transmission if sent by
facsimile or other wire transmission, or (c) three days after being deposited in
the U.S. mail, certified or registered mail, postage prepaid, in each case
addressed as set forth on the signature pages hereto or to such other address as
a party hereto may designate for itself by notice given as herein provided.
Whenever this Agreement requires notice to be given, or requires an action to be
taken, as of a certain date, such notice or action shall be deemed to have been
timely
4
<PAGE>
given or taken if such notice is given or such action is taken prior to the date
called for by the other provisions of this Agreement.
Section 4.2 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each of the parties hereto and their respective heirs,
legal representatives, executors, successors and permitted assigns.
Section 4.3 Captions. The captions in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect any
provision hereof or interpretation hereof.
Section 4.4 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 4.5 Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof.
Section 4.6 Assignment. Neither this Agreement nor any right or
obligation hereunder is assignable in whole or in part, whether by operation of
law or otherwise, by any party hereto except (i) with the prior written consent
of each of the other parties and (ii) assignments made pursuant to, and in
accordance with, the other terms of this Agreement in connection with Transfers
of shares of Class B Stock made in accordance with the terms of this Agreement.
Section 4.7 Waivers. The failure of any party hereto at any time or
times to require performance of any provision hereof will in no way affect its
right at a later time to require the performance of that provision. No waiver by
any party of any condition or of any breach of any term or condition contained
in this Agreement will be effective unless in writing. No waiver in any one or
more instances will be deemed to be a further or continuing waiver of any
condition or breach in any other instance or waiver of any other condition or
breach.
Section 4.8 Specific Performance. The parties acknowledge that
monetary damages will be insufficient for a breach of many of the provisions of
this Agreement. Therefore, each party agrees that, upon a breach of any
provision of this Agreement, the nondefaulting party(ies) may sue for and obtain
an injunction or specific performance of such provision in any appropriate
court.
Section 4.9 Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto and supersedes any and all
prior agreements, arrangements and understandings among the parties regarding
the subject matter hereof.
5
<PAGE>
Section 4.10 Severability. If any provision of this Agreement shall
be held invalid, illegal or unenforceable, the validity, legality or
enforceability of the other provisions hereof shall not be affected thereby, and
there shall be deemed substituted for the provision at issue a valid, legal and
enforceable provision as similar as possible to the provision at issue.
Section 4.11 Amendments. This Agreement may be amended only by
written agreement signed by all of the parties hereto.
Section 4.12 Termination of Agreement. This Agreement shall terminate
upon an agreement to terminate this Agreement by the written consent of the
Stockholders holding two-thirds of the Class B Stock, or, as to any Stockholder,
when such Stockholder ceases to be a Stockholder due to the Transfer of all of
such Stockholder's shares of Class B Stock in accordance with this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered effective as of the date first above written.
/s/ Phillip C. Yeager
---------------------
Phillip C. Yeager
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
/s/ David P. Yeager
-------------------
David P. Yeager
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
Laura C. Yeager 1994 GST Trust
By: /s/ David P. Yeager
-------------------
David P. Yeager
Trustee
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
Matthew D. Yeager 1994 GST Trust
By: /s/ David P. Yeager
-------------------
David P. Yeager
Trustee
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
7
<PAGE>
Phillip D. Yeager 1994 GST Trust
By: /s/ David P. Yeager
---------------------
David P. Yeager
Trustee
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
/s/ Mark A. Yeager
------------------
Mark A. Yeager
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
Alexander B. Yeager 1994 GST Trust
By: /s/ Mark A. Yeager
------------------
Mark A. Yeager
Trustee
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
Samantha N. Yeager 1994 GST Trust
By: /s/ Mark A. Yeager
------------------
Mark A. Yeager
Trustee
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
/s/ Debra A. Jensen
-------------------
Debra A. Jensen
c/o Hub Group, Inc.
377 E. Butterfield Rd., Suite 700
Lombard, IL 60148
8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
STATEMENT RE: EARNINGS PER SHARE
(In thousands, except per share amounts)
1995 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Pro forma weighted average shares outstanding 1,662 1,662 5,000
Net effect of non-qualified stock options based on
the treasury stock method using the average
market price - - 58
-------- -------- --------
Pro forma weighted average shares and share
equivalents outstanding 1,662 1,662 5,058
======== ======== ========
Pro forma net income $ 1,444 $ 1,583 $ 6,803
======== ======== ========
Pro forma earnings per share $ 0.87 $ 0.95 $ 1.35
======== ======== ========
</TABLE>
<PAGE>
Exhibit 21
Subsidiaries of Hub Group, Inc.
<TABLE>
<CAPTION>
SUBSIDIARIES JURISDICTION OF
INCORPORATION/ORGANIZATION
<S> <C>
Hub City Terminals, Inc. Delaware
Hub City Alabama, L.P. Delaware
Hub City Atlanta, L.P. Delaware
Hub City Boston, L.P. Delaware
Hub City Canada, L.P. Delaware
Hub City Cleveland, L.P. Delaware
Hub City Dallas, L.P. Delaware
Hub City Detroit, L.P. Delaware
Hub City Florida, L.P. Delaware
Hub City Golden Gate, L.P. Delaware
Hub City Houston, L.P. Delaware
Hub City Indianapolis, L.P. Delaware
Hub City Kansas City, L.P. Delaware
Hub City Los Angeles, L.P. Delaware
Hub City Mid Atlantic, L.P. Delaware
Hub City New Haven, L.P. Delaware
Hub City New Orleans, L.P. Delaware
Hub City New York State, L.P. Delaware
Hub City New York-New Jersey, L.P. Delaware
Hub City North Central, L.P. Delaware
Hub City Ohio, L.P. Delaware
Hub City Philadelphia, L.P. Delaware
Hub City Pittsburgh, L.P. Delaware
Hub City Portland, L.P. Delaware
Hub City Rio Grande, L.P. Delaware
Hub City St. Louis, L.P. Delaware
Hub City Tennessee, L.P. Delaware
Hub Group Associates, Inc. Illinois
Hub Highway Services Illinois
Hub Group Distribution Services Illinois
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Hub Holdings, Inc. Delaware
Q.S. of Illinois, Inc. Illinois
Quality Services L.L.C. Missouri
Quality Services of Kansas, L.L.C. Kansas
Quality Services of New Jersey, L.L.C. New Jersey
Quality Services of Michigan L.L.C. Michigan
Q.S. of Georgia, L.L.C. Georgia
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports dated February 6, 1997 for Hub Partnerships and Hub
Group, Inc. included in this Form 10-K, into Hub Group, Inc.'s previously filed
Registration Statement File No. 333-6327 on Form S-8.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Consolidated Statements of Operations and Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,893
<SECURITIES> 0
<RECEIVABLES> 115,480
<ALLOWANCES> 1,355
<INVENTORY> 0
<CURRENT-ASSETS> 131,550
<PP&E> 16,780
<DEPRECIATION> 2,722
<TOTAL-ASSETS> 201,225
<CURRENT-LIABILITIES> 115,673
<BONDS> 0
<COMMON> 59
0
0
<OTHER-SE> 46,065
<TOTAL-LIABILITY-AND-EQUITY> 201,225
<SALES> 0
<TOTAL-REVENUES> 754,243
<CGS> 0
<TOTAL-COSTS> 662,679
<OTHER-EXPENSES> 63,639
<LOSS-PROVISION> 915
<INTEREST-EXPENSE> 996
<INCOME-PRETAX> 11,338
<INCOME-TAX> 4,294
<INCOME-CONTINUING> 27,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,803
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 0
</TABLE>
