AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PACER INTERNATIONAL, INC.
and the Guarantors identified in footnote (1) below
(Exact name of registrant as specified in its charter)
DELAWARE 4731 62-0935669
(State of or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification No.)
of incorporation
or organization)
1340 Treat Boulevard, Suite 200
Walnut Creek, California 94596
(925) 979-4440
(Address, including zip code, and telephone number,including area code, of
registrant's principal executive offices)
----------------
Donald C. Orris
Chairman, President and Chief Executive Officer
1675 Larimer Street, Suite 626
Denver, Colorado 80202
(303) 623-5310
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Copies to:
Morton A. Pierce
Douglas L. Getter
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
(212) 259-8000
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Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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(1) The following domestic direct or indirect wholly owned subsidiaries of
Pacer International, Inc. are Guarantors of the Notes and are Co-Registrants,
each of which is incorporated in the jurisdiction and has the I.R.S. Employer
Identification Number indicated: Pacer Logistics, Inc., a Delaware corporation
(94-3285040); Cross Con Transport, Inc., an Illinois corporation (36-3877617);
Cross Con Terminals, Inc., a Delaware corporation (36-2924526); Pacer
International Rail Services LLC, a Colorado limited liability company(84-
1412110); Pacer International Consulting LLC, a Colorado limited liability
company (94-3298068); Pacer Rail Services LLC, a Colorado limited liability
company (84-1447539); Pacific Motor Transport Company, a California corporation
(94-6001041); Pacer Express, Inc., a California corporation (68-0419260); Pacer
Integrated Logistics, Inc., a Delaware corporation (52-2090059); PLM
Acquisition Corporation, a Delaware corporation (52-2108513); Manufacturers
Consolidation Service, Inc., a Tennessee corporation (62-0790773); Levcon,
Inc., a Tennessee corporation (62-1020808); Manufacturers Consolidation Service
of Canada, Inc., a Delaware corporation (62-1602017); Interstate Consolidation
Service, Inc., a California corporation(92-2756390); Interstate Consolidation,
Inc., a California corporation (95-2851463); Intermodal Container Service,
Inc., a California corporation (95-3608057); and Keystone Terminals Acquisition
Corp., a Delaware corporation (52-2159704).
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed maximum
Title of each class of Amount maximum aggregate Amount of
securities to be to be offering price offering registration
registered registered per Note price(1) fee
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11 3/4% Series B Senior
Subordinated Notes due
2007.................. $150,000,000 100% $150,000,000 $41,700
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Guarantee of 11 3/4%
Series B Senior
Subordinated Notes due
2007.................. $150,000,000 (2) (2) (2)
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Total.................. $150,000,000 100% $150,000,000 $41,700
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(2).
(2) No additional consideration for the guarantees of the 11 3/4% Series B
Senior Subordinated Notes due 2007 will be furnished. Pursuant to Rule
457(n), no separate fee is payable with respect to such guarantees.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective time until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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SUBJECT TO COMPLETION, DATED AUGUST 12, 1999
PROSPECTUS
[LOGO]
PACER INTERNATIONAL, INC.
Offer to Exchange
11 3/4% Series B Senior Subordinated Notes due 2007
which have been registered under the Securities Act
for any and all outstanding
11 3/4% Senior Subordinated Notes due 2007
$150,000,000 aggregate principal amount outstanding
----------------
Material Terms of the Exchange Offer
----------------
. The exchange of notes should not be
. Expires 5:00 p.m., New York City a taxable exchange for U.S. federal
time, on , 1999, unless income tax purposes
extended
. We will not receive any proceeds
. We will exchange your validity from the exchange offer
tendered unregistered notes for an
equal principal amount of
registered notes with
substantially identical terms
. The terms of the notes to be issued
are substantially identical to the
outstanding notes, except for
certain transfer restrictions and
registration rights relating to the
outstanding notes
. Not subject to any condition other
than that the exchange offer not
violate applicable law or any
applicable interpretation of the
Staff of the Securities and
Exchange Commission and certain
other customary conditions
. You may tender outstanding notes
only in denominations of $1,000 and
multiples of $1,000
. Affiliates of our company may not
. You may withdraw your tender of participate in the exchange offer
outstanding notes at any time
prior to the expiration of the
exchange offer
Please refer to "Risk Factors" beginning on page 14 of this document
for certain important information.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes to be issued in the
exchange offer or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
----------------
Prospectus dated , 1999.
TABLE OF CONTENTS
Page
----
Summary............................. 1
Risk Factors........................ 14
The Exchange Offer.................. 21
Use of Proceeds..................... 33
Unaudited Pro Forma Consolidated
Financial Information.............. 34
Selected Historical and Pro Forma
Consolidated Financial
Information........................ 48
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 54
Business............................ 70
Management.......................... 86
Page
----
Certain Agreements.................................................... 91
Stock Ownership of Certain Beneficial Owners and Management........... 96
Our Capital Stock..................................................... 98
Description of Our Credit Agreement................................... 100
Description of Notes.................................................. 103
Book-Entry; Delivery and Form......................................... 139
Material Federal Income Tax Considerations............................ 141
Plan of Distribution.................................................. 142
Legal Matters......................................................... 142
Change in Accountant.................................................. 142
Experts............................................................... 143
Index to Financial Statements......................................... F-1
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all of the information that is important to you. This
prospectus includes the specific terms of the notes we are offering, as well as
information regarding our business, certain recent transactions entered into by
us and detailed financial data. In this prospectus, unless otherwise noted, the
words "company," "issuer," "we," "us," "our" and "ours" refer to Pacer
International, Inc. and our subsidiaries. However, the words "Pacer
International" and "Pacer Logistics" refer to Pacer International, Inc. and
Pacer Logistics, Inc., respectively, as separate, individual entities. We
encourage you to read this prospectus in its entirety.
The Exchange Offer
On May 28, 1999, we completed the private offering of $150,000,000 principal
amount of our 11 3/4% Senior Subordinated Notes due 2007. These notes were sold
to certain initial purchasers identified in this prospectus. The notes are
guaranteed by substantially all of our subsidiaries.
We and our subsidiaries which are guarantors of the notes entered into a
registration rights agreement with the initial purchasers in the private
offering in which we agreed, among other things, to deliver to you this
prospectus and to complete the exchange offer on or prior to December 24, 1999.
As a holder of such outstanding notes, you are entitled to exchange in the
exchange offer your unregistered notes for a new series of notes which we have
registered under the Securities Act and have substantially identical terms.
We believe that the notes issued in the exchange offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to certain conditions. Following the exchange
offer, any notes held by you that are not exchanged in the exchange offer will
continue to be subject to the existing restrictions on transfer on the notes
and, except in certain circumstances, we will have no further obligation to you
to provide for registration under the Securities Act of transfers of
outstanding notes held by you. You should read the discussion under the
headings "Summary of the Exchange Offer" and "The Exchange Offer" for further
information regarding the exchange offer and the resale of notes.
Summary of The Exchange Offer
Securities Offered.......... $150,000,000 aggregate principal amount of 11
3/4% Series B Senior Subordinated Notes due 2007
which we have registered under the Securities
Act.
Issuer ..................... Pacer International, Inc.
Registration Rights
Agreement................... You are entitled to exchange your unregistered
notes for registered notes with substantially
identical terms. The exchange offer is intended
to satisfy this right. After the exchange offer
is completed, you will no longer be entitled to
any exchange or registration rights with respect
to your notes. Under certain circumstances,
holders of outstanding notes may require us to
file a shelf registration statement under the
Securities Act.
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount of exchange notes of Pacer International
for each $1,000 principal amount of outstanding
11 3/4% Senior Subordinated Notes due 2007 which
we issued on May 28, 1999 in a private offering.
In order to be
1
exchanged, an outstanding note must be properly
tendered and accepted. All outstanding notes that
are validly tendered and not validly withdrawn
will be exchanged.
As of this date, there is $150,000,000 principal
amount of notes outstanding.
We will issue the exchange notes on or promptly
after the expiration of the exchange offer.
Resale...................... We believe that the exchange notes issued in the
exchange offer may be offered for resale, resold
and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act
provided that:
. the exchange notes issued in the exchange offer
are being acquired in the ordinary course of
your business;
. you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate,
in the distribution of the notes issued to you
in the exchange offer; and
. you are not an "affiliate" of our company.
If our belief is inaccurate and you transfer any
note issued to you in the exchange offer without
delivering a prospectus meeting the requirements
of the Securities Act or without an exemption
from registration of your notes from such
requirements, you may incur liability under the
Securities Act. We do not assume, or indemnify
you against, such liability.
Each broker-dealer that is issued exchange notes
in the exchange offer for its own account in
exchange for notes which were acquired by such
broker-dealer as a result of market-making or
other trading activities, must acknowledge that
it will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of the exchange notes issued in
the exchange offer. A broker-dealer may use this
prospectus for an offer to resell, resale or
other retransfer of the exchange notes issued to
it in the exchange offer.
The exchange offer is not being made to, nor will
we accept surrenders for exchange from, the
following:
. holders of notes in any jurisdiction in which
this exchange offer or the acceptance thereof
would not be in compliance with the applicable
securities or "blue sky" laws of such
jurisdiction; and
. holders of notes who are affiliates of our
company.
Expiration Date............. The exchange offer~ will expire at 5:00 p.m., New
York City time, on , 1999, unless extended,
in which case the term "expiration date" shall
mean the latest date and time to which we extend
the exchange offer.
2
Conditions to the Exchange
Offer....................... The exchange offer is subject to certain
customary conditions, which may be waived by us.
The exchange offer is not conditioned upon any
minimum principal amount of notes being tendered.
Procedures for Tendering
Old Notes................... If you wish to tender your notes for exchange
pursuant to the exchange offer you must transmit
to the Wilmington Trust Company, as exchange
agent, on or before the expiration date:
either
. a properly completed and duly executed letter
of transmittal, which accompanies this
prospectus, or a facsimile of the letter of
transmittal, together with your notes and any
other required documentation, to the exchange
agent at the address set forth in this
prospectus under the heading "The Exchange
Offer--Exchange Agent," and on the front cover
of the letter of transmittal; or
. a computer generated message transmitted by
means of The Depository Trust Company's
Automated Tender Offer Program system and
received by the exchange agent and forming a
part of a confirmation of book-entry transfer
in which you acknowledge and agree to be bound
by the terms of the letter of transmittal.
If either of these procedures cannot be satisfied
on a timely basis, then you should comply with
the guaranteed delivery procedures described
below.
By executing the letter of transmittal, each
holder of notes will make certain representations
to us described under "The Exchange Offer--
Procedures for Tendering."
Special Procedures for
Beneficial Owners........... If you are a beneficial owner whose notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your notes in the exchange
offer, you should contact such registered holder
promptly and instruct such registered holder to
tender on your behalf. If you wish to tender on
your own behalf, you must, prior to completing
and executing the letter of transmittal and
delivering your notes, either make appropriate
arrangements to register ownership of the notes
in your name or obtain a properly completed bond
power from the registered holder.
The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the expiration date.
3
Guaranteed Delivery
Procedures.................. If you wish to tender your notes and time will
not permit the documents required by the letter
of transmittal to reach the exchange agent prior
to the expiration date, or the procedure for
book-entry transfer cannot be completed on a
timely basis, you must tender your notes
according to the guaranteed delivery procedures
described in this prospectus under the heading
"The Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Notes and
Delivery of Exchange Subject to the conditions described in "The
Notes....................... Exchange Offer--Conditions to the Exchange
Offer," we will accept for exchange any and all
notes which are validly tendered in the exchange
offer and not withdrawn, prior to 5:00 p.m., New
York City time, on the expiration date.
Withdrawal Rights........... You may withdraw the tender of your notes at any
time prior to 5:00 p.m., New York City time, on
the expiration date, subject to compliance with
the procedures for withdrawal described in this
prospectus under the heading "The Exchange
Offer--Withdrawal of Tenders."
Federal Income Tax
Considerations.............. For a discussion of the material federal income
tax considerations relating to the exchange of
notes for exchange notes, see "Material Federal
Income Tax Considerations."
Exchange Agent.............. Wilmington Trust Company, the trustee under the
indenture governing the notes, is serving as the
exchange agent. The address, telephone number and
facsimile number of the exchange agent are set
forth in this prospectus under the heading "The
Exchange Offer--Exchange Agent."
Consequences of Failure to
Exchange Old Notes.......... If you do not exchange your notes for exchange
notes pursuant to the exchange offer, you will
continue to be subject to the restrictions on
transfer provided in the notes and in the
indenture governing the notes. In general, the
notes may not be offered or sold, unless
registered under the Securities Act, except
pursuant to an exemption from, or in a
transaction not subject to, the Securities Act
and applicable state securities laws. We do not
currently plan to register the notes under the
Securities Act.
Summary of Terms of the Exchange Notes
The exchange offer relates to the exchange of up to $150,000,000 aggregate
principal amount of exchange notes for up to an equal principal amount of
outstanding notes. The form and terms of the exchange notes are the same as the
form and terms of the outstanding notes, except that the exchange notes will be
registered under the Securities Act, and, therefore, the exchange notes will
not be subject to certain transfer restrictions, registration rights and
certain provisions providing for an increase in the interest rate of the
outstanding notes under certain circumstances relating to the registration of
the exchange notes. The exchange notes issued in the exchange offer will
evidence the same debt as the outstanding notes, which they replace, and both
the outstanding notes and the exchange notes are governed by the same
indenture.
4
$150,000,000 aggregate principal amount of 11
Notes Offered................. 3/4% Series B Senior Subordinated Notes due
2007.
Maturity...................... June 1, 2007.
Interest...................... Interest on the exchange notes will accrue from
the last interest payment date on which
interest was paid on the notes surrendered in
exchange for exchange notes or, if no interest
has been paid on the notes, from May 28, 1999,
the date of original issuance of the notes.
Interest on the exchange notes will be payable
in cash on June 1 and December 1 of each year,
beginning December 1, 1999. The exchange notes
will bear interest at a fixed rate of 11 3/4%
per annum.
Optional Redemption........... We may redeem any of the notes beginning on
June 1, 2003 at an initial redemption price of
105.875% of their principal amount, plus
accrued interest. The redemption price will
decline each year after 2003 and will be 100%
of the principal amount, plus accrued interest,
beginning on June 1, 2005. In addition, we may
redeem up to 35% of the principal amount of the
notes at any time prior to June 1, 2002 at a
redemption price equal to 111.750% of their
principal amount, plus accrued interest, using
the proceeds from certain sales of our capital
stock.
Change of Control............. Upon a change of control, as defined under
"Description of Notes", we will be required to
make an offer to purchase the notes. The
purchase price will equal 101% of the principal
amount of the notes on the date of purchase,
plus accrued interest. We may not have
sufficient funds available at the time of any
change of control to make any required debt
repayment, including repurchases of the notes,
and the terms of our credit facilities may
block any such payments.
In addition, upon a change of control prior to
June 1, 2003, we may redeem the notes, in whole
but not in part, at a redemption price equal to
the principal amount thereof plus an applicable
premium, plus accrued interest.
Ranking....................... The notes will rank behind all of our existing
and future senior debt and secured debt. On a
pro forma basis as of April 2, 1999, the notes
would have been subordinated to approximately
$135.0 million of senior debt, excluding unused
commitments of approximately $100.0 million
under our revolving credit facility.
Certain Covenants............. The terms of the notes restrict our ability and
the ability of our subsidiaries to:
. incur additional indebtedness;
. pay dividends or make distributions in
respect of capital stock;
. repurchase or redeem capital stock;
5
. make certain investments and other
restricted payments;
. create liens;
. enter into transactions with stockholders
or affiliates;
. sell assets; and
. merge or consolidate with other companies.
The indenture governing the rates provides that
these limitations are subject to a number of
important qualifications and exceptions.
Subsidiary Guarantees......... Substantially all of our subsidiaries guarantee
our obligations under the notes. These
guarantees are subordinated to all senior debt
and secured debt of such subsidiaries.
Form of Exchange Notes........ The exchange notes issued in the exchange offer
will be represented by one or more permanent
global certificates, in fully registered form,
deposited with a custodian for, and registered
in the name of a nominee of, The Depository
Trust Company, as depositary. You will not
receive notes in certificated form unless one
of the events set forth under "Book Entry;
Delivery and Form" occurs. Instead, beneficial
interests in the exchange notes will be shown
on, and transfers of these notes will be
effected through, records maintained in book-
entry form by The Depository Trust Company and
its participants.
Use of Proceeds............... We will not receive any proceeds from the
exchange offer.
About Our Company
Who We Are
We are a leading freight transportation and logistics provider, offering a
broad array of services to facilitate the movement of freight from origin to
destination. We believe, as one of the largest transporters of intermodal
freight in North America, we controlled approximately 23.0% of all domestic
intermodal containers in 1998. We are also the third largest intermodal
marketing company in the United States, as measured by intermodal rail
revenues. Intermodal transportation is the movement of freight via trailer or
container using two or more transportation modes. Intermodal transportation
nearly always includes a rail and truck segment. An intermodal marketing
company arranges intermodal transportation for global, national and regional
retailers and manufacturers. Our pro forma gross revenues and adjusted EBITDA
were $987.4 million and $72.2 million, respectively, for the twelve month
period ended April 2, 1999.
Through our stacktrain business, we are the largest provider of intermodal
rail service in North America that is not affiliated with an individual
railroad company. Stacktrain service is the movement of freight in containers
stacked two high on railcars. Through this business, we provide our customers
with rail capacity, equipment and shipment tracking and control on a nationwide
basis. We operate one of the industry's largest fleets of stacktrain equipment,
including railcars, containers and chassis. Through contracts with major rail
carriers and our access to sophisticated proprietary information systems, we
operate our equipment over a 50,000 mile rail network.
6
Complementing our stacktrain business, we offer a broad range of additional
transportation services, including trucking, intermodal marketing and logistics
services, to a broad range of shippers such as Sony, Ford Motor Company and
Wal-Mart Stores.
A significant portion of our intermodal trucking, logistics and freight
handling services is provided through a network of agents and independent
contractors. These relationships allow us to control a large fleet of
specialized equipment and provide our customers with a broad range of
transportation services without committing significant capital to the
acquisition and maintenance of an extensive asset base. Our relatively low
capital and working capital requirements and variable cost structure enable us
to generate strong free cash flow in a variety of market conditions.
Growth Strategy
We have developed a strategy designed to increase revenues, cash flow and
profitability while maximizing returns on invested capital. The primary
components of our growth strategy include:
Capitalize on Stacktrain Growth Opportunities
We believe that the stacktrain market, which has grown at a compound annual
rate of approximately 15.0% over the last decade, provides a significant
opportunity for continued growth. We expect our stacktrain business to benefit
from economic and operational efficiencies offered by the stacktrain
technology, improved rail service and our experienced senior management team.
Expand Service Offerings to Capitalize on Strong Logistics Industry Trends
We believe it is important to meet the diverse needs of our customers who
are increasingly looking to outsource their transportation requirements. We
intend to capitalize on the continuing trend of vendor consolidation and
outsourcing by maintaining a broad range of service offerings and introducing
new services to handle our customers' diverse transportation and logistics
requirements.
Increase Sales to Existing Customers
We believe that by offering a broad menu of services, we will be able to
expand our relationships with our existing customers. Our strategy involves a
continued focus on capturing additional freight volume from existing customers
which is currently being shipped by long-haul trucking companies or intermodal
competitors as well as providing logistics services.
Expand Our Customer Base
We believe our national presence, large size and broad scope of services
make us well-positioned to capture an increasing number of customers seeking a
single-source freight transportation and logistics provider. We intend to
expand our customer base by leveraging our operating infrastructure and adding
sales agents and independent contractors. In addition, we believe our
stacktrain business is strategically-positioned to acquire new business from
international shipping companies who were historically reluctant to utilize our
stacktrain services when the business was owned by APL Limited, a direct
competitor of such international shipping companies.
Pursue Strategic Acquisitions
As an additional component of our growth strategy, we intend to continue our
disciplined acquisition program. Due to the fragmented nature of the industry
and the general industry trend toward consolidation, we
7
believe there is increased pressure on smaller transportation and logistics
companies to consolidate. We intend to seek acquisition candidates with
complementary management and operating philosophies and service capabilities
that we can add to and integrate with our current menu of services.
----------------
Our principal executive offices are located at 1340 Treat Boulevard, Suite
200, Walnut Creek, CA 94596 and our telephone number is (925) 979-4440.
8
OUR RECAPITALIZATION
In connection with the private offering of the notes, we were recapitalized
through (1) the purchase by entities formed by certain affiliates of Apollo
Management, L.P. and by certain affiliates of Deutsche Bank Securities Inc. and
Credit Suisse First Boston Corporation of shares of our outstanding common
stock from APL Limited and (2) our redemption of certain shares of our common
stock held by APL Limited. Our recapitalization was financed by:
. the private offering of the notes;
. borrowings under our credit agreement;
. the sale and leaseback of certain of our assets; and
. equity investments by certain affiliates of Apollo Management, Deutsche
Bank Securities Inc. and Credit Suisse First Boston Corporation and by
APL Limited.
Immediately following our recapitalization, we formed a transitory
subsidiary which was merged with and into Pacer Logistics, Inc. As a result of
such transaction, Pacer Logistics became a wholly-owned subsidiary of our
company. In connection the Pacer Logistics transaction, certain members of
Pacer Logistics management received shares of a series of Pacer Logistics
preferred stock exchangeable for our common stock. In connection with the Pacer
Logistics transaction, we used cash to refinance the existing debt of Pacer
Logistics, redeem outstanding Pacer Logistics preferred stock and make payments
in connection with certain other Pacer Logistics transactions. The sources of
funds used to complete the Pacer Logistics transaction were the same as those
set forth above.
Apollo Management beneficially owns approximately 89.9% of our outstanding
common stock, APL Limited owns approximately 7.2% of our outstanding common
stock and certain affiliates of Deutsche Bank Securities Inc. and Credit Suisse
First Boston Corporation together beneficially own approximately 2.9% of our
outstanding common stock. The Pacer Logistics exchangeable preferred stock is
exchangeable, under certain circumstances, for a number of shares of our common
stock, currently representing approximately 18.9% of the outstanding Pacer
International common stock as of the date hereof.
Pacer International conducts business under the name Pacer Stacktrain. The
following chart sets forth our structure:
------------- -----------
Affiliates of APL Limited
Apollo
Management
------------- -----------
89.9% \ / 7.2%
\ /
\ /
\ ------------------- /
\ Pacer International /
(Issuer)
-------------------
100%
| ---------------
| Pacer Logistics
| Management
| ---------------
| /
--------------- /
Pacer Logistics /
(Guarantor) _____|
---------------
|
| Pacer Logistics Preferred
| Stock exchangeable for
| Pacer International
| Common Stock
|
|
---------------
Pacer Logistics
Subsidiaries
(Guarantors)
---------------
9
The net proceeds from the private offering were used to consummate our
recapitalization and to fund the Pacer Logistics transaction. The following
table is intended to show you the sources, including the net proceeds from the
private offering, and uses of funds for our recapitalization and for the Pacer
Logistics transaction:
Amount
-------------
(in millions)
Sources of Funds
Senior Credit
Facilities:(1)
Borrowings under the
Revolving Credit
Facility............... $ --
Borrowings under the
Term Loan.............. 135.0
Issuance of Senior
Subordinated Notes....... 150.0
Exchange of Pacer
Logistics common stock
for Pacer Logistics
Exchangeable Preferred
Stock(2)............... 24.3
Rollover of common stock
options from Pacer
Logistics(2)........... 4.3
Rollover of common stock
from APL Limited(2).... 7.5
Proceeds from the
issuance of common
stock(3)............... 96.9
----
Issued, rolled and
exchanged equity......... 133.0
------
Total sources........... $418.0
======
Amount
-------------
(in millions)
Uses of Funds
Purchase and rollover of APL Limited common equity...... $300.0
Purchase and rollover of Pacer Logistics common equity.. 71.9
Purchase of Pacer Logistics preferred stock............. 3.4
Repayment of existing debt.............................. 58.6
Proceeds from sale and leaseback transaction(4)......... (40.0)
Fees and expenses....................................... 24.1
------
Total uses.............................................. $418.0
======
- --------
(1) The Senior Credit Facilities consist of a seven-year $135.0 million Term
Loan and a five-year $100.0 million Revolving Credit Facility. See
"Description of Our Credit Agreement."
(2) Represents non-cash consideration.
(3) Includes (a) an aggregate $93.9 million cash equity investment by certain
affiliates of Apollo Management and (b) an aggregate $3.0 million cash
equity investment by certain affiliates of Deutsche Bank Securities Inc.
and Credit Suisse First Boston Corporation.
(4) We executed a sale and leaseback transaction for certain railcars purchased
in 1998.
10
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary unaudited pro forma consolidated
financial information and other data for the fiscal year ended December 25,
1998 and the twelve and three month periods ended April 2, 1999. It is
important that you read this information along with the unaudited pro forma
consolidated financial information and the related notes included elsewhere in
this prospectus.
The summary unaudited pro forma consolidated statement of operations data
gives effect to our recapitalization and the Pacer Logistics transaction as if
they had occurred at the beginning of the period presented. The unaudited pro
forma consolidated balance sheet data reflects the financial position of our
business as if our recapitalization and the Pacer Logistics transaction had
occurred on April 2, 1999.
Pacer International's fiscal year ends on the last Friday in December and
its fiscal first quarter consists of the first fourteen weeks of the fiscal
year. As a result, Pacer International's 1998 and 1999 fiscal year end is
December 25 and December 31, respectively, and Pacer International's first
fiscal quarter of 1999 ended on April 2.
Pacer Logistics' fiscal year ends on December 31 and its fiscal first
quarter ends on March 31, and has been presented in the unaudited pro forma
consolidated financial statements without any adjustment for the difference in
fiscal year ends between Pacer International and Pacer Logistics. The pro forma
consolidated financial information reflects our recapitalization and the Pacer
Logistics transaction using the purchase method of accounting for the Pacer
Logistics transaction.
We do not claim or represent that the summary unaudited pro forma
consolidated financial information set forth below is indicative of the results
that would have been reported had our recapitalization and the Pacer Logistics
transaction actually occurred on the dates indicated above, nor is it
indicative of our future results. There can be no assurance that the
assumptions used by management, which they believe are reasonable, in the
preparation of the summary unaudited pro forma consolidated financial
information will prove to be correct. Additionally, pro forma consolidated
operating results for the three months ended April 2, 1999 and for the last
twelve months ended April 2, 1999 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1999.
11
SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
For the For the Three For the Twelve
Fiscal Year Ended Months Ended Months Ended
December 25, 1998 April 2, 1999 April 2, 1999
----------------- ------------- --------------
(in millions, except ratios and statistical
data)
Statement of Operations Data:
Gross revenues................. $981.6 $253.9 $987.4
Cost of purchased
transportation and services... 780.4 201.0 783.0
Net revenues................... 201.2 52.9 204.4
Direct operating expenses...... 65.3 18.7 65.9
Selling, general and
administrative expenses....... 75.8 19.4 75.9
Income from operations......... 55.0 14.0 57.4
Interest expense............... 30.1 7.5 30.1
Income before extraordinary
loss.......................... 13.3 3.5 14.8
Other Financial Data: (a)
EBITDA (b)..................... $ 64.8 $ 16.5 $ 67.1
EBITDA margin.................. 32.2% 31.2% 32.8%
Adjusted EBITDA (c)............ $ 69.9 $ 17.4 $ 72.2
Adjusted EBITDA margin......... 34.7% 32.9% 35.3%
Depreciation................... $ 6.1 $ 1.6 $ 5.9
Amortization................... 3.7 0.9 3.7
Capital expenditures (d)....... 1.7 0.4 1.7
Cash interest expense (e)...... 28.5 7.1 28.4
Ratio of earnings to fixed
charges(f).................... 1.5x 1.5x 1.5x
Debt to Adjusted EBITDA........ 3.9x
Adjusted EBITDA to cash
interest expense.............. 2.5x 2.5x 2.5x
Balance Sheet Data (at period
end):
Total assets................... $398.2 $398.2
Total debt..................... 285.0 285.0
Exchangeable preferred stock... 24.3 24.3
- --------
(a) Pro forma EBITDA and pro forma Adjusted EBITDA margins are calculated as a
percentage of net revenues.
(b) EBITDA represents income before income taxes, interest expense,
depreciation and amortization and minority interest (payment-in-kind
dividends on Pacer Logistics 7.5% Exchangeable Preferred Stock). EBITDA is
presented because it is commonly used by certain investors to analyze and
compare operating performance and to determine a company's ability to
service and/or incur debt. However, EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(c) Adjusted EBITDA represents pro forma EBITDA adjusted as follows:
Fiscal Year Ended Three Months Twelve Months
December 25, 1998 Ended April 2, 1999 Ended April 2, 1999
----------------- ------------------- -------------------
Pro forma EBITDA....... $64.8 $16.5 $67.1
Adjustments to pro
forma EBITDA:
Elimination of
allocated corporate
costs, less estimated
stand-alone costs
(1).................. 3.0 0.9 3.0
Elimination of
historical Pacer
Logistics initial
public offering
costs (2)............ 1.5 -- 1.5
Elimination of
historical
Manufacturers
Consolidation
Service, Inc. initial
public offering costs
(3).................. 0.6 -- 0.6
----- ----- -----
Adjusted EBITDA........ $69.9 $17.4 $72.2
===== ===== =====
12
- --------
(1) Reflects the elimination of historical corporate overhead costs allocated
to Pacer International by APL Limited, less $2.8 million of estimated
annual costs expected to be incurred by Pacer International to perform
the services as a stand-alone entity. The estimated annual stand-alone
costs consist of salaries and benefits of $1.7 million, outside services
and consulting fees of $0.6 million and additional rent of $0.5 million.
(2) Pacer Logistics incurred $1.5 million of non-recurring costs related to
an expected initial public offering in 1998.
(3) Manufacturers Consolidation Service is a wholly owned subsidiary of Pacer
Logistics. Manufacturers Consolidation Service incurred $0.6 million of
non-recurring costs related to an expected initial public offering prior
to its acquisition by Pacer Logistics in 1998.
(d) In 1998, Pacer International purchased $39.7 million of railroad cars of
which $23.4 million of expenditures were included in the twelve months
ended April 2, 1999. In connection with our recapitalization and the Pacer
Logistics transaction, we completed a sale and leaseback transaction for
these railcars.
Therefore, on a pro forma basis, the capital expenditures related to these
railcars has been eliminated and direct operating expenses has been
increased by $2.5 million and $2.2 million for the year ended December 25,
1998 and the twelve months ended April 2, 1999, respectively, to reflect
the net impact on operating results of the additional lease expense less
the historical depreciation on these railcars.
(e) Cash interest expense represents interest expense less amortization of debt
issuance costs.
(f) For the purposes of the computation, the ratio of earnings to fixed charges
has been calculated by dividing (i) income before income taxes plus fixed
charges by (ii) fixed charges. Fixed charges are defined as interest
expense plus the estimated interest portion of rent expense (assumed to be
one-third of rent expense).
RECENT DEVELOPMENTS
We recently completed the calculation of certain financial information for
our second quarter ended June 25, 1999 for the 1999 fiscal year. For this
period, we reported revenue of $195.0 million and operating income of $11.3
million. For the prior year period, we reported revenue and operating income of
$136.7 million and $8.3 million, respectively.
13
RISK FACTORS
In evaluating an investment in the notes, you should carefully consider the
following factors in addition to all other information contained in this
prospectus.
Our High Level Of Debt Creates A Risk Of Default
In order to complete our recapitalization and the Pacer Logistics
transaction, we incurred a high level of debt. As of April 2, 1999, on a pro
forma basis giving effect to our recapitalization and the Pacer Logistics
transaction, our long-term debt was approximately $285.0 million, excluding
unused commitments of $100.0 million under our revolving credit facility,
while our total capitalization was $262.3 million. We also have the ability to
incur new debt, subject to limitations in our credit agreement and the
indenture governing the notes.
Our level of indebtedness could have important consequences to you because
it:
. limits our ability to obtain additional financing to fund our growth
strategy, working capital requirements, capital expenditures, debt
service requirements or other needs;
. limits our ability to use operating cash flow in other areas of our
business because we must dedicate a substantial portion of these funds
to make principal payments and fund debt service;
. increases our vulnerability to interest rate fluctuations because most
of our debt may be at variable interest rates;
. limits our ability to compete with others who are not as highly
leveraged; and
. limits our ability to react to changing market conditions, changes in
our industry and economic downturns.
Our ability to pay principal and interest on the notes and to satisfy our
other debt obligations will depend upon our future operating performance. Our
future operating performance may be subject to factors beyond our control
which will affect our ability to make these payments. We cannot assure you
that our business will generate cash flow, or that we will be able to
refinance or obtain additional financing, sufficient to satisfy our debt
service requirements.
The Notes And The Guarantees Are Subordinate To Senior Indebtedness
The notes and the guarantees are subordinate to all of our and the
guarantors' senior indebtedness including, without limitation, our credit
facilities. At April 2, 1999, on a pro forma basis giving effect to our
recapitalization and the Pacer Logistics transaction, we had approximately
$135.0 million of senior indebtedness, excluding unused commitments of $100.0
million under our revolving credit facility. We also may incur additional
senior indebtedness consistent with the terms of our debt agreements. In the
event of our bankruptcy, liquidation or dissolution, our assets would be
available to pay obligations on the notes only after all payments had been
made on our senior indebtedness. We cannot assure you that sufficient assets
would remain to make any payments on the notes. In addition, certain events of
default under our senior indebtedness would prohibit us from making any
payments on the notes, including interest payments.
Our Debt Agreements Contain Operating And Financial Restrictions Which May
Restrict Our Business And Financing Activities
The operating and financial restrictions and covenants in our credit
agreement and the indenture governing the notes and any future financing
agreements may adversely affect our ability to finance future operations or
capital needs or to engage in other business activities. In addition, our debt
agreements may restrict our ability to:
. declare dividends, redeem or repurchase capital stock;
. prepay, redeem or purchase debt, including the notes;
14
. incur liens and engage in sale and leaseback transactions;
. make loans and investments;
. incur additional indebtedness;
. amend or otherwise change debt and other material agreements;
. make capital expenditures;
. engage in mergers, acquisitions and asset sales;
. enter into transactions with affiliates; and
. change our primary business.
A breach of any of the restrictions or covenants in our debt agreements
could cause a default under our credit agreement or the indenture governing the
notes. A significant portion of our indebtedness then may become immediately
due and payable. We are not certain whether we would have, or be able to
obtain, sufficient funds to make these accelerated payments, including payments
on the notes.
The Interests Of Apollo Management, L.P. May Conflict With Your Interests
Certain affiliates of Apollo Management, L.P. beneficially own approximately
89.9% of our outstanding common stock and voting power. As a result of its
voting power and a stockholders agreement among the holders of our common
stock, Apollo Management is in a position to elect a majority of our board of
directors and control all matters affecting our company, including any
determination with respect to:
. the direction and policies of our company;
. the acquisition and disposition of assets;
. future issuances of common and preferred stock or other securities;
. future incurrence of debt; and
. any dividends on our common or preferred stock.
Some decisions concerning the operations or financial structure of our
company may present conflicts of interest between Apollo Management and the
holders of the notes. If we encounter financial difficulties, or we are unable
to pay our debts as they mature, the interests of our equity holders might
conflict with those of the holders of the notes. In addition, our equity
holders may have an interest in pursuing acquisitions, divestitures, financings
or other transactions, that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders of
the notes.
We Rely On Key Personnel Who Have Unique Experience and Expertise
Our operations and prospects depend in large part on the performance of our
senior management team. We cannot be sure that we would be able to find
qualified replacements for any of these individuals if their services were no
longer available. The loss of the services of one or more members of our senior
management team, particularly Donald C. Orris, our chairman, president and
chief executive officer, could have a material adverse effect on our business,
financial condition and results of operations. Because Mr. Orris has unique
experience with our company and within the transportation industry, it would be
difficult to replace him without adversely affecting our business operations.
We are currently in the process of obtaining key person life insurance on
Mr. Orris.
We Are Dependent Upon The Availability Of Equipment And Services To Operate Our
Business
We are dependent upon transportation equipment and services such as chassis,
containers and rail service provided by independent third parties. There have
historically been periods of equipment shortages in the transportation
industry, particularly in a strong economy. If we received insufficient
transportation equipment or services from these third parties to meet our
customers' needs, our business, results of operations and financial position
could be materially adversely affected.
15
Our Reliance On Agents And Independent Contractors Could Adversely Affect Our
Operations And Profitability
We rely on the services of agents and independent contractors in certain of
our transportation services. The employment of agents and the use of
independent contractors may cause certain disadvantages such as reduced
operating control and potential difficulties attracting such agents or
independent contractors during times of constrained capacity. Contracts with
agents and independent contractors are, in most cases, terminable upon short
notice by either party. We believe our relationships with our agents and
independent contractors are good. However, there can be no assurance that we
will continue to be successful in retaining our agents and independent
contractors or that agents or independent contractors who terminate their
contracts with us can be replaced by equally qualified persons. Furthermore, if
an agent terminates its relationship with us, some customers and independent
contractors with whom such agent has a direct relationship might terminate
their relationship with us. In addition, from time to time, tax and other
regulatory authorities and certain others have sought to assert that
independent contractors in the trucking industry are employees, rather than
independent contractors. No such claim has been successfully made with respect
to our independent contractors, and management is confident that our
independent contractors are not employees under existing interpretations of
federal and state tax or other laws. There can be no assurance, however, that
tax authorities or others will not successfully challenge this position, or
that such interpretations will not change, or that tax laws will not change. If
our independent contractors were determined to be employees, such determination
could materially increase our exposure under a variety of federal and state
tax, worker's compensation, unemployment benefits, labor and employment and
tort laws, as well as our potential liability for employee benefits.
There Are Risks Associated With Our Acquisitions Strategy
Identifying, acquiring and integrating businesses requires substantial
management, financial and other resources and may pose risks with respect to
customer service and market share. Further, acquisitions involve a number of
special risks, including failure of the acquired business to achieve expected
results, diversion of management's attention, failure to retain key personnel
of the acquired business and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on our
business, financial condition and results of operations. We have acquired
certain businesses in the past and may consider acquiring businesses in the
future that provide complementary services to those we currently provide. There
can be no assurance that the businesses which we have acquired in the past and
may acquire in the future can be successfully integrated. While we believe that
we have sufficient financial and management resources to successfully conduct
our acquisition activities, there can be no assurance in this regard or that we
will not experience difficulties with customers, personnel or others. In
addition, although we believe that our acquisitions will enhance our
competitive position, business and financial prospects, there can be no
assurance that such benefits will be realized or that any combination will be
successful.
Integration of Pacer International and Pacer Logistics May Not Succeed
The integration of Pacer International and Pacer Logistics will require
substantial management, financial and other resources which may otherwise be
devoted to improving sales, customer service and productivity. A failure to
implement a new management structure without difficulty or at all, could have a
material adverse effect on our operations. In addition, the cost savings,
revenue enhancements and margin improvements anticipated as a result of our
recapitalization and the Pacer Logistics transaction may not be realized, and
the combination of Pacer International and Pacer Logistics may not be
successful.
The Transportation Industry Is Highly Competitive
The transportation services industry is highly competitive. Our intermodal
marketing, trucking and logistics business competes primarily against other
domestic non-asset based transportation and logistics companies, asset-based
transportation and logistics companies, third-party freight brokers, private
shipping
16
departments and freight forwarders. Our stacktrain business competes primarily
with over-the-road full truckload carriers, conventional intermodal movement of
trailers on flatcars, and containerized intermodal rail services offered
directly by railroads. We also compete with transportation service companies
for the services of independent commission agents and with trucklines for the
services of independent contractors and drivers. Some of our competitors have
substantially greater financial and other resources than we do. Historically,
competition has created downward pressure on freight rates, and continuation of
this rate pressure may materially adversely affect our net revenues and income
from operations. In addition, we buy and sell transportation services from and
to many companies with which we compete. It is possible that certain of such
customers could transfer their business away from us to other companies with
which they do not compete. For example, certain competitors of Pacer Logistics
are customers of our stacktrain operations and the loss of any one of these
customers could have a material adverse effect on our stacktrain operations.
Disruptions In Railroad Service Could Adversely Affect The Services We Provide
We depend on the major railroads in the United States for substantially all
of the intermodal transportation services we provide. In many markets, rail
service is limited to a few railroads or even a single railroad. Any reduction
in service by the railroads with whom we have relationships is likely to
materially adversely affect the services we provide. For example, from 1997 to
1998, service disruptions related to consolidation and restructuring in the
railroad industry interrupted intermodal service throughout the United States.
Service problems arising from prior mergers in the railroad industry are
currently being resolved. However, consolidation and restructuring continues to
occur in the railroad industry and it is possible that future service
disruptions could result, which would have a material adverse affect on our
stacktrain business. The division of Conrail between CSX and Norfolk Southern,
occurred in June 1999. The Conrail/CSX/Norfolk Southern transaction has
resulted in service disruptions in markets formerly served by Conrail. Although
we have not been materially adversely affected by these service disruptions, we
could be materially adversely affected by continued or more serious service
disruptions in the future. In addition, the railroads' workforce is generally
subject to collective bargaining agreements. Our business could be materially
adversely affected by labor disputes between the railroads and their union
employees. Our business would also be materially adversely affected by a work
stoppage at one or more railroads or by adverse weather conditions that hinder
the railroads' ability to provide transportation services. In addition, the
railroads are relatively free to adjust shipping rates up or down as market
conditions permit. Although the application of rate increases to our stacktrain
business is limited by our long-term contracts with the railroads, such
increases could result in higher costs to our customers which could result in
decreased demand for our services.
We Depend On APL Limited For Essential Services And We Could Be Adversely
Affected By APL Limited's Failure Or Refusal To Provide Such Services
Pursuant to long-term contracts, we transport APL Limited's international
cargo on our stacktrain network to locations in the United States using
containers and chassis which are supplied by APL Limited. Certain of APL
Limited's employees are subject to collective bargaining agreements. Our
business could be materially adversely affected by labor disputes between APL
Limited and its union employees. APL Limited also supplies us with chassis from
its equipment fleet for the transport of international freight on behalf of
international shippers other than APL Limited. Additionally, APL Limited pays
us a fee for the repositioning of its empty containers within North America so
that the containers can be reused by APL Limited in its trans-Pacific shipping
operations. The additional stacktrain volume attributable to the transport of
APL Limited's international cargo contributes to our ability to obtain certain
favorable provisions in our rail contracts. In addition, we are in the process
of negotiating with APL Limited a long-term contract, pursuant to which APL
Limited would provide us with certain computer, software and other information
technology necessary for the operation of our stacktrain business. If APL
Limited were unwilling or unable to fulfill its obligations to us under the
terms of these contracts, or if we were unable to negotiate an information
technology agreement, our business, results of operations and financial
position could be materially adversely affected.
17
We Do Not Have An Independent Operating History
Since 1984, our stacktrain business has been conducted by various entities
owned directly or indirectly by APL Limited and has not had an independent
operating history. While owned by APL Limited, our stacktrain business was able
to use some of the financial and administrative resources and infrastructure of
APL Limited in such areas as treasury, legal, information systems and benefits
administration. As a result of our recapitalization, we will be required to
independently provide the infrastructure, resources and services necessary to
operate our stacktrain business independently. We cannot assure you that we
have correctly estimated the difficulties and costs of replacing the
infrastructure, resources and services necessary to successfully operate our
stacktrain business independently. In addition, the historical financial
information for Pacer International included herein may not necessarily reflect
the results of operations, financial position and cash flows in the future or
what our results of operations, financial position and cash flows would have
been had Pacer International been a separate, independent entity during the
periods presented. Also, due to a lack of historical financial information
regarding the stacktrain business on a stand-alone basis, the information
regarding the results of operations, cash flows and financial condition of
Pacer International for 1994 and 1995 is unavailable.
We Could Be Affected By The Year 2000 Problem
Some computers, software and other equipment include a computer code in
which calendar year data is abbreviated to only two digits. As a result, some
of these systems could fail to operate or fail to produce correct results
because they may misinterpret "00" to mean 1900 rather than 2000. The Year 2000
problem affects some of our computers, software and equipment. In addition, the
Year 2000 problem affects some of the computers, software and equipment of APL
Limited which we use in the operation of our stacktrain business pursuant to a
contractual arrangement between us and APL Limited. If we fail to properly
recognize and address the Year 2000 problem in our systems, or if APL Limited
fails to properly recognize and address the Year 2000 problem in its systems,
our business, financial condition and results of operations could be materially
adversely affected.
We are engaged in an ongoing process of assessing our exposure to the Year
2000 problem through our computers, software and equipment. In addition, APL
Limited has made representations to us that it will use commercially reasonable
efforts to implement a plan to resolve the Year 2000 problem as it affects
their computer systems. APL Limited has agreed to bear any costs which we might
incur due to its failure to resolve the Year 2000 problem in their computer
systems. We currently expect that we will incur incremental costs through the
end of 1999 to resolve any Year 2000 problems that relate to our information
technology systems. We are not able to estimate with certainty the amount of
these incremental costs, but we do not expect them to have a significant effect
on our financial condition or results of operations.
While we expect to identify and resolve all Year 2000 problems that could
materially adversely affect our business operations, there can be no assurance
we will be successful. However, the Year 2000 problem also affects many of our
major suppliers (including railroads) and customers, and our business could be
disrupted or otherwise materially adversely affected if any of them fail to
resolve their Year 2000 problems. We believe that it is not possible to
determine with complete certainty all Year 2000 problems affecting us, our
customers and our suppliers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We Have Risks Related To A Downturn In The Business Cycle
Historically, certain sectors of the transportation industry have been
cyclical as a result of economic recession, customers' business cycles,
increases in prices charged by third-party carriers, interest rate fluctuations
and other economic factors over which we have no control. Increased operating
expenses incurred by third-party carriers can be expected to result in higher
costs to us, and our net revenues and income from operations could be
materially adversely affected if we were unable to pass through to our
customers the full amount of increased transportation costs. Economic recession
or a downturn in our customers' business cycles
18
also could have a material adverse effect on our operating results if the
volume of freight shipped by those customers were reduced. In addition, our
stacktrain business is seasonal and our quarterly revenues and profits
historically have been lower during the first and second quarters of the year
and higher during the third and fourth quarters due primarily to the retail
industry's shipping requirements.
We, Our Suppliers And Our Customers Are Subject To Government Regulation Which
Could Affect Our Results Of Operations Or Financial Condition
Pacer Logistics is licensed by the Department of Transportation as a broker
in arranging for the transportation of general commodities by motor vehicle.
The Department of Transportation has established certain requirements for
acting in this capacity, including certain insurance and surety bond
requirements. Pacer Logistics' failure to comply with these laws and
regulations, and any resultant suspension or loss of Pacer Logistics' license,
could have a material adverse effect on our results of operations or financial
condition. In addition, the transportation industry is subject to legislative
or regulatory changes that can affect the economics of the industry. Pacer
International operates in the intermodal segment of the transportation
industry, which has been essentially deregulated. Changes in the levels of
regulatory activity in the intermodal segment of the industry could
potentially affect us and our suppliers and customers. In addition, we have a
substantial number of stacktrain customers who provide ocean carriage of
intermodal shipments. The regulatory regime applicable to ocean shipping was
revised by the Ocean Shipping Reform Act of 1998, which took effect on May 1,
1999. It is unclear at this time to what extent implementation of the Ocean
Shipping Reform Act will affect our various ocean carrier customers and impact
our stacktrain business.
Fraudulent Transfer Considerations
Our payment of consideration in our recapitalization and the Pacer
Logistics transaction and the related financings, including our private
offering of the notes and the guarantee of the notes by substantially all of
our subsidiaries, may be subject to review under federal or state fraudulent
transfer laws. While the relevant laws may vary from state to state, under
such laws, the payment of consideration or the issuance of a guarantee will be
a fraudulent conveyance if (1) we paid the consideration or any of our
subsidiaries issued guarantees with the intent of hindering, delaying or
defrauding creditors, or (2) we or any of our subsidiaries received less than
reasonably equivalent value or fair consideration in return for paying the
consideration or issuing their respective guarantees, and, in the case of (2)
only, one of the following is also true:
. we were insolvent or became insolvent, or any of our subsidiaries were
insolvent or became insolvent, when we or they paid the consideration or
issued the guarantees, respectively;
. paying the consideration or issuing the guarantees left us or any of our
subsidiaries, as the case may be, with an unreasonably small amount of
capital; or
. we or any of our subsidiaries, as the case may be, intended to, or
believed that we or they would, be unable to pay debts as they matured.
If the payment of the consideration or the issuance of any guarantee were a
fraudulent conveyance, a court could, among other things, void our obligations
regarding the payment of the consideration or void any of our subsidiaries'
obligations under their respective guarantees, as the case may be, and require
the repayment of any amounts paid thereunder.
Generally, an entity will be considered insolvent if:
. the sum of its debts is greater than the fair value of its property;
. the present fair value of its assets is less than the amount that it
will be required to pay on its existing debts as they become due; or
. it cannot pay its debts as they became due.
We believe, however, that immediately after issuance of the notes and the
guarantees, we and each of our subsidiaries were solvent, had sufficient
capital to carry on our businesses and were able to pay our respective
19
debts as they matured. We cannot be sure, however, as to what standard a court
would apply in making such determinations or that a court would reach the same
conclusions with regard to these issues.
You May Not Receive A Change In Control Payment
In the event of a change of control, we are required to make an offer for
cash to repurchase the notes at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon to the repurchase date. However,
our credit agreement prohibits the purchase of outstanding notes prior to
repayment of the borrowings under our credit agreement and any exercise by the
holders of the notes of their right to require us to repurchase the notes may
cause an event of default under our credit agreement. In addition, we may not
have the financial resources necessary to repurchase the notes upon a change of
control.
You May Not Be Able To Sell Your Notes
There is no existing trading market for the exchange notes and no such
market may develop. The absence of such market adversely affects the liquidity
of an investment in the notes. If a market for the exchange notes does develop,
future trading prices will depend on many factors, including among other
things, prevailing interest rates and the market for similar securities,
general economic conditions and the financial condition and performance of, and
prospects for, our company. We do not intend to apply for listing of the
exchange notes on any securities exchange or for quotation through any over-
the-counter market.
20
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The old notes were originally sold by Pacer International on May 24, 1999
(the "Issue Date"), to Morgan Stanley & Co. Incorporated, BT Alex. Brown
Incorporated which has since been renamed Deutsche Bank Securities Inc., Credit
Suisse First Boston Corporation and Credit Lyonnais Securities (USA) Inc., as
initial purchasers, pursuant to a purchase agreement, dated May 24, 1999,
between Pacer International, the subsidiaries of Pacer International listed
therein as guarantors, and the initial purchasers. The initial purchasers
subsequently resold the old notes to qualified institutional buyers in reliance
on, and subject to the restrictions imposed pursuant to Rule 144A under the
Securities Act and outside the United States in accordance with the provisions
of Regulation S under the Securities Act. Pacer International, the guarantors
and the initial purchasers also entered into the registration rights agreement
with the initial purchasers, which requires, among other things, that following
the issuance and sale of the old notes, Pacer International and the guarantors:
(1) file with the Commission within 120 days after the Issue Date, a
registration statement with respect to the exchange notes,
(2) use their commercially reasonable efforts to cause the registration
statement to become effective under the Securities Act within 180 days
after the Issue Date, and
(3) upon the effectiveness of the registration statement, offer to the
holders of the old notes the opportunity to exchange their old notes for a
like principal amount of exchange notes. Such exchange notes will be issued
without a restrictive legend and may be reoffered and resold by the holder
without restrictions or limitations under the Securities Act subject to
certain exceptions described below. Pacer International has agreed to keep
such exchange offer open for 20 business days, or longer if required by
applicable law, after the date that notice of the exchange offer is mailed
to holders.
For each old note surrendered to Pacer International pursuant to the
exchange offer, the holder of such old note will receive an exchange note
having a principal amount equal to that of the surrendered old note. The
exchange offer being made hereby is intended to satisfy Pacer International's
exchange offer obligations under the registration rights agreement. The term
"holder" with respect to the exchange offer means any person in whose name old
notes are registered on Pacer International's books or any other person who has
obtained a properly completed bond power from the registered holder or any
person whose old notes are held of record by The Depository Trust Company
("DTC") who desires to deliver such old notes by book-entry transfer of DTC.
Under existing interpretations of the staff of the Commission contained in
several no action letters to third parties, the exchange notes, including the
related guarantees, would in general be freely transferable by holders thereof
after the exchange offer without further registration under the Securities Act.
However, any purchaser of old notes who is an "affiliate" of Pacer
International or who intends to participate in the exchange offer for the
purpose of distributing the exchange notes:
(1) will not be able to tender its old notes in the exchange offer,
(2) will not be able to rely on the interpretation of the staff of the
Commission, and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer
of the old notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
Each holder that wishes to exchange the old notes for exchange notes will be
required to represent in the letter of transmittal that:
. any exchange notes to be received by it will be acquired in the ordinary
course of its business,
. it has no arrangement or understanding with any person to participate in
the distribution, within the meaning of the Securities Act, of the
exchange notes in violation of the Securities Act,
21
. it is not an "affiliate", as defined in Rule 405 promulgated under the
Securities Act, of Pacer International,
. if such holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, the distribution of exchange notes, and
. if such holder is a broker-dealer (a "Participating Broker-Dealer") that
will receive exchange notes for its own account in exchange for old
notes that are acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any
resale of such exchange notes.
The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the exchange
notes received with the prospectus contained in the registration statement.
Each of Pacer International and the guarantors has agreed that it will make
available, during the period required by the Securities Act, a prospectus
meeting the requirements of the Securities Act for use by Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements for use in connection with any resale of exchange notes.
If,
(1) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, Pacer International and the
guarantors are not permitted to effect the exchange offer,
(2) the exchange offer is not consummated within 210 days of the Issue
Date,
(3) in certain circumstances, certain holders of unregistered exchange
notes so request, or
(4) in the case of any holder that participates in the exchange offer,
such holder does not receive exchange notes on the date of the exchange
that may be sold without restriction under state and federal securities
laws, other than due solely to the status of such holder as an affiliate of
Pacer International within the meaning of the Securities Act,
then in each case, Pacer International will:
. promptly upon becoming aware of any of the matters contemplated by
clauses (1)-(4) above, deliver to the holders and the trustee written
notice thereof, and
. at their sole expense, Pacer International and the guarantors will
(a) as promptly as practicable, file a shelf registration statement
covering resales of the old notes,
(b) use their commercially reasonable efforts to cause the shelf
registration statement to be declared effective under the Securities
Act, and
(c) use their commercially reasonable efforts to keep effective the
shelf registration statement until the earlier of two years after the
Issue Date or such time as all of the applicable old notes have been
sold thereunder.
Pacer International will, in the event that a shelf registration statement
is filed,
(1) provide to each holder copies of the prospectus that is a part of
the shelf registration statement,
(2) notify each such holder when the shelf registration statement for
the old notes has become effective, and
(3) take certain other actions as are required to permit unrestricted
resales of the old notes.
22
A holder that sells old notes pursuant to the shelf registration statement:
(1) will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers,
(2) will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales, and
(3) will be bound by the provisions of the registration rights agreement
that are applicable to such a holder, including certain indemnification
rights and obligations.
The old notes provide, among other things, that if:
(1) the exchange offer has not been consummated on or prior to 210 days
after the Issue Date or
(2) if applicable, a shelf registration statement has been declared
effective, but ceases to be effective at any time prior to the second
anniversary of the Issue Date,
then, from the 211th day or the date the shelf registration statement ceases
to be effective, through but excluding the date the exchange offer is
consummated or the shelf registration statement becomes effective, the
interest rate on the old notes will:
(1) increase by .25% per annum for the first 90 days immediately
following such date, and
(2) thereafter increase by an additional .25% per annum, at the
beginning of each subsequent 90-day period.
The additional interest on any affected old notes may not exceed 1.0% in
the aggregate.
The summary herein highlights the material provisions of the registration
rights agreement, but does not restate that agreement in its entirety. Pacer
International urges you to review all of the provisions of the registration
rights agreement, because it, and not this description, defines your rights as
holders to exchange your old notes for registered notes. A copy of the
registration rights agreement has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
Following the consummation of the exchange offer, holders of old notes who
were eligible to participate in the exchange offer but who did not tender
their old notes will not have any further registration rights, and the old
notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the old notes could be adversely
affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, Pacer International will accept
all old notes validly tendered and not withdrawn prior to 5:00 p.m. New York
City time, on the expiration date. After authentication of the exchange notes
by the trustee or an authenticating agent, Pacer International will issue and
deliver $1,000 principal amount of exchange notes in exchange for each $1,000
principal amount of outstanding old notes accepted in the exchange offer.
Holders may tender some or all of their old notes pursuant to the exchange
offer in denominations of $1,000 and integral multiples thereof.
By tendering old notes in exchange for exchange notes and by executing the
letter of transmittal, each holder of old notes will be required to represent
that:
(1) it is not an affiliate of Pacer International,
(2) any exchange notes to be received by it were acquired in the
ordinary course of its business, and
(3) it has no arrangement or understanding with any person to
participate in the distribution, within the meaning of the Securities Act,
of the exchange notes.
23
Each Participating Broker-Dealer that receives exchange notes for its own
account in exchange for old notes, where such old notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. See "Plan of Distribution"
for a more detailed description of these procedures.
The form and terms of the exchange notes are identical in all material
respects to the form and terms of the old notes, except that:
(1) the offering of the exchange notes has been registered under the
Securities Act,
(2) the exchange notes will not be subject to transfer restrictions, and
(3) certain provisions relating to an increase in the stated interest
rate on the old notes provided for under certain circumstances will be
eliminated.
The exchange notes will evidence the same debt as the old notes. The
exchange notes will be issued under and entitled to the benefits of the
indenture.
As of the date of this prospectus, $150,000,000 aggregate principal amount
of the old notes is outstanding. In connection with the issuance of the old
notes, Pacer International arranged for the old notes to be issued and
transferable in book-entry form through the facilities of DTC, acting as a
depositary. The exchange notes will also be issuable and transferable in book-
entry form through DTC.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of the old notes as of the close
of business on , 1999. The exchange offer is not conditioned upon any
minimum aggregate principal amount of old notes being tendered. However, the
exchange offer is subject to certain customary conditions which may be waived
by Pacer International, and to the terms and provisions of the registration
rights agreement. See "--Conditions to the Exchange Offer" for a detailed
description of such conditions.
Pacer International shall be deemed to have accepted validly tendered old
notes when, as and if Pacer International has given oral or written notice
thereof to the exchange agent. The exchange agent will act as agent for the
tendering holders for the purpose of receiving exchange notes from Pacer
International and delivering exchange notes to such holders.
If any tendered old notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted old notes will be returned, at Pacer
International's cost, to the tendering holder thereof as promptly as
practicable after the expiration date.
Holders who tender old notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of old notes
pursuant to the exchange offer. Pacer International will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "--Solicitation of Tenders; Fees and Expenses" for more detailed
information regarding the expenses of the exchange offer.
Expiration Date; Extensions; Amendments
The term "expiration date" shall mean 5:00 p.m., New York City time, on
, 1999, unless Pacer International, in its sole discretion, extends the
exchange offer, in which case the term "expiration date" shall mean the latest
date to which the exchange offer is extended. Pacer International may extend
the exchange offer at any time and from time to time by giving oral or written
notice to the exchange agent and by timely public announcement.
Pacer International expressly reserves the right, in its sole discretion:
24
(1) to delay acceptance of any old notes, to extend the exchange offer
or to terminate the exchange offer and to refuse to accept old notes not
previously accepted, if any of the conditions set forth herein under "--
Conditions to the Exchange Offer" shall have occurred and shall not have
been waived by Pacer International, if such conditions are permitted to be
waived by Pacer International, by giving oral or written notice of such
delay, extension or termination to the exchange agent, and
(2) to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof by Pacer
International to the registered holders of the old notes.
If the exchange offer is amended in a manner determined by Pacer
International to constitute a material change, Pacer International will
promptly disclose such amendment in a manner reasonably calculated to inform
the holders of such amendment and Pacer International will extend the exchange
offer to the extent required by law.
Without limiting the manner in which Pacer International may choose to make
public announcements of any delay in acceptance, extension, termination or
amendment of the exchange offer, Pacer International shall have no obligation
to publish, advise, or otherwise communicate any such public announcement,
other than by making a timely release thereof to the Dow Jones News Service.
Interest on the Exchange Notes
Interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on the old notes surrendered in exchange
therefor or, if no interest has been paid on the old notes, from the Issue
Date. The exchange notes will bear interest at a fixed rate of 11 3/4% per
annum. Interest on the exchange notes will be payable semi-annually on June 1
and December 1 of each year commencing on December 1, 1999.
Procedures for Tendering
Each holder of old notes wishing to accept the exchange offer must complete,
sign and date the letter of transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein. Each holder shall then mail
or otherwise deliver such letter of transmittal, or such facsimile, together
with the old notes to be exchanged and any other required documentation, to
Wilmington Trust Company, as exchange agent, at the address set forth herein
and therein. A holder may also effect a tender of old notes pursuant to the
procedures for book-entry transfer as provided for herein and therein. By
executing the letter of transmittal, each holder will represent to Pacer
International that, among other things,
(1) the exchange notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the person receiving such
exchange notes, whether or not such person is the holder,
(2) that neither the holder nor any such other person has any
arrangement or understanding with any person to participate in the
distribution of such exchange notes, and
(3) that neither the holder nor any such other person is an "affiliate,"
as defined in Rule 405 under the Securities Act, of Pacer International.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the old notes by causing DTC to
transfer such old notes into the exchange agent's account in accordance with
DTC's procedure for such transfer. Although delivery of old notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
the letter of transmittal, or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the exchange agent at its address set forth herein under "--
Exchange Agent"
25
prior to 5:00 p.m., New York City time, on the expiration date. Delivery of
documents to DTC in accordance with its procedures does not constitute delivery
to the exchange agent.
Only a holder may tender its old notes in the exchange offer. To tender in
the exchange offer, a holder must:
(1) complete, sign and date the letter of transmittal or a facsimile
thereof,
(2) have the signatures thereof guaranteed if required by the letter of
transmittal,
and
(3) unless such tender is being effected pursuant to the procedure for
bookentry transfer, mail or otherwise deliver such letter of transmittal or
such facsimile, together with the old notes and other required documents,
to the exchange agent, prior to 5:00 p.m., New York City time, on the
expiration date.
The tender by a holder will constitute an agreement between such holder,
Pacer International and the exchange agent in accordance with the terms and
subject to the conditions set forth herein and in the letter of transmittal. If
less than all of the old notes are tendered, a tendering holder should fill in
the amount of old notes being tendered in the appropriate box on the letter of
transmittal. The entire amount of old notes delivered to the exchange agent
will be deemed to have been tendered unless otherwise indicated.
The letter of transmittal will include representations to Pacer
International that, among other things,
(1) the exchange notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the person receiving such
exchange notes, whether or not such person is the holder,
(2) neither the holder nor any such other person is engaged in, intends
to engage in or has any arrangement or understanding with any person to
participate in the distribution of such exchange notes,
(3) neither the holder nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act, of Pacer International, and
(4) if the tendering holder is a broker or dealer as defined in the
Exchange Act, then:
(a) it acquired the old notes for its own account as a result of
market-making activities or other trading activities, and
(b) it has not entered into any arrangement or understanding with
Pacer International or any "affiliate" thereof within the meaning of
Rule 405 under the Securities Act to distribute the exchange notes to
be received in the exchange offer.
In the case of a broker-dealer that receives exchange notes for its own
account in exchange for old notes which were acquired by it as a result of
market-making or other trading activities, the letter of transmittal will also
include an acknowledgement that the broker-dealer will deliver a copy of this
prospectus in connection with the resale by it of exchange notes received
pursuant to the exchange offer; however, by so acknowledging and by delivering
a prospectus, such holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
The method of delivery of old notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and risk of
the holders. Instead of delivery by mail, it is recommended that holders use an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to ensure delivery to the exchange agent prior to the expiration date.
No letter of transmittal or old notes should be sent to Pacer International.
Holders may also request that their respective brokers, dealers, commercial
banks, trust companies or nominees effect such tender for holders, in each case
as set forth herein and in the letter of transmittal.
26
Any beneficial owner whose old notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the letter of transmittal and delivering his old notes, either make
appropriate arrangements to register ownership of the old notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of record ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless the old
notes tendered pursuant thereto are tendered by a registered holder who has not
completed the box entitled "Special Registration Instructions" or "Special
Delivery Instruction" of the letter of transmittal or for the account of an
Eligible Institution. If the letter of transmittal is signed by a person other
than the registered holder listed therein, such old notes must be endorsed or
accompanied by appropriate bond powers which authorize such person to tender
the old notes on behalf of the registered holder, in either case signed as the
name of the registered holder or holders appears on the old notes. If the
letter of transmittal or any old notes or bond powers are signed or endorsed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by Pacer
International, evidence satisfactory to Pacer International of their authority
to so act must be submitted with such letter of transmittal.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered old notes will be determined
by Pacer International in its sole discretion, which determination will be
final and binding. Pacer International reserves the absolute right to reject
any and all old notes not properly tendered or any old notes Pacer
International's acceptance of which would, in the opinion of counsel for Pacer
International, be unlawful. Pacer International also reserves the absolute
right to waive any irregularities or conditions of tender as to particular old
notes. Pacer International's interpretation of the terms and conditions of the
exchange offer including the instructions in the letter of transmittal will be
final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
old notes must be cured within such time as Pacer International shall
determine. Although Pacer International intends to notify holders of defects or
irregularities with respect to tender of old notes, neither Pacer
International, the exchange agent nor any other person shall be under any duty
to give notification of defects or irregularities with respect to tenders of
old notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of old notes will not be deemed to have been made until
such irregularities have been cured or waived. Any old notes received by the
exchange agent that Pacer International determines are not properly tendered or
the tender of which is otherwise rejected by Pacer International and as to
which the defects or irregularities have not been cured or waived by Pacer
International will be returned by the exchange agent to the tendering holder
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In addition, Pacer International reserves the right in its sole discretion:
(1) to purchase or make offers for any old notes that remain outstanding
subsequent to the expiration date, or, as set forth under "--Conditions to
the Exchange Offer," terminate the exchange offer, and
(2) to the extent permitted by applicable law, to purchase old notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers may differ from the terms of the
exchange offer.
27
Book-Entry Transfer
Pacer International understands that the exchange agent will make a request
promptly after the date of this prospectus to establish accounts with respect
to the old notes at DTC, the book-entry transfer facility, for the purpose of
facilitating the exchange offer. Subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of old notes by causing such
book-entry transfer facility to transfer such old notes into the exchange
agent's account with respect to the old notes in accordance with the book-entry
transfer facility's Automated Tender Offer Program procedures for such
transfer. However, the exchange for the old notes so tendered will only be made
after a timely confirmation of a book-entry transfer of such old notes into the
exchange agent's account, and timely receipt by the exchange agent of an agents
message and any other documents required by the letter of transmittal.
The term "agent's message" means a message, transmitted by the book-entry
transfer facility and received by the exchange agent and forming part of the
confirmation of a book-entry transfer, which states that the book-entry
transfer facility has received an express acknowledgment from a participant
tendering old notes and that such participant has received the letter of
transmittal and agrees to be bound by the terms of the letter of transmittal,
and Pacer International may enforce such agreement against the participant.
Although delivery of old notes may be effected through book-entry transfer into
the exchange agents account at the book-entry transfer facility, an appropriate
letter of transmittal properly completed and duly executed with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the exchange agent at its address
set forth below on or prior to the expiration date, or, if the guaranteed
delivery procedures described below are complied with within the time period
provided under such procedures. Delivery of documents to the book-entry
transfer facility does not constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
Holders who wish to tender their old notes and whose old notes are not
immediately available, or who cannot deliver their old notes, the letter of
transmittal or any other required documents to the exchange agent prior to the
expiration date, or who cannot complete the procedure for book-entry transfer
on a timely basis, may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the expiration date, the exchange agent receives from such
Eligible Institution a properly completed and duly executed notice of
guaranteed delivery, by facsimile transmittal, mail or hand delivery
(a) setting forth the name and address of the holder, the
certificate number or numbers of such holder's old notes and the
principal amount of such old notes tendered,
(b) stating that the tender is being made thereby,
(c) and guaranteeing that, within three New York Stock Exchange
trading days after the expiration date, the letter of transmittal or
facsimile thereof, together with the certificate(s) representing the
old notes to be tendered in proper form for transfer, or confirmation
of a book-entry transfer into the exchange agent's account at DTC of
old notes delivered electronically, and any other documents required by
the letter of transmittal, will be deposited by the Eligible
Institution with the exchange agent; and
(3) such properly completed and executed letter of transmittal, or
facsimile thereof, together with the certificate(s) representing all
tendered old notes in proper form for transfer, or confirmation of a
book-entry transfer into the exchange agent's account at DTC of old notes
delivered electronically and all other documents required by the letter of
transmittal are received by the exchange agent within three NYSE trading
days after the expiration date.
28
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old notes may be withdrawn
at any time prior to 5:00 p.m. New York City time, on the expiration date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be received by the exchange agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the expiration date. Any such
notice of withdrawal must:
(1) specify the name of the person having deposited the old notes to be
withdrawn (the "Depositor"),
(2) identify the old notes to be withdrawn, including the certificate
number or numbers and principal amount of such old notes or, in the case of
old notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited,
(3) be signed by the Depositor in the same manner as the original
signature on the letter of transmittal by which such old notes were
tendered, including any required signature guarantee or be accompanied by
documents of transfer sufficient to permit the trustee with respect to the
old notes to register the transfer of such old notes into the name of the
Depositor withdrawing the tender, and
(4) specify the name in which any such old notes are to be registered,
if different from that of the Depositor.
All questions as to the validity, form and eligibility, including time of
receipt of such withdrawal notices will be determined by Pacer International,
whose determination shall be final and binding on all parties. Any old notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer, and no exchange notes will be issued with respect thereto
unless the old notes so withdrawn are validly retendered. Any old notes that
have been tendered but are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn old notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
expiration date.
Conditions to the Exchange Offer
Notwithstanding any other term of the exchange offer, Pacer International
will not be required to accept for exchange, or to exchange exchange notes for,
any old notes, and may terminate or amend the exchange offer as provided herein
before the acceptance of such old notes if, in Pacer International's judgment,
any of the following conditions has occurred or exists or has not been
satisfied:
(1) that the exchange offer, or the making of any exchange by a holder,
violates applicable interpretation of the staff of the Commission,
(2) that any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency or body
with respect to the exchange offer, or
(3) that there has been adopted or enacted any law, statute, rule or
regulation that can reasonably be expected to impair the ability of Pacer
International to proceed with the exchange offer.
If Pacer International determines that it may terminate the exchange offer
for any of the reasons set forth above, Pacer International may:
(1) refuse to accept any old notes and return any old notes that have
been tendered to the holders thereof,
29
(2) extend the exchange offer and retain all old notes tendered prior to
the expiration date of the exchange offer, subject to the rights of such
holders of tendered old notes to withdraw their tendered old notes, or
(3) waive such termination event with respect to the exchange offer and
accept all properly tendered old notes that have not been withdrawn.
If such waiver constitutes a material change in the exchange offer, Pacer
International will disclose such change by means of a supplement to this
prospectus that will be distributed to each registered holder, and Pacer
International will extend the exchange offer for a period of five to ten
business days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the exchange offer would otherwise
expire during such period.
Exchange Agent
Wilmington Trust Company, the trustee under the indenture, has been
appointed as exchange agent for the exchange offer. In such capacity, the
exchange agent has no fiduciary duties and will be acting solely on the basis
of directions of Pacer International. Requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent addressed as follows:
By Registered or Certified Mail: Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attn: Corporate Trust Administration,
Ann Roberts
By Hand Delivery before 4:30 p.m.: Wilmington Trust Company Rodney
Square North
1100 North Market Street
Wilmington, DE 19890
Attn: Corporate Trust Administration,
Ann Roberts
By Overnight Courier and by Hand Wilmington Trust Company Rodney
Delivery after 4:30 p.m. on the Square North
Expiration Date: 1100 North Market Street
Wilmington, DE 19890
Attn: Corporate Trust Administration,
Ann Roberts
Facsimile Transmission: (302) 651-8882
Information or Confirmation by Telephone: (302) 651-8681
Delivery to an address or facsimile number other than those listed above
will not constitute a valid delivery.
Solicitation of Tenders; Fees and Expenses
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by Pacer International. The principal solicitation pursuant to the
exchange offer is being made by mail. Additional solicitations may be made by
officers and regular employees of Pacer International and its affiliates in
person, by telegraph, telephone or telecopier.
Pacer International has not retained any dealer-manager in connection with
the exchange offer and will not make any payments to broker, dealers or other
persons soliciting acceptances of the exchange offer. Pacer
30
International will, however, pay the exchange agent reasonable and customary
fees for its services and will reimburse the exchange agent for its reasonable
out-of-pocket costs and expenses in connection therewith and will indemnify
the exchange agent for all losses and claims incurred by it as a result of the
exchange offer.
Pacer International may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by
them in forwarding copies of this prospectus, letters of transmittal and
related documents to the beneficial owners of the old notes and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the exchange offer,
including fees and expenses of the exchange agent and trustee and accounting
and legal fees and printing costs, will be paid by Pacer International.
Pacer International will pay all transfer taxes, if any, applicable to the
exchange of old notes pursuant to the exchange offer. If, however,
certificates representing exchange notes or old notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered
holder of the old notes tendered, or if tendered old notes are registered in
the name of any person other than the person signing the letter of
transmittal, or if the transfer tax is imposed for any reason other than the
exchange of old notes pursuant to the exchange offer, then the amount of any
such transfer taxes, whether imposed on the registered holder or any other
persons, will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the letter
of transmittal, the amount of such transfer taxes will be billed by Pacer
International directly to such tendering holder.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the old
notes, as reflected in Pacer International's accounting records on the date of
the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by Pacer International as a result of the consummation of the
exchange offer. The expenses of the exchange offer will be deferred and
amortized by Pacer International over the term of the exchange notes using the
effective interest method.
Consequences of Failure to Exchange
As a result of the making of, and upon acceptance for exchange of all
validly tendered old notes pursuant to the terms of, this exchange offer,
Pacer International will have fulfilled a covenant contained in the
registration rights agreement. Holders of the old notes who do not tender
their old notes in the exchange offer will continue to hold such old notes and
will be entitled to all the rights, and subject to the limitations applicable
thereto, under the indenture and the registration rights agreement, except for
any such rights under the registration rights agreement that by their terms
terminate or cease to have further effect as a result of making of this
exchange offer. All untendered old notes will continue to be subject to the
restrictions on transfer set forth in the indenture. Accordingly, such old
notes may be resold only
(1) to Pacer International,
(2) pursuant to a registration statement which has been declared
effective under the Securities Act,
(3) in the United States to qualified institutional buyers within the
meaning of Rule 144A in reliance upon the exemption from the registration
requirements of the Securities Act provided by Rule 144A,
(4) in the United States to Institutional Accredited Investors, as
defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the Securities
Act, in transactions exempt from the registration requirements of the
Securities Act,
31
(5) outside the United States to foreign persons in transactions
complying with the provisions of Regulation S under the Securities Act, or
(6) pursuant to any available exemption from the registration
requirements under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States.
To the extent that old notes are tendered and accepted in the exchange
offer, the liquidity of the trading market for untendered old notes could be
adversely affected.
32
USE OF PROCEEDS
The exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement. We will not receive any cash proceeds from
the exchange offer.
33
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain unaudited pro forma consolidated financial
information for our company. The Unaudited Pro Forma Consolidated Balance Sheet
as of April 2, 1999 gives effect to our recapitalization and the Pacer
Logistics transaction as if they had occurred at April 2, 1999. The Unaudited
Pro Forma Consolidated Statements of Operations for the year ended December 25,
1998, the three months ended April 2, 1999, and the twelve months ended April
2, 1999 give effect to our recapitalization and the Pacer Logistics transaction
using the purchase method of accounting for the Pacer Logistics transaction, as
if our recapitalization and the Pacer Logistics transaction had occurred at the
beginning of the first period presented.
The unaudited pro forma adjustments, as described in the notes to the
unaudited pro forma consolidated financial information are based on available
information and upon certain assumptions that we believe are reasonable. The
purchase of Pacer Logistics has been reflected based on preliminary estimates
of fair values, which may be updated based on final appraisals and other
estimates of fair value.
We do not claim or represent that the unaudited pro forma consolidated
statement of operations information set forth below is indicative of the
results that would have been reported had the transactions actually occurred at
the beginning of the period presented nor is it indicative of our future
results. There can be no assurance that the assumptions used in the preparation
of the unaudited pro forma consolidated financial information, which we believe
to be appropriate in the circumstances, will prove to be correct. The unaudited
pro forma consolidated information should be read in conjunction with the
historical consolidated financial statements of our company and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. See also "Our
Recapitalization."
34
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
April 2, 1999
(in thousands)
Pacer Logistics
Pacer Pacer Completed 1999 Pro Forma
International(a) Logistics(b) Acquisition Adjustments Pro Forma
---------------- ------------ --------------- ----------- ---------
ASSETS
Current assets:
Cash and cash
equivalents........... $ -- $ 10 $ -- $ -- $ 10
Accounts receivable,
net................... 60,700 41,492 -- -- 102,192
Prepaid expenses and
other................. 1,000 1,926 -- -- 2,926
Deferred income taxes.. -- 597 -- -- 597
-------- -------- ------ --------- ---------
Total current assets.... 61,700 44,025 -- -- 105,725
Property and equipment:
Property and equipment
at cost............... 95,500 5,323 32(c) (40,000)(d) 60,855
Accumulated
depreciation.......... (8,400) (1,170) -- -- (9,570)
-------- -------- ------ --------- ---------
Property and equipment,
net.................... 87,100 4,153 32 (40,000) 51,285
Other assets:
Intangible assets,
net................... 19,100 60,932 8,218(c) 54,998 (e) 143,248
Deferred income taxes.. -- 73 -- 85,000 (f) 85,073
Other assets........... 2,800 1,885 -- 8,200 (g) 12,885
-------- -------- ------ --------- ---------
Total other assets...... 21,900 62,890 8,218 148,198 241,206
-------- -------- ------ --------- ---------
Total assets............ $170,700 $111,068 $8,250 $ 108,198 $ 398,216
======== ======== ====== ========= =========
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of
long-term debt and
capital leases........ $ -- $ 3,294 $ -- $ (3,294)(h) $ --
Accounts payable and
accrued expenses...... 95,500 39,198 -- -- 134,698
-------- -------- ------ --------- ---------
Total current
liabilities............ 95,500 42,492 -- (3,294) 134,698
Long-term liabilities:
Revolver............... -- -- -- -- --
Employee benefits...... 500 710 -- -- 1,210
Deferred income taxes.. 15,700 -- -- (15,700)(f) --
Long-term debt and
capital leases........ -- 47,064 8,250(c) 229,686 (i) 285,000
-------- -------- ------ --------- ---------
Total long-term
liabilities............ 16,200 47,774 8,250 213,986 286,210
-------- -------- ------ --------- ---------
Total liabilities....... 111,700 90,266 8,250 210,692 420,908
Minority interest--
exchangeable preferred
stock.................. -- -- -- 24,300 (j) 24,300
Stockholders' equity
(divisional control
account):
Preferred stock........ -- 4 -- (4)(k) --
Common stock........... -- 1 -- 104,399 (l) 104,400
Paid in capital........ -- 14,254 -- (14,254)(m) --
Retained earnings
(deficit) (divisional
control account)...... 59,000 6,543 -- (216,935)(n) (151,392)
-------- -------- ------ --------- ---------
Equity (deficit)........ 59,000 20,802 -- (126,794) (46,992)
-------- -------- ------ --------- ---------
Total liabilities and
equity................. $170,700 $111,068 $8,250 $ 108,198 $ 398,216
======== ======== ====== ========= =========
See Accompanying Notes to the Unaudited Pro Forma Consolidated Balance Sheet
35
PACER INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 2, 1999
(in thousands)
(a) Represents the historical unaudited balance sheet of Pacer International,
Inc. as of April 2, 1999 (prior to the consummation of our
recapitalization, Pacer International was known as APL Land Transport
Services, Inc.). Prior to November 1998, Pacer International operated as
the American President Lines Stacktrain Services division of APL Land
Transport Services, Inc.
(b) Represents the historical unaudited balance sheet of Pacer Logistics, Inc.
as of March 31, 1999 (prior to the consummation of the Pacer Logistics
transaction, Pacer Logistics, Inc. was known as Pacer International, Inc.).
(c) On April 20, 1999, Pacer Logistics completed an acquisition of certain of
the assets of Keystone Terminals, Inc. Pacer Logistics financed the
purchase with long-term debt of $8,250 and acquired property and equipment
of $32. This acquisition resulted in goodwill of $8,218 which is being
amortized over 40 years.
(d) In connection with our recapitalization, we completed a sale and leaseback
transaction for certain railcars purchased in 1998, resulting in the
elimination of $40,000 of property and equipment at cost.
(e) The acquisition of Pacer Logistics will be accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16 and the
preliminary purchase price of $133,908 plus fees of $500 results in a total
purchase price of $134,408 and will be allocated to the assets and
liabilities based upon fair market values at the date of acquisition.
The purchase allocation, preliminary in nature and
subject to change, is as follows:
Existing book value of Pacer Logistics.................. $ 20,802
Elimination of historical intangible assets of Pacer
Logistics.............................................. (60,932)
Elimination of Keystone Terminals acquisition goodwill.. (8,218)
Goodwill created in the Pacer Logistics acquisition..... 124,148
-------
Net adjustment to intangible assets.................... 54,998
Assumption of Pacer Logistics debt and capital lease,
current portion........................................ 3,294
Assumption of Pacer Logistics debt and capital lease,
long-term (including debt incurred with Keystone
Terminals acquisition)................................. 55,314
--------
Total purchase price................................... $134,408
========
(f) In connection with our recapitalization, a Section 338(h)(10) election was
made to allow the recapitalization of Pacer International to be treated as
an acquisition of assets for tax purposes. The recapitalization gave rise
to the reversal of the existing deferred tax balances in the amount of
$15,700 and created a deferred tax asset in the amount of approximately
$85,000, associated with the step up for tax purposes. We believe that it
is more likely than not that the results of future operations will generate
sufficient taxable income to realize the deferred tax asset and
accordingly, no valuation allowance was recorded.
(g) Represents the estimated costs and fees associated with our
recapitalization and the Pacer Logistics transaction:
Total
-------
Debt issuance costs.................................................. $ 8,200
Acquisition fees..................................................... 500
Recapitalization fees................................................ 15,392
-------
Total.............................................................. $24,092
=======
36
(h) Reflects the repayment of the current portion of the Pacer Logistics long-
term debt and capital leases.
(i) Reflects the debt incurred in connection with our recapitalization and the
Pacer Logistics transaction and the repayment of existing long-term debt,
including debt incurred in Pacer Logistics' Keystone Terminals acquisition.
We have entered into the Senior Credit Facilities which consists of a
seven-year $135,000 Term Loan and a five year $100,000 Revolving Credit
Facility.
Borrowings under Term Loan....................................... $135,000
Issuance of Senior Subordinated Notes ........................... 150,000
Repayment of Pacer Logistics long-term debt and capital leases... (55,314)
--------
$229,686
========
(j) Reflects the issuance of Pacer Logistics 7.5% Exchangeable Preferred Stock
with an aggregate stated value of $24,300 to certain members of management
in exchange for Pacer Logistics common stock held by them.
(k) Reflects the purchase of Pacer Logistics historical preferred stock in
connection with the Pacer Logistics transaction.
(l) Reflects our recapitalization and the Pacer Logistics transaction
adjustments for common stock:
Issuance of common stock to affiliates of Apollo Management...... $ 93,900
Issuance of common stock to affiliates of Deutsche Bank
Securities Inc. and Credit Suisse First Boston Corporation...... 3,000
Rollover of common stock from APL Limited........................ 7,500
Elimination of Pacer Logistics historical common stock........... (1)
--------
$104,399
========
(m) Reflects the elimination of Pacer Logistics historical paid-in capital in
connection with the Pacer Logistics transaction in accordance with purchase
accounting.
(n) Reflects our recapitalization and the Pacer Logistics transaction
adjustments for retained earnings:
Elimination of Pacer International historical divisional
control account............................................... $ (59,000)
Elimination of Pacer Logistics historical retained earnings.... (6,543)
Transaction fees associated with the issuance of common
stock(g)...................................................... (15,392)
Rollover of common stock from Pacer International.............. (7,500)
Adjustment to record acquisition of Pacer International equity
from APL Limited.............................................. (204,900)
Exchange of Pacer Logistics common stock for Pacer Logistics
7.5% Exchangeable Preferred Stock............................. (24,300)
Elimination of Pacer International historical deferred tax
liability..................................................... 15,700
Recognition of deferred tax asset associated with our
recapitalization(f)........................................... 85,000
---------
$(216,935)
=========
37
PACER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Year Ended December 25, 1998
(in thousands)
Pacer Pacer Pacer Logistics Pacer
International Logistics Completed 1998 & Pacer Logistics Pro Forma International
Historical (a) Historical (b)(q) 1999 Acquisitions (c) Pro Forma Adjustments Pro Forma
-------------- ----------------- --------------------- --------------- ----------- -------------
Gross revenues.......... $590,800 $252,762 $155,844 $408,606 $(17,776)(d) $981,630
Cost of purchased
transportation and
services............... 466,300 211,222 135,269 346,491 (32,376)(e) 780,415
-------- -------- -------- -------- -------- --------
Net revenues........... 124,500 41,540 20,575 62,115 14,600 201,215
Operating expenses:
Direct operating
expenses.............. 62,400 329 35 364 2,527 (f) 65,291
Selling, general and
administrative
expenses.............. 29,000 28,054 15,625 43,679 3,075 (g)(h) 75,754
Amortization........... 600 1,334 746 2,080 1,016 (i) 3,696
Other (income) /
expense............... (700) -- 16 16 -- (684)
Transaction costs...... -- 1,500 625 2,125 -- 2,125
-------- -------- -------- -------- -------- --------
Total operating
expenses.............. 91,300 31,217 17,047 48,264 6,618 146,182
-------- -------- -------- -------- -------- --------
Income from
operations............ 33,200 10,323 3,528 13,851 7,982 55,033
Interest income /
(expense).............. -- (2,867) (1,907) (4,774) (25,329)(j) (30,103)
-------- -------- -------- -------- -------- --------
Income before income
taxes, minority
interest and
extraordinary loss.... 33,200 7,456 1,621 9,077 (17,347) 24,930
Income taxes............ 12,600 3,182 766 3,948 (6,696)(k) 9,852
Minority interest....... -- -- -- -- 1,823 (l) 1,823
-------- -------- -------- -------- -------- --------
Income before
extraordinary loss.... $ 20,600 $ 4,274 $ 855 $ 5,129 $(12,474) $ 13,255
======== ======== ======== ======== ======== ========
Other Financial
Data(m)(n):
Depreciation........... $ 6,000 $ 699 $ 387 $ 1,086 $ (973) $ 6,113
See Accompanying Notes to the Unaudited Pro Forma Consolidated Statement of
Operations
38
PACER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended April 2, 1999
(in thousands)
Pacer
Logistics
Pacer Pacer Completed Pacer Pacer
International Logistics 1998 & 1999 Logistics Pro Forma International
Historical Historical(q) Acquisitions(o) Pro Forma Adjustments Pro Forma
------------- ------------- --------------- --------- ----------- -------------
Gross revenues.......... $163,600 $89,892 $5,297 $95,189 $(4,894)(d) $253,895
Cost of purchased
transportation and
services............... 129,800 75,164 4,556 79,720 (8,544)(e) 200,976
-------- ------- ------ ------- ------- --------
Net revenues........... 33,800 14,728 741 15,469 3,650 52,919
Operating expenses:
Direct operating
expenses.............. 18,100 103 -- 103 517 (f) 18,720
Selling, general and
administrative
expenses.............. 8,000 10,455 302 10,757 594 (g)(h) 19,351
Amortization........... 100 474 54 528 246 (i) 874
Other
(income)/expense...... -- -- -- -- -- --
Transaction costs...... -- -- -- -- -- --
-------- ------- ------ ------- ------- --------
Total operating
expenses.............. 26,200 11,032 356 11,388 1,357 38,945
-------- ------- ------ ------- ------- --------
Income from
operations............ 7,600 3,696 385 4,081 2,293 13,974
Interest
income/(expense)....... -- (1,126) (124) (1,250) (6,225)(j) (7,475)
-------- ------- ------ ------- ------- --------
Income before income
taxes, minority
interest and
extraordinary loss.... 7,600 2,570 261 2,831 (3,932) 6,499
Income taxes............ 2,800 1,100 107 1,207 (1,511)(k) 2,496
Minority interest....... -- -- -- -- 456 (l) 456
-------- ------- ------ ------- ------- --------
Income before
extraordinary loss.... $ 4,800 $ 1,470 $ 154 $ 1,624 $(2,877) $ 3,547
======== ======= ====== ======= ======= ========
Other Financial
Data(m)(n):
Depreciation........... $ 1,700 $ 290 $ 5 $ 295 $ (358) $ 1,637
See Accompanying Notes to the Unaudited Pro Forma Consolidated Statement of
Operations
39
PACER INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Twelve Months Ended April 2, 1999
(in thousands)
Pacer
Logistics Pro
Pacer Pacer Completed Pacer Forma Pacer
International Logistics 1998 & 1999 Logistics Adjust- International
Historical Historical(q) Acquisitions(p) Pro Forma ments Pro Forma
------------- ------------- --------------- --------- -------- -------------
Gross revenues.......... $604,200 $292,292 $110,909 $403,201 $(20,009)(d) $987,392
Cost of purchased
transportation and
services............... 476,500 244,383 96,765 341,148 (34,609)(e) 783,039
-------- -------- -------- -------- -------- --------
Net revenues........... 127,700 47,909 14,144 62,053 14,600 204,353
Operating expenses:
Direct operating
costs................. 63,300 385 -- 385 2,231 (f) 65,916
Selling, general and
administrative
expenses.............. 29,200 32,799 10,817 43,616 3,075 (g)(h) 75,891
Amortization........... 600 1,590 493 2,083 1,013 (i) 3,696
Other
(income)/expense...... (700) -- -- -- -- (700)
Transaction costs...... -- 1,500 625 2,125 -- 2,125
-------- -------- -------- -------- -------- --------
Total operating
expenses.............. 92,400 36,274 11,935 48,209 6,319 146,928
-------- -------- -------- -------- -------- --------
Income from
operations............ 35,300 11,635 2,209 13,844 8,281 57,425
Interest
income/(expense)....... -- (3,439) (1,407) (4,846) (25,236)(j) (30,082)
-------- -------- -------- -------- -------- --------
Income before income
taxes, minority
interest and
extraordinary loss ... 35,300 8,196 802 8,998 (16,955) 27,343
Income taxes............ 13,400 3,517 386 3,903 (6,536)(k) 10,767
Minority interest....... -- -- -- -- 1,823 (l) 1,823
-------- -------- -------- -------- -------- --------
Income before
extraordinary loss.... $ 21,900 $ 4,679 $ 416 $ 5,095 $(12,242) $ 14,753
======== ======== ======== ======== ======== ========
Other Financial
Data(m)(n):
Depreciation........... $ 6,100 $ 866 $ 235 $ 1,101 $ (1,269) $ 5,932
See Accompanying Notes to the Unaudited Pro Forma Consolidated Statement of
Operations
40
PACER INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
(a) Represents amounts derived from the historical audited statement of
operations of Pacer International, Inc. for the year ended December 25,
1998 (prior to the consummation of our recapitalization, Pacer
International was known as APL Land Transport Services, Inc.). Prior to
November 1998, Pacer International operated as the American President Lines
Stacktrain Services division of APL Land Transport Services, Inc.
(b) Represents amounts derived from the historical audited consolidated
statement of operations of Pacer Logistics, Inc. for the year ended
December 31, 1998 (prior to the consummation of the Pacer Logistics
transaction, Pacer Logistics, Inc. was known as Pacer International, Inc.).
(c) Pacer Logistics acquired Intraco Inc. April 3, 1998, Cross Con Transport,
Inc. and Cross Con Terminals, Inc. on June 6, 1998, Professional Logistics
Management Co., Inc. and 3PL Corporation on July 26, 1998, Manufacturers
Consolidation Service, Inc. and its subsidiaries Levcon, Inc., MCS of
Kansas, Inc. and Manufacturers Consolidation Service of Canada Inc. on
December 10, 1998 and Keystone Terminals, Inc. (DE) and Keystone Terminals,
Inc. (NJ) on April 20, 1999. The schedule below presents the unaudited
historical combined results of operations of the acquired businesses for
the periods from January 1, 1998 until their respective acquisitions by
Pacer Logistics, except for the Keystone companies, which were acquired in
1999 and are included for the full year.
Completed
Cross Professional Pro Forma 1998 & 1999
Intraco Con Logistics MCS(1) Keystone Adjustments Acquisitions
------- ------- ------------ ------- -------- ----------- ------------
Gross revenues.......... $1,245 $23,661 $11,152 $95,969 $24,281 $ (464)(2) $155,844
Cost of purchased
transportation and
services............... 845 20,971 8,512 84,725 20,680 (464)(2) 135,269
------ ------- ------- ------- ------- ------- --------
Net revenues........... 400 2,690 2,640 11,244 3,601 -- 20,575
Operating expenses:
Direct operating
expenses.............. 35 -- -- -- -- -- 35
Selling general and
administrative
expenses.............. 123 1,664 2,356 11,745 2,341 (2,604)(3)(4) 15,625
Other
(income)/expense...... -- -- -- 16 -- -- 16
Amortization........... -- -- -- 80 -- 666 (5) 746
Transaction costs...... -- -- -- 625 -- -- 625
------ ------- ------- ------- ------- ------- --------
Total operating
expenses............... 158 1,664 2,356 12,466 2,341 (1,938) 17,047
------ ------- ------- ------- ------- ------- --------
Income from
operations............ 242 1,026 284 (1,222) 1,260 1,938 3,528
Interest
income/(expense)....... (3) 41 (138) (649) 145 (1,303)(6) (1,907)
------ ------- ------- ------- ------- ------- --------
Income before income
taxes.................. 239 1,067 146 (1,871) 1,405 635 1,621
Income taxes............ -- 10 4 (214) 15 951 (7) 766
------ ------- ------- ------- ------- ------- --------
Income before
extraordinary loss ... $ 239 $ 1,057 $ 142 $(1,657) $ 1,390 $ (316) $ 855
====== ======= ======= ======= ======= ======= ========
EBITDA.................. $ 288 $ 1,043 $ 319 $ (443) $ 1,296 $ 2,158 $ 4,661
--------
(1) As part of the acquisition of the Manufacturers Consolidation Service
companies in December 1998, Pacer Logistics elected to exit such
companies' over the road trucking business. The divestiture of this
business was completed in February 1999. Over the road trucking gross
revenues, cost of purchased transportation and services, selling,
general and administrative expenses, interest expense, income taxes and
EBITDA of $8,365, $7,644, $1,249, $105, $247 and $82, respectively,
have been appropriately excluded from the Manufacturers Consolidation
Service companies results of operations presented.
(2) Reflects the elimination of $464 in intercompany revenues and costs
between Pacer Logistics and Intraco.
(3) As part of the acquisition of the Manufacturers Consolidation Service
companies in December 1998, Pacer Logistics initiated a plan of
employee reductions which were made in February, 1999, resulting
41
in the elimination of salaries and benefits of $900 annually in
connection with the employees subject to the reductions.
(4) As part of the acquisitions of Intraco, the Cross Con companies, the
Manufacturers Consolidation Service companies and the Keystone
companies in April, June and December 1998 and April 1999,
respectively, the former owners' annual salaries and benefits were
contractually reduced by $7, $18, $786 and $893, respectively,
aggregating $1,704.
(5) Reflects the elimination of historical goodwill amortization for
completed 1998 and 1999 acquisitions of $80 and recognition of goodwill
amortization, as if the completed 1998 and 1999 acquisitions had
occurred on January 1, 1998, of $746, resulting in a net adjustment of
$666.
(6) Reflects the elimination of historical interest expense relating to
assumed debt paid off at the closing of the acquisition of $576 and
recognition of interest expense that Pacer Logistics would have
incurred had the completed 1998 and 1999 acquisitions occurred on
January 1, 1998, based on Pacer Logistics' historical average interest
rate of 8.04% of $1,879, resulting in a net adjustment of $1,303.
(7) Reflects the adjustment to the provision for income taxes which Pacer
Logistics would have recorded (based on Pacer Logistics' tax rate) had
the completed 1998 and 1999 acquisitions occurred on January 1, 1998.
This adjustment includes an increase in the tax provision for Intraco,
the Cross Con companies and the Keystone companies, which were
previously taxed as Subchapter S corporations.
(d) Reflects the following:
Fiscal Year Ended Three Months Twelve Months
December 25, Ended April 2, Ended April 2,
1998 1999 1999
----------------- -------------- --------------
Intercompany revenues and
cost elimination on net
sales between Pacer In-
ternational and Pacer
Logistics............... $(24,376) $(6,544) $(26,609)
Management fee to be
charged to APL Limited
for services rendered in
connection with the
Stacktrain Services
Agreement............... 6,600 1,650 6,600
-------- ------- --------
$(17,776) $(4,894) $(20,009)
======== ======= ========
(e) As an integral part of the Pacer International acquisition of Pacer
Logistics, Pacer International has reached an agreement with a third-party
transportation provider, which effectively provides Pacer International
with $8,000 in annual rate reductions or a $2,000 quarterly reduction.
These amounts, together with the elimination of intercompany costs
discussed in Note (d) above, results in adjustments to cost of purchased
transportation and services of $32,376, $8,544 and $34,609 for the fiscal
year ended December 25, 1998, the three months ended April 2, 1999 and the
twelve months ended April 2, 1999, respectively.
(f) Reflects the adjustment to lease expense and depreciation as a result of
the sale and leaseback transaction completed in connection with our
recapitalization and the Pacer Logistics transaction:
Twelve Months
Fiscal Year Ended Three Months Ended
December 25, Ended April 2, April 2,
1998 1999 1999
----------------- -------------- -------------
Elimination of historical
railcar depreciation
expense.................... $ (973) $(358) $(1,269)
Lease expense associated
with the sale and leaseback
transaction................ 3,500 875 3,500
------ ----- -------
$2,527 $ 517 $ 2,231
====== ===== =======
42
(g) Reflects the following:
Fiscal Year Ended Three Months Twelve Months
December 25, Ended April 2, Ended April 2,
1998 1999 1999
----------------- -------------- --------------
Elimination of historical
information technology
expenses allocated to
Pacer International by APL
Limited................... $(7,300) $(2,000) $(7,300)
Cost to outsource
information technology
services in accordance
with the Information
Technology Outsourcing and
License Agreement......... 10,000 2,500 10,000
------- ------- -------
$ 2,700 $ 500 $ 2,700
======= ======= =======
Incremental management fee
charged to Pacer
International by Apollo
Management in accordance
with the new management
agreement................. $ 375 $ 94 $ 375
======= ======= =======
(h) Reflects the following:
Elimination of Pacer
Logistics historical
goodwill amortization..... $(1,334) $ (474) $(1,590)
Elimination of Pacer
Logistics 1998 and 1999
completed acquisition
goodwill amortization..... (746) (54) (493)
Estimated goodwill
amortization as if the
Pacer Logistics
acquisition had occurred
on January 1, 1998,
amortized over forty years
.......................... 3,096 774 3,096
------- ------- -------
$ 1,016 $ 246 $ 1,013
======= ======= =======
(i) Reflects the following:
Elimination of historical
Pacer Logistics interest
expense and the
amortization of debt
issuance costs related to
debt to be repaid in
connection with the Pacer
Logistics transaction..... $(2,867) $(1,126) $(3,427)
Elimination of pro forma
Pacer Logistics interest
expense................... (1,879) (168) (1,412)
Interest expense resulting
from our $135 million term
loan at an assumed
interest rate of 8%....... 10,800 2,700 10,800
Interest expense resulting
from the $150 million
notes at an interest rate
of 11 3/4%................ 17,625 4,406 17,625
Amortization of debt
issuance costs of $8.2
million associated with
our senior credit
facilities and the notes
over the life of the
related debt.............. 1,650 413 1,650
------- ------- -------
$25,329 $ 6,225 $25,236
======= ======= =======
(j) Reflects the following:
(k) Reflects the adjustment to the provision for income taxes which Pacer
International would have recorded (based on Pacer International's tax rate)
had the transactions occurred on January 1, 1998. Note that Pacer
International's income taxes payable will be offset by the $85,000 deferred
tax asset arising as a result of the Section 338(h)(10) election. This will
reduce cash payments for income taxes over the next fifteen years.
43
(l) In connection with our recapitalization and the Pacer Logistics
transaction, certain members of management received Pacer Logistics
Exchangeable Preferred Stock calling for an annual 7.5% paid-in-kind
dividend. The amount represents the annual dividend, based on preferred
stock value of Pacer Logistics of $24,300 at 7.5%. Amount for the three
months ended April 2, 1999 represents one fourth of the annual charge.
(m) EBITDA represents income before income taxes, interest expense,
depreciation and amortization and minority interest (payment-in-kind
dividends on Pacer Logistics 7.5% Exchangeable Preferred Stock). EBITDA is
presented because it is commonly used by certain investors to analyze and
compare operating performance and to determine a company's ability to
service and/or incur debt. However, EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. Pro
forma EBITDA is calculated as follows:
Fiscal Year Ended Three Months Twelve Months
December 25, Ended April 2, Ended April 2,
1998 1999 1999
----------------- -------------- --------------
Pacer International
historical EBITDA......... $39,800 $ 9,400 $42,000
Pacer Logistics historical
EBITDA.................... 12,356 4,460 14,091
Pacer Logistics completed
1998 and 1999 acquisitions
EBITDA.................... 4,661 444 2,937
EBITDA associated with Pro
forma Adjustments......... 8,025 2,181 8,025
------- ------- -------
Pacer International Pro
forma EBITDA.............. $64,842 $16,485 $67,053
======= ======= =======
(n) Adjusted EBITDA represents pro forma EBITDA, adjusted as follows:
Fiscal Year Ended Three Months Twelve Months
December 25, Ended April 2, Ended April 2,
1998 1999 1999
----------------- -------------- --------------
Pro forma EBITDA........... $64,842 $16,485 $67,053
Adjustments to pro forma
EBITDA:
Elimination of allocated
corporate costs, less
estimated stand alone
costs (1)............... 2,915 904 3,015
Elimination of historical
Pacer Logistics initial
public offering
costs (2)............... 1,500 -- 1,500
Elimination of historical
Manufacturers
Consolidation Service,
Inc. initial public
offering costs (3)...... 625 -- 625
------- ------- -------
Adjusted EBITDA............ $69,882 $17,389 $72,193
======= ======= =======
--------
(1) Reflects the elimination of historical corporate overhead costs
allocated to Pacer International by APL Limited, less $2,785 of
estimated annual actual costs expected to be incurred by Pacer
International to perform the services as a stand alone entity. The
estimated annual stand alone costs consists of salaries and benefits of
$1,650, outside services and consulting of $650 and additional rent of
$485.
(2) Pacer Logistics incurred non-recurring costs related to an expected
initial public offering in 1998.
(3) Manufacturers Consolidation Service is a wholly owned subsidiary of
Pacer Logistics. Manufacturers Consolidation Service incurred $625 of
non-recurring costs related to an expected initial public offering
prior to its acquisition by Pacer Logistics in 1998.
44
(o) On April 20, 1999, Pacer Logistics acquired certain assets of the Keystone
companies and as part of the acquisition of the Manufacturers Consolidation
Service companies in December 1998, Pacer Logistics initiated a plan of
employee reductions resulting in annual cost savings of $900. To reflect
the pro forma effect of this acquisition and cost reductions on Pacer
Logistics' operations, the schedule below presents the unaudited historical
statement of operations of the Keystone companies, for the three month
period ended April 2, 1999, along with applicable pro forma adjustments for
the Keystone Terminals acquisition and the impact of cost savings from the
Manufacturers Consolidation Service companies' employee reductions.
Completed
Pro Forma 1999
Keystone Adjustments Acquisition
-------- ----------- -----------
Gross revenues........................ $5,297 $5,297
Cost of revenues...................... 4,556 4,556
------ ----- ------
Net revenues........................ 741 -- 741
Operating expenses:
Selling, general and administrative
expenses........................... 455 $(153)(1)(2) 302
Amortization........................ -- 54 (3) 54
------ ----- ------
Total operating expenses.............. 455 (99) 356
------ ----- ------
Income from operations.............. 286 99 385
Interest income/(expense)............. 44 (168)(4) (124)
------ ----- ------
Income before income taxes.......... 330 (69) 261
Income taxes.......................... -- 107 (5) 107
------ ----- ------
Income before extraordinary loss.... $ 330 $(176) $ 154
====== ===== ======
EBITDA................................ $ 291 $ 444
--------
(1) As part of the Keystone Terminals acquisition in April 1999 the former
owners' salaries and benefits of $78 were eliminated. The adjustment
represents the elimination of the former owners' salary and benefits.
(2) The adjustment represents the elimination of Manufacturers
Consolidation Service salaries and benefits of $75 representing one
month of the $900 annual cost savings not included in historical
results, as the reductions were made in February 1999.
(3) Reflects the following:
Three Months
Ended April 2,
1999
--------------
Goodwill amortization if the Keystone Terminals acquisition
occurred on January 1, 1999............................... $ 54
(4) Reflects the following:
Interest expense that Pacer Logistics would have incurred
had the Keystone Terminals acquisition occurred on January
1, 1999, based on Pacer Logistics' historical average
interest rate of 8.16% for the three month period ending
April 2, 1999............................................. $168
(5) Reflects the adjustment to the provision for income taxes which Pacer
Logistics would have recorded (based on Pacer Logistics' tax rate) had
the completed 1998 and 1999 acquisitions occurred on January 1, 1998
and includes an increase in tax provision for the Keystone companies,
which were previously taxed as Subchapter S corporations.
45
(p) During 1998, Pacer Logistics acquired Intraco, the Cross Con companies,
Professional Logistics and the Manufacturers Consolidation Service
companies and during 1999, Pacer Logistics acquired the Keystone companies.
The schedule below presents the unaudited historical combined results of
operations of the acquired businesses for the periods from April 1, 1998
until their respective acquisitions by Pacer Logistics. Specifically,
Intraco, the Cross Con companies, Professional Logistics, the Manufacturers
Consolidation Service companies were acquired on April 3, 1998, June 6,
1998, July 26, 1998, December 10, 1998, respectively, and the Keystone
companies on April 20, 1999. (The pro forma results of Intraco for the
first two days of April were not included in the schedule below as they
were not deemed material for presentation.)
Completed
Cross Professional Pro Forma 1998 & 1999
Con Logistics MCS(1) Keystone Adjustments Acquisitions
------- ------------ -------- -------- ----------- ------------
Gross revenues.......... $10,258 $5,986 $ 70,674 $23,991 $ -- $110,909
Cost of purchased
transportation
and services........... 9,105 4,352 62,904 20,404 96,765
------- ------ -------- ------- ------- --------
Net revenues........... 1,153 1,634 7,770 3,587 -- 14,144
Operating expenses:
Direct operating
expenses.............. -- -- -- -- -- --
Selling, general and
administrative
expenses.............. 720 1,408 8,479 2,294 (2,084)(2)(3) 10,817
Amortization........... -- -- 65 -- 428 (4) 493
Other income expenses.. -- -- -- -- -- --
Transaction costs...... -- -- 625 -- -- 625
------- ------ -------- ------- ------- --------
Total operating
expenses............... 720 1,408 9,169 2,294 (1,656) 11,935
------- ------ -------- ------- ------- --------
Income from
operations............ 433 226 (1,399) 1,293 1,656 2,209
Interest
income/(expense)....... 13 (93) (549) 160 (938)(5) (1,407)
------- ------ -------- ------- ------- --------
Income before income
taxes................. 446 133 (1,948) 1,453 718 802
Income taxes ........... -- 2 (732) -- 1,116 (6) 386
------- ------ -------- ------- ------- --------
Income before
extraordinary loss.... $ 446 $ 131 $ (1,216) $ 1,453 $ (398) $ 416
======= ====== ======== ======= ======= ========
EBITDA.................. $ 442 $ 245 $ (805) $ 1,329 $ 1,726 $ 2,937
--------
(1) As part of the acquisition of the Manufacturers Consolidation Service
companies in December 1998, Pacer Logistics elected to exit such
Manufacturers Consolidation Service companies' over the road trucking
business. The divestiture of this business segment was completed in
February 1999. Over the road trucking gross revenues, cost of purchased
transportation and services, selling, general and administrative
expenses, interest expense, income taxes and EBITDA of $6,082, $5,434,
$882, $84, $124 and $124, respectively, have been appropriately
excluded from the Manufacturers Consolidation Services companies'
results of operations presented.
(2) As part of the acquisition of the Manufacturers Consolidation Service
companies' in December 1998, Pacer Logistics initiated a plan of
employee reductions, resulting in annual cost savings of $900. The
reductions were made effective February 1999 and the $744 adjustment
reflects the 10 months of cost savings not recognized in the historical
statement of operations.
(3) As part of the acquisitions of the Cross Con companies, the
Manufacturers Consolidation Service companies' and the Keystone
companies acquisitions in June and December 1998 and April 1999,
respectively, the former owners' annual salaries and benefits were
reduced by $7, $596 and $737, respectively, aggregating $1,340.
(4) Reflects the elimination of historical goodwill amortization included
in completed 1998 and 1999 acquisition financial statements of $65 and
goodwill amortization, as if the completed 1998 and 1999 acquisitions
had occurred on April 1, 1998, of $493. This results in a net
adjustment of $428.
(5) Reflects the elimination of historical interest expense relating to
assumed debt paid off at the closing of the acquisitions of $474 and
interest expense that Pacer Logistics would have incurred had the
completed 1998 and 1999 acquisitions occurred on April 1, 1998 based on
Pacer Logistics' historical average interest rate of 8.07% for the
twelve month period ended March 31, 1999 of $1,412. This results in a
net adjustment of $938.
(6) Reflects the adjustment to the provision for income taxes which Pacer
Logistics would have recorded (based on Pacer Logistics' tax rate) had
the completed 1998 and 1999 acquisitions occurred on April 1, 1998. The
adjustment includes an increase in the tax provision for the Cross Con
companies and the Keystone companies, which were previously taxed as
Subchapter S Corporations.
46
(q) For uniformity of presentation, certain financial statement captions have
been retitled and certain amounts reclassified to conform with retitled
financial statement captions.
Pacer Logistics, Inc.
------------------------------
Three Twelve
Fiscal Months Months
Year Ended Ended Ended
December March 31, March 31,
25, 1998 1999 1999
---------- --------- ---------
Direct operating expenses:
Reclassified depreciation from depreciation
and amortization............................. $ 329 $ 103 $ 385
======= ======= =======
Selling, general and administrative expenses:
Selling, general and administrative expenses
from historical information.................. $27,684 $10,268 $32,318
Reclassified depreciation from depreciation
and amortization............................. 370 187 481
------- ------- -------
$28,054 $10,455 $32,799
======= ======= =======
Amortization:
Depreciation and amortization from historical
financial information........................ $ 2,033 $ 764 $ 2,456
Less: Reclassified depreciation to direct
operating expenses........................... (329) (103) (385)
Less: Reclassified depreciation to selling,
general and administrative expenses.......... (370) (187) (481)
------- ------- -------
$ 1,334 $ 474 $ 1,590
======= ======= =======
47
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Pacer International, Inc.
The following table presents, as of the dates and for the periods indicated,
(1) selected historical financial information and (2) selected pro forma
consolidated financial information, in each case after giving effect to our
recapitalization and the Pacer Logistics transaction. The selected historical
data for the fiscal years ended December 25, 1998 and December 27, 1996 and the
periods from December 28, 1996 to November 12, 1997 and November 13, 1997 to
December 26, 1997 have been derived from, and should be read in conjunction
with, the audited financial statements (including the notes thereto) of Pacer
International appearing elsewhere in this prospectus.
Prior to November 1998, Pacer International operated as the American
President Lines Stacktrain Services division of APL Land Transport Services,
Inc. (See Note 1 to the audited financial statements referred to above.) These
historical financial statements subsequent to November 13, 1997 include the
push down effect of the purchase price allocation resulting from the purchase
of APL Limited by Neptune Orient Lines Limited. The results of operations of
the predecessor period are not comparable to the successor period as a result
of the acquisition of APL Limited by Neptune Orient Lines Limited.
The selected historical financial data as of April 2, 1999 and for the three
months ended April 3, 1998 and April 2, 1999 have been derived from Pacer
International's unaudited financial statements and include, in the opinion of
our management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the data for such periods. The
unaudited pro forma balance sheet data reflects the financial position of our
business as if our recapitalization and the Pacer Logistics transaction, using
the purchase method of accounting for the Pacer Logistics transaction, had
occurred as of April 2, 1999. The unaudited pro forma statement of operations
and related information reflects our recapitalization and the Pacer Logistics
transaction as if they had occurred at the beginning of the relevant period.
The pro forma adjustments were applied to the historical financial statements
to reflect and account for our recapitalization and the Pacer Logistics
transaction as such and, accordingly, do not affect the historical basis of our
assets and liabilities.
The pro forma financial information does not purport to represent what our
financial position or results of operations would have actually been had our
recapitalization and the Pacer Logistics transaction in fact occurred on the
assumed dates or to project our financial position or results of operations for
any future date or period. The following table should also be read in
conjunction with "Unaudited Pro Forma Consolidated Financial Information" and
the related notes thereto and "Management's Discussion and Analysis of
Financial Conditions and Results of Operations."
48
The Predecessor (a)
-------------------------
For the
Fiscal
Year For the
Ended PerThe Companyiod Pro Forma Pacer International
------------------------------------------------- ------------------------------------
(in millions, except ratios and statistical data)
For the For the For the
Fiscal For the Three Twelve
For the Year For The Three Fiscal Year Months Months
Period Ended Months Ended Ended Ended Ended
------------ ------------ ----------------------- ------------ ----------- -----------
December 28,
1996 to
December 27, November 12,
1996 1997(b)
------------ ------------
Statement of
Operations
Data(c):
Gross revenues.. $548.0 $517.1
Cost of
purchased
transportation
and services... 423.7 407.5
Net revenues.... 124.3 109.6
Direct operating
expenses....... 37.4 49.4
Selling, general
and
administrative
expenses....... 25.6 24.0
Income from
operations..... 61.5 38.8
Income before
extraordinary
loss........... 38.1 22.9
Other Financial
Data:
EBITDA(d)....... $ 65.6 $ 41.8
EBITDA
margin(e)...... 52.8% 38.1%
Adjusted
EBITDA(f)......
Adjusted EBITDA
margin(e)......
Depreciation ... $ 4.1 $ 3.0
Amortization.... -- --
Capital
Expenditures(g).. 0.2 --
Cash interest
expense(h)..... -- 2.0
Debt to Adjusted
EBITDA.........
Adjusted EBITDA
to cash
interest
expense........
Ratio of
earnings to
fixed
charges(i)..... 6.2x 3.6x
Balance Sheet
Data (at period
end):
Total
assets(j)...... $ 71.4 --
Total debt
including
capital
leases......... -- --
Minority
interest-
exchangeable
preferred
stock.......... -- --
November 13,
1997 to
December 26, December 25, April 3, April 2, December 25, April 2, April 2,
1997(b) 1998 1998 1999 1998 1999 1999
------------ ------------ ----------- ----------- ------------ ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Statement of
Operations
Data(c):
Gross revenues.. $ 60.0 $590.8 $150.2 $163.6 $981.6 $253.9 $987.4
Cost of
purchased
transportation
and services... 47.4 466.3 119.6 129.8 780.4 201.0 783.0
Net revenues.... 12.6 124.5 30.6 33.8 201.2 52.9 204.4
Direct operating
expenses....... 7.4 62.4 17.2 18.1 65.3 18.7 65.9
Selling, general
and
administrative
expenses....... 3.2 29.0 7.8 8.0 75.8 19.4 75.9
Income from
operations..... 2.0 33.2 5.5 7.6 55.0 14.0 57.4
Income before
extraordinary
loss........... 1.0 20.6 3.5 4.8 13.3 3.5 14.8
Other Financial
Data:
EBITDA(d)....... $ 2.7 $ 39.8 $ 7.2 $ 9.4 $ 64.8 $ 16.5 $ 67.1
EBITDA
margin(e)...... 21.4% 32.0% 23.5% 27.8% 32.2% 31.2% 32.8%
Adjusted
EBITDA(f)...... $ 69.9 $ 17.4 $ 72.2
Adjusted EBITDA
margin(e)...... 34.7% 32.9% 35.3%
Depreciation ... $ 0.7 $ 6.0 $ 1.7 $ 1.7 $ 6.1 $ 1.6 $ 5.9
Amortization.... -- 0.6 0.1 0.1 3.7 0.9 3.7
Capital
Expenditures(g).. -- 39.7 16.3 -- 1.7 0.4 1.7
Cash interest
expense(h)..... 0.3 -- -- -- 28.5 7.1 28.4
Debt to Adjusted
EBITDA......... 3.9x
Adjusted EBITDA
to cash
interest
expense........ 2.5x 2.5x 2.5x
Ratio of
earnings to
fixed
charges(i)..... 1.8x 3.0x 2.3x 2.7x 1.5x 1.5x 1.5x
Balance Sheet
Data (at period
end):
Total
assets(j)...... $111.9 $156.1 $206.7 $170.7 $398.2 $398.2
Total debt
including
capital
leases......... -- -- -- -- 285.0 285.0
Minority
interest-
exchangeable
preferred
stock.......... -- -- -- -- 24.3 24.3
- --------
(a) The financial statements subsequent to November 13, 1997 include the
accounts of Pacer International and include the "push down" effect of the
purchase price allocation. Prior to November 12, 1997, the financial
statements include the accounts of the Stacktrain Services division of APL
Land Transport Services. The results of operations of the predecessor
period are not comparable to the successor period as a result of the
acquisition of APL Limited by Neptune Orient Lines Limited.
49
(b) The following information for the full year ended December 26, 1997 has
been presented for comparative purposes only and is the combination of the
December 28, 1996 to November 12, 1997 period (set forth below as the
Predecessor) and the November 13, 1997 to December 26, 1997 period (set
forth below as the Company). As a result of the change in ownership of
Pacer International, these numbers are not indicative of what the full year
1997 was or would have been if the change in ownership had not occurred.
1997
------
Gross revenues.................................................... $577.1
Cost of purchased transportation and services..................... 454.9
Net revenues...................................................... 122.2
Income from operations............................................ 40.8
Net income........................................................ 23.9
EBITDA(d)......................................................... 44.5
EBITDA margin(e).................................................. 36.4%
(c) For uniformity of presentation, certain financial statement captions have
been retitled and certain amounts reclassified to conform with retitled
financial statement captions. Set forth below is a reconciliation of the
information in the selected historical consolidated financial information
to the amounts in the historical financial statements.
The Predecessor The Company
------------------------- ----------------------------------------------------------
For the For the
Fiscal Fiscal
Year For the For the Year For the Three
Ended Period Period Ended Months Ended
------------ ------------ ------------ --------------------- -----------------------
December 28, November 13,
1996 to 1997 to
December 27, November 12, December 26, December 25, April 3, April 2,
1996 1997 1997 1997(b) 1998 1998 1999
------------ ------------ ------------ ------- ------------ ----------- -----------
(unaudited) (unaudited)
(in millions)
Gross revenues:
Freight revenue........ $526.6 $498.4 $57.7 $556.1 $566.1 $143.9 $156.9
Avoided repositioning.. 15.7 15.8 1.9 17.7 20.0 5.0 5.5
Other revenue.......... 5.7 2.9 0.4 3.3 4.7 1.3 1.2
------ ------ ----- ------ ------ ------ ------
548.0 517.1 60.0 577.1 590.8 150.2 163.6
Cost of purchased
transportation and
services:
Rail linehaul.......... 401.3 383.7 43.8 427.5 438.1 113.5 122.1
Trucks & other......... 7.2 10.1 1.2 11.3 11.0 2.7 3.1
Empty repositioning.... 13.2 11.0 2.0 13.0 13.2 2.3 3.6
Terminal and cargo
handling, variable.... 2.0 2.7 0.4 3.1 4.0 1.1 1.0
------ ------ ----- ------ ------ ------ ------
423.7 407.5 47.4 454.9 466.3 119.6 129.8
------ ------ ----- ------ ------ ------ ------
Net revenues............ 124.3 109.6 12.6 122.2 124.5 30.6 33.8
Direct operating
expenses:
Terminal and cargo
handling, fixed....... 0.6 1.5 0.3 1.8 1.7 0.4 0.5
Equipment maintenance
and repair............ 15.1 14.6 1.8 16.4 18.3 4.8 5.2
Other variable
(income)/expense...... (16.7) (6.7) (0.7) (7.4) (13.1) (2.9) (2.6)
Fixed equipment
Rail cars.............. 3.4 3.3 0.5 3.8 6.5 2.0 1.4
Containers/chassis..... 31.6 33.5 4.9 38.4 44.9 11.6 12.7
Other.................. 3.4 3.2 0.6 3.8 4.1 1.3 0.9
------ ------ ----- ------ ------ ------ ------
37.4 49.4 7.4 56.8 62.4 17.2 18.1
Selling, general and
administrative
expenses:
Direct expenses........ 15.2 13.0 1.8 14.8 15.7 4.2 4.3
Other overhead......... 0.1 0.1 -- 0.1 0.9 0.2 0.2
Corporate
headquarters.......... 6.1 4.2 0.5 4.7 5.7 1.5 1.6
IT systems............. 4.2 6.7 0.9 7.6 7.3 2.0 2.0
Less reclassification
to amortization....... -- -- -- -- (0.6) (0.1) (0.1)
------ ------ ----- ------ ------ ------ ------
25.6 24.0 3.2 27.2 29.0 7.8 8.0
Amortization............ -- -- -- -- 0.6 0.1 0.1
Other (income)/expense.. (0.2) (2.6) -- (2.6) (0.7) -- --
------ ------ ----- ------ ------ ------ ------
Income from
operations........... 61.5 38.8 2.0 40.8 33.2 5.5 7.6
Interest
income/(expense)....... -- (2.0) (0.3) (2.3) -- -- --
------ ------ ----- ------ ------ ------ ------
Income before income
taxes................ 61.5 36.8 1.7 38.5 33.2 5.5 7.6
Income taxes(1)......... (23.4) (13.9) (0.7) (14.6) (12.6) (2.0) (2.8)
------ ------ ----- ------ ------ ------ ------
Net income............ $ 38.1 $ 22.9 $ 1.0 $ 23.9 $ 20.6 $ 3.5 $ 4.8
====== ====== ===== ====== ====== ====== ======
50
- --------
(1) Historically, Pacer International's operating results were included in
the consolidated incomes tax returns of APL Limited. A charge in lieu of
income taxes has been provided as if Pacer International were a separate
taxpayer.
(d) EBITDA represents income before income taxes, interest expense,
depreciation and amortization and minority interest (payment-in-kind
dividends on Pacer Logistics 7.5% Exchangeable Preferred Stock). EBITDA is
presented because it is commonly used by certain investors to analyze and
compare operating performance and to determine a company's ability to
service and/or incur debt. However, EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(e) EBITDA and Adjusted EBITDA margins are calculated as a percentage of net
revenues.
(f) Adjusted EBITDA represents pro forma EBITDA, adjusted as follows:
Year Ended Three Months Twelve Months
December 31, Ended April 2, Ended April 2,
1998 1999 1999
------------ -------------- --------------
Pro forma EBITDA................ $64,842 $16,485 $67,053
Adjustments to pro forma EBITDA:
Elimination of allocated
corporate costs, less
estimated stand alone
costs(1)...................... 2,915 904 3,015
Elimination of historical Pacer
Logistics initial public
offering costs(2)............. 1,500 -- 1,500
Elimination of historical
Manufacturers Consolidation
Service, Inc. initial public
offering costs(3)............. 625 -- 625
------- ------- -------
Adjusted EBITDA................. $69,882 $17,389 $72,193
======= ======= =======
--------
(1) Reflects the elimination of historical corporate overhead costs
allocated to Pacer International by APL Limited, less $2,785 of
estimated actual costs expected to be incurred by Pacer International
to perform the services as a stand alone entity. The estimated annual
stand alone costs consists of salaries and benefits of $1,650, outside
services and consulting fees of $650 and additional rent of $485.
(2) Pacer Logistics incurred $1,500 of non-recurring costs related to an
expected initial public offering in 1998.
(3) Manufacturers Consolidation Service is a wholly owned subsidiary of
Pacer Logistics. Manufacturers Consolidation Service, incurred $625 of
non-recurring costs related to an expected initial public offering
prior to its acquisition by Pacer Logistics in 1998.
(g) In 1998, Pacer International purchased $39.7 million of railroad cars of
which $23.4 million of expenditures were included in the twelve months
ended April 2, 1999. In connection with our recapitalization and the Pacer
Logistics transaction, we completed a sale and leaseback transaction for
these railcars. Therefore, on a pro forma basis, the capital expenditure
related to these railcars has been eliminated and direct operating expenses
has been increased by $2.5 million and $2.2 million for the year ended
December 25, 1998 and the twelve months ended April 2, 1999, respectively,
to reflect the net impact on operating results of the additional lease
expense less historical depreciation on these railcars.
(h) Cash interest expense represents interest expense less amortization of debt
issuance costs.
(i) For purposes of the computation, the ratio of earnings to fixed charges has
been calculated by dividing (i) income before income taxes plus fixed
charges by (ii) fixed charges. Fixed charges are defined as interest
expense plus the estimated interest portion of rent expense (assumed to be
one-third of rent expense).
(j) Total assets at April 3, 1998 were significantly higher as compared to
December 25, 1998 and April 2, 1999 due to the timing of settlement of an
intercompany receivable with APL Limited.
51
Pacer Logistics, Inc.
The following table presents as of the dates and for the periods indicated
(i) selected historical consolidated financial information and (ii) summary pro
forma consolidated financial information, in each case after giving effect to
our recapitalization and the Pacer Logistics transaction. The selected
historical data for the years ended December 31, 1998, 1996, 1995 and the
periods January 1, 1997 to March 31, 1997 and March 31, 1997 to December 31,
1997 have been derived from and should be read in conjunction with, the audited
financial statements (including the notes thereto) of Pacer Logistics appearing
in this prospectus.
The financial data as of December 31, 1995 and 1994 and March 31, 1999 and
for the year ended December 31, 1994 and for the three months ended March 31,
1999 and 1998 have been derived from Pacer Logistics' unaudited financial
statements and include, in the opinion of our management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the data for such periods. The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of the results that can be
expected for the entire year. Prior to March 31, 1997, Pacer Logistics was an
operating division of the Union Pacific Railroad Company, and therefore is not
comparable in all respects to the periods subsequent to March 31, 1997.
The unaudited pro forma statement of operations and related information
reflects our recapitalization and the Pacer Logistics transaction as if they
had occurred at the beginning of the relevant period and excludes certain
nonrecurring items directly attributable to our recapitalization and the Pacer
Logistics transaction. The pro forma adjustments were applied to the historical
financial statements to reflect and account for our recapitalization and the
Pacer Logistics transaction. The pro forma financial information does not
purport to represent what Pacer Logistics' financial position or results of
operations would have actually been had our recapitalization and the Pacer
Logistics transaction in fact occurred on the assumed dates or to project Pacer
Logistics' financial position or results of operations for any future date or
period. The following table should also be read in conjunction with "Unaudited
Pro Forma Consolidated Financial Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Pacer Logistics Historical
----------------------------------------------------------------------------------
The Predecessor (a) The Company (a)
------------------------------------ ---------------------------------------------
Pro Forma (b)
------------------------------------
For the For the
For the Fiscal Years Period Period For the For the Three
Ended January 1, March 31, Fiscal Months Ended
------------------------ 1997 to 1997 to Year -----------------------
March 31, December 31, Ended March 31, March 31,
1994 1995 1996 1997 1997 1998 1998 1999
----------- ----- ----- ---------- ------------ ------- ----------- -----------
(unaudited) (unaudited) (unaudited)
(in millions, except ratios and statistical
data)
Statement of
Operations
Data (c):
Gross revenues.. $75.9 $78.3 $86.8 $19.5 $81.1 $252.8 $50.4 $ 89.9
Cost of
purchased
transportation
and services... 64.8 65.9 73.1 16.5 68.7 211.2 42.0 75.2
Net revenues.... 11.1 12.4 13.7 3.0 12.4 41.5 8.4 14.7
Income from
operations..... 3.7 3.6 3.5 0.2 3.2 10.3 2.4 3.7
Income before
extraordinary
loss........... 2.7 3.0 3.0 0.1 1.5 4.3 1.1 1.5
Other Financial
Data:
EBITDA (d)...... $ 3.9 $ 3.7 $ 3.6 $ 0.2 $ 3.6 $ 12.4 $ 2.7 $ 4.5
EBITDA margin
(e)............ 35.1% 29.8% 26.3% 6.7% 29.0% 29.9% 32.1% 30.6%
Adjusted EBITDA
(f)............
Adjusted EBITDA
margin (e).....
Depreciation.... $ 0.2 $ 0.1 $ 0.1 -- $ 0.1 $ 0.7 $ 0.1 $ 0.3
Amortization.... -- -- -- -- 0.3 1.3 0.2 0.5
Capital
expenditures... -- -- 0.2 0.1 0.4 1.7 0.4 0.4
Interest
expense........ -- -- -- -- 0.7 2.9 0.6 1.1
Adjusted EBITDA
to interest
expense........
Balance Sheet
Data
(at period
end):
Total assets
(g)............ $31.6 $32.3 $37.6 $11.4 $57.1 $113.9 $56.1 $111.1
Total debt and
capital
leases......... -- -- -- -- 26.9 53.3 24.6 50.4
For the For the
For the Three Twelve
Fiscal Year Months Months
Ended Ended Ended
------------ ----------- -----------
December 31, March 31, March 31,
1998 1999 1999
------------ ----------- -----------
(unaudited) (unaudited) (unaudited)
Statement of
Operations
Data (c):
Gross revenues.. $408.6 $95.2 $403.2
Cost of
purchased
transportation
and services... 346.5 79.7 341.1
Net revenues.... 62.1 15.5 62.1
Income from
operations..... 13.9 4.1 13.8
Income before
extraordinary
loss........... 5.1 1.6 5.1
Other Financial
Data:
EBITDA (d)...... $ 17.0 $ 4.9 $ 17.0
EBITDA margin
(e)............ 27.4% 31.6% 27.4%
Adjusted EBITDA
(f)............ $ 19.1 $ 4.9 $ 19.1
Adjusted EBITDA
margin (e)..... 30.8% 31.6% 30.8%
Depreciation.... $ 1.1 $ 0.3 $ 1.1
Amortization.... 2.1 0.5 2.1
Capital
expenditures...
Interest
expense........ 4.8 1.3 4.8
Adjusted EBITDA
to interest
expense........ 4.0x 3.8x 4.0x
Balance Sheet
Data
(at period
end):
Total assets
(g)............
Total debt and
capital
leases.........
52
- -------
(a) The information set forth above as the Predecessor includes the accounts
of Pacific Motor Transport Company prior to the management buyout on March
31, 1997. Pacer Logistics includes the accounts of Pacific Motor Transport
Company acquired in the management buyout, after purchase accounting
adjustments, and the accounts of all acquisitions Pacer Logistics has made
subsequent to their acquisition date.
(b) The pro forma information gives effect to the acquisitions as if they were
completed on the first day of the periods presented. See "Unaudited
Consolidated Pro Forma Financial Information."
(c) The following information for the full year 1997 has been presented for
comparative purposes only and is the combination of the January 1, 1997 to
March 31, 1997 period and the March 31, 1997 to December 31, 1997 period.
As a result of the change in ownership of Pacer Logistics, these numbers
are not indicative of what the full year 1997 was or would have been, if
the changes in ownership had not occurred.
1997
------
Gross revenues........................ $100.6
Cost of purchased transportation and
services............................. 85.2
Net revenues.......................... 15.4
Income from operations................ 3.4
Income before extraordinary loss...... 1.6
EBITDA (d)............................ 3.8
EBITDA margin (e)..................... 24.7%
(d) EBITDA represents income before income taxes, interest expense,
depreciation and amortization and minority interest (payment-in-kind
dividends on Pacer Logistics 7.5% Exchangeable Preferred Stock). EBITDA is
presented because it is commonly used by certain investors to analyze and
compare operating performance and to determine a company's ability to
service and/or incur debt. However, EBITDA should not be considered in
isolation or as a substitute for net income, cash flows or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(e) EBITDA and Adjusted EBITDA margins are calculated as a percentage of net
revenues.
(f) Adjusted EBITDA represents pro forma EBITDA, adjusted as follows:
Three Twelve
Fiscal Year Months Months
Ended Ended Ended
December 31, March 31, March 31,
1998 1999 1999
------------ --------- ---------
Pro forma EBITDA.......................... $17.0 $4.9 $17.0
Adjustments to pro forma EBITDA:
Elimination of historical Pacer Logistics
initial public offering costs (1)....... 1.5 -- 1.5
Elimination of historical Manufacturers
Consolidation Service, Inc. initial
public offering costs (2)............... 0.6 -- 0.6
----- ---- -----
Adjusted EBITDA........................... $19.1 $4.9 $19.1
===== ==== =====
(1) Pacer Logistics incurred $1.5 million of non-recurring costs related
to an expected initial public offering in 1998.
(2) Manufacturers Consolidation Service is a wholly owned subsidiary of
Pacer Logistics. Manufacturers Consolidation Service incurred $0.6
million of non-recurring costs related to an expected initial public
offering prior to its acquisition by Pacer Logistics in 1998.
(g) The total assets of Pacer Logistics for the fiscal years ended 1994 and
1995 (prior to the change in ownership of Pacer Logistics) have been
derived from Pacer Logistics' unaudited consolidated financial statements.
53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations covers periods before the completion of our recapitalization and the
Pacer Logistics transaction. In connection with the recapitalization and the
Pacer Logistics transaction, we entered into financing arrangements and altered
our capital structure. The results of operations and financial condition for
the periods subsequent to the consummation of our recapitalization and the
Pacer Logistics transaction will not necessarily be comparable to prior
periods. The following should be read in conjunction with the "Unaudited Pro
Forma Consolidated Financial Information," "Selected Historical and Pro Forma
Consolidated Financial Information" and the audited financial statements and
notes thereto included elsewhere in this prospectus.
PACER INTERNATIONAL, INC.
Overview
Until November, 1998, APL Land Transport Services, Inc. was comprised of two
operating divisions: the Stacktrain Services Division and the Automotive
Division. Prior to May 1996, APL Land Transport Services, Inc. had a third
operating division, Distribution Services. Effective November 20, 1998, the
Automotive Division and remaining assets related to the 1996 sale of
Distribution Services were transferred to APL Limited. On November 12, 1997 APL
Limited was acquired by Neptune U.S.A., Inc., a Delaware corporation and an
indirect, wholly-owned subsidiary of Neptune Orient Lines Limited, a Singapore
corporation. In the acquisition, Neptune U.S.A., Inc. merged with and into APL
Limited. The resulting company, APL Limited, is a subsidiary of Neptune Orient
Lines Limited. The financial statements subsequent to November 12, 1997 include
the "push down' effect of the purchase price allocation. Prior to November 13,
1997, the financial statements include the accounts of the Stacktrain Services
division of APL Land Transport Services, Inc.
We are the largest provider of intermodal rail service in North America that
is not affiliated with a railroad company. We offer rail freight services by
selling intermodal service to shippers while buying space on intermodal rail
trains. Through long-term contracts and other operating arrangements with major
rail carriers and using our large fleet of leased and owned equipment, we have
access to a 50,000 mile North American rail network serving most major
population and commercial centers in the United States, Canada and Mexico. The
long-term operating arrangements with the rail carriers provide, among other
things, for favorable rates, guaranteed minimum service levels, priority
handling and the utilization of certain terminal facilities.
We directly market our stacktrain services primarily to intermodal marketers
which serve customers in various industries, including the automotive industry
and shippers of refrigerated freight. We also directly serve customers in the
ocean carrier industry. We provide rail transportation services to over 5,000
beneficial cargo owners. In addition, we have historically provided, and will
continue to provide, stacktrain and equipment repositioning services for
companies and operations that are affiliated with APL Limited.
The size of our equipment fleet, among other things, provides a significant
advantage in customer responsiveness and service reliability, which
distinguishes us from our competitors. We maintain an extensive fleet of owned
and leased railcars, containers and chassis, as follows:
December 27, 1996 December 26, 1997 December 25, 1998
----------------- ----------------- -----------------
Railcars.................. 372 364 559
Containers................ 13,270 17,917 19,737
Chassis................... 13,968 16,807 18,497
54
The fleet of containers presented above represent the 48 and 53 foot
containers and chassis intended specifically for the domestic market, which are
either owned or otherwise available to us through a combination of long- and
short-term leases. In addition, we have access to an extensive inventory of 20,
40 and 45 foot containers through a long-term container supply agreement with
APL Limited. In connection with our recapitalization, we entered into a long-
term sublet agreement with APL Limited giving us access to certain chassis to
be used in our ocean carrier market segment. We provide APL Limited with
equipment repositioning services through which we transport APL Limited's empty
containers from destinations within North America to their West Coast points of
origin. To the extent we are able to fill these empty containers with the
westbound freight of other stacktrain customers, we receive compensation from
both APL Limited for our repositioning service and from the other customers for
shipment of their freight. Reposition payments from APL Limited totaled $15.7
million, $17.7 million and $20.0 million in 1996, 1997 and 1998, respectively.
We expect to continue to increase the size of our domestic container fleet
through a mix of long- and short-term leases. In 1998, we purchased 200
railcars for $39.7 million. In connection with our recapitalization, we
completed a sale and leaseback transaction for all of the recently purchased
railcars. The pro forma impact from the additional lease expense resulting from
the sale and leaseback transaction is $3.5 million for the fiscal year ended
December 25, 1998, however, elimination of historical railcar depreciation
expense of $1.0 million for the same period partially offsets the additional
lease expense.
The overall freight rate environment in the rail and long haul truck
industry influences the freight rates we are able to charge customers. As a
user of the railroads' networks and facilities, our operating results and
quality of customer service are directly impacted by the service provided by
the railroads. The disruption of service in the U.S. railroad network beginning
in 1997 adversely impacted the levels of service we were able to provide to our
customers, as evidenced by the increase in average trip days of 16.0, 16.4 and
17.9 in 1996, 1997 and 1998, respectively. These operating issues resulted in
(1) the loss of certain premium business,
(2) price reductions on certain shipments to satisfy customer frustrations,
and
(3) less efficient utilization of our container fleet.
The loss of certain premium business, such as our expedited services and
refrigerated services negatively impacted both gross and net revenue as certain
shipments were shifted by customers to more costly, yet more reliable over-the-
road carriers. Despite the service disruption and delays, we were able to
continue to grow our volumes through this period. To minimize the disruption to
our customers, we added to our container fleet to ensure availability to
support increased volumes. Although volumes increased in 1997 by 41,680 or 9.1%
and in 1998 by 21,438 or 4.3%, the longer trip days negatively impacted
operating results as average revenue per container declined while lease expense
increased with the container fleet additions. The railroad service problems are
being resolved by the railroads and our management believes that the intermodal
industry will return to historical service levels, pricing and growth rates.
Prior to our recapitalization, we participated in APL Limited's cash
management plan through which our excess cash was advanced to APL Limited and
our cash needs were funded by APL Limited. In addition, APL Limited provided us
with information technology services for which we were allocated $4.2 million,
$7.6 million and $7.3 million of APL Limited's costs in 1996, 1997 and 1998,
respectively. We are in the process of negotiating a long-term agreement with
APL Limited to continue to provide similar information technology services to
us. According to a term sheet upon which such negotiations are based, the
information technology services would be provided to us for an annual fee of
$10.0 million. APL Limited also provided certain corporate administrative
services to us for which we were allocated $6.1 million, $4.7 million and $5.7
million of APL Limited's total corporate costs in 1996, 1997 and 1998,
respectively. We anticipate that the cost for similar administrative services
as a stand-alone entity will be approximately $2.8 million per year. We also
entered into an agreement with APL Limited to receive a $6.6 million management
fee for services in
55
connection with the Stracktrain Services Agreement. We have also agreed with
APL Limited that certain administrative services will continue to be provided
by APL Limited on a per transaction basis for a transition period, expiring one
year from the closing of our recapitalization or earlier as determined by us.
As part of our recapitalization and the Pacer Logistics transaction, we reached
an agreement with a supplier, which effectively provides us with $8.0 million
in annual rate reductions. The cost savings and additional cost and income
items discussed in the paragraph above, excluding the savings achieved from the
elimination of allocated corporate overhead costs, net of estimated stand-alone
costs, have been reflected in the unaudited pro forma consolidated statement of
operations.
Gross Revenues
Our gross revenues are generated substantially through fees charged to
customers for the transportation of freight. The growth of these revenues is
primarily driven by increases in volume of freight shipped, as overall rates
have historically remained relatively constant. The average rate is impacted by
product mix, rail lanes utilized and market conditions. Also included in gross
revenues are incentives paid by APL Limited for the repositioning of empty
containers with domestic westbound loads. Reposition incentives growth is
driven by the increase in APL Limited's shipping volumes from Asia to key
population centers in North America, as well as our ability to fill APL
Limited's empty containers with the westbound freight of other stacktrain
customers. In addition, we will receive an annual management fee of $6.6
million for services in connection the Stacktrain Services Agreement.
Cost of Purchased Transportation and Services/Net Revenues
Our net revenues are the gross revenues less the costs of purchased
transportation and services. The cost of purchased transportation and services
consists primarily of the amounts charged by railroads and local trucking
companies. In addition, terminal and cargo handling services represent the
variable expenses directly associated with handling freight at a terminal
location. The cost of these services is variable in nature and is based on the
volume of freight shipped.
Direct Operating Expenses
Direct operating expenses are both fixed and variable expenses directly
relating to the stacktrain operations and consist of equipment lease and
depreciation expense, equipment maintenance and repair, fixed terminal and
cargo handling expenses and other direct variable expenses. Our fleet of leased
equipment is maintained through a variety of short- and long-term leases, many
of which can be terminated without penalty in an economic downturn. Increases
to our equipment fleet will primarily be through additional leases as the
growth of our business dictates. Equipment maintenance and repair consist of
the costs related to the upkeep of the equipment fleet, which can be considered
semi-variable in nature, as a certain amount relates to the annual preventative
maintenance costs in addition to amounts driven by fleet usage. Fixed terminal
and cargo handling costs primarily relate to the fixed rent and storage expense
charged to us by terminal operators and is expected to remain relatively fixed.
Other variable expenses primarily include income received from users of our
railcars in their operations, which has historically remained relatively
constant. Historically, also included in other variable expenses are service
credits from for-hire transportation providers, which effectively reduce our
transportation costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of allocated APL
Limited's corporate and information technology expenses and direct
administrative expenses, which primarily include payroll and fringe benefits
and other overhead expenses. We estimate that our recurring annual cost for
similar corporate administrative services, historically provided by APL
Limited, will be $2.8 million on a stand-alone basis. In addition, we are in
the process of negotiating a twenty-year agreement requiring APL Limited to
continue to provide information technology services. See "Certain Agreements."
56
Results of Operations
The following table sets forth certain condensed historical financial data
for Pacer International, expressed as a percentage of net revenues for each of
the most recent fiscal years and for the two most recent fiscal first quarters.
Fiscal Year Fiscal Year Fiscal Year 3 Months 3 Months
Ended Ended Ended Ended Ended
December 27, December 26, December 25, April 3, April 2,
1996 1997(2) 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(in millions, except statistical data)
Gross revenues.......... $548.0 $577.1 $590.8 $150.2 $163.6
Cost of purchased
transportation and
services............... 423.7 454.9 466.3 119.6 129.8
------ ------ ------ ------ ------
Net revenues............ 124.3 100.0% 122.2 100.0% 124.5 100.0% 30.6 100.0% 33.8 100.0%
Expenses:
Direct operating
expenses.............. 37.4 30.1 56.8 46.5 62.4 50.1 17.2 56.2 18.1 53.6
Selling, general &
administrative
expenses.............. 25.6 20.6 27.2 22.3 29.0 23.3 7.8 25.5 8.0 23.7
Income from operations.. 61.5 49.5 40.8 33.4 33.2 26.7 5.5 18.0 7.6 22.5
Net income.............. 38.1 30.7 23.9 19.6 20.6 16.5 3.5 11.4 4.8 14.2
EBITDA(1)............... $ 65.6 52.8% $ 44.5 36.4% $ 39.8 32.0% $ 7.2 23.5% $ 9.4 27.8%
- --------
(1) See Note (b) in "Summary Unaudited Pro Forma Consolidated Financial
Information" for the definition of EBITDA.
(2) The fiscal year ended December 26, 1997 presented in the table above
represents the combination of the accounts of the Stacktrain Services
division of APL Land Transport Services, Inc. for the period from December
28, 1996 through November 12, 1997 and Pacer International from November
13, 1997 though December 26, 1997 and is presented only for comparative
purposes. The results of operations of the predecessor period are not
comparable to successor period as a result of the acquisition of APL
Limited by Neptune Orient Lines Limited. This combination of the two fiscal
periods is not necessarily indicative of what the results of Pacer
International's operations would have been for the year.
Three Months Ended April 2, 1999 Compared to the Three Months Ended April 3,
1998
Gross Revenues. Gross revenues increased $13.4 million, or 8.9%, from $150.2
million in first quarter 1998 to $163.6 million in first quarter 1999. Freight
revenues accounted for $13.0 million of this growth with a 14,997, or 11.4%,
increase in year over year volumes, partially offset by a slight decrease in
the average rate per container primarily resulting from mix changes. Third-
party domestic and third-party international business contributed to the growth
with revenue increases of $8.4 million and $3.5 million, respectively, as a
result of increased volumes of 10.9% and 20.4%, respectively. The increase in
third party domestic volume is attributable to increased customer demand and to
the improvement in the average trip days in February and March 1999 of 17.2
days and 17.1 days, respectively, compared to 17.5 days and 18.4 days for the
same periods in 1998. Refrigerated Services business revenues declined by $1.0
million, or 49.6%, as a result of the loss of a large customer to over-the-road
carriers. Reposition incentive revenues increased $0.5 million quarter over
quarter as a result of increased APL Limited shipping volume and the continued
trade imbalance.
Net Revenues. Net revenues increased $3.2 million, or 10.5%, to $33.8
million or 20.7% of gross revenues in the first quarter 1999 from $30.6 million
or 20.4% of gross revenues in first quarter 1998. The increase is primarily a
result of the increased volumes discussed above. The increase in net revenues
as a percentage of gross revenues is attributable to the third party domestic
business, which benefited from a favorable mix in business as compared to the
prior year quarter.
Direct Operating Expenses. Direct operating expenses increased $0.9 million,
or 5.2%, from $17.2 million in first quarter of 1998 to $18.1 million in first
quarter 1999. As a result of the expansion of our extensive fleet of containers
and chassis, lease expense increased by $1.1 million. This was offset by a
reduction in railcar depreciation expense of $0.6 million due to a change in
the estimated useful life of our railcars, in addition to a $0.4 million
reduction in customer cargo claims.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $0.2 million, or 2.6%, to $8.0 million in
1999 from $7.8 million in 1998.
Income from Operations. Operating income increased $2.1 million, or 38.2%,
from $5.5 million, or 18.0%, of net revenues in 1998 to $7.6 million or 22.5%
of net revenues due to the foregoing factors.
57
Net Income. Net income increased $1.3 million, or 37.1%, from $3.5 million
in first quarter 1998 to $4.8 million in first quarter 1999, due to the
increase in operating income and the related increase in income taxes.
Year Ended December 25, 1998 Compared to the Year Ended December 26, 1997
The following discussion for the year ended December 26, 1997 has been
presented for comparative purposes only and is the combination of the
Stacktrain Services division of APL Land Transport Services, Inc. from December
28, 1996 to November 13, 1997 period and Pacer International from November 13,
1997 to December 26, 1997 period. As a result of the change in ownership of
Pacer International, these numbers may not be indicative of what the full year
1997 was or would have been if the ownership change had not occurred.
Gross Revenues. Gross revenues for 1998 increased $13.7 million to $590.8
million, or 2.4%, from $577.1 million in 1997. Freight revenues increased $10.0
million, or 1.8%, due to an increase in loads of 21,438, or 4.3%, offset by a
slight decrease per load in the average freight rate as a result of product mix
changes and the loss of certain premium business. The third-party domestic and
third-party international business contributed with revenue increases of $17.0
million and $3.7 million, respectively, as a result of increased volumes of
7.9% and 11.7%, respectively, partially attributable to the additional 2,000
53-foot containers which were leased during 1998, and the strong import market
positively impacting the third-party international business. The automotive and
reefer business revenues declined $10.6 million primarily as a result of the
rail service problems, as the reefer business is considered premium business
and time sensitive. The type of automotive business that declined was primarily
the time sensitive "Just-In-Time" business, which was lost to over-the-road
truck transporters. Historically, our rates have been impacted by the rail
service disruptions as certain expedited business, for which premium rates are
charged, has been shifted by customers to more costly, yet more reliable over-
the-road carriers. Reposition incentive revenues increased $2.3 million from
1997 to 1998 as a result of increased APL Limited shipping volume.
Net Revenues. Net revenues increased $2.3 million to $124.5 million in 1998
from $122.2 million in 1997, as a result of the increased revenues discussed
above. The net revenues as a percentage of gross revenues remained relatively
constant in 1998 at 21.1% compared to 21.2% in 1997.
Direct Operating Expenses. Direct operating costs increased $5.6 million, or
9.9%, to $62.4 million in 1998 from $56.8 million in 1997 due to increases in
equipment lease expense of $6.4 million, railcar depreciation expense of $1.8
million and allocated maintenance and repair charges of $1.9 million, offset by
a credit from a third-party transportation provider, to effectively reduce our
third-party transportation costs, of $5.0 million.
The additional lease expense primarily relates to the 2,000 additional 53-
foot containers we leased in 1998 compared to 1997, which were delivered at
various times throughout the year, with all of them in operation by the end of
1998. The additional containers were leased to fulfill customer demand during
the period of rail service disruption. This increase in containers negatively
impacted operating results as a result of the increased trip days combined with
a decline in average revenue per container as previously discussed. In
addition, we purchased 200 railcars in the first quarter of 1998 for $39.7
million, increasing depreciation expense in 1998. Historically, we were
allocated maintenance and repair charges from APL Limited, based on a formula
using the number of days the equipment was in use. The maintenance and repair
charges increased in 1998 due to the increased volume of shipments in 1998 and
the increased number of containers, railcars and chassis owned or leased by us
compared to 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.8 million, or 6.6%, in 1998 to $29.0
million compared to $27.2 million in 1997 primarily as a result of the total
corporate expenses allocated to us from APL Limited increasing $1.0 million,
and the increase in various direct selling, general and administrative
expenses.
Other Income and Expense. Other income decreased $1.9 million in 1998 to
$0.7 million from $2.6 million in 1997 primarily attributed to a gain on the
sale of certain operating equipment of $2.6 million in 1997 compared to a gain
on the sale of certain equipment of $0.4 million in 1998.
58
Income From Operations. Operating income decreased $7.6 million in 1998 to
$33.2 million or 26.7% of net revenues from $40.8 million or 33.4% in 1997 due
to the foregoing factors.
Interest expense. Interest expense decreased $2.3 million to $0.0 in 1998
due to reduced intercompany borrowings from APL Limited in 1998.
Income taxes. Income taxes decreased $2.0 million in 1998 to $12.6 million
compared to $14.6 million in 1997, as a result of the decrease in income before
income taxes from 1997 to 1998.
Year Ended December 25, 1997 Compared to the Year Ended December 27, 1996
Gross Revenues. Gross revenues increased $29.1 million to $577.1 million in
1997 from $548.0 million in 1996, or 5.3%, as a result of a 9.1% increase in
container volume compared to 1996. Container volume increased by 41,680
containers to 501,523 in 1997 compared to 459,843 in 1996. The average revenue
per container decreased 2.8% in 1997, primarily as a result of losing certain
premium business to the trucking industry because of the railroad service
problems beginning in the last four months of 1997. Third-party domestic
business contributed to $5.4 million of the revenue increase as the volumes
increased 6.3% from 1996 levels and average per container rates declined 3.4%
due primarily to a shift in product mix and the loss of premium business. The
automotive business revenues increased $11.5 million as a result of a 10.1%
increase in container volume. Third-party-international business revenues
increased $11.0 million as a result of a 14.7% increase in volume, which is
attributed to the continued import volumes positively impacting the industry.
Net Revenues. Net revenues declined $2.1 million, or 1.7%, in 1997 to $122.2
million from $124.3 million in 1996, or 21.2%, of gross revenues in 1997
compared to 22.7% of gross revenues in 1996. The net revenues were negatively
impacted by higher transportation costs and a decrease in average rates per
container as discussed above. The higher transportation costs were attributable
to a shift in the shipping lanes utilized.
Direct Operating Expenses. Direct operating expenses increased $19.4
million, or 51.9%, in 1997 to $56.8 million from $37.4 million in 1996. The
increase is due to additional container and chassis lease expense of $8.8
million in 1997, an increase in allocated equipment maintenance and repair
expenses of $1.3 million and a decrease in service penalty income from the
railroads of $7.9 million.
The increased lease expense is associated with the additional containers and
chassis being leased in 1997. We had 27,479 container and chassis leased at
December 26, 1997 compared to 19,310 at December 27, 1996. The additional
containers were leased to fulfill customer demand during the period of rail
service disruption. This increase in containers negatively impacted operating
results as a result of the increased trip days combined with a decline in
average revenue per container as previously discussed. The increase in
equipment maintenance and repair expense is directly related to the increase in
the containers and chassis fleet in 1997. In 1996, we received a $7.9 million
credit from a transportation supplier for deficient service levels, as provided
for in the contract between us and the transportation supplier.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1.6 million, or 6.3%, in 1997 to $27.2
million from $25.6 million in 1996. The increase is due to the total increase
in allocated corporate and information technology costs of $2.0 million to
$12.3 million from $10.3 million in 1996 which is primarily attributable to APL
Limited's implementation of a new information technology system, specifically
for us.
Other Income and Expense. Other income increased $2.4 million in 1997 to
$2.6 million in 1997 from $0.2 million in 1996 as a result of our recording a
$2.6 million gain on sale of certain operating equipment in 1997.
Income From Operations. Operating income declined $20.7 million, or 33.7%,
to $40.8 million, or 33.4%, of net revenues in 1997 from $61.5 million, or
49.5%, of net revenues in 1996 due to the foregoing factors.
59
Interest Expense. Interest expense increased $2.3 million in 1997 from $0.0
in 1996 due to increased intercompany borrowings in 1997.
Income Taxes. Income taxes decreased $8.8 million or 37.6% in 1997 to $14.6
million from $23.4 million in 1996, as a result of the decrease in income
before income taxes in 1997 from 1996.
Liquidity and Capital Resources
Historical
Historically, we have used cash generated from operations for seasonal
working capital purposes, to fund capital expenditures and repay intercompany
debt. We generated net cash from operations of $17.4 million, $30.9 million and
$31.8 million in 1996, 1997 and 1998, respectively, and $(60.6) million and
$1.5 million in the first three months of 1998 and 1999, respectively. The
increase in net cash provided by operating activities from 1996 to 1997 is
attributable to a significant increase in accounts receivable in 1996 as a
result of the sale of APL Limited's retail intermodal marketing operations to a
third-party customer and therefore, the settlement timing of receivables was
impacted. Additionally, the $(60.6) million net use of operating cash is the
result of the timing of the settlement of intercompany receivables between APL
Limited and us.
Our excess cash from operations was historically remitted to our parent, APL
Limited through our participation in the APL Limited cash management plan. If
cash from operations were insufficient to fund capital expenditures, we
borrowed the required cash from APL Limited. Interest expense was charged to us
at a historical average borrowing rate for APL Limited. Net cash from
operations in 1996 and 1997 was remitted to APL Limited. We primarily lease our
fleet of operating equipment, however, capital expenditures have been
historically funded through net cash from operations or a combination of cash
from operations and intercompany borrowings. We purchased 200 railcars in 1998
for $39.7 million, of which $31.8 million was funded through operations and the
remaining amount was funded by APL Limited. In connection with our
recapitalization, we completed a sale and leaseback transaction for all the
recently purchased railcars. The net impact on pro forma operating results from
the additional lease expense, net of historical depreciation expense, as a
result of the sale and leaseback transaction is $2.5 million.
Post-Transactions
Following our recapitalization and the Pacer Logistics transaction, our
principal sources of liquidity are cash flow generated from combined operations
and borrowings under our $100.0 million revolving credit facility. Our
principal uses of capital are to meet debt service requirements, finance our
strategic acquisitions and provide working capital, as needed. We do not expect
to incur significant capital expenditures as additions to our equipment fleet
will be through a mixture of long- and short-term operating leases. We expect
that ongoing requirements for debt service, acquisitions and working capital
will be funded by internally generated cash flow from the combined operations
after the transactions and borrowings under our revolving credit facility.
We incurred substantial indebtedness in connection with our recapitalization
and the Pacer Logistics transaction. Following our recapitalization and the
Pacer Logistics transaction, on a pro forma basis, we had approximately $285.0
million of indebtedness. Our debt service obligations could have important
consequences to holders of the notes. See "Risk Factors."
In connection with our recapitalization and the Pacer Logistics transaction,
we entered into the Senior Credit Facilities, comprised of our $100.0 million
revolving credit facility expiring in 2004 and a Term Loan facility aggregating
$135.0 million, which matures in 2006. In general, the term loan and revolving
credit facility bear interest at variable rates subject to increases or
decreases based upon the achievement of certain financial ratios. Voluntary
prepayments and commitment reductions will generally be permitted without
premium or penalty, subject to certain conditions. Our credit facilities are
generally guaranteed by all of our existing and future direct and indirect
wholly-owned subsidiaries and are secured by certain liens on our properties
and assets. Our credit facilities are subject to customary representations,
warranties and covenants. See "Description of Our Credit Agreement."
60
Based upon the current level of operations and anticipated growth, including
the Pacer Logistics operations and cash flow that management expects to be
derived from those operations. We believe that operating cash flow and
availability under our revolving credit facility will be adequate to meet our
liquidity needs for the foreseeable future, although no assurance can be given
in this regard.
In connection with our recapitalization and the Pacer Logistics transaction,
we incurred certain significant nonrecurring expenses (See "Unaudited Pro Forma
Consolidated Financial Information"). We incurred approximately $8.2 million
related to financing of our recapitalization and the Pacer Logistics
transactions and $15.9 million in estimated transaction fees and expenses as a
result of our recapitalization. Additionally, in connection with our
recapitalization, a Section 338(h)(10) election was made to allow our
recapitalization to be treated as an acquisition of assets for tax purposes.
Accordingly, the assets were stepped-up to their fair market value for tax
purposes. As a result, our income taxes payable will be offset by the $85.0
million deferred tax asset arising as a result of the step up. This will reduce
cash payments for income taxes over the next fifteen years.
Seasonality
Our business is seasonal, and our quarterly revenues and profits
historically have been lower during the first and second quarters of the year
(January through June) and higher during the third and fourth quarters (July
through December) due primarily to the retail industry's shipping requirements.
Environmental
We are subject to federal, state and local environmental regulations,
including regulations relating to permitting requirements, wastewater
discharges and underground storage tanks. We believe that we are in substantial
compliance with these requirements and that we currently have no material
environmental liabilities.
Year 2000
Pursuant to an IT Supplemental Agreement, dated as of May 11, 1999 by and
among APL Limited, Coyote Acquisition LLC and our company, we are currently
completing negotiations of an Information Technology Outsourcing and License
Agreement based upon a term sheet agreed by the parties. In accordance with the
sheet, APL Limited will provide us with all necessary software, licenses and
related services necessary to conduct the stacktrain business as it is
currently being conducted and as it is enhanced pursuant to and during the term
of the agreement. APL Limited will also be responsible for obtaining,
maintaining, upgrading and replacing any software, equipment, facilities or
personnel necessary in order to provide the services during the term of the
agreement. The term of such agreement will be twenty years.
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the Year 2000 as "00". This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken. APL Limited, and thus Pacer International, utilizes software and related
computer technologies essential to its operations that could be affected by the
Year 2000 issue.
APL Limited has represented that it has devoted considerable personnel and
resources to a comprehensive Year 2000 project that addresses mission-critical
systems, infrastructure, vendors, suppliers and customers. Their goal is to
minimize, as much as possible, any detrimental impact that the Year 2000
problem may have upon their ability to serve their clients and provide the
services to us described in the Information Technology Outsourcing and
Licensing Agreement term sheet.
The fundamental approach of APL Limited is similar to those being employed
by many organizations. The four key phases of APL Limited's approach are
inventory assessment, remediation, testing and contingency planning.
61
APL Limited has represented that the inventory assessment phase relating to
business systems and assets is virtually complete. APL Limited has further
represented that change-control processes have been established in an effort to
keep out non-compliant products or services and that appropriate language has
been incorporated into all standard contracts.
APL Limited has represented that the remediation phase of all critical
mainframe applications was completed prior to the end of March 1999. APL
Limited's Year 2000 project is also addressing other areas of the business
environment including both IT and non-IT systems. APL Limited has represented
that the remediation of all critical components was completed by the end of
June 1999. Testing is a critical part of APL Limited's plan and is being
conducted across all critical components utilizing comprehensive testing
methods. APL Limited has represented that integrated testing began during the
fourth quarter of 1998 and has targeted the third quarter of 1999 for
completion of critical elements testing.
The transportation industry is highly interconnected. Even after APL
Limited's systems are converted, and even with APL Limited's efforts to
coordinate Year 2000 solutions with third parties, APL Limited cannot be
certain that it will not encounter a Year 2000 related system malfunction.
Therefore, APL Limited has also represented that their Year 2000 program
includes making detailed contingency plans for a variety of potential problems,
ranging from information systems to vessel operations. Such plans can minimize,
not eliminate any adverse impact on the business.
The Information Technology Outsourcing and License Agreement term sheet
contains customary representations and warranties, including, that the
information technology, software, hardware and services being provided to us
constitute all such items required to provide the information technology
services necessary to run our business and relating to Year 2000 compliance of
the software and hardware used in providing the services under the agreement.
The term sheet also provides that APL Limited will indemnify us against
breaches of these representations, losses resulting from claims brought by
third parties alleging infringement of their intellectual property and losses
associated with a failure of the information technology systems to operate that
is either caused by APL Limited or covered by indemnification or warranties
provided to APL Limited by responsible third parties.
The Year 2000 problem also affects many of our major suppliers, including
railroads, and customers, and our business could be disrupted if any of them
fail to resolve their Year 2000 problems.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," modifying accounting and reporting standards for
derivative instruments. We do not expect the effect of implementation of this
standard to be significant.
The AICPA has issued Statements of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." This statement
was adopted for financial statements for fiscal years beginning after December
15, 1998 and did not have a material effect on the financial statements.
In April 1998, the AcSEC issued Statement of Position 98-5 "Reporting on the
Costs of Start-Up Activities." This statement was adopted for financial
statements for fiscal years beginning after December 15, 1998 and did not have
a material effect on the financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information." Upon completion of the transactions, the Company will
apply the provisions of this statement as applicable.
62
PACER LOGISTICS, INC.
Overview
Pacer Logistics' business consists primarily of
(1) intermodal marketing, which involves the provision of brokerage and
logistics services by coordinating the transportation of goods by truck and
rail,
(2) specialized trucking services, including flatbed heavy-haul trucking,
drayage and cartage, and
(3) other transportation services, such as freight consolidation and
handling.
As a non-asset-based service provider, Pacer Logistics is able to focus its
efforts on providing value-added logistics solutions for its customers through
its network of agents and independent contractors. Pacer Logistics primarily
provides services to numerous global, national and regional manufacturers and
retailers.
PMT Holdings, Inc., a Delaware corporation, was formed on March 31, 1997
(inception), to acquire all of the capital stock of Pacific Motor Transport
Company in a management buyout that was funded in part by Eos Partners, L.P. On
March 31, 1997, PMT Holdings acquired all issued and outstanding shares of
Pacific Motor Transport from Union Pacific Railroad Company and its
subsidiaries in exchange for approximately $13.0 million in cash and warrants
to purchase PMT Holdings common and preferred stock. Prior to the acquisition,
Pacific Motor Transport was a provider of truckload freight services and
intermodal marketing services. On December 16, 1997, PMT Holdings acquired all
of the capital stock of Interstate Consolidation, Inc. and Interstate
Consolidation Service, Inc. and its wholly owned subsidiary, Intermodal
Container Service, Inc. for total consideration of $25.4 million including
acquisition fees, consisting of $20.0 million in promissory notes and $5.4
million in cash and PMT Holdings stock. The Interstate companies are
multipurpose providers of transportation services, including intermodal
marketing, local trucking, and freight consolidation and handling. In May 1998,
PMT Holdings was renamed Pacer International, Inc. and its subsidiaries
reorganized. In connection with our recapitalization, Pacer International, Inc.
was renamed Pacer Logistics, Inc. The name change has been given retroactive
application in this discussion.
On April 3, 1998 Pacer Logistics acquired all the stock of Intraco, Inc. for
$1.9 million including acquisition fees, consisting of $0.5 million in cash and
$1.4 million in Pacer Logistics stock. On June 5, 1998, Pacer Logistics
acquired all of the capital stock of Cross Con Transport, Inc. and its
subsidiary, Cross Con Terminals, Inc., in exchange for $16.4 million including
acquisition fees, consisting of $11.6 million of cash and $4.8 million of Pacer
Logistics stock. On July 25, 1998, Pacer Logistics acquired substantially all
the assets of Professional Logistics Management Co., Inc. and 3PL Corporation,
in exchange for $2.9 million in cash, including acquisition fees. On December
9, 1998, Pacer Logistics acquired all of the capital stock of Manufacturers
Consolidation Service, Inc. and its subsidiaries, Levcon, Inc., MCS of Kansas,
Inc. and Manufacturers Consolidated Service of Canada Inc. for $10.1 million in
cash and assumed debt and acquisition fees. The Cross Con companies and the
Manufacturers Consolidation Service companies are multipurpose providers of
transportation services, including intermodal marketing and local trucking.
Professional Logistics and 3PL are providers of logistics services and Intraco
is involved in the transportation of equipment primarily for railroads. On
April 20, 1999, Pacer Logistics acquired substantially all of the assets of
Keystone Terminals, Inc. (DE) and Keystone Terminals, Inc. (NJ) in exchange for
$8.25 million in cash. The Keystone companies are providers of transportation
services.
Gross Revenues
Pacer Logistics' gross revenues are generated through fees charged for a
broad portfolio of freight transportation services. Pacer Logistics' gross
revenues are generated from its intermodal marketing and flatbed and
specialized heavy-haul trucking services, augmented by local trucking, freight
consolidation and handling,
rail services and logistics outsourcing. Overall gross revenues for Pacer
Logistics will be driven through its ability to market its broad array of
transportation services to its existing customer base. Increases in gross
63
revenues from intermodal marketing are generated primarily from increased
volumes, as rates are dependent upon product mix and transportation lane, which
tend to remain relatively constant as customers' shipments tend to remain in
similar lanes. The gross revenues from the flatbed and specialized heavy-haul
segment are driven by the volume, length of haul and the rate per mile charged
to the customer, which are dependent upon product mix. Local trucking services
primarily support intermodal marketing and provide local transportation
services to customers through independent operators. Revenues are driven
primarily through increased volume. Pacer Logistics also provides a freight
service in which it consolidates customer freight at loading docks and provides
distribution services to specific customer locations throughout the United
States. In addition to transporting freight, Pacer Logistics provides
outsourcing services for customers' traffic departments and railcar repair and
maintenance.
Net Revenues
Pacer Logistics' net revenues consist of the gross revenues earned from its
third-party transportation services, net of the cost of purchased
transportation services. Net revenues are driven by the mix of business
services provided through its various services provided because net revenues as
a percentage of gross revenues vary significantly based on the mix of services
provided. Purchased transportation and services consists of amounts paid to
third parties to provide services, such as, railroads, sub-contracted or in-
house independent contractor truck drivers, freight terminal operators and dock
workers. Third-party rail costs are charged through a contract maintained with
the railroads and are dependent upon product mix and traffic lanes. Sub-
contracted or independent operators may be paid a percentage of revenues, on a
mileage basis or a fixed fee.
Selling, General and Administrative Expenses
Selling, general and administrative expenses relate to the costs of customer
acquisition, billing, customer service and salaries and related expenses of
marketing, as well as the executive and administrative staff's compensation,
office expenses and professional fees. Pacer Logistics anticipates that it will
incur increased overall selling related costs as it grows its operations, but
that such costs will remain relatively consistent as a percentage of net
revenues. The costs related to Pacer Logistics' corporate functions, such as
administration, finance, legal, human resources and facilities will likely
increase as the business grows, but will likely decrease as a percentage of net
revenues as the business grows.
Transaction Costs
In connection with proposed initial public equity offering, Pacer Logistics
and the Manufacturers Consolidation Service companies, prior to their
acquisition by Pacer Logistics, incurred various non-recurring expenses
associated directly with the offering. These are non-recurring expenses and are
not expected to be incurred in the future.
Depreciation and Amortization
Depreciation and amortization consists of depreciation on office equipment
and Pacer Logistics' owned transportation equipment and goodwill amortization
related to historical acquisitions. Depreciation as a percentage of net
revenues is historically low due to the low level of operating assets owned by
Pacer Logistics, because of the level of reliance on third-party transportation
providers. Pacer Logistics does not expect to significantly change its
operating asset base.
Results of Operations
The following discussion of Pacer Logistics' results of operations covers
the historical operating results for the periods presented plus a discussion of
results as if all of the Pacer Logistics' acquisitions (excluding the
Manufacturers Consolidation Service companies and the Keystone companies) were
acquired at the beginning of the most recent fiscal year presented (referred to
below as the "Integrated Company"). The following discussion of Pacer Logistics
operating results refers to the income statements as historically presented
without reclassifications which were made for pro forma presentation purposes.
64
Three Months Ended March 31, 1999 ("First Quarter 1999") Compared to the Three
Months Ended March 31, 1998 ("First Quarter 1998")
Gross Revenues. Gross revenues increased $39.5 million, or 78.4%, to $89.9
million in First Quarter 1999 from $50.4 million in First Quarter 1998. The
increase in revenues was primarily the result of the acquisitions made by Pacer
Logistics in 1998 and through internal growth. Gross revenues for the
Integrated Company decreased 2.7% or $1.9 million. The decrease primarily
results from a change in contractual and billing arrangements for logistics
services, which has no effect on Pacer Logistics' net revenues.
Net Revenues. Net revenues increased $6.3 million, or 75.0%, to $14.7
million in First Quarter 1999 from $8.4 million in First Quarter 1998. Net
revenues as a percentage of gross revenues decreased to 16.4% in First Quarter
1999 from 16.7% in First Quarter 1998. The increase in net revenues is the
result of the acquisitions throughout 1998. The net revenues percentage
decrease reflects the lower margin business from acquisitions. Net revenues for
the Integrated Company increased $0.2 million or 1.7%. The increase primarily
results from increased freight handling services generated by servicing
additional stores and locations for our existing customer base.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.7 million to $10.3 million in First
Quarter 1999 from $5.6 million in First Quarter 1998. As a percentage of gross
revenues, selling, general and administrative expenses increased to 11.5% in
First Quarter 1999 from 11.1% in First Quarter 1998. The increase is due to
additional salary and administrative costs associated with the acquisitions and
growth of Pacer Logistics. Selling, general and administrative expense for the
Integrated Company decreased slightly.
Income From Operations. Operating income increased $1.3 million, or 54.2%,
to $3.7 million and operating income for the Integrated Company increased $0.3
million or 9.7% to $3.4 million, as a result of the foregoing factors.
Interest Expense. Net interest expense increased to $1.1 million in First
Quarter 1999 from $0.6 million in First Quarter 1998. The increase is the
result of increased borrowings to finance Pacer Logistics' acquisitions of the
Interstate companies, Intraco, the Cross Con companies, Professional Logistics
and the Manufacturers Consolidation Service companies.
Income Taxes. Pacer Logistics' effective tax rate increased to 42.8% in
First Quarter 1999 from 41.8% in First Quarter 1998. The increase is due
primarily to the amortization of goodwill related to Pacer Logistics'
acquisitions.
Year Ended December 31, 1998 ("Fiscal 1998") Compared to Nine Months Ended
December 31, 1997 ("Fiscal 1997")
As a result of the management buyout in March 1997, the period ended
December 31, 1997 consists of only nine months as compared to twelve months for
the year ended December 31, 1998. For information purposes, year-to-year
comparisons have also been provided.
Gross Revenues. Revenues increased $171.7 million, or 211.7%, to $252.8
million in 1998 from $81.1 million in fiscal 1997. The increase in revenues was
the result of the acquisitions made by Pacer Logistics in late 1997 and in 1998
and the inclusion of an additional quarter of revenues in 1998. Revenues
increased $152.2 million, or 151.3%, to $252.8 million in the twelve month
period ended December 31, 1998 from $100.6 million in the twelve month period
ended December 31, 1997. Gross revenues for the Integrated Company increased
$27.9 million, or 10.9%. The increase resulted from growth in flatbed services
provided due to increased transportation of materials for a railroad customer,
expansion of freight handling services provided by sub-contracting services for
existing customers and the start-up of the railcar repair services provided in
Long Beach.
65
Net Revenues. Net revenues increased $29.1 million, or 234.7%, to $41.5
million in 1998 from $12.4 million in fiscal 1997. Net revenues as a percentage
of gross revenues increased to 16.4% in 1998 from 15.3% in fiscal 1997. The
increase in net revenues is the result of the acquisitions made by Pacer
Logistics in late 1997 and in 1998 and the inclusion of an additional quarter
of revenues in 1998. The net revenue percentage increase reflects the impact
from services provided to railroads in connection with their capital
expenditure programs and the full year inclusion of higher-margin acquired
businesses. Net revenues increased $26.1 million, or 169.5%, to $41.5 million
in the twelve month period ended December 31, 1998 from $15.4 million in the
twelve month period ended December 31, 1997. Net revenues for the Integrated
Company increased $7.4 million or 18.9%. The increase in gross revenues noted
above was related to the relatively high margin of the services provided which
is the primary reason for the substantial percentage increase in net revenue.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $18.9 million to $27.7 million in 1998 from
$8.8 million in fiscal 1997. As a percentage of gross revenues, selling,
general and administrative expenses increased to 11.0% in 1998 from 10.8% in
fiscal 1997. The increase is due to the additional quarter of selling, general
and administrative costs in 1998 and to additional salary and administrative
costs associated with the acquisitions and growth of Pacer Logistics. Selling,
general and administrative expenses increased $16.6 million, or 149.5%, to
$27.7 million in the twelve month period ended December 31, 1998 from $11.1
million in the twelve month period ended December 31, 1997. Selling, general
and administrative expenses for the Integrated Company increased $3.8 million,
or 12.8%. The increase primarily results from increases in variable costs
associated with the increase in net revenues and additional corporate overhead.
Transaction Costs. During 1998, Pacer Logistics incurred transaction costs
of $1.5 million associated with the preparation and filing of a registration
statement on Form S-1 related to an initial public offering of common stock.
The initial public offering was not completed due to prevailing market
conditions in the equity markets at the time of the proposed offering;
accordingly, the costs were charged off in 1998.
Income From Operations. Operating income increased $7.1 million or 221.9% to
$10.3 million in 1998 from $3.2 million in fiscal 1997. Operating income
increased $6.9 million, or 202.9%, to $10.3 million in 1998 from $3.4 million
in the twelve months ended December 31, 1997. Operating income for the
Integrated Company increased $3.6 million or 37.9% as a result of the foregoing
factors.
Interest Expense. Net interest expense increased to $2.9 million in 1998
from $0.7 million in fiscal 1997. The increase is the result of increased
borrowings to finance Pacer Logistics' acquisitions of the Interstate
companies, Intraco, the Cross Con companies, Professional Logistics and the
Manufacturers Consolidation Service companies.
Income Taxes. Pacer Logistics' effective tax rate increased to 42.7% in 1998
from 38.9% in fiscal 1997. The increase is due primarily to the amortization of
goodwill related to acquisitions made during the period.
Nine Months Ended December 31, 1997 (Fiscal 1997) Compared to Year Ended
December 31, 1996 (1996)
As a result of the management buyout in March 1997, the period ended
December 31, 1997 consists of only nine months as compared to twelve months for
the year ended December 31, 1996. For information purposes, year-to-year
comparisons have also been provided.
Gross Revenues. Gross revenues decreased $5.7 million, or 6.6%, to $81.1
million in Fiscal 1997 from $86.8 million in 1996. This decrease is due to the
additional quarter of revenues in 1996, which is partially offset by additional
business with Union Pacific in Fiscal 1997. Revenues increased $13.8 million,
or 15.9%, to $100.6 million in the twelve month period ended December 31, 1997
compared to $86.8 million in the twelve month period ended December 31, 1996.
The increase results primarily from volume growth in rail brokerage and flatbed
trucking services.
Net Revenues. Net revenues decreased $1.3 million, or 9.5%, to $12.4 million
in Fiscal 1997 from $13.7 million in 1996. Net revenues as a percentage of
gross revenues decreased to 15.3% in Fiscal 1997 from 15.8% in 1996. The
decrease is due to the additional quarter of revenues in 1996, which is
partially offset by additional business with Union Pacific in Fiscal 1997.
66
The net revenues percentage decrease reflects a marginal increase in the
cost of purchased transportation. Net revenues increased $1.7 million, or
12.4%, to $15.4 million in the twelve month period ended December 31, 1997 from
$13.7 million in the twelve month period ended December 31, 1996. Net revenues
for the Integrated Company increased $4.3 million, or 12.3%. The increase is
primarily attributable to the growth in gross revenues for rail brokerage and
flatbed trucking.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.2 million to $8.8 million from $10.0
million in 1996. As a percentage of gross revenues, selling, general and
administrative expenses decreased to 10.8% in Fiscal 1997 from 11.5% in 1996.
The decrease is due to the additional quarter of selling, general and
administrative expenses included in 1996, which is partially offset by
additional salary and administrative expenses associated with the growth of
Pacer Logistics and its management team after the management buyout. Selling,
general and administrative expenses increased $1.1 million, or 11.0% to $11.1
million in the twelve month period ended December 31, 1997 as compared to $10.0
million in the twelve month period ended December 31, 1996. Selling, general
and administrative expenses for the Integrated Company increased $2.0 million
or 7.2%. The increase is primarily attributable to increases in variable costs
associated with the increase in rail brokerage and flatbed trucking services
provided.
Income From Operations. Operating income decreased $0.3 million, or 8.6%, to
$3.2 million in fiscal 1997 from $3.5 million in 1996. Operating income
decreased $0.1 million, or 2.9%, to $3.4 million in the twelve months ended
December 31, 1997 from $3.5 million in 1996. Operating income for the
Integrated Company increased $2.3 million or 31.9%, as a result of the
foregoing factors.
Interest Expense (Income). Net interest expense increased $2.1 million to
$0.7 million in Fiscal 1997 from $1.4 million in net interest income in 1996.
The increase is a result of increased borrowings to finance the management
buyout and the acquisition of Interstate.
Income Taxes. Pacer Logistics' effective tax rate remained relatively
unchanged in Fiscal 1997 as compared to 1996.
Liquidity and Capital Resources
Since its inception on March 31, 1997, Pacer Logistics' cash needs have been
primarily to fund acquisitions, working capital and, on a limited basis,
capital expenditures. Pacer Logistics' primary sources of capital have been the
borrowings under bank credit agreements, and in Fiscal 1997, cash raised in
connection with the formation of Pacer Logistics. In addition, Pacer Logistics
has issued shares of common stock as part of the consideration in certain
acquisitions. Pacer Logistics uses its bank credit agreement to manage its cash
flow. At March 31, 1999 and December 31, 1998, availability under its bank
credit agreement was $17.7 million and $17.6 million, respectively, and Pacer
Logistics' working capital was $1.5 million and $0.4 million, respectively.
Net cash provided from operating activities was $1.0 and $2.7 million during
the First Quarter 1999 and First Quarter 1998, respectively. The decrease in
cash provided was primarily due to a reduction in accrued expenses, partially
offset by an increase in income taxes payable. Net cash provided by operating
activities for 1998 was $0.8 million, and the net cash used in operating
activities for Fiscal 1997 was $2.7 million. The increase in cash provided from
operating activities in 1998 as compared to Fiscal 1997 is due primarily to
higher net income in 1998.
Net cash provided from (used in) investing activities was $2.6 million and
$(0.4) million in the First Quarter 1999 and First Quarter 1998, respectively.
Pacer Logistics received $3.0 million from the sale of trucks acquired as part
of the acquisition of the Manufacturers Consolidation Service companies. Net
cash used in investing activities was $20.3 million and $10.0 million in 1998
and Fiscal 1997, respectively. Net cash used in investing activities was used
primarily to finance the acquisitions of Intraco, the Cross Con companies,
Professional Logistics, 3PL and the Manufacturers Consolidation Service
companies in 1998 and the management buyout and the acquisition of the
Interstate companies in Fiscal 1997.
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Net cash used in financing activities in First Quarter 1999 and First
Quarter 1998 was $3.6 million and $2.3 million, respectively, principally used
to repay outstanding indebtedness. Net cash provided by financing activities
was $19.4 million and $11.2 million during 1998 and Fiscal 1997, respectively.
The net cash provided by financing activities in 1998 was provided by
borrowings under Pacer Logistics' bank credit agreements. In Fiscal 1997, net
cash provided by financing activities was provided by borrowings under Pacer
Logistics' bank credit agreements and cash raised in connection with the
formation of Pacer Logistics. On December 7, 1998, Pacer Logistics entered
into a bank credit agreement consisting of a term loan of $32.0 million and
revolving credit facility of $38.0 million. In conjunction with the credit
agreement, the amounts outstanding under the term loan of $20.0 million and
$12.0 million line of credit were repaid.
Year 2000
The Year 2000 issue arises because many computerized systems use two digit
dates instead of four digits to identify the year, causing some date sensitive
systems to incorrectly recognize and process information.
Resolution of the Year 2000 problem is among Pacer Logistics' highest
priorities, and a task force been established to address its many aspects. The
task force activities relate to the following four business categories:
. Infrastructure, consisting of computing systems hardware and systems
software.
. Applications Software, consisting of vendor provided or custom written
operations software.
. Embedded Processors in equipment used by the Company, consisting of
communications equipment, voice and data, and other miscellaneous
systems.
. Significant third party vendors and service providers and customers.
Pacer Logistics has developed a five-phase approach to resolving the Year
2000 issue. The phases are:
. Inventory of all data-sensitive systems and equipment,
. Assessing compliance and assigning priorities to items identified as not
being compliant,
. Remediation of non-compliant items,
. Testing and certification of systems and equipment being brought into
compliance, and
. Contingency planning to provide for continuity of business activities in
the event of unanticipated failures, whether of internal or external
origin.
Approximately 90% of the actions required relating to Infrastructure have
been completed as of the end of First Quarter, 1999. All such components are
expected to be fully compliant by the end of the third quarter of 1999.
Testing and certification will continue into the second half of 1999.
Remediation is underway for all Applications Software currently in use by
the Company. At the end of First Quarter 1999 approximately 75% of all vendor
provided software in use is represented by the vendor to be compliant. The
remaining percentage is being replaced. Custom written software that is not
compliant has in most instances been or is being replaced by vendor-provided
software that is compliant. In certain cases, custom written software is being
internally brought into compliance. Testing and certification is currently in
process. Remediation will continue into the third quarter.
Inventories of Embedded Processors have been reviewed and non-compliant
items have been identified for remediation. Activities are underway upgrading
or replacement as required. This activity should be complete by the end of the
third quarter of 1999.
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Pacer Logistics has initiated formal communications with all of its
significant vendors and customers, with special attention being directed toward
electronic business partnerships, to determine vulnerability to those third
parties' failure to remediate their Year 2000 issues. This process is ongoing
and will continue into the second half of 1999.
Although Pacer Logistics is striving to assure that its products and
services are Year 2000 ready, Pacer Logistics cannot guarantee that all systems
and services will function without error before, at or after December 31, 1999.
Service may still be affected by the performance of third parties with which
Pacer Logistics does business, or exchanges information. We believe, however,
that our efforts will avoid significant problems and will enable us to rapidly
address and correct any problems that do arise.
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BUSINESS
Overview
We are a leading freight transportation and logistics provider, offering a
broad array of services to facilitate the movement of freight from origin to
destination. We believe, as one of the largest transporters of intermodal
freight in North America, we controlled approximately 23.0% of all domestic
intermodal containers in 1998. We are also the third largest intermodal
marketing company in the United States, as measured by intermodal rail
revenues. Intermodal transportation is the movement of freight via trailer or
container using two or more transportation modes. Intermodal transportation
nearly always includes a rail and truck segment. An intermodal marketing
company arranges intermodal transportation for global, national and regional
retailers and manufacturers. Our pro forma gross revenues and Adjusted EBITDA
were $987.4 million and $72.2 million, respectively, for the twelve month
period ended April 2, 1999. Through implementation of our unique business
model, we believe we maintain an advantage over our competitors by providing
our customers with access to:
. a low cost single-source package of integrated transportation services;
. our coast to coast land transportation network with priority handling
status;
. one of the largest container and chassis fleets in the industry; and
. sophisticated information systems.
Through our stacktrain business, we are the largest provider of intermodal
rail service in North America that is not affiliated with an individual
railroad company. Stacktrain service is the movement of freight in containers
stacked two high on railcars. Through this business, we provide our customers
with rail capacity, equipment and shipment tracking and control on a nationwide
basis. We operate one of the industry's largest fleets of stacktrain equipment,
including railcars, containers and chassis. Through contracts with major rail
carriers and our access to sophisticated proprietary information systems, we
operate our equipment over a 50,000 mile rail network. We benefit from having
developed close working relationships with the railroads and we are the single
largest customer of our primary rail carrier, historically representing
approximately 20% of its intermodal revenues. In the past, during periods of
equipment scarcity and network bottlenecks, we have benefited from our strong
relationships with our rail carriers and capitalized on our priority handling
status with such carriers. In addition, our access to sophisticated information
systems allows us to track shipments throughout our rail network and provide
shippers with a level of service which we believe is unmatched in the industry.
The breadth of our rail network, together with our access to such information
systems, allows us to manage our fleet of equipment on a national basis and
thereby maximize availability, utilization and reliability. On a pro forma
basis from 1996 to 1998, we increased our intermodal shipments by an average of
12.6% per annum through the addition of new customers and increased volumes
with existing customers.
Complementing our stacktrain business, we offer a broad range of additional
transportation services, including trucking, intermodal marketing and logistics
services, to a broad range of shippers such as Sony, Ford Motor Company and
Wal-Mart Stores. As an integrated provider of transportation services, we can
optimize the flow of freight across multiple transportation modes or develop a
unique package of customized transportation and logistics services to meet our
customers' specific needs. As a single-source provider, we negotiate rail,
truck and intermodal rates, determine the optimal route, electronically track
shipments in transit, consolidate billing and handle claims of freight loss or
damage on behalf of our customers, and manage the handling, consolidation and
storage of freight throughout the process. Our size and scope allow us to
provide a comprehensive product offering on a national basis and pass on volume
rate savings and economies of scale to our customers.
A significant portion of our intermodal, trucking, logistics and freight
handling services is provided through a network of agents and independent
contractors. These relationships allow us to control a large fleet of
specialized equipment and provide our customers with a broad range of
transportation services without
70
committing significant capital to the acquisition and maintenance of an
extensive asset base. Our relatively low capital and working capital
requirements and variable cost structure enable us to generate strong free cash
flow in a variety of market conditions.
We have an experienced management team with a strong record of successfully
integrating businesses in the transportation industry. Donald C. Orris, our
chairman, president and chief executive officer, was previously the chairman,
president and chief executive officer of Pacer Logistics and was the president
and chief operating officer of the Southern Pacific Transportation Company (now
part of the Union Pacific Railroad Company). Mr. Orris also founded our
stacktrain business in 1984 while he was an officer of APL Limited. After
giving effect to our option plans and assuming the exchange of certain
preferred stock of Pacer Logistics, Mr. Orris and other members of our senior
management team and certain other employees will own approximately 29.0% of
Pacer International's capital stock on a fully diluted basis. If the exchange
of certain preferred stock of Pacer Logistics for common stock of Pacer
International or the purchase by Pacer International of such preferred stock of
Pacer Logistics with certain preferred stock of Pacer International does not
occur, Mr. Orris and other members of our senior management team will remain
holders of preferred stock of Pacer Logistics. See "Our Capital Stock."
Competitive Strengths
We believe our market leadership, strong historical financial performance
and significant opportunities for continued growth and increased profitability
are primarily attributable to the following competitive strengths:
Leading Intermodal Shipper
We believe, as one of the largest transporters of intermodal freight in
North America, we controlled approximately 23.0% of all domestic intermodal
containers in 1998. Our North American land transportation network spans over
50,000 miles and directly serves most major population and commercial centers.
Due to our significant intermodal market share, we have developed close working
relationships with major railroads, including long-term operating agreements
with favorable rates, priority handling status and access to nationwide
terminal facilities. In addition to our relationships with our rail providers,
we maintained as of June 25, 1999 a fleet of 558 double stack railcars, 19,693
containers and 18,551 chassis, which are primarily leased, and have access to
APL Limited's fleet of chassis and containers. We believe that the contract
terms with our rail providers combined with our extensive fleet of equipment
allow us to pass significant cost savings to our customers and provide them
with a high degree of reliability and responsiveness.
Strong Customer Base
We have a strong, diverse customer base consisting of global, national and
regional manufacturers and retailers, including numerous Fortune 500 companies
such as Sony, Ford Motor Company and Wal-Mart Stores. We have served many of
our customers for over 15 years and believe that the strength of our customer
base is attributable to our customer-focused marketing and service philosophy.
We create a customized package of integrated transportation services for many
of our customers and seek to expand our customer relationships by matching each
customer's transportation and logistics needs with our broad menu of service
offerings, with many customers using more than one service. We believe that our
customers will increasingly look to us as the industry's trend towards single-
source outsourcing continues.
Flexible Business Model
We seek to limit the capital investment required to maintain and grow our
business and, therefore, maximize our returns on invested capital. Our business
model provides the following key benefits:
. We have developed our transportation network through contracts and
arrangements with various rail partners, trucking companies, independent
contractors and agents and other providers thereby limiting our
investment in equipment, facilities and working capital;
. The majority of our equipment is leased based on flexible leasing
arrangements, which contributes to our ability to maintain an 80%-90%
variable cost structure;
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. Favorable contractual terms with our rail and truck service providers
due to our high shipment volume allow us to operate with favorable net
working capital; and
. An ability to generate strong free cash flow in a variety of market
conditions.
Counterbalanced Freight Flows
We have a unique balance of domestic and internationally originating freight
flow, which enables us to maximize the return on our intermodal equipment and
negotiate incentives with our transportation providers. The majority of Asian
exports to the United States which are transported by rail are moved from ports
on the West Coast to population centers in the midwest and northeast regions.
However, domestic railroad freight which originates in the United States moves
predominantly westbound from eastern and midwestern production centers to
consumption centers on the West Coast. Our access to APL Limited's
international equipment delivered to the interior of the United States from
trans-Pacific shipments allows us to further support our domestic westbound
business. We are able to achieve high utilization rates and steady revenue
production from our intermodal equipment due to our high volume of both
eastbound and westbound shipments.
Experienced Management Team with Substantial Equity Ownership
We have an experienced management team with a strong record of successfully
integrating businesses in the transportation industry. Our senior management
team has an average of over 25 years of experience in the transportation and
logistics industry, and we believe their knowledge and relationships within the
industry provide us with a significant competitive advantage. After founding
our stacktrain business in 1984 while at APL Limited, Mr. Orris and his
management team managed the growth of the business and related operations to
over $1.0 billion in annual revenues by 1990. In addition, over the past two
years, Mr. Orris and his management team have successfully grown Pacer
Logistics' 1996 EBITDA of $3.6 to 1998 Adjusted EBITDA of $19.1 million. After
giving effect to our stock option plans and assuming the exchange of certain
preferred stock of Pacer Logistics, Mr. Orris and other members of our senior
management team and certain other employees will own approximately 29.0% of
Pacer International capital stock on a fully diluted basis.
Growth Strategy
We have developed a strategy designed to increase revenues, cash flow and
profitability while maximizing returns on invested capital. Our management team
has established a history of internal growth. Our pro forma gross revenues and
Adjusted EBITDA were $981.6 million and $69.9 million, respectively, for the
fiscal year ended December 25, 1998. For the twelve month period ended April 2,
1999, our pro forma gross revenues and Adjusted EBITDA were $987.4 million and
$72.2 million, respectively. The primary components of our growth strategy
include:
Capitalize on Stacktrain Growth Opportunities
We believe that the stacktrain business, which has grown at a compound
annual rate of 15.0% over the last decade, provides a significant opportunity
for continued growth. We expect our stacktrain business to take additional
market share from other forms of container and trailer transport due to
economic and operational efficiencies offered by the stacktrain technology. In
addition, recent consolidation and restructuring in the railroad industry
caused an increase in the average duration of stacktrain shipments from origin
to destination. We believe that this reduced level of service resulted in lost
profit opportunities which can be recaptured as the railroad industry returns
to historical service levels. We have also recently added additional 53-foot
containers and chassis to our equipment fleet. This larger-sized equipment
provides us with a cost-efficient capacity to capture additional load volume.
In addition, we believe that our acquisition of the stacktrain business and its
separation from APL Limited, an international shipping company, will lead to
increased business from other international shipping companies who were
historically reluctant to contract with a subsidiary of a direct competitor.
Finally, our senior management team has extensive experience in the intermodal
business and we believe they will be better able to capitalize quickly on
growth opportunities by operating the stacktrain business independently from
APL Limited.
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Expand Service Offerings to Capitalize on Strong Logistics Industry Trends
We believe it is important to meet the diverse needs of customers who are
increasingly looking to outsource their transportation requirements. We intend
to capitalize on the continuing trend of vendor consolidation and outsourcing
by maintaining a broad range of service offerings and introducing new services
to handle our customers' diverse transportation and logistics requirements. Our
recent acquisitions have added rail-related logistics services and expanded our
geographic coverage for our intermodal marketing capabilities. We believe that
through our broad menu of existing service offerings and the development and
acquisition of new service offerings we can continue to provide and expand our
integrated transportation service on an efficient and cost effective basis.
Increase Sales to Existing Customers
We intend to increase our revenues by providing additional transportation
services to existing customers. We believe that by offering a broad menu of
services, we will be able to expand our relationships with our existing
customers. Our strategy involves a continued focus on capturing additional
freight volume from existing customers which is currently being shipped by
long-haul trucking companies or intermodal competitors as well as providing
logistics services. For example, while we have provided J.C. Penney with
substantial local trucking services in Southern California for several years,
J.C. Penney has recently awarded us a new contract providing for freight
consolidation and handling in Southern California.
Expand Our Customer Base
We believe our national presence, large size and broad scope of services
make us well positioned to capture an increasing number of customers seeking a
single-source freight transportation and logistics provider. We intend to
expand our customer base by leveraging our operating infrastructure and adding
sales agents and independent contractors. We expect that expansion in these
areas will increase our capacity to solicit and maintain customer
relationships, thereby increasing our geographic scope and expanding our size
and service offerings. In addition, we believe our stacktrain business is well-
positioned to acquire new business from international shipping companies who
were historically reluctant to utilize our stacktrain services when the
business was owned by APL Limited, a direct competitor of such international
shipping companies.
Pursue Strategic Acquisitions
As an additional component of our growth strategy, we intend to continue our
disciplined acquisition program. For example, since Pacer Logistics' founding
in 1997, Pacer Logistics has completed six acquisitions with a total
transaction value, including debt assumed, of approximately $65.0 million,
including transaction costs. Acquisition candidates typically will fall into
one or more of the following three categories:
. operations that expand our presence in a particular service category;
. operations that expand our existing services in a new geographic area;
or
. operations that enable us to provide a new or expanded form of
complementary services to our customer base.
Due to the fragmented nature of the industry and the general industry trend
toward consolidation, we believe there is increased pressure on these smaller
transportation and logistics companies to consolidate. We intend to seek
acquisition candidates with complementary management and operating philosophies
and service capabilities that we can add to and integrate with our current menu
of services.
The Freight Transportation and Logistics Industry
Overview
The domestic freight transportation and logistics market includes the
transport of goods made and consumed domestically, the domestic portion of the
transport of international freight and the supply of logistics services such as
warehousing and logistics administration. The total commercial freight
transportation and
73
logistics market in 1997 was approximately $536.0 billion, representing over
6.0% of the U.S. economy measured as a percentage of gross national product.
Providers of freight transportation services include private shippers who
manage the transportation of their own freight, for-hire service providers such
as over-the-road trucking companies and third-party transportation and
logistics companies such as intermodel marketing companies. The bases of
competition in the freight transportation industry are primarily cost, delivery
time, reliability and precision of delivery and pick-up, as well as freight-
specific requirements such as handling and temperature control.
Transportation modes include rail, highway, water, air and pipeline
transportation. Ground transportation is the largest component of the domestic
freight transportation market, totaling approximately $409.0 billion in 1997.
Ground transportation consists primarily of trucking and rail services, with a
small portion related to pipeline transport. Transportation service offerings
that utilize multiple modes of transportation are commonly known as intermodal.
Our services are targeted at freight that is shipped within the United States
by truck or rail or by intermodal transport between truck and rail.
The commercial transportation and logistics market also includes several
types of intermediary firms that facilitate the movement of freight by
providing services such as logistics, warehousing and intermodal marketing.
Intermodal marketing companies sell intermodal service to shippers while buying
space on intermodal rail trains. These companies provide a link between
intermodal rail service providers and a significant number of shippers and
often provide additional transportation and logistical services such as
consolidation and warehousing.
In recent years, many sectors of the transportation industry have
experienced a trend toward consolidation. Increasingly, providers of
transportation services are seeking to use information technology and
customized service packages to offer their customers solutions to broader
transportation-related concerns. Since 1992, the third party transportation
industry has grown at a compound annual rate in excess of 20%, as compared to
3% per annum growth for the remainder of the domestic freight transportation
industry as a whole, as shippers have increasingly outsourced their
transportation requirements. The U.S. market for third-party transportation
services is highly fragmented, however, consolidation is accelerating as
shippers seek single-service providers to merge all aspects of freight
transportation and logistics management.
Intermodal/Stacktrain
Intermodal transportation is the movement of freight from origin to
destination via trailer or container using two or more transportation modes.
Intermodal transportation nearly always includes a rail and truck segment. Rail
transportation is the primary mode for the movement of intermodal freight with
truckers typically providing transportation at the points of origin and
destination. Intermodal transportation addresses certain of the problems of
traditional rail service because the use of multiple modes of transit allows
for "door-to-door" transportation in a competitive manner. The intermodal
market currently comprises approximately $10.0 billion, or 2.3%, of the total
domestic freight market excluding logistics services such as warehousing and
logistics administration. From 1980 to 1997, railroad intermodal traffic
increased at a compound annual rate of 6.3% while overall rail traffic grew
only 2.3% compounded annually. In 1998, total intermodal shipments declined
1.0% due to a decline in the intermodal transport of truck trailers on railroad
flatcars. However, the shipment of intermodal freight in containers, which
constitutes all of our stacktrain business, increased 3.3% in 1998. The decline
in the intermodal transport of truck-trailers was primarily attributable to
rail service disruptions related to consolidation and restructuring in the rail
industry. These service problems are being resolved by the railroads and
management believes that the intermodal industry will return to historical
growth rates for both containers and trailers.
In 1997, approximately $6.0 billion, or 18%, of railroads' total revenues
were generated from intermodal shipments. As intermodal transportation has
increased as a percentage of railroad revenues and volume, railroads have made
significant capital expenditures upgrading track and equipment to increase the
efficiency of intermodal service. Despite rail service disruptions in 1997 and
1998, the industry's general trend towards consolidation, cost reduction and
improved technology are expected to yield improved process management,
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asset utilization and service quality and reliability. We anticipate that these
improvements will be passed through to intermodal service. In addition, the
increased spending on railroad infrastructure is expected to further improve
the ability of intermodal rail transport to compete with motor carriers.
Intermodal transportation has benefited from the introduction of stacktrain
service, consisting of the movement of cargo containers stacked two high on
special rail cars. Stacktrain service significantly improves the efficiency of
intermodal transportation by increasing capacity at low incremental cost
without sacrificing quality of service. For both international and domestic
freight, stacktrain service has grown faster than intermodal freight
transportation generally, with revenues for domestic stacktrain services
growing at a compound annual rate of 15.0% over the last decade to
approximately $3.6 billion in 1998. With approximately 58.4% of our 1998 pro
forma gross revenues generated by our stacktrain operations, we believe we are
well positioned to take advantage of continued growth in the intermodal
transportation sector.
In the intermodal sector, railroads and shippers rely on intermodal
marketing companies which currently handle 60.0% to 70.0% of all intermodal
shipments. An intermodal marketing company arranges intermodal transportation
for global, national and regional retailers and manufacturers. The intermodal
marketing industry originated because railroads chose not to invest in the
infrastructure and resources needed to market their intermodal services.
Intermodal marketing companies pass on the economies of scale attributable to
volume purchasing arrangements to shippers and provide shippers access to large
equipment pools. In addition, intermodal marketing companies generally have
superior information systems and can take full responsibility for shipments
that may move among numerous railroads or truckers while in transit.
Trucking
The trucking segment of the transportation industry generated revenues of
approximately $347.0 billion in 1997, or 79.0% of the total domestic freight
transportation market excluding logistics services. The trucking market is
comprised of private and for-hire fleets, handling either truckload or less-
than-truckload shipments over various lengths of haul. Relative advantages of
trucking versus other modes include flexibility of pickup, route, and delivery
as well as relatively rapid delivery cycles. Trucking is often at a cost
disadvantage versus other modes of transportation, such as rail, due to
capacity limitations and high variable costs related to fuel and labor.
However, trucking is often advantageous for shorter lengths of haul. Private
fleets operated by shippers represent the largest sector of the non-local
trucking industry, but has been losing market share to for-hire carriers since
deregulation of the industry began in 1980. Shippers' increased focus on cost
reduction and core competencies has led to an accelerated rate of growth of the
for-hire trucking sector.
The trucking industry is divided into the truckload and less-than-truckload
sectors, both of which are highly fragmented. The truckload sector is composed
primarily of specialized carriers operating in markets defined by the length of
haul and the type of equipment utilized. Excluding private fleets, revenues in
the truckload segment were $65.0 billion in 1997, generated by 50,000 carriers,
approximately 95.0% of which had annual revenue of less than $1.0 million. A
majority of the trucking services we provide are truckload services. Less-than-
truckload carriers specialize in consolidating smaller shipments into truckload
quantities for transportation across regional and national networks. Many less-
than-truckload carriers have high fixed costs due to investments in
infrastructure. Other less-than-truckload carriers utilize the fixed facilities
of others and provide specialized outsourced services. The less-than-truckload
market generated approximately $18.0 billion of revenues in 1997. We derive
only a small portion of our revenues from less-than-truckload freight.
Other elements of the trucking industry include truck brokerage and the use
of independent contractors to provide services. Truck brokerage involves the
outsourced arrangement of trucking services by a third-party with a licensed
carrier on behalf of a shipper. Truck brokerage allows the provider to offer
trucking services without actually having dedicated capacity. The use of
independent contractors generally facilitates a low investment in
transportation equipment and increased flexibility.
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Railroads
The railroad industry generated revenues of approximately $36.0 billion in
1997, or 8.0% of the total domestic freight transportation market excluding
logistics services. The major participants in the rail market are Union Pacific
($9.8 billion of 1997 revenues), Burlington Northern Santa Fe ($8.4 billion),
CSX Transportation ($5.0 billion) and Norfolk Southern ($4.2 billion). Rail
transportation is particularly competitive for moving freight over long
distances, due to its high capacity per shipment and low variable labor and
fuel requirements per ton/mile. Rail service generally offers less flexibility
relative to trucking because it is limited in its origin and destination
points. The railroad industry has been characterized in recent years by several
mergers, including Burlington Northern and Santa Fe in 1995, Union Pacific and
Southern Pacific in 1996 and most recently, the division of Conrail between CSX
and Norfolk Southern which was completed in June 1999. Integration problems
have contributed to rail service disruptions following certain of the mergers.
For example, following the Union Pacific/Southern Pacific merger, labor
shortages and delayed integration of the companies' information systems
contributed to misrouted and lost freight cars as well as general service
delays. In addition, the Conrail/CSX/Norfolk Southern transaction has resulted
in some service disruptions in markets formerly served by Conrail. Despite
these difficulties, the railroad mergers have generally contributed to cost
savings in the industry by cutting employment, and the railroads are expected
to return to historical service levels as the integration problems are
resolved. In addition, railroads have reduced their costs through increased
utilization of new technology and outsourcing.
Logistics
Logistics is the management and transportation of materials and inventory
throughout the supply chain. The logistics business has been bolstered in
recent years by the competitiveness of the global economy, which causes
shippers to focus on reducing handling costs, operating with lower inventories
and shortening inventory transit times. The logistics sector of the commercial
freight transportation market was approximately $30.0 billion in 1997. Using a
network of transportation, handling and storage providers in multiple
transportation modes, logistics companies seek to improve their customers'
operating efficiency by reducing their inventory levels and related handling
costs. Many logistics providers are non-asset-based, primarily utilizing
physical assets owned by others in multiple transport modes. The logistics
business increasingly relies upon advanced information technology to link the
shipper with its inventory and as an analytical tool to optimize transportation
solutions. This trend favors the larger, more professionally managed companies
that have the resources to support a sophisticated information technology
infrastructure.
Freight Handling, Consolidation and Storage
Because of the complexity of freight patterns and the need to optimize
multi-modal routes, the handling and storage of freight on behalf of the
shipper is often required during the transportation process. Certain of these
services involve freight consolidation and deconsolidation, in which freight is
unloaded, temporarily stored in warehouses or on cross-docks, and then re-
loaded for further shipment. An example of such a service category in which we
compete involves the unloading of imported container freight on the West Coast
and the reconsolidation of the freight into new shipments for domestic
redistribution.
Our Service Offerings
Stacktrain Rail Service
Our stacktrain operations originated in the efforts of American President
Lines, an international ocean shipper and an affiliate of APL Limited, to
transport its international freight to destinations within North America in a
cost and time efficient manner. American President Lines had historically
shipped freight through the Panama Canal to reach destinations on the East
Coast of the United States or relied directly on railroads to transport its
international freight to destinations within North America. However, due to the
length of shipping times for transportation through the Panama Canal and the
lack of control and inconsistent service levels associated with direct reliance
on the railroads, APL Limited and American President Lines determined that it
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would be more efficient and cost-effective to develop a proprietary intermodal
rail service. The superior performance of this proprietary intermodal rail
service, and the subsequent development of stacktrain service, became the
basis for the offering of stacktrain service to third parties. APL Limited has
indicated it is selling its stracktrain business pursuant to the strategy of
its corporate parent, Neptune Orient Lines, to focus its operations on global
container transportation and logistics services.
Through our stacktrain business, we are the largest provider of intermodal
rail service in North America that is not affiliated with an individual
railroad company. The size of our equipment fleet, our frequent departures and
the scope of our geographic coverage provide us with a significant advantage
in attaining the responsiveness and reliability required by our customers. In
addition, the geographic coverage provided by our transportation network
provides our customers with single-company control over their rail
transportation requirements and thereby increases both cost effectiveness and
reliability. Our access to sophisticated information technology enables us to
continuously track cargo containers, chassis and railcars throughout our
transportation network. We market our services primarily to intermodal
marketing companies and shippers and compete primarily against rail carriers
offering intermodal service and over-the-road full truckload carriers.
Our 50,000 mile rail transportation network is accessed through long-term
contracts and other arrangements with major rail carriers in North America.
Through the geographic coverage of our rail network and our terminal
locations, we serve most major population and industrial centers in the United
States, Canada and Mexico. As a result of our extensive transportation
network, many of our customers view us as the only national railroad and value
our ability to control an entire freight movement from coast to coast. Given
our significant intermodal rail market share, we have developed close working
relationships with the railroads. We have long-term contracts with the rail
carriers which provide, among other things, for favorable rates, guaranteed
minimum service levels and the utilization of certain terminal facilities. In
addition, we have benefited in the past from our strong relationships with
rail carriers and have capitalized on our priority handling status during
times of equipment scarcity and network bottlenecks.
We maintain an extensive fleet of railcars, containers and chassis. Our
equipment consists of 558 doublestack railcars, 19,693 containers and 18,551
chassis as of June 25, 1999. We also have access to APL Limited's fleet of
equipment, which we use to support the eastbound domestic transport of
international freight for APL Limited and other international shipping
companies. In addition, we provide APL Limited with equipment repositioning
services through which we transport APL Limited's empty containers from
destinations within North America to their West Coast points of origin. To the
extent we are able to fill these empty containers with the westbound freight
of other stacktrain customers, we receive compensation from both APL Limited
for our repositioning service and from the other customers for shipment of
their freight. Management believes that we have access to over 100,000 empty
containers annually for repositioning. In 1998 we filled 65,645 repositioned
containers with freight for shipment via our stacktrain network on behalf of
our domestic customers. Because of increased Pacer Logistics volumes, we
believe that we will be able to increase the percentage of repositioned
containers that are filled and transported on behalf of our customers and
thereby increase the profitability of our repositioning business. See "Certain
Agreements."
Our proprietary fleet of equipment, priority handling status with rail
carriers and range of transportation services has resulted in an outstanding
track record of service quality, reliability and consistency. Through our
equipment fleet and long-term arrangements with rail carriers, we can control
our assets, linehaul operations and terminal operations and thereby provide a
high level of intermodal service. We are therefore positioned to provide a
reliable, cost effective and highly competitive transportation alternative.
Our stacktrain business was recognized in 1998 as "Best of the Best" for on-
time performance, value, equipment and operations, customer service and
technology and was ranked first overall as an intermodal service provider in a
survey of 3,500 shippers conducted by Logistics Management & Distribution
Report and Cahners Research. In addition, we believe that our unique market
position and service offerings position us to capitalize on considerable
growth opportunities in the intermodal transportation market.
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Intermodal Marketing
In our role as an intermodal marketing company, we arrange for the movement
of freight in containers and trailers throughout North America for global,
national and regional manufacturers and retailers and provide customized
electronic tracking and analysis of charges. In addition, we negotiate rail,
truck and intermodal rates, determine the optimal route, electronically track
shipments in transit, consolidate billing, handle claims of freight loss or
damage on behalf of our customers and manage the handling, consolidation and
storage of freight throughout the process. We provide the majority of these
services through a network of agents and independent contractors. Our
intermodal marketing operations are based in Lafayette (California), Los
Angeles, East Rutherford (New Jersey), Memphis and Chicago and employ
experienced transportation personnel. This staff is responsible for operations,
customer service, marketing, management information systems and our
relationships with the rail carriers.
Through our intermodal marketing operations we assist the railroads and our
stacktrain operation in balancing freight originating in or destined to its
service areas, resulting in improved asset utilization. In addition, we provide
value to our customers by passing on certain economies of scale as a volume
buyer from railroads, stacktrain operators, trucking companies and other third
party transportation providers, thereby providing access to large equipment
pools and streamlining the paperwork and logistics of an intermodal move. We
believe that the combination of our stacktrain operations with our intermodal
marketing services will enable us to provide enhanced service to our customers
and the opportunity for increased profitability and growth.
Trucking Services
We also offer a number of trucking services. We believe that our ability to
provide a range of trucking services provides a competitive advantage as
companies increasingly seek to outsource to those companies which can manage
multiple transportation requirements.
We compete in both the truckload and less-than-truckload segments of the
trucking industry, although the majority of our trucking revenues are derived
from truckload operations. Our truckload operations consist of flatbed and
specialized heavy-haul trucking services. Our less-than-truckload operation
specializes in long-haul transportation of a variety of freight through hubs
operated by others throughout the United States. Our less-than-truckload
operations leverage the mix of traffic we receive from customers by integrating
shipments which have common destinations in order to lower the linehaul, pick-
up and delivery costs. Our capital investment in both less-than-truckload and
truckload operations is limited. Pursuant to our truckload operations, we
control a specialized fleet of 480 vehicles which are owned and operated by
independent contractors and we own 63 specialized heavy-haul trailers. We do
not employ any drivers used in our less-than-truckload operations, but
coordinate with regional transportation providers at transportation hubs to
provide local delivery and distribution services.
We maintain local trucking operations in Los Angeles, Oakland, Jacksonville,
Chicago, Memphis, Kansas City, Houston, Dallas and Baltimore. Pursuant to our
operations, we contract with independent contractors who control more than 300
trucks. We also maintain interchange agreements with all of the major steamship
lines, railroads and stacktrain operators. Our network of independent
contractors allows us to serve shippers, ocean carriers and freight forwarders
across the country to supply local transport requirements.
We provide truck brokerage services throughout North America through our
customer service centers in Los Angeles, Lafayette (California), Dallas,
Chicago, and East Rutherford (New Jersey). Truck brokerage involves the
arrangement by a broker of trucking services with a licensed independent
carrier on behalf of a shipper. We are currently expanding our truck brokerage
operation into a flexible, nationwide network of customer service centers
supplying freight to a core group of reliable carriers. This network provides a
cost efficient and convenient back-up service to handle surges in customers'
volume. Services provided by the network are managed by sophisticated
information systems.
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Logistics
We provide not only a broad range of traditional transportation related
services, such as trucking and intermodal marketing, but also an array of
logistics solutions which can be tailored to fit a particular customer's needs.
By optimizing the flow of goods through the supply chain and across a variety
of services, we can significantly reduce our customers' freight handling,
delivery and inventory costs. We currently offer logistics services such as
local trucking, transportation purchasing and management, distribution planning
and other specialized services. We believe that demand for value-added
logistics services will continue to grow as companies downsize and outsource
many of these functions to third parties.
As part of our logistics services, we offer a variety of freight handling
services, including consolidation/deconsolidation and warehousing. Our
logistics operation has prospered by focusing on providing customers with
specially designed transportation packages which fit the shipper's specific
transportation needs. Additionally, we have designed service packages intended
to reduce the shipper's handling requirements and improve inventory efficiency.
These services are primarily offered on the West Coast and we have recently
established additional regional freight handling facilities to meet the needs
of our customers.
Customers
Through our sales and customer service organizations and with the support of
our centralized pricing and logistics management systems, we market our
stacktrain services primarily to four customer segments:
. intermodal marketing companies;
. the automotive industry;
. ocean carriers; and
. shippers of refrigerated freight.
Our largest single stacktrain customer group consists of intermodal
marketing companies, such as Pacer Logistics, who sell intermodal service to
shippers while buying space on intermodal rail trains. Through our sales
network, and the sales networks of the intermodal marketing companies to which
we sell stacktrain services, we provide stacktrain services to more than 5,000
shippers such Sony, Ford Motor Company and Wal-Mart Stores. In addition, we
provide stacktrain services to APL Limited's in-house intermodal marketing
operation and its affiliated automotive logistics company. We are also
responsible for the handling of APL Limited's international container shipping
and for the repositioning of APL Limited's empty containers from the interior
to the West Coast of the United States so that they may be reused by APL
Limited in its international shipping operations.
Pacer Logistics currently provides services on a nationwide basis to
retailers and manufacturers. Pacer Logistics provides services to a number of
Fortune 500 companies, such as Kmart, Walt Disney and the Union Pacific
Railroad, several of which have been long-term customers of Pacer Logistics. A
significant portion of our sales obtained through Pacer Logistics are with
customers that utilize more than one service. For example, while we have
provided J.C. Penney with substantial local trucking services in Southern
California for several years, J.C. Penney has recently awarded us a new
agreement providing for freight consolidation and handling in Southern
California.
Competition
Our stacktrain business competes primarily with over-the-road full truckload
carriers, conventional intermodal movement of trailers-on-flatcars, and
containerized intermodal rail services offered directly by railroads.
Competition between our stacktrain business and truckload carriers is
particularly intense for shipments of freight over shorter distances. This is
primarily attributable to the fact that the competitive advantage of intermodal
transportation's low variable labor and fuel requirements per ton/mile is
diminished for
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shorter distance shipments. The major competitors of our stacktrain business
include Burlington Northern Santa Fe, Union Pacific, CSX Intermodal and J.B.
Hunt Transport.
The transportation services industry is highly competitive. Our intermodal
marketing, trucking and logistics business competes primarily against other
domestic non-asset-based transportation and logistics companies, asset-based
transportation and logistics companies, third-party freight brokers, private
shipping departments and freight forwarders. Competition is based primarily on
freight rates, quality of service (such as damage free shipments, on-time
delivery and consistent transit times), reliable pickup and delivery and scope
of operations. We also compete with transportation services companies for the
services of independent commission agents, and with trucklines for the services
of independent contractors and drivers. The major competitors of Pacer
Logistics include Hub Group, Mark VII, Alliance Shippers and C.H. Robinson.
Sales and Marketing
As of June 25, 1999 our stacktrain operations were marketed by 16 sales and
25 customer service representatives. These representatives operate through
seven regional and district sales offices and three regional service centers
which are situated in the major shipping locations for the stacktrain business
in order to provide support for the customers of the stacktrain business. The
16 sales representatives are directly responsible for the management of and
liaison with existing customers and for the solicitation of new business. The
customer service representatives are responsible for supporting existing
customers and sales representatives through, among other things, providing
cargo tracking services, responding to customer complaints and processing
customer inquiries. In addition, intermodal marketing companies are an
important link between our stacktrain operations and shippers. Intermodal
marketing companies, who sell intermodal service to shippers while buying space
on intermodal rail trains, enable us to market our services through their sales
networks and indirectly access shippers in more than 100 major metropolitan
areas.
As of June 25, 1999, Pacer Logistics' marketing operation included 242 sales
agents, 185 of which are independent sales agents, supported by regional sales
offices in 17 cities, including Los Angeles, Chicago, Atlanta, Seattle, Dallas
and Oakland. This sales force is primarily responsible for selling the services
offered by our Pacer Logistics business unit. Our salaried sales
representatives are deployed in major transportation hubs and target major
accounts, while commissioned sales agents located throughout the country
contribute additional business that enables us to meet our volume commitments
and balance traffic flows. A number of our sales agents focus on particular
industries and in many cases we dedicate personnel to service particular
customers. We also have a national network of commissioned sales agents,
strategically located in key metropolitan areas, who, in connection with our
trucking services, contact local customers, solicit business and move freight
in conjunction with central dispatch coordinators.
Information Technology
Through APL Limited, we operate our stacktrain business with highly
sophisticated computer systems that enable continuous tracking of cargo
containers, chassis and railcars throughout the intermodal system. These
systems also provide us with performance, utilization and profitability
indicators in all aspects of the stacktrain business. These information systems
create a competitive advantage for us as they increase the efficiency of our
intermodal operations and enable us to provide shippers with the level of
information which they increasingly demand as part of their freight management
operations. See "Certain Agreements."
We have also invested in information technology to support the operations of
Pacer Logistics. Our information systems which apply to both our stacktrain
business and the operations of Pacer Logistics are capable of providing a wide
range of communication alternatives, typically through the medium requested by
our customers. As such, employees are linked with each other and with customers
and carriers by telephone, facsimile, E-mail, the Internet and/or electronic
data interchange ("EDI"). This interconnection allows us to easily communicate
requirements and availability of equipment and volume, to confirm and bill
orders and to track shipments. In addition, we are able to track chassis,
trailers and containers and deploy that equipment to fulfill our customers'
shipping requirements.
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We believe that our strong track record of high quality service and
reliability evidences the sophistication and successful implementation of our
technology systems. Our information technology includes integrated software
packages geared toward ensuring that goods are delivered in the most timely and
cost effective manner. We use a variety of proprietary software to track
customer orders and cargo, generate management reports to meet federal highway
authority requirements and locate all containers, chassis and railcars
throughout our network. Our systems also contain timely information on rail,
drayage, and truck contract rates, perform accounting functions and generate
management reports and billing statements. Our technology provides us with
critical information regarding the flow of freight, rail schedules, and
equipment availability. Based on this information, we are better able to
deliver timely and efficient service to our customers and provide the railroads
with increased equipment utilization and balanced freight flows. Currently, our
technological efforts are primarily focused on reducing customer service
response time, enhancing the customer service profile database, and expanding
the number of customers and service providers with which we share data using
EDI applications.
Facilities/Equipment
Our stacktrain transportation network services a total of 67 locations
across North America. Our integrated rail network, combined with our equipment
fleet, enables us to provide our customers with single-company control over
rail transportation to locations throughout North America.
Substantially all of our terminals are owned by rail or highway carriers and
are managed on our behalf. However, full-time personnel work on-site at major
locations to ensure close coordination of the services provided at the
facilities. In addition to these terminals, other locations throughout the
eastern United States serve as stand-alone container depots, where empty
containers can be picked up or dropped off, or supply points, where empty
containers can be picked up only. In connection with our trucking services,
agents provide marketing and sales, terminal facilities and driver recruiting,
while an operations center provides, among other services, insurance, claims
handling, safety compliance, credit, billing and collection and operating
advances and payments to drivers and agents.
Our stacktrain equipment fleet consists of a large number double stack
railcars, containers and chassis which are owned or subject to short and long
term leases. As of June 25, 1999 our stacktrain equipment fleet consisted of
the following:
Owned Leased Total
----- ------ ------
Containers
48' Containers......................................... 706 14,141 14,847
53' Containers......................................... 31 4,815 4,846
----- ------ ------
Total................................................ 737 18,956 19,693
===== ====== ======
Chassis
48' Chassis............................................ 5,813 7,218 13,031
53' Chassis............................................ 39 5,481 5,520
----- ------ ------
Subtotal............................................. 5,852 12,699 18,551
20', 40' and 45'(/1/).................................. -- 4,016 4,016
----- ------ ------
Total................................................ 5,852 16,715 22,567
===== ====== ======
Doublestack Railcars..................................... 210 348 558
===== ====== ======
- --------
(/1/Represents)the current allocation of chassis sublet to us pursuant to the
terms of the TPI Chassis Sublet Agreement which was entered into between us
and APL Limited. See "Certain Agreements."
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Supplementing the equipment listed above we have access to an extensive
inventory of 20-, 40- and 45-foot containers from APL Limited's international
network in addition to the empty containers which we reposition on behalf of
APL Limited.
Pacer Logistics also owns a limited amount of equipment to support our
trucking operations. The majority of our trucking operations are conducted
through contracts with independent contractors who own and operate their own
equipment. Through Pacer Logistics, we lease two warehouses in Kansas City and
a facility in Los Angeles for dockspace, warehousing and parking for tractors
and trailers.
Suppliers
Railroads
We have long-term contracts with certain of the railroads regarding movement
of our stacktrains. In addition, the railroad contracts generally provide for
access to terminals controlled by the railroads as well as support services
related to our stacktrain operations. Through these contracts, our stacktrain
business has established a North American transportation network. Pacer
Logistics also maintains contracts with the railroads which govern the
transportation services and payment terms pursuant to which its intermodal
shipments are handled by the railroads. The Pacer Logistics contracts are
typically of short duration, usually twelve month terms, and subject to renewal
or extension. While there can be no assurance that Pacer Logistics' contracts
will be renewed, we have in the past successfully negotiated extensions of the
contracts with the railroads. We maintain close working relationships with all
of the major railroads in the United States and view each relationship as a
partnership. We will continue to focus our efforts on strengthening these
relationships.
Through our contracts with rail carriers, we have access to a 50,000 mile
rail network throughout North America. Our rail contracts, which generally
provide that the rail carriers will perform linehaul and terminal services for
us, are typically long-term agreements, with major contracts providing for a
remaining term of 13 to 15 years. Pursuant to the service provisions, the rail
carriers provide transportation of our stacktrains across their rail networks
and terminal services related to loading and unloading of containers, equipment
movement and general administration. Our rail contracts generally establish per
container rates for stacktrain shipments made on rail carriers' transportation
networks and typically provide that we are obligated to transport a certain
percentage of our total stacktrain shipments with each of the rail carriers.
The terms of our rail contracts, including rates, are generally subject to
adjustment or renegotiation throughout the term of the contract, based on
factors such as the continuing fairness of the contract terms, prevailing
market conditions and changes in the rail carriers' costs to provide rail
service. Generally, we have the benefit of advantageous rate provisions in our
rail contracts. Based upon these provisions, and the volume of freight which we
ship with each of the rail carriers, we believe that we enjoy favorable
transportation rates for our stacktrain shipments.
Independent Contractors
We rely on the services of independent agents and contractors in certain of
our transportation services. Although we own a small number of tractors and
trailers, the majority of our truck equipment and drivers are provided by
independent contractors and agents. Our relationships with independent
contractors allow us to provide customers with a broad range of trucking
services without the need to commit capital to acquire and maintain an asset
base. Although our agreements with independent contractors are typically long-
term in practice, they are generally terminable by either party on short
notice.
Independent contractors and fleet owners are compensated on the basis of
mileage rates and a fixed percentage of the revenue generated from the
shipments they haul. Under the terms of our typical lease contracts,
independent contractors must pay all the expenses of operating their equipment,
including driver wages and benefits, fuel, physical damage insurance,
maintenance and debt service.
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Local Trucking Companies
We have established a good working relationship with a large network of
local truckers in many major urban centers throughout the United States. The
quality of these relationships helps ensure reliable pickups and deliveries,
which is a major differentiating factor among intermodal marketing companies.
Our strategy has been to concentrate business with a select group of local
truckers in a particular urban area, which increases our economic value with
the local truckers, and in turn raises the quality of service that we receive.
Relationship with APL Limited
We have entered into a long-term agreement with APL Limited for the domestic
transportation on our stacktrain network of APL Limited's international
freight. The majority of APL Limited's imports to the United States are
transported on the stacktrain from ports on the West Coast to population
centers in the Midwest and Northeast regions. However, domestic stacktrain
freight which originates in the United States moves predominantly westbound
from eastern and midwestern production centers to consumption centers on the
West Coast. Because of our agreement with APL Limited, we are able to achieve
high utilization and steady revenue production from our intermodal equipment
due to our high volume of both eastbound and westbound shipments. The APL
Limited freight also significantly increases the stacktrain volume, thereby
improving our bargaining position with the railroads regarding contract terms.
In addition, we provide APL Limited with equipment repositioning services
through which we transport APL Limited's empty containers from destinations
within North America to their West Coast points of origin. To the extent we are
able to fill these empty containers with the westbound freight of other
stacktrain customers, we receive compensation from both APL Limited for our
repositioning service and from the other customers for shipment of their
freight. In addition to the foregoing, we are in the process of negotiating a
long-term agreement with APL Limited, pursuant to which APL Limited will
provide us with certain information technology services essential to our
stacktrain business. See "Certain Agreements."
Government Regulation
Regulation of Our Trucking and Stacktrain Operations
The transportation industry has been subject to legislative and regulatory
changes that have affected the economics of the industry by requiring changes
in operating practices or influencing the demand for, and cost of, providing
transportation services.
We are subject to licensing and regulation as a transportation provider
pursuant to our trucking operations. We are licensed by the Department of
Transportation as a national freight broker in arranging for the transportation
of general commodities by motor vehicle and operate pursuant to a 48-state,
irregular route common and contract carrier authority. The Department of
Transportation prescribes qualifications for acting in our capacity as a
national freight broker, including certain surety bonding requirements. We
provide motor carrier transportation services that require registration with
the Department of Transportation and compliance with certain economic
regulations administered by the Department of Transportation, including a
requirement to maintain insurance coverage in minimum prescribed amounts. Other
sourcing and distribution activities may be subject to various federal and
state food and drug statutes and regulations. Although Congress enacted
legislation in 1994 that substantially preempts the authority of states to
exercise economic regulation of motor carriers and brokers of freight, we and
several of our subsidiaries continue to be subject to a variety of vehicle
registration and licensing requirements. We and the carriers that we rely on in
arranging transportation services for our customers are also subject to a
variety of federal and state safety and environmental regulations.
Intermodal operations, like ours, were exempted from virtually all active
regulatory supervision by the Interstate Commerce Commission, predecessor to
the regulatory responsibilities now held by the federal Surface Transportation
Board. Such exemption is revocable by the Surface Transportation Board, but the
standards for revocation of regulatory exemptions issued by the Interstate
Commerce Commission or Surface Transportation Board are high.
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Regulation of Our Suppliers and Customers
We have a substantial number of customers who provide ocean carriage of
intermodal shipments. Ocean carriage is subject to regulation by the Federal
Maritime Commission and, to a lesser extent, by other agencies. The regulatory
regime applicable to ocean shipping was revised by the Ocean Shipping Reform
Act of 1998, which took effect May 1, 1999. It is unclear at this time to what
extent implementation of the Ocean Shipping Reform Act will affect the
competitiveness and/or efficiency of operations of our various ocean carrier
customers.
The Federal Maritime Commission is reported to be pursuing an investigation
at this time concerning alleged violations of statutory and regulatory
requirements by ocean carriers involved in the eastbound trans-Pacific trades
during the peak shipping season of 1998. The scope and focus of such
investigation and the remedies which may be imposed by the Federal Maritime
Commission based on its findings is presently unclear.
Litigation
A subsidiary of Pacer Logistics is a named defendant in a class action filed
in July, 1997 in the State of California, Los Angeles Superior Court, Central
District, alleging, among other things, breach of fiduciary duty, unfair
business practices and conversion in connection with monies allegedly
wrongfully deducted from truck drivers' earnings. The Pacer Logistics
subsidiary has entered into a Judge Pro Tempore Submission Agreement dated as
of October 9, 1998 pursuant to which the plaintiffs and defendants have waived
their rights to a jury trial, stipulated to a certified class and agreed to a
minimum judgment of $250,000 and a maximum judgment of $1.75 million to be
determined by a panel of three judges. Trial is scheduled to begin on August 9,
1999. To date, this action has not had a material negative impact on our
relationships with independent contractors, drayage companies or fleet owners.
We are currently not otherwise subject to any other pending or threatened
litigation other than routine litigation arising in the ordinary course of
business, none of which is expected to have a material adverse effect on our
business, financial condition or results of operations. Most of the lawsuits to
which we are a party are covered by insurance and are being defended by our
insurance carriers.
Environmental
We are subject to federal, state and local environmental regulations,
including regulations relating to permitting requirements, wastewater
discharges and underground storage tanks. We believe that we are in substantial
compliance with these requirements and that we currently have no material
environmental liabilities.
Where You Can Get More Information
We have filed with the Securities and Exchange Commission a registration
statement under the Securities Act of 1933, as amended, covering the notes to
be issued in the exchange offer. As permitted by the Commission rules, this
prospectus omits certain information included in the registration statement.
For further information pertaining to the notes, we refer you to the
registration statement, including its exhibits. Any statement made in this
prospectus concerning the contents of any contract, agreement or other document
is not necessarily complete. If we have filed any such contract, agreement or
other document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement regarding a contract, agreement or other document made in this
prospectus is not necessarily complete and you should refer to the exhibits
attached to the registration statement for a copy of the actual document. You
may read and copy any of the information we file with the Commission at the
Commission's public reference rooms at 1024, 450 Fifth Street, N.W.,
Washington, D.C., at 7 World Trade Center, 13th Floor, New York, New York
10048. You can also obtain copies of filed documents by mail from the public
reference section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. You may call the Commission at 1-
800-SEC-0330 for further information on the operation of the public reference
rooms. Filed documents are also available to the public at the Commission's web
site at http://www.sec.gov.
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Following the exchange offer, we will be required to file annual, quarterly
and special reports, proxy statements and other information with the Commission
under the Exchange Act. Our obligation to file periodic reports with the
Commission will be suspended if the notes issued in the exchange offer are held
of record by fewer than 300 holders as of the beginning of any year. However,
to the extent permitted, the indenture governing the notes requires us to file
with the Commission financial and other information for public availability. In
addition, the indenture governing the notes requires us to deliver to you
copies of all reports that we file with the Commission without any cost to you.
We will also furnish such other reports as we may determine or as the law
requires.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding the directors and
executive officers of our company following our recapitalization and this
offering.
Name Age Position with Pacer International
- ---- --- ---------------------------------
Donald C. Orris............. 57 Chairman, President and Chief Executive Officer
Gerry Angeli................ 52 Executive Vice President
Gary I. Goldfein............ 54 Executive Vice President
Robert L. Cross............. 52 Executive Vice President
Richard P. Hyland........... 45 Executive Vice President
Allen E. Steiner............ 59 Executive Vice President
Lawrence C. Yarberry........ 57 Executive Vice President, Chief Financial
Officer and Treasurer
Joseph P. Atturio........... 41 Vice President, Controller and Secretary
Joshua J. Harris............ 35 Director
Bruce H. Spector............ 57 Director
Marc E. Becker.............. 27 Director
Timothy J. Rhein............ 58 Director
Donald C. Orris has served as Chairman, President and Chief Executive
Officer of our company since May 1999. From Pacer Logistics' inception in March
1997 until May 1999, Mr. Orris served as Chairman, President and Chief
Executive Officer of Pacer Logistics. From March 1997 until May 1998, Mr. Orris
served as President and Chief Executive Officer of an affiliate of Pacer
Logistics. He also has served as Chairman of Pacer Logistics' other
subsidiaries since their formation or acquisition by Pacer Logistics. Mr. Orris
has been the President of Pacer International Consulting LLC (f/k/a Logistics
International LLC), a wholly owned subsidiary of Pacer Logistics, since
September 1996. From January 1995 to September 1996, Mr. Orris served as
President and Chief Operating Officer, and from 1990 until January 1995, he
served as an Executive Vice President, of Southern Pacific Transportation
Company. Mr. Orris was the President and Chief Operating Officer of American
President Domestic Company and American President Intermodal Company from 1982
until 1990.
Gerry Angeli has served as an Executive Vice President of our company since
May 1999. From Pacer Logistics' inception in March 1997 until May 1999, Mr.
Angeli served as an Executive Vice President and Assistant Secretary of Pacer
Logistics and as a director of Pacer Logistics from April 1998 until May 1999.
He also served as a director of each of Pacer Logistics' subsidiaries. Since
May 1998, Mr. Angeli has served as President and Chief Executive Officer and
Vice President of certain Pacer Logistics subsidiaries. Mr. Angeli also served
as a Vice President and Assistant Secretary of PMTC from March 1997 until May
1998. Since 1982, Mr. Angeli has served as President and Chief Executive
Officer of the Pacer division of PMTC and, concurrent therewith, from 1987
until December 1993, Mr. Angeli served as President and Chief Executive Officer
of Southern Pacific Motor Trucking, a wholly owned subsidiary of the Southern
Pacific Railroad.
Gary I. Goldfein has served as an Executive Vice President of our company
since May 1999. Mr. Goldfein served as an Executive Vice President and director
of Pacer Logistics from December 1997 until May 1999. He also served as a
director of each of Pacer Logistics' subsidiaries and as an officer of certain
Pacer Logistics subsidiaries since May 1998. Mr. Goldfein was a co-founder of
ICI and ICSI in 1972. From 1972 until December 1997, Mr. Goldfein served as
President and Treasurer of ICSI and IMCS and Vice President and Secretary of
ICI.
Robert L. Cross has served as an Executive Vice President of our company
since May 1999. Mr. Cross served as an Executive Vice President and Assistant
Secretary of Pacer Logistics and as an officer of certain Pacer Logistics
subsidiaries from Pacer Logistics' inception in March 1997 until May 1999. From
1991 until March 1997, Mr. Cross served as President of ABL-TRANS.
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Richard P. Hyland has served as an Executive Vice President of our company
since May 1999. Mr. Hyland served as an Executive Vice President of Pacer
Logistics and as an officer of certain Pacer Logistics subsidiaries from June
1998 until May 1999. Mr. Hyland is the founder of Cross Con and has served as
President of Cross Con since 1977.
Allen E. Steiner has served as an Executive Vice President of our company
since May 1999. Mr. Steiner served as an Executive Vice President of Pacer
Logistics from December 1997 until May 1999. Since May 1998, Mr. Steiner has
served as Executive Vice President of certain Pacer Logistics subsidiaries. Mr.
Steiner was a co-founder of ICI and ICSI in 1972. From 1972 until December
1997, Mr. Steiner served as President and Treasurer of ICI and Vice President
and Secretary of ICSI and IMCS.
Lawrence C. Yarberry has served as an Executive Vice President, Chief
Financial Officer and Treasurer of our company since May 1999. Mr. Yarberry
served as an Executive Vice President, Chief Financial Officer and Treasurer of
Pacer Logistics from May 1998 until May 1999. Mr. Yarberry served as a
consultant to Pacer Logistics from February 1998 until April 1998. From April
1990 until December 1997, Mr. Yarberry served as a Vice President of Finance of
Southern Pacific Transportation Company and was Vice President of Finance and
Chief Financial Officer of Southern Pacific Rail Corporation.
Joseph P. Atturio has served as a Vice President, Controller and Secretary
of our company since May 1999. Mr. Atturio served as Vice President and
Secretary of Pacer Logistics since its inception in March 1997 until May 1999.
Prior to joining Pacer Logistics, Mr. Atturio served as Comptroller of SPMT
from August 1988 until December 1993 and as a Vice President of SPMT from July
1992 until December 1993. From January 1994 until March 1997, he served as Vice
President and Comptroller of PMTC and served as a Regional Director of PMT Auto
Transport, a division of PMTC, from January 1986 until 1988.
Joshua J. Harris has served as a director of our company since May 1999. Mr.
Harris is a partner in Apollo Management and has served as an officer of
certain affiliates of Apollo Management since 1990. Prior to that time, Mr.
Harris was a member of the Mergers and Acquisitions Department of Drexel
Burnham Lambert Incorporated. Mr. Harris is also a director of Converse Inc.,
Florsheim Group Inc., NRT, Incorporated, SMT Health Services Inc., Breuners
Home Furnishings Corporation, Alliance Imaging, Inc. and Quality Distribution
Inc.
Bruce H. Spector has served as a director of our company since May 1999. Mr.
Spector has been a consultant to Apollo Advisors since 1992 and has been a
principal in Apollo Advisors since 1995. Prior to October 1992, Mr. Spector, a
reorganization attorney, was a member of the Los Angeles law firm of Stutman
Triester and Glatt. Mr. Spector is also a director of Telemundo Group, Inc.,
United International Holdings, Inc., Nexthealth, Inc., Vail Resorts, Inc. and
Metropolis Realty Trust, Inc.
Marc E. Becker has served as a director of our company since May 1999. Mr.
Becker has been associated with Apollo Management since 1996. Prior to that
time, Mr. Becker was employed by Smith Barney Inc. in the Financial
Entrepreneurs group within its Investment Banking division. Mr. Becker also
serves as a director of National Financial Partners Corporation.
Timothy J. Rhein has served as a director of our company since May 1999. Mr.
Rhein has been President and Chief Executive Officer of APL Limited since
October 1995. Mr. Rhein served as APL Limited's President and Chief Operating
Officer from July 1995 to October 1995. Prior to that, Mr. Rhein served as
President and Chief Executive Officer of APL Land Transport Services, Inc. from
May 1990 to October 1995 and President and Chief Operating Officer of American
President Lines, Ltd. from January 1987 to May 1990. Mr. Rhein has served as a
director of APL Limited since July 1990.
Director Compensation
Messrs. Harris, Spector, Becker and Rhein have each been granted an option
under the Pacer International, Inc. 1999 Stock Option Plan to purchase 6,000
shares of our common stock with an exercise price of $10 per share.
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Executive Compensation
Summary Compensation Table
Annual Compensation Long Term Compensation
- --------------------------------------------------------------- ---------------------------------------------
Awards Payouts
------------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Other Annual Stock Underlying LTIP All-Other
Name and Principal Position Year Salary Bonus Compensation Award(s)/1/ Options/SARs Payouts Compensation
- --------------------------- ---- -------- ------- ------------ ----------- ------------ ------- ------------
Donald C. Orris......... 1998 $250,000 $90,000 -- -- -- -- $6,250
Gerry Angeli............ 1998 $250,000 $90,000 -- -- -- -- $7,500
Gary I. Goldfein........ 1998 $235,000 $90,000 -- -- -- -- $1,600
Robert L. Cross......... 1998 $220,000 $90,000 -- -- -- -- $6,558
Alan E. Steiner......... 1998 $220,000 $90,000 -- -- -- -- $1,600
- --------
/1/Mr. Orris, Mr. Angeli and Mr. Cross each hold 17,500 restricted shares of
Pacer Logistics preferred stock with a fiscal year end 1998 fair market
value of $171,738 (based on a fiscal year end 1998 fair market value of $9
per share of such preferred stock, plus accrued dividends).
/2/Consists of company matching contributions to 401(k) plan.
Option/SAR Grants in Last Fiscal Year
No stock options or stock appreciation rights were granted to Named
Executive Officers during fiscal year 1998.
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
----------------------------------------------------------------------------------------
(a) (b) (c) (d)(/1/) (e)
Number of Securities Underlying
Unexercised Options/SARs at fiscal Value of Unexercised In-the-Money
year end Options/SARs at fiscal year end(/2/)
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ------------------ ------------------ ------------------- -------------------
Donald C. Orris......... -- -- 200,291 (common) 182,875 (common) $1,576,683 (common) $1,788,859 (common)
19,167 (preferred) 17,500 (preferred) $0 (preferred) $0 (preferred)
Gerry Angeli............ -- -- 200,291 (common) 182,875 (common) $1,576,683 (common) $1,788,849 (common)
19,167 (preferred) 17,500 (preferred) $0 (preferred) $0 (preferred)
Gary I. Goldfein........ -- -- -- --
Robert L. Cross......... -- -- 200,291 (common) 182,875 (common) $1,576,683 (common) $1,788,849 (common)
19,167 (preferred) 17,500 (preferred) $0 (preferred) $0 (preferred)
Alan E. Steiner......... -- -- -- --
- --------
(/1/In)connection with the Pacer Logistics transaction, certain of the options
relating to Pacer Logistics preferred stock will convert to options to
purchase Pacer Logistics Series A Preferred Stock. See "Our Capital
Stock."
(/2/Based)upon end of year fair market value of $10 per share of common stock
and $9 per share of Pacer Logistics preferred stock.
Stock Option Plan
Our Board of Directors adopted the Pacer International, Inc. 1999 Stock
Option Plan in May 1999. The purpose of this plan is to further our growth and
success by permitting our employees, as well as employees of Pacer Logistics,
to acquire shares of our common stock and the preferred stock of Pacer
Logistics, in the case of employees of Pacer Logistics, thereby increasing
their personal interest in our growth and success and to provide a means of
rewarding outstanding contribution by these employees. With the exception of
the 562,861 incentive stock options which were rolled into this plan from the
PMT Holdings, Inc. 1997 Stock Option Plan and the Pacer International, Inc.
1998 Stock Option Plan, options subject to this plan do not qualify as
incentive stock options under the provisions of section 422 of the Internal
Revenue Code.
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No more than 1,793,747 shares may be issued pursuant to all option grants
under this plan. In the event of certain corporate reorganizations,
recapitalizations, or other specified corporate transactions affecting our
stock, this plan permits proportionate adjustments to the number and kinds of
shares subject to options and/or the exercise price of those shares.
All of our employees, as well as the employees of any of our subsidiaries,
as well as non-employee directors are eligible for option grants under this
plan. This plan is administered by a committee of our Board of Directors and,
except with respect to initial grants described below, such committee has the
power and authority to approve the persons to whom options are granted, the
time or times at which options are granted, the number of shares subject to
each option, the exercise price of each option and the vesting and
exercisability provisions of each option and has all powers with respect to the
administration and interpretation of this plan.
This plan provides for initial grants to specified employees. The aggregate
number of shares subject to these initial grants is 832,000 and their exercise
price is $10.00 per share. These initial grants are divided into three
tranches, Tranche A, Tranche B and Tranche C. Tranche A options vest in five
equal installments on the date of the grant's first five anniversary dates,
provided the employee is employed by us on each anniversary date. Tranche B
options generally vest on the date of grant's seventh anniversary date if the
employee is employed by us on that date. However, if on any of the grant's
first five anniversary dates certain per share target values are attained and
the employee is employed by us on that date, then 20% of the Tranche B options
will vest. Accelerated vesting of the Tranche B options is possible if a sale
of our company occurs prior to the date of grant's fifth anniversary and the
fair market value of the per share consideration to be received by the
shareholder equals or exceeds an amount calculated in accordance with this
plan. Tranche C options vest in substantially the same manner as Tranche B
options, including acceleration upon a sale of our company, except that the per
share target values as of a given anniversary date are increased. Options
granted to non-employee directors vest in four equal installments on the date
of grant's first four anniversary dates.
A vested option that has not yet been exercised will automatically terminate
on the first to occur of
(1) the grant's tenth anniversary,
(2) ninety days following the employee's service of employment for any
reason other than death or disability,
(3) twelve months following the employee's service of employment due to
death or disability, or
(4) as otherwise determined by the committee.
Each option that is vested as of the date of the sale of our company remains
exercisable until the sale's closing, after which time such option is
unenforceable. Non-vested Tranche A, Tranche B and Tranche C options will vest
in accordance with the vesting schedules described above, however, an option
that vests after our company is sold will remain exercisable for 10 days before
such portion of the option terminates and is of no further force or effect. All
options granted under this plan are nontransferable except upon death, by such
employee's will or the laws of descent and distribution, or transfers to family
members of the employee that are approved by the committee.
This plan has a term of ten years, subject to earlier termination by our
Board of Directors, who may modify or amend this plan in any respect, provided
that no amendment or modification affects an option already granted without the
consent of the option holder.
Employment and Related Agreements
We have entered into employment agreements dated as of March 31, 1997, and
amended as of April 7, 1999, with each of Donald C. Orris, Gerry Angeli and
Robert L. Cross and employment agreements dated as of December 16, 1997, and
amended as of April 7, 1999, with each of Gary I. Goldfein and Allen E.
Steiner. Each of these employment agreements, as amended, has a term of two
years commencing upon the closing of the Pacer Logistics transactions, with
automatic one year renewals on each anniversary of their commencement date. The
minimum base salary under these employment agreements is $225,000, $225,000,
$200,000, $235,000, and $220,000 per year for Messrs. Orris, Angeli, Cross,
Goldfein, and Steiner, respectively, subject to increase by our board of
directors, except in the case of Mr. Orris, in which case the base salary is
subject to increase as agreed to by Mr. Orris and our Board of Directors.
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Under the employment agreements of Messrs. Orris, Angeli and Cross, our
Board of Directors may award an annual bonus to the employee in an amount up to
$83,000 and under the employment agreements of Messrs. Goldfein and Steiner
such bonus may be in an amount up to $90,000. In each case, such bonus is based
on the attainment of certain operating income targets.
All of the employment agreements provide that if the employment of these
employees is terminated for any reason, they would be entitled to receive any
unpaid portion of their base salary, reimbursement for any expenses incurred
prior to the date of termination and any unpaid amounts earned prior to the
effective date of termination pursuant to the terms of any bonus or benefit
program in which they participated at the time of termination. In addition, the
employment agreements provide that if the employment of these employees is
terminated without "cause", as defined in the employment agreements, they would
be entitled to receive 100% of their base salary for a period of between twelve
and twenty-four months, with such amount to be reduced by 50% of any salary
earned during this severance period from other sources.
All of the employment agreements include certain restrictive covenants for
our benefit relating to the non-disclosure by these employees of our
confidential business information and trade secrets, the disclosure grant and
assignment of inventions and non-competition with regards to any business in
competition with us.
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CERTAIN AGREEMENTS
APL Limited Agreements
We have entered into, or have entered negotiations to enter into, agreements
with APL Limited and certain of its affiliates relating to our stacktrain
business. Except as otherwise described below, these agreements were entered
into simultaneously with the consummation of our recapitalization.
Non-Competition Agreement
Pursuant to a Non-Competition Agreement, Neptune Orient Lines Limited, APL
Limited, and their affiliates agreed not to compete with us, either through
ownership of, participation in management of, or by lending their respective
names to, any business involved in arranging stacktrain services for a period
of ten (10) years from the closing date of our recapitalization. Neptune Orient
Lines, APL Limited and their affiliates further agreed to refrain from
soliciting or recruiting any person employed by us as of the closing date of
our recapitalization for a period of ten (10) years.
Administrative Services Agreement
Pursuant to an Administrative Services Agreement, APL Limited provides us
with certain administrative and support services. We compensate APL Limited on
a per transaction basis and a headcount basis, as applicable. APL Limited
represented to us that the transaction fees contained in the Administrative
Services Agreement, when applied to the actual number of transactions in 1998,
would not result in figures substantially different from those reflected in the
audited financial results of Pacer International (f/k/a APL Land Transport
Services, Inc.) for the 1998 fiscal year. Furthermore, during the term of this
agreement, we have the right to audit, at our own expense, the total
expenditures presented by APL Limited.
The Administrative Services Agreement will expire one year from the closing
of our recapitalization or on such other date as may be mutually agreed upon by
us and APL Limited. Either party may terminate this agreement if the other
party defaults on the performance of its material obligations and such default
is not cured within thirty (30) days.
Information Technology Outsourcing and License Agreement
Pursuant to an IT Supplemental Agreement, dated as of May 11, 1999 by and
among APL Limited, Coyote Acquisition LLC and our Company, we are currently
completing negotiation of an Information Technology Outsourcing and License
Agreement based upon a term sheet agreed by the parties. If any party so
elects, the parties may enter into private mediation to finalize the
Information Technology Outsourcing and License Agreement. In the interim, the
Information Technology Outsourcing and License Agreement term sheet governs the
relationship between the parties regarding information technology.
The Information Technology Outsourcing and License Agreement term sheet
provides that, APL Limited will, for a period of twenty years, provide us with
all necessary software, licenses and related services necessary to conduct the
stacktrain business as it is now being conducted and as it is enhanced pursuant
to and during the term of the agreement. These services will, at a minimum,
include the same level of services provided to our company by APL Limited prior
to our recapitalization. APL Limited will also be responsible for obtaining,
maintaining, upgrading, and replacing any software, equipment, facilities or
personnel necessary in order to provide the services during the term of the
agreement. APL Limited will be required to provide personnel with the adequate
skills, experience and knowledge of our business to ensure that all information
technology systems are supported at previously existing levels, and as these
levels are subsequently enhanced. In addition, any software that relates solely
to our business will be transferred to us directly.
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In accordance with the Information Technology Outsourcing and License
Agreement term sheet we will have access to APL Limited's proprietary software
that is used to run the information systems through perpetual, worldwide,
royalty-free licenses granted to us by APL Limited. APL Limited will also
ensure that we are licensed to use all other software needed to operate the
systems. These rights will remain in place even after the agreement expires or
terminates and regardless of the reason for termination.
The Information Technology Outsourcing and License Agreement term sheet
provides that the services are tendered at what we believe are competitive
prices. The annual fee will be frozen during the first four years of the
agreement and will be increased nominally thereafter. In addition, for the
first five years we will be charged for costs related to increased usage of the
services only to the extent the increase exceeds certain specified growth
levels for the company and thereafter for all of our actual direct costs
related to volume growth.
The Information Technology Outsourcing and License Agreement term sheet also
provides that we will have the option to terminate the agreement for our
convenience at any point during the term, either in its entirety or on a
system-by-system basis, by giving 120 days' notice to APL Limited. In addition,
we may terminate if APL Limited fails to meet certain specified performance
standards or is in material breach of the agreement and fails to correct the
breach in a timely fashion. The agreement will also be terminable by APL
Limited, but only if we fail to meet our payment. However, should APL Limited
elect to terminate the agreement because we are acquired by a competitor of APL
Limited, APL Limited will be responsible for all costs related to establishing
us with a comparable service provider on a similar computer infrastructure. APL
Limited would also be responsible for the costs of transferring our systems if
we terminate the agreement for any of the following reasons:
(1) an uncorrected material breach by APL Limited;
(2) the occurrence of certain specified performance failures resulting from
APL Limited 's willful misconduct or gross negligence; or
(3) the occurrence of any two performance failures within a 12-month period,
regardless of the cause.
In the Information Technology Outsourcing and License Agreement term sheet
APL Limited has made customary representations and warranties to us, including,
that the information technology, software, hardware and services being provided
to us constitute all such items required to provide the information technology
services necessary to run our business and relating to Year 2000 compliance of
the software and hardware used in providing the services under the agreement.
APL Limited also indemnifies us against breaches of these representations,
losses resulting from claims brought by third parties alleging infringement of
their intellectual property and losses associated with a failure of the
information technology systems to operate that is either caused by APL Limited
or covered by indemnification or warranties provided to APL Limited by the
responsible third parties.
Stacktrain Services Agreement
Pursuant to a Stacktrain Services Agreement, we arrange and administer
inland intermodal rail transportation for APL Limited's international freight
shipments and its empty containers between points in the United States, between
points in Canada and between points in the United States and Canada. In
addition, we arrange and administer inland intermodal rail transportation for
any other volume tendered by APL Automotive Logistics and APL Intermodal
Management Services, each a division of APL Limited, between points in the
United States, Canada and Mexico. In connection with this agreement, APL
Limited agreed to tender to us all of its international shipments and
containerized freight for United States or Canadian rail movement and APL
Automotive Logistics and APL Intermodal Management Services will use their best
efforts to deliver their business to us for handling.
Each year, during the term of the Stacktrain Services Agreement, APL Limited
has agreed to pay us $6.6 million as a management fee. In addition, APL Limited
has agreed to pay us a fee for each container moved equal to the amount payable
by us to the underlying rail carrier for the movement of such containers. Any
savings received by us under the terms of our agreements with the underlying
rail carriers will be passed
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through on a dollar-for-dollar basis to APL Limited. We do not assess any
administrative fees against APL Limited for the movement of its containers.
APL Limited pays us for the repositioning of its empty containers. APL
Limited pays us a fee calculated based on established rates agreed upon by the
parties for each empty container of APL Limited that is repositioned by us.
The Stacktrain Service Agreement will expire twenty (20) years following the
closing date of our recapitalization. However, the term of the Stacktrain
Services Agreement will be extended in the event that the current agreement
between Pacer International and the Union Pacific Railroad Company, or its
successor, is extended. The effect of this provision is that the Stacktrain
Services Agreement and our agreement with the Union Pacific Railroad Company
will expire simultaneously.
TPI Chassis Sublet Agreement
Pursuant to a TPI Chassis Sublet Agreement, APL Limited sublets chassis to
us for use in the transport of international freight on the stacktrain network
on behalf of international shippers other than APL Limited. The number of
chassis to be sublet is determined according to a market plan which we deliver
to APL Limited prior to each year during the term of the TPI Chassis Sublet
Agreement. If our chassis requirements decrease from the current market plan
allocation and APL Limited does not absorb the additional chassis into its own
fleet, we are responsible for any early lease termination penalties incurred by
APL Limited. If our need for chassis increases beyond the current market plan
allocation, APL Limited will supply additional chassis to the extent they are
available for our use. The TPI Chassis Sublet Agreement provides that if we
consistently exceed our allocation of chassis under our market plan, or if APL
Limited consistently supplies less than such allocation, both parties will
promptly discuss the remedies for such an excess or shortage. The term of the
TPI Chassis Sublet Agreement will be the same as the term of the Stacktrain
Services Agreement. If the TPI Chassis Sublet Agreement is terminated prior to
twenty years from its execution, we may require APL Limited to assign the
leases for all of the chassis covered under the agreement to us. In addition,
during the first year of the agreement we may require APL Limited to assign to
us the leases for the chassis.
Equipment Supply Agreement
An Equipment Supply Agreement sets forth the mechanics of the supply of
containers and chassis from APL Limited to us for repositioning by us within
the interior United States. The containers and chassis which are subject to the
agreement are used by APL Limited in its international shipping operations.
Specifically, the Equipment Supply Agreement sets forth the underlying
interchanges of possession and supply points and return locations for the
repositioning of the containers and chassis. In addition, the Equipment Supply
Agreement sets forth the requirements for timely repositioning of the equipment
and charges which may be incurred by us for failing to reposition the equipment
in a timely manner. The Equipment Supply Agreement also sets forth certain
charges which may be incurred by us for damage to the containers and chassis
during repositioning. The Equipment Supply Agreement has the same term as the
Stacktrain Services Agreement.
Stock Purchase Agreement
Pursuant to the Stock Purchase Agreement, dated as of March 15, 1999, by and
between Coyote Acquisition LLC and APL Limited, we may be required to pay APL
Limited additional cash consideration of up to $15.0 million following our
recapitalization, in the event that Pacer International's EBITDA for the fiscal
year ending December 31, 1999 on an unconsolidated basis equals or exceeds
certain EBITDA targets set forth in the Stock Purchase Agreement. The EBITDA
targets set forth in the Stock Purchase Agreement exceed Pacer International's
historic results. Immediately prior to the closing of our recapitalization,
Coyote Acquisition assigned a small portion of its purchase rights under the
Stock Purchase Agreement to an affiliate, Coyote Acquisition II LLC, and to
certain affiliates of Deutsche Bank Securities Inc. and Credit Suisse First
Boston Corporation. As a result of such assignment, and the exercise of such
assigned purchase rights, Coyote Acquisition II LLC owns 4.6% of our
outstanding common stock and certain affiliates of Deutsche Bank Securities
Inc. and Credit Suisse First Boston Corporation collectively own 2.9%, of our
outstanding common stock.
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Primary Obligation and Guaranty Agreement
We are a party to a Primary Obligation and Guaranty Agreement dated March
15, 1999, with Neptune Orient Lines Limited and Coyote Acquisition. The
Primary Obligation and Guaranty Agreement provides that, prior to an initial
public offering by APL Limited or certain of its affiliates, Neptune Orient
Lines will be directly liable for all of APL Limited's obligations under the
following agreements as if it had been a signatory thereto:
. Stacktrain Services Agreement;
. Administrative Services Agreement;
. Information Technology Outsourcing and License Agreement;
. TPI Chassis Sublet Agreement;
. Equipment Supply Agreement;
. our Shareholders' Agreement with Coyote Acquisition, Coyote Acquisition
II and APL Limited; and
. Stock Purchase Agreement.
Following an initial public offering of APL Limited or certain of its
affiliates, Neptune Orient Lines will guarantee any payments owed to us by APL
Limited. Such guarantee is subject to the requirement that we first exhaust
our rights to collect any guaranteed obligations from APL Limited, so long as
the collection efforts against APL Limited, in our judgment or the judgment of
Coyote Acquisition, do not prejudice in any manner the ability of Coyote
Acquisition and us to collect on the guarantee, in which case we and Coyote
Acquisition can proceed directly against Neptune Orient Lines. Neptune Orient
Lines' obligations will not be limited by any bankruptcy, insolvency, or
reorganization proceedings. The Primary Obligation and Guaranty Agreement will
terminate when all other agreements and all other guaranteed obligations are
terminated or satisfied.
Other Agreements
Shareholders' Agreements
We are a party to a Shareholders' Agreement with Coyote Acquisition, Coyote
Acquisition II and APL Limited which governs certain aspects of the
relationship between ourselves and our currently existing shareholders. The
Shareholders' Agreement contains, among other matters,
(1) a provision restricting the rights of APL Limited to transfer the
shares of Pacer International common stock, subject to certain
permitted or required transfers and a right of first refusal in favor
of Pacer International, Coyote Acquisition and Coyote Acquisition II;
(2) certain incidental registration rights in the event Pacer International
effects a registration of its common stock;
(3) certain participation rights that, when triggered, permit APL Limited
to participate, on a pro rata basis, in a sale by Coyote Acquisition
and Coyote Acquisition II of Pacer International common stock held by
them; and
(4) certain bring along rights that, when triggered, permit Coyote
Acquisition and Coyote Acquisition II to require APL Limited to
transfer an equivalent portion of Pacer International common stock held
by it.
The Shareholders' Agreement will terminate upon the earlier of:
(a) the tenth anniversary thereof; or
(b) such time as Pacer International is a public company with equity
securities listed on a national securities exchange or publicly
traded in the over-the-counter market and Coyote Acquisition and
Coyote Acquisition II shall have sold, in the aggregate, pursuant
to one or more offerings a total of fifty percent (50%) of the
total shares of Pacer International common stock held by it.
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We are a party to Shareholders' Agreements with
(1) certain members of Pacer Logistics management, Coyote Acquisition and
Coyote Acquisition II and
(2) certain affiliates of Credit Suisse First Boston Corporation and
Deutsche Bank Securities Inc. and Coyote Acquisition and Coyote Acquisition II.
The terms of such Shareholders' Agreements are substantially similar to those
set forth above.
Apollo Registration Rights Agreement
In addition to the Shareholders' Agreements, we entered into a separate
Registration Rights Agreement with certain affiliates of Apollo Management
pursuant to which such affiliates obtained certain demand and incidental
registration rights. As a result, at Apollo Management's written request, we
are obliged to prepare and file a registration statement covering the shares so
requested to be registered by Apollo Management. In addition, should we propose
to register any of our own common stock for sale to the public, Apollo
Management has the opportunity to include its common stock in the same or
concurrent registration statement filed by us. We will bear all expenses, with
the exception of selling expenses, incurred in the registration process.
Apollo Management Agreement
We have entered into a Management Agreement with Apollo Management. Under
the terms of the Management Agreement, we appointed Apollo Management to
provide financial and strategic advice to us. Pursuant to the terms of the
Management Agreement, Apollo Management has agreed to provide us with financial
and strategic services as our board of directors may reasonably request. As
consideration for services rendered and to be rendered under the Management
Agreement, we will pay Apollo an annual fee of $500,000 until termination of
the Management Agreement. In addition, we may pay Apollo Management a
transaction fee for any purchase, sale, recapitalization or similar transaction
completed by us, whether by merger, stock purchase or sale, asset purchase or
sale or otherwise. The Management Agreement may be terminated upon 30 days'
written notice by either party to the other party thereto. In connection with
our recapitalization we have paid Apollo Management a fee of $1,500,000.
Tax Sharing Agreement
Coyote Acquisition, Pacer International, Pacer Logistics, and the direct and
indirect subsidiaries of Pacer International and Pacer Logistics entered into a
Tax Sharing Agreement. The Tax Sharing Agreement generally contemplates that
two or more of the parties to the Tax Sharing Agreement may become members of
an affiliated group that files a consolidated federal income tax return for
U.S. federal income tax purposes and, perhaps, one or more consolidated,
combined or unitary groups for state, local and/or foreign tax purposes. The
Tax Sharing Agreement provides, among other things, methods for allocating the
tax liability of an affiliated group among its members, for reimbursing Coyote
Acquisition, or another entity as appropriate, for the payment of an affiliated
group's tax liability, and for reimbursing members of an affiliated group for
the use of net operating losses and other tax benefits that reduce an
affiliated group's tax liability otherwise payable.
95
STOCK OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the anticipated
beneficial ownership of shares of the common stock immediately following the
recapitalization by each person anticipated to be the owner of 5% or more of
the common stock, by each person who is a director or executive officer of our
company and by all directors and executive officers of our company as a group.
The following table does not include the ownership by certain directors and
executives of the Pacer Logistics 7.5% Exchangeable Preferred Stock.
Common Stock(/1/)
---------------------
Number Percentage
of Shares of Class
---------- ----------
Apollo Management IV, L.P.(/2/)......................... 9,390,000 89.9%
c/o Apollo Management, L.P.
1301 Avenue of the Americas
New York, NY 10019
APL Limited............................................. 750,000 7.2%
1111 Broadway
Oakland, CA 94607
Donald C. Orris(/3/)(/13/).............................. 34,833 0.3%
Gerry Angeli(/4/)(/13/)................................. 34,833 0.3%
Gary I. Goldfein(/5/)(/13/)............................. -- --
Robert L. Cross(/6/)(/13/).............................. 34,833 0.3%
Richard P. Hyland(/7/)(/13/)............................ -- --
Allen E. Steiner(/8/)(/13/)............................. -- --
Lawrence C. Yarberry(/9/)(/13/)......................... 11,000 0.1%
Joseph P. Atturio(/10/)(/13/)........................... 19,582 0.2%
Joshua J. Harris(/11/)(/14/)............................ -- --
Bruce M. Spector(/11/)(/15/)............................ -- --
Marc E. Becker(/11/)(/14/).............................. -- --
Timothy J. Rhein(/12/)(/16/)............................ -- --
All directors and executive officers as a group (12
persons)............................................... 135,081 1.3%
- --------
(1) The amounts and percentage of common stock beneficially owned are
reported on the basis of regulations of the SEC governing the determination
of beneficial ownership of securities. Under the rules of the SEC, a person
is deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or to direct the
voting of such security, or "investment power," which includes the power to
dispose of or to direct the disposition of such security. A person is also
deemed to be a beneficial owner of any securities of which that person has
a right to acquire beneficial ownership within 60 days. Under these rules,
more than one person may be deemed a beneficial owner of the same
securities and a person may be deemed a beneficial owner of securities as
to which he has no economic interest.
(2) Through its interest in Coyote Acquisition LLC and Coyote Acquisition II
LLC, Apollo Management IV, L.P. is deemed to beneficially own all of the
shares of common stock owned by Coyote Acquisition LLC and Coyote
Acquisition II LLC. Coyote Acquisition LLC owns 8,912,000 shares, or 85.3%,
of our outstanding common stock. Coyote Acquisition II LLC owns 478,000
shares, or 4.6%, of our outstanding common stock.
(3) Includes 34,833 shares of common stock issuable upon the exercise of
presently exercisable options held by the stockholder. Does not include an
additional 100,000 options and an additional 121,916 options which vest in
the future or 2,329.25 shares of the Pacer Logistics 7.5% Exchangeable
Preferred Stock held by the stockholder.
(4) Includes 34,833 shares of common stock issuable upon the exercise of
presently exercisable options held by the stockholder. Does not include an
additional 100,000 options and an additional 121,916 options which vest in
the future or 2,264.16 shares of the Pacer Logistics 7.5% Exchangeable
Preferred Stock held by the stockholder.
(5) Does not include 100,000 options which vest in the future or 4,963.75
shares of the Pacer Logistics 7.5% Exchangeable Preferred Stock held by the
stockholder.
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(6) Includes 34,833 shares of common stock issuable upon the exercise of
presently exercisable options held by the stockholder. Does not include an
additional 100,000 options and an additional 121,916 options which vest in
the future or 2,264.16 shares of the Pacer Logistics 7.5% Exchangeable
Preferred Stock held by the stockholder.
(7) Does not include 100,000 options which vest in the future or 5,956.5
shares of the Pacer Logistics 7.5% Exchangeable Preferred Stock held by the
stockholder.
(8) Does not include 100,000 options which vest in the future or 4,963.75
shares of the Pacer Logistics 7.5% Exchangeable Preferred Stock held by the
stockholder.
(9) Includes 11,000 shares of common stock issuable upon the exercise of
presently exercisable options held by the stockholder. Does not include an
additional 22,000 options which vest in the future.
(10) Includes 19,582 shares of common stock issuable upon the exercise of
presently exercisable options held by the stockholder. Does not include an
additional 9,781 options which vest in the future.
(11) Messrs. Harris, Spector and Becker are each principals and/or employees
of certain affiliates of Apollo Management IV, L.P. Accordingly, each such
person may be deemed to beneficially own shares of common stock held by
Apollo Management IV, L.P. Each such person disclaims beneficial ownership
of any such shares in which he does not have a pecuniary interest.
(12) Mr. Rhein is President, Chief Executive Officer and a director of APL
Limited. Accordingly, he may be deemed to beneficially own shares of common
stock held by APL Limited. Mr. Rhein disclaims beneficial ownership of any
such shares in which he does not have a pecuniary interest.
(13) The business address for Messrs. Orris, Angeli, Goldfein, Cross, Hyland,
Steiner, Yarberry and Atturio is Pacer International, Inc., 1340 Treat
Boulevard, Suite 200, Walnut Creek, CA 94596.
(14) The business address for Messrs. Harris and Becker is Apollo Management
L.P., 1301 Avenue of the Americas, New York, NY 10019.
(15) The business address for Mr. Spector is Apollo Management L.P., 1999
Avenue of the Stars, Suite 1900, Los Angeles, CA 90067.
(16) The business address for Mr. Rhein is APL Limited, 1111 Broadway,
Oakland, CA 94607.
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OUR CAPITAL STOCK
We have a total of 21 million shares of authorized capital stock of which 20
million shares, no par value, are of a class designated as "common stock" and 1
million shares, par value $.01 per share, are of a class designated as
"preferred stock." Pacer Logistics authorized a total of 11 million shares of
capital stock of which 10 million shares, par value $.01 per share are
designated as "common stock" and 1 million shares, par value $.01 per share,
are of a class designated as "preferred stock". Pacer Logistics has two series
of preferred stock. The designation, assigned values, preferences and relative,
participating, optional or other rights, qualifications, limitations or
restrictions on such preferred stock are described in full in their respective
Certificates of Designation.
Each share of common stock of Pacer International and Pacer Logistics
entitles the holder thereof to one vote at every annual or special meeting of
the stockholders of such company. There is no cumulative voting.
Shares of preferred stock of each company may be issued from time to time,
in one or more series, with such designation, assigned values, preferences and
relative, participating, optional or other rights, qualifications, limitations
or restrictions thereof as the Board of Directors of Pacer International or
Pacer Logistics, as the case may be, from time to time may adopt by resolution.
Each series shall consist of such number of shares as shall be stated and
expressed in such resolution or resolutions providing for the issuance of the
stock of such series. All shares of any one series of preferred stock shall be
identical.
No holder of shares of our capital stock or Pacer Logistics capital stock
shall have any preferential or preemptive right to subscribe for, purchase or
receive any share of our stock or Pacer Logistics stock, as the case may be,
any options or warrants for such shares, any rights to subscribe to or purchase
such shares or any securities which may at any time or from time to time be
issued, sold or offered for sale by us or Pacer Logistics, as the case may be.
The following description is a summary of the material terms of each series
of preferred stock, but does not restate the Certificates of Designation in
their entirety.
7.5% Exchangeable Preferred Stock
24,300 of Pacer Logistics' 1 million authorized shares of preferred stock
are designated "7.5% Exchangeable Preferred Stock." The 24,300 shares of 7.5%
Exchangeable Preferred Stock were issued to certain management shareholders of
Pacer Logistics in connection with the Pacer Logistics transaction. The
remainder have been reserved for issuance by Pacer Logistics as payment-in-kind
dividends. Except as otherwise required by law, or as stated below, shares of
exchangeable preferred stock are not entitled to voting rights.
Liquidation Preference
The exchangeable preferred stock has a liquidation preference of $1,000 per
share, plus accrued and unpaid dividends thereon. In addition, holders of the
preferred stock are entitled to an amount per share equal to 5% of the total
assets available for distribution to equity holders divided by the number of
shares of preferred stock outstanding.
Dividends
Dividends payable per share of the exchangeable preferred stock are equal to
the greater of:
(1) 7.5% of the $1,000 liquidation preference per share payable annually
in arrears in additional shares of the exchangeable preferred stock or
(2) an amount equal to 10% of the aggregate of certain dividends paid on
the Pacer Logistics common stock divided by the number of outstanding
shares of Pacer Logistics preferred stock, payable annually in arrears in
cash.
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Voluntary Exchange
At any time at least 15 months after, but before 24 months following the
closing of our recapitalization, each holder of the exchangeable preferred
stock has the right to exchange its shares into shares of Pacer International
common stock at a 15% premium. As a condition to the exchange of such preferred
stock, each holder will be required to become a party to the Shareholders'
Agreement and will be bound by all of the terms and conditions of the
Shareholders' Agreement as though such persons were original parties thereto.
Upon joining in the Shareholders' Agreement, such persons will have the same
rights and responsibilities as those of APL Limited, as set forth in the
Shareholders' Agreement.
Purchase Right
At any time at least 15 months after the closing of our recapitalization,
the exchangeable preferred stock may be purchased by Pacer International for
newly issued shares of preferred stock of Pacer International or cash. Our
credit agreement and the indenture governing the notes generally prohibits us
from purchasing the exchangeable preferred stock for cash for the initial 15
month time period. The Pacer International preferred stock has a 7.5% dividend,
payable in shares of such preferred stock and is mandatorily redeemable by
Pacer International on the tenth anniversary of issue.
Change of Control
Upon a change of control, each holder of exchangeable preferred stock shall
have the right to exchange the shares of exchangeable preferred stock held by
such holder for Pacer International common stock at the ratio set forth in the
Certificate of Designation multiplied by the following applicable premium which
shall be allocated pro rata on a monthly basis:
Prior to the End of Year 1....... 115.00%
End of Year 1.................... 106.75%
End of Year 2.................... 100.00%
Voting Provisions
Except as required by law and except for matters which affect the rights and
preferences of the exchangeable preferred stock, the exchangeable preferred
stock is not entitled to vote on any matter submitted to a vote of the
stockholders of Pacer Logistics.
If (1) the voluntary exchange of 7.5% Exchangeable Preferred Stock by the
holders thereof for Pacer International common stock or (2) the purchase of
such preferred stock by Pacer International as contemplated above does not
occur, Mr. Orris and other members of our senior management team will remain
holders of the 7.5% Exchangeable Preferred Stock.
Series A Preferred Stock
In addition to the foregoing, Pacer Logistics has outstanding options to
purchase 44,997 shares of its Series A Preferred Stock. No shares of Series A
Preferred Stock are currently outstanding. Such options are exercisable at
$9.00 per share and are redeemable by Pacer Logistics at $9.00 per share.
99
DESCRIPTION OF OUR CREDIT AGREEMENT
In connection with the private offering, we entered into a credit agreement
with a syndicate of financial institutions. Our credit agreement provides for
the following:
(1) a seven-year $135.0 million term loan which was used to finance in
part our recapitalization and certain related costs and expenses, and to
refinance certain indebtedness of our company; and
(2) a five-year $100.0 million revolving credit facility, which may
include letters of credit (subject to a sublimit to be determined), to be
used for, among other things, working capital and general corporate
purposes of our company and its subsidiaries, including, without
limitation, effecting certain permitted acquisitions.
Prepayments
The loans under the term loan facility are required to be prepaid with, and
after the repayment in full of such loans, permanent reductions to the
revolving credit facility are required in an amount equal to,
(a) 100.0% (or a lesser percentage determined based upon the achievement
of certain financial ratios) of the net cash proceeds of all asset sales
and dispositions by our company and its subsidiaries, subject to certain
exceptions,
(b) 100.0% (or a lesser percentage determined based upon the achievement
of certain financial ratios) of the net cash proceeds of issuances of
certain debt obligations and certain preferred stock by our company and its
subsidiaries, subject to certain exceptions,
(c) 50.0% (or a lesser percentage determined based upon the achievement
of certain financial ratios) of the net cash proceeds from common equity
and certain preferred stock issuances by our company and its subsidiaries,
subject to certain exceptions, including in connection with permitted
acquisitions,
(d) 75.0% (or a lesser percentage determined based upon the achievement
of certain financial ratios) of annual Excess Cash Flow (as defined in our
credit agreement) and
(e) 100.00% of certain insurance proceeds, subject to certain
exceptions.
Such mandatory prepayments and permanent reductions will be allocated first,
to the term loan facility and second, to the revolving credit facility. Our
credit agreement requires our company to make annual amortization payments
(payable in quarterly installments) in respect of the term loan facility.
Voluntary prepayments and commitment reductions are permitted in whole or in
part, subject to minimum prepayment or reduction requirements, without premium
or penalty, provided that voluntary prepayments of certain loans on a date
other than the last day of the relevant interest period are subject to payment
of customary breakage costs, if any.
Interests and Fees
The interest rates under the our credit agreement are as follows:
(1) At our option, the interest rate on our term loan facility is (a)
2.00% in excess of the base rate equal to the higher of (x) 1/2 of 1.0% in
excess of the federal funds rate or (y) the rate that Bankers Trust Company
as the administrative agent announces from time to time as its prime
lending rate, as in effect from time to time, and (b) 3.00% in excess of
the Eurodollar rate for Eurodollar Loans (as defined in our credit
agreement), in each case, subject to increases or decreases based upon the
achievement of certain financial ratios; and
(2) At our option, the interest rate on our revolving credit facility is
(a) 1.50% in excess of the base rate equal to the higher of (x) 1/2 of 1.0%
in excess of the federal funds rate or (y) the rate that Bankers
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Trust Company, as the administrative agent announces from time to time as
its prime lending rate, as in effect from time to time and (b) 2.50% in
excess of the Eurodollar rate for Eurodollar Loans, in each case, subject
to increases or decreases based upon the achievement of certain financial
ratios.
We may elect interest periods of 1, 2, 3 or 6 months or to the extent
available to each lender with loans and/or commitments under the term loan
facility or the revolving credit facility, 9 or 12 months for Eurodollar Loans
under the applicable term loan or the revolving credit facility. With respect
to Eurodollar Loans, interest is payable at the end of each interest period
and, in any event, at least every 3 months. With respect to Base Rate Loans
(as defined in our credit agreement), interest is payable quarterly on the
last business day of each fiscal quarter. In each case, calculations of
interest are based on a 360-day year and actual days elapsed.
Our credit agreement provides for payment by our company in respect of
outstanding letters of credit of:
(1) an annual fee equal to the applicable margin over the Eurodollar
rate for Eurodollar Loans under the revolving credit facility from time to
time in effect on the aggregate outstanding stated amounts of such letters
of credit;
(2) a fronting fee equal to 1/4 of 1.0% on the aggregate outstanding
stated amounts of such letters of credit; and
(3) customary administrative charges.
We pay a commitment fee equal to a percentage equal to 1/2 of 1.0% per
annum on the undrawn portion of the available commitment under the revolving
credit facility, subject to decreases based on the achievement of certain
financial ratios and subject to increases based on the amount of unused
commitments under the revolving credit facility.
Collateral and Guarantees
The loans and letters of credit under our credit agreement are guaranteed
by all of our existing and future direct and indirect wholly-owned
subsidiaries. Our obligations and the obligations of such subsidiaries are
secured by a first priority perfected lien on substantially all of our
properties and assets and all of the properties and assets of such
subsidiaries, whether such properties and assets are now owned or subsequently
acquired, subject to certain exceptions. The security includes a pledge of all
capital stock and notes owned by us and such subsidiaries, provided that, in
certain cases, no more than 66 2/3% of the stock of our foreign subsidiaries
was required to be pledged.
Representations and Warranties and Covenants
Our credit agreement and related documentation contains certain customary
representations and warranties by our company and its subsidiaries. In
addition, our credit agreement contains customary covenants restricting our
ability and the ability of certain of our subsidiaries to, among other things:
. declare dividends;
. prepay debt;
. incur liens;
. make investments;
. incur additional indebtedness;
. amend certain organizational, corporate and other documents;
. make capital expenditures;
. engage in mergers, acquisitions and asset sales;
. engage in certain transactions with affiliates and formation of
subsidiaries; and
. issue redeemable common stock and preferred stock, subject to certain
exceptions.
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In addition, we are required to comply with specified financial covenants
and customary affirmative covenants.
Events of Default
Events of default under our credit agreement include:
. our failure to pay principal or interest when due or pay a reimbursement
obligation on a letter of credit;
. a material breach of any representation or warranty;
. covenant defaults;
. events of bankruptcy;
. a change of control of our company; and
. other customary events of default.
The above summary highlights the material provisions of our credit
agreement, but does not purport to be complete and is subject to, and is
qualified in its entirety by, all the provisions of our credit agreement, a
copy of which is available upon request to our company.
102
DESCRIPTION OF NOTES
You can find definitions of certain terms used in this description under the
subheading "--Certain Definitions." In this description, the words "Pacer
International" refer only to Pacer International, Inc. and not to any of its
subsidiaries.
The notes were issued under an indenture dated as of May 28, 1999 by and
among Pacer International, the Guarantors and Wilmington Trust Company as
trustee. The following summary highlights certain material terms of the
indenture. Because this is a summary, it does not contain all of the
information that is included in the indenture. You should read the entire
indenture, including the definitions of certain terms used below, because it,
and not this summary, defines your rights as holders of the notes. The
indenture is subject to and governed by the Trust Indenture Act of 1939, as
amended. We have filed a copy of the indenture as an exhibit to the
registration statement of which this prospectus forms a part.
General
The notes will be general unsecured obligations of Pacer International,
ranking subordinate in right of payment to all existing and future Senior Debt
of Pacer International.
The notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof.
Initially, the Trustee will act as Paying Agent and Registrar for the Notes.
The Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the Trustee's corporate trust
office. Pacer International may change any Paying Agent and Registrar without
notice to holders of the Notes.
Pacer International will pay principal, and premium, if any, on the notes at
the Trustee's corporate office in New York, New York. At Pacer International's
option, interest may be paid at the Trustee's corporate trust office or by
check mailed to the registered address of holders of the notes.
Any old notes that remain outstanding after completion of the exchange
offer, together with the exchange notes issued in connection with the exchange
offer, will be treated as a single class of securities under the Indenture.
Principal, Maturity and Interest
The notes will mature on June 1, 2007. Additional notes in an unlimited
amount may be issued under the indenture from time to time, subject to the
limitations set forth under "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness."
Interest on the notes will be payable semi-annually in cash on each June 1
and December 1, commencing on December 1, 1999, to the persons who are
registered Holders at the close of business on the May 15 and November 15
immediately preceding the applicable interest payment date. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from and including the date of issuance and will
be computed on the basis of a 360-day year of twelve 30-day months.
The notes will not be entitled to the benefit of any mandatory sinking fund.
Redemption
Optional Redemption
Pacer International may redeem the notes, in whole at any time or in part
from time to time, on and after June 1, 2003, upon not less than 30 nor more
than 60 days' notice, at the following redemption prices
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(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on June 1 of the year set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
Year Percentage
---- ----------
2003.......................................................... 105.875%
2004.......................................................... 102.938%
2005 and thereafter........................................... 100.000%
Optional Redemption upon Equity Offerings
At any time, or from time to time, on or prior to June 1, 2002, Pacer
International may, at its option, use the net cash proceeds of one or more
Equity Offerings (as defined below) to redeem up to 35% in aggregate principal
amount of the notes originally issued under the indenture at a redemption price
equal to 111.750% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided, however, that
after any such redemption the aggregate principal amount of the notes
outstanding must equal at least 65% of the aggregate amount of the notes
originally issued under the indenture. In order to effect the foregoing
redemption with the net cash proceeds of any Equity Offering, Pacer
International shall make such redemption not more than 120 days after the
consummation of any such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private sale of Qualified Capital Stock, other than public offerings with
respect to the Company's Common Stock on Form S-8, of Pacer International.
Optional Redemption upon Change of Control
In addition, at any time prior to June 1, 2003, upon the occurrence of a
Change of Control, Pacer International may redeem the notes, in whole but not
in part, at a redemption price equal to the principal amount thereof plus the
Applicable Premium plus accrued and unpaid interest, if any, to the date of
redemption. Notice of redemption of the notes pursuant to this paragraph shall
be mailed to holders of the notes not more than 30 days following the
occurrence of a Change of Control. Pacer International may not redeem notes
pursuant to this paragraph if it has made an offer to repurchase notes with
respect to such Change of Control.
Selection and Notice of Redemption
In the event that less than all of the notes are to be redeemed at any time,
selection of such notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such notes are listed or, if such notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method
as the Trustee shall deem fair and appropriate; provided, however, that no
notes of a principal amount of $1,000 or less shall be redeemed in part;
provided, further, that if a partial redemption is made with the net cash
proceeds of an Equity Offering, selection of the notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as
nearly a pro rata basis as is practicable, subject to DTC procedures, unless
such method is otherwise prohibited.
Notice of redemption shall be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of notes to be
redeemed at its registered address. If any note is to be redeemed in part only,
the notice of redemption that relates to such note shall state the portion of
the principal amount thereof to be redeemed. A new note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original note. On and after the
redemption date, interest will cease to accrue on notes or portions thereof
called for redemption as long as Pacer International has deposited with the
Paying Agent funds in satisfaction of the applicable redemption price pursuant
to the Indenture.
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Subordination
The payment of all Obligations on or relating to the notes is subordinated
in right of payment to the prior payment in full in cash or Cash Equivalents
of all Obligations on Senior Debt of Pacer International, including the
Obligations with respect to the Credit Agreement.
The holders of Senior Debt will be entitled to receive payment in full in
cash or Cash Equivalents of all Obligations due in respect of Senior Debt,
including interest after the commencement of any bankruptcy or other like
proceeding at the rate specified in the applicable Senior Debt whether or not
such interest is an allowed claim in any such proceeding, before the holders
of notes will be entitled to receive any payment or distribution of any kind
or character with respect to any Obligations on, or relating to, the notes in
the event of any distribution to creditors of Pacer International:
(1) in a liquidation or dissolution of Pacer International;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Pacer International or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of Pacer International's assets and liabilities.
Pacer International also may not make any payment or distribution of any
kind or character with respect to any Obligations on, or relating to, the
notes or acquire any notes for cash or property or otherwise if:
(1) a payment default on any Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Representative of any Designated Senior Debt.
Payments on and distributions with respect to any Obligations on, or with
respect to, the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of
(x) the date on which all nonpayment defaults are cured or waived (so
long as no other event of default exists),
(y) 180 days after the date on which the applicable Payment Blockage
Notice is received or
(z) the date on which the Trustee receives notice from the
Representative for such Designated Senior Debt rescinding the Payment
Blockage Notice, unless the maturity of any Designated Senior Debt has
been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 90 consecutive days,
it being acknowledged that any subsequent action, or any breach of any
financial covenants for a period commencing after the date of delivery of such
initial Payment Blockage Notice that in either case would give rise to a
default pursuant to any provisions under which a default previously existed or
was continuing shall constitute a new default for this purpose.
Pacer International must promptly notify holders of Senior Debt if payment
of the notes is accelerated because of an Event of Default.
By reason of such subordination, in the event of the insolvency of Pacer
International, creditors of Pacer International who are not holders of Senior
Debt, including the Holders of the notes, may recover less, ratably, than
holders of Senior Debt.
105
After giving effect to the Transactions, on a pro forma basis, at April 2,
1999, Pacer International would have had approximately $135.0 million of
Senior Debt outstanding (exclusive of $100.0 million of unused commitments
under the Credit Agreement).
Guarantees
Each Guarantor unconditionally guarantees, on a senior subordinated basis,
jointly and severally, to each holder of notes and the Trustee, the full and
prompt performance of Pacer International's obligations under the indenture
and the notes, including the payment of principal of and interest on the
notes. The Guarantees will be subordinated to Guarantor Senior Debt on the
same basis as the notes are subordinated to Senior Debt. The obligations of
each Guarantor are limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Guarantor (including,
without limitation, its Guarantor Senior Debt) and after giving effect to any
collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the indenture, will result in
the obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to
Pacer International or another Guarantor without limitation, or with other
Persons upon the terms and conditions set forth in the indenture. See "Certain
Covenants--Merger, Consolidation and Sale of Assets." In the event all of the
Capital Stock of a Guarantor is disposed of by Pacer International, whether by
merger, consolidation, sale or otherwise, and the disposition complies with
the provisions set forth in "Certain Covenants--Limitation on Asset Sales,"
the Guarantor's Guarantee will be released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to Pacer
International's obligations pursuant to the notes, and the aggregate net
assets, earnings and equity of the Guarantors and Pacer International are
substantially equivalent to the net assets, earnings and equity of Pacer
International on a consolidated basis.
Change of Control
The indenture provides that upon the occurrence of a Change of Control,
each holder of notes will have the right to require that Pacer International
purchase all or a portion of such holder's notes pursuant to the offer
described below (the "Change of Control Offer"), at a purchase price equal to
101.0% of the principal amount thereof plus accrued interest to the date of
purchase.
The indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control (as
defined below), Pacer International covenants to:
(1) repay in full and terminate all commitments under Indebtedness under
the Credit Agreement and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate
all commitments under all Indebtedness under the Credit Agreement and all
other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer; or
(2) obtain the requisite consents under the Credit Agreement and all
other Senior Debt to permit the repurchase of the notes as provided below.
Pacer International shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase notes pursuant to
the provisions described below. Pacer International's failure to comply with
the covenant described in the second preceding sentence (and any failure to
send the notice referred to in the succeeding paragraph as a result of the
prohibition in the second preceding sentence) shall constitute an Event of
Default described in clause (3) and not in clause (2) under "Events of
Default" below.
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Within 30 days following the date upon which the Change of Control occurred,
Pacer International shall send, by first class mail, a notice to each holder of
notes, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. Such notice shall state, among other things, the
purchase date, which must be no earlier than 30 days nor later than 60 days
from the date such notice is mailed, other than as may be required by law (the
"Change of Control Payment Date"). Holders of notes electing to have a note
purchased pursuant to a Change of Control Offer will be required to surrender
the note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third business day prior to
the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that Pacer
International will have available funds sufficient to pay the Change of Control
purchase price for all the notes that might be delivered by holders thereof
seeking to accept the Change of Control Offer. In the event Pacer International
is required to purchase outstanding notes pursuant to a Change of Control
Offer, Pacer International expects that it would seek third party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that Pacer International would be able to
obtain such financing.
Neither the Board of Directors of Pacer International nor the Trustee may
waive the covenant relating to a note holder's right to redemption upon a
Change of Control. Restrictions in the indenture described herein on the
ability of Pacer International and its Restricted Subsidiaries to incur
additional Indebtedness, to grant liens on its property, to make Restricted
Payments and to make Asset Sales may also make more difficult or discourage a
takeover of Pacer International, whether favored or opposed by the management
of Pacer International. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the notes, and there can
be no assurance that Pacer International or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout
of Pacer International or any of its Restricted Subsidiaries by the management
of Pacer International. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the indenture may not afford the holders of notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
Pacer International will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the indenture, Pacer International shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The definition of "Change of Control" includes, among other transactions, a
disposition of "all or substantially all" of the property and assets of Pacer
International. With respect to the disposition of property or assets, the
phrase "all or substantially all" as used in the indenture varies according to
the facts and circumstances of the subject transaction, has no clearly
established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the property or assets of a
Person, and therefore it may be unclear whether a Change of Control has
occurred and whether Pacer International is required to make a Change of
Control Offer.
Certain Covenants
The indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness
Pacer International will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or
otherwise
107
become responsible for payment of (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness); provided, however, that if no Default or
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, Pacer International or
any of the Guarantors may incur Indebtedness (including, without limitation,
Acquired Indebtedness) and Restricted Subsidiaries of Pacer International that
are not Guarantors may incur Acquired Indebtedness, in each case if on the
date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of Pacer
International is greater than 2.25 to 1.0 if such incurrence is on or prior to
June 1, 2000 and 2.5 to 1.0 if such incurrence is thereafter.
Limitation on Restricted Payments
Pacer International will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly,
(1) declare or pay any dividend or make any distribution, other than
dividends or distributions payable in Qualified Capital Stock of Pacer
International, on or in respect of shares of Pacer International's Capital
Stock to holders of such Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of Pacer International or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of Pacer International, other than the notes, that is
subordinate or junior in right of payment to the notes; or
(4) make any Investment, other than Permitted Investments
(each of the foregoing actions set forth in clauses (1), (2), (3) and (4)
being referred to as a "Restricted Payment"), if at the time of such
Restricted Payment or immediately after giving effect thereto:
(1) a Default or an Event of Default shall have occurred and be
continuing; or
(2) Pacer International is not able to incur at least $1.00 of additional
Indebtedness, other than Permitted Indebtedness, in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; or
(3) the aggregate amount of Restricted Payments, including such proposed
Restricted Payment, made subsequent to the Issue Date (the amount expended
for such purposes, if other than in cash, being the fair market value of
such property as determined reasonably and in good faith by the Board of
Directors of Pacer International) shall exceed the sum of:
(a) 50% of the cumulative Consolidated Net Income, or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of
Pacer International earned subsequent to the Issue Date and on or prior
to the date the Restricted Payment occurs (the "Reference Date"),
treating such period as a single accounting period; plus
(b) 100% of the aggregate net cash proceeds and the fair market
value, as determined in good faith by the Board of Directors, of
property other than cash received by Pacer International from any
Person, other than a Subsidiary of Pacer International, from the
issuance and sale subsequent to the Issue Date and on or prior to the
Reference Date of Qualified Capital Stock of Pacer International other
than any Qualified Capital Stock issued in exchange for the Pacer
Preferred Stock; plus
(c) without duplication of any amounts included in clause (3)(b)
above, 100% of the aggregate net cash proceeds of any equity
contribution received by Pacer International from a holder of Pacer
International's Capital Stock; plus
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(d) without duplication, the sum of:
(I) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent to
the Issue Date whether through interest payments, principal
payments, dividends or other distributions or payments;
(II) the net cash proceeds received by Pacer International or any
Restricted Subsidiary of Pacer International from the disposition of
all or any portion of such Investments (other than to a Subsidiary
of Pacer International); and
(III) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of such Subsidiary
(valued in each case as provided in the definition of "Investment");
provided, however, that the sum of clauses (I), (II) and (III) above
shall not exceed the aggregate amount of all such Investments made by
Pacer International or any Restricted Subsidiary in the relevant Person
or Unrestricted Subsidiary subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on
the date of declaration;
(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of Pacer
International, either (a) solely in exchange for shares of Qualified
Capital Stock of Pacer International or (b) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of Pacer International) of shares of Qualified Capital Stock of
Pacer International;
(3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of Pacer International that
is subordinate or junior in right of payment to the notes either (a) solely
in exchange for shares of Qualified Capital Stock of Pacer International,
or (b) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of Pacer
International) of (I) shares of Qualified Capital Stock of Pacer
International or (II) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be
continuing, repurchases by Pacer International or any Restricted Subsidiary
of Pacer International of Capital Stock of Pacer International or any
Restricted Subsidiary of Pacer International from (i) employees of Pacer
International or any of its Subsidiaries or their authorized
representatives (a) upon the death, disability or termination of employment
of such employees or consultants or to the extent required pursuant to
employee benefit plans, employment agreements or consulting agreements, (b)
pursuant to any other agreements with such employees of or consultants to
Pacer International or any of its Subsidiaries, in an aggregate amount not
to exceed $5.0 million in any calendar year (with unused amounts in any
calendar year being carried over to succeeding years subject to a maximum
of $10.0 million in any calendar year) or (c) to the extent required
pursuant to the Shareholder Agreement or the Option Plan or (ii) Richard P.
Hyland;
(5) the declaration and payment of dividends to holders of any class or
series of Preferred Stock (other than Disqualified Capital Stock) issued
after the issue date, provided that for the most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date of issuance of such Preferred Stock, after
giving effect to such issuance on a pro forma basis, Pacer International
would have had a Consolidated Fixed Charge Coverage Ratio of at least 1.75
to 1.0;
(6) the payment of dividends on Pacer International's Common Stock,
following the first public offering of Pacer International's Common Stock
after the Issue Date, of up to 6% per annum of the net proceeds received by
Pacer International in such public offering, other than public offerings
with respect to Pacer International's Common Stock registered on Form S-8;
(7) the repurchase, retirement or other acquisition or retirement for
value of equity interests of Pacer International in existence on the Issue
Date and from the persons holding such equity interests on the Issue
109
Date and which are not held by Apollo or any of its Affiliates or members
of management of Pacer International and its Subsidiaries on the Issue Date
(including any equity interests issued in respect of such equity interests
as a result of a stock split, recapitalization, merger, combination,
consolidation or similar transaction), provided, however, that Pacer
International shall be permitted to make Restricted Payments under this
clause only if after giving effect thereto, Pacer International would be
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the "Limitation on Incurrence of
Additional Indebtedness" covenant;
(8) other Restricted Payments in an aggregate amount not to exceed $10.0
million;
(9) if no Default or Event of Default shall have occurred and be
continuing, payments or distributions to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of Pacer International; and
(10) if no Default or Event of Default shall have occurred and be
continuing, payments of cash in lieu of the issuance of fractional shares
upon the exercise of warrants or upon the conversion or exchange of, or
issuance of Capital Stock in lieu of cash dividends on, any Capital Stock
of Pacer International or any Restricted Subsidiary, which in the aggregate
do not exceed $3.0 million.
In determining the aggregate amount of Restricted Payments made subsequent to
the Issue Date in accordance with clause (3) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2)(b), (4), (5), (6),
(7), (8), (9) and (10) shall be included in such calculation.
Not later than the date of making any Restricted Payment, Pacer
International shall deliver to the Trustee an officers' certificate stating
that such Restricted Payment complies with the indenture and setting forth in
reasonable detail the basis upon which the required calculations were computed,
which calculations may be based upon Pacer International's latest available
internal quarterly financial statements.
Limitation on Asset Sales
Pacer International will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Pacer International or the applicable Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold or otherwise disposed of
(as determined in good faith by Pacer International's Board of Directors);
(2) at least 75% of the consideration received by Pacer International or
the Restricted Subsidiary, as the case may be, from such Asset Sale shall
be in the form of cash or Cash Equivalents and is received at the time of
such disposition; provided that the amount of (a) any liabilities (as shown
on Pacer International's or such Restricted Subsidiary's most recent
balance sheet) of Pacer International or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the notes) that
are assumed by the transferee of any such assets, and (b) any notes or
other obligations received by Pacer International or any such Restricted
Subsidiary from such transferee that are converted by Pacer International
or such Restricted Subsidiary into cash within 180 days after such Asset
Sale (to the extent of the cash received) shall be deemed to be cash for
the purposes of this provision only; and
(3) upon the consummation of an Asset Sale, Pacer International shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 360 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt and, in the
case of any Senior Debt or Guarantor Senior Debt under any revolving
credit facility, effect a permanent reduction in the availability under
such revolving credit facility;
(b) to make an Investment (x) in properties and assets that replace
the properties and assets that were the subject of such Asset Sale, (y)
in properties and assets that will be used in the business of
110
Pacer International and its Restricted Subsidiaries as existing on the
Issue Date or in businesses the same, similar or reasonably related
thereto or (z) permitted by clause (1) of the definition of Permitted
Investments (collectively, "Replacement Assets"); or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
On the 361st day after an Asset Sale or such earlier date, if any, as the
Board of Directors of Pacer International or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as
set forth in clauses (3)(a), (3)(b) and (3)(c) of the next preceding paragraph
(each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash
Proceeds which have not been applied on or before such Net Proceeds Offer
Trigger Date as permitted in clauses (3)(a), (3)(b) and (3)(c) of the next
preceding paragraph (each a "Net Proceeds Offer Amount") shall be applied by
Pacer International or such Restricted Subsidiary to make an offer to purchase
(the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date")
not less than 30 nor more than 60 days following the applicable Net Proceeds
Offer Trigger Date, from all holders of notes on a pro rata basis, that amount
of notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the
principal amount of the notes to be purchased, plus accrued and unpaid interest
thereon, if any, to the date of purchase; provided, however, that if at any
time any non-cash consideration received by Pacer International or any
Restricted Subsidiary of Pacer International, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder as of the date of such conversion or disposition and the Net Cash
Proceeds thereof shall be applied in accordance with this covenant.
Pacer International may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $7.5
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of $7.5
million, shall be applied as required pursuant to the preceding paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of Pacer International and its Restricted Subsidiaries as
an entirety to a Person in a transaction permitted under "-- Merger,
Consolidation and Sale of Assets," which transaction does not constitute a
Change of Control, the successor corporation shall be deemed to have sold the
properties and assets of Pacer International and its Restricted Subsidiaries
not so transferred for purposes of this covenant, and shall comply with the
provisions of this covenant with respect to such deemed sale as if it were an
Asset Sale. In addition, the fair market value of such properties and assets of
Pacer International or its Restricted Subsidiaries deemed to be sold shall be
deemed to be Net Cash Proceeds for purposes of this covenant.
Notwithstanding the first two paragraphs of this covenant, Pacer
International and its Restricted Subsidiaries will be permitted to consummate
an Asset Sale without complying with such paragraphs to the extent that:
(1) at least 75% of the consideration for such Asset Sale constitutes
Replacement Assets; and
(2) such Asset Sale is for fair market value; provided that any
consideration not constituting Replacement Assets received by Pacer
International or any of its Restricted Subsidiaries in connection with any
Asset Sale permitted to be consummated under this paragraph shall
constitute Net Cash Proceeds subject to the provisions of the first two
paragraphs of this covenant.
Notice of each Net Proceeds Offer will be mailed to the record holders of
notes as shown on the register of holders of notes within 25 days following the
Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply
with the procedures set forth in the indenture. Upon receiving notice of the
Net Proceeds Offer, holders may elect to tender their notes in whole or in part
in integral multiples of $1,000 in exchange for cash. To the extent holders
properly tender notes in an amount exceeding the Net Proceeds Offer Amount,
notes of tendering holders will be purchased on a pro rata basis (based on
amounts tendered). To the extent that the aggregate amount of the notes
tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer
Amount, Pacer International may use such excess Net Proceeds Offer Amount for
general corporate
111
purposes or for any other purposes not prohibited by the indenture. Upon
completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall
be reset at zero. A Net Proceeds Offer shall remain open for a period of 20
business days or such longer period as may be required by law.
Pacer International will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the indenture, Pacer International shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
Pacer International will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of Pacer International to (a) pay
dividends or make any other distributions on or in respect of its Capital
Stock; (b) make loans or advances or to pay any Indebtedness or other
obligation owed to Pacer International or any other Restricted Subsidiary of
Pacer International; or (c) transfer any of its property or assets to Pacer
International or any other Restricted Subsidiary of Pacer International, except
for such encumbrances or restrictions existing under or by reason of:
(1) applicable law;
(2) the indenture;
(3) the Credit Agreement;
(4) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary of Pacer
International;
(5) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person
so acquired;
(6) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (c) above on the property so acquired;
(8) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Restricted Subsidiary of Pacer
International pursuant to an agreement that has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or
assets of such Restricted Subsidiary;
(9) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "Limitation on Incurrence of Additional
Indebtedness" and "Limitation on Liens" that limit the right of the debtor
to dispose of the assets securing such Indebtedness;
(10) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business;
(11) customary net worth provisions contained in leases and other
agreements entered into by Pacer International or any Restricted
Subsidiary;
(12) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred
to in clauses (1) through (11) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no less favorable to Pacer International in any
material respect as determined by the board of directors of Pacer
International in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in
agreements referred to in such clauses; or
112
(13) an agreement governing Indebtedness permitted to be incurred
pursuant to the "Limitation on Incurrence on Additional Indebtedness"
covenant; provided that the provisions relating to such encumbrance or
restriction contained in such Indebtedness are no less favorable to Pacer
International in any material respect as determined by the board of
directors of Pacer International in their reasonable and good faith
judgment than the provisions contained in the Credit Agreement as in effect
on the Issue Date.
Limitation on Liens
Pacer International will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property or
assets of Pacer International or any of its Restricted Subsidiaries whether
owned on the Issue Date or acquired after the Issue Date, or any proceeds
therefrom, or assign or otherwise convey any right to receive income or profits
therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the notes, the notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(2) in all other cases, the notes are equally and ratably secured,
except for the following Liens which are expressly permitted:
(a) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(b) Liens securing Senior Debt and Liens securing Guarantor Senior Debt;
(c) Liens securing the notes and the Guarantees;
(d) Liens of Pacer International or a Wholly Owned Restricted Subsidiary
of Pacer International on assets of any Restricted Subsidiary of Pacer
International;
(e) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness (including, without limitation, Acquired
Indebtedness) which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the provisions of
the Indenture; provided, however, that such Liens:
(I) are no less favorable to the holders of notes and are not more
favorable to the lienholders with respect to such Liens than the Liens
in respect of the Indebtedness being Refinanced; and
(II) do not extend to or cover any property or assets of Pacer
International or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and
(f) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt
Pacer International and the Guarantors have not incurred or suffered to
exist Indebtedness that is senior in right of payment to the notes or the
Guarantees, as the case may be, and subordinate in right of payment by its
terms to any other Indebtedness of Pacer International or such Guarantor, as
the case may be.
Merger, Consolidation and Sale of Assets
Pacer International will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary of Pacer International to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of Pacer
International's assets (determined on a consolidated basis for Pacer
International and Pacer International's Restricted Subsidiaries) whether as an
entirety or substantially as an entirety to any Person unless:
(1) either (a) Pacer International shall be the surviving or continuing
corporation or (b) the Person (if other than Pacer International) formed by
such consolidation or into which Pacer International is merged
113
or the Person which acquires by sale, assignment, transfer, lease,
conveyance or other disposition the properties and assets of Pacer
International and of Pacer International's Restricted Subsidiaries
substantially as an entirety (the "Surviving Entity"):
(x) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of
Columbia; and
(y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium,
if any, and interest on all of the notes and the performance of every
covenant of the notes and the indenture on the part of Pacer
International to be performed or observed;
(2) immediately after giving effect to such transaction on a pro forma
basis and the assumption contemplated by clause (1)(b)(y) above (including
giving effect to any Indebtedness and Acquired Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction), Pacer International or such Surviving Entity, as the case may
be, shall be able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the "Limitation on Incurrence of
Additional Indebtedness" covenant;
(3) immediately before and immediately after giving effect to such
transaction on a pro forma basis and the assumption contemplated by clause
(1)(b)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred or repaid and any Lien granted or to be released in connection
with or in respect of the transaction), no Default or Event of Default
shall have occurred or be continuing; and
(4) Pacer International or the Surviving Entity, as the case may be,
shall have delivered to the Trustee an officers' certificate and an opinion
of counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the
indenture and that all conditions precedent in the indenture relating to
such transaction have been satisfied.
Notwithstanding the foregoing, the merger of Pacer International with an
Affiliate incorporated solely for the purpose of reincorporating Pacer
International in another jurisdiction shall be permitted.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Pacer International the Capital Stock of which constitutes all
or substantially all of the properties and assets of Pacer International, shall
be deemed to be the transfer of all or substantially all of the properties and
assets of Pacer International.
The indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of Pacer International
in accordance with the foregoing, in which Pacer International is not the
continuing corporation, the successor Person formed by such consolidation or
into which Pacer International is merged or to which such conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, Pacer International under the indenture and the notes
with the same effect as if such Surviving Entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and Pacer International will not cause or permit any
Guarantor to, consolidate with or merge with or into any Person other than
Pacer International or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia;
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(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction on a pro forma
basis, no Default or Event of Default shall have occurred and be
continuing; and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, Pacer International could
satisfy the provisions of clause (2) of the first paragraph of this
covenant.
Any merger or consolidation of a Guarantor with and into Pacer International
(with Pacer International being the surviving entity) or another Guarantor that
is a Wholly Owned Restricted Subsidiary of Pacer International need only comply
with clause (4) of the first paragraph of this covenant.
Limitations on Transactions with Affiliates
(1) Pacer International will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(2) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
Pacer International or such Restricted Subsidiary. All Affiliate Transactions
(and each series of related Affiliate Transactions which are similar or part of
a common plan) involving aggregate payments or other property with a fair
market value in excess of $2.0 million shall be approved by the board of
directors of Pacer International or such Restricted Subsidiary, as the case may
be, such approval to be evidenced by a Board Resolution stating that such board
of directors has determined that such transaction complies with the foregoing
provisions. If Pacer International or any Restricted Subsidiary of Pacer
International enters into an Affiliate Transaction (or a series of related
Affiliate Transactions related to a common plan) that involves an aggregate
fair market value of more than $10.0 million, Pacer International or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to Pacer International or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view, from
an Independent Financial Advisor and file the same with the Trustee.
(2) The restrictions set forth in clause (1) shall not apply to:
(a) reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employees or consultants of Pacer
International or any Restricted Subsidiary of Pacer International as
determined in good faith by Pacer International's board of directors;
(b) transactions exclusively between or among Pacer International and
any of its Wholly Owned Restricted Subsidiaries or exclusively between or
among such Wholly Owned Restricted Subsidiaries, provided such transactions
are not otherwise prohibited by the indenture;
(c) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date;
(d) Restricted Payments permitted by the indenture;
(e) transactions in which Pacer International or any of its Restricted
Subsidiaries, as the case may be, delivers to the Trustee a letter from an
Independent Financial Advisor stating that such transaction is fair to
Pacer International or such Restricted Subsidiary from a financial point of
view or meets the requirements of the first sentence of paragraph (1)
above;
(f) the existence of, or the performance by Pacer International or any
of its Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement (including any registration rights agreement
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or purchase agreement related thereto) to which it is a party as of the
Issue Date and any similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by Pacer
International or any of its Restricted Subsidiaries of obligations under,
any future amendment to any such existing agreement or under any similar
agreement entered into after that Issue Date shall only be permitted by
this clause to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the holders of the notes in
any material respect;
(g) the issuance of securities or other payments, awards or grants in
cash securities or otherwise pursuant to or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors of Pacer International in good faith and loans to employees of
Pacer International and its Subsidiaries which are approved by the board of
directors of Pacer International in good faith;
(h) the payment of all fees and expenses related to the Transactions;
(i) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course of
business and otherwise in compliance with the terms of the indenture, which
are fair to Pacer International or its Restricted Subsidiaries, in the
reasonable determination of the board of directors of Pacer International
or the senior management thereof, or are on terms at least as favorable as
might reasonably have been obtained at such time from an unaffiliated
party; and
(j) fees payable to Apollo pursuant to the Management Agreement and the
Shareholders Agreement.
Additional Subsidiary Guarantees
If Pacer International or any of its Restricted Subsidiaries transfers or
causes to be transferred, in one transaction or a series of related
transactions, any property to any Domestic Restricted Subsidiary that is not a
Guarantor, or if Pacer International or any of its Restricted Subsidiaries
shall organize, acquire or otherwise invest in another Domestic Restricted
Subsidiary having total equity value in excess of $1.0 million, then such
transferee or acquired or other Restricted Subsidiary shall:
(1) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of Pacer International
obligations under the notes and the indenture on the terms set forth in the
indenture;
(2) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary; and
(3) execute a Guarantee.
Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes
of the indenture.
Reports to Holders
The indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any notes are outstanding, Pacer
International will file a copy of the following information and reports with
the Commission for public availability (unless the Commission will not accept
such a filing) and will furnish to the holders of notes and to securities
analysts and prospective investors, upon their request:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Pacer International were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of
operations of Pacer International and its consolidated Subsidiaries and,
with respect to the annual information only, a report thereon by Pacer
International's certified independent accounts; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Pacer International were required to file such
reports,
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in each case within five days the time periods specified in the Commission's
rules and regulations.
In addition, following the consummation of this exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, Pacer International will file a copy of all such
information and reports with the Commission for public availability within the
time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon written request to Pacer
International.
In addition, Pacer International has agreed that, for so long as any notes
remain outstanding, it will furnish to the holders thereof and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default
The following events are defined in the indenture as "Events of Default":
(1) the failure to pay interest on any notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
indenture);
(2) the failure to pay the principal on any notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase notes tendered
pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or
not such payment shall be prohibited by the subordination provisions of the
indenture);
(3) a default in the observance or performance of any other covenant or
agreement contained in the indenture which default continues for a period
of 30 days after Pacer International receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the holders of at least 25% of the outstanding principal amount of the
notes;
(4) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of Pacer International or any Restricted Subsidiary of
Pacer International, or the acceleration of the final stated maturity of
any such Indebtedness if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final stated
maturity or which has been accelerated, aggregates $10.0 million or more at
any time;
(5) one or more judgments in an aggregate amount in excess of $10.0
million shall have been rendered against Pacer International or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(6) certain events of bankruptcy affecting Pacer International or any of
its Significant Subsidiaries; or
(7) any of the Guarantees of a Significant Subsidiary ceases to be in
full force and effect or any of the Guarantees of a Significant Subsidiary
is declared to be null and void and unenforceable or any of the Guarantees
of a Significant Subsidiary is found to be invalid or any Guarantor that is
a Significant Subsidiary denies its liability under its Guarantee (other
than by reason of release of a Guarantor in accordance with the terms of
the indenture).
If an Event of Default (other than an Event of Default specified in clause
(6) above with respect to Pacer International) shall occur and be continuing,
the Trustee or the holders of at least 25% in principal amount of outstanding
notes may declare the principal of and accrued interest on all the notes to be
due and payable by notice in writing to Pacer International and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration", and the same (1) shall become immediately due and payable or (2)
if there are any amounts outstanding under the Credit Agreement, shall become
immediately due and payable upon the first to
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occur of an acceleration under the Credit Agreement or five business days after
receipt by Pacer International and the Representative under the Credit
Agreement of such notice of acceleration but only if such Event of Default is
then continuing. If an Event of Default specified in clause (6) above with
respect to Pacer International occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of
the outstanding notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of notes.
The indenture provides that, at any time after a declaration of acceleration
with respect to the notes as described in the preceding paragraph, the holders
of a majority in principal amount of the notes may rescind and cancel such
declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(4) if Pacer International has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses, disbursements and
advances; and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The holders of a majority in principal amount of the notes may waive any
existing Default or Event of Default under the indenture, and its consequences,
except a default in the payment of the principal of or interest on any notes.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture and under the Trust Indenture Act. Subject to the
provisions of the indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
indenture at the request, order or direction of any of the holders the notes,
unless such holders have offered to the Trustee reasonable indemnity. Subject
to all provisions of the indenture and applicable law, the holders of a
majority in aggregate principal amount of the then outstanding notes have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee.
Under the indenture, Pacer International is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default or
Event of Default) that has occurred and, if applicable, describe such Default
or Event of Default and the status thereof.
No Personal Liability of Directors, Officers, Employees and Stockholders
No Affiliate, director, officer, employee or stockholder of Pacer
International or any Subsidiary, as such, shall have any liability for any
obligations of Pacer International under the notes or the indenture or the
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of notes by accepting a note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the notes.
Legal Defeasance and Covenant Defeasance
Pacer International may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding notes ("Legal Defeasance"). Such Legal Defeasance
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means that Pacer International shall be deemed to have paid and discharged the
entire indebtedness represented by the outstanding notes, except for:
(1) the rights of holders of notes to receive payments in respect of the
principal of, premium, if any, and interest on the notes when such payments
are due;
(2) Pacer International's obligations with respect to the notes
concerning issuing temporary notes, registration of notes, mutilated,
destroyed, lost or stolen notes and the maintenance of an office or agency
for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
Pacer International's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Pacer International may, at its option and at any time, elect to
have the obligations of Pacer International released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Pacer International must irrevocably deposit with the Trustee, in
trust, for the benefit of the holders of notes, cash in U.S. dollars, non-
callable U.S. government obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the notes on the stated date for payment thereof or
on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, Pacer International shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that:
(a) Pacer International has received from, or there has been
published by, the Internal Revenue Service a ruling; or
(b) since the date of the execution of the indenture, there has been
a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Pacer International shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the holders of notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the indenture, the
Credit Agreement or any other material agreement or instrument to which
Pacer International or any of its Subsidiaries is a party or by which Pacer
International or any of its Subsidiaries is bound;
(6) Pacer International shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by Pacer International
with the intent of preferring the holders of notes over any
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other creditors of Pacer International or with the intent of defeating,
hindering, delaying or defrauding any other creditors of Pacer
International or others;
(7) Pacer International shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent hereunder provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with;
(8) Pacer International shall have delivered to the Trustee an opinion
of counsel to the effect that:
(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
indenture; and
(b) assuming no intervening bankruptcy of Pacer International between
the date of deposit and the 91st day following the date of the deposit
and that no holder of notes is an insider of Pacer International, after
the 91st day following the date of the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above need not be delivered if all Notes not theretofore delivered to the
Trustee for cancellation (x) have become due and payable, (y) will become due
and payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of Pacer International.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration or transfer or exchange of the
notes, as expressly provided for in the indenture) as to all outstanding Notes
when:
(1) either (a) all the notes theretofore authenticated and delivered
(except lost, stolen or destroyed notes which have been replaced or paid
and notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by Pacer International and thereafter
repaid to Pacer International or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation have become due and payable and
Pacer International has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount sufficient to pay and discharge the
entire Indebtedness on the notes not theretofore delivered to the Trustee
for cancellation, for principal of, premium, if any, and interest on the
notes to the date of deposit together with irrevocable instructions from
Pacer International directing the Trustee to apply such funds to the
payment thereof at maturity or redemption, as the case may be;
(2) Pacer International has paid all other sums payable under the
indenture by Pacer International; and
(3) Pacer International has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the indenture relating to the satisfaction and discharge of the
indenture have been complied with.
Modification of the Indenture
From time to time, Pacer International, the Guarantors and the Trustee,
without the consent of the holders of notes, may amend the indenture for
certain specified purposes, including curing ambiguities, defects or
inconsistencies, so long as such change does not, in the opinion of the
Trustee, adversely affect the rights of any of the holders of notes in any
material respect. In formulating its opinion on such matters, the Trustee will
be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion
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of counsel. Other modifications and amendments of the indenture may be made
with the consent of the holders of a majority in principal amount of the then
outstanding notes issued under the indenture, except that, without the consent
of each holder of notes affected thereby, no amendment may:
(1) reduce the amount of notes whose holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any notes, or change the date on which any notes may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor;
(4) make any notes payable in money other than that stated in the notes;
(5) make any change in provisions of the indenture protecting the right
of each holder of notes to receive payment of principal of and interest on
such note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount of notes
to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
Pacer International to make and consummate a Change of Control Offer in the
event of a Change of Control which has occurred or make and consummate a
Net Proceeds Offer with respect to any Asset Sale that has been consummated
or modify any of the provisions or definitions with respect thereto after a
Change of Control has occurred or the subject Asset Sale has been
consummated;
(7) modify or change any provision of the indenture or the related
definitions affecting the subordination or ranking of the notes or any
Guarantee in a manner which adversely affects the holders of notes;
(8) release any Guarantor that is a Significant Subsidiary from any of
its obligations under its Guarantee or the indenture otherwise than in
accordance with the terms of the indenture; or
(9) make any change in the foregoing amendment provisions which require
each noteholder's consent or in the waiver provisions.
Governing Law
The indenture provides that it, the notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
The indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the indenture, and
use the same degree of care and skill in its exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
The indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the Trustee, should it become a creditor of Pacer
International, to obtain payments of claims in certain cases or to realize on
certain property received in respect of any such claim as security or
otherwise. Subject to the Trust Indenture Act, the Trustee will be permitted to
engage in other transactions; provided that if the Trustee acquires any
conflicting interest as described in the Trust Indenture Act, it must eliminate
such conflict or resign.
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Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (1) existing at the time such Person becomes a Restricted
Subsidiary of Pacer International or at the time it merges or consolidates with
Pacer International or any of its Restricted Subsidiaries or (2) assumed in
connection with the acquisition of assets from such Person, in each case not
incurred by such Person in connection with, or in anticipation or contemplation
of, such Person becoming a Restricted Subsidiary of Pacer International or such
acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Apollo" means Apollo Management, L.P. and its Affiliates.
"Applicable Premium" means, with respect to a note, the greater of (i) 1.0%
of the then outstanding principal amount of such note and (ii) (a) the present
value of all remaining required interest and principal payments due on such
note and all premium payments relating thereto assuming a redemption date of
June 1, 2003, computed using a discount rate equal to the Treasury Rate plus 50
basis points minus (b) the then outstanding principal amount of such note minus
(c) accrued interest paid on the date of redemption.
"Asset Acquisition" means:
(1) an Investment by Pacer International or any Restricted Subsidiary of
Pacer International in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of Pacer International or any Restricted
Subsidiary of Pacer International, or shall be merged with or into or
consolidated with Pacer International or any Restricted Subsidiary of Pacer
International; or
(2) the acquisition by Pacer International or any Restricted Subsidiary
of Pacer International of the assets of any Person (other than a Restricted
Subsidiary of Pacer International) which constitute all or substantially
all of the assets of such Person or comprise any division or line of
business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by Pacer
International or any of its Restricted Subsidiaries (including any Sale and
Leaseback Transaction) to any Person other than Pacer International or a Wholly
Owned Restricted Subsidiary of Pacer International of (a) any Capital Stock of
any Restricted Subsidiary of Pacer International; or (b) any other property or
assets of Pacer International or any Restricted Subsidiary of Pacer
International other than in the ordinary course of business; provided, however,
that Asset Sales shall not include:
(1) a transaction or series of related transactions for which Pacer
International or its Restricted Subsidiaries receive aggregate
consideration of less than $1.5 million;
(2) the sale or exchange of equipment in connection with the purchase or
other acquisition of other equipment, in each case used in the business of
Pacer International and its Restricted Subsidiaries;
(3) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of Pacer International as permitted under
"Merger, Consolidation and Sale of Assets";
(4) disposals of equipment in connection with the reinvestment in or the
replacement of its equipment and disposals of worn-out or obsolete
equipment, in each case in the ordinary course of business of Pacer
International or its Restricted Subsidiaries;
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(5) the sale of accounts receivable pursuant to a Qualified Receivable
Transaction;
(6) any Restricted Payment permitted by the covenant described under
"Limitations on Restricted Payments" or that constitutes a Permitted
Investment; and
(7) one or more Sale and Leaseback Transactions for which Pacer
International or any Restricted Subsidiary of Pacer International receives
aggregate consideration from all such Sale and Leaseback Transactions of
less than $15.0 million.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the board of directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person or options to purchase the
same; and
(2) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250.0 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
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"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets
of Pacer International to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together with
any Affiliates thereof (whether or not otherwise in compliance with the
provisions of the indenture) other than Permitted Holders;
(2) the approval by the holders of Capital Stock of Pacer International
of any plan or proposal for the liquidation or dissolution of Pacer
International (whether or not otherwise in compliance with the provisions
of the Indenture);
(3) any Person or Group (other than the Permitted Holders) shall become
the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of Pacer
International; or
(4) the replacement of a majority of the board of directors of Pacer
International over a two-year period from the directors who constituted the
board of directors of Pacer International at the beginning of such period,
and such replacement shall not have been approved by the Permitted Holders
or a vote of at least a majority of the board of directors of Pacer
International then still in office who either were members of such board of
directors at the beginning of such period or whose election as a member of
such board of directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby,
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses),
(b) Consolidated Interest Expense, and
(c) Consolidated Non-cash Charges less any noncash items increasing
Consolidated Net Income for such period,
all as determined on a consolidated basis for such Person and its Restricted
Subsidiaries in accordance with GAAP as applicable.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis (consistent with the provisions below) for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness
in the ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or at
any time
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subsequent to the last day of the Four Quarter Period and on or prior to
the Transaction Date, as if such incurrence or repayment, as the case may
be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period;
(2) any asset sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions,
adjustments and other operating improvements or synergies both achieved by
such Person during such period and to be achieved by such Person and with
respect to the acquired assets, all as determined in good faith by a
responsible financial or accounting officer of Pacer International and as
reported on or otherwise confirmed, consistent with applicable standards of
the American Institute of Certified Public Accountants, to Pacer
International by an independent accounting firm) attributable to the assets
which are the subject of the Asset Acquisition or asset sale or other
dispositions during the Four Quarter Period) occurring during the Four
Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such asset
sale or other dispositions or Asset Acquisition (including the incurrence,
assumption or liability for any such Acquired Indebtedness) occurred on the
first day of the Four Quarter Period. If such Person or any of its
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of
such guaranteed Indebtedness as if such Person or any Restricted Subsidiary
of such Person had directly incurred or otherwise assumed such guaranteed
Indebtedness; and
(3) all adjustments used in connection with the calculation of adjusted
EBITDA as set forth in the Offering Memorandum dated May 24, 1999 relating
to the issuance of the Notes on the Issue Date to the extent such
adjustments are not fully reflected in such Four Quarter Period and
continue to be applicable.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated
Fixed Charge Coverage Ratio,"
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered
by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation
of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense (excluding amortization or write-off
of deferred financing costs), plus
(2) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, including without limitation, (a) any amortization
of debt discount and amortization or write-off of deferred financing costs
(including the amortization of costs relating to interest rate caps or
other similar agreements), (b) the net costs under
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Interest Swap Obligations, (c) all capitalized interest and (d) the
interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP, minus interest income for such period.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains or losses from Asset Sales (without regard to the
$1.5 million limitation set forth in the definition thereof) or
abandonments or reserves relating thereto;
(2) after-tax items classified as extraordinary or nonrecurring gains or
losses;
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of
the referent Person or is merged or consolidated with the referent Person
or any Restricted Subsidiary of the referent Person;
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is prohibited by
contract, operation of law or otherwise;
(5) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned Restricted
Subsidiary of the referent Person by such Person;
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued); and
(7) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Credit Agreement" means the Credit Agreement to be dated as of the Issue
Date, among Pacer International, the lenders party thereto in their capacities
as lenders thereunder and Bankers Trust Company, as administrative agent,
together with the related documents thereto (including, without limitation,
any guarantee agreements and security documents), in each case as such
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing, replacing or otherwise restructuring
(including increasing the amount of available borrowings thereunder or adding
Restricted Subsidiaries of Pacer International as additional borrowers or
guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect Pacer
International or any Restricted Subsidiary of Pacer International against
fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
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"Designated Senior Debt" means:
(1) Indebtedness under or in respect of the Credit Agreement; and
(2) any other Indebtedness constituting Senior Debt which, at the time
of determination, has an aggregate principal amount of at least $25.0
million and is specifically designated in the instrument evidencing such
Senior Debt as "Designated Senior Debt" by Pacer International.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute a Change of
Control or Asset Sale), matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or is redeemable at the sole option of
the holder thereof (except, in each case, upon the occurrence of a Change of
Control or Asset Sale) on or prior to the final maturity date of the Notes;
provided that the Pacer Preferred Stock and any Capital Stock having
substantially the same terms issued in exchange therefor shall be deemed not to
be Disqualified Capital Stock.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or otherwise organized or existing under the laws of the United States, any
state thereof or any territory or possession of the United States.
"Equity Investment" means the equity investment (in the form of the
issuance, rollover and exchange of Pacer International, Inc.'s and Pacer
Logistics, Inc.'s equity securities) in Pacer International of approximately
$133.0 million.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the board of directors of Pacer International
acting reasonably and in good faith and shall be evidenced by a Board
Resolution of the board of directors of Pacer International delivered to the
Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means:
(1) each of Pacer International's Domestic Restricted Subsidiaries on
the Issue Date; and
(2) each of Pacer International's Domestic Restricted Subsidiaries that
in the future executes a supplemental indenture in which such Restricted
Subsidiary agrees to be bound by the terms of the indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall
cease to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same
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or pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the Guarantee of such
Guarantor. Without limiting the generality of the foregoing, "Guarantor Senior
Debt" shall also include the principal of, premium, if any, interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all other amounts owing by any Guarantor in respect of,
(x) all monetary obligations of every nature of a Guarantor under, or
with respect to, the Credit Agreement, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (including guarantees
thereof);
(y) all Interest Swap Obligations (including guarantees thereof); and
(z) all obligations under Currency Agreements (including guarantees
thereof), in each case whether outstanding on the Issue Date or thereafter
incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Restricted Subsidiary of
such Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any director, officer
or employee of such Guarantor or any Restricted Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by such Guarantor;
(6) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the holder(s)
of such obligation or their representative shall have received an officers'
certificate of Pacer International to the effect that the incurrence of
such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at
the date on which the initial borrowing thereunder is made would not)
violate such provisions of the indenture);
(7) any Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to Pacer International or any Guarantor; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money, including,
without limitation, Senior Debt;
(2) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business);
(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent Obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
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(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the board of directors of the issuer of such
Disqualified Capital Stock. For purposes of the covenant described above under
the caption "Limitation on Incurrence of Additional Indebtedness," in
determining the principal amount of any Indebtedness to be incurred by Pacer
International or a Guarantor or which is outstanding at any date, the
principal amount of any Indebtedness which provides that an amount less than
the principal amount thereof shall be due upon any declaration of acceleration
thereof shall be the accreted value thereof at the date of determination.
"Independent Financial Advisor" means a firm:
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in Pacer
International; and
(2) which, in the judgment of the board of directors of Pacer
International, is otherwise independent and qualified to perform the task
for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by Pacer International and its Restricted Subsidiaries on commercially
reasonable terms in accordance with normal trade practices of Pacer
International or such Restricted Subsidiary, as the case may be. For purposes
of the "Limitation on Restricted Payments" covenant:
(1) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary of Pacer International at the
time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary of Pacer International and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary of Pacer International at
the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of Pacer International; and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by Pacer
International or any of its Restricted Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs
or write-offs with respect to such
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Investment, reduced by the payment of dividends or distributions in
connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount
of any Investment if such payment of dividends or distributions or receipt
of any such amounts would be included in Consolidated Net Income.
If Pacer International or any Restricted Subsidiary of Pacer International
sells or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary of Pacer International such that, after giving effect to
any such sale or disposition, Pacer International no longer owns, directly or
indirectly, 100.0% of the outstanding Common Stock of such Restricted
Subsidiary, Pacer International shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the old notes in
connection with the private offering thereof.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Management Agreement" means the Management Agreement to be dated as of the
Issue Date between Pacer International and Apollo.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by Pacer International or any of its Restricted Subsidiaries from
such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale; and
(4) appropriate amounts to be provided by Pacer International or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained
by Pacer International or any Restricted Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Option Plan" means Pacer International's 1999 Stock Option Plan with
respect to an aggregate of no more than 1.8 million shares of Pacer
International's Common Stock and Pacer Preferred Stock.
"Pacer Preferred Stock" means the Perpetual Participating Exchangeable
Preferred Stock of Pacer Logistics, Inc. as in effect on the Issue Date.
"Permitted Holders" means (i) Apollo and (ii) members of senior management
of Pacer International and its Subsidiaries.
"Permitted Indebtedness" means, without duplication, each of the following:
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(1) Indebtedness under the notes and the Guarantees issued in the
private offering of the old notes;
(2) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $235.0
million less the amount of all repayments of term debt and permanent
commitment reductions under the Credit Agreement with Net Cash Proceeds of
Asset Sales applied thereto as required by the "Limitation on Asset Sales"
covenant; provided, that the aggregate principal amount of Indebtedness
permitted to be incurred from time to time under this clause (2) shall be
reduced dollar for dollar by the amount of any Indebtedness then
outstanding under clause (12) below;
(3) other Indebtedness of Pacer International and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(4) Interest Swap Obligations of the Pacer International covering
Indebtedness of Pacer International or any of its Restricted Subsidiaries
and Interest Swap Obligations of any Restricted Subsidiary of Pacer
International covering Indebtedness of Pacer International or such
Restricted Subsidiary; provided, however, that such Interest Swap
Obligations are entered into to protect Pacer International and its
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(5) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of Pacer International and its Restricted
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(6) Indebtedness of a Restricted Subsidiary of Pacer International to
Pacer International or to a Wholly Owned Restricted Subsidiary of Pacer
International for so long as such Indebtedness is held by Pacer
International, a Wholly Owned Restricted Subsidiary of Pacer International
or the lenders or collateral agent under the Credit Agreement, in each case
subject to no Lien held by a Person other than Pacer International, a
Wholly Owned Restricted Subsidiary of Pacer International or the lenders or
collateral agent under the Credit Agreement; provided that if as of any
date any Person other than Pacer International, a Wholly Owned Restricted
Subsidiary of Pacer International or the lenders or collateral agent under
the Credit Agreement owns or holds any such Indebtedness or holds a Lien in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(7) Indebtedness of Pacer International to a Wholly Owned Restricted
Subsidiary of Pacer International for so long as such Indebtedness is held
by a Wholly Owned Restricted Subsidiary of Pacer International or the
lenders or the collateral agent under the Credit Agreement and is subject
to no Lien other than a Lien in favor of the lenders or collateral agent
under the Credit Agreement; provided that (a) any Indebtedness of Pacer
International to any Wholly Owned Restricted Subsidiary of Pacer
International is unsecured and subordinated, pursuant to a written
agreement, to Pacer International's obligations under the indenture and the
notes and (b) if as of any date any Person other than a Wholly Owned
Restricted Subsidiary of Pacer International owns or holds any such
Indebtedness or any Person holds a Lien other than a Lien in favor of the
lenders or collateral agent under the Credit Agreement in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by Pacer International;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(9) Indebtedness of Pacer International or any of its Restricted
Subsidiaries in respect of performance bonds, bankers' acceptances,
workers' compensation claims, surety or appeal bonds, payment obligations
in connection with self-insurance or similar obligations, and bank
overdrafts (and letters of credit in respect thereof);
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(10) Indebtedness represented by Capitalized Lease Obligations, Purchase
Money Indebtedness or Acquired Indebtedness of Pacer International and its
Restricted Subsidiaries incurred in the ordinary course of business not to
exceed $25.0 million at any one time outstanding; provided that all or a
portion of the $25.0 million permitted to be incurred under this clause
(10) may, at the option of the Company, be incurred under the Credit
Agreement or pursuant to clause (14) below (in addition to the $25.0
million set forth therein) instead of pursuant to Capitalized Lease
Obligations, Purchase Money Indebtedness or Acquired Indebtedness;
(11) Indebtedness arising from agreements of Pacer International or a
Restricted Subsidiary of Pacer International providing for indemnification,
adjustment of purchase price or similar obligations, in each case, incurred
or assumed in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided, however, that:
(a) such Indebtedness is not reflected on the balance sheet of Pacer
International or any Restricted Subsidiary of Pacer International
(contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this
clause (a)); and
(b) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including
noncash proceeds (the fair market value of such noncash proceeds being
measured at the time it is received and without giving effect to any
subsequent changes in value) actually received by Pacer International
and its Restricted Subsidiaries in connection with such disposition;
(12) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to Pacer
International or to any Restricted Subsidiary of Pacer International or
their assets (other than such Receivables Subsidiary and its assets), and
is not guaranteed by any such Person; provided that any outstanding
Indebtedness incurred under this clause (12) shall reduce (for so long as,
and to the extent that, the Indebtedness referred to in this clause (12)
remains outstanding) the aggregate amount permitted to be incurred under
clause (2) above to the extent set forth therein;
(13) Refinancing Indebtedness; and
(14) additional Indebtedness of Pacer International and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $25.0 million
at any one time outstanding (which amount may, but need not, be incurred in
whole or in part under the Credit Agreement) plus up to an additional $25.0
million as contemplated by, and to the extent not incurred under, clause
(10) above.
For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (14) above or is entitled to be
incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions
of such covenant, Pacer International shall, in its sole discretion, classify
(or later reclassify) such item of Indebtedness in any manner that complies
with such covenant. Accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Capital Stock in the form of additional shares of the same class
of Disqualified Capital Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Capital Stock for purposes of the
"Limitation on Incurrence of Additional Indebtedness" covenant.
"Permitted Investments" means:
(1) Investments by Pacer International or any Restricted Subsidiary of
Pacer International in any Person that is or will become immediately after
such Investment a Wholly Owned Restricted Subsidiary of Pacer International
or that will merge or consolidate into Pacer International or a Wholly
Owned
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Restricted Subsidiary of Pacer International; provided that such Wholly
Owned Restricted Subsidiary of Pacer International is not restricted from
making dividends or similar distributions by contract, operation of law or
otherwise;
(2) Investments in Pacer International by any Restricted Subsidiary of
Pacer International; provided that any Indebtedness evidencing such
Investment is unsecured and subordinated, pursuant to a written agreement,
to Pacer International's obligations under the notes and the indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of Pacer International
and its Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not to exceed $4.0 million at any one time
outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of Pacer International's or its Restricted
Subsidiaries' businesses and otherwise in compliance with the indenture;
(6) additional Investments (including joint ventures) not to exceed
$25.0 million at any one time outstanding;
(7) Investments in securities of trade creditors or customers received
(a) pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or (b) in
settlement of delinquent obligations of, and other disputes with,
customers, suppliers and others, in each case arising in the ordinary
course of business or otherwise in satisfaction of a judgment;
(8) Investments (a) made by Pacer International or its Restricted
Subsidiaries as a result of consideration received in connection with an
Asset Sale made in compliance with the "Limitation on Asset Sales"
covenant; or (b) acquired in exchange for, or out of the proceeds of, a
substantially concurrent offering of Capital Stock (other than Disqualified
Stock) of Pacer International (which proceeds of any such offering of
Capital Stock of Pacer International shall not have been, and shall not be,
included in clause (3)(b) of the first paragraph of the "Limitation on
Restricted Payments" covenant);
(9) Investments of a Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary of Pacer International or
at the time such Person merges or consolidates with Pacer International or
any of its Restricted Subsidiaries, in either case in compliance with the
indenture; provided that such Investments were not made by such Person in
connection with, or in anticipation or contemplation of, such Person
becoming a Restricted Subsidiary of Pacer International or such merger or
consolidation; and
(10) Investments in the notes or Pacer Preferred Stock.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which Pacer International or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen, customs and revenue
authorities and other Liens imposed by law incurred in the ordinary course
of business for sums not yet delinquent or being contested in good faith,
if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids,
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leases, government contracts, performance and return-of-money bonds and
other similar obligations (exclusive of obligations for the payment of
borrowed money);
(4) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(7) Liens securing Indebtedness permitted pursuant to clause (10) of the
definition of "Permitted Indebtedness"; provided, however, that in the case
of Purchase Money Indebtedness (a) the Indebtedness shall not exceed the
cost of such property or assets and shall not be secured by any property or
assets of Pacer International or any Restricted Subsidiary of Pacer
International other than the property and assets so acquired or constructed
and (b) the Lien securing such Indebtedness shall be created within 180
days of such acquisition or construction or, in the case of a refinancing
of any Purchase Money Indebtedness, within 180 days of such refinancing;
(8) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances or similar credit transactions issued or created for the
account of such Person to facilitate the purchase, shipment or storage of
such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Pacer
International or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens in the ordinary course of business not exceeding $5.0 million
at any one time outstanding that (a) are not incurred in connection with
borrowing of money and (b) do not materially detract from the value of the
property or materially impair its use;
(13) Liens by reason of judgment or decree not otherwise resulting in an
Event of Default;
(14) Liens securing Indebtedness permitted to be incurred pursuant to
clauses (12) and (14) of the definition of "Permitted Indebtedness";
(15) Liens securing Indebtedness under Currency Agreements permitted
under the indenture; and
(16) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant
(including, without limitation, clause (10) of the definition of Permitted
Indebtedness); provided that:
(a) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by Pacer
International or a Restricted Subsidiary of Pacer International and
were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of Pacer International; and
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(b) such Liens do not extend to or cover any property or assets of
Pacer International or of any of its Restricted Subsidiaries other than
the property or assets that secured the Acquired Indebtedness prior to
the time such Indebtedness became Acquired Indebtedness of Pacer
International or a Restricted Subsidiary of Pacer International and are
no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by
Pacer International or a Restricted Subsidiary of Pacer International.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of Pacer International and
its Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment and any
Refinancing thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by Pacer International or any of its
Restricted Subsidiaries pursuant to which Pacer International or any of its
Restricted Subsidiaries may sell, convey or otherwise transfer to (1) a
Receivables Subsidiary (in the case of a transfer by Pacer International or any
of its Restricted Subsidiaries) and (2) any other person (in the case of a
transfer by a Receivables Subsidiary), or may grant a security interest in, any
accounts receivable (whether now existing or arising in the future) of Pacer
International or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations in respect of
such accounts receivable, proceeds of such accounts receivable and other assets
which are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of Pacer
International that engages in no activities other than in connection with the
financing of accounts receivable and that is designated by the Board of
Directors of Pacer International (as provided below) as a Receivables
Subsidiary:
(1) no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which (a) is guaranteed by Pacer International or any
Restricted Subsidiary of Pacer International (excluding guarantees of
Obligations (other than the principal of, and interest on, Indebtedness)
pursuant to representations, warranties, covenants and indemnities entered
into in the ordinary course of business in connection with a Qualified
Receivables Transaction), (b) is recourse to or obligates Pacer
International or any Restricted Subsidiary of Pacer International in any
way other than pursuant to representations, warranties, covenants and
indemnities entered into in the ordinary course of business in connection
with a Qualified Receivables Transaction or (c) subjects any property or
asset of Pacer International or any Restricted Subsidiary of Pacer
International, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction;
(2) with which neither Pacer International nor any Restricted Subsidiary
of Pacer International has any material contract, agreement, arrangement or
understanding other than on terms no less favorable to Pacer International
or such Restricted Subsidiary than those that might be obtained at the time
from Persons who are not Affiliates of Pacer International, other than fees
payable in the ordinary course of business in connection with servicing
accounts receivable; and
(3) with which neither Pacer International nor any Restricted Subsidiary
of Pacer International has any obligation to maintain or preserve such
Restricted Subsidiary's financial condition or cause such Restricted
Subsidiary to achieve certain levels of operating results.
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Any such designation by the board of directors of Pacer International shall
be evidenced to the Trustee by filing with the Trustee a Board Resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing conditions.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Pacer International or
any Restricted Subsidiary of Pacer International of (A) for purposes of clause
(13) of the definition of Permitted Indebtedness, Indebtedness incurred or
existing in accordance with the "Limitation on Incurrence of Additional
Indebtedness" covenant (other than pursuant to clause (2), (4), (5), (6), (7),
(8), (9), (10), (11), (12) or (14) of the definition of Permitted Indebtedness)
or (B) for any other purpose, Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant, in each case
that does not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by Pacer International in connection with such
Refinancing); or
(2) create Indebtedness with (a) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being Refinanced or (b) a final maturity earlier than the final maturity of
the Indebtedness being Refinanced; provided that (x) if such Indebtedness
being Refinanced is Indebtedness solely of Pacer International, then such
Refinancing Indebtedness shall be Indebtedness solely of Pacer
International and (y) if such Indebtedness being Refinanced is subordinate
or junior to the notes, then such Refinancing Indebtedness shall be
subordinate to the notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to Pacer International or a Restricted Subsidiary of any property,
whether owned by Pacer International or any Restricted Subsidiary at the Issue
Date or later acquired, which has been or is to be sold or transferred by Pacer
International or such Restricted Subsidiary to such Person or to any other
Person from whom funds have been or are to be advanced by such Person on the
security of such Property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of Pacer International, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium,
if any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing by Pacer International in
respect of,
136
(x) all monetary obligations of every nature of Pacer International
under, or with respect to, the Credit Agreement, including, without
limitation, obligations to pay principal and interest, reimbursement
obligations under letters of credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations (including guarantees thereof); and
(z) all obligations under Currency Agreements (including guarantees
thereof), in each case whether outstanding on the Issue Date or thereafter
incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of Pacer International to a Subsidiary of Pacer
International;
(2) Indebtedness to, or guaranteed on behalf of, any director, officer
or employee of Pacer International or any Subsidiary of Pacer International
(including, without limitation, amounts owed for compensation);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by Pacer International;
(6) that portion of any Indebtedness incurred in violation of the
indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the holder(s)
of such obligation or their representative shall have received an officers'
certificate of Pacer International to the effect that the incurrence of
such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at
the date on which the initial borrowing thereunder is made would not)
violate such provisions of the indenture);
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to Pacer International; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of Pacer International.
"Shareholder Agreement" means the Shareholders Agreement to be dated as of
the Issue Date among certain affiliates of Apollo Management, L.P., APL Limited
and APL Land Transport Services, Inc.
"Significant Subsidiary," with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subsidiary," with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by such Person.
"Transactions" means the offering of the notes, the recapitalization of
Pacer International, the Equity Investment and the related borrowings under the
Credit Agreement on the Issue Date.
"Treasury Rate" means the rate per annum equal to the yield to maturity at
the time of computation of United States Treasury securities with a constant
maturity selected by the Calculation Agent (which shall
137
initially be the Trustee) most nearly equal to the period from such date of
redemption to June 1, 2003; provided, however, that if the period from such
date of redemption to June 1, 2003 is not equal to the constant maturity of the
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from such date of redemption to June 1, 2003 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to
a constant maturity of one year shall be used.
"Unrestricted Subsidiary" of any Person means (1) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the board of directors of such Person in the
manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The
board of directors may designate any Subsidiary (including any newly acquired
or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, Pacer International or any other Subsidiary of Pacer International that is
not a Subsidiary of the Subsidiary to be so designated; provided that (x) Pacer
International certifies to the Trustee in an officers' certificate that such
designation complies with the "Limitation on Restricted Payments" covenant and
(y) each Subsidiary to be so designated and each of its Subsidiaries has not at
the time of designation, and does not thereafter, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
Pacer International or any of its Restricted Subsidiaries. The board of
directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary only if (x) immediately after giving effect to such designation,
Pacer International is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant and (y) immediately before and
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing. Any such designation by the
board of directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the Board Resolution giving effect to such designation
and an officers' certificate certifying that such designation complied with the
foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (1) the then outstanding
aggregate principal amount of such Indebtedness into (2) the sum of the total
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the exchange notes will initially be issued in
the form of one or more fully registered notes in global form without coupons
(each a "Global Note"). Each Global Note shall be deposited with the trustee,
as custodian for, and registered in the name of DTC or a nominee thereof. The
old notes to the extent validly tendered and accepted and directed by their
holders in their letters of transmittal, will be exchanged through book-entry
electronic transfer for the Global Note.
The Global Notes
We expect that pursuant to procedures established by DTC
(1) upon the issuance of the Global Notes, DTC or its custodian will
credit, on its internal system, the principal amount of the individual
beneficial interests represented by such Global Notes to the respective
accounts of persons who have accounts with such depository and
(2) ownership of beneficial interests in the Global Notes will be shown
on, and the transfer of such ownership will be effected only through:
. records maintained by DTC or its nominee with respect to interests
of persons who have accounts with DTC ("participants") and
. the records of participants with respect to interests of persons
other than participants.
Such accounts initially will be designated by or on behalf of the initial
purchasers and ownership of beneficial interests in the Global Notes will be
limited to participants or persons who hold interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes
will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the indenture with respect
to the notes.
Payments of the principal of, premium, if any, and interest on, the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of us, the trustee or any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of principal,
premium, if any, or interest in respect of the Global Notes, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal of the Global Notes as shown
on the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in the Global Notes held through
such participants will be governed by standing instructions and customary
practice, as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Note for any reason, including to sell notes to persons in
jurisdictions which require physical delivery of the notes, or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture. Consequently, the ability to transfer notes or to pledge
notes as collateral will be limited to such extent.
Notes that are issued as described below under "Certificated Notes," will be
issued in registered definitive form without coupons (each, a "Certificated
Note"). Upon the transfer of Certificated Notes, such Certificated
139
Notes may, unless the Global Note has previously been exchanged for
Certificated Notes, be exchanged for an interest in the Global Note
representing the principal amount of notes being transferred.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes, including the presentation of notes for exchange as described
below, only at the direction of one or more participants to whose account the
DTC interest in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of notes as to which such
participant or participants has or have given such direction. However, if
there is an event of default under the Indenture, DTC will exchange the Global
Notes for Certificated Notes, which it will distribute to its participants.
DTC has advised us as follows:
(1) DTC is a limited purpose trust company organized under the laws of
the State of New York,
(2) a member of the Federal Reserve System,
(3) a "clearing corporation" within the meaning of the Uniform
Commercial Code and
(4) a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the issuers nor the trustee will have any
responsibility for the performances by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by us within 90
days, Certificated Notes will be issued in exchange for the Global Notes.
140
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax
considerations relevant to the exchange of notes for the exchange notes
pursuant to the exchange offer. This discussion is based upon currently
existing provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly on a retroactive basis. There can be no
assurance that the Internal Revenue Service will not take positions contrary to
those taken in this discussion, and no ruling from the Internal Revenue Service
has been or will be sought. This discussion does not address all of the U.S.
federal income tax considerations that may be relevant to particular holders of
notes in light of their individual circumstances, nor does it address all of
the U.S. federal income tax considerations that may be relevant to holders
subject to special rules, including, for example, banks and other financial
institutions, insurance companies, tax-exempt entities, dealers in securities,
and persons holding notes as part of a hedging or conversion transaction or a
straddle. Holders are urged to consult their own tax advisors as to the
particular U.S. federal income tax consequences to them of exchanging notes for
exchange notes, as well as the tax consequences under state, local, foreign and
other tax laws, and the possible effects of changes in tax laws.
Exchange of Notes for Exchange Notes
The exchange of notes for the exchange notes pursuant to the exchange offer
should not be treated as an "exchange" for U.S. federal income tax purposes.
Consequently, a holder that exchanges notes for exchange notes pursuant to the
exchange offer should not recognize taxable gain or loss on such exchange, such
holder's adjusted tax basis in the exchange notes should be the same as its
adjusted tax basis in the notes exchanged therefor immediately before such
exchange, and such holder's holding period for the exchange notes should
include the holding period for the notes exchanged therefor.
141
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of exchange notes
received in exchange for notes where such notes were acquired as a result of
market-making activities or other trading activities. We have agreed that, for
a period of 180 days after the expiration date, it will make this prospectus,
as amended or supplemented, available to any Participating Broker-Dealer for
use in connection with any such resale.
We will not receive any proceeds from any sale of exchange notes by
Participating Broker-Dealers. Exchange notes received by Participating Broker-
Dealers for their own account pursuant to the exchange offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the exchange notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer or the
purchasers of any such exchange notes. Any Participating Broker-Dealer that
resells exchange notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such exchange notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of exchange notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any Participating Broker-Dealer that requests such documents in
the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, including the expenses of one counsel for the holders of the
notes, other than commissions or concessions of any Participating Broker-
Dealers and will indemnify the holders of the notes, including any
Participating Broker-Dealers, against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for us
by Dewey Ballantine LLP, New York, New York.
CHANGE IN ACCOUNTANT
Pacer International, with the approval of its board of directors, on
changed its independent accountants from Arthur Andersen LLP to
PricewaterhouseCoopers LLP. Arthur Andersen's report on the financial
statements of Pacer International (formerly America President Lines Stacktrain
Services) as of December 25, 1998 and December 26, 1997 and for the fiscal year
ended December 25, 1998 and the period from November 13, 1997 to December 26,
1997 and the financial statements of American President Lines Stacktrain
Services' predecessor as of December 27, 1996 and for the period from December
28, 1996 through November 12, 1997 and the fiscal year ended December 27, 1996
included in this prospectus was not qualified or modified as to uncertainty,
audit scope, or accounting principles. During Arthur Andersen LLP's appointment
as independent accountants, there were no disagreements on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope of procedure which if not resolved to Arthur Andersen LLP's satisfaction
would have caused Arthur Andersen LLP to make reference to the subject matter
of the disagreement in connection with Arthur Andersen LLP's reports on Pacer
International financial statements for the periods indicated above.
142
EXPERTS
The financial statements of American President Lines Stacktrain Services, a
division of APL Land Transport Services, Inc., currently known as Pacer
International, Inc., as of December 25, 1998 and December 26, 1997 and for the
fiscal year ended December 25, 1998 and the period from November 13, 1997 to
December 26, 1997 and the financial statements of American President Lines
Stacktrain Services' predecessor as of December 27, 1996 and for the period
from December 28, 1996 through November 12, 1997 and the fiscal year ended
December 27, 1996 included in this prospectus and elsewhere in this requisition
statement to the extent and for the periods indicated in their report have been
audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Pacer International, Inc., now
known as Pacer Logistics, Inc., and its subsidiaries as of December 31, 1998
and 1997 and for the year ended December 31, 1998 and the period from March 31,
1997 through December 31, 1997 and the financial statements of Pacer
International, Inc.'s predecessor as of March 31, 1997 and for the period from
January 1, 1997 through March 31, 1997 and for the year ended December 31,
1996, included in this prospectus and elsewhere in this registration statement
to the extent and for the periods indicated in their report have been audited
by Arthur Andersen LLP, independent public accountants, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
Arthur Andersen LLP has not audited any financial statements or individual
transactions of American President Lines Stacktrain Services, Pacer
International, Inc. or their predecessors or successors subsequent to the
periods stated above.
143
INDEX TO FINANCIAL STATEMENTS
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES--A DIVISION OF APL LAND TRANSPORT
SERVICES, INC. (currently known as Pacer International, Inc. )*
HISTORICAL AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-2
Statements of Operations for the fiscal year ended December 25, 1998,
the period November 13, 1997 through December 26, 1997, the period
December 28, 1996 through November 12, 1997 and the fiscal year ended
December 27, 1996...................................................... F-3
Statements of Assets, Liabilities and Divisional Control Account as of
December 25, 1998, December 26, 1997 and December 27, 1996............. F-4
Statements of Cash Flows for the fiscal year ended December 25, 1998,
the period November 13, 1997 through December 26, 1997, the period
December 28, 1996 through November 12, 1997 and the fiscal year ended
December 27, 1996...................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
UNAUDITED INTERIM FINANCIAL STATEMENTS
Statements of Assets, Liabilities and Divisional Control Account as of
April 2, 1999 and December 25, 1998.................................... F-15
Statements of Operations for the three months ended April 2, 1999 and
April 3, 1998.......................................................... F-16
Statements of Cash Flows for the three months ended April 2, 1999 and
April 3, 1998.......................................................... F-17
Notes to Financial Statements........................................... F-18
PACER INTERNATIONAL, INC. (currently known as Pacer Logistics, Inc. )*
HISTORICAL AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-19
Consolidated Balance Sheets as of December 31, 1998 and 1997 and March
31, 1997............................................................... F-20
Consolidated Statements of Operations for the year ended December 31,
1998, the period from inception (March 31, 1997) through December 31,
1997, the period from January 1, 1997 through March 31, 1997 and the
year ended December 31, 1996........................................... F-21
Consolidated Statements of Changes in Stockholders' Equity for the year
ended December 31, 1998, the period from inception (March 31, 1997)
through December 31, 1997, the period from January 1, 1997 through
March 31, 1997 and the year ended December 31, 1996.................... F-22
Consolidated Statements of Cash Flows for the year ended December 31,
1998, the period from inception (March 31, 1997) through December 31,
1997, the period from January 1, 1997 through March 31, 1997 and the
year ended December 31, 1996........................................... F-23
Notes to Consolidated Financial Statements.............................. F-24
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998.. F-41
Consolidated Statements of Operations for the three months ended March
31, 1999 and March 31, 1998............................................ F-42
Consolidated Statements of Cash Flows for the three months ended March
31, 1999 and March 31, 1998............................................ F-43
Notes to Consolidated Financial Statements.............................. F-44
- --------
* Explanatory Note: In connection with the transactions described elsewhere in
this prospectus under "Our Recapitalization", APL Land Transport Services,
Inc. was renamed Pacer International, Inc. and Pacer International was
renamed Pacer Logistics, Inc.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To APL Limited:
We have audited the accompanying statements of assets, liabilities and
divisional control account (as revised--see Note 3) of American President Lines
Stacktrain Services (a division of APL Land Transport Services, Inc., a
Tennessee corporation and a wholly-owned subsidiary of APL Limited) as of
December 25, 1998 and December 26, 1997 and the related statements of
operations and cash flows (as revised--see Note 3) for the fiscal year ended
December 25, 1998, and the period from November 13, 1997 through December 26,
1997. We have also audited the accompanying statements of assets, liabilities
and divisional control account (as revised--see Note 3) of the Predecessor
(identified in Note 1) as of December 27, 1996 and the related statements of
operations and cash flows (as revised--see Note 3) for the period from December
28, 1996 through November 12, 1997, and for the fiscal year ended December 27,
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 American President Lines
Stacktrain Services as of December 25, 1998 and December 26, 1997 and the
results of its operations and cash flows for the fiscal year ended December 25,
1998 and the period from November 13, 1997 through December 26, 1997, and the
financial position of the Predecessor as of December 27, 1996 and the results
of the Predecessor's operations and cash flows for the period from December 28,
1996 through November 12, 1997 and the fiscal year ended December 27, 1996, in
conformity with generally accepted accounting principles.
Memphis, Tennessee,
January 29, 1999
F-2
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
STATEMENTS OF OPERATIONS
The financial statements of the Company and the Predecessor are not
comparable in certain respects. (See Note 1)
The Company The Predecessor
----------------------------------- -----------------------------------
November 13, 1997 December 28, 1996
Fiscal Year Ended through through Fiscal Year Ended
December 25, 1998 December 26, 1997 November 12, 1997 December 27, 1996
----------------- ----------------- ----------------- -----------------
(In millions) (In millions)
Revenues
Freight Revenues................................... $566.1 $57.7 $498.4 $526.6
Avoided Reposition................................. 20.0 1.9 15.8 15.7
Other Revenue...................................... 4.7 0.4 2.9 5.7
------ ----- ------ ------
Total Revenues................................. 590.8 60.0 517.1 548.0
Expenses
Variable Expenses
Terminal/Cargo Handling............................ 4.0 0.4 2.7 2.0
Rail Linehaul...................................... 438.1 43.8 383.7 401.3
Trucks and Others.................................. 11.0 1.2 10.1 7.2
Empty Reposition................................... 13.2 2.0 11.0 13.2
Equipment Maintenance and Repair................... 18.3 1.8 14.6 15.1
Other.............................................. (13.1) (0.7) (6.7) (16.7)
------ ----- ------ ------
Total Variable Expenses........................ 471.5 48.5 415.4 422.1
------ ----- ------ ------
Variable Contribution................................ $119.3 $11.5 $101.7 $125.9
Fixed Expenses
Terminal/Cargo Handling............................ 1.7 0.3 1.5 0.6
Fixed Equipment
Rail Cars........................................ 6.5 0.5 3.3 3.4
Containers/Chassis............................... 44.9 4.9 33.5 31.6
Other............................................ 4.1 0.6 3.2 3.4
------ ----- ------ ------
Total Fixed Equipment.......................... 55.5 6.0 40.0 38.4
General and Administrative Expenses
Direct Expenses.................................. 15.7 1.8 13.0 15.2
Other Overhead................................... 0.9 -- 0.1 0.1
Corporate Headquarters........................... 5.7 0.5 4.2 6.1
IT Systems....................................... 7.3 0.9 6.7 4.2
------ ----- ------ ------
Total General and Administrative............... 29.6 3.2 24.0 25.6
Total Fixed Expenses........................... 86.8 9.5 65.5 64.6
Other Income......................................... 0.7 -- 2.6 0.2
------ ----- ------ ------
Operating Income..................................... 33.2 2.0 38.8 61.5
Interest Expense..................................... -- (0.3) (2.0) --
------ ----- ------ ------
Income Before Taxes.................................. 33.2 1.7 36.8 61.5
Charge in Lieu of Income Taxes....................... (12.6) (0.7) (13.9) (23.4)
------ ----- ------ ------
Net Income........................................... $ 20.6 $ 1.0 $ 22.9 $ 38.1
- --------------------------------------------------
====== ===== ====== ======
The accompanying notes are an integral part of these financial statements.
F-3
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL CONTROL ACCOUNT
The financial statements of the Company and the Predecessor are not
comparable in certain respects. (See Note 1)
The Company The Predecessor
------------------------- ---------------
December 25, December 26, December 27,
1998 1997 1996
------------ ------------ ---------------
(In millions) (In millions)
ASSETS
Current Assets
Trade and Other Receivables, Net.................................................. $ 43.9 $ 33.4 $ 39.7
Intercompany Trade Receivables.................................................... 3.4 2.4 2.4
Deferred Tax Asset................................................................ -- 0.1 0.1
Prepaid Expenses and Other Current Assets......................................... 0.1 -- 0.4
------ ------ ------
Total Current Assets.......................................................... 47.4 35.9 42.6
------ ------ ------
Property and Equipment
Rail Cars....................................................................... 66.5 27.6 33.2
Containers and Chassis.......................................................... 27.6 26.9 57.2
Leasehold Improvements and Other................................................ 1.3 2.0 3.5
------ ------ ------
95.4 56.5 93.9
Accumulated Depreciation and Amortization......................................... (6.6) (0.6) (67.9)
------ ------ ------
Property and Equipment, Net..................................................... 88.8 55.9 26.0
Goodwill and Other Intangibles, Net............................................... 19.2 19.8 --
Other Assets...................................................................... 0.7 0.3 2.8
------ ------ ------
Total Assets.................................................................. $156.1 $111.9 $ 71.4
====== ====== ======
LIABILITIES AND DIVISIONAL CONTROL ACCOUNT
Current Liabilities
Accounts Payable and Accrued Liabilities.......................................... $ 84.6 $ 68.4 $ 68.7
------ ------ ------
Total Current Liabilities..................................................... 84.6 68.4 68.7
------ ------ ------
Deferred Tax Liability............................................................ 15.4 13.2 2.0
Other Liabilities................................................................. 0.5 0.7 0.8
Commitments and Contingencies (Note 9)
Divisional Control Account...................................................... 55.6 29.6 (0.1)
------ ------ ------
Total Liabilities and Divisional Control Account.............................. $156.1 $111.9 $ 71.4
====== ====== ======
The accompanying notes are an integral part of these financial statements.
F-4
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
STATEMENTS OF CASH FLOWS
The financial statements of the Company and the Predecessor are not
comparable in certain respects. (See Note 1)
The Company The Predecessor
------------------------- -------------------------
Fiscal Year November 13, December 28, Fiscal Year
Ended 1997 through 1996 through Ended
December 25, December 26, November 12, December 27,
1998 1997 1997 1996
------------ ------------ ------------ ------------
(In millions) (In millions)
Cash Flows from Operating Activities
Net Income............................................................... $ 20.6 $ 1.0 $ 22.9 $ 38.1
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Depreciation and Amortization.......................................... 6.6 0.7 3.0 4.1
Gain on Sale of Property and Equipment................................. (0.4) -- (2.6) (1.0)
Deferred Taxes......................................................... 1.0 1.7 (3.4) 0.3
Change in Current Assets and Liabilities:
Trade and Other Receivables.......................................... (10.5) 5.5 0.7 (27.9)
Intercompany Trade Receivables....................................... (1.0) 0.3 (0.3) 12.5
Prepaid Expenses and Other Current Assets............................ (0.1) 4.3 (3.8) --
Accounts Payable and Accrued Liabilities............................. 16.2 (2.4) 2.1 (8.3)
Other................................................................ (0.6) 1.6 (0.4) (0.4)
------ ------ ------ ------
Net Cash Provided by Operating Activities.......................... 31.8 12.7 18.2 17.4
------ ------ ------ ------
Cash Flows from Investing Activities
Capital Expenditures..................................................... (39.7) -- -- (0.2)
Proceeds from Sales of Property and Equipment............................ 1.2 -- 3.6 1.1
------ ------ ------ ------
Net Cash Provided by (Used in) Investing Activities................ (38.5) -- 3.6 0.9
------ ------ ------ ------
Cash Flows from Financing Activities
Intercompany Funding, Net................................................ 6.7 (12.7) (21.8) (15.6)
Repayment of Capital Lease Obligations................................... -- -- -- (2.7)
------ ------ ------ ------
Net Cash Provided by (Used in) Financing Activities................ 6.7 (12.7) (21.8) (18.3)
------ ------ ------ ------
Net Increase (Decrease) in Cash and Cash Equivalents..................... -- -- -- --
------ ------ ------ ------
Cash and Cash Equivalents at Beginning of Year/Period.................... -- -- -- --
------ ------ ------ ------
Cash and Cash Equivalents at End of Year/Period.......................... -- -- -- --
------ ------ ------ ------
The accompanying notes are an integral part of these financial statements.
F-5
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS
Acquisition Of Parent Company
APL Land Transport Services, Inc. ("APLLTS") is a Tennessee corporation and
a wholly-owned subsidiary of APL Limited ("Parent"). On November 12, 1997 APL
Limited was acquired by Neptune U.S.A., Inc., a Delaware corporation and an
indirect, wholly-owned subsidiary of Neptune Orient Lines Limited ("NOL"), a
Singapore corporation. In the acquisition, Neptune U.S.A., Inc. merged with and
into APL Limited. The surviving company, APL Limited, is a subsidiary of NOL.
The transaction was accounted for by the Parent using the purchase method of
accounting. The purchase price exceeded the fair market value of the underlying
net assets acquired by approximately $165 million which was allocated to
goodwill and other intangible assets and is being amortized on a straight line
basis over various periods, none in excess of 40 years. The Parent has pushed
down the fair value adjustments arising in the purchase to its subsidiaries,
including the American President Lines Stacktrain Services division of APLLTS.
Principles of Consolidation and Fiscal Year
Until November 1998, APLLTS was comprised of two operating divisions:
American President Lines Stacktrain Services Division (the "Company") and
American President Lines Automotive Division (the "Automotive Division"). Prior
to May 1996, APLLTS had a third operating division, American President Lines
Distribution Services ("Distribution Services"). Effective November 20, 1998,
the Automotive Division and remaining assets related to the 1996 sale of
Distribution Services were transferred to the Parent.
The financial statements subsequent to November 12, 1997 include the
accounts of the Company and include the 'push down' effect of the purchase
price allocation. Prior to November 13, 1997, the financial statements include
the accounts of the Stacktrain Services division (the "Predecessor") of APLLTS.
The Company's fiscal year ends on the last Friday in December. All fiscal years
presented in the Statements of Operations contained 52 weeks.
Nature of Operations
The Company provides transportation services for containerized cargo in the
North American markets, primarily through contracts with other transportation
companies. The Company provides wholesale intermodal transportation services to
North American and international shippers, including the Parent and its
subsidiaries/divisions. These services are provided through an integrated
system of rail and truck transportation, the primary element of which is a
train system utilizing double-stack rail cars. The revenues earned from the
Parent and subsidiaries/divisions are significant to the Company.
Certain Significant Risks and Uncertainties
Service Instability--Recent rail carrier consolidations and increases in
volumes through rail carrier terminals have led to rail service instability in
the U.S. Continued service instability, if extensive, could have a material
adverse impact on the Company's results of operations.
Year 2000 Remediation (Unaudited)--The Company has assessed and continues to
assess the impact of the Year 2000 issue on its reporting systems and
operations. The Year 2000 issue exists because many computer systems and
applications currently use 2-digit date fields to designate a year. As the
century date
F-6
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
occurs, the date sensitive systems will recognize the year 2000 as 1900 or not
at all. This inability to recognize or properly treat the year 2000 may cause
systems to process critical financial and operational information incorrectly.
The Company has a remediation plan and if it is not successful, there could be
a significant disruption of the Company's ability to transact business with its
major customers and suppliers.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Intercompany Funding
The Company's excess cash from operations is remitted to the Parent.
Additionally, APL Limited provides administrative and other services to the
Company. All such activity is reflected in the divisional control account in
the Company's Statements of Assets, Liabilities and Divisional Control Account.
Therefore, the Company does not reflect any separate cash or cash equivalents.
Supplemental Disclosure of Cash Flow Information :
The Company The Predecessor
------------------------- -------------------------
Fiscal Year November 13, December 28, Fiscal Year
Ended 1997 through 1996 through Ended
December 25, December 26, November 12, December 27,
1998 1997 1997 1996
------------ ------------ ------------ ------------
(In millions) (In millions)
Cash Paid to Parent for:
Interest................... $ -- $0.3 $ 2.0 $ --
Income Taxes............... $3.4 $0.6 $12.2 $18.1
Allowance for Doubtful Accounts
The provision for doubtful accounts for the period ended November 12, 1997
was $0.3 million. The provision for doubtful accounts was less than $0.1
million for all other periods presented in the Statements of Operations. At
December 25, 1998, December 26, 1997 and December 27, 1996, the allowance for
doubtful accounts was $0.7 million, $0.9 million and $0.7 million,
respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables
arising from services provided to customers are generally not collateralized
and accordingly, the Company performs ongoing credit evaluations of its
customers to reduce the risk of loss. The Company has two third party customers
who account for about 25% to 30% of revenues. The receivables from these
customers were $12.6 million at December 25, 1998.
Property and Equipment
Property and Equipment at November 12, 1997, as adjusted by the Parent in
connection with the purchase by NOL, was stated at fair value as prescribed by
the purchase method of accounting. Prior to and after the
F-7
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
purchase, property and equipment is recorded at historical cost. For assets
financed under capital leases, the present value of the future minimum lease
payments is recorded at the date of acquisition as Property and Equipment with
a corresponding amount recorded as a capital lease obligation. Depreciation and
amortization are computed using the straight-line method based upon the
following estimated useful lives:
Classification Estimated Useful Life
-------------- ---------------------
Containers and Chassis.......................................... 5 to 20 Years
Rail Cars....................................................... 5 to 30 Years
Other Property and Equipment.................................... Various
Assets Under Capital Lease Arrangements......................... Term of Lease
Depreciation and Amortization of property and equipment was $6.0 million,
$0.7 million, $3.0 million and $4.1 million for the fiscal year ended December
25, 1998, the periods ended December 26, 1997 and November 12, 1997, and the
fiscal year ended December 27, 1996, respectively.
Maintenance and repair expense of $18.3 million, $1.8 million, $14.6 million
and $15.1 million was incurred for the fiscal year ended December 25, 1998, the
periods ended December 26, 1997 and November 12, 1997, and the fiscal year
ended December 27, 1996, respectively. At December 26, 1997, the balance of
deferred costs for major rail car overhauls, which are amortized over four
years, was eliminated as a result of the purchase accounting performed in
conjunction with the merger. At December 25, 1998 and December 27, 1996, the
balance of $0.4 million and $2.5 million, respectively, was included in Other
Assets in the accompanying Statements of Assets, Liabilities and Divisional
Control Account.
On December 27, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires that long-
lived assets, certain identifiable intangible assets and goodwill be reviewed
for impairment when expected future undiscounted cash flows are less than the
carrying value of the asset. No charges were recorded pursuant to this
statement in any of the periods presented in the Statements of Operations.
Intangible Assets
Goodwill, representing the excess of the cost over the net tangible and
identifiable intangible assets acquired, is stated at cost. Other Intangibles
consists of systems technology. Goodwill and other intangibles of $19.2
million, including systems technology of $0.8 million, are recorded at December
25, 1998 net of accumulated amortization of $0.6 million and are amortized on a
straight-line basis using the following estimated useful lives:
Estimated
Classification Useful Life
-------------- -----------
Goodwill............................................................... 40 Years
Other Intangibles...................................................... 10 Years
The Company's policy is to evaluate the excess of cost over the net assets
acquired based on an evaluation of such factors as the occurrence of a
significant adverse event or change in the environment in which the business
operates or if the expected future net cash flows (undiscounted and without
interest) would become less than the carrying amount of the asset. An
impairment loss would be recorded in the period such determination is made,
based on the fair value at that time.
F-8
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues and Expenses
The Company recognizes revenues on a percentage-of-completion basis and
expenses as incurred. Detention revenue is recognized when cash is received.
Income Taxes
The Company's operating results are included in the consolidated income tax
returns of APL Limited. A charge in lieu of income taxes has been provided
using the separate return method, as if the Company were a separate taxpayer.
Deferred income taxes represent the future tax consequences relating to the
reversal of differences in the recognition of assets and liabilities for
financial reporting and income tax purposes.
NOTE 3. RESTATEMENT
Error Correction
The financial statements of the Company as of December 26, 1997 and of the
Predecessor as of December 27, 1996, and for each of the periods in the fiscal
years then ended, have been revised for the correction of an error in Property
and Equipment. The previously issued financial statements inadvertently
reflected certain leasehold improvements at a terminal facility of one of the
Parent's other divisions as assets of the Company. The effect of this revision
on Property and Equipment, Net and the Divisional Control Account at December
26, 1997 was approximately $9.1 million and at December 27, 1996 was
approximately $10.5 million. The effect on operations for the periods ended
December 26, 1997 and November 12, 1997, and the fiscal year ended December 27,
1996, was an increase to previously reported net income of $0.1 million, $1.4
million and $1.7 million, respectively.
Income Statement Reclassification
The Statements of Operations of the Company for the fiscal year ended
December 25, 1998 and the period from November 13, 1997 through December 26,
1997, and of the Predecessor for the period from December 28, 1996 through
November 12, 1997 and for the fiscal year ended December 27, 1996, have been
revised to reclassify the intermodal services provided to American President
Lines, Ltd. ("APL"), a related party and wholly-owned subsidiary of the Parent
(see Note 8). The previously issued financial statements reflected equal
amounts of revenues and expenses for these services. The revised Statements of
Operations reflect the costs of these services netted against related revenues.
The effect of the reclassification on operations was a decrease of revenues and
expenses of $276.7 million, $22.3 million, $154.1 million, and $173.0 million
for the fiscal year ended December 25, 1998, the periods ended December 26,
1997 and November 12, 1997, and the fiscal year ended December 27, 1996,
respectively. This reclassification had no effect on the previously reported
net income.
NOTE 4. INCOME TAXES
The Company records its charge in lieu of income taxes using the liability
method, considering known changes in income tax rates and other statutory
provisions that will be in effect in subsequent years.
F-9
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The reconciliation of the net effective income tax rate to the U.S. federal
statutory income tax rate is as follows:
The Company The Predecessor
------------------------- -------------------------
Fiscal Year November 13, December 28, Fiscal Year
Ended 1997 through 1996 through Ended
December 25, December 26, November 12, December 27,
1998 1997 1997 1996
------------ ------------ ------------ ------------
U.S. Federal Statutory Rate.............................................. 35.0% 35.0% 35.0% 35.0%
Increases (Decreases) in Rate Resulting from:
State Taxes, Net of Federal Benefit.................................... 2.2% 2.7% 2.7% 2.8%
Permanent Book/Tax Differences and Other............................... 0.8% 2.0% 0.2% 0.2%
----- ----- ----- -----
Net Effective Tax Rate................................................... 38.0% 39.7% 37.9% 38.0%
===== ===== ===== =====
The following is a summary of the charge in lieu of income taxes:
The Company The Predecessor
------------------------- -------------------------
Fiscal Year November 13, December 28, Fiscal Year
Ended 1997 through 1996 through Ended
December 25, December 26, November 12, December 27,
1998 1997 1997 1996
------------ ------------ ------------ ------------
(In millions) (In millions)
Current
Federal................................................................ $10.6 $(1.1) $15.9 $21.2
State.................................................................. 1.0 (0.1) 1.2 1.5
Foreign................................................................ -- 0.2 0.2 0.4
----- ----- ----- -----
Total Current........................................................ 11.6 (1.0) 17.3 23.1
----- ----- ----- -----
Deferred
Federal................................................................ 1.0 1.6 (3.2) 0.3
State.................................................................. -- 0.1 (0.2) --
----- ----- ----- -----
Total Deferrals...................................................... 1.0 1.7 (3.4) 0.3
----- ----- ----- -----
Total Provision.......................................................... $12.6 $ 0.7 $13.9 $23.4
===== ===== ===== =====
The following table shows the tax effects of the Company's and Predecessor's
cumulative temporary differences included in the Statements of Assets,
Liabilities, and Divisional Control Account at December 25, 1998, December 26,
1997 and December 27, 1996:
The Company The Predecessor
-------------- ---------------
1998 1997 1996
------ ------ ---------------
(In millions) (In millions)
Property and Equipment................................................................... $(17.1) $(17.2) $(5.0)
Allowance for Doubtful Accounts.......................................................... 0.7 1.1 1.1
Accrued Liabilities...................................................................... 0.4 1.9 0.9
Other.................................................................................... 0.6 1.1 1.1
------ ------ -----
Total Net Deferred Tax Liability......................................................... $(15.4) $(13.1) $(1.9)
====== ====== =====
F-10
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amount of deferred tax assets and liabilities at December 25, 1998,
December 26, 1997 and December 27, 1996 were as follows:
The Company The Predecessor
-------------- ---------------
1998 1997 1996
------ ------ ---------------
(In millions) (In millions)
Deferred Tax Assets........................................................................ $ 1.9 $ 3.4 $ 2.4
Deferred Tax Liabilities................................................................... (17.3) (16.5) (4.3)
------ ------ -----
Total Net Deferred Tax Liability......................................................... (15.4) (13.1) (1.9)
Less Net Current Deferred Tax Asset........................................................ -- (0.1) (0.1)
------ ------ -----
Deferred Tax Liability..................................................................... $(15.4) $(13.2) $(2.0)
====== ====== =====
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts Payable and Accrued Liabilities at December 25, 1998, December 26,
1997 and December 27, 1996 were as follows:
The Company The Predecessor
-------------- ---------------
1998 1997 1996
------ ------ ---------------
(In millions) (In millions)
Accounts Payable........................................................................... $ 14.2 $ 7.4 $11.2
Accrued Liabilities........................................................................ 69.8 60.2 56.2
Unearned Revenue........................................................................... 0.6 0.8 1.3
------ ------ -----
Total Accounts Payable and Accrued Liabilities........................................... $ 84.6 $ 68.4 $68.7
--------------------------------------------------
====== ====== =====
NOTE 6. LEASES
The Company leases equipment under operating leases. The following is a
schedule of future minimum lease payments required under the Company's
operating leases that have initial noncancelable terms in excess of one year at
December 25, 1998:
Operating
Leases
-------------
(In millions)
1999........................................................... 22.9
2000........................................................... 18.8
2001........................................................... 16.1
2002........................................................... 13.5
2003........................................................... 14.0
Later Years.................................................... 37.3
------
Total Minimum Lease Payments Required........................ $122.6
======
Total rental expense for operating leases and short-term rentals was $49.7
million, $5.5 million, $37.1 million and $35.2 million for the fiscal year
ended December 25, 1998, the periods ended December 26, 1997 and November 12,
1997, and the fiscal year ended December 27, 1996, respectively.
F-11
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7. EMPLOYEE BENEFIT PLANS
Pension Plans
There are defined benefit pension plans covering certain domestic shoreside
employees of the Parent and its majority-owned subsidiaries, which generally
call for benefits to be paid to eligible employees. The defined benefit
retirement plan was replaced with a Cash Balance plan on June 1, 1997. The
present value of the accrued benefit at the conversion date was converted to a
starting retirement account balance. The account receives a credit each year
based on the employee's age, years of service and annual eligible earnings.
Interest is also earned each year. The retirement account can be paid out upon
termination or payment can be deferred until retirement age. After termination
interest is earned annually. The Parent also has grandfathered retirement
benefits for certain employees.
The general policy is to fund pension costs at no less than the statutory
requirement. Certain non-qualified plans are secured through a grantor trust.
The Company participates in the Parent's domestic plans and represents
approximately 10% of the total wage base of the Parent and its majority-owned
subsidiaries. The Parent's domestic plans had total plan assets in excess of
the projected benefit obligation of $20.8 million at December 25, 1998. The
total domestic net pension cost of the Parent for the fiscal year ended
December 25, 1998, the periods ended December 26, 1997 and November 12, 1997,
and the fiscal year ended December 27, 1996, was $2.7 million, $0.6 million,
$4.4 million, and $8.3 million, respectively. These costs and benefits are
allocated by the Parent to the Company and are included in general and
administrative expenses.
Postretirement Benefits Other Than Pensions
The Parent and its majority-owned subsidiaries share the cost of its health
care benefits with the majority of its domestic shoreside retired employees and
recognize the cost of providing health care and other benefits to retirees over
the term of employee service. The postretirement obligation is unfunded. The
Company participates in the Parent's postretirement plan and represents
approximately 10% of the total wage base of the Parent and its majority-owned
subsidiaries. The Parent's plan had a total benefit obligation of $14.5 million
at December 25, 1998. The total net postretirement benefit cost of the Parent
for the fiscal year ended December 25, 1998, the periods ended December 26,
1997 and November 12, 1997, and the fiscal year ended December 27, 1996, was
$1.6 million, $0.1 million, $0.5 million and $1.7 million, respectively. These
costs and benefits are allocated by the Parent to the Company and are included
in general and administrative expenses.
Profit-Sharing Plans
The Parent and its majority-owned subsidiaries have defined contribution
profit-sharing plans covering certain non-union employees. Under the terms of
these plans, the Parent has agreed to make matching contributions equal to
those made by the participating employees up to a maximum of 6% of each
employee's base salary. Effective January 1, 1997, the base company matching
contribution for active employees was $0.75 for each dollar contributed up to
6% of each employee's base salary. Additional matching contributions, up to
$0.50 for each dollar contributed, may also be made when the Parent achieves
certain financial results. The Parent's total contributions to the plans were
approximately $3.5 million, $0.4 million, $2.7 million and $5.1 million for the
fiscal year ended December 25, 1998, the periods ended December 26, 1997 and
November 12, 1997, and the fiscal year ended December 27, 1996, respectively.
These costs and benefits are allocated by the Parent to the Company and are
included in general and administrative expenses.
F-12
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company provides intermodal services
to APL. These services include moving containers from ports to inland points,
moving containers from inland points to ports, and repositioning empty
containers. These transactions are performed on a cost reimbursement basis.
Thus, no revenues or expenses are recognized for financial reporting purposes.
Reimbursements amounted to $276.7 million, $22.3 million, $154.1 million, and
$173.0 million for the fiscal year ended December 25, 1998, and the periods
ended December 26, 1997 and November 12, 1997, and the fiscal year ended
December 27, 1996, respectively.
In addition, the Company receives a credit from APL for the repositioning
expense that APL has avoided due to the Company using APL's containers in
surplus locations. The total amount of revenue recognized for these services
was $20.0 million, $1.9 million, $15.8 million, and $15.7 million for the
fiscal year ended December 25, 1998, the periods ended December 26, 1997 and
November 12, 1997, and the fiscal year ended December 27, 1996, respectively.
The Company also provides services to the Automotive Division. These
services include moving containers primarily in the U.S.--Mexico trade. Total
amount of revenue recognized for these services was $38.7 million, $5.0
million, $38.4 million and $62.5 million for the fiscal year ended December 25,
1998, the periods ended December 26, 1997 and November 12, 1997, and the fiscal
year ended December 27, 1996, respectively.
The Parent and its subsidiaries share certain expenses with the Company.
These expenses include systems support, office space, salaries, and other
corporate services. These expenses were $14.4 million, $1.6 million, $12.0
million and $11.0 million for the fiscal year ended December 25, 1998, the
periods ended December 26, 1997 and November 12, 1997, and the fiscal year
ended December 27, 1996, respectively. The Company also receives an allocation
for lease and maintenance and repair expenses from APL. These expenses were
$19.5 million, $1.9 million, $14.1 million and $13.6 million for the fiscal
year ended December 25, 1998, the periods ended December 26, 1997 and November
12, 1997, and the fiscal year ended December 27, 1996, respectively.
In 1997, in connection with NOL's acquisition of APL Limited, the Parent
incurred certain merger related costs totaling approximately $61 million. These
non-operating costs do not relate to the ongoing operations of the Company and
have not been allocated to the Company's results of operations.
APL de Mexico, S.A. de C.V. (APL Mexico), a wholly owned Mexican subsidiary
of the Parent, provides various agency services to the Company with respect to
its bills of lading in Mexico. Expenses recorded by the Company from APL Mexico
were $0.5 million, $0.1 million, $0.3 million and $0.4 million for the fiscal
year ended December 25, 1998, the periods ended December 26, 1997 and November
12, 1997, and the fiscal year ended December 27, 1996, respectively.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Commitments
Rail Transportation
Certain of the rail contracts which the Company holds are held jointly with
American President Lines, Ltd., some of which are not assignable. One or more
of the contracting railroads may seek to either renegotiate and/or terminate
the contract if the Company or American President Lines, Ltd. takes an action
that would cause a material adverse effect on such railroad.
F-13
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In May 1996, the Parent sold a portion of Distribution Services to a third
party purchaser. In connection with this sale, the Company and the purchaser
entered into a 10-year agreement to provide stacktrain services to the
purchaser. The remaining portion of Distribution Services was transferred to
the Parent.
Contingencies
In June 1995, the Parent sold the assets of its trucking company, American
President Trucking ("APT"), to Burlington Motor Carriers ("BMC"). The sale
included the sublease of terminal real estate to BMC and the sublease of
tractor units to Stoops Freightliner, which in turn entered into a use
agreement with BMC. BMC and the Company entered into a service agreement
whereby the Company guaranteed certain levels of traffic to BMC. Under new
ownership from a 1995 bankruptcy proceeding, BMC advised the Parent and the
Company that it believed the Company breached the service agreement when APLLTS
sold its Distribution Services unit, and demanded $800,000 in compensation. The
Company disputed the claim. BMC and Stoops Freightliner filed subsequent
complaints in BMC bankruptcy proceedings demanding unspecified damages. The
Parent and the Company filed motions to dismiss both complaints. On November
13, 1998, the Parent and the Company's motions were granted; BMC has filed an
appeal; Stoops Freightliner has not. The Company does not believe that the
ultimate outcome, if unfavorable, will have a material adverse impact on the
financial position of the Parent or the Company, and has not reserved for this
contingency.
The Company is a party to various legal proceedings, claims and assessments
arising in the course of its business activities. Based upon information
presently available, and in light of legal and other defenses and insurance
coverage and other potential sources of payment available to the Company,
management does not expect these legal proceedings, claims and assessments,
individually or in the aggregate, to have a material adverse impact on the
Company's financial position or results of operations.
NOTE 10. EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT
As of May 28, 1999, APL Limited sold approximately 93% of its interest in
the Company to an affiliate of Apollo Management, L.P. (together with its
affiliates, Apollo). The transaction value comprised $292.5 million paid upon
closing plus an additional payment of up to $15 million if the Company achieves
a specific earnings target for financial year 1999. As part of the agreement,
APL Limited and APL continue to use the services of the Company under a 20-year
agreement and have agreed to provide to the buyer administrative, systems and
equipment services, at cost, for varying periods, none in excess of 20 years.
In connection with the transaction, the buyer changed the name of the Company
to Pacer International, Inc.
F-14
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES
a division of APL Land Transport Services, Inc.
STATEMENT OF ASSETS, LIABILITIES AND DIVISIONAL CONTROL ACCOUNT
April 2, 1999 December 25, 1998
------------- -----------------
(Unaudited)
(In millions)
ASSETS
Current assets
Trade and Other Receivables, Net......... $ 45.1 $ 43.9
Intercompany Trade Receivables........... 15.6 3.4
Prepaid Expenses and Other Current
Assets.................................. 1.0 0.1
------ ------
Total Current Assets.................... 61.7 47.4
------ ------
Property and Equipment
Rail Cars................................ 66.6 66.5
Containers and Chassis................... 27.6 27.6
Leasehold Improvements and Other......... 1.3 1.3
------ ------
95.5 95.4
Accumulated Depreciation and Amortization.. (8.4) (6.6)
------ ------
Property and Equipment, Net.............. 87.1 88.8
Goodwill and Other Intangibles, Net........ 19.1 19.2
Other Assets............................... 2.8 0.7
------ ------
Total Assets............................ $170.7 $156.1
====== ======
LIABILITIES AND DIVISIONAL CONTROL ACCOUNT
Current Liabilities
Accounts Payable and Accrued
Liabilities............................. $ 95.5 $ 84.6
------ ------
Total Current Liabilities............... 95.5 84.6
------ ------
Deferred Tax Liability..................... 15.7 15.4
Other Liabilities.......................... 0.5 0.5
Commitments and Contingencies (Note 3)
Divisional Control Account................. 59.0 55.6
------ ------
Total Liabilities and Divisional Control
Account................................ $170.7 $156.1
====== ======
The accompanying notes are an integral part of the financial statements.
F-15
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES
a division of APL Land Transport Services, Inc.
STATEMENTS OF OPERATIONS
Three Months Ended Three Months Ended
April 2, 1999 April 3, 1998
------------------ ------------------
(Unaudited) (Unaudited)
(In millions)
Revenues
Freight Revenues........................ $156.9 $143.9
Avoided Reposition...................... 5.5 5.0
Other Revenue........................... 1.2 1.3
------ ------
Total Revenues............................ 163.6 150.2
Expenses
Variable Expenses
Terminal/Cargo Handling................. 1.0 1.1
Rail Linehaul........................... 122.1 113.5
Trucks and Other........................ 3.1 2.7
Empty Reposition........................ 3.6 2.3
Equipment Maintenance and Repair........ 5.2 4.8
Other................................... (2.6) (2.9)
------ ------
Total Variable Expense................ 132.4 121.5
------ ------
Variable Contribution..................... 31.2 28.7
Fixed Expenses
Terminal/Cargo Handling................. 0.5 0.4
Fixed Equipment
Rail Cars.............................. 1.4 2.0
Containers/Chassis..................... 12.7 11.6
Other.................................. 0.9 1.3
------ ------
Total Fixed Equipment................. 15.0 14.9
General and Administrative Expenses
Direct Expenses........................ 4.3 4.2
Other Overhead......................... 0.2 0.2
Corporate Headquarters................. 1.6 1.5
IT Systems............................. 2.0 2.0
------ ------
Total General and Administrative...... 8.1 7.9
Total Fixed Expenses................ 23.6 23.2
------ ------
Operating Income.......................... 7.6 5.5
Charge in Lieu of Income Taxes............ (2.8) (2.0)
------ ------
Net Income................................ $ 4.8 $ 3.5
====== ======
The accompanying notes are an integral part of the financial statements.
F-16
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES
a division of APL Land Transport Services, Inc.
STATEMENTS OF CASH FLOWS
Three Months Ended Three Months Ended
April 2, 1999 April 3, 1998
------------------ ------------------
(Unaudited) (Unaudited)
(In millions)
Cash Flows from Operating Activities
Net Income.............................. $ 4.8 $ 3.5
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities:
Depreciation and Amortization......... 1.9 1.7
Gain on Sale of Property and
Equipment............................ -- (0.3)
Deferred Taxes........................ 0.3 (0.3)
Change in Current Assets and
Liabilities:
Trade and Other Receivables.......... (1.2) (68.6)
Intercompany Trade Receivables....... (12.2) (9.6)
Prepaid Expenses and Other Current
Assets.............................. (0.9) (1.3)
Accounts Payable and Accrued
Liabilities......................... 10.9 15.2
Other................................ (2.1) (0.9)
------ ------
Net Cash Provided by (Used in)
Operating Activities............... 1.5 (60.6)
Cash Flows from Investing Activities
Capital Expenditures.................... -- (16.3)
Proceeds from Sales of Property and
Equipment.............................. -- 0.3
------ ------
Net Cash Used in Investing
Activities......................... -- (16.0)
Cash flows from Financing Activities
Intercompany Funding, Net............... (1.5) 76.6
------ ------
Repayment of Capital Lease Obligations
Net Cash (Used in) Provided by
Financing Activities............... (1.5) 76.6
Net Increase (Decrease) in Cash and Cash
Equivalents............................ -- --
Cash and Cash Equivalents at Beginning
of Period.............................. -- --
------ ------
Cash and Cash Equivalents at End of
Period................................. $ -- $ --
====== ======
The accompanying notes are an integral part of the financial statements.
F-17
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
NOTES TO FINANCIAL STATEMENTS
(In millions)
NOTE 1. BASIS OF INTERIM PERIOD PRESENTATION
The unaudited interim financial statements as of April 2, 1999 and for the
three months ended April 2, 1999 and April 3, 1998 are condensed and do not
contain all information required by generally accepted accounting principles to
be included in a full set of financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
that are necessary for fair presentation have been included. The results of
operations for any interim period are not necessarily indicative of the results
of operations to be expected for any full fiscal year. The audited financial
statements of American President Lines Stacktrain Services, presented elsewhere
in this prospectus, include a summary of significant accounting policies and
should be read in conjunction with these interim financial statements.
NOTE 2. SUBSEQUENT EVENTS
Neptune Orient Lines Limited ("NOL") through a wholly-owned subsidiary, APL
Limited ("Parent") has entered into an agreement dated March 15, 1999 with
Apollo Management L.P. ("Apollo") through a wholly-owned subsidiary, Coyote
Acquisition, Inc. ("Coyote") in which Apollo agreed to acquire a controlling
interest in American President Lines Stacktrain Services (the "Company"), a
division of APL Land Transport Services, a wholly-owned subsidiary of APL
Limited in exchange for $292.5 plus contingent consideration of up to $15.0.
The transaction closed on May 28, 1999. In connection with this transaction,
the Company was renamed Pacer International, Inc.
NOTE 3. CONTINGENCIES
In June 1995, the Parent sold the assets of its trucking company, American
President Trucking ("APT") to Burlington Motor Carriers ("BMC"). The sale
included the sublease of terminal real estate to BMC and the sublease of
tractor units to Stoops Freightliner, which in turn entered into a use
agreement with BMC. BMC and the Company entered into a service agreement
whereby the Company guaranteed certain levels of traffic to BMC. Under new
ownership from a 1995 bankruptcy proceeding, BMC advised the Parent and the
Company that it believed the Company breached the service agreement when LTS
sold its Distribution Services unit, and demanded $0.8 million in compensation.
The Company disputed the claim. BMC and Stoops Freightliner filed subsequent
complaints in BMC bankruptcy proceedings demanding unspecified damages. The
Parent and the Company filed motions to dismiss both complaints. On November
13, 1998, the Parent and the Company's motions were granted; BMC has filed an
appeal; Stoop Freightliners has not. The Company does not believe that the
ultimate outcome, if unfavorable, will have a material adverse impact on the
financial position of the Parent or the Company, and has not reserved for this
contingency.
The Company is a party to various legal proceedings, claims and assessments
arising in the course of its business activities. Based upon information
presently available, and in light of legal and other defenses and insurance
coverage and other potential sources of payment available to the Company,
management does not expect these legal proceedings, claims and assessments,
individually or in the aggregate, to have a material adverse impact on the
Company's financial position or results of operations.
F-18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Pacer International, Inc.:
We have audited the accompanying consolidated balance sheets of Pacer
International, Inc. (a Delaware corporation) and Subsidiaries (the Company) as
of December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1998, and for the period from inception, March 31, 1997, through December 31,
1997. We have also audited the accompanying balance sheet of the Predecessor
(business identified in Note 1) as of March 31, 1997, and the related
statements of operations, stockholders' equity and cash flows for the period
from January 1, 1997 through March 31, 1997, and for the year ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pacer
International, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
results of their consolidated operations and their cash flows for the year
ended December 31, 1998, and for the period from inception, March 31, 1997,
through December 31, 1997, and the financial position of the Predecessor as of
March 31, 1997, and the result of its operations and its cash flows for the
period from January 1, 1997, through March 31, 1997, and for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
San Francisco, California
February 10, 1999
F-19
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
The
The Company Predecessor
------------------------- -----------
December 31, December 31, March 31,
1998 1997 1997
------------ ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................................... $ 10 $ 86 $ 1,623
Accounts receivable, net of allowances of $2,032, $763 and $800, respectively........... 41,566 20,729 7,852
Prepaid expenses and other.............................................................. 1,644 765 647
Deferred income taxes................................................................... 597 -- 947
-------- ------- -------
Total current assets.................................................................... 43,817 21,580 11,069
-------- ------- -------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost......................................................... 7,926 1,880 716
Accumulated depreciation................................................................ (852) (146) (464)
-------- ------- -------
Property and equipment, net............................................................. 7,074 1,734 252
-------- ------- -------
OTHER ASSETS:
Intangible assets, net.................................................................. 61,788 32,717 --
Deferred income taxes................................................................... 73 43 --
Other assets............................................................................ 1,119 993 29
-------- ------- -------
Total assets............................................................................ $113,871 $57,067 $11,350
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and capital leases................................. $ 2,803 $ 1,810 $ --
Accounts payable........................................................................ 23,429 10,068 4,063
Accrued expenses........................................................................ 17,179 9,447 4,323
Income taxes payable.................................................................... -- 389 --
Deferred income taxes................................................................... -- 177 --
-------- ------- -------
Total current liabilities............................................................... 43,411 21,891 8,386
LONG-TERM LIABILITIES:
Employee benefits....................................................................... 672 672 --
Long-term debt and capital leases....................................................... 50,456 25,045 --
-------- ------- -------
Total liabilities....................................................................... 94,539 47,608 8,386
-------- ------- -------
STOCKHOLDERS' EQUITY:
Preferred stock at December 31, 1998 and 1997: $0.01 par value, 600,000 shares
authorized, 350,000 shares issued and outstanding; at March 31, 1997: no shares
authorized or outstanding.............................................................. 4 4 --
Common stock at December 31, 1998: $0.0001 par value, 20,000,000 shares authorized,
5,437,392 shares issued and outstanding; at December 31, 1997: $0.01 par value,
5,700,000 shares authorized, 4,678,750 shares issued and outstanding; at March 31,
1997:$100.00 par value, 47,500 shares authorized, 48 shares issued and outstanding..... 1 5 1
Warrants at December 31, 1998 and 1997: 18,421 outstanding.............................. 53 53 --
Additional paid-in capital.............................................................. 14,201 7,981 2,998
Retained earnings (accumulated deficit)................................................. 5,073 1,416 (35)
-------- ------- -------
Total stockholders' equity.............................................................. 19,332 9,459 2,964
-------- ------- -------
Total liabilities and stockholders' equity.............................................. $113,871 $57,067 $11,350
======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
The Company The Predecessor
-------------------------- --------------------------
March 31, January 1,
Year Ended 1997, through 1997, through Year Ended
December 31, December 31, March 31, December 31,
1998 1997 1997 1996
------------ ------------- ------------- ------------
REVENUES............................................................... $ 252,762 $ 81,102 $19,538 $86,766
COST OF TRANSPORTATION AND SERVICES.................................... 211,222 68,713 16,498 73,116
--------- --------- ------- -------
Net revenues........................................................... 41,540 12,389 3,040 13,650
OPERATING EXPENSES:
Selling, general and administrative expenses......................... 27,684 8,799 2,300 10,037
Depreciation and amortization........................................ 2,033 403 37 93
Transaction costs.................................................... 1,500 -- 510 --
--------- --------- ------- -------
Income from operations............................................... 10,323 3,187 193 3,520
INTEREST EXPENSE (INCOME).............................................. 2,867 659 -- (1,376)
--------- --------- ------- -------
Income before income tax provision and extraordinary loss.............. 7,456 2,528 193 4,896
INCOME TAX PROVISION................................................... 3,182 983 74 1,888
--------- --------- ------- -------
Income before extraordinary loss....................................... 4,274 1,545 119 3,008
EXTRAORDINARY LOSS, net of tax benefit of $150 and $86, respectively... 239 129 -- --
--------- --------- ------- -------
Net income............................................................. $ 4,035 $ 1,416 $ 119 $ 3,008
========= ========= ======= =======
PREFERRED STOCK DIVIDEND............................................... $ 378 $ -- $ -- $ --
========= ========= ======= =======
NET INCOME APPLICABLE TO COMMON STOCK.................................. $ 3,657 $ 1,416 $ 119 $ 3,008
========= ========= ======= =======
INCOME PER SHARE:
Basic:
Income before extraordinary loss..................................... $ 0.76 $ 0.45
Extraordinary loss................................................... (0.05) (0.04)
--------- ---------
Net income........................................................... $ 0.71 $ 0.41
========= =========
Weighted average shares outstanding.................................. 5,143,212 3,403,480
========= =========
Diluted:
Income before extraordinary loss..................................... $ 0.63 $ 0.37
Extraordinary loss................................................... (0.04) (0.03)
--------- ---------
Net income........................................................... $ 0.59 $ 0.34
========= =========
Weighted average shares outstanding.................................... 6,165,554 4,141,041
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
The Predecessor
---------------------------------------------------------------
Retained
Additional Earnings
Preferred Common Paid-in (Accumulated Stockholders'
Stock Stock Warrants Capital Deficit) Equity
--------- ------ -------- ---------- ------------ -------------
DECEMBER 31, 1995....... $ -- $ 1 $ -- $ 2,998 $20,060 $23,059
Net income............ -- -- -- -- 3,008 3,008
---- ---- ---- ------- ------- -------
DECEMBER 31, 1996....... -- 1 -- 2,998 23,068 26,067
Dividend.............. -- -- -- -- (23,222) (23,222)
Net income............ -- -- -- -- 119 119
---- ---- ---- ------- ------- -------
MARCH 31, 1997.......... $ -- $ 1 $ -- $ 2,998 $ (35) $ 2,964
==== ==== ==== ======= ======= =======
The Company
---------------------------------------------------------------
Additional
Preferred Common Paid-in Retained Stockholders'
Stock Stock Warrants Capital Earnings Equity
--------- ------ -------- ---------- ------------ -------------
Elimination of
Predecessor............ $ -- $ (1) $ -- $(2,998) $ 35 $(2,964)
Formation of the
Company:
Issuance of common
stock................ -- 4 -- 346 -- 350
Issuance of preferred
stock................ 4 -- -- 3,146 -- 3,150
Issuance of warrants.. -- -- 53 -- -- 53
Issuance of common
stock to acquire
Interstate........... -- 1 -- 4,489 -- 4,490
Net income............ -- -- -- -- 1,416 1,416
---- ---- ---- ------- ------- -------
DECEMBER 31, 1997....... 4 5 53 7,981 1,416 9,459
Preferred stock
dividend............. -- -- -- -- (378) (378)
Issuance of common
stock to acquire
Stutz and Cross Con.. -- 1 -- 6,215 -- 6,216
Change in par value... -- (5) -- 5 -- --
Net income............ -- -- -- -- 4,035 4,035
---- ---- ---- ------- ------- -------
DECEMBER 31, 1998....... $ 4 $ 1 $ 53 $14,201 $ 5,073 $19,332
==== ==== ==== ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
The consolidated financial statements of the Company and the Predecessor are
not comparable in certain respects.
The Company The Predecessor
-------------------------- -----------------------
January 1,
March 31, 1997,
Year Ended 1997, through through Year Ended
December 31, December 31, March 31, December 31,
1998 1997 1997 1996
------------ ------------- ---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $ 4,035 $ 1,416 $ 119 $ 3,008
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................. 2,033 403 37 93
Extraordinary loss, net................................................... 239 129 -- --
Deferred income taxes..................................................... (475) 152 218 347
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net of allowances............. (2,008) (3,870) 3,515 (1,028)
Decrease (increase) in prepaid expenses and other......................... (369) 232 (335) (282)
Decrease (increase) in other assets....................................... (324) (595) (10) (17)
Increase (decrease) in accounts payable................................... (3,557) 43 (1,165) 1,653
Increase (decrease) in accrued expenses................................... 1,647 (745) 346 (535)
Increase (decrease) in income taxes payable............................... (397) 157 (949) (84)
Increase (decrease) in employee benefits.................................. -- -- (1,361) 265
-------- -------- -------- -------
Net cash provided by (used in) operating activities....................... 824 (2,678) 415 3,420
-------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash of acquired companies................. (18,625) (9,616) -- --
Purchases of property and equipment....................................... (1,709) (420) (71) (167)
-------- -------- -------- -------
Net cash used in investing activities..................................... (20,334) (10,036) (71) (167)
-------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdrafts........................................................... 1,497 1,632 -- --
Proceeds on long-term debt................................................ 92,377 20,654 -- --
Principal payments on long-term debt...................................... (74,062) (14,259) -- --
Proceeds from issuance of common stock.................................... -- 315 -- --
Proceeds from issuance of preferred stock................................. -- 2,835 -- --
Decrease (increase) in advances to affiliates............................. -- -- 21,865 (630)
Dividend paid............................................................. (378) -- (23,222) --
-------- -------- -------- -------
Net cash provided by (used in) financing activities....................... 19,434 11,177 (1,357) (630)
-------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... (76) (1,537) (1,013) 2,623
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......................... 86 1,623 2,636 13
-------- -------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 10 $ 86 $ 1,623 $ 2,636
======== ======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................................. $ 2,729 $ 568 $ -- $ --
======== ======== ======== =======
Income taxes.............................................................. $ 3,806 $ 588 $ 1,125 $ 1,626
======== ======== ======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Promissory notes issued for acquisitions.................................. $ -- $ 19,983 $ -- $ --
======== ======== ======== =======
Stock issued for acquisitions............................................. $ 6,216 $ 4,490 $ -- $ --
======== ======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF OPERATIONS:
The Company
PMT Holdings, Inc. (PMT Holdings), a Delaware corporation, was formed on
March 5, 1997 (inception), to acquire all of the capital stock of Pacific Motor
Transport Company (PMT) in a management buyout that was funded in part by Eos
Partners, L.P. (Eos). On March 31, 1997, PMT Holdings acquired all issued and
outstanding shares of PMT from Union Pacific Railroad Company and its
subsidiaries (UP) for approximately $13 million in cash and warrants to
purchase 18,421 units of PMT Holdings stock. Each unit represents nine and one-
half shares of common stock and one share of preferred stock and may be
purchased by UP for $10 per unit. The purchase of PMT was accounted for using
the purchase method of accounting. Prior to acquisition, PMT was a provider of
truckload freight services and intermodal marketing services. On December 16,
1997, PMT Holdings acquired all of the capital stock of Interstate
Consolidation, Inc. (ICI) and Interstate Consolidation Service, Inc. (ICSI) and
its wholly owned subsidiary, Intermodal Container Service, Inc. (IMCS) (ICI,
ICSI and IMCS, collectively, Interstate) by issuing $20 million in promissory
notes and 1,353,750 shares of PMT Holdings common stock. The acquisition of
Interstate was accounted for using the purchase method of accounting.
Interstate is a multipurpose provider of transportation services, including
intermodal marketing, cartage, and freight consolidation and handling. In May
1998, PMT Holdings was renamed Pacer International, Inc. (Pacer International).
The name change has been given retroactive application in these consolidated
financial statements. In addition, earnings per share for all periods and all
share data reflect the Company's 9.5 to 1 stock split, which occurred in
December 1998.
On April 3, 1998, Pacer International acquired all the stock of Intraco,
Inc. (Stutz) for $.5 million in cash plus 217,142 shares of Pacer International
common stock. On June 5, 1998, Pacer International acquired all of the capital
stock of Cross Con Transport, Inc., and Cross Con Terminals, Inc.
(collectively, Cross Con) for $11 million in cash plus 541,500 shares of Pacer
International common stock. On July 25, 1998, Pacer International acquired
substantially all the assets of Professional Logistics Management Co., Inc. and
3PL Corporation (collectively, PLMC), for $2.9 million in cash. On December 9,
1998, Pacer International acquired all of the capital stock of Manufacturers
Consolidation Service, Inc. and its subsidiary, Levcon, Inc., MCS of Kansas,
Inc., and Manufacturers Consolidation Service of Canada Inc. (collectively,
MCS) for $4.9 million in cash. All of these acquisitions were accounted for
using the purchase method of accounting. Both Cross Con and MCS are
multipurpose providers of transportation services, including intermodal
marketing and cartage. PLMC is a provider of logistics services, and Stutz is
involved in the transportation of equipment primarily for railroads.
The consolidated balance sheets as of December 31, 1998 and 1997, include
the accounts of Pacer International and its wholly owned subsidiaries (the
Company). At December 31, 1998, the wholly owned subsidiaries are PMT, Cross
Con, Pacer International Rail Services LLC, Pacer Rail Services LLC, Pacer
International Consulting LLC, Pacer Logistics, Inc. (which holds the stock of
Interstate), Pacer Integrated Logistics, f/k/a Stutz, PLM Acquisition
Corporation (PLMC) and MCS.
The consolidated statements of operations, changes in stockholders' equity
and cash flows include the accounts of Pacer International from March 31, 1997,
the results and cash flows of PMT since its purchase on March 31, 1997,
Interstate since its purchase on December 16, 1997, Stutz since its purchase on
April 3, 1998, Cross Con since its purchase on June 5, 1998, PLMC since its
purchase on July 23, 1998, and MCS since its purchase on December 9, 1998.
The Predecessor
The balance sheet as of March 31, 1997, and the statements of operations,
changes in stockholders' equity and cash flows for the period from January 1,
1997, through March 31, 1997, include the accounts of PMT (the Predecessor),
with its two operating divisions, Pacer and ABL-Trans.
F-24
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nature of Operations
The Company's business consists primarily of (i) intermodal marketing, which
involves the provision of brokerage and logistics services by coordinating the
transportation of goods by truck and rail, (ii) specialized trucking services,
including flatbed heavy-haul trucking, drayage and cartage, and (iii) other
transportation services, such as freight consolidation and handling. As a
nonasset-based service provider, the Company is able to focus its efforts on
providing value-added logistics solutions for its customers through its network
of sales personnel and third-party brokerage partnerships. The Company
primarily provides services to numerous global, national and regional
manufacturers and retailers.
Reliance on Agents and Independent Contractors
The Company relies upon the services of independent commission agents to
market its transportation services, to act as intermediaries with customers,
and to recruit independent contractors. Contracts with agents and independent
contractors are, in most cases, terminable upon short notice by either party.
Although the Company believes its relationships with agents and independent
contractors are good, there can be no assurance that the Company will continue
to be successful in retaining its agents and independent contractors or that
agents and independent contractors who terminate their contracts can be
replaced by equally qualified persons. Furthermore, since agents have the
primary relationship with customers and independent contractors, the loss of an
agent can result in the loss of customers or independent contractors.
Dependence on Railroads and Equipment and Services Availability
The Company is dependent upon the major railroads in the United States for
substantially all of the intermodal services provided by the Company. In many
markets, rail service is limited to a few railroads or even a single railroad.
Consequently, a reduction in or elimination of rail service to a particular
market is likely to adversely affect the Company's ability to provide
intermodal transportation services to some of the Company's customers.
Furthermore, significant rate increases, work stoppage or adverse weather
conditions can impact the railroads and therefore the Company's ability to
provide cost-effective services to its customers.
In addition, the Company is dependent in part on the availability of truck,
rail, ocean and air services provided by independent third parties. If the
Company were unable to secure sufficient equipment or other transportation
services to meet its customers' needs, its results of operations could be
materially adversely affected on a temporary or permanent basis.
Concentration of Business on Intermodal Marketing
A significant portion of the Company's revenues is derived from intermodal
marketing. As a result, a decrease in demand for intermodal transportation
services relative to other transportation services could have a material
adverse effect on the Company's results of operations.
Concentration of Credit Risk and Customer Concentration
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. The Company
sells primarily on net 30-day terms, performs credit evaluation procedures on
its customers and generally does not require collateral on its accounts
receivable. The Company maintains an allowance for potential credit losses and
insures certain of its receivables at Interstate through a third-party
insurance provider. Sales to the Company's ten largest customers constituted 33
percent of gross revenues for the year ended December 31, 1998, and 31 percent
of gross revenues for the nine months ended December 31, 1997. Receivables from
the ten largest customers constituted 20 percent and 33 percent of total
receivables at December 31, 1998 and 1997, respectively. No customer
constituted more than 10 percent of revenues or receivables at December 31,
1998 or 1997. The sales and receivable trends are representative of prior
periods.
F-25
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. The effects of the Year 2000 Issue may be
experienced before, on or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect an entity's ability to conduct
normal business operations. While the Company is in the process of remediating
its affected hardware and software, it is not possible to be certain that all
aspects of the Year 2000 Issue affecting an entity, including those related to
the efforts of customers, suppliers, or other third parties, will be fully
resolved. If the Company, its customers or suppliers, or other third parties do
not successfully remedy their Year 2000 Issue, the Company's results of
operations could be materially adversely affected.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
Pacer International and its wholly owned subsidiaries. All material
intercompany amounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an original
maturity of three months or less.
Accounts Receivable
Trade accounts receivable are reflected net of allowances for doubtful
accounts. Additionally, the Company records receivables for contractually
negotiated rail volume incentives in the period earned. Rail volume incentives
receivable were $1.9 million at December 31, 1998 and 1997, and $0.3 million at
March 31, 1997.
Property and Equipment
Property, plant and equipment purchased in acquisitions are recorded at fair
value as prescribed by the purchase method of accounting. Subsequent purchases
of property, plant and equipment are recorded at cost. For assets financed
under capital leases, the present value of the future minimum lease payments is
recorded at the date of acquisition as property and equipment, with a
corresponding amount recorded as a capital lease obligation.
F-26
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation is computed on a straight-line basis over the following
estimated useful lives:
Estimated
Asset Classification Useful Life
-------------------- -------------
Office equipment and furniture................................. 3 to 10 years
Transportation equipment....................................... 3 to 15 years
Communications system.......................................... 15 years
Computer hardware and software................................. 3 to 5 years
Leasehold improvements......................................... Term of lease
Assets under capital lease..................................... Term of lease
Software
Purchases of software are capitalized and amortized over three to five years
using the straight-line method. Costs related to internal development of
software are expensed as incurred.
Intangible Assets
Amortization is computed on a straight-line basis over the shorter of
estimated useful lives or contract periods. The Company amortizes goodwill over
periods ranging from 15 to 40 years and loan fees over the term of the
underlying debt.
Goodwill represents the excess of cost over the estimated fair value of the
net tangible and intangible assets of acquired businesses. Should events or
circumstances occur subsequent to any business acquisition that bring into
question the realizable value or impairment of any component of goodwill, the
Company will evaluate the remaining useful life and balance of goodwill and
make appropriate adjustments. The Company's principal considerations in
determining impairment include the strategic benefit to the Company of the
particular business related to the questioned component of goodwill as measured
by undiscounted current and expected future operating income levels of that
particular business and expected undiscounted future cash flows. The company
expenses the costs of start-up activities as incurred.
Financial Instruments
The carrying amounts for cash, receivables and accounts payable approximate
fair value due to the short-term nature of these instruments. Other fair-value
disclosures are in the respective notes.
In order to decrease its exposure to unfavorable interest rate movements,
the Company has from time to time purchased interest rate protection agreements
to cap the interest rates on its floating rate obligations. The purchase price
of the interest rate protection agreements is capitalized and amortized over
the life of the agreement. Amortization of the purchase price is charged to
interest expense.
Accident and Cargo Claims
The Company is self-insured or maintains high deductible insurance policies
for a significant portion of its accident and cargo claims. Reserves are
provided for uninsured cargo claims and for the uninsured costs of personal
injury and property damage as a result of vehicle accidents involving the
network of independent owner-operator drivers. Reserves are based on the
Company's best estimate of its expected loss. Actual losses, if not covered by
insurance, at amounts significantly greater than the recorded amounts could
have a material adverse impact on the Company's financial position and results
of operations.
F-27
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenues and related expenses are recognized when shipment is complete.
Net Revenues
Net revenues represent transportation and service revenues net of associated
transportation and service costs.
Transaction Costs
For the year ended December 31, 1998, the Company incurred approximately
$1.5 million of costs associated with the preparation and filing of a
registration statement on Form S-1 related to an initial public offering (IPO)
of common stock. The IPO was not completed due to uncertainties in the equity
markets at the time of the proposed offering; accordingly, the costs were
charged off in 1998. The Company may consider an IPO in the future, but has no
plans for such an offering at this time. The Predecessor incurred transaction
costs of $0.5 million in connection with the sale of PMT primarily related to
legal and financial advisory services.
Income Taxes
Income taxes are recognized utilizing the asset and liability method, under
which deferred income taxes are recognized for the consequences of temporary
differences by applying currently enacted statutory rates to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
Earnings per Share
Basic earnings per share were calculated by dividing net income available
for common shareholders by the weighted average number of shares of common
stock outstanding during the period. Diluted earnings per share include the
impact of common stock options and warrants outstanding. Earnings per share for
all periods and all share data reflect the Company's 9.5-to-1 stock split,
which occurred in December 1998.
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (the FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." As permitted by SFAS No. 123, the Company adopted
the disclosure provisions of this statement in 1997.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards to measure all
changes in equity that result from transactions and other economic events other
than transactions with owners. Comprehensive income is the total of net income
and all other nonowner changes in equity. Except for net income, the Company
does not have any transactions and other economic events that qualify as
comprehensive income as defined under SFAS No. 130.
New Accounting Pronouncements
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 modifies the method of
accounting for derivative instruments. The Company will adopt SFAS No. 133 in
2000. The adoption of SFAS No. 133 will require the Company to modify its
accounting for its interest rate hedging activities. Based on information
currently available, the Company does not expect the adoption of SFAS No. 133
to have a significant impact on its financial position or results of
operations.
F-28
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." The
Company will adopt SOP 98-1 in 1999. The adoption of SOP 98-1 will require the
Company to modify its method of accounting for software developed or obtained
for internal use.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
The
The Company Predecessor
------------------------- --------------
December 31, December 31, March 31,
1998 1997 1997
------------ ------------ --------------
(in thousands) (in thousands)
Computer hardware and software....................................................... $1,753 $ 350 $ 494
Office furniture and equipment....................................................... 937 289 35
Transportation equipment............................................................. 4,831 988 187
Communications equipment............................................................. 252 253 --
Leasehold improvements............................................................... 153 -- --
------ ------ -----
7,926 1,880 716
Less: Accumulated depreciation....................................................... (852) (146) (464)
------ ------ -----
Property and equipment............................................................... $7,074 $1,734 $ 252
====== ====== =====
Depreciation expense of the Company for the year ended December 31, 1998,
and for the period from inception through December 31, 1997, was $0.7 million
and $0.1 million, respectively, and of the Predecessor for the period from
January 1, 1997, through March 31, 1997, was $0.1 million.
4. ADVANCES TO AFFILIATES:
Advances to affiliates represented cash generated by the Predecessor and
advanced to UP. Advances earned interest at a rate ranging from 5.2 percent to
6.0 percent based on monthly commercial paper rates, and interest income was
$1.4 million for the year ended December 31, 1996. For the period from January
1, 1997, through March 31, 1997, UP did not pay interest to the Predecessor. On
March 31, 1997, the Predecessor declared a dividend of $23.2 million, which was
partially used by UP to repay the Predecessor's advances.
5. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
The Company
-------------------------
December 31, December 31,
1998 1997
------------ ------------
(in thousands)
Goodwill.............................................. $62,878 $32,479
Financing costs....................................... 407 430
Organizational costs.................................. -- 65
------- -------
63,285 32,974
Less: Accumulated amortization........................ (1,497) (257)
------- -------
Total intangible assets............................... $61,788 $32,717
======= =======
Amortization expense for the year ended December 31, 1998, and for the
period from inception through December 31, 1997, was $1.3 million and $0.3
million, respectively.
F-29
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. ACQUISITIONS:
During 1998, the Company effected four acquisitions. The acquisition of
Stutz occurred on April 3, 1998, the acquisition of Cross Con occurred on June
5, 1998, the acquisition of PLMC occurred on July 23, 1998, and the acquisition
of MCS occurred on December 9, 1998. The purchase price, certain costs related
to the acquisitions, and the allocation of the purchase price to the underlying
net assets acquired in the acquisitions were as follows:
Stutz PLMC
April Cross Con July MCS
3, June 5, 25, December 9,
1998 1998 1998 1998
------ --------- ------- -----------
(in thousands)
Purchase price......................... $1,771 $15,807 $ 2,733 $ 4,500
Acquisition costs...................... 109 559 170 391
------ ------- ------- --------
Total purchase price................... 1,880 16,366 2,903 4,891
------ ------- ------- --------
Less: Value assigned to assets and
liabilities:
Current assets......................... 468 7,013 518 12,516
Long-term assets....................... 312 97 215 3,904
Current liabilities.................... (464) (4,097) (1,572) (18,796)
Long-term liabilities.................. (78) -- -- (2,370)
------ ------- ------- --------
238 3,013 (839) (4,746)
------ ------- ------- --------
Goodwill............................... $1,642 $13,353 $ 3,742 $ 9,637
====== ======= ======= ========
The Company accounted for these acquisitions under the purchase method of
accounting. The allocation of the purchase price to the underlying net assets
acquired is based upon estimates of the fair value of the net assets, which may
be revised at a later date. It is anticipated that any purchase price
allocation adjustments will be made within one year from the date of
acquisition. Management does not believe that the final allocations of the
purchase prices will have a material effect on the Company's financial position
or results of operations.
From inception through December 31, 1997, the Company effected two
acquisitions. The initial acquisition of PMT by PMT Holdings occurred on March
31, 1997, and the acquisition of Interstate occurred on December 16, 1997. The
purchase price, certain costs related to the acquisitions, and the allocation
of the purchase price to the underlying net assets acquired in the acquisitions
were as follows:
PMT Interstate
March 31, December 16,
1997 1997
--------- ------------
(in thousands)
Purchase price........................................... $13,215 $ 24,598
Acquisition costs........................................ -- 851
------- --------
Total purchase price..................................... 13,215 25,449
Less: Value assigned to assets and liabilities:
Current assets........................................... 9,803 13,011
Long-term assets......................................... 281 2,222
Current liabilities...................................... (8,386) (11,687)
Long-term liabilities.................................... -- (1,084)
------- --------
1,698 2,462
------- --------
Goodwill................................................. $11,517 $ 22,987
======= ========
F-30
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the Interstate, Stutz and Cross Con acquisitions, the
Company issued 1,353,750 shares, 217,142 shares and 541,500 shares of common
stock, respectively, which were valued at $3.32, $6.32 and $8.95 per share,
respectively. The Company issued warrants to purchase 18,421 units in
connection with the PMT acquisition. Warrants were valued at their estimated
fair value using the Black-Scholes model. Results of operations of the entities
acquired are included in the consolidated financial statements subsequent to
their purchase dates.
Pro forma operating results of the Company, assuming that the 1998
acquisitions occurred on April 1, 1997, and that the March 31, 1997, and
December 16, 1997, acquisitions occurred on January 1, 1996, are presented
below (unaudited).
January 1, January 1, January 1,
1998, April 1, 1997, 1997, 1996,
through through through through
December 31, December 31, March 31, December 31,
1998 1997 1997 1996
------------ -------------- ---------- ------------
(in thousands, except per share data)
Revenues.................. $ 383,552 $ 289,289 $ 38,488 $ 155,328
========= ========= ========= =========
Income before
extraordinary loss....... $ 5,877 $ 3,349 $ 517 $ 2,858
========= ========= ========= =========
Earnings per share before
extraordinary loss:
Basic................... $ 1.01 $ 0.62 $ 0.11 $ 0.61
========= ========= ========= =========
Diluted................. $ 0.84 $ 0.51 $ 0.09 $ 0.52
========= ========= ========= =========
Weighted average shares
outstanding:
Basic................... 5,437,392 5,437,392 4,678,750 4,678,750
========= ========= ========= =========
Diluted................. 6,532,448 6,532,448 5,471,934 5,471,934
========= ========= ========= =========
Pro forma adjustments were made to reflect interest expense on cash
consideration, amortization of goodwill, elimination of IPO and other
transaction costs, compensation differentials, and income taxes as if the
entities were combined and subject to the Company's effective tax rate for the
periods presented. The pro forma results were further adjusted by the
elimination of a business line at MCS and employee cost savings that occurred
in connection with the MCS acquisition.
7. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
The Company The Predecessor
----------------------------------- ---------------
December 31, 1998 December 31, 1997 March 31, 1997
----------------- ----------------- ---------------
(in thousands) (in thousands)
Accident and cargo
claims................... $ 3,369 $2,134 $1,951
Bank overdrafts........... 3,129 1,632 --
Accrued compensation...... 2,758 1,212 223
Other..................... 7,923 4,469 2,149
------- ------ ------
Total accrued expenses.. $17,179 $9,447 $4,323
======= ====== ======
F-31
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. DEBT AND CAPITAL LEASES:
Debt and capital leases of the Company consisted of the following (in
thousands):
December 31, December 31,
1998 1997
------------ ------------
Revolving line of credit in an amount up to $38,000
($6.9 million was available at December 31, 1998);
advances under the line accrue interest at the
Company's option, at the higher of the bank
corporate rate or the federal funds rate plus 50
basis points, plus the applicable margin, or the
Eurodollar rate plus the applicable margin (8.28
percent at December 31, 1998); the line is secured
by substantially all of the Company's assets and
expires on December 31, 2003, at which time the
balance is due..................................... $18,220 $ --
Term loan in the amount of $32,000 requiring 27
consecutive quarterly installment payments, with
all unpaid principal and interest due December 31,
2005; the loan bears interest, at the Company's
option, at the higher of the bank corporate rate or
the federal funds rate plus 50 basis points, plus
the applicable margin, or the Eurodollar rate plus
the applicable margin (8.81 percent at December 31,
1998); the loan is secured by substantially all of
the Company's assets............................... 32,000 --
Capital leases...................................... 294 477
Notes payable....................................... 2,745 --
Revolving line of credit in an amount up to $12,000;
advances under the line accrue interest, at the
Company's option, at the prime rate (8.5 percent at
December 31, 1997) or LIBOR plus 2.25 percent (7.97
percent at December 31, 1997); the line is secured
by substantially all of the Company's assets and
expires on October 31, 2002; repaid December 7,
1997............................................... -- 6,395
Promissory note to shareholders..................... -- 19,983
------- -------
Total debt and capital leases....................... 53,259 26,855
Less: Current maturities............................ 2,803 1,810
------- -------
Long-term portion................................... $50,456 $25,045
======= =======
On December 7, 1998, the Company entered into a new term loan of $32 million
and revolving credit facility of $38 million. The purpose of the new term loan
and revolving credit facility was to finance acquisitions, to provide for
letters of credit, and for working capital and other general corporate
purposes. In conjunction with the issuance of the term loan of $32 million and
revolving credit facility, the amounts outstanding under the term loan of $20
million and the $12 million revolving line of credit were repaid (see Note 13).
As of December 31, 1998, the Company had $17.6 million of unused commitments
under its revolving credit facility. Interest expense was $2.9 million and $0.7
million for the year ended December 31, 1998, and the nine months ended
December 31, 1997, respectively.
The term loan and revolving credit facility agreements require that the
Company meet certain covenants that, among other things, require maintenance of
ratios related to fixed charges and leverage, require a minimum consolidated
net worth, and limit the level of capital expenditures. At December 31, 1998,
the Company was in compliance with the covenants of the agreements.
The promissory note to shareholders represents the cash portion of the
purchase price of the Interstate acquisition owed to the former owners of
Interstate, who became shareholders of PMT Holdings on December 16, 1997. The
amount was paid to these shareholders on January 2, 1998, and was financed by a
term loan of $20 million. During the first half of 1998, the Company amended
its term loan of $20 million and the revolving
F-32
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
line of credit primarily by increasing the amount available for borrowing in
order to complete the acquisitions of Stutz and Cross Con.
The $2.7 million notes payable were assumed in connection with the MCS
acquisition and were secured by certain equipment. The notes were paid in full
in February 1999 (see Note 17).
Maturities of debt and capital leases are as follows:
Debt Leases Total
------- ------ -------
(in thousands)
1999................................................. $ 2,605 $218 $ 2,823
2000................................................. 4,551 101 4,652
2001................................................. 4,601 -- 4,601
2002................................................. 5,555 -- 5,555
2003................................................. 24,153 -- 24,153
Thereafter........................................... 11,500 -- 11,500
Amount representing interest......................... -- (25) (25)
------- ---- -------
$52,965 $294 $53,259
======= ==== =======
The fair value of long-term debt, including the current portion,
approximates fair value because all amounts outstanding at December 31, 1998,
were issued in the current year and are representative of the terms and
interest rates that would be available to the Company at December 31, 1998. As
a hedge against exposure to interest rate risk, the Company entered into an
interest rate swap agreement effective July 8, 1998, to exchange the variable
interest rate obligations for fixed rate obligations on a portion of the
outstanding principal balance of the $32 million term loan described above.
The fixed rate under the swap is 5.9 percent. Net payments or receipts under
the agreement are included in interest expense. The Company is exposed to
credit losses in the event of counterparty nonperformance, but does not
currently anticipate any such losses because the counterparties are
established, reputable financial institutions. The agreement terminates on
January 10, 2000.
9. INCOME TAXES:
The provision for income taxes from continuing operations consists of the
following:
The Company The Predecessor
--------------------------- --------------------------
April 1, 1997, January 1,
Year Ended through 1997, through Year Ended
December 31, December 31, March 31, December 31,
1998 1997 1997 1996
------------ -------------- ------------- ------------
(in thousands) (in thousands)
Current:
Federal............... $2,992 $706 $(144) $1,277
State and local....... 665 125 -- 264
------ ---- ----- ------
3,657 831 (144) 1,541
------ ---- ----- ------
Deferred:
Federal............... (387) 128 206 291
State and local....... (88) 24 12 56
------ ---- ----- ------
(475) 152 218 347
------ ---- ----- ------
Total provision..... $3,182 $983 $ 74 $1,888
====== ==== ===== ======
F-33
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is
as follows:
The Company The Predecessor
--------------------------- --------------------------
April 1, 1997, January 1,
Year Ended through 1997, through Year Ended
December 31, December 31, March 31, December 31,
1998 1997 1997 1996
------------ -------------- ------------- ------------
Federal statutory income
tax rate............... 34.0% 34.0% 34.0% 34.0%
State income tax, net of
federal benefit........ 4.6 4.0 3.8 4.3
Amortization of
goodwill............... 3.5 -- -- --
Other items............. 0.6 0.9 0.5 0.3
---- ---- ---- ----
Effective tax rate...... 42.7% 38.9% 38.3% 38.6%
==== ==== ==== ====
Deferred tax assets and liabilities are composed of the following:
The
The Company Predecessor
------------------------- --------------
December 31, December 31, March 31,
1998 1997 1997
------------ ------------ --------------
(in thousands) (in thousands)
Current deferred tax assets (liabilities):
Accounts receivable............................................................. $(203) $(460) $190
Accrued expenses................................................................ 800 283 757
----- ----- ----
Total current deferred tax assets (liabilities)............................... $ 597 $(177) $947
===== ===== ====
Noncurrent deferred tax assets (liabilities):
Depreciation and amortization................................................... $(218) $(175) $ --
Deferred compensation........................................................... 291 218 --
----- ----- ----
Total noncurrent deferred tax assets.......................................... $ 73 $ 43 $ --
===== ===== ====
The Predecessor was included in the federal and state consolidated tax
returns of UP and its subsidiaries prior to inception. The Company believes
that tax expense recorded by the Predecessor approximates what would have been
recorded had the Predecessor filed separate tax returns.
10. STOCKHOLDERS' EQUITY:
Preferred Stock
The Company has one class of $0.01 par value Series A Preferred Stock
(preferred stock). Holders of the preferred stock are entitled to receive
dividends in cash at the per annum rate of 12 percent of the original issuance
price of a preferred share as, if and when declared by the Board of Directors
of the Company at its sole discretion. So long as any shares of preferred stock
are outstanding, the Company may not pay or declare any dividend on or with
respect to any shares of common stock. Upon liquidation, the holders of
preferred stock are entitled to receive, prior and in preference to any
distribution to any holder of common stock, for each share of preferred stock,
an amount per share equal to the original issuance price of such share, plus
the aggregate amount of all dividends declared, if any, less the aggregate
amount of all distributions, including payments of dividends. In general, the
holders of preferred stock are not entitled to vote on any matters submitted to
the vote of stockholders except as set forth in the Company's Certificate of
Incorporation. Additionally, upon the closing of an initial public offering by
the Company, each share of preferred stock automatically converts to shares of
common stock based on the ratio of preferred stock original issuance price
divided by the initial public offering price of common stock.
F-34
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock
The Company has one class of $0.0001 par value common stock. Each holder of
the Company's common stock is entitled to one vote for every share of common
stock owned. During 1998, in connection with the acquisitions of Stutz and
Cross Con, the Company issued 217,142 shares and 541,500 shares, respectively,
of common stock. The shares of Stutz and Cross Con were valued at $6.32 per
share and $8.95 per share, respectively. During 1997, in connection with the
purchase of ICI and ICS, the Company issued 1,353,750 shares of common stock,
which were valued at $3.32 per share by independent appraisal. Earnings per
share for all periods and all share data reflect the Company's 9.5 to 1 stock
split, which occurred in December 1998.
Stockholders' Agreement
The common and preferred stockholders and warrant holder are parties to an
Amended and Restated Stockholders' Agreement that, among other items, places
restrictions upon the transfer of securities, gives the Company and other then-
existing stockholders the right of first refusal to purchase securities offered
for sale, and includes other rights (including Eos's right to elect a majority
of the directors of the Company and its subsidiaries). The common stockholders
and warrant holder are also parties to a Registration Rights Agreement that,
among other things, entitles such holders to require the Company after an
initial public offering to register their common shares in certain
circumstances, subject to limitations contained in such agreement.
Warrants
The Company issued 18,421 warrants to UP in connection with the acquisition
of PMT on March 31, 1997. The exercise price is $10 per warrant, and each
warrant entitles UP to purchase one share of preferred stock and nine and one-
half shares of common stock. The warrants expire on March 31, 2007. The
warrants were valued using the Black-Scholes model.
Dividends
On June 29, 1998, the Company declared a dividend of $0.4 million on
preferred stock. On March 31, 1997, prior to the acquisition by PMT Holdings,
the Predecessor declared a dividend of $23.2 million.
11. STOCK OPTION PLANS:
The 1998 Plan
In August 1998, the Company adopted the 1998 Stock Option Plan (the 1998
Plan). The 1998 Plan enables employees and directors of and consultants to the
Company and its subsidiaries to acquire shares of common stock. Under the 1998
Plan, 26,695 options were granted at $9.47 per option during 1998 and 57,500
options were granted at $11 per option subsequent to December 31, 1998. One-
third of the options granted prior to year-end vested immediately, and the
other two-thirds vest ratably on April 1 of each of 1999 and 2000. Options
granted after year-end vest ratably on April 1 of each of 1999, 2000 and 2001.
All options granted under the 1998 Plan, if not previously exercised, expire
ten years from the date of grant.
1998
-----------------------
Weighted
Average Exercise
Shares Price
------ ----------------
Outstanding at beginning of period................... -- $ --
Granted during period................................ 26,695 9.47
------ -----
Outstanding at end of period......................... 26,695 $9.47
====== =====
Options exercisable at year-end...................... 8,898 $9.47
====== =====
No options were exercised, forfeited or expired during the year.
F-35
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarizes information about stock options outstanding at
December 31, 1998, for the 1998 Plan:
Options Weighted Average Weighted Average
Outstanding at Remaining Fair Value of
Exercise Price December 31, 1998 Contractual Life Options Granted
-------------- ----------------- ---------------- ----------------
$9.47 26,695 6 years $3.83
The fair value of options granted under the 1998 Plan was estimated on the
date of the grant using the Black-Scholes option-pricing model. An expected
life of seven years, a risk-free interest rate of 4.65 percent, no expected
dividends, and no volatility were assumed.
Had compensation costs for the 1998 Plan been determined based upon the fair
value at grant date for awards under the plan consistent with the method
prescribed by SFAS No. 123, the Company's net income would have been reduced by
$34,000 for the year ended December 31, 1998.
The Option and Supplemental Option Plans
On March 31, 1997, the Company adopted the Service Stock Option Agreement
(the Option Plan). The Option Plan assigned eligible employees options to
purchase shares of the Company's common and preferred stock at a price
generally not less than the fair value of the common and preferred stock on the
date of grant. Under the Option Plan, 70,000 options were granted at $11.24 per
option unit (each option unit allows the holder to purchase nine and one-half
shares of common stock and one share of preferred stock). The combined fair
value of the preferred and common stock on the date of grant was $10.00, the
price paid in formation of the Company on March 31, 1997. Options under the
Option Plan vest and become exercisable ratably on April 1 of each of 1998,
1999, 2000 and 2001 (25 percent of the options may be exercised each year).
Options, if not previously exercised, expire ten years from the date of grant.
On March 31, 1997, the Company also adopted the Supplemental Stock Option
Agreement (the Supplemental Option Plan). This plan assigned eligible employees
options to purchase shares of the Company's common and preferred stock at a
price generally not less than the fair value of the common and preferred stock
on the date of the grant. Under the Supplemental Option Plan, 40,000 options
were granted at $40.00 per option unit (each option unit allows the holder to
purchase nine and one-half shares of common stock and one share of preferred
stock). Combined fair value of the preferred and common stock on the date of
grant was $10.00, the price paid in formation of the Company on March 31, 1997.
All options under the Supplemental Option Plan fully vested on March 31, 1997,
and expire six years from that date.
1998 1997
------------------------ ------------------------
Weighted Weighted
Average Exercise Average Exercise
Options Price Options Price
------- ---------------- ------- ----------------
Outstanding at beginning of
period..................... 110,000 $21.70 -- $ --
Granted during period....... -- -- 110,000 21.70
------- ------ ------- ------
Outstanding at end of
period..................... 110,000 $21.70 110,000 $21.70
======= ====== ======= ======
Options exercisable at year-
end........................ 57,500 $31.25 40,000 $40.00
======= ====== ======= ======
No options were exercised, forfeited or expired from inception through
December 31, 1998.
F-36
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following summarizes information about stock options outstanding at
December 31, 1998, for the Option Plan and the Supplemental Option Plan:
Options Weighted Average Weighted Average
Outstanding at Remaining Fair Value of
Exercise Price December 31, 1998 Contractual Life Options Granted
-------------- ----------------- ---------------- ----------------
$11.24 70,000 2.5 years $0.47
$40.00 40,000 6.0 years $ --
The fair value of each option granted was estimated on the date of the grant
using the Black-Scholes option-pricing model. For the Option Plan, an expected
life of four years, a risk-free interest rate of 6.60 percent and no expected
dividends were assumed. For the Supplemental Option Plan, an expected life of
six years, a risk-free interest rate of 6.83 percent and no expected dividends
were assumed.
Had compensation costs for the Company's stock-based compensation plans been
determined based upon the fair value at grant dates for awards under those
plans consistent with the method prescribed by SFAS No. 123, the Company's net
income would have been reduced by $8,000 for the year ended December 31, 1998,
and $6,000 for the nine months ended December 31, 1997.
12. EARNINGS PER SHARE:
Earnings per share are as follows:
Nine Months
Year Ended Ended
December 31, December 31,
1998 1997
------------ ------------
(in thousands, except
per share amounts)
Income available to common stockholders before
extraordinary item................................. $3,896 $1,545
====== ======
Basic weighted-average shares....................... 5,143 3,404
Dilutive effect of options.......................... 850 573
Dilutive effect of warrants......................... 173 164
------ ------
Diluted weighted-average shares..................... 6,166 4,141
====== ======
Basic earnings per share before extraordinary item.. $ 0.76 $ 0.45
====== ======
Diluted earnings per share before extraordinary
item............................................... $ 0.63 $ 0.37
====== ======
Options to purchase 26,695 and 40,000 common shares were excluded from the
computation of diluted earnings per share for the periods ended December 31,
1998 and 1997, respectively, because the options' exercise price was greater
than the average market price of the common shares. Subsequent to December 31,
1998, options were granted for the purchase of 57,500 shares.
As a result of the acquisition of the Predecessor by the Company, earnings
per share are not comparable and have therefore not been presented for the
Predecessor.
13. EXTRAORDINARY LOSS:
The Company refinanced its debt in connection with the acquisition of MCS on
December 9, 1998. The term loan fees of $0.4 million, net of income taxes of
$0.2 million, were recorded in the accompanying statement of operations for the
year ended December 31, 1998, as an extraordinary loss.
F-37
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the acquisition of Interstate on December 16, 1997, loan
fees of $0.2 million were written off in connection with the early
extinguishment of debt. The loan fees, net of income taxes of $0.1 million,
were recorded in the accompanying statement of operations for the nine months
ended December 31, 1997, as an extraordinary loss.
14. RELATED-PARTY TRANSACTIONS:
During the period from inception through December 31, 1997, the Company paid
$75,000 in management fees and $100,000 in acquisition-related consulting fees
to Eos. Under an Amended and Restated Management Consulting Agreement dated as
of December 16, 1997, between the Company and Eos Management, Inc. (EMI), the
Company pays EMI a monthly management fee of $10,417 for management consulting
services rendered to the Company. The management fee is payable whether or not
EMI has performed any services during the term of the agreement. The Company
provided over-the-road transportation services and purchased linehaul
transportation services from UP and its subsidiaries of $6.1 million and $5.8
million, respectively, for the nine months ended December 31, 1997, and $13.0
million and $16.6 million, respectively, for the year ended December 31, 1998.
All services are provided and purchased at quoted market rates.
The Predecessor provided over-the-road transportation services and purchased
linehaul transportation services from UP and its subsidiaries. During the
three-month period ended March 31, 1997, and the year ended December 31, 1996,
revenues earned by the Predecessor from UP and its subsidiaries related to
over-the-road transportation services were $2.2 million and $4.8 million,
respectively. Purchased transportation costs from UP and its subsidiaries were
$2.7 million for the three-month period ended March 31, 1997, and $13.5 million
for the year ended December 31, 1996.
Prior to its acquisition, the Predecessor participated in benefit plans and
the other employee benefit services provided by UP and its affiliates (see Note
15). UP and its affiliates also provided tax advice; tax return preparation
services; corporate secretarial services; legal advice; treasury, banking, cash
management and accounting services; services involving the acquisition of
insurance coverage and related services, all at no cost to the Predecessor.
Additionally, the Predecessor from time to time advanced excess cash to UP
(Note 4).
The Company leases a facility consisting of office, warehousing and trucking
space from A&G Investments, a California general partnership of which Messrs.
Goldfein and Steiner are the only partners. Mr. Goldfein is a stockholder and a
Director and Executive Vice President of the Company. Mr. Steiner is a
stockholder and an Executive Vice President of the Company. Lease payments were
$0.5 million for the year ended December 31, 1998, and $17,000 for the nine
months ended December 31, 1997.
Cross Con leases a facility consisting of office space from Richard P.
Hyland, a stockholder and an Executive Vice President of the Company. Such
lease is pursuant to an oral agreement and is on a month-to-month basis. Lease
payments were $0.1 million for the year ended December 31, 1998.
Pursuant to an Operations Agency Agreement, TEK, Incorporated (TEK) is
entitled to 65 percent of the gross profit on Terminals' Detroit office. TEK is
owned by a brother of Richard Hyland, a stockholder and an Executive Vice
President of the Company. In 1998, TEK received $0.6 million pursuant to such
agreement.
Pursuant to an oral Commission/Bonus Agreement with a brother of Richard
Hyland, such brother is entitled to 30 percent of the net profits before tax of
the California office of Cross Con. In 1998, $0.1 million was paid pursuant to
such agreement.
F-38
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. EMPLOYEE BENEFITS:
Prior to its acquisition, eligible employees of the Predecessor participated
in the pension and postretirement benefit plans of its parent. The Predecessor
recorded benefit charges related to these plans of $0 for the period ended
March 31, 1997, and $266,000 for the year ended December 31, 1996, for its
proportionate share of the benefit plans as directed by its parent. In
connection with the purchase of PMT by PMT Holdings, active participants of the
plans became fully vested in their benefits accrued to date and the obligation
was assumed by UP.
The Company adopted two 401(k) plans (the Plans) in 1997. A plan was adopted
for PMT employees in July 1997 and for rail service employees in October 1997.
All employees who meet certain service requirements are eligible to
participate. The Company matched 100 percent of the first 3 percent contributed
by employees to the Plans during the years ended December 31, 1998 and 1997. In
addition, the Company maintains a 401(k) plan for Interstate employees. The
Company matched 25 percent of the first 4 percent contributed by Interstate
employees to the plan during the year ended December 31, 1998, and the nine
months ended December 31, 1997. Total expense related to these plans was $0.2
million for the year ended December 31, 1998, and for the nine months ended
December 31, 1997.
16. COMMITMENTS AND CONTINGENCIES:
Legal Proceedings and Contingencies
The Company is a party to various legal proceedings, claims and assessments
arising in the normal course of its business activities. Interstate is a named
defendant in a class action filed in July 1997 in the State of California, Los
Angeles Superior Court, Central District, alleging, among other things, breach
of fiduciary duty, unfair business practices, conversion and money had and
received in connection with monies allegedly wrongfully deducted from truck
drivers' earnings. Plaintiffs have demanded in excess of $8.8 million, together
with unspecified punitive damages, costs and interest, as well as equitable
relief. Interstate has entered into a Judge Pro Tempore Submission Agreement
dated as of October 9, 1998, pursuant to which the plaintiffs and defendants
have waived their rights to a jury trial, stipulated to a certified class, and
agreed to a minimum and a maximum judgment amount. The Company intends to
defend this action vigorously and believes that its defenses are meritorious.
Based upon information presently available and in light of legal and other
defenses and insurance coverage, management does not expect these legal
proceedings, claims and assessments, individually or in the aggregate, to have
a material adverse impact on the Company's consolidated financial position or
results of operations.
Operating Lease Commitments
The Company leases office space and equipment under noncancellable lease
agreements that expire at various dates. The rental expense under these lease
agreements was $1.8 million for the year ended December 31, 1998.
F-39
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a schedule of future minimum lease payments required under
the Company's leases at December 31, 1998 (in thousands):
Operating
Leases
---------
1999............................................................... $1,650
2000............................................................... 1,389
2001............................................................... 1,071
2002............................................................... 970
2003............................................................... 934
Thereafter......................................................... 2,745
------
Total minimum lease payments..................................... $8,759
======
Employment Agreements
The Company has entered into employment agreements with certain of its
executive officers, with remaining service periods ranging from 1 to 2.5 years.
The agreements provide for certain payments to each officer upon termination of
employment, other than as a result of death, disability in most cases or
justified cause, as defined. The aggregate estimated commitment under these
agreements was $3.9 million and $2.8 million at December 31, 1998 and 1997,
respectively. Under the employment agreements, the Board of Directors may award
an annual bonus to certain of the executives in an amount up to $0.1 million
each based on the attainment of certain operating income targets.
17. SUBSEQUENT EVENTS:
On February 2, 1999, the Company entered into an Equipment Purchase
Agreement and a Bill of Sale and Assignment with Comtrak, Inc. to sell fifty
1999 Model 9400 International tractors purchased as part of the MCS
acquisition. The proceeds from the sale of $3.0 million were used to pay off
the note payable of $2.8 million described in Note 8. There was no gain or loss
recorded on the sale.
EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT
As of May 28, 1999, the Company and its stockholders entered into an
Agreement and Plan of Merger with an affiliate of Apollo Management L.P.
(together with its affiliates, Apollo) pursuant to which, among other things,
Apollo acquired all of the outstanding Company common stock held by Eos and a
portion of the outstanding Company common stock held by the other stockholders
of the Company, constituting in the aggregate approximately 60 percent of the
outstanding Company common stock, in exchange for cash paid to such selling
stockholders. The consummation of the merger was subject to the satisfaction of
various conditions, including Apollo's obtainment of sufficient financing. Upon
consummation of the merger, the Company was renamed Pacer Logistics, Inc.
On April 20, 1999, the Company acquired certain assets of Keystone
Terminals, Inc. (DE) and Keystone Terminals, Inc. (NJ) ("Keystone") for $8.25
million. Keystone, which was established in 1964, is an intermodal marketing
company with strong westbound traffic flow that originates in northeastern
United States. The acquisition was financed through borrowings under the
Company's revolving line of credit.
F-40
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1999 December 31, 1998
-------------- -----------------
(In thousands, except share
data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 10 $ 10
Accounts receivable, net of allowances of
$2,070 and $2,032, respectively............. 41,492 41,566
Prepaid expenses and other................... 1,926 1,644
Deferred income taxes........................ 597 597
-------- --------
Total current assets.................... 44,025 43,817
-------- --------
PROPERTY AND EQUIPMENT:
Property and equipment, at cost.............. 5,323 7,926
Accumulated depreciation..................... (1,170) (852)
-------- --------
Property and equipment, net............. 4,153 7,074
-------- --------
OTHER ASSETS:
Intangible assets, net....................... 60,932 61,788
Deferred income taxes........................ 73 73
Other assets................................. 1,885 1,119
-------- --------
Total assets............................ $111,068 $113,871
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and
capital leases.............................. $ 3,294 $ 2,803
Accounts payable............................. 24,386 23,429
Accrued expenses............................. 14,275 17,179
Income taxes payable......................... 537 --
Deferred income taxes........................ -- --
-------- --------
Total current liabilities............... 42,492 43,411
LONG-TERM LIABILITIES:
Employee benefits............................ 710 672
Long-term debt and capital leases............ 47,064 50,456
-------- --------
Total liabilities....................... 90,266 94,539
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock at March 31, 1999 and
December 31, 1998: $0.01 par value, 600,000
shares authorized, 350,000 shares issued and
outstanding................................. 4 4
Common stock at March 31, 1999 and December
31, 1998: $0.0001 par value, 20,000,000
shares authorized, 5,437,392 shares issued
and outstanding............................. 1 1
Warrants at March 31, 1999 and December 31,
1998: 18,421 outstanding 53 53
Additional paid-in capital................... 14,201 14,201
Retained earnings............................ 6,543 5,073
-------- --------
Total stockholders' equity.............. 20,802 19,332
-------- --------
Total liabilities and stockholders'
equity................................. $111,068 $113,871
======== ========
The accompanying notes are an integral part of the financial statements.
F-41
PACER INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
(In thousands)
REVENUES................................. $ 89,892 $ 50,362
COST OF PURCHASED TRANSPORTATION AND
SERVICES................................ (75,164) (42,003)
-------- --------
Net revenues........................... 14,728 8,359
OPERATING EXPENSES:
Selling, general and administrative
expenses.............................. 10,268 5,634
Depreciation and amortization.......... 764 341
-------- --------
Income from operations............... 3,696 2,384
INTEREST EXPENSE (INCOME)................ 1,126 554
-------- --------
Income before income tax provision....... 2,570 1,830
INCOME TAX PROVISION..................... 1,100 765
-------- --------
Net income............................... $ 1,470 $ 1,065
======== ========
The accompanying notes are an integral part of the financial statements.
F-42
PACER INTERNATIONAL, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Unaudited)
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------ ------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 1,470 $ 1,065
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Depreciation and amortization.......... 764 341
Deferred income taxes.................. -- (29)
Changes in operating assets and
liabilities:
Decrease in accounts receivable, net
of allowances....................... 74 852
Decrease (increase) in prepaid
expenses and other.................. (281) 118
Decrease (increase) in other assets.. (287) 5
Increase in accounts payable......... 956 800
Increase (decrease) in accrued
expenses............................ (2,292) (501)
Increase in income taxes payable..... 537 48
Increase in employee benefits........ 38 6
------- -------
Net cash provided by operating
activities.......................... 979 2,705
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (408) (387)
Proceeds from equipment sales.......... 3,035 --
------- -------
Net cash provided by (used in)
investing activities................ 2,627 (387)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdrafts........................ (705) --
Proceeds on long-term debt............. 4,740 1,202
Principal payments on long-term debt... (7,641) (3,519)
------- -------
Net cash used in financing
activities.......................... (3,606) (2,317)
------- -------
NET INCREASE IN CASH AND
CASH EQUIVALENTS........................ -- 1
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD............................... 10 86
------- -------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.................................. $ 10 $ 87
======= =======
The accompanying notes are an integral part of the financial statements.
F-43
PACER INTERNATIONAL, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF INTERIM PERIOD PRESENTATION
The unaudited interim financial statements as of March 31, 1999 and for the
three months ended March 31, 1999 and March 31, 1998 are condensed and do not
contain all information required by generally accepted accounting principles to
be included in a full set of financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
necessary for fair presentation have been included. The results of operations
for any interim period are not necessarily indicative of the results of
operations to be expected for any full fiscal year. The audited financial
statements of Pacer International, Inc., ("Pacer International") presented
elsewhere in this document, include a summary of significant accounting
policies and should be read in conjunction with these interim financial
statements.
2. SUBSEQUENT EVENTS
Pacer International, Inc. entered into an agreement dated February 22, 1999
with Apollo Management, L.P. ("Apollo") through a wholly-owned subsidiary in
which Apollo agreed to acquire a controlling interest in Pacer International.
Consideration of $46 million in cash and $26 million of the surviving
corporation's common stock was payable to Pacer International Stockholders. The
transaction closed on May 28, 1999. In connection with the transaction, Pacer
International Inc. was renamed Pacer Logistics, Inc.
On April 20, 1999, Pacer International acquired certain assets of Keystone
Terminals, Inc. (DE) and Keystone Terminals, Inc. (NJ) ("Keystone") for $8.25
million. Keystone, which was established in 1964, is an intermodel marketing
company with strong westbound traffic flow that originates in the northeastern
United States. The acquisition was financed through borrowings under Pacer
International's revolving line of credit.
3. CONTINGENCIES
Pacer International is a party to various legal proceedings, claims and
assessments arising in the normal course of its business activities. Interstate
is a named defendant in a class action filed in July 1997 in the State of
California, Los Angeles Superior Court, Central District, alleging, among other
things, breach of fiduciary duty, unfair business practices, conversion and
money had and received in connection with monies allegedly wrongfully deducted
from truck drivers' earnings. Plaintiffs have demanded in excess of $8.8
million, together with unspecified punitive damages, costs and interest, as
well as equitable relief. Interstate has entered into a Judge Pro Tempore
Submission Agreement dated as of October 9, 1998, pursuant to which the
plaintiffs and defendants have waived their rights to a jury trial, stipulated
to a certified class, and agreed to a minimum and a maximum judgement amount.
Pacer International intends to defend this action vigorously and believes that
its defenses are meritorious. Based upon information presently available and in
light of legal and other defenses and insurance coverage, management does not
expect these legal proceedings, claims and assessments, individually or in
aggregate, to have a material adverse impact on the Pacer International's
consolidated financial position or results of operations.
F-44
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- --------------------------------------------------------------------------------
All tendered old notes, executed letters of transmittal and other related
documents should be directed to the exchange agent. Questions and requests for
assistance and requests for additional copies of the prospectus, the letter of
transmittal and other related documents should be addressed to the exchange
agent as follows:
By Registered or Certified Mail:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attn: Corporate Trust Administration
By Hand Delivery before 4:30 p.m.:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attn: Corporate Trust Administration
By Overnight Courier and by Hand Delivery
after 4:30 p.m. on the Expiration Date:
Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Attn: Corporate Trust Administration
Facsimile Transmission:
(302) 651-8882
Attn: Customer Service
Information or Confirmation by Telephone:
(302) 651-8681
Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.
---------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by Pacer International. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs
of Pacer International since such date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
-----------------------
PROSPECTUS
-----------------------
[LOGO]
Pacer International, Inc.
$150,000,000
$150,000,000 11 3/4% Senior
Subordinated Notes due 2007
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Amended and Restated Charter of Pacer International, Inc. (the "Pacer
International Charter") states that Pacer International shall, to the full
extent permitted by the Tennessee Business Corporation Act (the "TBCA"), as
amended or interpreted from time to time, indemnify all directors, officers and
employees whom it may indemnify pursuant thereto and, in addition, Pacer
International may, to the extent permitted by the TBCA, indemnify agents of
Pacer International or other persons.
Sections 48-18-501 through 48-18-509 of the TBCA permit indemnification of
directors, officers, and employees for reasonable expenses incurred in a wholly
successful defense of any proceeding or when the relevant circumstances so
dictate. The corporation may also indemnify a director made a party to a
proceeding against liability incurred in the proceeding so long as the director
acted in good faith and his conduct was in the best interests, or at least not
opposed to the best interests, of the corporation. Section 48-18-509 of the
TBCA also provides that the indemnification provided for therein shall not be
deemed exclusive of any other rights to which those seeking indemnification may
otherwise be entitled. In addition, Pacer International maintains a director's
and officer's liability insurance policy.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Charter of Pacer International, Inc.
3.2 Amended and Restated Bylaws of Pacer International, Inc.
4.1 Credit Agreement, dated as of May 28, 1999, among Pacer
International, Inc., the lenders party thereto from time to time,
Morgan Stanley Senior Funding, Inc., as Syndication Agent, Credit
Suisse First Boston Corporation, as Documentation Agent and
Bankers Trust Company, as Administrative Agent.
4.2 Indenture, dated as of May 28, 1999, among Pacer International,
Inc., the Guarantors and Wilmington Trust Company, as Trustee
(including form of 11 3/4% Senior Subordinated Notes due 2007).
4.3 Form of 11 3/4% Senior Subordinated Notes due 2007 (filed as part
of Exhibit 4.2).
4.4 Stock Purchase Agreement, dated as of March 15, 1999, between APL
Limited and Coyote Acquisition LLC.
4.5 Non-Competition Agreement, dated as of May 28, 1999, among Neptune
Orient Lines Limited, APL Limited, Pacer International, Inc. and
Coyote Acquisition LLC.
4.6 Administrative Services Agreement, dated as of May 28, 1999,
between APL Limited and Pacer International, Inc.
4.7 IT Supplemental Agreement, dated as of May 11, 1999, between APL
Limited, APL Land Transport Services, Inc. and Coyote Acquisition
LLC.*
4.8 Stacktrain Services Agreement, dated as of May 28, 1999, among
American President Lines, Ltd., APL Co. Pte. Ltd., APL Limited
and Pacer International, Inc.
4.9 TPI Chassis Sublet Agreement, dated as of May 28, 1999, among
American President Lines, Ltd., APL Co. Pte. Ltd., APL Limited
and Pacer International, Inc.
II-1
Exhibit No. Description
----------- -----------
4.10 Equipment Supply Agreement, dated as of May 28, 1999, among
American President Lines, Ltd., APL Co. Pte. Ltd., APL Limited
and Pacer International, Inc.
4.11 Primary Obligation and Guaranty Agreement, dated as of March 15,
1999, by Neptune Orient Lines Limited in favor of Coyote
Acquisition LLC and APL Land Transport Services, Inc.
4.12 Shareholders' Agreement, dated as of May 28, 1999, among APL
Limited, Pacer International, Inc., Coyote Acquisition LLC and
Coyote Acquisition II LLC.
4.13 Shareholders' Agreement, dated as of May 28, 1999, by and among
Pacer International, Inc., Coyote Acquisition LLC, Coyote
Acquisition II LLC and the Management Stockholders.
4.14 Shareholders' Agreement, dated as of May 28, 1999, by and among
Pacer International, Inc., Coyote Acquisition LLC, Coyote
Acquisition II LLC, BT Capital Investors, L.P. and Pacer
International Equity Investors, LLC.
4.15 Management Agreement, dated as of May 28, 1999, between Apollo
Management IV, L.P. and Pacer International, Inc.
4.16 Tax Sharing Agreement, dated as of May 28, 1999, by and among
Coyote Acquisition LLC, Pacer International, Inc. and Pacer
Logistics, Inc.
4.17 Purchase Agreement, dated as of May 24, 1999, among Pacer
International, Inc., the Guarantors and the Placement Agents
named therein.
4.18 Registration Rights Agreement, dated as of May 28, 1999, between
Pacer International, Inc., and the Purchasers named therein.
4.19 Form of Joinder Agreement, dated as of May 24, 1999, between
Coyote Acquisition LLC and the Placement Agents named therein
(filed as part of Exhibit 4.17).
4.20 Intermodal Transportation Agreement No. 1111, dated as of May 4,
1999, between CSX Intermodal, Inc., APL Land Transport Services,
Inc., APL Limited and APL Co. Pte. LTD.*
4.21 Domestic Incentive Agreement, dated as of May 4, 1999, between CSX
Intermodal, Inc. and Pacer International, Inc.*
4.22 Rail Transportation Agreement, dated as of October 11, 1996,
between Union Pacific Railroad Company, APL Land Transport
Services, Inc., American President Lines, LTD., and APL Co. Pte.
LTD.*
5.1 Opinion of Dewey Ballantine LLP as to the legality of the
securities being registered.
10.1 Employment Agreement for Donald C. Orris.
10.2 Employment Agreement for Gerry Angeli.
10.3 Employment Agreement for Gary I. Goldfein.
10.4 Employment Agreement for Robert L. Cross.
10.5 Employment Agreement for Allen E. Steiner.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
16.1 Letter re: change in certifying accountant.
21.1 List of the Subsidiaries of Pacer International, Inc.
23.1 Consent of Dewey Ballantine LLP (included as part of its opinion
filed as Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
25.1 Form T-1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.*
- --------
* To be filed by amendment
II-2
Item 22. Undertakings.
1. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
4. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
II-3
5. The undersigned registrant hereby undertakes to supply by means of post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it becomes effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacer International, Inc.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints and , and each of
them, his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to the Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary fully to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
each said attorney-in-fact and agents or any of them or their or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Donald C. Orris Chairman, President and July 30, 1999
______________________________________ Chief Executive Officer
Donald C. Orris
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Vice President, Controller July 30, 1999
______________________________________ and Secretary
Joseph P. Atturio
/s/ Joshua J. Harris Director July 30, 1999
______________________________________
Joshua J. Harris
/s/ Bruce H. Spector Director July 30, 1999
______________________________________
Bruce H. Spector
/s/ Marc E. Becker Director July 30, 1999
______________________________________
Marc E. Becker
/s/ Timothy J. Rhein Director July 30, 1999
______________________________________
Timothy J. Rhein
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacer Logistics, Inc.
By:/s/ Donald C. Orris
----------------------------------
Donald C. Orris
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Donald C. Orris Chairman, President and July 30, 1999
___________________________________________ Chief Executive Officer
Donald C. Orris
/s/ Gary I. Goldfein Executive Vice President July 30, 1999
___________________________________________ and Director
Gary I. Goldfein
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
___________________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Vice President, Controller July 30, 1999
___________________________________________ and Secretary
Joseph P. Atturio
/s/ Joshua J. Harris Director July 30, 1999
___________________________________________
Joshua J. Harris
/s/ Marc E. Becker Director July 30, 1999
___________________________________________
Marc E. Becker
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Cross Con Transport, Inc.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Richard P. Hyland President, Chief Executive July 30, 1999
______________________________________ Officer, Assistant
Richard P. Hyland Secretary and Assistant
Treasurer
/s/ Lawrence C. Yarberry Chief Financial Officer, July 30, 1999
______________________________________ Secretary and Treasurer
Lawrence C. Yarberry
/s/ Gerry Angeli Director July 30, 1999
______________________________________
Gerry Angeli
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Cross Con Terminals, Inc.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Richard P. Hyland President, Chief Executive July 30, 1999
______________________________________ Officer, Assistant
Richard P. Hyland Secretary and Assistant
Treasurer
/s/ Lawrence C. Yarberry Chief Financial Officer, July 30, 1999
______________________________________ Secretary and Treasurer
Lawrence C. Yarberry
/s/ Gerry Angeli Director July 30, 1999
______________________________________
Gerry Angeli
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacer International Rail Services
LLC
By:Pacer Logistics, Inc.
Its Managing Member
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman, President and July 30, 1999
______________________________________ Chief Executive Officer
Donald C. Orris
/s/ Gary I. Goldfein Executive Vice President July 30, 1999
______________________________________ and Director
Gary I. Goldfein
/s/ Joshua J. Harris Director July 30, 1999
______________________________________
Joshua J. Harris
/s/ Marc E. Becker Director July 30, 1999
______________________________________
Marc E. Becker
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacer International Consulting LLC
Pacer Logistics, Inc.
By: ___________________________________
Its Managing Member
/s/ Donald C. Orris
By: ___________________________________
Donald C. Orris
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Donald C. Orris, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to the Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite or necessary fully to all intents and purposes as he or
she might or could do and perform each and every act and thing requisite or
necessary fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman, President and July 30, 1999
______________________________________ Chief Executive Officer
Donald C. Orris
/s/ Gary I. Goldfein Executive Vice President July 30, 1999
______________________________________ and Director
Gary I. Goldfein
/s/ Joshua J. Harris Director July 30, 1999
______________________________________
Joshua J. Harris
/s/ Marc E. Becker Director July 30, 1999
______________________________________
Marc E. Becker
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacer Rail Services llc
Pacer Logistics, Inc.
By: ___________________________________
Its Managing Member
/s/ Donald C. Orris
By: ___________________________________
Donald C. Orris
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Donald C. Orris, his
or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to the Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-
fact and agent full power and authority to do and perform each and every act
and thing requisite or necessary fully to all intents and purposes as he or
she might or could do and perform each and every act and thing requisite or
necessary fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman, President and July 30, 1999
______________________________________ Chief Executive Officer
Donald C. Orris
/s/ Gary I. Goldfein Executive Vice President July 30, 1999
______________________________________ and Director
Gary I. Goldfein
/s/ Joshua J. Harris Director July 30, 1999
______________________________________
Joshua J. Harris
/s/ Marc E. Becker Director July 30, 1999
______________________________________
Marc E. Becker
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacific Motor Transport Company
By:__________________________________
/s/ Donald C. Orris
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Gerry Angeli President, Chief Executive July 30, 1999
______________________________________ Officer and Director
Gerry Angeli
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
II-12
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacer Express, Inc.
By:__________________________________
/s/ Donald C. Orris
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Gary I. Goldfein President, Chief Executive July 30, 1999
______________________________________ Officer and Director
Gary I. Goldfein
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Pacer Integrated Logistics, Inc.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Gerry Angeli President Chief Executive July 30, 1999
______________________________________ Officer, and director
Gerry Angeli
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
PLM Acquisition Corporation
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Robert L. Cross Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Robert L. Cross and Treasurer
/s/ Lawrence C. Yarberry Vice President, Chief July 30, 1999
______________________________________ Financial Officer,
Lawrence C. Yarberry Secretary and Treasurer
/s/ Gerry Angeli Director July 30, 1999
______________________________________
Gerry Angeli
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Manufacturers Consolidation Service,
Inc.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints Donald C. Orris, his or
her true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution for him or her and in his or her name, place and stead, in
any and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Richard P. Hyland President and Chief July 30, 1999
______________________________________ Executive Officer
Richard P. Hyland
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
/s/ Gerry Angeli Director July 30, 1999
______________________________________
Gerry Angeli
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
LEVCON, INC.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Richard P. Hyland Chief Executive Officer July 30, 1999
______________________________________
Richard P. Hyland
/s/ Gerry Angeli Executive Vice President July 30, 1999
______________________________________ and Director
Gerry Angeli
/s/ Lawrence C. Yarberry Executive Vice President July 30, 1999
______________________________________ and Chief Financial
Lawrence C. Yarberry Officer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Manufacturers Consolidation Service
of Canada, Inc.
By:/s/ Donald C. Orris
----------------------------------
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Donald C. Orris Chairman July 30, 1999
___________________________________________
Donald C. Orris
/s/ Richard P. Hyland President and Chief July 30, 1999
___________________________________________ Executive Officer
Richard P. Hyland
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
___________________________________________ Chief Financial Officer
Lawrence C. Yarberry and Assistant Secretary
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
___________________________________________
Joseph P. Atturio
/s/ Gerry Angeli Director July 30, 1999
___________________________________________
Gerry Angeli
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Interstate Consolidation Service,
Inc.
/s/ Donald C. Orris
By:__________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Gary I. Goldfein President, Chief Executive July 30, 1999
______________________________________ Officer and Director
Gary I. Goldfein
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
II-19
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Interstate Consolidation, Inc.
/s/ Donald C. Orris
By:__________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Gary I. Goldfein President, Chief Executive July 30, 1999
______________________________________ Officer and Director
Gary I. Goldfein
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
II-20
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Intermodal Container Service, Inc.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman July 30, 1999
______________________________________
Donald C. Orris
/s/ Gary I. Goldfein President, Chief Executive Officer, July 30, 1999
______________________________________ and Director
Gary I. Goldfein
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer and
Lawrence C. Yarberry Treasurer
/s/ Joseph P. Atturio Controller and Secretary July 30, 1999
______________________________________
Joseph P. Atturio
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Walnut Creek, State of
California, on July 30, 1999.
Keystone Terminals Acquisition Corp.
/s/ Donald C. Orris
By: _________________________________
Donald C. Orris
Chairman, President and Chief
Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints Donald C. Orris, his or her
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to the Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite or necessary fully to all intents and purposes as he or she might or
could do and perform each and every act and thing requisite or necessary fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
/s/ Donald C. Orris Chairman, President and July 30, 1999
______________________________________ Chief Executive Officer
Donald C. Orris
/s/ Lawrence C. Yarberry Executive Vice President, July 30, 1999
______________________________________ Chief Financial Officer
Lawrence C. Yarberry and Treasurer
/s/ Joseph P. Atturio Vice President, Controller July 30, 1999
______________________________________ and Secretary
Joseph P. Atturio
II-22
EXHIBIT INDEX
Exhibit No. Description
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3.1 Amended and Restated Charter of Pacer International, Inc.
3.2 Amended and Restated Bylaws of Pacer International, Inc.
4.1 Credit Agreement, dated as of May 28, 1999, among Pacer
International, Inc., the lenders party thereto from time to time,
Morgan Stanley Senior Funding, Inc., as Syndication Agent, Credit
Suisse First Boston Corporation, as Documentation Agent and
Bankers Trust Company, as Administrative Agent.
4.2 Indenture, dated as of May 28, 1999, among Pacer International,
Inc., the Guarantors and Wilmington Trust Company, as Trustee
(including form of 11 3/4% Senior Subordinated Notes due 2007).
4.3 Form of 11 3/4% Senior Subordinated Notes due 2007 (filed as part
of Exhibit 4.2).
4.4 Stock Purchase Agreement, dated as of March 15, 1999, between APL
Limited and Coyote Acquisition LLC.
4.5 Non-Competition Agreement, dated as of May 28, 1999, among Neptune
Orient Lines Limited, APL Limited, Pacer International, Inc. and
Coyote Acquisition LLC.
4.6 Administrative Services Agreement, dated as of May 28, 1999,
between APL Limited and Pacer International, Inc.
4.7 IT Supplemental Agreement, dated as of May 11, 1999, between APL
Limited, APL Land Transport Services, Inc. and Coyote Acquisition
LLC.*
4.8 Stacktrain Services Agreement, dated as of May 28, 1999, among
American President Lines, Ltd., APL Co. Pte. Ltd., APL Limited
and Pacer International, Inc.
4.9 TPI Chassis Sublet Agreement, dated as of May 28, 1999, among
American President Lines, Ltd., APL Co. Pte. Ltd., APL Limited
and Pacer International, Inc.
4.10 Equipment Supply Agreement, dated as of May 28, 1999, among
American President Lines, Ltd., APL Co. Pte. Ltd., APL Limited
and Pacer International, Inc.
4.11 Primary Obligation and Guaranty Agreement, dated as of March 15,
1999, by Neptune Orient Lines Limited in favor of Coyote
Acquisition LLC and APL Land Transport Services, Inc.
4.12 Shareholders' Agreement, dated as of May 28, 1999, among APL
Limited, Pacer International, Inc., Coyote Acquisition LLC and
Coyote Acquisition II LLC.
4.13 Shareholders' Agreement, dated as of May 28, 1999, by and among
Pacer International, Inc., Coyote Acquisition LLC, Coyote
Acquisition II LLC and the Management Stockholders.
4.14 Shareholders' Agreement, dated as of May 28, 1999, by and among
Pacer International, Inc., Coyote Acquisition LLC, Coyote
Acquisition II LLC, BT Capital Investors, L.P. and Pacer
International Equity Investors, LLC.
4.15 Management Agreement, dated as of May 28, 1999, between Apollo
Management IV, L.P. and Pacer International, Inc.
4.16 Tax Sharing Agreement, dated as of May 28, 1999, by and among
Coyote Acquisition LLC, Pacer International, Inc. and Pacer
Logistics, Inc.
4.17 Purchase Agreement, dated as of May 24, 1999, among Pacer
International, Inc., the Guarantors and the Placement Agents
named therein.
4.18 Registration Rights Agreement, dated as of May 28, 1999, between
Pacer International, Inc., and the Purchasers named therein.
Exhibit No. Description
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4.19 Form of Joinder Agreement, dated as of May 24, 1999, between
Coyote Acquisition LLC and the Placement Agents named therein
(filed as part of Exhibit 4.17).
4.20 Intermodal Transportation Agreement No. 1111, dated as of May 4,
1999, between CSX Intermodal, Inc., APL Land Transport Services,
Inc., APL Limited and APL Co. Pte. LTD.*
4.21 Domestic Incentive Agreement, dated as of May 4, 1999, between CSX
Intermodal, Inc. and Pacer International, Inc.*
4.22 Rail Transportation Agreement, dated as of October 11, 1996,
between Union Pacific Railroad Company, APL Land Transport
Services, Inc., American President Lines, LTD., and APL Co. Pte.
LTD.*
5.1 Opinion of Dewey Ballantine LLP as to the legality of the
securities being registered.
10.1 Employment Agreement for Donald C. Orris.
10.2 Employment Agreement for Gerry Angeli.
10.3 Employment Agreement for Gary I. Goldfein.
10.4 Employment Agreement for Robert L. Cross.
10.5 Employment Agreement for Allen E. Steiner.
12.1 Statement of Computation of Ratio of Earnings to Fixed Charges.
16.1 Letter re: change in certifying accountant.
21.1 List of the Subsidiaries of Pacer International, Inc.
23.1 Consent of Dewey Ballantine LLP (included as part of its opinion
filed as Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
25.1 Form T-1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.*
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* To be filed by amendment