-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ILN6++8pIH0L1LYPaka/Mmu+rR/8UCrSIEVbljuGssTo+N++Xq6lXuelMp2pcb0N rbr4SxaQhuitNQ7oAWu+Kw== /in/edgar/work/20000808/0000950129-00-003993/0000950129-00-003993.txt : 20000921 0000950129-00-003993.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950129-00-003993 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EGL INC CENTRAL INDEX KEY: 0001001718 STANDARD INDUSTRIAL CLASSIFICATION: [4731 ] IRS NUMBER: 760094895 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27288 FILM NUMBER: 688610 BUSINESS ADDRESS: STREET 1: 15340 VICKERY DR CITY: HOUSTON STATE: TX ZIP: 77032 BUSINESS PHONE: 2816183100 MAIL ADDRESS: STREET 1: 15350 VICKERY DR STREET 2: SUITE 510 CITY: HOUSTON STATE: TX ZIP: 77032 FORMER COMPANY: FORMER CONFORMED NAME: EAGLE USA AIRFREIGHT INC DATE OF NAME CHANGE: 19951002 10-Q 1 e10-q.txt EGL, INC. - DATED JUNE 30, 2000 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended JUNE 30, 2000 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____ COMMISSION FILE NUMBER 0-27288 EGL, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0094895 - ------------------------------- --------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 15350 VICKERY DRIVE, HOUSTON, TEXAS 77032 (281) 618-3100 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices, Including Registrant's Zip Code, and Telephone Number, Including Area Code) FORMER FISCAL YEAR END - SEPTEMBER 30 - -------------------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of the registrant's common stock as of August 2, 2000: 28,568,680 shares (net of 1,391,834 treasury shares). ================================================================================ 2 EGL, INC. INDEX TO FORM 10-Q
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheet as of June 30, 2000 and September 30, 1999................................................................. 3 Condensed Consolidated Statement of Income and Comprehensive Income for the Nine Months ended June 30, 2000 and 1999.............................................. 4 Condensed Consolidated Statement of Income and Comprehensive Income for the Three Months ended June 30, 2000 and 1999.................................................................. 5 Condensed Consolidated Statement of Cash Flows for the Nine Months ended June 30, 2000 and 1999......................................................... 6 Condensed Consolidated Statement of Shareholders' Equity for the Nine Months ended June 30, 2000....................................................... 7 Notes to Condensed Consolidated Financial Statements................................................... 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................................. 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................................. 19 PART II. OTHER INFORMATION..................................................................................... 20 SIGNATURES...................................................................................................... 23 INDEX TO EXHIBITS............................................................................................... 24
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EGL, INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (IN THOUSANDS, EXCEPT PAR VALUES)
June 30, September 30, 2000 1999 ------------ ------------- Assets Current assets: Cash and cash equivalents $ 19,977 $ 35,175 Short-term investments 17,213 Accounts receivable - trade, net 134,447 109,003 Prepaid expenses and other 5,140 3,712 Deferred income taxes 3,447 2,817 ------------ ------------ Total current assets 163,011 167,920 Property and equipment, net 38,481 28,184 Goodwill, net 38,624 11,072 Other assets 3,669 1,815 ------------ ------------ Total assets $ 243,785 $ 208,991 ============ ============ Liabilities and Shareholders' Equity Current liabilities: Accounts payable - trade $ 20,102 $ 12,657 Accrued transportation costs 20,197 21,895 Accrued compensation and employee benefits 18,353 18,677 Other accrued liabilities 11,944 8,855 ------------ ------------ Total current liabilities 70,596 62,084 Other long-term liabilities 3,321 Deferred income taxes 3,104 3,097 ------------ ------------ Total liabilities 77,021 65,181 ------------ ------------ Minority interest 183 ------------ ------------ Shareholders' equity: Preferred stock, $0.001 par value, 10,000 shares authorized Common stock, $0.001 par value, 100,000 shares authorized, 29,954 and 29,453 shares issued 30 29 Additional paid-in capital 92,462 81,310 Unearned compensation (1,592) Retained earnings 101,328 77,629 Accumulated other comprehensive loss (912) (771) Treasury stock, 1,406 and 1,022 shares, at cost (24,552) (14,570) ------------ ------------ 166,764 143,627 ------------ ------------ Commitments and contingencies (Note 7) ------------ ------------ Total liabilities and shareholders' equity $ 243,785 $ 208,991 ============ ============
See notes to unaudited condensed consolidated financial statements. 3 4 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Nine Months Ended June 30, ---------------------------- 2000 1999 ------------ ------------ Revenues $ 589,855 $ 428,424 Cost of transportation 346,695 243,455 ------------ ------------ Net revenues 243,160 184,969 ------------ ------------ Operating expenses: Personnel costs 128,605 93,955 Other selling, general and administrative expenses 77,106 59,411 ------------ ------------ 205,711 153,366 ------------ ------------ Operating income 37,449 31,603 Interest and other income 1,745 1,934 ------------ ------------ Income before provision for income taxes 39,194 33,537 Provision for income taxes 15,495 12,961 ------------ ------------ Net income 23,699 20,576 Other comprehensive income: Foreign currency translation (141) (40) ------------ ------------ Comprehensive income $ 23,558 $ 20,536 ============ ============ Basic earnings per share $ 0.83 $ 0.73 ============ ============ Basic weighted-average common shares outstanding 28,676 28,218 ============ ============ Diluted earnings per share $ 0.79 $ 0.71 ============ ============ Diluted weighted-average common and common equivalent shares outstanding 29,828 28,925 ============ ============
See notes to unaudited condensed consolidated financial statements. 4 5 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended June 30, ---------------------------- 2000 1999 ------------ ------------ Revenues $ 213,739 $ 149,826 Cost of transportation 125,807 86,133 ------------ ------------ Net revenues 87,932 63,693 ------------ ------------ Operating expenses: Personnel costs 45,831 32,012 Other selling, general and administrative expenses 28,500 20,609 ------------ ------------ 74,331 52,621 ------------ ------------ Operating income 13,601 11,072 Interest and other income 469 751 ------------ ------------ Income before provision for income taxes 14,070 11,823 Provision for income taxes 5,609 4,528 ------------ ------------ Net income 8,461 7,295 Other comprehensive income: Foreign currency translation (1,235) (233) ------------ ------------ Comprehensive income $ 7,226 $ 7,062 ============ ============ Basic earnings per share $ 0.30 $ 0.26 ============ ============ Basic weighted-average common shares outstanding 28,646 28,401 ============ ============ Diluted earnings per share $ 0.29 $ 0.25 ============ ============ Diluted weighted-average common and common equivalent shares outstanding 29,451 29,585 ============ ============
See notes to unaudited condensed consolidated financial statements. 5 6 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
Nine Months Ended June 30, ------------------------ 2000 1999 ---------- ---------- Cash flows from operating activities $ 11,532 $ 23,873 ---------- ---------- Cash flows from investing activities: Acquisitions, net of cash (21,240) Purchase of investments (12,627) Maturity of investments 17,213 13,104 Acquisition of property and equipment, net (14,761) (8,687) Payment of contingent consideration for acquisition (2,443) (2,000) Other (63) ---------- ---------- Net cash used by investing activities (21,231) (10,273) ---------- ---------- Cash flows from financing activities: Issuance of common stock 294 Proceeds from exercise of stock options 4,826 5,896 Purchase of treasury stock (10,478) (9,218) ---------- ---------- Net cash used by financing activities (5,358) (3,322) ---------- ---------- Effect of foreign currency translation on cash (141) (66) ---------- ---------- Net increase (decrease) in cash and cash equivalents (15,198) 10,212 Cash and cash equivalents, beginning of period 35,175 37,191 ---------- ---------- Cash and cash equivalents, end of period $ 19,977 $ 47,403 ========== ==========
See notes to unaudited condensed consolidated financial statements. 6 7 EGL, INC. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL UNEARNED OTHER -------------------- PAID-IN COMPEN- RETAINED COMPREHENSIVE TREASURY SHARES AMOUNT CAPITAL SATION EARNINGS LOSS STOCK TOTAL --------- --------- ---------- --------- --------- ------------- --------- --------- Balance at September 30, 1999 29,453 $ 29 $ 81,310 $ 77,629 $ (771) $ (14,570) $ 143,627 Shares issued under stock option plans and restricted stock awards 501 1 6,730 $ (1,905) 4,826 Purchase of treasury stock (10,478) (10,478) Issuance of shares under stock purchase plan (2) 296 294 Shares issued for acquisition related earnout 200 200 Tax benefit from exercise of stock options 4,424 4,424 Amortization of unearned compensation 313 313 Net income 23,699 23,699 Foreign currency translation adjustments (141) (141) --------- --------- --------- --------- --------- --------- --------- --------- Balance at June 30, 2000 29,954 $ 30 $ 92,462 $ (1,592) $ 101,328 $ (912) $ (24,552) $ 166,764 ========= ========= ========= ========= ========= ========= ========= =========
See notes to unaudited condensed consolidated financial statements. 7 8 EGL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited condensed consolidated financial statements have been prepared by EGL, Inc. (EGL or the Company) in accordance with the rules and regulations of the Securities and Exchange Commission (the SEC) for interim financial statements and accordingly do not include all information and footnotes required under generally accepted accounting principles for complete financial statements. The financial statements have been prepared in conformity with the accounting principles and practices disclosed in, and should be read in conjunction with, the annual financial statements of the Company included in the Company's Annual Report on Form 10-K (File No. 0-27288). In the opinion of management, these interim financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Company's financial position at June 30, 2000 and the results of its operations for the nine and three months ended June 30, 2000 and 1999. Results of operations for the nine and three months ended June 30, 2000 are not necessarily indicative of the results that may be expected for EGL's full fiscal year. NOTE 1 - ORGANIZATION, OPERATIONS, AND SIGNIFICANT ACCOUNTING POLICIES: On February 21, 2000, the Company's shareholders approved a proposal to change the Company's name to EGL, Inc. in recognition of EGL's increasing globalization, broader spectrum of services and long-term growth strategy. EGL is a worldwide logistics company. The Company maintains operating facilities throughout the United States, Mexico, Canada, Hong Kong, the United Kingdom, Argentina, Brazil, Chile and Peru as well as a worldwide network of exclusive and nonexclusive agents. The Company operates in one principal industry segment. During the nine and three months ended June 30, 2000 and 1999, no individual geographic segment outside the United States exceeded more than 10% of the revenues, net income or assets of the combined amounts for all geographic segments. On July 12, 1999, the Board of Directors declared a three-for-two stock split of the Company's common stock, effected in the form of a stock dividend. All shares and per-share amounts have been restated retroactively to reflect the stock split, which was distributed August 30, 1999 to shareholders of record on August 23, 1999. On July 2, 2000, the Board of Directors of EGL determined to change its fiscal year ending on September 30th to a year ending on December 31st. As a result, EGL's 2000 fiscal year will end on December 31, 2000 and its next Annual Report on Form 10-K will include audited results for the twelve-month period ending December 31, 2000. References in this document to the first, second and third quarters of fiscal 2000 are to the quarters ended December 31, 1999, March 31, 2000 and June 30, 2000, respectively. NOTE 2 - EARNINGS PER SHARE: Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share includes potential dilution that could occur if securities to issue common stock were exercised. Stock options are the only potentially dilutive share equivalents the Company has outstanding for the periods presented. Incremental shares of 1.2 million and 707,000 were used in the calculation of diluted earnings per share for the nine months ended June 30, 2000 and 1999, respectively. Incremental shares of 805,000 and 1.2 million were used in the calculation of diluted earnings per share for the three months ended June 30, 2000 and 1999, respectively. For the nine months ended June 30, 2000 and 1999, 113,071 and 1,731,075 options, respectively, were excluded from the diluted earnings per share computation because their effect was antidilutive. For the three months ended June 30, 2000, 501,225 options were excluded from the dilutive earnings per share computation because their effect was antidilutive. There were no antidilutive options for the three months ended June 30, 1999. 8 9 EGL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Management is currently reviewing the provisions of SFAS 133 and does not believe that the Company's financial statements will be materially impacted by the adoption of SFAS 133. In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", to be effective the fourth fiscal quarter of fiscal years beginning after December 15, 1999 (EGL's quarter ending December 31, 2000 based on the change in year end). EGL currently recognizes revenues and expenses related to the transportation of freight at the time the freight departs the terminal of origin. In accordance with the guidance established in SAB No. 101, EGL will change its policy effective as of the beginning of fiscal 2000 to recognize revenues and expenses related to the transportation of freight at the time the freight arrives at its final destination. This will result in the deferral of certain revenues and expenses into a later period. EGL is currently evaluating the impact of the change on its results of operations. The effect of this change will first be reflected in the Company's Annual Report on Form 10-K for the year ending December 31, 2000. NOTE 4 - ACQUISITIONS: On December 15, 1999, the Company completed the acquisition of Compass Cargo Limitada, a privately held air freight forwarder in Chile with annual net revenues of approximately $1.5 million for an aggregate purchase price of $1.2 million in cash at closing. On January 7, 2000, the Company completed the acquisition of two commonly-controlled freight forwarding companies operating in Canada for an aggregate purchase price of approximately $21.3 million in cash at closing and a total of approximately $4.9 million in cash payable in three equal, annual installments. The agreement also contemplates additional consideration not to exceed $7.8 million over the next three years payable in cash and Company common stock if certain earnings-based growth goals are achieved. Each of these acquisitions was accounted for as a purchase and the results of operations for the acquired businesses are included in the condensed consolidated statement of income and comprehensive income from the acquisition date forward. In June 2000, the Company paid $834,000 to buy out the minority interest under its joint venture agreement with its Hong Kong subsidiary and recorded goodwill of $684,000. In addition, during the third quarter of fiscal 2000 the Company paid an aggregate of $1.2 million and issued 8,802 shares of common stock valued at $200,000 in connection with contingent payments for acquisitions completed in fiscal 1998 and 1997. On July 2, 2000, EGL entered into an Agreement and Plan of Merger with Circle International Group, Inc. (Circle). Circle is a leader in international air and ocean transportation, operating over 300 logistics centers in more than 100 countries. Circle is publicly held and headquartered in San Francisco, California. As a result of the merger, Circle will be a wholly owned subsidiary of EGL. The combination is expected to be accounted for as a pooling of interests, and each share of Circle's common stock issued and outstanding immediately prior to the effective time of the combination will be converted into the right to receive one share of EGL's common stock. When complete, EGL's shareholders will own approximately 62 percent and Circle shareholders will own approximately 38 percent of the combined company's outstanding shares. The completion of the merger is subject to shareholder approval which is expected to occur in September 2000. 9 10 EGL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 5 - SHAREHOLDERS' EQUITY: In January 2000, the Company's Board of Directors authorized the repurchase of up to one million shares of its outstanding Common Stock. In April 2000, the Company's Board of Directors increased the authorization to three million shares. As of June 30, 2000, the Company had repurchased 449,500 shares for a total of $10.5 million under this authorization. On July 2, 2000, the Company's Board of Directors terminated the remaining share repurchase authorization. Unearned compensation relates to awards of restricted stock and is recorded at the date of award based on the market value of the shares and is amortized to expense over the vesting period of three years. NOTE 6 - REVOLVING CREDIT FACILITY: On January 13, 2000, the Company entered into an agreement (the Credit Agreement) with Bank of America, N.A. (the Bank) as administrative agent. The Credit Agreement (as amended on May 31, 2000) provides a $50 million revolving line of credit and includes a $10 million sublimit for the issuance of letters of credit. The Company is currently in discussion with the Bank to increase the amount of the line of credit up to $100 million, although there can be no assurance that this increase will be effected. No amounts were outstanding under the Credit Agreement as of June 30, 2000. The revolving line of credit matures on January 11, 2001. For each tranche of principal, the Company elects an interest rate calculation based on either LIBOR (a LIBOR Tranche) or either the prime rate announced by the Bank or the federal funds rate plus 50 basis points (a Prime Rate Tranche), plus an applicable margin based on a ratio of consolidated debt to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization). The interest for a LIBOR Tranche is due at periods of one, two, three or six months, as the Company may select at the time it requests the funds. The interest for a Prime Rate Tranche is due quarterly. The revolving line of credit includes unused commitment fees and letter of credit fees, each of which is calculated on the basis of a ratio of consolidated debt to consolidated EBITDA. The Company is subject to certain covenants under the terms of the Credit Agreement, including, but not limited to, maintenance at the end of any fiscal quarter of (a) minimum specified consolidated net worth, (b) a ratio of consolidated funded debt to total capitalization of no greater than .50 to 1.00, (c) a ratio of consolidated funded debt to consolidated EBITDA of no greater than 2.50 to 1.00 and (d) a consolidated fixed charge coverage ratio of no less than 2.00 to 1.00. The Credit Agreement also places restrictions on additional indebtedness, liens, investments, change of control and other matters. NOTE 7 - COMMITMENTS AND CONTINGENCIES: In May 2000, the Company received a Letter of Determination and Conciliation Proposal from the Equal Employment Opportunity Commission relating to a Commissioner's Charge issued in the first quarter of fiscal 1998. Following the issuance of the EEOC's Determination a lawsuit was filed in Philadelphia, Pennsylvania by three former EGL employees and one individual who had unsuccessfully applied for a position. The lawsuit alleges discrimination and adopts in their entirety the EEOC's conclusions. Although the four plaintiffs seek to represent a class of individuals, no class action has yet been approved by the Court. The lawsuit seeks unspecified damages. See "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Part II, Item 1. Legal Proceedings." 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected certain aspects of the Company's financial position and operating results during the periods included in the accompanying unaudited condensed consolidated financial statements. This discussion should be read in conjunction with the discussion under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the annual financial statements included in the Company's Annual Report on Form 10-K (File No. 0-27288) and the accompanying unaudited condensed consolidated financial statements. OVERVIEW On February 21, 2000, the Company's shareholders approved a proposal to change the Company's name to EGL, Inc. in recognition of the Company's increasing globalization, broader spectrum of services and long-term growth strategy. The Company's revenues have increased to $595.2 million in fiscal 1999 from $291.8 million in fiscal 1997, and its operating income has increased to $45.0 million in fiscal 1999 from $25.7 million in fiscal 1997. Historically, the Company has grown primarily through internal expansion, including developing its terminal network, expanding its service offerings and sales force and increasing its customer base. The Company has also made acquisitions on a limited basis. Since October 1, 1996, the Company has added 45 terminals, increasing the total to 92 at June 30, 2000. The opening of a new terminal generally has an initial short-term negative impact on profitability due to operating losses of the new terminal. However, the opening of a new terminal generally does not require significant capital expenditures. Additionally, personnel costs are contained at the time of the opening of a new terminal because commissions are generally not paid until salesmen achieve minimum sales levels and until managers achieve terminal profitability. Although future new terminals may be opened in cities smaller than those in which the Company's more mature terminals are located, the Company believes the results of new terminals should benefit from a ready base of business provided by its existing customers. The Company currently maintains international operating facilities in Mexico, Canada, Hong Kong, the United Kingdom, Argentina, Brazil, Chile and Peru as well as a worldwide network of exclusive and nonexclusive agents. In recent years, the Company has focused on expanding its international freight forwarding business. On July 2, 2000, EGL entered into an Agreement and Plan of Merger with Circle International Group, Inc. (Circle). Circle is a leader in international air and ocean transportation, operating over 300 logistics centers in more than 100 countries. Circle is publicly held and headquartered in San Francisco, California. As a result of the merger, Circle will be a wholly owned subsidiary of EGL. The combination is expected to be accounted for as a pooling of interests, and each share of Circle's common stock issued and outstanding immediately prior to the effective time of the combination will be converted into the right to receive one share of EGL's common stock. When complete, EGL's shareholders will own approximately 62 percent and Circle shareholders will own approximately 38 percent of the combined company's outstanding shares. The completion of the merger is subject to shareholder approval which is expected to occur in September 2000. In May 2000, as a result of recent industry consolidation, the Company announced plans to accelerate its international expansion efforts beginning in the third quarter of fiscal 2000 with the addition of seasoned international airfreight employees worldwide. The new staff and related infrastructure costs was expected to increase international operating expenses over the next two quarters by approximately $4.0 to $5.0 million, or $0.08 to $0.10 cents per diluted shares, net of tax. The Company's proposed merger with Circle effectively ends the Company's previously announced $4.0 to $5.0 million expenditure for international staff and infrastructure costs. The Company incurred approximately 60 percent of its total planned expenditure, or approximately $0.05 cents per diluted share, net of tax. The Company expects to utilize the staff and infrastructure related to these costs subsequent to the completion of the merger. 11 12 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) On January 7, 2000, the Company completed the acquisition of Commercial Transport International (Canada) Ltd. (CTI) and Fastair Cargo System Ltd. (Fastair) for an aggregate purchase price of approximately $21.3 million in cash at closing and a total of approximately $4.9 million in cash payable in three equal annual installments. The acquisition agreement also contemplates additional consideration not to exceed $7.8 million over the next three years payable in cash and Company common stock if certain earnings-based growth goals are achieved. Fastair is a leading forwarder in the intra-Canada freight forwarding market. CTI, its sister company, primarily serves the international freight forwarding market with offices coast-to-coast throughout Canada. CTI and Fastair were privately-held, under common control and have eight locations in Canada. Both companies are based in Toronto, Canada. The acquisitions were accounted for as a purchase and the acquired operations were integrated with the Company's existing Canadian operations. The Company also intends to continue the growth of its local pickup and delivery operations. By providing local pickup and delivery services for its freight forwarding shipments, the Company has been able to increase its gross margin for these shipments because it captures margins that were previously paid to third parties. However, the Company's local pickup and delivery services provided to other non-forwarding customers generate a lower gross margin than the Company's domestic forwarding operations due to their higher transportation costs as a percentage of revenues. Historically, the Company's operating results have been subject, to a limited degree, to seasonal trends when measured on a quarterly basis. The quarter ending March 31st has traditionally been the weakest and the quarter ending September 30th has traditionally been the strongest. RESULTS OF OPERATIONS The following table presents certain statement of income data as a percentage of revenues and operating data for the periods indicated.
Nine Months Ended June 30, Three Months Ended June 30, -------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ------------ Revenues 100.0% 100.0% 100.0% 100.0% Cost of transportation 58.8 56.8 58.9 57.5 ----------- ----------- ----------- ----------- Net revenues 41.2 43.2 41.1 42.5 Personnel costs 21.8 21.9 21.4 21.3 Other selling, general and administrative expense 13.1 13.9 13.3 13.8 ----------- ----------- ----------- ----------- Operating expenses 34.9 35.8 34.7 35.1 ----------- ----------- ----------- ----------- Operating income 6.3% 7.4% 6.4% 7.4% ----------- ----------- ----------- ----------- Net income 4.0% 4.8% 4.0% 4.9% =========== =========== =========== =========== Freight forwarding terminals at end of period 92 78 92 78 Local delivery locations at end of period 77 67 77 67 Freight forwarding shipments 1,681,328 1,006,094 653,792 362,331 Average weight (lbs.) per freight forwarding shipment 604 675 576 689
NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999 Revenues increased 37.7% to $589.9 million in the first nine months of fiscal 2000 from $428.4 million in the same period of fiscal 1999 primarily due to increases in the number of shipments and the total weight of cargo shipped. These increases primarily resulted from an increase in the number of terminals open during such period, an increase in penetration in existing airfreight and pickup and delivery markets, the addition of significant national account customers and the effect of acquisitions completed after the third quarter of fiscal 1999. 12 13 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For those freight forwarding terminals opened prior to the beginning of fiscal 1999 (71 terminals), revenues increased 33.7% to $518.3 million for the nine months ended June 30, 2000 from $387.7 million for the nine months ended June 30, 1999. Revenues for the nine months ended June 30, 2000 were comprised of $550.6 million of forwarding revenues and $39.3 million of local pickup and delivery revenues, as compared to $391.3 million and $37.1 million, respectively, for the nine months ended June 30, 1999. Of the Company's forwarding revenues for the nine months ended June 30, 2000, $133.6 million were attributable to international shipments (defined as shipments that cross a U.S. national border or originated outside the U.S.) compared to $75.4 million for the nine months ended June 30, 1999. The acquisitions completed in Canada and Chile, as described in Note 4, added approximately $33.9 million in international revenue during the nine months ended June 30, 2000. The Company's total local pickup and delivery revenues for the nine months ended June 30, 2000 were $147.1 million. This amount includes $107.8 million of intercompany sales that were eliminated upon consolidation and $39.3 million in services to third-party (non-forwarding) customers. Cost of transportation increased during the first nine months of fiscal 2000 as a percentage of revenues to 58.8% from 56.8% in the comparable period in fiscal 1999. The increase was primarily attributable to increased international freight shipping volumes, which carry a higher cost of transportation per shipment than domestic freight. Cost of transportation increased in absolute terms by 42.4% to $346.7 million for the nine months ended June 30, 2000 from $243.5 million in the same period in fiscal 1999 as a result of increases in freight shipped. Net revenue margin decreased to 41.2% in the first nine months of fiscal 2000 from 43.2% in the same period in fiscal 1999. The primary reason for the margin decline was increased international freight shipping volumes which carry a higher cost of transportation per shipment than domestic freight and a temporary shift in January and February 2000 from overnight air shipments to lower-margin economy ground shipments by the technology and manufacturing sectors as a result of the Year 2000 transition. Net revenues increased 31.5% to $243.2 million in the first nine months of fiscal 2000 from $185.0 million in the same period in fiscal 1999. Operating expenses decreased as a percentage of revenues to 34.9% in the first nine months of fiscal 2000 from 35.8% for the same period in fiscal 1999. The $52.3 million increased costs in absolute terms was attributable primarily to continued growth in the level of operations, costs from additional terminals, acquisitions and expansion of local delivery operations. Personnel costs decreased as a percentage of revenues to 21.8% in the first nine months of fiscal 2000 from 21.9% in the same period in fiscal 1999 and increased in absolute terms by 36.9% to $128.6 million in the fiscal 2000 period from $94.0 million in the fiscal 1999 period. This increase was due to increased staffing needs associated with the opening of new terminals and local delivery locations, the effect of acquisitions, expanded operations at existing terminals and increased commissions resulting from higher revenues and expanded corporate infrastructure. Such personnel costs include all compensation expenses, including those relating to sales commissions and salaries and to headquarters employees and executive officers. The Company has added personnel to build corporate infrastructure particularly in international operations, to keep pace with its recent significant growth, to deepen the staff at its terminals and to prepare for growth during fiscal 2000. Other selling, general and administrative expenses decreased as a percentage of revenues to 13.1% in the first nine months of fiscal 2000 from 13.9% in the first nine months of fiscal 1999, and increased in absolute terms by 29.8% to $77.1 million in the fiscal 2000 period from $59.4 million in the fiscal 1999 period. In the first nine months of fiscal 2000, selling expenses as a percentage of revenues remained constant at 1.2% and other general and administrative expenses as a percentage of revenues decreased by 0.8% compared to the first nine months of fiscal 1999. The absolute increases in selling, general and administrative expenses were due to overall increases in the level of the Company's activities in the fiscal 2000 period, increased expenses attributable to the Company's acquisitions, the Company's headquarters facility and a $1.1 million charge for legal fees recorded in the second quarter of fiscal 2000. 13 14 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating income increased 18.5% to $37.4 million in the first nine months of fiscal 2000 from $31.6 million in the comparable period in fiscal 1999. Operating margin decreased to 6.3% for nine months ended June 30, 2000 compared to 7.4% for the nine months ended June 30, 1999. Interest and other income decreased to $1.7 million from $1.9 million as a result of a decline in interest income from decreased levels of investments during the nine months ended June 30, 2000 compared to the nine months ended June 30, 1999, partially offset by rental income of $545,000 from a sublease that began in May 1999. Income before provision for income taxes increased 16.9% to $39.2 million in the first nine months of fiscal 2000 from $33.5 million in the comparable period of fiscal 1999. Provision for income taxes increased 19.6% to $15.5 million for the nine months ended June 30, 2000 from $13.0 million for the nine months ended June 30, 1999. Net income increased 15.2% to $23.7 million in the first nine months of fiscal 2000 from net income of $20.6 million in the same period in fiscal 1999. Diluted earnings per share increased 11.3% to $0.79 per share for the nine months ended June 30, 2000 from $0.71 in the same period in fiscal 1999. THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 Revenues increased 42.7% to $213.7 million in the third quarter of fiscal 2000 from $149.8 million in the same period of fiscal 1999 primarily due to increases in the number of shipments and the total weight of cargo shipped. These increases resulted from an increase in the number of terminals open during such period, an increase in penetration in existing airfreight and pickup and delivery markets, the addition of significant national account customers and the effect of acquisitions completed after the third quarter of fiscal 1999. For those freight forwarding terminals opened prior to the beginning of fiscal 1999 (71 terminals), revenues increased 34.4% to $182.8 million for the three months ended June 30, 2000 from $136.0 million for the three months ended June 30, 1999. Revenues for the three months ended June 30, 2000 were comprised of $200.0 million of forwarding revenues and $13.7 million of local pickup and delivery revenues, as compared to $136.5 million and $13.3 million, respectively, for the three months ended June 30, 1999. Of the Company's forwarding revenues for the third quarter of fiscal 2000, $51.2 million were attributable to international shipments (defined as shipments that cross a U.S. national border or originated outside the U.S.) compared to $29.1 million for the third quarter of fiscal 1999. The acquisitions completed in Canada and Chile, as described in Note 4, added approximately $17.1 million in international revenue during the third quarter of fiscal 2000. The Company's total local pickup and delivery revenues for the third quarter of fiscal 2000 were $52.5 million. This amount includes $38.8 million of intercompany sales that were eliminated upon consolidation and $13.7 million in services to third-party (non-forwarding) customers. Cost of transportation increased during the third quarter of fiscal 2000 as a percentage of revenues to 58.9% from 57.5% in the comparable period in fiscal 1999. The increase was primarily attributable to increased international freight shipping volumes, which carry a higher cost of transportation per shipment than domestic freight. Cost of transportation increased in absolute terms by 46.1% to $125.8 million in the third quarter of fiscal 2000 from $86.1 million in the third quarter of fiscal 1999 as a result of increases in freight shipped. Net revenue margin decreased to 41.1% in the third quarter of fiscal 2000 from 42.5% in the same period in fiscal 1999. The primary reason for the margin decline was increased international freight shipping volumes which carry a higher cost of transportation per shipment than domestic freight. Net revenues increased 38.1% to $87.9 million in the third quarter of fiscal 2000 from $63.7 million in the same period in fiscal 1999. 14 15 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating expenses decreased as a percentage of revenues to 34.7% in the third quarter of fiscal 2000 from 35.1% for the same period in fiscal 1999. The $21.7 million increased costs in absolute terms for the third quarter of fiscal 2000 was attributable primarily to continued growth in the level of operations, costs from additional terminals, acquisitions and expansion of local delivery operations. Personnel costs increased as a percentage of revenues to 21.4% in the third quarter of fiscal 2000 from 21.3% in the same period in fiscal 1999 and increased in absolute terms by 43.2% to $45.8 million. This increase was due to increased staffing needs associated with the opening of new terminals and local delivery locations, the effect of acquisitions, expanded operations at existing terminals and increased commissions resulting from higher revenues and expanded corporate infrastructure. Such personnel costs include all compensation expenses, including those relating to sales commissions and salaries and to headquarters employees and executive officers. The Company has added personnel to build corporate infrastructure particularly in international operations, to keep pace with its recent significant growth, to deepen the staff at its terminals and to prepare for growth during fiscal 2000. Other selling, general and administrative expenses decreased as a percentage of revenues to 13.3% in the third quarter of fiscal 2000 from 13.8% in the third quarter of fiscal 1999, and increased in absolute terms by 38.3% to $28.5 million in the fiscal 2000 period from $20.6 million in the fiscal 1999 period. In the third quarter of fiscal 2000, selling expenses as a percentage of revenues increased by 0.2% and other general and administrative expenses as a percentage of revenues decreased by 0.7% compared to the third quarter of fiscal 1999. The absolute increases in selling, general and administrative expenses were due to overall increases in the level of the Company's activities in the fiscal 2000 period, increased expenses attributable to the Company's acquisitions and the Company's headquarters facility. Operating income increased 22.8% to $13.6 million in the third quarter of fiscal 2000 from $11.1 million in the comparable period in fiscal 1999. Operating margin decreased to 6.4% for the quarter ended June 30, 2000 from 7.4% for the quarter ended June 30, 1999. Interest and other income decreased to $469,000 from $751,000 as a result of decreased levels of investments during the quarter ended June 30, 2000 compared to the quarter ended June 30, 1999, partially offset by rental income of $193,000 from a sublease that began in May 1999. Income before provision for income taxes decreased 19.0% to $14.1 million in the third quarter of fiscal 2000 from $11.8 million in the comparable period of fiscal 1999. Provision for income taxes increased 23.9% to $5.6 million for the three months ended June 30, 2000 from $4.5 million for the three months ended June 30, 1999. Net income increased 16.0% to $8.5 million in the third quarter of fiscal 2000 from net income of $7.3 million in the same period in fiscal 1999. Diluted earnings per share increased 16.0% to $0.29 per share for the quarter ended June 30, 2000 from $0.25 in the same period in fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and short-term investments decreased $32.4 million to $20.0 million at June 30, 2000 from $52.4 million at September 30, 1999. At June 30, 2000, the Company had working capital of $92.4 million and a current ratio of 2.31 compared to working capital of $105.8 million and a current ratio of 2.70 at September 30, 1999. The Company's working capital decreased during this period primarily as a result of cash used for business acquisitions and share repurchases. Capital expenditures for the nine months ended June 30, 2000 were approximately $14.8 million. Other than its public offerings, the Company's cash generated from operations has been its primary source of liquidity, although it has from time to time made limited use of bank borrowing and lease or purchase arrangements. The Company does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. 15 16 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In January 2000, the Company's Board of Directors authorized the repurchase of up to one million shares of its outstanding Common Stock. In April 2000, the Company's Board of Directors increased the authorization to three million shares. As of June 30, 2000, the Company had repurchased 449,500 shares for a total of $10.5 million under this authorization. The Company's intention has been that repurchases would help to offset increases in the number of shares outstanding resulting from previous and future stock option exercises. On July 2, 2000, the Company's Board of Directors terminated the share repurchase authorization. On January 13, 2000, the Company entered into the Credit Agreement with Bank of America, N.A. (the Bank), as administrative agent. The Credit Agreement (as amended on May 31, 2000) provides a $50 million revolving line of credit and includes a $10 million sublimit for the issuance of letters of credit. The Company is currently in discussion with the Bank to increase the amount of the line of credit up to $100 million, although there can be no assurance that this increase will be effected. The revolving line of credit matures on January 11, 2001. For each tranche of principal, the Company elects an interest rate calculation based on either LIBOR (a LIBOR Tranche) or either the prime rate announced by the Bank or the federal funds rate plus 50 basis points (a Prime Rate Tranche), plus an applicable margin based on a ratio of consolidated debt to consolidated EBITDA (earnings before interest, taxes, depreciation and amortization). The interest for a LIBOR Tranche is due at periods of one, two, three or nine months, as the Company may select at the time it requests the funds. The interest for a Prime Rate Tranche is due quarterly. The revolving line of credit includes unused commitment fees and letters of credit fees, each of which is calculated on the basis of a ratio of consolidated debt to consolidated EBITDA. The Company is subject to certain covenants under the terms of the Credit Agreement, including, but not limited to, maintenance at the end of any fiscal quarter of (a) minimum specified consolidated net worth, (b) a ratio of consolidated funded debt to total capitalization of no greater than .50 to 1.00, (c) a ratio of consolidated funded debt to consolidated EBITDA of no greater than 2.50 to 1.00 and (d) a consolidated fixed charge coverage ratio of no less than 2.00 to 1.00. The Credit Agreement also places certain restrictions on additional indebtedness, liens, investments, change of control and other matters. The Company and certain of its subsidiaries maintain bank lines of credit for purposes of securing customs bonds and bank letters of credit for purposes of guaranteeing some transportation expenses. These credit lines and letters of credit are supported by standby letters of credit issued by a United States bank or guarantees issued by the Company to the foreign banks. At June 30, 2000, the Company was contingently liable for approximately $10.5 million under outstanding letters of credit and guarantees related to these obligations. As of June 30, 2000, the Company had outstanding non-qualified stock options to purchase an aggregate of 4,540,422 shares of common stock at exercise prices ranging from $0.83 to $32.69, which equaled the fair market value of the underlying common stock on the dates of grant. At the time a non-qualified stock option is exercised, the Company will generally be entitled to a deduction for federal and state income tax purposes equal to the difference between the fair market value of the common stock on the date of exercise and the option price. As a result of exercises for the nine months ended June 30, 2000 of non-qualified stock options to purchase an aggregate of 500,539 shares of common stock, the Company is entitled to a federal income tax deduction of approximately $11.0 million. The Company has recognized a reduction of its federal and state income tax liability of approximately $4.4 million with respect to the nine months ended June 30, 2000. Accordingly, the Company recorded an increase in additional paid-in capital and a reduction to current taxes payable pursuant to the provisions of SFAS No. 109, "Accounting for Income Taxes." Any exercises of non-qualified stock options in the future at exercise prices below the then fair market value of the common stock may also result in tax deductions equal to the difference between those amounts. There is uncertainty as to whether or not the exercises will occur, the amount of any deductions or the Company's ability to fully utilize any deductions. 16 17 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) On January 10, 1997, the Company entered into a five-year operating lease agreement with two unrelated parties for financing the construction of its Houston terminal, warehouse and headquarters facility (the Houston Facility). The cost of the Houston Facility was approximately $8.5 million. Under the terms of the lease agreement, average monthly lease payments are approximately $59,000, which includes monthly interest costs based upon LIBOR rate plus 145 basis points, beginning on July 1, 1998 through October 2, 2002. A balloon payment equal to the outstanding lease balance, which was initially equal to the cost of the facility, is due on October 2, 2002. As of June 30, 2000, the lease balance was approximately $8.2 million. On April 3, 1998, the Company entered into a five-year $20 million master operating lease agreement with two unrelated parties for financing the construction of terminal and warehouse facilities throughout the United States designated by the Company. Under the terms of the master operating lease agreement, average monthly lease payments, including monthly interest costs based upon LIBOR rate plus 145 basis points, begin upon the completion of the construction of each financed facility. The monthly lease obligation will continue for a term of 52 months. A balloon payment equal to the outstanding lease balances, which were initially equal to the cost of each facility, is due at the end of each lease term. Construction began during fiscal 1999 on five terminal facilities. As of June 30, 2000, the aggregate lease balance was approximately $15.5 million under the master operating lease agreement. The operating lease agreements contain restrictive financial covenants requiring the maintenance of a fixed charge coverage ratio of at least 1.5 to 1.0 and specified amounts of consolidated net worth and consolidated tangible net worth. In addition, the master operating lease agreement restricts the Company from incurring debt in an amount greater than $10 million, except pursuant to a single credit facility involving a commitment of not more than $50 million. The Company has an option, exercisable at anytime during the lease term, and under particular circumstances may be obligated, to acquire the Houston terminal and each of its other financed facilities for an amount equal to the outstanding lease balance. If the Company does not exercise the purchase option, and does not otherwise meet its obligations, it is subject to a deficiency payment computed as the amount equal to the outstanding lease balance minus the then current fair market value of each financed facility within limits. The Company expects that the amount of any deficiency payment would be expensed. As of June 30, 2000, the Company has entered into commitments to construct office, warehouse and terminal facilities for an aggregate cost of approximately $8.0 million. Payment for the construction of the facilities is being made from cash balances. Construction of the facilities is estimated to be completed during fiscal 2001. ACQUISITIONS On January 7, 2000, the Company completed the acquisition of CTI and Fastair for an aggregate purchase price of approximately $21.3 million paid at closing from cash and cash equivalents on hand. Additionally, a total of approximately $4.9 million will be paid in cash over the next three years in annual installments. In June 2000, the Company paid $834,000 to buy out the minority interest under its joint venture agreement with its Hong Kong subsidiary and recorded goodwill of $684,000. In addition, during the third quarter of fiscal 2000 the Company paid an aggregate of $1.2 million and issued 8,802 shares of common stock valued at $200,000 in connection with contingent payments for acquisitions completed in fiscal 1998 and 1997. 17 18 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In July 2000, the Company purchased 24.5% of the outstanding common stock of Miami Air International, Inc. (Miami Air), a privately held domestic and international charter airline headquartered in Miami, Florida, for approximately $6.1 million in cash in a stock purchase transaction. The Company's primary objective for engaging in the transaction was to develop a business relationship with Miami Air in order to obtain access to an additional source of reliable freight charter capacity. In the transaction, certain stockholders of Miami Air sold 82% of the aggregate number of outstanding shares of Miami Air common stock to private investors, including the Company, James R. Crane, the Company's Chairman and President, and Frank J. Hevrdejs, a member of the Company's board of directors. Mr. Crane purchased 19.2% of the outstanding common stock for approximately $4.7 million in cash and Mr. Hevrdejs purchased 6.0% of the outstanding common stock for approximately $1.5 million in cash. The Company's Miami Air investment will be accounted for under the equity method. In connection with the closing of the transaction, (i) Miami Air and the Company entered into an aircraft charter agreement whereby Miami Air agreed to convert certain of its passenger aircraft to cargo aircraft and to provide aircraft charter services to the Company for a three-year term, and (ii) the Company caused a $7 million standby letter of credit to be issued in favor of certain creditors of Miami Air to assist Miami Air in financing the conversion of its aircraft. Miami Air has agreed to pay the Company an annual fee equal to 3.0% of the face amount of the letter of credit and to reimburse the Company for any payments owed by the Company in respect of the letter of credit. Miami Air, each of the private investors and the continuing Miami Air stockholders also entered into a stockholders agreement under which (i) Mr. Crane and Mr. Hevrdejs are obligated to purchase up to approximately $1.7 million and $.5 million, respectively, worth of Miami Air's Series A preferred stock upon demand by the board of directors of Miami Air, (ii) each of the Company and Mr. Crane has the right to appoint one member of Miami Air's board of directors, and (iii) the other private investors in the stock purchase transaction, including Mr. Hevrdejs, collectively have the right to appoint one member of Miami Air's board of directors. The Series A preferred stock, if issued, will (i) not be convertible, (ii) have a 15.0% annual dividend rate and (iii) will be mandatorily redeemable in July 2006 or upon the prior occurrence of specified events. COMMISSIONER'S CHARGE As discussed in "Part II, Item 1. Legal Proceedings", the Company has received a Letter of Determination and Conciliation Proposal from the EEOC relating to the Commissioner's Charge described in that section. Following the issuance of the EEOC's Determination in May 2000, a lawsuit was filed in Philadelphia, Pennsylvania by three former EGL employees and one individual who had unsuccessfully applied for a position. The lawsuit alleges discrimination and adopts in their entirety the EEOC's conclusions. Although the four plaintiffs seek to represent a class of individuals, no class action has yet been approved by the Court. The lawsuit seeks unspecified damages. Any relief sought in these lawsuits would be in addition to and not limited by the relief sought by the EEOC. In the second quarter of fiscal 2000, the Company accrued a $1.1 million charge ($700,000 after-tax) for its estimated future litigation expenses to defend this matter. There can be no assurance as to what will be the amount of time it will take to resolve the Commissioner's Charge, the other lawsuits and related issues or the degree of any adverse effect of these matters on the Company and its financial condition and results of operations. RELATED PARTY TRANSACTIONS In May 1999, the Company began subleasing a portion of its warehouse space in Houston, Texas and London, England to a customer pursuant to a five-year sublease. The customer is partially owned by James R. Crane, the Company's Chairman and President. Rental income was approximately $545,000 during the first nine months of fiscal 2000 and $143,000 during fiscal 1999. In addition, the Company billed the customer approximately $1.2 million for freight forwarding services during the first nine months of fiscal 2000 and $356,000 during fiscal 1999. The Company believes the rental rates set forth in the sublease agreement approximate market rates. 18 19 EGL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) See also the discussion regarding the Miami Air acquisition above. NEW ACCOUNTING PRONOUNCEMENTS See Note 3 of the Notes to Condensed Consolidated Financial Statements for a description and management's discussion and analysis of new accounting pronouncements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of June 30, 2000, Company did not have any outstanding short-term or long-term debt instruments. Accordingly, the Company does not have market risk related to interest rates. However, the Company's lease payments on certain financed facilities are tied to market interest rates. At June 30, 2000, a 10% rise in the base rate for these financing arrangements would not have a material impact on operating income for fiscal 2000. The Company's earnings are affected by fluctuations in the value of the U.S. dollar as it relates to the earnings of its United Kingdom, Canada, Mexico, Hong Kong and Latin America operations, as a result of transactions in foreign markets. At June 30, 2000, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which these operations are denominated would not have a material impact on operating income for fiscal 2000. The Company has not purchased any futures contracts nor has it purchased or held any derivative financial instruments for trading purposes during the third quarter of fiscal 2000. In the second quarter of fiscal 1999, the Company entered into contracts for the purpose of hedging the costs of a portion of anticipated jet fuel purchases for chartered aircraft during the following twelve months. These contracts matured during the second quarter of fiscal 2000. In May 2000, the Company entered into two additional contracts to hedge the cost of jet fuel purchases during the following twelve months. Such contracts are nominally insignificant. 19 20 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time, the Company is a party to various legal claims and proceedings arising in the ordinary course of business. Except as described below, the Company is not currently a party to any material litigation and is not aware of any litigation threatened against it, which it believes would have a material adverse effect on its business. In December 1997, the U.S. Equal Employment Opportunity Commission (EEOC) issued a Commissioner's Charge against the Company and certain of its subsidiaries (the Commissioner's Charge) pursuant to Sections 706 and 707 of Title VII of the Civil Rights Act of 1964, as amended (Title VII). The Company continues to vigorously defend against allegations contained in the Commissioner's Charge. In the Commissioner's Charge, the EEOC charged the Company and certain of its subsidiaries with violations of Section 703 of Title VII, as amended, the Age Discrimination in Employment Act of 1967, and the Equal Pay Act of 1963, resulting from (i) engaging in unlawful discriminatory hiring, recruiting and promotion practices and maintaining a hostile work environment, based on one or more of race, national origin, age and gender, (ii) failures to investigate, (iii) failures to maintain proper records and (iv) failures to file accurate reports. The Commissioner's Charge states that the persons aggrieved include all African-Americans, Hispanics, Asians and females who are, have been or might be affected by the alleged unlawful practices. In May 2000, the Houston District Office of the EEOC provided to the Company its "Letter of Determination and Conciliation Proposal" with respect to the investigation pertaining to the Commissioner's Charge and made a final determination that there is a sufficient evidentiary basis to sustain all allegations in the Commissioner's Charge, except as to certain charges relating to Asian Americans. The Conciliation Proposal "invites [the Company] to actively engage in conciliation to resolve this matter," and proposes certain monetary and non-monetary remedies to "serve to facilitate confidential discussions which, hopefully, will eventuate in an appropriate settlement." That proposed relief includes, the following: (i) backpay and benefits for a class of minorities in the amount of $6,000,000 (this is a $950,000 reduction from the amount claimed under the preliminary assessment); (ii) compensation for certain incumbent minorities and women who were allegedly underpaid relative to white male counterparts in the amount of $5,000,000; (iii) compensation for certain minority and female employees who were allegedly not promoted at rates comparable to their respective employment rates in the amount of $2,950,000; and (iv) financial compensation for certain other employees as a result of alleged "disparate discipline" in the amount of $745,000, all exclusive of interest, compensatory and punitive damages and costs. The specific monetary relief as outlined above is $950,000 less than that amount proposed in its preliminary assessment. The Conciliation Proposal states, however, that "the EEOC agrees that this claim can be resolved for $20,000,000. The EEOC also seeks non-monetary relief, including hiring 244 minorities, certain upward adjustments to salaries, reinstatement of up to 15 employees and required promotion of 30 employees. The Houston District Office also seeks (a) reformation of the Company's policies and practices with respect to record keeping, recruiting, hiring and placement, reinstatement, promotion and transfer, and corporate governance, (b) revision of certain job descriptions, (c) institution of employee and supervisory training, and (d) the institution of specified procedures and steps with respect to such matters. 20 21 The Company believes that the Houston District Office's May 2000 Determination finding systemic discrimination is unsupported by any credible evidence and was rendered by the agency in part due to agency bias against the Company and its Chief Executive Officer because of the Company's vigorous defense of this matter. The Company recently accepted the EEOC's offer to conciliate this matter and has participated in three conciliation conferences with the EEOC thus far in an effort to resolve this matter. The conciliation process is continuing, although there can be no assurance as to its outcome or effect. If the Company is unable to effect what it considers to be a reasonable settlement of this matter during the conciliation process, the Company will continue its vigorous defense of this matter. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Certain individual employees have brought charges of this nature against the Company in the ordinary course of business. Additionally, following the issuance of the EEOC's Determination in May 2000, a lawsuit was filed on May 12, 2000 in the United States District Court for the Eastern District of Pennsylvania (Civil Action No. 00-CV-2461) by Augustine Dube, Noelle Davis, Kshanti Morris and Ruben Capaletti who are former EGL employees or had unsuccessfully applied for a position. The lawsuit alleges discrimination and adopts in their entirety the EEOC's conclusions. Although the four plaintiffs seek to represent a class of individuals, no class action has yet been approved by the Court. The lawsuit seeks unspecified damages that are not limited by the relief sought by the EEOC. Because the lawsuit is essentially based upon the contested EEOC allegations described above, the Company fully intends to defend itself unless a reasonable settlement can be reached with these plaintiffs in connection with the conciliation efforts currently underway with the EEOC. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS As described under "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview," the Company issued 8,802 shares of Company common stock as additional partial consideration for acquisitions completed in fiscal 1998 and 1997. Such transaction is exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof as a transaction not involving any public offering. ITEM 3. DEFAULTS UPON SENIOR SECURITIES, NONE ITEM 4. SUBMISSION OF MATTERS OF A VOTE OF SECURITY-HOLDERS, NONE ITEM 5. OTHER INFORMATION FORWARDING LOOKING STATEMENTS The statements contained in all parts of this document, including, but not limited to, those relating to the timing, effect and benefits of the Circle merger, accounting treatment of the merger, the Company's plans for international air freight forwarding services; the future expansion and results of the Company's terminal network; plans for local delivery services; expected growth; future marketing; construction of new facilities; the results, timing, outcome or effect of matters relating to the Commissioner's Charge or other litigation; future operating expenses; any seasonality of the Company's business; future margins; future dividend plans; use of Revolver proceeds; fluctuations in currency valuations; fluctuations in interest rates; future acquisitions and any effects, benefits, results, terms or other aspects of such acquisitions; fluctuations in the price of jet fuel; ability to continue growth and implement growth and business strategy; the ability of expected sources of liquidity to support working capital and capital expenditure requirements; the tax benefit of any stock option exercises; and any other statements regarding future growth, cash needs, terminals, operations, business plans and financial results and any other statements which are not historical facts are forward-looking statements. When used in this document, the words "anticipate, " "estimate," "expect, " "may," "plans," "project," and similar expressions are intended to be among the statements that identify forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to the proposed Circle merger; failure of the parties to satisfy closing conditions; the Company's dependence on its ability to attract and retain skilled managers and other personnel; the intense competition within the freight industry; the uncertainty of the Company's ability to manage and continue its growth and implement its business strategy; the Company's dependence on the availability of cargo space to serve its customers; the potential for liabilities if certain independent owner/operators that serve the Company are determined to be employees; effects of regulation; results of litigation (including the results and outcome of the Commissioner's Charge); the Company's vulnerability to general economic conditions and dependence on its principal customers; the control by the Company's principal shareholder; the Company's potential exposure to claims involving its local pickup and delivery operations; risk of international operations; risks relating to acquisitions; the Company's future financial and operating results, cash needs and demand for its services; and the Company's ability to maintain and comply with permits and licenses; as well as other factors 21 22 detailed in the Company's filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. The Company undertakes no responsibility to update for changes related to these or any other factors that may occur subsequent to this filing. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K: (A) EXHIBITS. *2(i) Agreement and Plan of Merger, dated as of July 2, 2000, among EGL, Inc., EGL Delaware I, Inc. and Circle International Group, Inc. (Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 5, 2000). *3(i) Second Amended and Restated Articles of Incorporation of the Company, as amended. (Exhibit 3(i) to the Company's Form 10-Q for the fiscal quarter ended March 31, 2000). 3(ii) Amended and Restated Bylaws of the Company, as amended. 10(i) First Amendment to Credit Agreement dated May 31, 2000 among the Company, the financial institutions named therein and Bank of America, N.A. 27 Financial Data Schedule. - ---------- * Incorporated by reference as indicated. (B) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter ended June 30, 2000. 22 23 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EGL, INC. ------------------------------ (Registrant) Date: August 8, 2000 BY: /s/ James R. Crane ----------------- ------------------------------- James R. Crane President Date: August 8, 2000 BY: /s/ Elijio V. Serrano ---------------- ------------------------------- Elijio V. Serrano Chief Financial Officer 23 24 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- *2(i) Agreement and Plan of Merger, dated as of July 2, 2000, among EGL, Inc., EGL Delaware I, Inc. and Circle International Group, Inc. (Exhibit 2.1 to the Company's Current Report on Form 8-K filed on July 5, 2000). *3(i) Second Amended and Restated Articles of Incorporation of the Company, as amended. (Exhibit 3(i) to the Company's Form 10-Q for the fiscal quarter ended March 31, 2000). 3(ii) Amended and Restated Bylaws of the Company, as amended. 10(i) First Amendment to Credit Agreement dated May 31, 2000 among the Company, the financial institutions named therein and Bank of America, N.A. 27 Financial Data Schedule
- ----------- *Incorporated by reference as indicated. EX-3.II 2 ex3-ii.txt AMENDED BYLAWS 1 EXHIBIT 3(ii) AMENDED AND RESTATED BYLAWS of EGL, Inc. The following Amended and Restated Bylaws, adopted by the Board of Directors of EGL, Inc. (the "Corporation") as of September 29, 1995, shall govern the business of the Corporation, except as the same may be afterwards amended: ARTICLE I CAPITAL STOCK Section 1. Certificates Representing Shares. The Corporation shall deliver certificates representing all shares to which shareholders are entitled. Such certificates shall be signed by the Chairman of the Board, the President or a Vice President and either the Secretary or any Assistant Secretary, and shall bear the seal of the Corporation or a facsimile thereof. The signatures of such officers upon a certificate may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issuance. Section 2. Shareholders of Record. The Board of Directors of the Corporation may appoint one or more transfer agents or registrars of any class of stock of the Corporation. Unless and until such appointment is made, the Secretary of the Corporation shall maintain among other records a stock transfer book, the stubs in which shall set forth the names and addresses of the holders of all issued shares of the Corporation, the number of shares held by each, the certificate numbers representing such shares, the date of issue of the certificates representing such shares, and whether or not such shares originate from original issues or from transfer. The names and addresses of shareholders as they appear on the stock transfer book shall be the official list of shareholders of record of the Corporation for all purposes. The Corporation shall be entitled to treat the holder of record of any shares of the Corporation as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such shares or any rights deriving from such shares, on the part of any other person, including (but without limitation) a purchaser, assignee or transferee, unless and until such other person becomes the holder of record of such shares, whether or not the Corporation shall have either actual or constructive notice of the interest of such other person. Section 3. Transfer of Shares. The shares of the Corporation shall be transferable on the stock transfer books of the Corporation by the holder of record thereof, or his duly authorized attorney or legal representative, upon endorsement and surrender for cancellation of the certificates for such shares. All certificates surrendered for transfer shall be cancelled, and no new certificate -1- 2 shall be issued until a former certificate or certificates for a like number of shares shall have been surrendered and cancelled, except that in the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such conditions for the protection of the Corporation and any transfer agent or registrar as the Board of Directors or the Secretary or any other officer may prescribe. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Place of Meetings. All meetings of shareholders shall be held at the registered office of the Corporation, or at such other place within or without the State of Texas as may be designated by the Board of Directors or officer calling the meeting. Section 2. Annual Meeting. The annual meeting of the shareholders of the Corporation shall be held on such date, within 180 days of the end of each prior fiscal year, as shall be designated by the Board of Directors and stated in the notice of the meeting, and on any subsequent day or days to which such meeting may be adjourned, for the purposes of electing directors and of transacting such other business as may properly come before the meeting. The Board of Directors shall designate the place and time for the holding of such meeting. Failure to designate a time for the annual meeting or to hold the annual meeting at the designated time shall not work a dissolution of the Corporation. Section 3. Special Meetings. Special meetings of the shareholders may be called by the Chairman of the Board, the President or the Board of Directors. Special meetings of shareholders shall be called by the Secretary upon the written request of the holders of shares entitled to cast not less than 50% of all the votes entitled to be cast at such meeting. Such request shall state the purpose or purposes of such meeting and the matters proposed to be acted on thereat. Upon receipt of such request and any notice required by Sections 8 and/or 9 of Article II, the Board of Directors shall set a date for the special meeting, set a record date in accordance with Article II, Section 5, and shall cause an appropriate officer of the Corporation to give the notice required under Article II, Section 4. Section 4. Notice of Meeting. Written notice of all meetings stating the place, day and hour of the meeting and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the meeting to the shareholders of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Any notice required to be given to any shareholder under any provision of the Texas Business Corporation Act or the Articles of Incorporation or these Bylaws need not be given to the shareholder if (1) notice of two consecutive annual meetings and all notices of meetings held during the period between those annual meetings, if any, or (2) all (but in no event less than two) payments (if sent by first class mail) of distributions or interest on securities during a 12-month period have been mailed to that person, addressed at his address as shown on the records of the Corporation, and -2- 3 have been returned undeliverable. Any action or meeting taken or held without notice to such a person shall have the same force and effect as if the notice had been duly given. If such a person delivers to the Corporation a written notice setting forth his then current address, the requirement that notice be given to that person shall be reinstated. Section 5. Fixing of Record Date. The Board of Directors shall fix and shall have the exclusive authority to fix, in advance, a date as the record date for the purpose of determining shareholders entitled to notice of or to vote at any annual or special meeting of shareholders or any adjournment thereof, or shareholders entitled to receive a distribution by the Corporation (other than a distribution involving a purchase or redemption by the Corporation of any of its own shares) or a share dividend, or in order to make a determination of shareholders for any other proper purpose. Such date, in any case, shall be not more than sixty days, and in the case of a meeting of shareholders not less than ten days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. Section 6. Voting List. The officer or agent having charge of the stock transfer books of the Corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Failure to comply with any requirements of this Section 6 shall not affect the validity of any action taken at such meeting. Section 7. Voting. Except to the extent otherwise provided in the Articles of Incorporation, each holder of shares of the Corporation entitled to vote shall be entitled to one vote for each such share, either in person or by proxy executed in writing by him or by his duly authorized attorney-in-fact. No proxy shall be valid after 11 months from the date of its execution unless otherwise provided in the proxy. Each proxy shall be revocable unless the proxy form conspicuously states that the proxy is irrevocable and the proxy is coupled with an interest. Section 8. Nomination of Directors. Subject to the rights of holders of any class or series of stock having a preference over Common Stock of the Corporation as to dividends or upon liquidation to elect directors under specified circumstances, nominations of persons for election to the Board of Directors may be made only (a) by the Board of Directors or a committee appointed by the Board of Directors or (b) by any shareholder who is a shareholder of record at the time of giving of the shareholder's notice provided for in this Section 8, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 8. A shareholder wishing to nominate one or more individuals to stand for election in the election of members of the Board of Directors at an annual or special meeting must provide written notice thereof to the Board of Directors not less than 80 days in advance of such meeting; provided, however, that in the event that the date of the meeting was not publicly announced by the Corporation by a mailing to -3- 4 shareholders, a press release or a filing with the Securities and Exchange Commission pursuant to Section 13(a) or 14(a) of the Securities and Exchange Act of 1934 more than 90 days prior to the meeting, such notice, to be timely, must be delivered to the Board of Directors not later than the close of business on the tenth day following the day on which the date of the meeting was publicly announced. A shareholder's notice shall set forth (i) the name and address, as they appear on the Corporation's books, of the shareholder making the nomination or nominations; (ii) such information regarding the nominee(s) proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had the nominee(s) been nominated or intended to be nominated by the Board of Directors; (iii) a representation of the shareholder as to the class and number of shares of capital stock of the Corporation that are beneficially owned by such shareholder, and the shareholder's intent to appear in person or by proxy at the meeting to propose such nomination; and (iv) the written consent of the nominee(s) to serve as a member of the Board of Directors if so elected. No shareholder nomination shall be effective unless made in accordance with the procedures set forth in this Section 8. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a shareholder nomination was not made in accordance with the provisions of the Bylaws, and if the chairman should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 9. Proposals of Shareholders. At any meeting of shareholders, there shall be conducted only such business as shall have been brought before the meeting (a) by or at the direction of the Board of Directors or (b) by any shareholder of the Corporation who is a shareholder of record at the time of giving of the shareholder's notice provided for in this Section 9, who shall be entitled to vote at such meeting and who complies with the notice procedure set forth in this Section 9. For business to be properly brought before a meeting of shareholders by a shareholder, the shareholder shall have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 80 days in advance of such meeting; provided, however, that in the event that the date of the meeting was not publicly announced by the Corporation by a mailing to shareholders, a press release or a filing with the Securities and Exchange Commission pursuant to Section 13(a) or 14(a) of the Securities and Exchange Act of 1934 more than 90 days prior to the meeting, such notice, to be timely, must be delivered to the Board of Directors not later than the close of business on the tenth day following the day on which the date of the meeting was first so publicly announced. A shareholder's notice shall set forth as to each matter proposed to be brought before the meeting: (1) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and, in the event that such business includes a proposal regarding the amendment of either the Articles of Incorporation or Bylaws of the Corporation, the language of the proposed amendment; (2) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business; (3) a representation of the shareholder as to the class and number of shares of capital stock of the Corporation that are beneficially owned by such shareholder, and the shareholder's intent to appear in person or by proxy at the meeting to propose such business; and (4) any material interest of such shareholder in such proposal or business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a shareholders meeting unless brought before the meeting in accordance with the procedure set forth in this Section 9. The chairman of the meeting shall, if the -4- 5 facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of the Bylaws, and if the chairman should so determine, the chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 10. Quorum and Voting of Shareholders. The holders of a majority of shares entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum as to that matter at a meeting of shareholders, but, if a quorum is not present or represented, a majority in interest of those present or represented may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. Directors shall be elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting at which a quorum is present and represented. With respect to any matter, other than the election of directors and other than a matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by law, the Articles of Incorporation or these Bylaws, the vote of the majority of the shares entitled to vote on, and voted for or against, that matter at a meeting at which a quorum is present or represented shall be the act of the shareholders' meeting. In the case of a matter submitted for a vote of the shareholders as to which a shareholder approval requirement is applicable under the shareholder approval policy of any stock exchange or quotation system on which the capital stock of the Company is traded or quoted, the requirements of Rule 16b-3 under the Exchange Act, or any provision of the Internal Revenue Code, in each case for which no higher voting requirement is specified by law, the Articles of Incorporation or these Bylaws, the vote required for approval shall be the requisite vote specified in such stockholder approval policy, Rule 16b-3 or Internal Revenue Code provision, as the case may be (or the highest such requirement if more than one is applicable). Section 11. Officers. The Chairman of the Board, if there is one, or otherwise the President, shall, if present, preside at and be the chairman of, and the Secretary shall keep the records of, each meeting of shareholders. In the absence of either such officer, his duties shall be performed by another officer of the Corporation appointed by the Board of Directors or appointed at the meeting. Section 12. Conduct of Meetings. The chairman of a meeting of shareholders shall have the power to appoint inspectors of election and to establish and interpret rules for the conduct of the meeting. ARTICLE III DIRECTORS Section 1. Number and Tenure. The business and affairs of the Corporation shall be managed by a Board of Directors initially consisting of six directors. The number of directors may be increased or decreased from time to time by resolution of the Board of Directors or by due election of that number of directors by the shareholders, but no decrease by the Board of Directors -5- 6 shall have the effect of shortening the term of any incumbent director. Unless sooner removed in accordance with these Bylaws, members of the Board of Directors shall hold office until the next annual meeting of shareholders and until their successors shall have been elected and qualified. Section 2. Qualifications. Directors need not be shareholders of the Corporation. Section 3. Vacancies. Any vacancy occurring in the Board of Directors or any directorship to be filled by reason of an increase in the number of directors may be filled by election at an annual or special meeting of shareholders called for that purpose or by the affirmative vote of a majority of the remaining directors, though less than a quorum of the entire Board; provided, however, that any directorship to be filled by the Board of Directors by reason of an increase in the number of directors may be filled for a term of office continuing only until the next election of one or more directors by the shareholders; and provided, further, that the Board of Directors may not fill more than two directorships to be filled by reason of an increase in the number of directors during the period between any two successive annual meetings of shareholders. Subject to the foregoing, a director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Section 4. Place of Meeting. Meetings of the Board of Directors may be held either within or without the State of Texas, at whatever place is specified by the officer calling the meeting. In the absence of specific designation, the meetings shall be held at the principal office of the Corporation. Section 5. Regular Meetings. The Board of Directors shall meet each year immediately following the annual meeting of the shareholders, at the place of such meeting, for the transaction of such business as may properly be brought before it. No notice of annual meetings need be given to either existing or newly elected members of the Board of Directors. Regular meetings may be held at such other times as shall be designated by the Board of Directors. Section 6. Special Meetings. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman of the Board, the President or any two directors of the Corporation. Notice of special meetings shall be given to each director, and may be given by any of the following methods: (a) by mail or telegram sent to the last known business or residence address of such director at least four days before the meeting, (b) by facsimile to the last known business or residence facsimile number of such director transmitted at least two days before the meeting or (c) orally at least one day before the meeting. For purposes of the foregoing sentence, notice shall be deemed given (i) by mail, when deposited in the U.S. mail, postage prepaid, or by telegram, when the telegram is delivered to the telegraph company for transmittal, (ii) by facsimile, when transmittal is confirmed by the sending facsimile machine and (iii) orally, when communicated in person or by telephone to the director or to a person at the business or residence of the director who may reasonably be expected to communicate it to the director. In calculating the number of days' notice received by a director, the date the notice is given by any of the foregoing methods shall be counted, but the date of the meeting to which the notice relates shall not be counted. Notice of the time, place and purpose of a special meeting may be waived in writing before or after such meeting, and shall be equivalent to the giving of notice. Attendance of a director at such meeting shall also constitute a waiver of notice thereof, except where the director attends for the announced purpose of objecting -6- 7 to the transaction of any business on the ground that the meeting is not lawfully called or convened. Except as otherwise herein provided, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Section 7. Quorum. One-half of the number of directors fixed in the manner provided in these Bylaws as from time to time amended shall constitute a quorum for the transaction of business, but a smaller number may adjourn from time to time until they can secure the attendance of a quorum. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors. Any regular or special directors' meeting may be adjourned from time to time by those present, whether a quorum is present or not. Section 8. Committees. The Board of Directors, by resolution or resolutions passed by a majority of the whole Board of Directors, may designate one or more members of the Board of Directors to constitute an Executive Committee and one or more other committees, which shall in each case consist of such number of directors as the Board of Directors may determine. The Executive Committee shall have and may exercise, subject to such restrictions as may be contained in the Articles of Incorporation or that may be imposed by law, all of the authority of the Board of Directors, including without limitation the power and authority to declare a dividend and to authorize the issuance of shares of the Corporation. Each other committee shall have and may exercise such powers of the Board in the management of the business and affairs of the Corporation, including without limitation the power and authority to declare a dividend and to authorize the issuance of shares of the Corporation, as the Board of Directors may determine by resolution and specify in the respective resolutions appointing them, subject to such restrictions as may be contained in the Articles of Incorporation or that may be imposed by law. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. A majority of all the members of any such committee may fix its rules of procedure, determine its action and fix the time and place, whether within or without the State of Texas, of its meetings and specify what notice thereof, if any, shall be given, unless the Board of Directors shall provide otherwise by resolution. The Board of Directors shall have power to change the membership of any such committee at any time, to fill vacancies therein and to disband any such committee, either with or without cause, at any time. Each committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Section 9. Compensation. Directors may be paid their expenses, if any, of attendance at each regular or special meeting of the Board of the Directors or any committee thereof, and a salary as director as may be fixed by the Board of Directors from time to time; provided, that nothing contained herein shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 10. Removal. At any special meeting of shareholders called expressly for the purposes of removal (for which, if called by shareholders, notice has been given in accordance with Article II, Section 9), any director or the entire Board of Directors may be removed, either for or without cause, by the affirmative vote of a majority of the outstanding shares entitled to vote at elections of directors. Whenever the holders of any class or series of shares are entitled to elect one -7- 8 or more directors by the provisions of the Articles of Incorporation, only the holders of shares of that class or series shall be entitled to vote for or against the removal of any director elected by the holders of shares of that class or series. Section 11. Action Without a Meeting. Any action required or permitted to be taken at a meeting of directors or any committee may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors or members of the committee, as the case may be, and such consent shall have the same force and effect as a unanimous vote at a meeting. ARTICLE IV OFFICERS Section 1. Officers. The officers of the Corporation shall be elected by the Board of Directors, and shall consist of a President and a Secretary. The Board of Directors, in its discretion, may also elect a Chairman of the Board (who must be a director), a Chief Financial Officer, a Chief Operating Officer, a Chief Marketing Officer, one or more Vice Presidents, a Treasurer and such other officers as the Board of Directors may from time to time designate, all of whom shall hold office until their successors are elected and qualified. Any two or more offices may be held by the same person. The Board of Directors may designate which of such officers are to be treated as executive officers for purposes of these Bylaws or for any other purpose. The salaries of the officers shall be determined by the Board of Directors, and may be altered by the Board of Directors from time to time except as otherwise provided by contract. All officers shall be entitled to be paid or reimbursed for all costs and expenditures incurred in the Corporation's business. Section 2. Vacancies. Whenever any vacancies shall occur in any office by death, resignation, increase in the number of officers of the Corporation, or otherwise, the same shall be filled by the Board of Directors, and the officer so elected shall hold office until his successor is chosen and qualified. Section 3. Removal. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4. Chairman of the Board. The Chairman of the Board, if there is one, shall, if present, preside at all meetings of the shareholders and of the Board of Directors. If so designated by the Board of Directors, the Chairman of the Board shall be the chief executive officer of the Corporation. The Chairman of the Board may sign, with the Secretary or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of -8- 9 Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed and executed; and in general shall perform all duties incident to the office of Chairman of the Board and such other duties as may be prescribed by the Board of Directors from time to time. Section 5. President. The President shall, subject to the control of the Board of Directors and the Chairman of the Board, if there is one, in general supervise and control all of the business and affairs of the Corporation. In the absence of the Chairman of the Board, or if there is none, the President shall preside at all meetings of the shareholders and (if the President is a director) of the Board of Directors. If so designated by the Board of Directors, the President shall be the chief executive officer of the Corporation. The President may sign, with the Secretary or any other proper officer of the Corporation thereunto authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed and executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 6. Chief Operating Officer. The Chief Operating Officer shall, subject to the control of the Board of Directors, the President and the Chairman of the Board, if there is one, in general assist the chief executive officer, and shall perform all duties relating to the general management and operation of the Corporation incident to the office of Chief Operating Officer and such other duties as may be prescribed by the Board of Directors from time to time. Section 7. Chief Financial Officer. The Chief Financial Officer shall, subject to the control of the Board of Directors, the President and the Chairman of the Board, if there is one, in general assist the chief executive officer, and shall perform all duties relating to the general management and operation (with specific attention to financial matters) of the Corporation incident to the office of Chief Financial Officer and such other duties as may be prescribed by the Board of Directors from time to time. Section 8. Chief Marketing Officer. The Chief Marketing Officer shall, subject to the control of the Board of Directors, the President and the Chairman of the Board, if there is one, in general assist the chief executive officer, and shall perform all duties relating to the management and operation (with specific attention to marketing matters) of the Corporation incident to the office of Chief Marketing Officer and such other duties as may be prescribed by the Board of Directors from time to time. Section 9. Vice President. Any Vice President may perform the usual and customary duties that pertain to such office (but no unusual or extraordinary duties or powers conferred by the Board of Directors upon the President) and, under the direction and subject to the control of the Board of Directors, such other duties as may be assigned to a Vice President. -9- 10 Section 10. Secretary. It shall be the duty of the Secretary to attend all meetings of the shareholders and Board of Directors and record correctly the proceedings had at such meetings in a book suitable for that purpose. It shall also be the duty of the Secretary to attest with his signature and the seal of the Corporation all stock certificates issued by the Corporation and to keep a stock ledger in which shall be correctly recorded all transactions pertaining to the capital stock of the Corporation. The Secretary shall also attest with his signature and the seal of the Corporation all deeds, conveyances or other instruments requiring the seal of the Corporation. The person holding the office of Secretary shall also perform, under the direction and subject to the control of the Board of Directors, such other duties as may be assigned to the Secretary. The duties of the Secretary may also be performed by any Assistant Secretary. Section 11. Treasurer. The Treasurer shall keep such moneys of the Corporation as may be entrusted to his keeping and account for the same. The Treasurer shall be prepared at all times to give information as to the condition of the Corporation and shall make a detailed annual report of the entire business and financial condition of the Corporation. The person holding the office of Treasurer shall also perform, under the direction and subject to the control of the Board of Directors, such other duties as may be assigned to the Treasurer. The duties of the Treasurer may also be performed by any Assistant Treasurer. Section 12. Other Officers. Assistant Secretaries, if any, and Assistant Treasurers, if any, shall have the duties set forth in Sections 10 and 11, respectively, of this Article IV. Any officer whose duties are not set forth in Sections 4 through 11 of this Article IV shall have such duties as the Board of Directors or the President may prescribe. Section 13. Delegation of Authority. In the case of any absence of any officer of the Corporation or for any other reason that the Board may deem sufficient, the Board of Directors may delegate some or all of the powers or duties of such officer to any other officer or to any director, employee, shareholder or agent for whatever period of time seems desirable. ARTICLE V INDEMNITY Section 1. Indemnification of Directors and Executive Officers. Each person who at any time shall serve, or shall have served, as a director or executive officer of the Corporation, or any person who, while a director or executive officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise (each such person referred to herein as an "Indemnitee"), shall be entitled to indemnification as and to the fullest extent permitted by Article 2.02-1 of the Texas Business Corporation Act or any successor statutory provision, as from time to time amended (the "T.B.C.A."). The foregoing right of indemnification shall not be deemed exclusive of any other rights to which those to be indemnified may be entitled as a matter of law or under any agreement, other provision of these Bylaws, vote of shareholders or directors, or other arrangement. The Corporation may enter into indemnification agreements with its officers -10- 11 and directors that contractually provide to them the benefits of the provisions of this Article V and include related provisions meant to facilitate the Indemnitees' receipt of such benefits and such other indemnification protections as may be deemed appropriate. Section 2. Advancement or Reimbursement of Expenses. The rights of Indemnitee provided under the preceding section shall include, but not be limited to, the right to be indemnified and to have expenses advanced in all proceedings to the fullest extent permitted by Article 2.02-1 of the T.B.C.A. In the event that an Indemnitee is not wholly successful, on the merits or otherwise, in a proceeding but is successful, on the merits or otherwise, as to any claim in such proceeding, the Corporation shall indemnify Indemnitee against all expenses actually and reasonably incurred by him or on his behalf relating to each claim. The termination of a claim in a proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim. In addition, to the extent an Indemnitee is, by reason of his corporate status, a witness or otherwise participates in any proceeding at a time when he is not named a defendant or respondent in the proceeding, he shall be indemnified against all expenses actually and reasonably incurred by him or on his behalf in connection therewith. The Corporation shall pay all reasonable expenses incurred by or on behalf of Indemnitee in connection with any proceeding or claim, whether brought by the Corporation or otherwise, in advance of any determination respecting entitlement to indemnification pursuant to this Article V within ten days after the receipt by the Corporation of a written request from Indemnitee reasonably evidencing such expenses and requesting such payment or payments from time to time, whether prior to or after final disposition of such proceeding or claim; provided that the Indemnitee undertakes and agrees in writing that he will reimburse and repay the Corporation for any expenses so advanced to the extent that it shall ultimately be determined by a court, in a final adjudication from which there is no further right of appeal, that Indemnitee is not entitled to be indemnified against such expenses. Section 3. Determination of Request. Upon written request to the Corporation by an Indemnitee for indemnification pursuant to these Bylaws, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in accordance with Article 2.02-1 of the T.B.C.A. provided, however, that notwithstanding the foregoing, if a Change in Control shall have occurred, such determination shall be made by Independent Counsel selected by the Indemnitee, unless the Indemnitee shall request that such determination be made in accordance with Article 2.02-1F (1) or (2). The Corporation shall pay any and all reasonable fees and expenses of Independent Counsel incurred in connection with any such determination. If a Change in Control shall have occurred, the Indemnitee shall be presumed (except as otherwise expressly provided in this Article) to be entitled to indemnification under this Article upon submission of a request to the Corporation for indemnification, and thereafter the Corporation shall have the burden of proof in overcoming that presumption in reaching a determination contrary to that presumption. The presumption shall be used by Independent Counsel, or such other person or persons determining entitlement to indemnification, as a basis for a determination of entitlement to indemnification unless the Corporation provides information sufficient to overcome such presumption by clear and convincing evidence or the investigation, review and analysis of Independent Counsel or such other person or persons convinces him or them by clear and convincing evidence that the presumption should not apply. -11- 12 Section 4. Effect of Certain Proceedings. The termination of any proceeding or of any claim in a proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Article) by itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did conduct himself in good faith and in a manner that he reasonably believed in the case of conduct in his official capacity, that was in the best interests of the Corporation or, in all other cases, that was not opposed to the best interests of the Corporation or, with respect to any criminal proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful and Indemnitee shall be deemed to have been found liable in respect of any claim only after he shall have been so adjudged by a court in competent jurisdiction after exhaustion of all appeals therefrom. Section 5. Expenses of Enforcement of Article. In the event that Indemnitee, pursuant to this Article V, seeks a judicial adjudication to enforce his rights under, or to recover damages for breach of, rights created under or pursuant to this Article, Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any and all expenses actually and reasonably incurred by him in such judicial adjudication but only if he prevails therein. If it shall be determined in said judicial adjudication that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication shall be reasonably prorated in good faith by counsel for Indemnitee. Notwithstanding the foregoing, if a Change in Control shall have occurred, Indemnitee shall be entitled to indemnification under this Section regardless of whether Indemnitee ultimately prevails in such judicial adjudication. Section 6. Indemnification of other Officers, Employees and Agents. The Corporation, by adoption of a resolution of the Board of Directors, may indemnify and advance expenses to an officer who is not an executive officer, an employee or agent of the Corporation to the same extent and subject to the same conditions (or to such lesser extent and/or with such other conditions as the Board of Directors may determine) under which it may indemnify and advance expenses to an Indemnitee under this Article V; and the Corporation may indemnify and advance expenses to persons who are not or were not directors, officers, employees or agents of the Corporation, but who are or were serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in such a capacity or arising out of his status as such a person to the same extent and subject to the same conditions (or to such lesser extent and/or with such other conditions as the Board of Directors may determine) that it may indemnify and advance expenses to Indemnitees under this Article V. Section 7. Insurance and Self-Insurance Arrangements. The Corporation may procure or maintain insurance or other similar arrangements, at its expense, to protect itself and any Indemnitee against any expense, liability or loss asserted against or incurred by such person, incurred by him in such a capacity or arising out of his status as such a person, whether or not the Corporation would have the power to indemnify such person against such expense or liability. In considering the cost and availability of such insurance, the Corporation, (through the exercise of the business judgment of its directors and officers), may from time to time, purchase insurance which provides -12- 13 for any and all of (i) deductibles, (ii) limits on payments required to be made by the insurer, or (iii) that is available to the Corporation but which the officers or directors of the Corporation determine is inadvisable for the Corporation to purchase given the cost involved. The purchase of insurance with deductibles, limits on payments and coverage exclusions will be deemed to be in the best interest of the Corporation but may not be in the best interest of certain of the persons covered thereby. As to the Corporation, purchasing insurance with deductibles, limits on payments, and coverage exclusions is similar to the Corporation's practice of self-insurance in other areas. In order to protect the Indemnitees who would otherwise be more fully or entirely covered under such policies, the Corporation shall indemnify and hold each of them harmless as provided in Section 1 of this Article V, without regard to whether the Corporation would otherwise be entitled to indemnify such officer or director under the other provisions of this Article V, or under any law, agreement, vote of shareholders or directors or other arrangement, to the extent (i) of such deductibles, (ii) of amounts exceeding payments required to be made by an insurer or (iii) that policies of officer's and director's liability insurance that are available, were available or which become available to the Corporation or which are generally available to companies comparable to the Corporation but which the officers or directors of the Corporation determine is inadvisable for the Corporation to purchase, given the cost involved. Notwithstanding the foregoing provision of this Section 7, no Indemnitee shall be entitled to indemnification for the results of such person's conduct that is intentionally adverse to the interests of the Corporation. This Section 7 is authorized by Section 2.02-1(R) of the Texas Business Corporation Act as in effect on September 27, 1995, and further is intended to establish an arrangement of self-insurance pursuant to that section. Section 8. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby; and, to the fullest extent possible, the provisions of this Article shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 9. Definitions. The following terms are used herein as follows: "Change in Control" means a change in control of the Corporation occurring after the date of adoption of these Bylaws of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Corporation is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if at any time after the date of adoption of these Bylaws (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 40% or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Corporation is a party to a merger, consolidation, share exchange, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office -13- 14 immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter or (iii) during any 15-month period, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. "corporate status" means the status of a person who is or was a director, officer, partner, employee, agent or fiduciary of the Corporation or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation. "Disinterested Director" means a director of the Corporation who is not a named defendant or respondent to the proceeding or subject to a claim in respect of which indemnification is sought by Indemnitee. "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither contemporaneously is, nor in the five years theretofore has been, retained to represent: (a) the Corporation or Indemnitee in any matter material to either such party, (b) any other party to the proceeding giving rise to a claim for indemnification hereunder or (c) the beneficial owner, directly or indirectly, of securities of the Corporation representing 40% or more of the combined voting power of the Corporation's then outstanding voting securities. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee's rights to indemnification under these Bylaws. ARTICLE VI MISCELLANEOUS PROVISIONS Section 1. Amendments. These Bylaws may be amended or repealed, or new Bylaws adopted, (a) by the Board of Directors, unless the shareholders in amending, repealing or adopting a particular Bylaw expressly provide that the Board of Directors may not amend or repeal that bylaw or unless the Articles of Incorporation or the Texas Business Corporation Act reserves the power to take such action to the shareholders in whole or part or (b) by the shareholders, unless the Articles of Incorporation or a bylaw adopted by the shareholders provides otherwise as to all or some portion of the Bylaws; provided that any amendment or repeal of the Bylaws by the shareholders may only be effected at a shareholders meeting for which notice has been given pursuant to Article II, Section 9 of these Bylaws. Section 2. Waiver. Whenever any notice is required to be given to any shareholder, director or committee member under the provisions of any law, the Articles of Incorporation or these -14- 15 Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. Section 3. Conference Telephone Meetings. Meetings of shareholders, directors, or any committee thereof, may be held by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Section 4. Offices. The principal office of the Corporation shall be located in Houston, Texas, unless and until changed by resolution of the Board of Directors. The Corporation may also have offices at such other places as the Board of Directors may from time to time designate, or as the business of the Corporation may require. Section 5. Resignations. Any director or officer may resign at any time. Such resignations shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. Section 6. Seal. The seal of the Corporation shall be circular in form with a five pointed star in the center and the name of the Corporation around the margin thereof, or in such other form as may be fixed by resolution of the Board of Directors. Section 7. Fiscal Year. The fiscal year of the Corporation shall be the year beginning on October 1, or such other fiscal year as shall be fixed by the resolution of the Board of Directors. Attested to by the Secretary of EGL, Inc. as adopted by the Board of Directors of EGL, Inc. on September 29, 1995 and as amended on November 17, 1995 and July 26, 2000. /s/ Michael D. Slaughter ------------------------- Michael D. Slaughter Secretary -15- EX-10.I 3 ex10-i.txt 1ST AMENDMENT TO CREDIT AGREEMENT - DATED 05/31/00 1 FIRST AMENDMENT TO CREDIT AGREEMENT This First Amendment to Credit Agreement (this "FIRST AMENDMENT") is made and entered into as of the 31st day of May, 2000, by and among EGL, INC., a Texas corporation ("BORROWER"), formerly known as Eagle USA Airfreight, Inc., and BANK OF AMERICA, N.A., as a Bank and Administrative Agent for the Banks. WITNESSETH WHEREAS, pursuant to that certain Credit Agreement (the "CREDIT AGREEMENT") dated as of January 13, 2000, the Banks agreed to make certain loans to Borrower upon the terms and conditions therein contained; and WHEREAS, the parties hereto desire to modify and amend certain terms and provisions of the Credit Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Administrative Agent, and each Bank agree as follows: 1. Amendments to Credit Agreement. The Credit Agreement is modified as follows: 1.1 Section 5.10 of the Credit Agreement is deleted in its entirety. 2. Master Amendment. All references in the Credit Agreement and the other Credit Documents to Eagle USA Air Freight, Inc. are amended and replaced with a reference to EGL, Inc. 3. Waiver. Borrower has failed to comply with Section 5.10 (Distributions) of the Credit Agreement for the period ending on the date of this First Amendment. Administrative Agent, on behalf of each Bank, hereby waives compliance by Borrower with the foregoing described covenant for the applicable period. The waiver contained in this First Amendment is specifically limited to a waiver of the foregoing described covenant for the period set forth in the preceding sentence. This waiver shall not constitute a waiver of any violation of any other provision of the Credit Agreement, or any Event of Default thereunder, whether now existing or occurring after the date of this First Amendment. Bank hereby specifically reserves all of the rights and remedies it may have under the Credit Agreement or otherwise as the result of any such violation or Event of Default. This First Amendment constitutes the only evidence of Bank's waiver of compliance by Borrower with the above described covenant. 2 4. Note Status. Nothing herein shall in any manner diminish, impair or extinguish the Revolving Loan Notes or the Swing Loan Note. Borrower agrees that the indebtedness evidenced by the Revolving Loan Notes and the Swing Loan Note is just, due, owing and unpaid, and is subject to no offsets, deductions, credits, charges or claims of whatsoever kind or character, and further agrees that all offsets, credits, charges and claims of whatsoever kind or character are fully settled and satisfied. This First Amendment is a Credit Document under and for purposes of the Credit Agreement. 5. Defined Terms. Words and terms used herein which are defined in the Credit Agreement are used herein as defined therein, except as specifically modified by the terms of this First Amendment. 6. Representations and Warranties. The representations and warranties made by Borrower in Article 4 of the Credit Agreement are true and correct as of the date of this First Amendment. 7. NO CONTROL BY BANKS AND ADMINISTRATIVE AGENT. BORROWER AGREES AND ACKNOWLEDGES THAT ALL OF THE COVENANTS AND AGREEMENTS PROVIDED FOR AND MADE BY BORROWER IN THIS FIRST AMENDMENT, THE CREDIT AGREEMENT, AND IN THE OTHER LOAN DOCUMENTS ARE THE RESULT OF EXTENSIVE AND ARMS-LENGTH NEGOTIATIONS AMONG BORROWER, ADMINISTRATIVE AGENT, AND BANKS. BANKS' RIGHTS AND REMEDIES PROVIDED FOR IN THE CREDIT AGREEMENT AND IN THE OTHER LOAN DOCUMENTS ARE INTENDED TO PROVIDE BANK WITH A RIGHT TO OVERSEE BORROWER'S ACTIVITIES AS THEY RELATE TO THE LOAN TRANSACTIONS PROVIDED FOR IN THE CREDIT AGREEMENT, WHICH RIGHT IS BASED ON BANKS' VESTED INTEREST IN BORROWER'S ABILITY TO PAY THE RESPECTIVE NOTES EXECUTED BY BORROWER AND PERFORM THE OTHER CREDIT OBLIGATIONS. NONE OF THE COVENANTS OR OTHER PROVISIONS CONTAINED IN THE CREDIT AGREEMENT SHALL, OR SHALL BE DEEMED TO, GIVE BANKS OR ADMINISTRATIVE AGENT THE RIGHT OR POWER TO EXERCISE CONTROL OVER, OR OTHERWISE IMPAIR, THE DAY-TO-DAY AFFAIRS, OPERATIONS, AND MANAGEMENT OF BORROWER. 8. ARBITRATION. (a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THE CREDIT AGREEMENT (AS HEREBY AMENDED) OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM -2- 3 AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS FIRST AMENDMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THE CREDIT AGREEMENT (AS HEREBY AMENDED) APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION. (b) SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE BORROWER'S DOMICILE AT THE TIME OF THIS FIRST AMENDMENT'S EXECUTION AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS. (c) RESERVATION OF RIGHTS. NOTHING IN THIS FIRST AMENDMENT SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF A BANK (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OR POSSESSION OR THE APPOINTMENT OF A RECEIVER. BANKS MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS -3- 4 AGREEMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. 9. Miscellaneous. 9.1 Preservation of the Credit Agreement. Except as specifically amended and modified by the terms of this First Amendment, all of the terms, provisions, covenants, warranties, and agreements contained in the Credit Agreement and in the other Loan Documents shall remain in full force and effect (any irreconcilable conflicts or inconsistencies between the terms of this First Amendment and the Credit Agreement, or any other Loan Document, shall be governed and controlled by this First Amendment). 9.2 Counterparts. This First Amendment may be executed in two or more counterparts, and it shall not be necessary that any one of the counterparts be executed by all of the parties hereto. Each fully or partially executed counterpart shall be deemed an original, but all such counterparts taken together shall constitute but one and the same instrument. 9.3 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NOT UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 9.4 Joinder by Subsidiaries. Each Subsidiary of Borrower joins in the execution and delivery of this First Amendment to agree to the modification of the Guaranty as provided for in Section 2 above and to evidence that each of their obligations under the Guaranty remains in full force and effect and are not impaired or adversely affected in any way by the execution and delivery of this First Amendment by Borrower and that they continue to secure all indebtedness, and obligations of Borrower to Banks, whether now existing or hereafter created. -4- 5 IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first above written. BORROWER: EGL, INC. By: /s/ DOUGLAS A. SECKEL --------------------------------------- Douglas A. Seckel, Treasurer ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A., as Administrative Agent By: /s/ WILLIAM B. BORUS --------------------------------------- William B. Borus, Senior Vice President BANKS: BANK OF AMERICA, N.A. By: /s/ WILLIAM B. BORUS --------------------------------------- William B. Borus, Senior Vice President -5- 6 THE UNDERSIGNED JOIN IN THE EXECUTION OF THIS INSTRUMENT FOR THE PURPOSES DESCRIBED ABOVE: EGL EAGLE GLOBAL LOGISTICS, LP, a Delaware limited partnership By: EGL Management, LLC, Managing Partner By: /s/ JAMES R. CRANE -------------------------------------------- James R. Crane, Chief Executive Officer EGL MANAGEMENT, LLC, a Delaware corporation By: /s/ JAMES R. CRANE ------------------------------------------------ James R. Crane, Chief Executive Officer EGL DELAWARE LIMITED LIABILITY COMPANY, a Delaware limited liability company By: /s/ E. JOSEPH BENTO ------------------------------------------------ E. Joseph Bento, President EAGLE FREIGHT SERVICES, INC., a Texas corporation By: /s/ JAMES R. CRANE ------------------------------------------------ James R. Crane, President EAGLE FREIGHT SERVICES, INC., a California corporation By: /s/ JAMES R. CRANE ------------------------------------------------ James R. Crane, President -6- 7 EAGLE USA TRANSPORTATION SERVICES, INC., a Texas corporation By: /s/ JAMES R. CRANE ------------------------------------------------ James R. Crane, Chief Executive Officer EAGLE MARITIME SERVICES, INC., a Texas corporation By: /s/ VITTORIO FAVATI ------------------------------------------------ Vittorio Favati, President FREIGHT SERVICES MANAGEMENT, INC., a Texas corporation By: /s/ JAMES R. CRANE ------------------------------------------------ James R. Crane, Chief Executive Officer EAGLE USA IMPORT BROKERS, INC., a Texas corporation By: /s/ STEPHEN CARATTINI ------------------------------------------------ Stephen Carattini, President EAGLE URBAN RENEWAL CORPORATION, a New Jersey Urban Renewal Entity By: /s/ JAMES R. CRANE ------------------------------------------------ James R. Crane, Chief Executive Officer -7- 8 EAGLE INTERNATIONAL HOLDINGS, INC., a Delaware corporation By: /s/ VITTORIO FAVATI ------------------------------------------------ Vittorio Favati, President EUSA PARTNERS, INC., a Delaware corporation By: /s/ KELLY BIAR ------------------------------------------------ Kelly Biar, President EUSA HOLDINGS, INC., a Delaware corporation By: /s/ KELLY BIAR ------------------------------------------------ Kelly Biar, President EAGLE PARTNERS, a Texas general partnership By: EUSA PARTNERS, INC., General Partner By: /s/ KELLY BIAR ---------------------------------------- Kelly Biar, President - and - By: EUSA HOLDINGS, INC., General Partner By: /s/ KELLY BIAR ---------------------------------------- Kelly Biar, President -8- EX-27 4 ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF EGL, INC. FOR THE 9 MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN FORM 10-Q. 1,000 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 19,977 0 137,631 3,184 0 163,011 40,446 1,822 243,785 70,596 0 0 0 30 166,734 243,785 0 589,855 0 346,695 205,711 0 0 39,194 15,495 0 0 0 0 23,699 0.83 0.79
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